[1] Investment trusts are constituted as public limited companies and are therefore closed ended since the fund managers cannot redeem or create shares.
This matters for the fiduciary duties owed by the board of directors and the equitable ownership of the fund's assets.
In the United Kingdom, the term "investment trust" has a strict meaning under tax law.
They must be UK resident and publicly listed on a stock exchange recognised by the Financial Conduct Authority.
Investment trusts can hold a variety of assets: listed equities, government/corporate bonds, real estate, private companies and so on.
[5] Investors' money is pooled together from the sale of a fixed number of shares which a trust issues when it launches.
In such cases, the investment trust is referred to as trading at a discount (or premium) to NAV (net asset value).
Some split capital trusts have a limited life determined at launch known as the wind-up date.
In the heyday of split capital trusts, splits were more complicated and could have share classes such as the following (in order of typical priority and increasing risk): The type of share invested in is ranked in a predetermined order of priority, which becomes important when the trust reaches its wind-up date.
This avoids the double taxation which would otherwise arise when shareholders receive income, or sell their shares in the investment trust and are taxed on their gains.
Investment trusts that wished to take advantage of this had to change their Articles of Association, with shareholders' approval, to allow such distributions.