• Deborah

Published on May 25 by the Securities and Exchange Commission (SEC), Proposed rule: Investment Company Names (The Proposed rule) objective is to enhance investor protection by improving and clarifying the requirement for certain funds. The Proposed rule also includes enhanced prospectus disclosure requirements regarding the terminology used in fund names.


Key topics of discussion encompass:

80% investment policy requirement

  • This policy requirement will be broadened to bring into scope fund names that include terms suggesting that the fund focuses in investments that have, or whose issuers have, particular characteristics.

  • A fund would be permitted to depart temporarily from the requirement to invest at least 80% of the value of its assets in accordance with the investment focus or tax treatment its name suggests only under certain conditions..

Prospectus disclosure defining terms used in fund name

Certain funds’ registration forms will be amended requiring each fund subject to the 80% investment policy to include disclosure in its prospectus that defines the terms used in its name.


Plain English/established industry use requirement

Funds subject to 80% investment policy, will be required to ensure consistency between any terms used in the fund’s name that suggest either an investment focus, or that such fund is a tax-exempt fund and those terms’ plain English meaning or established industry use.


Materially deceptive and misleading use of ESG terminology

  • The Proposed rule will introduce the concept of “integration funds”. ‘Integration funds are 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’.

  • Their names would be defined as materially deceptive and misleading if the name includes terms suggesting that the fund’s investment decisions incorporate one or more ESG factors.

N-PORT Reports

The N-PORT form will be amended to include a new reporting item for registered investment companies, regarding the 80% investment policy that a fund would adopt in compliance with the names rule.


Record Keeping

  • Funds subject to the 80% investment policy will be required to maintain certain records documenting their compliance with the rule.

  • Funds not subject to the 80% investment policy would be required to maintain a written record explaining why the 80% investment policy is not required.

Comments are due 60 days after publication in the Federal Register.


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