PRUDENTIAL ICICI SHORT TERM PLAN

Transcription

1 ADDENDUM & Application Form Addendum to Prudential ICICI Income Plan PRUDENTIAL ICICI SHORT TERM PLAN AN OPEN ENDED INCOME FUND FROM Prudential ICICI Mutual Fund Issue of Units of Rs.10/- per Unit for Cash during the Initial Offer Period and thereafter at the Applicable NAV. PRUDENTIAL ICICI SHORT TERM PLAN Initial Offer Opens on : OCTOBER 18, 2001 Initial Offer Closes on : OCTOBER 19, 2001 Sponsors: Prudential plc (formerly known as Prudential Corporation plc, through its wholly owned subsidiary, Prudential Corporation Holdings Limited), 142 Holborn Bars, London EC 1N 2NH, UK, and ICICI Limited, ICICI Towers, Bandra-Kurla Complex, Bandra (E), Mumbai Investment Manager: Prudential ICICI Asset Management Company Limited Corp. Office: Contractor Building, 3 rd Floor, 41, R. Kamani Marg, Ballard Estate, Mumbai Regd. Office: 206 Ashoka Estate, 2 nd Floor, 24 Barakhamba Road, New Delhi Trustee: Prudential ICICI Trust Limited Regd. Office: 206 Ashoka Estate, 2 nd Floor, 24 Barakhamba Road, New Delhi This addendum sets forth concisely, the information about the Scheme that a prospective investor should know before investing. The addendum should be retained for future reference. For further details, investors should refer to the full offer document. The particulars of Prudential ICICI Short Term Plan (an Open-ended Income Fund) have been prepared in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, as amended from time to time and filed with the 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 the accuracy or adequacy of this addendum of the Scheme. Serviced by CAMS

2 Prudential ICICI Mutual Fund Prudential ICICI Short Term Plan An additional Plan under Prudential ICICI Income Plan Prudential ICICI Short Term Plan (the Plan) is proposed to be added as a new Portfolio or Plan under the existing Prudential ICICI Income Plan. The Plan will be an Open ended debt fund with characteristics similar to Income Plan, subject to such variations as detailed in this document. The objective of the fund will be to seek to generate income through investments in a basket of debt and money market instruments of appropriate maturity with an endeavor to provide reasonable returns. The objective of the Plan is to generate income while maintaining low to medium maturity profile of the portfolio. The Plan would be suitable for investors looking for short to medium term investment horizon. The Key features of the Plan are given below: Name of the Plan Prudential ICICI Short Term Plan Type Open-ended Income Fund Offer Price Rs.10 per unit for cash during the Initial Offer Period and thereafter at the Applicable NAV. Prudential ICICI Prudential ICICI Short Term Plan including, as the context permits, the Cumulative Short Term Plan Option or a Compulsory Dividend Reinvestment Option or both the Options, as the case may be. Investment Pattern Debt Securities Up to 100 % Money Market Instruments and Cash Up to 50 % Investment objective Investment objective of the Plan is to seek to generate regular returns through investments in a basket of debt and money market securities. There can be no assurance that the investment objective of the Plan will be realized. Investment options The Plan offers Compulsory Dividend Reinvestment Option and Cumulative Option. Initial Offer Period: The Initial Offer Period of the Scheme may be one or more number of days, subject to such period not exceeding 30 days. The Initial Offer Period is the period during which the initial subscription to Units of the Scheme can be made i.e. October 18, 2001 to October 19, 2001, subject to the earlier closure or extension, if any; such offer period not being more than 30 days Initial Issue expenses Entire initial issue expenses will be borne by AMC. Liquidity On an ongoing basis, the Scheme will commence sale and redemption of Units not later than 30 days after the close of the Initial Offer Period. An investor can thereafter purchase and redeem Units on every Business Day at NAV based prices, subject to the prevailing load structure. (Please refer to page 5 for Redemption Price and page 5 for Purchase Price).The Units of the Scheme will not be listed on any exchange. The Fund will, under normal circumstances, endeavor to dispatch the redemption cheques within two Business Days from the date of acceptance of redemption request at any of the Customer Service Centers. Calculation and NAV will be calculated and declared on every Business Day. declaration of NAV Business Day A day other than: (i) Saturday and Sunday; (ii) a day on which the Banks in Mumbai or NSE or RBI are closed ; (iii) a day on which there is no RBI clearing/ settlement of securities or (iv) a day on which the Sale and Redemption of Units is suspended by the Trustee. Provided that the day when the banks at any center where the AMC s Customer Service Centers are located, are closed due to a local holiday, such days will be treated as Non-Business Days at such centers for the purposes of accepting fresh subscriptions. However, if the AMC s offices in such centers are open on such local holidays, then redemption and switch requests will be accepted at those centers, provided it is a Business Day for the Plan on an overall basis. Target amount It is proposed to raise a minimum amount of Rs.1.00 crore under the Plan during the Initial Offer Period. The units will be issued at Rs.10/- each (face value) during the Initial Offer Period and thereafter at the Applicable NAV. On-going Sales and The Plan will open for on-going sales and repurchases commencing from not later than repurchases 30 days after the close of the Initial Offer Period. The investors can purchase and redeem at the Applicable NAV subject to entry / exit loads, if any. For the present, on an on going basis, the Fund intends to charge no entry load. Further, It is proposed to charge an exit load of 0.25% of the amount sought to be redeemed has not been invested with the Fund for 30 days under the Plan. The Trustee reserves the right to modify/alter the load structure under the Plan and may decide to charge an entry load/exit load or a combination of entry/exit loads or introduce a differential load structure on the Units subscribed/redeemed, subject to a maximum as prescribed under the Regulations. The Trustee shall arrange to display a notice in the Customer Service Centers of the AMC at least 10 days before the change of the load structure. The load collected from the Investors will be credited in the account of the Plan and will be offset against distribution and marketing expenses. Surplus of load, if any, charged over planned marketing and distribution expenses to be defrayed will be credited to the Plan whenever felt appropriate by the AMC. Please refer page 6 on Load. Applicable NAV Applicable NAV (for Purchase) is the NAV per Unit at the close of the previous day to the (For Purchase) Business Day on which the proceeds are made available to the Plan by the Bank, in the normal course of clearing. Applicable NAV Applicable NAV (for Redemption) is the NAV per Unit at the close of the Business Day on which the application is (For Redemption) accepted. An application will be considered accepted on that day, subject to it being complete in all respects and received prior to the prescribed Cut Off time. Minimum Rs. 5,000 Application Amount Minimum Rs. 1,000 Additional Investment Minimum Redemption amount Rs. 1,000 provided that minimum balance under a particular folio should not fall below Rs. 5,000 Cut off time 3:00 p.m. for Purchases 10:30 a.m. for Redemptions and Switches Portfolio disclosures The Mutual Fund shall disclose the full portfolio in respect of the Plan and mail the same to the Unitholders on halfyearly basis as prescribed under the SEBI Regulations. Monthly disclosure of the entire portfolio for the Plan will be available on the AMC s web site Entry Load & Exit Load Entry Load: For the present, the Trustee does not intend to charge any entry load on purchase of the Units.Exit Load: It is proposed to charge an exit load of 0.25% if the amount sought to be redeemed has not been invested for 30 days under the Plan. Further, the Trustee reserves the right to modify/alter the load structure under the Plan and may decide to charge an entry load/exit load or a combination of entry/exit loads or introduce a differential load structure on the 2

3 Sale price Redemption price Systematic Investment Plan Systematic Withdrawal Plan Switch facility Units subscribed/redeemed, subject to a maximum as prescribed under the Regulations. The Trustee shall arrange to display a notice in the Customer Service Centers of the AMC at least 10 days before the change of the load structure. The load collected from the Investors will be credited in the account of the Plan and will be offset against distribution and marketing expenses. Surplus of load, if any, charged over planned marketing and distribution expenses to be defrayed will be credited to the Plan whenever felt appropriate by the AMC. Please refer page 6 on Load. At applicable NAV subject to entry load, if any. At applicable NAV subject to exit load, if any. Not Available Not Available Available. The switch request will be subject to the minimum application size and other terms and conditions of this Addendum and the scheme from / to which the amount is switched out/in. Transparency NAV will be determined on every Business Day except in special circumstances described on page 13 of this Document. NAV shall be made available at all Customer Service Centers of the AMC. The AMC shall endeavor to also have the NAV published in two daily newspapers and updated on AMC s website ( AMC shall update the NAVs on the website of Association of Mutual Funds in India - AMFI ( by 8.00-p.m. every Business Day. In case of any delay, the reasons for such delay would be explained to AMFI and SEBI by the next day. If the NAVs are not available before commencement of business hours on the following day due to any reason, the Fund shall issue a press release providing reasons and explaining when the Fund would be able to publish the NAVs. The Mutual Fund shall disclose the full portfolio in respect of the Plan and mail the same to the Unitholders on half-yearly basis as prescribed under the SEBI Regulations. Monthly disclosure of the entire portfolio for the Plan will be available on the AMC s web site _ Repatriation facility NRIs, OCBs and FIIs may invest in the Plan on a full repatriation basis, subject to the provisions on page 11. Eligibility for Trusts Tax Benefits Religious and Charitable Trusts are eligible to invest in the Plan under the provisions of 11(5)(xii) of Income Tax Act, 1961 read with Rule 17C of Income Tax Rules, Investors should further note that the following provisions are based on the existing provisions of the Income tax Act, 1961 and after considering the provisions of the Finance Act, The Fund s auditors, N. M. Raiji and Co. have confirmed that based on the law in force and after considering the provisions of the Finance Act, 2001, the following benefits may accrue to the respective assesses in respect of their investments in the Plan. MUTUAL FUND SCHEME The entire income of the Plan registered under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or regulations made thereunder will be exempt from income tax in accordance with the provisions of section 10 (23D) of the Income-tax Act, The income received by the plan is not liable for deduction of tax at source. Under section 115R, the Plan will be liable to pay additional income 10% plus surcharge, on the income distributed by Plan. I. TO THE UNITHOLDERS A. INCOME TAX i. Exemption u/s 10 (33): Under the provisions of section 10 (33) of the Income-tax Act, 1961, income received by all categories of Unitholders will be exempt from income tax in their hands. In view of this position, no tax needs to be deducted at source from such distribution by the Plan. The Finance Act 2001, has inserted a proviso to section 10(33) with effect from April 1, 2000 (i.e. FY ) to provide that income arising from the transfer of units of Units of Unit Trust of India or a mutual fund shall not be exempt under this clause. B. LONG TERM CAPITAL GAINS i. For Individuals and HUFs Long-term Capital Gains in respect of Units held for a period of more than 12 months will be chargeable under section 112 of the Income-Tax Act, 1961, at a rate of 20% plus surcharge, as applicable. Capital gains would be computed after taking into account cost of acquisition as adjusted by Cost Inflation Index notified by the Central Government and expenditure incurred wholly and exclusively in connection with such transfer. In the case, where taxable income as reduced by long term capital gains is below the exemption limit, the long term capital gains will be reduced to the extent of the shortfall and only the balance long term capital gains will be charged at the flat rate of 20% plus surcharge, as may be applicable. It is further provided that an assessee will have an option to apply concessional rate of 10%, plus surcharge, provided the long term capital gains are computed without substituting indexed cost in place of cost of acquisition. ii. For Partnership Firms, Non-Residents, Indian Companies / Foreign Companies Long-term Capital Gains in respect of units held for a period of more than 12 months will be chargeable under section 112 of the Income-Tax Act, 1961, at a rate of 20% plus surcharge, as may be applicable. Capital gains would be computed after taking into account cost of acquisition as adjusted by Cost Inflation Index notified by the Central Government and expenditure incurred wholly and exclusively in connection with such transfer. It is further provided that an assessee will have an option to seek concessional rate of 10%, plus surcharge, as applicable, to long term capital gains computed without adjusting cost for indexation. No surcharge however is payable by a foreign company. iii. For Non-resident Indians Under section 115E of the Income Tax Act, 1961 for non-resident Indians, income by way of long-term capital gains in respect of Units is chargeable at the rate of 20% plus applicable surcharge. Such long-term capital gains would be calculated without indexation of cost of acquisition. Non-resident Indians may opt for computation of long-term capital gains as per section 112, which is more beneficial. iv. For Overseas Financial Organizations, including Overseas Corporate Bodies and Foreign Institutional Investors fulfilling conditions laid down under section 115AB (Offshore Fund) Under section 115AB of the Income-Tax Act, 1961, long term capital gains in respect of units held for a period of more than 12 months will be chargeable at the rate of 10%, plus surcharge, as may be applicable. Such gains would be calculated without indexation of cost of acquisition. No surcharge is applicable for taxes under section 115AB, in respect of corporate bodies. C. SHORT TERM CAPITAL GAINS: i. CAPITAL GAINS/LOSSES The Finance Act 2001 has inserted sub-section (7) in section 94 with effect from April 1, 2002 (i.e. FY ). According to this newly inserted sub-section, if any person buys or acquires units within a period of three months prior to the record date fixed for declaration of dividend or distribution of income and sells or transfers the same within a period of three months from such record date, then capital losses arising from 3

4 Prudential ICICI Mutual Fund such sale to the extent of dividend or income received or receivable on such units will be ignored for the purpose of computing his income chargeable to tax. ii. INCOME TAX RATES : Short term Capital Gains in respect of Units held for a period of not more than 12 months is added to the total income. Total income including short-term capital gains is chargeable to tax as per the relevant slab rates. The maximum tax rates applicable to different categories of assessees are as follows: Resident individuals and HUF 30% plus surcharge, as applicable Partnership Firms 35% plus surcharge Indian companies 35% plus surcharge Non Resident Indians 30% plus surcharge Foreign Companies 48% (no surcharge) D. TAX DEDUCTION AT SOURCE ON CAPITAL GAINS (i) No tax is required to be deducted at source on capital gains arising to any resident unit holder (under section 194K) vide circular no.715 dated August 8, 1995 issued by the Central Board for Direct Taxes (CBDT). (ii) Under section 195 of the Income Tax Act, 1961, tax shall be deducted at source in respect of capital gains as under: a. In case of non-resident other than a company - Long term capital gains 20% plus surcharge Short term capital gains 30% plus surcharge b. In case of foreign company - Long term capital gains 20% Short term capital gains 48% c. In case of Offshore Fund and FIIs - Long term capital gains 10% As per circular no. 728 dated October 1995 by CBDT, in the case of a remittance to a country with which a Double Taxation Avoidance Agreement (DTAA) is in force, the tax should be deducted at the rate provided in the Finance Act of the relevant year or at the rate provided in DTAA whichever is more beneficial to the assessee. E. EXEMPTION FROM TAX ON CAPITAL GAINS ARISING ON TRANSFER OF UNITS HELD FOR MORE THAN 12 MONTHS As provided under section 54EC of the Income Tax Act, 1961, where an assessee has made capital gains from the transfer of units held in the Plan for a period exceeding 12 months and the assessee has any time within a period of 6 months after the date of such transfer, invested the whole of the capital gains in the long term specified assets i.e., in bonds redeemable after 3 years issued by the National Bank for Agriculture and Rural Development, or by the National Highways Authority of India or by the Rural Electrification Corporation Limited, such capital gains shall be exempted from tax on capital gains under section 54EC of the Income Tax Act However, if the assessee has invested only a part of the capital gains, he will be eligible for the proportionate exemption. The Finance Act 2001, has inserted a new Section 54ED, whereby the capital gains arising from the transfer of units after April 1, 2001, held in the Plan for a period exceeding 12 months will be exempt, if the assessee has, any time within a period of 6 months after the date of such transfer, invested the whole of the capital gains in acquiring equity shares forming part of an eligible issue of capital. However, if the assessee has invested only a part of the capital gains, he will be eligible for the proportionate exemption. An eligible issue of capital means an issue of equity shares offered for subscription to the public by a public company formed and registered in India. F. INVESTMENTS BY CHARITABLE AND RELIGIOUS TRUSTS IN THE PRUDENTIAL ICICI SHORT TERM PLAN Units of the Short Term Plan referred to in clause 23D of section 10 of the Income Tax Act, 1961, constitute an eligible avenue for investment by charitable or religious trusts per rule 17C of the Income Tax Rules, 1962, read with clause (xii) of sub-section (5) of section 11 of the Income Tax Act, G. WEALTH TAX Units held under the Scheme of the Short Term Plan 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 H. GIFT TAX Units of the Plan may be given as a gift and no gift tax will be payable either by the donor or the donee, as the Gift Tax Act has been abolished. 4

5 INVESTMENT OBJECTIVES & POLICIES Prudential ICICI Short Term Plan Fundamental Attributes of the Scheme 1) Type of the Scheme An open-ended debt fund seeking to generate regular returns through investments in basket of debt securities and money market instruments of appropriate maturity with a view to providing reasonable returns. Prudential ICICI Short Term Plan is suitable for investors looking at avenues to invest surplus funds in primarily debt securities and money market instruments with a short to medium term investment horizon. 2) Investment Objective The primary investment objective of Prudential ICICI Short Term Plan is to generate income through investment in basket of debt securities and money market investments. However, there can be no assurance that the investment objective of the Plan will be realized. 3) Investment Pattern Subject to the Regulations, the corpus of the Scheme can be invested in any (but not exclusively) of the following securities: 1) Securities issued by the Central, State Governments and local governments (including but not limited to coupon bearing bonds, zero coupon bonds and treasury bills) 2) Securities guaranteed by the Central, State Governments and local governments (including but not limited to coupon bearing bonds, zero coupon bonds and treasury bills) 3) Debt obligations of domestic government agencies and statutory bodies, which may or may not carry a Central/State Government guarantee 4) Corporate debt (of both public and private sector undertakings) 5) Obligations of banks (both public and private sector) and development financial institutions 6) Money market instruments permitted by SEBI/RBI, having maturities of up to one year and more than one year 7) Certificate of Deposits (CDs) 8) Commercial Paper (CPs) 9) Bank Fixed Deposits as permitted by SEBI. 10) Bills of Exchange / Promissory Notes 11) Securitised Debt 12) The non-convertible part of convertible securities 13) Any other domestic fixed income securities 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 Offerings (IPOs), secondary market operations, private placement, rights offers or negotiated deals. Under normal circumstances, the asset allocation under the Scheme will be as follows: Sr. Type of security Approx. Allocation Risk Profile No. (% of Corpus) 1 Debt instruments* Upto 100% Low to medium 2 Money Market Upto 50% Low to medium instruments including money at call *Note: If the Scheme decides to invest in securitised debt, it is the intention of the Investment Manager that such investments will not, normally, exceed 50% of the corpus of the Scheme. 4) Change in Investment Pattern Subject to the Regulations, the asset allocation pattern indicated above may change from time to time keeping in view market conditions, market opportunities, applicable regulations, and 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 Unit holders. Such changes in the investment pattern will be for short term and defensive considerations. Provided further and subject to the above, any change in the asset allocation affecting the investment profile of the Schemes shall be effected only in accordance with the provisions of sub regulation (15A) of Regulation 18 of the Regulations, as detailed later in this document. The Fund shall seek Unitholders approval in accordance with the Regulations, if there is any change in Fundamental Attributes pursuant to change in Investment Pattern Investment Strategy The debt market in India is estimated at about Rs. 650,000 crores as of now. A bulk of the debt market consists of Government Securities. Other instruments available currently include Corporate Debentures, Bonds issued by Financial Institutions, Commercial Paper, Certificates of Deposits and Securitized Debt. Securities in the Debt market typically vary based on their tenure and rating. Government Securities have tenures from one year to twenty years whereas the maturity periods of the Corporate Debt varies from one year to ten years. Securities may be both listed and unlisted but this does not impact liquidity of the instruments. Most of the transactions in the debt market are conducted over telephone and are entered on principal to principal basis. The yields and liquidity on various securities, currently, are as under: Issuer Instrument Maturity Yields Liquidity GOI Treasury Bill 91 days %* High GOI Treasury Bill 364 days %* High GOI Short Dated 1-3 Yrs %** High GOI Medium Dated 3-5 Yrs %** High GOI Long Dated 5-10 Yrs %** High Corporates Taxable Bonds (AAA) 1-3 Yrs %*** Medium Corporates Taxable Bonds (AAA) 3-5 Yrs %*** Low to Medium Corporates CPs (P1+) 3 months %* Medium to High Corporates CPs (P1+) 1 Yr %* Medium *Money Market yield **Semi-annual yield ***Annualised yield 5) Terms of the Scheme Prudential ICICI Short Term Plan: Prudential ICICI Short Term Plan (the Plan) is proposed to be added as a new Portfolio or Plan under the existing Prudential ICICI Income Plan. The Plan will be an Open ended debt fund with characteristics similar to Income Plan. The objective of the fund will be to seek to generate income through investments in a basket of debt and money market instruments of appropriate maturity with an endeavor to provide reasonable returns. a) Liquidity Purchase of units The Plan will offer for sale Units on every Business Day from not later than 30 days after the close of the Initial Offer Period. Purchase Price: Purchase Price of the Units, on an on-going basis, will be at Applicable NAV based prices subject to the entry load provisions. For the present, on an on going basis, the Fund intends to charge no entry load. Redemption of Units The Units can be redeemed (i.e. sold back to the Fund) on every Business Day at the Redemption Price (hereinafter defined) commencing from not later than 30 days after the close of the Initial Offer Period, subject to levy of applicable Exit Load as specified in this document on page 6. The redemption request can be made for any amount of Rs.1,000 or more. Redemption can also be made for the total number of Units standing to the credit of Unitholder at the time of closure of account, even though such redemption is for less than Rs.1,000. Redemption Price The redemption will be at Applicable NAV based prices subject to the exit load, if any. Payment of Proceeds All redemption requests received prior to the cut-off time on any Business Day at the Customer Service Centres will be considered accepted on that Business Day, subject to the redemption requests being complete in all respects, and will be priced on the basis of Redemption Price for that day. Requests received after the cut-off time will be treated as though they were accepted on the next Business Day. Please refer to (Page 13) Right to Limit Redemptions and (page 13) Suspension of Sale and Redemption of Units. As per the Regulations, the Fund shall despatch redemption proceeds within 10 Business Days (working days) of receiving the redemption request. However, under normal circumstances, the Fund will endeavour to despatch the redemption cheques within two Business Days from the date of acceptance of redemption requests. Redemption requests can be sent to any of the Customer Service Centers of AMC. As per the guidelines issued by SEBI, in the event of failure to despatch the redemption or repurchase proceeds within 10 working days, the AMC is liable to pay interest to the Unit 15% p.a. SEBI has further advised the mutual funds that in the event of payment of interest to the Unit holders, such Unit holders should be informed about the rate and the amount of interest paid to them. b) Listing Being Open Ended Scheme, the units of Plan will not be listed on any stock exchange. 5

6 6 Prudential ICICI Mutual Fund c) Fees and Expenses i Initial Issue Expense: Initial issue expenses will be borne by AMC. ii. Recurring Expenses: The estimated recurring expenses under the Plan are currently at 1.00 % p.a. As per the Regulations, the AMC can charge recurring expenses up to 2.25% for the first Rs.100 crores of average weekly net assets under management. For net assets over Rs.100 crores, the recurring expenses chargeable shall be as per the Regulations as detailed under: First Next Next Over Rs. 100 crore Rs. 300 crore Rs. 300 crore Rs. 700 crore 2.25% 2.00% 1.75% 1.50% Subject to Regulations, expenses over and above the prescribed limit shall be borne by the Asset Management Company. iii. Load: For the present, on an on going basis, the Fund intends to charge no entry load. Further, It is proposed to charge an exit load of 0.25% of the amount sought to be redeemed is not invested under the Plan for a period of 30 days. The Trustee reserves the right to prescribe / modify/alter the load structures and may decide to charge an entry load/exit load or a combination of entry/exit loads or introduce a differential load structure on the units subscribed/redeemed. Such changes will be applicable for prospective investments. The Trustee shall arrange to display a notice in the Customer Service Centers of the AMC and distributors/ brokers offices at least 10 days before the change of the then prevalent load structure. The addendum detailing the changes in Load structure will be attached to the Offer Documents and Abridged Offer Documents. The addendum will also be circulated to all the distributors / brokers so that the same can be attached on all the Offer Documents and Abridged Offer Documents in stock. Further, the Fund intends to send the addendum to the Unitholders along with the newsletter immediately after effecting the changes. Changes in load structure may be stamped in the acknowledgment slip issued to the investors on submission of the application form and may also be disclosed in statement of accounts issued by the Fund. The load collected from the Investors under the Plan will be credited to a separate account and will be offset against distribution and marketing expenses. Surplus of load, if any, charged over planned marketing and distribution expenses to be defrayed will be credited to the Plan whenever felt appropriate by the AMC. 6) Trading in Derivatives The Plan may use derivatives instruments like Interest Rate Swaps, Forward Rate Agreements or such other derivative instruments as may be introduced from time to time for the purpose of hedging and portfolio balancing and as may be permitted under the Regulations and guidelines. The Plan shall under normal circumstances not have exposure of more than 25% of its net assets in derivative instruments. The AMC may, in times of market volatility and other abnormal market conditions increase such exposure in derivative instruments upto a maximum of 50% of net assets under a Plan, with a view to protecting the interests of the Investors under the said Plan. i) Advantages of Derivatives: The volatility in Indian debt markets has increased over last few months. Derivatives provide unique flexibility to the Plan to hedge part of their portfolio. Some of the advantages of specific derivatives are as under: ii) Interest Rate Swaps and Forward rate Agreements: Bond markets in India are not very liquid. Investors run the risk of illiquidity in such markets. Investing for short-term periods for liquidity purposes has its own risks. Investors can benefit if the Fund remains in call market for the liquidity and at the same time take advantage of fixed rates by entering into a swap. It adds certainty to the returns without sacrificing liquidity. The following is an illustration how derivatives work: Basic Details: Fixed to floating swap Notional Amount: Rs. 5 Crores Benchmark: NSE MIBOR Deal Tenor: 3 months (say 91 days) Documentation: International Securities Dealers Association (ISDA). Let us assume the fixed rate decided was 10% At the end of three months, the following exchange will take place: Counter party 1 pays: compounded call rate for three months, say 9.90% Counter party 2 pays fixed rate: 10% In practice, however, the difference of the two amounts is settled. Counter party 2 will pay Rs 5 Crores *0.10%* 91/365 = Rs. 12, Thus the trade off for the Fund will be the difference in call rate and the fixed rate payment and this can vary with the call rates in the market. Please note that the above example is given for illustration purposes only and the actual returns may vary depending on the terms of swap and market conditions. iii) Risks attached with the use of derivatives: As and when the Plan trades 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 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 mis pricing 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. 7) Risk Factors and Special Considerations Mutual funds being vehicles of securities investments are subject to market and other risks and there can be no guarantee against loss resulting from investing in the Plan. Further, there can be no assurance that the Plan will achieve its stated objectives. The various factors which impact the value of the Plan s investments include, but are not limited to, fluctuations in the bond markets, fluctuations in interest rates, prevailing political and economic environment, changes in government policy, factors specific to the issuer of the securities, tax laws, liquidity of the underlying instruments, settlement periods, trading volumes, currency exchange rate, closure of stock exchanges etc. The past performance of the mutual funds managed by the Sponsors and their affiliates/associates is not indicative of the future performance of the Plan. Investment decisions made by the AMC may not always be profitable. The Sponsors are not responsible or liable for any loss resulting from the operation of the Plan beyond the contribution of an amount of Rs 22.2 lacs collectively made by them towards setting up the Fund and such other accretions and additions to the corpus set up by the Sponsors. Prudential ICICI Short Term Plan is the name of the plan and is not in any manner indicative of the quality of the Plan, its future prospects or returns. From time to time and subject to the Regulations, the Sponsors, the mutual funds and investment companies managed by them, their affiliates, their associate companies, subsidiaries of the Sponsors, and the AMC may invest either directly or indirectly in the Plan. The funds managed by these affiliates, associates, the Sponsors, subsidiaries of the Sponsors and /or the AMC may acquire a substantial portion of the Plan s units and collectively constitute a major investor in the Plan. Accordingly, redemption of units held by such funds, affiliates/associates and Sponsors may have an adverse impact on the Units/ value of the Plan because the timing of such redemption may impact the ability of other Unitholders to redeem their units. As per the Regulations, in case the AMC invests in the Plan managed by it, it shall not be entitled to charge any fees on such investments. The Plan may also use various derivatives and hedging products from time to time, as would be available and permitted by SEBI, in an attempt to protect the value of the portfolio and enhance Unitholders interest. In case the Plan utilizes any derivatives under the Regulations, the Plan may, in certain situations, be exposed to price risks As the liquidity of the Plan s investments could, at times, be restricted by trading volumes, the time taken by the Fund for redemption of units may be significant in the event of an inordinately large number of redemption requests. In view of this, the Trustee has the right, in its sole discretion to limit redemptions (including suspending redemption) under certain circumstances, as described under the section titled Right to Limit Redemptions.

7 Plan Specific Risk Factors Fixed Income Securities: Interest Rate Risk: As with all debt securities, changes in interest rates may affect the Scheme s Net Asset Value as the prices of securities generally increase as interest rates decline and generally decrease as interest rates rise. Prices of long-term securities generally fluctuate more in response to interest rate changes than do shortterm securities. Indian debt markets can be volatile leading to the possibility of price movements up or down in fixed income securities and thereby to possible movements in the NAV. Liquidity or Marketability Risk: This refers to the ease with which a security can be sold at or near to its valuation yield-to-maturity (YTM). The primary measure of liquidity risk is the spread between the bid price and the offer price quoted by a dealer. Liquidity risk is today characteristic of the Indian fixed income market. Credit Risk : Credit risk or default risk refers to the risk that an issuer of a fixed income security may default (i.e., will be unable to make timely principal and interest payments on the security). Because of this risk corporate debentures are sold at a higher yield above those offered on Government Securities which are sovereign obligations and free of credit risk. Normally, the value of a fixed income security will fluctuate depending upon the changes in the perceived level of credit risk as well as any actual event of default. The greater the credit risk, the greater the yield required for someone to be compensated for the increased risk. Reinvestment Risk: This risk refers to the interest rate levels at which cash flows received from the securities in the Scheme are reinvested. The additional income from reinvestment is the interest on interest component. The risk is that the rate at which interim cash flows can be reinvested may be lower than that originally assumed. The AMC will endeavor to manage credit risk through in-house credit analysis. By analyzing the creditworthiness of the issuer, the Investment Manager will attempt to determine the credit quality of the issuer s debt obligations. The AMC will place considerable emphasis on the credit rating of the issuer and therefore will only invest in securities that are rated investment grade by a domestic credit rating agency such as CRISIL, ICRA and CARE etc. or in unrated debt securities, which the Investment Manager believes to be of good quality. Subsequent to the issue of Circular No.MFD/CIR/9/ 120/2000 dated November 24, 2000, the AMC constituted an internal committee to approve the investment in un-rated debt securities. All such investments, as and when are made, will be placed before the Board of Directors of AMC for its review. Market risk will be addressed by analyzing various economic trends in order to seek to determine the likely future course of interest rates. The Scheme may also use various derivatives and hedging products from time to time, as are available and permitted by the Regulations, in order to insulate the Scheme s portfolio from undue volatility in the debt markets and to enhance Unit holders interest. Settlement risk: The inability of the Plan to make intended securities purchases due to settlement problems could cause the Plan to miss certain investment opportunities. By the same rationale, the inability to sell securities held in the Plan s portfolio due to the extraneous factors that may impact liquidity would result, at times, in potential losses to the Plan, in case of a subsequent decline in the value of securities held in the Plan s portfolio. 8) Investment Restrictions for the Plan Pursuant to the Regulations and amendments thereto, the following investment restrictions are presently applicable to the Plan: 1) The initial issue expenses in respect of any Scheme may not exceed 6% of the Funds raised under that Scheme. 2) A mutual fund scheme (each Scheme) shall not invest more than 15% of its NAV in debt instruments issued by a single issuer which are rated not below investment grade by a credit rating agency authorised to carry out such activity under the SEBI Act. Such investment limit may be extended to 20% of the NAV of the scheme with the prior approval of the Board of Trustees and the Board of asset management company. Provided that, such limit shall not be applicable for investments in government securities and money market instruments. Provided further that investment within such limit can be made in mortgage backed securitised debt which are rated not below investment grade by a credit rating agency registered with SEBI. 3) A mutual fund scheme shall not invest more than 10% of its NAV in unrated debt instruments issued by a single issuer and the total investment in such instruments shall not exceed 25% of the NAV of the scheme. All such investments shall be made by an internal committee constituted by AMC to approve the investment in unrated debt securities in terms of the parameters approved by the Board of Trustees and the Board of asset management company. 4) Transfer of investments from one Scheme to another Scheme in the same Mutual Fund is permitted provided: a) Such transfers are done at the prevailing market price for quoted instruments on spot basis (spot basis shall have the same meaning as specified by a Stock Exchange for spot transactions); and b) The securities so transferred shall be in conformity with the investment objective of the Scheme to which such transfer has been made. 5) The Scheme may invest in other Schemes under the same AMC or any other Mutual Fund without charging any fees, provided the aggregate inter-scheme investment made by all the Schemes under the same management or in Schemes under management of any other asset management company shall not exceed 5% of the Net Asset Value of the Fund. No investment management fees shall be charged for investing in other schemes of the Fund or in the schemes of any other mutual fund. 6) The Fund shall get the securities purchased transferred in the name of the Fund on account of the concerned Scheme, wherever investments are intended to be of a long-term nature. 7) The Fund may buy and sell securities on the basis of deliveries and will not make any short sales or engage in carry forward transaction or badla finance. Provided that mutual funds shall enter into derivatives transactions in a recognised stock exchange for the purpose of hedging and portfolio balancing, in accordance with the guidelines issued by the SEBI. 8) No loans for any purpose can be advanced by the Scheme. 9) The Fund shall not borrow except to meet temporary liquidity needs of the Fund for the purpose of repurchase/ redemption of units or payment of interest and dividend to the Unitholders. Such borrowings shall not exceed more than 20% of the net assets of the individual Scheme and the duration of the borrowing shall not exceed a period of 6 months. 10) No mutual fund scheme shall make any investments in ; a) any unlisted security of an associate or group company of the sponsor; or b) any security issued by way of private placement by an associate or group company of the Sponsor; or c) the listed securities of group companies of the Sponsor which is in excess of 25% of the net assets of the scheme of the Mutual Fund. 11) Pending deployment of funds of a Scheme in securities in terms of investment objectives of the Scheme, the AMC can invest the funds of the Scheme in short term deposits of scheduled commercial banks or in call deposits. 12) The Scheme may also use various hedging and derivative products from time to time, as are available and permitted by SEBI, in an attempt to protect and enhance the interests of the Unitholders at all times. 13) The Scheme will comply with any other Regulations applicable to the investments of Mutual Funds from time to time. The Trustee may alter the above restrictions from time to time to the extent that changes in the Regulations may allow or as deemed fit in the general interest of the Unitholders. 9) Computation of Net Asset Value The NAV of the units of the Plan will be computed by dividing the net assets of the Plan by the number of units outstanding on the valuation date. The Fund shall value its investments according to the valuation norms, as specified in Schedule VIII of the Regulations, as amended from time to time or such norms as may be prescribed by SEBI from time to time. The securities will be valued on the basis as outlined in the applicable SEBI Regulations and approved by the Trustee. The general principal for valuation will be that money market securities will be valued on the basis of cost plus accruals while the others will be valued in relation to their YTM, and where available, the closing price of the stock exchange where the securities are primarily traded. 10) Accounting Policies & Standards In accordance with the Regulations, the AMC will follow the accounting policies and standards, as detailed below: a) The AMC, for each Plan, 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 Plan 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 Plan 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 7

8 Prudential ICICI Mutual Fund 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 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 Plan obtains an enforceable obligation to pay the price or, in the event of a sale, when the Plan 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 the period specified in the Guidelines issued by SEBI, provision shall be made by debit to the revenue account for the income so accrued in the manner specified by guidelines issued by the SEBI. g) When units are sold in the Plan, 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. g) 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. h) The cost of investments acquired or purchased shall include brokerage, stamp charges and any charge customarily included in the broker s bought note. In respect of privately placed debt instruments any front-end discount offered shall be reduced from the cost of the investment. i) Underwriting commission shall be recognized as revenue only when there is no devolvement on the Plan. Where there is devolvement on the Plan, the full underwriting commission received and not merely the portion applicable to the devolvement shall be reduced from the cost of the investment. The accounting policies and standards outlined above are as per the existing Regulations and are subject to change as per changes in the Regulations. Guidelines for Identification and Provisioning for Non Performing Assets (Debt Securities) for Mutual Funds notified by SEBI vide its circular no. MFD/CIR/8/92/2000 dated September 18, 2000 and amended thereafter vide SEBI s circular no. MFD/CIR/14/088/2001 dated March 28, 2001 will be applicable to the Plan and the same are subject to change as per changes in the Regulations. 11) Underwriting by the Plan Subject to the Regulations, the Plan may enter into underwriting agreements after the Fund obtaining a certificate of registration in terms of the Securities and Exchange Board of India (Underwriters) Rules and Securities and Exchange Board of India (Underwriters) Regulations, 1993 authorising it to carry on activities as underwriters. The capital adequacy norms for the purpose of underwriting shall be the net assets of the Plan and the underwriting obligation of the Plan shall not at any time exceed the total net asset value of the Plan. 8