Regulators are continuing to warn fund companies about how they advertise their funds' performances.

Funds that advertise extraordinary investment performance earned last year should include prominent disclosure in their ads that warns investors about unusual factors behind the performance, NASD Regulation said in a notice to its members issued April 10. It is not sufficient to put warnings in small print in ads, NASDR said.

"You cannot over-emphasize, over-hype when your fund has done well" without disclosing mitigating factors in the text of the ads, said Amy Hyland, a spokesperson for NASDR.

In February, regulators began cautioning funds against raising unrealistic expectations among investors through advertising extraordinary market gains for some funds last year. More than 150 funds had returns of more than 100 percent last year.

The SEC currently is examining fund advertising practices and is revising rules to provide funds guidance on the kind of disclosure that should be included in fund ads.

The NASDR's warning, contained in a notice to members, put in writing what SEC regulators have been saying at industry conferences since February. Funds do not automatically satisfy the requirements of federal anti-fraud rules simply by meeting minimum SEC and NASDR disclosure requirements, NASDR said in the notice.

"In particular, depending on the circumstances, it may be necessary to include information beyond what is required under (minimum SEC disclosure rules) when unusual performance is presented in order for the sales material not to be misleading," NASDR said in the notice.

The notice is meant to be cautionary, Hyland said. It is not a reaction to troubling fund advertisements, she said.

The notice warned fund companies that, when advertising extraordinary performance, funds should disclose in the text, rather than in footnotes, special factors that contributed to the performance.

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