SEC Rule 35d-1

These amendments introduced the most consequential change to fund naming governance in the registered investment company industry in over two decades, requiring a substantial portion of the fund universe to evaluate their existing names against an expanded compliance framework — a process whose operational complexity prompted the Commission to grant a six-month extension of the compliance dates in March 2025, with larger fund groups required to comply by June 11, 2026 and smaller fund groups by December 11, 2026.

Overview and Regulatory Purpose

Fund names occupy a unique position in the investment company disclosure framework because they are the first — and often the only — piece of information about a fund that a retail investor encounters before making an initial investment decision. 

In an era of digital fund screening tools, financial news ticker references, and social media investment discussion, a fund's name functions as a compressed commercial communication that investors use to quickly categorise a fund's investment focus without reading the prospectus, Statement of Additional Information, or portfolio holdings that contain the complete picture of what the fund actually does. 

A fund named the Technology Innovation ETF communicates to a reasonable investor that the fund's assets will be substantially invested in technology companies pursuing innovation strategies; a fund named the ESG Leaders Fund communicates that the fund invests in companies selected on the basis of environmental, social, and governance criteria. If a fund bearing these names in fact invests a majority of its assets in sectors, industries, or companies that bear no meaningful relationship to the name's communication, the name has misled investors whose initial screening and investment decision relied on a reasonable interpretation of that name.

Rule 35d-1's 80% investment policy requirement addresses this potential for name-based investor confusion through a direct and verifiable mechanism: a fund whose name implies a specific investment focus must hold at least 80% of its assets in investments consistent with that focus, measured continuously, monitored quarterly, and disclosed to shareholders in the fund's prospectus. 

This requirement transforms the fund's name from a potentially aspirational or marketing-driven description into a substantive commitment about portfolio composition that can be independently verified by investors, the Commission, and the examination programme from the fund's Form N-PORT portfolio holdings disclosures.

Statutory Authority and Rulemaking History

Rule 35d-1 derives its statutory authority from Section 35(d) of the Investment Company Act of 1940, as amended by the National Securities Markets Improvement Act of 1996, which prohibits registered investment companies from using any name that the Commission finds is materially deceptive or misleading. 

Section 35(d)'s prohibition on materially deceptive or misleading fund names is the direct statutory foundation for Rule 35d-1, which implements that prohibition by specifying the categories of names that require an 80% investment policy and the governance conditions under which that policy must operate.

The Commission originally adopted Rule 35d-1 on January 17, 2001 — Investment Company Act Release No. IC-24828 — establishing the foundational framework requiring funds whose names suggest a particular type of investment, industry, country, or geographic region to adopt an 80% investment policy. The original 2001 rule did not expressly address names incorporating characteristic-based terms — such as growth, value, ESG, or sustainability — creating a significant regulatory gap as these naming conventions became widespread in the subsequent two decades.

The Commission comprehensively amended Rule 35d-1 on September 20, 2023 — Investment Company Act Release No. IC-35000, published at 88 FR 70436, October 11, 2023, effective December 11, 2023 — significantly expanding the scope of the 80% investment policy requirement, introducing new requirements for the composition of the 80% basket including specific provisions addressing the treatment of derivatives, establishing quarterly monitoring requirements, adding recordkeeping obligations for 80% basket inclusion decisions, and extending the rule's requirements to cover fund names incorporating characteristic-based terms. 

The compliance dates were subsequently extended by six months on March 14, 2025 — Investment Company Act Release No. IC-35368 — in response to industry requests citing operational challenges in implementing the new requirements, with existing larger fund groups required to comply by June 11, 2026 and smaller fund groups by December 11, 2026. 

The Commission's review of the 2023 amendments — initiated in response to the Trump administration's January 20, 2025 Executive Order on ESG and related regulatory priorities — remains ongoing, with the extended compliance dates providing time for that review to proceed without disrupting the transition process for funds already implementing the new framework.

Key Provisions and Operative Requirements

Rule 35d-1(a) establishes the three categories of fund names that trigger the 80% investment policy requirement, reflecting the rule's expansion under the 2023 amendments from its original two-category framework.

The first category — unchanged from the 2001 rule — covers fund names suggesting a particular type of investment or a focus on investments in a particular industry or group of industries. 

A fund named after a specific asset class (bond, equity, real estate), a specific industry sector (technology, healthcare, financial services), or a combination of these characteristics must adopt an 80% investment policy committing to invest at least 80% of the value of its assets in the type of investment or industry suggested by its name. 

This category captures the most straightforward instances of name-based investor communication — a Technology Fund's name unambiguously suggests a portfolio concentrated in technology securities, and the 80% requirement ensures that concentration is substantive rather than nominal.

The second category — added by the 2023 amendments and the most commercially significant expansion of the rule — covers fund names with terms suggesting that the fund focuses in investments that have, or investments whose issuers have, particular characteristics. 

This category expressly brings within the rule's scope fund names incorporating terms such as ESG, sustainable, responsible, green, social impact, and similar characterisation terms, as well as more traditional investment style and quality terms such as growth, value, and dividend. 

The 2023 amendments' inclusion of ESG and sustainability terms in this category was among the most contested aspects of the rulemaking, with proponents arguing that it would prevent investor confusion about the composition of funds bearing ESG-related names and critics arguing that the diversity of ESG investment approaches made a uniform 80% policy requirement difficult to implement meaningfully. 

The Commission's ongoing review of the 2023 amendments — prompted in part by the change in administration and the broader regulatory reassessment of ESG-related requirements — addresses in part whether the rule's treatment of ESG and sustainability fund names remains appropriately calibrated to investor protection needs.

The third category — also unchanged from the 2001 rule — covers fund names suggesting a focus on investments in a particular country or geographic region. A fund named after a country, region, or geographic descriptor must adopt an 80% investment policy committing to invest at least 80% of the value of its assets in investments associated with that country or region. 

The 2025 Names Rule FAQs confirmed that standalone use of global and international in a fund name, without additional geographic specificity, does not trigger the 80% requirement — consistent with the Commission's longstanding interpretation that these terms describe the scope of the investment universe rather than a specific geographic focus that could be violated by investing outside it.

Rule 35d-1(a)(2)(i) — the operative 80% investment policy provision — requires that any fund whose name falls within the rule's scope 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 or in investments with the particular characteristics, suggested by the fund's name. 

The 80% measurement is applied to the value of the fund's assets — its total assets minus total liabilities — rather than to net assets, a measurement base that excludes cash and cash equivalents from the computation in a manner designed to prevent funds from counting liquid assets that are unrelated to the named investment focus as satisfying the 80% requirement.

The 80% basket — defined in Rule 35d-1(g) as the investments a fund counts toward satisfaction of its 80% investment policy — encompasses three categories of qualifying investment. 

Direct investments in the named type, industry, region, or characteristic category constitute the primary basket component. Derivatives providing investment exposure to investments within the named category — through futures, options, swaps, and other instruments whose economic return is directly linked to the performance of the named investment type — may be included in the basket to the extent they provide economic exposure equivalent to direct investment. 

Additionally, the 2023 amendments specifically address derivatives that provide exposure to the market risk factors associated with the fund's investment focus, permitting their inclusion in the 80% basket to the extent they provide exposure to those risk factors even where they do not provide direct exposure to the named investment category.

Rule 35d-1(b)(1) requires that the fund review its portfolio investments' inclusion in the 80% basket at least quarterly to assess whether the 80% policy continues to be satisfied. If the fund identifies that the 80% minimum is not being met, it must bring its portfolio back into compliance as promptly as is practicable given the best interests of the fund's shareholders. 

The promptness standard — rather than an immediate correction requirement — acknowledges that forced portfolio repositioning to restore 80% compliance could harm shareholders through transaction costs, market impact, and tax consequences if required instantaneously rather than managed over a reasonable remediation period.

Rule 35d-1(b)(2) establishes the governance framework for changing an 80% investment policy. If a fund wishes to change its 80% investment policy, it must provide at least 60 days' prior written notice to shareholders before implementing the change. 

This notice requirement gives shareholders who invested in the fund based on its name and its associated 80% policy an opportunity to redeem their shares before the policy change takes effect — preserving the investor's ability to rely on the fund's name as an accurate description of its portfolio focus while allowing the fund the commercial flexibility to change its investment approach with appropriate advance notice. 

The 60-day notice requirement does not apply where the fund changes its name simultaneously with the 80% policy change and the new name does not itself trigger an 80% investment policy requirement.

Rule 35d-1(b)(3) introduces a recordkeeping requirement that is among the 2023 amendments' most operationally demanding additions. A fund must maintain a written record of the basis for its determination that each investment included in its 80% basket satisfies the fund's 80% investment policy. 

The written record requirement is designed to create a verifiable audit trail enabling the Commission's examination staff to assess whether the fund's 80% basket determinations are substantively justified rather than conclusory — preventing funds from claiming that investments qualify for the 80% basket without documentary support for that determination. 

The Commission acknowledged in the extension release that implementing adequate recordkeeping systems for this requirement — which may involve up to 50 data points per portfolio investment in some fund strategies — created operational challenges that contributed to the March 2025 compliance date extension.

Scope of Application

Rule 35d-1 applies to all registered investment companies whose names fall within any of the rule's three coverage categories — mutual funds, ETFs, closed-end funds, interval funds, and unit investment trusts. ETFs are among the most commercially significant categories of fund subject to the Names Rule, since the ETF industry's growth has been accompanied by a proliferation of thematic and characteristic-based fund names — tech innovation ETFs, ESG ETFs, clean energy ETFs, and numerous other narrowly focused products — many of whose names now trigger the 80% investment policy requirement under the 2023 amendments' expanded characteristic-based coverage. 

The 80% basket framework's specific provisions addressing derivatives exposure to market risk factors were adopted in part in response to ETF-specific naming practices involving leveraged, inverse, and factor-based products whose economic exposure to the named investment category is delivered primarily through derivatives rather than direct holdings.

Certain fund name types remain outside Rule 35d-1's scope notwithstanding the 2023 amendments' expansion. Names referencing portfolio characteristics as a whole — such as balanced, managed risk, real return, or intermediate term — are not subject to the 80% requirement because they describe the overall character of the portfolio rather than a specific type of investment composing the portfolio. 

Names referencing investment techniques — such as long/short, hedged, or enhanced — similarly remain outside the rule. Target-date fund names — which describe an evolving asset allocation strategy rather than a specific investment focus — are excluded, as are sector rotation fund names. These exclusions acknowledge that some fund names communicate investment approach or portfolio construction methodology rather than a specific investment category against which an 80% holding requirement could be measured.

Relationship to Related Rules and Regulations

Rule 35d-1's 80% investment policy requirement directly drives portfolio construction decisions that interact with Rule 22e-4's liquidity risk management framework. A fund that must maintain 80% of its assets in a specific investment category — particularly a narrow sector, geographic region, or characteristic — may face concentrated liquidity risk if the liquidity of investments in that category deteriorates, since the 80% requirement limits the fund's ability to substitute more liquid assets for the required category holdings. 

The liquidity risk management programme that Rule 22e-4 requires must specifically account for this concentration risk in the fund's overall liquidity risk assessment and HLIM determination.

Rule 35d-1's governance framework for 80% policy changes — requiring 60 days' shareholder notice — interacts with the forward pricing framework of Rule 22c-1, since the 60-day notice period creates a window during which shareholders who wish to redeem before the policy change takes effect must price their redemptions at the next computed NAV under Rule 22c-1's forward pricing requirement. 

The combination of the notice period and the forward pricing requirement is specifically designed to give shareholders a meaningful opportunity to exercise their redemption rights before the fund's investment character changes in a way they may not have anticipated when they initially invested.

Rule 38a-1's compliance programme framework requires that fund compliance programmes specifically address the 80% investment policy monitoring obligations of Rule 35d-1, including the quarterly basket review, the promptness standard for restoring compliance following an identified breach, and the recordkeeping requirements for basket inclusion determinations. 

The complexity of the 2023 amendments' recordkeeping requirements — and the Commission's acknowledgment that existing software solutions were inadequate for tracking the data points required to document basket inclusion determinations — makes Rule 35d-1 compliance a significant component of the Rule 38a-1 compliance programme implementation challenge for the fund groups undergoing the transition to the 2023 framework.

Rule 35d-1's characteristic-based coverage of ESG and sustainability fund names — a central feature of the 2023 amendments — connects to the broader regulatory landscape governing ESG fund disclosure, including the Investment Company Act's disclosure requirements in registration statements and the Commission's ongoing assessment of ESG labelling practices in the fund industry. 

Rule 156's prohibition on materially misleading investment company sales literature — which applies to ETFs and mutual funds alike — independently requires that fund marketing materials not create misleading impressions about the fund's investment focus, complementing Rule 35d-1's name-based requirement with a broader antifraud standard applicable to the complete range of fund marketing communications.

Amendment History and Regulatory Evolution

The 2023 amendments represented the first comprehensive revision of Rule 35d-1 since its original 2001 adoption — a twenty-two-year period during which the fund naming landscape transformed substantially, with the emergence and commercialisation of ESG investing, the proliferation of thematic ETFs incorporating characteristic-based names, and the development of multi-factor strategies whose names communicate investment characteristics rather than asset class exposures. 

The 2023 amendments' expansion of the rule to cover characteristic-based terms was directly responsive to this evolution, reflecting the Commission's assessment that the 2001 rule's narrower scope had permitted naming practices that created the same investor confusion the rule was originally designed to prevent.

The March 2025 compliance date extension introduced a significant innovation in how the Names Rule's compliance framework operates for existing funds — the rolling fiscal year-end compliance mechanism, under which existing funds comply when they file their first on-cycle annual prospectus update on or following the extended compliance date, rather than on a fixed calendar date regardless of their fiscal year cycle. 

This mechanism acknowledges the practical reality that for many funds, complying with the Names Rule requires amending the prospectus to add the 80% investment policy disclosure, and that requiring such amendments to occur on a fixed date regardless of the fund's natural prospectus filing cycle would impose significant off-cycle amendment costs without a commensurate investor protection benefit.

The Commission's ongoing review of the 2023 amendments — announced in connection with the Trump administration's executive orders on ESG and initiated through the Commission's request for information from the public — represents the most significant regulatory uncertainty in the Names Rule's recent history. 

The scope of any changes to the 2023 amendments that may result from that review — including potential modification or rescission of the characteristic-based coverage that specifically addressed ESG and sustainability fund names — remains to be determined. The extended compliance dates provide the framework within which that review can proceed without disrupting fund groups that are already implementing the 2023 amendments in good faith.

Enforcement Context and SEC Action Patterns

Rule 35d-1 enforcement has concentrated on two recurring categories. The first involves funds that clearly failed the original 2001 rule's straightforward investment-type and industry-focus requirements — technology funds investing predominantly in non-technology securities, bond funds with substantial equity holdings, and geographic funds with minimal exposure to the identified region. 

These direct name-portfolio mismatches have been addressed through examination findings and, in egregious cases, enforcement actions alleging violation of Section 35(d)'s materially deceptive name prohibition.

The second enforcement category — more significant in the post-2023 period — involves the growing population of ESG and characteristic-based fund names against which the 2023 amendments' expanded coverage applies. 

The Commission's Division of Examinations has identified review of fund names and the alignment between fund names and investment strategies as an examination priority, with specific attention to whether funds bearing ESG, sustainable, or similar characteristic terms maintain the portfolio discipline consistent with those names. 

This examination focus has generated comment letter activity in registration statement reviews, but formal enforcement actions specifically under the 2023 Names Rule framework await the completion of the compliance period for larger and smaller fund groups. 

The Names Rule FAQ issued in January 2025 — and the additional FAQ updates expected as the compliance date approaches — provide the interpretive guidance through which the Division of Investment Management is establishing the standards against which examination and enforcement will be conducted.

Examination Relevance and Key Takeaways

Rule 35d-1 is examined at the Series 7 and Series 65 levels as the foundational naming standard for registered investment companies. 

The 80% investment policy requirement — the minimum percentage of fund assets that must be invested in accordance with the investment focus suggested by the name — is the primary examination concept, together with the three categories of fund names that trigger the requirement: investment type and industry names, characteristic-based names including ESG and value terms, and country and geographic region names. 

The 60-day shareholder notice requirement for 80% policy changes — which gives investors an opportunity to redeem before the fund's investment character changes — is consistently examined as the key investor protection mechanism within the governance framework.

The categories of fund names that remain outside Rule 35d-1's scope — balanced, managed risk, target date, long/short, hedged, and standalone global or international names — are examined in the context of understanding the boundaries of the rule's application and why certain common naming conventions do not trigger the 80% investment policy requirement.

The key points to retain are these. Rule 35d-1 requires registered investment companies whose names suggest a particular type of investment, investments with particular characteristics, a particular industry, country, or geographic region to adopt an 80% investment policy — committing to invest at least 80% of the value of assets in investments consistent with the name's investment focus. 

Three categories of fund names trigger the 80% requirement: investment-type and industry names, characteristic-based names including ESG, sustainable, growth, value, and similar terms under the 2023 amendments, and country and geographic region names. 

The 80% basket includes direct investments, derivatives providing equivalent economic exposure, and derivatives providing exposure to associated market risk factors. Portfolio investments' inclusion in the 80% basket must be reviewed at least quarterly, with prompt remediation if the 80% minimum is not satisfied. Changes to the 80% policy require 60 days' prior written notice to shareholders. Written records of the basis for 80% basket inclusion determinations must be maintained. 

Names referencing portfolio characteristics, investment techniques, and evolving asset allocation strategies including target-date funds remain outside Rule 35d-1's scope. 

The 2023 amendments were adopted September 20, 2023 with compliance dates extended to June 11, 2026 for larger fund groups and December 11, 2026 for smaller fund groups following the March 2025 extension. The Commission's review of the 2023 amendments in connection with the administration's ESG regulatory priorities was ongoing at the time of writing.