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Morningstar Education
Investment Trusts Solutions
Understanding Warrants and Subscription Shares
Slide 2: Understanding Warrants and Subscription Shares

Warrants and subscription shares offer investors the right, but not the obligation, to buy into an investment company at a pre-determined price at specific times in the warrant's life. Subscription shares can be held in an ISA whereas warrants can't. A key advantage of warrants and subscription shares is they tend to be long-dated, giving a long time horizon for the investment ideas to play out.

Slide 3: Understanding Warrants and Subscription Shares

Many have a stepped exercise price structure, under which the strike price increases to pre-specified amounts at certain dates. As a holder, you can sell them on exchange, exercise them and receive ordinary shares in return, or simply let them lapse.

Slide 4: Understanding Warrants and Subscription Shares

If you choose to exercise your warrants instead of selling them, you save on stamp duty, brokers' commissions and any spread costs. Exercised warrants will dilute the value of a company's ordinary shares as they result in new shares being issued at a discount to the Net Asset Value (NAV) per share. However, a greater fund size can improve liquidity in the shares and should lower the fund's TER, all else being equal.

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