The April 2007 issue of Warrants Alert Professional stated "We have good news. There is a chance – just a chance – that the warrant market might be seeing the dawn of a new era… Investment trusts are starting to issue subscription shares – a new variant of warrants."

This prediction has proved particularly accurate, as in recent months we have seen a number of investment trusts issue subscription shares (notably JPMorgan Chinese Investment Trust plc and JPMorgan Indian Investment Trust plc) and it is believed that many others will follow suit.

Subscription shares provide a geared exposure to a company's capital growth. They are a separate share class, having distinct rights. Subscription shares have similar characteristics to warrants in that they carry the right (but not the obligation) to convert into ordinary shares on pre-determined future dates or during a pre-determined future period at pre-determined prices.

Subscription shares are regarded as ordinary share capital for tax purposes and therefore investment trust companies should seek a listing for their subscription shares on the Official List of the United Kingdom Listing Authority (UKLA) so as not to prejudice their investment trust status. In any event, a listing is invariably sought to provide subscription shareholders with liquidity.

Clearly investors will only wish to convert their subscription shares if, on the conversion date, the issuer's ordinary shares are trading above the exercise price. Therefore the success of a subscription share issue in raising new capital is dependent on strong share price performance.

For more information about subscription shares, click here.