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New Rule on Fund Names Becomes Operative in 2002

December 01, 2001

By Investment Management Practice Group

The SEC's Division of Investment Management has issued further guidance in the form of an updated Q&A responding to frequently asked questions about Rule 35d-1, the new investment company name rule. The rule, which was adopted earlier this year, requires every fund that has a name suggesting a focus on a particular type of investment to invest at least 80% of its net assets (plus borrowings made for investment purposes) in investments of that type. This contrasts with the previous requirement that a fund be at least 65% invested in investments of a type suggested by its name. The required minimum percentage is measured "under normal circumstances," which means that a fund may depart from the 80% requirement in extraordinary market conditions, as well as for a reasonable period in other limited circumstances, such as when the fund experiences unusually large cash inflows or redemptions. A fund has until July 31, 2002 to comply with the rule's requirements.

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