Since the release we’ve seen a variety of actions pursued by some companies: (1) evaluation of investment policy; (2) fund name changes to minimize non-compliance risk and (3) providing notice of investment policy changes.
With a tiered approach to compliance to provide existing funds time to prepare, the compliance date of December 11, 2025 for larger companies and June 11, 2026 for smaller entities, focus should be on adhering to the requirements to ensure readiness.
The Division of Investment Management staff recently prepared responses related to the 2023 adoption of amendments to rule 35d-1 under the 1940 Act (“Names Rule”). The amendment provided updates to the Names Rule originally adopted by the Commission in 2001.
When the Commission issued the 2023 release, it stated that staff would be reviewing its no-action letters and other statements addressing compliance with the original rule to determine if letters and other staff statements should be withdrawn in connection with the final amendments. Among the statements the Commission listed for review is the names rule FAQ document that the staff published in 2001.
The staff also compiled a chart showing the 2001 FAQs to be withdrawn, while retaining the balance of the 2001 FAQs with the modifications referenced below.
Adoption of 80% Investment Policy
- The 2023 names rule as amended, like the original 2001 names rule, requires a fund whose name suggests a focus in a particular type of investment, or in investments in a particular industry or geographic focus, to adopt 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”).
- The 2023 amendments broadened the scope of the original names rule’s 80% investment policy requirement to include any fund name with terms suggesting that the fund focuses in investments that have, or investments whose issuers have, particular characteristics. See rule 35d-1(a)(2). The 2023 Adopting Release includes general discussion on investments that may be included in a fund’s “80% basket” (that is, investments that are invested in accordance with the investment focus that the fund’s name suggests).
- A fund generally may elect to make its 80% investment policy a fundamental policy (i.e., a policy that may not be changed without shareholder approval) or instead provide shareholders notice at least 60 days prior to any change in the 80% investment policy (a “60-day notice”).
Tax-Exempt Funds
- The 2023 names rule as amended, like the original 2001 names rule, requires a fund with a name suggesting that the fund’s distributions are exempt from federal income tax or from both federal and state income tax (a “tax-exempt fund”) to adopt an 80% investment policy.
- Such a fund must use either an asset test (like other fund names suggesting an investment focus, as described above) or an income test to satisfy the 80% investment policy requirement.
- The income test requires that a fund invest its assets so that at least 80% of the income that it distributes will be exempt from federal income tax or from both federal and state income tax.
Specific Terms Commonly Used in Fund Names
- In the 2023 Adopting Release, the Commission provides details and guidance about the amendments it adopted broadening the scope of the names rule’s 80% investment policy requirement to apply also to fund names that include terms suggesting that the fund focuses in investments that have, or whose issuers have, particular characteristics.
- The release includes general discussion on the broadened scope, as well as discussion of fund names that do not suggest an investment focus.
For additional details of the specific questions addressed, you can access the information here: SEC’s 2025 Names Rule FAQs.
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