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Question

Difficulty: EasyInvestment Companies and Managed Funds

An investor is considering an investment company product that holds a fixed, unmanaged portfolio of bonds, issues redeemable units to investors, and dissolves on a specified maturity date. Which type of investment company is being described?

  1. Unit Investment Trust (UIT)Answer
  2. B
    Open-end management investment company
  3. C
    Closed-end management investment company
  4. D
    Real Estate Investment Trust (REIT)

Answer

Unit Investment Trust (UIT)
A Unit Investment Trust (UIT) is an investment company that purchases a fixed portfolio of securities (such as municipal or corporate bonds) and holds them until a predetermined termination date. UITs issue redeemable units to investors and do not have a board of directors or an active investment manager.

Step-by-Step Solution

1
Identify the key structural characteristics described in the scenario.
The product features a fixed, unmanaged portfolio, issues redeemable units, and has a set termination date.
These specific attributes distinguish this structure from management investment companies.
2
Match these characteristics to the defined types of investment companies under the Investment Company Act of 1940.
Unit Investment Trusts (UITs) are defined by unmanaged, fixed portfolios with redeemable units and specified termination dates.
Unlike mutual funds or closed-end funds, UITs do not employ an ongoing investment adviser to actively trade securities.

Key Concept

Unit Investment Trust (UIT) Characteristics
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Topics

Investment Companies and Managed Funds

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