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(SEC). The 1940 Act permits one trust document to serve as the
governing instrument for more than one RIC. Each additional RIC
covered by a preexisting trust document is established as a
separate "series" of that trust. In effect, the trust
establishing one RIC can support any number of additional
separate series RIC's.
RIC's are governed by a board of directors (or trustees)
initially assembled by the RIC sponsor, who, like petitioner, is
usually also the RIC adviser and the RIC distributor. After the
selection of the initial board of trustees, vacancies on the
board of trustees are filled by nominations from the board of
trustees, subject to shareholder approval. In the case of RIC's
established as separate series, they are automatically governed
by the board of trustees of the preexisting trust.
The 1940 Act was passed, in part, to protect investors by
regulating the potential conflict of interest arising from the
fact that RIC's are typically created and managed by the
investment adviser. Section 80a-10(a) of the 1940 Act regulates
this type of potential conflict by requiring that a RIC's board
of trustees consist of members no more than 60 percent of whom
can be "interested persons of such registered company." A RIC
has no employees, and its board of trustees oversees the
investment adviser's activities to insure that the RIC's
securities investments remain consistent with its investment
objective, that the RIC's portfolio meets an acceptable level of
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Last modified: May 25, 2011