Is a unit investment trust (UIT) the same as a mutual fund?
No. Although mutual funds are similar, letting you invest in a basket of stocks or bonds, they are different. One of the key differences is that UITs employ a "buy-and-hold" strategy and mutual funds don't. Once a UIT portfolio is created, it is expected to remain constant, in terms of its holdings. Most mutual funds are managed, and securities may be changed regularly.
Some are chosen according to a quantitative selection process determined by a sponsor. Some are based on an index. Other UITs are chosen by experienced analysts, who research the securities and screen them for quality, according to specific objectives. Once securities are selected, the UIT portfolios are then monitored, or supervised.
The types of unit trust suitable for your personal investment needs depend on many variables, including your financial circumstances and objectives, your age and your tolerance for risk. One of the most important factors is your investment objective. It is important to determine whether you want to earn income or simply preserve your principal. Generally, equity unit trusts seek capital growth with commensurate risk, while fixed income trusts focus on preservation of principal and generating regular income.
A Morgan Stanley Smith Barney Financial Advisor can help you determine which unit investment trust matches your needs and can provide you with a prospectus for a particular trust. The prospectus will contain detailed information as to charges, expenses and risks. Read it carefully before you invest.
Do UITs have a minimum investment amount?
Investment minimums vary. Generally, you can begin investing for as little as $1,000 (or $100, if you are an IRA participant).
Yes. Most UITs offer a reinvestment plan. These plans allow you to increase the number of units you hold, enabling you to reinvest in additional units with no sales charge on your reinvestment units.
You may sell all, or a portion of, your units any day the stock market is open. You will receive the then-current net asset value of the units, based on the current market value of the underlying securities in the portfolio, less any deferred sales charge, as of the evaluation time. As the market fluctuates, of course, so will the value of your units. Therefore, your units may be worth more or less than what you originally paid.
Yes. At the termination of certain equity unit investment trusts, you will have the option of "rolling over" your investment into a new trust. In certain instances this may be done at a reduced sales charge.
What is a tax-deferred rollover?
In a tax-deferred rollover, duplicated stocks are exchanged from one trust to the next, and only the gains on those stocks sold from the terminating trust are taxable. The cost basis (original purchase price) of the exchanged stocks is carried over until either these stocks are sold from the portfolio or you decide to sell your units. A non-tax-deferred rollover may be a suitable choice for you if you (a) hold investments in a qualified account (e.g., IRA-2000) or (b) prefer not to defer tax consequences. Only certain trusts are eligible.
Are unit trusts suitable for my retirement accounts?
Unit trusts may be an attractive investment vehicle for IRAs or self-employed retirement plans. They offer a variety of investment opportunities -- ranging from relatively conservative to more aggressive investments -- in both domestic and international markets.
