Which statement about Unit Investment Trusts (UITs) is true?

• A. They are unmanaged investment companies that do not have a board of directors or investment advisers and do not actively manage their own portfolios.
• B. They actively trade securities on a daily basis.
• C. They always invest exclusively in equities.
• D. They must appoint a management company to operate.

Answer: (A)

Unit Investment Trusts are fixed, unmanaged investment vehicles. They are created by a sponsor, and the securities in the portfolio are chosen at inception and then remain unchanged until the trust matures. Because there’s no ongoing manager or adviser making investment decisions, the trust doesn’t engage in active trading or day-to-day portfolio management. This means there isn’t a management company providing ongoing investment advice or supervision.

That’s why the description of UITs as unmanaged and lacking an investment adviser, with no active portfolio management, is the most accurate characterization. They aren’t designed to adjust holdings or react to market changes, and they don’t require a management company to operate. The other statements contradict how UITs are structured—the portfolios aren’t traded daily, they can hold securities beyond just equities, and they’re not dependent on a separate management company for operation.