SEC Rule 156

Overview and Regulatory Purpose

The registered investment company industry — encompassing approximately 13,000 registered funds managing over $30 trillion in assets for tens of millions of retail and institutional investors — is one of the most extensively marketed financial product categories in the United States economy. Mutual funds and ETFs compete intensively for investor assets through advertising in financial media, digital marketing channels, financial adviser presentations, and the full range of communications through which issuers and distributors reach potential investors.

This marketing intensity, combined with the inherent complexity of investment company disclosures — performance data expressed in multiple formats, risk metrics, expense ratios, portfolio composition, and management philosophy, each capable of being presented in ways that convey accurate technical information while creating materially misleading overall impressions — makes the investment company marketing context particularly susceptible to the specific antifraud concerns that Rule 156 was designed to address. The fundamental investor protection problem that Rule 156 addresses is the gap between technically accurate and genuinely non-misleading disclosure. A mutual fund that accurately reports its five-year annualised return while omitting disclosure that the primary period of strong performance occurred in a single exceptional year, or that presents its total expense ratio while omitting disclosure of additional transaction costs and intermediary fees that materially increase the investor's total cost of ownership, has provided disclosure that is technically accurate in its specific claims while being materially misleading in the overall impression it creates.

Rule 156 specifically addresses this gap by articulating the categories of investment company marketing content most commonly susceptible to this technical-accuracy-without-genuine-transparency failure mode, and by providing the illustrative factors that enable the Commission, FINRA, and the funds themselves to assess whether specific sales literature crosses the antifraud threshold.

Statutory Authority and Rulemaking History

Rule 156 derives its statutory authority from Section 17(a) of the Securities Act of 1933 — the primary antifraud provision under which materially misleading sales literature constitutes a violation of the federal securities laws — and Section 19(a)'s general rulemaking authority to prescribe rules implementing the Act's provisions. The Commission also draws on Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder as parallel antifraud authority applicable to investment company sales literature, given that many registered fund securities are also registered under the Exchange Act or are offered through broker-dealers subject to Exchange Act antifraud requirements.

Rule 156 was originally adopted in 1979 — Securities Act Release No. 33-6034, published at 44 FR 25389, April 30, 1979 — as the Commission's foundational guidance on the antifraud standards applicable to investment company sales literature, consolidating and extending the staff guidance that had previously been provided through no-action letters and interpretive releases. The rule has been amended on several subsequent occasions, with the most recent and substantively significant amendment adopted November 25, 2022 — Securities Exchange Act Release No. 34-96368, published at 87 FR 72846 — as part of the Tailored Shareholder Reports and Other Rules Amendments rulemaking. That amendment extended Rule 156's scope to registered non-variable annuity products — reflected in the rule's updated title — and added paragraph (b)(4) addressing representations about fees and expenses as a fourth category of potentially misleading content, alongside the three original categories addressing security characteristics, performance, and investment company attributes. The 2022 amendments became effective January 24, 2023, with an 18-month compliance period that ended July 24, 2024. The eCFR confirms the November 2022 amendments as the most recent changes to Rule 156's text.

Key Provisions and Operative Requirements

Rule 156(a) establishes the operative antifraud prohibition. It is unlawful for any person to use sales literature that is materially misleading in connection with the offer or sale of securities of any investment company or registered non-variable annuity. Sales literature is materially misleading for these purposes if it contains an untrue statement of a material fact or omits to state a material fact necessary in order to make a particular statement, in light of the circumstances under which it was made, not misleading. This foundational prohibition directly tracks the language of Section 17(a) and Rule 10b-5's antifraud standards, importing the materiality framework from the broader securities antifraud law directly into the investment company sales literature context.

The definition of sales literature under Rule 156(a) is deliberately broad, encompassing any written communication, broadcast communication by radio or television, or other communication used by any person to offer or sell or induce the sale of securities of any registered investment company or registered non-variable annuity. The rule confirms that communications between issuers, underwriters, and dealers — including wholesaler presentations, adviser training materials, and internal marketing briefings — are included within the definition of sales literature if those communications can reasonably be expected to be communicated to prospective investors in the offer or sale of securities, or are designed to be employed in written or oral form in the offer or sale of securities. This breadth of definition ensures that the antifraud prohibition applies to the full communication chain through which investment company marketing materials reach retail investors, not merely to the final retail-facing communication.

Rule 156(b) identifies four specific categories of investment company sales literature content that are particularly susceptible to misleading presentation, providing illustrative factors within each category that inform but do not exhaust the materiality determination.

Rule 156(b)(1) addresses representations about the nature and characteristics of an investment company or its investments — content relating to the type of securities in which a fund invests, the industries or geographic areas in which investments are concentrated, the fund's investment strategy and risk profile, and the qualifications and experience of the fund's management team. Statements in this category could be misleading because of mischaracterisation of the fund's investment strategy or portfolio composition, overstatement of management's qualifications or track record, or omission of material information about the risks associated with the fund's investment approach that would be necessary to make affirmative statements about the strategy's characteristics not misleading. A growth fund that describes itself as pursuing a conservative growth strategy without disclosing that it concentrates positions in a small number of highly volatile securities has provided a materially misleading characterisation of its investment approach notwithstanding the technical accuracy of each individual statement about its growth orientation.

Rule 156(b)(2) addresses representations about past or future investment performance — the category of investment company marketing content that has historically generated the greatest volume of antifraud enforcement activity and regulatory guidance. Statements in this category could be misleading, first, where portrayals of past income, gain, or growth of assets convey an impression of net investment results achieved by an actual or hypothetical investment that would not be justified under the circumstances, including portrayals that omit explanations, qualifications, limitations, or other statements necessary to make the portrayals not misleading. This includes the presentation of past performance figures that use non-standard time periods selected because they include periods of superior performance while omitting periods of poor performance — the temporal cherry-picking problem that parallel antifraud standards address across multiple categories of securities marketing.

Second, Rule 156(b)(2) identifies as potentially misleading any representations, express or implied, about future investment performance, including representations about security of capital, possible future gains or income, or expenses associated with an investment, and representations implying that future gains or income may be inferred from or predicted based on past investment performance. This prohibition directly addresses the cognitive tendency among retail investors to extrapolate past performance to the future — a tendency that investment company sales literature, if not carefully structured, can deliberately or inadvertently exploit by presenting historical performance data in a manner that implies predictive value for future returns. The Commission has consistently taken the position that there is no reliable basis for inferring future investment performance from past performance and that any marketing communication that creates such an inference — even through implication or selective presentation rather than explicit representation — is potentially misleading.

Rule 156(b)(3) addresses statements about the characteristics or attributes of an investment company that could be misleading because of statements about possible benefits without clearly explaining the attendant risks, or statements comparing the investment company's management, objectives, policies, or performance with those of other investment companies without noting the material distinctions between the investments being compared. This provision specifically addresses comparative marketing communications — presentations that position one fund favourably against another fund or class of funds — requiring that such comparisons be genuinely apples-to-apples rather than selectively constructed to favour the fund being marketed by concealing material differences in investment strategy, risk profile, or performance measurement methodology.

Rule 156(b)(4) — added by the November 2022 Tailored Shareholder Reports amendment — addresses representations about the fees or expenses associated with an investment in the fund or registered non-variable annuity. Specifically, representations about fees and expenses could be misleading where portrayals of the fees and expenses associated with an investment in the fund omit explanations, qualifications, limitations, or other statements necessary or appropriate to make the portrayals not misleading, including situations where the sales literature advertises low investment fees and expenses based solely on a fund's prospectus fee table without reflecting other categories of costs that may be supplementing or replacing a more traditional management fee — such as intermediary costs, securities lending costs, or similar arrangements — or where it presents one component of a fund's total operating expenses, such as the management fee, without stating that there are other costs associated with the investment. This addition directly responded to the Commission's identification of emerging practices in which fund marketing materials highlighted superficially low headline expense ratios while failing to disclose the full range of costs investors would actually incur. Rule 156(c) establishes the contextual factors that inform the determination of whether a particular statement is or might be misleading. In considering this question, weight should be given to all pertinent factors, including other statements being made in connection with the offer or sale of the securities in question, the absence of explanations, qualifications, limitations, or other statements necessary or appropriate to make the statement not misleading, and general economic or financial conditions or circumstances. This contextual standard reinforces the rule's holistic approach to misleading content determination — a specific statement that would be accurate and non-misleading in one context may be misleading when combined with other statements, in the absence of necessary qualifications, or in specific economic circumstances that give the statement implications its literal text does not convey.

Scope of Application

Rule 156 applies to all registered investment companies — open-end mutual funds, closed-end funds, Exchange-Traded Funds, money market funds, and unit investment trusts — and, following the 2022 amendment, to registered non-variable annuity products whose sales literature is subject to the same antifraud standards. The rule applies to all forms of sales literature as broadly defined — print, digital, broadcast, and any other communication used by any person to offer or sell fund securities — without limitation based on the communication's format, the distribution channel through which it reaches investors, or the sophistication of the audience it targets. A presentation prepared for financial advisers distributing a fund's shares, a digital advertisement displayed on a financial news website, and a prospectus supplement discussing the fund's recent performance are all subject to Rule 156's antifraud framework, since each is a communication used in connection with the offer or sale of investment company securities.

The rule's explicit statement that compliance with Rule 482's advertising requirements or Rule 34b-1's sales literature content requirements does not relieve the investment company, underwriter, or dealer of obligations under Rule 156's antifraud framework reinforces the rule's character as a standalone antifraud standard that supplements rather than is satisfied by compliance with the specific content requirements of those other rules. A fund advertisement that includes all required disclosures under Rule 482's specific content mandates may nonetheless violate Rule 156 if the overall presentation is materially misleading through the combination of technically accurate individual statements with omissions of necessary context or qualification.

Relationship to Related Rules and Regulations

Rule 156 operates as the foundational antifraud reference for the investment company sales literature regulatory framework, and is specifically cross-referenced by both Rule 482 — the Commission's rule governing investment company advertisements as Section 10 prospectuses — and Investment Company Act Rule 34b-1 — the rule governing the standards for misleading sales literature under the Investment Company Act. Both Rule 482 and Rule 34b-1 explicitly direct fund operators, underwriters, and dealers to consult Rule 156 for guidance on the factors to be weighed in determining whether investment company advertisements and sales literature are misleading, establishing Rule 156 as the analytical centre of the investment company marketing antifraud framework rather than merely one component of it.

Rule 156's performance representation guidance connects directly to Rule 482's standardised performance presentation requirements, which prescribe the specific time periods and methodologies for presenting fund performance in advertisements, and to the Marketing Rule's performance presentation requirements under Rule 206(4)-1 for investment advisers. Where Rule 482 establishes the specific content that investment company advertisements must include to comply with Section 10's requirements, Rule 156 establishes the antifraud floor that the overall presentation must meet regardless of whether all specific Rule 482 content requirements are satisfied.

FINRA Rule 2210 — the primary self-regulatory rule governing broker-dealer communications with the public — incorporates and applies standards consistent with Rule 156 through its own prohibitions on misleading investment company sales literature, and FINRA's advertising review procedures specifically examine investment company marketing materials for compliance with Rule 156's antifraud standards as part of FINRA's comprehensive review of broker-dealer retail communications.

Rule 156's 2022 amendment extending the rule's scope to registered non-variable annuity products connects to Rule 415's shelf registration framework, under which registered non-variable annuities may be offered on a continuous or delayed basis, and to the broader registered annuity disclosure framework that the Commission developed through the Tailored Shareholder Reports rulemaking and related amendments.

Amendment History and Regulatory Evolution

Rule 156's original 1979 framework addressed three categories of potentially misleading investment company sales literature content — representations about the nature and characteristics of the investment company, representations about past or future performance, and statements about characteristics and attributes — that had been identified through the Commission's accumulated experience with investment company marketing practices since the Investment Company Act's adoption in 1940. The rule's treatment of these three original categories has remained substantively stable across the decades since its adoption, reflecting the durability of the antifraud concerns they address.

The November 2022 Tailored Shareholder Reports amendment's addition of paragraph (b)(4) — the fees and expenses misleading representation category — reflected the Commission's identification of a new and increasingly significant vector for misleading investment company marketing in the contemporary market: the presentation of superficially attractive expense ratios or management fees while concealing the full range of investor costs through omission of less visible categories of charges. The growth of zero-commission brokerage platforms, payment for order flow arrangements, and complex fee structures that shift costs from visible expense ratios to less transparent intermediary arrangements made specific fees and expenses content a sufficiently distinct and significant concern to warrant its own enumerated category within Rule 156's illustrative framework.

Enforcement Context and SEC Action Patterns

Rule 156 enforcement operates primarily through the Division of Corporation Finance's review of investment company registration statements and post-effective amendments — particularly the advertising materials and sales literature referenced in fund registration statement filings — and through the examination programmes of the Office of Examinations and FINRA, which review fund marketing materials for compliance with Rule 156's antifraud standards as part of broader investment company and broker-dealer examinations.

Enforcement actions specifically citing Rule 156 violations have addressed materially misleading performance presentations — including funds that presented back-tested performance without adequate disclosure of the hypothetical character of the returns, funds that presented since-inception performance during periods specifically selected because they included the fund's strongest performance while avoiding periods of poor returns, and funds that presented peer group comparisons using non-standard peer group definitions that inflated the fund's apparent relative performance. Enforcement actions have also addressed materially misleading management qualification representations — where funds attributed performance records to their current management team that were in fact achieved under different management — and materially misleading risk characterisations — where funds described themselves as conservative or income-oriented while maintaining highly concentrated or speculative portfolios.

The Commission's examination of fees and expenses representations under the newly added paragraph (b)(4) has focused on marketing materials that present a fund's total expense ratio as its complete cost while omitting material disclosure about securities lending arrangements, acquired fund fees and expenses, intermediary costs, or other categories of costs that materially affect the investor's total cost of ownership beyond the disclosed expense ratio.

Examination Relevance and Key Takeaways

Rule 156 is examined at the Series 7 and Series 65 levels in the context of investment company marketing, mutual fund advertising standards, and the antifraud obligations applicable to fund marketing communications. Candidates should understand the rule's four categories of potentially misleading content — nature and characteristics of the fund, past or future performance representations, characteristics and attributes statements, and fees and expenses representations — and the rule's broad definition of sales literature that encompasses not only retail-facing communications but also intermediary communications that can reasonably be expected to reach prospective investors.

The relationship between Rule 156's antifraud standard and Rule 482's specific content requirements — with Rule 156 establishing the antifraud floor that applies regardless of compliance with Rule 482's affirmative disclosure mandates — is a consistently examined concept at the Series 65 level for candidates advising investment company clients on marketing compliance.

The key points to retain are these. Rule 156 prohibits materially misleading statements and omissions in investment company and registered non-variable annuity sales literature — defined broadly to include any written, broadcast, or other communication used to offer or sell fund securities, including intermediary communications reasonably expected to reach prospective investors. Sales literature is materially misleading when it contains an untrue statement of material fact or omits a material fact necessary to make a statement not misleading in light of the circumstances. Four categories of content are specifically identified as susceptible to misleading presentation: representations about the fund's nature and characteristics; representations about past or future performance, including the prohibition on implying that past performance predicts future results; statements about fund characteristics and attributes, including comparative statements that conceal material distinctions; and — added November 2022 — representations about fees and expenses that omit material categories of investor costs. Rule 156 is cross-referenced by Rule 482 and Investment Company Act Rule 34b-1 as the primary antifraud guidance for investment company advertising. The rule's title was updated in 2022 to include registered non-variable annuities. The November 2022 amendment was effective January 24, 2023 with a compliance period ending July 24, 2024.