SEC Posts 2025 Names Rule FAQs

January 27, 2025

On January 8, the SEC’s Division of Investment Management issued new FAQs on the Investment Company Names Rule, which was amended in 2023. These amendments aim to increase shareholder protection by increasing the scope of funds required to adopt a policy to invest at least 80% of its assets based on the investment approach suggested by the fund name, as well as notice and recordkeeping requirements related to these policies (click here to read our overview of the amended rule).

There are some operational challenges associated with these amendments, namely accurately defining and consistently applying the 80% test, as well as managing the portfolio back into compliance when it deviates from its stated investment focus.

The FAQs address the SEC’s views on treatment of certain revisions to a fund’s fundamental policy. For instance:

• Under certain circumstances, it would be consistent with Investment Company Act requirements for a fund to revise an existing 80% fundamental policy to comply with the 2023 amendments without shareholder approval, to the extent the revision did not constitute a deviation from the existing policy or some other existing fundamental policy;
• The FAQs clarify how the rule applies to single-state tax-exempt funds;
• Funds using terms such as “tax-sensitive,” “tax efficient,” and “tax-advantaged,” will not be required to adopt an 80% policy;
• Funds using the term “income,” which generally suggests a fund’s emphasis on achieving current income, does not alone require a fund to adopt an 80% policy; and
• Funds using the term “high-yield” in the fund name would suggest the need to adopt an 80% policy to invest in corporate bonds of particular characteristics, except where “high-yield” is paired with “municipal” or “tax-exempt” or similar names that have not historically invested at least 80% of their assets in bonds that meet a high yield rating criteria.

FilePoint will continue to monitor for more substantive guidance. In the meantime, if you have any questions, please let us know. For the full list of FAQs, click here.