SIE practice questionhardUITs — Termination
When a UIT reaches its termination date, what happens to unitholders?
- AThe trust converts to an open-end mutual fund
- BThe underlying securities are liquidated and the proceeds are distributed to unitholders✓ Correct answer
- CUnitholders must hold the units until a buyer is found on the secondary market
- DThe trust automatically rolls over into a new UIT
Explanation
Why B — The underlying securities are liquidated and the proceeds are distributed to unitholders
At termination, the UIT's portfolio is liquidated and the net proceeds are distributed to unitholders on a pro-rata basis. UITs have a stated termination date (which can be months for money market UITs or 20-30 years for bond UITs). The trust does NOT automatically roll over — unitholders receive cash. Before termination, units can typically be redeemed with the sponsor.
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