SEC Names Rule FAQ
SEC Releases
Introduction
The Names Rule FAQs issued by the SEC provide practical guidance on amendments to Rule 35d-1 under the Investment Company Act of 1940.
The Rule is intended to prevent misleading Fund names by requiring certain Funds to align their investments with what their names suggest.
As a reminder, the Names Rule applies to:
- Registered Investment Companies (RICs)
- Business Development Companies (BDCs)
The FAQs do not create new rules but clarify how Funds should interpret and apply the amended requirements in practice.
Key Takeaways from the FAQs
- Treatment of Unfunded Commitments
- The FAQs clarify that, for purposes of the 80% investment requirement, a fund may include cash and cash equivalents held to satisfy unfunded commitments to Private Funds or similar vehicles in its 80% basket, provided the assets are reasonably expected to be invested in accordance with the investment focus suggested by the Fund’s name.
- Tax-Exempt and Municipal Fund Names
- The FAQs explain that Funds with names suggesting Tax-Exempt Income may comply with the 80% requirement using either:
- An asset-based test, or
- An income-based test.
- The term “municipal” is treated as implying Tax-Exempt Income for purposes of the Rule.
- The FAQs also address how single-state Tax-Exempt Funds may treat certain out-of-state securities that generate tax-exempt income.
- The FAQs explain that Funds with names suggesting Tax-Exempt Income may comply with the 80% requirement using either:
- Application to Common Name Terms
- The FAQs clarify how certain commonly used terms are treated under the amended Rule:
- Terms that describe a type of investment (such as “growth,” “value,” or “high-yield”) generally require an 80% investment policy.
- Terms that describe an investment strategy or portfolio characteristic (such as “tax-sensitive” or “merger arbitrage”) generally do not require an 80% policy, provided the name is not otherwise materially misleading.
- The FAQs also address how combinations of terms are evaluated in determining whether the 80% requirement applies.
- The FAQs clarify how certain commonly used terms are treated under the amended Rule:
Vigilant’s Conclusion
The Names Rule FAQs reinforce the core objective of the amended Names Rule: ensuring that Fund names meaningfully align with actual investment practices.
While the FAQs do not introduce new regulatory requirements, they provide important interpretive guidance that helps Funds apply the Rule consistently and defensibly.
Firms should be mindful of the compliance deadlines below:
- Larger Fund Groups (net assets greater than $1 billion as of the end of the most recent fiscal year): June 11, 2026
- Smaller Fund Groups (net assets less than $1 billion as of the end of the most recent fiscal year): December 11, 2026
With these dates approaching, affected RICs and BDCs should review Fund names, 80% investment policies, disclosures, and monitoring frameworks to ensure timely compliance.