January 2025 in Brief: Securities Law

SEC Staff Issues 2025 Names Rule FAQs

By Karen Liu, Reid & Wise LLC

On January 8, 2025, the staff of the Division of Investment Management (the “Staff”) under the U.S. Securities and Exchange Commission (the “SEC”) released the 2025 Names Rule FAQs, which is an update of the Staff’s 2001 Names Rule FAQs, by withdrawing some questions and answers (“Q&As”) and amending other Q&As.

On September 20, 2023, the SEC adopted amendments (the “2023 Names Rule”) to Rule 35d-1 under the Investment Company Act of 1940 (the “Company Act”). The 2023 Names Rule took effect on December 10, 2023. Its compliance date is December 10, 2025, for larger entities, and June 10, 2026, for smaller entities.

Rule 35d-1 was originally adopted by the SEC in 2001 (the “2001 Names Rule”). Compared to the 2001 Names Rule, one big change in the 2023 Names Rule is that it broadened the scope of “names suggesting an investment focus” under rule 35d-1(a)(2) by adding a catch-all category, namely, any fund name with terms suggesting that the fund focuses in “investments that have, or whose issuers have, particular characteristics.” Funds with such “names suggesting an investment focus” are subject to the 80% investment policy requirement. The 2025 Names Rule FAQs, to a large extent, updated the Q&As in the three sections of the 2001 Names Rule FAQs (which was issued in accordance with the 2001 Names Rule) to reflect such new change, renumber the Q&As, delete obsolete language, and make certain other updates.

With respect to Q&As in the section “Adoption of 80% Investment Policy,” the 2025 Names Rule FAQs:

• Withdrew Q&A 2.
• Updated Q&A 1, because the 2001 Names Rule increased the threshold of investment policy requirement from 65% to 80%, and therefore the transition from a 65% investment policy to an 80% investment policy as mentioned in the previous Q&A 1 was no longer relevant.

With respect to Q&As in the section “Tax-Exempt Funds,” the 2025 Names Rule FAQs:

• Withdrew Q&A 5.
• Updated Q&A 3 by (i) updating cross-references to rule numbers, (ii) removing the paragraph clarifying single state tax-exempt funds are not subject to rule 35d-1(a)(3), and (iii) renumbering it into Q&A 2.
• Updated Q&A 4 by (i) updating cross-references to rule numbers, (ii) adding the clarifying phrase “in the staff’s view,” and (iii) renumbering it into Q&A 3.

With respect to Q&As in the section “Specific Terms Commonly Used in Fund Names,” the 2025 Names Rule FAQs:

• Withdrew Q&A 6, Q&A 10, Q&A 11, Q&A 12, Q&A 14, and Q&A 15.
• Updated Q&A 7 by (i) clarifying that the term “high-yield” signifies corporate bonds with “particular characteristics,” (ii) adding the clarifying phrase “in the staff’s view,” (iii) clarifying that a fund with “high-yield municipal” or “high-yield tax-exempt” in its name would need to adopt an 80% policy to invest in “municipal” securities or “tax-exempt” securities, but does not necessarily need to invest 80% of assets in high-yield investments, and (iv) emphasizing that a fund with “high-yield municipal” or “high-yield tax-exempt” in its name is still subject to prohibition on materially deceptive or misleading names under section 35(d) of the Company Act and anti-fraud provisions of the Federal securities laws regarding disclosures to investors, and (iv) renumbering it into Q&A 4.
• Updated Q&A 8 by (i) clarifying that “tax-sensitive” references overall characteristics of the fund’s portfolio, rather than suggesting “particular characteristics” of the investments, and therefore would not require the fund to adopt an 80% investment policy, (ii) adding the phrase “in the staff’s view,” (iii) emphasizing that even if a fund name does not communicate “particular characteristics” of investments, the fund is still subject to section 35(d) of the Company Act and federal anti-fraud provisions, and (iv) renumbering it into Q&A 5.
• Updated Q&A 9 by (i) streamlining the answer through comparing the term “income” with the term “fixed income,” (ii) adding the clarifying phrase “in the staff’s view,” and (iii) renumbering it into Q&A 6.
• Updated Q&A 13 by (i) toning down certain clarifications, (ii) adding the phrase “in the staff’s view,” and (iii) renumbering it into Q&A 7.

The table below is a brief summary of the fund names discussed in the 2025 Names Rule FAQs.