REPORTS OF COMMITTEES
| Date | 01 June 1937 |
| DOI | http://doi.org/10.1111/j.1468-2230.1937.tb00008.x |
| Published date | 01 June 1937 |
MODERN
LAW
REVIEW
June,
1937
REPORTS
OF
COMMITTEES
Fixed
and
Flexible
Trnsts
Perhaps the most important commercial development of the last few
years has been the growth
of
Fixed and Flexible Trusts. Not only have
these great economic and social importance, but they are also of absorbing
interest to the lawyer and jurist, since they represent a fusion between the
“
Trust” and the
“
Corporation
”
which hitherto have operated largely
(though by no means completely) as two mutually exclusive methods
of
enabling property to be conveniently enjoyed by a fluctuating body of
persons. The basic principle of these Trusts is simple. The “Managers”
of
the Trust (generally a private limited company) purchase a block
of
various investments and vest them in trustees (in practice, a trust corpor-
ation) to be held upon the terms of
a
trust deed. This divides the invest-
ments into
a
number of aliquot shares which are in the first instance held
on trust for the Managers, who then sell them to the public at a price
based upon the value of the investments together with the cost of acquisi-
tion and a further small charge for service and to give a profit to the
Managers. The latter have power to increase the number of aliquot shares
by vesting in the Trustees additional investments. If the panel of under-
lying investments (the “portfolio”) is fixed and certain or only variable
subject to very rigid conditions, the Trust is described as a “Fixed Trust.”
In this event the first panel is said to constitute one or more “units“ and
the aliquot shares that are sold to the public are described as “sub-units.”
In this event, the Managers add to the Trust by vesting in the Trustee
from time to time one or more additional complete units each
of
which is
divided into the same number
of
sub-units.
It
will be seen that in a Fixed
Trust the investor knows exactly what he is getting, i.e. a beneficial
interest in
a
fixed block of investments. The modern tendency, however,
is
in
favour of the Flexible Trust in which the Managers have power to
vary the nature and proportions of the underlying securities either within
defined limits or to an entirely unrestricted extent; here
it
is impossible
to divide the investments into units and the aliquot shares offered to the
public are themselves described as units. In this case the Managers add
to thc Trust by vesting in the Trustees sufficient investments or cash to
cover the units from time to time sold by them. In both Fixed and Flex-
ible Trusts, while the Managers continue to add to the underlying invest-
ments and both to buy and sell units or sub-units
(as
the case may be), the
Trust
is
said
to
be “open.” When they cease to add to the Trust and no
longer sell (sub-)units, the Trust is said to be “closed” and
it
is
gradually
“unwound”
as
the Managers buy back (sub-)units and realise the under-
lying investments representing them. Whether open or closed the Trust
continues in existence until all the underlying investments are sold and
the period of its existence
is
generally specified in the original trust deed.
Both Fixed and Flexible Trusts have the advantages,
so
far as the investor
is concerned, of simplicity and of spreading the risk of depreciation over a
variety of investments. For this reason they appeal chiefly to investors
who wish to avoid trouble and who have only
a
small sum to invest and
accordingly would be unable to secure the advantage of a spread invest-
ment by a direct purchase of shares. The Fixed Trust has the further
advantage of certainty,
but
the disadvantage that depreciation cannot be
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