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Each depositor insured to at least $250,000 per insured bank

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4000 - Advisory Opinions


Insurability of Unit Investment Trusts

FDIC-90-58

October 4, 1990

Gerald J. Gervino, Senior Attorney

Our Office of Consumer Affairs has referred to us your letter concerning unit investment trusts as described in our notice "Important Information From the Federal Deposit Insurance Corporation". You note that unit investment trusts are insured as corporations, rather than to the individual investor. You then ask three questions.

How can an individual investor collect his investment from the corporation's deposit if the corporation is the only one insured?

The investor cannot. The deposit is made by the unit investment trust which is the owner on the books of the bank. Normally, the investor in a unit investment trust has no right to any specific asset, such as a trust-owned certificate of deposit, nor a right to declare the unit investment trust in default when an investment goes sour. Investors in unit investment trusts are purchasers of securities issued by an investment company (or similar organization). They may receive a list of deposits, securities, other instruments, and other assets owned by the trust at its inception.

The investment is normally for a long period of time and has nothing to do with the maturity of any one asset in the investment portfolio. The investor does not have control over the assets in the investment portfolio and would ordinarily sell the investment trust certificate reflecting the investor's interest in order to liquidate the investor's interest. From a practical investor viewpoint, shares of a unit investment trust are quite similar to shares of a mutual fund. Unit investment trusts themselves are not banks and are not insured by the FDIC.

Is it possible for a corporation or unit investment trust to receive insurance coverage in amounts greater than $100,000 in securities and/or certificates?

No. Unit investment trusts and corporations are limited to $100,000 in insurance coverage for all deposits including certificates of deposit of a failed insured bank. Non-deposit items, such as shares of stock, bonds, Treasury bills, and other securities, are not insured by the FDIC. Where the bank holds these as custodian, agent, or in some other fiduciary capacity, the FDIC, as receiver, will return the asset to the bank's customer without regard to any insurance limits.

The above may seem somewhat technical. We are unable to simplify the matter further without creating a misleading impression. If you have further questions, please write or call at (202) 898-3723.


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