Investment Company Names

August 21, 2023

On May 25, 2022, the SEC proposed amendments to address certain categories of investment company names that are likely to mislead investors about an investment company’s investments and risks. The proposal also amends the rule requiring certain funds to adopt a policy to invest at least 80% of assets based on the investment approach suggested by the fund name, as well as updates notice requirements and establishes recordkeeping requirements. Prospectus disclosure requirements for terminology used in fund names, as well as amendments to Form N-PORT were proposed.

Affected Forms Include

• Form N-1A (Revised Item 4)
• Form N-2 (Revised Item 8)
• Form N-8B-2 (New General Instruction 2.(l) and Revised Item 11)
• Form S-6 (New General Instruction 5)
• Form N-PORT (Revised Part B and C)

Proposed Amendments Include

• Broadening the 80% investment policy requirement, to apply to any fund name with terms suggesting that the fund focuses in investments that have, or whose issuers have, certain attributes, including names signifying that decisions incorporate one or more ESG factors.
• Specifying circumstances in which a fund may depart from its 80% investment policy, such as due to:
  • A result of market fluctuations
  • Unusually large cash inflows or redemptions
  • Positions in cash and cash equivalents or government securities to avoid a loss in response to adviser market, economic, political, or other conditions
  • Repositioning or liquidating of a fund’s assets in connection with a reorganization, launch, or if shareholders have been informed of a change to investment policy

• Requiring use of a derivatives instrument’s notional amount, rather than a fund’s market value, for the purpose of determining compliance with its 80% investment policy and the names rule.
• Requiring that registered closed-end funds or BDCs, whose shares are not listed on a national securities exchange and that are required to adopt an 80% investment policy, make the 80% investment policy a fundamental policy in all cases. Changes to 80% investment policies would not be authorized without a shareholder vote.
• Requiring funds that must adopt an 80% investment policy to adhere to recordkeeping requirements that are designed to provide the SEC and others the ability to assess compliance. Funds not adopting an 80% investment policy would be required to maintain a written record of analysis that such policy is not required under the rule. Affected funds would be required to maintain:
  • A record of investments included in the 80% basket and basis for including each
  • Value of the 80% basket (as a percentage of the value of assets)
  • Reasons for any departures from the 80% investment policy
  • Dates of any departures from the 80% investment policy
  • Any notice sent to shareholders pursuant to the names rule
• Maintaining the current notice requirement, however, updating to account for funds that use electronic delivery methods to provide information to their shareholders. Updates include use of specific language, providing the notice separately from other shareholder documents, and presentation requirements of such notice.
• Prospectus disclosure:
  • Requiring a fund to define the terms used in its name and criteria used to choose investments that the term describes
  • Requiring that any terms used in a fund’s name that suggest an investment focus, or that the fund is a tax-exempt fund, must be consistent with those terms’ plain English meaning or established industry use
  • Disclosing the 80% investment policy as one the principal investment strategies
  • Tagging new information with iXBRL, including block text tagging of narrative information about a fund’s 80% investment policy and the terms used in its name, as well as specific criteria used to select investments that the term describes.
• Form N-PORT:
  • New reporting items:
    • Regarding a fund’s names rule compliance, indicating the value of the 80% basket (as a percentage of the value of the fund’s assets), and if applicable, the number of days that the value of the 80% basket fell below 80% of the value of the fund’s assets during the reporting period.
    • Requiring a fund subject to the 80% investment policy to indicate whether each portfolio investment is included in the fund’s 80% basket.

Important Dates

Final action expected in October 2023.

Proposed Rule

https://www.federalregister.gov/documents/2022/06/17/2022-11742/investment-company-names