RELIANCE MUTUAL FUND. Reliance Pharma Fund An open-ended Pharma Sector Scheme

Transcription

1 OFFER DOCUMENT RELIANCE MUTUAL FUND Reliance Pharma Fund An open-ended Pharma Sector Scheme Sale of units at applicable NAV based prices during the continuous offer SPONSOR Corporate fice: Reliance Capital Limited Fosbery Road, f Reay Road Station (E), Mumbai Tel : Fax : TRUSTEE Corporate fice: Reliance Capital Trustee Co. Limited Kamala Mills Compound, Trade World, B Wing, 7th Floor, S. B. Marg, Lower Parel (W) Mumbai Tel Fax INVESTMENT MANAGER Corporate fice: Reliance Capital Asset Management Limited Kamala Mills Compound, Trade World, B Wing, 7th Floor, S. B. Marg, Lower Parel (W) Mumbai Tel Fax custmer_care@reliancemutual.com Touchbase Customer service center at REGISTRAR Karvy Computershare (P) Limited Karvy Plaza, 21, Road No.4, Street No.1, Banjara Hills Hyderabad Tel: Fax: CUSTODIAN Deutsche Bank Kodak House, Ground Floor, Mumbai AUDITORS TO THE SCHEME Haribhakti & Co. 42, Free Press House, Nariman Point, Mumbai INVESTORS SHOULD NOTE THAT This fer Document sets forth concisely the information that a prospective investor ought to know before investing. Investors should carefully read the fer Document before making an investment decision. This fer Document remains effective until a material change (other than a change in Fundamental Attributes and within the purview of the offer document) occurs. Material changes will be filed with Securities and Exchange Board of India (SEBI) and circulated to the Unitholders or may be publicly notified by advertisements in the newspapers, subject to the applicable Regulations. 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 the fer Document 1

2 has been filed with SEBI. The Units being offered for public subscription have neither been approved nor disapproved by SEBI, nor has SEBI certified the accuracy or adequacy of this fer Document. No person has been authorized to give any information or to make any representations not confirmed in this fer Document, in connection with the fer Document or the issue of Units, and any information or representations not contained herein must not be relied upon as having been authorized by the Mutual Fund or the Asset Management Company. This fer Document is updated as on March 31, 2006 and was approved by the Board of AMC and the Trustees on December 23, PLEASE RETAIN THIS OFFER DOCUMENT FOR FUTURE REFERENCE. 2

3 I. HIGHLIGHTS, RISK FACTORS AND DUE DILIGENCE HIGHLIGHTS 1. The Sponsor of the Fund is Reliance Capital Limited (RCL) having a net worth of over Rs. 1, crores as on March 31, Choice of Investment Plans: Reliance Pharma Fund offers the following plans: (a) Growth Plan: The Growth Plan is designed for investors interested in capital appreciation on their investment and not regular income. Accordingly, the Fund will not declare dividends under the Growth Plan. The income earned on the Growth Plan's corpus will remain invested in the Growth Plan. The Growth Plan has two options: (i) Growth Option: The Growth Plan has a Growth Option. Under this Option, there will be no distribution of income and the returns to the investor are only by way of capital gains/ appreciation, if any, through redemption at applicable NAV of the units held by them. (ii) Bonus Option: The Growth Plan has a Bonus Option. Guided by the philosophy of valueoriented returns, the Trustees may decide to periodically capitalise the sums from reserves including the amount of distributable surpluses of the scheme by way of allotment/ credit of bonus units to the unitholders accounts, the intent being to enhance the unitholders interests (b) Dividend Plan: The Dividend Plan has been designed for investors who require regular income in the form of dividends. Under the Dividend Plan, the Fund will endeavor to make regular dividend payments to the unit holders. Dividend will be distributed from the available distributable surplus after the deduction of dividend distribution tax and applicable surcharge, if any. Dividend Plan has two options: (i) Dividend Payout Option: Under this option the Dividend declared under the Dividend Plan will be paid to the unit holders within 30 days from the declaration of the dividend. (ii) Dividend Re-investment Option: The Dividend Plan has a Re-investment Option whereby the dividend distributed under the plan will be automatically re-invested at the exdividend NAV on the transaction day following the date of declaration of dividend and additional units will be allotted accordingly. Investors desirous of opting for the same should indicate the same in the space provided in the application form. The Fund, however, does not assure any targeted annual return/ income nor any capitalisation ratio. Accumulation of earnings and/ or capitalisation of bonus units and the consequent determination of NAV, may be suspended temporarily or indefinitely under any of the circumstances as stated under the para on 'Suspension of Purchases and/or Redemption of units' of the fer Document. Please note that if no Plan is mentioned / indicated in the Application form, the units will, by default, be allotted under the Growth Plan. Similarly, under the Dividend Plan, if no choice (payout or reinvestment) is indicated, the applicant will be deemed to have applied for the Dividend Re-investment Option under the plan. If no Option is indicated under the Growth Plan, the applicant will be deemed to have applied for the Growth Option under the Growth Plan. The unit holder is subsequently free to switch the units from the default plan / option to any other eligible plans / options of the Scheme, at the applicable NAV. 3. Investment Objective: The primary investment objective of the scheme is to seek to generate consistent returns by investing in equity / equity related securities or fixed income securities of Pharma and other associated companies. 3

4 4. Transparency:? The NAV will be calculated and disclosed at the close of every working day which shall be published in at least two daily newspapers and also uploaded on the AMFI website and Reliance Mutual Fund website i.e. Publication of Abridged Half-yearly Un-audited / Audited Financial Results in the newspapers or as may be prescribed under the Regulations from time to time.? Communication of Portfolio on a half-yearly basis to the Unit holders directly or through the Publications or as may be prescribed under the Regulations from time to time.? Despatch of the Annual Reports of the respective Schemes within the stipulated period as required under the Regulations. 5. Liquidity: As per SEBI Regulations, the Mutual Fund shall despatch redemption proceeds within 10 Working Days of receiving a valid Redemption request. A penal interest of 15% or such other rate as may be prescribed by SEBI from time to time, will be paid in case the redemption proceeds are not made within 10 Working Days of the date of receipt of a valid redemption request. However, under normal circumstances, the Mutual Fund will endeavor to despatch the Redemption cheque within 3-4 Working Days from the acceptance of a valid redemption request. 6. Flexibility: Unit holders will have the flexibility to alter the allocation of their investments among the scheme(s) offered by the Mutual Fund, in order to suit their changing investment needs, by easily switching between the scheme(s) / plans of the Mutual Fund. 7. Repatriation: Full Repatriation benefits would be available to NRIs/FIIs subject to applicable conditions. RISK FACTORS AND SPECIAL CONSIDERATIONS GENERAL RISK FACTORS? Mutual Funds and securities investments are subject to market risks and there is no assurance or guarantee that the objectives of the Scheme will be achieved.? As with any investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on the factors and forces affecting the capital markets.? Past performance of the Sponsor/AMC/Mutual Fund is not indicative of the future performance of the Scheme.? Reliance Pharma Fund is only the name of the Scheme and does not in any manner indicate either the quality of the Scheme; its future prospects or returns.? The Sponsor is not responsible or liable for any loss resulting from the operation of the Scheme beyond their initial contribution of Rs.1 lakh towards the setting up of the Mutual Fund and such other accretions and additions to the corpus.? The Mutual Fund is not guaranteeing or assuring any dividend/ bonus. The Mutual Fund is also not assuring that it will make periodical dividend/bonus distributions, though it has every intention of doing so. All dividend/bonus distributions are subject to the investment performance of the Scheme. SCHEME SPECIFIC RISK FACTORS:? Trading volumes and settlement periods may restrict liquidity in equity and debt investments. 4

5 ? The scheme being sector specific will be affected by the risks associated with the Pharma sector.? Investment in Debt is subject to price, credit, and interest rate risk.? The NAV of the Scheme may be affected, inter alia, by changes in the market conditions, interest rates, trading volumes, settlement periods and transfer procedures.? The liquidity of the Scheme's investments may be inherently restricted by trading volumes, settlement periods and transfer procedures. In the event of an inordinately large number of redemption requests, or of a re-structuring of the Scheme's investment portfolio, these periods may become significant. Please read the Sections of this fer Document entitled "Special Considerations" and "Right to Limit Redemptions".? As per SEBI circular dated December 12, 2003 ref SEBI/IMD/CIR No.10/22701/03 and dated June 14, 2005 ref SEBI/IMD/CIR NO.1/42529/05, 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) at portfolio level within a period of three months or at the end of the succeeding calendar quarter, whichever is earlier from the close of the New Fund fer (NFO). After the NFO and the 3 months balancing period, in each subsequent quarter thereafter, on an average basis, the scheme shall meet with both the conditions of minimum number of investor and holding as a percentage of the corpus. Determining the breach of 25% limit - 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 Fund may invest in overseas equities / ADR's / GDR's with the approval of RBI/SEBI, subject to such guidelines as may be issued by RBI/SEBI. The net assets, distributions and income of the scheme may be affected adversely by fluctuations in the value of certain foreign currencies relative to the Indian Rupee to the extent of investments in these securities. Repatriation of such investment may also be affected by changes in the regulatory and political environments. The scheme's NAV may also be affected by a fluctuation in the general and specific level of interest rates internationally, or the change in the credit profiles of the issuers.? Although, the objective of the Fund is to generate optimal returns, the objective may or may not be achieved. The investors may note that if the AMC/Investment Manager is not able to make right decision regarding the timing of increasing exposure in debt securities in times of falling equity market, it may result in negative returns. Given the nature of scheme, the portfolio turnover ratio may be on the higher side commensurate with the investment decisions and Asset Allocation of the Scheme. At times, such churning of portfolio may lead to losses due to subsequent negative or unfavorable market movements.? The tax benefits described in this fer Document are as available under the present taxation laws and are available subject to relevant conditions. The information given is included only for general purpose and is based on advice received by the AMC regarding the law and practice currently in force in India and the Unit holders should be aware that the relevant fiscal rules or their interpretation may change. As is the case with any investment, there can be no guarantee that the tax position or the proposed tax position prevailing at the time of an investment in the Scheme will endure indefinitely. In view of the individual nature of tax consequences, each Unit holder is advised to consult his / her own professional tax advisor. 5

6 Risk with regard to non-diversification of the portfolio: Since the proposed scheme is a sectoral scheme, the investment universe is limited to companies that are operating in the pharma sector. The scope for diversification could be limited at times. There could be instances the investment portfolio might have an unusually high exposure to a few stocks. However, given the nature of the scheme, the Mutual Fund may invest upto 100 % of the corpus into debt / money market instruments of Pharma Sector for a short term period on a defensive consideration. Risks associated with stock lending The risks in lending portfolio securities, as with other extensions of credit, consist of the failure of another party, in this case the approved intermediary, to comply with the terms of agreement entered into between the lender of securities i.e. the Scheme and the approved intermediary. Such failure to comply can result in the possible loss of rights in the collateral put up by the borrower of the securities, the inability of the Approved Intermediary to return the securities deposited by the lender and the possible loss of any corporate benefits accruing to the lender from the securities deposited with the approved intermediary. Advantages and Risks attached with investments in ADRs/GDRs: It is AMC's belief that the investment in ADRs/GDRs/overseas securities offer new investment and portfolio diversification opportunities into multi-market and multi-currency products. However, such investments also entail additional risks. Such investment opportunities may be pursued by the AMC provided they are considered appropriate in terms of the overall investment objectives of the schemes. Since the Scheme would invest only partially in ADRs/ GDRs/overseas securities, there may not be readily available and widely accepted benchmarks to measure performance of the Scheme. To manage risks associated with foreign currency and interest rate exposure, the Fund may use derivatives for efficient portfolio management including hedging and in accordance with conditions as may be stipulated by SEBI/RBI from time to time. To the extent that the assets of the Schemes will be invested in securities denominated in foreign currencies, the Indian Rupee equivalent of the net assets, distributions and income may be adversely affected by the changes in the value of certain foreign currencies relative to the Indian Rupee. The repatriation of capital also may be hampered by changes in regulations concerning exchange controls or political circumstances as well as the application to it of the other restrictions on investment. fshore investments will be made subject to any/all approvals, conditions thereof as may be stipulated by SEBI/RBI and provided such investments do not result in expenses to the Fund in excess of the ceiling on expenses prescribed by and consistent with costs and expenses attendant to international investing. The Fund may, wherever necessary, appoint other intermediaries of repute as advisors, custodian/sub-custodians etc. for managing and administering such investments. The appointment of such intermediaries shall be in accordance with the applicable requirements of SEBI and within the permissible ceilings of expenses. The fees and expenses would illustratively include, besides the investment management fees, custody fees and costs, fees of appointed advisors and sub-managers, transaction costs, and overseas regulatory costs. 6

7 RISK FACTOR ASSOCIATED WITH OVERSEAS INVESTMENT: Subject to necessary approvals and within the investment objectives of the Scheme, the Scheme may invest in overseas markets which carry a risk on account of fluctuations in foreign exchange rates, nature of securities market of the country concerned, repatriation of capital due to exchange control and political circumstances. SPECIAL CONSIDERATIONS The Mutual Fund is not assuring or guaranteeing that it will be able to make regular periodical distributions/distribute bonus units to its Unit holders though it has every intention to manage the portfolio so as to make periodical income/bonus distributions to Unit holders. Periodical distributions will be dependent on the returns achieved by the Asset Management Company through the active management of the portfolio. Periodical distributions may therefore vary from period to period, based on investment results of the portfolio. Risks attached with the use of derivatives: RCAM may use various derivative products, as permitted by SEBI from time to time, in an attempt to protect the value of the portfolio and enhance Unit holder's interest/value of the Scheme. As and when the schemes trade in the derivatives market there are risk factors and issues concerning the use of derivatives that investors should understand derivative products are specialized instruments that require investment techniques and risk analyses different from those associated with stocks and bonds. The use of a derivative requires an understanding not only of the underlying instrument but also of the derivative itself. Derivatives require the maintenance of adequate controls to monitor the transactions entered into, the ability to assess the risk that a derivative adds to the portfolio and the ability to forecast price or interest rate movements correctly. There is the possibility that a loss may be sustained by the portfolio as a result of the failure of another party (usually referred to as the "counter party") to comply with the terms of the derivatives contract. Other risks in using derivatives include the risk of mispricing or improper valuation of derivatives and the inability of derivatives to correlate perfectly with underlying assets, rates and indices. Thus, derivatives are highly leveraged instruments. Even a small price movement in the underlying security could have a large impact on their value. Also, the market for derivative instruments is nascent in India. The Trustees have the right in their sole discretion; to limit redemptions under certain circumstances mentioned elsewhere in the fer Document. Investors should study this fer Document carefully in its entirety and should not construe the contents hereof as advise relating to legal, taxation, investment or any other matters. Investors are advised to consult their legal, tax, investment and other professional advisors to determine possible legal, tax, financial or other considerations of subscribing to or redeeming units, before making a decision to invest / redeem Units. Investors are urged to study the terms of the fer carefully before investing in this Scheme, and to retain this fer Document for future reference. 7

8 It is confirmed that: DUE DILIGENCE CERTIFICATE? The Draft fer Document of Reliance Pharma Fund, forwarded to SEBI, is in accordance with the SEBI (Mutual Funds) Regulations, 1996 and the guidelines and directives issued by SEBI from time to time.? All the legal requirements in connection with the launch of the Scheme as also the guidelines, instructions etc., issued by the Government and any other competent authority in this behalf, have been duly complied with.? The disclosures made in the fer Document are true, fair and adequate to enable the investors to make a well-informed decision regarding investment in the Scheme.? The intermediaries named in the offer document are registered with SEBI, untill the date, such registrations are valid.? The contents of the fer Document including figures, data, yields etc. have been checked and are factually correct. Place:Mumbai Date: December 24, 2003 Signature Name: K. Suresh Babu Designation: Compliance ficer Note: The Due Diligence as stated above was submitted to the Securities and Exchange Board of India on December 24,

9 II. DEFINITIONS AND ABBREVIATIONS In this fer Document, the following words and expressions shall have the meaning specified below, unless the context otherwise requires: Applicable NAV: Applicable NAV is the Net Asset Value per Unit at the close of the Working Day on which the application for purchase or redemption is received at the designated investor service centre and is considered accepted on that day. An application is considered accepted on that day, subject to it being complete in all respects and received prior to the cut-off time on that Working Day. Asset Management Company/AMC/Investment Manager/RCAM: Reliance Capital Asset Management Limited, the Asset Management Company incorporated under the Companies Act 1956, and authorized by SEBI to act as the Investment Manager to the Schemes of Reliance Mutual Fund (RMF). Bonus Unit : Bonus Unit means and includes, where the context so requires, a unit issued as fully paid-up bonus unit by capitalizing a part of the amount standing to the credit of the account of the reserves formed or otherwise in respect of this scheme. CDSC: Contingent Deferred Sales Charge, a charge imposed when the units are redeemed within the first four years of unit ownership. The SEBI (Mutual Fund) Regulations, 1996 direct that a CDSC may be charged only for the first four years after purchase and mandates the maximum amount that can be charged in each year. Collecting Bank: Branches of Banks for the time being authorized to receive application(s) for units, as mentioned in this document. Continuous fer: fer of the Units when the Scheme becomes open ended, after closure of the New Fund fer. Custodian: Deutsche Bank, Mumbai, acting as Custodian to the Scheme, or any other custodian who is appointed by the Trustee. Designated Investor Service Centres (DISC / ficial point of acceptance for transaction): Any location as may be defined by the Asset Management Company from time to time, where investors can tender the request for subscription, redemption or switching of units etc. Entry Load: Load on subscriptions / switch in. However no entry loads shall be applicable on investments made by a Fund of Funds scheme in Reliance PharmaScheme. Exit Load: Load on redemptions / switch out. Equity related instruments: Such instruments like Convertible bonds and debentures and warrants carrying the right to obtain equity shares and derivative instruments. 9

10 FII: Foreign Institutional Investors, registered with SEBI under the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, Investment Management Agreement (IMA): The Agreement entered into between Reliance Capital Trustee Co. Limited and Reliance Capital Asset Management Limited by which RCAM has been appointed the Investment Manager for managing the funds raised by RMF under the various Schemes, and all amendments thereof. Load: A charge that may be levied as a percentage of NAV at the time of entry into the scheme/plans or at the time of exiting from the scheme/ plans. Local Cheque: A Cheque handled locally and drawn on any bank, which is a member of the banker's clearing house located at the place where the application form is submitted. Regulations/ Mutual Fund Regulations: Securities and Exchange Board of India (Mutual Funds) Regulations as amended from time to time and such other regulations as may be in force from time to time to regulate the activities of Mutual Funds. NAV / Net Asset Value: Net Asset Value of the Units in each plan of the Scheme is calculated in the manner provided in this fer Document or as may be prescribed by Regulations from time to time. The NAV will be computed upto two decimal places. NRI: Non-Resident Indian. fer Document: The document issued by Reliance Mutual Fund, offering units of Reliance Pharma Fund ( An open-ended Pharma Sector Scheme ) for subscription. PIO: Person of Indian Origin Purchase Price: Purchase Price to the investor of Units of any of the plans computed in the manner indicated in this offer document. RBI / Reserve Bank of India: Reserve Bank of India, established under the Reserve Bank of India Act, RMF /Mutual Fund/the Fund: Reliance Mutual Fund, (formerly known as Reliance Capital Mutual Fund), a Trust under Indian Trust Act, 1882 and registered with SEBI vide registration number MF/022/95/1 dated June 30, RCTC/Trustee/Trustee Company: Reliance Capital Trustee Co. Limited, a Company incorporated under the Companies Act, 1956, and authorized by SEBI and by the Trust Deed to act as the Trustee of Reliance Mutual Fund. RCL/Sponsor/Settlor: Reliance Capital Limited Redemption Price: Redemption Price to the investor of Units of any of the plans computed in the manner indicated in this offer document. 10

11 Registrar /Karvy: Karvy Computershare Pvt Ltd., who have been appointed as the Registrar or any other Registrar who is appointed by RCAM. Scheme: Reliance PharmaFund ("An open-ended PharmaSector Scheme") SEBI: The Securities and Exchange Board of India. SEBI Regulations/ Regulations: SEBI (Mutual Fund) Regulations, 1996, including any subsequent amendments or modifications therto. Plans: The Scheme offers two Plans, Growth Plan and Dividend Plan Trigger Facility: Value & NAV Trigger to introduce a Stop loss or a Gain Cap. Trust Deed: The Trust Deed entered into on April 25, 1995 between the Sponsor and the Trustee, and all amendments thereof. Trust Fund: The corpus of the Trust, unit capital and all property belonging to and/or vested in the Trustee. Unit: The interest of the investors in any of the plans, of the scheme which consists of each Unit representing one undivided share in the assets of the corresponding plan of the scheme. Unitholder: A person who holds Unit(s) under the scheme. Unitholders Record: Unitholders whose names appear on the unitholders register of the concerned plan/(s) on the date of determination of dividend, subject to realization of the cheque. Working Day: Any day, provided such day is not a Saturday or Sunday or any day on which Banks in Mumbai are Closed for commercial transactions and The Stock Exchange, Mumbai and/or National Stock Exchange are closed for transactions or a day on which banks are open but The Stock Exchange, Mumbai and/or The National Stock Exchange are closed for transactions or a day on which sale of units is suspended by the AMC or a day on which normal business could not be transacted due to storms, floods, bandhs, strikes or any other calamities, etc, subject to modifications by RCAM from time to time. Words and Expressions used in this fer Document and not defined: Same meaning as in Regulations. 11

12 III. SUMMARY OF THE SCHEME SCHEME FEATURES: Scheme: Reliance Pharma Fund Type: An open-ended Pharma Sector Scheme Investment Pattern: 0 100% in Equity & Equity related securities in the Pharma Sector % in Income Securities of Pharma Sector & Money Market Instruments Investment Objective: The primary investment objective of the scheme is to seek to generate continuous returns by actively investing in equity / equity related or fixed income securities of Pharma and other associated companies. Net Asset Value: Calculated & declared every Working day Plans/Options: Dividend & Growth Plans. Dividend Pay-out & Reinvestment Options under Dividend Plan & Growth and Bonus Options under Growth Plan Minimum Application Amount: Rs. 5,000/- for Resident and Non-resident investors and in multiples of Re. 1, thereafter Minimum Additional Investment* (During Continuous fer): Rs. 1000/- and in multiples of Re. 1 thereafter (*including switch in after opening a folio with minimum of Rs 5000/-) Portfolio Disclosures: Half-yearly Entry Load: For Subscription below Rs. 2 crs 2.25% For subscription of Rs. 2 crs & above and below Rs 5 crs 1.25% For Subscription of Rs 5 crs & above Exit Load:. Contingent Deferred Sales Charge: Inter-Scheme Switch: At the applicable loads in the respective Scheme/s Inter Plan/Inter Option Switch: Redemption Cheques Issued: Mutual Fund shall endeavour to issue within 3 4 Working days Minimum Redemption: Any amount or any number of units 12

13 Cut off time: 3:00 p.m. on working days as defined in the fer Document Recurring / Systematic Investment Plan (RIP/SIP): Available as detailed elsewhere in the fer Document Regular Withdrawal Plan (RWP): Available as detailed elsewhere in the fer Document Regular Investment Option for corporate employees (RICE): Available as detailed elsewhere in the fer Document. Switch Facility: Available, subject to minimum Rs. 5000/- & any amount thereafter in switch in scheme (for opening a new folio/account) & minimum Rs 1000 & any amount thereafter for additional switch in. No load applicable for switches between the equity / sector specific schemes. However, differential load shall be charged for switching from Reliance Index to any other equity/sector specific scheme and switching from any other equity / sector specific scheme to Reliance NRI Equity Fund. Nomination Facility: Available Systematic Transfer Plan (STP): Available Dividend Transfer Plan (DTP): Available Mode of Holding: Single, Joint or Anyone or Survivor Benchmark Index: BSE Health Care Index Switching Option: Investors may opt to switch Units between the Dividend Plan and Growth Plan of the Scheme at NAV based prices. Switching will also be allowed into/from any other eligible open-ended Schemes of the Fund either currently in existence or a Scheme(s) that may be launched / managed in future, as per the features of the respective scheme and as per the applicable loads. Recurring Expenses Investment Management Expenses 1.25 % Marketing Expenses.75% Operational Expenses 0.25% Total 2. 25% The above expenses are estimates only and are subject to change as per actuals. While the AMC fees remains the same, other expenses, namely, Marketing Expenses and Operational Expenses may change inter se and the total expenses shall not exceed 2.50% of the amount of the Scheme's average daily net assets. Subject to SEBI Regulations, the AMC reserve the right to modify the above estimate for recurring expenses on a prospective basis. 13

14 Allotment of Units: Allotment of units in respect of applications received during NFO will be made within one month from date of closure of the NFO (subject to realization of cheque/draft). For Subscriptions received after re-opening for continuous offer,at the DISC's within the cut-off timings and considered accepted for that day, the units will be allotted as per the applicable NAV on the T day, Where the T day is the transaction day, provided the application is received within the cut-off timings for the transaction day. RCAM, in consultation with the Trustees reserves the right to discontinue/ add more plans/ options at a later date subject to complying with the prevailing SEBI guidelines and Regulations. RCAM, in consultation with the Trustees, reserves the right to change the Load structure if it so deems fit in the interest of smooth and efficient functioning of the Scheme, on a prospective basis. IV. CONSTITUTION AND MANAGEMENT OF THE FUND 1. THE FUND Reliance Mutual Fund Reliance Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882 with Reliance Capital Limited, as the Settlor/Sponsor and Reliance Capital Trustee Co. Limited, as the Trustee. RMF has been registered with the Securities & Exchange Board of India (SEBI) vide registration number MF/022/95/1 dated June 30, The name of the Mutual Fund has been changed from Reliance Capital Mutual Fund to Reliance Mutual Fund effective March 11, 2004 vide SEBI's letter no. IMD/PSP/4958/2004 date March 11, Reliance Mutual Fund was formed to launch various schemes under which units are issued to the public with a view to contribute to the capital market and to provide investors the opportunities to make investments in diversified securities. The main objects of the Trust are: - i. To carry on the activity of a Mutual Fund as may be permitted by law and formulate and devise various collective Schemes of savings and investments for people in India and abroad and also ensure liquidity of investments for the Unitholders; ii. To deploy Funds thus raised so as to help the Unitholders earn reasonable returns on their savings; and iii. To take such steps as may be necessary from time to time to realise the effects without any limitation. 2. SPONSOR COMPANY Reliance Capital Limited Reliance Capital Asset Management Limited is a wholly owned subsidiary of Reliance Capital Limited, the sponsor. The entire paid-up capital (100%) of Reliance Capital Asset Management Limited is held by Reliance Capital Limited. 14

15 Reliance Mutual Fund (RMF) has been sponsored by Reliance Capital Ltd. (RCL). RCL has been promoted by Reliance Industries Limited (RIL), one of India's largest private sector enterprise and AAA Enterprises (P) Limited. RIL has a net worth of Rs.40,483 crores as on March 31, 2005 and currently has a large family of shareholders. Reliance Capital Limited is a Non Banking Finance Company engaged in leasing, investment and other fund based activities. The networth of RCL is Rs. 1, crores as on March 31, Given below is a summary of RCL's financials: (Rs. in crores) Particulars Total Income Profit Before Tax Profit After Tax Reserves & Surplus Net Worth Earnings per Share (Rs.) (Basic + Diluted) (Basic+ Diluted) Book Value per Share (Rs.) Dividend (%) 30% 29% 29% Paid up Equity Capital RCL has contributed Rupees One Lac as the initial contribution to the corpus for the setting up of the Mutual Fund. RCL is responsible for discharging its functions and responsibilities towards the Fund in accordance with the SEBI Regulations. The Sponsor is not responsible or liable for any loss resulting from the operation of the Scheme beyond the contribution of an amount of Rupees one lakh made by them towards the initial corpus for setting up the Fund and such other accretions and additions to the corpus. 3. THE TRUSTEE Reliance Capital Trustee Co. Limited Regd. fice: EO1, Reliance Greens Village Motikhavdi, Digvijaygram, District Jamnagar Gujarat Corporate fice : Kamala Mills Compound, Trade World, B Wing,7th Floor, Lower Parel (West), Mumbai Reliance Capital Trustee Co. Limited (RCTC), a company incorporated under the Companies Act, 1956, has been appointed as the Trustee to the Fund vide the Trust Deed dated April 25, 1995 executed between the Sponsor and the Trustee. RCTC has been appointed as the Trustee to Reliance India PharmaFund, a Venture Capital Fund registered with the SEBI vide registration number IN/VCF/05-06/062 dated June 16, 2005 but this activity is yet to commence. An application has also been filed for registration of Reliance Venture Capital Fund with SEBI. 15

16 1. The Directors Directors of RCTC are: Name and Address Mr. S. P. Talwar Limited, 162, Kshitij, 16th Floor, Limited, 47, Nepean Sea Road, Mumbai (Former Deputy Governor of Reserve Bank of India) Mr. S. S. Bhandari P-7, Tilak Marg, C; Scheme, Jaipur Chartered Accountant Mr. A. N. Shanbhag* 96/11, Mohini Mansion, 2nd Floor, Near D. S. High School, Sion(W), Mumbai Other Directorships Director: Venragiri Power Generation Reliance General Insurance Company Reliance Life Insurance Company Limited, M/s. Crompton Greaves Limited Videocon Industries Limited, Reliance Capital Ventures Limited, Reliance Communications Ventures Limited Director: M/s Vaibhav Gems Limited, Jaipur Senior Partner: M/s S. Bhandari & Co. Chartered Acountants, Jaipur Director: CanBank Mutual Fund, MCS Ltd Proprietor: Wonderland Investments Consultants Tax & Investment Consultant Mr. Sujal Shah 9, Ganesh Bhuvan, Natwar Nagar, Road No. 2 Jogeshwari (East), Mumbai Director: i-process Services (India) Private Limited, Gitanjali Gems Limited, Partner : M/s N. M. Raiji & Co. Chartered Accountant * Associate Director 2. Duties and Obligations of the Trustees In accordance with SEBI (Mutual Funds) Regulations, 1996 and the Trust Deed constituting the Mutual Fund, the Trustees are required to fulfill several duties and obligations, including the following: a. The Trustee and the Asset Management Company shall with the prior approval of SEBI enter into an Investment Management Agreement (IMA). b. The Investment Management Agreement shall contain such clauses as are mentioned in the Fourth Schedule of the SEBI (MFs) Regulations, 1996 and other such clauses as are necessary for the purpose of making investments. 16

17 c. The Trustees shall have a right to obtain from the Asset Management Company such information as is considered necessary by the Trustees. d. The Trustee shall ensure before the launch of any scheme that the Asset Management Company possesses/has done the following: (i) Systems in place for its back office, dealing room and accounting; (ii) 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 to SEBI, within 15 days of their appointment; (iii) Appointed Auditors to audit its accounts; (iv) Appointed a Compliance ficer to comply with regulatory requirement and to redress investor grievances; (v) Appointed Registrars and laid down parameters for their supervision; (vi) Prepared a compliance manual and designed internal control mechanisms including internal audit systems; and (vii) Specified norms for empanelment of brokers and marketing agents. e. The Trustee shall ensure that the 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. f. The Trustee shall ensure that the Asset Management Company has not given any undue or unfair advantage to any associate or dealt with any of the associates of the Asset Management Company in any manner detrimental to interest of unitholders. g. The Trustee shall ensure that the transactions entered into by the Asset Management Company are in accordance with the SEBI (Mutual Funds) Regulations, 1996 and the Scheme. h. The Trustee shall ensure that the Asset Management Company has been managing the Mutual Fund Scheme independent of other activities and have taken adequate steps to ensure that the interest of investors of one Scheme are not compromised with those of any other scheme or of other activities of the Asset Management Company. i. The Trustee shall ensure that all the activities of the Asset Management Company are in accordance with the provisions of SEBI (Mutual Funds) Regulations, j. Where the Trustees have reason to believe that the conduct of the business of the Mutual Fund is not in accordance with the Regulations and the Scheme, they shall forthwith take such remedial steps as deemed necessary by them and shall immediately inform SEBI of the violation and the action taken by them. k. Each Trustee shall file the details of his transactions in securities (above Rs.1 Lac per transaction) with the Mutual Fund on a quarterly basis. l. 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 unitholders in accordance with the SEBI (Mutual Funds) Regulations, 1996 and the provisions of the Trust Deed. m. The Trustees shall take steps to ensure that the transactions of the Mutual Fund are in accordance with the provisions of the Trust Deed. n. 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 unitholders of any Scheme in accordance with the SEBI (Mutual Funds) Regulations, 1996 and the Trust Deed. o. The Trustees shall obtain the consent of the unitholders of the Scheme: 17

18 (i) Whenever required to do so by SEBI in the interest of the unitholders; (ii) Whenever required to do so, on the requisition made by three-fourths of the unitholders of any Scheme under the Mutual Fund; (iii) When the majority of the Trustees decide to wind up the Scheme or prematurely redeem the Units; p. 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 :- (a) 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 (b) The unitholders are given an option to exit at the prevailing net asset value without any exit load. q. The Trustee 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 SEBI, as and when required. r. The Trustee shall quarterly review all transactions carried out between the Mutual Fund, Asset Management Company and its associates. s. The Trustee shall quarterly review the net worth of the Asset Management Company and shall ensure that the same is in accordance with the clause (f) of sub-regulation (1) of regulation 21 of SEBI (Mutual Funds) Regulations, t. The Trustee 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. u. The Trustee shall ensure that there is no conflict of interest between the manner of deployment of the net worth by the Asset Management Company and the interest of the unitholders. v. The Trustee shall periodically review the investor complaints received and the redressal of the same by the Asset Management Company. w. The Trustee shall abide by the Code of Conduct as specified in the Fifth Schedule of the SEBI (Mutual Funds) Regulations, x. The Trustee shall furnish to SEBI on a half-yearly basis the following: (i) A report on the activities of the Mutual Fund; (ii) 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 and by the directors and key personnel of the Asset Management Company; and (iii) A certificate to the effect that the Asset Management Company has been managing the Scheme independently of any other activities and in case any activities of the nature referred to in regulation 24(2) of the SEBI (Mutual Funds) Regulations, 1996 have been undertaken by the Asset Management Company, adequate steps to ensure that the interest of the unitholders are protected, have been taken. y. 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. z. The Trustees shall exercise due diligence as under: 18

19 General Due Diligence: i) The Trustees shall be discerning in the appointment of the directors on the Board of the Asset Management Company. ii) The Trustees shall review the desirability or 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 Trustee 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 the service providers are holding appropriate registrations from SEBI or concerned regulatory authority. v) The Trustees shall arrange for test checks of service contracts. vi) The Trustees shall immediately report to SEBI of any special developments in the Mutual Fund. Specific Due Diligence: The Trustees shall: i) Obtain internal audit reports at regular intervals from independent auditors appointed by the Trustees. ii) Obtain compliance certificates at regular intervals from the Asset Management Company. iii) Hold meetings of the Trustees once in two calendar months and atleast six such meetings shall be held in every year. 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. aa. The independent directors of the trustees 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 contracts with affiliates as to 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 by Regulations. 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 others for services provided. viii) Principal underwriting contracts and renewals ix) Any service contract with the associates of the Asset Management Company. 19

20 ab. The Trust Deed shall not be amended without obtaining the prior approval of SEBI, and the unitholders approval would be obtained where it affects the interest of unitholders. Where SEBI Regulations provide for seeking the approval of the Unit Holders for any purpose, the Trustee may adopt any of the following procedures: (i) Seeking approval by postal ballot or (ii) Approval of the Unit-holders present and voting at a meeting to be specifically convened by the Trustee for the purpose. For this purpose, the Trustees shall give 21 days notice to the Unit Holders and the Trustees may lay down guidelines for the actual conduct and accomplishment of the voting at the meeting and announcement of the results. Under the Trust Deed, duties and obligations also include the following: i) In carrying out its responsibility, the Trustee and its directors shall maintain arms length relationship with other companies, or institutions or financial intermediaries or any body corporate with which they may be associated. ii) The Directors of the Trustee shall not participate in any decision-making process/resolutions of its board meetings for any investment in which they may be interested. iii) All the Trustees shall furnish to the Board of Trustees or Trustee Company particulars of 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. iv) The Trustee shall not acquire or allow the AMC to acquire any asset out of the Trust Fund and/or Unit Capital, which involves the assumption of unlimited liability or results in encumbrance of Trust Fund and/or Unit Capital in any way. v) The Trustee shall not make or guarantee loans or take up any activity in contravention of SEBI Regulations except with the prior approval of SEBI nor shall it allow the AMC to do so. However, as and when there is an addition / modification / deletion in the duties and responsibilities of the Trustee, due to a change in the SEBI Regulations, such addition / modification / deletion shall be applicable here, accordingly. The Trustee shall not be held liable for acts done in good faith if they have exercised adequate due diligence honestly. The Trustees shall meet at least once in two calendar months and at least six such meetings shall be held in every year to review the information / reports submitted by the AMC in accordance with the Regulations. As per Regulations prevailing during the year ended March 31, 2005, six meetings of the Board of Directors of the Trustee Company were held. The Trustees have also appointed the statutory auditors to verify the books of accounts and to ascertain the true and fair representation of the state of affairs as on a particular day and to ascertain profit/ loss of the Mutual Fund, as at the end of the financial year. The Board of Trustees has constituted an Audit Committee, chaired by an independent Trustee. The Committee meets periodically to discuss the internal control systems, the scope of audit of the internal auditors, as well as the observations made by them. It also reviews the half-yearly and annual financial accounts. Recommendations, if any, of the 20