Mif Offdoc Mar 06

8/9/2019 Mif Offdoc Mar 06

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APPLICATION FORMS ARE AVAILABLE WITH SBIMF AGENTS,STOCK EXCHANGE BROKERS, AUTHORIZED BRANCHES OFSBI AND SBIMF INVESTOR SERVICE CENTRES & SBIMFCORPORATE OFFICE AND ARE AVAILABLE FOR DOWNLOADAT www.sbimf.com

OFFER DOCUMENT

SBI MUTUAL FUND

INVITES SUBSCRIPTIONS TO

Principal Trustee : State Bank of India,

Assets Management Company : SBI Funds Management Limited,

191, Maker Tower E, Cuffe Parade, Mumbai 400 005

www.sbimf.com

This offer document sets forth information about the scheme that

a prospective investor ought to know before investing. The scheme

particulars have been prepared in accordance with the Securities

and Exchange Board of India (Mutual Funds) Regulations, 1996, asamended till date, and filed with SEBI. The units being of fered for

public subscription have not been approved or disapproved by

the SEBI nor has the SEBI certified the accuracy or adequacy of the

offer document. The investors are required to read the terms o f

offer carefully before investing. The offer document should be

retained by the investors for future reference. The offer document

shall remain effective till a material change (other than a change in

the fundamental attributes and within the purview of the offer

docum ent) occurs and thereafter the changes shall be filed wi th

SEBI and circulated to the Magnumholders.

MAGNUM LIQUIBOND INCOME FUND

An Open-ended Debt Scheme

Issue of M agnums of face value of Rs. 10 / - each

on an ongoing basis at NAV related prices.


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I. CONTENTS

I. CONTENTS ---------------------------------------------------------------------------------------------------------------------------------- 2

II. DEFINITIONS AND EXPLANATIONS OF TERMS USED------------------------------------------------------------------------- 3

III. HIGHLIGHTS OF THE SCHEME-------------------------------------------------------------------------------------------------------- 4

IV. RISK FACTORS ------------------------------------------------------------------------------------------------------------------------------ 4

V. DUE DILIGENCE CERTIFICATE -------------------------------------------------------------------------------------------------------- 5

VI. EXPENSES ---------------------------------------------------------------------------------------------------------------------------------- 5

VII. CONDENSED FINANCIAL INFORMATION ------------------------------------------------------------------------------------------ 7

VIII. CONSTITUTION OF THE MUTUAL FUND ------------------------------------------------------------------------------------------ 12

IX. INVESTMENT OBJECTIVES & POLICIES -------------------------------------------------------------------------------------------- 15

X. MANAGEMENT OF THE FUND -------------------------------------------------------------------------------------------------------- 20

XI. UNITS AND OFFER------------------------------------------------------------------------------------------------------------------------ 23

XII. SALE OF UNITS ---------------------------------------------------------------------------------------------------------------------------- 24

XIII. DIVIDEND AND DISTRIBUTIONS ----------------------------------------------------------------------------------------------------- 25

XIV. INTER-SCHEME TRANSFERS ---------------------------------------------------------------------------------------------------------- 26

XV. ASSOCIATE TRANSACTIONS ---------------------------------------------------------------------------------------------------------- 26

XVI. BORROWING BY THE MUTUAL FUND ---------------------------------------------------------------------------------------------- 27

XVII. NAV AND VALUATION OF ASSETS OF THE SCHEME -------------------------------------------------------------------------- 27

XVIII. REDEMPTION AND REPURCHASE --------------------------------------------------------------------------------------------------- 29

XIX. ACCOUNTING POLICIES & STANDARDS ------------------------------------------------------------------------------------------- 30

XX. TAX TREATMENT OF INVESTMENTS IN MUTUAL FUNDS ------------------------------------------------------------------- 31

XXI. INVESTORS RIGHTS AND SERVICES ----------------------------------------------------------------------------------------------- 32

XXII. INVESTOR GRIEVANCES REDRESSAL MECHANISM --------------------------------------------------------------------------- 35

XXIII. PENDING LEGAL PROCEEDINGS AND OTHER INFORMATION -------------------------------------------------------------- 35


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II. DEFINITIONS AND EXPLANATIONS OF TERMS USED

The AMC : The Asset Management Company; refers to SBI Funds Management Ltd (SBIFM) , a who lly ownedsubsidiary formed by State Bank of India which manages the assets of investors in various schemes of SBI

Mutual Fund.

AMC Fees : Investment management & advisory fees charged by the AMC to the scheme as disclosed in the sect ionon Expenses in the offer document.

The Auditors : The statutory auditors to the scheme whose appointment is approved by the board of trustees of SBIMutual Fund. This is disclosed under the section Management of the Fund in the Offer Document.

Business Day/Working : means (i) a day other than Saturday and Sunday, (ii) a day on which banks in Mumbai are not required orDay not obligated by law or executive order to rem ain closed, (iii) a day on w hich the sale and redem ption of

Magnums is not suspended.

The Custodians : The custodians to the scheme whose appointment is approved by the board of trustees of SBI MutualFund. This is disclosed under the section Management of the Fund in the Offer Document.

The Date of Application : The date of receipt of a valid application complete in all respects for issue or repurchase (dependingupon the context) of Magnums of the Scheme by the Registrars.

The Fund : SBI Mutual Fund (SBIMF); constituted as a Trust with SBI as the Principal Trustee, to mobilize savings froma wide cross-section of people and to provide them attractive returns, security and liquidit y throughinvestments in capital & money markets.

ISCs : Investor Service Centres opened by SBI M utual Fund at various locations in India, listed in the sectionInvestors Rights & Services in the Offer Document.

Magnum : One undivided unit issued under the Scheme by SBI Mutual Fund.

Magnum Holder : Any eligible applicant who has been allotted and holds a valid Magnum in his/her/its name.

NAV : The Net Asset Value of the Magnums of the Scheme.

NRI : An Indian w ill be treated as a non-resident in any previous year if he fulfills any of the follow ing tw ocondi tions: (a) he/she has not resided in India in that year for period or periods amount ing in all to 182days or more, or (b) Having w ithin the four years preceding that year has not resided in India for a periodor periods amounting in all to 365 days or more, and has not resided in India for 60 days or more in thatyear.

NSE : The National Stock Exchange, Mumbai.

The Offer : The issue of Magnums of the Scheme as per the terms contained in this Offer Document.

Offer Document : This document issued by SBI Mutual Fund, containing the terms of offering Magnums of the Scheme ofSBI Mutual Fund for subscription as per the terms contained herein.

The Pr incipal Trustee : State Bank of Ind ia

RBI : Reserve Bank of India, established under Reserve Bank of India Act, 1934.

The Registrars : The registrars and transfer agents to the scheme whose appointment is approved by the board of trusteesof SBI Mutual Fund. This is disclosed under the section Management of the Fund in the Offer Document.

SBI : State Bank of India, having its Corporate Office at State Bank Bhavan, Madame Cama Road, Mumbai - 400021. Also referred to as the Sponsor or the Settlor or the Principal Trustee.

SBIMF : SBI Mutual Fund (see the Fund)

SBIFM : SBI Funds Management Ltd. (see the AMC)

The Schem e : M agnum Liqui Bond Open Incom e Fund of SBI M utual Fund.

SEBI : Securities and Exchange Board o f India estab lished under Secur ities and Exchange Board of India Act,1992.

SEBI Regulations : Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 for the time being in force andas amended from tim e to time.

The Settlor : State Bank of India

The Sponsor : State Bank of India, having its Corporate Office at State Bank Bhavan, Madame Cama Road, Mumbai - 400021, which has made an initial contribution of Rs. 5 lacs towards the trust fund and has appointed a Boardof Trustees to supervise the activities of the Fund.

Switchover : Simultaneous applicat ion by a Magnum holder for repurchase of Magnums under one scheme (or a planunder the scheme) of SBI Mutual Fund and, through the repurchase proceeds, for the purchase of fresh/additional Magnums under another scheme (or another plan under the same scheme) of SBI Mutual Fundwhich is open for issue at the time.

The Trustees : The Principal Trustee, i.e., State Bank of India, and one or more member(s) of the Board of Trusteesappointed by SBI to supervise the activit ies of the Fund as disclosed in the section Constitut ion of theMutual Fund in the Offer Document.

Uni t Capital : The aggregate face value of the Magnums issued and outstanding under the Scheme.


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III. HIGHLIGHTS OF THE SCHEME

1. An open-ended debt scheme offering easy issue & repurchase at NAV-related prices on an ongoing basis.

2. Following Plans are available to the investors :

(A) Growth Plan (B) Dividend Plan

3. Both Plans will invest their entire corpus in high quality debt (Corporate debentures, PSU/FI/Govt guaranteed bonds), Govt securitiesand money market instruments (commercial paper, certificates of deposit, T-bills, bills rediscounting, repos, short-term bank deposits,etc). There shall be no investment in equity.

4. The Growth Plan will give returns through capital gains only. No dividends shall be declared under this Plan. The Dividend Plan willendeavour to declare regular dividends every half year, depending on the NAV at that poin t of time.

5. Minimum amount of investment is Rs.2000/- and in multiples of Rs. 500/- thereafter.

6. Systematic Investment Facility is available to make investments at periodic intervals. This facility is available only at the Investor

Service Centres.

7. Systematic Withdrawal Facility to make periodic withdrawals on a monthly/quarterly basis, available. Payment will be made throughpost-dated cheques issued for 6 months/two quarters at a time.

8. The scheme will declare NAV, Sale Price and Repurchase Price on every Business day.

9. For investors who repurchase after 3 months of investment, the repurchase will be at NAV without any load. For repurchases within

3 months of investment, there w ill be an exit load of 0.5% of NAV.10. Tax benefits :

(a) Tax benefits available to the unit holders:The tax benefits will be as per the prevailing laws:

i. As per section 10(33) of the Income Tax Act, income from Mutual Fund remains fully exempt from tax in the hands ofinvestors.

ii. Tax benefit is available under sections 48 & 112 on capital gains for resident Indians. The Magnumholders will have the

option to pay the long term capital gains tax @ 10% (plus applicable surcharge) without the cost inflation index benefitor @ 20% (plus applicable surcharge) with the cost inflation index benefit, whichever is more beneficial.

iii. Magnums held under this scheme will not be liable to wealth tax and gift tax.

(b) Tax benefits to the Mutual Fund:The entire income of the Mutual Fund is exempt from income tax under section 10 (23D) of theAct. The fund wi ll, however, have to pay tax @ 10% (plus applicable surcharge) on the dividends distr ibuted by it.

These tax exemptions will strictly be governed by the relevant provisions under the existing tax laws and are subject to change as andwhen relative tax laws are changed.

11. Investors have the facility to switchover between the Plans at NAV. Also, switchover facility at the NAV related prices to other open-end schemes of SBI Mutual Fund is available.This facility of sw itchover to o ther schemes is not available to NRIs, FIIs, and OCBs.

IV. RISK FACTORS

1. Standard Risk Factors

a. Mutual funds and securities investments are subject to market risks and there is no assurance or guarantee that the Funds objectivewill be achieved.

b. As with any investment in securities, the NAV of the units issued under the scheme can go up or down depending on the factors andforces affecting the capital markets.

c. Past performance of the Sponsor / AMC / Mutual Fund does not guarantee the future performance of the schemes of the Mutual Fund.

d. Magnum Liqui Bond Income Fund is only the name of the scheme and does not, in any manner, indicate either the quality of thescheme or its future prospects and returns.

e. State Bank of India, the sponsor , is not responsible or liable for any loss resulting from the operation of the scheme beyond the initialcontribution made by it of an amount of Rs. 5 lacs towards setting up of the mutual fund.

2. Scheme-Specific Risk Factors

a. Magnum LiquiBond Income Fund will be investing in debt instruments (including securitized debt), Government Securities andmoney market instruments (such as call money market, term/not ice money market, repos, reverse repos and any alternative to the callmoney m arket as may be directed by the RBI). The liquidity of the schemes investments is inherently restricted by trading volum esand settlement periods. In the event of an inordinately large number o f redempt ion requests, or of a restructuring o f the schemesinvestment port folio, these periods may become significant.

b. Subject to necessary approvals, the Scheme may invest in overseas markets, which carry a risk on account of fluctuations in theforeign exchange rates.

c. The Mutual Fund is not assuring that it will make dividend distributions on a semi annual basis. All dividend distributions are subjectto the availability o f distributable surplus.

d. Investments under the scheme may also be subject to the following risks:

i) Credit risk: Credit risk is risk resulting from uncertainty in a counterpartys ability or willingness to meet its contractualobligations.This risk pertains to the risk of default of payment of principal and interest. Government Securities have zero creditrisk while other debt instruments are rated according to the issuers ability to meet the obligations.


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ii) Liquidity Risk pertains to how saleable a security is in the market. If a particular security does not have a market at the time ofsale, then the scheme may have to bear an impact depending on its exposure to that particular security.

iii) Interest Rate risk is associated with movements in interest rate, which depend on various factors such as government borrowing,

inflation, economic performance etc. The value of investments w ill appreciate/depreciate if the interest rates fall/rise.iv) Derivative risks: The derivatives will entail a counter-party risk to the extent of amount that can become due from the party. The

cost of hedge can be higher than adverse impact of market movements. An exposure to derivatives in excess of the hedgingrequirements can lead to losses. An exposure to derivatives can also limit the profits from a genuine investment transaction.Efficiency of a derivatives market depends on the development of a liquid and efficient market for underlying securities andalso on the suitable and acceptable benchmarks.

v) Reinvestment risk: This risk arises from uncertainty in the rate at which cash flows from an investment may be reinvested. Thisis because the bond will pay coupons, which w ill have to be reinvested. The rate at which the coupons wil l be reinvested willdepend upon prevailing market rates at the time the coupons are received.

Investors should study the Offer Document carefully in its entirety and should not construe thereof as advise relating to legal, taxation,investment or any other matters. Investors are advised to consul t their legal, tax, investment and other professional advisors todetermine possible legal, tax, financial or other considerations of subscribing to or redeeming Magnums, before making a decisionto invest/redeem Magnums.

V. DUE DILIGENCE CERTIFICATE

It is confirmed that :

I. the draft offer document forwarded to SEBI is in accordance with the Securities and Exchange Board of India (Mutual Funds)Regulations, 1996, and the guidelines and directives issued by SEBI from time to tim e;

II. All legal requirements connected with the launching of the scheme as also the guidelines, instructions, etc., issued by the Governmentand any other competent authority in this behalf, have been duly compl ied with.

III. the disclosures made in the offer document are true, fair and adequate to enable the investors to make a well informed decisionregarding investment in the proposed scheme;

IV. all the intermediaries named in the offer document are registered w ith SEBI and till date such registration is valid.

Signature :Name : Niamatullah

Place: Mumbai Managing DirectorDate : 07.08.2001 SBI Funds Management Limited

VI. EXPENSES

1. Magnum ho lder t ransaction expenses or sales load :

The following table illustrates the expenses that the investors will incur on their purchases/ sales of Magnums under this scheme :

Nature of expense % of NAV

Maximum sales load imposed on purchases of Magnums Currently Nil

Sales load if any on issue of Magnum s in lieu of dividends Not applicable

Contingent deferred sales load NIL

Repurchase load

Within 3 months of investment Currently 0.5% of NAV

After 3 months of investment NIL

Switchover load (not applicable for intra scheme Switchover)

Within 3 months of investment Currently 0.5% of NAV

After 3 months of investment NIL

The AMC reserves the right to introduce a load structure, levy a different load structure or remove the load structure for any of the Planswithin the Fund. The sales load, the repurchase load and / or the switchover load may be increased by the AMC at any time to a maximumof 3% of NAV after giving notice to that effect to the investors through an advertisement in an English language daily that circulates all overIndia as well as in a newspaper published in the language of the region where the Head Office of the mutual fund is situated. The loads willbe used for reimbursing the AMC to the extent of the marketing & selling expenses including agents commission, that are incurred by theAMC and the balance, if any, will be available to the scheme for reinvestment.

In any case, should the load structure change in future, such changes in load w ill be applicable only to prospective investors who invest


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after the date specified in the advertisement and not to the existing investors on the amounts already invested by them. The Mutual Fundwill also endeavour to keep the investors informed through the following m easures:

i) An addendum detailing the changes will be attached to the offer documents and abridged offer documents. The addendum will also

be available with the distributors/brokers and will also be sent alongwith the newsletter sent to the magnumholders immediately afterthe changes.

ii) The Mutual Fund will display the changes/modifications in the offer document in the form of a notice at all ISCs and distributors/brokers office.

iii) The introduction of the exit load/CDSC alongwith the details will be stamped in the acknowledgement slip issued to the investors onsubmission of the application form and will also be d isclosed in the statement of accounts issued after the introduction of such load/CDSC.

iv) Any other measures which the Mutual Fund considers necessary in the interest of the magnumholders.

In accordance with SEBI Regulations, the repurchase price will not be lower than 93% of the NAV and the sale price wil l not be higher than107% of the NAV, and the difference betw een sale price and repurchase price shall not exceed 7% of the sale price.

2. Init ial issue expenses:

(a) Present Scheme:

The initial issue expenses associated with the launch of this scheme was fully borne by SBI Funds Management Ltd.(b) Other Schemes:

The initial issue expenses incurred by other schemes launched by the mutual fund is indicated in the table below:

Scheme Name Estimated Issue Expenses Actual Issue Expenses Remarks

Magnum Month lyIncome Plan

5.9% of the Initial issuecorpus

Rs. 1.19 cr., i.e. 3.38% ofinitial corpus

Being a load scheme, the entire issue expense wasborne by the scheme.

Magnum Gilt Fund 2.92% of the Initial issuecorpus.

Rs. 0.36 cr., i.e., 0.123% ofinitial corpus

The entire initial issue expenses were borne by theAMC.

Magnum Sector FundsUmbrella

6% of corpus collected Rs. 0.49 cr., i.e., 4.24% ofinitial corpus

Rs. 1.25 lac. borne by the AMC

Magnum InstaCash

Fund

6% of corpus collected Rs. 32785, i.e. 0.01% of initial

corpus

The entire initial issue expenses were borne by the

AMC.

3. Annual Scheme Recurri ng Expenses :

The follow ing expenses will be charged to the scheme on a recurring basis :

Category of expense Ceilings as per SEBI

Investment management & adv iso ry fee to be Sub ject to the follow ing ceilings :charged by the AMC. i) Not exceeding 1.25% of the average weekly net assets of the

scheme outstanding in the year as long as the net assets do notexceed Rs. 100 crores and

ii) 1% of the amount in excess of Rs. 100 crores where net assets

so calculated exceed Rs. 100 croresFees and expenses of Trustees 0.01% of the average weekly net assets, subject to a minimum of Rs. 15

lakhs to be allocated across all schemes of the fund.

Custodian fee On actuals, within the overall ceiling mentioned below

Registrar Services for transfer of units sold or redeemed On actuals, within the overall ceiling mentioned below

Brokerage & Transaction cost On actuals, within the overall ceiling mentioned below

Audit fees On actuals, within the overall ceiling mentioned below

Marketing & selling expenses, including agent commission, On actuals, within the overall ceiling mentioned belowif any

Cost of investor communication & statutory advertising On actuals, within the overall ceiling mentioned below

Cost of providing account statem ents & On actuals, w ithin the overall ceiling m entioned belowredemption warrants

Magnum Month lyIncome Scheme 1998(II)

6% of corpus collected Rs. 5.33 crs., i.e. 2.88% ofcorpus.

The entire initial issue expenses were borne by theAMC.


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Insurance premium paid by the fund On actuals, within the overall ceiling mentioned below

Winding up costs On actuals, within the overall ceiling mentioned below

Total Expenses Charged to the scheme Subject to the following limits :i) 2.25% on the first Rs. 100 cr. of average weekly net assets.ii) 2.00% on the next Rs. 300 cr. of average weekly net assetsiii) 1.75% on the next Rs. 300 cr. of the average weekly net assetsiv) 1.50% on the balance of the average weekly net assets

The purpose of the table is to assist the investor in understanding the various costs and expenses that an investor in the scheme wil l beardirectly o r indirectly. Any expenses incurred in excess of the above overall limits will be borne by the AMC.

VII. CONDENSED FINANCIAL INFORMATION

1. Historical Per Unit Statistics

The historical per unit statistics for all the schemes launched by the Mutual Fund dur ing the last three fiscal years is provided in the tablesbelow:

Magnum Monthly Income Schemem 1998 (II)

Particulars Monthly Quarterly Annual Cumulative

Income Income Income Growth

Option Option Option Option

(Stat istics for the year 1999-2000)

NAV at the beginning of the year 10.15 10.36 10.36 10.38

Net Income per unit (before payout) 2.771 2.754 1.580 2.950

Dividends (Payout) 1.441 1.264 1.325

Transfer to Reserves (if any)

Latest NAV (as on 31.03.2000) 11.33 11.49 11.58 12.95

Annualized Return (%) (Since Inception) 25.82% 24.45% 24.76% 24.73%

Net Assets at the end of the year (Rs. Cr.) 58.04 20.17 93.15 14.31

Ratio of recurring expenses to Net Assets (%) 1.35% 1.35% 1.35% 1.35%(Statistics for t he year 2000 2001)





Latest NAV (as on 31.03.2001) 10.52 10.71 10.81 13.52

Annualized Return (%) (Since Inception) 15% 14.46% 14.69% 14.91%


Ratio of recurring expenses to Net Assets (%) 1.48% 1.48% 1.48% 1.48%

(Statistics for t he year 2001 2002)





Latest NAV 10.62 10.61 11.34 14.16

Annualized Return (%) (Since Inception) 14.72 % 14.51% 13.99% 14.02%


Ratio of recurring expenses to Net Assets (%) 1.40% 1.40% 1.40% 1.40%

(Date of allotment of units: 29thJanuary 1999)

Note: The NAV for 2001-2002 is dated as on 31st July 2001 and for the other years is dated 31st March 2001. The historical per unit statisticshave been calculated upto the period ending 31st July 2001. The compounded annualized returns have been calculated since inception ofthe schemes, taking adjusted NAV, i.e., after adjusting dividends paid out on ini tial NAV of Rs. 10/- per Magnum. * - indicates the returnsfor periods less than one year are in absolute terms only and not annualized.


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Particulars Magnum LiquiBond (Grow th)

2001-2002 2000-2001 1999-2000

NAV at the beginning of the period 13.1100 11.8100 10.52

Net income per unit 3.903 3.110 1.810

Dividends per unit

Transfer from Reserves

NAV at the end of the period 13.9034 13.1100 11.8100

Annualized return since inception for the period 13.14% 12.30% 13.28%

Net Asset at the end of the period 473.09 453.59 326.46

Ratio of Recurring expenses to Net Assets 1.59% 1.54% 1.97%

(Date of allotment of units: 30thNovember 1998)

Particulars Magnum LiquiBond (Dividend)

2001-2002 2000-2001 1999-2000



Dividends per unit 2.295 2.295 1.295



Annualized return since inception for the period 11.49% 10.91% 12.54



(Date of allotment of units: 30thNovember 1998)

Particulars Magnum Grow th Fund

2001-2002 2000-2001 1999-2000



Dividends per unit 6.125 6.125 6.125



Annualized return since inception for the period 23.09% 29.26% 124.85%



(Date of allotment of units: Magnum Growth Fund 24thMay 1999)



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Particulars Magnum InstaCash (Cash)

2001-2002 2000-2001 1999-2000

NAV at the beginning of the period 11.8272 10.8389 10.00Net income per unit 2.123 1.827 0.830

Dividends per unit



Annualized return since inception for the period 9.24% 9.53% 8.30%*


Ratio of Recurring expenses to Net Assets 0.86% 0.82 0.47%

(Date of allotm ent of uni ts: M agnum InstaCash Fund 28thMay 1999)

Particulars Magnum InstaCash (Dividend)

2001-2002 2000-2001 1999-2000



Dividends per unit 1.6624 1.3300



Annualized return since inception for the period 8.13% 8.82 10.10%*



(Date of allotm ent of uni ts: M agnum InstaCash Fund 28thMay 1999)

Particulars MSFU (Contra)

2001-2002 2000-2001 1999-2000


Net income per unit -2.32 -2.120 -0.550

Dividends per unit



Annualized return since inception for the period -12.35% -13.31% -5.50%*



(Date of allotment of units: 31stJuly 1999)



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Particulars MSFU (IT)

2001-2002 2000-2001 1999-2000


Net income per unit -0.470 0.990 20.800

Dividends per unit 4 4 4



Annualized return since inception for the period -3.32% 7.69% 342.00%*




Part iculars MSFU (Pharma)

2001-2002 2000-2001 1999-2000


Net income per unit -1.630 -1.070 0.970

Dividends per unit



Annualized return since inception for the period -8.50% -6.56% 9.70%*




Particulars MSFU (FMCG)

2001-2002 2000-2001 1999-2000

NAV at the beginning of the period 6.7 10.92 10

Net income per unit -4.070 -3.300 0.920

Dividends per unit



Annualized return since inception for the period -22.97% -9.47% 9.30%*






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Particular Magnum Gilt (ST-Div) Magnum Gilt (ST-Gr)

2001-2002 2000-2001 2001-2002 2000-2001

NAV at the beginning of the period 10.0649 10 10.2785 10.00

Net income per unit 0.771 0.285 0.787 0.278



NAV at the end of the period 10.3014 10.0649 10.7874 10.2785

Annualized return since inception for the period 7.70%* 2.85%* 7.87%* 2.78%*

Net Asset at the end of the period 22.21 35.13 27.78 5.17

Ratio of Recurring expenses to Net Assets 1.20% 1.13 1.20% 1.26

(Date of allotment of uni ts: 23rdDecember 2000)

Part iculars Magnum Gilt (LT- Div) Magnum Gilt (LT-Gr)

2001-2002 2000-2001 2001-2002 2000-2001

NAV at the beginning of the period 10.1264 10.00 10.3258 10.00




NAV at the end of the period (31/05/2001) 10.4071 10.1264 11.0547 10.3258



Ratio of Recurring expenses to Net Assets 1.28% 0.62% 1.30% 1.24%

(Date of allotment of uni ts: 23rdDecember 2000)

Particulars Magnum Monthly Income Plan

Growth Annual Div Quarterly Div MonthlyDiv

NAV at the beginning of the period 10.00 10.00 10.00 10.00




NAV at the end of the period 10.5978 10.6071 10.2993 10.1401



Ratio of Recurring expenses to Net Assets 1.475% 1.475% 1.475% 1.475%

(Date of allotment of units: 23rdMarch 2001)



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2. Disclosure under Regulation 25(11)

As on 31st March 2001, SBI Mutual Fund has made the following investments in companies that hold units in excess of 5% of the Net AssetValue of any scheme of SBI Mutual Fund:

Scheme Name Investments by the respect ive schemes in Companies Value % of holding to

or its subsidiaries w here that Company or its (Rs. Lakhs) NAV

subsidiaries have invested more than 5% of t he

NAV in any scheme

Gifts-B State Bank of India (Equity) 181.17 2.84

MMPS 93 State Bank of India (Equity) 380.26 1.74

SBI Home Finance Ltd. (Equity) 0.01 Negligible

MELS91 State Bank of India (Equity Demat) 0.10 Negligible

MMIS-97 State Bank of India (Equity) 20.92 0.48

State Bank of Hyderabad (Bonds) 143.07 3.26

State Bank of Travancore (Bonds) 105.8 2.41

Magnum Balanced Fund State Bank of India (Equity) 0.10 Negligible

(formerly MOEF-95) State Bank of Hyderabad (Bonds) 105.20 0.92

State Bank of Travancore (Bonds) 105.80 0.93

MLIF-98 State Bank of India (Bonds) 507.03 0.69

MMIS 98(II) State Bank of Saurashtra (Bonds) 105.58 0.66

MMIS 98(I) SBH (Bonds) 105.20 0.87State Bank of Saurashtra (Bonds) 52.79 0.44

These investments comprise debt, equity and money m arket instruments. SBI Mutual Fund is of the opinion that the said companies arefundamentally strong and possess a high potential for growth and are market leaders in their respective fields. According ly, investmentswere made in the said companies. The investments made by some schemes of SBIMF in bonds issued by associate companies includingState Bank of India and its subsidiaries are in compliance with the investment restrictions contained in clause 9 of the seventh schedule to

the SEBI (MF) Regulations, 1996.

VIII. CONSTITUTION OF THE MUTUAL FUND

1. Constitut ion

SBI Mutual Fund has been constituted as a Trust, sponsored by SBI. SBI has made an initial contribution of Rs. 5 lacs towards setting up ofthe Trust fund. SBI has been designated as the Principal Trustee, and has appointed a Board of Trustees to supervise the activities of theFund. The Board of Trustees have entrusted the work of management of the Fund to SBI Funds Management Ltd., an Asset ManagementCompany.

2. Objecti ve of SBI Mutual Fund

The basic objective of SBI Mutual Fund is to mobilize savings from a wide cross-section of people and to provide them attractive returns,security and liquidity through investments in capital and money markets.

3. The Sponsor

The State Bank of India or SBI having its Corporate Office at State Bank Bhavan, Madame Cama Road, Mumbai - 400 021, is the largestpublic sector bank in India with 9026 branches in India and 52 offices in 31 countries worldwide. In addition to this, SBI also has 7associates and 1 banking subsidiary in addition to other non-banking subsidiaries in India and abroad. SBI is the leader in providing loansand related services (which generate significant fee-based income) to trade & industry. It has also identified project finance and consumerbanking as key areas.


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The financial performance of SBI is summarized below:

Year ended M arch 31st 2001 2000 1999 1998 1997

Turnover / Total Income (Rs. Cr.) 30021 25770 22392 18699 17594

Profit after Tax (Rs. cr.) 1604 2051 1028 1861 1349

Equity Capital (Rs. cr.) 526 526 526 526 526

Free Reserves (Rs. cr.) 12935 11620 9876 9082 7451

Net Worth (Rs. Cr.) 13461 12147 10402 9608 7977

Deposits (Rs. Cr.) 216121 196821 169041 131091 110701

Earnings per share (Rs.) 30.48 38.98 19.53 35.36 26.66

Book Value per share (Rs.) 255.76 230.93 197.64 182.66 151.65

Capital Adequacy Ratio (%) 12.79 11.49 12.51 14.58 12.17

Dividend paid (%) 50% 50% 40% 40% 40%

Source: SBI Annual Reports

4. Board of Trustees

The Trust is administered by a Board of Trustees comprising the following eminent persons:

Name Address Principal Occupation Current Directorships

Prof. A.M. Khusro B-11, Chirag Enclave, Formerly Chairman, 1. Chairman, Kohinoor Cement Ltd.Chairman, New Delhi -110 048 Finance Commission 2. Director, Transworld Leasing Ltd.Board of Trustees 3. Director, Hi-Tech Security Prints Ltd.

4. Director, CT Cotton Yarn Ltd.5. Director, Indian Express Newspaper6. Director, Traders Ltd.

7. Director, Mekaster Finlease Ltd.8. Chairman, Mekaster Securities (P) Ltd.

Dr.(Mrs.) Malati Anagol Flat No. 6, Koumari, Formerly Professor, UGC, 1. Director, Imeco Ul trasonics Pvt. Ltd.

Trustee Ahimsa Marg, Khar (West), University of Bombay 2. Director, Imeco Cleaning & WeldingMumbai 400 052 Equipments (P) Ltd.

Prof. S. K. Barua Indian Institute of Professor, IIM, NoneTrustee Management, Vastrapur, Ahmedabad

Ahmedabad-380 015

Shri M. M. Chitale 205, Agarwal Chartered Accountant 1. Director, IDBI Bank Ltd.

Trustee Shyamkamal A 2. Director, Investor Services of India Ltd.Ville Parle (E) 3. Director, Sun Vacuum Formers Ltd.Mumbai 400 057

All the above dignitaries are independent persons. SBI, the sponsor, is in the process of appointing one of its senior officials as a Trusteeto the Board in place of Shri Vepa Kamesam who has been appointed as Deputy Governor, RBI.

Apart from one nominee member of SBI (to be nominated) no other trustee is an associate of the Sponsor or of the AMC. SBIMF has beencomplying with SEBI regulations stipulating that two third members must be independent.

5. Duties and Obligations of Trustees and Substant ial Provisions of the Trust Deed:

The Board of Trustees monitors the activities of the AMC. In the last financial year, the Board of Trustees met 4 times. Period ic repor ts,including quarterly reviews of each scheme, are submitted by the AMC to the Trustees. Specific approval of the Trustees is obtained onimportant matters such as a new scheme design and launch.

Under the Trust Deed const ituting the Mutual Fund and SEBI (Mutual Fund) Regulations, 1996, the Trustees have several rights, duties andobligations including the following:

a) To enter into an investment management agreement with the AMC with the prior approval of SEBI.

b) To ensure that the investment management agreement contains such clauses as are mentioned in the Fourth Schedule of SEBI (MutualFund) Regulations, 1996 and such other clauses as are necessary for the purpose of making investment.

c) To ensure before the launch of any scheme that the AMC has:-

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


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educational qualifications, past experience in thesecurities market with the trustees, within 15 days oftheir appointment;

iii appointed auditors to audit its accounts;iv appointed a compl iance of ficer to comply w i th

regulatory requirements and to redress investorgrievances;

v appointed registrars and laid down parameters for theirsupervision;

vi prepared a compliance manual and designed internalcontrol m echanisms including audit systems;

vii specified norms for empanelment of brokers andmarketing agents.

d) To ensure that the AMC has been diligent in empanelling thebrokers, in monito ring securities transactions with b rokersand avoiding undue concentration of business with any broker.

e) To ensure that the AMC has not given any undue or unfair

advantage to any associates or dealt with any of the associatesof the asset management company in any manner detrimentalto the interest of the magnumholders.

f) To ensure that the transactions entered into by the assetmanagement company are in accordance with SEBI (MutualFund) Regulations, 1996 and the scheme.

g) To ensure that the AMC has been managing the mutual fundschemes independently of other activities and have takenadequate steps to ensure that the interests of investors of onescheme are not being compromised with those of any otherscheme or of other activities of the asset managementcompany.

h) To ensure that all activities of the AMC are in accordance withthe provisions of SEBI (Mutual Fund) Regulations, 1996.

i) Where the trustees have reason to believe that the conduct ofbusiness of the mutual fund is not in accordance wi th SEBI(Mutual Fund) Regulations, 1996 and the scheme they shallforthwi th take such remedial steps as are necessary by themand shall immediately inform the SEBI of the violation and theaction taken by them.

j) To file the details of his/her holdings in securities on a quarterlybasis with the trust.

k) To be accountable for, and be the custodian of, the funds andproperty of the respective schemes and to hold the same intrust or the benefit of the unit ho lders in accordance with SEBI(Mutual Fund) Regulations, 1996 and the provisions of t rustdeed as amended from time to time and the provisions oftrust deed and supplemental trust deeds thereof.

l) To take steps to ensure that the transactions of the mutual fund

are in accordance with the provisions of the trust deed.m) To be responsible for the calculation of any income due to be

paid to the m utual fund and also of any income received inthe mutual fund for the holders of the units of any scheme inaccordance with SEBI (Mutual Fund) Regulations, 1996 andthe trust deed.

n) To obtain the consent of the magnumholders :-

i whenever required to do so by the SEBI in the interestof the magnumholders; or

ii whenever required to do so on the requisition made bythree fourths of the magnumholders of any scheme; or

iii when the majority of the trustees decide to wind up orprematurely redeem the units;

o) To call for the details of transactions in securities by the key

personnel of the AMC in his own name or on behalf of theAMC and shall report to the SEBI, as and when required.

p) To quarterly review all transactions carried out between themutual fund, asset management company and its associates.

q) To continuously review the net worth of the AMC and in caseof any shortfall, ensure that the AMC make up for the shortfallas per clause (f) of sub-regulation (1) of regulation 21 of SEBI(Mutual Fund) Regulations, 1996.

r) To periodically review all service contracts such as custodyarrangements, transfer agency of the securities and satisfyitself that such contracts are executed in the interest of themagnumholders.

s) To ensure that there is no conflict of interest between themanner of deployment of its net worth by the AMC and theinterest o f the m agnumholders.

t) To periodically review the investor complaints received andthe redressal of the same by the AMC.

u) To abide by the Code of Conduct as specified in the fifth

schedule of SEBI (Mutual Fund) Regulations, 1996.

v) To furnish to the SEBI on a half yearly basis :-

i a report on the activities of the mutual fund;

ii a certificate stating that the trustees have satisfiedthemselves that there have been no instances of selfdealing or front running by any of the trustees, directorsand key personnel of the AMC;

iii a certificate to the effect that the AMC has beenmanaging the schemes independently of any otheractivities and in case any activities of the nature referredto in sub-regulation (2) of regulation 24 of SEBI (MutualFund) Regulations, 1996 have been undertaken by theAMC and has taken adequate steps to ensure that theinterests of the magnumholders are protected.

w) The independent Trustees referred to in regulation 16 shallgive their comments on the report received from the AMCregarding the investments made by the schemes in thesecurities of group companies of the Sponsor.

x) The trustees shall ensure that no change in the fundamentalattributes of any scheme or the trust or fees and expensespayable or any other change which would modify the schemeand affects the interest of Magnum holders, shall be carriedout unless, a written communication about the proposedchange is sent to each Magnum holder and an advertisementis given in one English daily newspaper having nationwidecirculation as well as in a newspaper published in the languageof the region where the Head Office of the mutual fund issituated; and the Magnum holders are given an option to exitat the prevailing Net Asset Value without any exit load.

Explanation: For the purposes of this clause fundamental attributesmeans the investment objectives and terms of a scheme as definedlater in the offer document under the section Investment Objectivesand Policies .

As per t he sub-regulation (25), the Trustees shall exercise duediligence as under:

A. General Due Diligence:

(i) the Trustees shall be discerning in the appointment of thedirectors on the Board of the asset management company.

(ii) Trustees shall review the desirability of continuance of theasset management company if substantial irregularities areobserved in any of the schemes and shall not allow the assetmanagement company to float new schemes.


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(iii) The trustee shall ensure that the trust property is properlyprotected, held and administered by proper persons and bya proper number of such persons.

(iv) The trustee shall ensure that all service providers are holdingappropriate registrations from the Board or concernedregulatory authority.

(v) The Trustees shall arrange for test checks of service contracts.

(vi) Trustees shall immediately report to Board of any specialdevelopments in the mutual fund.

B. Specific Due Diligence:

The Trustees shall:

(i) obtain internal audit reports at regular intervals fromindependent auditors appointed by the Trustees.

(ii) obtain compliance certificates at regular intervals from theasset management company.

(iii) hold meeting of trustees at frequent intervals.

(iv) consider the reports of the independent auditors andcompliance reports of asset management company at themeetings of trustees for appropriate action.

(v) maintain records of the decisions of the Trustees at theirmeetings 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 companyof the deficiencies and checking on the rectification ofdeficiencies.

6. Trusteeship Fees

As per the provisions of the trust deed, the Principal Trustee, viz.,State Bank of India, is entitled to a trusteeship fee of 0.01% p.a. ofnet asset value of each scheme, subject to a minimum fee of Rs. 15lakhs to be allocated across schemes in proportion to their weeklyaverage NAVs. Fees, however can be mod ified w ith the approvalof the Board of Trustees, within reasonable limi ts.

7. Modifi cations to the Trust Deed

No amendments to the Trust Deed will be carried out without theprior approval of SEBI and the M agnumholders approval wouldbe obtained where it affects the interests of the Magnumholder.

IX. INVESTMENT OBJECTIVES & POLICIES

1. State of Debt and Money markets in India

The Debt market in India consists of tw o types of markets Primaryand Secondary. Of all debt instruments the most active and liquid isthe Governm ent Securities market. Reserve Bank of India issuessecurities on behalf of the Government of India through auctionsand open market operations. In Government Securities, papers areavailable of various tenors from 1 year to 20-year papers. RBI alsoissues Treasury Bills upto 364 days maturity. 5-year tenorGovernment Securities are currently being traded at around a yield

of 8.09%, 10-year paper is currently being traded at yield of 9.35%s.a. yield. Issuances are also made for State Governments through

state development loans. There is an active secondary market in

Government Securities, which is dealt through a network of brokers,

PDs, FIs and Banks.

In the corporate bond market various types of issuers are present

like PSUs, Banks, NBFCs and Manufacturing companies. The

corporate bond market yields track the G Sec market. The gilt yield

curve is the benchmark for pricing corporate bonds issued by

Public Sector Units/ Public Sector Financial Institut ions and private

sector entities. The spread on corporate bonds over the gilts is

based on tenor and ratings given on the bonds. The spread on a 5-

year AAA rated paper over the relative Government Security is 1%

while for AA rated paper, the spread is around 1.50%. Similarly the

for a 2-year AAA paper, the spread is 1.10% while it is 1.60% for an

AA paper.

There is also an active call and money market although access to

call money is being withdrawn gradually in 4 stages for non-bankparticipants. The money market instrum ents presently available

include reverse repos, T-Bills, MIBOR linked floating rate papers, 7

day bank deposits and CPs of mainly 90 day maturity. Currently the

yield on 1-year T Bill is about 7.4%. Presently the yield on 90-day

CP is around 8.35 8.50%. Overnight call rates vary from day to

day. Any cash can be lent in this market so as not to remain idle.

Liquidity is of prime importance while making investments.

Depending on sentiments certain tenors become more liquid. For

example during a bullish phase long tenor paper gain interest

whi le in a bearish market short maturity papers like T Bills, CPs etc

are more actively traded.

The recent monetary and credit policy 2001-02 has tried to deepen

the debt and money markets and make it more liquid. By 30th

September 2001 all corporate bonds have to be in book entry

form. All CPs and corporate instruments are required to be tradedin the electronic mode.

A few instruments whose current indicative yields (as in August2001) match the maturity of various Funds, are indicated below :

Instrument Yield Instrument Yield

364 day T Bill 7.40 RPL (Jul 2002) 9.32

11.68% G Sec 2006 8.09 HDFC (Dec 2001) 8.20

11.30% G Sec 2010 9.30 NPC (Dec 2005) 9.40

90 days CP 8.00 SBI (Apr 2006) 9.37

11.15% G Sec 2002 7.51 RIL ( June 2004) 9.4512.5 G Sec 2004 7.99 ICICI (Jun 2002) 9.32

2. Objective of t he Scheme

The objective of the scheme is to provide the investors anopportunity to earn, in accordance with their requirements, throughcapital gains or through regular dividends, returns that would behigher than the returns offered by comparable investment avenuesthrough investment in debt & money market securities.


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3. Investment Strategy

The investment pattern of the scheme will be as follows:

Instrument % of portfolio Corporate debentures & Bonds / Upto 90%PSU / FI / Govt. Guaranteed Bonds /Other including Securitised Debt

Securitized Debt Not more than 10%of investments in debt

Government Securities Upto 90%

Cash & Call Money Upto 25%

Money Market Instruments * Upto 25%

Units of other mutual funds Upto 5%

* Money Market Instruments will include Commercial Paper,

Certificates of Deposit , Treasury Bills, Bills Rediscounting,Repos, short term bank deposits, short-term Governmentsecurities (of maturities less than 1 year) and any other suchshort-term instruments as may be allowed under theregulations prevailing from time to time.

The investments may be made in primary as well as secondarymarkets. The portfol io will be sufficiently diversified so as to reducethe risk of underperform ance due to unexpected security-specificfactors. If allowed in future, the fund may invest in foreign debt(subject to relevant RBI guidelines and subject to RBI approval).Any investment in Government securities may be in securitiessupported by ability to bo rrow from the Treasury, or sovereign orstate government guarantee, or supported by the Government ofIndia / a State Government in any other manner.

The Scheme being open-ended, some portion of the port folio w illbe invested in highly liquid money market instruments orgovernment paper so as to meet the normal repurchaserequirements. The remaining investments will be made in securitieswhich are either expected to be reasonably liquid or of varyingmaturi ties. However, the NAV of the Scheme may be impacted ifthe securities invested in are rendered illiquid after investment.Please refer to the paragraph Right to Limit Redempt ions in thesection Redemptions and Repurchase. Please refer to the sectionNAV and Valuation of Assets of the Scheme.

Debt instruments in which the scheme invests shall be rated as notbelow investment grade by at least one recognized credit ratingagency author ized under the SEBI Act, 1992. In case of short -terminstruments, investments will be restricted to the instruments havingCRISIL rating of P-2 and above and/or ICRA rating of A-2 andabove or equivalent rating by other rating agencies. In case a debt

instrument is not rated, mutual funds may constitute committeeswho can approve such proposals for investments in unratedinstruments subject to the approval of the detailed parameters forsuch investments by the Board of Directors and the Board ofTrustees.

However, the above investment pattern may be changed at thediscretion of the Fund Manager in the interest of the investorsprovided such changes do not result in a change in the fundamentalattributes / investment profile of the scheme and are short termchanges on defensive consideration. The funds raised under thescheme shall be invested only in transferable securities as perRegulation 44(1), Schedule 7 of the SEBI (Mutual Funds) Regulations,1996.

4. Trading in Derivatives

A (i) The Fund may use any hedging techniques that arepermissible now or in fu ture, under SEBI regulations, inconsonance with the schemes investment objective,

including investment in derivatives such as interest rateswaps. As per SEBI guidelines, the Funds trading inderivatives shall be restricted to hedging and portfoliobalancing purposes. The Fund shall fully cover its positionin the derivatives market by holding underlying securities

/ cash or cash equivalents / option and / or ob ligation foracquiring underlying assets to honour the obligationscontracted in the derivatives market. The Fund shallmaintain separate records for ho lding the cash and cashequivalents / securities for this purpose. The securitiesheld shall be marked to market by the AMC to ensure fullcoverage of investments made in derivative products atall times.

(ii) Illustration: Interest Rate Swap (IRS)

Assume that a Mutual Fund has INR 10 crore, which isto be deployed in overnight products for 7 days. Thismoney w ill be exposed to interest rate risk on dailybasis. The fund can buy an Interest Rate Swap receivingfixed interest rate and paying NSE MIBOR.

The deal will be as under:

Counterparty Bank Mutual Fund

Floating rate (NSE MIBOR)

Receives Pays

Fixed rate (8.75%)

Pays Receives


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The cash flows on a notional principal amount of Rs. 10 crs. would be-

(In Rs. Crore)

Principal NSE MIBOR Interest Amount

Day 1 10.0000 8.10% .0022192 10.00221918

Day 2 10.00222 8.20% .0022466 10.00446575

Day 3 10.00447 8.30% .002274 10.00673973

Day 4 (for 2 days) Saturday 10.00674 8.15% .0044658 10.01120548

Day 5 Sunday Holiday

Day 6 10.01121 8.40% .0023014 10.01350685

Day 7 10.01351 8.50% .0023288 10.01583562

Floating Interest Payable .0158356164

Fixed Interest Receivable .0167808219

Net Receivable for Mutual Fund receiving fixed rate .0009452055

In this example Mutual Fund stands to gain by receiving fixed rates. As the NSE MIBOR floating rate is decided daily, in adversescenario, the Mutual Fund may have to pay the difference.

The counter-party providing Swap, Options, Forward Rate Agreements (FRAs) will do the same at a cost.

(iii) The risks involved in derivatives are:

1. The cost of hedge can be higher than adverseimpact of market movements.

2. The derivatives will entail a counter-party risk tothe extent of amount that can become due fromthe party.

3. An exposure to derivat ives in excess of thehedging requirements can lead to losses.

4. An exposure to derivatives can also limit the profitsfrom a genuine investment transaction.

5. Efficiency of a derivatives market depends on thedevelopment of a liquid and efficient market forunderlying securities and also on the suitable andacceptable benchmarks.

Methods to tackle these risks:

1. Hedging will not be done on a carpet basis butbased on a view about interest rates, economyand expected adverse impact.

2. Limits of appropriate nature will be developedfor counter parties

3. Such an exposure will be backed by assets in theform of cash or securities adequate to meet costof derivative trading and loss, if any, due to

unfavourable movements in the market.(iv) The losses that may be suffered by the investors as a

consequence of such investments:

1. As the use of derivatives is based on the judgementof the Fund Manger, the view on market taken mayprove wrong resulting in losses.

2. The upside potential of investments may be limitedon account of hedging which may causeopportunity losses.

(v) The use of derivatives for hedging will give benefit of:

1. Curtailing the losses due to adverse movement ininterest rates

2. Securing upside gains at cost

(vi) Exposure limits: Currently the Mutual Fund intends tohave an exposure not exceeding 5% of the net assets ofthe scheme in derivative instrum ents under MagnumIndex Fund.

b) Valuation

(i) The traded derivatives shall be valued at market price

in conform ity w ith the stipulations of sub clauses (i) to(v) of clause 1 of the Eighth Schedule to the SEBIRegulations.

(ii) The valuation of untraded derivatives shall be done inaccordance with the valuation m ethod for untradedinvestments prescribed in sub clauses (i) and (ii) of clause2 of the Eighth Schedule to the SEBI Regulations.

c) Reporting

The AMC shall cover the fo llowing aspects in their reports totrustees periodically, as prov ided for in the Regulations:

(i) Transactions in derivatives, both in volume and value

terms.

(ii) Market value of cash or cash equivalents / securities

held to cover the exposure.

(iii) Any breach of the exposure limit laid down in the

scheme offer document.

(iv) Short-fall, if any, in the assets covering investment in

derivative products and the manner of bridging it.

(v) The Trustees shall offer their comments on the above

aspects in the report filed with SEBI under sub regulation(23) (a) of regulation 18 of SEBI Regulations.


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4. Fundamental Att ributes

The following attributes will be considered as fundamentalattributes :

1. Type of Scheme : Open-ended debt scheme.

2. Investment Object ive : To provi de the i nvestors anopportunity to earn, in accordancewith their requirements, throughcapital gains or regular dividends,returns through investment in debt &money market securit ies. Theinvestment objective is given in thefollow ing paragraphs in this section.

3. Terms of Issue : The nature & duration of the Scheme,provision for repurchase, Schemeexpenses & fees, as stated elsewherein the Offer Document.

The fundamental attributes as defined above or fees and expensespayable or any other change which would modify the scheme andaffects the interest of Magnum holders, shall not be carried outunless, a written com munication about the proposed change issent to each Magnum holder and an advertisement is given in oneEnglish daily newspaper having nationwide circulation as well asin a newspaper published in the language of the region where theHead Office of the mutual fund is situated; and the Magnum holdersare given an option to exit at the prevailing Net Asset Value withoutany exit load.

5. Investment lim itat ions

The investment policies of the scheme comply with the rules,regulations and guidelines laid out in the SEBI (MF) Regulations,

1996. As per the Regulations, specifically the Seventh Schedule,the follow ing investment lim itations are applicable to schemes ofMutual Funds.

a. The scheme shall not invest more than 15% of its NAV in debtinstruments issued by a single issuer which are rated not belowinvestment grade by a credit rating agency authorized tocarry out such activity under the Act. Such investment limitmay be extended to 20% of the NAV of the scheme with theprior approval of the Board of Trustees and the Board ofAsset Management Company. Such limit shall not beapplicable for investments in government securities andmoney market instruments. Also investment within such limitcan be made in mortgaged-backed securitized debt, whichare rated not below investment grade by a credit ratingagency registered with the Board.

b. The scheme shall not invest more than 10% of its NAV inunrated debt instruments issued by a single issuer and thetotal investment in such instruments shall not exceed 25% ofthe NAV of the scheme. All such investments shall be madewith the prior approval of the Board of Trustees and the Boardof AMC.

c. Debt instruments in which the scheme invests should be ratedas not below investment grade by at least one recognizedcredit rating agency authorized under the SEBI Act, 1992. Incase a debt instrument is not rated, mutual funds mayconstitute comm ittees who can approve such proposals forinvestments in unrated instruments subject to the approval ofthe detailed parameters for such investments by the Board ofDirectors and the Board of Trustees.

d. Transfer of investments from one scheme to another scheme,including this scheme, under the Mutual Fund shall be allowedonly if :

(i) Such transfers are done at the prevailing market pricefor quoted securities on spot basis; explanation spotbasis shall have the same meaning as specified by thestock exchange for spot transactions, and

(ii) The securities so transferred shall be in conformity withthe investment objective of the relevant scheme to which

such transfer has been made.e. The scheme may purchase or sell securities to any other

scheme of the Mutual Fund as stated above.

f. The Mutual Fund shall buy and sell securities on the basis ofdeliveries and shall in all cases of purchases, take delivery o frelative securities and in all cases of sale, deliver the securitiesand shall in no case put itself in a position w hereby it has tomake short sale or carry forward transaction or engage inbadla finance.

g. The scheme shall provide that the securities be purchased ortransferred in the name of the Mutual Fund for the relevantscheme, wherever the investments are intended to be of along-term nature.

h. Pending deployment of funds of the scheme in securitiespursuant to the investment objectives of the scheme the MutualFund can invest the funds of the scheme in short-term depositsof scheduled commercial banks.

i. The assets of the scheme shall not in any manner be used inshort selling or carry forward transactions.

j. The mutual fund under all its schemes will not own more thanten per cent of any companys paid up capital carrying votingrights.

k. The scheme may invest in another scheme under the sameasset management company or any other mutual fund withoutcharging any fees, provided that aggregate interschemeinvestment made by all schemes under the same managementor in schemes under the management of any other asset

management company shall not exceed 5% of the net assetvalue of the mutual fund.

l. The mutual fund will enter into derivatives transactions in arecognized stock exchange for the purpose of hedging andportfolio balancing, in accordance with the guidelines issuedby the Board.


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m. The scheme shall not make any investment in;

i any unlisted security of an associate or group companyof the sponsor; or

ii any security issued by way of private placement by anassociate or group company of the sponsor; or

iii the listed securities of group companies of the sponsorwhich is in excess of 25% of the net assets .

Notwithstanding the foregoing investment policies, for temporarydefensive purposes (e.g., during periods in which the AssetManagement Company believes changes in the securities marketsor economic or other condit ions warrant), the scheme may investsubstantially in Indian Government Treasury Bills and or keep cashbalances which will be deployed in call markets. The Trusteeshave the right in their sole discretion, to limit redemptions undercertain circumstances. Please refer to the paragraph Right toLimit Redemptions in the section Redemption and Repurchase.Please refer to the section NAV and Valuation of Assets of the

scheme.

6. Port folio Turnover Policy

The portfolio may be churned in order to take advantage ofanticipated interest rate movements or market opportunities in orderto maximise the average yield on the port folio while maintaining adesirable risk profile and adequate liquidity. The impact of any risein interest rates will be reduced through good fund managementpractices. In anticipation of an imm inent rise in interest rates, theScheme will attempt to move the funds from long-term instrumentsinto short-term debt & money-market instruments where the impacton the NAV will be much lower. Also, if the interest rates at anypoint of time are expected to ease, the Scheme can move back intolong-term debt to take advantage of appreciation in the market

value of its investments.

7. Investments in Associate or Group Companies of the

Sponsor

The scheme will not invest more than 25% of net assets of the

scheme in the securities of the State Bank Group companies. Further,

the aggregate investment made by all the SBI Mutual Fund schemes

in the securities of State Bank Group companies will no t exceed

25% of the net assets of the fund as a whole. The scheme shall not

invest in privately placed or unl isted securities of associates / group

companies.

8. Investment in other schemes

The investment by this scheme in other mutual fund schemes will

be in accordance with Regulation 44(1), Schedule 7 of the SEBI(MF) Regulations, 1996 according to which :

A scheme may invest in another scheme under the same assetmanagement company or any other mutual fund withoutcharging any fees, provided that aggregate inter-schemeinvestment made by all schemes under the same managementor in schemes under the management of any other assetmanagement company shall not exceed 5% of the net asset valueof the mutual fund .

In order to be consistent with the Schemes objectives, such aninvestment may only be in another scheme investing in debt and /or money market instruments and / or derivatives based on these,and will not be in any scheme which invests in equity or equity-linked securities or derivatives based on equity. No investmentmanagement fee will be charged by the AMC on such investments.

9. AMCs investments in t he scheme

The AMC may invest in the scheme on an ongoing basis, suchamount as they deem appropriate. But the AMC shall not be entitledto charge any management fees on this investment in the scheme.

Investments by the AMC will be in accordance with Regulation24(3) of the SEBI(MF) Regulations, 1996 which states that :

the asset management company shall not invest in any of itsschemes unless full d isclosure of its intent ion to invest has beenmade in the offer document provided that the asset managementcompany shall not be entitled to charge any fees on its investmentin the scheme.

10. Underw rit ing

The Scheme may take up underwr iting o f the securities of otherissuers subject to the relevant SEBI Regulations and as may bepermit ted by the Board of Directors of the AMC.

Regulation 46 states that :

Mutual Funds may enter into underwriting agreement afterobtaining a certificate of registration in terms of the SEBI(Underwriters) Rules and SEBI (Underwriters) Regulations, 1993authorising it to carry on activities as underwriters.

(1) For the purpose of these regulations, the underwritingobligation w ill be deemed as if the investments are made insuch securities.

(2) The capital adequacy norms for the purpose of underwritingshall be the net assets of the scheme. Provided that theunderwriting obligation of a mutual fund shall not at anytime exceed the total net asset value of the scheme.

11. Procedures followed for Investment decisions

The proposals for investments in equity/debt or market instrumentsoriginate from the Fund Manager and are routed through the VP(Debt) or Chief Investment Officer to the Investment Committee. The


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committee comprising the Managing Director, Executive VicePresident, CIO, VP (Debt), Head of Research, Debt and Equity Dealersdecide on the proposals of the Fund Managers. Each proposal is awri tten document with reasons for the proposed sale/repurchaseor reasons for rejection (if any) are recorded. The risk origination isdone based on the guidelines issued by SEBI or Board of Trustees.Concurrent auditors periodically check these and their reports areplaced before the Audit Committee which is comprised of theindependent Directors and Trustees.

The monitoring of decisions is taken through quarterly secondaryand primary market report to the Directors. The Secondary marketreport details the top 20 purchases and sale decisions in the quarter,the details of losses booked and the reasons thereof. All primarymarket decisions are reported.

The performance of the equity reported to the AMCs and Trusteesis benchmarked against the BSE Sensitive Index and also tocomparable schemes in the industry w hile the performance of thedebt schemes are reviewed through the rankings issued by CRISIL/Value Research etc

X. MANAGEMENT OF THE FUND

The Board of Trustees of SBI Mutual Fund has entrusted themanagement of the Fund to SBI Funds Management Ltd., the AMC.Further details regarding the set up are furnished in the followingparagraphs.

1. About t he AMC

SBI Funds Management Ltd. (SBIFM) having its corporate off ice at191, Maker Tower E, 19th floor, Cuffe Parade, Mumbai - 400 005,is a wholly owned subsidiary formed by State Bank of India. As perthe audited accounts on 31st March 2001, the authorized and paid

up capital of the AMC was Rs. 50 crores and the net worth of theAMC was Rs. 55.97 crores.

SBI Funds Management Limited has signed an InvestmentManagement Agreementwith the Trustees of SBI Mutual Fund on14th May 1993. In terms of this Agreement, SBIFM has assumed theday to day investment management of the fund and in that capacitymakes investment decisions and manages the SBI Mutual FundSchemes in accordance wi th the scheme objectives, Trust Deed,provisions of Investment Management Agreement and SEBIRegulations & Guidelines.

To date, SBIFM has successfully launched and managed 31 schemes(including 2 offshore funds) of SBI Mutual Fund. Of these 10 schemeshave been redeemed. Of the 19 schemes still being managed, 11are open-end schemes and the rest are close-end schemes, with

total net assets of approximately Rs.3400 crores (as on 31st July2001), including offshore funds.

2. AMC Fees

For management of the above funds, the AMC at present charges afee not exceeding 1% of the weekly average NAV of each scheme,which is charged to the respective scheme. In future, the AMC maymodify the fee from scheme to scheme, within the limits specifiedin the Regulations and disclosed in the offer documents of therespective schemes.

3. Board of Directors

The Board of Directors of the SBIFM comprises the followingeminent persons:

Shri Janki Ballabh D-7, Kinellan TowerChairman 100A, Napean Sea Road,State Bank of India Mumbai - 400 006.

Shri S.L. Rao D-1, Chartered CottageEconomist 8-Langford Road,

Bangalore - 560 025

Shri R.G. Kare Kare HouseIndustrialist Near Metropol Cinema

Margao, Goa - 403 601.

Shri D. P. Roy D-11, Kinellan TowerDy. Managing Director 100A, Napean Sea Road,Associate Banks and Mumbai - 400 006.SubsidiariesState Bank of India

Shri Birendra Kumar C-6, Kinellan TowerManaging Director 100A, Napean Sea Road,

SBI Capital Markets Ltd. Mumbai - 400 006.Shri Niamatullah C-2, Kinellan TowerManaging Director 100A, Napean Sea RoadSBI Funds Management Ltd. Mumbai - 400 006.

Shri Ajay Shah Santosh Nagar,Asst. Professor General Arun KumarInd ira Gandhi Inst itute of Vaidya MargDevelopment Research Film City Road ,

Goregaon (E)Mumbai-400065

Shri Manu Chadha B-30 Kuthiala BuildingChartered Accountant Connaught Place

New Delhi 110 001.


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4. Key Personnel

The day to day operations of the AMC are looked after by experienced and qualified professionals, consisting of senior officials ondeputation from the State Bank of India as well as directly recruited of ficials of the AMC.

a. The top key management personnel of SBI Funds Management Ltd. are

Name & Age Designation Educational Business Experience Qualifications

Shri Niamatullah Managing Director M. Com, CAIIB Experience of 35 years and 9 months60 years with SBI, including 12 years as a senior

executive.

Shri K. G. Ravindran Executive Vice President M. Sc., CAIIB Experience of 33 years and 8 months of58 years experience with SBI including 6 years as a

senior executive.

b. Head of Debt and Chief Funds Manager

Name & Age Designation Educational Business Experience

QualificationsShri Pijush Das Vice President B.Sc., MA, 13 years of experience in the treasury at48 years Economics the State Bank of India. Served as Head of

Treasury at SBI Singapore from 1995 to1999.

c. Fund Manager

Name & Age Designation Qualifications Experience

Shri Saravana Kumar Assistant Vice President B.E., PGDM (IIM B), Exper ience of over 8 years in area of funds35 years C.A.I.I.B management in the mutual fund industry and

4 years in the softw are industry. Presentlymanaging funds with net assets of aboutRs.875 crores .

In absence of the fund manager, one of the other fund m anagers wil l look after the operations of the scheme. The AMC wil l have thediscretion to change the Chief Investment Officer/Fund Manager depending on operational necessities and in the overall in terest of thefund.

The AMC has appointed the follow ing people as fund managers for various schemes:


Shri Ajay Bodke Manager B.E. (Mechanical), MMS Experience of over 6 years in the mutual30 years fund industry and presently managing funds

with net assets of about Rs. 350 crores

Shri Sachin Sawrikar Manager B.E., PGDM Experience of over 6 years in the mutual30 years fund industry and presently managing funds

with net assets of about Rs. 400 crores

Shri Sandip Sabharwal Manager B. Tech., P.G.D.M. Experience of over 6 years in the mutual30 years fund industry and presently managing funds

with net assets of about Rs. 400 crores.

d. Head of Equity Research


Ms. Aparna Nirgude Asst. Vice President B. Com, M.B.A Experience of over 8 years in the mutual29 years fund industry in the area of equity research

and funds management

The Equity Research team compr ises of 8 junior management professionals having related experience of around 2 to 9 months.

e. Investor Relat ions Officer

The AMC has appointed M. Priolkar, Manager, as the Investor Relations Officer to look into investor grievances regarding deficiencies, ifany, in the services provided by the Registrars or the Investor Service Centres. He can be contacted at the address given in the section onInvestors Rights and Services. The AMC will have the discretion to change the Investor Relations Officer depending on operationalnecessities and in the overall interest of the fund.


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5. Duti es and Obligat ions of t he Asset Management

Company:

Under the SEBI (Mutual Fund) Regulations, 1996 and the InvestmentManagement Agreement the AMC has the follow ing obligations:

a) to take all reasonable steps and exercise due diligence toensure that the investment of funds pertaining to any schemeis not contrary to the provisions of SEBI (Mutual Fund)Regulations 1996 and the Trust Deed.

b) to exercise due diligence and care in all its investmentdecisions as would be exercised by other persons engagedin the same business.

c) to be responsible for the acts of commissions or omissionsby its employees or the persons whose services have beenprocured by the AM C.

d) to submit to the trustees quarterly reports of each year on itsactivities and the compliance with SEBI (Mutual Fund)Regulations 1996.

e) The trustees at the request of the Asset Management Companymay terminate the assignment of the AMC at any time providedthat such termination shall become effective only after thetrustees have accepted the termination of assignment andcomm unicated their decision in writ ing to the AMC.

f) Notwithstanding anything contained in any contract oragreement or termination, the AMC or its directors or otherofficers shall not be absolved of liability to the mutual fund fortheir acts of commissions or omissions, while holding suchposition or office.

g) not to deal in securities through any broker associated withthe sponsor or a firm which is an associate or a sponsor

beyond 5% of the daily gross business of the mutual fund.h) not to utilize the services of the sponsor or any of its associates,

employees or their relatives, for the purpose of any securitiestransaction and distribution and sale of securities.

Provided that the AMC may utilize such services if disclosureto that effect is made to the unit holders and the brokerage orcommission paid is also disclosed in the half yearly/annualaccounts of the mutual fund *.

* Note: Please note that the AMC utilizes the services ofsome branches of the SBI Group as authorized collectingbranches for the scheme. It may also ut ilize the services ofsome of the Associate companies of SBI for varioustransactions. This has also been mentioned in the sectionAssociate Transactions. Suitable disclosure as required

under SEBI (MF) Regulations 2000 wi ll be m ade in the halfyearly and annual accounts of the Fund.

i) to file with the trustees the details of transactions in securities

by the key personnel of the asset management company in

their own name or on behalf of the asset management

company and to also report to the SEBI, as and when required

by the SEBI.

j) In case the AMC enters into any securities transactions with

any of its associates, a report to that effect shall be sent to the

trustees at their next meeting.

k) In case any company has invested more than 5% of the netasset value of a scheme, the investment made by that scheme

or by any other scheme of the same mutual fund in thatcompany or its subsidiaries shall be brought to the notice ofthe trustees by the AM C and to be disclosed in the half yearlyand annual accounts of the respective schemes with justificationfor such investment provided the latter investment has beenmade within one year of the date of the former investmentcalculated on either side..

l) to file with the trustees and the SEBI-

i detailed bio-data of all its directors alongwith theirinterest in other companies within fifteen days of theirappointment; and

ii any change in the interests of directors every six months.

iii A quarterly report to the trustees giving details andadequate justification about the purchase and sale ofthe securities of the group companies of the Sponsoror the Asset Management Company, as the case maybe,by the Mutual fund during the said quarter.

m) to file with the trustees a statement of holdings in securities ofthe directors of the AMC with the dates of acquisition of suchsecurities at quarterly intervals.

n) not to appoint any person as key personnel who has beenfound guilty of any economic offence or involved in violationof securities laws.

o) to appoint registrars and share transfer agents who areregistered w ith the SEBI.

Provided if the work relating to the transfer of units is processedin-house, the charges at competitive market rates may bedebited to the scheme and for rates higher than the competit ivemarket rates, prior approval of the trustees shall be obtainedand reasons for charging higher rates shall be disclosed in

the annual accounts.

p) to abide by the Code of Conduct as specified in the fifthschedule o f SEBI Regulations.

6. Registrars

SBIMF has appointed M/s Computronics Financial Services (India)Ltd. (SEBI Registration Number: INR000001534) located at 1 MittalChambers, Nariman Point, Mumbai 400 021 as Registrars andTransfer Agents to the scheme. The Board of Trustees and the AMChave ensured that the Registrar has adequate capacity to d ischargeresponsibilities with regard to processing of applications anddispatch of M agnum certificates to investors within the time limitprescribed in the SEBI Regulations and that they have sufficientcapacity to handle investor complaints. The AMC reserves the right

to change the Registrars at any time with the approval of the Boardof Trustees and the Board of Directors o f the AMC.

7. Register of Magnum holders

A register of Magnum holders under this scheme containing thenecessary particulars will be maintained at the office of the Registrarto the Scheme and at such p lace(s) as the Trustees may decide.

8. Custod ians

SBIMF Mutual Fund has appointed Stock Holdi

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