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Securities and Exchange Commission

17 CFR Parts 230, 232, 239, 270 and 274

[Release No. 33-11238; 34-98438; IC-35000; File No. S7-16-22]

RIN: 3235-AM72

Investment Company Names

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

SUMMARY: The Securities and Exchange Commission (“Commission”) is amending the rule

under the Investment Company Act of 1940 (“Investment Company Act” or “Act”) that

addresses certain broad categories of investment company names that are likely to mislead

investors about an investment company’s investments and risks. The amendments to this rule are

designed to increase investor protection by improving, and broadening the scope of, the

requirement for certain funds to adopt a policy to invest at least 80 percent of the value of their

assets in accordance with the investment focus that the fund’s name suggests, updating the rule’s

notice requirements, and establishing recordkeeping requirements. The Commission is also

adopting enhanced prospectus disclosure requirements for terminology used in fund names, and

additional requirements for funds to report information on Form N-PORT regarding compliance

with the names-related regulatory requirements.

DATES: This rule is effective December 10, 2023.

FOR FURTHER INFORMATION CONTACT: Blair Burnett, Mykaila

DeLesDernier, Pamela Ellis, Senior Counsels; Bradley Gude, Branch Chief; Amanda Hollander

Wagner, Senior Special Counsel, or Brian McLaughlin Johnson, Assistant Director, at (202) 551-

6792, Investment Company Regulation Office, Division of Investment Management, Securities

and Exchange Commission, 100 F Street NE, Washington, DC 20549-8549.

SUPPLEMENTARY INFORMATION: The Commission is adopting amendments to

17 CFR 270.35d-1 (“rule 35d-1”) under the Investment Company Act; amendments to Form N1A [referenced in 17 CFR 239.15A and 17 CFR 274.11A], Form N-2 [referenced in 17 CFR

239.14 and 17 CFR 274.11a-1], Form N-8B-2 [referenced in 17 CFR 274.12], and Form S-6

[referenced in 17 CFR 239.16] under the Investment Company Act and the Securities Act of

1933 (“Securities Act”) [15 U.S.C. 77a et seq.]; amendments to Form N-PORT [referenced in 17

CFR 274.150] under the Investment Company Act; amendments to 17 CFR 232.11 (“rule 11 of

Regulation S-T”) and 17 CFR 232.405 (“rule 405 of Regulation S-T”) under the Securities

Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. 78a et seq.]; amendments to 17 CFR

230.485 (“rule 485”) under the Securities Act; and amendments to 17 CFR 230.497 (“rule 497”)

under the Securities Act.

TABLE OF CONTENTS

Introduction and Background ................................................................................................ 4

A. Regulatory Context ................................................................................................................ 6

B. Developments and Analysis Informing Final Rule Amendments ......................................... 9

C. Overview of the Final Rules ................................................................................................ 18

1. Final Rules’ Principal Elements ...................................................................................... 18

2. Other Aspects of the Proposal ......................................................................................... 20

II.

Discussion ............................................................................................................................ 22

A. 80% Investment Policy Requirement................................................................................... 22

1. Names Suggesting an Investment Focus ......................................................................... 22

2. Temporary Departures from the 80% Investment Requirement ..................................... 52

3. Considerations Regarding Derivatives in Assessing Names Rule Compliance .............. 78

4. Unlisted Registered Closed-End Funds and BDCs ....................................................... 100

5. Effect of Compliance with an 80% Investment Policy ................................................. 104

B. Prospectus Disclosure Defining Terms Used in Fund Name............................................. 110

C. Plain English/Established Industry Use Requirement ....................................................... 115

D. Modernizing the Rule’s Notice Requirement .................................................................... 121

E. Form N-PORT Reporting .................................................................................................. 126

1. Investments to Be Included in a Fund’s 80% Basket .................................................... 127

2. Investment Company Act Names Rule Investment Policy ........................................... 133

F. Recordkeeping ................................................................................................................... 136

G. Unit Investment Trusts ....................................................................................................... 143

H. Compliance Dates .............................................................................................................. 146

III. Other Matters ..................................................................................................................... 149

IV. Economic Analysis ............................................................................................................ 150

A. Introduction ........................................................................................................................ 150

B. Broad Economic Considerations........................................................................................ 151

C. Economic Baseline............................................................................................................. 156

1. Fund Industry Overview ................................................................................................ 156

2. Market Practice.............................................................................................................. 158

3. Current Regulatory Framework..................................................................................... 160

D. Benefits, Costs, and Effects on Efficiency, Competition and Capital Formation.............. 163

1. Benefits .......................................................................................................................... 163

2. Costs .............................................................................................................................. 176

3. Effects on Efficiency, Competition and Capital Formation .......................................... 204

E. Reasonable Alternatives Considered ................................................................................. 208

1. Disclosure-Based Framework ....................................................................................... 208

2. Alternatives to 90-day Temporary Departure Limit...................................................... 210

3. Permit But Not Require the Use of Derivatives’ Notional Values for Purposes of Names

Rule Compliance ........................................................................................................... 211

4. Exclude Unit Investment Trusts from Requirements for Tagging Prospectus Disclosure

212

V. Paperwork Reduction Act Analysis ................................................................................... 213

A. Introduction ........................................................................................................................ 213

B. Rule 35d-1 .......................................................................................................................... 214

C. Prospectus Disclosure ........................................................................................................ 220

1. Form N-1A .................................................................................................................... 221

2. Form N-2 ....................................................................................................................... 222

3. Form N-8B-2 ................................................................................................................. 223

4. Form S-6 ........................................................................................................................ 224

D. Form N-PORT Reporting Requirements ........................................................................... 225

E. Investment Company Interactive Data............................................................................... 230

VI. Final Regulatory Flexibility Analysis ................................................................................ 233

A. Need for and Objectives of the Rule and Form Amendments ........................................... 233

B. Significant Issues Raised by Public Comments ................................................................. 234

C. Small Entities Subject to Rule Amendments ..................................................................... 235

D. Projected Reporting, Recordkeeping, and Other Compliance Requirements .................... 236

1. 80% Investment Policy Requirements – Scope Expansion and Other Amendments.... 237

2. Effect of Compliance with an 80% Investment Policy ................................................. 239

3. Recordkeeping Requirements........................................................................................ 240

4. Disclosure and Reporting Requirements ....................................................................... 241

5. Treatment of UITs ......................................................................................................... 243

E. Agency Action to Minimize Effect on Small Entities ....................................................... 243

Statutory Authority ..................................................................................................................... 246

INTRODUCTION AND BACKGROUND

The Commission is adopting rule and form amendments that are designed to modernize

and enhance the protections that rule 35d-1 under the Investment Company Act, the “names

rule,” provides. This rule addresses the names of registered investment companies and business

development companies (“BDCs”) that the Commission defines as materially misleading or

deceptive. 1 The amendments the Commission is adopting update the rule and other namesrelated regulatory requirements to improve the protections that the rule provides, and to address

changes in the fund industry in the approximately 20 years since the rule was adopted.

In May 2022, the Commission proposed rule and form amendments that would update the

regulatory requirements associated with funds’ names. 2 The proposed amendments included an

expansion of the names rule’s scope, improvements to the requirements for funds’ investment

policies adopted under the names rule (including, among other things, specific requirements

addressing temporary departures from these policies’ requirements), updated notice

requirements, and new recordkeeping requirements. The proposed amendments also effectively

would have required that terms in a fund’s name be consistent with those terms’ plain English

This release refers to registered investment companies and BDCs collectively as “funds.”

See Investment Company Names, Investment Company Act Release No. 34593 (May 25, 2022) [87 FR

36594 (June 17, 2022)] (“Proposing Release” or the “2022 Proposal”). The Commission voted to issue the

Proposing Release on May 25, 2022. The release was posted on the Commission website that day, and

comment letters were received beginning the following day. The comment period closed on August 16,

2022. We have considered all comments received since May 25, 2022.

meaning or established industry use, and addressed materially deceptive and misleading use of

environmental, social, or governance (“ESG”) terminology in fund names. Finally, the 2022

Proposal included amendments that would require a fund to define the terms used in its name in

its prospectus, and amendments to Form N-PORT to add several new names-rule-related

reporting items.

The Commission received comment letters on the 2022 Proposal from a variety of

commenters, including funds, law firms, investor advocacy groups, environmental advocacy

groups, professional and trade associations, public policy research institutes, academics, and

interested individuals. 3 Many commenters expressed support for the names rule generally, and

the overall goals of improving and clarifying the regulatory framework related to fund names,

with some commenters recognizing that the names rule has not been revisited since its

implementation in 2001. 4 Comments on specific aspects of the proposed amendments, however,

were mixed. While some commenters generally supported the proposed scope expansion, as well

as the amendments addressing the operation of investment policies adopted under the names rule,

many others expressed concerns with these aspects of the proposal or suggested certain

modifications. 5 Comments on the proposed prospectus disclosure requirements were generally

supportive, but comments on the proposed new Form N-PORT reporting items were mixed, with

The comment letters on the Proposing Release are available at https://www.sec.gov/comments/s7-1622/s71622.htm.

See, e.g., Comment Letter of Better Markets (Aug. 16, 2022) (“Better Markets Comment Letter”);

Comment Letter of the Consumer Federation of America (Aug. 16, 2022) (“Consumer Federation of

America Comment Letter”) (each expressing support for the Commission’s efforts to modernize the names

rule, stating, respectively, that the rule has not been revisited since 2001, and it is “well past time” for the

Commission to revisit and update the names rule); see also Comment Letter of the CFA Institute (Aug. 22,

2022) (“CFA Institute Comment Letter”); Comment Letter of the Teachers Insurance and Annuity

Association of American and Nuveen, LLC (Aug. 16, 2022) (“TIAA-Nuveen Comment Letter”).

See infra discussion at sections II.A.1-II.A.4.

some largely objecting to these requirements or suggesting modifications and others arguing that

the proposed new reporting items would help promote transparency and accountability. 6

After considering the comments on the 2022 Proposal and as discussed in more detail

below, we are adopting amendments to the names rule, with some modifications based on the

comments we received.

Regulatory Context

Congress provided the Commission with rulemaking authority to address materially

deceptive or misleading fund names, recognizing the concern that investors may focus on a

fund’s name to determine its investments and risks. 7 The names rule, in turn, responds to this

concern by helping to ensure that investors’ assets in funds are invested in accordance with

investors’ reasonable expectations based on the fund’s name.

The role of the names rule remains important and distinct from other disclosure

requirements. A fund’s name is not meant to supplant other required fund disclosure, and a name

cannot communicate everything about a fund’s investments, risks, and other features. The

Commission has historically stated that investors should not rely on an investment company’s

name as the sole source of information about a company’s investments and risks. 8 We continue

to encourage investors to look beyond a fund’s name to other information, such as disclosure

included in a fund’s registration statement, to obtain a complete understanding of a fund’s

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

15 U.S.C. 80a-34(d); Pub. L. No. 104-290, § 208, 110 Stat. 3416, 3432 (1996).; see also S. Rep. No. 293,

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

See Investment Company Names, Investment Company Act Release No. 24828 (Jan. 17, 2001) [66 FR

8509 (Feb. 1, 2001)] (“2001 Names Rule Adopting Release”) at nn.4-5 and accompanying text.

investment objective, policies, strategies, and risks, as several commenters suggested. 9 A fund’s

name, however, is unique in several respects. It is typically the first piece of information that

investors receive about a fund. 10 Fund names offer important signaling for investors in assessing

their investment options. 11 Relatedly, incentives exist for asset managers to include terminology

in fund names that is designed to attract investor assets. 12

Section 35(d) of the Act prohibits a registered investment company from adopting as part

of its name or title any word or words that the Commission finds are materially deceptive or

misleading. 13 This section of the Act further authorizes the Commission to define such names or

titles as are materially deceptive or misleading. The Commission adopted the names rule in 2001

in exercise of this authority. 14

The current names rule generally requires that if a fund’s name suggests a focus in a

particular type of investment, or in investments in a particular industry or geographic focus, the

See, e.g., Comment Letter of Massachusetts Financial Services Company (Aug. 16, 2022) (“MFS Comment

Letter”); Comment Letter of Capital Research and Management Company (Aug. 16, 2022) (“Capital Group

Comment Letter”); Comment Letter of the Cato Institute (Aug. 12, 2022) (“Cato Institute Comment

Letter”).

See Comment Letter of the North American Securities Administrators Association, Inc. (Aug. 16, 2022)

(“NASAA Comment Letter”); see also Comment Letter of the Public Investors Advocate Bar Association

(Aug. 15, 2022) (“PIABA Comment Letter”) (stating that retail investors frequently base their purchase of

funds solely upon the name of the fund and “do little to investigate” the portfolio holdings or the specific

strategy of a fund beyond relying on the fund’s name).

See Comment Letter of U.S. SIF: The Forum for Sustainable and Responsible Investment (Aug. 16, 2022)

(“U.S. SIF Comment Letter”).

See Proposing Release, supra footnote 2, at n.6; see also, e.g., Comment Letter of the Center for American

Progress (Aug. 16, 2022) (“Center for American Progress Comment Letter”) (stating that the current

investing environment creates strong incentives for investment companies to name funds in ways that will

attract investors). But see Comment Letter of Benjamin Zycher, Senior Fellow, American Enterprise

Institute (Nov. 1, 2022) (“Zycher Comment Letter”) (arguing that “the implicit argument that firms or

funds have incentives to mislead or to adopt deceptive names is not correct” because funds’ reputations for

honesty are in funds’ long-term interests).

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].

See 2001 Names Rule Adopting Release, supra footnote 8.

fund must adopt a policy to invest at least 80% of the value of its assets in the type of

investment, or in investments in the industry, country, or geographic region suggested by its

name. 15 Under the current rule, a fund generally may elect to make its 80% investment policy a

fundamental policy (i.e., a policy that may not be changed without shareholder approval) or

instead provide shareholders notice at least 60 days prior to any change in the 80% investment

policy. 16 An 80% investment policy relating to a tax-exempt fund, however, must be a

fundamental policy.

Currently, a fund is required to invest in accordance with its 80% investment policy

“under normal circumstances,” and a fund must apply its policy at the time the fund invests its

assets. If, subsequent to an investment, the fund’s assets are no longer invested in accordance

with the policy, the fund’s future investments must be made in a manner that will bring it into

compliance. The current rule also includes certain requirements for the notices that funds must

send prior to a change in an 80% investment policy that is not a fundamental policy.

In adopting the names rule, the Commission made clear that it is not a safe harbor for

materially deceptive or misleading names. 17 The prohibitions of section 35(d) and the anti-fraud

provisions of the Federal securities laws regarding disclosures to investors continue to apply to

The rule imposes a similar requirement for funds that have names suggesting that a fund’s distributions are

exempt from federal income tax or from both federal and state income tax (“tax-exempt funds”).

Under the Act, a fund may not deviate from a fundamental policy unless it has been authorized by the vote

of a majority of its outstanding shareholders. 15 U.S.C. 80a-13(a)(3). In this release, we refer to a policy

that a fund must adopt under the names rule as an “80% investment policy” and the fund’s investments

invested in accordance with this policy, the fund’s “80% basket.” We are adopting a parallel definition of

“80% basket” in the final amendments to the names rule, and when referring to the final amendments,

references to a fund’s “80% basket” refer to this definition. See final rule 35d-1(g) (defining “eighty

percent (80%) basket”); see also proposed rule 35d-1(g)(1) (defining “80% basket,” but otherwise identical

to definition in final rule).

See 2001 Names Rule Adopting Release, supra footnote 8, at paragraph accompanying n.16; see also

Proposing Release, supra footnote 2, at nn.13-15 and accompanying text.

funds notwithstanding their compliance with the names rule. 18 In addition, a fund must adopt and

implement written compliance policies and procedures reasonably designed to prevent violations

of the Federal securities laws generally, which—both currently, and following the Commission’s

adoption of amendments to the names rule—would include section 35(d) and the names rule. 19

Developments and Analysis Informing Final Rule Amendments

The names rule has not been amended since its adoption in 2001. In past years, the

Commission and staff have received input about the operation of the names rule, as well as areas

for potential improvement, through a variety of venues. The Commission published a Request

for Comment on Fund Names in March 2020. 20 The 2020 Request for Comment sought public

comment on the framework for addressing funds’ names, particularly in light of market and other

developments since the rule’s adoption. The Commission received broad comments in response

to the 2020 Request for Comment and, as described above, in response to the 2022 Proposal. In

addition, staff in the Commission’s Division of Investment Management, particularly the

Division’s Disclosure Review and Accounting Office, receive input from funds on names rule

compliance issues regularly, for example during the course of staff’s review of fund registration

statements.

See Proposing Release, supra footnote 2, at n.14 and accompanying text.

See id. at nn.16-17 and accompanying text (also addressing the requirement for fund compliance officers to

discuss any material compliance matter involving the names rule in annual reports to the board on the

operation of funds’ compliance policies and procedures).

See Request for Comments on Fund Names, Investment Company Act Release No. 33809 (Mar. 2, 2020)

[85 FR 13221 (Mar. 6, 2020)] (“2020 Request for Comment”); see also Proposing Release, supra footnote

2, at section I.B (describing the input commenters provided in response to the 2020 Request for Comment).

Commenters generally recognized that investors view a fund’s name as an important

piece of information that communicates the fund’s objectives. 21 Several commenters expressed

that asset managers have an incentive to create fund names that are designed to attract

investors. 22 Many commenters, including funds and others, expressed their general agreement

that the names rule provides important investor protections and that the rule has been largely

effective in addressing misleading and deceptive fund names. 23 Commenters expressed support

for a requirement, such as the rule’s 80% investment policy provision, that requires a fund’s

underlying investments to correspond with the focus its name suggests in light of reasonable

investor expectations. 24 One, for example, with respect to funds’ use of ESG related terminology

in their names, stated that a naming requirement where “the underlying strategy and data must

significantly support the name” is a “basic consumer protection.” 25

See, e.g., Comment Letter of the Asset Management Group of the Securities Industry and Financial

Markets Association (Aug. 16, 2022) (“SIFMA AMG Comment Letter”); NASAA Comment Letter;

Consumer Federation of America Comment Letter; Comment Letter of Wellington Management Company

(Aug. 16, 2022) (“Wellington Comment Letter”); Comment Letter of Adriana Z. Robertson and Jill E.

Fisch (Apr. 20, 2023) (“Robertson-Fisch Comment Letter”); see also PIABA Comment Letter (asserting

fund names are particularly important for 401(k) plan investments, which employers make available from a

pre-determined list of options and comprise the entirety of retirement savings for many Americans).

See, e.g., Consumer Federation of America Comment Letter; Center for American Progress Comment

Letter; CFA Institute Comment Letter.

See Proposing Release, supra footnote 2, at n.20 and accompanying text; see also, e.g., Comment Letter of

Invesco Ltd. (Aug. 16, 2022) (“Invesco Comment Letter”) (“Since its adoption in 2001, the Names Rule

has provided an effective regulatory framework for ensuring that fund names are not materially deceptive

or misleading and has served to help investors understand what they can expect when they invest in a

fund.”); Comment Letter of the Investment Company Institute (Aug. 16, 2022) (“ICI Comment Letter I”)

The Investment Company Institute also submitted a separate comment letter dated December 6, 2022 (“ICI

Comment Letter II”), a comment letter dated May 22, 2023 (“ICI Comment Letter III”), and a comment

letter dated July 31, 2023 (“ICI Comment Letter IV”). Unless otherwise indicated, these letters are referred

to collectively as if they were a single letter (“ICI Comment Letter”).

See, e.g., Comment Letter of T. Rowe Price (Aug. 16, 2022) (“T. Rowe Comment Letter”) (discussing

effectiveness of current 80% investment policy requirement in aligning fund names with investor

expectations); CFA Institute Comment Letter (stating that the terms used in fund names should reflect the

fund’s “investment objective, strategies, and types of securities held” and that the current names rule

“provide[s] a level of assurance to investors”).

See Comment Letter of Amalgamated Financial Corp. (Aug. 16, 2022) (“Amalgamated Comment Letter”).

Some commenters expressed that certain changes to the names rule would be beneficial

to ensure that the rule continues to serve its investor protection purposes. Some of these

commenters expressed the view that the current scope of the rule does not cover all instances in

which fund names create the reasonable expectation that a fund will invest in a certain way. 26

Some also expressed concern that the current rule’s “under normal circumstances” standard

increases the risk that a fund’s investments will not be consistent with its name over an extended

period and that investors will be misled. 27 Commenters also suggested other, more technical

updates to the names rule, such as addressing how funds that use derivatives calculate

compliance with their 80% investment policies, and updating the rule’s notice provision to

reflect technological changes over the past two decades. 28

In considering updates to the names rule, both the Commission and commenters have

taken into account developments in the fund industry since the rule was originally adopted.

Registered investment companies manage considerably more assets today than they did in 2001

(with this amount nearly quadrupling), and the number of registered investment companies has

also increased—by close to 20%—in the two decades following the names rule’s adoption. 29

See, e.g., Consumer Federation of America Comment Letter (stating that “significant gaps and loopholes”

exist in the current rule); Center for American Progress Comment Letter; see also infra section IV.D

(estimating that approximately 62% of funds have names that implicate the current 80% investment policy

requirement).

See, e.g., NASAA Comment Letter; Comment Letter of the Environmental Defense Fund (Aug. 16, 2022)

(“Environmental Defense Fund Comment Letter”).

See Proposing Release, supra footnote 2, at section I.B; see also, e.g., ICI Comment Letter; Comment

Letter of J.P. Morgan Asset Management (Aug. 16, 2022) (“J.P. Morgan Asset Management Comment

Letter”).

See Investment Company Institute, 2022 Fact Book (2022) (“2022 ICI Fact Book”), available at

https://www.icifactbook.org/pdf/2022_factbook.pdf. In 2001, there were 8,860 registered open-end and

closed-end management investment companies, representing approximately $7.15 trillion in assets under

management. In 2021, there were 10,450 registered open-end and closed-end management investment

companies, representing approximately $28.2 trillion in assets under management. See also Fund Industry

Overview at infra section IV.C.1 (discussing fund industry statistics as of Dec. 2022).

Similarly, over this time period, it has become more likely that retail investors access the markets

through registered investment companies than through direct ownership of stocks and bonds. 30

Although the increase in the number of registered investment companies is modest compared to

the increase in registered investment companies’ assets under management, the number of funds

tells only part of the story about the breadth of fund investment options currently available. The

range of fund investment strategies has become notably more diverse over the past two

decades. 31

For example, the number of equity mutual funds and exchange-traded funds (“ETFs”)

that are sector funds (e.g., consumer, financial, utilities) increased by nearly 70% from 2001 to

2021. 32 Mutual fund and ETF assets in “thematic” strategies have surged over the past three

years, with data from Morningstar Direct identifying a record 589 thematic mutual funds and

ETFs debuting globally in 2021. 33 As of December 2022, Morningstar data categorized 334

domestic funds (including mutual funds, ETFs, and registered closed-end funds) as thematic

See Federal Reserve Bulletin, Changes in U.S. Family Finances from 2016 to 2019: Evidence from the

Survey of Consumer Finances (Sept. 2020), available at

https://www.federalreserve.gov/publications/files/scf20.pdf; Federal Reserve Bulletin, Recent Changes in

U.S. Family Finances: Evidence from the 1998 and 2001 Survey of Consumer Finances, available at

https://www.federalreserve.gov/econres/files/2001_bull0103.pdf. The percentage of U.S. families holding

stocks and bonds directly decreased from 24.9% in 1992 to 16.3% in 2019. The percentage of U.S. families

holding pooled investment funds and retirement accounts (including individual retirement accounts, Keogh

accounts, and certain employer-sponsored accounts such as 401(k) and 403(b) accounts) increased from

33.3% in 1992 to 59.5% in 2019. Mutual funds made up a significant portion of defined contribution plan

assets (58%) and IRA assets (45%) at year-end 2021. In addition, the share of defined contribution plan

assets held in mutual funds has grown over the past two decades, from 44% at year-end 2001 to 58% at

year-end 2021. See 2022 ICI Fact Book.

See Proposing Release, supra footnote 2, at nn.21-22 at accompanying text.

See 2022 ICI Fact Book, supra footnote 29. In 2001, there were 452 sector equity mutual funds and ETFs;

in 2021, there were 757.

See Sonya Swink, Thematic Assets Have Surged – And Are Here to Stay, Ignites (Dec. 22, 2022), available

https://www.ignites.com/c/3870954/500734/thematic_assets_have_surged_here_stay?referrer_module=issu

eHeadline&module_order=1. These strategies are dominated by technology-related themes, such as

internet, blockchain, cloud computing, and cybersecurity (based on staff analysis of data obtained from

Morningstar Direct as of Dec. 15, 2022).

funds, comprising 4 “broad themes” (broad thematic, physical world, social, and technology), 27

“themes” (e.g., artificial intelligence and big data, food, space, and wellness), and 150

“subthemes” (e.g., health innovation, next gen auto, millennials and “Generation Z,” cannabis,

robotics, and travel/tourism). 34 While fund managers and others understand certain of these

thematic names to be included in the current scope of the names rule, there can be questions

about whether certain thematic terms suggest a focus in a particular type of investment, or in

investments in a particular industry or group of industries. As fund managers have incentives to

include “buzzwords” in their names to attract assets, and the current market for funds includes a

substantially broader variety of names suggesting a particular focus than two decades ago, a rule

providing specific requirements to address deceptive and misleading fund names for any fund

name that suggests a particular investment focus is even more relevant now than it was when it

was adopted. 35

Funds that consider ESG factors in their investment strategies comprise a thematic area

that entails unique considerations, and that involves the use of terminology that may be

especially powerful in fund names to attract investors. The use of ESG or similar terminology

(such as “sustainable,” “green,” or “socially responsible”) in fund names may present particular

investor protection concerns for several reasons. Investor interest in—and funds that offer—ESG

strategies have rapidly increased in recent years. 36 Asset managers have created and marketed

Id.

See supra footnote 12; see also NASAA Comment Letter (discussing the application of the names rule to

names suggesting a focus on “trendy ‘thematic areas,’ . . . including cybersecurity, blockchain/digital

assets, and artificial intelligence”).

See Proposing Release, supra footnote 2, at n.120 and accompanying text. See also, e.g., Letter from

Morningstar to Chair Gary Gensler (June 9, 2021) attaching, Sustainable Funds U.S. Landscape Report --More funds, more flows, and impressive returns in 2020, Morningstar Manager Research (Feb. 10, 2021),

funds that consider ESG factors in their selection process, and these funds can attract significant

interest and stand out to investors by using ESG and related terms in their names. Approaches to

ESG investing vary, however, and funds that consider ESG factors have strategies that vary in

the extent to which ESG factors are considered versus other factors. The breadth of ESG-related

terms, as well as evolving investor expectations around terms like “sustainable” or “socially

responsible,” compound the possibility of investor confusion and potential “greenwashing” in

fund names. 37

In consideration of the broad public input the Commission has received on fund names,

our analysis of this input, the Commission and staff’s experience with the names rule over the

past two decades, developments in the fund industry, and the growth of the fund industry and

families’ investments in funds during this time period, we are adopting amendments to the names

rule (and related disclosure and reporting requirements) to modernize the rule and to enhance the

investor protections it currently provides. First, it is in investors’ interests to align the rule’s

scope and requirements better with the policies and purposes underlying the rule. The

Commission has stated that the 80% investment policy requirement “will provide an investor

available at https://www.sec.gov/comments/climate-disclosure/cll12-8899329-241650.pdf; ESG in 2021 So

Far: An Update, M. Gerber, G. Norman, and S. Toms, Harvard Law School Forum on Corporate

Governance (Sept. 18, 2021), available at http://corpgov.law.harvard.edu/2021/09/18/esg-in-2021-so-faran-update/; ESG assets may hit $53 trillion by 2025, a third of global AUM, Bloomberg Intelligence (Feb.

23, 2021), available at https://www.bloomberg.com/professional/blog/esg-assets-may-hit-53-trillion-by2025-a-third-of-global-aum/; Amalgamated Comment Letter, NASAA Comment Letter, U.S. SIF

Comment Letter, CFA Institute Comment Letter (all discussing investor interest in funds with ESG

strategies and names).

“Greenwashing” involves the risk that funds marketing ESG strategies may exaggerate their ESG practices

or the extent to which their investment products take into account ESG factors. See, e.g., Comment Letter

of Public Citizen (Aug. 15, 2022) (“Public Citizen Comment Letter”) (discussing evolving investor

expectations around ESG terms). But see Robertson-Fisch Comment Letter (“interrogating the concept of

greenwashing” and comparing the portfolios of funds with ESG terminology in their names to the

portfolios of “sister funds” – “the non-ESG fund in the same fund family most comparable to the ESG

fund” – with the authors concluding that little evidence of greenwashing exists).

greater assurance that a [fund’s] investments will be consistent with its name.” 38 This

requirement addresses circumstances in which a fund’s name may be materially deceptive or

misleading, in exercise of the Commission’s rulemaking authority under section 35(d). The

amendments we are adopting address fund names that are not currently within the scope of the

rule, or where the current scope of the rule has created interpretive issues. 39 These names may

entail a capacity to deceive or mislead because they suggest a particular investment focus, which

in turn offers an important signal, or entry point, to investors that are researching their

investment options. 40 For these names—like the names currently within the rule’s scope—the

80% investment policy requirement would provide investors greater assurance that these funds’

investments are consistent with the manner in which a fund defines the terms in its name, which

must be consistent with plain English or established industry use and disclosed in its prospectus.

We therefore anticipate that including these names in the names rule’s scope will bring more

discipline to fund naming practices and more meaningful names that convey the funds’

investment focuses, while allowing funds the flexibility to ascribe reasonable definitions for the

terms used in their names. 41 That is, the decision to include terms in a fund’s name that suggest

an investment focus, including a focus in investments that have or whose issuers have particular

See 2001 Names Rule Adopting Release, supra footnote 8.

For example, the Commission has previously taken the position that fund names that incorporate terms

such as “growth” and “value” connote an investment objective, strategy, or policy (i.e., “investment

strategies”) and are therefore not within the scope of the 80% investment policy requirement. This has

resulted in some fund names being excluded from this requirement because the name contains a term

suggesting an investment strategy, even if the name also suggests an investment focus to investors. See

Proposing Release, supra footnote 2, at paragraph accompanying n.23; see also infra section II.A.1.

See In the Matter of the Private Investment Fund for Governmental Personnel, Inc., Investment Company

Act Release No. 2474 (Jan. 18, 1957) (the Commission has historically expressed that, in considering

whether a name is deceptive or misleading, “[a]ctual deception of investors need not be shown, it is

sufficient if the name of the company is found to have a tendency or capacity to deceive or mislead”).

See NASAA Comment Letter; see also CFA Institute Comment Letter. But see, e.g., infra footnote 75 and

accompanying text.

characteristics, will now require the fund to adopt an 80% investment policy and to define the

terms used it its name. 42

Similarly, these amendments are designed to promote greater specificity in the operation

of funds’ 80% investment policies to enhance investor protection by helping to ensure that funds’

names are not misleading as their portfolios may shift over time—either because of inadvertent

portfolio “drift” or intentional departures from the 80% requirement. 43 When an investor chooses

to invest in a fund, that person has made an intentional decision to invest in, for example, the

type of asset class, industry, or sector in which the fund’s name suggests an investment focus.

That investor has a reasonable expectation that the fund’s investments will generally remain

focused in the area that the fund’s name indicates. 44 We appreciate, however, that a naming rule

that requires unwavering adherence to a particular investment threshold risks harming funds and

investors. 45 This rigidity ultimately could result in investor harm if portfolio managers were not

permitted to depart from their 80% investment policy for a limited time to manage their funds

appropriately in response to changing circumstances. 46 The amended rule enhances investor

protection by requiring funds to conduct at least quarterly reviews of their portfolio investments

for consistency with the 80% investment policy requirement, and by adopting time frames to

remedy departures from 80% that seek to balance investors’ reasonable expectations with

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

See, e.g., Consumer Federation of America Comment Letter (discussing the risk of funds changing their

portfolios such that the portfolios are no longer accurately reflected by the funds’ names).

See, e.g., Center for American Progress Comment Letter (stating that investors’ expectations and

investment practices often assume that investments in a fund will remain consistent with the name over the

longer term, and investors who wish to change their own mix of investments typically do so by changing

funds).

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

Dimensional Fund Advisors LP (Aug. 16, 2022) (“Dimensional Comment Letter”); Comment Letter of

Dechert LLP (Aug. 16, 2022) (“Dechert Comment Letter”); see also infra section II.A.2.

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

appropriate flexibility for advisers, consistent with their fiduciary duty, to manage funds’

portfolios.

Our disclosure and reporting framework can provide additional tools, in connection with

technological developments over the past two decades, to augment investors’ and other market

participants’ understanding of fund names and to increase transparency of how a fund’s

investment portfolio reflects the investment focus that its name suggests. In the years since the

names rule was adopted, the Commission has adopted requirements to modernize reporting

requirements for registered investment companies, which build on significant advances in the

technology that can be used to report and analyze information—namely, the use of structured

data language. 47 We recognize that there are many types of fund names for which understanding

additional detail about how name terms are defined, and about the types of investments that the

term describes, would provide greater clarity to an investor about the fund’s investment focus.

This may be helpful if, for example, fund names that incorporate terms that may reflect new

themes or technologies become more prevalent. The final rules’ enhanced prospectus disclosure

and reporting provisions, which require information to be disclosed in structured data language,

are designed to address this goal.

Finally, we are incorporating certain updates to the names rule to address industry and

technological developments over the past two decades, and to address names-rule-related

recordkeeping.

Investment Company Reporting Modernization, Investment Company Act Release No. 32314 (Oct. 13,

2016) [81 FR 81870 (Nov. 18, 2016)] (“Investment Company Reporting Modernization Adopting

Release”); see also Amendments to the Timing Requirements for Filing Reports on Form N-PORT,

Investment Company Act Release No. 33384 (Feb. 27, 2019) [84 FR 7980 (Mar. 6, 2019)]; Proposing

Release, supra footnote 2, at n.115 and accompanying text (generally discussing rules requiring funds

registering on Forms N-1A and N-2 to submit certain information using Inline XBRL format).

Overview of the Final Rules

Final Rules’ Principal Elements

We are adopting amendments to the names rule, as well as related disclosure and

reporting requirements, in consideration of the issues discussed above.

•

Expansion of Scope. We are adopting, substantially as proposed, amendments to

the names rule that expand the rule’s 80% investment policy requirement beyond its current

scope, to apply to any fund name with terms suggesting that the fund focuses in investments that

have, or investments whose issuers have, particular characteristics. This coverage will include,

for example, fund names with terms such as “growth” or “value,” or terms indicating that the

fund’s investment decisions incorporate one or more ESG factors. These names will be added to

the names that are currently within the scope of the 80% investment policy requirement—that is,

generally, fund names that suggest a focus in a particular type of investment, or investments in a

particular industry or geographic focus, and fund names suggesting that a fund’s distributions are

tax-exempt.

•

Temporary Departures from the 80% Investment Requirement. In a change from

the proposal, under which funds would have been permitted to depart from the fund’s 80%

investment policy only under certain specified circumstances, the final amendments retain the

names rule’s current requirements for a fund to invest in accordance with its 80% investment

policy “under normal circumstances” (the “80% investment requirement”), and for the 80%

investment requirement to apply at the time a fund invests its assets. Also, in a change from the

proposal, the final amendments add a new provision that requires a fund to review its portfolio

assets’ inclusion in its “80% basket” at least quarterly. 48 Like the proposal, the final amendments

include specific time frames—generally 90 days, as opposed to 30 days as proposed—for getting

back into compliance if a fund departs from the 80% requirement as a result of drift or in otherthan-normal circumstances.

•

Derivatives. Consistent with the proposal, the final amendments generally require

funds to use a derivatives instrument’s notional amount to determine the fund’s compliance with

its 80% investment policy, with certain adjustments. In a change from the proposal, the final

amendments include a limited modification to this approach that would exclude certain currency

hedges from the names rule compliance calculation. As proposed, we are also amending the

names rule to address the derivatives instruments that a fund may include in its 80% basket.

•

Unlisted Registered Closed-End Funds and BDCs. Consistent with the proposal,

the final amendments generally prohibit an unlisted registered closed-end fund or BDC that is

required to adopt an 80% investment policy from changing that policy without a shareholder

vote. In a modification from the proposal, the final amendments permit these funds to change

their 80% investment policies without such a vote if: (1) the fund conducts a tender or repurchase

offer with at least 60 days’ prior notice of the policy change, (2) that offer is not oversubscribed,

and (3) the fund purchases shares at their net asset value. 49

•

Enhanced Prospectus Disclosure. Substantially as proposed, we are adopting

amendments to funds’ prospectus disclosure requirements that will require a fund to define the

See final rule 35d-1(g) (defining “80% basket” generally as investments that are invested in accordance

with the investment focus that the fund’s name suggests).

See infra footnote 292 (discussing the use of net asset value in the event of a tender offer, as well as a

repurchase offer).

terms used in its name, including the criteria the fund uses to select the investments that the term

describes.

•

Plain English Requirements for Terms Used in Fund Names. The final

amendments to the names rule, as proposed, effectively require that any terms used in the fund’s

name that suggest either an investment focus, or that the fund’s distributions are tax-exempt,

must be consistent with those terms’ plain English meaning or established industry use.

•

Form N-PORT Reporting Requirements. Consistent with the proposal, we are

adopting amendments to Form N-PORT for funds to report the value of the fund’s 80% basket,

and whether an investment is included in the fund’s 80% basket. In a change from the proposal,

the final amendments also include a new reporting item to include the definition(s) of terms used

in the fund’s name. Funds will have to report this information for the third month of every

quarter, instead of for each month as proposed.

•

Recordkeeping. Consistent with the proposal (but with conforming changes to

address the final rules’ approach to temporary departures from the 80% investment requirement),

the final rules include recordkeeping provisions related to a fund’s compliance with the rule’s

requirements. The final rules do not, however, include the proposed requirement for funds that

do not adopt an 80% investment policy to maintain a record of their analysis that such a policy is

not required.

Other Aspects of the Proposal

We are not taking action on the proposed approach regarding the use of ESG terms in the

names of ESG “integration funds” at this time. Under the proposed approach, the names of ESG

“integration funds” would have been defined as materially deceptive and misleading if the name

includes terms indicating that the fund’s investment decisions incorporate one or more ESG

factors. 50 Under the proposal, integration funds were described as funds that consider one or

more ESG factors alongside other, non-ESG factors in the fund’s investment decisions, but those

ESG factors are generally no more significant than other factors in the investment selection

process, such that ESG factors may not be determinative in deciding to include or exclude any

particular investment in the portfolio. Such funds may select investments because those

investments would meet other criteria applied by the fund’s adviser (e.g., investments selected on

the basis of macroeconomic trends or company-specific factors like price-to-earnings ratio). This

description of integration funds in the names rule proposal mirrored the definition of an

integration fund in the Commission’s ESG Disclosure Proposal. 51

The proposed approach to integration funds in the names rule was designed to target

misleading fund names by making clear that it would be materially misleading for a fund for

which ESG factors are generally no more significant than other factors in the investment

selection process to include ESG terminology in its name. The proposed approach would have

addressed the Commission’s concern that such funds have the potential to overstate the

importance of ESG factors in the fund’s investment selection process. 52

Commenters offered mixed feedback on the names rule’s proposed approach to

integration fund names. Some commenters that supported the proposed approach stated that it

would help prevent investors from believing that ESG factors play a more significant role than

Proposed rule 35d-1(d).

See Enhanced Disclosures by Certain Investment Advisers and Investment Companies about

Environmental, Social, and Governance Investment Practices, Investment Company Act Release No. 34594

(May 25, 2022) [87 FR 36654 (June 17, 2022)] (“ESG Disclosure Proposal”), at section II.A.1.

See Proposing Release, supra footnote 2, at section II.D.

they actually do in the investment process – i.e., protect investors from greenwashing. 53 Other

commenters, however, questioned the Commission’s proposed approach, stating that the

proposed approach could act as a disservice to investors because, for example, it could result in

investors believing that integration funds do not consider ESG factors when they actually do, or

that the proposed approach could hinder innovation. 54 Because the proposed provision in the

names rule mirrored the separate proposed definition of an integration fund in the ESG

Disclosure Proposal, we are continuing to consider comments and are not adopting the proposed

approach to integration fund names at this time. As discussed above, however, the final

amendments’ expanded scope of the 80% investment policy requirement includes fund names

with terms suggesting that the fund focuses in investments that have, or investments whose

issuers have, particular characteristics—including terms indicating that the fund’s investment

decisions incorporate one or more ESG factors. 55

II.

DISCUSSION

80% Investment Policy Requirement

Names Suggesting an Investment Focus

Consistent with the proposal, we are adopting amendments that broaden the scope of the

names rule’s 80% investment policy requirement to apply also to fund names that include terms

See, e.g., Comment Letter of Ceres (Aug. 16, 2022) (“Ceres Comment Letter”); Consumer Federation of

America Comment Letter; Comment Letter of Evergreen Action (Aug. 15, 2022) (“Evergreen Action

Comment Letter”).

See, e.g., Cato Institute Comment Letter; Comment Letter of Mutual Fund Directors Forum (Aug. 16,

2022) (“MFDF Comment Letter”) (suggesting that the marketplace has been dynamic in developing

different approaches to bringing an ESG lens to various investment strategies, and that the proposed rule, as

the commenter understood it to largely limit the use of ESG terms in fund names to funds that use

inclusionary or exclusionary screens (as well as to funds that employ impact or proxy-voting strategies),

risks hindering further innovation in the fund space as ESG strategies continue to evolve); Comment Letter

of Minerva Analytics (Aug. 16, 2022) (“Minerva Comment Letter”).

See supra section I.C.1; see also final rule 35d-1(a)(2).

suggesting that the fund focuses in investments that have, or whose issuers have, particular

characteristics. 56 These amendments will apply in addition to the existing 80% investment policy

requirement for funds whose name suggests a focus in a particular type of investment, industry,

country, or geographic region, or those whose name suggests certain tax treatment. The purpose

of the names rule is to prevent fund names from misrepresenting the fund’s investments and

risks. 57 The expanded scope of the final amendments furthers this objective by ensuring that a

fund’s investment activity is consistent with the investment focus its name communicates.

General Discussion

The Commission proposed to expand the 80% investment policy requirement to apply to

fund names that include terms suggesting that the fund focuses in investments that have, or

whose issuers have, particular characteristics, whether or not such terms connote an investment

strategy. In response to the proposal, commenters expressed that the names rule, as currently

constituted, fails to capture a large segment of funds because the rule makes a distinction

between terms that reference a type of investment and an investment strategy. 58 These

commenters supported the proposed scope expansion, asserting that terms in fund names that

reference an investment strategy often communicate to investors an investment focus, thus

creating a reasonable expectation among investors that the fund will hold investments that

As used in this release, consistent with rule 35d-1(a)(2), “investment focus” means a focus in a particular

type of investment or investments, a particular industry or group of industries, particular countries or

geographic regions, or investments that have, or whose issuers have, particular characteristics.

See Proposing Release, supra footnote 2, at n.5 and accompanying text.

See, e.g., Consumer Federation of America Comment Letter; Center for American Progress Comment

Letter; NASAA Comment Letter; see also Proposing Release, supra footnote 2, at n.23 and accompanying

text (discussing that the Commission has historically taken the position that fund names that incorporate

terms that connote an investment objective, strategy, or policy are not within the scope of the 80%

investment policy requirement).

support that focus. 59 These commenters suggested that expanding the scope of the rule to include

any term in a fund’s name that communicates an investment focus, whether or not that term

references an investment strategy, is necessary to modernize the rule and is a logical step to help

ensure that investment companies cannot circumvent the intent of the rule when naming funds. 60

Some commenters also asserted that the proposed expansion of the scope would bring more

“discipline and clarity” to fund naming practices and, in turn, help investors make more informed

investment decisions. 61 In particular, many commenters asserted that the expanded scope would

improve the ability of investors to discern between funds in the ESG investment industry and

better protect investors looking for exposure to ESG investments. 62 In addition, one commenter

suggested that the Commission provide more clarity on whether the expanded scope would cover

names suggesting a focus on “thematic” areas.” 63

In contrast, many commenters objected to the proposal because, in their view, the

expansion of the 80% investment policy requirement would lead to interpretive challenges and

See, e.g., NASAA Comment Letter; Comment Letter of Principles for Responsible Investment (Aug. 16,

2022); (“PRI Comment Letter”); Comment Letter of Soundboard Governance (Aug. 16, 2022)

(“Soundboard Governance Comment Letter”) (focusing particularly on the inclusion of ESG-related terms

in the proposed scope expansion).

See, e.g., Consumer Federation of America Comment Letter; Center for American Progress Comment

Letter.

See NASAA Comment Letter; Better Markets Comment Letter; Consumer Federation of America

Comment Letter.

See, e.g., Comment Letter of Sierra Club (Aug. 16, 2022) (“Sierra Club Comment Letter”); Better Markets

Comment Letter; Evergreen Action Comment Letter.

See NASAA Comment Letter (expressing that funds with names that suggest a focus on “trendy” thematic

areas in particular should be required to adopt an 80% investment policy and stating that investors, funds,

and regulators would “be well served by greater clarity” on whether the proposed expansion would

thematic fund names); see also Comment Letter of Seward & Kissel LLP (Aug. 16, 2022) (“Seward &

Kissel Comment Letter”) (stating that that the tension between words suggesting a “type of investment”

versus those suggesting an “investment strategy” has resulted in the [names rule] being inconsistently

applied, especially with respect to funds using thematic strategies.”).

added compliance costs for fund advisers without providing commensurate benefit to investors. 64

In particular, they stated that the expanded scope incorporates a vague standard that is more

subjective than the current scope of the names rule which, in contrast with the proposal, they

believed applies a more objective and intuitive framework that sufficiently ensures that fund

assets are invested in accordance with reasonable expectations based on a fund’s name. 65 They

questioned whether the names included in the expanded scope effectively communicate any real

investment focus to investors, absent further information about a fund’s objectives. 66 Because

these names are vague, they asserted, investors would still need to review a fund’s disclosures to

understand how the investment strategy is executed for these newly included terms, limiting the

value of the rule. 67 These commenters contended that the proposed expansion of the 80%

investment policy requirement has limited investor protection benefits because it overemphasizes

the importance of a fund’s name, and thus disincentivizes investors from looking beyond the

name to review information in fund prospectuses and related disclosures. 68 In addition, several

commenters questioned whether the Commission adequately articulated how terms that would be

See, e.g., Comment Letter of Stradley Ronon (Aug. 16, 2022) (“Stradley Comment Letter”); SIFMA AMG

Comment Letter; TIAA-Nuveen Comment Letter; Comment Letter of Calamos Investments (Aug. 16,

2022) (“Calamos Comment Letter”).

See, e.g., Calamos Comment Letter; Invesco Comment Letter; Comment Letter of Federated Hermes, Inc.

(Aug. 16, 2022) (“Federated Hermes Comment Letter”); MFS Comment Letter; Comment Letter of

Nationwide Funds Group (Aug. 16, 2022) (“Nationwide Comment Letter”); Robertson-Fisch Comment

Letter (discussing these points in the context of ESG funds); T. Rowe Comment Letter; see also PRI

Comment Letter (supporting the proposed scope expansion, but requesting that the Commission provide a

definition of “characteristics” in the proposed language expanding the scope).

See, e.g., MFS Comment Letter; ICI Comment Letter; Capital Group Comment Letter; Cato Institute

Comment Letter.

See SIFMA AMG Comment Letter; ICI Comment Letter (comparing the uniformity of an 80% investment

policy for funds with “equity” in their name to the potential inconsistency in 80% investment policies for

funds with “growth” in their name).

See, e.g., MFS Comment Letter; Capital Group Comment Letter; Cato Institute Comment Letter.

included in the proposed scope have led to investor confusion, deception, or harm such that they

should be subject to the rule. 69

Commenters also suggested that this vagueness would result in the costs of

implementation of the proposed amendments being high relative to what they stated would be

minimal value to investors. Commenters stated that interpretive issues relating to the proposed

scope’s vagueness would result in a number of adverse consequences, including inconsistent

application of the 80% investment policy requirement, uncertainty in determining whether a term

suggests a particular investment focus, and, where a fund has adopted an 80% investment policy,

whether a particular investment is consistent with that policy. 70 Commenters also suggested that

it would be challenging to establish automated compliance monitoring solutions for terms in

fund names where subjective criteria are part of the decision-making process. 71 As a result,

commenters expressed that funds would need either to require portfolio managers to adhere to

specific rigid criteria, stifling innovative investment strategies, or to engage in some level of

manual review, significantly increasing the complexity and compliance burdens for funds. 72

See, e.g., Comment Letter of WisdomTree Asset Management (Aug. 16, 2022) (“WisdomTree Comment

Letter”); SIFMA AMG Comment Letter; Invesco Comment Letter; Dechert Comment Letter. Commenters

also pointed to the lack of enforcement cases charging rule 35d-1 or shareholder suits in this area as a

reason to not expand the scope. See, e.g., Nationwide Comment Letter; Capital Group Comment Letter; ICI

Comment Letter IV.

See, e.g., ICI Comment Letter; SIFMA AMG Comment Letter; Invesco Comment Letter; Dechert

Comment Letter; Comment Letter of Fidelity Management & Research Company LLC (Aug. 16, 2022)

(“Fidelity Comment Letter”); Ceres Comment Letter.

See, e.g., ICI Comment Letter; T. Rowe Comment Letter; SIFMA AMG Comment Letter; Invesco

Comment Letter. Scalable and automatic compliance monitoring systems typically rely on third-party data

providers to tag investments but such providers could vary their classification of investments and may not

use the same classification as the fund. See, e.g., Comment Letter of Freeman Capital Management (July

24, 2022) (“Freeman Capital Management Comment Letter”); Invesco Comment Letter; T. Rowe

Comment Letter.

See, e.g., Dechert Comment Letter; Invesco Comment Letter; TIAA-Nuveen Comment Letter; J.P. Morgan

Asset Management Comment Letter; T. Rowe Comment Letter; Wellington Comment Letter; ICI

Comment Letter; Invesco Comment Letter; Freeman Capital Management Comment Letter.

Commenters also raised concerns that, for funds that would be within the scope of the 80%

investment policy requirement, a portfolio manager’s expectations with respect to investments

that would qualify for inclusion in the 80% basket may ultimately prove wrong or change over

time, which could make compliance with the names rule challenging. 73 Relatedly, commenters

expressed the concern that the expanded scope could lead to retroactive second-guessing of

portfolio managers’ designations of investments by Commission staff. 74 To avoid these

implementation problems, commenters suggested funds may use broader, more generic names

that convey less information to investors in order to avoid adopting an 80% investment policy. 75

Many commenters expressed particular concern with the inclusion of the terms “growth”

and “value” in the proposed scope. 76 Commenters asserted that there are no precise definitions or

standardized criteria used to classify these types of investments. 77 Rather, commenters expressed

that portfolio managers have unique qualitative and quantitative criteria that they evaluate when

selecting growth or value investments, some of which rely on more subjective determinations

that may vary among portfolio managers. 78 A few commenters suggested that investors invest in

certain growth or value funds because they believe in a manager’s unique analysis and

See, e.g., SIFMA AMG Comment Letter; Fidelity Comment Letter; J.P. Morgan Asset Management

Comment Letter; Stradley Comment Letter (stating that “‘equity’ and ‘fixed income’ investments do not

change their categorization due to market declines, cycles or volatility, as compared to a value stock, that, if

subjected to only objective criteria, can and does migrate from one category to another”).

See, e.g., ICI Comment Letter; Federated Hermes Comment Letter; J.P. Morgan Asset Management

Comment Letter.

See, e.g., Dechert Comment Letter; ICI Comment Letter (asserting that the proposed amendments could

also incentivize longer, more complex fund names that seek to capture the full range of investments

reflected in a fund’s investment strategy).

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

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

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

conclusions for selecting investments. 79 Some commenters expressed that requiring growth or

value funds to define terms in their name and disclose the criteria used to select investments

would lead to more rigidity in investment selection, resulting in less flexibility for managers to

implement investment strategies that traditionally have been managed with more nuance. 80

To avoid these interpretative challenges and compliance burdens, a number of

commenters suggested narrowing the scope of the final rule to that of the current rule or to

exclude terms that do not readily reduce to measurable characteristics, and for which evaluations,

opinions, and views reasonably may vary. 81 Separately, some commenters urged the

Commission to require enhanced disclosure in a fund’s registration statement when its name

indicates an investment strategy, rather than expanding the scope to mandate an 80% investment

policy for these funds. 82 Several commenters expressed that investor access to disclosures and

information about funds is widespread and easily accessible, making an investor’s need to rely

on a fund name to evaluate the fund’s strategy less necessary than when the Commission adopted

the names rule. 83

See Stradley Comment Letter; SIFMA AMG Comment Letter.

See, e.g., Wellington Comment Letter; Nationwide Comment Letter; Stradley Comment Letter.

See, e.g., ICI Comment Letter; Invesco Comment Letter; Federated Hermes Comment Letter; Dechert

Comment Letter; TIAA-Nuveen Comment Letter; see also Calamos Comment Letter (asserting that, if the

expanded scope is adopted, the Commission should consider excluding existing funds from the rule’s

requirements because compliance may be costly and have unanticipated effects for existing funds that are

not currently subject to the rule).

SIFMA AMG Comment Letter; Invesco Comment Letter; Comment Letter of Calvert Research and

Management (Aug. 16, 2022) (“Calvert Comment Letter”); CFA Institute Comment Letter (recommending

that when a fund’s name suggests an investment focus, the investment focus must be consistent with the

key factors in the principal investment strategies that are disclosed in the fund’s registration statement). See

also ICI Comment Letter IV (asserting that the proposed amendments are unnecessary because existing

prospectus disclosure requirements and other regulatory obligations, such as rules 482 and 156 under the

Securities Act of 1933 and FINRA Rule 2210, provide a sufficient framework to ensure that fund

communications are clear and not misleading).

See SIFMA AMG Comment Letter; Dechert Comment Letter; T. Rowe Comment Letter.

After considering comments, we are adopting, substantially as proposed, amendments

that expand the rule’s 80% investment policy requirement to apply to any fund with terms in its

name that suggest that the fund focuses in investments that have, or investments whose issuers

have, particular characteristics. We recognize that some commenters expressed concerns about

perceived vagueness associated with the “particular characteristics” language in the proposed

rule. 84 The amended rule provides, as proposed, an illustrative parenthetical that is designed to

give non-exclusive examples of terms that suggest that the fund focuses in investments that have,

or whose issuers have, particular characteristics. The parenthetical provides as examples the

terms “growth” or “value,” or terms indicating that the fund’s investment decisions incorporate

one or more ESG factors. 85 We are not defining the term “particular characteristics” in the rule,

as suggested by a commenter, because we believe that this term will be adequately understood to

mean any feature, quality, or attribute. 86 We are adopting this approach, rather than an approach

that provides an enumerated list of terms included in the expanded scope, in light of the broad

diversity of fund investment strategies and fund names, and to ensure that the rule remains

evergreen. Based on our understanding of the fund industry and current practice, however, we

anticipate that the primary types of names that the expanded scope will cover will be names that

include the terms “growth” and “value,” terms with ESG- or sustainability-related

characteristics, or terms that reference a thematic investment focus.

We recognize that many commenters opposed expanding the scope of the rule, and the

inclusion of terms such as “growth” and “value” in particular. While we appreciate these

See, e.g., Stradley Comment Letter; TIAA-Nuveen Comment Letter; Cato Institute Comment Letter.

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

See supra footnote 65.

commenters’ concerns, it is important to balance these concerns with the investor protection

goals that underlie the names rule and section 35(d) of the Investment Company Act. Although

there have been limited Commission enforcement cases citing section 35(d) of the Act,

Commission and staff’s experience with the names rule over the past two decades and

developments in the fund industry during this time period, including the increase in fund assets

under management and the proliferation of diverse fund strategies, lead us to modernize and

enhance the names rule to further the investor protection goals of section 35(d). 87

We are adopting amendments that do not distinguish between a type of investment and an

investment strategy because a fund name might connote a particular investment focus and result

in reasonable investor expectations regardless of whether the fund’s name describes a strategy as

opposed to a type of investment. We understand that funds typically include certain terms in their

name to communicate an investment focus and to appeal to investors choosing among available

investment options. 88 As some commenters believed, the names included in the expanded scope

can serve as the initial bases upon which investors make investment decisions and create

reasonable expectations that funds that use those terms will focus on investments and issuers that

have the specified characteristics that a fund’s name suggests. 89 For example, terms like

“growth” and “value” create reasonable expectations among investors that funds with those

See infra at footnote 494 and accompanying text (asserting that the lack of Commission enforcement

actions citing section 35(d) of the Act is evidence that the general framework of the rule is effective, not

that further enhancements to the rule are unnecessary).

For example, funds have increasingly chosen names that include terms that reference popular industry

themes, business sectors, or investment strategies. See supra footnote 33 and accompanying text

(discussing the increase in filings over the last few years by funds with names that reference popular

industry themes and business sectors, providing some evidence that investors are attracted to these fund

names). See also supra footnote 36 (suggesting that ESG terminology in fund names is effective in

attracting inflows).

See NASAA Comment Letter; Consumer Federation of America Comment Letter; PIABA Comment

Letter.

terms in their name will invest predominantly in companies that exhibit “growth” or “value”

characteristics. By expanding the scope of the 80% investment requirement to include these

names, the final amendments will help ensure that these types of funds have portfolios that

reflect the investment focus their name suggests. Further, the expanded scope in the final

amendments will reduce the existing inconsistencies in the application of the rule by eliminating

the need for fund managers to determine whether their name references a type of investment or

an investment strategy.

The Commission staff has observed an increase in filings by funds that use “thematic”

terms in their name. 90 We understand that fund managers and others would consider certain of

these thematic names to be included in the current scope of the names rule. For instance, certain

terms may be viewed as clearly suggesting a focus in a type of industry or group of industries

(e.g., terms suggesting a focus in cybersecurity, health and wellness, or travel and tourism). 91

There could be reasonable questions, however, about whether other thematic terms suggest a

focus in a particular type of investment, or in investments in a particular industry or group of

industries. This could occur, for example, because a thematic term may be narrower or more

expansive than an “industry” may be commonly understood (e.g., drones, “smart cities,”

metaverse, “big data”). And there are certain thematic terms that we believe most practitioners

would not consider to suggest a focus in a type of investment, or a focus in a particular industry

or group of industries (e.g., terms suggesting demographic characteristics such as “millennial” or

See supra footnote 33 and accompanying text.

In cases where certain terms that suggest a focus in a type of industry have been coupled with the word

“strategy,” some funds have argued that the name suggests a focus in an investment strategy and not a type

of investment, and therefore should not be within the scope of the 80% investment policy requirement. As

discussed above, the expansion of the scope of the 80% investment policy requirement includes terms

suggesting that the fund focuses in investments that have, or whose issuers have, particular characteristics,

whether or not such terms connote an investment strategy.

“Gen Z,” or political, economic, or historical themes such as “biothreat,” “gig economy,” “meme

stocks,” or “post-Corona”). The effect of the scope of the final amendments is that, to the extent

a fund uses a term in its name that suggests an investment focus, including any term that

references a thematic investment focus, the fund will be required to adopt an 80% investment

policy, which in turn will help ensure it will invest in accordance with the investment focus its

name suggests.

We understand that certain terms used in fund names may have more objective or

standardized criteria than other terms. For instance the term “equity” generally has a more

standardized definition, whether based on plain English principles or established industry use,

compared to terms like “growth” and “value.” However, not all names that fall within the scope

of the current rule have precise definitions or standardized, objective criteria. For instance, for

fund names that reference a particular region or country, it is often not immediately apparent

based on the terms in a fund’s name whether the fund invests in issuers that are domiciled in the

specific region, have a large presence in the region, or have some other nexus to the region. An

investor may generally understand what constitutes “Latin America,” and seek out a “Latin

American” fund, but different portfolio managers may apply different definitions of what

specifically “Latin America” means in practice for their fund because definitions of “Latin

America,” using plain English or industry use of the term, can reasonably differ.

This variation is evident based on the principal investment strategies disclosed in fund

prospectuses. For example, a “Latin America” fund offered by one adviser has an 80%

investment policy to invest in securities of issuers that derive at least 50% of revenue from Latin

American markets (defined to include Spanish-speaking islands in the Caribbean), without

consideration of the issuers’ domicile, headquarters, or primary trading market. In contrast,

another “Latin America” fund managed by a different adviser has a policy to invest at least 80%

in securities of issuers that are domiciled in Latin America (defined to exclude Mexico and

Caribbean islands), that derive significant revenues from Latin America, or the securities trade

on exchanges located in Latin America. Each of these examples is consistent with the plain

English or industry use of the term and demonstrates the flexibility the final amendments will

provide to fund managers in developing definitions of the terms used in a fund’s name.

Moreover, given the proliferation of the diversity of fund investment strategies and fund names

since the rule was originally adopted, retaining the current rule’s scope or excluding terms that

do not always neatly reduce to measurable characteristics, as suggested by commenters, would

undermine the investor protection purposes of the rule.

The final rule also is not as rigid as many commenters seem to contend when, for

example, they suggested that a rule that requires pre-determined definitions of certain terms

could lead to retroactive second-guessing by Commission staff and result in funds adopting more

generic names or could create incentives for longer, more complex names. The amended rule

provides fund managers with flexibility to ascribe reasonable definitions for the terms used in a

fund’s name and flexibility to determine the specific criteria the fund uses to select the

investments that the term describes. 92 We understand that different funds and various third-party

data providers may use different definitions for the same term in order to best reflect a particular

investment strategy. The amended rule is designed for funds to retain reasonable discretion in

establishing their 80% investment policies, which allows funds to implement nuanced and

See infra section II.C. This flexibility also means a fund would not be required to include proprietary

information in its 80% investment policy. See Stradley Comment Letter (asserting that providing

meaningful distinctions among funds may require over-disclosing the criteria used to select investments,

which investment advisers may be hesitant to provide to avoid giving away proprietary information).

innovative investment strategies. 93 We also appreciate, for many terms, there will be various

reasonable means of implementing an 80% investment policy that incorporates a definition or

understanding of terminology that differs from another fund whose name incorporates the same

terminology. For example, different funds may have “growth” in their name, and each of these

funds may have portfolio managers who have different approaches to selecting investments that

have growth characteristics. In such circumstances, two funds would naturally have different

policies that reflect their portfolio managers’ distinct approaches to growth investing. In this

example, each of these funds would describe to investors how it defines “growth,” provided the

definitions are consistent with the term’s plain English meaning or established industry use, and

then invest 80% of their investments in accordance with their description. 94

In addition, we understand that the expansion of the rule’s scope will involve operational

costs for many funds, particularly those that are not currently subject to the rule. 95 In a

modification from the proposal, however, the amended rule will no longer require a fund to reassess its portfolio investments continuously to determine compliance with its 80% investment

policy, but will instead require reassessment of each portfolio investment on an at-least quarterly

basis. 96 This modification will address concerns commenters raised related to cost burdens

As a result of this flexibility, we disagree with commenters that asserted that the expanded scope would

effectively penalize funds that invest in a security that initially displays particular characteristics but where

those characteristics evolve over time. See supra footnote 73. However, to the extent that a fund identifies

as part of the final rule’s quarterly review requirement that the characteristics of an existing investment in

the fund’s portfolio are inconsistent with the fund’s 80% investment policy as a result of, for example,

market declines, cycles, or volatility, the fund must address this in accordance with the rule’s requirements

for temporary departures from the 80% investment requirement. See infra footnote 185 and accompanying

paragraph; see also section II.E.1.

See also infra paragraph accompanying footnotes 153-154; infra paragraph accompanying footnotes 357358.

See infra sections IV and V.

See infra section II.A.2.

associated with the proposed scope expansion, to the extent that those concerns largely related to

the costs of continuous monitoring and assessment of a fund’s 80% investment policy. 97

Moreover, considering that not all terms that fall within the scope of the current rule have

standardized and objective definitions (e.g., “Latin America” funds as discussed above), existing

compliance monitoring for these funds likely necessitates some form of manual review to ensure

that investments are consistent with the manner in which the fund defines a given term. The

assessment that funds would have to undertake to ensure that portfolio investments are consistent

with their 80% investment policies under the final rules would entail this same aspect of current

fund practices. 98

The final amendments’ approach, which combines an expanded 80% investment policy

requirement with additional disclosure and reporting requirements, reflects that certain terms

used in a fund’s name can simultaneously communicate an investment focus while also

reflecting nuance that should be further discerned after reviewing the fund’s prospectus

disclosure. 99 The Commission has historically encouraged investors to look beyond a fund’s

name and to review a fund’s underlying disclosures to gather information about the fund’s

investment activity and objectives, and we continue to encourage this. 100 We understand that

such disclosures are easily accessible for most investors and that the current regulatory

framework is designed to help ensure that fund disclosures, marketing materials, and other

communications are clear, informative, and not misleading. We agree, however, with

See infra section IV.D.2.

See infra section II.A.2.a) (discussing compliance monitoring and portfolio investment assessment and reassessment requirements under the final amendments and how these requirements compare to current

names rule requirements).

See infra sections II.B and II.E.

100

See supra footnote 9.

commenters who stated that, despite this accessibility, fund names can play a critical role in

investment decisions. Congress provided the Commission with rulemaking authority to address

materially deceptive or misleading fund names, recognizing the concern that investors may focus

on a fund’s name and what it communicates about the fund’s investments and risks despite the

information included in fund prospectuses and related disclosures. 101 Accordingly, the final

amendments require funds that use terms that communicate an investment focus to adopt an 80%

investment policy, in furtherance of the investor protection objectives of the names rule, to

provide greater assurance that a fund’s investments will be consistent with its name.

Separately, a few commenters questioned the Commission’s authority to adopt the

proposed amendments under section 35(d) of the Investment Company Act. 102 For instance, one

commenter asserted that the Commission lacks authority to adopt the amendments, as “[t]here is

a significant difference between a name based on investors’ reasonable expectations and a name

that is materially deceptive or misleading.” 103 Another commenter suggested that neither the

current rule nor the proposed amendments are consistent with the authority that section 35(d)

grants, as neither incorporates a finding by the Commission that a particular and identified word

or words are materially deceptive or misleading. 104 Lastly, one commenter asserted that the

proposed amendments would have associated costs and burdens, and suggested that Congress did

101

See supra footnote 7.

102

See, e.g., ICI Comment Letter; Stradley Comment Letter; Seward & Kissel Comment Letter.

103

ICI Comment Letter I; see also ICI Comment Letter IV (asserting that “the Commission lacks authority to

adopt the [proposed amendments] under [section 35(d)]” because the proposed amendments are “too vague

and ambiguous,” and do not satisfy the “materiality” requirement in section 35(d)).

104

Seward & Kissel Comment Letter (stating that “[w]e think the appropriate reading of Section 35(d) is

that . . . funds subject to the prohibitions of the statute (and any regulations adopted thereunder) could

provide, through the notice and comment process, comments on the specific “word or words” proposed by

the Commission to be deemed materially deceptive or misleading”).

not intend for section 35(d) to authorize the Commission to impose significant burdens that

would have a material economic impact on funds and their investors. 105

We disagree with the views expressed by these commenters. Congress, in enacting

amended section 35(d) of the Act, reaffirmed its concern that investors may focus on a fund’s

name to determine the fund’s investments and risks, and recognized that investor protection

would be improved by giving the Commission rulemaking authority to define materially

deceptive or misleading fund names. 106 Before this amendment, the Commission was required to

“declare by order that a particular name was misleading and, if necessary, obtain a federal court

order prohibiting further use of the name.” 107 In light of this “cumbersome process,” 108 Congress

gave the Commission the power to act by “rule, regulation, or order.” 109 Congress further gave

the Commission the authority to “define such names or titles as are materially deceptive or

misleading,” not “list” or another similar word, and whether any “word or words” are materially

deceptive or misleading is a determination that necessarily is made with reference to additional

facts and circumstances. 110

Relying on this authority, the Commission in 2001 adopted the names rule to “address

certain investment company names that are likely to mislead an investor about a company’s

investment emphasis,” which would “guard against the use of misleading investment company

105

SIFMA AMG Comment Letter; see also Calamos Comment Letter.

106

2001 Names Rule Adopting Release, supra footnote 8, at section I.

107

See id. at text proceeding footnote 3.

108

S. Rep. No. 293, 104th Cong., 2d Sess. 8-9 (1996) (“Enforcing the Act entails a cumbersome process—the

Commission must first find, and declare by order, that a fund’s name is deceptive or misleading, and then

bring an action in federal court to enjoin the use of the name”).

109

15 U.S.C. 80a-34(d).

110

Id. (emphasis added); see also 80a-34(a) & (b) (making it unlawful for certain persons to “represent or

imply” that a security is guaranteed or approved by the U.S. government or a bank, but not listing every

specific statement that would do so).

names,” “provide an investor greater assurance that the company’s investments will be consistent

with its name,” and “reduce confusion.” 111 Similarly here, the Commission in adopting rule

amendments is exercising its authority under section 35(d) to “define,” “by rule,” “such names or

titles as are materially deceptive or misleading” and is doing so based on consideration of the

broad public input the Commission has received on fund names, our analysis of this input, the

Commission and staff’s experience with the names rule over the past two decades, and

developments in the fund industry during this time period. 112 In the years since the Commission

has adopted the names rule, it has observed certain general trends—specifically as discussed

above, a significant broadening of fund investment options currently available, the growth of

fund assets in sector funds and thematic strategies, and a growth in investor interest in funds with

ESG strategies—that have caused us to believe that targeted action in this area is necessary. 113

Although we acknowledge that the final amendments may impose additional costs and

burdens relative to the current rule, we have made changes to the proposed amendments that

have the result of mitigating the burdens associated with the final amendments compared to the

proposal. The costs and burdens associated with the final amendments are carefully considered

by the Commission, and such costs and burdens are justified given the investor protection

objectives that underlie section 35(d) and that would be achieved through the amendments.

Further, another commenter asserted that application of the proposed amendments to

terms that suggest investments with particular characteristics would violate the First

111

See id.

112

See supra section I.B; see also, e.g., Environmental Defense Fund Comment Letter; Comment Letter of

Sierra Club (Aug. 16, 2022) (“Sierra Club Comment Letter”); Ceres Comment Letter (all discussing the

proposed amendments as within the Commission’s authority to define materially deceptive and misleading

names under section 35(d) of the Act).

113

See supra footnote 33 and accompanying text.

Amendment, as this “operates as a restriction on funds’ ability to speak through their names.” 114

We disagree that this aspect of the amendments violates the First Amendment. As we have

explained elsewhere in this release, as Congress recognized by adopting section 35(d), fund

names can provide important information to investors regarding the nature of the fund and

therefore the nature of their potential investment. And names that do not necessarily fall under

the existing rule can create reasonable investor expectations by suggesting a particular

investment focus. The amendments adopted today will help align fund names and investor

expectations by applying the 80% requirement to all names that suggest a particular investment

focus, reducing the extent to which funds can choose names that are materially misleading or

deceptive. Rather than barring the use of any particular name, the amendment imposes certain

requirements when the name a fund has selected communicates specific and important

information about the fund. Further, the amendments allow funds the flexibility to ascribe

reasonable definitions for the terms used in their names. 115 The amendments are therefore

appropriately tailored to serve Congress’s significant interest in preventing investors from being

deceived or misled. 116

Names That Do Not Suggest an Investment Focus

The 2022 Proposal acknowledged that there would continue to be fund names that would

not require the fund to adopt an 80% investment policy because the names would not connote an

114

ICI Comment Letter IV.

115

See supra footnote 92 and accompanying text.

116

For similar reasons, we disagree with the commenter who asserted that certain proposed reporting

requirements on Form N-PORT violate the First Amendment. ICI Comment Letter IV. These requirements

do not require reporting of “subjective information on which investment managers may appropriately

disagree,” (id.) but instead provide important information to investors regarding whether and how a fund’s

investments align with reasonable expectations created by the fund’s name and 80% investment policy.

investment focus. 117 In particular, the Commission stated that terms in a fund’s name that

reference characteristics of the fund’s portfolio as a whole, such as a name indicating the fund

seeks to achieve a certain portfolio “duration” or that the fund is “balanced,” would not require

the fund to adopt an 80% investment policy. 118 The Commission stated that in such cases a term

may indicate a fund’s objectives without communicating to investors the specific type of

investments, or the particular characteristics of investments, that the fund will acquire. 119

Commenters generally agreed that such terms would not require an 80% investment policy under

the proposal and that this treatment was appropriate. 120

Many commenters, however, sought additional clarity on terms – such as “growth” and

“value” – that commenters stated can reference either the characteristics of a fund’s investments

or the intended result of a fund’s portfolio investments in the aggregate. 121 One commenter

focused in particular on ESG “uplift” funds, where the fund begins with a given universe of

investments and does not add new investments to this universe but systematically over- or

underweights investments within the given universe based on ESG criteria, with the objective of

achieving a more favorable ESG profile at an aggregate fund level as compared to the

117

See Proposing Release, supra footnote 2, at n.49 and accompanying text.

118

Id.

119

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 includes section 35(d). Id. at n.50 and

accompanying text.

120

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

SIFMA AMG Comment Letter.

121

See, e.g., TIAA-Nuveen Comment Letter; Calamos Comment Letter; T. Rowe Comment Letter;

WisdomTree Comment Letter; ICI Comment Letter (stating that “[t]erms that could refer to either a

particular investment or the portfolio as a whole are per se not misleading or deceptive because they do not

create an affirmative impression in one way or another”).

benchmark or investment universe, within a specific tracking error target. 122 The fund is

investing on a relative basis at the portfolio level, rather than focusing its investment in

companies that objectively exhibit strong ESG characteristics, and includes terms in the fund’s

name intended to communicate this investment approach to investors (such as ESG “Aware”).

Commenters also expressed concern with the proposal’s discussion of maturity-related terms that

describe certain bond funds’ holdings. 123 These commenters agreed with the Commission that

the term duration should not require an 80% investment policy because it refers to a portfoliowide analysis; however, they further asserted that terms like “intermediate-term (or similar)

bond” are likewise used by funds and understood by investors similarly to refer to the portfolio’s

duration (i.e., the portfolio’s sensitivity to interest rate changes). Commenters also suggested that

terms like “global” and “international” should continue to be outside of the scope of the 80%

investment policy requirement because these terms reference the portfolio as a whole. 124

Conversely, several commenters urged that certain terms may not connote particular

characteristics of a fund’s portfolio investments, but nonetheless should require an 80%

investment policy when those terms clearly communicate that the fund is managed in a particular

way (e.g., terms like “balanced,” “hedged,” and “managed risk”). 125 Relatedly, one commenter

122

See Comment Letter of BlackRock, Inc. (Dec. 19, 2022) (“BlackRock Comment Letter”); see also

Robertson-Fisch Comment Letter (discussing ESG “tilt” strategies).

123

See ICI Comment Letter; SIFMA AMG Comment Letter; Invesco Comment Letter.

124

See, e.g., Dechert Comment Letter; ICI Comment Letter; Invesco Comment Letter; Seward & Kissel

Comment Letter.

125

See Dogwhistle Comment Letter; PIABA Comment Letter (also recommending that the rule prohibit the

use of terms of well-known organizations, affinity groups, or the reference to a specific population of

investors (e.g., “veterans” or “municipal employees”) in fund names). See also Consumer Federation of

America Comment Letter (additionally recommending that the rule should prevent single-state tax exempt

funds from investing substantially in securities issued by another municipality). The Commission did not

propose amendments that addressed the scope of tax-exempt funds whose names require them to adopt an

80% investment policy, or the investments that would be included in a fund’s 80% basket under such

policy, nor do the final amendments address these points. But see infra footnote 155.

suggested that the rule should explicitly subject funds with allocation designations in their name

(e.g., 60/40 Target Allocation Fund) to the 80% investment policy requirement. 126

After considering comments, we continue to recognize that there are certain terms that do

not communicate to investors the particular characteristics of investments that will make up the

fund’s portfolio and for which an 80% investment policy will not be required. Such names

include, for instance, names that suggest a portfolio-wide result to be achieved, such as “real

return,” “balanced,” or “managed risk,” names that reference a particular investment technique,

such as “long/short” or “hedged,” and names that reference asset allocation determinations that

evolve over time, such as a retirement target date or “sector rotation” funds.” 127 In each of these

examples, the fund’s name communicates information to investors about the overall

characteristics of the fund’s portfolio, rather than particular investments in the portfolio, and

therefore will not necessitate an 80% investment policy under the amended rule. Likewise, terms

like “intermediate term (or similar),” in describing a “bond” fund, also will not require an 80%

investment policy under the final amendments in addition to the 80% investment policy that

would be required due to the fund’s use of “bond” in its name in this example. We do not view

these types of names as being distinct from names that describe portfolio-wide characteristics,

such as names that describe portfolio duration. Additionally, names including the terms “global”

and “international,” without an additional term that suggests an investment focus such as “fixed

income” or “growth,” will not require an 80% investment policy under the final rule. These

126

See Better Markets Comment Letter.

127

A target date fund’s name communicates an investment approach to investors, but does not communicate

the composition of the fund’s portfolio at any particular point in time, as the fund’s investments will change

over time in accordance with the fund’s glide path. Similarly, “sector rotation” funds seek to shift their

portfolio in and out of sectors over time as the economy moves through the different phases of a business

cycle. In each of these cases, an 80% investment policy would not be appropriate for the fund because the

fund’s name connotes portfolio-wide asset allocation determinations that evolve continuously over time.

terms describe a fund’s approach to constructing a portfolio, but do not communicate the

composition of the fund’s portfolio with any particularity (unlike, say, “Japan” or “Europe”) and

therefore on their own suggest no particular investment focus. 128 Therefore, requiring such funds

to adopt an 80% investment policy would produce fewer investor protection benefits relative to

names that communicate to investors the particular characteristics of investments that will

compose the fund’s portfolio. Names with terms that do not communicate the particular

characteristics of investments composing the fund’s portfolio will continue to be subject to

section 35(d)’s prohibition on materially misleading or deceptive names. 129 Funds with these

names likewise will continue to be subject to the anti-fraud provisions of the Federal securities

laws regarding disclosures to investors.

In response to commenters seeking additional clarity about the terms growth and value,

we understand, based on staff review of fund disclosure, that it is not typical in current practice

for growth and value funds to implement their strategies on a portfolio-wide basis, as opposed to

a selection process based on the growth or value characteristics of the fund’s component

portfolio investments. If terms in a fund’s name can reasonably be understood to reference either

the characteristics of a fund’s individual investments or the intended result of a fund’s portfolio

128

Similarly, funds that use terms in their name that indicate that the fund uses a negative or exclusionary

screening process for investments (e.g., “fossil fuel-free”) may not require an 80% investment policy

because such terms generally provide insight into what is precluded from the fund’s portfolio, but these

terms do not communicate to investors the particular investment focus of the fund’s portfolio. In any case, a

fund with a name like “fossil fuel-free” that indicates the fund will not invest at all in fossil fuels in this

example will be materially deceptive or misleading for purposes of section 35(d) if the fund invests in

companies that are not fossil fuel-free as defined by the fund in its prospectus (e.g., issuers with fossil fuel

reserves).

129

For instance, terms used in fund names that reference well-known organizations, affinity groups, or that

reference a specific population of investors may not communicate the particular characteristics of

investments composing the fund’s portfolio and therefore may not require an 80% investment policy under

the amended rule. Such funds, however, will continue to be subject to section 35(d)’s prohibition on

materially misleading or deceptive names.

investments in the aggregate, the fund will be required to adopt an 80% investment policy,

consistent with the proposal. We disagree with the commenter who asserted that such terms are

per se not misleading. 130 It would be confusing to investors if the same term in a fund’s name

required an 80% investment policy in some cases and not in others. In addition, the rule provides

funds sufficient flexibility to design and implement an 80% investment policy in these

circumstances. We do not agree that the ESG uplift strategies identified by one commenter

require an 80% investment policy, however, because the particular strategies identified by the

commenter are solely executed on a relative basis at the portfolio level, as described in more

detail above, and include terms in the fund’s name associated with this investment strategy to

signal this different approach to investors. 131

Investments Included in a Fund’s 80% Basket

Regarding the application of the proposed amendments, the Commission stated in the

2022 Proposal that when determining whether a particular asset is invested in accordance with

the investment focus that the fund’s name suggests (i.e., qualifies for inclusion in a fund’s 80%

basket), there must be a meaningful nexus between the given investment and the investment

focus suggested by the name. 132 The Commission discussed that a fund may define the terms

used in its name in a reasonable way, allowing for flexibility in determining whether a nexus

exists between a given security and the focus the fund’s name suggests. For instance, the

Commission stated it would be reasonable for a fund to determine a sufficient nexus between

certain securities and a given industry if the securities are issued by companies that derive more

130

ICI Comment Letter.

131

BlackRock Comment Letter.

132

See generally for this discussion Proposing Release, supra footnote 2, at nn.51-52 and accompanying text.

than 50% of their revenue or income from, or own significant assets in, the industry. However,

the Commission also explained that the use of text analytics to assign issuers to industries based

on the frequency of particular terms in an issuer’s disclosures was not, in and of itself, sufficient

to create a reasonable nexus.

Commenters expressed that a 50% revenue test is not always the most appropriate way to

determine whether a company is part of a given industry, particularly for new companies and

nascent industries and business sectors. 133 These commenters urged the Commission to clarify

the reasonableness standard as it applies to designating investments in a fund’s 80% basket,

urging that advisers need the flexibility to evaluate investments based on a totality of criteria

beyond revenue tests. Some commenters asserted that funds with certain business or industryadjacent investment strategies face particular difficulties adopting an 80% investment policy

because their investments often vary in terms of industries, capitalization ranges, revenue

sources, asset classes, geographies, and other key characteristics, making it challenging to

pinpoint confidently a reasonable nexus between the fund’s investments and the investment

focus suggested by its name. 134 Moreover, one commenter expressed particular concern with the

proposal’s discussion of the processing of text analytics, suggesting that the tool is a useful

method for facilitating forward-looking analysis of companies and industries. 135 Separately, two

commenters suggested that the Commission should permit fund managers to use forward-looking

assessments or future-based methodologies to analyze investments when determining whether

they fit in a given industry or sector, on the condition that such funds use a modifying indicator

133

See, e.g., SIFMA AMG Comment Letter; BlackRock Comment Letter; Seward & Kissel Comment Letter;

WisdomTree Comment Letter.

134

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

135

SIFMA AMG Comment Letter.

like “emergent” or “future” in their names to signal to investors that their analysis of investments

is not completely based on current characteristics of the issuer. 136

We appreciate commenters’ concerns regarding potential challenges in determining

whether a particular asset is invested in accordance with the investment focus that the fund’s

name suggests, particularly with respect to thematic investment strategies. Consistent with the

2022 Proposal, the plain English and established industry use requirements in the final

amendments are intended to provide flexibility for funds to determine what qualifies as a

reasonable nexus between a security and a given investment focus. 137 Similar to the

Commission’s discussion in the Proposing Release regarding the application of the final

amendments, it would generally be reasonable for a fund to determine that a sufficient nexus

exists between certain securities and a given industry if the securities are issued by companies

that derive more than 50% of their revenue or income from, or own significant assets in, the

industry. There also may be instances where the percentage could be smaller, such as where a

large company is a dominant firm in a given industry (e.g., the firm is an acknowledged leader in

the industry). Further, the use of text analytics to assign issuers to industries based on the

frequency of particular terms in an issuer’s disclosures is not, in and of itself, sufficient to create

a reasonable nexus because it is not reasonable to conclude that an issuer is in a given industry

solely because the issuer’s disclosure documents frequently include words associated with the

industry. 138 These examples are not meant to serve as an exhaustive list of acceptable methods of

136

See SIFMA AMG Comment Letter; BlackRock Comment Letter.

137

See final rule 35d-1(a); see also infra section II.C.

138

The advent and growth of advanced technologies have made increasing use of natural language processing

that can significantly enhance the scale and scope of text analytics. Funds may be able to use these types of

technologies to aid a determination that a nexus exists between a given security and the focus that a fund’s

qualification in a fund’s 80% basket. Given the breadth of fund names and strategies, it is not

possible to provide an enumerated list of circumstances in which a nexus exists between a

security and an industry or a particular investment focus.

Further, as raised by commenters, advisers may offer funds with strategies that seek

exposure to long-term investment opportunities or that seek to identify issuers that are likely to

generate significant amounts of revenue from certain industries or business sectors in the future.

As commenters expressed, it may be challenging for these types of funds to find a reasonable

nexus between their investments and a given investment focus based on current characteristics of

the issuer. In these circumstances, funds may signal to investors, through the use of “emergent,”

“future,” or some other similar term in the fund’s name, that the fund considers some futurebased methodology when assessing whether a nexus exists between a given security and the

investment focus suggested by the fund’s name (e.g., “XYZ Emergent 3D Printing Technology

Fund”). More generally, we recognize that overall context is important in how an investor

interprets a fund’s name. For instance, descriptive terms such as “aggressive,” “conservative,” or

“strategic,” when paired with another term that is covered by the scope of the rule can modify an

investor’s expectations with respect to the fund’s investment focus. The rule is designed to give

fund managers reasonable discretion to define terms in a fund’s name, and to allocate

investments reasonably into the 80% basket in accordance with the investment focus the name

conveys, which can be dependent on the context of the terms in a name. In particular, the final

amended rule requires that terms within a fund’s name must be consistent with the plain English

name suggests that involves analysis going beyond the frequency with which a word or phrase appears in a

document.

meaning or established industry use. We are including these provisions in the final amended rule

to provide fund managers with sufficient flexibility.

Separately, as discussed in the 2022 Proposal, when a fund’s name includes terms

suggesting an investment focus that has multiple elements, the fund’s 80% investment policy

must address all of the elements in the name (as all of the elements would be reflected in the

investment focus that the fund’s name suggests). 139 The Commission noted, however, that a fund

can take a reasonable approach in specifying how the fund’s investments will incorporate each

element. Commenters expressed broad support for the Commission’s approach, asserting that it

retains the appropriate level of flexibility for advisers to determine how best to allocate

investments under an 80% investment policy. 140 Where a fund’s name suggests an investment

focus that has multiple elements, the fund’s 80% investment policy must address each of those

elements. For instance, a fund with a name that references two or more distinct investment

focuses (e.g., “XYZ Technology and Growth Fund”) could have an investment policy that

provides that each security included in the 80% basket must be in both the technology sector and

meet the fund’s growth criteria. Alternatively, such a fund could instead have an investment

policy that provides that 80% of the value of the fund’s assets will be invested in a mix of

technology investments and growth investments, with some technology investments, some

growth investments, and some investments in both of these categories, with no minimum or

maximum investment requirements specified for either category. In addition, any fund that has a

name that suggests an investment focus would be required to adopt an 80% investment policy

139

See Proposing Release, supra footnote 2, at nn.50-51 and accompanying text; see also final rule 35d1(a)(2) (this provision reflects that a fund’s name may include multiple “terms” suggesting that the fund

focuses its investments in a particular way).

140

Fidelity Comment Letter; CFA Institute Comment Letter; Seward & Kissel Comment Letter.

even if the fund’s name also contains a term that does not suggest an investment focus. For

example, the “XYZ Technology and Real Return Fund” would be required to adopt an 80%

investment policy to invest 80% of the value of its assets in the technology sector despite the

phrase “real return” also appearing in the name.

Moreover, it would generally be reasonable for a fund of funds or other acquiring fund to

include the entire value of its investment in an appropriate acquired fund when calculating

compliance with the 80% investment requirement without looking through to the acquired fund’s

underlying investments. For example, a fund of funds with the name “XYZ Industrials Fund”

with an 80% investment policy to invest in the industrials sector could count the entire value of

its investments in the “ABC Automotive Fund” when calculating compliance with the 80%

investment requirement, provided that the ABC Automotive Fund has an 80% investment policy

to invest in its subsection of the industrials sector. It would not be reasonable, however, for an

acquiring fund in these circumstances to ignore situations where the acquiring fund knows that

an underlying fund is not investing consistent with the acquiring fund’s investment focus. 141 In

such cases, the acquiring fund should take actions to address this departure as it otherwise would

to resolve a temporary departure from the 80% requirement under the final amendments.

ESG-Related Terms

Consistent with the proposal, the final amendments will apply the requirement to adopt

an 80% investment policy to fund names that suggest an investment focus, including names with

terms indicating that the fund’s investment decisions incorporate one or more ESG factors. 142

141

An acquiring fund is not required to continuously monitor the investments of the underlying fund for

purposes of compliance with the amended names rule. For example, the XYZ Industrials Fund may rely on

the ABC Automotive Fund to comply with the ABC Automotive Fund’s 80% policy.

142

See final rule 35d-1(a)(2).

Many commenters supported the inclusion of ESG terms in the expanded scope. 143 Some of

these commenters expressed concerns related to “greenwashing” among funds that have, or

purport to have, ESG- or sustainability-related characteristics. 144 Many of these commenters

asserted that given the developing market interest in, and regulatory and public scrutiny of, funds

that incorporate ESG factors in their investment objectives, to the extent a fund uses an ESGrelated term in its name, the fund should be required to adopt an 80% investment policy that

ensures it will invest in accordance with the investment focus its name suggests. 145

Conversely, several commenters opposed including names with ESG terms in the

expanded scope of the 80% investment policy requirement. 146 Many of these commenters

expressed similar concerns to those discussed above opposing the expanded scope in general,

including potential interpretive issues resulting from the perceived subjectivity of certain ESGrelated terms, and potential increased compliance burdens. 147 Some commenters also articulated

concerns that are unique to funds that use ESG terms. For instance, several commenters

expressed that the Commission’s ESG Disclosure Proposal would be better suited to address

investor understanding of ESG considerations than the proposed names rule scope expansion. 148

143

See, e.g., U.S. SIF Comment Letter; SIFMA AMG Comment Letter; Sierra Club Comment Letter; Public

Citizen Comment Letter; Comment Letter of Bonwood Social Investment (Aug. 16, 2022) (“Bonwood

Comment Letter”).

144

See NASAA Comment Letter; J.P. Morgan Asset Management Comment Letter; U.S. SIF Comment Letter;

Comment Letter of LTSE Services, Inc. (Aug. 16, 2022) (“LTSE Comment Letter”); CFA Institute

Comment Letter.

145

Id.

146

See, e.g., ICI Comment Letter; Calvert Comment Letter; Cato Institute Comment Letter; Invesco Comment

Letter; Robertson-Fisch Comment Letter.

147

See, e.g., TIAA-Nuveen Comment Letter; Calvert Comment Letter; ICI Comment Letter, Robertson-Fisch

Comment Letter. See generally supra section II.A.1.a) (responding to concerns from commenters related to

interpretive challenges and compliance costs connected to the proposed expansion of the 80% investment

policy).

148

See ICI Comment Letter; TIAA-Nuveen Comment Letter.

These commenters generally expressed more support for a disclosure-based framework rather

than a mandated 80% investment policy for fund names that communicate an ESG focus. In

addition, a few commenters expressed that certain terms, depending on the context, may not be

solely used for ESG investment strategies (e.g., “sustainable” or “impact”), or when read

together may provide a different meaning than when presented individually (e.g., “XYZ

Sustainable Growth Fund”). 149

We recognize that “ESG” and similar terms are expansive, incorporating three broad

categories of interest (environmental, social, and governance issues) for investors and asset

managers, with differing levels of focus on each particular issue, and different perspectives on

what attributes of an issuer or investment fit within this terminology. 150 The breadth of ESGrelated terms, as well as evolving investor expectations around terms like “sustainable” or

“socially responsible,” compound the possibility of investor confusion and potential

“greenwashing” in fund names. 151 Moreover, concerns regarding materially deceptive and

misleading fund names are particularly important for funds that incorporate ESG factors in their

investment decisions because, unlike many other non-ESG investment strategies, some ESGrelated strategies are not well-established or commonly understood to the investing public. 152

ESG terms in fund names communicate to investors that the fund will invest in issuers that have

particular characteristics, like other terms that are covered by the expanded scope. Accordingly,

149

See ICI Comment Letter; Dechert Comment Letter.

150

See Robertson-Fisch Comment Letter (arguing that because ESG is a “big tent” term, the use of ESG

terminology in fund names “does not convey very much information” to investors).

151

See supra footnote 37 and accompanying discussion.

152

See Center for American Progress Comment Letter (stating that “[t]here is more variability in investors’

understanding of what many ESG terms mean than with terms like “growth” or “global” because the use of

ESG terms is relatively new and their use often is not tied to specific information about their meaning.”).

there is not a principled basis to treat ESG terms differently than other terms that have the

potential to be materially deceptive and misleading, as suggested by a few commenters that

requested a purely disclosure-based framework for funds that use ESG terms in their name. The

final amendments thus require funds that use ESG terms in their name to adopt an 80%

investment policy.

We recognize, as with fund names that do not include ESG terms, that the general context

of a name with terminology that could connote an ESG focus is critical in how an investor

interprets such a name. 153 For instance, a name such as “XYZ Sustainable Growth Fund” could

reasonably be interpreted as a fund that employs a strategy that seeks growth that is sustainable

over time (i.e., growth that will be maintained at a certain level), or a fund that incorporates ESG

factors into its decision making. In this example, the fund would require an 80% investment

policy regardless, but the fund manager has discretion to reasonably define the terms in the

fund’s name, and to allocate investments into the 80% basket in accordance with the investment

focus the name suggests. 154

Temporary Departures from the 80% Investment Requirement

The final rules we are adopting permit temporary departures from the 80% investment

requirement by allowing a fund temporarily to invest less than the required 80% of the value of

the fund’s assets in accordance with the investment focus or tax treatment its name suggests. 155

Under the final amendments, we are retaining the current rule’s requirement that a fund must

153

See Robertson-Fisch Comment Letter (discussing different hypothetical ESG-related funds that could

deliver very different results to investors, but could be presumably sold under the same name).

154

See also supra footnote 94 and accompanying text; supra paragraph accompanying footnote 132.

155

The amendments to the temporary departure provision are applicable not only to funds whose name suggest

a particular investment focus, but also to tax-exempt funds that are required to invest their assets in

accordance with the provisions of rule 35d-1(a)(3).

determine at the time that it invests whether the investment is in the fund’s 80% basket (“timeof-investment test”). 156 We are adopting a new requirement that, at least quarterly, funds subject

to the 80% investment requirement must review the fund’s portfolio investments to determine

whether the fund’s investments continue to be consistent with the fund’s 80% investment

policy. 157 Funds must comply with the 80% investment requirement “under normal

circumstances,” leaving to funds the determination of what constitutes something other than a

normal circumstance. If, subsequent to an investment, the 80% investment requirement is no

longer met, the fund’s future investments (that is, any portfolio assets it acquires) must be made

in a manner that will bring the fund into compliance with that requirement within the time period

specified in the rule.

A fund may, in other-than-normal circumstances, choose to invest in a manner that is not

consistent with the fund’s 80% investment requirement for a limited period of time. 158 The final

amendments include specific time frames—generally 90 consecutive days, as opposed to 30 days

as proposed—for getting back into compliance if a fund departs from the 80% requirement,

either intentionally in other-than-normal circumstances, or as identified by the fund as a part of

its quarterly review or otherwise. Funds are permitted under the final rules to temporarily depart

from the 80% investment requirement in connection with a reorganization (for which the final

rule does not specify a required time frame for accompanying temporary departures) or a fund

156

See final rule 35d-1(b).

157

Final rule 35d-1(b)(1)(i).

158

Final rule 35d-1(b)(1)(ii).

launch (departure not to exceed the period of 180 consecutive days) or when a notice of a change

in a fund’s policy in certain circumstances has been provided to fund shareholders. 159

Under the proposed amendments, funds would have been permitted to depart from the

fund’s 80% investment policy only under certain specified circumstances. 160 When a fund

departed under the specified circumstances, the proposed amendments would have required

funds to come back into compliance with the 80% investment requirement within 30 consecutive

days after the initial departure. Departures from names rule compliance for fund launches would

not have been permitted to exceed a period of 180 consecutive days. The proposed amendments

did not specify a required time frame for temporary departures that were the result of

reorganizations or where the 60-day notice has been provided to shareholders. In all cases, the

proposed amendments would have required that a fund would have to come back into

compliance as soon as reasonably practicable.

We received comment letters both supporting and opposing the Commission’s proposed

approach for temporary departures. Among the primary reasons commenters supported the

proposal was their belief that the proposed amendments brought more certainty to the current

rule’s approach to temporary departures from 80% and would require funds to be more vigilant

with respect to their names rule compliance. 161 In particular, several commenters supported the

159

Final rule 35d-1(b)(1)(iii); see also rule 35d-1(g) (defining “launch” as a period, not to exceed 180

consecutive days, starting from the date the fund commences operations).

160

Temporary departures under the proposed amendments would have been permitted only: (1) as a result of

market fluctuations, or other circumstances, where the temporary departure is not caused by the fund’s

purchase or sale of a security or the fund’s entering into or exiting an investment; (2) to address unusually

large cash inflows or unusually large redemptions; (3) to take a position in cash and cash equivalents or

government securities to avoid a loss in response to adverse market, economic, political, or other

conditions; or (4) to reposition or liquidate a fund’s assets in connection with a reorganization, to launch

the fund, or when notice of a change in the fund’s 80% investment policy has been provided to fund

shareholders at least 60 days before the change pursuant to the rule.

161

See, e.g., NASAA Comment Letter; PRI Comment Letter; Consumer Federation of America Comment

Letter; Environmental Defense Fund Comment Letter.

goal of bringing the rule in line with investors’ expectations by ensuring that the investments

made by the fund remain consistent with the fund’s name and the investor’s investment

preferences over the long-term life of the fund. 162

The Commission, however, did receive many comments requesting that we reconsider

the proposed approach to temporary departures. The Proposing Release sought to permit

appropriate flexibility to depart temporarily from the 80% investment requirement in particular,

time-limited circumstances when doing so would be beneficial to the fund and its shareholders,

while providing additional parameters designed to prevent a fund from investing inconsistently

with its 80% investment policy for an extended period of time. 163 Commenters, as discussed in

the next section, raised concerns that the proposed amendments were overly prescriptive, lacked

flexibility, and were too limited in the amount of time funds would have to bring their

investments back into compliance. In response to comments received, we are adopting an

approach that modifies the proposed amendments, which seeks to balance the concerns raised by

commenters and the goals of the proposal.

Time-of-Investment Test and Quarterly Review

Under the final amendments, as under the current names rule, a fund is required to

determine at the time it invests whether the security is appropriately included in the fund’s 80%

basket. 164 This “time-of-investment test” was originally adopted to avoid requiring a fund to

rebalance its investments if the fund’s portfolio were no longer invested in accordance with the

fund’s 80% investment policy as a result of, for example, market movements or an influx of cash

162

See, e.g., Consumer Federation of America Comment Letter; Center for American Progress Comment

Letter; NASAA Comment Letter.

163

See Proposing Release, supra footnote 2, at paragraph following n.35.

164

See final rule 35d-1(b).

from new investors (“drift”). 165 The proposal would have removed the time-of-investment test

and instead would have required that a fund remedy drift within 30 days of the initial departure.

In effect, the proposed rule would have required that funds engage in continual compliance

testing to reassess the characteristics of investments in the fund’s 80% basket—or even daily

testing and reassessment for those funds making investments each trading day—to ensure that

they observe and correct any drift quickly in order to comply with the proposed requirement that

the fund come back into compliance with the names rule within 30 days.

In response to comments we received, and as discussed in more detail below, we are not

adopting a requirement for continual or daily monitoring to reassess the characteristics of the

investments in the fund’s 80% basket and are instead maintaining a time-of-investment test in the

names rule. Under the final amendments, funds will instead be required to reassess their portfolio

assets’ inclusion in the fund’s 80% basket at least quarterly. This change means that portfolio

investments that are included in the 80% basket at the time of investment will continue to be

considered to be consistent with the fund’s 80% investment policy unless the fund identifies

otherwise as part of its required quarterly reassessments, or outside of its required quarterly

reassessments identifies that these investments’ characteristics are inconsistent with the fund’s

80% investment policy. This approach to assessing the characteristics of portfolio investments in

the 80% basket, however, does not change the requirement for funds to maintain at least 80% of

the value of their assets in 80% basket assets (as determined at the time of investment), unless

the fund departs temporarily from 80% in accordance with the final amendments. As an example,

when a fund acquires Investment A, the fund must assess the characteristics of that investment

165

See 2001 Names Rule Adopting Release, supra footnote 8, at n.32 and accompanying text; see also

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

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

when the purchase is made to determine whether it should be included in the 80% basket. When

a fund acquires a new investment, Investment B, the fund must assess the characteristics of

Investment B when it invests to determine whether it should be included in the 80% basket.

When determining whether 80% of the fund’s assets are invested in the 80% basket when

Investment B is made, the fund must consider the value of Investment A, but would not have to

re-assess the characteristics of Investment A. Each quarter, the fund must re-assess the

characteristics of Investments A and B for consistency with the fund’s 80% investment policy.

We received many comments supporting the retention of the time-of-investment test and

urging the Commission not to adopt an approach that would require continual compliance

monitoring. 166 Several commenters stated that the time-of-investment test is a standard that is

used in other portfolio compliance tests under the Investment Company Act and that consistency

with how fund holdings are measured across Investment Company Act rules would therefore be

a preferable approach in the context of the names rule. 167 The proposed approach, which would

have removed the time-of-investment test, would instead have effectively required that fund

managers reassess portfolio investments’ characteristics for consistency with the fund’s 80%

investment policy every time the fund makes a new investment, and to take corrective action

almost immediately upon identifying any departure from 80%. The time-of-investment test

affords some flexibility to fund managers by focusing on whether an asset is consistent with the

166

See, e.g., ICI Comment Letter; Calamos Comment Letter; Seward & Kissel Comment Letter; Fidelity

Comment Letter; Dechert Comment Letter; T. Rowe Comment Letter; Nationwide Comment Letter; Cato

Institute Comment Letter; Stradley Comment Letter; Dimensional Comment Letter; WisdomTree

Comment Letter; MFS Comment Letter; Invesco Comment Letter; Capital Group Comment Letter.

167

For example, commenters pointed to time of acquisition tests in the 1940 Act, including, section 5 the antipyramiding provisions of section 12(d)(1) [15 U.S.C. 80a-12(d)(1)] and the limitations on investments in

securities-related issuers in section 12(d)(3) [15 U.S.C. 80a-12(d)(3)]. See, e.g., ICI Comment Letter;

Dechert Comment Letter; Seward & Kissel Comment Letter; Fidelity Comment Letter; Calamos Comment

Letter; Nationwide Comment Letter.

fund’s 80% investment policy at the time of investment, rather than requiring ongoing

reassessments. In addition, commenters expressed concern that limitations on fund manager

discretion prevent investors from having access to actively-managed funds that are subject to the

names rule. 168 Commenters also supported retaining the time-of-investment test so that in the

event that a fund’s portfolio inadvertently drifts out of compliance with the 80% investment

requirement because the characteristics of portfolio investments change, the fund would not be

forced to sell a security that was originally purchased in compliance with the names rule in order

to come back into compliance within a specific time frame (as proposed, generally 30 days). 169

Commenters were concerned the proposed approach would potentially force sales or purchases

of portfolio assets at inopportune times with the potential to intensify the market conditions that

prompted these transactions in the first place. 170

Commenters also stated that there would be substantial burden on funds, their sponsors,

and their administrators to implement a continual or daily program for re-assessing portfolio

investments for names rules compliance purposes. 171 Commenters argued that the burden of

implementing a continual monitoring program is not warranted given the asserted lack of

identified significant harm to investors from portfolio drift and the burden of creating and

maintaining such a program. 172 These commenters stated that the burdens associated with a

168

See Dechert Comment Letter; ICI Comment Letter.

169

See, e.g., Stradley Comment Letter; ICI Comment Letter; Dechert Comment Letter; Seward & Kissel

Comment Letter; Fidelity Comment Letter; Calamos Comment Letter; Nationwide Comment Letter.

170

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

171

See, e.g., ICI Comment Letter; Dechert Comment Letter; Seward & Kissel Comment Letter; WisdomTree

Comment Letter.

172

See, e.g., Seward & Kissel Comment Letter, Nationwide Comment Letter; Fidelity Comment Letter. But

see Dogwhistle Comment letter (suggesting an annual compliance testing requirement and that daily

compliance testing is too frequent, but a time-of-investment test is not appropriate).

continual monitoring program would be particularly high because assessing portfolio

investments’ consistency with a fund’s 80% investment policy is not necessarily straightforward,

particularly given the expanded scope of the names rule, which would include terms that are not

readily quantifiable. 173 For example, commenters stated that some of the information that a fund

would need to monitor whether a particular investment should be included in a fund’s 80%

basket may include metrics measured over a period of time that may be longer than the period of

a single day. 174 Some funds, for instance, may adopt investment strategies that involve a multiyear concept that commenters stated cannot be assessed on a single day. 175 Commenters

therefore urged the Commission to adopt a rule that would provide some discretion to determine

whether a particular investment, evaluated over a period of time, is consistent with the fund’s

80% policy. 176 Similarly, commenters raised concerns about continually monitoring compliance

with respect to certain securities, such as growth or value investments, where the name

characteristics could change frequently. 177 For example, securities may be bought that have

characteristics meeting a particular fund’s standards for inclusion in the fund’s 80% basket at the

time of purchase, but these characteristics may change from day to day. Commenters stated that

173

See, e.g., SIFMA AMG Comment Letter; J.P. Morgan Asset Management Comment Letter; ICI Comment

Letter; Dechert Comment Letter; Wellington Comment Letter.

174

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

Comment Letter.

175

See, e.g., ICI Comment Letter; Wellington Comment Letter; Capital Group Comment Letter; SIFMA

Comment Letter.

176

See id.

177

See, e.g., ICI Comment Letter; Seward & Kissel Comment Letter; WisdomTree Comment Letter.

assessing these securities’ characteristics continually would require operational and compliance

build-outs that would be substantial. 178

After considering comments, we are retaining the current rule’s time-of-investment test

that requires a fund to determine, for purposes of names rule compliance, whether an investment

is within the fund’s 80% basket at the time of investment. While the time-of-investment test must

be conducted only at the time that the investment is made, the final rule incorporates a process

for periodic reassessment of fund investments in order to ensure that that the fund is invested

consistent with the focus the fund’s name suggests. Rather than adopting a rule that effectively

would require daily or continual compliance monitoring, the final rule requires that a fund

review its portfolio investments on an at-least quarterly basis to determine whether it continues

to comply with the 80% investment requirement.

The time-of-investment standard affords to the portfolio manager more flexibility than

the proposed amendments, as we acknowledge that there may be certain fluctuations in a fund’s

portfolio and within the 80% basket that naturally occur over time, and that may not be outside

of investors’ reasonable expectations. For example, a mid-cap equity fund may hold securities

that at the time of investment qualified under the fund’s 80% investment policy as mid-cap, but

that may temporarily move into the large-cap category and back again. We understand that this

type of drift is a natural fluctuation in a portfolio, as certain characteristics of securities’ may not

be static. We also appreciate that, for certain funds that are subject to the 80% investment

requirement, this drift may occur relatively frequently, and so a standard that would require daily

or continual compliance monitoring could be particularly burdensome and require very frequent

178

See, e.g., ICI Comment Letter; Dechert Comment Letter; Seward & Kissel Comment Letter; WisdomTree

Comment Letter.

portfolio re-balancing. 179 While we recognize that drift may occur and that portfolio managers

should have discretion in managing their portfolio in the best interest of the fund, we are

adopting a quarterly review requirement to help ensure portfolio adjustments so that drift does

not go unchecked. This quarterly time frame will require a fund to address drift more quickly,

which in turn will help ensure greater consistency between the fund’s investments and the focus

its name suggests, as compared to a review period based on a longer periodic time frame (for

example, an annual testing requirement as one commenter suggested). 180

The combination of a time-of-investment test with a minimum quarterly review

requirement balances the dynamic nature of funds’ portfolio securities with compliance with the

fund’s 80% investment policy. The required time frame for review is consistent with the final

rules’ quarterly Form N-PORT reporting requirement, which requires funds (except in the case

of money-market funds and BDCs) to report on Form N-PORT the value of the fund’s 80%

basket as well as each investment that is included in the fund’s 80% basket. 181 The required

minimum quarterly review helps ensure that funds are reviewing their portfolios for names rule

compliance on a periodic basis so that instances of drift can be identified without the burden of

assessing each investment’s inclusion in the 80% basket every day. The final amendments are

designed to balance the costs associated with monitoring fund investments’ inclusion in the 80%

basket with the harm to investors that could result if a fund were permitted a longer time frame

for reviewing its portfolio. 182 The time-of-investment test coupled with a quarterly portfolio

review is designed to ensure that a fund’s name more accurately communicates to investors

179

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

180

See Dogwhistle Comment Letter.

181

See infra section II.E.

182

See infra section IV.D.2.

important information about the fund’s investments while providing funds with appropriate

flexibility within a time-limited period.

One commenter also articulated concerns that are unique to funds that use the term “taxexempt” in their name. 183 This commenter requested clarification on how tax-exempt funds that

apply the income test under the names rule should measure compliance with the 80% investment

policy requirement under the proposed amendments. 184 Specifically, this commenter urged the

Commission to confirm that compliance with the income test would be based solely on income

that the fund distributes. The final rule requires that a fund review its portfolio at least quarterly

to determine whether it continues to comply with the 80% investment requirement. Accordingly,

a tax-exempt fund applying the income test will be required to assess its portfolio on an at-least

quarterly basis to determine whether the fund’s assets are invested so that at least 80% of the

income that it distributes will be exempt from federal income tax or from both federal and state

income tax.

Investing Consistent with 80% Investment Policy “Under Normal

Circumstances”

The final amendments, like the current names rule, require a fund to invest in accordance

with its 80% investments policy “under normal circumstances.” That is, under the final

amendments, a fund’s 80% policy applies under normal circumstances, but funds may depart

183

ICI Comment Letter III. The commenter also suggested that tax-exempt funds using an income test be

permitted to count taxable market discount toward their 80% baskets. The treatment of such taxable market

discount is outside the scope of this rulemaking, as it was not addressed in the proposal, and, therefore, not

addressed in the final amendments.

184

The names rule currently allows, and the final amendments will continue to allow, a fund with “taxexempt” in its name to adopt either an asset test or an income test to satisfy its 80% investment policy

requirement. The income test requires that a fund invest its assets so that at least 80% of the income that it

distributes will be exempt from federal income tax or from both federal and state income tax. See final rule

35d-1(a)(3)(i)(B).

from the fund’s investment policy in other-than-normal circumstances. The proposed rule would

have, in place of the rule’s current standard that a fund’s 80% investment policy apply “under

normal circumstances,” included specific exceptions that address circumstances where

departures would be permitted. 185 Unlike the proposal, funds have flexibility under the final

amendments to determine what constitutes other-than-normal circumstances where the fund

could depart intentionally from the 80% requirement (for example, the reasons for departures

that the proposed amendments included, or other circumstances where market conditions or fund

operations are other-than-normal). 186 Under the final amendments, departure from the fund’s

80% policy in other-than-normal circumstances is time-limited to 90 consecutive days from the

initial departure, whereas the proposal would have required a fund to be back in compliance

generally within 30 days.

The Commission received some comments supporting the proposed approach to change

the current rule’s “under normal circumstances” standard in favor of a more prescriptive

approach. Commenters stated that the current standard has led to more uncertainty and less

consistency in how fund investments correspond to a fund’s name than the proposed approach

would over extended periods of time. 187 Conversely, the Commission also received many

comment letters opposing the proposed approach of permitting departure from the 80%

185

Under the proposed rule, temporary departures would have been permitted only: (1) as a result of market

fluctuations, or other circumstances where the temporary departure is not caused by the fund’s purchase or

sale of a security or the fund’s entering into or exiting an investment; (2) to address unusually large cash

inflows or unusually large redemptions; (3) to take a position in cash and cash equivalents or government

securities to avoid losses in response to adverse market, economic, political, or other conditions; or (4) to

reposition or liquidate a fund’s assets in connection with a reorganization, to launch the fund, or when

notice of a change in the fund’s 80% investment policy has been provided to fund shareholders at least 60

days before the change pursuant to the rule. See proposed rule 35d-1(b).

186

See supra footnote 160.

187

See, e.g., NASAA Comment Letter; Environmental Defense Fund Comment Letter.

investment requirement only under the circumstances that the proposed amendments

specified. 188 Commenters stated that the proposed approach was overly prescriptive and would

unnecessarily curb the ability of a fund’s portfolio manager to act in the best interest of the

fund. 189 For example, in an effort to bring a fund back into compliance within the proposed 30day period, fund managers may feel compelled either to divest or purchase an investment that

may not be strategically in the best interest of the fund. In addition, a commenter argued that the

Proposing Release did not cite evidence that the “under normal circumstances standard” has been

abused or has resulted in the use of materially deceptive or misleading names. 190 Commenters

also argued that while the proposed amendments would permit departures from the 80%

requirement only in the circumstances that the amendments specified, unforeseeable

circumstances that the amendments did not contemplate—and that any enumerated list of

circumstances could not contemplate in an evergreen way—may present reasons for departing

that could be appropriate in the interests of the fund and consistent with the goals of the names

rule. 191

Fund managers are fiduciaries to the funds they manage. Commenters advocated that, as

such, portfolio managers should have discretion in determining when a fund needs to depart from

188

See, e.g., ICI Comment Letter; SIFMA AMG Comment Letter; J.P. Morgan Asset Management Comment

Letter; CFA Institute Comment Letter; Comment Letter of U.S. Chamber of Commerce Center for Capital

Markets Competitiveness (Aug. 12, 2022) (“USCOC Comment Letter”); Dimensional Comment Letter;

WisdomTree Comment Letter; Calamos Comment Letter; MFDF Comment Letter; MFS Comment Letter;

Capital Group Comment letter; Seward & Kissel Comment Letter; Fidelity Comment Letter; Comment

Letter of Nasdaq, Inc. (Aug. 16, 2022) (“Nasdaq Comment Letter”); Dechert Comment Letter; T. Rowe

Comment Letter; Nationwide Comment Letter; Cato Institute Comment Letter.

189

See, e.g., ICI Comment Letter; SIFMA AMG Comment Letter; J.P. Morgan Asset Management Comment

Letter; Dimensional Comment Letter; MFS Comment Letter; Capital Group Comment letter; Fidelity

Comment Letter; Dechert Comment Letter; T. Rowe Comment Letter; Calamos Comment Letter;

Nationwide Comment Letter.

190

See Cato Institute Comment Letter.

191

See, e.g., SIFMA AMG Comment Letter; Dechert Comment Letter; Fidelity Comment Letter.

its 80% investment policy. Some commenters supported retaining the current rule’s “under

normal circumstances” standard in order to give portfolio managers flexibility to act in the best

interest of the fund and its shareholders, which can include temporarily departing from the fund’s

80% investment policy. 192 In addition, some commenters stated that they believe that some

investors may prefer investing in funds where the portfolio manager has discretion to depart from

the investment focus denoted by the fund’s name when the portfolio manager believes the

departure is in the best interest of the fund. 193

Commenters suggested alternatives to the proposed approach, stating that if the

Commission adopts a prescriptive list of permissible circumstances under which a fund may

depart from the 80% policy, the list should be expanded, for example to permit departure for

repositioning fund assets in connection with changes of sub-advisers and/or portfolio managers,

and in periods leading up to material strategy changes. 194 These commenters suggested the

inclusion of a “catch-all” provision, as well, permitting any departures the portfolio manager

believes are reasonable. Commenters also provided alternatives that would permit additional drift

beyond the circumstances that the proposed amendments specified, so long as the fund provided

additional disclosure for the reasons why the fund may drift. 195 Another suggested an alternative

192

See, e.g., ICI Comment Letter; SIFMA AMG Comment Letter; Dechert Comment Letter; CFA Institute

Comment Letter; Stradley Comment Letter; USCOC Comment Letter; Cato Institute Comment Letter;

Dimensional Comment Letter; Federated Comment Letter; T. Rowe Comment Letter; WisdomTree

Comment Letter.

193

See, e.g., SIFMA AMG Comment Letter; Dechert Comment Letter; Nationwide Comment Letter; T. Rowe

Comment Letter; MFS Comment Letter; JP Morgan Asset Management Comment Letter.

194

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

195

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

included allowing funds that use the term “managed” in their name to have greater flexibility to

depart from the fund’s 80% investment policy. 196

After considering comments, we are adopting amendments that retain the current “under

normal circumstances” provision. While we are retaining the current “under normal

circumstances” standard, we are also adopting new limitations on how long a fund may depart

from 80% under this provision, discussed below, which addresses the concerns raised by

commenters that the current standard allows for investments not consistent with the fund’s name

over extended periods of time. 197 Retaining the current “under normal circumstances” provision

is designed to provide fund managers with flexibility to manage their portfolios while requiring

that funds normally invest 80% of their assets consistent with their 80% investment policy. 198

We acknowledge that there could be circumstances when it is in the best interest of the

fund and its investors for the portfolio manager to have discretion to depart from the fund’s 80%

investment policy. This interest must be balanced, however, with the need for a fund’s name to

convey accurately to investors the underlying investments that correspond with the focus the

fund’s name suggests. Rather than require additional disclosure that acknowledges drift or to

provide a separate standard for funds that include the term “managed” in their name, we are

adopting a requirement to invest in accordance with the 80% requirement “under normal

circumstances,” combined with a set time frame to come back to 80%, to balance these concerns.

196

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

197

Prolonged drift could result in fund names that have a tendency or capacity or deceive or mislead,

regardless of whether such drift has resulted in actual deception of investors. See, e.g., Cato Institute

Comment Letter; see also supra footnote 40.

198

See 2001 Names Rule Adopting Release, supra footnote 8, at nn.37-40 and accompanying text.

We are adopting, therefore, a limit on the length of time that a fund may depart in other-thannormal circumstances to 90 consecutive days after the initial departure.

Although we are not adopting the proposed approach of delineating the circumstances in

which a fund may depart intentionally from the 80% requirement, an intentional departure must

be in other than “normal” circumstances, which could include but is not limited to the

circumstances included in the proposed approach. These circumstances could include temporary

departures that occur as a result of market fluctuations, index rebalancing, cash flows/inflows, or

temporary defensive positions, among others. 199 These circumstances do not, however, represent

the extent of events or circumstances where a fund, in considering its obligations under the

names rule and the prohibitions of section 35(d), may determine that other-than-normal

circumstances exist, warranting a departure from 80%. The final rules’ approach provides

flexibility to depart under circumstances that may not have been included in the proposal’s

delineated reasons for departures. Although the question of whether circumstances are “normal”

is based on the facts and circumstances, if a fund were to deviate in purportedly other-thannormal circumstances serially or frequently, this may suggest that in fact those circumstances are

“normal” and otherwise raise questions about the appropriateness of the fund’s name under

section 35(d) if the fund’s portfolio is not invested consistent with its name for prolonged periods

of time. 200 When a fund deviates from the 80% investment requirement due to other-than-normal

199

See 2001 Names Rule Adopting Release, supra footnote 8, at text preceding footnote 39 (“[The “under

normal circumstances” standard] will permit investment companies to take “temporary defensive positions”

to avoid losses in response to adverse market, economic, political, or other conditions.”).

200

See infra section II.A.5 text accompanying footnotes 318-321.

circumstances, as we discuss below, the fund is required to maintain a record documenting the

date of the departure and the reason for the departure. 201

Time to Come Back into Compliance

The final amendments require that funds come back into compliance with the 80%

investment requirement as soon as reasonably practicable in the case of drift (i.e., where the fund

identifies that its investments are not consistent with this requirement under the names rule, for

example, as a result of inadvertent drift identified as part of the fund’s quarterly review). 202 In all

circumstances, a fund must come back into compliance within 90 consecutive days, as measured

from the time that the fund identifies a departure from the 80% investment policy (as part of its

quarterly review or otherwise), or the time the fund initially departs, in other-than-normal

circumstances, from the 80% investment policy. 203 Under the final amendments, consistent with

the current rule, where a fund identifies that the 80% requirement is no longer met, the fund must

make all future investments in a manner that will bring the fund into compliance with the fund’s

80% investment policy. The Commission proposed to require funds to come back into

compliance with the 80% investment policy within 30 days from the initial departure from 80%.

We are modifying the proposed approach to respond to concerns raised by commenters.

The Commission received some support for the proposed period for funds to come back

into compliance. 204 The Commission received many comments, however, arguing that a 30-day

201

See infra section II.F (discussing the requirement under the final amendments for funds to maintain records

documenting the reasons for each departure).

202

Final rule 35d-1(b).

203

Id. Although the temporal limits in the final amendments start from the time that a departure is identified, a

fund may not avoid coming into timely compliance, if the fund failed to identify departures because the

fund did not perform the required quarterly review, or if the fund failed to perform quarterly reviews that

are reasonably designed to identify departures.

204

See, e.g., PRI Comment Letter.

period was not an appropriate time limit on departures. 205 While some commenters stated that a

30-day period may be appropriate for some asset classes or in certain market conditions, these

commenters contended that a 30-day period may be too short in certain market conditions or in

unanticipated extenuating circumstances. 206 For example, one commenter stated that while a

fund may be able to remedy a departure from the 80% investment policy that is the result of

unusually large flows within 30 days, a portfolio manager may need more time when divesting

securities to accommodate when an index rebalances or where a strategy may need to be

reconsidered given exogenous events. 207

Commenters stated that the proposed 30-day time period may require a fund to make

forced purchases and sales at potentially undesirable prices or at inappropriate times. 208 For

example, if a small-cap security becomes a mid-cap security and therefore can no longer be

included in the small-cap fund’s 80% basket, the fund may be required to sell the holding within

the proposed 30-day period, even though the portfolio manager believes that it is in the best

205

See, e.g., SIFMA AMG Comment Letter; ICI Comment Letter; CFA Institute Comment Letter; Dechert

Comment Letter; Cato Institute Comment Letter; WisdomTree Comment Letter; NASAA Comment Letter;

MFDF Comment Letter; MFS Comment Letter; J.P. Morgan Asset Management Comment Letter; Seward

& Kissel Comment Letter; Fidelity Comment Letter; Nationwide Comment Letter; Dimensional Comment

Letter; Wellington Comment Letter; Capital Group Comment Letter.

206

See, e.g., ICI Comment Letter; Dechert Comment Letter; Stradley Comment Letter; T. Rowe Co

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