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Interpretive Letter to Clair Pagnano, K&L Gates LLP

A member firm may include related performance information in institutional communications concerning continuously offered closed-end funds, subject to the stated conditions discussed in the letter.

June 9, 2017

Clair Pagnano 
K&L Gates LLP
State Street Financial Center
One Lincoln Street
Boston, MA 02111-2950

Re: Request for Interpretive Guidance Regarding Related Performance Information in Institutional Communications for Evanston Alternative Opportunities Fund 

Dear Ms. Pagnano:

In your letter of June 8, 2017, you request interpretive guidance on behalf of your client, Evanston Alternative Opportunities Fund (the “Fund”), a closed-end management investment company registered under the Investment Company Act of 1940 (“1940 Act”), regarding the use of related performance information, as described below, in communications that are distributed solely to “institutional investors” (as defined in FINRA Rule 2210 (“Rule 2210”)) (“Marketing Materials”). For purposes of this request, “Related Performance Information” is the actual performance of separate or private accounts or funds that have (i) substantially similar investment policies, objectives, and strategies; and (ii) are currently managed or were previously managed by the same adviser or sub-adviser that manages the applicable registered fund. Foreside Fund Services, LLC (“Foreside”) serves as the Fund’s principal underwriter.


You state that, pursuant to the conditions of an exemptive order issued by the Securities and Exchange Commission (the “SEC”), the Fund offers two separate classes of shares of beneficial interest designated as Class A Shares and Class I Shares (“Shares”) to “accredited investors” as defined in Regulation D under the Securities Act of 1933, as amended. As a condition to granting the exemptive order, the Fund agreed to comply with specified rules under the 1940 Act (which, by their terms, are applicable only to open-end funds), as if the Fund were an open-end fund subject to those rules. Most notably, the Fund complies with the provisions of Rule 18f-3 and Rule 12b-1 under the 1940 Act.

You state that the Shares are offered on a continuous basis and, subject to any applicable sales load, may be purchased on a monthly basis at the current net asset value (“NAV”) per Share as of the date on which the purchase is accepted. Shares may be purchased from the Fund or through advisers, brokers or dealers (“Intermediaries”) that have entered into selling agreements with Foreside. You state that the Fund is not exchange-listed and, to provide a level of liquidity to shareholders, may conduct periodic repurchase offers.1  

Fund marketing material is often presented to Intermediaries that qualify as “institutional investors” as defined in FINRA Rule 2210(a)(4). These institutional investors may in turn recommend the Fund to their advisory or brokerage customers, and are responsible for discharging their suitability and other regulatory obligations. You state that Intermediaries frequently request Related Performance Information to help them evaluate the Fund, its investment strategy, and the performance history of the Fund’s investment adviser.

You propose that Related Performance Information will be used in Marketing Materials only under the following conditions:

  1. The performance information may be provided only if it is the actual performance of all separate or private accounts or funds (other than the Fund) that have (i) substantially similar investment policies, objectives, and strategies of the Fund, and (ii) are managed or were previously managed by the Fund’s investment adviser. The Related Performance Information will be shown from the inception date of the first Related Account (as defined below).2 
  2. The materials with Related Performance Information will be provided only to persons who qualify as “institutional investors” under Rule 2210(a)(4), excluding institutional investors who intend to share the Related Performance Information with persons other than institutional investors.
  3. The presentation of Related Performance Information will include all accounts described in the first condition (“Related Accounts”). If there are multiple Related Accounts, the investment performance of such accounts will be presented in a composite or a list (in which the investment performance of each account will be displayed with equal prominence).
  4. Any institutional communication with Related Performance Information will be clearly labeled “for use with institutions only, not for use with retail investors.” The Marketing Materials will instruct institutional investors who receive such materials not to provide them to current or prospective customers or others who are not institutional investors.
  5. The presentation of Related Performance Information will disclose performance information that is consistent with the presentation of such performance information in The Adviser’s Past Performance (Related Performance) Appendix in the Fund’s prospectus. Specifically, the performance information will be based on gross of fees portfolio composite performance adjusted to deduct the fees and expenses (taking into account expense caps) of the class of Fund shares that are the subject of the presentation. The presentation will prominently disclose: (i) the fact that the Related Performance Information is shown net of the applicable Fund share class’s fees and expenses; (ii) if applicable, that such share class’s fees and expenses are lower than those of the Related Accounts; and (iii) if applicable, that the Related Performance Information would have been lower had the expense limitation not been taken into account.
  6. The composite’s gross performance may be shown alongside the net performance described above. If gross performance information is also provided, the institutional communication will prominently disclose that: (i) the performance information does not reflect the deduction of fees and expenses, (ii) different funds and accounts have different fees and expenses, and (iii) that the Related Performance Information would have been lower to the extent the related funds or accounts were subject to higher fees and expenses.
  7. The fees and expenses of the Fund will be prominently disclosed and the Fund’s performance information will reflect all fees and expenses. If the fees and expenses are higher than the fees and expenses of the Related Accounts, that fact will be disclosed.
  8. Related Performance Information will (i) include the performance of each Related Account, (ii) be for a period of at least one year and since the inception of the investment strategy, and (iii) be current at least as of the most recently-ended calendar quarter.
  9. Related Performance Information will be clearly labeled as such and contain clear disclosure of the applicable dates for the performance.
  10. Because the Fund has been in existence for more than one year, its actual performance will be displayed more prominently than the Related Performance Information.
  11. The institutional communications will disclose any material differences between the funds or accounts for which Related Performance Information is provided and the Fund.
  12. All institutional communications that contain Related Performance Information shall comply with all other applicable FINRA rules and federal securities laws and be subject to the same supervisory requirements that Foreside applies to all other firm communications.


FINRA Rule 2210 subjects institutional communications to certain content and supervision standards. In particular, institutional communications must be fair and balanced and must provide a sound basis for evaluating the facts in regard to any particular security. Institutional communications may not omit material information, include false, exaggerated, or misleading statements, or misstate material facts. A firm must establish written procedures for the review of institutional communications by a registered principal that are appropriate to the firm’s business, size, structure, and customers. When those procedures do not require prior-to-use review, the firm must adopt training and surveillance procedures to ensure compliance with the rule.

FINRA has taken the position in the past that the presentation of Related Performance Information in communications with the public, in some cases, may be inconsistent with the content standards of Rule 2210(d)(1).3 However, FINRA has also recognized that communications provided solely to institutional investors do not raise the same investor protection concerns as sales materials provided to retail investors, and FINRA has permitted member firms to provide certain related performance information to certain institutional investors, with appropriate safeguards.
In 2003, FINRA stated that it would not object if a member firm included related performance information in sales materials for private funds relying on Section 3(c)(7) of the 1940 Act, if the information was made available only to qualified purchasers, as defined in the 1940 Act, and the member firm complied with all other applicable standards in Rule 2210.4 Additionally, in 2015, FINRA issued an interpretive letter to Hartford Fund Distributors, LLC, an underwriter and wholesale distributor of registered mutual funds, in which it recognized that, under conditions similar to those contained in this letter, the use of Related Performance Information in institutional communications as defined in FINRA Rule 2210(a)(4) concerning open-end registered investment companies would not be inconsistent with the applicable standards of Rule 2210.5
FINRA believes that the same policy rationale and analysis in the 2003 Interpretive Letter and the Hartford Letter apply in this context. Accordingly, FINRA staff believes that the use of Related Performance Information in institutional communications concerning continuously offered closed-end funds such as the Fund in the manner proposed in your letter is consistent with the applicable standards of Rule 2210.6 While we do not object to the use of Related Performance Information in institutional communications as discussed herein, this letter does not affect FINRA’s longstanding position that the presentation of related performance information, other than the performance of a predecessor private account or fund as described above, in communications used with retail investors does not comply with FINRA Rule 2210(d).

The opinions expressed in this letter are staff opinions only and have not been reviewed or endorsed by the FINRA Board of Governors. This staff letter responds only to the issues raised, and does not address any other rule or interpretation of FINRA, or all the possible regulatory and legal issues involved.

If you have any questions regarding this letter, please contact me at (240) 386-4534.



Joseph P. Savage


Pablo Man, K&L Gates LLP
Elizabeth Page, Vice President & Director
FINRA Boston District Office


1 Continuously offered closed-end funds such as the Fund follow Schedule TO and Rule 13e-4 under the Securities Exchange Act of 1934, as amended, for conducting tender offers.

2 The Related Performance Information will be based on three accounts. The inception date for the first Related Account shown is October 1, 2002. The inception dates of the two other Related Accounts shown are January 1, 2003 and November 1, 2003. 
3 See, e.g., “Adviser Performance Prohibited in New Fund Advertising,” NASD Regulatory & Compliance Alert (June 1992), at p. 7. FINRA has permitted members, under appropriate conditions, to describe predecessor performance (concerning insurance company separate accounts, private investment companies or common trust funds) in their sales materials, consistent with the SEC staff’s no-action letter issued to MassMutual Institutional Funds. See Notice to Members 97-47 (August 1997), at footnote 2; see also MassMutual Institutional Funds, SEC staff no-action letter (September 28, 1995).
4 See Letter from Thomas M. Selman, Senior Vice President, NASD, to Yukako Kawata (Davis Polk & Wardwell) (Dec. 30, 2003) (“2003 Interpretive Letter”), available at
5 See Letter from Joseph E. Price, Senior Vice President, FINRA, to Edward P. Macdonald, Hartford Funds Distributors, LLC (May 12, 2015) (the “Hartford Letter”), available at

6 This interpretation (subject to the same conditions as contained in this letter) applies equally to the use of Related Performance Information in institutional communications concerning continuously offered registered closed-end funds that are subject to Rule 23c 3 under the 1940 Act.