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Federal Register / Vol. 86, No. 42 / Friday, March 5, 2021 / Rules and Regulations
prior time periods when the strategy was not actually used during those time periods; and C Targeted or projected performance returns with respect to any portfolio or to the investment advisory services with regard to securities offered in the advertisement, however:
ii Hypothetical performance does not include:
A An interactive analysis tool where a client or investor, or prospective client, or investor, uses the tool to produce simulations and statistical analyses that present the likelihood of various investment outcomes if certain investments are made or certain investment strategies or styles are undertaken, thereby serving as an additional resource to investors in the evaluation of the potential risks and returns of investment choices; provided that the investment adviser:
1 Provides a description of the criteria and methodology used, including the investment analysis tools limitations and key assumptions;
2 Explains that the results may vary with each use and over time;
3 If applicable, describes the universe of investments considered in the analysis, explains how the tool determines which investments to select, discloses if the tool favors certain investments and, if so, explains the reason for the selectivity, and states that other investments not considered may have characteristics similar or superior to those being analyzed; and 4 Discloses that the tool generates outcomes that are hypothetical in nature; or B Predecessor performance that is displayed in compliance with paragraph d7 of this section.
9 Ineligible person means a person who is subject to a disqualifying Commission action or is subject to any disqualifying event, and the following persons with respect to the ineligible person:
i Any employee, officer, or director of the ineligible person and any other individuals with similar status or functions within the scope of association with the ineligible person;
ii If the ineligible person is a partnership, all general partners; and iii If the ineligible person is a limited liability company managed by elected managers, all elected managers.
10 Net performance means the performance results of a portfolio or portions of a portfolio that are included in extracted performance, if applicable after the deduction of all fees and expenses that a client or investor has paid or would have paid in connection with the investment advisers
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investment advisory services to the relevant portfolio, including, if applicable, advisory fees, advisory fees paid to underlying investment vehicles, and payments by the investment adviser for which the client or investor reimburses the investment adviser. For purposes of this rule, net performance:
i May reflect the exclusion of custodian fees paid to a bank or other third-party organization for safekeeping funds and securities; and/or ii If using a model fee, must reflect one of the following:
A The deduction of a model fee when doing so would result in performance figures that are no higher than if the actual fee had been deducted;
or B The deduction of a model fee that is equal to the highest fee charged to the intended audience to whom the advertisement is disseminated.
11 Portfolio means a group of investments managed by the investment adviser. A portfolio may be an account or a private fund and includes, but is not limited to, a portfolio for the account of the investment adviser or its advisory affiliate as defined in the Form ADV Glossary of Terms.
12 Predecessor performance means investment performance achieved by a group of investments consisting of an account or a private fund that was not advised at all times during the period shown by the investment adviser advertising the performance.
13 Private fund has the same meaning as in section 202a29 of the Act.
14 Related performance means the performance results of one or more related portfolios, either on a portfolioby-portfolio basis or as a composite aggregation of all portfolios falling within stated criteria.
15 Related portfolio means a portfolio with substantially similar investment policies, objectives, and strategies as those of the services being offered in the advertisement.
16 Supervised person has the same meaning as in section 202a25 of the Act.
17 Testimonial means any statement by a current client or investor in a private fund advised by the investment adviser:
i About the client or investors experience with the investment adviser or its supervised persons;
ii That directly or indirectly solicits any current or prospective client or investor to be a client of, or an investor in a private fund advised by, the investment adviser; or iii That refers any current or prospective client or investor to be a
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client of, or an investor in a private fund advised by, the investment adviser.
18 Third-party rating means a rating or ranking of an investment adviser provided by a person who is not a related person as defined in the Form ADV Glossary of Terms, and such person provides such ratings or rankings in the ordinary course of its business.
275.20643

Removed and reserved
4. Remove and reserve 275.20643.

PART 279FORMS PRESCRIBED
UNDER THE INVESTMENT ADVISERS
ACT OF 1940
5. The authority citation for part 279
continues to read as follows:

Authority: The Investment Advisers Act of 1940, 15 U.S.C. 80b1, et seq., Pub. L.111
203, 124 Stat. 1376.

6. Amend Form ADV referenced in 279.1 by:
a. Adding Item 5.L to Part 1A;
b. Revising the instructions to the form, in the section entitled Form ADV: Glossary of Terms;
c. Revising the instructions to the form, in the section entitled Part 2A of Form ADV: Firm Brochure, by removing the phrase SEC rule 2064
3 in the Note in Item 14.B. and adding, in its place, SEC rule 20641.
The addition and revision read as follows:

Note: The text of Form ADV does not, and this amendment will not, appear in the Code of Federal Regulations.

FORM ADV Paper Version UNIFORM APPLICATION FOR
INVESTMENT ADVISER
REGISTRATION AND
REPORT BY EXEMPT REPORTING
ADVISERS PART lA

Item 5: Information About Your Advisory Business ADVISORY ACTIVITIES
L. Marketing Activities 1 Do any of your advertisements include:
a. Performance results?
Y N
b. A reference to specific investment advice provided by you as that phrase is used in rule 20641a5?
Y N
c. Testimonials other than those that satisfy rule 20641b4ii?
Y N
d. Endorsements other than those that satisfy rule 20641b4ii?
Y N
e. Third-party ratings?

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