Seward and Kissel submitted a comment letter to the SEC in response to its request for comments on proposed amendments to the Names Rule.

The proposed amendments would, among other things, expand the 80% investment policy to apply to any fund with a name suggesting an investment focus; change the current requirement that applies a fund’s 80% investment policy at the time of investment (and under normal circumstances) to apply continuously, except in limited circumstances with limited duration; include a new requirement in Form N-PORT requiring a fund subject to the 80% investment policy requirement to indicate, with respect to each portfolio investment, whether the investment is included in the fund’s “80% investment basket”; and amend fund recordkeeping requirements (i) to require that a fund with an 80% investment policy document its compliance with the requirement and (ii) to require that a fund without such a policy maintain a written record documenting its determination that such a policy is not required under the Rule. Additional information concerning the proposed amendments is set forth in our June 13, 2022 Alert.

The comment letter reflects our concerns with the proposed amendments in that we:

• question whether proposed Rule 35d-1 meets the statutory obligation imposed by Congress on the SEC to define fund names or titles that are materially deceptive or misleading;
• believe that the transformation of the 80% investment policy requirement from the current and well understood incurrence test to a maintenance test (with limited exceptions) is inconsistent with the application of most provisions of the 1940 Act and unnecessary, and will likely have profound and unintended effects on funds;
• believe that the proposed “plain English or established industry use” standard applicable to terms used in certain fund names is unnecessary, unclear, potentially contradictory and will likely cause confusion for advisers and investors, as opposed to providing improved clarity; and
• believe that the amendments to Form N-PORT and the new recordkeeping requirements are unwarranted, unduly burdensome and will be costly to implement and maintain.

Our comment letter can be accessed here.