FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationRegulatory Fundamentals and General Product KnowledgeEasy
A registered representative is explaining the key characteristics of a Unit Investment Trust (UIT) to a prospective client. Which of the following statements accurately describes a feature of a UIT?
- AInvestors in UITs can redeem their shares directly with the trust at the current net asset value (NAV) less a sales charge.
- BUITs are actively managed portfolios that can trade securities frequently to achieve their investment objectives.
- CUITs offer investors the ability to reinvest dividends and capital gains at the current public offering price (POP).
- DUITs are typically formed for a specified period and have a fixed portfolio of securities.
Show answer & explanationAnswer & explanation
Correct answer: D. UITs are typically formed for a specified period and have a fixed portfolio of securities.
Unit Investment Trusts (UITs) are known for their fixed portfolios and self-liquidating nature. They are not actively managed, nor do they typically offer dividend reinvestment at POP.
Why the other options are wrong
- A. While UITs are redeemable, the redemption is based on the current NAV, and direct redemption with the trust is typical, but the 'less a sales charge' is not universally true or the primary distinguishing feature.
- B. This describes an actively managed mutual fund, not a UIT, which has a fixed portfolio.
- C. Dividend reinvestment is common, but 'at the current public offering price (POP)' is typical for mutual funds with sales charges, not a defining feature of UITs.
Unit Investment Trust (UIT)
A Unit Investment Trust (UIT) is an investment company that offers a fixed portfolio of securities (usually bonds or stocks) for a specified period. They are not actively managed.
- Fixed portfolio of securities
- Not actively managed
- Self-liquidating at a specified date
- Units are redeemable at NAV
Memory trick: The 'UIT' is a 'Fixed Box' of investments you can't open until its 'Time' runs out.