General Securities Representative (Series 7) Practice Exam

What defines the pool of securities typically associated with unit investment trusts (UITs)?

1. A fixed portfolio of securities

2. An actively managed portfolio

3. A varying selection of commodities

4. A portfolio of futures contracts

The correct answer is: A fixed portfolio of securities

The pool of securities associated with unit investment trusts (UITs) is defined by a fixed portfolio of securities. UITs are investment vehicles that consist of a predetermined set of assets that are established at the trust's inception. Once the portfolio is created, the securities within it are typically not actively traded or managed; instead, they are held until the trust matures or is dissolved. This fixed nature of the portfolio is one of the key characteristics of UITs, as it allows investors to know exactly what assets they own and the level of risk they are exposed to without the fluctuations that come with active management. In contrast, actively managed portfolios involve ongoing trading and adjustment by a portfolio manager aiming to outperform a benchmark, which does not align with the structure of UITs. Varying selections of commodities or a portfolio of futures contracts also describe different types of investment products that do not reflect the fixed, passive nature of the securities in a UIT. Thus, the definition of a UIT's pool of securities as a fixed portfolio is essential in understanding how these investment trusts operate and what investors can expect from them.