Unit Investment Trusts

A unit investment trust (UIT) is a registered investment company that generally purchases a fixed, unmanaged, professionally-selected portfolio of stocks, bonds or other securities. Investors, or unitholders, purchase units of the trust, which represent an undivided ownership in the entire portfolio. The portfolio of a unit investment trust is fixed at the date of deposit, which gives the investor knowledge of exactly what is in the portfolio, when the trust matures, and the expected income that the trust seeks to generate.

There are two main categories of UITs:

  • Equity: Portfolios of equity securities generally have stated maturities that range from 13 months to five years and typically fall under one of three categories:
    1. Strategy Trusts: The main approach to portfolio selection is to follow a predetermined investment strategy, such as the Dow Dividend theory of investing. The strategy dictates which stocks are chosen for the portfolio and the strategy remains the same for the life of the UIT portfolio. An investor should consider their ability to participate in successive trust series as most strategies depend on a long-term investment horizon.
    2. Sector Trusts: These trusts are portfolios companies doing business in a specific industry, such as Energy, which may invest in 20 - 25 leading energy companies, for investors who wish to participate in the energy industry and do not wish to assume the risk of investing in only one company. Sector trusts may entail greater risks since their investments are concentrated in one industry and may lack diversification.
    3. Index Trusts: These trusts, generally with a duration of five to six years, are portfolios of stocks based on certain indices in the market (i.e. NASDAQ 100, S&P 500 or Dow 30). They are generally more suitable for investors with a long-term investment horizon.
  • Fixed Income: Portfolios of fixed income UITs may consist of a single category of bond. These trusts generally have stated maturities that range from five to 30 years. The stated maturities, the quality ratings and the call dates for all bonds held in the UIT are disclosed to investors. Fixed income portfolios typically fall under one of two categories:
    1. Tax-Free Fixed Income: Portfolios of state or national municipal bonds providing monthly of semi-annual tax-free income. Certain UITs may be subject to Alternative Minimum Tax (AMT). Unitholders should review the prospectus for further details.
    2. Taxable Fixed Income: Portfolios of U.S. Treasury, U.S. Agency, and corporate issues that provide monthly or semi-annual income. Of course there is not a guarantee that the estimated current return or estimated long-term return will be realized. For example, defaults by bond issuers and bond calls may reduce expected return.

Some Attractive Features for Unitholders

  • Scheduled maturity
  • Daily liquidity. If sold prior to maturity, the trust may be worth more or less than its original cost
  • Diversification
  • Convenience
  • Low minimum investment
  • Professional portfolio selection

Before you buy an investment, it is important to review your financial situation, investment objectives, risk tolerance, time horizon, diversification needs, and need for liquidity with your Financial Advisor.

Unit Investment Trusts are sold by prospectus. Please consider the investment objectives, risk, charges and expenses carefully before investing. The prospectus, which contains this and other information, can be obtained by calling your financial advisor. Read it carefully before you invest.

A Wachovia Securities Financial Advisor can help you determine how UITs may fit into your overall investment plan.

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Securities and Insurance Products: Not Insured by FDIC or any Federal Government Agency; May Lose Value; Not a Deposit of or Guaranteed by a Bank or any Bank Affiliate

Wachovia Securities is the trade name used by three separate, registered broker-dealers and nonbank affiliates of Wachovia Corporation. Retail securities brokerage services offered through Wachovia Securities, LLC, Member NYSE/SIPC and Wachovia Securities Financial Network, LLC, Member FINRA/SIPC. Corporate and Investment Banking services offered through Wachovia Capital Markets, LLC, Member NYSE, FINRA, and SIPC. A.G. Edwards is a division of Wachovia Securities, Member SIPC.

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