1 SECURITIES AND EXCHANGE BOARD OF INDIA MUMBAI FORM - NS Filing of scheme offer document in terms of sub-regulation (1) of regulation 28 of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996. ESCORTS GOLD EXCHANGE TRADED FUND (Name of the Scheme) ESCORTS MUTUAL FUND (Name of the Mutual Fund) ESCORTS ASSET MANAGEMENT LIMITED (Name of the Asset Management Company) 11, SCINDIA HOUSE, CONNAUGHT CIRCUS, NEW DELHI – 110 001. (Address of the Mutual Fund) Approximate Date of Proposed Public Offering: ----------, 2007 This filing will become deemed effective 21 days after the date of such filing. 2 ESCORTS GOLD EXCHANGE TRADED FUND AN OPEN ENDED EXCHANGE TRADED SCHEME OFFER OF UNITS OF FACE VALUE OF RS. 10 EACH The Scheme particulars have been prepared in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, as amended till date, and filed with Securities and Exchange Board of India and the Units being offered for public subscription have not been approved or disapproved by the Securities and Exchange Board of India nor has the Securities and Exchange Board of India certified on the accuracy or adequacy of the Offer Document. This Offer Document shall remain effective until a ‘material change’ (other than a change in fundamental attributes and within the purview of the Offer Document) occurs and thereafter the changes shall be filed with the SEBI and circulated to the unitholders alongwith quarterly / half yearly reports (A) The Offer Document sets forth concisely the information about the Scheme that a prospective investor ought to know before investing; (B) Prospective investors should study this Offer Document carefully, in its entirety and independently consult their legal, tax and investment advisors to determine possible legal, tax, financial and other consequences of subscribing to, purchasing or holding Units under the Scheme, before making an application for subscription to Units under the Scheme; and (C) The Offer Document should be retained for future reference. ESCORTS MUTUAL FUND Head Office: 11, Scindia House, Connaught Circus, New Delhi 110 001 Tel: (011) 2335-1343, 2331-9991, 2332-1654 Telefax: (011) 2376-1495 SPONSOR TRUSTEE ASSET MANAGEMENT COMPANY Escorts Finance Limited Escorts Investment Trust Limited Escorts Asset Management Limited N-6, Pratap Building, N-6, Pratap Building, 11, Scindia House, Connaught Circus, Connaught Circus, Connaught Circus, New Delhi 110 001 New Delhi 110 001 New Delhi 110 001 NEW FUND OFFER OPEN FROM ………….., 2007 TO …………., 2007 ON-GOING SALE/ REPURCHASE OF UNITS FROM ……….., 2007 3 TABLE OF CONTENTS S.No. Contents Page No. I Definitions II A. Highlights B. Risk Factors III Due Diligence by the Asset Management Company IV Expenses A. Unitholder Transaction Expenses or Sales Load B. Initial Issue Expenses • For the present scheme • Past schemes C. Annual Scheme Recurring Expenses V Condensed Financial Information VI Constitution of Escorts Mutual Fund A. The Mutual Fund B. Functions and Responsibilities of the constituents of Escorts Mutual Fund • The Sponsor • The Asset Management Company • The Trustee • Custodian C. Board of Trustees D. Summary of substantive provisions of the Deed of Trust which may be of material interest to the Unitholders E. Trusteeship Fee VII Investment Objectives and Policies A. Investment Objective B. Asset Allocation C. Fundamental Attributes D. Investment Policy E. Change in investment pattern F. Derivatives & Hedging G. Investment by the AMC in the Scheme H. Portfolio Turnover Policy I. Investment Restrictions J. Policy for borrowings K. Lending of Physical Gold L. Borrowing of Physical Gold M. Minimum number of Investors in Scheme / Plans of Mutual Fund VIII Management of Escorts Mutual Fund A. Name of the AMC B. Fund Manager C. Key Personnel D. Investor relations officer E. Board of Directors F. AMC’s Compensation G. Investor (Registrar and Transfer Agency) Services H. The Auditors IX Units and Offer A. New Fund Offer 4 S. No. Contents Page No. X Sale of Units A. Who can apply B. Availability of application forms and offer document C. How to apply (Instructions for investors) D. Investment Plans E. Nomination F. Unique Identification Number G. Basis of Allotment H. Statement of Account I. Refunds J. Transfer K. Transmission L. Listing M. Duplicate Statements of Account/Dividend Warrants/Redemption Warrants, Consolidation of Accounts N. Register of Unitholders O. Winding Up P. Subsequent purchase of Units XI Inter Scheme Transfers XII Associate Transactions XIII Borrowing by Escorts Mutual Fund XIV Stock Lending by Escorts Mutual Fund XV Net Asset Value and Valuation of Assets of the Scheme A. Computation of Net Asset Value B. Valuation XVI Redemption or Repurchase XVII Accounting Policies XVIII Tax treatment of investment in Mutual Funds XIX Investors’ rights and services A. Rights of Unitholders B. Documents for inspection C. Investor services D. Special Considerations XX Investor grievances and redressal mechanism XXI Penalties, pending litigation or proceeding, findings of inspections or investigations for which action may have been taken or is in the process of being taken by any regulatory authority XXII General 5 I. DEFINITIONS Act Income-tax Act, 1961 Asset Escorts Asset Management Limited, incorporated under the Companies Act, Management 1956 and having its registered Office at N-6, Pratap Building Connaught Company Circus, New Delhi 110 001 and its successors and assigns. (AMC) Bank Scheduled Commercial Bank in India. Business Day A day other than (1) Saturday and Sunday or (2) a day on which National Stck Exchange is closed (3) a day on which the Sale and Redemption of Units is suspended by the Trustee/AMC, (4) Valuation on London Mullion Market Association (LBMA) is not available. However, the trustees reserve the right to declare any day as a non-business day at any of its locations at its sole- discretion. Calendar Year A Calendar Year shall be 12 full English Calendar months commencing from 1st January to 31st December. Custodian HDFC Bank Limited, Custodian and Depository Services, Kamala Mills Compound, Senapati Bapat Marg, Lower Parel, Mumbai 400 013, SEBI registration no. INBI00000063. Day Any day as per English Calendar viz. 365 days in a year. FII Foreign Institutional Investors registered with SEBI under Securities and Exchange Board of India (Foreign Institutional Investors) Regulations 1995, as amended from time to time. Financial Year A Financial Year shall be 12 full English Calendar months commencing from 1st April and ending on 31st March. Initial The sum of Rs. 1,00,000/- (Rupees One Lac only) entrusted to the Trustee by Contribution the Sponsor towards the corpus of the Mutual Fund trust. Investor An investor means any resident or non-resident person whether individual or not (legal entity) who is eligible to subscribe units under the laws of his/her/their country of incorporation, establishment, citizenship, residence or domicile and under the Income tax Act, 1961, including amendments thereto from time to time and who has made an application for subscribing units under the Scheme. Under normal circumstances, unitholder shall be deemed to be the investor. Investment The agreement dated 15th April, 1996 between the Trustee and the Asset Management Management Company. Agreement Load/ Amount collected to cover the cost of promotion of the Scheme. Contingent Deferred Sales Charge Mutual Fund or The trust established in accordance with the Deed of Trust dated 15th April, Mutual Fund 1996 and registered with the Securities and Exchange Board of India on 3rd Trust July, 1996 vide registration no. MF/028/96/4. Net Asset It is the actual value of a Unit issued under the Scheme, on the valuation day. Value (NAV) New Fund Offer Offer of Units of Escorts Gold Exchange Traded Fund during the New Fund Offer Period. New Fund Offer The period during which the New Fund Offer of Units under the Scheme shall Period be open for subscription. Non Resident Any person who is not a resident as defined herein. 6 Offer Document This document issued by the Mutual Fund offering Units of this Scheme for subscription. On-going Sale/ The facility afforded to prospective investors/ Unit holders to purchase/ redeem Redemption of Units issued under this Scheme at NAV based sale/ repurchase prices, on an Units on-going basis. RBI Reserve Bank of India Regulations Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 as amended. Resident Any person resident in India under the Foreign Exchange Management Act, 1999 and under the Income tax Act 1961, including amendments thereto from time to time. SEBI Securities and Exchange Board of India established under the Securities and Exchange Board of India Act, 1992. Scheme Escorts Gold Exchange Traded Fund Mutual Fund Scheme. Sponsor Escorts Finance Limited, a Company incorporated under the Companies Act, 1956 and having its Registered Office at N-6, Pratap Building, Connaught Circus, New Delhi 110 001. Total Assets Total Assets of the scheme at any time shall be the total value of the scheme’s assets taking into consideration the accruals. Trustee Escorts Investment Trust Limited, a Company incorporated under the Companies Act, 1956 and having its Registered Office at N-6, Pratap Building, Connaught Circus, New Delhi 110 001. Trust Deed The Deed of Trust dated 15th April, 1996 establishing the Mutual Fund. Unit An undivided share in the NAV of the Scheme. Year A year shall be 12 full English calendar months. 7 ll. (A) HIGHLIGHTS 1. Features: i. Escorts Gold Exchange Traded Fund (Escorts Gold ETF) is an Open Ended Scheme, which will be listed on the Exchange in the form of an Exchange Traded Fund (ETF) tracking domestic prices of gold through investments physical Gold and Gold related instruments, which have Gold as underlying, as specified by SEBI from time to time. ii. Each unit of the scheme being offered will have a face value of Rs.10/- each. iii. Units can be bought/sold like any other stock on the National Stock Exchange of India Ltd. (NSE) or on any other exchange where it is listed. v. The Investors can directly buy/sell with the Fund. As the Units can be bought/sold directly from the Fund, this mechanism provides efficient arbitrage between the traded prices and the NAV, thereby reducing the incidence of Units being traded at a premium/discount to NAV. vi. Units will be available in dematerialized form. This will help in consolidating with other portfolio holdings and will eliminate need for physical storage thereby eliminating risk. However, this is not compulsory. Investor can request for Statement of Account from the Mutual Fund. 2. Objective: The primary objective of the scheme is to provide returns that, before expenses, closely correspond to the returns provided by domestic price of gold by investing predominantly in Gold and Gold related instruments, which have Gold as underlying, as specified by SEBI from time to time. It is intended to constitute a simple and cost effective means of making an investment similar to an investment in Gold. The value of units shall reflect, at any given time, the price of Gold and Gold related instruments owned by the scheme less the expenses incurred. 3. Switching: Unit holdings can be switched from one Option to another within Scheme or to Options under other Open Ended Schemes of Escorts Mutual Fund at Net Asset Value based prices, on daily basis, subject to applicable load, if any. 4. Liquidity: An open-ended scheme giving opportunity to invest and exit at NAV related prices, with applicable load, on daily basis. 5. Load: No Entry Load at the time of NFO. 6. Transparency: Daily determination of Net Asset Value. 7. Tax Benefits: (Under Income Tax Act, 1961) - Under Section 10(35), any income (other than income arising from transfer of units) received by any person in respect of units of mutual fund is exempt from income tax. - Under Section 94(7), loss on sale of units bought within 3 months of record date and sold within 9 months after record date shall be ignored while computing income chargeable to tax to the extent of exempt income received or receivable on such units. - U/S 94(8), units purchased within 3 months prior to record date of entitlement of bonus and sold within 9 months after such date, the loss arising on transfer of original units shall be ignored for the purpose of computing income chargeable to tax. - Gifts of Units, purchased under the Scheme are not subject to Gift-Tax because Gift Tax Act has been abolished. - Units of the Scheme are not subject to Wealth-tax. (Tax benefits to the mutual fund and unitholders are in accordance with prevailing tax laws) 8 ll. (B) RISK FACTORS STANDARD RISK FACTORS: 1. All Mutual Funds and securities investments are subject to market risks and there is no assurance and no guarantee that the Fund’s objectives will be achieved. 2. As with any securities investment, the NAV of the Units issued under the Scheme can go up or down depending on the factors and forces affecting the gold, forex markets and debt and money markets. 3. Past performance of the Sponsor/Asset Management Company/Mutual Fund does not indicate the future performance of the Scheme of the Mutual Fund. 4. Escorts Gold Exchange Traded Fund is only the name of the Scheme and does not in any manner indicate either the quality of the Scheme or its future prospects and returns. 5. The Sponsor is not responsible or liable for any loss resulting from the operation of the Scheme beyond the initial contribution made by it of an amount of Rupees One Lac only towards setting up of the Mutual Fund. SCHEME SPECIFIC RISK FACTORS: 1. Escorts Gold Exchange Traded Fund’s investment portfolio will be concentrated in Gold and Gold related instruments, which have Gold as underlying, as specified by SEBI from time to time. This might lead to increased volatility in the movement of NAV. 2. The value of units depends upon the price of Gold, which is subject to fluctuations. The price of Gold has fluctuated widely over the past several years. If the Gold markets continue to be characterized by the wide fluctuations that they have shown in the past several years, the price of the units will change widely and in an unpredictable manner. 3. The amount of Gold represented by the units will decrease over the life of the scheme due to the sales necessary to pay the fees and expenses. Without increase in the price of Gold sufficient to compensate for that decrease, the price of the unit will also decline. 4. A significant portion of the aggregate world gold holdings is owned by governments, central banks and related institutions. If one or more of these institutions decides to sell in amounts large enough to cause a decline in world gold prices, the price of units of the scheme will be adversely affected. 5. A significant increase in the gold hedging activity by gold producers could cause a decline in the world gold prices, adversely affecting the price of units of the scheme. 6. In case there is a change in the attitude of speculators and investors so as to speculative community taking a hostile view of the towards gold, it could cause a decline in world gold prices, negatively impacting the price of units of the scheme. 7. As per SEBI circular dated December 12, 2003 ref SEBI/IMD/CIR No. 10/22701/03, each scheme and individual plan(s) under the schemes should have a minimum of 20 investors and no single investor should account for more than 25% of the corpus of such scheme/plan(s). In case of non-fulfilment with either of the above two conditions in a three months time period or the end of succeeding calendar quarter, whichever is earlier, from the close of the Initial Public Offering (IPO) of open ended schemes or on an ongoing basis for each calendar quarter, the schemes /plans shall be wound up by following the guidelines prescribed by SEBI and the investor’s money would be redeemed at applicable NAV. 8. Although Units described in this Offer Document are to be listed on the Exchange, there can be no assurance that an active secondary market will develop or be maintained. 9 9. Trading in Units on the Exchange may be halted because of market conditions or for reasons that in view of Exchange Authorities or SEBI, trading in Units is not advisable. In addition, trading in Units is subject to trading halts caused by extraordinary market volatility and pursuant to Exchange and SEBI ‘circuit filter’ rules. There can be no assurance that the requirements of Exchange necessary to maintain the listing of Units will continue to be met or will remain unchanged. 10. The units of the Scheme may trade above or below their NAV. The NAV of the Scheme will fluctuate with changes in the market value of Scheme’s holdings. The trading prices of Units will fluctuate in accordance with changes in their NAV as well as market supply and demand for Units. 11. Any changes in trading regulations by the Stock Exchange(s) or SEBI may affect the ability of market maker to arbitrage resulting into wider premium/ discount to NAV. 12. The returns from physical Gold in which the Scheme invests may under perform returns from the various general securities markets or different asset classes. Different types of securities tend to go through cycles of out-performance and under-performance in comparison of the general securities markets. 13. The physical gold lending activity by Scheme will have the inherent probability of collateral value drastically falling in time of strong downward market trends resulting in inadequate value of collateral. It is also possible that the borrowing party and/or the approved intermediary may suddenly suffer severe business setback and become unable to honor its commitments. This along with a simultaneous fall in value of collateral would render potential loss to the Scheme. Also the risk could also be in the form of non- availability of ready physical gold for sale during the physical gold is lent. Physical Gold would be lent if permitted by the concerned regulatory authorities in India. 14. For the valuation of Units, indirect taxes like customs duty, VAT, etc would also be considered. Hence, any change in the rates of indirect taxation would affect the valuation of Units. 15. Whereas the Indian market was formerly restrictive, a process of deregulation has been taking place over recent years. This process has involved removal of trade barriers and protectionist measures, which could adversely affect the value of investments. It is possible that the future changes in the Indian political situation, including political, social or economic instability, diplomatic developments and changes in tax laws, changes in SEBI/ Stock Exchange/ RBI regulations and other applicable laws/regulations could have an effect on such investments and valuation thereof. Expropriation, confiscatory taxation or other relevant developments could affect the value of investments. 16. A day on which valuation on LMBA is not available shall not be a Business day and hence NAV for the said day shall not be available to the investors. lll. DUE DILIGENCE BY THE ASSET MANAGEMENT COMPANY It is confirmed that: 1) The draft Offer Document forwarded to SEBI is in accordance with the SEBI (Mutual Funds) Regulations, 1996 and the guidelines and directives issued by SEBI form time to time. 2) All legal requirements connected with the launching of the Scheme as also guidelines, instructions etc., issued by the Government and any other competent authority in this behalf, have been duly complied with. 10 3) The disclosures made in the Offer Document are true, fair and adequate to enable the investors to make a well informed decision regarding investment in the proposed Scheme. 4) The intermediaries named in the Offer Document are registered with SEBI and till date such registration is valid. Date : 10.01.2007 Place : New Delhi (Vipin Chawla) Compliance Officer Escorts Asset Management Ltd. IV. EXPENSES A. UNITHOLDER TRANSACTION EXPENSES OR SALES LOAD Entry Load – 1.00%. There is no Entry / Exit Load for the investors for buy / sell of Gold Units on the Exchange. Sale Price per unit = Applicable NAV+ Applicable Entry Load Example for calculation of Sale Price: If the applicable NAV is Rs.1,000 and sales load applicable is 1%, the sale price per unit will be calculated as follows: = Rs.1,000 + (1% of 1,000) = Rs.1,000 + 10 = Rs. 1010 Exit Load – Not exceeding 0.50%. The redemption price of unit will be calculated using the following formula: Redemption / Repurchase Price = Applicable NAV- Applicable Exit Load Example of calculation of Repurchase Price: If the applicable NAV is Rs.1,000 and the exit load applicable is 0.50%, the repurchase price will be calculated as follows: = Rs.1,000 - (0.50% of 1,000) = Rs. 1,000 – 0.50 = Rs. 999.50 The Asset Management Company and the Trustees reserves the right to introduce, modify / change Entry load, Exit load and / or switchover load if it so deems fit in the interest of smooth and efficient functioning of the Mutual Fund, subject to a maximum as prescribed under the Regulations with prospective effect. In case of an exit / repurchase load this may be linked to the period of holding. The Asset Management Company may charge a load for switch of units between the various plans of the scheme and this load may be different from the Sales load charged for sale of new units. The load charged could also be different for different plans of the scheme(s) at the same time. 11 All loads for each scheme shall be maintained in a separate account and may be utilised for meeting the selling and distribution expenses and investor servicing related expenses and for any other purpose as may be permitted under the SEBI Regulations. Any surplus in this account may be credited to the scheme, whenever felt appropriate by the AMC. Loads, when levied, shall be charged as a percentage of Net Asset Value (NAV) i.e. applicable load as a percentage of NAV will be added to NAV to calculate sale price and will be subtracted from NAV to calculate repurchase price. In other words, the following formulae shall be used : Sale Price = Applicable NAV*(1+Sales Load, if any) Repurchase Price = Applicable NAV*(1-Exit Load, if any) Example : If the applicable NAV is Rs. 10.00; Sales / Entry Load is 2 percent and the Repurchase / Exit Load is 2 percent, then the Sale Price will be Rs. 10.20 and the Repurchase Price will be Rs. 9.80. Any imposition or enhancement of load in future shall be applicable on prospective investments only. At the time of change in the load structure the AMC may take following measures: - An addendum detailing the changes may be attached to the Offer Document and Abridged offer document. The addendum may be circulated to all the distributors / brokers so that the same can be attached to the Offer Document and Abridged offer document already in stock. The addendum may be sent alongwith the newsletter sent to the unitholders immediately after the changes. - Arrangements may be made to display the changes / modifications in the offer document in the form of a notice to all the investors service centers and distributors / broker office. - The amendment in / introduction of the exit load / CDSC along with the details may be stamped in the acknowledgement slip issued to the investors on submission of the application form and may also be disclosed in the statement of accounts issued after the introduction of such load / CDSC. - Any other measures as may be deemed necessary. B. INITIAL ISSUE EXPENSES (i) For the present scheme In terms of SEBI Circular No. SEBI/IMD/CIR No.1/64057/06 dated 04.04.2006 no initial issue expenses are permitted for open ended schemes. The scheme would meet the sales, marketing and other such expenses connected with sales and distribution of the scheme from the entry load and not through initial issue expenses. (ii) Past Schemes The details of the estimated and actual Offer Expenses for Escorts Floating Rate Fund Mutual Fund Scheme (as a %age of the amount raised in the Offer) launched in December, 2005 is as follows: 12 Expenses Estimated (%) Actual (%) Escorts Floating Rate Fund Escorts Floating Rate Fund Brokerage & Commission 1.25 0.09 Marketing & Advertising 1.00 0.00 Printing & Stationery 0.10 0.57 Registrar’s Fee 0.10 0.00 Legal Expenses 0.05 0.00 Bank Charges 0.15 0.00 Other Expenses 0.10 0.00 Total 2.75 0.66 In case of Escorts Floating Rate Fund actual expenses were borne by the AMC. C. ANNUAL SCHEME RECURRING EXPENSES (AS A % OF AVERAGE WEEKLY NET ASSETS) For the information of investors, the estimated break-up of expenses, on an on-going basis, as a percentage of the weekly average net assets, in any financial year shall be as follows: Expenses Net Assets Upto (Rs.) 100 Crores Investment Management and Advisory Fee 1.25 % Custodian’s Fee and charges 0.18 % Investor Service & Communication Expenses 0.20 % Trustee Fee 0.05 % Audit Fee 0.02 % Marketing and Selling Expenses (including 0.45 % Brokerage) Storage and Handling of Gold 0.35% Total 2.50 % The above break-up of on-going expenses has been estimated ‘in good faith’, on the basis of information available to the Asset Management Company and are subject to change inter se amongst eligible expenses, as per actuals. Further, these estimates are based on the Scheme’s weekly average net assets being Rs. 100 Crores. In case, the Scheme’s weekly average net asset is higher or lower, these estimates would require revision. Further, common expenses of the Mutual Fund, such as Trustee Fee, Audit Fee etc. shall be borne by each of the Scheme(s) of the Mutual Fund, in operation from time to time, pro rata on the net asset(s) of the Scheme(s) and proportionate to the period of operation of the Scheme(s). Such other expenses which are directly attributable to the scheme may be charged with the approval of the trustee within the overall limit as specified in Regulation 52(6), or as may be prevailing under the Regulations from time to time. Any on-going expense, which is not specifically mentioned above, and/or not approved/or specifically excluded by SEBI will not be charged to the Scheme. The Investment Management Fee charged by the AMC for managing unclaimed amounts of dividend / redemption shall not exceed 50 basis points. The total expenses of the Scheme excluding issue or redemption expenses but including the investment management and advisory fee shall be subject to the following limits: i) On the first Rs. 100 Crores of the average weekly net assets 2.50% ii) On the next Rs. 300 Crores of the average weekly net assets 2.25% iii) On the next Rs. 300 Crores of the average weekly net assets 2.00% iv) On the balance of the assets 1.75% 13 On-going expenses in excess of the prescribed limit, if any in any financial year will be borne by the Asset Management Company or by the trustee or sponsor. Further, as and when permitted by SEBI, the AMC may charge a higher fee for that part of the unit capital that is invested overseas. However, revision in fee charged shall be within the SEBI Regulations at all times. Total expenses of the scheme including the investment management and advisory fee shall be within the limits stated in Regulation 52(6), or as may be prevailing under the Regulations from time to time. V. CONDENSED FINANCIAL INFORMATION Escorts Liquid Plan Date of allotment of 03.10.2005 Units Historical per unit 03.10.2005 to 31.03.2006 01.04.2006 to 30.09.2006 statistics (Rs. / Unit) G DD WD MD G DD WD MD NAV at the beginning 10.00 10.00 10.00 10.00 10.2622 10.2622 10.2622 10.2622 of the year Dividends 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 NAV at the end of 10.2622 10.2622 10.2622 10.262210.5601 10.5601 10.5601 10.5601 the period Annualised 2.62* 5.60* Return*(%) Benchmark Return# 2.44 5.57 Net Assets at the end 4.11 9.33 of period (Rs. Crs.) Ratio of recurring 0.50 0.50 expenses to Net Assets*(%) * = Absolute Return # = The benchmark index used for the scheme is CRISIL Liquid Fund Index. G = Growth; DD = Daily Dividend; WD = Weekly Dividend; MD = Monthly Dividend Escorts Liquid Plan Date of allotment of 03.10.2005 Units Historical per unit 01.10.2006 to 31.10.2006 statistics (Rs. / Unit) G DD WD MD NAV at the beginning 10.5601 10.5601 10.5601 10.5601 of the year Dividends 0.00 0.00 0.00 0.00 NAV at the end of 10.6050 10.6050 10.6050 10.6050 the period Annualised 5.61 Return*(%) Benchmark Return# 5.66 Net Assets at the end 12.33 of period (Rs. Crs.) Ratio of recurring 0.50 expenses to Net Assets*(%) * = Absolute Return # = The benchmark index used for the scheme is CRISIL Liquid Fund Index. G = Growth; DD = Daily Dividend; WD = Weekly Dividend; MD = Monthly Dividend 14 Escorts Floating Rate Fund Date of allotment of 29.12.2005 Units Historical per unit 29.12.2005 to 01.04.2006 to 01.10.2006 to statistics (Rs. / Unit) 31.03.2006 30.09.2006 31.10.2006 Growth Dividend Growth Dividend Growth Dividend NAV at the beginning 10.00 10.00 10.1030 10.1030 10.4245 10.4245 of the year Dividends 0.00 0.00 0.00 0.00 0.00 0.00 NAV at the end of 10.1030 10.1030 10.4245 10.4245 10.3698 10.3698 the period Annualised Return*(%) 1.03 4.25 3.70 Benchmark Return# 5.00 5.57 5.66 Net Assets at the end 4.16 0.12 0.12 of period (Rs. Crs.) Ratio of recurring 0.50 0.50 0.50 expenses to Net Assets*(%) * = Absolute Return # = The benchmark index used for the scheme is CRISIL Liquid Fund Index. Borrowing details for the period ended 31st March, 2006 Scheme Year Amount of Amt. As % of NAV Purpose of Time borrowing at the end of time of borrowing Period (Rs. in Crs.) borrowing Escorts Income Bond 05-06 NIL NIL NIL NIL Escorts Income Plan 05-06 NIL NIL NIL NIL Escorts Tax Plan 05-06 NIL NIL NIL NIL Escorts Opportunities 05-06 NIL NIL NIL NIL Fund Escorts Gilt Plan 05-06 NIL NIL NIL NIL Escorts Growth PLAN 05-06 NIL NIL NIL NIL Escorts Balanced Fund 05-06 NIL NIL NIL NIL Escorts Liquid Plan 05-06 NIL NIL NIL NIL Escorts Floating Rate 05-06 NIL NIL NIL NIL Fund VI. CONSTITUTION OF ESCORTS MUTUAL FUND A. THE MUTUAL FUND-ESCORTS MUTUAL FUND Escorts Mutual Fund (‘the Mutual Fund' or ‘the Mutual Fund trust’) has been established as a trust in accordance with the provisions of the India Trusts Act, 1882 and the Deed of Trust (‘the Trust Deed’) dated 15th April, 1996 had been registered under the Indian Registration Act, 1908. The Mutual Fund has been registered with the Securities and Exchange Board of India (‘SEBI’) on 3rd July, 1996 vide registration No. MF/028/96/4. The objectives of the Mutual Fund, inter alia include contribution to the development of the capital market and providing facilities for participation by holders of Units of the Mutual Fund in the profits or income arising therefrom. No amendments to the Trusts Deed shall be carried out without the prior approval of SEBI and the approval of Unit holders, where such change affects the interests of Unit holders. 15 B. FUNCTIONS AND RESPONSIBILITIES OF THE CONSTITUENTS OF ESCORTS MUTUAL FUND The Sponsor-Escorts Finance Limited The Mutual Fund is sponsored by Escorts Finance Limited (‘the Sponsor’). The Sponsor, in its capacity as the Settlor of the Mutual Fund trust has made an initial contribution of Rs. 1,00,000/- (Rupees One Lac only) towards the corpus of the Mutual Fund trust. The Sponsor was incorporated in 1987 and is a Non-Banking Financial Company, as per the Non-Banking Financial Companies (Reserve Bank) Directions, 1998. The Sponsor is primarily engaged in the business, inter alia of hire purchase, lease financing, consumer finance, corporate finance advisory services and money market operations. The Sponsor has a track record of profitability for over eight years. The financial performance of the Sponsor in the past three years has been as follows: Item/ Year 2003 – 2004 2004 - 2005 2005 - 2006 Total Income (Rs. Lacs) 6408.61 3665.66 2998.64 Profit After Tax (Rs. Lacs) 947.30 24.89 (27050.80) Equity Capital (Rs. Lacs) 4050.00 4050.00 4050.00 Free Reserves (Rs. Lacs) 5821.14 5846.03 (21204.77) Net Worth (Rs. Lacs) 10788.39 10813.28 (16237.52) Earnings Per Share (Rs.)* 2.34 0.06 (67.20) Book Value Per Share (Rs.) 10.00 10.00 10.00 Dividend (%) (Net of Dividend Tax) NIL NIL NIL NOTE: (1) * Computed on year end Equity Capital The Asset Management Company-Escorts Asset Management Limited The Trustee has appointed Escorts Asset Management Limited (‘the Asset Management Company’) as the investment manager to the Mutual Fund vide the Investment Management Agreement dated 15th April, 1996. SEBI has approved the said appointment vide its letter no. IIMARP/2053/96 dated 3rd July, 1996. The appointment of the Asset Management Company can be terminated by a majority of the Directors of the Trustee (Company) or by seventy five percent of the Unit holders of the Scheme. Shareholding pattern of the AMC (as on the date of last AGM i.e. 30.09.2006) specifying the percentage holding of various groups / companies and their activities : S. Name %age of paid up Activities No. equity share capital 1. Escorts Finance Ltd. 49.00 Non-Banking Financial Company 2. Escorts Ltd. 30.00 Manufacturing 3. AAA Portfolios Pvt. Ltd. 21.00 Non-Banking Financial Company Total 100.00 In accordance with the Regulations, the Trust Deed and the Investment Management Agreement, the duties and responsibilities of the Asset Management Company shall include, inter alia to: 1. frame and launch Schemes, from time to time after obtaining approval from the Trustee and SEBI; 2. manage the investment and re-investment of the portfolio of the Scheme, in accordance with the Regulations, guidelines and circulars issued by SEBI, from time to time, with a view to achieving the investment objective without breaching the investment restrictions; 16 3. report to the Trustee, at periodic intervals on all transactions in investments effected by it and otherwise, as requested by the Trustee; 4. issue and administer instructions with regard to sale/purchase and safe custody of investments to the Mutual Fund’s stock brokers/ agents and the Custodian respectively; 5. keep or cause to keep such books, records and statements to give a complete record of all transactions carried out by it on behalf of the Mutual Fund and such other books, records and statements as may be required by the law, at its Head Office; 6. carry out periodic credit assessments, in respect of investments and proposed investments and set prudent credit limits in relation thereto, subject to the overall supervision of the Trustee; 7. not take up any activity in contravention of the Regulations; 8. calculate the value of the net assets of each Scheme, upon the occasions, in the manner specified by SEBI and to furnish the same to the Trustee; 9. calculate the fee receivable by it and the Custodian from the Mutual Fund and to receive payment(s) thereof and of other payment(s) due to them; and 10. undertake to sell, resell or repurchase Units and to redeem Units, in the event of winding up of the Scheme or otherwise provided in that Scheme and to effect distribution of dividend as per the directions of the Trustee. Obligations of the Asset Management Company As per Regulation 25 of SEBI (Mutual Funds) Regulations, 1996 : (1) The asset management company shall take all reasonable steps and exercise due diligence to ensure that the investment of funds pertaining to any scheme is not contrary to the provisions of these regulations and the trust deed. (2) The asset management company shall exercise due diligence and care in all its investment decisions as would be exercised by other persons engaged in the same business. (3) The asset management company shall be responsible for the acts of commissions or omissions by its employees or the persons whose services have been procured by the asset management company. (4) The asset management company shall submit to the trustees quarterly reports of each year on its activities and the compliance with these regulations. (5) The trustees at the request of the asset management company may terminate the assignment of the asset management company at any time: Provided that such termination shall become effective only after the trustees have accepted the termination of assignment and communicated their decision in writing to the asset management company. (6) Notwithstanding anything contained in any contract or agreement or termination, the asset management company or its directors or other officers shall not be absolved of liability to the mutual fund for their acts of commission or omissions, while holding such position or office. (7) (a) An asset management company shall not through any broker associated with the sponsor, purchase or sell securities, which is average of 5% or more of the aggregate purchases and sale of securities made by the mutual fund in all its schemes. Provided that for the purpose of this sub-regulation, aggregate purchase and sale of securities shall exclude sale and distribution of units issued by the mutual fund. Provided further that the aforesaid limit of 5% shall apply for a block of any three months. (b) An asset management company shall not purchase or sell securities through any broker other than a broker referred to in clause (a) of sub-regulation (7) which is 17 average of 5% or more of the aggregate purchases and sale of securities made by the mutual fund in all its schemes, unless the asset management company has recorded in writing the justification for exceeding the limit of 5% and reports of all such investments are sent to the trustees on a quarterly basis. Provided that the aforesaid limit shall apply for a block of three months. (8) An asset management company shall not utilise the services of the sponsor or any of its associates, employees or their relatives, for the purpose of any securities transaction and distribution and sale of securities: Provided that an asset management company may utilise such services if disclosure to that effect is made to the unit holders and the brokerage or commission paid is also disclosed in the half yearly annual accounts of the mutual fund. Provided further that the mutual funds shall disclose at the time of declaring half-yearly and yearly results; (i) any underwriting obligations undertaken by the schemes of the mutual funds with respect to issue of securities associate companies, (ii) devolvement, if any, (iii) subscription by the schemes in the issues lead managed by associate companies (iv) subscription to any issue of equity or debt on private placement basis where the sponsor or its associate companies have acted as arranger or manager. (9) The asset management company shall file with the trustees the details of transactions in securities by the key personnel of the asset management company in their own name or on behalf of the asset management company and shall also report to the Board, as and when required by the Board. (10) In case the asset management company enters into any securities transactions with any of its associates a report to that effect shall be sent to the trustees at its next meeting. (11) In case any company has invested more than 5 per cent of the net asset value of a scheme, the investment made by that scheme or by any other scheme of the same mutual fund in that company or its subsidiaries shall be brought to the notice of the trustees by the asset management company and be disclosed in the half yearly and annual accounts of the respective schemes with justification for such investment provided the latter investment has been made within one year of the date of the former investment calculated on either side. (12) The asset management company shall file with the trustees and the Board - (a) detailed bio-data of all its directors alongwith their interest in other companies within fifteen days of their appointment; and (b) any change in the interests of directors every six months. (c) a quarterly report to the trustees giving details and adequate justification about the purchase and sale of the securities of the group companies of the sponsor or the asset management company as the case may be, by the mutual fund during the said quarter. (13) Each director of the Asset Management Company shall file the details of his transactions of dealing in securities with the trustees on a quarterly basis in accordance with the guidelines issued by the Board. (14) The asset management company shall not appoint any person as key personnel who has been found guilty of any economic offence or involved in violation of securities laws. (15) The asset management company shall appoint registrars and share transfer agents who are registered with the Board. Provided if the work relating to the transfer of units is processed in-house, the charges at competitive market rates may be debited to the scheme and for rates higher than the competitive market rates, prior approval of the trustees shall be obtained and reasons for charging higher rates shall be disclosed in the annual accounts. 18 (16) The asset management company shall abide by the Code of Conduct as specified in the Fifth Schedule. The Trustee-Escorts Investment Trust Limited. The Trustee has exclusive ownership of the property(ies) of the Mutual Fund. The Escorts Investment Trust Limited (‘the Trustee’) is the sole trustee of the Mutual Fund trust Trustee is vested with the general power of superintendence, direction and management of the affairs of the Mutual Fund. Duties and Responsibilities of the Trustee Company As per Regulation 18 of SEBI (Mutual Funds) Regulations, 1996 : (1) The trustees and the asset management company shall with the prior approval of the Board enter into an investment management agreement. (2) The investment management agreement shall contain such clauses as are mentioned in the Fourth Schedule and such other clauses as are necessary for the purpose of making investments. (3) The trustees shall have a right to obtain from the asset management company such information as is considered necessary by the trustees. (4) The trustees shall ensure before the launch of any scheme that the asset management company has:- (a) systems in place for its back office, dealing room and accounting: (b) appointed all key personnel including fund manager(s) for the scheme(s) and submitted their bio-data which shall contain the educational qualifications, past experience in the securities market with the trustees, within 15 days of their appointment: (c) appointed auditors to audit its accounts: (d) appointed a compliance officer to comply with regulatory requirement and to redress investor grievances: (e) appointed registrars and laid down parameters for supervision: (f) prepared a compliance manual and designed internal control mechanisms including internal audit systems: (g) specified norms for empanelment of brokers and marketing agents. (5) The trustees shall ensure that an asset management company has been diligent in empanelling the brokers, in monitoring securities transactions with brokers and avoiding undue concentration of business with any broker. (6) The trustees shall ensure that the asset management company has not given any undue or unfair advantage to any associates or dealt with any of the associates of the asset management company in any manner detrimental to interest of the unitholders. (7) The trustees shall ensure that the transactions entered into by the asset management company are in accordance with these regulations and the scheme. (8) The trustees shall ensure that the asset management company has been managing the mutual fund schemes independently of other activities and have taken adequate steps to ensure that the interest of investors of one scheme are not being compromised with those of any other scheme or of other activities of the asset management company. (9) The trustees shall ensure that all the activities of the asset management company are in accordance with the provisions of these regulations. (10) Where the trustees have reason to believe that the conduct of business of the mutual fund is not in accordance with these regulations and the scheme they shall forthwith take such remedial steps as are necessary by them and shall immediately inform the Board of the violation and the action taken by them. 19 (11) Each trustee shall file the details of his transactions of dealing in securities with the Trust on a quarterly basis. (12) The trustees shall be accountable for, and be the custodian of, the funds and property of the respective schemes and shall hold the same in trust for the benefit of the unit holders in accordance with these regulations and the provisions of trust deed. (13) The trustees shall take steps to ensure that the transactions of the mutual fund are in accordance with the provisions of the trust deed. (14) The trustees shall be responsible for the calculation of any income due to be paid to the mutual fund and also of any income received in the mutual fund for the holders of the units of any scheme in accordance with these regulations and the trust deed. (15) The trustees shall obtain the consent of the unitholders - (a) whenever required to do so by the Board in the interest of the unitholders: or (b) whenever required to do so on the requisition made by three-fourths of the unit holders of any scheme: or (c) when the majority of the trustees decide to wind up or prematurely redeem the units: or (15A) The trustees shall ensure that no change in the fundamental attributes of any scheme or the trust or fees and expenses payable or any other change which would modify the scheme and affects the interest of unitholders, shall be carried out unless:- (i) a written communication about the proposed change is sent to each unitholder and an advertisement is given in one English daily newspaper having nationwide circulation as well as in a newspaper published in the language of the region where the Head Office of the mutual fund is situated; and (ii) the unitholders are given an option to exit at the prevailing Net Asset Value without any exit load.” (16) The trustees on a quarterly basis shall call for the details of transactions in securities by the key personnel of the asset management company in his own name or on behalf of the asset management company and shall report to the Board, as and when required. (17) The trustees shall quarterly review all transactions carried out between the mutual funds, asset management company and its associates. (18) The trustees shall quarterly review the networth of the asset management company and in case of any shortfall, ensure that the asset management company make up for the shortfall as per clause (f) of sub-regulation (1) of regulation 21. (19) The trustees shall periodically review all service contracts such as custody arrangements, transfer agency of the securities and satisfy itself that such contracts are executed in the interest of the unitholders. (20) The trustees shall ensure that there is no conflict of interest between the manner of deployment of its networth by the asset management company and the interest of the unitholders. (21) The trustees shall periodically review the investor complaints received and the redressal of the same by the asset management company. (22) The trustees shall abide by the Code of Conduct as specified in the Fifth Schedule. (23) The trustees shall furnish to the Board on a half yearly basis:- (a) a report on the activities of the mutual fund covering the detail as prescribed by SEBI. (b) a certificate stating that the trustees have satisfied themselves that there have been no instances of self dealing or front running by any of the trustees, directors and key personnel of the asset management company: (c) a certificate to the effect that the asset management company has been managing the schemes independently of any other activities and incase any activities of the nature referred to in sub-regulation (2) of regulation 24 have been undertaken by 20 the asset management company and has taken adequate steps to ensure that the interest of the unitholders are protected. (24) The independent trustees referred to in sub-regulation (5) of regulation 16 shall give their comments on the report received from the asset management company regarding the investments by the mutual fund in the securities of group companies of the sponsor. (25) Trustees shall exercise due diligence as under: A. General Due Diligence (i) The Trustees shall be discerning in the appointment of the directors on the Board of the asset management company. (ii) Trustees shall review the desirability of continuance of the asset management company if substantial irregularities are observed in any of the schemes and shall not allow the asset management company to float new schemes. (iii) The trustees shall ensure that the trust property is properly protected, held and administered by proper persons and by a proper number of such persons. (iv) The trustee shall ensure that all service providers are holding appropriate registrations from the Board or concerned regulatory authority. (v) The trustees shall arrange for test checks of service contracts. (vi) Trustees shall immediately report to the Board of any special developments in the mutual fund. B. Specific Due Diligence: The Trustees shall: (i) Obtain internal audit reports at regular intervals from independent auditors appointed by the Trustees. (i) Obtain compliance certificates at regular intervals from the asset management company (iii) Hold meeting of trustees more frequently. (iv) Consider the reports of the independent auditor and compliance reports of asset management company at the meetings of trustees for appropriate action. (v) Maintain records of the decisions of the Trustees at their meetings and of the minutes of the meetings. (vi) Prescribe and adhere to a code of ethics by the Trustees, asset management company and its personnel. (vii) Communicate in writing to the asset management company of the deficiencies and checking on the rectification of deficiencies. (26) Notwithstanding anything contained in (1) to (25), the trustees shall not be held liable for acts done in good faith if they have exercised adequate due diligence honestly. (27) The independent directors of the trustees or asset management company shall pay specific attention to the following, as may be applicable, namely: (i) the Investment Management Agreement and the compensation paid under the agreement. (ii) Service contract with affiliates – whether the asset management company has charged higher fees than outside contractors for the same services. (iii) Selection of the asset management company’s independent directors. (iv) Securities transactions involving affiliates to the extent such transactions are permitted. (v) Selecting and nominating individuals to fill independent directors vacancies. (vi) Code of ethics must be designed to prevent fraudulent, deceptive or manipulative practices by insiders in connection with personal securities transactions. (vii) The reasonableness of fees paid to sponsors, asset management company and any others for services provided. (viii) Principal underwriting contracts and their renewals. (ix) Any service contract with the associates of the asset management company. 21 Custodian The Trustee(s) shall appoint Deutsche Bank A.G., Mumbai or Standard Chartered Bank, Mumbai or HDFC Bank Limited, Custodian and Depository Services, Kamala Mills Compound, Senapati Bapat Marg, Lower Parel, Mumbai-400013 as the custodian to the Escorts Gold Exchange Traded Fund. The Custodians are approved by SEBI under Registration Nos. IN/CUS/003 and IN/CUS/06 and INBI00000063 respectively. As per Securities and Exchange Board of India (Custodian Of Securities) (Second Amendment) Regulations 2006 dated 31.10.2006 the scheme can have a custodian who is registered with SEBI and also has the capability to provide custodian services for physical gold. The amendment further permits custodians to engage the services of a person not being a custodian, for the purpose of physical safekeeping of gold belonging to its client being a mutual fund having a gold exchange traded fund scheme, subject to the following conditions : (a) the custodian shall remain responsible in all respects to its client for safekeeping of the gold kept with such other person, including any associated risks; (b) all books, documents and other records relating to the gold so kept with the other person shall be maintained in the premises of the custodian or if they are not so maintained, they shall be made available therein, if so required by the Board; (c) the custodian of securities shall continue to fulfill all duties to the clients relating to the gold so kept with the other person, except for its physical safekeeping. In accordance with the Regulations, the Trust Deed and the Custodian Services Agreement, the duties and responsibilities of the Custodian shall include, inter alia to: 1. Keep in safe custody all the securities received by it, constituting the property(ies) of the Mutual Fund; 2. Deliver the property(ies) sold and receive payment therefore and/or make payment for and receive property(ies) purchased on behalf of the Mutual Fund, as and when necessary, as per the instructions of the Asset Management Company; 3. Make payments out of the funds of the Mutual Fund, as per the instructions of the Asset Management Company; 4. Collect and receive any income and other payments and distributions that may arise on the property(ies) of the Mutual Fund, on its behalf; 5. Receive and hold all/any capital arising out of or in connection with the property(ies) of the Mutual Fund, on its behalf; and 6. Maintain adequate records identifying the securities held on behalf of the Mutual Fund and report to the Asset Management Company, at regular intervals, as agreed. Fee to be paid to the Custodian will be as per the agreement entered into by the Trustee, in this respect. Insurance The custodian will maintain insurance for its bullion and custody business. The AMC and the sponsor may subject to confidentiality restrictions, review this insurance coverage from time to time. 22 C. BOARD OF TRUSTEES The Board presently comprises the following : Name and Address Principal Occupation Other Directorships Mr. Rajan Nanda Industrialist and Escorts Ltd., Escorts Investment Trust 2, Friends Colony Chairman and Ltd., Carraro India Ltd., Escorts New Delhi 110 065 Managing Director, Construction Equipment Ltd., Esconet Escorts Limited Services Ltd., Escosoft Technologies Ltd., Harparshad & Co. Pvt. Ltd., Escotrac Finance & Investments Pvt. Ltd., Escorts Finance Investments & Leasing Pvt. Ltd., Escorts Agri Machinery Inc., USA, Charak Ayurvedic Treatments Pvt. Ltd., Raksha TPA Pvt. Ltd., Dr. Rakesh Khurana Management ICICI Knowledge Park Ltd., Knowledge U - 26/11 Educationist and Network India Pvt. Ltd. (First Floor), Director General, Town Houses, Fortune Institute of DLF Phase – III, International Business Gurgaon, Haryana Mr. Deba Prasad Financial Consultant, Petronet LNG Ltd., ICRA Management Roy former Chairman – Consulting Services Ltd., Pegasus Asset Apt. 505, Nestle 1, SBI Capital Markets Reconstruction Pvt. Ltd., Pegasus Pandukar Budhkar Advisory Services Pvt. Ltd. Marg, Lower Parel, Mumbai - 400013 Mr. Ashok Kumar Delhi Assam Roadways Corporation, Bhargava Indian Overseas Bank, SMC Power Generation Ltd. Mr. Rajan Nanda is deemed to be an associate of the Asset Management Company during the last three financial years. The Trustee Company monitors the activities of the AMC on an ongoing basis by having in place, a number of checks and balances and asking for various reports besides periodic review of the various activities of EAML. It has a full time employee to monitor the activities of the Asset Management Company on a day to day basis. The Board of Directors of the Trustee (Company) met on 7 occasions during the year 2005-2006. It received the following Specific Reports from AMC : 1. Transactions with Associates. 2. Broker-wise transactions 3. Quarterly Net Worth of the AMC. 4. Performance of schemes. 5. Bi Monthly and Quarterly Reports 6. Balance sheet and Revenue & Expenditure Accounts Besides, the compliance reports, which are submitted by EAML to SEBI, are also placed before the Board of Directors of the Trustee Company and discussed. In addition, it relies on Internal Audit Reports prepared by an independent firm of Chartered Accountants. Periodic declarations are taken from the staff and Directors of EAML and placed before the Board of Directors of the Trustee Company to peruse and to ascertain that there have been no instances of self dealing or 23 front running. Meetings of the Board of Directors of the Trustee Company are held (atleast) once every two months and atleast six such meetings are held in every year. The supervisory role of the Trustees is discharged by the Board of Trustees by having continuous feedback from the AMC on matters of importance and a review of the Mutual Fund’s operations at the Board of Trustees meetings. Dr. Rakesh Khurana, Mr. Deba Prasad Roy and Mr. Ashok Kumar Bhargava are independent trustees. Thus, three out of four trustees are independent trustees. D. SUMMARY OF SUBSTANTIVE PROVISIONS OF THE DEED OF TRUST, WHICH MAY BE OF MATERIAL INTEREST TO THE UNITHOLDERS. The Deed of Trust dated 15th April, 1996 contains the following clauses which may be of material interest to a prospective investor : 1. Each individual director of the trustee shall: a) In carrying out his responsibilities as a Director of the Trustee of the Mutual Fund, maintain arms’ length relationship with other Companies or institutions or financial intermediaries or any body corporate with which he may be associated in any capacity. b) Not participate in the meetings of the Board of Directors of the Trustee or in any decision making process for any investments in which he may be deemed to be interested, and c) Furnish to SEBI and the Trustee the interest which he may have in any other Company or institution or financial intermediary or any corporate by virtue of his position as director, partner or with which he may be associated in any other capacity. 2. The Trustee shall be responsible for supervising the collection of all income due to be paid to the schemes and for claiming any repayment of tax and holding any income received in trust for the unitholders. 3. The Trustees shall act, at all times in the interest of the unitholders and provide or cause to provide such information to the unitholders and SEBI, as specified by SEBI, from time to time. 4. The Trustees shall not acquire any asset out of the Trust property, which involves the assumption of any liability, which is unlimited or shall result in encumbrance of the Trust property in any way. 5. The Trustees shall not permit the Mutual Fund and the Asset Management Company to make or guarantee loans or take up any activity in contravention of the Regulations, except with the prior approval of Trustee and SEBI. No amendments to the trust deed shall be carried out without the prior approval of SEBI and unitholders approval would be obtained where it affects the interests of unitholders. E. TRUSTEESHIP FEE The Trustee is authorised to receive from the Mutual Fund Trust a Trustee Fee not exceeding one-twentieth of one percent of the weekly average net assets of the Mutual Fund Scheme(s) subject to a minimum of Rs. 5,00,000/- per annum, payable annually, at the end of the relevant period, pursuant to the provisions of the Trust Deed. 24 VII. INVESTMENT OBJECTIVES AND POLICIES A. INVESTMENT OBJECTIVES The primary objective of the scheme is to provide returns that, before expenses, closely correspond to the returns provided by domestic price of gold by investing predominantly in Gold and Gold related instruments, which have Gold as underlying, as specified by SEBI from time to time. It is intended to constitute a simple and cost effective means of making an investment similar to an investment in Gold. The value of units shall reflect, at any given time, the price of Gold and Gold related instruments owned by the scheme less the expenses incurred. Escorts Exchange Traded Gold Fund can be bought / sold like any other stock on the National Stock Exchange of India Ltd. (NSE) or the Investors can directly buy/sell units with the Fund. As the Units of the Scheme can be bought / sold directly from the Fund, this mechanism provides efficient arbitrage between the traded prices and the NAV, thereby reducing the incidence of the Scheme being traded at premium / discounts to NAV. Methods of investing in gold Investment in gold can be done directly through ownership, or indirectly through certificates, accounts, shares, futures etc. However, gold's benefit as a secure asset may only be truly realised when directly owned and stored in bullion or coins. 1. Bullion The most traditional way of investing in gold is by buying bullion gold bars. 2. Coins Buying bullion gold coins is a popular way of holding gold. Typically bullion coins are priced only, or mainly according to their weight, with little or no premium above the gold price. 3. Gold certificates A certificate of ownership can be held by gold investors instead of storing the actual gold bullion. Gold certificates allow investors to buy and sell the security without the hassles associated with the transfer of actual physical gold. 4. Gold accounts In europe banks offer gold accounts where gold can be instantly bought or sold just like any foreign currency. Unlike physical gold, the customer does not own the actual metal, but rather has a claim against the bank for a certain quantity of metal. Digital gold currency accounts, such as e-gold or e-Bullion, work on a similar principle. Gold accounts are backed through unallocated or allocated gold storage. This option of investment may be exercised when introduced in India. 5. Gold shares These do not represent gold at all, but rather are shares in gold mining companies. If the gold price rises, the profits of the gold mining company could be expected to rise and as a result the share price may rise. Exchange Traded Fund (ETF) ETFs are innovative products that provide exposure to an index or a basket of securities that trade on the exchange like a single stock. ETFs have a number of advantages over traditional open-ended funds as they can be bought and sold on the exchange at prices that are usually close 25 to the actual intra-day NAV of the Scheme. ETFs are an innovation to traditional mutual funds as ETFs provide investors a fund that closely tracks the performance of an index with the ability to buy / sell on an intra-day basis. Unlike listed close ended funds, which trade at substantial premiums or more frequently at discounts to NAV, ETFs are structured in a manner which allows to create new units and redeem outstanding units directly with the fund, thereby ensuring that ETFs trade close to their actual NAVs. ETFs came into existence in the USA in 1993. The first ETFs were based on the S&P 500 and are popularly known as SPDRs (Spiders). ETFs have gained prominence over the last few years. ETFs are usually passively managed funds wherein subscription / redemption of units work on the concept of exchange with underlying securities. In other words, investors / institutions can purchase units by depositing the underlying securities with the fund / AMC and can redeem by receiving the underlying shares in exchange of units. Units can also be bought and sold directly on the exchange. ETFs have all the benefits of indexing such as diversification, low cost and transparency. As ETFs are listed on the exchange, costs of distribution are much lower and the reach is wider. These savings in cost are passed on to the investors in the form of lower costs. Further more, exchange traded mechanism helps reduce minimal collection, disbursement and other processing charges. The structure of ETFs is such that it protects long-term investors from inflows and outflows of short-term investor. This is because the fund does not bear extra transaction cost when buying /selling due to frequent subscriptions and redemptions. ETFs are highly flexible and can be used as a tool for gaining instant exposure to the equity markets, equitising cash or for arbitraging between the cash and futures market. Benefits of ETFs 1. Can be easily bought / sold like any other stock on the exchange through terminals spread across the country. 2. Can be bought / sold anytime during market hours at prices that are expected to be close to actual NAV of the Scheme. Thus, investor invests at real-time prices as opposed to end of day prices. 3. No separate form filling for buying / selling units. It is just a phone call to your broker or a click on the net. 4. Ability to put limit orders. 5. Minimum investment for an ETF is one unit. 6. Protects long-term investors from the inflows and outflows of short-term investors. 7. Flexible as it can be used as a tool for gaining instant exposure to the equity markets, equitising cash, hedging or for arbitraging between the cash and futures market. 8. Helps in increasing liquidity of underlying cash market. 9. Aids low cost arbitrage between Futures and Cash market. 10. An investor can get a consolidated view of his investments without adding too many different account statements, as units will be in demat form. Uses of ETFs 1. Investors with a long-term horizon - Allows diversification of portfolio at one shot thereby reducing scrip specific risk at a low cost. 2. FIIs, Institutions and Mutual Funds - Allows easy asset allocation, hedging, equitising cash at a low cost. 3. Arbitrageurs - Low impact cost to carry out arbitrage between the Cash and the Futures market. 4. Investors with a shorter term horizon - Allows liquidity due to ability to trade during the day and expected to have quotes near NAV during the course of trading day. 26 Risks of ETFs 1. Absence of Prior Active Market: Although the units of ETFs are listed on the Stock Exchange for trading, there can be no assurance that an active secondary market will develop or be maintained. 2. Lack of Market Liquidity: Trading in units of ETFs on the Stock Exchange on which it is listed may be halted because of market conditions or for reasons that, in the view of the concerned Stock Exchange or Market Regulator, trading in the ETF Units is inadvisable. In addition, trading in the units of ETFs is subject to trading halts caused by extraordinary market volatility pursuant to ‘circuit breaker’ rules. There can be no assurance that the requirements of the concerned Stock Exchange necessary to maintain the listing of the units of ETFs will continue to be met or will remain unchanged. 3. Units of Exchange Traded Funds May Trade at Prices Other than NAV: Units of Exchange Traded Funds may trade above or below their NAV. The NAV of Units of Exchange Traded Funds may fluctuate with changes in the market value of a Scheme’s holdings. The trading prices of units of ETF will fluctuate in accordance with changes in their NAVs as well as market supply and demand. Tracking Error The performance of the scheme may not be commensurate with the performance of the benchmark index on any given day or over any given period. Such variation, referred to as tracking error may result from a variety of factors whatsoever including but not limited to expenditure incurred by the scheme. The potential for trades to fail, which may result in the Scheme not having acquired gold at a price necessary to track the benchmark index. The Benchmark reflects the prices of gold at close of business hours. However the scheme may buy or offload gold at different points of time during the trading session at the then prevailing prices which may not correspond to the closing prices on the gold. The holding of a cash position and accrued income prior to distribution and accrued expenses. Disinvestments to meet redemptions, recurring expenses, dividend payouts etc. Demand / Consumption of Gold 1. Jewelry Manufacture: Jewelry manufacture is the key basis of demand for Gold. Since 1991, over 2,000 tonnes of Gold has been used annually in the production of jewelry. Gold for use in the jewelry industry accounts for roughly 54% of the total demand – an estimated 54.2 million ounces. 2. Industrial Purposes: Since the qualities of Gold range from malleability, ductility, reflectivity, resistibility to corrosion to being an excellent thermal and electric conductor, it is used in a wide variety of industrial applications. The largest industrial user is the electronics industry. Gold is used in everything from microprocessors, semi-conductors, integrated circuits, transistors, printed circuit boards, pocket calculators, washing machines, televisions, missiles and spacecraft. Japan and the United States are the largest industrial users of Gold, accounting for 45% and 30% of its industrial use, respectively. 3. Gold as investment: The Gold as an investment or "hoarding" vehicle is the third largest component of demand. The concept of a bullion coin made by a government or in the form of small bars issued by banks and sold at a low premium to the base bullion amount, has endeared Gold as an investment vehicle for small investors. Together, the small bar and coin demand accounts between 100 and 200 tonnes of Gold on an annual basis. 27 Factors affecting gold prices: 1. Central banks’ sale: central banks across the world hold a part of their reserves in gold. The quantum of their sale in the market is one of the major determinants of gold prices. A higher supply than anticipated would lead to subdued gold prices and vice versa. Central banks buy gold to augment their existing reserves and to diversify from other asset classes. This acts as a support factor for gold prices 2. Producer mining interest: Bringing new mines on-line is a time consuming and at times economically prohibitive process that adds years onto potential supply increases from mining production. On the other hand, lower production has a positive effect on gold prices. Conversely excessive production capacities would lead to a downward movement in gold prices as the supply goes up 3. Macro-economic factors: A weakening dollar, high inflation, the massive US trade deficits all act in favor of gold prices. The global trend of rising interest rates also had a positive impact on gold prices. Gold being regarded as a physical asset would lose its luster in a deflationary environment as gold is used effectively as an inflation hedge 4. Geo political issues: any uncertainty on the political front or any war-like situation always acts as a booster to gold prices. The prices start building up war premiums and hence such movements. Stable situations would typically mean stable gold prices. 5. Seasonal demand: Since the demand for Gold is closely tied to the production of jewelry, Gold prices tend to increase during the times of year when the demand for jewelry is the greatest. The seasons around festivals in India are all major shopping times and hence the demand for metals tends to be strong during this time. The second and third quarters are usually seasonally low with a relative absence of major gold giving occasions. Gold in India India is the largest consumer of gold in the world accounting for more than 23% of the total world demand annually. According to unofficial estimates, India has more than 13,000 tonnes of hoarded gold. Gold occupies a prominent part in rural Indian economy and a significant part of the rural credit market revolves around bullion as a security. India being the largest consumer of gold in the world, with minimal domestic supply, the demand is met mainly from imports. According to Gold Field Minerals Service, in 2001 India absorbed around 700 tons from the world market, compared to 320 tons in 1994; that is without taking into account the recycling of scrap from the immense stock of close to 10,000 tones built up on the sub-continent in the last few hundred years, or gold imported for jewelry manufacture and re-export. India is the world’s largest gold jewellery market by volume accounting for around 590 tonnes of consumption demand in 2005. Traditionally gold is 22 carat. Gold jewellery buying is associated with a number of festivals and, in particular, with weddings. A feature of Indian demand is its extreme sensitivity to price volatility – this is the country where price factor is of most importance in affecting gold demand. Over half of demand comes from rural or rural town areas. Demand here is largely traditional. It is affected by incomes and thus the quality of the monsoon is important. In these areas gold is also important as a means of saving. 28 Gold market in India: Banks in India sells gold in the form of small bars. Household investors buy gold in small bar forms as an investment. Gold for Jewelry purposes is bought from the jewelers and artisans. There are a few bullion dealers who buy and sell gold in large quantities to and from jewelers. Gold related instruments can be actively traded in India on the MCX as well as NCDEX exchanges. As per directions of the Forward Markets Commission (FMC), currently the trading timings are from 10.00 am to 11.30 pm Monday to Friday and from 10.00 am to 2.00 pm on Saturdays. On the expiry date, contracts expiring on that day will not be available for trading after 5.00 pm. The FMC however may vary these timings with due notice. The minimum amount that can be traded is 100 grams. B. ASSET ALLOCATION The following asset allocation is proposed to be adhered to, under normal conditions: Instrument Likely Proportion* (%) Risk Gold and Gold related instruments 90 -100 Medium to High Money Market Instruments, Bonds & 0 - 10 Low to Medium other securities including cash at call etc. Notes : * = as a proportion of the net assets of the scheme ‘Gold Related Instrument’ shall mean such instrument having gold as underlying, as may be specified by the Board from time to time. Investments in gold related securities, including derivatives, would be made in accordance with the Regulations. Under exceptional circumstances when the fund manager feels that the gold and gold related instruments have reached their peak or can decline substantially in the coming period, the fund may move its assets entirely (upto100%) into Money Market Instruments, Bonds & other securities including cash at call etc. in a bid to preserve the capital of investors. The asset allocation would revert to normal once the bullion markets stabilize. Pending deployment of funds in accordance with the investment objective of the scheme the funds of the scheme may be invested in short term deposits of scheduled commercial banks. Debt instruments include, but are not limited to, debt obligations of the Government of India, State and local government, government agencies, statutory bodies, public sector undertakings, public sector banks, DFLs, private sector banks and corporate entities. They could be listed, unlisted, privately placed or securitised debt securities, among others. The investment Manager will invest in securities of short or long maturity, at its discretion. Money market securities include but are not limited to treasury bills, commercial paper of public sector undertakings and private sector corporate entities, inter bank call and notice money, fixed deposits with scheduled commercial banks, certificates of deposits of scheduled commercial banks and development financial institutions, securitised debt, bills of exchange / promissory notes of public sector and private sector corporate entities (co-accepted by banks), government securities with unexpired maturity of one year or one year or less and other money market securities as may be permitted by SEBI/RBI. From time to time it is possible that the portfolio may hold cash. The Indian debt markets are one of the largest such markets in Asia. Government and Public Sector enterprises are predominant borrowers in the market. While interest rates were regulated 29 till a few years back, there has been a rapid deregulation and currently both the lending and deposit rates are market determined. The debt markets are developing fast, with the rapid introduction of new instruments including derivatives. Foreign Institutional Investors are also allowed to invest in Indian debt markets now. There has been a considerable increase in the trading volumes in the market with the daily trading volumes in the vicinity of Rs. 3500 crore. The trading volumes are largely concentrated in the Government of India Securities, which contribute about 90% of the daily trades. The money markets in India essentially consist of the call money market (i.e. market for overnight and term money between banks and institutions), repo transactions (temporary sale with an agreement to buy back the securities at a future date at a specified price), commercial papers (CPs, short term unsecured promissory notes, generally issued by corporates), certificate of deposits (CDs, issued by banks) and Treasury Bills (issued by RBI). In a predominantly institutional market, the key money market players are banks, financial institutions, insurance companies, mutual funds, primary dealers and corporates. The various instruments currently available for investments are : Instruments Current Yields* Liquidity* Central/State Government Securities 6.00% - 9.25% Very high PSU Bonds/Corporate Debentures 6.50% - 9.75% Medium – High Securitised debt 6.50% - 10.00% Low - Medium Commercial Papers/ Certificates of Deposit 6.50% - 9.50% High Call/Notice Money 6.00% - 8.00% Very high Repo 5.50% - 8.00% Very high * As on November 30, 2006 The actual yields will, however, vary in line with general levels of interest rates and debt/money market conditions prevailing from time to time. Procedure followed by the Mutual Fund for taking investment decisions The Investment decisions are taken by the Fund Manager along with his team of Investment Advisors / Analysts. Records are maintained in support of each investment decision indicating facts and opinion leading to that decision and the basis for taking individual scrip-wise investment decision in equity and debt securities. A research report of all the investment decisions taken for the first time and subsequent purchase and sale in the same scrip is also recorded. The Board of Directors have laid down parameters for Investment Committee to invest in unrated instruments. In terms of such parameters, the proposals for investments in unrated instruments are approved. In case any security does not fall under the parameters, prior approval of the Boards of asset management companies and the trustees are taken. In respect of investment in gold, record of each investment decision describing the quality, fineness, price, counter party, date of purchase and date of delivery to the custodian shall be maintained. Further, details of the Investments are included in the Bi-monthly, Quarterly and Half-yearly Reports of the Asset Management Company to the Trustees and also in the Half yearly Report of the Trustees to SEBI. 30 The performance of Escorts Gold Exchange Traded Fund shall be benchmarked against the price of Gold. The benchmark may be changed in future, if a benchmark better suited to the investment objective of the scheme is available. C. FUNDAMENTAL ATTRIBUTES The investment objective together with the asset allocation and the investment approach will comprise the principal fundamental attribute of the scheme. The other fundamental attributes of the scheme shall be the following: • Open ended exchange traded scheme • Terms of issue relating to listing, repurchase/redemption, fees and expenses as stated elsewhere in the offer document. • In accordance with SEBI Regulations, the Trustee shall ensure that no change in the fundamental attributes of any scheme or the trust or fees and expenses payable or any other change which would modify the scheme and affect the interest of unitholders shall be carried out unless : • A written communication about the proposed change is sent to each unitholder and an advertisement is given in one English daily newspaper having nationwide circulation and in a newspaper published in the language of the regions where the Head Office of the mutual fund is situated; and • The unitholders are given an option to exit at the prevailing Net Asset Value without any exit load. D. INVESTMENT POLICY Consistent with the objective of the scheme and subject to the regulations, the corpus of the scheme will be invested in any of (but not exclusively) the following securities. • Gold and Gold related instruments, which have Gold as underlying, as specified by SEBI from time to time Money Market instruments permitted by SEBI/RBI; • Government Securities, Bonds and other securities including but not limited to coupon bearing bonds, Zero Coupon Bonds, Short Term Debt, Bank Fixed Deposits; • Money Market instruments permitted by SEBI/RBI; The securities mentioned above could be listed, unlisted, privately placed, secured, unsecured rated or unrated and of any maturity. The securities may be acquired through Initial Public Offering (IPOs), secondary market operations, private placements, right offers or negotiated deals. E. CHANGE IN INVESTMENT PATTERN Subject to Regulations, the asset allocation indicated above may change from time to time keeping in view market condition, market opportunities, applicable regulations, legislative amendments and other political and economic factors. It must be clearly understood that the percentages stated above are only indicative and not absolute and that they can vary substantially depending upon the perception of the Investment Manager, the intention being at all times to seek to protect the interests of the Unitholders. The fund shall seek Unitholders approval, if necessary, and in accordance with the Regulations, if there is any change in the Fundamental Attributes pursuant to change in investment Pattern. 31 F. DERIVATIVES AND HEDGING Investments for derivative instrument may be done for trading as well as hedging and portfolio balancing as and when introduced and guidelines are issued in this behalf by SEBI. G. INVESTMENT BY THE AMC IN THE SCHEME The AMC may invest in the scheme from time to time, as per SEBI Regulations. However, in respect of investment by the Scheme in Units of other Mutual Fund Scheme(s), AMC shall not be entitled to charge any Investment Management and Advisory Fees. H. PORTFOLIO TURNOVER POLICY Portfolio turnover is defined as the aggregate of purchases and sales as a percentage of the corpus of the scheme during a specified period of time. The AMC’s portfolio management style is conducive to a low portfolio turnover rate. However, the AMC may take advantage of the opportunities that present themselves from time to time because of the inefficiencies in the securities markets. The AMC will endeavour to balance the increased cost on account of higher portfolio turnover with the benefits derived therefrom. I. INVESTMENT RESTRICTIONS 1. The funds of the scheme shall be invested only in gold or gold related instruments in accordance with the investment objective, except to the extent necessary to meet the liquidity requirements for honoring repurchases or redemptions. 2. The scheme shall invest in gold of 0.999 and 0.995 fineness. 3. Transfers of investments from one scheme to another scheme in the same Mutual Fund shall be allowed only if: • such transfers are done at the prevailing market price for quoted instruments on spot basis; and • the securities so transferred shall be in conformity with the investment objective of the Scheme to which such transfer has been made. 4. The Mutual Fund shall buy and sell securities on the basis of deliveries and shall, in all cases of purchase, take delivery of relative securities and in all cases of sale, deliver the securities and shall in no case put itself in a position whereby it has to make short sale or carry forward transaction or engage in badla finance. 5. The Mutual Fund shall get the securities purchased, transferred in the name .of the Mutual Fund on account of the concerned Scheme, whenever investments are intended to be of a long-term nature. 6. Pending deployment of funds of a scheme in securities in terms of investment objectives of the scheme a mutual fund can invest the funds of the scheme in short term deposits of scheduled commercial banks. The investment in short term deposits shall be reported to the trustees along with the reasons for the investment, which, interalia, would include comparison with interest rates offered by other scheduled commercial banks. Further, the AMC shall ensure that the reasons for such investments are recorded in the manner prescribed in SEBI Circular MFD/CIR/6/73/2000 dated 27.07.2000. 7. The scheme shall not make any investment in any fund of funds scheme. 8. The Scheme shall not advance any loans for any purpose. Further, it is clarified that the investment limits mentioned in (3) and (4) above are applicable to all debt securities which are issued by public bodies/institutions such as electricity boards, 32 municipal corporations, state transport corporations etc. guaranteed by either central or state government. Government securities issued by central/state government or on its behalf by RBI are exempt from the above referred investment limits. All investment restrictions stated above shall be applicable at the time of making investment. The Scheme will not enter into any transaction, which exposes it to unlimited liabilities or results in the encumbering of its assets in any way so as to expose them to unlimited liability. These investment limitations / parameters as expressed / linked to the net asset / net asset value / capital, shall in the ordinary course, apply as at the date of the most recent transaction or commitment to invest. Changes do not have to be effected merely because of appreciation or depreciation in value or by reason of the receipt of any rights, bonuses or benefits in the nature of capital or of any scheme of arrangement or for amalgamation, reconstruction or exchange, or at any repayment or redemption or other reason outside the control of the Fund, any such limits would thereby be breached. If these limits are exceeded for reasons beyond its control, AMC shall adopt as a priority objective the remedying of that situation, taking due account of the interests of the Unitholders. In the event of any amendment to the Regulations, the Trustee shall take note of the same and may alter these investment restrictions, from time to time, with immediate effect, if need be, to enable the Scheme to make investments to achieve its investment objective. J. POLICY FOR BORROWING The Scheme shall not borrow more than 20% of its net assets, then prevailing to meet temporary liquidity needs for the purpose of repurchase/redemption of Units and payment of dividend to the Unit holders and the duration of such borrowing shall not exceed a period of six months. K. LENDING OF PHYSICAL GOLD The Scheme may lend physical Gold (as and when the Scheme is permitted to lend physical Gold by the relevant Regulations), from its Portfolio in accordance with the Regulations and the applicable SEBI guidelines. Physical Gold lending shall enable the Scheme to earn income that may partially offset the expenses of the Scheme and thereby reduce the effect these expenses have on the Scheme’s ability to provide investment returns that correspond generally to the price and yield performance of its benchmark. The Scheme will pay reasonable administrative and custodial fees in connection with the loan physical Gold. The Scheme will be exposed to the risk of loss should a borrower default on its obligation to return the borrowed gold. The Scheme’s share of income from the lending of physical Gold will be included in the Scheme’s gross income. The Fund will comply with the conditions for securities lending specified by the SEBI. The maximum exposure of the Scheme to a single intermediary in physical Gold lending programme at any point of time would be limited to 50% of the market value of the portfolio of the Scheme or upto such limits as may be specified by SEBI. The Scheme will not lend more than 75% of its corpus. L. BORROWING OF PHYSICAL GOLD If the Mutual Funds are permitted to borrow physical Gold, the Scheme may in appropriate circumstances borrow securities and physical Gold in accordance with SEBI guidelines, which may be issued in this regard. 33 M. MINIMUM NUMBER OF INVESTORS AND MAXIMUM HOLDING BY A SINGLE INVESTOR As per SEBI circular ref. SEBI/IMD/CIR No. 10/22701/03 dated December 12, 2003 read with circular ref. SEBI/IMD/CIR No. 1/42529/05 dated June 14, 2005, it is specified inter alia that each portfolio under a scheme should have a minimum of 20 investors and no single investor should account for more than 25% of the corpus of such portfolio. Determining the breach of the 25% limit by an Investor – The average net assets of the scheme would be calculated daily and any breach of the 25% holding limit by an investor would be determined. At the end of the quarter, the average of daily holding by each such investor is computed to determine whether that investor has breached the 25% limit over the quarter. If there is a breach of limit by any investor over the quarter, a rebalancing period of one month would be allowed and thereafter the investor who is in breach of the rule shall be given 15 days notice to redeem his exposure over the 25% limit. Failure on the part of the said investor to redeem his exposure over the 25% limit within the aforesaid 15 days would lead to automatic redemption by the Mutual Fund on the applicable Net Asset Value on the 15th day of the notice period. The Scheme will meet with the condition of having minimum 20 investors on an average basis, in each calendar quarter, failing which the provisions of Regulation 39(2)(c) of SEBI (Mutual Funds) Regulations, 1996 would become applicable without any reference from SEBI and accordingly the said portfolio under the Scheme shall be wound up by following the procedure/ guidelines laid down by SEBI. The guidelines with respect to maximum holding by a single individual would be reckoned and monitored as mentioned in SEBI Circular No. SEBI/IMD/Cir. No. 1/42529/05 dated June 14, 2005. VIII. MANAGEMENT OF ESCORTS MUTUAL FUND A. NAME OF THE AMC : Escorts Asset Management Ltd. Regd. Office Address : 11, Scindia House, Connaught Circus, New Delhi – 110 001. Admn. Office : 11, Scindia House, Connaught Circus, New Delhi – 110 001. B. FUND MANAGER Mr. K.K. Mital has been nominated as the Fund Manager for the Scheme. He holds Honours degree in Commerce and is a Chartered Accountant with over 24 years experience out of which 10 years experience is in Portfolio Management and Equity Research and Stock Analysis. He may be contacted at the following address: Escorts Asset Management Limited Regd. Office: 11, Scindia House, Connaught Circus, New Delhi – 110 001. (Tel): (011) 332-1654, 331-9991, 332-5177, 335-1343, (Fax): (011) 2376 1495 Website : www.escortsmutual.com 34 C. KEY PERSONNEL Brief particulars of the qualifications and experience of the key personnel of the Asset Management Company is provided hereunder: Name Designation Age Qualification Exper- Type and nature of past experience Responsibility ience including assignment held during the (yrs.) last 10 years Mr. Lalit K. Chief 52 B.Sc. (Hons.) 30 Responsible for investment Overall Khanna Executive – Physics, companies and trusts of the group, responsibility Officer PGDBM – management of financial services for the Fund IIM Ahmbd. Mr. K.K. Fund 54 B. Com (H), 25 Portfolio Management and Equity Fund Mital Manager FCA Research, Escorts Ltd., Stock Management Analysis, Trading, Finance / Taxation, Accounts and Investor Services, S.C. Kuchhal Financial Services Ltd. Mr. Anil Chief 47 B. Com, ACS, 23 Financial controller – Escorts Finance & Kataria Financial FCS Construction Equipment Ltd. Accounts Officer Mr. Vipin Company 39 M. Com, 14 Company Secretariat & Compliances Chawla Secretary & ICWA, FCS Compliances, Finance, Accounts Compliance and Taxation Officer Mr. Sanjay Research 35 ACA, AICWA 9 Management Consultancy Services, Research & Arora Analyst Ernst & Young Fund Management D. INVESTOR RELATIONS OFFICER In the event of an investor requiring Investor Service, in the normal course he/she/it is encouraged to contact: Ms. Mohini Sharma Registrar Services & Investor Service Department Escorts Asset Management Limited Regd. Office: 11, Scindia House, Connaught Circus, New Delhi – 110 001. (Tel): (011) 332-1654, 332-5177, 335-1343 (Fax): (011) 2376 1495 Website : www.escortsmutual.com E. BOARD OF DIRECTORS The Board of Directors of the Asset Management Company is constituted as follows: Ms. Ritu Nanda, Ms. Nitasha Nanda, Mr. P.C. Gupta, 2, Friends Colony, 2, Friends Colony, Jeevan Dhara, New Delhi – 110 065. New Delhi – 110 065. Ambedkar Road, Business Executive (General Manager – Bandra (West), Corporate Finance) Mumbai – 400 050. Escorts Limited Former Executive Director – Life Insurance Corporation of India 35 Prof. Asish K. Bhattacharyya, Prof. S.C. Kuchhal, Mr. Lalit K. Khanna, New Faculty Block, 309, Kailash Tower I, B-34, Sector 56, 3/2 IIM Calcutta Campus, East of Kailash, Noida 201 301. Diamond Harbor Road, Joka, New Delhi 110 065. Associate Vice President P.B. 16757, P.O. Alipore, Former Senior Faculty (Corporate Finance – Calcutta – 700027 Indian Institute of Financial Services) Prof. (Finance and Control) Management, Escorts Limited Indian Institute of Management, Ahmedabad Calcutta Mrs. Ritu Nanda, Ms. Nitasha Nanda and Mr. Lalit K. Khanna are associate Directors. Mr. P.C. Gupta, Prof. S.C. Kuchhal and Prof. Asish K. Bhattacharyya are independent and are not associated in any manner with the AMC / sponsor / its subsidiaries / the trustees. F. AMC’S COMPENSATION The Asset Management Company is authorised to receive an investment Management and Advisory Fee of 1.25% of the weekly average net assets, in any financial year as long as the net assets do not exceed Rs. 100 Crores and 1.00% of the excess amount over Rs. 100 Crores, if the net assets exceed Rs. 100 Crores, or as may be permissible under the Regulations from time to time. G. INVESTOR (REGISTRAR AND TRANSFER AGENCY) SERVICES The Asset Management Company will perform and provide the services of Registrar and Transfer Agent on an on-going basis to the Unit holders of the Mutual Fund Scheme(s). The Trustee has satisfied itself, after undertaking appropriate due diligence measures that the Asset Management Company will be able to provide the requisite services and has adequate facilities, including computer facilities, and the capacity to discharge responsibilities with regard to processing of applications and dispatching Unit Certificates/ Statements of Account to Unit holders within the time limit prescribed in the Regulations and also has sufficient capacity to handle investor complaints. Fee is payable to the Asset Management Company, if any, for performing and providing the services of Registrar and Transfer Agent on an on-going basis to the Unit holders of the Mutual Fund Scheme(s) shall be charged at rates competitive with the market with the consent of the Trustees. H. THE AUDITORS M/s. S. N. Dhawan & Co., Chartered Accountants, C – 37, Connaught Place, New Delhi – 110 001 have consented to be the Auditors of the Mutual Fund Scheme(s). lX. UNITS AND OFFER A. NEW FUND OFFER 1. Offer: The offer is being made for subscription to ESCORTS GOLD EXCHANGE TRADED FUND, an open-ended exchange traded scheme. 2. Face Value: The Units under the Scheme have a face value of Rs. 10/- each. 36 3. Offer Price: The Units under the Scheme will be offered at the face value of Rs. 10/- each during the New Fund Offer Period. 4. New Fund Offer Period: The New Fund Offer of Units under the Scheme shall be open for subscription from ------day,------------,2007 to------day,------, 2007 (‘the new fund Offer Period’). 5. Dematerialised Form: The Units of scheme are available in the Dematerialized (Electronic) form. However, this is not compulsory. The person intending to invest in units of the scheme may hold a beneficiary account with a Depository Participant of NSDL/CDSL and will be required to indicate in the application the DP’s name, DP ID Number and its beneficiary account number with DP at the time of purchasing units directly from the Fund. However, Units may issued / repurchased and traded in dematerialized form, the units can be issued in Non-Electronic form / physical form at the request of the investor. 6. Minimum Subscription Amount: The minimum subscription amount for the new fund Offer of Units under the Scheme is 1,00,000 Units of Rs. 10/- each aggregating to Rs. 10 lakhs, in the event this amount is not raised during the new fund offer period, the amount collected will be refunded to the applicants. However, any over subscription will be retained. 7. Switching: In case of Cash Redemption directly with the Fund, the investor has the option of switching the proceeds of cash redemption to any other Scheme of Escorts Mutual Fund at Net Asset Value based prices, on daily basis, subject to applicable load, if any. 8. Duration of the Scheme: The duration of the Scheme is perpetual. However, the Scheme may be wound up, • On the happening of any event which, in the opinion of the Trustee requires the Scheme to be wound up; • If seventy five percent of the Unit holders of the Scheme pas a resolution that the Scheme be wound up; or • If SEBI so directs in the interest of the Unit holders. 9. Minimum Application: Any application for subscription to Units under the Scheme must be for a minimum of Rs. 5,000/- and in multiples of Rs. 1,000/- thereafter. 10. Maximum Application: There is no maximum Application size as such. However, the Trustee reserves the right to review, at its sole discretion any large application for subscription to Units under the Scheme, in the best interest of the investors and to accept such application(s) upto such extent they may deem fit and refund the excess subscription amount, if any. 11. Subscription Amount: During the New Fund Offer Period, the subscription amount is the face value of the number of Units being applied for. X. SALE OF UNITS A. WHO CAN APPLY The following persons/ entities (subject, wherever relevant to purchase of Units of Mutual Funds being permitted under relevant statutory regulations and their respective constitutions, wherever applicable) may apply for subscription to Units under the Scheme : 1. Resident adult individuals, either singly or jointly (not exceeding three) 2. Minors through their parents/ legal guardians; 3. Hindu Undivided Family (‘HUF’), in the name of karta; 37 4. Sole Proprietors, Partners of (Partnership) Firms and Association of Persons or Body of Individuals; 5. Companies/Domestic Corporate Bodies and /Societies/Association of Persons/Body of individuals/Clubs/Public Sector Undertakings registered in India if authorized and permitted to under applicable laws and regulations. 6. Charitable or Religious Trusts authorized to invest in units of Mutual Funds. 7. Banks (including co-operative Banks and Regional Rural Banks), Financial Institutions and Investment Institutions incorporated in or the Indian branches of banks incorporated outside India. 8. Non-Resident Indians, persons of Indian origin residing abroad (NRIs) on full repatriation basis and on non-repatriation basis. 9. Foreign institutional investors on full repatriation basis (subject to RBI approval) 10. Wakf Boards or endowments and Registered Societies (including registered co-operative societies) and private trusts authorized to invest in units. 11. An association of persons or body of individuals whether incorporated or not. 12. Army/Air Force/Navy/Para-military funds and other eligible institutions. 13. Scientific and/or industrial research organizations. 14. Multilateral Funding Agencies or Bodies Corporate incorporated outside India with the permission of Government of India / Reserve bank of India. 15. Overseas Financial Organizations which have entered into an arrangement for investment in India, inter-alia with a mutual fund registered with SEBI and which arrangement is approved by Government of India. 16. Provident / Pension / Gratuity / Superannuation and such other retirement and employee benefit and other similar funds. 17. Other Associations, Institutions, Bodies, Mutual Funds etc. authorized to invest in the units. Apart from the above, all other categories of investors permitted at present and in future are eligible to invest in the Scheme. Investments in Units under the scheme by religious and charitable trusts will rank as an eligible investment under Section 11(5) of the Act read with Rule 17C of the Income-tax Rules, 1962. Eligible institutions such as those covered under section 11 and 10(23C) of the Act, investing in Units under the scheme would therefore continue to qualify for exemption, in respect of income therefrom under the applicable sections of the Act. For the purpose of this section, the term “mutual funds” is as referred to in Clause (23D) of Section 10 of Income-tax Act, 1961. B. AVAILABILITY OF APPLICATION FORMS AND OFFER DOCUMENT Application Forms and copies of this offer Document will be made available at the Investor Service Centres, Head Office of the Mutual Fund, Main office of the AMC and at any other center(s) appointed for the purpose and listed in the Application Form. C. HOW TO APPLY (instructions for investors) 1. This Application Form may be used by resident and non-resident investors. 2. The Application Form must be completed in English in BLOCK LETTERS. Please tick (√) in the appropriate box, where boxes ( ) have been provided. 3. Applications must clearly indicate: • Residential Status (Resident / Non Resident), basis (repatriable / non-repatriable) • the Investment Option(s) may clearly be indicated. Otherwise, it will be presumed that the application is for Units under the Growth Option and will be dealt with accordingly. 38 • The mode of holding i.e., 'single', 'either or survivor', 'anyone or survivor' or 'joint', in the space provided in the application. • The first-named/ sole investor may specify another person as his/her nominee to be entitled to receive payments due on the Units, in case of his/her death and provide details of the nominee in the space provided in the application. • The first-named/ sole investor should, to prevent fraudulent encashment of dividend / redemption warrants, fill in his/ her/ its bank account particulars, in their applications / requests for redemption. This is a mandatory requirement. 4. Investors having a bank account with such banks with whom the AMC would have an arrangement from time to time, can make payment towards subscription to the units of the Scheme either by issuing a cheque drawn on such bank or by giving debit instruction to their account with any branch of such banks with whom the AMC would have arrangement from time to time. 5. Payment may be made by cheque/draft, drawn locally on any bank, which is a member of the Bankers Clearing House located at the place where the application form is submitted. Cheques/Drafts must be drawn in favour of “ESCORTS MUTUAL FUND – A/C ESCORTS GOLD EXCHANGE TRADED FUND” and crossed Account Payee only. No Cash, money orders, stockinvests, outstation cheques, postdated cheques (except under the SIP facility, during continuous offer) and postal orders would be accepted. Bank charges for outstation demand drafts (as defined herein) will have to be borne by the Investor. An out-station demand draft has, for this purpose, been defined as a demand draft issued by a bank in a place where there is no collection centre provided for the investors during the New Fund Offer. The Fund will not entertain any requests for refund of demand draft charges. Separate cheque or bank draft must accompany each application. 6. No receipt will be issued for the application money. 7. Cheque/ demand draft accompanying the application, if any should contain the application serial number on its reverse. 8. The funds have to be paid to the Custodian / AMC by the investor. On confirmation of the same by the Custodian / AMC, the AMC will transfer the respective number of Units into the investor’s DP account. 9. The bankers to the offer or their respective designated branches or any authorized collection agents/centers who receive the application form shall stamp and return the “Acknowledgment Slip” thereby acknowledging receipt of the application form. The investors are requested to preserve the acknowledgement slip duly stamped by the collecting bank / center etc. This shall be subject to final verification and scrutiny by the bankers/Trustee/AMC that the cheque /demand draft and application form are in order / valid. Note: Returned cheques will not be presented again for collection and the accompanying application forms shall not be considered for allotment. 10. In case of a demand draft the applicant / investor shall provide a certificate from his bankers to the effect that the investor has a bank account with the bank and the amount is drawn for the draft from such bank account. 11. Applicants are encouraged to provide their email addresses in the application form to enable the Fund to send them various investor communications more efficiently, on request basis. 12. Applications complete in all respects may be lodged on or before the date of closure of the New Fund Offer Period as follows: • Applications accompanied by subscription amount in cash or by cheque/ demand draft, to be deposited by Resident investors with the collecting branches of the bankers to the new fund Offer, mentioned in the application. 39 • Applications accompanied by subscription amount by cheque/ demand draft, to be deposited by Non-Resident investors with the NRI collecting branches of the bankers to the new fund Offer, mentioned in the application. • Applications by mail, from investors located at places where there are no collecting branches of the bankers to the New fund Offer should be sent, preferably by Registered Post to the Asset Management Company accompanied by the subscription amount by cheque / demand draft. Important All cheques and bank drafts accompanying the application form should contain the application form number on its reverse. As per the directive issued by SEBI vide their letter IIMARP/CIR/07/826/98 dated April 15, 1998, it is mandatory for applicants to mention their bank account numbers in their applications for purchase or redemption of units. This is to prevent fraudulent encashment of dividend/redemption/refund cheques. If the data is not provided, neither the Fund (or the Trustee) nor the AMC will be liable for any delay/non receipt of refund, redemption/dividend payments. It is mandatory for the Demat Account holder to furnish the Details of his Bank Account at the time of opening the Demat Account with Depository Participant. Permanent Account Number SEBI vide its Circular No. SEBI/IMD/CIR No. 6/4213/04 has mandated that whenever an application is for a total value of Rs. 50,000 or more, the applicant or in the case of applicant in joint names, each of the applicants should mention his/her Income Tax Permanent Account Number. (PAN) Further, as per Rule 114B of the Income Tax Rules, 1962, every person including a non-resident shall quote a PAN in all documents where payment is made of an amount of Rs.50,000 or more to a Mutual Fund for purchase of its units. Where an applicant is a minor, who is not liable to income tax, the PAN of his father or mother or the guardian as the case may be must be quoted. Any person who does not have a PAN and enters into a transaction specified in this rule, he is required to make a declaration in Form No.60 / Form No. 61 (in the case of person who has agricultural income and are not in receipt of any other income chargeable to tax) giving the particulars of such transaction. Such declaration in Form No.60/ Form No.61 (in duplicate) should be attached along with the Application Form. In order to verify that the PAN of the applicant (in case of application in joint names, each of the applicants) has been correctly quoted therein, the applicant shall attach along with the purchase application form, a photocopy of the PAN card or PAN letter or any other intimation from the Income Tax Department quoting PAN. An application will be treated as incomplete and rejected if: 1. the PAN is not mentioned; 2. the PAN is mentioned but not supported by a photocopy of the PAN card or PAN Communication; or 3. the Form 60 is not provided along with the application in cases where investors do not have the PAN. Subscription by NRIs/PIOs In terms of Schedule 5 of Notification No. FEMA 20/2000 dated May 3, 2000 issued under the Foreign Exchange Management Act, the RBI has granted general permission to domestic mutual funds referred to in Clause (23D) of Section 10 of the Income Tax Act, 1961 to issue units and repurchase units of their Scheme which are approved by the SEBI to NRIs/PIOs subject to conditions set out in the aforesaid notification. Further, general permission is also granted to send such units to NRIs/PIOs to their place of residence or location as the case may be. 40 a. Repatriation basis – The investment should be made by the eligible NRIs out of funds remitted from abroad in free foreign exchange through normal banking channels or out of balances held in their NRE/FCNR accounts maintained with authorized dealers in India. Payment may be made by means of Indian Rupees drafts purchased abroad or by cheque drawn on NR(External) Accounts / FCNR Accounts payable at par at Mumbai. Payments can also be made by means of drafts payable at Mumbai and purchased out of funds held in NR (External) Accounts/FCNR Accounts maintained with the banks authorized to deal in foreign exchange in India. Such applicants would have to subsequently arrange to provide a debit certificate from their bankers confirming that the amount has been paid by debiting a NRE / FCNR account. b. Non-Repatriation basis – In case of NRIs/PIOs seeking to apply on a non-repatriation basis, payment may be made by cheque/draft drawn out of NRO/NRNR account. The Funds may be provided by eligible non-resident investors by way of inward remittance or by debit to their NRE/FCNR/ NRO / NRSR Accounts maintained with authorized dealer in India. The payment procedure is as per (a) stated above. All cheques/drafts should be made in favour of “ESCORTS MUTUAL FUND – A/C ESCORTS GOLD EXCHANGE TRADED FUND – NRI” and crossed "Account Payee Only". In case Indian Rupee drafts are purchased abroad or from FCNR/NRE A/c an account debit certificate from the Bank issuing the draft confirming the debit shall also be enclosed. In case where the investment is made out of inward remittance or from funds held in NRE/FCNR/NRO Accounts of the investor, the maturity proceeds/repurchase price of units and/or dividend or income earned may be credited to NRO/NRSR Account (details of which should be furnished in the space for this purpose in the Application Form) of the Non-Resident investor maintained with an authorized dealer in India. In cases where the investment is made out of NRSR account, the maturity proceeds and/or the dividend or income earned should be credited to NRSR accounts (details of which should be furnished in the space provided for this purpose in the Application Form) maintained by the investor with an authorized dealer in India. Refunds, interest and other distribution (if any) and maturity proceeds/repurchase price and/or dividend or income earned (if any) will be payable in Indian Rupees only. The maturity proceeds/repurchase value of units issued on repatriation basis, dividend or income earned thereon, net of taxes (if any), may be credited to NRE/FCNR accounts (details of which should be furnished in the space provided for this purpose in the Application Form) of the Non-Resident Investor or remitted to the Non- Resident Investor. Such payment in Indian Rupees will be converted into US dollors or into any other currency, as may be permitted by the RBI, at the rate of exchange prevailing at the time of remittance and will be dispatched through the Registered Post at the Unit holders risk. The Fund will not be liable for any loss on account of exchange fluctuations, while converting the rupee amount into US dollars or any other currency. Credit of such proceeds to NRE/FCNR account to remittance thereof may be permitted by authorized dealer only on production of a certificate from the Fund that the investment was made out of inward remittance or from the funds held in NRE/FCNR account of the investor maintained with the authorized dealer in India. However there is no objection to credit of such proceeds to NRO/NRNR account of the investor if he so desires. Subscriptions by FIIs In terms of Schedule 5 of Notification No. FEMA 20/2000 dated May 3, 2000 issued under the Foreign Exchange Management Act, the RBI has granted general permission to domestic mutual funds referred to in Clause (23D) of Section 10 of the Income Tax Act, 1961 to issue units and repurchase units of the Scheme which are approved by the SEBI to FIIs and to make payments therefore. FIIs may pay subscription amount by direct remittance from abroad or out of their special Non-Resident Rupee Accounts maintained with a designated bank in India. The 41 application must provide the FII’s Special Non Resident Rupee Deposit Account maintained with any one of the RBI designated banks. Rejection of Application and Refund of Application Moneys The following kinds of Applications are liable to be rejected : 1. Incomplete or incorrectly filled Applications and/or those not accompanied by the subscription amount or otherwise found invalid; 2. Applications under Power of Attorney for which the requisite documents are not submitted within the time period stipulated in this regards Applications accompanied by cheques / demand drafts that have been dishonoured / returned unpaid; The Trustee reserves its right to reject any application not in accordance with the terms of the Fund without assigning any reason. In case an application is rejected, the application money received will be refunded to the applicant, within 6 weeks of the date of closing of the subscription list. No interest will be paid on application monies refunded. In the event of failure to refund the amounts within the period specified above, the AMC shall be liable to pay interest to the applicants at a rate of 15% per annum on the expiry of 6 weeks from the date of closure of the subscription list. Joint Applications/holders If an account has more than one holder, the first named holder (as determined by the records of the Registrar) only will receive all notices and correspondence with respect to the Account, as well as the proceeds of any redemption requests or dividends or other distributions. In addition, such holder will have the voting rights, as permitted / associated with such units as per the applicable guidelines. For DP account held in joint names, the rules of Depository for operation of such DP accounts will be applicable. However, in all cases, the proceeds of redemption will be paid to the first named unit holders. All payments and settlements made to the first unit holder would constitute valid discharge by the fund. Application under Power of Attorney In case of an application under a Power of Attorney or by a limited company or a body corporate or a registered society, or a trust, the original power of attorney or the certified copy duly notarized or the relevant resolution or authority to make the application as the case may be or duly certified copy thereof along with a certified copy of the memorandum and articles of association and/or bye-laws must be lodged along with the application form or request for transfer/transmission and a separate set of all the documents be submitted to the Registrars. Investor Protection: The Scheme is designed to support longer-term investment and active trading is discouraged. Short term or excessive trading into and out of the Scheme may affect its performance by disrupting portfolio management strategies and by increasing expenses. The Fund and the distributors may refuse to accept applications for Purchase, especially where transactions are deemed disruptive, particularly from market timers or investors who, in their opinion, have a pattern of short term or excessive trading or whose trading has been or may be disruptive for the Scheme. If in the opinion of the AMC, a Unit Holder is indulging in short term or excessive trading as above, it shall, under powers delegated by the Trustee, have absolute discretion to reject any application, prevent further transaction by the Unit Holder or redeem the Units held by the Unit Holder at any time prior to the expiry of 30 Business Days from the date of the application. Investor's Personal Information The AMC may share investors' personal information with the following third parties: 1. Registrar, Banks and / or authorised external third parties who are involved in transaction processing, despatches, etc. of investors' investment in the Scheme; 42 2. Distributors or Sub-brokers through whom applications of investors are received for the Scheme.; or 3. Any other organisations for compliance with any legal or regulatory requirements or to verify the identity of investors for complying with anti-money laundering requirements. Auto Debit and Electronic Clearing Service The AMC may from time to time provide Electronic Clearing Services / Electronic Fund Transfer facility to the investors for subscriptions, redemptions and for payment of dividends. The investor opting for Electronic Clearing Services / Electronic Fund Transfer will be required to sign a mandate form on the basis of which the Fund will arrange for debiting and / or crediting his account as per the frequency, amount and date chosen by the investor or as and when dividend is declared. Allotment The units shall be allotted within 30 days from the date of the closure of the New Fund Offer and the same shall be deemed to be the date of allotment. Full and firm allotment is assured to every applicant if the application is received during business hours and the application is complete in all respect and found in order. Allotment of units under the Scheme would be at the discretion of the Trustee. The Trustee shall be entitled, at its absolute discretion, to reject any application. Upon allotment, an Allotment Advice will be sent by ordinary post to each unit-holder, stating the umber of units allotted, not later than 30 days from the close of New Fund Offer Period and the units will be credited to the DP account of the application as per the details provided in the application form. Allotment Price in NFO The Fund will start investing the amount received in New Fund Offer immediately after the receipt of Minimum Target Amount. Lien and Pledge of Units The members may pledge units of the Scheme in favour of banks/other financial institutions/ non-banking financial companies as a security for raising loans. As the units of the Scheme will be issued and held in Demat form, the rules of Depository applicable for pledge will be applicable for Pledge/Assignment of the Units of the Scheme. Pledgor and Pledgee must have a beneficial account with the Depository. These accounts can be with the same DP or with different DPs. Pledgor will instruct its DP to create a pledge request by submitting a “Pledge Form” with a tick on “Create Pledge”. Pledgor will inform the pledgee about the creation of pledge request by giving a copy of the pledge report obtained from its DP. Pledgee may instruct its DP to confirm the creation of pledge by submitting a “Pledge Form” with a tick on “Confirm creation of Pledge”. The pledge gets created in favour of the pledgee only when the pledgee’s DP confirms the creation of pledge in the system. Pledge does not get created in the System until the Pledgee’s DP confirms the pledge. Pledgee may obtain pledge report from its DP and verify creation of pledge. After the loan is repaid, the pledgor will instruct its DP to close the pledge by submitting the "Pledge Form" with a tick on "Close Pledge". The pledgee will instruct its DP to confirm the closure of pledge by submitting the "Pledge Form" with a tick on "Confirm Closure of Pledge". The pledge is closed in the system on executing the instruction in the system by both the DPs. A pledgor's DP alone cannot close the pledge. If the loan is not repaid, the pledgee, after giving notice to the pledgor as per the terms of the agreement, may instruct its DP to invoke the pledge by submitting the "Pledge Form" with a tick on "Invoke Pledge". On execution of this instruction, the securities are transferred into the pledgee's account. This does not require any confirmation from the pledgor. The pledgor will continue to receive dividend on 43 the pledged securities. The pledgee will get the benefits only if a pledge is invoked and on record date the shares are in the pledgee's account. Investing in Units On the Exchange As the units are listed on NSE, an investor can buy / sell units on a continuous basis on the Capital market Segment of the National Stock Exchange during the trading hours like any other publicly traded stock at prices which may be close to the actual NAV of the Scheme. There is no minimum investment, although units are purchased in round lots of 1 unit. Price of Units Investors can purchase the Units at market prices, which may be above or below their actual NAV of the Scheme depending upon supply and demand of the Units at that point of time. Settlement of Purchase / Sale of Units on the NSE Buying / Selling Units on the NSE is just like buying / selling any other normal listed security. If an investor has bought units, an investor has to pay the purchase amount to the broker / sub- broker such that the amount paid is realised before the funds pay-in day of the settlement cycle on the NSE. If an investor has sold units, an investor has to deliver the units to the broker / sub- broker before the securities pay-in day of the settlement cycle on the NSE. The units (in the case of units bought) and the funds (in the case of units sold) are paid out to the broker on the payout day of the settlement cycle on the NSE. The NSE regulations stipulate that the trading member should pay the money or units to the investor within 48 hours of the payout. If an investor has bought units, he should give Standing Instructions for ‘Delivery-In’ to his/her DP for accepting units in his/her beneficiary account. An investor should give the details of his/her beneficiary account and the DP-ID of his/her DP to his/her trading member. The trading member will transfer the units directly to his/her beneficiary account on receipt of the same from NSE’s Clearing Corporation. An investor who has sold units should instruct his/her Depository Participant (DP) to give ‘Delivery Out’ instructions to transfer the units from his/her beneficiary account to the Pool Account of his/her trading member through whom he/she have sold the units. The details of the Pool A/c (CM-BP-ID) of his/her trading member to which the units are to be transferred, unit quantity etc. should be mentioned in the Delivery Out instructions given by him/her to the DP. The instructions should be given well before the prescribed securities pay- in day. SEBI has advised that the Delivery Out instructions should be given at least 24 hours prior to the cut-off time for the prescribed securities pay-in to avoid any rejection of instructions due to data entry errors, network problems, etc. Rolling Settlement As per the SEBI’s circular dated March 4, 2003, the rolling settlement on T+2 basis for all trades has commenced from April 1, 2003 onwards. The Pay-in and Pay-out of funds and the securities/units takes place within 2 working days after the trading date. The pay-in and pay-out days for funds and securities are prescribed as per the Settlement Cycle. A typical Settlement Cycle of Rolling Settlement is given below: Day Activity T The day on which the transaction is executed by a trading member T+1 Confirmation of all trades including custodial trades by 11.00 a.m. T+1 Processing and downloading of obligation files to brokers /custodians by 1.30 p.m. T+2 Pay-in of funds and securities by 11.00 a.m. T+2 Pay out of funds and securities by 1.30 p.m. While calculating the days from the Trading day (Day T), weekend days (i.e. Saturday and Sundays) and bank holidays are not taken into consideration. 44 Directly from the Fund After the New Fund Offer Period, the units of the Scheme can also be purchased directly from the Fund at the applicable NAV, subject to prevailing load, if any. The eligible investors can purchase the units directly from the Fund using any of the following modes of subscription : D. INVESTMENT PLANS The scheme reserves the right to introduce / alter / extinguish plans at a later date E. NOMINATION Since the units of the Scheme will be held in electronic from in the Depository (DP) Account of the unit holders, the nomination details provided by the unit holder to the depository will be applicable to the units of the Scheme. Such nomination including any variation, cancellation or substitution of Nominee(s), shall be governed by the rules and bye-laws of the Depository. Payment to the nominee of the sums shall discharge the Fund of all liability towards the estate of the deceased unit holder and his/her legal successors/legal heirs. Nomination can be made only by the individuals holding beneficiary (DP) accounts either singly or jointly. Non-individuals including society, body corporate, partnership firms, Karta of HUF, holder of power of attorney can not nominate. Only an individual including NRI can be a nominee. However nomination of NRI is subject to exchange control regulations in force from time to time. Society, trust, body corporate, partnership firm, Karta of HUF or Power of Attorney holder cannot be appointed as a Nominee. Minor can also be appointed as a nominee. However the guardian will sign on behalf of the nominee and in addition to the name and photograph of the nominee, the name and address and the photograph of the guardian must be submitted to DP. Only one nomination can be made for each depository account. The nomination form duly filled in should be submitted to the Depository Participant (DP) either at the time of account opening or later. The account holder, nominee and two witnesses must sign the form and the name, address and photograph of the nominee must be submitted. If the nomination was not made at the time of account opening, it can be made subsequently by submitting the nomination form. The account holder(s) can change nomination anytime by simply filling up the nomination once again and submitting it to the DP. In case nomination has been made for DP account with joint holders, in case of death of any of the joint holder(s), the securities will be transmitted to the surviving holder(s). Only in the event of death of all the joint holders, the securities will be transmitted to the nominee. In case nomination is not made by the sole holder of DP account, the securities would be transmitted to the account of legal heir(s), as may be determined by an order of the competent court. However in case where the value of securities to be transmitted is less than Rs.1,00,000/-, the DP may process the request based on the submissions of necessary letter of indemnity, surety, affidavits and NOC documents. F. UNIQUE INDENTIFICATION NUMBER (UIN) As per the directives issued by SEBI, obtaining / quoting UIN under the SEBI (Central Database of Market Participants) Regulations, 2003 has been temporarily suspended. In case it is made applicable in future, applicants who are termed as ‘specified investors’, will be required to quote Unique Identification Number (UIN) allotted under SEBI (Central Database of Market Participants) Regulations, 2003 in the application form. Any application form without these details will not be accepted by the Mutual Fund. 45 G. BASIS OF ALLOTMENT Full allotment will be made to all valid applications received during the New Fund Offer Period. Allotment to NRIs/OCBs/Flls will be subject to RBI approval, if any, required. H. STATEMENT OF ACCOUNT A non-transferable statement of Account with a unique account number will be dispatched to the investor stating the number of Units held, within 30 days from the closure of the New Fund Offer Period. Such Statement of Account will be confirmation of the ownership of Units. I. REFUNDS Refund warrants for the following amounts will be dispatched within 30 days from the date of closure of the New Fund Offer Period: 1. Where an application is rejected in full, the subscription amount in full; 2. Where an application is accepted in part, the excess subscription amount; 3. For applications accompanied by payment in the form of foreign exchange/Dollar drafts, where the remittance is in excess of the subscription amount due on the nearest lower multiple of 100 Units, the excess subscription amount; 4. If the entire subscription does not amount to target amount of Rs. 10 lakhs, on the date of closure of the New Fund Offer Period, then the entire subscription amount in full and the Scheme shall be deemed to have been terminated. 5. No interest will be payable on any subscription amount so refunded. However, if the Mutual Fund fails to refund the above excess subscription amount, if any within 6 weeks from the date of the New Fund Offer Period, then interest @ 15% per annum will be paid out of the assets of the Mutual Fund for the Period thereafter. 6. Refund warrants, marked “A/c Payee Only” will be drawn in the name of the investor and dispatched by registered post A.D. to the address of the sole/first-named investor as per the application. J. TRANSFER 1. As the units of the Scheme are issued in dematerialized (electronic) form, the units are transferable in accordance with the law and provisions applicable to transfer of units held in electronic mode. 2. Transfer would be only in favor of transferees who are capable of holding units. The Fund shall not be bound to recognize any other transfer. 3. The delivery instructions for transfer of units will have to be lodged with the Depository Participant in the requisite form as may be required from time to time and transfer will be effected in accordance with such rules/regulations as may be in force governing transfer of securities in dematerialized mode. K. TRANSMISSION In case of death of the first unitholder, units shall be transmitted in favour of second named joint Holder on production of a Death Certificate or any other document to the satisfaction of the Registrar. In case units are held in a single name by the unitholder, Units shall be transmitted in favour of its executor/administrator of its estate/Legal Heir(s), as the case may be, on production of a Death Certificate or any other document to the satisfaction of the Registrar. 46 L. LISTING The units of the Scheme are listed on the Capital Market Segment of the National Stock Exchange of India Ltd. (NSE). The trading is as per the normal settlement cycle. The AMC reserves the right to list the units of the Scheme on any other recognized stock exchange. M. DUPLICATE STATEMENTS OF ACCOUNT/DIVIDEND WARRANTS/ REDEMPTION WARRANTS, CONSOLIDATION OF ACCOUNTS. • The Asset Management Company may, subject to compliance with such requirements as it deems necessary, issue duplicate Statement(s) of Account/dividend warrant(s) redemption warrant(s) reported to have been stolen, lost or destroyed and defaced, torn or mutilated. • Unit holder(s) having more tan one account per investment Option may apply to the Asset Management Company, for consolidation of account. • The Asset Management Company shall endeavour to dispatch duplicate/consolidated Statement(s) of Account/dividend warrant(s) redemption warrants to the Unit holder by ordinary post/registered post, as the case may be, at the Unit holder’s risk within a period of 30 days from the date of valid lodgement of request/indemnity bond. N. REGISTER OF UNIT HOLDERS The following provisions shall apply to the registration of holders of Units under the Scheme: 1. A Register of Unit Holders shall be maintained at the office of the Asset Management Company at New Delhi and at such other places as the Trustee may decide. The Register may be maintained on magnetic media. 2. The Register of Unit holders shall contain, inter alia, the following particular: • The name(s) and address(es) of Unit holder(s); • The account number and the number of Units (upto three decimal places) held by every Unit holder; and • The date from which Units are held in the name of the Unit holders(s). 3. In the event of death, insolvency or winding up of a sole Unit holder, any other persons(s) being entitled to the same, and upon recognition of the claim(s) in such manner as the Trustee/AMC may deem necessary, shall be registered as the Unit holder(s) 4. Where Units are held in the name of two or three persons, such persons shall be deemed to hold the units jointly. In all such cases: • It shall be deemed that the first of such persons is the Unit holder and all correspondence, if any shall be only by the first of such persons; • All payments and settlements shall be made to the first of such persons and a receipt thereof shall be a valid discharge of the obligations in this regard; • All correspondence, for and on behalf of the Mutual Fund, shall be only with the first of such persons; and • In the case of death, insolvency or winding up of any such person(s), the survivor(s) amongst such person(s) shall be the only person(s) recognized by the Mutual Fund as having any title or interest in the Units. In the case of death, insolvency or winding up of all such person(s), provisions applicable to a sole Unit holder, as above shall apply in respect of the first of such person(s) 5. Any change in the name and address of the Unit holder shall be notified to the Mutual Fund. 47 6. If the unit holder pledges or otherwise charges the Units as security with scheduled commercial banks and financial institutions or other authority, the interest of the pledgee/charge holder, on intimation to the Asset Management Company shall be noted. 7. If the Unit holder grants a Power of Attorney in favour of any person(s) to act on his/her/its behalf, in respect of the Units, the power of attorney holder(s) shall have the same recorded with the Asset Management Company. Until such power of Attorney is revoked, with the consent of the persons(s) in whose favour the same is granted, the Asset management Company shall act only on instructions issued by such Power of Attorney Holder(s). 8. The unit holder may provide a Bank Mandate and have the same recorded with the Asset management Company. Until the same is revoked the Asset Management Company shall make all payments due as per the particulars of the Bank Mandate. 9. Nomination: The Unit holder may specify another person as his/her nominee to be entitled to receive payments due on the Units in the event of his/her death. In such an event, all payments and settlements shall be made to such nominee, provided such nomination is previously recorded with the Asset Management Company and a receipt thereof shall be a valid discharge of the obligations in this regard. O. WINDING UP 1. The duration of the scheme is perpetual. However, as per the Regulations, the Scheme may be wound up, after repaying the amount due to the Unit holders: • On the happening of any event, which in the opinion of the Trustee requires the Scheme to be wound up; • If seventy five percent of the Unit holders pass a resolution that the Scheme be wound up; or • If SEBI so directs in the interest of Unit holders. 2. Where a Scheme is to be wound up, the Trustee shall give notice of the circumstance leading to the winding up of the Scheme: • To SEBI; and • In two daily newspapers having circulation all over India and also in a vernacular newspaper circulating at New Delhi. 3. On and from the date of the advertisement of the winding up, the Trustee or the Asset management Company, as the case may be, shall: • Cease to carry on any business activities relating to the Scheme; • Cease to create and cancel Units in the Scheme; and • Cease to issue and redeem Units in the Scheme. 4. The following procedure shall be followed for winding up: • The Trustee shall call a meeting of the Unit Holders to consider and pass necessary resolutions by simple majority of the Unit holder, present and voting at the meeting for authorizing the Trustee or any other person to take steps for winding up the Scheme. • The Trustee or the person authorized as above shall dispose off the assets of the Scheme concerned in the best interest of the Unit holders of that Scheme. • The proceeds of sale made in pursuance of the above clause, shall, in the first instance be utilized towards discharge of such liabilities as are properly due. The balance shall be paid to the Unit holders in proportion to their respective interest in the assets of the Scheme as on the date when the decision for winding up was taken. 48 • On the completion of the winding up, the Trustee shall forward to SEBI and the Unit holders a report on the winding up, net assets available for distribution to the Unit holders and a certificate from the Auditors of the Mutual Fund. • Notwithstanding anything contained in the Regulations, the application of provisions of the Regulations in respect of disclosures of half yearly reports and annual reports shall continue to be applicable until winding up is completed or the Scheme cease to exist. 5. After receipt of the report referred to above, if SEBI is satisfied that all measures for winding up of the Scheme have been completed, the Scheme shall cease to exist. 6. Every such distribution to Unit holders shall be made only against delivery to the Trustee of such form of request for payment as the Trustee shall, in its absolute discretion require, within 10 days from the date of valid lodgment of a request in this regard. 7. Any unclaimed proceeds shall be the property of the Mutual Fund and it may be held in such form as may be prescribed by SEBI. P. SUBSEQUENT PURCHASE OF UNITS 1. The Scheme would open for ongoing subscription/redemption of Units from the date of listing. 2. The terms under which the subsequent purchase of Units will be made will be, inter alia, unless repugnant to the subject or context hereof the same as for the New Fund Offer of Units. An existing Unit holder may also make subsequent purchase of Units under the same account or a fresh account. 3. The Fund would comply with the applicable provisions of Circular No. SEBI/IMD/CirNo.8/5611/2004 dated March 19, 2004 relating to time stamping of application for purchase and redemption. 4. An investor can buy/sell units on a continuous basis on the National Stock Exchange of India Ltd. during the trading hours like any other publicly traded stock at prices, which may be close to the NAV of the Units. The price of the units in the market will depend on demand and supply at that point of time. There is no minimum investment, although units are purchased in round lots of 5. There will be no entry/exit load on the Units bought or sold through the secondary market on the NSE. However, an investor would be paying cost in the form of a bid and ask spread and brokerage, as charged by his broker, for buying/ selling the Units. 6. Buying/Selling of units of the Scheme on NSE is just like buying/selling any other normal listed security. If an investor has bought units, an investor has to pay the purchase amount to the broker/sub-broker such that the amount paid is realised before the funds pay-in day of the settlement cycle on the NSE. If an investor has sold units, an investor has to deliver the units to the broker/sub-broker before the securities pay-in day of the settlement cycle on the NSE. The units (in the case of units bought) and the funds (in the case of units sold) are paid out to the broker on the pay-out day of the settlement cycle on the NSE. The NSE regulations stipulate that the trading member should pay the money or units to the investor within 48 hours of the pay-out. If an investor has bought units, he should give standing instructions for ‘Delivery-In’ to his/her DP for accepting units in his/her beneficiary account. An investor should give the details of his/her beneficiary account and the DP-ID of his/her DP to his/her trading member. The trading member will transfer the units directly to his/her beneficiary account on receipt of the same from NSE’s Clearing Corporation. An investor who has sold units should instruct his/her Depository Participant (DP) to give ‘Delivery Out’ instructions to transfer the units from his/her beneficiary account to the Pool Account of his/her trading member through whom he/she have sold the units. 49 The details of the Pool A/C (CM-BP-ID) of his/her trading member to which the units are to be transferred, unit quantity etc. should be mentioned in the Delivery Out instructions given by him/her to the DP. The instructions should be given well before the prescribed securities pay-in day. SEBI has advised that the Delivery Out instructions should be given at least 24 hours prior to the cut-off time for the prescribed securities pay-in to avoid any rejection of instructions due to data entry errors, network problems, etc. 7. Unit holders/ investors who are desirous of purchasing Units directly from the Fund are required to lodge the application duly signed with any of the offices of the Asset Management Company mentioned in the Offer Document. Applications for purchase by mail, from Unit holders/ investors located at places where there are no offices of the Asset Management Company should be sent, preferably by Registered Post to the Asset Management Company at New Delhi. Applications for purchase by telephone, telegram, facsimile or other means and/ or those that lack valid signatures will not be accepted. However, the Mutual Fund may specify alternate means, in this regard, from time to time. 8. In respect of valid applications on any business day (which excludes Saturday, Sunday and any holiday declared under the Negotiable Instruments Act, 1882 at New Delhi), closing NAV of the day immediately previous to the day on which funds are available for utilisation by the fund shall be applicable. In respect of purchase of units in its other schemes and their plans, and the following NAVs shall be applied for such purchase: a. where the application is received upto 3.00 pm with a local cheque or demand draft payable at par at the place where it is received – closing NAV of the day of receipt of application; b. where the application is received after 3.00 pm with a local cheque or demand draft payable at par at the place where it is received – closing NAV of the next business day ; and c. where the application is received with an outstation cheque or demand draft which is not payable on par at the place where it is received – closing NAV of day on which the cheque or demand draft is credited. 9. Sale of Units may be suspended temporarily or indefinitely when any one or more of the following conditions exist: • The stock/ fixed income securities/ money market stops functioning or trading is restricted; • Periods of extreme volatility in the stock/ fixed income securities/ money market, which, in the opinion of the Asset Management Company is prejudicial to the interest of the existing Unit holders; • Declaration of war or occurrence of insurrection, civil commotion, natural calamity or sustained financial, political or industrial emergency, strife or disturbance; and/ or • SEBI, by order so directs. 10. Barring unforeseen circumstances, a Statement of Account, reflecting the number of Units purchased, the purchase value and the fresh balance of Units outstanding in the account will be dispatched within 10 business days from the date of application for purchase. XI. INTER SCHEME TRANSFERS 1. Unit holders shall have the option to switch their holding of Units under the Scheme, on redemption of Units or on winding up of the Scheme, if any to Units of other Scheme(s) 50 or Units of other investment Option of the Scheme that may be existing or may be framed by the Trustee, from time to time. 2. The switch will be effected by way of redemption of Units under the Scheme at the then prevailing repurchase price and the proceeds will be invested in Units under the other Scheme(s) or Units of other investment Option of the Scheme. 3. The price at which the Units will be switched out of the Scheme will be based on the then prevailing NAV applicable for redemption and the proceeds will be invested in other Scheme(s) at the prevailing offer price for Units under the other Scheme(s) 4. In order to be effective, the switch must comply with the rules for redemption of Units under the Scheme and the rules for offer of Units under the other Scheme(s) and the eligibility of the Unit holder to purchase and hold Units under the other Scheme(s) XII. ASSOCIATE TRANSACTIONS Escorts Securities Limited was paid brokerage on account of purchase / sale in securities and transactions in derivatives as follows: For the year ended 31.03.03 - Escorts Income Bond – Rs. 9,567/-, Escorts Tax Plan – Rs. 29,075/-, Escorts Opportunities Fund – Rs. 10,67,015/-, Escorts Balanced Fund - Rs. 34,893/-, Escorts Growth Plan – Rs. 1,15,210/-. For the year ended 31.03.04 - Escorts Income Bond – Rs. 11,224/-, Escorts Tax Plan – Rs. 15,785/-, Escorts Opportunities Fund – Rs. 7,69,053/-, Escorts Balanced Fund - Rs. 51,950/-, Escorts Growth Plan – Rs. 2,77,155/-. For the year ended 31.03.05 - Escorts Income Bond – Rs. 10,269/-, Escorts Tax Plan – Rs. 64,151/-, Escorts Opportunities Fund – Rs. 23,28,918/-, Escorts Balanced Fund - Rs. 1,75,177/-, Escorts Growth Plan – Rs. 3,44,559/-. Escorts Securities Limited was paid brokerage on account of sale of Units of various schemes of Escorts Mutual Fund as follows : For the year ended 31.03.03 - Escorts Income Plan – Rs. 74,910/-, Escorts Tax Plan – Rs. 18,750/-. For the year ended 31.03.04 - Escorts Income Plan – Rs. 1,28,991/-, Escorts Tax Plan – Rs. 7268/-, Escorts Opportunities Fund – Rs. 9,477/-, Escorts Gilt Plan – Rs. 1,080/-, Escorts Balanced Fund - Rs. 85,555/-, Escorts Growth Plan – Rs. 1,82,403/-. For the year ended 31.03.05 – Escorts Income Plan – Rs. 2,39,018/-, Escorts Tax Plan – Rs. 341/-, Escorts Opportunities Fund – Rs. 76,824/-, Escorts Balanced Fund - Rs. 15,846/-, Escorts Growth Plan – Rs. 9,198/-. Escorts Finance Limited was paid brokerage on account of sale of Units of various schemes of Escorts Mutual Fund as follows : For the year ended 31.03.04 - Rs. 157/-. For the year ended 31.03.05 – Escorts Income Plan - Rs. 1,702/-, Escorts Opportunities Fund – Rs. 2,154/-, Escorts Growth PLAN – Rs. 284/-, Escorts Balanced Fund – Rs. 2,230/-. 51 XIII. BORROWING BY ESCORTS MUTUAL FUND The Mutual Fund may borrow to meet liquidity needs, for the purpose of redemption of units or payment so interest or dividend to Unitholders and such borrowings shall not exceed 20% of the net assets of the Scheme and duration of the borrowing shall not exceed six months. Borrowing by Mutual Fund on account of the Scheme will tend to increase the impact of investment gains and losses on the NAV of the Scheme. XIV. STOCK LENDING BY ESCORTS MUTUAL FUND The Scheme may, engage in lending of physical gold from its Portfolio in accordance with the Regulations and applicable SEBI Guidelines. XV. NET ASSET VALUE AND VALUATION OF ASSETS OF THE SCHEME A. COMPUTATION OF NET ASSET VALUE NAV is the actual value of a Unit issued under the Scheme, on the valuation day and is computed as follows: Market or Fair Value of Scheme's investments + Current Assets - Current Liabilities and Provision ________________________________________________________________________________ No of Units outstanding under Scheme on the Valuation Date The first NAV will be calculated and announced not later than 30 days after the close of the New Fund Offer Period. NAV of the Units issued under the Scheme shall be disclosed for each business day from Monday to Friday (excluding Saturday and Sunday and any holiday declared under the Negotiable Instruments Act, 1882 at New Delhi) and subject to audit on an annual basis. NAV shall be published atleast in two daily newspapers on daily basis. The NAV shall be rounded off upto four decimal places. B. VALUATION The Fund shall value its investments according to the valuation norms, as specified in SEBI Circular No. SEBI/IMD/CIR No. 2/65348/06 dated 21.04.2006, or such norms as may be prescribed by SEBI from time to time. 1. Valuation of Gold Since physical gold and other permitted instruments linked to gold are denominated in gold tonnage, it will be valued based on the market price of gold in the domestic market and will be marked to market on a daily basis. The market price of gold in the domestic market on any business day would be arrived at as under: Domestic price of gold = (London Bullion Market Association AM fixing in US$/ounce X conversion factor for converting ounce into kg for 0.995 fineness X rate for US$ into INR) + custom duty for import of gold + sales tax/octroi and other levies applicable. 52 The Trustees reserve the right to change the source (centre) for determining the exchange rate. The AMC shall record in writing the reason for change in the source for determining the exchange rate. (A) The gold held by a gold exchange traded fund scheme shall be valued at the AM fixing price of London Bullion Market Association (LBMA) in US dollars per troy ounce for gold having a fineness of 995.0 parts per thousand, subject to the following: (a) adjustment for conversion to metric measures as per standard conversion rates; (b) adjustment for conversion of US dollars into Indian rupees as per the RBI reference rate declared by the Foreign Exchange Dealers Association of India (FEDAI); and (c) addition of – (i) transportation and other charges that may be normally incurred in bringing such gold from London to the place where it is actually stored on behalf of the mutual fund; and (ii) notional customs duty and other applicable taxes and levies that may be normally incurred to bring the gold from London to the place where it is actually stored on behalf of the mutual fund: Provided that the adjustment under clause (c) above may be made on the basis of a notional premium that is usually charged for delivery of gold to the place where it is stored on behalf of the mutual fund: Provided further that where the gold held by a gold exchange traded fund scheme has a greater fineness, the relevant LBMA prices of AM fixing shall be taken as the reference price under this sub-paragraph. (B) If the gold acquired by the gold exchange traded fund scheme is not in the form of standard bars, it shall be assayed and converted into standard bars, which comply with the good delivery norms of the LBMA and thereafter valued as given above. The Trustees reserve the right to select or change the source of information for determining the exchange rate. The AMC shall record in writing the reason for change in source for determining the exchange rate. Further, the 2. Valuation of securities with Put/Call Options: The option embedded securities would be valued as follows: Securities with call option: The securities with call option shall be valued at the lower of the value as obtained by valuing the security to final maturity and valuing the security to call option. In case there are multiple call options, the lowest value obtained by valuing to the various call dates and valuing to the maturity date is to be taken as the value of the instrument. Securities with Put option: The securities with put option shall be valued at the higher of the value as obtained by valuing the security to final maturity and valuing the security to put option. In case there are multiple put options, the highest value obtained by valuing to the various put dates and valuing to the maturity date is to be taken as the value of the instruments. 53 Securities with both Put and Call option on the same day: The securities with both Put and Call option on the same day would be deemed to mature on the Put/Call day and would be valued accordingly. 54 3. Traded Securities: (i) The securities shall be valued at the last quoted closing price on the stock exchange. (ii) When the securities are traded on more than one recognised stock exchange, the securities shall be valued at the last quoted closing price on the stock exchange where the security is principally traded. (iii) When on a particular valuation day, a security has not been traded on the Principal stock exchange, the value at which it is traded on another stock exchange may be used. (iv) When a security (other than debt securities) is not traded on any stock exchange on a particular valuation day, the value at which it was traded on the selected stock exchange, as the case may be, on the earliest previous day may be used provided such date is not more than thirty days prior to valuation date. When a debt security (other than Government Securities) is not traded on any stock exchange on any particular valuation day, the value at which it was traded on the principal stock exchange or any other stock exchange, as the case may be, on the earliest previous day may be used provided such date is not more than fifteen days prior to valuation date. When a debt security (other than Government Securities) is purchased by way of private placement, the value at which it was bought may be used for a period of fifteen days beginning from the date of purchase. 4. Non Traded Securities: When a security (other than Government Securities) is not traded on any stock exchange for a period of thirty days prior to the valuation date, the scrip must be treated as a ‘non traded’ security. Valuation Of Non-Traded / Thinly Traded Securities Non traded/ thinly traded securities shall be valued “in good faith” by the AMC on the basis of the valuation principles laid down below: (i) (a) Non Traded /Thinly Traded Debt Securities of Upto 182 Days to Maturity: As the money market securities are valued on the basis of amortization (cost plus accrued interest till the beginning of the day plus the difference between the redemption value and the cost spread uniformly over the remaining maturity period of the instruments) a similar process should be adopted for non-traded debt securities with residual maturity of upto 182 days, in the absence of any other standard benchmarks in the market. Debt securities purchased with residual maturity of upto 182 days are to be valued at cost (including accrued interest till the beginning of the day) plus the difference between the redemption value (inclusive of interest) and cost spread uniformly over the remaining maturity period of the instrument. In case of a debt security with maturity greater than 182 days at the time of purchase, the last valuation price plus accrued interest should be used instead of purchase cost. All other non-traded Non Government debt instruments shall be valued using the method suggested in (ii)(b). (ii) (b) Non Traded/ Thinly Traded Debt Securities of Over 182 Days to Maturity: For the purpose of valuation, all Non Traded Debt Securities would be classified into “Investment grade” and “Non Investment grade” securities based on their credit ratings. The non-investment grade securities would further be classified as “Performing” and “Non Performing” assets. • All Non Government investment grade debt securities, classified as not traded, shall be valued on yield to maturity basis as described in the applicable SEBI circular. • All Non Government non-investment grade performing debt securities would be valued at a discount of 25% to the face value. 55 • All Non Government non-investment grade non-performing debt securities would be valued based on the provisioning norms. 5. Government securities : Government securities will be valued as per SEBI Guidelines. 6. Expenses and Incomes Accrued: All expenses and incomes accrued up to the valuation date shall be considered for computation of NAV. For this purpose, major expenses like management fees and other periodic expenses would be accrued on a day-to-day basis. The minor expenses and income will be accrued on a periodic basis, provided the non- daily accrual does not affect the NAV calculations by more than 1%. 7. Changes in securities and in number of units: Any changes in securities and in the number of units will be recorded in the books not later than the first valuation date following the date of transaction. If this is not possible, given the frequency of NAV disclosure, the recording may be 42 delayed up to a period of seven days following the date of the transaction, provided as a result of such non recording, the NAV calculation shall not be affected by more than 1%. The valuation guidelines as outlined above are as per prevailing Regulations and are subject to change from time to time in conformity with changes made by SEBI. XVl. REDEMPTION OR REPURCHASE 1. After listing on NSE the Units can be redeemed, on daily basis, at the then prevailing NAV. 2. Redeeming Units - The requisite number of Units has to be transferred to the Fund’s DP account and the Cash Component to be paid to the AMC / Custodian. On confirmation of the same by the AMC, the Custodian will transfer the Physical Deposit by handing over the physical Gold of the predefined purity and quantity to the investor and pay the Cash Component, if applicable. The AMC may redeem Units prior to receipt of all or portion of the relevant Units in certain circumstances where the purchaser, among other things, posts collateral to secure its obligation to deliver such outstanding Units. The Physical Deposit and Cash Component for the Units may change from time to time due to change in NAV. 3. Redemption of Units Directly with the Fund - Such investors shall make redemption request to the Fund/AMC whereupon the Fund/AMC will arrange to sell physical Gold on behalf of the investor. Accordingly the sale proceeds of physical Gold after adjusting necessary charges/costs and prevailing exit load will be remitted to the investor. The redemption request can be made to the Fund in a duly filled application form. Application form for Redemption for Units can be obtained from the office of the AMC, Registrar and Custodian. 4. A Unit holder may request for redemption of a specific redemption amount (not less than Rs. 10,000/-). The sale and re-purchase prices for subsequent purchase and redemption of Units under the Scheme respectively shall be disclosed for each such business day. The sale and repurchase price of units shall be published in a daily newspaper on a daily basis. In accordance with the Regulations, it shall be ensured that the sale price is not higher than 107% of the Net Asset Value and the repurchase price is not lower than 93% of the Net Asset Value and that the difference between the sale and repurchase price does not exceed 7% of the sale price. 5. Notice for redemption of Units, in the prescribed form, duly signed by all the registered unit holders (except if held on ‘either or survivor’ or ‘anyone or survivor’ basis in which case the notice can be signed singly) may be sent to the offices of the Asset Management Company, preferably by registered post. Notices for redemption by telephone, telegram, 56 facsimile or other means and/ or those that lack valid signatures will not be accepted. However, the Mutual Fund may specify alternate means, in this regard, from time to time. It is mandatory for the investors of Escorts Mutual Fund Scheme(s) to mention their bank account particulars in their requests for redemption. 6. The following cut-off timings shall be observed by a Escorts Mutual Fund in respect of repurchase of units in its other schemes and their plans, and the following NAVs shall be applied for such repurchase: a. where the application received upto 3.00 pm – closing NAV of the day of receipt of application; and b. an application received after 3.00 pm – closing NAV of the next business day. 7. Barring unforeseen circumstances, redemption warrants (along with fresh Statements of Account reflecting the number of Units redeemed, the redemption proceeds as well as the fresh balance of Units outstanding in the account, if any) will be despatched within 10 working days from the date of notice for redemption. However, endeavour shall be made to despatch redemption warrant within 5 working days from the date of notice for redemption. 8. In any case, if the effect of the notice for redemption is to reduce the balance in the account of the investor below the minimum account balance of Rs. 1,000/-, the Mutual Fund has the right to close the account and redeem the balance holding of Units, at the prevailing NAV after 30 days from the date on which the balance in the account of the investor fell below the minimum account balance of Rs. 1,000/- unless the Unit holder responds favourably to the notice issued by the Mutual Fund to the Unit holder, in this regard. In case, the effect of the notice for redemption is to reduce the balance in the account of the investor to a debit balance, then the credit balance in the account of the investor, as on the date of notice for redemption, prior to consideration of the notice for redemption will be payable. 9. The Trustee reserves the right, in its sole discretion, in response to unforeseen circumstances or unusual market conditions, to limit the total number of Units redeemable on any particular business day to not more than 5% of the total number of Units outstanding (Investment Option-wise) at the close of the previous business day. Any Units which, by virtue of this limitation are not redeemed on any particular business day will be carried forward to the next succeeding business day, and so on, in order of receipt. 10. Redemption of Units may be suspended temporarily or indefinitely when any one or more of the following conditions exist: • The stock/ fixed income securities/ money market stops functioning or trading is restricted; • Periods of extreme volatility in the stock/ fixed income securities/ money market, which, in the opinion of the Asset Management Company is prejudicial to the interest of the continuing Unit holders; • Declaration of war or occurrence of insurrection, civil commotion, natural calamity or sustained financial, political or industrial emergency, strife or disturbance; and/ or • SEBI, by order so directs. 11. No tax is required to be deducted at source from the redemption proceeds. However, for a non-resident Unit holder, tax will be deducted at source from the redemption proceeds, at the applicable rates in force, from time to time. 12. In the case of Non-Resident Unit holders, redemption proceeds will be payable by means of a Rupee cheque payable to the Non-Resident (External)/ special Non-Resident Rupee 57 account of the Unit holder, if any or by a Dollar draft drawn at the then prevailing exchange rates, if the Units are held on repatriable basis, subject to requisite RBI directions. 13. Redemption warrants will be drawn in the name of the registered holder of the Units, made payable to the bank, branch and account number of the Unit holder. 14. Redemption warrants will be despatched to the address of the sole/ first-named registered holder in the Register of Unit holders. 15. In accordance with Regulation 53(c) of the SEBI guidelines, in the event of failure to dispatch the redemption or repurchase proceeds within 10 working days, the AMC is liable to pay interest to the unitholders @15% p.a. Such interest is required to be borne by the AMC. Interest for the period of delay in dispatch of repurchase / redemption warrants shall be added to the proceeds when such payments are made to the unitholders. Investors should also be informed about the rate and amount of interest paid to them. 16. The unclaimed redemption amount shall be deployed by the mutual fund in call money market or money market instruments only and the investors who claim these amounts during the period of 3 years from the due date shall be paid at the prevailing NAV. After a period of 3 years this amount shall be transferred to a pool account and the investors can claim the amount at NAV prevailing at the end of the third year. The income earned can be used for the purpose of investor education. The AMC shall make a continuous effort to remind the investors through letters to take their unclaimed amounts. XVII. ACCOUNTING POLICIES The Significant Accounting Policies of the Mutual Fund shall be in accordance with the Regulations, in general and the Ninth Schedule thereto, in particular. At present, the Significant Accounting Policies of the Mutual Fund, to the extent applicable to the Scheme are as follows: a) AMC, for each Scheme, shall keep and maintain proper books of account, records and documents, so as to explain its transactions and to disclose at any point of time the financial position of the Scheme and, in particular, give a true and fair view of the state of affairs of the Fund. b) For the purposes of the financial statements, the Scheme shall mark all investments to market and carry investments in the balance sheet at market value. However, since the unrealized gain arising out of appreciation on investments cannot be distributed, provision shall be made for exclusion of this item when arriving at distributable income. c) In respect of all interest-bearing investments, income shall be accrued on a day to day basis as it is earned. Therefore, when such investments are purchased, interest paid for the period from the last interest due date up to the date of purchase should not be treated as a cost of purchase but shall be debited to Interest Recoverable Account. Similarly, interest received at the time of sale for the period from the last interest due date up to the date of sale must not be treated as an addition to sale value but shall be credited to Interest Recoverable Account. d) In determining the holding cost of investments and the gains or loss on sale of investments, the “average cost” method shall be followed for each security. e) Transactions for purchase or sale of investments shall be recognized as of the trade date and not as of the settlement date, so that the effect of all investments traded during a 58 financial year are recorded and reflected in the financial statements for that year. Where investment transactions take place outside the stock market, for example, acquisition through private placement or purchases or sales through private treaty, the transaction would be recorded, in the event of a purchase, as of the date on which the Scheme obtains an enforceable obligation to pay the price or, in the event of a sale, when the Scheme obtains an enforceable right to collect the proceeds of sale or an enforceable obligation to deliver the instruments sold. f) Where income receivable on investments has been accrued and has not been received for a period as specified in the Regulation/guidelines issued by SEBI, provision shall be made by debit to the revenue account for the income so accrued in the manner specified by SEBI. g) When units are sold in the Scheme, an appropriate part of the sale proceeds shall be credited to an Equalization Account and when units are repurchased an appropriate amount shall be debited to Equalization Account. The net balance on this account shall be credited or debited to the Revenue Account. The balance on the Equalization Account debited or credited to the Revenue Account shall not decrease or increase the net income of the Fund but is only an adjustment to the distributable surplus. It shall therefore be reflected in the Revenue Account only after the net income of the Fund is determined. h) When units are sold, after considering the equalization as above, the difference between the sale price and the face value of the Unit, if positive, shall be credited to reserves and if negative, shall be debited to reserve, the face value being credited to Capital Account. Similarly, when the Units are repurchased, after considering the equalization as above, the difference between the purchase price and face value of the Unit, if positive, shall be debited to reserves and, if negative, shall be credited to reserves, the face value being debited to the Capital Account. i) The cost of investments acquired or purchased shall include brokerage, stamp charges and any charge customarily included in the broker’s bought note. On the date of purchase, actual rate for purchase of gold may be different than the closing price of gold arrived as per SEBI’s formula. Further, cost of investments would be accounted on date of transaction, any difference between the actual amount paid and amount accounted on transaction date would be capitalized .In respect of privately placed debt instruments any front-end discount offered shall be reduced from the cost of the investment. j) An asset shall be classified as non-performing if the interest and/or principle amount have not been received or remained outstanding for one quarter from the date such income/installment have fallen due and relevant guidelines for identification and provisioning for non-performing assets for mutual fund will be applicable. k) Accounting Policy on VAT and any other policy with respect to Gold. The accounting policies and standards outlined above are as per the existing Regulations and are subject to change as per changes in the Regulations. XVIII. TAX TREATMENT OF INVESTMENTS IN MUTUAL FUNDS The certain tax benefits are available to the Mutual Fund and the Unit holders as mentioned hereinafter. It may however be noted that the information given hereinafter is only for general information purposes and is based on the advice received by the AMC regarding the law and practice currently in force in India and the Investors/ Unit holders should be aware that the relevant fiscal rules or their interpretation may change or it may not be acceptable to the tax authorities. As is the case with any interpretation of any law, there can be no guarantee that the tax position or the proposed tax position prevailing at the time of an 59 investment in the Scheme will be accepted by the tax authorities or will continue to accepted by them indefinitely. Further statements with regard to tax benefits mentioned herein below are mere expressions of opinion and are not representations of the Mutual Fund to induce any investor to acquire units whether directly from the Mutual Fund or indirectly from any other persons by the secondary market operations. In view of the above, and since the individual nature of tax consequences may differ in each case on its merits and facts, each Investor / Unit holder is advised to consult his / her or its own professional tax advisor with respect to the specific tax implications arising out of its participation in the Scheme, as a unit holders. In view of the above, it is advised that the unit holders appropriately consult their investment / tax advisors in this regard. To the Mutual Fund: The entire income of the Fund registered under Securities and Exchange Board of India Act, 1992 or any regulations made there under is exempt from Income-tax in accordance with the provisions of section 10(23D) of the Income-tax Act, 1961 (“the Act”). The income received by such fund is not liable for deduction of income tax at source under the provisions of Section 196(iv) of the Act. To the Unit Holders: 1. Incomes from Units Under the provisions of section 10(35) of the Act, any income (other than income arising from transfer of units) received by any person in respect of the units of the mutual fund is exempt from income tax. 2. Capital Gains a) Resident Individual, Hindu Undivided Family, Partnership firm, Indian Company, Non Resident (Other than Overseas Financial Organisation) i. Capital gain arising on transfer or redemption of units held for a period of more than 12 months is regarded as “Long-term Capital Gain” which otherwise would be “Short-term Capital Gain”. ii. Income tax on Long-term Capital Gain shall be lower of the following amount – - 10% plus applicable surcharge* and an additional surcharge by way of education cess at the rate of 2% on the amount of tax and surcharge, on the Long-term Capital Gains computed without substituting indexed cost of acquisition in place of the cost of acquisition, or; * = Surcharge shall be applicable at the following rates: - In case of Individuals and Hindu undivided family at the rate of 10% in case income exceeds Rs. 10,00,000 - In case of Firms and Domestic Companies at the rate of 10% - 20% plus applicable surcharge* and an additional surcharge by way of education cess at the rate of 2% on the amount of tax and surcharge, on the Long-term Capital Gain computed after substituting indexed cost of acquisition in place of the cost of acquisition. iii. In case where the taxable income as reduced by Long-term Capital Gains of a resident individual and Hindu Undivided family is below the taxable limit, the Long-term Capital gain will be reduced to the extent of such shortfall and only the balance Long-term Capital Gain is chargeable to Income-tax. 60 iv. The following deductions are available from long term capital gains arising on sale of units, if the sale proceeds are invested in eligible avenues: Section 54 EC Section 54ED Eligible persons All unit holders Individual and HUFs Asset to be purchased to Specified Bonds of National Equity shares forming part of claim exemption Highways Authority of India an eligible issue of capital and Rural Electrification Corporation Limited Time-limit for purchase from 6 months 6 months date of sale of MF units Amount Exempt Investment in the new asset or Amount invested capital gain whichever is lower Lock-in period 3 years -- The exemption above as discussed in the table above would be available subject to fulfillment of such other conditions as laid down in the respective sections. v. The Short-term Capital Gains is liable to tax in the same manner as income from any other sources. The rate of tax varies on the basis of the nature of entity. vi. Switching between Schemes will also be liable to capital gains tax. b) Overseas Financial Organisation fulfilling conditions laid down under section 115AB (Offshore Fund): i. Under section 115AB of the Act, long-term capital gains arising to an Overseas Financial Organisation from transfer of units purchased in foreign currency will be chargeable to tax at the rate of 10%, plus surcharge at the rate of 2.5% and an additional surcharge by way of education cess at the rate of 2% on the amount of tax and surcharge. Such gain would be calculated without indexation of cost of acquisition. An additional surcharge of 2 per cent by way of education cess would be charged on amount of tax inclusive of surcharge. ii. The capital gain arising from the transfer of a long term capital asset, being units, is eligible for deduction/benefits under section 54ED of the Act to the extent, the assessee has, within a period of 6 months after the date of such transfer, invested the whole or any part of the capital gain in acquiring long term specified asset or specified equity shares forming part of an eligible issue of capital. iii. Overseas Financial Organisation means any fund, institution, association or body, whether incorporated or not, established under the laws of a country outside India, which has entered into an arrangement for investment in India with the mutual fund and such arrangement is approved by SEBI for this purpose. iv. The Short-term Capital Gains is liable to tax in the same manner as income from any other sources. The rate of tax varies on the basis of the nature of entity. 61 c) Deduction of Income tax At Source From Capital Gains: i. Resident Individual, Hindu Undivided Family, Partnership firm and Indian Company: No income tax is required to be deducted at source from capital gains ii. Non-Resident (Other than Overseas Financial Organisation) Income-tax is required to be deducted at source from the capital gains under section 195 of the Act. In the case of an assessee of a country with which a Double Taxation Avoidance Agreement (DTAA) is in force, the tax should be withheld as per provisions in the Act or as per the provisions in the DTAA which ever is more beneficial to the non-resident holder. However, such a non-resident unit holder will be required to provide appropriate documents to the Fund, to be entitled to a beneficial rate under such DTAA. iii. Overseas Financial Organisation Under Section 196B of the Act, tax shall be deducted at source from the long-term capital gains @10% plus surcharge at the rate of 2.5% and an additional surcharge by way of education cess at the rate of 2% on the amount of tax and surcharge. An additional surcharge of 2 percent by way of education cess would be charged on amount of tax inclusive of surcharge. Income-tax is required to be deducted at source from the short-term capital gains under section 195 of the Act plus applicable surcharge. An additional surcharge of 2 per cent by way of education cess would be charged on amount of tax inclusive of surcharge. In the case of an assessee of a country with which a Double Taxation Avoidance Agreement (DTAA) is in force, the tax should be withheld as per the provisions of the Act or the provisions in the DTAA which ever is more beneficial to the assessee. However, the Unit holder will be required to provide appropriate documents to the Fund, to be entitled to a beneficial rate under such DTAA. d) Dividend Stripping All Unit holders As per Section 94(7) of the Act, loss arising on sale of Units which are bought within 3 months of the record date and sold within 9 months after the record date, shall be ignored for the purpose of computing income chargeable to tax to the extent of exempt income received or receivable on such Units. e) Bonus Stripping All Unit holders As per Section 94 (8) of the Act , units purchased within a period of 3 months prior to record date of entitlement of bonus and sold within a period of 9 months after such date the loss arising on transfer of original units shall be ignored for the purpose of computing the income chargeable to tax. 3. Religious and Charitable Trust: Investments in Units of the Mutual Fund will rank as an eligible form of investment under section 11(5) of the Act read with Rule 17C of the Income-tax Rules, 1962 for Religious and Charitable Trust. 62 Wealth-tax Units held under the Scheme of the Fund are not treated as assets within the meaning of section 2(ea) of the Wealth-tax Act, 1957 and are, therefore, not liable to Wealth-tax. Gift-tax The Gift-tax Act, 1958 has ceased to apply to gifts made on or after 1st October, 1998. Gifts of Units, purchased under the respective Plans, would therefore, be exempt from gift tax. Where however the gifts, exceeding Rs. 25,000, made on after 1-9-04, the same is to be included as income in the hands of donee under new sub-clause (xiii) inserted in section 2(24) read with new section 56(v) by the Finance (No.2) Act, 2004. The tax benefits to the Mutual Fund and Unit Holders is in accordance with the prevailing tax laws. Each investor is advised to consult his or her own tax consultant with respect to the specific tax implications arising out of his or her participation in the scheme. XIX. INVESTORS’ RIGHTS AND SERVICES A. RIGHTS OF UNITHOLDERS 1. The Unit holder has a proportionate right, to the extent of his/ her/ its holding, in the beneficial ownership of the assets of and to the dividend declared under the Scheme/ Investment Option. 2. The Unit holder has a right to ask the Trustee about any information, which may have an adverse bearing on their investments, and the Trustee shall be bound to disclose such information to the Unit holder. 3. The Unit holder has a right to have dividend warrants dispatched within 30 days from the date of declaration of dividend and redemption warrants dispatched within 10 working days from the date of redemption. 4. An abridged Scheme-wise Annual Report of the Mutual Fund shall be mailed to the Unit holders not later than six months from the date of closure of the relevant accounting year and full annual report shall be available for inspection at the head office of the fund and a copy shall be made available to the unitholders on request on payment of nominal fees, if any. Before expiry of one month from the close of each half year that is on 31/3 and 30/9, the fund will publish its unaudited financial results in prescribed format as per SEBI Circular MFD/CIR/1/200/2001 dated 20.04.2001 in one national English daily newspaper and in a newspaper in the language of the region where the HO of the fund is situated. 5. Before expiry of one month from the close of each half year, that is on 31/3 and 30/9, the Mutual Fund will publish its scheme portfolio in the prescribed format as per SEBI circular MFD/CIR/9/120/2000 dated November 24, 2000 in one national English daily newspaper and in a newspaper in the language of the region where the HO of the fund is situated. These shall also be displayed on the website of the mutual fund and that of AMFI 6. The appointment of the Asset Management Company can be terminated by majority of the trustees or by seventy five percent of the Unit holders of the Scheme. 7. Seventy five percent of the Unit holders of the Scheme can pass a resolution to wind up the Scheme. 8. The Trustee shall obtain the consent of the Unit holders by postal ballot: • Whenever required to do so by SEBI, in the interest of Unit holders; 63 • Whenever required to do so on the requisition made by seventy five percent of the Unit holders of the Scheme; • When the Trustee decides to wind-up or prematurely redeem the Units; or 9. Subject to the provisions of the Regulations as amended from time to time, the consent of the Unitholders shall be obtained, if necessary through postal ballot/mail, in consultation with SEBI. Each Unitholder shall be entitled to one vote for each unit held by him in respect of each resolution to be passed. 10. The investor has the right to inspect any or all the documents listed hereinafter under the heading “Documents for Inspection”. 11. All Units rank pari passu as to the assets, earnings and the receipt of the dividends or distributions, if any, of the Scheme/ Investment Option. 12. The Annual Report containing accounts of the AMC shall be displayed on the website of the mutual fund. It should also be mentioned in the Annual Report of Mutual Fund schemes that the Unitholders, if they so desire, may request for the Annual Report of the AMC. 13. Suspension or restriction of repurchase / redemption facility under any scheme of the mutual fund shall be made applicable only after the approval from the Board of Directors of the Asset Management Company and the Trustees. The approval from the AMC Board and the Trustees giving details of circumstances and justification for the proposed action shall also be informed to SEBI in advance. B. DOCUMENTS FOR INSPECTION The following documents will be available for inspection by investors between 11:00 A.M. and 1:00 P.M., on any working day at the Head Office of the Mutual Fund at 11, Scindia House, Connaught Circus, New Delhi 110 001: 1. Trust Deed; 2. Investment Management Agreement; 3. SEBI Registration Certificate for Escorts Mutual Fund; 4. Agreement for Custodian Services with Custodian; 5. Consent from Auditor to act in the said capacity; 6. Memorandum and Articles of Association of the Trustee and the Asset Management Company; 7. Consent of Directors of the Trustee and the Asset Management Company to act in the said capacity; 8. Securities and Exchange Board of India (Mutual Funds) Regulations, 1996; 9. The Indian Trusts Act, 1882; 10. Annual Report of Escorts Mutual Fund for 1996-97 to 2004-2005; and 11. Offer Document of ESCORTS GOLD EXCHANGE TRADED FUND Mutual Fund Scheme. C. INVESTOR SERVICES Account Number Every Unitholder will have an Account Number. The number of Units issued to a Unitholder or redeemed by a Unitholder will be reflected in his or her account and a statement to this effect will be issued to the Unitholder. Account Statement Each Unitholder will receive an Account Statement each time additional purchases or redemptions of Units are made, or distributions in respect of Units are declared and paid. In addition, each Unitholder will also receive an Account Statement as soon as practicable after 31st 64 March each year. Such Annual Account Statements will detail the Unitholder’s opening balance of Units held as at 1st April of the previous year, all transactions that occurred in the preceding twelve months with respect to his / her account, such as additional purchases and redemptions, a closing balance of Units held and the NAV of the Units as at 31st March. In terms of SEBI Circular No. IMD/CIR/12/80083/2006 dated 20.11.2006, Mutual Funds may, henceforth, dispatch the statement of accounts to the unit holders under SIP/STP/SWP once every quarter ending March, June, September and December within 10 working days of the end of the respective quarter. However, the first account statement under SIP/STP/SWP shall be issued within 10 working days of the initial investment. In case of specific request received from investors, Mutual Funds shall provide the account statement to the investors within 5 working days from the receipt of such request without any charges. Further, soft copy of the account statement shall be mailed to the investors under SIP/STP/SWP to their e-mail address on a monthly basis, if so mandated. Mutual Funds shall provide the account statements to the unit holders who have not transacted during the last six months prior to the date of generation of account statements. The account statements in such cases may be generated and issued along with the Portfolio Statement or Annual Report of the scheme. The account statement should reflect the latest closing balance and value of the units prior to the date of generation of the account statement. Further, soft copy of the account statements shall be mailed to the investors’ e-mail address, instead of physical statement, if so mandated. D. SPECIAL CONSIDERATIONS Prevention of Money Laundering In terms of the Prevention of Money Laundering Act, 2002, the Rules issued there under and the guidelines/circulars issued by SEBI regarding the Anti Money Laundering (AML Laws), all intermediaries, including Mutual Funds, have to formulate and implement a client identification programme, verify and maintain the record of identity and address (es) of investors. In order to make the data capture and document submission easy and convenient for the investors, Mutual Fund Industry has collectively entrusted this responsibility of collection of documents relating to identity and address and record keeping to an independent agency (presently CDSL Ventures Limited) that will act as central record keeping agency (‘Central Agency’). As a token of having verified the identity and address and for efficient retrieval of records, the Central Agency will issue a Mutual Fund Identification Number (‘MIN’) to each investor who submits an application and the prescribed documents to the Central Agency. Investors who have obtained the MIN can invest in the schemes of the mutual fund by quoting the MIN in lieu of submitting information and documents required under AML Laws. Mutual Fund Identification Number Investors who wish to obtain a MIN have to submit a completed Application Form for MIN (‘MIN Form’) along with all the prescribed documents listed in the MIN Form, at any of the Point of Service (‘POS’). The MIN Form is available at our website www.escortsmutual.com and AMFI website (www.amfiindia.com). POS are the designated centers appointed by the Central Agency for receiving application forms, processing data and allotment of MIN. List of and location of POS is available at our website www.kotakmutual.com and www.amfiindia.com. On submission of application, documents and information to the satisfaction of the POS, the investor will be allotted a provisional MIN across the counter. Subsequently, the Central Agency will scrutinize the information and documents submitted by the investor, and confirm the MIN. 65 However, the Central Agency may cancel the MIN within 15 working days from the date of allotment of provisional MIN, in case of any deficiency in the document/information. Intimation on cancellation of MIN will be dispatched by the Central Agency to the investor immediately. No communication will be sent to the investor if the MIN as allotted is confirmed. Presently, it is mandatory for all applications for subscription of value of Rs.50, 000/- and above to quote the MIN of all the applicants (guardian in case of minor) in the application for subscription. The MIN will be validated with the records of the Central Agency before allotting units. Applications for subscriptions of value of Rs.50, 000/- and above without a valid MIN may be rejected. In the event of any MIN Application Form being subsequently rejected for lack of information / deficiency / insufficiency of mandatory documentation, the investment transaction will be cancelled and the amount may be redeemed at applicable NAV, subject to payment of exit load, wherever applicable. Such redemption proceeds will be dispatched within a maximum period of 21 days from date of acceptance of application. However, in case of subscriptions in scheme where Units are under a lock in period as prescribed in the respective Offer Documents allotment will be done only on confirmation from the Central Agency that the MIN is final and if the Central Agency informs that the MIN is cancelled, the original amount invested will be refunded). All investors (both individual and non-individual) can apply for a MIN. However, applicants should note that minors cannot apply for a MIN and any investment in the name of minors should be along with a Guardian, who should obtain a MIN for the purpose of investing with a Mutual Fund. Also, applicants / unit holders intending to apply for units / currently holding units and operating their Mutual Fund folios through a Power of Attorney (POA) must ensure that the issuer of the POA and the holder of the POA must mention their respective MIN at the time of investment above the threshold. POA holders are not permitted to apply for a MIN on behalf of the issuer of the POA. Separate procedures are prescribed for change in name, address and other MIN related details, should the applicant desire to change such information. POS will extend the services of effecting such changes. Applicants / Unit holders may contact our Investor Service Centres / their distributors, if any for any additional information/clarifications. Also, please visit our website www.escortsmutual.com for any other related information. XX. INVESTOR GRIEVANCES AND REDRESSAL MECHANISM The Mutual Fund follows up with the Investor Service Centres on all complaints and inquires received from unitholders regarding the New Fund Offer and the issue of Units with a view to resolving them quickly. In the event of an investor requiring Investor Service, in the normal course he/she/it is encouraged to contact: Ms. Mohini Sharma Registrar Services & Investor Service Department Escorts Asset Management Limited Regd. Office: 11, Scindia House, Connaught Circus, New Delhi – 110 001. (Tel): (011) 332-1654, 332-5177, 335-1343 (Fax): (011) 2376 1495 Website : www.escortsmutual.com 66 Investor Service Centres / Official Points of Service of Escorts Mutual Fund Deepak Tower, SCO 154/155, Sector 17C, 1st Floor, Chandigarh. Ph. No. – 09888022979; B – Chitrahar , 2nd Floor, 3 Nawal Kishore Road, Lucknow. Ph. No. – 0522-3261208, 9838939144; 407 A, 2nd Floor, Landmark, S 16 A Mahaveer Marg, C Sheme, Jaipur. Ph. No. – 09314519533; Crescent Tower 1st Floor, 229, AJC Bose Road, Kolkata. Ph No. – 033-40036013, 9830261721; 114-B Ashoka Place, Exhibition Road, Patna, Bihar. Ph. No. – 0612-2205340, 09835066510; Room No. 1B - 1, Mezzanine Level, 20 Raja Bahadur Mansion, Ambalal Doshi Marg, Hamam Street, Behind BSE, Fort, Mumbai. Ph. No. – 022-22626595, 9322590339; C/o Anil Kumar Ojha, ACC Flats, Flat No. 18, Gandak Road, Jamshedpur. Ph. No. – 9934569551; Srinath Plaza, 4th Floor, A Wing, Office No. 97, Dhyneshwar Paduka Chowk, F.C. Road, Shivajinagar, Pune. Ph. No. – 020-25510799, 9890809099; Plot No. 1, IIIrd Floor, Indo Unique Plaza, Ghatate Layout, Pt. Ravi Shankar Shukla Marg, Civil Lines, Nagpur – 440 001. Ph. No. – 09822942434; A-807, Wall Street II, Opp. Orient Club, Near Gujarat College, Ellis Bridge, Ahmedabad – 380 009. Ph. No. – 09327050566; Unit 401, Richmond Towers, 12, Richmond Road, Bangalore. Ph. No. – 080-22075106, 09986838485; Sector IC, Qtr. No. 178, Bokaro Steel City, Jharkhand. Ph. No. - 06542-243817, 9334171028; 38/32, Khas Bazar Shivala, Kanpur. Ph. No. – 0512- 2367927, 09838427271; K -7/41 DLF Phase –II, Gurgaon. Ph. No. – 9312667457; C/o Hari Shankar Dubey, 18/3A, Rampriya Road, Allenganj, Allahbad. Ph. No. – 9838203204; Plot No. – 63, Kesar Bhawan, Shakti Colony, Gali No. 6, Ratannada, Jodhpur. Ph. No. – 9829012740. Investor Complaints Data for the previous schemes of Escorts Mutual Fund is as follows: Escorts Income Bond Upto 31.03.2006 Upto 31.03.2005 Upto 31.03.2004 Complaints received 145 145 145 Complaints redressed 145 145 145 Balance NIL NIL NIL Escorts Income Plan Upto 31.03.2006 Upto 31.03.2005 Upto 31.03.2004 Complaints received 27 27 24 Complaints redressed 27 27 24 Balance NIL NIL NIL Escorts Tax Plan Upto 31.03.2006 Upto 31.03.2005 Upto 31.03.2004 Complaints received 9 9 8 Complaints redressed 9 9 8 Balance NIL NIL NIL Escorts Opportunities Fund Upto 31.03.2006 Upto 31.03.2005 Upto 31.03.2004 Complaints received 7 NIL NIL Complaints redressed 7 NIL NIL Balance NIL NIL NIL 67 Escorts Gilt Plan Upto 31.03.2006 Upto 31.03.2005 Upto 31.03.2004 Complaints received 4 4 4 Complaints redressed 4 4 4 Balance NIL NIL NIL Escorts Growth Plan Upto 31.03.2006 Upto 31.03.2005 Upto 31.03.2004 Complaints received 4 2 2 Complaints redressed 4 2 2 Balance NIL NIL NIL Escorts Balanced Fund Upto 31.03.2006 Upto 31.03.2005 Upto 31.03.2004 Complaints received 2 2 2 Complaints redressed 2 2 2 Balance NIL NIL NIL Escorts Liquid Plan Upto 31.03.2006 Upto 31.03.2005 Upto 31.03.2004 Complaints received NIL N.A. N.A. Complaints redressed NIL N.A. N.A. Balance NIL N.A. N.A. Escorts Floating Rate Fund Upto 31.03.2006 Upto 31.03.2005 Upto 31.03.2004 Complaints received NIL N.A. N.A. Complaints redressed NIL N.A. N.A. Balance NIL N.A. N.A. XXI. PENALTIES, PENDING LITIGATION OR PROCEEDINGS, FINDINGS OF INSPECTIONS OR INVESTIGATIONS FOR WHICH ACTION MAY HAVE BEEN TAKEN OR IS IN THE PROCESS OF BEING TAKEN BY ANY REGULATORY AUTHORITY 1. All cases of penalties awarded by SEBI under the SEBI Act or any of its regulations against the Sponsor of the Mutual Fund or any company associated with the Sponsor in any capacity including the Asset Management Company, Trustee Company/Board of Trustees, or any of the Directors or key personnel (specifically the fund managers) of the Asset Management Company and Trustee Company. The nature of the penalty must be disclosed. For Sponsor and its associates, other than penalties mentioned above, the penalties awarded by any financial regulatory body, including stock exchanges, including for defaults in respect of shareholders, debentureholders and depositors shall also be disclosed. Additionally, penalties awarded for any economic offence and violation of any securities laws shall be disclosed. There are no such cases. 2. Any pending material litigation proceedings incidental to the business of the Mutual Fund to which the Sponsor of the Mutual Fund or any company associated with the Sponsor in any capacity including the Asset Management Company, Board of Trustees / Trustee Company or any of the directors or key personnel is a party. Any pending criminal cases against the 68 Sponsor or any company associated with the Sponsor in any capacity including the Asset Management Company, Board of Trustees /Trustee Company or any of the Directors or key personnel should also be disclosed separately. There are no such cases. 3. Any deficiency in the systems and operations of the Sponsor of the Mutual Fund or any company associated with the sponsor in any capacity including the Asset Management Company or the Trustee Company which SEBI has specifically advised to be disclosed in the offer document, or which has been notified by any other regulatory agency, shall be disclosed. There are no such cases. 4. Any enquiry / adjudication proceedings under the SEBI Act and the Regulations made thereunder that are in progress against the Sponsor of the Mutual Fund or any company associated with the Sponsor in any capacity including the Asset Management Company, Board of Trustees / Trustee Company or any of the Directors or key personnel of the Asset Management Company shall be disclosed. There are no such cases. The above information has been disclosed in good faith as per the information available to the Asset Management Company. XXII. GENERAL Powers of the Mutual Fund • Power to make rule: Subject to the prior approval of SEBI, the Trustee may, from time to time prescribe such terms and make such rules, for the purpose of giving effect to the provisions of this Scheme with power to the Asset Management Company to add to, alter or amend all or any of the terms and rules that may be framed from time to time, provided however that when any change in the fundamental attributes of the Scheme or the Trust or fees and expenses payable or any other change which would modify the Scheme or affect the interest of the Unit holders is proposed to be carried out, the prior consent of not less than three-fourths of the Unit holders is obtained and the Unit holders who do not give their consent are allowed to redeem their holdings of Units under the scheme. • Power to remove difficulties: if any difficult arises in giving effect to the provisions of this Scheme, the Trustee may do anything not inconsistent with such provisions, which appear to it to be necessary, desirable or expedient, for the purpose of removing such difficulty. Scheme to be binding on Unit holders The terms of the Scheme and any amendment thereof shall be binding on each Unit holder and any person or persons claiming through or under it as if each Unit holder or such person expressly had agreed that such terms should be so binding. Notwithstanding anything contained in the offer document the provisions of the SEBI (Mutual Funds) Regulations, 1996 and the Guidelines thereunder shall be applicable. 69 The Scheme under this Offer Document was approved by the Board of Trustee vide Circular Resolution dated 16.01.2007. Any amendment to the Regulations and clarifications/ guidelines/ circulars issued in respect thereof by SEBI, from time to time shall be applicable to this Scheme and the Offer Document shall stand appropriately amended with effect from such date(s). For and on behalf of the Board of Directors of Escorts Asset Management Limited Sd/- Place: New Delhi Lalit K. Khanna Date: Director 70
"ESCORTS GOLD EXCHANGE TRADED FUND"