SEC Releases Names Rule FAQs
On January 8, the Securities and Exchange Commission (SEC) Division of Investment Management released updated Frequently Asked Questions (FAQs) on the amended Names Rule. In the FAQs, the SEC staff outline several common questions received from industry participants on the following topics:
- The Definition of “Income”, “High-Yield”, “Money Market”, and “Tax-Sensitive” terms
- Adoption of an 80% Investment Policy
- Tax-Exempt Funds
According to the FAQs, if a fund would like to revise or adopt an 80% investment policy in compliance with the new requirements of Rule 35d-1 the Investment Company Act of 1940 does not require shareholder approval “unless the revision of the policy constitutes a deviation from the existing policy or some other existing fundamental policy.” As an example, a client alert from Dechert LLP notes “if an equity fund with ‘growth’ in its name and an existing fundamental 80% Investment Policy broadly referencing equity investments revised this policy to reference equity investments with growth characteristics, it generally would not be deviating from its current policy and, thus, the change would not require shareholder approval.”
Another area the SEC staff highlighted in the FAQs covers the term “income” which is not meant to include “fixed income securities.” According to the FAQs, “the term ‘income’ in a fund’s name generally suggests that the fund emphasizes the achievement of current income as a portfolio-wide result…”
Most funds must comply with the updated Names Rule amendments by December 11, 2025.
Click here to read the SEC Names Rule FAQs.
Click here to read a client alert on the FAQs from Dechert LLP.