Amendments To The Names Rule – Fund Finance

On September 20, 2023, the SEC adopted amendments to the Names
Rule (35d-1) that will significantly expand the Names Rule’s
applicability and will require all funds to consider whether
changes are required to their names, 80% policies, disclosures,
compliance tests and reporting requirements.

In summary, under the final rule, fund names with terms that
suggest such funds focus in investments that have, or investments
whose issuers have, particular characteristics will be
required to have an 80% policy. The SEC declined to define
“particular characteristics” but stated that covered
terms include “growth” and “value,” terms with
ESG- or sustainability-related characteristics, and terms that
reference a thematic focus. Terms used in the fund’s name that
suggest an investment focus or that the fund’s distributions
are tax-exempt must be defined consistently with such terms’
plain English meaning or established industry use in the fund’s
prospectus, which must also include the criteria the fund uses to
select investments that the term describes. Funds are required to
review their portfolio assets’ inclusion in their 80% baskets
at least quarterly. If a fund falls out of compliance with its 80%
policy, it will have 90 days to get back into compliance. To
determine compliance with its 80% policy, the final rule requires a
fund to use a derivative instrument’s notional amount, rather
than its market value, with certain adjustments. Unlisted
registered closed-end funds or BDCs that are required to adopt an
80% policy may not change that policy without a shareholder vote,
with certain exceptions.

The SEC also amended Form N-PORT to require funds to report the
value of their 80% basket and whether an investment is included in
the 80% basket. The final rules also include recordkeeping
provisions related to a fund’s compliance with the names
rules.

An in-depth client alert on the amended Name Rules will be
circulated in the coming weeks.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.