Question: In 1972, I bought 10 shares in a municipal investment trust (at a cost of $10,278), which have been paying monthly interest at a rate of 5.72 percent. Recently I needed the money and asked about selling the shares; I was told that the shares were then selling for only $674 each -- a loss of more than $3,500 from the original cost! Since purchasing the bonds, I learned that the trust does not have a maturity date but instead is open-ended. But some of the bonds in the portfolio will have to mature at some time; why doesn't the broker replace them with better quality bonds to boost the attractiveness of the trust? I know it is my own fault for not examining the offering more closely in 1972, but I relied on the salesman, who didn't mention the open-ended nature of the trust. Do you know of any action I can take to get my original investment back?

Answer: Your letter has several interesting aspects -- the first of which is the importance of reading the offering prospectus or other descriptive literature carefully before making any kind of investment.

To get to the specifics of your letter, a unit investment trust is not open-ended. Each of the bonds in the portfolio has a specified maturity date. The trust you bought is probably long-term, with the last of the bonds maturing somewhere around the year 2000.

When an individual bond in the portfolio matures (or is called by the issuer before maturity), the cash received is not reinvested. Under the terms of the trust agreement, it is instead returned pro rata to all the unit holders. When the total remaining portfolio value drops to a specified level, the trust is dissolved and the remaining principal distributed to the unit holders.

Finally, the drop in the present redemption value of the units is not the result of poor quality of the bonds in the portfolio. The value of your units is lower because of the present level of interest rates compared with the yield of your trust.

An investor is not going to pay $1,000 for a unit in your trust paying 5.72 percent when he can buy a new issue paying in the neighborhood of 13 percent. He is willing to pay as much as $674 because your units are 14 years closer to maturity than a comparable new issue -- and at maturity he will get the full $1,000 back for each unit.

At this point I don't know of any action you can take to recapture your initial investment. You could talk to the office manager at your brokerage, or complain to the Securities and Exchange Commission or the National Association of Securities Dealers if you can prove that the representative misled you or intentionally withheld pertinent information.

But I wouldn't expect much action 14 years after the fact. Regular readers of this column (which wasn't around in 1972) should know that I like unit trusts, but always caution that if the funds are needed before maturity, redemption value will vary inversely with interest rates. The lesson here, for you and all other readers, is to be sure you understand what you're putting your money into before you write the check or place the order.

Q: A grandfather wishes to help his 8-year-old granddaughter get a start in college or business school after high school. He gives her $5,000 to put into a money market fund to accumulate and compound interest. I know there is no gift tax under $10,000. Am I correct that there is no income tax liability to the grandchild until the amount reaches $1,000 per annum (if it ever does), at which time she would have to file a return?

A: You're right -- and your question is self-explanatory so I don't have to go any further. However, I would like to add a comment on the choice of investment medium.

For a child of eight, with 10 years to go before you anticipate need for the money, I would be tempted to use a growth stock mutual fund rather than a money market fund. Although admittedly more speculative, the length of time involved offers a reasonable opportunity for much greater growth in equities than the money market fund offers.