Unit investment trusts

A "unit investment trust," commonly referred to as a "UIT," is one of three basic types of U.S. investment companies. The other two types are mutual funds and  closed-end funds. UITs invest in stocks, taxable bonds, and municipal bonds. UITs are sold by brokerages. The number of UITs and the cumulative assets under management are documented in the table below:

Characteristics of UITs

 * A UIT typically issues redeemable securities (or "units"), like a mutual fund, which means that the UIT will buy back an investor’s "units," at the investor’s request, at their approximate net asset value (or NAV) . Some exchange-traded funds (ETFs) are structured as UITs. Under SEC exemptive orders, shares of ETFs are only redeemable in very large blocks (blocks of 50,000 shares, for example) and are traded on a secondary market.
 * A UIT typically will make a one-time "public offering" of only a specific, fixed number of units (like closed-end funds). Many UIT sponsors, however, will maintain a secondary market, which allows owners of UIT units to sell them back to the sponsors and allows other investors to buy UIT units from the sponsors.
 * A UIT will have a termination date (a date when the UIT will terminate and dissolve) that is established when the UIT is created (although some may terminate more than fifty years after they are created). In the case of a UIT investing in bonds, for example, the termination date may be determined by the maturity date of the bond investments. When a UIT terminates, any remaining investment portfolio securities are sold and the proceeds are paid to the investors.
 * A UIT does not actively trade its investment portfolio. That is, a UIT buys a relatively fixed portfolio of securities (for example, five, ten, or twenty specific stocks or bonds), and holds them with little or no change for the life of the UIT. Because the investment portfolio of a UIT generally is fixed, investors know more or less what they are investing in for the duration of their investment. Investors will find the portfolio securities held by the UIT listed in its prospectus.
 * A UIT does not have a board of directors, corporate officers, or an investment adviser to render advice during the life of the trust.

UITs are regulated primarily under the Investment Company Act of 1940 and the rules adopted under that Act, in particular Section 4 and Section 26.

Types of UITs

 * U.S. Government Securities UITs hold U.S. Treasury bonds and other government notes.
 * Mortgage-Backed Securities UITs hold Government National Mortgage Association (Ginnie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac) mortgage backed securities.
 * National Municipal Bond UITs hold bonds issued by states and municipalities.
 * State Municipal Bond UITs hold bonds issued by a specific state.
 * Corporate Bond UITs hold bonds issued by corporations. UITs are usually made up of investment grade issues, or the UIT may purchase insurance backing for the bonds.
 * International Bond UITs hold debt issues of foreign companies and governments.
 * Equity UITs are portfolios of preselected domestic and/or international stocks. Some equity UITs invest in specific sectors of the US market; some have a value or growth strategy; some may even hold the S&P 500 index stocks.

Costs
Unit Investment Trusts have the following costs:
 * 1) Commissions. UITs are sold by brokerages, and usually have a front-end sales charge, which may be reduced by breakpoints for larger investments. There may also be a deferred sales charge.
 * 2) Annual Fees. UITs pay an annual fee to cover administrative, bookkeeping, and trustee expenses and a creation and development fee to cover the costs of organizing the trust. There are no investment management fees, since the trust is not managed.

Cost Example:

A typical transactional sales charge for UITs issued by First Trust, the largest issuer of UITs, includes the following expenses for the GNMA UIT:
 * Initial: 	1.10%
 * Deferred: 	2.37%
 * C&D Fee: 	0.48%
 * Maximum Sales Charge: 3.95%

The following breakpoints offer reduced maximum sales charges:


 * $50,000 but less than $100,000: 	3.70%
 * $100,000 but less than $250,000: 	3.45%
 * $250,000 but less than $500,000: 	3.10%
 * $500,000 but less than $1,000,000: 	2.95%
 * $1,000,000 or more: 	2.45%

The prospectus provides the following annual expenses for the UIT:


 * Portfolio supervision, bookkeeping, administrative, evaluation and FTPS Unit servicing fees: .059%
 * Trustee’s fee and other operating expenses: .190%
 * Total: .249%

Unit Investment Trust Issuers

 * First Trust: Unit Investment Trusts (according to wikipedia, the largest issuer of UITs)
 * Guggenheim Claymore
 * Invesco Van Kampen