Unit Investment Trust (UIT)

 

Sold by a prospectus or purchased in the secondary market, UITs offer the investor an interest (called a unit) in a specific fixed portfolio of securities. Investors choose UITs for the fixed portfolio, the diversification of many issues in one packaged investment, their low annual expenses, and low sales charges. UITs were organized in the 1920s primarily to invest in tax-free securities, although there are unit trusts that invest in corporate bonds and in securities issued by agencies of the federal government. The newest, and most popular, unit investment trusts feature portfolios of common stocks. Interest income may be taxable or tax-free,* determined by the issues held in the trust portfolio.

Different UITs

�  Municipal Bond UITs � Many individual investors do not have the specialized knowledge to select their own portfolios of municipals from the thousands of bonds available, or to watch over the details of income collec�tion, timely redemption, and other factors. This UIT meets those needs, and the advantages of a municipal UIT include tax-free income, diversification, and a fixed maturity value.

�  Growth & Treasury UITs � This option combines stocks with U.S. Treasury securities (government obligations) and guarantees the minimum maturity value of the investment to preserve the investor's principal. It offers an ideal investment opportunity: growth potential with minimal principal risk if units are held to maturity.

�  Common Stock UITs � The investments in this unit investment trust are stocks. Although past performance is no guarantee of future performance, in the past, stocks have traditionally outperformed more conservative invest�ments over time. There are many different types of stock UITs to meet a variety of investment objectives.

Marketability

Units can be sold on any business day at a published price (which may be above or below initial cost) and with no sales or redemption charge. The value of the units in the trust will fluctuate with the value of the underlying securi�ties. Talk with your Financial Advisor about the sales charge and expenses involved in UITs.

Diversification

The holder has an interest in a portfolio of bonds of different maturities and rates issued by various sources. Stock UITs can have a regional portfolio, such as stocks of companies located in the Midwest or Southwest; a particular state portfolio; an industry portfolio, such as the telecommunications or healthcare industries; global or domestic portfolios; or portfolios that follow a particular strategy or discipline. Diversification does not ensure a portfolio against a loss.

Convenience

The trustee/administrator handles reporting, safekeeping, monitoring, and payment.

Professional Monitoring

Although there is no "management fee," the portfolio is watched until the issues are redeemed or mature.

Reinvestment

Many stock UITs offer the ability to reinvest all dividends back into the trust. This feature is a recent innovation to UITs and can improve the growth potential of the investment.

Investors should consider a UIT�s investment objective, risks, charges, and expenses carefully before invest�ing. The prospectus, which contains this and other important information, is available from your Financial Advisor and should be read carefully before investing