SEC Rule 34b-1

Overview and Regulatory Purpose

Investment company sales literature — the pamphlets, form letters, circulars, and other marketing materials that accompany or follow a statutory prospectus delivered to a prospective investor — plays a commercially critical role in the registered fund distribution process. Unlike the prospectus, which is a formal legal document typically dense with regulatory disclosures, sales literature is specifically designed to attract investor interest — presenting the fund's investment approach, performance record, and cost structure in accessible, compelling formats that motivate prospective investors to choose a particular fund over its competitors. This commercial purpose creates a structural tension with the investor protection objective of ensuring that investors receive accurate, comparable, and contextually complete information about the funds they are considering.

The specific misleading practices that Rule 34b-1 is designed to prevent in the sales literature context parallel those that Rule 156 under the Securities Act addresses in the broader investment company marketing context: selective performance presentation that omits required standardised time periods, presents exceptional historical performance without the context of longer-term returns, or omits fee and expense information that would reduce the apparent attractiveness of presented performance figures. The deemed-misleading mechanism — treating the omission of required disclosures as itself constituting a material omission rather than requiring case-by-case proof of investor confusion or harm — provides a clear, objective standard that does not require the Commission to litigate the subjective impact of incomplete disclosure in each specific case.

Statutory Authority and Rulemaking History

Rule 34b-1 derives its statutory authority from Section 34(b) of the Investment Company Act of 1940, which makes it unlawful for any registered investment company, or any affiliated person of such company, to make, in any registration statement, application, report, account, record, or other document filed or transmitted pursuant to the Act, any statement or omission that is misleading with respect to any material fact. Section 34(b)'s prohibition on misleading statements and omissions in required filings is the statutory basis for Rule 34b-1's deemed-misleading mechanism — the Commission's characterisation of sales literature that omits required performance computation and legend disclosures as an omission of material fact necessary to make the presented performance information not misleading.

Rule 34b-1 was adopted as part of the Commission's earlier comprehensive framework for investment company advertising and sales literature disclosure, establishing the performance data and legend disclosure requirements that link the rule operationally to Rule 482's advertising standards framework. The most recent substantive amendment to Rule 34b-1 was adopted October 26, 2022 — as part of the Tailored Shareholder Reports and Fee Information in Investment Company Advertisements rulemaking — which added paragraph (c) requiring that sales literature containing fee and expense figures include the disclosures required by Rule 482's fee disclosure provision and meet Rule 482's timeliness requirements for fee and expense information. This amendment, effective January 24, 2023, directly extended Rule 34b-1's deemed-misleading framework to cover fee and expense representations in sales literature, paralleling the expansion of the broader Rule 482 framework to address the specific investor protection concerns about fee transparency that the Commission's monitoring of investment company advertising had identified. No changes have been made to Rule 34b-1's operative provisions up to the present time.

Key Provisions and Operative Requirements

Rule 34b-1's foundational provision establishes the general deemed-misleading principle through a specifically structured formulation. Any advertisement, pamphlet, circular, form letter, or other sales literature addressed to or intended for distribution to prospective investors that is required to be filed with the Commission by Section 24(b) of the Act shall be deemed to have omitted to state a fact necessary to make the statements made therein not materially misleading unless the sales literature includes the information specified in the rule's operative paragraphs.

The coverage trigger — any sales literature required to be filed under Section 24(b) — anchors Rule 34b-1 to a specific subset of investment company marketing communications rather than applying it to every marketing communication a fund might produce. Section 24(b) of the Investment Company Act requires that every registered investment company and every registered underwriter of such company file with the Commission all sales literature addressed to or intended for distribution to prospective investors in fund shares. This filing requirement encompasses the full range of supplementary marketing materials that funds distribute to accompany or follow the prospectus — materials that are specifically designed to complement the formal prospectus disclosure with more accessible, persuasive presentations of fund characteristics — and Rule 34b-1's deemed-misleading provision applies to each of these materials individually.

Rule 34b-1(b) establishes the performance data disclosure requirement — the rule's primary operative condition for sales literature containing performance information. Any sales literature that includes performance data must include the appropriate uniformly computed data and the legend disclosure required in investment company advertisements by Rule 482 under the Securities Act. The cross-reference to Rule 482 is substantively significant — it imports the complete performance computation methodology that Rule 482 prescribes, including the standardised time period requirements specifying that performance presentations must cover prescribed one, five, and ten-year periods through the most recent calendar quarter-end, the total return computation methodology applicable to all investment company performance presentations, and the required legend disclosing that past performance does not guarantee future results. By requiring that sales literature containing any performance data include the full Rule 482-compliant performance presentation, Rule 34b-1 prevents the practice of cherry-picking favourable performance periods for inclusion in sales literature while omitting the standardised time-period data that would place those selected periods in proper context.

Rule 34b-1(c) — added by the November 2022 Tailored Shareholder Reports rulemaking — establishes the fee and expense disclosure requirement for sales literature. Any sales literature containing fee and expense figures for a registered investment company or business development company must include the fee disclosure required by Rule 482's fee and expense disclosure provision, and any fee and expense information included in sales literature must meet the timeliness requirements of Rule 482's corresponding fee timeliness provision. These requirements ensure that fee and expense representations in sales literature are presented in a manner consistent with the standardised fee table format that Rule 482 and fund registration statements require, preventing the misleading practice of presenting partial or selectively favourable cost information that omits material categories of fees or uses outdated cost figures that do not reflect the fund's current expense structure.

Rule 34b-1 includes a carve-out from its performance data requirements for periodic reports to shareholders — specifically, the requirements of Rule 34b-1(b)(1) do not apply to any quarterly, semi-annual, or annual report to shareholders under Section 30 of the Act containing performance data for a period commencing no earlier than the first day of the period covered by the report, nor do the corresponding Rule 482 requirements apply to such periodic reports containing other performance data. This carve-out acknowledges that periodic shareholder reports — already governed by Rule 30e-1's comprehensive content requirements and subject to the financial statement accuracy standards of Rule 30a-3 — need not satisfy the specific performance computation format requirements of Rule 34b-1 for performance data that is genuinely limited to the reporting period itself, recognising that within-period performance data in periodic reports serves a different informational purpose from the standardised multi-period performance presentations required in marketing-oriented sales literature.

Scope of Application

Rule 34b-1 applies to all registered investment companies — mutual funds, Exchange-Traded Funds, closed-end funds, money market funds, interval funds, and BDCs — and to their affiliated underwriters who distribute sales literature to prospective investors in the fund's shares. The rule's coverage is defined by the intersection of two criteria: the communication must be sales literature addressed to or intended for distribution to prospective investors, and it must be required to be filed with the Commission under Section 24(b) of the Act.

Communications that do not meet both criteria — for example, internal marketing strategy documents not addressed to investors, or generic company communications that do not constitute sales literature addressed to prospective fund investors — fall outside Rule 34b-1's scope.

ETFs registered on Form N-1A and marketed through broker-dealer distribution channels are subject to Rule 34b-1 for any sales literature distributed to prospective investors through those channels, making the rule's performance computation and fee disclosure requirements directly applicable to the substantial volume of ETF marketing materials — ranging from fund-company-produced fact sheets and performance summaries to broker-dealer-produced ETF comparison materials — that the ETF distribution process generates. The ETF industry's growth has made consistent, standardised performance and fee presentation in sales literature an increasingly significant regulatory priority, given the competitive importance of performance marketing in the increasingly crowded ETF product landscape.

Relationship to Related Rules and Regulations

Rule 34b-1's operational relationship with Rule 482 under the Securities Act is the most direct and consequential in the rule's regulatory framework. Rule 34b-1's deemed-misleading standard is defined by reference to Rule 482 — sales literature containing performance data is deemed materially misleading unless it includes the uniformly computed data and legend disclosures that Rule 482 requires for investment company advertisements. This cross-referential structure means that Rule 34b-1 and Rule 482 must be understood and applied together — compliance with one without the other is impossible when performance data is included in sales literature required to be filed under Section 24(b).

Rule 156 under the Securities Act provides the parallel antifraud standard for the same investment company marketing context, addressing the broader categories of potentially misleading sales literature content — including representations about fund characteristics, past and future performance, and, following the November 2022 amendment, fees and expenses — through a materiality-based factors analysis rather than the specific deemed-misleading mechanism that Rule 34b-1 employs. The two rules are complementary — Rule 34b-1 provides the specific, objective deemed-misleading standard for sales literature that includes performance or fee data, while Rule 156 provides the broader principles-based antifraud framework applicable to all aspects of investment company marketing communications regardless of whether they include the specific data categories that trigger Rule 34b-1's requirements.

The Marketing Rule — Rule 206(4)-1 under the Investment Advisers Act — applies to investment advisers who market their services in connection with the registered funds they manage, establishing performance advertising requirements for the adviser's own marketing communications that parallel Rule 34b-1's requirements for the fund's direct sales literature. Together these two performance advertising frameworks — one applicable to the fund directly under Rule 34b-1, and one applicable to the fund's adviser under Rule 206(4)-1 — create a comprehensive performance marketing disclosure environment in which the same investor protection standards govern both fund-level and adviser-level communications about fund performance.

Rule 38a-1's compliance programme framework requires that registered fund compliance programmes specifically address Rule 34b-1 compliance — including the review processes through which sales literature containing performance or fee data is evaluated for compliance with Rule 482's uniformly computed data and legend requirements before distribution to prospective investors. The November 2022 expansion of Rule 34b-1's requirements to cover fee and expense information requires that compliance programmes specifically address fee data accuracy, presentation format consistency with the fund's prospectus fee table, and the timeliness requirements ensuring that sales literature fee information reflects the fund's current expense structure.

Amendment History and Regulatory Evolution

Rule 34b-1's operative framework has evolved progressively since its original adoption, with the most significant recent development being the November 2022 addition of paragraph (c) extending the deemed-misleading standard to cover fee and expense representations in sales literature. This extension was part of the Commission's broader initiative — also reflected in the Tailored Shareholder Reports rulemaking's standardised fee presentation requirements for open-end fund shareholder reports — to ensure consistent and complete disclosure of investment company costs across the full spectrum of fund marketing and reporting communications.

The rule's foundational performance data provision has remained substantively stable for many years, reflecting the durability of the uniformly computed data and legend disclosure requirements as the operative standard for preventing misleading performance presentations in investment company sales literature. No changes have been made to Rule 34b-1's operative provisions up to the present time beyond the November 2022 fee and expense amendment.

Enforcement Context and SEC Action Patterns

Rule 34b-1 enforcement has concentrated on two categories of violation. The first involves sales literature presenting performance data without the complete, uniformly computed data that Rule 34b-1 requires — particularly cases where funds presented selected periods of strong performance without the standardised multi-period data that would contextualise that performance, or where the required past-performance legend was omitted or presented in a manner that did not meet Rule 482's required format. The Commission and FINRA's advertising review programme have both treated Rule 34b-1 as establishing the minimum performance disclosure standard for investment company sales literature, with deviations from the uniformly computed data and legend requirements treated as per se violations rather than as matters of degree.

The second enforcement category — increasingly significant following the November 2022 expansion of Rule 34b-1 to cover fee and expense information — involves sales literature presenting fee or expense information in a manner inconsistent with the fund's prospectus fee table, using outdated cost figures that do not reflect the fund's current expense structure, or omitting material categories of costs that the Rule 482 fee disclosure framework requires to be presented alongside the disclosed fee components.

Examination Relevance and Key Takeaways

Rule 34b-1 is examined at the Series 7 and Series 65 levels as the specific sales literature disclosure standard for registered investment companies, addressing the deemed-misleading consequences of omitting required uniformly computed performance data and legend disclosures. The cross-referential structure of Rule 34b-1 and Rule 482 — with Rule 34b-1's deemed-misleading standard defined by reference to Rule 482's specific performance computation and legend requirements — is the foundational examination concept, emphasising that the two rules must be understood and applied together for any sales literature containing performance data.

The November 2022 extension of Rule 34b-1's coverage to fee and expense information — requiring that sales literature containing fee figures comply with Rule 482's fee disclosure and timeliness requirements — is examined in connection with Rule 482's specific provisions governing the presentation of fund fees and expenses in investment company advertising, illustrating the Commission's comprehensive approach to ensuring standardised, accurate cost disclosure across all categories of fund marketing communications.

The key points to retain are these. Rule 34b-1 deems materially misleading any investment company sales literature required to be filed under Section 24(b) of the Investment Company Act that includes performance data without including the uniformly computed data and legend disclosure required by Rule 482, and any such sales literature containing fee and expense information that does not comply with Rule 482's fee disclosure and timeliness requirements. The deemed-misleading mechanism treats the omission of required disclosures as itself constituting a material omission — without requiring case-by-case proof of investor confusion. The rule applies to all registered investment companies and their underwriters for sales literature addressed to prospective investors. Periodic shareholder reports are exempt from the performance computation requirements for within-period performance data. Rule 34b-1's performance disclosure requirements are defined by cross-reference to Rule 482 under the Securities Act, making the two rules operationally inseparable for any sales literature containing performance or cost information. Rule 34b-1 was most recently substantively amended November 2022 to add the fee and expense disclosure requirement; no changes have been made up to the present time.