US-64: Hard truths

* The major reason why US-64 has not been made NAV-based seems to because of a substantial gap between the repurchase price of the unit and its NAV.

* Redemptions take place at prices not linked to the NAV, and in periods when redemptions exceed sales, as seen in April and May 2001, net redemptions at values in excess of the NAV further widen the gap in respect of continuing unit holders.

* There is a public perception that once a repurchase price of US-64 is announced in July of a year, the repurchase price and the unit's sale price will increase progressively during the year. US-64 has been marketed on that basis.

* It is, however, unfortunate that the opportunity was not taken to make the scheme NAV-based when the NAV is believed to have been in excess of the repurchase price or in July 2000 when the gap between the repurchase price and NAV is believed to have significantly narrowed.

* If the NAV -- as on the date when the units up to 3000 units are offered -- is lower than the minimum repurchase price, the shortfall will have to be made good. If this shortfall is charged to the US-64 scheme, the NAV would be further depressed and will affect both the unit-holders who hold units in excess of 3,000, as also the future shortfall.

* It is also a matter for consideration whether US-64 can survive in its present form. It is perceived as a predominantly savings instrument, and its investor profile is determined on that basis. However, the predominance of equity in its asset portfolio makes it more akin to a growth fund. Therefore, the fact that US-64 has, in fact, become a growth fund has to be recognised. Given the present investment profile, its ability to declare dividends and give a return to unitholders is severely restricted.

* It is, therefore, essential that before any restructuring is attempted, US-64 should be made NAV-based.

* It is also necessary that before US-64 is made NAV-based, provision is made for the contingent liability arising out of the gap, if any, between the available assets in US-64 and guaranteed price to individual unitholders' holdings up to 3,000 units announced in July 2001.