UITF and Mutual Funds reportInvestment companies are financial intermediaries that collect funds from individual investors and invest those funds in a potentially wide range of securities or other assets. Pooling of assets is the key idea behind investment companies. Each investor has a claim to the portfolio established by the investment company in proportion to the amount invested. These companies thus provide a mechanism for small investors to “team up” to obtain the benefits of large-scale investing. Investment companies perform several important functions for their investors:1. Record keeping and administration. Investment companies issue periodic status reports, keeping track of capital gains distributions, dividends, investments, and redemptions, and they may reinvest dividend and interest income for shareholders. 2. Diversification and divisibility. By pooling their money, investment companies enable investors to hold fractional shares of many different securities. They can act as large investors even if any individual shareholder cannot. 3. Professional management. Most, but not all, investment companies have full-time staffs ofsecurity analysts and portfolio managers who attempt to achieve superior investment results for their investors. 4. Lower transaction costs. Because they trade large blocks of securities, investment companies can achieve substantial savings on brokerage fees and commissions.Types of Investment Companies Investment companies are categorized into three types:closed-end funds,mutual funds (oropen-end funds)andunit investment trusts(UITs)Unit investment trustsare pools of money invested in a portfolio that is fixed for the life of the fund. To form a unit investment trust, a sponsor, typically a brokerage firm, buys a portfo-lio of securities which are deposited into a trust. It then sells to the public shares, or “units,” in the trust, called redeemable trust certificates.All income and payments of principal from the portfolio are paid out by the fund’s trustees (a bank or trust company) to the shareholders. There is little active management of a unit investment trust because once established, the portfolio composition is fixed; hence these trusts are referred to as unmanaged. Trusts tend to invest in relatively uniform types of assets; for example, one trust may invest in munici-pal bonds, anotherin corporate bonds. The uniformity of the portfolio is consistent with the lack of active management. The trusts provide investors a vehicle to purchase a pool of one particular type of asset, which can be included in an overall portfolio as desired. The lack of active management of the portfolio implies that management fees can be lower than those of managed funds.There are two types of managed companies: closed-end and open-end. In both cases, thefund’s board of directors, which is elected by shareholders, hires a management companyto manage the portfolio for an annual fee that typically ranges from .2% to 1.5% of assets.