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Investment Trust Subscription Shares

Updated on August 15, 2014

What are Investment Trust Subscription Shares?

Investment trusts are collective investments similar to mutual funds or unit trusts (See my related article for a detailed description of these). When these investment companies are created they often issue warrants to the initial share-holders to help finance the launch of the company. A less common practice is to issue a subscription share at a later stage in the company's life to secure extra funding (similar to a rights issue)

Like warrants, subscription shares are issued to each share holder e.g. one subscription share for each five shares held and they can either be sold in the market or exercised on a certain date (or dates) at a certain prices (or prices) or may expire, worthless if the underlying asset fails to perform.

This article is about how to invest in these riskier investments, or what to do with them if you receive some by default.

Disclaimer: Information in this and other linked articles is unregulated and for general information only and is not intended to be relied upon in making specific investment decisions. Appropriate independent advice should be obtained before making any such decision.

Investment Trust Subscription Shares

What Are IT Subscription Shares and How do you Value Them?

Subscription shares (or "Bonus Shares") are effectively the same as Investment Trust Warrants and should be valued in the same way (see related warrant article here)

Subscription shares are call options on the underlying Investment trusts usually issued with a very long life (e.g. several years) They can be traded like any share even when the underlying share-price is below the strike price, because someone else may want to take the gamble that the share price will rise significantly before expiry thereby getting them a large geared profit (or lose all of their money) For full details about how to value these see the warrant and option pricing articles below.

Warrants are usually issued at the launch of an Investment Trust company, with a single exercise date, whereas some of the latest subscription shares issues have had more complex arrangements, with multiple exercise dates each with a different exercise price. Here is an example:

Exercise dates and strike prices for BlackRock New Energy Subscription shares (BRNS.L):

exercisable on each of 31 January, 30 April, 31 July and 31 October between 31 October 2009 and 31 July 2014

Exercise prices:

31 January 2010 to 31 July 2010 46 pence per share

1 August 2010 to 31 July 2012 50 pence per share

1 August 2012 to 31 July 2014 59 pence per share

New Issues of IT Subscription Shares

New Investment Trust Subscription Share Issues

As the credit crunch took effect and banks were less likely to lend to investment companies or indeed to renew existing lending on favourable terms Investment Trust companies needed to raise funds in other ways. Subscription shares have recently been issued by:

JPMorgan Emerging Markets (JMG) has issued Subscription Shares (JMGS)

Subscription Shares issued to Qualifying Shareholders on the basis of one Subscription Share for every five Existing Ordinary Shares held on the Record Date. The Subscription Price will be equal to the published unaudited NAV per Ordinary Share on 9 June 2009, plus a percentage premium to such amount, rounded up to the nearest whole penny as follows:

a) exercised between 1 August 2009 and 31 July 2010 - 1% premium to NAV (422p)

b) exercised between 1 August 2010 and 31 July 2012 - 10% premium to NAV (460p)

c) exercised between 1 August 2012 and 31 July 2014 - 30% premium to NAV

Fidelity Japanese Values (FJV) has issued Subscription Shares (FJVS)

One FJVS Subscription Share was issued for every five Ordinary FJV Shares held on 10 November 2009, at no cost. The Subscription Price payable to exercise each Subscription Share has been calculated to be 55 pence (1% premium to the published NAV per Ordinary Share on 10 November 2009) Subscription Shares will be available to exercise from February 2010 onwards on a monthly basis and you will be able to convert shares up until February 2013.

Standard Life UK Smaller Companies Trust (SLS) Convertible Unsecured Loan Stock 2018 ("CULS") at 100p per £1 nominal unit

Standard Life UK Smaller Companies Trust PLC (SLS) has proposed to raise up to £25 million by placing an open offer of CULS to replace the existing debt facility, repayable in 2011. Qualifying Shareholders can apply for 0.19616288 nominal units of CULS for each Ordinary Share held on the Record Date (28 February 2011) The CULS will return a yield of 3.5% per annum payable semi-annually in arrears on 30 September and 31 March in each year, with the first interest payment on 30 September 2011. CULS Holders can convert their CULS into Ordinary Shares every six months from 30 September 2011 until 31 March 2018. The initial Conversion Price will be set at a 10 per cent. premium to the NAV per Ordinary Share on 23 March 2011

Full List of Subscription Shares Currently In Issue:

ABERDEEN LATIN AMERICAN INCOME LTD SUB

ABERDEEN NEW THAI IT PLC SUB: 31-Jan-13

ADVANCE DEVELOPING MARKETS LD SUB: 31-Oct-11

BLACKROCK NEW ENERGY IT SUB: 31-Jul-14

DUNEDIN SMALLER COMPANIES IT PLC SUB: 28-Feb-12

ECOFIN WATER & POWER OPPORTUNITIES SUB: 31-May-12

FIDELITY ASIAN VALUES PLC SUB: 31-May-13

FIDELITY JAPANESE VALUES PLC SUB: 28-Feb-13

GEIGER COUNTER SUBS: 31-Jan-11

HENDERSON OPPORTUNITIES TRUST SUB: 15-Feb-14

HGCAPITAL TRUST PLC SUB: 31-May-13

IMPAX ASIAN ENVIRONMENTAL MARKETS SUB: 31-Oct-14

INVESCO ASIA TRUST PLC SUB: 31-Aug-12

JP MORGAN ASIAN IT PLC SUB: 31-Mar-14

JP MORGAN BRAZIL INVESTMENT TRUST PLC SUB: 30-Jun-13

JP MORGAN CHINESE IT PLC SUB: 15-May-13

JP MORGAN EMERGING MARKETS IT PLC SUB: 31-Jul-14

JP MORGAN INDIAN IT PLC SUBS: 02-Jan-14

JP MORGAN JAPAN SMALLER COMPANIES TRUST PLC SUBS: 31-Mar-14

PERPETUAL INCOME AND GROWTH INVESTMENT TRUST PLC SUB: 31-Aug-13

RCM TECHNOLOGY TRUST PLC SUB:10-Apr-12

SCHRODER ASIA PACIFIC SUB: 31-Dec-12

SCHRODER UK GROWTH PLC SUB : 31-Jul-12

SR EUROPE INVESTMENT TRUST PLC SUBS: 24-Apr-12

THE THROGMORTON TRUST PLC SUB: 31-Oct-11

WORLDWIDE HEALTHCARE TRUST PLC SUB: 31-Jul-14

And Some Warrants:

ABERDEEN ASIAN INCOME WTS: 31-May-13

ABERDEEN ASIAN SMALLER COMPANIES INVESTMENT TRUST PLC WTS: 30-Nov-10

JUPITER GREEN IT PLC WTS: 31-Jul-11

List of Investment Trust Subscription Shares

JP Morgan has the widest range of Investment Trusts with Subscription Shares in issue:

JPMorgan Asian Investment Trust

JPMorgan Chinese Investment Trust

JPMorgan Emerging Markets Investment Trust

JPMorgan Indian Investment Trust

JPMorgan Japanese Smaller Companies Investment Trust

Here are a few others currently available:

Aberdeen New Thai Inv Trust PLC

BlackRock New Energy Investment Trust

Ecofin Water and Power Opportunities Trust

Fidelity Japan Values PLC

Finsbury WW Pharmaceutical Trust

Impax Asian Environmantal Markets

Invesco Asia Trust PLC

RCM Technology Trust

Money

Money
Money

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    • Andy-Po profile image
      Author

      Andy 3 years ago from London, England

      @Andy-Po: OK. So that may have been the official answer, but I still haven't received my JMG ordinary shares today, so I contacted my broker who said it could take up to four weeks from the exercise date of subscriptions share to receiving the actual shares in the account. He guessed it could be later today or early next week.

    • Andy-Po profile image
      Author

      Andy 3 years ago from London, England

      Where are my new JPMorgan Emerging Markets Investment Trust plc after the Final Exercise of Subscription Shares (31st July 2014)? How long does it take for subscription shares to be converted to ordinary shares? I have been checking my stockbroking account each day since the exercise date and I have just found the answer in a London Stock Exchange Announcement: New ordinary shares were allotted on the 4th August 2014 and it looks like these shares should be available for dealing on the London Stock Exchange on 7th August 2014. So hopefully they will appear in my account then. It will have taken about two weeks from the last date on which my broker would take instructions to exercise the subscription shares to the date on which I should be able to trade them.

    • profile image

      futuresadmin 5 years ago

      Excellent discussion on IT. Thumbs up!

    • Andy-Po profile image
      Author

      Andy 6 years ago from London, England

      @richardramsden: Very true. With investment trusts it is very important to consider the discount (or premium) to Net Asset Value (NAV) when purchasing. There are some exceptions to the tight discounts at the moment though. E.g. Graphite Enterprise which is currently at a discount of over 35%

    • profile image

      richardramsden 6 years ago

      i heard about Investment trusts ripe for profit taking....

      Increasingly tight discounts on the back of rising equity markets have left some investment trusts looking expensive, according to Scouller, and investors who already hold them could do well to take profits.

    • Andy-Po profile image
      Author

      Andy 7 years ago from London, England

      Investor's Chronicle (see this article...) recommends Ecofin Subscription shares, which have performed "dreadfully" in the past few months or JPMorgan Chinese Subscription shares (JMCS) as a play on the Chinese stock market bouncing back. Both would make huge gains if the underlying were to recover, but are also quite risky. I'm going to monitor these and might make a small bet on one or both.

    • RuthCoffee profile image

      RuthCoffee 7 years ago

      Good information. This was something I had never heard of before.