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Unit Investment Trusts (UITs)

A unit investment trust (UIT) is a fixed package of stocks or bonds. An investment professional picks the stocks and bonds based on the UIT's goals. For example, if the objective of that particular UIT is dividends and rising income, the UIT might own blue chip, dividend-paying stocks that are expected to do well over the next few years. A UIT is fixed, though, which means that once those stocks (or bonds) are chosen, they typically don't change. A UIT is a package deal – you own a portion of each – as long as you own the UIT.

Important considerations

  • Take into consideration your investing time horizon.
  • Understand that UITs are professionally selected but not actively managed.
  • Remember that UITs can offer a transparent, diversified portfolio of stocks or bonds.
  • Know the costs of owning UITs and the alternatives.
  • Keep in mind, there is no assurance or guarantee that any UIT strategy will achieve or maintain its investment objective.

Investors choose UITs for a few reasons:

  1. Diversification – Because each UIT typically holds at least 20 stocks or bonds, you get instant diversification, even if you only buy one UIT. And not only does a UIT hold multiple investments, the investments can also be from a wide variety of issuers, sectors or geographies.
  2. Professional portfolio construction – Remember, UITs are portfolios of professionally selected stocks or bonds picked by an investment professional with the UIT's goals in mind.
  3. You know what you own – After an investment professional chooses the initial stocks and bonds, they typically don't change. You know exactly what stocks and bonds you are buying, so you can look for UITs that hold companies you're already familiar with and like. Some investors prefer this kind of control.

How are UITs different from mutual funds?

You may be thinking that UITs sound very similar to mutual funds. However, there are some key differences. Like mutual funds, UITs are portfolios of professionally selected stocks or bonds. However, unlike mutual funds, UITs are fixed – which means once those stocks or bonds are chosen, they typically don’t change. Because these securities aren’t actively managed, investors have more visibility into what they own. UITs can usually be sold on any business day at the current market price, which may be more or less than what was paid initially for the investment.

Equity UITs

When a UIT has stocks inside it, it's called an equity unit investment trust. Similar to equity mutual funds, these UITs are available in a wide range of strategies, including those that focus on diversification across specific market capitalizations, dividend-paying companies, international stocks, or growth or value investment styles.

A unique feature of equity UITs is their prespecified termination date. At termination, equity UIT holders can either take their distribution in cash or roll their investment proceeds into a new UIT at a reduced sales charge.

Fixed-income UITs

When a UIT owns bonds, it's called a fixed-income unit investment trust. Fixed-income UITs are typically categorized into "taxable" or "tax-exempt." Taxable trusts own corporate, U.S. government or taxable muni bonds, and tax-exempt trusts generally own tax-exempt munis.

Does a UIT make sense for you?

For more information about unit investment trusts or to open an account, meet with an Edward Jones financial advisor. Use our locator to find one near you. Together, we can review your situation and determine the right approach for you.

Important information:

Since UITs contain professionally selected securities but do not provide ongoing management, securities that may fall out of favor in the market will not be sold. As with all equity investments, equity UIT owners may lose principal as prices of securities in the trust fluctuate. In addition, dividends of individual holdings may be reduced or eliminated. Fixed-income UITs contain bond investments that are subject to interest rate risk such that when interest rates rise, the prices of bonds can decrease. If a bond within a UIT is called, the principal will be returned, subjecting the investor to reinvestment risk. Also, bonds in UITs are subject to credit risk, as prices can fluctuate based on market concerns about financial condition, and the issuer may not be able to pay interest or repay principal. UITs holding fewer securities could have more price volatility than more diversified trusts with a greater number of holdings. Review the prospectus for a discussion of the risks associated with the specific UIT strategy you are considering.

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