unit investment trust

A registered trust in which a fixed portfolio of income-producing securities are purchased and held to maturity. Commonly used with municipal bonds, investors receive an undivided interest of the portfolio's principal as well as income proportionate to the amount they invested.

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Each unit typically costs $1,000 and is sold to investors by brokers. UITs can be resold in the secondary market.

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Investment vehicle registered with the Securities and Exchange Commission under the Investment Company Act of 1940, that purchases a fixed Portfolio of securities, such as corporate, municipal or government bonds, mortgage-backed securities, Common Stock, or Preferred Stock. Units in the trust, which usually cost at least $1,000 ($250 for IRAs), are sold to investors by brokers for a sales charge that is typically 4% for traditional municipal bond trusts and 1%-2% for equity trusts, which feature reduced sales charges when the trusts are rolled over. The trust expires when bonds mature or, in the case of some equity funds, at a specified future date. Unit holders receive an undivided interest in both the principal and the income portion of the portfolio in proportion to the amount of captial they invest.

Traditionally, the majority of UITs held municipal bonds. More recently, however, equity UITs have become predominant. Among the most popular variations were those holding high-yield stocks in the Dow Jones Industrial Average (Dogs of the Dow) or the Standard & Poor's 500 Index and their counterparts on foreign exchanges. UITs are the legal vehicle for some Exchange-Traded Funds. See also Diamonds; SPDR; Special-Purpose Entities (SPE); Structured Rpoducts; Unit Share Investment Trust (USIT).

An unmanaged portfolio of bonds sold to investors in units of $1,000 each. A bank or trust company serves as custodian and trustee for the portfolio of bonds, and collects and periodically disburses interest payments and principal when bonds mature. Since the portfolio is fixed, the trust is self-liquidating due to both unit holder redemptions and bond maturities. Compare nondiscretionary trust.

The noun has one meaning:

Meaning #1: a regulated investment company consisting of professional managers who issue redeemable securities representing a portfolio of many different securities
  Synonym: unit trust