Abstract
Regulated investment companies (RICs) hold the overwhelming majority of dollars that the mainstream public invests in pooled investment vehicles. This fact is somewhat surprising, at least if the common criticism of the RIC as a tax-inefficient structure is accurate. To explain the seeming paradox, this Article begins by taking an inventory of the pass-through vehicles in the Code. The Article considers the viability of each vehicle, based on tax considerations alone, as the structure for a general purpose pooled investment vehicle and illustrates why not every pass-through vehicle is suitable for this purpose. Having thereby narrowed the choices, the Article next considers the tax advantages and disadvantages of the structures that are viable because, notwithstanding the popular view of RICs as taxinefficient, one possible reason for the prevalence of RICs could be the tax benefits they offer. Because the RIC structure is not in fact the most tax-efficient alternative, the Article next turns to other bodies of law that may explain the prevalence of the RIC—specifically, the federal securities laws. Based on an analysis of these provisions, the Article demonstrates that the prevalence of the RIC structure is due to the interaction between the Code and the federal securities laws. Because of this interaction, use of the RIC structure for pooled investment vehicles designed for mainstream investors is de facto mandatory in many situations.