Buying Unit Investment Trust

In some cases, I feel better buying Unit Investment Trust simply because I know what I am getting. A Unit Investment Trust (UIT) is a US investment company offering a fixed (unmanaged) portfolio of securities having a limited life span. UITs are assembled by a sponsor and sold through brokers to investors. A UIT portfolio may contain one of several different types of securities. The two main types are stock trusts (equity) and bond trusts (fixed income).

Unlike a mutual fund, a UIT is created for a specific length of time and is a fixed portfolio, meaning that the UIT’s securities will not be sold or new ones bought, except in certain limited situations. The exception may be when a company is filing for bankruptcy or the sale is required due to a merger.

Stock trusts are generally designed to provide capital appreciation and/or dividend income. They usually issue as many units (shares) as necessary for a set period of time before their primary offering period closes. Equity trusts have a set termination date, on which the trust liquidates and distributes its net asset value as proceeds to the unit holders. The unit holders may then have special options for the reinvestment of this principal.

Bond trusts issue a set number of units, and when they are all sold to investors, the trust's primary offering period is closed. Bond trusts pay monthly income, often in relatively consistent amounts, until the first bond in the trust is called or matures. When this occurs, the funds from the redemption are distributed to the clients via a pro rata return of principal. The trust then continues paying the new monthly income amount until the next bond is redeemed. This continues until all the bonds have been liquidated out of the trust. Bond trusts are generally appropriate for clients seeking current income and stability of principal.

A UIT may be constituted as either a regulated investment company (RIC) or a grantor trust. A RIC is a trust, corporation or partnership in which investors have common investment and voting rights but do not have direct interest in investments of the Investment Company or fund. A grantor trust, in contrast, grants investors proportional ownership in the underlying securities.
A UIT is created by a document called the Trust Indenture. This document is drafted by the Sponsor of the fund, and names the Trustee and the Evaluator. By US law, the Sponsor and the Trustee may not be the same. The sponsor selects and assembles the securities to be included in the fund. The trustee keeps the securities, maintains unit holder records, and performs all accounting and tax reporting for the portfolio. The largest issuer of UITs is First Trust Portfolios. Other sponsors include Van Kampen, Millington Securities, Advisors Asset Management, Inc. and Guggenheim Funds. Most large brokerage firms such as Merrill Lynch and A. G. Edwards sell UITs created by these sponsors.

From a tax perspective, UIT's offer a shelter from the unrealized capital gains taxes typical inside of a mutual fund. Because individual UIT's are assembled and purchased for specific periods of time, the cost basis consists of the initial purchase price of the securities held in the trust. A mutual fund on the other hand, taxes the individual based on the entire previous tax year regardless of the date purchased. An investor could, for example, purchase a mutual fund in October, absorb a loss during the last quarter of the year, and yet still be taxed on capital gains within the fund depending on the overall performance of the underlying securities from January 1 of the current year. A UIT avoids this potential tax consequence by assembling an entirely new "fund" for each individual investor.

Some exchange-traded funds (ETFs) are technically classified as UITs: however, ETFs usually do not have set portfolios. They are either managed or update automatically to follow an index and they do not have defined lives.

If you are interested in exploring UITs, see your broker for a list of these trusts.

Where Do We Stand at Year End?

The NYSE Bond Market's last day of trading was December 30, 2010. So we are taking the figures from the last trading day for bonds. As you know, I mainly invest in Junk or Non-investment Grade Corporate Bonds. My IRA Portfolio increased in value by 25.7% in the last 12 months.

At the same time, the Dow Jones Industrial Average gained 10.95%. That is the best gain in years for the Stock Market.

Since January 30, 2009, my IRA Portfolio increased by 78.46%. I expect my portfolio to double in less than three years or before January 30, 2012.

Who is reading the blog?

For 2010, the people in countries that read my blog from high to low are in these countries;

1) United States
2) South Korea
3) Russia
4) Canada
5) Ukraine
6) Chile
7) Hungary
8) China
9) Denmark
10) United Kingdom

Using Mutual Funds

Mutual Funds are collective investment schemes. Collective investment schemes may be formed under company law (Corporations), by legal trust (Pension Funds, Universities, or Charities) or by statute(created by our 50 states). The nature of the scheme and its limitations are often linked to its constitutional nature and the associated tax rules for the type of structure within a given jurisdiction (County, State, or Country).

These collective investment schemes are a way of investing money with others to participate in a wider range of investments than feasible for most individual investors, and to share the costs and benefits of doing so.

Typically there is:

1) A fund manager or investment manager who manages the investment decisions.

2) A fund administrator who manages the trading, reconciliations, valuation and unit pricing.

3) A board of directors or trustees who safeguards the assets and ensures compliance with laws, regulations, and rules.

4) The shareholders or unitholders who own (or have rights to) the assets and associated income.

5) A "marketing" or "distribution" company to promote and sell shares/units of the fund.

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As many of you know by now, I am not a big fan of using mutual funds for investments. Mutual funds are good for diversifying your money into several stocks, bonds, or other investments. You hire a manager to manage the over all portfolio based on the funds by-laws. That is the only thing that mutual funds offer.

On the negative side, by hiring a fund manager, you increase your cost of investing. There may be a percentage charged for purchase, sale of shares, or units called an initial charge (in the UK) or 'front-end load' (in the US). In the US, you may see a ‘back-end load’ as well. This charge may represent profit for the fund manager. It may cover the cost of distribution of the fund by paying commissions to the adviser or broker that arranged the purchase of fund shares. These fees are commonly referred to as 12b-1 fees in the U.S. Not all funds have initial charges; if there are no such charges, the fund is a "no-load" (US) fund.

I worked with a woman who placed a Whole Life Insurance Policy into her IRA. Her IRA had three mutual funds and she could go in and out of these funds in a fund family once a month. But she could not get out of that mutual fund family for 8 years without a large penalty. The funds had a load plus internal monthly fees. At one point I placed her money in the family money market fund giving 1%. She was loosing 2% to 3% of her portfolio per year just doing that because of fees.

If you are going to invest in mutual funds, a “no-load” fund is the way to go. Even then, no one says that the money manager has a “Crystal Ball” into the financial markets future. The IRA investors of 2008 to 2010 can tell you that. You as the investor pay for the fund managment when investing in mutual funds, for better or worst.

In the United States we have basically two types of mutual funds; Open-end and Closed-end funds.

An open-end fund is equitably divided into shares which vary in price in direct proportion to the variation in value of the fund's net asset value. Each time money is invested, new shares or units are created to match the prevailing share price; each time shares are redeemed, the assets sold match the prevailing share price. In this way there is no supply or demand created for shares and they remain a direct reflection of the underlying assets.

A closed-end fund issues a limited number of shares (or units) in an initial public offering ( IPO) or through private placement. If shares are issued through an IPO, they are then traded on an exchange or directly through the fund manager to create a secondary market subject to market forces. If demand for the shares is high, they may trade at a premium to net asset value. If demand is low they may trade at a discount to net asset value. Further share (or unit) offerings may be made by the scheme if demand is high although this may affect the share price.

The Net Asset Value or NAV is the value of a scheme's assets less the value of its liabilities. The method for calculating this varies between scheme types and jurisdiction and can be subject to complex regulation.

Some collective investment schemes have the power to borrow money to make further investments; a process known as gearing or leverage. If markets are growing rapidly this can allow the scheme to take advantage of the growth to a greater extent than if only the subscribed contributions were invested. However this premise only works if the cost of the borrowing is less than the increased growth achieved. If the borrowing costs are more than the growth achieved a net loss is achieved. This loss can be far greater than if just the subscribed contributions were invested.

Leverage can greatly increase the investment risk of the fund by increased volatility and exposure to increased capital risk.

Here is a list of mutual fund families; http://en.wikipedia.org/wiki/List_of_asset_management_firms

Next time, we will look at Unit Investment Trust (UIT).

Saving Money Using Seven Short Term Junk Bonds

Here are seven deep discounted corporate bonds that I have in my IRA that will be maturing in 2011. I make money on these bonds no matter what happens outside of bankruptcy. But for people who want to make money by purchasing short term junk bonds while understanding that they are taking a little higher risk vs. FDIC, may want to look at the bonds below. The prices are from Dec. 2, 2010.


1) HILTON HOTELS CORP NT 8.250% 02/15/2011 (Not Rated) Priced at $997.82. It will give you $19.13 per bond in 75 Days.

2) ALLIED CAPITAL CORPORATION NEW SR NT 6.62500% 07/15/2011 (Rated BA1/BBB) Priced at $102.125. It will give you $38.71 per bond in 225 Days.

3) AMERICAN GENERAL FINANCE CORPORATION 5.25000% 04/15/2011 (Rated B3/B) Priced at $987.71. It will give you $31.56 per bond in 134 days.

4) AMERICAN GENERAL FINANCE CORPORATION 5.50000% 04/15/2011 (Rated B3/B) Priced at $988.59. It will give you $31.60 per bond in 134 days.

5) AMERICAN GENERAL FINANCE CORPORATION 5.35000% 09/15/2011 (Rated B3/B) Priced at $987.66. It will give you $54.41 per bond in 287 days.

6) AMERICAN GENERAL FINANCE CORPORATION 8.10000% 09/15/2011 (Rated B3/B) Price $992.84. It will give you $63.69 per bond in 287 days.

7) RIVER ROCK ENTERTAINMENT AUTHORITY 9.75000% 11/01/2011 (Rated B2/B+) Price $905.00. It will give you $175.67 per bond in 302 days.

If you want to be the safest that you can be in the junk bond market, I would stay with Standard and Poor’s BBB to B- rated bonds, going out no more than 365 days. The higher the rating and shorter the maturity, the safer you are but the less return you make. This is why RIVER ROCK ENTERTAINMENT AUTHORITY returns more than ALLIED CAPITAL CORPORATION.

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You may not have the money to take advantage of these bonds. But I am sure you remember me talking about investment clubs. You can create an investment club along with your friends and relatives for the purchase of short term bonds like the ones above. Later you can loan money to the members of the club using these bonds as collateral (margin accounts). Once you do that then you have created your own non-bank bank for use by your club membership.

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Who is watching this blog?

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To answer that question, we will rank the top 10 readers by country from most readers to least readers.

Top 4 from December 10th to December 17th
1) US
2) Slovenia
3)France
4) Russia

Top 7 from November 18th to December 17th
1) US
2) Russia
3) United Kingdom
4) South Korea
5) Slovenia
6) Germany
7) France

Top 10 from May to December 17th
1) US
2) South Korea
3) Russia
4) Canada
5) Ukraine
6) Chile
7) Hungary
8) China
9) Denmark
10) United Kingdom

Moving in and taking over Your Target Company

Above is a picture of my mother, Jean Julia Williams (1923 – 1990, Younger lady above) at age 18 years old. She is a member of the Brown family from Stoney Point, Va. (Free Union). In the days of slavery, the Commonwealth of Virginia set up “Free Union” areas where freed slaves can go to live. Lacey Brown (Born 1803), a freed slave and my mother’s grandfather third removed on her father’s side, came and lived in Stoney Point. They were much like Indian Reservations for freed slaves. My mother’s family came from such a Free Union. The family church, Free Union Baptist Church still exists in Stoney Point. The Brown Family still lives in the area.

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Looking back on her family, I find my Grandmother eighth removed. Eliza Thorne (Picture of older woman above) was born before the Civil War. She was half Cherokee. In her lifetime she had three husbands, Thorn, West, and Walker. When she worked on the Slaughter plantation in Culpeper, Va. as a slave, she was allowed to work for herself on her own time. She made furniture that I last seen when I was in my 20s. After the Civil War, she left the Slaughter family, bought a Conestoga wagon, a team of horses, some cattle, and moved to Stoney Point, Va. and bought Eleven acres of property. She moved with her sisters, Maria, Jane, and Violet. This property lasted intact until the 1980s. This property was handed down by members of the Thorne/Walker/West family until a property dispute ended in the sale and distribution of this property. Just looking at the past 200 years, I am a descendent of the Williams, Cribbs, Stiff, Brown, Franklin (Martha's Family), Walker and West family.

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I am going to tell you who had whom without telling you full line because I have cataloged over 1,000 names and we don’t have time to go through the full line. The Blue Family married into the Walker family. They took their last name from the Blue Clan; one of the seven Clans of the Cherokee Nation. The Blues were my mother’s mother’s people. Eliza Thorne had Eliza Thorne II. Eliza Thorne II had Eliza West. Eliza West had George W. Blue. George W. Blue had Eliza Lucinda Blue (my Grandmother). Eliza Lucinda Blue (Brown) had Jean Julia Brown (Williams) who had me.

I have relatives nearby my home that are descendents from the Walker and West families through marriage. When these people met in Pennsylvania, they never knew that they were distant cousins. They married and had children. Then I came along and told them about their extended family relationship.

Your relatives can be a powerful tool in taking over corporations. The Wilzig family did just that!

Going from the death camps to the top of a corporation

Let’s talk about taking over corporations for your benefit. Let’s look at Wilshire Oil of Texas. I studied this company when I was in my 20s. It was taken over by Siggi Wilzig and a group of his family and friends. At that time he was my hero because he went from being nearly killed in a NAZI death camp to running an oil company known worldwide. At the same time I was following Siggi, most of my friends were worshiping football and basketball stars. I had the opportunity to talk to Mr. Wilzig in the 1980s. Siggi was an employee of the company. He told me how he and his friends took over the company.

Here is more on Ziggi.
http://en.wikipedia.org/wiki/Siggi_Wilzig

Today the company is called Wilshire Enterprises. They got out of oil and into real estate. Wilshire Enterprises invests in and operates commercial real estate and land. It owns a portfolio of more than a dozen multifamily, retail, and office properties and land tracts in Arizona, Florida, New Jersey, and Texas. The company has shed some of its non-core and other properties, and has upgraded other properties. Its land holdings (parcels of land totaling about 20 acres, all located in New Jersey) have either been put up for sale or are under contract for sale already. Wilshire Enterprises is seeking sale or merger opportunities. In 2008 it entered an acquisition deal with property investment and redevelopment firm NWJ Companies, but the agreement was later terminated.

How to Takeover a Corporation

I am no longer interested in the company but I am still interested in what Siggi did in relation to an employee takeover of a small corporation. I am going to tell you the steps in taking over a small corporation. This is something that they do not teach in the average colleges or universities around the world. They are design to teach you how to be a competent employee of corporations.

This is not for the individual who starts something on Monday and forgets about it on Friday. This is a long term life time project that involves your money and your time. This is not for the political types who want to argue about what type of doughnuts to bring to your meetings. This is about assigning projects to your members and completing these projects and reporting back to your membership. This is a long term commitment.

Getting Started

1. The first thing you must do is find a target company to take over. This might be your place of employment or a company in your area. We are not talking about picking GM or IBM. We are talking about small companies that you might find on the “Pink Sheets” or Over-the-Counter Market.

2. You must find people with the same ideas as you have. These might be people in your school, club, family, and etc. They must be people who want to do what you want to do. Using the internet to find people who want to be in your organization may be of some help.

3. Here is a website that can help you create a stock club. Instead of investing by creating a portfolio, you are going to invest for the purpose of corporate takeover. (we will spend time on group portfolio investing in the future)

http://www.betterinvesting.org/public/default.htm
The Better investing Website

http://www.moxyvote.com/splash
The Corporate Voting Website

These two steps are the hardest and most important steps of all to take. You will find that the mechanics of taking over a corporation is not nearly as hard as working with people to carry out that task.

Doing Research

1. You want to assign a person or if you have a large enough organization, assign a committee to contact the Securities and Exchange Commission (SEC) to learn about the rules of placing candidates on the corporate ballot.

http://www.sec.gov/

This is the official Website for the Securities and Exchange Commission (SEC).

2. You want to assign a person or if you have a large enough organization, assign a committee to go to your targets Stockholders Meetings. You don’t have to be a stockholder to go to most meetings. However, small companies usually have no one showing up outside of management employees. About 35 years ago, I went to Steelmet Corporation’s Stockholders meeting. I was the only one there who was not working for the company. The meeting was held in their small break room. But I had access to the top management of the company. That is what you want access to management. Here you can find out who is running the company and develop contacts for later use in your future corporate raid.

Buying Stock

1. After your organization agrees on a target company to take over, you want to set up a register so that you can determine how much stock your organization has at any given time.

2. You have to decide if each member will have individual stock accounts or if your organization will have one big stock account.

3. You want to acquire .5% to 1% of the company stock before you make your intentions known to the company and the SEC. In most corporations today, top management does not have the majority of the shares of the company. The more stock you acquire of the company, the more stock your organization has, and the more the target company will want to negotiate Board Seats with your organization.

Placing Your Candidates in Nomination

4. When it comes time to place your candidates on the ballot, your target company will probably challenge your right to do so. So you will have to prove by way of a Stock Certificate or Stock Account Statement that you or your organization owns the stock. You may also want to contact the SEC when you are ready to submit your names to the company. Make sure your organization is following the rules.

5. As time goes on, your target company may offer your organization seats on the board of directors.

6. Your organization should continue to add shares to your account to gain more corporate power as the years go by.

As I said earlier, this is something that you don’t start on Monday and think that you will achieve your objective on Friday. This project is a life time project. You may not see “fruits of your labor” for a decade or two. This is why few middle class people take on such projects.
Companies evolve all the time and I know a way to make a company evolve into an organization that can benefit you and your family. You have an extended family just like I do. What if I was able to take Eliza Thorne’s, William Jackson Williams, and Lacey Brown family descendents and organized them into a corporation for the purpose of taking over other corporations? This is power that you can control in your own families.

The Ball Is In Your Court!

My brother William Jackson Williams III is the last of a long list of people over the past 200 years who contributed to documenting the family Genealogy and the first to place our Genealogy on a personal computer. Things have changed since I first saw this information hand written by my Great Uncle Joseph Blue.

As far as taking charge of your families financial future, it is up to you to make it happen. No one is going to hold your hand and give you the power and money that comes with this venture. Voting in political elections is not going to change anything because governments no longer hold economic power.

Like my brother William Jackson Williams III (larger child in picture taken in 1953, Darnell is the smaller child) would say, “What are you going to do about it?”

How is Darnell’s Investments Doing?

The stock brokers and people on the investment channel is starting to tell you that stocks are gaining ground and you are missing out. My thoughts on it are, really!

As of December 10, 2010, the Dow Jones Industrial Index is up for the year, 9.03%. So if you invested on average and did not have to pay any fees or commissions, you would be up 9.03% for the year.

Now I am mostly in junk bonds. These are the securities that these same people told you to stay away from. For the year, I am up 26.53% and since January 30, 2009, I am up 79.64%. I need 20.36% to double my money. That will probably come in the next 12 months.

Next time, we are going to look at some of the bonds that I am invested in. You can invest in them too for short term gains.

The people on TV will tell you that Social Security will not give you much when you retire. Your company will not give you much if any when you retire. They put you in a 401K program that does nothing but give the 401K manager fees and commissions. Your retirement objectives are secondary. So your best bet is to open up an IRA and invest in Junk Bonds and make 12% to 40% per year with very low commissions and fees.

In the investment business, if they tell you to do it then you can be sure of a few things;
1) They are paid to tell you what to invest in and they make the money off of it
2) You will be paying high fees and commissions
3) You probably bought at the top of the market.