trust will issue one warrant to investors for every five shares they buy
The Finsbury Worldwide Pharmaceutical Trust is to offer a multi-million pound secondary share issue in a bid to cut costs and fund further investments.
The trust board has obtained commitments from investors to buy £40m of equity but is hoping the eventual total will exceed this.
As an added sweetener, warrants are to be issued to investors on the basis of one for every five shares held.
Close Finsbury managing director Alistair Smith said economies of scale will allow the trust to cut its TER further, which, according to analyst Fitzrovia, sits at 1.55% of post-tax NAV.
Smith believes the extra equity, which will be available to new and existing investors, will make it easier for people to trade trust shares.
He added: "The fact our assets will increase means our costs will reduce so this, alongside greater liquidity on the secondary market, will be of benefit to all shareholders."
The board of the trust, which currently has a market cap of £181.5m, is seeking to obtain firm placing commitments by mid November, with the deal to be completed in early December.
The trust has consistently outperformed its benchmark Datastream World Pharmaceutical Index over five years but returns were hard hit in the 2000-2001 global equity downturn.
Over five years to 8 October, NAV rose 97% compared to a fall in the benchmark of 10.6%.
However, someone making an investment two years later would have seen the NAV drop 14.5%, albeit still ahead of the index, which fell 25.8%.
Smith said: "People should be making investments when there is scope for an upturn. The reason investors are positive about our proposals is they could not find pharmaceutical sector stock on the market on this scale."
The trust's rating remains strong despite the bad run in the sector, he added, with shares trading at a discount to NAV of just 1.5%. This will be further supported by an as yet unspecified discount control mechanism to be put to shareholders before a continuation vote next year.
"Subject to a final decision at the next AGM, our discount control mechanism will aim to keep the discount down at around 8%," Smith said.
Trust manager Samuel Isaly of New York-based Orbimed is already planning where to put any additional money from the trust if it becomes available.
"We would invest some in companies we now own and another part in new companies," he said. "This includes some public companies, which we expect to purchase in negotiated transactions."
Isaly stressed how this process allows Orbimed, and thereby investors in the Finsbury trust, a large ownership position on favourable purchasing terms.
Orbimed has 12 analysts who select their portfolio from around 600 public companies, with 35 of their choices included in the Finsbury trust.
"Of the large pharmaceutical companies, we believe GlaxoSmithKline and AstraZeneca have relatively poor outlooks so we have positions in Novartis, Lilly and Takeda instead," Isaly said.
Isaly's other preferred stocks are those he expects to move into profitability over the next two or three years and other, more ambitious, stocks that are not likely to become profitable over that period.