Frequently Asked Questions About Unit Investment Trusts

What is a unit investment trust?
A unit investment trust (UIT) is a registered investment company that buys and holds a generally fixed portfolio of stocks or bonds. "Units" in the trust are sold to investors who receive a share of the principal and dividends. UITs have a stated date for termination.

How many different types of UITs are there?
There are two main types of UITs - equity trusts and bond trusts. Bond trusts are divided into taxable and tax-free trusts. Historically, the majority of UIT assets have been invested in bond investments. However, in recent years, deposits in equity UITs have exceed deposits in both taxable and tax-free bond trusts.

How much do UITs hold?
At year-end 2006, UITs held $49.66 billion in assets. Of that total, 22 percent of the assets were held in bond trusts. Assets in bond trusts were $10.85 billion; assets in equity trusts were $38.81 billion.

How much is going into UITs?
In 2006, investors deposited a total of $29.06 billion in UITs. By comparison, UITs drew deposits of $22.60 billion in 2005 and $17.13 billion in 2004.

How many UITs are there?
In 2006, 858new unit investment trusts were created. Of that total, 714 were new equity trusts and 144 were bond trusts. During the previous year, 687 new trusts issued shares.

Are UIT holdings professionally selected and diversified?
Yes. The securities in a UIT, which are listed in its prospectus, are professionally selected to meet a stated investment objective such as growth, income, or capital appreciation. UITs employ a "buy-and-hold" investment strategy: once the trust's portfolio is selected, its securities typically are not traded (some UITs may sell or replace a security if questions arise concerning the financial viability of the issuer or the security's creditworthiness). A UIT holds a diversified portfolio of securities to reduce an investor's risk.

Are UITs regulated?
Yes. UITs, like mutual fund and closed-end funds, are subject to stringent federal laws and oversight by the U.S. Securities and Exchange Commission (SEC). The Investment Company Act of 1940 is highly detailed and governs this structure and day-to-day operations of trusts.

Where can I find more information on UITs?
The ICI offers a guide (PDF or HTML) to investing in unit investment trusts as part of its Investor Awareness series, and tracks assets and other statistical data on the unit investment trust industry.

June 2007