The Staff of the US Securities and Exchange Commission has issued FAQs regarding recent amendments to Rule 35d-1 (often referred to as the Names Rule) under the Investment Company Act of 1940. The amendments to the Names Rule, adopted by the SEC in 2023, greatly expand the universe of fund names subject to Rule 35d-1. The 2025 FAQs address interpretive questions raised by the registered funds industry regarding the 2023 amendments in addition to withdrawing certain Names Rule FAQs issued in 2001 that the Staff determined are moot, superseded, or otherwise inconsistent with the 2023 amendments.
The adopting release and a chart showing which of the 2001 FAQs have been withdrawn are available on the SEC’s website.
The 2025 FAQs fall into the following categories:
Rule 35d-1 was originally adopted in 2001 to address concerns that an investment company’s name could mislead investors about a fund’s investments and risks.
The 2023 amendments expand the scope of the original 2001 rule by requiring registered funds to adopt an 80% investment policy when a fund’s name suggests not only a focus on a particular type of investment or investments in a particular industry/geographic region (as required by the 2001 rule) but also a focus on investments that have, or investments whose issuers have, “particular characteristics.”
Consistent with past guidance, registered funds may elect to make an 80% policy a fundamental policy that may not be changed without shareholder approval or instead adopt a nonfundamental 80% policy that can be changed without shareholder approval, provided that the fund provides 60 days’ notice to shareholders of changes to a nonfundamental 80% policy.
The 2025 FAQs clarify the circumstances under which a fund’s adoption of a new 80% policy or amendment of an existing fundamental policy would require shareholder approval. If the new or revised 80% policy entails a “deviation” from an existing fundamental 80% policy (or any other fundamental policy), then such “deviation” from a fundamental policy would require shareholder approval. In contrast, if the new or amended policy is not inconsistent with the existing fundamental policy, then shareholder approval would not be required to adopt a new or amended 80% policy.
The 2025 FAQs provide an example: A fundamental 80% investment policy that broadly includes equity securities would not require a shareholder vote where such policy is revised to reference equity securities with growth characteristics because the addition of growth characteristics as a requirement does not entail a deviation from the existing policy to invest 80% of assets in equity securities.
The 2025 FAQs provide guidance on the use of certain terms in fund names that could suggest that the fund focuses on investments that have, or whose issuers have, “particular characteristics.”
The 2025 FAQs address the following terms:
Income – Except when used to refer to “fixed income” securities, the SEC Staff considers the term “income” to suggest that a fund emphasizes the achievement of current income as a portfoliowide result, which would not require a fund to adopt an 80% investment policy.
High-Yield – The 2025 FAQs state that the term “high-yield” is generally understood to describe corporate bonds with lower credit ratings (i.e., below “investment grade”). As such, the Staff believes the term describes an investment with “particular characteristics,” and therefore funds with names including the term typically would be required to adopt an 80% investment policy to invest in fixed income securities that meet the ratings-based definition. However, the Staff highlights that when “high-yield” is used in a fund’s name in conjunction with the terms “municipal” or “tax-exempt,” the market has historically allowed for less rigid adherence to the ratings-based definition of “high-yield.” Accordingly, while funds with names that combine these terms must adopt an 80% policy, such funds will be given greater flexibility to define their 80% policy to accommodate reasonable deviation from the strict ratings-based definition of “high-yield.”
Tax-Sensitive – In the Staff’s view, terms such as “tax-sensitive,” “tax-efficient, “tax-advantaged,” “tax-managed,” etc., generally reference the overall characteristics of a fund’s portfolio and therefore do not require a fund to adopt an 80% investment policy.
Money Market – In the Staff’s view, money market funds with generic names that suggest investments in money market instruments generally (e.g., the XYZ Money Market Fund) do not need to specifically adopt an 80% investment policy under the Names Rule because Rule 2a-7 under the 1940 Act separately requires such funds to invest solely in eligible securities. In contrast, the Staff points out that funds with names that suggest investments in a specific asset class (e.g., XYZ US Treasury Money Market Fund) would need to adopt a policy to invest at least 80% of its assets in the named asset class (e.g., US Treasury securities).
Consistent with the original 2001 Names Rule, the 2023 amendments require funds with names suggesting that the fund’s distributions are exempt from federal income tax or both federal and state income tax to adopt an 80% investment policy. The 2025 FAQs note that the 80% policy may be based on the percentage of the fund’s assets invested in the particular securities or based on the percentage of the fund’s distributable income that will be exempt from the applicable tax(es).
The 2025 FAQs further discuss two examples:
Single-State Funds
In the SEC Staff’s view, funds with names suggesting that distributions are exempt from both federal and state income tax (e.g., the Maryland Tax-Exempt Fund) must adopt an 80% investment policy that appropriately limits investments to those whose income generated or distributed will be exempt from both federal income tax and the income tax of the named state. Such funds may include the securities of issuers outside of the named state so long as the income is exempt from tax in the named state and the prospectus discloses that the fund may invest in tax-exempt securities of issuers located outside of the named state.
“Municipal”
In the Staff’s view, funds that use the terms “municipal” or “municipal bond” suggest that a fund’s distributions are exempt from federal income tax and therefore must adopt an 80% investment policy around such terms. However, the 2025 FAQs note that funds using the term “municipal” may count securities that generate income subject to the alternative minimum tax toward the fund’s 80% investment requirement, whereas funds that use the term “tax-exempt” may not.
The compliance dates for the Names Rule are currently December 10, 2025 for larger entities and June 10, 2026 for smaller entities.[1] The Investment Company Institute—citing challenges funds may face in determining compliance requirements, implementation, and the benefits of minimizing off-cycle registration statement filings—submitted a letter to the SEC in December 2024 asking the SEC to extend the compliance dates by a minimum of 18 months and base compliance on a fund’s fiscal yearend. The SEC has not yet determined whether to grant the request.
The 2025 FAQs remind the public that, notwithstanding the Staff guidance on the Names Rule, funds continue to be subject to the statutory prohibition on materially deceptive or misleading names under Section 35(d) of the 1940 Act and likewise would continue to be subject to the anti-fraud provisions of the federal securities laws regarding disclosures to investors.
Section 35(d) of the 1940 Act makes it unlawful for a registered investment company to adopt a name with “any word or words that the [SEC] finds are materially deceptive or misleading” and provides the statutory basis for the Names Rule. The SEC has previously stated—and the 2023 amendments include a provision—that the Names Rule’s 80% investment policy requirement is not intended to create a safe harbor from liability under Section 35(d) of the 1940 Act for materially deceptive or misleading fund names.
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[1] Larger entities include fund groups with net assets of $1 billion or more, whereas smaller entities include fund groups with net assets of less than $1 billion.