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<span style="font-weight: bold">AIC Limited, Jamaican billionaire Michael Lee Chin's Canada-based mutual funds business, has suspended monthly dividend payments on three of its mutual funds, with combined assets of C$88 million and 2,397 investors worldwide.</span>
<span style="font-weight: bold">No returns have been paid since November on the Copernican international dividend fund T6 series, value leaders maximum growth portfolio class T7, and global premium dividend income fund T6.</span>
But AIC, which has been hit over the past couple of years by massive investor pullouts and a precipitous drop in assets, is dismissing suggestions that its decision to halt regular payout of returns had anything to do with liquidity problems.
"There is no problem meeting our obligations to investors. The holdings of the funds are quite liquid and we can sell shares over short periods," said Robert Almeida, executive director of AIC Global Holdings.
"There are buyers for our shares."
The AIC group has US$1.2 billion assets in the Caribbean.
Its holdings include National Commercial Bank (NCB), worth more than US$800 million; Columbus Communications (Flow), valued by AIC at between US$200 million and US$300 million; Advantage General Insurance Company (formerly United General) and CVM Communications Group.
AIC operates a US$250 million Caribbean fund, which company officials say has US$100 million in cash now hunting for new acquisitions in the region.
According to AIC, the suspension was aimed at protecting the funds' net asset value and preserving their ability to rebuild and meet investment objectives in the long term.
AIC last paid dividends of five cents per unit on the three mutual funds in October.
Steep drop
The Copernican international fund, with C$46 million in assets, has seen a steep drop from C$68.5 million under management at September last year.
With unit price of C$5.84, this fund is invested largely in the stocks of financials mainly in the United Kingdom and has only two investors affected by the suspension.
AIC's value leaders growth fund, priced at C$6.16 has just C$2 million from three investors with holdings in global equities mainly in the United States and Canada.
The bulk of the affected investors, 2,392 of them, have $40 million in AIC's global premium dividend income fund T6, with units worth C$5.90 each invested heavily in financials, utilities and telecoms firms in the UK, Canada and 14 other countries.
Almeida told the Financial Gleaner that the mutual fund holdings were liquid and AIC could raise cash quickly to meet in full, all its obligations to investors.
The company was under no pressure to liquidate its assets despite a sustained falloff in business, he said, there are indications of a pick up in AIC mutual funds sales in recent months - a business bounce back supported by preliminary January 2009 data released by the Investment Funds Institute of Canada (IFIC) this week.
Improvement
AIC's net sales excluding reinvested distributions was a negative $33 million in January, a slight improvement on the negative $48.8 million posted in December last year.
Dividends have been suspended since November on the three equity-linked funds.
Almeida, who is responsible for AIC's international division, said the company was moving away from the practice of making predictable payouts on those funds in an environment where stock prices continue to tumble and when the return of stability to the market is anybody's guess.
"While many investors want linear returns, the reality is that stock markets are not linear and equity investments are for the long term," he said.
At the same time he conceded that AIC, built on the principle of pooling investors' funds to buy into high performing equity and bond instruments for long-term value, had been pushed by investor demand and heightened compe-tition into offering some products with regular payouts - even where the investments are structured over the long term with significant risks.
Almeida, who is also portfolio manager for AIC's advantage and advantage II funds, said such structured distributions, premised on investments bought with an expectation of good performance, had the effect of eroding the funds' asset base when the stocks lose value.
"That's because, in the absence of real returns from investments, dividends are paid from investors' principals in the funds," he said.
"We are now applying the discipline required to return to our core philosophy and not recommending those types of products," he said.
Noting that AIC is only required to publish the change in payment structure to meet its regulatory reporting requirements in Canada, fine print notes to its funds price and performance schedule on the company's website, announce the suspension and points to a clause in prospectuses of affected funds, giving the fund managers the option of dividend suspension to stem any erosion of their asset base.
Net asset value
"The fund will suspend payment of monthly distributions on its units effective immediately, in order to protect the fund's net asset value and to preserve its ability to rebuild and meet its investment objectives in the long term," the note reads.
"As stated in the prospectus of the Fund, AIC Limited (the "Manager"
may suspend distributions on the units if the net asset value per unit would be less than $7.50 after giving effect to such distributions, other than any distributions required so that the Fund will not be liable for income tax under the Income Tax Act."In the good times, AIC had funds under management of more than C$14 billion around 2001.
Up to last month, AIC held net fund assets of just C$3.3 billion according to the IFIC.
<span style="font-weight: bold">Since September 2008, the AIC's assets have fallen more than C$1 billion, from C$4.5 million.</span>
AIC had announced in October last year that it would be shedding 20 per cent of its staff in response to the falloff in business.