Rule 35d-1 (P-Names Rule) Supporting Statement

OMB CONTROL NUMBER: 3235-0548
SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 35d-1
A.

JUSTIFICATION
1.

Necessity for the Information Collection

Section 35(d) of the Investment Company Act of 1940 (“Investment Company
Act”) 1 prohibits a registered investment company from adopting as part of the name or
title of such company, or of any securities of which it is the issuer, any word or words
that the Commission finds are materially deceptive or misleading and authorizes the
Commission, by rule, regulation, or order, to define such names or titles as are materially
deceptive or misleading. 2 Rule 35d-1 under the Investment Company Act defines as
“materially deceptive and misleading” for purposes of Section 35(d), among other things,
a name suggesting that a registered investment company or series thereof (a “fund”)
focuses its investments in a particular type of investment or investments, in investments
in a particular industry or group of industries, or in investments in a particular country or
geographic region, unless, among other things, the fund adopts a policy to invest at least
80% of the value of its assets in the type of investment, or in investments in the industry,
country, or geographic region, suggested by its name (an “80% investment policy”). 3 The
names rule imposes a similar 80% investment policy requirement for funds that have
names suggesting that a fund’s distributions are exempt from federal income tax or from

1

15 U.S.C. 80a-1 et seq.

2

15 U.S.C. 80a-34(d).

17 CFR 270.35d-1. A policy that a fund must adopt under rule 35d-1 is referred to as an
“80% investment policy” and the fund’s investments invested in accordance with this policy as
the fund’s “80% basket.”
3

both federal and state income tax (“tax-exempt funds”). Rule 35d-1 further requires either
that the 80% investment policy be fundamental or, in the case of funds other than taxexempt funds, that the fund has adopted a policy to provide its shareholders with at least
60 days prior notice of any change in the investment policy (“notice to shareholders”).
On May 25, 2022, the Commission proposed amendments to rule 35d-1. 4 Under
this proposal, the scope of funds covered by the 80% investment policy requirement of
rule 35d-1 would be expanded. In addition to those fund names currently subject to the
rule, the proposal would specify that any fund with a name suggesting that the fund
focuses its investments in investments that have, or whose issuers have, characteristics
suggested by the fund’s name would have to adopt an 80% investment policy.
The Commission further proposed to update rule 35d-1’s notice requirement
expressly to address funds that use electronic delivery methods to provide information to
their shareholders. The proposed amendments also would require notices not only to
describe a change in the fund’s 80% investment policy, but also a change to the fund’s
name that accompanies such an investment policy change.
The proposed amendments would also include certain new recordkeeping
requirements. The amendments would newly require a fund that is required to adopt an
80% investment policy to maintain a written record documenting its compliance with the
rule, including the fund’s record of which assets are invested in the fund’s 80% basket,
the basis for including each such asset in the fund’s 80% basket, as well as the operation
of its 80% investment policy. Funds that do not adopt an 80% policy would be required

4

Investment Company Names, Investment Company Act Release No. 34593 (May

25, 2022).

2

to maintain a written record of the fund’s analysis that an 80% policy is not required
under rule 35d-1. A fund also would be required to keep records of any notice sent to the
fund’s shareholders pursuant to the rule.
Rule 35d-1, including the proposed amendments, contains collection of
information requirements. These collection of information requirements include, as
detailed in the chart below, the proposed notice requirement and recordkeeping
requirements (those for funds that are required to adopt an 80% investment policy, and
those for funds that do not adopt an 80% investment policy).
2.

Purpose and Use of the Information Collection

Rule 35d-1 is designed to address certain broad categories of investment company
names that, in the Commission’s view, are likely to mislead an investor about a
company’s investments and risks. The rule’s provisions, including those that would be
added as a result of the proposal, are intended to further that goal. For example, the rule’s
notice to shareholders provision is intended to ensure that when shareholders purchase
shares in a fund based, at least in part, on its name, and with the expectation that it will
follow the investment policy suggested by that name, they will have sufficient time to
decide whether to redeem their shares in the event that the fund decides to pursue a
different investment policy. Further, the proposed expansion of fund names covered by
the rule is designed to help ensure that a fund’s investment activity supports the
investment focus its name communicates and, thus, the investor expectations the name
creates. The proposed recordkeeping requirements are designed to help ensure
compliance with the rule’s requirements and aid in oversight.

3

3.

Consideration Given to Information Technology

The Commission has historically acted to modernize the manner in which
information is disclosed to the public and provided to investors in order to keep up with
changes in the industry and technology. The proposed amendments would incorporate
some modifications to the current notice requirement that are designed to better address
the needs of shareholders who have elected electronic delivery and to incorporate
additional specificity about the content and delivery of the notice. Further, the
Commission’s electronic filing system (“EDGAR”) automates the filing, processing, and
dissemination of full disclosure filings. The system permits publicly held companies to
transmit their filings to the Commission electronically. This automation has increased the
speed, accuracy and availability of information, generating benefits to investors and
financial markets. The rule, however, does not require that a fund file the notice to
shareholders with the Commission.
4.

Duplication

The Commission periodically evaluates rule-based reporting and recordkeeping
requirements for duplication and reevaluates them whenever it proposes a rule or a
change in a rule. The information required by rule 35d-1 is not generally duplicated
elsewhere.
5.

Effect on Small Entities

The Commission reviews all rules periodically, as required by the Regulatory
Flexibility Act, to identify methods to minimize recordkeeping or reporting requirements
affecting small businesses. 5 The current disclosure requirements under, and the proposed

5

5 U.S.C. 601 et seq.

4

amendments to, the rule do not distinguish between small entities and other funds. The
burden on smaller funds may be greater than for larger funds. These costs could include
expenses for creating or purchasing certain data used in selecting investments consistent
with the fund’s 80% investment policy, legal and accounting fees, information
technology staff, and creating or revising recordkeeping processes. The Commission
believes, however, that imposing different requirements on smaller funds would not be
consistent with investor protection and the purposes of the disclosure requirements.
6.

Consequences of Not Conducting Collection

The notice to shareholders provision of rule 35d-1 provides investors with 60 days
prior notice of any change to an investment policy covered by the rule, thereby providing
investors with time to decide whether to redeem their shares before the change to the
investment policy takes effect. If the disclosure requirement was removed, it would
impair investors’ ability to redeem shares in advance of a change to an investment policy
covered by the rule. The proposed recordkeeping are generally designed to provide
Commission staff, and a fund’s compliance personnel, the ability to evaluate the fund’s
compliance with the proposed amendments.
7.

Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)

This collection is not inconsistent with 5 CFR 1320.5(d)(2).
8.

Consultations Outside the Agency

Before adopting the proposed amendments to rule 35d-1, the Commission will
receive and evaluate public comments on the proposal and its collection of information
requirements. Moreover, the Commission and the staff of the Division of Investment
Management participate in an ongoing dialogue with representatives of the investment
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company industry through public conferences, meetings, and information exchanges.
These various forums provide the Commission and staff with a means of ascertaining and
acting upon the paperwork burdens confronting the industry.
9.

Payment or Gift

No payment or gift to respondents was provided.
10.

Confidentiality

No assurance of confidentiality was provided.
11.

Sensitive Questions

No information of a sensitive nature will be required under this collection of
information.
12.

Burden of Information Collection
The following estimate of average burden hours and costs are made solely for

purposes of the Paperwork Reduction Act of 1995 6 and are not derived from a
comprehensive or even representative survey or study of the cost of Commission rules
and forms. Providing prior notice to shareholders under rule 35d-1 is not mandatory, even
should the Commission adopt the proposed amendments. An investment company may
choose to have a name that is not required to adopt an investment policy under the rule. If
an investment company does choose such a name, it will only need to provide prior
notice to shareholders of a change in its 80% investment policy if it first has adopted a
policy to provide notice and then has decided to change this investment policy or, under
the proposal, its name accompanying an investment policy change. The proposed

6

44 U.S.C. 3501 et seq.

6

recordkeeping requirements would be mandatory for all funds, though funds not required
to adopt an investment policy would have a reduced burden.
TABLE 1: PRA ESTIMATES FOR PROPOSED RULE 35D-1 AMENDMENTS
Initial hours

Annual hours1

Internal time
costs

Wage rate2

Annual external
cost burden

CURRENTLY APROVED BURDENS

Notice Requirement

0

$425
(estimate of wage rate in
most recently approved
supporting statement)

20 hours3

$8,500

Number of Funds

X 38 funds4

X 38 funds

Current Burden Estimates

760 hours

$323,000

$0

PROPOSED BURDENS
Notice Requirement

0 hours

X 34

Number of Funds
Total New Burden for
Notice Requirement (I)
Recordkeeping for Funds
with an 80% Policy7

9 hours8

funds6

$8,500
$4969
X 34 funds
$289,000

$356
(1:1 blend for compliance
attorney and senior
programmer)

50 hours
X 10,394
funds

Number of Funds

Total New Recordkeeping
Burden for Funds Not
Required to Adopt 80%
Policy (III)

$425
(blended rate for
attorneys)

680 hours

Total New Burden for
Recordkeeping (II)
Recordkeeping For Funds
Not Required to Adopt
80% Policy

20 hours5

519,700 hours
0 hours

$17,800
$496
X 10,394 funds
$185,013,200

1 hour

$425
(blended rate for
attorneys)

X 3,465
funds10

$16,864

$5,155,424

$425
$496
X 3,465 funds

3,465 hours

$1,472,625

$1,718,640

$186,774,825

$6,890,910

TOTAL ESTIMATED BURDENS INCLUDING AMENDMENTS
Total New Annual Burden
(I + II + III)

523,845 hours

Notes:
1. Includes initial burden estimates annualized over a 3-year period.
2. The estimated wage figure is based on published rates for the professionals described in this chart, modified to account for an 1800hour work-year and inflation. The estimates for the proposed burdens were multiplied by 5.35 to account for bonuses, firm size,
employee benefits, and overhead. See Securities Industry and Financial Markets Association’s Report on Management & Professional
Earnings in the Securities Industry 2013.
3. The Commission estimates that these notices are typically short, one-page documents that are sent to shareholders with other written
materials. The Commission anticipates each respondent would only incur these burden hours once.
4. The currently-approved burden takes into account the Commission’s previous estimate, across approximately 13,182 open-end funds
and 676 closed-end funds then registered with the Commission, that there are approximately 11,502 funds that have names covered by
the rule or 83% of funds covered by the rule (13,858 funds x 83% = 11,502). The Commission estimated that 1% of these funds, or 115
funds, would, within the next three years, provide a notice to shareholders pursuant to rule 35d-1. Therefore, over the course of 3 years,
the Commission estimated that, on average approximately 38 funds per year would provide a notice to shareholders under rule 35d-1.
5. Funds are currently required to provide notice to fund shareholders when a fund makes any change to its 80% investment policy. The
proposed amendments would make some changes to the current notice requirement, but we do not believe that these proposed

7

alterations would increase the burden hours needed to prepare the notice.
6. The currently-approved PRA burden for rule 35d-1 was based on the Commission’s estimate that 83% of funds were covered by rule
35d-1. We now estimate that 75% of funds will have names subject to the 80% investment policy. The prior PRA burden was based on an
estimate using a different analytical approach than we are now employing, based on our most up to date economic analysis. Based on
our current analysis, we estimate that 62% of funds are currently subject to rule 35d-1 and that our proposed rule amendments would
increase this estimate to 75% of funds. The Commission estimates, across approximately 14,532 open-end and closed-end funds
registered with the Commission, that there are approximately 10,394 funds that have names that would be covered by the proposed rule
amendments, or 75% of funds covered by the rule amendments (10,223 mutual funds (other than money market funds) + 2,320 nonUIT ETFs + 432 money market funds = 12,975 open end funds + 736 registered closed-end funds + 99 BDCs + 49 UITs = 13,859 funds
x 75% = 10,394 funds). The estimate of 49 UITs covered by the rule amendments may be an overestimation, as UITs that have made
their initial deposit of securities prior to the effective date of any final rule amendments the Commission adopts would be excepted from
the requirements to adopt an 80% investment policy and to provide notices consistent with the rule, unless the UIT has already
adopted—or was required to adopt at the time of the initial deposit—an 80% investment policy under the current rule. The Commission
estimates that 1% of these 10,394 funds, or 103 funds, would within the next three years provide a notice to shareholders pursuant to
the proposed rule amendments. Therefore, over the course of 3 years, the Commission estimates that, on average approximately 34
funds per year would provide a notice to shareholders under the proposed rule amendments.
7. For funds that adopt an 80% investment policy under the proposed rule, the recordkeeping requirements under proposed rule 35d1(b)(3) would require records documenting the fund’s compliance under paragraphs (a) and (b) of proposed rule 35d-1. Written records
documenting the fund’s compliance include: the fund’s record of which assets are invested in the 80% basket and the basis for including
each such asset in the fund’s 80% basket; the percentage of the value of the fund’s assets that are invested in the 80% basket; the
reasons for any departures from the fund’s 80% investment policy; the dates of any departures from the 80% investment policy; and any
notice sent to the fund’s shareholders pursuant to proposed rule 35d-1(e). We estimate that these records would generally need to be
made daily, but that the vast majority of records would be automated. We understand, however, that some records, specifically, records
documenting the reasons for any departures from the 80% investment policy, may not be automated and may require a fund to spend
more time to make. Our PRA estimates take these considerations into account.
8. The initial burden for the proposed recordkeeping requirement accounts for the time we estimate that fund will need to establish
recordkeeping procedures for the records that must be kept. Once these processes are established, we believe that much of the
required recordkeeping, as discussed above, would be largely automated.
9. This estimated burden is based on the estimated wage rate of $496, for 1 hour of outside legal services. The Commission’s estimate
of the relevant wage rates for external time costs, such as outside legal services, takes into account staff experience, a variety of sources
including general information websites, and adjustments for inflation.
10. The Commission estimates across approximately 14,532 open-end and closed-end funds registered with the Commission, that there
are approximately 3,465 funds that have names that would be not covered by the proposed rule amendments, or 25% of funds covered
by the rule amendments (10,223 mutual funds (other than money market funds) + 2,320 non-UIT ETFs + 432 money market funds =
12,975 open end funds + 736 registered closed-end funds + 99 BDCs + 49 UITs = 13,859 funds x 25% = 3,465 funds).

13.

Cost to Respondents

Cost burden is the external cost of services purchased to comply with rule 35d-1,
such as for the services of computer programmers, outside counsel, financial printers, and
advertising agencies. The cost burden does not include the cost of the internal hour
burden discussed in Item 12 above. Under the proposed amendments, we estimate that a
total cost to all respondents of $6,890,910 as detailed in Table 1 above.

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14.

Cost to the Federal Government

We expect any burdens to the federal government as a result of the notice to
shareholders provision to be minimal and do not expect an increase in staff time or
annual operating costs in connection with this collection of information requirements.
15.

Change in Burden

The proposed amendments would result in a number of changes to the currently
approved burden. The proposed recordkeeping requirements would add an additional
13,859 responses per year and add 51 hours per response. Further, we revised the number
of responses to the notice requirement down, from 38 responses annually to 34, based
upon an updated assessment that a lower percentage (75%, rather than 83%) of funds
have names that would be subject to the rule. 7
16.

Information Collection Planned for Statistical Purposes
Not applicable.

17.

Approval to Omit OMB Expiration Date
Not applicable.

18.
Submission

Exceptions to Certification Statement for Paperwork Reduction Act

The Commission is not seeking an exception to the certification statement.
B.

COLLECTION OF INFORMATION EMPLOYING STATISTICAL
METHODS
The collection of information will not employ statistical methods.

7

See supra note 6 to Table 1.
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