On November 2, 2010, the SEC staff issued a letter to the Independent Directors Council and Mutual Fund Directors Forum clarifying its views regarding the responsibilities of a registered investment company’s board of directors in respect of its review of transactions effected in reliance on Rule 10f-3 (permitting a fund to purchase securities from an affiliated syndicate under certain conditions), Rule 17a-7(exempting certain purchase or sale transactions between a fund and certain of its affiliated persons from the prohibitions in Section 17(a)) and Rule 17e-1 (providing when a commission, fee or other remuneration will not be deemed to exceed the usual and customary broker’s commission) under the Investment Company Act of 1940, as amended (the “Rules”). A fund’s board must determine that any transaction effected pursuant to one of the Rules during the previous quarter was done so in compliance with the fund’s relevant procedures. The guidance from the Staff indicates that the Staff believes a fund’s board may, where consistent with the prudent discharge of its fiduciary duties, make the determinations required by the Rules in reliance on summary quarterly reports of the transactions effected in reliance on one or all of those rules. The letter suggests that the summary quarterly reports could be prepared by the fund’s chief compliance officer or, under appropriate circumstances, a combination of fund counsel, counsel to the independent directors, investment adviser personnel, and/or independent third parties. The Staff also cautions that even if boards rely on the chief compliance officer or others to provide them summary quarterly reports of the transactions, boards “still retain ultimate responsibility for making the quarterly determinations required by these three rules, and boards cannot delegate such responsibility.” The Staff’s letter also stresses that boards must remain “vigilant to ensure that they have sufficient information to be alerted to issues raised” by transactions effected in reliance on the Rules. The SEC’s letter is available here.