Investors can’t complain about a broad, something-for-everyone investment focus at Toronto-based Copernican Capital Corp.

The two-year-old firm — controlled by Burlington, Ont.-based mutual fund company AIC Inc. — has its sights focused mainly on creating closed-end funds that invest in foreign financial services companies and dividend-paying foreign companies.

It has created five closed-end funds and two split-share corporations that share the focus. Its most recent offering, European Premium Dividend Fund, is designed to provide clients with an opportunity to diversify internationally by investing in European dividend-paying companies. Its objective is to pay out 8% a year.

When the company was formed in 2005, the strategy was to “open people’s eyes to the prospect of what’s out there globally in financial services,” says Chris Lowe, the British-born chief executive of Copernican, who spent two decades in global banking before joining AIC five years ago. “We wanted to see how we could push out.”

Overall, AIC manages about $8 billion of mutual fund assets, of which more than half ($4.3 billion) is invested in financial services companies. Copernican, which distributes its products through the brokerage network, manages about $600 million of assets. All of its funds are listed on the Toronto Stock Exchange, which allows holders to buy and sell on a daily basis.

Copernican’s focus on financial services companies has its supporters. “AIC is very good at financial services, so it’s not a big leap for it to bring products” that are based on buying shares of financial services companies, says Michael Shuh, a member of the equity capital markets team at National Bank Financial. “They are serious guys with good ideas but happen to be in a bad sector right now. But historically financials have been good performers.”

Copernican’s funds contain many well-known financial services companies. For example, its World Banks Income and Growth Trust, which raised $53.2 million in its initial public offering in April 2006, owns stakes in ABN AMRO (8.8% of its assets); HSBC Holdings (7.7%); Royal Bank of Scotland (6.2%); and Credit Suisse (5.9%).

However, the concentrated investment focus also brings its own set of risks. In November, for example, Copernican was forced to suspend monthly distributions on its Copernican British Banks Fund (that raised $220 million in August to invest in British bank-based financial services companies) because its securities portfolio “experienced a sharp decline,” which reduced its net asset value. On the day of the announcement, the units fell by 24%. Overall, Copernican’s closed-end funds have been treated harshly. The best performer is Copernican World Financial Infrastructure Trust, which is lower by an annual 0.77%.

AIC, which adheres to a buy-and-hold investment philosophy that focuses on solid non-cyclical companies (often financial services firms), has itself been hit hard. Its funds largely missed out on the resources and commodities boom and have suffered heavy redemptions. Its peak AUN was $15.4 billion in 2002, and it now has about $8 billion in AUM.

“We have entered a trough in financial services,” Lowe admits. “History usually shows this is an opportunity for value-oriented investors,” Strong economies are strong because they have strong financial services companies. Until transparency returns, the market will continue to be driven by fear and not by fundamentals. In due course, it will switch as markets always do.”

After it cut the distribution on its British Banks Fund, Copernican issued a six-page summary. It said: “the market capitalization lost in recent months across the financial sectors fails to differentiate those businesses with stronger risk-management disciplines and is disproportionate to the losses/writedowns taken.” Copernican said the five British banks are now trading at levels similar to late 1998, a time of the Russian debt default and the collapse of Long Term Capital Management. So far this year, the banks have lost more than 25% of their value — a $150- billion drop.

And closed-end investments operate differently from their mutual fund cousins, which may have some appeal to clients. For instance, after the money is raised, the manager is allowed to do its job of investing in the list of prescribed assets, and doesn’t have to worry about receiving — or losing — new cash on a daily basis. “In a closed-end fund, the money is held in the fund for a longer or more predictable period of time,” says Lowe.

@page_break@That situation differs from an open-ended fund, in which new cash typically arrives when the market is rising, partly because investors are chasing past performance. That isn’t the best time to deploy the additional capital.

And, from the manager’s perspective, closed-end funds offer better redemption features: with a closed-end fund, investors can redeem once a year and receive net asset value, whereas they can get out on a daily basis with an open- end fund. Copernican also tries to keep assets through a process known as “re-circulating”: after a unitholder has indicated his intention to redeem, it will try to find a buyer who is prepared to pay a higher price for the units. (If successful, the redeeming unitholder receives the higher price.)

Copernican added a few wrinkles: the manager can add leverage and write covered call options on the portfolio, the latter being a move that generates additional income. And the manager funded the up-front costs of bringing the deal to market — a move that ensures an investor’s $10-per-unit investment is invested.

Other funds in the Copernican closed-end family include:

> Copernican World Banks Income and Growth Trust, which invests in global bank-based financial services companies; and

> Copernican International Premium Dividend Fund, which invests in dividend-paying issuers outside North America. IE