New Rule on Fund Names Becomes Operative in 2002
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.