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How Are Unit Investment Trusts Priced?

With EVP Office, trust officers, probate attorneys, and accountants can obtain valuations for Date-of-Death on all major Unit Investment Trust (UIT) sponsors from January 1, 1992, onwards. Included are over 600,000 distributions on over 32,000 trusts. Both interest and principal are included.

Carryover and daily interest accruals since the record date of the last distribution have traditionally only been available directly from the trust sponsor or, in some cases, the trustee and considered proprietary by the sponsor. EVP has devoted considerable time and effort in collecting this information. Carryover accrual and daily interest information for most UITs is now available using EstateVal.

Valuing UITs is particularly complex, since the underlying pooled bonds pay rates of interest on various coupon dates and mature or are called at different points in time. Besides the price of the trust per units, values such as the carryover accrual, accrued interest since the last distribution, accrued interest distributions, accrued principal distributions, and principal distributions between the Date-of-Death and Alternate Date must be included in determining the total value of a trust at any given point in time.

The carryover accrual comes about early in the life of a UIT. Coupon payments do not naturally coincide with trust payments so some interest is held or carried over. If units of a trust are purchased later, the buyer pays this amount and, if sold, the seller receives this amount. The amount of carryover interest is usually large, relative to the size of individual interest distributions.

To make the valuation even more complex, the accrual since the last distribution is an accrual per day since the record of the last distribution. Since the mix of underlying issues is not fixed throughout the life of the trust, this interest can vary on a daily basis.

Similar to mortgage-backed securities, UITs pay interest and principal distributions to holders of record on specific record dates. These distributions are paid with a delay and must be reported on estate valuations if the Date-of-Death is between the record and payment dates.

The good news - the IRS shares the same problems in valuing UITs. They, too, use EstateVal.

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