HOW WARRANTS WORK

Warrants are the right to buy ordinary shares at a fixed price on fixed dates. Warrants generally command a premium over the ordinary share price, showing how much this has to rise to make the warrants worth exercising.

The "gearing" of a warrant is the share price of the ordinary share divided by the warrant price. The bigger the number, the better the chance of big profits, and big losses!

The key is to check that the exercise price is not too high relative to the ordinary share price.

The longer the exercise date - three to five years is preferable - the better, giving the investor more time to meet the target. Warrants to look out for:

Gartmore European Investment Trust. One ordinary share at 220p up to January 2004. Ordinary share price 341p. Warrant price 144p. Premium 6.5 per cent, gearing 2.4. An established investment trust in a fast-growing sector of the market - Europe - which doesn't need much of an increase in value by 2004 to make a big profit.

Taiwan Investment Trust. One ordinary share at 100p up to June 2003. Ordinary share price 64.5p. Warrant price 10.75p. Premium 71 per cent. Gearing 6. Taiwan is one of the few nations to have escaped the Asian disaster and this investment trust is highly respected, run by the Jupiter group.

SkyePharma is regarded as the best, most reliable bet in the biotech sector. You need 10 warrants to buy one share by December 2002 at an exercise price of 40p. Share price 79p, warrant price 4.5p, gearing 1.8, premium 7.95 per cent.