deutsche tax saving fund - kotak mahindra bank · deutsche tax saving fund [an equity linked...

Deutsche

Tax Saving Fund[An Equity Linked Savings Scheme (ELSS)]

Deutsche Tax Saving Fund is an open ended equity linkedsaving scheme with the objective to generate long term

capital appreciation from a portfolio that is investedpredominantly in equity and equity related instruments.

Offer Document

This Offer Document contains information necessary for an investor to

make an informed investment decision in the Scheme described herein.

Investors should carefully read the Offer Document prior to making an

investment decision and retain the Offer Document for future reference.

Investors may note that this Offer Document remains effective until a

material change occurs. Material changes shall be filed with SEBI and

circulated to all Unit Holders along with Quarterly / Half Yearly Reports

or as may be publicly notified by advertisements in the newspapers

subject to the applicable regulations.

The particulars of Deutsche Tax Saving Fund offered under this Offer

Document, have been prepared in accordance with the Securities

Exchange Board of India (Mutual Funds) Regulations, 1996, as amended

till date, Equity Linked Savings Scheme 2005 and Equity Linked Savings

(Amendment) Scheme 2005 notifications, issued by the Ministry of

Finance (Department of Revenue) dated 03.11.05 & 13.12.05 and

filed with the Securities and Exchange Board of India (SEBI), and the

Units being offered for public subscription have neither been approved

or disapproved by SEBI nor has SEBI certified the accuracy and adequacy

of the Offer Document.

New Fund Offer Issue Price: Rs. 10 per unit for cash

New Fund Offer Opens : January 24, 2006

New Fund Offer Closes : February 22, 2006

SponsorsDeutsche Asset Management (Asia) Limited20 Raffles Place, #27-01 Ocean Towers, Singapore 048620

Deutsche India Holdings Private Limited5th Floor, Nicholas Piramal Tower, Peninsula Corporate ParkGanpatrao Kadam Marg, Lower Parel, Mumbai 400 013

Asset Management CompanyDeutsche Asset Management (India) Private LimitedDB House, Hazarimal Somani Marg, Fort, Mumbai 400 001

TrusteeDeutsche Trustee Services (India) Private LimitedDB House, Hazarimal Somani Marg, Fort, Mumbai 400 001

56 Deutsche Tax Saving Fund

1

1Deutsche Tax Saving Fund

Service Providers

Sponsors

Deutsche Asset Management (Asia) Limited

Registered Office :

20 Raffles Place, #27-01 Ocean Towers, Singapore 048620

Deutsche India Holdings Private Limited

5th Floor, Nicholas Piramal Tower, Peninsula Corporate Park

Ganpatrao Kadam Marg, Lower Parel, Mumbai 400 013

Asset Management Company

Deutsche Asset Management (India) Private Limited

Registered & Corporate Office :

DB House, Hazarimal Somani Marg,

Fort, Mumbai - 400 001

Trustee

Deutsche Trustee Services (India) Private Limited

Registered Office :



Custodian

JP Morgan Chase Bank

Mafatlal Centre, 9th Floor,

Nariman Point, Mumbai - 400 021

Registrars & Transfer Agents

Karvy Computershare Private Ltd.

46, Road No. 4, Street No. 1,

Banjara Hills, Hyderabad - 500 034

Auditors to the Fund & Tax Advisors

Price Waterhouse

252, Veer Savarkar Marg, Shivaji Park, Dadar,

Mumbai - 400 028

Advocates & Solicitors to the Fund

Little & Co.

Central Bank Building,

Mahatma Gandhi Road, Mumbai - 400 023

Important Notice

Investing in a mutual fund scheme involves certain risks and

considerations associated generally with making investments in

securities. The value of the Scheme's investments may be affected

generally by factors affecting capital markets, such as price and volume

volatility in the capital markets, interest rates, currency exchange rates,

changes in Government policies, taxation, political, economic or other

developments, etc. Consequently, there can be no assurance that

the Scheme will achieve its objectives. The NAV of the Units of the

Scheme may fluctuate and can go up or down. Past performance of

the mutual funds managed by the Sponsors or their affiliates is not

indicative of the future performance of the Scheme nor will past

performance of the Scheme, following its commencement of

operations, be necessarily indicative of its future performance.

Prospective investors are advised to review this Offer Document

carefully and in its entirety and consult with their legal, tax and financial

advisors to determine possible legal, tax and financial or other

consequences of subscribing to, purchasing or holding Units under

the Scheme, before making an application for Units. Investors are

requested to retain this Offer Document for their reference.

The Deutsche Mutual Fund ("the Fund"), Deutsche Asset Management

(India) Private Limited ("the AMC") and / or Deutsche Trustee Services

(India) Private Ltd. ("Trustee") have not authorised any person to give

any information or make any representations, either oral or written,

not stated in this Offer Document in connection with the issue of

Units under the Scheme. Prospective investors are advised not to

rely upon any information or representations not incorporated in this

Offer Document unless the same has been authorised by the Fund

or the AMC or the Sponsor. Any subscriptions, purchase or sale made

by any person on the basis of statements or representations which

are not contained or which are inconsistent with the information

contained in this Offer Document shall be solely at the risk of

purchaser.

The current Regulations impose certain restrictions and conditions

on the AMC for entering into transactions with the Sponsors and

their associates. These restrictions include:

a) prohibition of purchase or sale of securities through any broker

associated with a Sponsor that is an average of 5% or more of

the aggregate purchases and sale of securities made by the Fund

in all its schemes. The limit of 5% shall apply for a block of any

three months.

b) prohibition of utilisation of the services of the Sponsors or any

of their associates, for the purpose of any securities transactions

and distribution and sale of securities unless a disclosure to this

effect is made in the Offer Document.

Deutsche Bank is an associate of the AMC and will be entitled to

brokerage and trailer fee on the funds mobilised by them. The AMC

may utilise the services of Sponsor, group companies and any other

subsidiary or associate company of the Sponsor established or to be

established at a later date, in case such a company (including their

employees or relatives) is in a position to provide the requisite services

to the AMC. The AMC will conduct its business with the aforesaid

companies (including their employees or relatives) on commercial

terms and on arms-length basis and at mutually agreed terms and

conditions to the extent permitted under the SEBI Regulations, after

evaluation of the competitiveness of the pricing offered by the

Sponsor, associate companies (including their employees or relatives)

and the services to be provided by them.

In this Offer Document all references to "$" are to United States of

America Dollars and "Rs." are to Indian Rupees.

This Offer Document is dated January 3, 2006. Investors should

ascertain about any further changes after January 3, 2006 from the

AMC or any Investor Service Centre or Collection Centres or its

distributors / brokers.

OFFER DOCUMENT AS ON JANUARY 3, 2006

Offer Document Deutsche Tax Saving Fund 2


Index

Sr.No. Subject Page

I. Risk Factors & Special Considerations .................... 3

II. Definitions .................................................................. 6

III. Summary of the Scheme .......................................... 8

IV. Constitution of the Mutual Fund

A) The Fund ............................................................. 9

B) The Sponsors ...................................................... 9

C) The Trustee Company ......................................... 10

1) Directors ...................................................... 10

2) Rights, Duties & Responsibilities of

the Trustee and the material provisions

of the Trust Deed ........................................ 11

3) Trusteeship Fees ......................................... 12

4) Meetings held during the

last financial year ......................................... 12

D) The Asset Management Company ..................... 12

1) Constitution ................................................. 12

2) Directors ...................................................... 12

3) Powers, Duties and Responsibilities

of the AMC ................................................. 13

4) Key Employees of AMC and

relevant experience ..................................... 15

5) Fund Manager ............................................. 16

6) Compliance Officer ..................................... 16

7) Investors Relations Officer .......................... 16

E) The Auditors & Tax Advisors ............................... 16

F) The Registrar ....................................................... 16

G) The Custodian ..................................................... 16

H) Collecting Banker ................................................ 16

V. Investment Objectives & Policies, Investment

Pattern & Risk Profile and Limitations of

the Scheme

A) Investment Objectives,

Investment Pattern & Risk Profile ....................... 16

B) Procedure and Recording of

Investment Decisions .......................................... 19

C) Change in Investment Pattern ............................ 19

D) Change in Fundamental Attributes ...................... 19

E) Portfolio Turnover ................................................ 19

F) Investment Limitations / Restrictions .................. 19

G) Investment of Subscription Money ..................... 20

H) Depository ........................................................... 20

I) Investments by Asset Management Company ... 20

J) Hedging Policies in connection with

Trading in Derivatives .......................................... 20

VI. Fees, Expenses and Load

A) Load Structure of the Scheme ............................ 23

B) Fees and Expenses of the Scheme..................... 24

C) Fees and Expenses of the Existing Schemes ..... 24

Sr.No. Subject Page

D) Condensed Financial Information ........................ 25

VII. Units & the Offer

A) Units on Offer - General Information ................... 29

B) Purchase of Units ................................................ 32

C) Redemption of Units ........................................... 34

D) Facilities Offered to Investors

under the Scheme ............................................... 36

VIII. Unit Holders' Rights and Services

A) Unit holders' Rights ............................................. 38

B) Voting Rights of the Unit Holders ........................ 39

C) Account Statement and Unit Certificates ............ 39

D) NAV Information .................................................. 39

E) Disclosure of Information

under the Regulations ......................................... 39

F) Duration of the Scheme ...................................... 40

G) Procedure and Manner of Winding Up ................ 40

H) Services to Unit Holders ..................................... 40

IX. Taxation

A) For Unit Holders .................................................. 41

B) For the Mutual Fund ............................................ 42

X. Net Asset Value and Valuation of Assets

A) Computation of Net Asset Value ......................... 42

B) Accounting Policies & Standards ......................... 46

XI. Other Matters

A) Transactions with Sponsors / Associates ............ 47

B) Stock Lending by the Fund .................................. 48

C) Policy on offshore investments

by the Scheme .................................................... 48

D) Borrowing by Mutual Fund .................................. 48

E) Inter-Scheme Transfers ....................................... 48

F) Underwriting by a Scheme .................................. 48

G) Disclosure Under Regulation 25(11) .................... 49

H) Other business activity of the AMC. ................... 51

I) General Information ............................................ 51

1) Power to make Rules .................................. 51

2) Power to remove Difficulties ...................... 51

3) Penalties and Pending Litigation ................. 51

4) Scheme to be binding

on the Unit Holders ..................................... 52

5) Register of Scheme's Unit Holders ............. 52

6) Website ....................................................... 52

7) Omnibus Clause .......................................... 52

8) Jurisdiction .................................................. 52

9) Books and Records ..................................... 52

10) Documents available for Inspection ............ 52

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I. Risk Factors & SpecialConsiderations

Standard Risk Factors

l Mutual funds, like securities investments, are subject to marketand other risks and there can be no guarantee against lossresulting from an investment in the Scheme nor can there beany assurance that the Scheme's objectives will be achieved.As with any investment in securities, the NAV of the Units issuedunder the Scheme can go up or down depending on variousfactors that may affect the values of the Scheme's investments.In addition to the factors that affect the value of individualsecurities, the NAV of the Scheme can be expected to fluctuatewith movements in the broader equity and bond markets andmay be influenced by factors affecting capital markets in general,such as, but not limited to, changes in interest rates, currencyexchange rates, changes in governmental policies, taxation,political, economic or other developments and increased volatilityin the stock and bond markets.

Neither the past performance of the mutual funds managed bythe Sponsors and their affiliates/associates nor the pastperformance of the Sponsors/AMC or Fund is necessarilyindicative of future performance of the Scheme.

l The Sponsors are not responsible or liable for any loss resultingfrom the operation of the Scheme beyond the initial contributionof an amount of Rs.1 lakh collectively made by them towardssetting up the Fund or such other accretions and additions tothe initial corpus set up by the Sponsors.

l Investors in the Scheme are not being offered a guaranteed orassured rate of return.

l Deutsche Tax Saving Fund (DTSF) is the name of the Schemeand does not in any manner indicate the quality of the Scheme,its future prospects or returns.

l As per SEBI circular dated December 12, 2003 ref. SEBI/IMD/CIR No. 10/22701/03, each scheme and individual plan(s) underthe schemes should have a minimum of 20 investors and nosingle investor should account for more than 25% of the corpusof such scheme/plan(s). In case of non-fulfillment with either ofthe above two conditions in a three months time period or theend of succeeding calendar quarter, whichever is earlier, fromthe close of the New Fund Offering (NFO) of open endedschemes or on an ongoing basis for each calendar quarter, theschemes /plans shall be wound up by following the guidelinesprescribed by SEBI and the investor's money would be redeemedat applicable NAV. The two conditions mentioned above shallalso be complied within each subsequent calendar quarterthereafter, on an average basis, as specified by SEBI. SEBI hasprovided further clarifications with respect to determining thebreach of the 25% limit by an Investor - The average net assetsof the scheme would be calculated daily and any breach of the25% holding limit by an investor would be determined. At theend of the quarter, the average of daily holding by each suchinvestor will be computed to determine whether that investorhas breached the 25 % limit over the quarter. If there is a breachof limit by any investor over the quarter, a rebalancing period ofone month would be allowed and thereafter the investor who isin breach of the rule shall be given 15 days notice to redeem hisexposure over the 25 % limit. Failure on the part of the saidinvestor to redeem his exposure over the 25 % limit within theaforesaid 15 days would lead to automatic redemption by theMutual Fund on the applicable Net Asset Value on the 15th dayof the notice period. The Fund shall adhere to the requirementsprescribed by SEBI from time to time in this regard.

Specific Risk Factors

l Different types of securities in which the scheme would investas given in the Offer Document carry different levels and typesof risk. Accordingly the scheme's risk may increase or decreasedepending upon its investment pattern. e.g. corporate bondscarry a higher amount of risk than Government securities. Furthereven among corporate bonds, bonds which are AAA rated arecomparatively less risky than bonds which are AA rated.

l Subject to the stated investment objective, the Scheme proposesto invest in equity and equity related securities. Equity securitiesby nature are volatile and prone to price fluctuations on a dailybasis due to both macro and micro factors. The volatility ofmedium / small - capitalisation stocks may be higher incomparison to liquid large capitalisation stocks.

l Trading volumes, settlement periods and transfer proceduresmay restrict the liquidity of investments. Different segments ofIndian financial markets have different settlement periods andsuch periods may be extended significantly by unforeseencircumstances. The inability of the Scheme(s) to make intendedsecurities' purchases due to settlement problems could causethe Scheme(s) to miss certain investment opportunities. Thelength of time for settlement may affect the Scheme in the eventthe Scheme has to meet an inordinately large number ofredemption requests. The Scheme will retain certain investmentsin cash or cash equivalents for its day-to-day liquidityrequirements.

l The Scheme(s) may also use various derivative and hedgingproducts from time to time, as would be available and permittedby SEBI, in an attempt to protect the value of the portfolio andenhance Unitholders' interest. The Risk associated with dealingin Derivatives trading are given below under "Risk factorassociated with trading in derivatives".

l There have been times in the past, when settlements have beenunable to keep pace with the volume of securities transactions,making it difficult to conduct further transactions. Delays or otherproblems in settlement of transactions could result in temporaryperiods when the assets of the Scheme are not invested and noreturn is earned thereon.

l The liquidity and valuation of the Scheme's investments due toits holdings of unlisted securities may be affected if they haveto be sold prior to their target date of divestment.

l Units purchased in the Scheme cannot be assigned / transferred/pledged/ redeemed/ switched out until the completion of 3 yearsfrom the date of allotment of the respective Unit.

Risk factor associated with Trading in Derivatives:

l The Fund may use derivative instruments like Stock IndexFutures, Interest Rate Swaps, Forward Rate Agreements or otherderivative instruments for the purpose of hedging and portfoliobalancing, as permitted under the Regulations and guidelines.

l As and when the Scheme(s) trades in the derivatives marketthere are risk factors and issues concerning the use of derivativesthat investors should understand. Derivative products arespecialized instruments that require investment techniques andrisk analyses different from those associated with stocks andbonds. The use of a derivative requires an understanding notonly of the underlying instrument but also of the derivative itself.Derivatives require the maintenance of adequate controls tomonitor the transactions entered into, the ability to assess therisk that a derivative adds to the portfolio and the ability to forecastprice or interest rate movements correctly. There is the possibilitythat a loss may be sustained by the portfolio as a result of thefailure of another party (usually referred to as the "counter party")to comply with the terms of the derivatives contract. Other risksin using derivatives include the risk of mispricing or impropervaluation of derivatives and the inability of derivatives to correlateperfectly with underlying assets, rates and indices. Thus,derivatives are highly leveraged instruments. Even a small pricemovement in the underlying security could have a large impacton their value. Also, the market for derivative instruments isnascent in India.

l Risks associated with Index futures are similar to thoseassociated with Equity Investments. Additional risks could beon account of illiquidity and hence mispricing of the future at thetime of purchase. As and when the scheme trades in thederivative market, there are risks factors and issues concerningthe use of derivatives. Derivative products are specializedinstruments that require investment techniques and risk analysesdifferent from those associated with stocks. The use of aderivative requires an understanding of the underlyinginstruments as well as that of the derivative itself. Derivativesrequire the maintenance of adequate controls to monitor thetransactions entered into, the ability to assess risk that aderivative adds to the portfolio and the ability to forecast priceor interest rate movement correctly. There is the possibility thata loss may be sustained by the portfolio as a result of failure ofthe another party (usually referred to as the "counter party") tocomply with the terms of the derivative contract. Other Risksassociated with trading in derivatives include the risk of mis-pricing or improper valuation of Derivatives and the inability ofderivatives to correlate perfectly with the underlying assets, ratesand indices.



l Since derivatives would be used as risk management tool, upto100% of the Scheme's net assets in the equity component ofthe portfolio may be utilised for derivatives trading.

l SEBI vide its circular no. MFD/CIR/011/061/2000 dated February1, 2000 has permitted all the mutual funds to participate in thederivatives trading subject to observance of guidelines issuedby SEBI in this behalf. Pursuant to this, the mutual funds mayuse various derivative and hedging products from time to time,as would be available and permitted by SEBI, in an attempt toprotect the value of the portfolio and enhance Unit holders'interest. Accordingly the Fund may use derivative instrumentsfor the purpose of hedging and portfolio balancing, as permittedunder the Regulations and guidelines.

The following information provides a basic idea as to the nature ofthe derivative instruments proposed to be used by the Fund and thebenefits and risks attached there with.

i) Interest Rate Swaps and Forward Rate Agreements

Benefits

Bond markets in India are not very liquid. Investors run the riskof illiquidity in such markets. Investing for short-term periodsfor liquidity purposes has its own risks. Investors can benefit ifthe Fund remains in call market for the liquidity and at the sametime take advantage of fixed rate by entering into a swap. Itadds certainty to the returns without sacrificing liquidity.

Illustration

The following are illustrations how derivatives work:

Basic Structure of an Interest Rate Swap

Say Notional Amount: Rs. 5 crores

Benchmark: NSE MIBOR

Tenor: 91 days

Documentation: International Securities Dealers Association(ISDA).

Fixed Rate: 6.25% At the end of 91 days

The Scheme Pays: compounded call rates for 91 days, whichaverages to say 5.90%

The Scheme receives: Fixed rate at 6.25% for 91 days.

At the end of 91 days the transaction will be settled as under:-

Deutsche Tax Saving Fund Scheme receivesFixed rate @ 6.25% for 91 days Rs. 7,79,110

Deutsche Tax Saving Fund Scheme paysfloating rate @ 5.90% for 91 daysamounting to Rs. 7,35,479

Net Receivable / Settlement Value Rs. 43,631

Please note that the above example is hypothetical in natureand the figures are assumed.

Thus the trade off for the Fund will be the difference in call rateand the fixed rate payment and this can vary with the call ratesin the market. Please note that the above example is given forillustration purposes only and the actual returns may varydepending on the terms of swap and market conditions.

i) Options and Futures

Hedging against an anticipated rise in equity prices

Say Cash with the Fund: Rs.5 crores

Fund buys index futures of a value of 5 crores and may reduceexposure to the future contract by taking an offsetting positionas investments are made in the equities it wants to invest in.Here, if the market rises, the fund gains by having invested inthe index futures.

Hedging against an anticipated fall in equity prices

If the Fund has a negative view on the market and would notlike to sell stocks as the market might be weak, the Fund can goshort on index futures. Later, the fund can sell stocks and unwindthe futures positions. A short position in the futures would offsetthe long position in the underlying stocks and this can curtailpotential loss in the portfolio.

Please note that the above example is hypothetical in nature.

Risk factor associated with Overseas Investment:

l Subject to necessary approvals and within the investmentobjectives of the Scheme, the Scheme may invest in overseasmarkets which carry a risk on account of fluctuations in theforeign exchange rates, nature of securities market of thecountry, repatriation of capital due to exchange controls andpolitical circumstances.

l It is the AMC's belief that investment in ADRs / GDRs / ForeignSecurities offers new investment and portfolio diversificationopportunities into multi-market and multi-currency products.However, such investments also entail additional risks. Suchinvestment opportunities may be pursued by the AMC providedthey are considered appropriate in terms of the overall investmentobjectives of the Scheme(s). Since the Scheme(s) would investonly partially in ADRs / GDRs / Foreign Securities, there may notbe readily available and widely accepted benchmarks to measureperformance of the Scheme(s). To manage risks associated withforeign currency and interest rate exposure, the Fund may usederivatives for efficient portfolio management including hedgingand in accordance with conditions as may be stipulated by SEBI /RBI from time to time.

l Offshore investments will be made subject to any / all approvals,conditions thereof as may be stipulated by SEBI /RBI andprovided such investments do not result in expenses to the Fundin excess of the ceiling on expenses prescribed by and consistentwith costs and expenses attendant to international investing.The Fund may, where necessary, appoint other intermediariesof repute as advisors, custodian /sub-custodians etc. formanaging and administering such investments. The appointmentof such intermediaries shall be in accordance with the applicablerequirements of SEBI and within the permissible ceilings ofexpenses. The fees and expenses would illustratively include,besides the investment management fees, custody fees andcosts, fees of appointed advisors and sub-managers, transactioncosts and overseas regulatory costs.

l To the extent that the assets of the Scheme(s) will be investedin securities denominated in foreign currencies, the Indian Rupeeequivalent of the net assets, distributions and income may beadversely affected by changes in the value of certain foreigncurrencies relative to the Indian Rupee. The repatriation of capitalto India may also be hampered by changes in regulationsconcerning exchange controls or political circumstances as wellas the application to it of other restrictions on investment.

Special Considerations

l Mutual funds being vehicles of securities investments are subjectto market and other risks and there can be no guarantee againstloss resulting from investing in the Scheme. The various factorswhich impact the value of the Schemes' investments include,but are not limited to, fluctuations in the equity and bond markets,fluctuations in interest rates, prevailing political and economicenvironment, changes in government policy, factors specific tothe issuer of the securities, tax laws, liquidity of the underlyinginstruments, settlement periods, trading volumes, etc.

l The past performance of the mutual funds managed by theSponsors and their affiliates/associates is not indicative of thefuture performance of the Scheme.

l Investment decisions made by the AMC / Investment Managermay not always be profitable.

l The risks in stock lending portfolio securities, as with otherextensions of credit, consist of the failure of another party, inthis case the approved intermediary, to comply with the termsof agreement entered into between the lender of securities i.e.the Scheme(s) and the approved intermediary. Such failure tocomply can result in the possible loss of rights in the collateralput up by the borrower of the securities, the inability of theapproved intermediary to return the securities deposited by thelender and the possible loss of any corporate benefits accruingto the lender from the securities deposited with the approvedintermediary. The Mutual Fund may not be able to sell such lentsecurities and this can lead to temporary illiquidity.

l From time to time, mutual funds managed by the affiliates /associates of the Sponsors may invest either directly or indirectlyin the Scheme. The funds managed by these affiliates/associatesmay acquire a substantial portion of the Scheme's Units andcollectively constitute a majority investor in the Scheme.

5


Accordingly, redemption of Units held by such funds may havean adverse impact on the value of the Units of the Schemebecause of the timing of any such redemption's and may impactthe ability of other Unit Holders to redeem their respective Units.

l Debt securities are subject to the risk of an issuer's inability tomeet principal and interest payments on the obligations (creditrisk). Debt securities may also be subject to price volatility dueto such factors as interest sensitivity, market perception or thecreditworthiness of the issuer and general market liquidity(market risk). While it is the intent of the Investment Managerto invest primarily in highly rated debt securities, the Schemesmay from time to time invest in higher yielding, lower ratedsecurities. This would enhance the degree of risk.

l Lower rated or unrated securities are more likely to react todevelopments affecting the market and the credit risk than thehighly rated securities which react primarily to movements inthe general level of interest rates. Lower rated securities alsotend to be more sensitive to economic conditions than higherrated securities. The Investment Manager will consider bothcredit risk and market risk in making investment decisions.

l Zero coupon or deep discount bonds are debt obligations thatdo not entitle the holder to any periodic payment of interestprior to maturity or a specified date when the securities beginpaying current interest and therefore, are generally issued andtraded at a discount to their face values. The discount dependson the time remaining until maturity or the date when securitiesbegin paying current interest. It also varies depending on theprevailing interest rates, liquidity of the security and the perceivedcredit risk of the Issuer. The market prices of zero couponsecurities are generally more volatile than the market prices ofsecurities that pay interest periodically and are likely to respondto changes in interest rates to a greater degree than other couponbearing securities having similar maturities and credit quality.

l The credit risk factors pertaining to lower rated securities alsoapply to lower rated zero coupon or deferred interest bonds.Such bonds carry an additional risk in that, unlike bonds that payinterest throughout the period to maturity, the Schemes wouldnot realise any cash until interest payment on the bondscommence and if the issuer defaults, the Schemes may notobtain any return on its investment.

l The Schemes have the power to invest in securities which arenot quoted on a stock exchange ("unlisted securities") which ingeneral are subject to greater price fluctuations, less liquidityand greater risk than those which are traded in the open market.Unlisted securities may lack a liquid secondary market and therecan be no assurance that the Schemes will realise its investmentsin unlisted securities at a fair value.

l As liquidity of the Schemes' investments could, at times, berestricted by trading volumes and settlement periods, the timetaken by the Mutual Fund for redemption of Units may besignificant in the event of an inordinately large number ofredemption requests or of a restructuring of the Schemes'portfolio. In view of this, the Trustee has the right, in its solediscretion to limit redemptions (including suspending redemption)under certain circumstances, as described under the section titled"Right to Limit Redemptions".

l In case the Schemes undertakes stock lending under the SEBIRegulations, the Schemes may, at times, be exposed to counterparty risk.

l In case the Schemes utilizes any derivatives, under the SEBIRegulations, the Schemes may, in certain situations, be exposedto price risks.

l It is compulsory for mutual funds to dematerialise their holdingsin certain notified securities / companies. Trading indematerialised securities is still at a nascent stage in India andthis may result in some illiquidity in these securities.

l Certain focus areas are already enjoying favourable tax treatmentby Government of India. Other focus areas the Schemes mayalso receive favourable tax treatment. If these tax benefits areremoved or amended, it is possible that the changes may havea material adverse impact on the companies' revenue andearnings.

l The Schemes may be narrowly focused among sectors andtherefore, changes in a particular industry can have substantialimpact on the Schemes NAV.

l Investors in the Schemes are not being offered a guaranteed orassured rate of return. The Mutual Fund is not guaranteeing orassuring any dividend or that it will make any dividenddistributions at all. In any event, dividend distributions are subjectto the investment performance of the Schemes.

l As the liquidity of the Scheme's investments may sometimesbe restricted by trading volumes and settlement periods, thetime taken by the Fund for redemption of Units may be significantin the event of an inordinately large number of redemptionrequests or of a restructuring of the Scheme's portfolio. In viewof this, the Trustee has the right, in its sole discretion, to limitredemptions under certain circumstances.

l Neither this Offer Document nor the units have been registeredin any jurisdiction. The distribution of this Offer Document incertain jurisdictions may be restricted or subject to registrationrequirements and, accordingly, persons who come intopossession of this Offer Document in such jurisdictions arerequired to inform themselves about, and to observe, any suchrestrictions. No person receiving a copy of this Offer Documentor any accompanying application form in such jurisdiction maytreat this Offer Document or such application form as constitutingan invitation to them to subscribe for Units, nor should they inany event use any such application form, unless in the relevantjurisdiction such an invitation could lawfully be made to themand such application form could lawfully be used withoutcompliance with any registration or other legal requirements.

l Reinvestment Risk: This risk refers to the interest rate levels atwhich cash flows received from the securities in the Plans arereinvested. The additional income from reinvestment is the"interest on interest" component. The risk is that the rate at whichinterim cash flows can be reinvested may be lower than thatoriginally assumed.

l Regulatory Risk: Changes in government policy in general andchanges in tax benefits applicable to Mutual Funds may impactthe returns to investors in the Scheme.

l The value of the Scheme's investments may be affectedgenerally by factors affecting capital markets, such as interestrates, currency exchange rates, foreign investment, changes ingovernmental policy, taxation and political, economic or otherdevelopments. Consequently, the net asset value of the Schememay fluctuate and the value of the Scheme's Units may go downas well as up. Past performance of the sponsors is not necessarilyindicative of future performance of the Scheme.

Risk associated with investment in Securitised Instruments:

Generally available Asset Classes for Securitisation in India

l· Commercial Vehicles

l· Auto and Two wheeler pools

l· Mortgage pools (residential housing loans)

l· Personal Loan, credit card and other retail loans

l· Corporate loans / receivables

Underlying Risk: Each asset class has a different underlying risk,however, residential mortgages are supposed to be having lowerdefault rates. On the other hand, repossession and subsequentrecovery of commercial vehicles and other auto assets is fairly easierand better compared to mortgages. Some of the asset classes suchas personal loans, credit card receivables etc., being unsecured creditsin nature, may witness higher default rates. As regards corporateloans/receivables, depending upon the nature of the underlyingsecurity for the loan or the nature of the receivable the risks wouldcorrespondingly fluctuate. However, the credit enhancementstipulated by rating agencies for such asset class pools is typicallymuch higher and hence their overall risks are comparable to otherAAA rated asset classes.

The rating agencies have an elaborate system of stipulating margins,over collateralisation and guarantee to bring risk limits in line with theother AAA rated securities. Please note that predominantly thescheme intends to invest in only AAA rated securitised debt.

Investment exposure of the Fund with reference to SecuritisedDebt:

The Fund will predominantly invest only in those securitisationissuances which have AAA rating indicating the highest level of safetyfrom credit risk point of view at the time of making an investment.



The fund may invest in various type of securitisation issuances,including but not limited to Asset Backed Securitisation, MortgageBacked Securitisation, Personal Loan Backed Securitisation,Collateralized Loan Obligation / Collateralized Bond Obligation and soon. The fund does not propose to limit its exposure to only one assetclass or to have asset class based sub-limits as it will primarily looktowards the rating of the offering which will also not be limited toonly AAA.

Risk Factors specific to investments in Securitised and

Structured Instruments:

Types of Securitised Debt vary and carry different levels and types ofrisks. Credit Risk on Securitised Bonds depends upon the Originatorand varies depending on whether they are issued with Recourse toOriginator or otherwise.

Even within securitised debt, AAA rated securitised debt offers lesserrisk of default than AA rated securitised debt. A structure withRecourse will have a lower Credit Risk than a structure withoutRecourse. Underlying assets in Securitised Debt may assume differentforms and the general types of receivables include Auto Finance, CreditCards, Home Loans or any such receipts, Credit risks relating to thesetypes of receivables depend upon various factors including macroeconomic factors of these industries and economies. Specific factorslike nature and adequacy of property mortgaged against theseborrowings, nature of loan agreement/ mortgage deed in case of HomeLoan, adequacy of documentation in case of Auto Finance and HomeLoans, capacity of borrower to meet its obligation on borrowings incase of Credit Cards and intentions of the borrower influence therisks relating to the asset borrowings underlying the securitised debt.Holders of the securitised assets may have low credit risk withdiversified retail base on underlying assets especially when securitisedassets are created by high credit rated tranchesand may differdepending upon the interest rate movement and speed of prepaymentetc. The change in market interest rates - prepayments may not changethe absolute amount of receivables for the investors, but may havean impact on the re-investment of the periodic cash flows that theinvestor receives in the securitised paper.

Limited Liquidity & Price Risk

Presently, secondary market for securitised papers is not very liquid.There is no assurance that a deep secondary market will develop forsuch securities. This could limit the ability of the investor to resellthem. Even if a secondary market develops and sales were to takeplace, these secondary transactions may be at a discount to the initialissue price due to changes in the interest rate structure.

Limited Recourse, Delinquency and Credit Risk

Securitised transactions are normally backed by pool of receivablesand credit enhancement as stipulated by the rating agency, whichdiffer from issue to issue. The Credit Enhancement stipulatedrepresents a limited loss cover to the Investors. These Certificatesrepresent an undivided beneficial interest in the underlying receivablesand there is no obligation of either the Issuer or the Seller or theoriginator, or the parent or any affiliate of the Seller, Issuer andOriginator. No financial recourse is available to the Certificate Holdersagainst the Investors' Representative. Delinquencies and credit lossesmay cause depletion of the amount available under the CreditEnhancement and thereby the Investor Payouts may get affected ifthe amount available in the Credit Enhancement facility is not enoughto cover the shortfall. On persistent default of a Obligor to repay hisobligation, the Servicer may repossess and sell the underlying Asset.

However many factors may affect, delay or prevent the repossessionof such Asset or the length of time required to realize the sale proceedson such sales. In addition, the price at which such Asset may be soldmay be lower than the amount due from that Obligor.

Risks due to possible prepayments:

Asset securitisation is a process whereby commercial or consumercredits are packaged and sold in the form of financial instruments Fullprepayment of underlying loan contract may arise under any of thefollowing circumstances;

l· Obligor pays the Receivable due from him at any time prior tothe scheduled maturity date of that Receivable; or

l· Receivable is required to be repurchased by the Sellerconsequent to its inability to rectify a material misrepresentationwith respect to that Receivable; or

l The Servicer recognizing a contract as a defaulted contract andhence repossessing the underlying Asset and selling the same

In the event of prepayments, investors may be exposed to changesin tenor and yield.

Bankruptcy of the Originator or Seller

If originator becomes subject to bankruptcy proceedings and the courtin the bankruptcy proceedings concludes that the sale from originatorto Trust was not a sale then an Investor could experience losses ordelays in the payments due. All possible care is generally taken instructuring the transaction so as to minimize the risk of the sale toTrust not being construed as a "True Sale". Legal opinion is normallyobtained to the effect that the assignment of Receivables to Trust intrust for and for the benefit of the Investors, as envisaged herein,would constitute a true sale.

Bankruptcy of the Investor's Agent

If Investor's agent, becomes subject to bankruptcy proceedings andthe court in the bankruptcy proceedings concludes that the recourseof Investor's Agent to the assets/receivables is not in its capacity asagent/Trustee but in its personal capacity, then an Investor couldexperience losses or delays in the payments due under the swapagreement. All possible care is normally taken in structuring thetransaction and drafting the underlying documents so as to providethat the assets/receivables if and when held by Investor's Agent isheld as agent and in Trust for the Investors and shall not form part ofthe personal assets of Investor's Agent. Legal opinion is normallyobtained to the effect that the Investors Agent's recourse to assets/receivables is restricted in its capacity as agent and trustee and not inits personal capacity.

Credit Rating of the Transaction / Certificate

The credit rating is not a recommendation to purchase, hold or sellthe Certificate in as much as the ratings do not comment on themarket price of the Certificate or its suitability to a particular investor.There is no assurance by the rating agency either that the rating willremain at the same level for any given period of time or that therating will not be lowered or withdrawn entirely by the rating agency.

Risk of Co-mingling

The Servicers normally deposit all payments received from theObligors into the Collection Account. However, there could be a timegap between collection by a Servicer and depositing the same intothe Collection account especially considering that some of thecollections may be in the form of cash. In this interim period, collectionsfrom the Loan Agreements may not be segregated from other fundsof the Servicer. If the Servicer fails to remit such funds due to Investors,the Investors may be exposed to a potential loss. Due care is normallytaken to ensure that the Servicer enjoys highest credit rating on standalone basis to minimize Co-mingling risk.

Investors are urged to study the terms of the offer carefully beforeinvesting in the Scheme, and to retain this Offer Document forfuture reference.

II. Definitions

In this Offer Document, the following words and expressions shallhave the meaning specified herein, unless the context otherwiserequires:

AMC or Asset Deutsche Asset Management (India) PrivateManagement Limited, incorporated under the provisions of theCompany or Companies Act, 1956, and approved by SEBI toInvestment act as Investment Manager for the Scheme(s)Manager or of Deutsche Mutual FundDeAM India

Applicable NAV The Net Asset Value applicable for purchases /redemptions / switches, based on the BusinessDay and relevant cut-off times on which theapplication is accepted at an Investor ServiceCentre

Business Day A day other than (1) Saturday and Sunday or (2) aday on which The Stock Exchange, Mumbai orNational Stock Exchange of India Limited orReserve Bank of India or banks in Mumbai areclosed or (3) a day on which the sale and/orredemption of Units is suspended by theTrustees / AMC or (4) a book closure period asmay be announced by the Trustees / AMC or (5)a day on which normal business cannot betransacted due to storms, floods, bandhs, strikes

7


or such other events as the AMC may specifyfrom time to time .

Provided that the days when the banks in anylocation where the AMC's Investor ServiceCenters are located, are closed due to a localholiday, such days will be treated as non BusinessDays at such centers for the purposes ofaccepting fresh subscriptions.

However, if the Investor Service Centre in suchlocations are open on such local holidays, thenredemption and switch requests will be acceptedat those Centers, provided it is a Business Dayfor the Scheme on an overall basis.Notwithstanding the above, the AMC maydeclare any day as a Business Day by givingadequate notice to investors.

CDSC Contingent Deferred Sales Charge permittedunder the Regulations to be borne by the UnitHolder upon exiting (whether by way ofredemption or Inter-scheme switching) based onthe amount of investment (if applicable) andperiod of holding of Units.

Custodian JP Morgan Chase Bank, Mumbai, registeredunder the SEBI (Custodian of Securities)Regulations, 1996, currently acting as Custodianto the Scheme(s), or any other custodianapproved by the Trustees.

DD's Demand Drafts

DeAM Asia Deutsche Asset Management (Asia) Limitedor Settlor

DIHPL Deutsche India Holding Private Limited

DeAM Asia shall be referred to as Sponsors or Co-sponsorsand DIHPL

DTSF Deutsche Tax Saving Fund

Depository Depository as defined in the Depositories Act,1996

Designated Such centres including collecting bank branchesCentres as may be designated by the AMC for

subscriptions in the Scheme(s).

Distributor Such persons / firms / companies / corporatesas may be appointed by the AMC to distribute /sell / market the Scheme(s) of the Fund

Dividend Income distributed by a Scheme on the Units,where applicable

DTAA Double Taxation Avoidance Agreement

FCNR Foreign Currency Non-Resident Accounts

FII Foreign Institutional Investors, registered withSEBI under Securities and Exchange Board ofIndia (Foreign Institutional Investors) Regulations,1995 as amended from time to time

Fund or Deutsche Mutual Fund, a trust set up under theMutual Fund provisions of the Indian Trusts Act, 1882 and

registered with SEBI under the Securities andExchange Board of India (Mutual Funds)Regulations, 1996 vide Registration No.MF/047/02/10 dated 28th October, 2002.

Investment The Agreement dated May 29, 2002 entered intoManagement between the Trustees of Deutsche Mutual FundAgreement or IMA and Deutsche Asset Management (India) Private

Limited as amended from time to time.

Investor of record An investor of record for the purpose of dividenddistributions is an investor who is a Unitholderas of the date dividend is declared. In order tobe a Unitholder an investor has to be allocatedUnits against clear funds

Investor Service Such offices as are designated as InvestorCentres or ISC Service Centres by the AMC from time to time

Local Cheque A cheque handled locally and drawn on any bankwhich is a member of the Banker's ClearingHouse located at the place where the ApplicationForm is submitted.

Lock-in Period / Subject to the Regulations, Units purchased inLock-in Provision the Scheme cannot be assigned / transferred/

pledged/ redeemed/ Switched out until thecompletion of 3 years from the date of allotmentof the respective Unit. The AMC reserves theright to change the Lock in period prospectivelyfrom time to time as may be permitted underthe regulations, notification of the Governmentfor the Equity Linked Savings Scheme.

Thus investment in the Scheme will have to bekept for a minimum period of 3 years from thedate of allotment of Units and after the saidperiod of 3 years, the Unit holders shall have theoption to tender the Units to the Mutual Fundfor Redemption/Switch. However, in the eventof death of Unit holder, the nominee or legal heir,(subject to production of requisite documentaryevidence to the satisfaction of AMC) as the casemay be, shall be able to redeem the investmentonly after the completion of 1 year or any timethereafter, from the date of allotment of the Unitsto the deceased Unit holder.

NAV Net Asset Value of the Units of the Scheme/Plans(including Options if any, therein) calculated inthe manner provided in this Offer Document oras may be prescribed by the Regulations fromtime to time.

New Fund The dates on or the period during which the initialOffer Period subscription to Units of the Scheme(s) can be

made subject to an extension, if any.

New Fund Offer Offer for purchase of Units of the Scheme(s) -or New Fund Offer Deutsche Tax Saving Fund.Issue or NFO

NRE Account Non-Resident External Accounts

NRI Non-Resident Indian or a person of Indian originresident outside India.

NRSR Account Non-Resident Special Rupee Account

Offer Document This document issued by Deutsche Mutual Fund,offering Units of Deutsche Tax Saving Fund forsubscription.

Permitted Foreign Foreign debt securities in the countries with fullyDebt Securities convertible currencies, short term as well as long

term debt instruments with highest rating(foreign currency credit rating) by accredited/registered credit rating agencies, governmentsecurities where the countries are AAA rated,overseas mutual funds or unit trusts which investin the aforesaid securities or are rated asmentioned above and are registered withoverseas regulators.

RBI Reserve Bank of India, established under theReserve Bank of India Act, 1934, as amendedfrom time to time

Redemption A charge paid by the investor when Units areLoad / Exit Load redeemed (sold back to the Mutual Fund). This

load may be used in whole or in part by the AssetManagement Company in providing distributionrelated services to the Mutual Fund relating tothe sales, promotion and marketing of Units ofthe Scheme, including payments for services inconnection with the distribution of Units.

Registrar Karvy Computershare Private Ltd. (KARVY),registered under the SEBI (Registrars to an Issueand Share Transfer Agents) Regulations, 1993,currently acting as Registrar to the Scheme(s) orany other registrar appointed by the AMC from

time to time.



Repo / Sale / purchase of Government Securities as mayReverse Repo be allowed by RBI from time to time with

simultaneous agreement to repurchase / resellthem at a later date

Repurchase / Repurchase / redemption of Units of the relevantRedemption Scheme(s)

Sale / Subscription Sale / Subscription of Units of the relevantScheme(s)

Sales Load A one time charge that the investor pays at thetime of entry into the Scheme. This load is usedin whole or in part by the Asset ManagementCompany in providing distribution relatedservices to the Mutual Fund relating to the sales,promotion and marketing of Units of the Scheme,including payments for services in connectionwith the distribution of Units.

Scheme(s) Deutsche Tax Saving Fund (including, as thecontext permits, either the Plans / Options)collectively referred to as the Scheme(s) andindividually, as the context permits, as theScheme

SEBI Securities and Exchange Board of Indiaestablished under Securities and Exchange Boardof India Act, 1992, as amended from time to time

SEBI MF Securities and Exchange Board of India (MutualRegulations Funds) Regulations, 1996 as amended from time1996 or to time, including by way of circulars orRegulations notifications issued by SEBI, the Government of

India or RBI. The Ministry of Finance (Departmentof Revenue) notifications, as amended, issuedwith regards to Equity Linked Savings Schemedated 03.11.05 & 13.12.05 or such other schemeas the Central Government may, by notificationin the Official Gazette, specify under Section 80Cof the Income Tax Act, 1961.

Switch Sale of a Unit in one Scheme / Plan / Optionagainst purchase of a Unit in another Scheme /Plan / Option.

Switchover Fee A charge incurred to switch from one schemeto another within the same mutual fund familyor to switch from one Investment Plan (i.e. UnitClass) to another within the same Scheme.

The Act The Income Tax Act, 1961

Trust Deed The Trust Deed dated May 29, 2002 made byand between the DeAM Asia and the Trusteesestablishing Deutsche Mutual Fund, as amendedfrom time to time.

Trust Fund Amounts settled / contributed by the Settlortowards the corpus of the Deutsche Mutual Fundand additions / accretions thereto

Trustees Deutsche Trustee Services (India) Pvt. Limited,the trustees of Deutsche Mutual Fund andapproved by SEBI to act as the Trustees of theScheme(s) of the Fund

Unit The interest of an investor which consists of oneundivided share in the net assets of the relevantScheme(s)

Unitholder A holder of Units in any one or more Scheme(s)or Investor of Deutsche Mutual Fund offered under this

Offer Document

The word Sponsor wherever appearing shall be read as Sponsors.

Interpretation

For all purposes of this Offer Document, except as otherwise expresslyprovided or unless the context otherwise requires:

l· The terms defined in this Offer Document include the plural aswell as the singular.

l· Pronouns having a masculine or feminine gender shall bedeemed to include the other.

All references to "US$" refer to United States Dollars and "Rs." referto Indian Rupees. A "crore" means "ten million" and a "lakh" means a"hundred thousand".

III. Summary of the Scheme

Name of the Deutsche Tax Saving Fund (DTSF)Scheme

Type Open Ended Equity Linked Savings Scheme

Investment An open ended equity linked saving scheme withObjective the objective to generate long term capital

appreciation from a portfolio that is investedpredominantly in equity and equity relatedinstruments.

Benchmark S&P CNX 500

Options 'Dividend' (payout & reinvestment) & 'Growth'options

Dividend Option Under this Option dividend distribution out ofincome earned may be made. The Trusteereserves the right to declare dividend under theScheme depending on the net distributablesurplus available under the Option. It should,however, be noted that actual distribution ofdividends and the frequency of distribution willdepend, inter alia, on the availability ofdistributable surplus and will be entirely at thediscretion of the Trustee.

Growth Option All Income earned and realized profit in respectof a unit issued under that will continue to remaininvested until repurchase and shall be deemedto have remain invested in the option itself whichwill be reflected in the NAV.

Application Minimum Rs. 500 per application and in multiplesAmount of Rs. 500 thereafter.

During the NFO period, unitholders of otherschemes of Deutsche Mutual Fund have anoption to switch from the scheme to DTSF,however, the switch request should beaccompanied with the application form.

Lock-in period / Units purchased cannot be assigned /Liquidity transferred/ pledged/ redeemed/ Switched out

until the completion of 3 years from the date ofallotment of the respective Unit. The AMCreserves the right to change the Lock in periodprospectively from time to time as may bepermitted under the regulations, notification ofthe Government for the Equity Linked SavingsScheme.

Thus investment in the Fund will have to be keptfor a minimum period of 3 years from the dateof allotment of Units and after the said period of3 years, the Unit holders shall have the option totender the Units to the Mutual Fund forRedemption / Switch.

It may however be noted that in the event ofdeath of Unit holder, the nominee or legal heir,(subject to production of requisite documentaryevidence to the satisfaction of AMC) as the casemay be, shall be able to redeem the investmentonly after the completion of 1 year or any timethereafter, from the date of allotment of the Unitsto the deceased Unit holder.

Minimum Subject to the lock-in period stated above,Redemption Rs. 500 and in multiples of Rs.500/- thereafter.Amount

Minimum Rs. 500/-Balance to bemaintained

New Fund New Fund Issue Expenses subject to a maximumIssue Expenses of 6% of the amount mobilized will be borne by

the Scheme. The New Fund Issue expenseswould be amortised over a period of 3 years andwould be included in the NAV. Under theRegulations, the Fund is entitled to charge NewFund Issue Expenses up to a maximum of 6%of the amount mobilized by the Scheme.

9


Load During New Fund Offer :

– Entry Load : Nil

– Exit Load : Nil

– No entry load for investment by way of SIP.

During Continuous Offer:

– For Purchase and/or Switch-in of Units lessthan Rs. 2 crores in value - 2.25%.

– Rs. 2 crore and above - Nil.

– No Exit Load.

– No entry load for investment made by wayof SIP.

Investment Investment by NRIs / FIIs are allowed on a fullby NRIs/FIIs repatriation basis subject to RBI approvals, if any.

Transparency The AMC will calculate and disclose the first NAVnot later than 30 days from the closure of theNew Fund Offer Period. Subsequently, the NAVwill be calculated and disclosed at the close ofevery Business Day. In addition, the AMC willdisclose details of portfolio at least on half-yearlybasis through Fund Newsletter.

Systematic Available for planned and regular investments atInvestment no entry load. Investors can start a SIP from thePlan (SIP) NFO itself. For detail terms and conditions please

refer the application form.

Systematic Subject to lock-in provisions, available for plannedTransfer Plan and regular transfer of units / amount. For detail(STP) terms and conditions please refer the application

form.

Systematic Subject to lock-in provisions, available for plannedWithdrawal Plan and regular redemptions of units. For detail terms(SWP) and conditions please refer the application form.

Switching Options Subject to the lock-in provisions, investors mayopt to switch units out of the Scheme in otherschemes of Deutsche Mutual Fund.

During the NFO and on a continuous basis,Switch out / STP from other schemes to DTSFis allowed on a no load basis.

IV. Constitution of the Mutual Fund

A) The Fund

Deutsche Mutual Fund ("the Mutual Fund" or "the Fund") had beenconstituted as a Trust by the Settlor in accordance with the provisionsof the Indian Trusts Act, 1882 (2 of 1882) vide a Trust Deed datedMay 29, 2002. The office of the Sub-Registrar of Assurances atMumbai has registered the Trust Deed establishing the Fund underthe Registration Act, 1908. The Fund was registered with SEBI videregistration number MF/047/02/10 dated 28th October, 2002. Theoffice of the Mutual Fund is at DB House, Hazarimal Somani Marg,Fort, Mumbai 400 001. The Trust has been formed for the purpose ofpooling of capital from the public for collective investment in securities/ any other property for the purpose of providing facilities forparticipation by persons as beneficiaries in such properties /investments and in the profits / income arising therefrom as may bepermitted by the regulations.

B) The Sponsors

Deutsche Asset Management (Asia) Limited (“DeAM Asia”)

DeAM Asia is the Co-sponsor for the Deutsche Mutual Fund in itscapacity as the Settlor of the Mutual Fund. Deutsche AssetManagement (Asia) Limited ("DeAM Asia") was incorporated in 1987and is headquartered in Singapore. DeAM Asia is responsible formarketing and sourcing new assets in the region for investmentsinto Asia and Global range of equity and fixed interest products. DeAMAsia has an Investment Adviser License issued by the MonetaryAuthority of Singapore ("MAS"). It is one of the six fund managersgranted the Enhanced Fund Manager status by MAS and is anApproved Fund Management Company under the Central ProvidentFund Scheme.

In addition to managing the funds of Asian clients, DeAM Asia alsomanages and advises the Asian assets of Deutsche Asset

Management's UK and Australian pension funds, the Asian portion ofthe Group's global emerging market portfolios and global smallcompany portfolios. Within the Asian region, DeAM Asia has presencein Singapore, Hong Kong, Korea, India, China and Taiwan.

Given below is a brief summary of DeAM Asia's financials:

Year ended December 31 (US$ '000)

Description 2005 2004 2003 2002YTD

September(Unaudited)

Total Income 16,225 20,943 20,675 16,508

Profit Before Tax (6,039) 3,080 332 1,472

Profit After Tax (5,064) 2,766 244 1,973

Free Reserves /(Accumulated Losses) 913 6,325 5,624 5,276

Net Worth 39,743 15,887 14,815 12,992

Earnings perShare (US$) (0.03) 0.18 0.02 0.15

Book Value perShare (US$)(NW / No. of Shares) 0.61 1.02 0.95 0.97

Dividend % 0.00% 25.56% 0 0

Paid Up Capital(Equity) 38,830 9,562 9,191 7,716

(Preference) – – – –

Deutsche India Holdings Private Limited (DIHPL) - DIHPL, a companyincorporated under the Companies Act, 1956 having its registeredoffice at 5th floor, Nicholas Piramal Tower, Peninsula Corporate Park,Ganpatrao Kadam Marg, Lower Parel, Mumbai, is the co-sponsor forDeutsche Mutual Fund by virtue of its contribution of more than 40%to the networth of Deutsche Asset Management (India) Pvt. Ltd. Thecompany has been formed to act as a holding and investment companyfor the various existing and future operating subsidiaries of theDeutsche Bank group that are engaged in the financial services andback office processing services.

Given below is a brief summary of DIHPL’s financials for the periodended March 31 (Rs. '000) :

Description 2005 (Audited)

Total Income 4,049

Profit Before Tax (562)

Profit After Tax (1,928)

Free Reserves / (Accumulated Losses) (1,928)

Net Worth 330,472

Earnings per Share (Rs.) 9.94

Book Value per Share (US$) (NW / No. of Shares) 9.94

Dividend % 0.00%

Paid Up Capital(Equity) 332,400

(Preference) 100

Deutsche Asset Management

Deutsche Asset Management is a 100% owned subsidiary ofDeutsche Bank AG.

Deutsche Asset Management (DeAM), the asset managementdivision of Deutsche Bank A.G., is one of the world's foremostinvestment organisations. Their presence in the key major investmentmarkets allows them to leverage the expertise of more than 360portfolio managers and analysts across the globe. DeAM's investmentteams benefit appreciably from the financial and research support ofone of the world's strongest financial institutions.

As a leading global asset manager, Deutsche Asset Managementoffers clients a combination of services - a truly global network, acomprehensive product range, a service orientation and commitmentto superior performance - together with the financial strength andresources of the Deutsche Bank Group. DeAM is dedicated toproviding clients with investment solutions at all points of the risk/return spectrum, with products specifically tailored to meet individualclient requirements. Strategies offered include active managementin equities and fixed income both domestically and internationally.DeAM's ultimate goal is to empower clients with innovative solutionsthat meet their complex investment needs.

Deutsche Asset Management manages funds on behalf of a widerange of clients world-wide, including pension funds, charities andfoundations, corporates and insurance companies. As at October 2005,



Deutsche Asset Management had over USD 645.05 billion of assetsunder management.

Deutsche Asset Management captures the talents and experienceof over 40 years of several key market players - most notably 'MorganGrenfell', 'Bankers Trust' and our European Retails Fund business -'DWS Investments'. Since 1999 it has operated under one global nameof 'Deutsche Asset Management'. On 4th December, 2001 a definitiveagreement to acquire the US, European (excluding Threadneedle) andAsian operations of Scudder from Zurich Financial Services wassigned. The addition of Scudder expanded Deutsche Bank's USpresence significantly, enhancing the ability to deliver outstandingproducts and services to Deutsche Bank and Scudder investorsworldwide. This transaction reflects and strengthens Deutsche Bank'scommitment to Asset Management as a key strategic focus.

Deutsche Bank Group

With roughly Euro 840 billion in assets and approximately 65,000employees, Deutsche Bank offers its clients unparalleled financialservices in around 74 countries throughout the world. The Bank aspiresto be a leading global provider of integrated financial solutions fordemanding clients and the pre-eminent bank in Germany, generatingexceptional value for its shareholders and people.

Deutsche Bank ranks among the global leaders in corporate bankingand securities, transaction banking, asset management, and privatewealth management, and has a significant private & business bankingfranchise in Germany and other selected countries in ContinentalEurope.

Deutsche Bank in India

Deutsche Bank established its first branch in India in 1980. Today,Deutsche Bank operates in India through its five full-fledged branches.With a staff of over four hundred people in five cities, Deutsche BankIndia has a presence in the key geographic Indian locations. Armedwith its in-depth knowledge of the Indian economy and the businessenvironment, as well as by leveraging on its international network,Deutsche Bank is well positioned to offer its clients state-of-the-artadvisory services in India.

The bank has a strong presence in Corporate Banking, InternationalTrade Finance, Global Markets, Custody Services, Global CashManagement, Corporate Trust & Agency Services, and, Private WealthManagement. The bank presently is recognized as India's leadingforeign exchange dealer, ranking among the top three in derivativessales and is one of the top three foreign banks in GOI securities trading.Deutsche Bank India has also been voted by Finance Asia as the "TheBest Foreign Investment Bank in India-2004".

C) The Trustee Company (the Trustee)

The Settlor has appointed Deutsche Trustees Service (India) Private Limited as the Trustees of the Deutsche Mutual Fund.

1) The name, addresses and other details of the Board of Directors of Deutsche Trustees Service (India) Private Limited

are mentioned below:

Gunit Chadha ChairmanB.A., MBA IIM(A), Deutsche Equities (India) Pvt. Ltd.Advanced Management Programme, Deutsche Network Services Pvt. Ltd.Wharton School, USA Deutsche Securities India Pvt. Ltd.Flat No.181, 18th Floor, Deutsche India Holdings Pvt. Ltd.Maker Tower Apartment Trustee - Sujaya FoundationA & B, Cuffe Parade, Member of Governing Board - Infinity Business School, New DelhiMumbai - 400 005.CEO - Deutsche Bank, India

M. H. Kania DirectorB.A. (Hons), LL.B.

6-B, SAMTAGen. J. Bhosale Marg,Mumbai 400 021Former Chief Justice - Supreme Court of India

Y. B. Desai DirectorB.A. (Hons), CAIIB Dishman Pharmaceutical & Chemicals Ltd.901, Dheeraj Gaurav Heights, LIC Housing Finance Company Ltd.Building No. 2 'A' Wing, Kabra Extrusion Tecnik Ltd.At Link Road, Andheri (West),Mumbai - 400 053Former Managing Director - Export Import Bank of India

A. S. Mitra DirectorB.A., A.C.I.I. (London) Avery India Ltd. (Chairman - Non Executive)D5, Silver Valley No. 2,Shivaji Maharaj Road, Vakola,Santacruz (E), Mumbai 400 055Former Chairman & Managing Director -New India Assurance Company

Debabrata Bhadury DirectorB.A. (Economics Hons.), USV Ltd., MumbaiPostgraduate Management Diploma

9A Belvedere Court, Sane Guruji Marg,Mumbai 400 011Former Managing Director &Vice Chairman - Hoechst Marion Roussell Ltd.

Eduoard Fernen Peter DirectorBachelor of Arts, BA Carlton College, Northfield MINN Deutsche Asset Management (Hong Kong) Limited24 Mount Rosie Road, Singapore 308068 K&N Kenanga Holdings Berhad, MalaysiaCEO & Executive Director, Deutsche Regis Partners Inc., PhilippinesDeutsche Asset Management (Asia) Limited Antares European Fund Limited

Pi Investment Management Limited

Mr. Gunit Chadha and Mr. Eduoard Fernen Peter are associated with the Sponsors.

Mr. M. H. Kania, Mr. Y. B. Desai, Mr. A. S. Mitra and Mr. Debabrata Bhadury, are independent trustees. Thus, 4 out of the 6 trustees areindependent trustees.

11


2) Rights, Duties & Responsibilities of the Trustee and

the material provisions of the Trust Deed

l The Rights, Duties and Responsibilities of the Trustee shallbe consistent with the Regulations and the Trust Deed.The Trustee shall discharge such duties and responsibilitiesas provided in the Regulations and the Trust Deed. Theduties and responsibilities of the Trustee and the materialprovisions of the Trust Deed, inter alia, are as under:

l The Trustee has exclusive ownership of the Trust Fund andholds the same in trust and for the benefit of Unit Holders.

l The Trustee reserves the right to declare dividend underthe Scheme depending on the net distributable surplusavailable under the Option. It should, however, be notedthat actual distribution of dividends and the frequency ofdistribution will depend, inter alia, on the availability ofdistributable surplus and will be entirely at the discretionof the Trustee.

l The Trustee shall ensure before the launch of any Schemethat the Asset Management Company has a) systems inplace for its back office, dealing room and accounting; b)appointed all key personnel including fund manager(s) forthe Scheme and submitted to the Trustee their resumecontaining particulars of their educational qualifications andpast experience in the securities market within fifteen daysof their appointment; c) appointed auditors to audit theaccounts of the Scheme; d) appointed a compliance officerwho shall be responsible for monitoring the compliance ofthe SEBI Act, rules and regulations, notifications, guidelines,instructions etc. issued by SEBI or the Central Governmentand for redressal of investors' grievances; e) appointedregistrars and laid down parameters for their supervision;f) prepared a compliance manual and designed internalcontrol mechanisms including internal audit systems; andg) specified norms for empanelment of brokers andmarketing agents. The Trustee shall ensure that thetransactions concerning the Fund are in accordance withthe Trust Deed and the Regulations.

l The Trustee shall not be liable to the Mutual Fund or theUnitholders, if the Mutual Fund suffers a decline in its netasset value or if any share or other security comprised inthe Trust Fund depreciates in its market value or fails toachieve any increase therein, unless such decline,depreciation or failure is caused by the willful default orgross negligence of the Trustee.

l The Trustee shall not be under any liability on account ofanything done or omitted to be done or suffered to be doneby the Trustee in good faith, bona fide and after duediligence and care, in accordance with or on the advice ofthe AMC or any other professional person, firm or company.

l For avoidance of doubt, it is hereby agreed and declaredthat references to the Trustee in this clause shall be deemedto include references to the officers, servants and delegatesof the Trustee.

l The Trustee shall ensure that the Fund and the schemesfloated thereunder and managed by the AMC are inaccordance with the Trust Deed and the Regulations,directions and guidelines issued by SEBI, the StockExchanges and other regulatory agencies.

l The Trustee shall ensure that the transactions concerningthe Fund are in accordance with the Trust Deed and theRegulations.

l The Trustee shall ensure that the investment of the TrustFund and Unit Capital of each scheme is made only in thepermitted securities and within limits prescribed by the TrustDeed, the Regulations, and the offer document of theconcerned scheme.

l The Trustee shall hold in safe custody and preserve theproperties of the Fund and the various schemes of the Fund.

l The Trustee shall ensure that the income due to be paid tothe Scheme is collected and properly accounted for andshall claim any repayment of tax and holding any incomereceived in trust for the holders in accordance with theTrust Deed and the Regulations.

l The Trustee shall not acquire or allow the AssetManagement Company to acquire any asset out of Trust

Fund, which involves assumption of unlimited liability orresults in encumbrance of Trust Fund.

l The Trustee shall be bound to make such disclosures tothe Unit Holders as are essential in order to keep theminformed about any information, which may have an adversebearing on their investments.

l The Trustee shall provide or cause to provide suchinformation to Unit Holders and SEBI, as may be specifiedby SEBI from time to time.

l The Trustee shall act in the best interest of Unit Holders.

l The Trustee, in carrying out its responsibilities under theTrust Deed and Regulations, shall maintain arm's lengthrelationship with other companies, institutions or financialintermediaries or any body corporate with which it isassociated.

l A Director of the Trustee shall not participate in the meetingsof the Trustee or in any decision making process in respectof any investments for the Fund in which he may beinterested.

l The Trustee shall abide by the code of conduct specified inthe Regulations.

l The Trustee may amend the Trust Deed with the priorapproval of SEBI and the Unit Holders where it affects theinterest of Unit Holders.

l The Trustee may, subject to the Regulations, prescribe suchterms and make such rules for the purpose of giving effectto the provisions of the Scheme with power to theInvestment Manager to add to, alter or amend all or any ofthe terms and rules that may be framed from time to time.However, the Trustee may alter / modify / change in theFundamental Attributes of the Scheme or the trust or feesand expenses payable or any other change which wouldmodify the Scheme or affect the interest of the UnitHolders, in accordance with the applicable Regulations fromtime to time.

l The Trustee will call for a meeting of the Unit Holders ofthe Scheme, as required by the Regulations for the timebeing in force, whenever it is required by SEBI to do so inthe interest of the Unit Holders, or if the Trustee determinesto modify the Scheme or prematurely redeem the Units orwind up the Scheme.

l If any difficulty arises in giving effect to the provisions ofthis Scheme, the Trustee may do anything not inconsistentwith such provisions, subject to the Regulations, whichappear to be necessary, desirable or expedient, for thepurpose of removing such difficulty.

l In addition to the duties and responsibilities provided inthe Regulations, the material provisions of SEBI (MutualFunds) (Amendment) Regulations, 1999 provide how theTrustee shall exercise due diligence and are as under.

The Trustee shall exercise General Due Diligence in the followingmanner:

l The Trustee shall be discerning in the appointment of thedirectors on the Board of the AMC.

l The Trustee shall review the desirability of continuance ofthe AMC if substantial irregularities are observed in any ofthe schemes and shall not allow the AMC to float newschemes.

l The Trustee shall ensure that the trust property is properlyprotected, held and administered by proper persons andby a proper number of such persons.

l The Trustee shall ensure that all service providers areholding appropriate registrations from the Board orconcerned regulatory authority.

l The Trustee shall arrange for test checks of servicecontracts.

l The Trustee shall immediately report to the Board of anyspecial developments in the Fund.

The Trustee shall exercise Specific Due Diligence in the followingmanner:



l Obtain internal audit reports at regular intervals fromindependent auditors appointed by the Trustee.

l Obtain compliance certificates at regular intervals from theAMC.

l Hold meeting of Trustee more frequently.

l Consider the reports of the independent auditor andcompliance reports of AMC at the meetings of Trusteesfor appropriate action.

l Maintain records of the decisions of the Trustee at theirmeetings and of the minutes of the meetings.

l Prescribe and adhere to a code of ethics by the Trustee,AMC and its personnel.

l Communicate in writing to the AMC of the deficienciesand checking on the rectification of deficiencies.

l Notwithstanding the aforesaid, the Trustee shall not be heldliable for acts done in good faith if they have exercisedadequate due diligence honestly.

l The Independent Directors of the Trustee or AMC shall payspecific attention to the following, as may be applicable,namely :

l The Investment Management Agreement and thecompensation paid under the agreement.

l Service contracts with affiliates - whether the AMChas charged higher fees than outside contractors forthe same services.

l Selection of the AMC's independent directors.

l Securities transactions involving affiliates to the extentsuch transactions are permitted.

l Selecting and nominating individuals to fill independentdirectors vacancies.

l Code of ethics must be designed to preventfraudulent, deceptive or manipulative practices byinsiders in connection with personal securitiestransactions.

l The reasonableness of fees paid to Sponsors, AMCand any others for services provided.

l Principal underwriting contracts and their renewals.

l Any service contract with the associates of the AMC.

l Notwithstanding anything contained in sub-regulations (1)to (25) of regulation 18 of the Regulations, the Trusteesshall not be held liable for acts done in good faith if theyhave exercised adequate due diligence honestly.

l The Regulations provide that the meetings of the Trusteesshall be held at least once in every 2 months and at least 6such meetings will be held every year. Further, as per theRegulations, for the purposes of constituting the quorumfor the meetings of the Trustees, at least one IndependentTrustee or Director should be present during such meetings.

The supervisory role of the Trustees will be discharged by reviewingthe information and the operations of the Fund based on the reportsubmitted at the meetings of the Trustees, by reviewing the reportssubmitted by the Internal Auditor and the bi-monthly and half yearlycompliance reports. The Trustees will also conduct a detailed reviewof half-yearly and annual accounts of the Scheme of the Fund anddiscuss the matters arising there from with the Statutory Auditors ofthe Scheme of the Fund.

No amendment to the Trust Deed shall be carried out without priorapproval of SEBI and Unitholders' approval / consent will be obtainedwhere it affects the interests of Unitholders as per the procedure /provisions laid down in the Regulations.

The Trustees may require or give verification of identity or other detailsregarding any subscription or related information from / of theUnitholders as may be required under any law, which may result indelay in dealing with the applications, Units, benefits, distribution,etc.

3) Trusteeship Fees

Pursuant to the Trust Deed constituting the Fund, the Fund isauthorised to pay Deutsche Trustee services (India) Private Limited afee for their services in such capacity or such other sum as may bemutually agreed between the Sponsor and the Board of Trustees fromtime to time, subject to the SEBI Regulations. It has been decided tocharge the Trusteeship fees in proportion to the net assets of each ofthe schemes of the fund. Trustee fees will be charged at 0.01% ofthe assets of the scheme.

4) Meetings held during the last financial year

The board of directors of the trustee company met on 6 occasions inthe financial year 2004-2005.

D) The Asset Management Company ("AMC")

1) Constitution

Deutsche Asset Management (India) Pvt. Ltd. (DeAM India) has beenappointed the Asset Management Company of the Mutual Fund bythe Trustees. The Asset Management Company is a private limitedcompany incorporated under the Companies Act, 1956 on March 21,2002. Pursuant to an internal restructuring, Deutsche India HoldingsPrivate Limited holds 75% of the paid up equity capital of the Company(held earlier by DeAM Asia) and the balance 25% is held by UnitedAssociates Holdings India Private Limited. United Associates HoldingsIndia Private Limited is an Investment and Financial Services companyincorporated in India under the Companies Act, 1956.The head officeand the registered office of the DeAM India is DB House, HazarimalSomani Marg, Fort, Mumbai-400 001, India. The Asset ManagementCompany was approved to act as the Asset Management Companyfor the Mutual Fund by SEBI on October 29, 2002.

The Mutual Fund has entered into an Investment ManagementAgreement with the Asset Management Company dated May 29,2002 pursuant to which the Asset Management Company will act asinvestment manager of the Mutual Fund's assets.

Besides the offering and management of collective investmentschemes, the Asset Management Company may undertake activitiesin the nature of management and advisory services to offshore funds,pension funds, provident funds, venture capital funds, managementof insurance funds and financial consultancy and exchange of researchon a commercial basis.

The AMC will manage the Scheme(s) of the Fund, including thosementioned in this Offer Document, in accordance with the provisionsof IMA, the Trust Deed, the SEBI Regulations and the objectives ofeach of the Scheme(s).

In accordance with the SEBI Regulations, an asset managementcompany, subject to certain conditions, is also permitted to undertakeactivities in the nature of portfolio management services, managementand advisory services to offshore funds, pension funds, providentfunds, venture capital funds, management of insurance funds, financialconsultancy and exchange of research on commercial basis and suchother activities as may be permitted, by SEBI, from time to time.Subject to these activities being assessed as desirable andeconomically viable, the AMC may undertake any or all of theseactivities after satisfying itself that there is no potential conflict ofinterest.

2) Board of Directors of the AMC

Sandeep Dasgupta DirectorB. Tech. (Electronics & Telecommunications),

PGDM (IIM, Ahmedabad)

B-1, 12F, Harbour Heights,N. A. Sawant Marg, Colaba,Mumbai 400 005Chief Executive Officer -Deutsche Asset Management (India) Pvt. Ltd.

13


Kersi M. Gherda DirectorB.Com., ACS, ACA, FCS (England & Wales) Aerospace Systems Pvt. Ltd.9 A, Sterling Apartments, Emerson Network Power India Pvt. Ltd.38, Peddar Road, Mumbai 400 026 Kotak Mahindra Bank Ltd.Chairman - Kotak Mahindra Bank Ltd. Kotak Mahindra Private Equity Trustee Ltd.Former Vice Chairman and Managing Director - KM Dastur Reinsurance Brokers Pvt. Ltd.Tata Electric Companies. Nelito Systems Ltd.

Pallonji Leasing Pvt. Ltd.Sanchez Capital Services Pvt. Ltd.Tata Ceramics Ltd.Universal Ferro & Allied Chemicals Ltd.WTI Advanced Technology Ltd.Yashmun Engineers Ltd.Zenta India Pvt. Ltd.

Vijay P. Gokhale DirectorB.Sc., B.Sc.(Eng), London, DLC Hons (Mech. Engg.) Carrier Aircon Ltd.12, Usha Kiran, M. L. Dahanukar Marg, Fosters India Ltd.Mumbai 400 026 Franke India Pvt. Ltd.Former Chairman and Managing Director Krishvidur Services Pvt. Ltd.- Union Carbide India Ltd. Sunline Industries Ltd.

TQM International Pvt. Ltd.T4T Consultants Pvt. Ltd.Vista Technical Services Pvt. Ltd.

Carl Saldanha DirectorB. Tech. (Hons.), I.I.T., Mumbai United Associates Holdings India Pvt. Ltd.M.B.M., Asian Institute of Management,Philippines Cool Shanagh,No. 602, N. Gamadia Road,Mumbai - 400 026Executive Vice President - FinanceJet Airways (India) Ltd.

Stephen Paul Harris DirectorC.A., Institute of Chartered Accountants of Deutsche Asset Management (Hong Kong) LimitedScotland, Glasgow University Deutsche Asset Management (Japan) Limited42B Tower, 2 Dynasty Court, Deutsche Asia Pacific Holdings Private Limited23 Old Peak Road, Hong Kong DMG & Partners Securities Pte Ltd.Director & CEO, Deutsche Asset Management (Asia) Limited Deutsche Regis Partners Inc., Philippines

l Mr. Sandeep Dasgupta, Mr. Stephen Harris and Mr. Carl Saldanha are associated with the Sponsors.

l Mr. Kersi M. Gherda and Mr. Vijay P. Gokhale are Independent Directors.

l Thus 2 out of the 5 directors are independent directors.

l Providing information to SEBI and the Unitholders as requiredunder the Regulations or as otherwise required by SEBI.

l Receiving, holding in trust, or as agent or nominee of theTrustees, improving, developing, using, selling, transferring,exchanging, assigning, dealing, trading in and managing all assetsand all accretions thereto and endeavouring to earn adequatereturns on them for and on behalf of the Trust.

l Fixing sales and re-purchase prices, and calculating Net AssetValue for Units, consistent with the Regulations.

l Setting up an effective establishment for servicing of Unitholdersunder the various Scheme(s) and also to protect the interest ofthe Unitholders.

l Generally doing all acts, deeds, matters and things which arenecessary for any object, purpose or in relation to the MutualFund in any manner or in relation to any scheme of the MutualFund.

Duties and Responsibilities:

l The AMC shall take all reasonable steps and exercise duediligence to ensure that the investment of funds pertaining toany scheme is not contrary to the provisions of the SEBIRegulations, and the Trust Deed.

l The AMC shall exercise due diligence and care in all itsinvestment decisions as would be exercised by other personsengaged in the same business.

l The AMC shall be responsible for the acts of commissions oromissions by its employees or the persons whose services havebeen procured by the AMC.

l The AMC shall submit to the Trustees quarterly reports of eachyear on its activities and the compliance with the SEBIRegulations.

3) Powers, Duties and Responsibilities of the AMC

The powers, duties and responsibilities of the AMC shall be governedby the Regulations and the Investment Management Agreement. TheAMC, in the course of managing the affairs of the Mutual Fund, hasthe powers, inter alia for:

Powers :

l Floating Scheme(s) of the Mutual Fund after approval of the sameby the Trustees and investing and managing the funds mobilisedunder various Scheme(s), in accordance with the provisions ofthe Trust Deed and the Regulations.

l Evaluating investment opportunities for further investments bythe Mutual Fund.

l Evaluating and issuing orders and instructions with respect tothe acquisition and disposition of investments and risk positions /exposures.

l Issuing and ensuring due compliance of instructions to thecustodian and the Mutual Fund's brokers, agents includingregistrars and transfer agents.

l Issuing, selling, repurchasing and cancelling the Units as perthe terms of the respective Scheme(s) of the Mutual Fund.

l Managing the Mutual Fund Scheme(s) independently of otheractivities and taking adequate steps to ensure that the interestsof Unitholders are not being compromised with those of anyother Scheme(s) or any of its other activities.

l Opening and operating bank accounts in the name and on behalfof each scheme in relation to the investments made by theMutual Fund.

l Fixing record dates or book closure periods for the purpose ofeffecting transfer of Units and determining eligibility fordividends, bonus, rights, privileges, preferences, reservationsor other entitlements or accretions.



l The Trustees at the request of the AMC may terminate the

assignment of the AMC at any time provided that such

termination shall become effective only after the Trustees have

accepted the termination of assignment and communicated their

decision in writing to the AMC.

l Notwithstanding anything contained in any contract or agreement

of termination, the AMC or its directors or other officers shall

not be absolved of liability to the Mutual Fund for their acts of

commission or omissions, while holding such position or office.

l The AMC shall not through any broker associated with the

Sponsor, purchase or sell securities, which is average of 5% or

more of the aggregate purchases and sales of securities made

by a mutual fund in all its Scheme(s). Provided that for these

purposes, aggregate purchase and sale of securities shall exclude

sale and distribution of Units issued by the Mutual Fund. Provided

further that the aforesaid limit of 5% shall apply for a block of

any 3 months.

l The AMC shall not purchase or sell securities through any broker

(other than a broker not associated with the sponsor) which is

average of 5% or more of the aggregate purchases and sale of

securities made by the mutual fund in all its Scheme(s), unless

the AMC has recorded in writing the justification for exceeding

the limit of 5% and reports of all such investments are sent to

the Trustees of such mutual fund on a quarterly basis. Provided

that the aforesaid limit shall apply for a block of 3 months.

l The AMC shall not utilize the services of the Sponsor or any of

its associates, employees or their relatives, for the purpose of

any securities' transactions and distribution and sale of securities,

provided that the AMC may utilise such services if disclosure to

that effect is made to the Unitholders and the brokerage or

commission paid is also disclosed in the half yearly annual

accounts of the Mutual Fund.

l The AMC shall file with the Trustees the details of transactions

in securities by key personnel of the AMC in their own name or

on behalf of the AMC and shall also report to SEBI, as and when

required by SEBI.

l In case the AMC enters into any securities' transaction with any

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

Trustees at their next meeting.

l In case any company has invested more than 5% of the net

asset value of a scheme, the investment made by that scheme

or by any other scheme of the same mutual fund in that company

or its subsidiaries shall be brought to the notice of the Trustees

by the AMC and be disclosed in the half yearly / annual accounts

of the respective Scheme(s) with justification for such investment

provided that the latter investment has been made within 1 year

of the date of the former investment calculated on either side.

l The AMC shall file with the Trustees and SEBI

l Detailed bio-data of all its directors along with their interest

in other companies within 15 days of their appointment;

and any change in the interest of directors every 6 months.

l A quarterly report to the Trustees giving details and

adequate justification about the purchase and sale of

securities of the group companies of the Sponsor or the

AMC as the case may be, by the Mutual Fund during the

quarter.

l Each director of the Asset Management Company shall file the

details of his transactions of dealing in securities with the trustees

on a quarterly basis in accordance with guidelines issued by SEBI

from time to time.

l The AMC shall not appoint any person as key personnel who

has been found guilty of any economic offence or involved in

violation of securities laws.

l The AMC shall appoint registrars and share transfer agents who

are registered with SEBI. Provided if the work relating to the

transfer of Units is processed in-house, the charges at

competitive market rates may be debited to the Scheme and

for rates higher than the competitive market rates, prior approval

of the Trustees shall be obtained and reasons for charging higher

rates shall be disclosed in the annual accounts.

l The AMC shall abide by the Code of Conduct as specified in theFifth Schedule of the SEBI Regulations.

l The AMC shall:

l Not act as a trustee of any mutual fund

l Not undertake any other business activities except activitiesin the nature of portfolio management services,management and advisory services to offshore funds,pension funds, provident funds, venture capital funds,management of insurance funds, financial consultancy andexchange of research on commercial basis if any of suchactivities are not in conflict with the activities of the mutualfund without the prior approval of the Trustees and SEBI.Provided that the AMC may itself or through its subsidiariesundertake such activities if it satisfies SEBI that the keypersonnel of the AMC, the systems, back office, bank andsecurities accounts are segregated activity wise and thereexists systems to prohibit access to inside information ofvarious activities. Provided further that the AMC shall meetcapital adequacy requirements, if any, separately for eachsuch activity and obtain separate approval, if necessaryunder the relevant regulations;

l Not invest in any of its Scheme(s) unless full disclosure ofits intention to invest has been made in the offerdocuments.

l Not be entitled to charge any fees on its investment in thatscheme.

l Not acquire any of the assets out of the Trust Funds, whichinvolves the assumption of any liability which is unlimitedor which may result in encumbrance of the scheme propertyin any way.

l Not be liable to the Trustee for any error of judgment ormistake of law or for any loss suffered in connection withthe subject matter of the IMA, unless such error ofjudgment or mistake constitutes or such loss is caused byany acts of commission or omission or by fraud or willfuldefault or gross negligence of the AMC or any of its agentsor delegates. Without prejudice of the generality of theforegoing, in particular (but without limitation) the AMC shallnot be liable to the Mutual Fund for any loss which may besustained in the purchase, holding or sale of anyinvestments or other assets by the mutual fund or on anyof its assets as a result of loss, delay, misdelivery or errorin transmission of cabled, telexed, telecopied, facsimiled,telegraphic or other communication unless such loss aroseby any acts of commission or omission or from fraud, badfaith, willful default or gross negligence in the performanceor non-performance of its duties as mentioned in the IMA.

l Not be liable to the Trustee in the event that the MutualFund suffers a decline in its net asset value or fails toachieve any increase therein unless such decline or failureis caused by any acts of commission or omission or by thedefault or negligence of the AMC, a bona fide error ofjudgment not being regarded as default or negligence noras an act of commission or omission.

l The independent directors of the AMC shall pay specific attentionto the following as may be applicable, namely:

l The Investment Management Agreement and thecompensation paid under the agreement.

l Service contracts with affiliates - whether the AMC hascharged higher fees than outside contractors for the sameservices.

l Securities transactions involving affiliates to the extent suchtransactions are permitted.

l Code of ethics must be designed to prevent fraudulent,deceptive or manipulative practices by insiders inconnection with personal securities transactions.

l The reasonableness of fees paid to sponsors, AssetManagement Company and any others for servicesprovided.

l Principal underwriting contracts and renewals.

l Any service contracts with the associates of the AMC.

15


4) Key Employees of the AMC and relevant experience

Name & Age Designation Qualification Experience

Sandeep Dasgupta Chief Executive l B. Tech. Over18 years of experience44 Years Officer (Electronics & l Deutsche Asset Management (India)

Telecommunications) Private Limited - (Chief Executive Officer)l PGDM l Alliance Capital Asset Management (India)

(IIM Ahmedabad) Private Limited (Country Sales & Marketing Head incharge of National sales, distribution and marketing ofAlliance Capital Mutual Funds, January 1997 -February 2001)

l ITC Financial Services Group [ITC-Peregrine PrivateLimited as General Manager - Corporate Finance andITC Classic Finance Limited as Asst. Vice President -Investment Banking & Retail Sales, October 1993 -January 1996)

l Enam Financial Consultants Pvt. Limited(Senior Manager- Merchant Banking,July 1991 - October 1993)

l Hongkong Bank (Account Manager - InvestmentBanking, February 1990-July 1991)

l ICICI Limited (Senior Officer - Merchant Banking& Corporate Finance, March 1987 - February 1990)

Suresh Soni Director & Head - l B. Sc. Over 12 years of experience35 Years Fixed Income l ACA l Deutsche Asset Management (India) Private Limited,

l Grad CWA Head, Fixed Income (Oct. 2002 to present)l Pioneer ITI AMC Limited, Fund Manager and

Vice President (April 2000 till Sept. 2002)l Sundaram Newton AMC Limited, Fund Manager,

(Sept. 96 to March 2000)l SBI Funds Management Limited,

Scheme-in-Charge, (Feb. 1993 till Sept. 1996)l Godrej Soaps Limited, Industrial Trainee

(1991-1992)l Shah and Company, Article Trainee (1989-1991)

Vinay Kulkarni Senior l B. Tech. Over 13 years of experience39 Years Fund Manager (IIT Bombay), l Deutsche Asset Management (India) Private Limited,

PGDBM Senior Fund Manager (July 2005 to present)(IIM Bangalore) l UTI Mutual Fund, Fund Manager - Equity Funds,

Vice President, (June 1992 - July 2005).l Patni Computer Systems, Software Engineer,

(June 1988 - June 1990)

Tarun Kewalramani Equity Dealer l Bachelor of Engineering Over 8 years experience33 Years (B.E. - Mechanical / l Deutsche Asset Management (India) Pvt. Ltd.

Production) - Equity Dealer (April 2003 to present)l Post Graduate l HDFC Bank Limited - Proprietory Trader and

Management Degree Equity Dealer (May 2000 to April 2003)(Finance) ·l IndusInd Bank Limited - Proprietory Trader

(August 1997 to May 2000)

Jignesh Barasara Fund Manager l MBA Over 10 years of experience32 Years l B.Sc. l Deutsche Asset Management (India) Private Limited

(FM-FI from Jan. 04 to present)l Deutsche Asset Management (India) Private Limited

(Asst. FM-FI from Oct 02 to December 03)l HDFC Bank - Fixed Income Trader

(Period - October 1998 till Sept. 2002)l Bank of America - Retail Assets (Period - 1994 - 1996)

Ajay Arora Head - Sales & l B.Com. Over 11 years of experience38 Years Marketing l ACA l Deutsche Asset Management (India) Private Limited

l ACS Head - Sales & Marketing (from June 04 to present)l ILFS Investmart India - Head- Equity Sales

(Dec.1998 to June 2004)l JM Morgan Stanley - AVP & Head Eastern Region

(from July 1997 to Nov.1998)l Kotak Mahindra Finance (from June 1994

to June 1997)l S. R. Batliboi & Co. (from June 1993 to April 1994)

Ashutosh Sharma Compliance Officer & l B.Com. Over 6 years of experience28 Years Company Secretary l LL.B. l Deutsche Asset Management (India) Private Limited

l ACS (Compliance Officer & Company Secretaryfrom March 2005 to present)

l Deutsche Asset Management (India) Private Limited(Senior Compliance Analyst fromFebruary 2004 - March 2005)

l ICICI Securities Limited (Assistant Vice Presidentfrom April 2001 - January 2004)

l Aptech Limited (Secretarial Executive fromJune 2000 - March 2001)

l Mahindra & Mahindra Limited (Management Traineefrom October 1998 - January 2000)



5) Fund Manager

Deutsche Tax Saving Fund will be managed by Mr. Vinay Kulkarni.

Brief Profile:

Mr. Vinay Kulkarni who is a B. Tech. from IIT Mumbai and aPGDM from IIM Bangalore, has over 13 years of experience.Prior to joining Deutsche Asset Management, he was FundManager- Equity and Vice President at UTI Mutual Fund wherehe was responsible for managing Equity Schemes withapproximately Rs. 3,500 crores of Assets under Management.He was associated with the Unit Trust of India since June 1992.

6) Compliance Officer

Ashutosh SharmaDeutsche Asset Management (India) Private LimitedDB House, Hazarimal Somani Marg,Fort, Mumbai 400 001

7) Investors Relations Officer

Murali RamasubramanianHead - Fund OperationsDeutsche Asset Management (India) Private LimitedDB House, Hazarimal Somani Marg,Fort, Mumbai 400 001

E) Auditors & Tax Advisors

Price Waterhouse, Chartered Accountants, 252, Veer Savarkar Marg,Shivaji Park, Dadar, Mumbai - 400 028 have been appointed as Auditorsfor the Scheme offered under this Offer Document. The Trusteesalso have appointed them as Tax Advisors. The Trustees have theright to change the Auditors.

F) Registrar

Karvy Computershare Private Ltd. (KARVY) 46, Road No. 4, StreetNo. 1, Banjara Hills, Hyderabad - 500 034 have been appointed asRegistrars and Transfer Agents for the Scheme. The Registrar isregistered with SEBI under the SEBI (Registrars to an Issue and ShareTransfer Agents) Regulations, 1993 vide registration numberINR000000221. As Registrars to the Scheme, KARVY will handlecommunications with investors, perform data entry services anddespatch account statements. The AMC and the Trustees havesatisfied themselves that the Registrars have adequate capacity todischarge responsibilities with regard to processing of applicationsand despatching account statements to Unitholders within the timelimit prescribed in the Regulations and also sufficient capacity to handleinvestor complaints.

G) Custodian

JP Morgan Chase Bank, Mafatlal Centre, 9th Floor, Nariman Point,Mumbai - 400 021, India has been appointed as Custodian of theScheme mentioned in the Offer Document. The Custodian has beenregistered with SEBI under the SEBI (Custodians of Securities)Regulations, 1996, and has been awarded registration number IN/CUS/014 dated November 10, 1998. The Mutual Fund has enteredinto a Custodian Service Agreement dated November 01, 2002, withthe Custodian and the salient features of the said Agreement are to:

l Provide post-trading and custodial services to the Mutual Fund

l Ensure benefits due on the holdings are received

l Provide detailed management information and other reports asrequired by the AMC

l Maintain confidentiality of the transactions

l Be responsible for the loss or damage to the assets belongingto the Scheme(s) due to negligence on its part or on the part ofits approved agents

l Segregate assets of each Scheme

The Custodian shall not assign, transfer, hypothecate, pledge, lend,use or otherwise dispose any assets or property, except pursuant toinstruction from the Trustees/AMC or under the express provisionsof the Custodian Service Agreement. The Custodian may appointsubcustodian(s) for safe keeping of the assets of the Scheme in anycountry where the Scheme decides to invest.

The Custodian will be entitled to remuneration for its services inaccordance with the terms of the Custodian Service Agreement. TheTrustees have the right to change the Custodian, if necessary.

H) Collecting Banker

The Collecting Bankers to the New Fund Offer will be StandardChartered Bank Limited (SEBI registration No. INBI00000063) andsuch other banks registered with SEBI as Collecting Bankers as maybe decided by the AMC from time to time.

Application for the New Fund Offer / Continuous Offer will be acceptedat the Collection centres / ISCs as may be designated by the AMCfrom time to time. The AMC may from time to time appoint suchother banks registered with SEBI as collecting bankers.

V. Investment Objectives &Policies, Investment Pattern& Risk Profile and Limitationsof the Scheme

A) Investment Objectives, Investment Pattern& Risk Profile

1. Investment Objectives

The investment objective of the scheme is to generate long termcapital appreciation from a portfolio that is invested predominantly inequity and equity related instruments.

However, there can be no assurance that the investment objectivesof the Scheme launched will be realized. The Scheme does notguarantee/indicate any returns.

2. Investment Pattern

The net assets of the Scheme will be invested primarily in equity andequity related instruments. The scheme may invest a part of its netassets in debt and money market instruments in order to manage itsliquidity requirements from time to time, and under certaincircumstances, to protect the interests of the Unit holders. Thescheme does not guarantee any returns and there is no assurancethat the investment objectives of the Scheme will be achieved.

Subject to the Regulations and other prevailing laws as applicable,the corpus of the Scheme can be invested in any (but not exclusively)of the following securities:

l Equity and equity related securities including convertible bondsand debentures and warrants carrying the right to obtain equityshares.

l Foreign Securities, ADRs/GDRs issued by the Indian companies,subject to the guidelines issued by the Reserve Bank of Indiaand Securities and Exchange Board of India.

Name & Age Designation Qualification Experience

Murali Head - Operations l B. Com. Over 11 years of experienceRamasubramanian l LL.B. l Deutsche Asset Management (India) Pvt. Limited -33 Years Head - Operations (March 2003 to present)

l Alliance Capital Asset Management (India) Pvt. Ltd.Asst. Vice President - Operations(Sept. 1998 to March 2003)

l Birla Asset Management (India) Pvt. Ltd. -Executive - Operations (November 1996 toAugust 1998)

l Datamatics Financial Services Pvt. Ltd. -Sr. Officer (September 1993 to September 1996)

17


l Stock / Index futures/options and such other derivativeinstruments permitted by SEBI / RBI.

l Debt Instruments including Government Securities, CorporateDebt, Money Market Instruments and Securitised Debt.

Under normal circumstances, the asset allocation of the scheme willbe as follows:

Asset Class Normal Risk Profile**Allocation(% of NetAssets)

Equity & Equity 80 - 100 Highrelated instruments

Debt Instruments including 0 - 20 Low to MediumGovernment Securities, andMoney Market Instrumentsand Securitised Debt*

* Investment in Securitised Debt would be up to a maximum of10% of the net assets of the Scheme.

The scheme will invest in derivatives only for the purpose ofhedging and portfolio balancing, as permitted under theRegulations and guidelines and the exposure to derivatives shallbe restricted to 50% of the net assets of the Scheme.

** Risk profile refers to the price risk of the respective asset class.Please refer risk factors for more details.

The Scheme will not invest in foreign securitized debt. The Schememay participate in securities lending as permitted underRegulations.

The Equity Linked Savings Scheme, 2005 and Equity Linked Savings(Amendment) Scheme, 2005, as amended till date, issued by theMinistry of Finance (Department of Revenue), or such other schemeas the Central Government may by notification in the Official Gazettespecify, would be adhered to in the management of this Fund.

If the investment in equities and related instruments falls below 80%of the portfolio of the Scheme at any point in time, the Fund shallendeavour to review and rebalance the composition within 30 days.

Deutsche Tax Saving Fund will invest primarily in equity and equityrelated instruments, however, the scheme may invest a part of itsnet assets in debt and money market instruments in order to manageits liquidity requirements. The funds collected under the Scheme shallbe invested in equities (listed / unlisted), cumulative convertiblepreference shares and fully convertible debentures and bonds ofcompanies. Investment may also be made in partly convertible issuesof debentures and bonds including those issued on rights basis subjectto the condition that, as far as possible, the non convertible portion ofthe debentures so acquired or subscribed, shall be disinvested withina period of 12 months. In line with the notification issued for ELSS,the Scheme shall invest the fund collected, in the manner statedabove, within a period of 6 months from the date of closure of theScheme.

For purposes of this Offer Document equity securities (listed / unlisted)includes debt securities convertible into shares and rights or warrantsto purchase shares. Money Market and debt instruments includesbut is not limited to Corporate debt (of both public and private sectorundertakings) including Bonds, Debentures, Notes, Strips etc.,Government of India Securities, State Government Bonds,Government Guaranteed Bonds, Public Sector Bonds and FinancialInstitution & Banking Sector Bonds, Securitised Debt up to 10% ofthe net assets of the scheme, Discounted Trade Bills, Pass through /Pay through or other participation certificates representing interest ina pool of assets including receivables, Securities created and issuedby the Central and State Governments and/or repos/reverse repos insuch Government Securities as may be permitted by RBI (includingbut not limited to coupon bearing bonds, zero coupon bonds andtreasury bills), Securities guaranteed by the Central and StateGovernments (including but not limited to coupon bearing bonds, zerocoupon bonds and treasury bills), Debt instruments of domesticGovernment agencies and statutory bodies, which may or may notcarry a Central/State Government guarantee, Money marketinstruments permitted by SEBI, having maturities of up to one year,in call money market or in alternative investment for the call moneymarket as may be provided by the RBI to meet the liquidityrequirements, Certificate of Deposits (CDs), Commercial Paper (CPs),any other domestic fixed income securities like Call Money/Repo/CBLO, Derivative instruments like Interest Rate Swaps/Futures,

Forward Rate Agreements, Forward Currency Contracts, CurrencyFutures, Currency Options, Currency Swaps or other derivativeinstruments, permitted by SEBI, for the purpose of hedging andportfolio balancing, as permitted under the Regulations and guidelines.From time to time it is possible that the portfolio may hold cash.

It must be clearly understood that the percentages stated above areonly indicative and not absolute and that they can vary substantiallydepending upon the perception of the Investment Manager, theintention being at all times to seek to protect the interests of theUnitholders. The Board of Trustees reserves the right to change theabove pattern in the interest of the investors depending on the marketconditions, market opportunities, applicable regulations and politicaland economic factors. For defensive purposes (e.g., during periodsin which the Asset Management Company believes changes in thesecurities markets or economic or other conditions warrant), theScheme may invest substantially in Debt instruments, hold cash orcash equivalents and other money market instruments. The Trusteesof the Mutual Fund may from time to time alter these limitations inconformity with the SEBI (MF) Regulations, 1996 and any otherguidelines or notifications that may be issued by SEBI.

No prior intimation/indication would be given to investors when thecomposition/ asset allocations pattern under the scheme change.However, at all times the portfolio will adhere to the overall investmentobjective of the Scheme and the guidelines for Equity Linked SavingsScheme as amended from time to time.

The Scheme may invest its funds in short-term deposits of scheduledcommercial banks pending deployment. The Scheme may also enterinto repurchase and reverse repurchase obligations in all securitiesheld by it as per the guidelines and regulations applicable to suchtransactions.

The Scheme may invest in other debt Schemes managed by the AMCor in the debt Schemes of any other Mutual Funds, provided it is inconformity to the investment objectives of the Scheme and in termsof the prevailing Regulations. As per the Regulations, no investmentmanagement fees will be charged for such investments and theaggregate inter Scheme investment made by all Schemes of DeutscheMutual Fund or in the Schemes under the management of other assetmanagement companies shall not exceed 5% of the net asset valueof the Deutsche Mutual Fund.

For the present, the Scheme does not intend to enter into underwritingobligations. However, if the Scheme does enter into an underwritingagreement, it would do so after complying with the Regulations andwith the requisite approval of the Board of the AMC / Trustee.

Securitisation - Concept

Asset securitisation is a process whereby commercial or consumercredits are packaged and sold in the form of financial instruments. Atypical process of asset securitisation involves sale of specificReceivables to a Special Purpose Vehicle (SPV) set up in the form ofa trust or a company. The SPV in turn issues financial instruments(e.g., promissory notes, pass through certificates or other debtinstruments) to investors, such instruments evidencing the beneficialownership of the investors in the Receivables. The financialinstruments are rated by an independent credit rating agency. AnInvestor's Agent is normally appointed for providing trusteeshipservices for the transaction.

On the recommendation of the credit rating agency, additional creditsupport (Credit Enhancement) may be provided in order that theinstrument may receive the desired level of rating. Typically theservicing of the Receivables is continued by the seller in the capacityof the Servicer. Cash flows, as and when they are received, are passedonto the investors.

Features of securitisation transactions include:

l Absolute true sale of assets to an SPV (with defined purposesand activities) in trust for the investors;

l Reliance by the investors on the performance of the assets forrepayment - rather than the credit of the Originator (the seller)or the Issuer (the SPV);

l Consequent to the above, "Bankruptcy Remoteness" from theOriginator;

l Support for timely payments, inter-alia, in the form of suitablecredit enhancements, if required;

l Securitised debt paper usually achieves a high investment gradecredit rating;

l There is a diversification of economic risks as credit risk is spreadover a diversified group of obligors.



Generally available Asset Classes for securitisation in India

l Commercial Vehicles

l Auto and Two wheeler pools

l Mortgage pools (residential housing loans)

l Personal Loan, credit card and other retail loans

l Corporate loans / receivables

The fund may invest in various type of securitisation issuances ascontained in the above table, including but not limited to Asset BackedSecuritisation, Mortgage Backed Securitisation, Personal Loan BackedSecuritisation, Collateralized Loan Obligation/Collateralized BondObligation and so on.

3. Investment Strategy

As mentioned in the "Investment Pattern", the fund managementteam will endeavor to meet the investment objective of thescheme. The funds collected under the Scheme shall be investedin equities, cumulative convertible preference shares and fullyconvertible debentures and bonds of companies. Investmentmay be made in partly convertible debentures and bondsincluding those issued on a rights basis subject to the conditionthat, as far as possible, the non convertible portion of thedebenture so acquired or subscribed shall be disinvested withina period of 12 months.

It shall be ensured that funds of the Scheme shall remain investedto the extent of atleast 80% in securities specified above. Inexceptional circumstances, this requirement may be dispensedwith by the AMC, in order that the interest of the Unit holders isprotected.

Pending investment of funds of the Scheme in the requiredmanner, the AMC may invest the funds of the Scheme in shortterm money market instruments or other liquid instruments orboth. After 3 years from the date of allotment of the Units, theMutual Fund may hold upto 20% of net assets of the Scheme inshort-term money market instruments.

The investment approach will be based on a set of wellestablished but flexible principles that emphasise the conceptof sustainable economic earnings and cash return on investmentas the means of valuation of companies.

This innovation on issuance, trading, settlement and riskmanagement side will considerably enhance the depth and thewidth of the Indian debt markets and bring it at par withdeveloped markets.

4. Risk Control

Since investing requires disciplined risk management, the AMCwould incorporate adequate safeguards for controlling risks inthe portfolio construction process. The risk control processinvolves reducing risks through portfolio diversification, takingcare however not to dilute returns in the process. The AMCbelieves that this diversification would help achieve the desiredlevel of consistency in returns. Stock specific risk will beminimised by investing only in those companies that have beenanalysed by the Investment Team at the AMC.

For its investments into Equity instruments, the Scheme willinvest across a range of market capitalizations. A top down andbottom up approach will be used to invest in equity and equityrelated instruments. Investments will be pursued in selectsectors based on the Investment Team's analysis of businesscycles, regulatory reforms, competitive advantage etc. Selectivestock picking will be done from the sectors. The fund managerin selecting scrips will focus on the fundamentals of the business,the industry structure, the quality of management, sensitivity toeconomic factors, the financial strength of the company and thekey earnings drivers.

The Scheme may however, invest in unlisted and/or privatelyplaced securities subject to the limits indicated under "InvestmentRestrictions for the Scheme(s)" in clause F of this section, fromissuers of repute and sound financial standing. If investment ismade in unlisted securities, the approval of the InvestmentReview Committee (constituted by the Board of the AMC) shallbe obtained, as per the Regulations and within the broadparameters approved by the Board of the AMC.

As per the asset allocation pattern indicated above, forinvestment in debt securities and money market instruments,

the Fund may invest a part of the portfolio in various debtsecurities mentioned above.

The Scheme may also use various derivatives and hedgingproducts from time to time, as would be available and permittedby SEBI, in an attempt to protect the value of the portfolio andenhance Unitholders' interest.

For the present, the Scheme does not intend to enter intounderwriting obligations. However, if the Scheme does enterinto an underwriting agreement, it would do so after complyingwith the Regulations and with the requisite approval of the Boardof the AMC / Trustee.

5. Debt Market in India

The Indian debt market, one of the largest in Asia, is developingrapidly buoyed by a multitude of factors including newinstruments, increased liquidity, deregulation of interest ratesand improved settlement systems. The major players in theIndian debt markets today are banks, financial institutions,insurance companies and mutual funds. The instruments in themarket can be broadly categorized as those issued by corporates,banks, financial institutions and those issued by state/centralgovernments. The risks associated with any investments are -credit risk, interest rate risk and liquidity risk. While corporatepapers carry credit risk due to changing business conditions,government securities are perceived to have zero credit risk.Interest rate risk is present in all debt securities and depends ona variety of macroeconomic factors. The largest segment of theIndian Debt market consists of the Government of India securitieswhere the daily trading volume is in excess of Rs.3000 crores,with instrument tenors ranging from short dated Treasury Billsto long dated securities extending beyond 20 years. TheCorporate bond market, though relatively less liquid, is also fastdeveloping with an increased participation from the banks,Financial Institutions, mutual funds, insurance companies andcash rich corporates. Also there are a large number ofinstruments available like MIBOR linked bonds, commercialpapers and medium to long dated fixed and floating rate bonds.The yield curve tends to be positive sloping i.e. yield of shorterdated securities being lower than that of longer dated ones.

The money markets in India essentially consist of call moneymarket (i.e. market for overnight and term money between banksand institutions), repo transactions (temporary sale with anagreement to buy back the securities at a future date at specifiedprice), commercial papers (CPs, short term unsecuredpromissory note, generally issued by corporates), certificate ofdeposits (CDs, issued by banks) and Treasury Bills (issued byRBI). A predominantly institutional market, the key money marketplayers are banks, financial institutions, insurance companies,mutual funds, primary dealers and corporates.

The various instruments currently available for investments are:

Instruments Current Yields(as of Jan. 2006) Liquidity

Central / StateGovernment securities 5.75% - 7.60% Very High

PSU Bonds / Corporatedebentures 6.00% - 8.00% Medium - High

Securitised debt 6.00% - 8.25% Low - Medium

Commercial Papers /Certificate of deposits 6.00% - 7.00% High

Call / Notice Money 5.25% - 6.25% Very High

Repo 5.25% - 6.25% Very High

The actual yields will, however, vary in line with general levelsof interest rates and debt / money market conditions prevailingfrom time to time.

The Scheme may also invest in other fixed income instrumentsthat may be available from time to time. The securities above,subject to applicable SEBI regulations, could be listed, unlisted,privately placed, secured, unsecured and of any maturity. Thesecurities may be acquired through initial public offerings,secondary market operations, private placement etc.

Derivatives market is rapidly developing. Instruments range formovernight interest rate swaps to complex transaction combiningforeign exchange as well as interest rate exposure. Daily volumesin the derivatives are in the range of Rs. 3000 Crores.

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B) Procedure and Recording of Investment Decisions

l The Fund Manager for the Scheme is responsible for makingbuy / sell decisions in respect of the securities in the respectiveScheme(s)' portfolios. The investment decisions are made on adaily basis keeping in view the market conditions and all relevantaspects.

l The Board of the AMC has constituted an Investment ReviewCommittee that will meet at periodic intervals. The InvestmentReview Committee, at its meetings, will review all investmentsmade by the scheme. The Investment review committee willconsist of Chief Executive Officer, Head Legal & Compliance,Head Fixed Income and Head Equities. The board of the AMCmay add more members to the committee as and when required.

l Investment Review Committee will review all investments inunrated securities. The approval of unrated debt instrumentswill be based on parameters laid down by the Board of the AMCand the Trustees. The details of such investments will becommunicated by the AMC to the Trustees in their periodicalreports along with a disclosure regarding how the parametershave been complied with. Such reporting shall be in the mannerprescribed by SEBI from time to time. The Committee will alsoreview the performance of the Scheme(s) and general marketoutlook and assess the investment pattern of the scheme withregard to parameters and directions laid down in the investmentpolicy.

l It is the responsibility of the AMC to ensure that the investmentsare made as per the internal / Regulatory guidelines, Schemeinvestment objectives and in the best interest of the Unitholdersof the respective Scheme(s).

l The Fund Manager will make presentations to the Board of theAMC and the Trustees periodically, indicating the performanceof the Scheme. Among other things, the Board of AMC andTrustee will review the performance of the Scheme incomparison to the benchmark. The Trustees reserve the right tochange the benchmark for evaluation of performance of thescheme from time to time in conformity with the Investmentobjectives and appropriateness of the benchmark subject to SEBIRegulations, and other prevailing guidelines, if any.

l The Fund Manager will bring to the notice of the AMC Board,specific factors if any, which are impacting the performance ofany individual Scheme. The Board on consideration of all relevantfactors may, if necessary, give appropriate directions to the AMC.Similarly, the performance of the Scheme(s) will be submittedto the Trustees. The Fund Manager will explain to the Trustees,the details on the Schemes' performance vis-à-vis the benchmarkreturns. The Trustees and the AMC board may also review theperformance of the schemes in the light of performance of themutual funds industry as published from time to time byindependent research agencies and financial newspapers andjournals and may take corrective action in case of unsatisfactoryperformance.

l All investment decisions shall be recorded in terms of SEBICircular no MFD/CIR/6/73/2000 dated July 27, 2000 or as maybe revised by SEBI from time to time.

C) Change in Investment Pattern

Subject to the Regulations, the asset allocation pattern indicated abovefor the Scheme(s) may change from time to time, keeping in viewmarket conditions, market opportunities, applicable regulations andpolitical and economic factors. It must be clearly understood that thepercentages stated above are only indicative and not absolute andthat they can vary substantially depending upon the perception of theInvestment Manager, the intention being at all times to seek to protectthe interests of the Unitholders, and meet the objective of the relevantScheme / Plan. Such changes in the investment pattern will be forshort term and defensive considerations.

Provided further and subject to the above, any change in the assetallocation affecting the investment profile of the Scheme(s) shall beeffected only in accordance with the provisions of sub regulation (15A)of Regulation 18 of the Regulations, as detailed below.

D) Change in Fundamental Attributes

In accordance with Regulation 18(15A) of the SEBI Regulations, theTrustees shall ensure that no change in the fundamental attributes ofthe Scheme and the Plan / Options thereunder or the trust or fee andexpenses payable or any other change which would modify theScheme and the Plan / Options thereunder and affect the interests ofUnitholders is carriedout unless:

l A written communication about the proposed change is sent toeach Unitholder and an advertisement is given in one Englishdaily newspaper having nationwide circulation as well as in anewspaper published in the language of the region where theHead Office of the mutual fund is situated; and

l The Unitholders are given an option to exit at the prevailing NetAsset Value without any exit load.

Explanation: In terms of the Regulations and circular dated February4, 1998, "Fundamental Attributes" referred above shall mean:

i) Type of Scheme

l Open ended / Open Ended / Interval Scheme

l Sectoral Fund / Equity Fund / Balanced Fund / Income Fund /Index Fund / Any other type of Fund.

ii) Investment Objectives

l Main Objectives - Growth / Income / Both

l Investment pattern - The tentative equity / debt / moneymarket breakup with minimum and maximum assetallocation, while retaining the option to alter the assetallocation for a short term period on defensiveconsiderations.

iii) Terms of Issue

l Liquidity provisions such as listing, repurchase, redemption

l Aggregate fees and expenses charged to the Scheme

l Any safety net or guarantee provided

E) Portfolio Turnover

Portfolio turnover is defined as the aggregate of purchases and salesas a percentage of the corpus of the Scheme during a specified periodof time. Portfolio turnover in the Schemes will be a function of marketopportunities. The economic environment changes on a continuousbasis and exposes debt portfolio to systematic as well as non-systematic risk. Consequently, it is difficult to estimate with anyreasonable measure of accuracy, the likely turnover in the portfolio.The Investment Manager will endeavour to optimise portfolio turnoverto optimise risk adjusted return keeping in mind the cost associatedwith it. A high portfolio turnover rate is not necessarily a drag onportfolio performance and may be representative of arbitrageopportunities that exist for scrips / securities held in the portfolio ratherthan an indication of a change in AMC's view on a scrip, etc.

F) Investment Limitations / Restrictions

As per the Trust Deed read with the Regulations, the followinginvestment restrictions apply in respect of the Scheme at the time ofmaking investments. However, all investments by the Scheme willbe made in accordance with the Investment Objective, InvestmentFocus, Investment Pattern described above as well as the Regulations,including Schedule VII thereof.

1) The Scheme shall not invest more than 15% of its NAV in debtinstruments issued by a single issuer rated not below investmentgrade by a credit rating agency authorised to carry out suchactivity under the Securities and Exchange Board of India Act,1992 and this limit may be extended to 20% of the NAV of theScheme subject to prior approval of the Board of the AMC andthe Trustees. Investments within such limits can be made inmortgage backed securitised debts which are rated not belowinvestment grade by a credit rating agency registered with SEBI.

The aforementioned limits shall not be applicable for investmentin government securities & money market instruments.

The Scheme shall not invest more than 10% of its NAV in unrateddebt instruments issued by a single issuer and such totalinvestments shall not exceed 25% of the NAV of the Scheme.All such investments shall be subject to the prior approval of theBoard of the AMC and the Trustee.

The ELSS notification further requires the portfolio to be investedin equities, cumulative convertible preference shares and fullyconvertible debentures and bonds of companies. Investmentmay be made in partly convertible debentures and bondsincluding those issued on a rights basis subject to the conditionthat the non-convertible portion of the debenture so acquired orsubscribed shall be disinvested within a period of 12 months.Further, the portfolio is to remain invested to the extent of atleast 80% in the securities specified herein. In order to protectthe interests of unitholders, in exceptional circumstances, thisrequirement may be dispensed with.



2) A Scheme of the Mutual Fund shall not invest more than 10%of its NAV in equity shares or equity related instruments of anycompany. Provided that the limit of 10% shall not be applicablefor investments in case of index fund or sector / industry specificscheme.

3) A Scheme shall not invest more than 5% of its NAV in the unlistedequity shares or equity related instruments.

4) Transfers of investments from one scheme to another schemein the same mutual fund shall be allowed only if:

a) such transfers are done at the prevailing market price forquoted instruments on spot basis (spot basis shall havethe same meaning as specified by a Stock Exchange forthe spot transaction); and transfers of unquoted securitieswill be made as per the policy laid down by the Trusteefrom time to time; and

b) the securities so transferred shall be in conformity withthe investment objective of the scheme to which suchtransfer has been made.

5) The Scheme may invest in another scheme under the sameAMC or any other mutual fund without charging any fees,provided that aggregate inter-scheme investment made by allschemes under the same management or in schemes underthe management of any other asset management company shallnot exceed 5% of the net asset value of the Fund.

6) The initial issue expenses in respect of any scheme may notexceed 6% of the Funds raised under that scheme.

7) The Trustee / Scheme shall take delivery of securities purchasedand give delivery in case of securities sold and in no case shallengage in short selling or carry forward transactions or badlafinance provided that the Fund shall enter into derivativestransactions in a recognised stock exchange for the purpose ofhedging and portfolio balancing in accordance with the guidelinesissued by the SEBI.

8) The Fund shall get the securities purchased / transferred in thename of the Fund on account of the concerned scheme,wherever the instruments are intended to be of long term nature.

9) Pending deployment of funds of the Scheme in securities interms of investment objectives of the Scheme, the AMC caninvest the funds of the Scheme in short term deposits ofscheduled commercial banks or in call deposits.

After the three year lock-in period, the portfolio may hold upto20% of its net assets in short-term money market instrumentsor other liquid instruments in order to pay redemptions.

10) No Scheme of the Fund shall make any investment in

a) any unlisted security of any associate or group company ofthe sponsor; or

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

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

11) No term loans for any purpose may be advanced by the Fundand the Fund shall not borrow except to meet temporary liquidityneeds of the Scheme for the purpose of repurchase, redemptionof Units or payment of interest or dividends to Unit Holders,provided that the Fund shall not borrow more than 20% of thenet assets of the Scheme and the duration of such a borrowingshall not exceed a period of six months.

12) The Fund may lend securities in accordance with "Guidelines forParticipation by Mutual Funds in Stock Lending" issued by SEBIor any amendments thereto.

13) The Scheme may also use various derivative and hedgingproducts from time to time, as are available and permitted bySEBI, in an attempt to protect and enhance the interests of theUnit Holders at all times.

14) If any company invests more than 5 percent of the NAV of theScheme then investment made by any other scheme of the Fundin that company or its subsidiaries will be disclosed in accordancewith the Regulations.

15) Debentures, irrespective of any residual maturity period (aboveor below 1 year), shall attract the investment restrictions as

applicable for debt instruments as specified under Clause 1 and1A of the Seventh Schedule to the Regulations or as may bespecified by SEBI from time to time.

16) The Mutual Fund under all its schemes shall not own more than10% of any company's paid up capital carrying voting rights.

17) The Scheme will comply with any other Regulations applicableto the investments of Mutual Funds from time to time.

These investment limitations / parameters as expressed / linked tothe net asset / net asset value / capital shall in the ordinary courseapply as at the date of the most recent transaction or commitment toinvest, and changes do not have to be effected merely because, owingto appreciation or depreciation in value or by reason of the receipt ofany rights, bonuses or benefits in the nature of capital or of any schemeof arrangement or for amalgamation, reconstruction or exchange, orat any repayment or redemption or other reason outside the controlof the Fund, any such limits would thereby be breached. If theselimits are exceeded for reasons beyond its control, AMC shall adoptas a priority objective the remedying of that situation, taking dueaccount of the interests of the Unit Holders.

The Trustee Company / AMC may alter these above stated limitationsfrom time to time, and also to the extent the Regulations change, soas to permit the Scheme to make its investments in the full spectrumof permitted investments in order to achieve its investment objective.

G) Investment of Subscription Money

The Scheme may invest subscription money received from theinvesting public in money market instruments in addition to any otherpermissible form of investment, before finalisation of the allotmentof Units. The AMC, on being satisfied of the receipt of the minimumsubscription amount, can commence investment out of the fundsreceived in accordance with the investment objective of the Schemeand as per existing Regulations. The income earned out of suchinvestments would be merged with the income of the Scheme, oncompletion of the allotment of the Units.

H) Depository

Securities of the Scheme will be held either in physical ordematerialised form. In case the securities are held in dematerialised(electronic) mode in India, the rules of the SEBI (Depositories andParticipants) Regulations, 1996 would apply and if the securities areheld overseas, the relevant rules and regulation of the country wherethe securities are so held would apply. The services charges payableto the depository participant will form a part of the annual recurringexpenses.

I) Investment by Asset Management Company

AMC, its Sponsor and investment companies managed by them, theiraffiliates, their associates companies and subsidiaries may investeither directly or indirectly in the Scheme. The funds managed bythese affiliates, associates, the sponsor, Subsidiaries of the Sponsorand / or the AMC may acquire a substantial portion of the Scheme'sunits and collectively constitute a major investment in the Scheme.Accordingly, selling of Units held by such funds, affiliates / associatesand sponsor may have an adverse impact on the Units of the Scheme,because the timing of such selling may impact the ability of otherUnitholders to sell their units. Such investments and movementthereof shall be disclosed to the unitholders on a half yearly basis.The AMC shall not charge any fees on such Investments by the AMCin the units of its Schemes, in accordance with sub clause (3) ofregulation 24 of the Regulations and shall charge fees on such amountsin future only if the SEBI Regulations so permit. However, AMC shallcharge fees on investment by sponsor, and investment companiesmanaged by them, their affiliates, their associate companies andsubsidiaries.

J) Hedging Policies in connection withTrading in Derivatives

SEBI vide its circular MFD/CIR/011/061/2000 dated 01 February, 2000,permitted MF's to participate in derivative trading subject to theobservance of guidelines issued by SEBI. The fund may use variousderivatives and hedging products/ techniques to insulate the portfoliofrom excessive risks, for the purpose of hedging and balancing theportfolio; as permitted under the regulation and the guidelines. Thetrustees will take reasonable steps to ensure that the AMC possessadequate expertise and infrastructure for derivative trading.

Derivative instruments may take form of Interest Rate Swaps/Futures,Forward Rate Agreements, Index Futures, Index Options, Stock

21


Futures, Stock Options and such other derivative instruments,permitted by SEBI /RBI, for the purpose of hedging and portfoliobalancing, as permitted under the Regulations and guidelines and doall such acts as may be incidental to the purpose.

Basic Structure of an Equity Derivative Instrument

A Stock Index Future

The Stock Index Future is an instrument designed to give exposureto equity market indices. The Stock Exchange, Mumbai and TheNational Stock Exchange have recently started trading in index futuresof 1, 2 and 3-month maturities. Pricing of an index future is a functionof the underlying index and short-term interest rates.

Assumptions:

1 month BSE 30 Future

Spot Index: 3800

Future Price on day 1: 3820

Fund buys 10,000 futures

Future price = Closing spot price = 3850

Profits for the Scheme = (3850 - 3820) X 10000 = Rs. 300,000

The net impact for the Scheme will be in terms of the differencebetween the closing price of the index and cost price (ignoring marginsfor the sake of simplicity). Thus, profit or loss for the Scheme will bethe difference between the closing price (which can be higher or lowerthan the purchase price) and the purchase price.

Advantages of Equity Derivatives:

Volatility in the Indian equity markets has increased over the last fewmonths. Derivatives provide much needed flexibility to hedge againstthis volatility. Some of the advantages of specific derivative productsare given below:

Stock Index Futures can give exposure to the index. Appreciation inIndex stocks can be effectively captured through investment in StockIndex Futures without buying individual stocks that make up the index.

The Scheme can sell futures to hedge against market movementswithout actually selling the underlying stocks it holds.

By buying call options on the index one can participate in the rise inthe market, without actually buying individual stocks.

By buying put options on the index the Scheme can insulate theportfolio (assuming a perfect co-relation between portfolio and index- which may not be the case) from the downside risk at a small cost.

Buying Options

Benefits of buying a call option

Buying a call option on a stock or index gives the owner the right, butnot the obligation, to buy the underlying stock / index at the designatedstrike price. Here the downside risks are limited to the premium paidto purchase the option.

Illustration

If the Fund buys a 1 month call option on Hindustan Lever at a strikeof Rs. 190, the current market price being say Rs.191. The Fund willhave to pay a premium of say Rs. 15 to buy this call. If the stock pricegoes below Rs. 190 during the tenure of the call, the Fund avoids theloss it would have incurred had it straightaway bought the stock insteadof the call option. The Fund gives up the premium of Rs. 15 that hasto be paid in order to protect the Fund from this probable downside.If the stock goes above Rs. 190, it can exercise its right and ownHindustan Lever at a cost price of Rs. 190, thereby participating inthe upside of the stock.

Benefits of buying a put option

Buying a put option on a stock originally held by the buyer gives him/her the right, but not the obligation, to sell the underlying stock at thedesignated strike price. Here the downside risks are limited to thepremium paid to purchase the option.

Illustration

If the Fund owns Hindustan Lever and also buys a three-month putoption on Hindustan Lever at a strike of Rs. 190, the current marketprice being say Rs.191. The Fund will have to pay a premium of sayRs. 12 to buy this put.

If the stock price goes below Rs. 190 during the tenure of the put,the Fund can still exercise the put and sell the stock at Rs. 190, avoiding

therefore any downside on the stock below Rs. 190. The Fund givesup the fixed premium of Rs. 12 that has to be paid in order to protectthe Fund from this probable downside. If the stock goes above Rs.190, say to Rs. 220, it will not exercise its option. The Fund willparticipate in the upside of the stock, since it can now sell the stockat the prevailing market price of Rs. 220.

Writing Options

Benefits of writing an option with underlying stock holding

(Covered call writing)

Covered call writing is a strategy where a writer (say the Fund) willhold a particular stock, and sell in the market a call option on thestock. Here the buyer of the call option now has the right to buy thisstock from the writer (the Fund) at a particular price which is fixed bythe contract (the strike price). The writer receives a premium for sellinga call, but if the call option is exercised, he has to sell the underlyingstock at the strike price. This is advantageous if the strike price is thelevel at which the writer wants to exit his holding / book profits. Thewriter effectively gains a fixed premium in exchange for the probableopportunity loss that comes from giving up any upside if the stockgoes up beyond the strike price.

Illustration

Let us take for example Infosys Technologies, where the Fund holdsstock, and the current market price being Rs. 3600. The Fund Managerholds the view that the stock should be sold when it reaches Rs.3700. Currently the 1 month 3700 calls can be sold at say Rs.150.Selling this call gives the call owner the right to buy from the Fund,Infosys at Rs. 3700.

Now the Fund by buying / holding the stock and selling the call iseffectively agreeing to sell Infosys at Rs. 3700 when it crosses thisprice. So the Fund is giving up any possible upside beyond Rs. 3700.However, the returns for the Fund are higher than what it would havegot if it just held the stock and decided to sell it at Rs. 3700. This isbecause the Fund by writing the covered call gets an additional Rs.150 per share of Infosys. In case the price is below Rs. 3700 duringthe tenure of the call, then it will not be exercised and the Fund willcontinue to hold the shares. Even in this case the returns are higherthan if the Fund had just held the stock waiting to sell it at Rs. 3700.

Benefits of writing put options with adequate cash holding

Writing put options with adequate cash holdings is a strategy wherethe writer (say, the Fund) will have an amount of cash and will sell putoptions on a stock. This will give the buyer of this put option the rightto sell stock to the writer (the Fund) at a pre-designated price (thestrike price). This strategy gives the put writer a premium, but if theput is exercised, he has to buy the underlying stock at the designatedstrike price. In this case the writer will have to accept any downsideif the stock goes below the exercise price. The writer effectively gainsa fixed premium in exchange for giving up the opportunity to buy thestock at levels below the strike price. This is advantageous if thestrike price is the level at which the writer wants to buy the stock.

Illustration

Let us take for example, that the Fund wants to buy InfosysTechnologies at Rs. 3500, the current price being Rs. 3600. Currentlythe three-month puts can be sold at say Rs. 100. Writing this putgives the put owner the right to sell to the Fund, Infosys at Rs. 3500.

Now the Fund by holding cash and selling the put is agreeing to buyInfosys at Rs. 3500 when it goes below this price. The Fund will takeon itself any downside if the price goes below Rs. 3500. But thereturns for the Fund are higher than what it would have got if it justwaited till the price reached this level and bought the stock at Rs.3500, as per its original view. This is because the Fund by writing theput gets an additional Rs. 100 per share of Infosys. In case the pricestays above Rs. 3500 during the tenure of the put, then it will not beexercised and the fund will continue to hold cash. Even in this casethe returns are higher than if the Fund had just held cash waiting tobuy Infosys at Rs. 3500.

The risks and returns ensuring from such investments are explainedhereinbelow:

Interest rate Swaps

An interest rate swap is an agreement whereby two parties agree toexchange periodic interest payments. The amount of interestpayments exchanged is based on some predetermined principal, callednotional principal amount. The amount each counter party pays tothe other is the agreed upon periodic interest rate multiplied by the



notional principal amount. The only amount that is exchanged betweenthe parties are the interest payment, not the notional principal amount.

A Forward Rate Agreement, on the other hand, is an agreementbetween two counter parties to pay or to receive the differencebetween an agreed fixed rate (the FRA rate) and the interest rateprevailing on a stipulated future date based on a notional amount, foran agreed period.

In the most common type of swap one party agrees to pay the otherparty fixed interest payments at designated dates for the life ofcontract. The other party agrees to make interest rate payments thatfloat with some index.

The interest rate benchmarks that are commonly used for floatingrate in an interest rate swap are those on various money marketinstruments. In Indian markets the benchmark most commonly usedis MIBOR.

Swaps can be unwound by either reversing the original swap enteredinto or doing by a reverse swap with cash flows matching the originalswap.

Example: Interest Rate Swap (IRS)

l Suppose the Scheme has a portion of its portfolio in cash. TheFund Manager has a view that the interest rate scenario is softand call rates are unlikely to spurt over the next three months.The fund manager would therefore prefer to receive a higherrate of return on his cash, which he is lending in the overnightcall market. In other words he would like to move to a 91 Dayfixed interest rate from overnight floating rate.

l In the above example

Say Notional Amount : Rs. 5 crores

Benchmark : NSE MIBOR

Tenor : 91 days

Documentation: International Securities Dealers Association(ISDA).

Fixed Rate : 6.25% At the end of 91 days

The Scheme Pays : compounded call rates for 91 days whichaverages to say 5.90%

The Scheme receives : Fixed rate at 6.25% for 91 days.

At the end of 91 days the transaction will be settled as under:-

Deutsche Tax Saving Fund receiveFixed rate @ 6.25% for 91 days Rs. 7,79,110

Deutsche Tax Saving Fund paysfloating rate @ 5.90% for 91 daysamounting to Rs. 7,35,479

Net Receivable / Settlement Value Rs. 43,631

Please note that the above example is hypothetical in nature and thefigures are assumed.

The fixed Income derivative market has made considerable progressin last two years. Interest rate swaps have become an integral part ofRisk Management practice for most banks. Corporate Treasury haveissued Innovative instruments like floating rate debt and constantmaturity swaps.

This innovation on issuance, trading, settlement and risk managementside will considerably enhance the depth and the width of the Indiandebt markets and bring it at par with developed markets.

The Scheme may use derivative instruments primarily to protect thevalue of portfolio against potential risks such as interest rate risk,currency risk, credit risks, reinvestment risk and liquidity risks. Thisprotection is also known as hedge. At the same time, however, aproperly correlated hedge will result in a gain in the portfolio positionbeing offset by a loss in the hedge position. As a result, the use ofderivatives could limit any potential gain from an increase in value ofthe position hedged. In addition, an exposure to derivatives in excessof the hedging requirement can lead to losses. IRS and FRAs do alsohave inherent credit and settlement risks. However, these risks aresubstantially reduced as they are limited to the interest streams andnot the notional principal amounts.

Derivative instruments offer unique advantages like security exposureswithout the attendant execution and settlement risk. Derivative

instruments carry a high risk return ratio. It is like a insurance policywhere one has to pay the premium up-front and the benefit iscontingent upon an event. Derivative instrument if used on a leveragedbasis could distort the risk return ratio considerably even with a smallprice movement (the scheme will not take a leveraged exposure). Itrequires a high level of knowledge, understanding and surveillance tocontrol risk.

The Indian market for derivative instruments is still evolving. The Fundhowever, will use the derivative instruments very judiciously and keepin mind the overall objective of the scheme.

Reporting requirements:

The AMC shall cover the following aspects in their reports to theTrustees periodically, as provided for in the Regulations:

l· Transactions in derivatives, both in volume and value terms.

l· Market value of cash or cash equivalents / securities held tocover the exposure.

l· Any breach of the exposure limit laid down in the scheme offerdocument.

l· Shortfall, if any, in the areas covering investment in derivativeproducts and the manner of bridging it.

The Trustees shall offer their comments on the above aspects in thereport filed with SEBI under sub regulation (23) (a) of regulation 18 ofSecurities and Exchange Board of India (Mutual Funds) Regulations,1996.

Valuation of Derivative Products

l The traded derivatives shall be valued at market price inconformity with the stipulations of sub clauses (i) to (v) of clause1 of the Eighth Schedule to the Securities and Exchange Boardof India (Mutual Funds) Regulations, 1996, as amended fromtime to time.

l The valuation of untraded derivatives shall be done in accordancewith the valuation method for untraded investments prescribedin sub clauses (i) and (ii) of clause 2 of the Eighth Schedule tothe Securities and Exchange Board of India (Mutual Funds)Regulations, 1996 as amended from time to time.

Risks associated with Derivatives Trading

1. Credit Risk: The credit risk is the risk that the counter party willdefault obligations and is generally negligible, as there is noexchange of principal amounts in a derivative transaction.

2. Market Risk: Derivatives carry the risk of adverse changes inthe market price.

3. Illiquidity risk: The risk that a derivative cannot be sold orpurchased quickly enough at a fair price, due to lack of liquidityin the market.

4. The fund pays the daily compounded rate. In practice howeverthere can be a difference in the actual rate at which money islent in the call market and the benchmark, which appears and isused.

5. The risk is to the extent that returns are limited for the investorin case of extreme movement in call rates.

6. Risks associated with index futures are similar to thoseassociated with equity investments. Additional risks could beon account of illiquidity and hence mispricing of the future at thetime of purchase. As and when the Scheme trades in thederivatives market, there are risks factors and issues concerningthe use of derivatives. Derivative products are specializedinstruments that require investment techniques and risk analysesdifferent from those associated with stocks. The use of aderivative requires an understanding of the underlying instrumentas well as that of the derivative itself. Derivatives require themaintenance of adequate controls to monitor the transactionsentered into, the ability to assess risk that a derivative adds tothe portfolio and the ability to forecast price or interest ratemovements correctly. There is the possibility that a loss may besustained by the portfolio as a result of failure of another party(usually referred to as the "counter party") to comply with theterms of the derivatives contract. Other risks associated withtrading in derivatives include the risks of mis-pricing or impropervaluation of derivatives and the inability of derivatives to correlateperfectly with underlying assets, rates and indices.

23


7. Since derivatives would be used as a risk management tool, upto 100% of the Scheme's net assets in the equity component ofthe portfolio may be utilised for derivatives trading.

It may be mentioned here that the guidelines issued by ReserveBank of India from time to time for forward rate agreementsand interest rate swaps and other derivative products would beadhered to.

Overseas Investments By The Scheme

The Scheme may, with the approval of SEBI invest in ADRs / GDRsissued by Indian companies, equities of listed overseas companieswhich have a shareholding of atleast 10% in an Indian Company listedon a recognised Stock Exchange in India (as on January 31, of theyear of investment) and such other foreign securities permitted bySEBI.

The Mutual Fund may invest in foreign securities upto 10% of its netassets as on January 31 of each relevant year, subject to a limit of aminimum of US$ 5 million and a maximum of US $ 50 million or suchother limit prescribed by SEBI.

Subject to the approval of the RBI / SEBI and conditions as may beprescribed by them, the Mutual Fund may open one or more foreigncurrency accounts abroad either directly, or through the custodian/sub-custodian, to facilitate investments and to enter into/deal inforward currency contracts, currency futures, index options, indexfutures, interest rate futures/swaps, currency options for the purposeof hedging the risks of assets of a portfolio or for its efficientmanagement.

Please refer to "Risk factor associated with Overseas Investment" fordetails on the risk factors associated with Overseas Investment.

The Mutual Fund may, where necessary will appoint intermediariesas sub-managers, sub-custodians, etc. for managing and administeringsuch investments. The appointment of such intermediaries shall bein accordance with the applicable requirements of SEBI and withinthe permissible ceilings of expenses.This is not a Money MarketMutual Fund scheme.

Valuation of Assets and Net Asset Value

The assets would be valued in accordance with the regulationsprescribed by SEBI from time to time.

VI. Fees, Expenses & Load

The information provided under this section is to assist the unitholderto understand the expense structure of the current Scheme and typesof fees and their percentage the unitholder is likely to incur onsubscribing the units of the Scheme.

A) Load Structure of the Scheme

During New Fund Offer:

– Entry Load : Nil

– Exit Load : Nil

– No entry load for investment by way of SIP.

During Continuous Offer:

– Entry Load

l For Purchase and / or Switch-in of Units less thanRs. 2 crores in value - 2.25%.

l Rs. 2 crores and above - Nil.

– Exit Load : Nil.

– No entry load for investment made by way of SIP.

Investors can start a SIP from the NFO

Please note that the units purchased cannot be assigned / transferred/pledged/ redeemed/ switched out until the completion of 3 years fromthe date of allotment of the respective Unit. It may however be notedthat in the event of death of Unit holder, the nominee or legal heir,(subject to production of requisite documentary evidence to thesatisfaction of AMC) as the case may be, shall be able to redeem theinvestment only after the completion of 1 year or any time thereafter,from the date of allotment of the Units to the deceased Unit holder.The AMC reserves the right to change the Lock in period prospectivelyfrom time to time as may be permitted under the regulations,notification of the Government for the Equity Linked Savings Scheme.

Under normal circumstances based on the Scheme's potentialperformance in the market environment existing as of the date of theOffer Document, the Fund intends to charge the load under thescheme(s) unless mentioned otherwise or changed subsequently.Investors may note that the Trustee has a right to modify the existingLoad Structure in any manner or introduce an Entry Load or Exit Loador CDSC or a combination of Entry Load and / or Exit Load and / orCDSC and / or any other Load subject to a maximum as prescribedunder the Regulations with prospective effect. Should the Trustee onany date, change the Load structure in any manner, the investmentsmade by the Unit Holders prior to such date will be subject to onlythe Load structure which was prevailing/ applicable prior to suchchange.

All Loads including CDSC are intended to enable the AMC to recoverexpenses incurred for promotion or distribution and sales of theScheme. All Loads including CDSC for the Scheme will be retained inthe Scheme in a separate account and will be utilised to meet theselling and distribution expenses or such other expenses as permittedby SEBI. Any surplus in this account may be credited to the Schemewithin one year from the end of the financial year in which the Loads /CDSC has been charged.

Any imposition or enhancement of Load in future shall be applicableon prospective investments only. At the time of changing the LoadStructure:

(i) The addendum detailing the changes will be attached to OfferDocument and Abridged Offer Document. The addendum willbe circulated to all the distributors / brokers so that the samecan be attached to all Offer Documents and Abridged OfferDocuments already in stock. The addendum will be sentalongwith the newsletter sent to the Unit holders immediatelyafter the changes.

(ii) Arrangements will be made to display the changes / modificationsin the Offer Document in the form of a notice in all the InvestorService Centres and Designated Centres.

(iii) The introduction of the Exit Load alongwith the details will bestamped in the acknowledgement slip issued to the investorson submission of the application form and will also be disclosedin the Account Statement or in the covering letter issued to theUnit holders after the introduction of such Load.

Investors are advised to contact the Investor Service Centres ordesignated centres or AMC offices to know the latest position onEntry Load / Exit Load / CSDC prior to Investing in the Scheme.

The Fund will ensure that the Redemption Price is not lower than93% of the NAV and the Purchase Price is not higher than 107% ofthe NAV, provided that the difference between the Redemption Priceand Purchase Price of the Units shall not exceed the permissible limitof 7% of the Purchase Price, as provided for under the Regulations.

Contingent Deferred Sales Charge (CDSC)

Under the regulations, when a Scheme is operating on a no load basis,the AMC retains the right to charge CDSC to unit holder exiting fromthe Scheme within 4 years of entry. The CDSC is intended to enablethe AMC to recover expenses for promotion of the Scheme whichotherwise the Unitholders may have had to bear. Under the Scheme,the AMC reserves the right to charge the CDSC structure if it deemsfit in the interest of the smooth and efficient functioning of the Fund.Should the AMC on any date decide to change the CDSC structure(including a zero CDSC structure), investments made prior to thatdate would attract the CDSC structure applicable prior to that change.

Summary of Current Load Structure & CDSC

Maximum Sales (Entry) Present Charge Maximumload imposed on purchase Chargeof units

At New Fund Offer 0%

Deutsche Tax Saving Fund For Purchase and / or 6%(DTSF) For Ongoing Switch-in of UnitsSubscription less than Rs. 2 crores

in value - 2.25%.

Rs. 2 crores and above - Nil.

Sales load on issue of NA NAunits in lieu of dividend



Contingent Deferred Year 1 - 0% Year 1 - 4%Sales Charge ("CDSC") Year 2 - 0% Year 2 - 3%

Year 3 - 0% Year 3 - 2%Year 4 - 0% Year 4 - 1%

Redemption Load NA 2%

Switchover / Exchange Fee

Interscheme switches 0% 0.05%

Intrascheme switches 0% 0.05%

B) Fees and Expenses of the Scheme

1) New Fund Issue Expenses

New Fund Issue Expenses are estimated as under

Expense Head DeutscheTax Saving Fund

(% of NAV)

Marketing Expenses 2.50%

Agent Commissions 1.50%

Registrar Expenses 0.25%

Bankers Fees 0.10%

Legal Fees 0.05%

Printing & Distribution 0.45%

Other Expenses 1.15%

Total 6.00%

The above estimates are subject to change as per actuals and arebased on the minimum subscription (target) amount of Rs. 10 lakhs(Rupees Ten Lakhs Only) in the Scheme. The above expenses aresubject to inter se change and may increase/decrease as per actualand/or any change in regulations.

The New Fund Issue Expenses subject to a maximum of 6% of theamount mobilized will be borne by the Scheme. The New Fund Issueexpenses would be amortised over a period of 3 years and would beincluded in the NAV. However the same would not be included in theNAV for determining the Investment Management and Trustee Fees.The above is as per SEBI regulations. The same is illustrated as under:

Face Value (FV) of Units (Rs. Per Unit) A 10.00

Entry Load (% of FV) B Nil

Entry Load (Rs. Per unit) C Nil

Issue Price (A+C) D 10.00

Maximum NFO expenses (6%) per unit E 0.60

Amount available for investment F 9.40

No. of years for amortization of NFO G 3 years

Amortisation of NFO expensesper unit per day (E/365*3) H 0.0005

Balance of NFO expenses per day(Rs. Per unit) I 0.5995

NAV on day 1 (F+I) J 9.9995

Note: New Fund Issue Expenses would be amortised over a periodof 3 years.

2) Ongoing Expenses

The fees and expenses of operating the Scheme on an annual basis,expressed as a percentage of the amount of the Schemes' averageweekly net assets, are estimated as follows:

Description DeutscheTax Saving Fund

Investment Management & Advisory fees 1.25%

Trustee Fees 0.01%

Custodian Fees 0.08%

Distribution & Marketing Expenses 0.65%

Registrar & Transfer Agent Fees 0.20%

Other Fund Related Expenses 0.26%

Investor Servicing & Bank Charges 0.05%

Total Annual Recurring Expenses 2.50%

The purpose of the above table is to assist the Unitholder inunderstanding the various costs and expenses that an investor in theScheme will bear directly or indirectly. Unitholders should note thatthe information provided are estimates made on a best effort basisand that the actual expenses charged to the Scheme and the expensescategories (subject to inter se change) may vary once the Scheme isin operation or if there is any change in Regulations. However as perRegulations the total recurring expenses that can be charged to anyof the Scheme(s) in this document shall be subject to the applicableguidelines. Expenses over and above the permitted limits will be borneby the AMC.

As per the SEBI (MF) Regulations, 1996, ongoing expenses on thefirst Rs.100 crores of the Scheme's average weekly net assets willnot exceed 2.50% per annum. On the next Rs.300 crores of theScheme's average weekly net assets ongoing expenses will notexceed 2.25% per annum. On the next Rs.300 crores of the Scheme'saverage weekly net assets on-going expenses will not exceed 2.00%and on the balance of the Scheme's average weekly net assetsongoing expenses will not exceed 1.75%. Ongoing fees and expensesincurred beyond the stipulated amounts, if any, will be borne by theAsset Management Company. In accordance with SEBI (MF)Regulations, 1996 the investment management and advisory fee isincluded within the ongoing expenses stated herein and charged tothe Scheme and is subject to the following limits: On the first Rs.100crores of the average weekly net assets 1.25% and 1% of the excessamount over Rs.100 crores, where net assets so calculated exceedRs.100 crores. The ongoing fees and expenses of the Scheme willbe payable monthly in arrears.

The recurring expenses of the Scheme(s), and the additionalmanagement fee shall be as per the limits prescribed under sub-regulation 6 of Regulation 52 of the SEBI Regulations and shall notexceed the limits prescribed thereunder.

C) Fees and Expenses of the Existing Schemes

Deutsche Mutual Fund - Most Recent Scheme Launched

Deutsche Mutual Fund has in the recent times launched one scheme

each in March 2005, June 2005, August 2005 and December 2005,

the New Fund issue expenses for which were borne by the AMC.

The New Fund issue expenses for all the scheme was borne by the

AMC except Deutsche Alpha Equity Fund and Deutsche Investment

Opportunity Fund over and above 1%, 2% respectively of the amount

collected.

Deutsche Alpha Equity Fund

New Fund Issue Expenses Estimated As Per Actuals

Offer Document

Target Amount Rs. 1 crore Rs. % of Rs. % of

(Lakhs) Target (Lakhs) Resources

Amount Mobilised

Marketing Expenses 0.50 1.50% 1.30 0.04%

Agent Commissions 1.00 1.00% 31.18 1.00%

Registrar's Expenses 0.25 0.25% 0.34 0.00%

Banker's Fees 0.10 0.10% 0.00 0.00%

Legal Fees 0.05 0.05% 0.00 0.00%

Printing & Distribution 0.45 0.45% 0.59 0.02%

Other Expenses 0.40 0.40% 0.19 0.00%

Total 2.75 2.75% 33.60 1.06%

The variance in estimated versus actual New Fund issue expenses

was due to the target amount being exceeded during the New Fund

offering period. The expense over and above 1% of the amount

collected in Deutsche Alpha Equity Fund was borne by the AMC. In

case of Deutsche Investment Opportunity Fund, expenses incurred

in excess of 2% of the amount collected was borne by the AMC.

All New Fund issue expenses incurred for Deutsche Premier Bond

Fund, Deutsche Short Maturity Fund, Deutsche Insta Cash Plus Fund,

Deutsche Fixed Maturity Plans, Deutsche Floating Rate Fund,

Deutsche Dynamic Bond Fund, Deutsche MIP Fund, Deutsche Fixed

Term Fund and Deutsche Fixed Term Fund Series - 2, 3, 4 & 7 was

borne by the AMC.

Maximum Sales (Entry) Present Charge Maximumload imposed on purchase Chargeof units

25


D) Condensed Financial Information

Historical per unit Statistics

Particulars DFRF DDBF

October 24, April 1, April 1, October 24, 2003 April 1, 2004 April 1,2003 2004 2005 to March 31, 2004 to March 31, 2005 2005

to March 31, to March 31, to September to September2004 2005 30, 2005 30, 2005

Institutional Regular Institutional** Regular Regular***

Audited Audited Unaudited Audited Audited Unaudited

NAV at the beginningof the year (Rs.)# 10.0000 10.2014 10.7067 10.0000 10.0000 10.1193 10.0734 10.2577

Net Income per unit (Rs.) 0.2190 0.5083 0.2027 0.1290 (6.3614) 0.7647

Dividends (Rs. Per unit) ^^

Daily Dividend N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A.

Weekly Dividend 0.0443 0.3923 0.2548 N.A. N.A. N.A. N.A. N.A.

Monthly Dividend 0.0178 0.4102 0.2700 N.A. N.A. N.A. N.A. 0.3600

Quarterly Dividend N.A. N.A. N.A. N.A. N.A. N.A. N.A. 0.1200

Annual Dividend / Dividend N.A. N.A. N.A. N.A. N.A. N.A. N.A. 0.1000

Transfer to Reserves(if any) (Rs. in Crores) 0.39 – – 0.92 0.03 – – –

NAV at the end of the period (Rs.) 10.2014 10.7067 11.0077 10.1193 10.0734 N.A. 10.2577 10.4657

Date of Allotment 24-Oct-03 24-Oct-03

Absolute Return of the Scheme(since Inception till end ofrespective period) (%) 2.01% 7.07% 10.08% 1.19% 0.73% N.A. 2.58% 4.66%

Benchmark Performance(since Inception till end ofrespective period) (%) 1.78% 6.02% 8.50% 1.09% 1.28% 4.02%

Compounded Annualised Returnof the scheme (since Inceptionof respective schemes till theend of the period) (%) N.A. 4.84% 5.06% N.A. N.A. N.A. 1.78% 2.37%

Compounded Annualised Returnof the Benchmark Index(since Inception of respectivescheme till end of the period) (%) N.A. 4.13% 4.28% N.A. N.A. N.A. 0.88% 2.05%

Net Assets at end of the year(Rs. Crs.) 23.16 458.59 1131.40 60.30 4.17 N.A. 0.92 0.05

Ratio of Recurring Expensesto net assets (%) 0.65% @ 0.65% 0.65% @ 1.15% @ 1.99% @ 1.16% @ 2.01% @ 2.03% @

NAV as on January 2, 2006 11.1578 10.5259 (as on November 30, 2005)

Compounded AnnualisedReturn Since Inception toJanuary 2, 2006 5.10% 2.46% (Since Inception to November 30, 2005)

Benchmark Performance 5.08% 2.25% (Since Inception to November 30, 2005)

Particulars DMIP A DMIP B

February 5, April 1, April 1, February 5, April 1, April 1,2004 2004 2005 2004 2004 2005

to March 31, to March 31, to September to March 31, to March 31, to September2004 2005 30, 2005 2004 2005 30, 2005


NAV at the beginning of the year (Rs.)# 10.0000 10.0603 10.8119 10.0000 10.0732 10.6740

Net Income per unit (Rs.) 0.0324 0.6944 0.5623 0.0540 1.0454 0.3410

Dividends (Rs. per unit) ^^

Daily Dividend N.A. N.A. N.A. N.A. N.A. N.A.

Weekly Dividend N.A. N.A. N.A. N.A. N.A. N.A.

Monthly Dividend N.A. 0.5270 0.4300 N.A. 0.5164 0.3100

Quarterly Dividend N.A. 0.3900 0.3500 N.A. 0.4000 0.3200

Annual Dividend / Dividend N.A. N.A. 0.6250 N.A. N.A. 0.6000

Transfer to reserves (if any) (Rs. In Crores) 0.29 – – 0.17 – –

NAV at the end of the period (Rs.) 10.0603 10.8118 11.6585 10.0732 10.6740 11.2372



Date of Allotment 05-Feb-04 05-Feb-04

Absolute Return of the Scheme (since Inception tillend of respective period) (%) 0.60% 8.12% 16.59% 0.73% 6.74% 12.37%

Benchmark Performance (since Inception tillend of respective period) (%) 0.98% 3.31% 9.74% 0.98% 3.31% 9.74%

Compounded Annualised Return of the scheme(since Inception of respective schemestill the end of the period) (%) N.A. 6.90% 9.62% N.A. 5.73% 7.23%

Compounded Annualised Return of theBenchmark Index (since Inception of respective schemetill the end of the period) (%) N.A. 2.83% 5.72% N.A. 2.83% 5.72%

Net Assets at end of the year (Rs. Crs.) 46.91 25.47 18.41 22.51 15.01 4.78

Ratio of Recurring Expenses to net assets (%) 2.25% @ 2.25% 2.25% @ 2.25% @ 2.25% @ 2.26% @

NAV as on January 2, 2006 11.7645 11.3115

Compounded Annualised ReturnSince Inception to January 2, 2006 8.79% 6.60%

Benchmark Performance 5.95% 5.95%

Particulars DAEF DIOF

January 30, April 1, April 1, April 1, February 5, April 1, April 1,2003 2003 2004 2005 2004 2004 2005

to March 31, to March 31, to March 31, to September to March 31, to March 31, to September2003 2004 2005 30, 2005 2004 2005 30, 2005

Audited Audited Audited Unaudited Audited Audited Unaudited

NAV at the beginning of the year (Rs.)# 10.00 9.25 21.03 25.81 10.00 9.95 12.44

Net Income per unit (Rs.) (0.38) 2.75 4.34 3.4043 (0.08) 1.71 7.2836


Daily Dividend N.A. N.A. N.A. N.A. N.A. N.A. N.A.

Weekly Dividend N.A. N.A. N.A. N.A. N.A. N.A. N.A.

Monthly Dividend N.A. N.A. N.A. N.A. N.A. N.A. N.A.

Quarterly Dividend N.A. N.A. N.A. N.A. N.A. N.A. N.A.

Annual Dividend / Dividend N.A. 4.00 3.50 5.00 N.A. 1.00 Nil

Transfer to reserves (if any) (Rs. in Crores) (1.36) 29.86 – – (0.31) – –

NAV at the end of the period (Rs.) 9.25 21.03 25.81 31.29 9.95 12.44 15.10

Date of Allotment 30-Jan-03 05-Feb-04

Absolute Return of the Scheme (since Inceptiontill end of respective period) (%) -7.50% 110.30% 158.10% 212.90% -0.50% 24.40% 41.70%

Benchmark Performance (since Inception tillend of respective period) (%) -9.25% 64.38% 88.85% 141.34% -2.05% 15.84% 46.61%

Compounded Annualised Return of the scheme(since Inception of respective schemes tillthe end of the period) (%) N.A. 86.91% 54.13% 52.74% N.A. 20.52% 23.19%

Compounded Annualised Return of theBenchmark Index (since Inception of respectivescheme till the end of the period) (%) N.A. 51.92% 33.65% 38.70% N.A. 13.40% 25.73%

Net Assets at end of the year (Rs. Crs.) 16.61 120.75 67.11 84.45 46.86 19.61 10.09

Ratio of Recurring Expenses to net assets (%) 2.50% @ 2.48% 2.48% 2.50% @ 2.23% @ 2.25% @ 2.26% @

NAV as on January 2, 2006 34.31 16.10

Compounded Annualised ReturnSince Inception to January 2, 2006 51.86% 28.01%

Benchmark Performance 38.80% 28.98%

Particulars DMIP A DMIP B

February 5, April 1, April 1, February 5, April 1, April 1,2004 2004 2005 2004 2004 2005

to March 31, to March 31, to September to March 31, to March 31, to September2004 2005 30, 2005 2004 2005 30, 2005


27


Particulars DSMF DICPF

January 27, April 1, April 1, April 1, January 27, April 1, April 1, June 26, April 1, 20052003 2003 2004 2005 2003 2003 2004 2004 to September 30,

to March 31, to March 31, to March 31, to September to March 31, to March 31, to March 31, to March 31, 20052003 2004 2005 30, 2005 2003 2004 2005 2005

Audited Audited Audited Unaudited Audited Audited Regular Institutional Regular Institutional

Audited Unaudited

NAV at thebeginning of theyear (Rs.)# 10.0000 10.0647 10.7782 11.2768 10.0000 10.1095 10.6227 10.0000 11.1265 10.3778

Net Incomeper unit (Rs.) 0.0930 0.7730 1.3128 0.1299 0.1002 0.2939 0.6464 0.2850

Dividends(Rs. per unit) ^^

DailyDividend N.A. N.A. N.A. N.A. N.A. 0.2871 0.4718 0.3484 0.2706 0.2704

WeeklyDividend N.A. 0.4360 0.5204 0.2780 N.A. 0.4492 0.4378 0.3438 0.2548 0.2548

MonthlyDividend N.A. 0.4400 0.4956 0.2850 N.A. 0.3905 0.4402 0.3200 0.2475 0.2625

QuarterlyDividend N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A.

AnnualDividend/Dividend N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A.

Transfer toreserves (if any)(Rs. in Crores) 0.74 0.55 – – 0.74 31.56 – – – –

NAV at theend of theperiod (Rs.) 10.0647 10.7782 11.2768 11.6186 10.1095 10.6227 11.1265 10.3778 11.4230 10.6624

Date ofAllotment 27-Jan-03 27-Jan-03 26-Jun-04

Absolute Returnof the Scheme(since Inceptiontill end ofrespectiveperiod) (%) 0.65% 7.78% 12.77% 16.19% 1.10% 6.23% 11.27% 3.78% 14.23% 6.62%

BenchmarkPerformance(since Inceptiontill end ofrespectiveperiod) (%) 0.90% 6.32% 9.55% 12.48% 0.90% 5.29% 9.67% 3.2% 12.24% 5.63%

CompoundedAnnualisedReturn of thescheme (sinceInception ofrespectiveschemes tillthe end of theperiod) (%) N.A. 6.51% 5.64% 5.73% N.A. 5.21% 4.99% N.A. 5.06% 5.20%

CompoundedAnnualisedReturn of theBenchmarkIndex (sinceInception ofrespectivescheme till theend of theperiod) (%) N.A. 5.29% 4.25% 4.46% N.A. 4.43% 4.30% N.A. 4.38% 4.42%

Net Assets atend of the year(Rs. Crs.) 71.96 370.10 107.00 639.01 68.15 920.86 172.59 793.74 156.21 1105.25

Ratio ofRecurringExpenses tonet assets (%) 0.90% @ 0.90% 0.90% @ 0.89% @ 0.55% @ 0.65% 0.65% 0.50% @ 0.65% @ 0.50% @

NAV as onJanuary 2, 2006 11.7010 11.5772 10.8106

CompoundedAnnualisedReturn SinceInception toJanuary 2, 2006 5.47% 5.09% 5.25%

BenchmarkPerformance 4.23% 4.39% 4.43%



Particulars DPBF

January 30, 2003 April 1, 2003 April 1, 2004 April 1, 2005 to March 31, 2003 to March 31, 2004 to March 31, 2005 to September 30, 2005

Institutional Regular Institutional Regular Institutional ** Regular Institutional** Regular

Audited Audited Audited Unaudited

NAV at the beginningof the year (Rs.)# 10.0000 10.0000 9.8872 9.8749 11.2005 11.1020 11.3927 11.1904

Net Income per unit (Rs.) (0.1532) 1.1795 0.8211 0.4240


Daily Dividend N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A.

Weekly Dividend N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A.

Monthly Dividend N.A. N.A. 0.5400 0.5320 0.3127 0.1800 0.0200 0.1800

Quarterly Dividend N.A. N.A. 0.4521 0.4386 0.2300 0.2649 N.A. 0.3000

Annual Dividend/ Dividend N.A. N.A. 0.70 0.65 N.A. N.A. N.A. 0.0825

Transfer to reserves (if any)(Rs. in Crores) (1.29) (0.31) 30.30 7.36 N.A. N.A. – –

NAV at the end of the period (Rs.) 9.8872 9.8749 11.2005 11.1020 11.3927 11.1904 N.A. 11.7103

Date of Allotment 30-Jan-03

Absolute Return of the Scheme(since Inception till end ofrespective period) (%) -1.13% -1.25% 12.01% 11.02% 13.93% 11.90% 17.10%

Benchmark Performance(since Inception till end ofrespective period) (%) -0.63% 8.14% 8.34% 11.27%

Compounded Annualised Returnof the scheme (since Inception ofrespective schemes till the end ofthe period) (%) N.A. N.A. 10.01% 9.19% 6.13% 5.27% 6.04%

Compounded Annualised Returnof the Benchmark Index (sinceInception of respective scheme tillthe end of the period) (%) N.A. N.A. 6.18% 3.72% 4.05%

Net Assets at end of the year(Rs. Crs.) 113.50 24.44 336.78 104.76 9.38 10.39 N.A. 7.44

Ratio of Recurring Expensesto net assets (%) 1.00% @ 1.75% @ 1.01% 1.78% 1.11% @ 2.01% @ 1.25% @ 2.00% @

NAV as on January 2, 2006 11.7132

Compounded AnnualisedReturn Since Inceptionto January 2, 2006 5.51%

Benchmark Performance 3.89%

Particulars DFTF DFTF2 DFTF3 DFTF4

March 29, April 1, June 22, August 11, Nov. 21,2005 2005 2005 2005 2005

to March to September to September to September to December31, 2005 30, 2005 30, 2005 30, 2005 28, 2005

Audited Unaudited Unaudited Unaudited Unaudited

NAV at the beginning of the year (Rs.)# 10.00 10.0029 10.0000 10.0000 10.0000

Net Income per unit (Rs.) 0.0029 0.3335 0.1583 0.0797 0.0161


Daily Dividend N.A. N.A. N.A N.A N.A

Weekly Dividend N.A. N.A. N.A N.A N.A

Monthly Dividend N.A. N.A. N.A N.A N.A

Quarterly Dividend N.A. N.A. N.A N.A N.A

Annual Dividend/ Dividend N.A. N.A. N.A N.A N.A

Transfer to reserves (if any) (Rs. in Crores) – – – – –

NAV at the end of the period (Rs.) 10.0029 10.3115 10.1543 10.0803 9.9598

Date of Allotment 30-March-05 23-June-05 12-August-05 2-Dec-2005

Absolute Return of the Scheme (since Inceptiontill end of respective period) (%) 0.03% 3.12% 1.54% 0.30% (0.40%)

Benchmark Performance (since Inceptiontill end of respective period) (%) -0.01% 2.72% 1.24% 0.20% 0.31%

Net Assets at end of the year (Rs. Crs.) 134.33 138.49 169.28 180.46 62.55

Ratio of Recurring Expenses to net assets (%) 0.25%@ 0.35%@ 0.43%@ 0.10%@ 0.35%@

NAV as on December 28, 2005 10.4401 10.2683 10.1638 9.9598

Absolute Return Since Inception to December 28, 2005 4.40% 2.68% 1.64% (0.40%)

Benchmark Performance 3.21% 2.32% 1.67% 0.31%

29


Past performance may or may not be sustained in the future.

DFTF 7 closed for subscription on December 29, 2005 and the first

NAV of the same is due.

# All per unit NAVs are of Growth Option and the same have been

considered for return calculations.

Past Performance may or may not be sustained in future.

^^ Per unit Dividend rate is a Gross of Dividend Distribution Tax &

Education Cess for the period April 1, 2004 to March 31, 2005.

Post dividend, the NAV of the dividend option reduces to the

extent of dividend payout and other applicable taxes.

@ The ratio of expenses and gross income to average daily net

assets by percentage has been annualised for the respective

period.

** Institutional Plan of DDBF has been wound up wef Dec 16, 2004

and the Institutional Plan of DPBF has been wound up w.e.f.

April 9, 2005.

*** Regular Plan of DDBF has been wound up wef Dec 23, 2005.

* For schemes which have not completed one year the returns

mentioned are absolute and for other CAGR.

The scheme abbreviations used in this Offer Document are as

follows: DFRF: Deutsche Floating Rate Fund, DDBF: Deutsche

Dynamic Bond Fund, DMIP A: Deutsche MIP Fund A, DMIP B:

Deutsche MIP Fund B, DAEF: Deutsche Alpha Equity Fund,

DIOF: Deutsche Investment Opportunity Fund, DSMF: Deutsche

Short Maturity Fund, DICPF: Deutsche Insta Cash Plus Fund,

DPBF: Deutsche Premier Bond Fund, DFTF: Deutsche Fixed

Term Fund, DFTF2: Deutsche Fixed Term Fund Series-2, DFTF3:

Deutsche Fixed Term Fund Series-3, DFTF4: Deutsche Fixed

Term Fund Series-4, DFTF7: Deutsche Fixed Term Fund Series-7.

VII. Units & the Offer

A) Units on Offer - General Information

1) The Offer

The Offer is being made for subscription to Deutsche Tax SavingFund, an open ended equity linked savings scheme. The Trusteeshave given their approval to this Offer document in terms of aresolution passed on June 29, 2005. Application Forms togetherwith this Offer Document will be available at KARVY ISCs andwith select Distributors for Deutsche Mutual Fund and/or at theoffices of the Asset Management Company.

During the NFO period, unitholders of other schemes ofDeutsche Mutual Fund have an option to switch from the schemeto DTSF, however, the switch request should be accompaniedwith the application form.

2) New Fund Offer Price

The corpus of the Scheme will be divided into Units having aninitial value of Rs. 10 each. The Units can be purchased at thisprice during the New Fund Offer Period.

3) New Fund Offer Period

The New Fund Offer Period for the Scheme opens on January24, 2006 and closes on February 22, 2006. Application submittedby mail received within 3 days after the New Fund Offer Periodwill be deemed to have been received during the New FundOffer Period.

4) Extension or Termination of New Fund Offer Period

The Trustees reserves the right to extend the closing date,subject to the condition that the New Fund Offer shall not bekept open for more than 30 days. The Trustees reserve the rightto close the subscription list earlier by giving at least one dayprior notice in one daily newspaper.

5) Minimum Amount for Application

During the New Fund offering period, the minimum subscriptionamount per application is Rs. 500/- per application and in multiplesof Rs. 500/- thereafter. The minimum amount for application canbe changed by the AMC at any time with the prior approval ofthe Trustees.

6) Minimum Subscription Amount

The minimum subscription (target) amount for New Fund offeris Rs.10 Lac (Rupees 10 Lac Only). There is no maximumtarget for the size of the Scheme(s) and therefore, subject tothe applications being in accordance with the terms of this Offer,full and firm allotment will be made to all applicants.

In accordance with the SEBI Regulations, if the Mutual Fundfails to collect the minimum subscription amount, the Fund andthe AMC shall be liable to refund the subscription amount withina period of 6 weeks from the date of closure of subscription listto the applicants of the Scheme(s).

Refunds

In accordance with the Regulations, if the Scheme fails to collectthe minimum subscription amount, the Fund shall be liable torefund the money to the applicants.

In addition to the above, refund of subscription money toapplicants whose applications are invalid for any reasonwhatsoever will commence immediately after the allotmentprocess is completed.

No interest will be payable on any subscription money refundedwithin 6 weeks from the closure of the New Fund Offer Period.Interest on subscription amount will be payable for amountsrefunded later than 6 weeks from the closure of the New FundOffer Period at the rate of 15% per annum for the period inexcess of 6 weeks and will be charged to the AMC. Refundorders will be marked "A/c payee only" and will be in favour ofand be despatched to the sole / first applicant, by registeredpost.

During the ongoing subscription process, no interest will bepayable on any subscription money to applicants whoseapplications are invalid for any reason whatsoever and arerefunded to the applicant within a reasonable period of time.Refund orders will be marked "A/c payee only" and will be infavour of and be despatched to the sole / first applicant, byregistered post.

7) New Fund Public Offer Expenses

As per the Regulations, the total New Fund Issue Expenseschargeable to the Scheme are subject to maximum of 6% ofthe amount collected during the New Fund Offer Period. Fordetails on the expenses pertaining to the Scheme please refer'VI - Fees, Expenses and Load'.

8) Options available under the Scheme

Investors in the Scheme have a choice of Growth Option forcapital appreciation and Dividend Option for regular income. Thechoice of the option should be indicated by ticking the appropriatebox on the Application Form. Revocation of any such decisionalso must be made in writing and signed by all the registeredholder(s) of the Units and also sent to the Registrar.

The Net Asset Value would be the same for the two options tillthe time the first dividend is declared by the Scheme.Subsequently, there would be two separate NAV's, one forGrowth Option and the other for Dividend Option in the Scheme.

A) Growth Option

The Fund will not declare any dividends under this Option.The income earned by the Scheme will remain invested inthe Scheme and will be reflected in the NAV. This Option issuitable for investors who are not looking for current income(but who have invested with the intention of capitalappreciation). Please refer to the para on "Taxation" for taxbenefits.

B) Dividend Option

This Option is suited for investors seeking income throughDividend declared by the Scheme. Only Unit Holders optingfor the Dividend Option will receive dividends. An investoron record for the purpose of dividend distributions is aninvestor who is a Unitholder as of the Record Date. In orderto be a Unitholder, an investor has to be allocated Unitsrepresenting receipt of clear funds by the Scheme.

The Trustee intends to declare regular dividends comprisingsubstantially of net realized income and net realized capitalgains. The Trustee, in its sole discretion, may also declare



interim dividends. It should be noted that actual distributionof Dividends and the frequency of distribution indicatedabove, are provisional and will be entirely at the discretionof the Trustee and depend, inter alia on the availability ofdistributable surplus. To the extent the entire net incomeand realised gains are not distributed, the same will remaininvested in the Scheme and be reflected in the NAV.

This option in turn offers two sub-options i.e. "Payout Dividend"or "Reinvest Dividend".

i) Payout Dividend

As per the Regulations, the Fund shall despatch to the UnitHolders, the dividend proceeds within 30 days of declarationof the Dividend. Dividends will be payable to those UnitHolders whose names appear in the Register of UnitHolders on the date (Record Date). Dividends will be paidby cheque, net of taxes as may be applicable. Unit Holderswill also have the option of direct payment of dividend tothe bank account. The cheques will be drawn in the nameof the sole / first holder and will be posted to the Registeredaddress of the sole / first holder as indicated in the originalapplication form. The Fund will endeavour to despatch thedividend cheques within 30 days of the Record date. Tosafeguard the interest of Unit Holders from loss or theft ofdividend cheques, investor should provide the name of theirbank, branch and account number in the Application Form.Dividend cheques will be sent to the Unit Holder afterincorporating such information.

ii) Reinvest Dividend

Under this sub-option, Unit Holders may chose to reinvestall of their dividends by way of additional units of theScheme instead of receiving dividends in cash. Suchadditional Units by way of reinvestment of dividends willbe at the Applicable NAV on the next day (excludingSaturday) after the Record Date. The dividend so reinvestedshall be constructive payment of dividend to unitholdersand constructive receipt of the same amount from eachunitholder for reinvestment in Units. Any such investmentwill be made without the payment of an Entry Load, if any.Such choice may be made by indicating in the investor'soriginal application or by providing the Fund with writtennotice signed by all the registered holder(s) of the Unitsand sent to the Registrar at its Hyderabad office. Revocationof any such decision also must be made in writing andsigned by all the registered holder(s) of the Units and alsosent to the Registrar.

It may be noted that all units are subject to the lock inprovisions enumerated in this Offer Document. For detailsplease refer "II - Definitions and Abbreviations".

Effect of Dividend: The NAV of the Unit Holders in DividendOption, will stand reduced by the amount of dividend declaredand applicable taxes / levies. The NAV of the Growth Option willremain unaffected.

IMPORTANT: Investors should indicate the Option, whereverapplicable, for which the subscription is made by indicating thechoice in the appropriate box provided for this purpose in theapplication form. In case of valid applications received, withoutindicating the Option the following defaults will be flagged off.

Indication not made Default

Dividend / Growth Options Growth Option

Dividend Payout / Reinvestment Dividend Reinvestment

The Fund does not assure any targeted annual return / income.

9) Sale of Units

The Scheme will offer Units for sale on every Business Daycommencing not later than 30 days from the closure of the NFO.The Units will be available at the sale price, which is based onthe Applicable NAV, subject to sales load and subject to theminimum application amount specifications. Subscriptions onan ongoing basis will be made only by specifying the amount tobe invested and not the number of Units to be subscribed. Thetotal number of Units allotted will be determined with referenceto the applicable sale price and fractional Units may be created.Fractional Units will be computed and accounted for up to threedecimal places for the Scheme. Fractional Units will in no wayaffect the investor's ability to redeem Units. The AMC reservesthe right to change the basis for subscription from amount basisto any other basis, subject to the SEBI Regulations.

10) Listing

The Units will not be listed on any stock exchange.

11) Permanent Account Number (PAN)

If the amount invested is Rs. 50,000 or more, the applicant or inthe case of application in joint names, each of the applicants,should mention his/her Permanent Account Number (PAN)allotted under the Income Tax Act, 1961 and the income-taxCircle/Ward/District should be mentioned, if available and supportit with a self attested photocopy of the PAN card/ PAN allotmentletter / assessment order / other relevant documents from theIncome Tax department for verification. The "General IndexRegister" (GIR) Number is not acceptable in lieu of PAN. In casewhere the PAN has not been allotted, the fact of non-allotmentshould be mentioned in the application form and the formspecified in lieu of the PAN number should be attached to theapplication form. Any application form without these details willnot be accepted by the fund.

12) Unique Identification Number (UIN)

Effective January 1, 2005, SEBI mandated that all specifiedinvestors should mention the UIN (Unique Identification Number)under MAPIN Database (Central Database of Market Participants)in the Application Form, without which the applications will berejected. SEBI vide MAPIN/Cir- 13 /2005 dated July 1, 2005, hasdecided to suspend all fresh registrations for obtaining UIN andthe requirement to obtain/quote UIN under the MAPINRegulations / Circulars pending a final view to be taken on thereport submitted by the Committee constituted by SEBI toexamine the issues relating to obtaining UIN under theregulations. Investors would need to comply with the applicableregulations / guidelines, as and when mandated by SEBI. Fordetails investors may log on to www.nsdl.com,www.deutschemutual.com.

13) Applicable NAV

The Scheme(s) will offer Units for sale, repurchase/switch out(subject to lock in) and switch in on every Business Day not laterthan 30 days after the close of the New Fund Offer Period. Theapplication to purchase, redeem (subject to lock in) or switchUnits can be made on forms that should be submitted at any ofthe Investor Service Centres / Designated Centres or at theoffices of the AMC. An application will be considered acceptedon that day, subject to it being complete in all respects andreceived prior to the following times on that Business Day atthe Investor Service Centre / Official Points of Acceptance:

Schemes Cut Off timing Applicable NAV for

Purchase / Switch In Redemption / Switch Out(subject to lock-in)

DTSF* All valid applications received by the Fund Upto 3 p.m. Closing NAV of the Closing NAV of thealongwith a local cheque or a demand draft day on which the day on which thepayable at par at the place where the application is application isapplication is received received. received.

All valid applications received by the Fund After 3 p.m. Closing NAV of the Closing NAV of thenext business day next business day onon which the which the applicationapplication is received. is received.

*However, in respect of valid applications with outstation cheque(s) / demand draft not payable at par at the place of receipt of application,closing NAV of the day on which the cheque(s)/ demand draft is credited to the account of the Fund shall be applicable.

31


14) Repurchase of Units

Units purchased cannot be assigned / transferred/ pledged/redeemed/ Switched out until the completion of 3 years fromthe date of allotment of the respective Unit. The AMC reservesthe right to change the Lock in period prospectively from timeto time as may be permitted under the regulations, notificationof the Government for the Equity Linked Savings Scheme.

Thus investment in the Fund will have to be kept for a minimumperiod of 3 years from the date of allotment of Units and afterthe said period of 3 years, the Unit holders shall have the optionto tender the Units to the Mutual Fund for Redemption/Switch.However, in the event of death of Unit holder, the nominee orlegal heir, (subject to production of requisite documentaryevidence to the satisfaction of AMC) as the case may be, shallbe able to redeem the investment only after the completion of 1year or any time thereafter, from the date of allotment of theUnits to the deceased Unit holder.

As stated above, the Units can be repurchased only after thelock in period is over, on every Business Day at the repurchaseprice. The repurchase request can be made on a pre-printedform that should be submitted at any of the Investor ServiceCentres / Designated Centres or at the offices of the AMC.

The repurchase would be permitted to the extent of creditbalance in the Unitholder's account. The repurchase request canbe made by specifying the rupee amount or the number of Unitsto be repurchased. Repurchase requests can be made for aminimum amount of Rs.500 and in multiples of Rs. 500/- thereof.Where a request for a repurchase is for both amount andnumber of Units, the amount requested for repurchase willbe considered as the definitive request. If the balance in theUnit holder's account does not cover the amount of repurchaserequest, then the Mutual Fund is authorised to close the accountof the Unit holder and send the entire (lesser) balance to theUnit holder.

In case an investor has purchased Units on more than 1 BusinessDay (either under the New Fund Offer Period or throughsubsequent purchases), the Units purchased prior in time (i.e.those Units which have been held for the longest period of time)will be deemed to have been redeemed first i.e. on a First-in-First-Out basis.

Unit holders may also request for redemption of their entireholding and close the account by indicating the same at theappropriate place in the Redemption Request Form. Wherehowever, the Unit holder wishes to redeem Units for a specifiedamount, then the amount to be paid on redemption will be dividedby the redemption price, and the resultant number of Units willbe redeemed.

In case the Units are standing in the names of more than oneUnit holder, where mode of holding is specified as 'Jointly',redemption requests will have to be signed by ALL joint holders.However, in cases of holding specified as 'Anyone or Survivor',any one of the Unit holders will have the power to makeredemption requests, without it being necessary for all the Unitholders to sign. However, in all cases, the proceeds of theredemption will be paid to the first-named holder only.

In case of the Scheme the redemption proceeds shall be mailedto the Unit holder at the registered address.

15) Minimum Balance

The Unitholder has to maintain a minimum balance of Rs. 500 inthe account at any point of time. The Fund may close an investor'saccount if the balance falls below Rs. 500 due to redemptionsubject to the lock in period.

16) Systematic Investment Plan (SIP) / Systematic Transfer

Plan (STP) / Systematic Withdrawal Plan (SWP)

Systematic Investment Plan (SIP) :

Mutual Fund Investors can benefit by investing specified rupeeamounts periodically for a continuous period. This concept iscalled Rupee Cost Averaging. This savings program allowsinvestors to save a fixed amount of rupees every month bypurchasing additional units of the Scheme. Therefore, theaverage unit cost will always be less than the average sale priceper unit irrespective of the market being rising, falling orfluctuating.

By investing a fixed amount of Rupees at regular intervals,investors can take advantage of the benefits of Rupee CostAveraging, at the same time, saving a fixed amount each month.The investment under SIP has to be for a minimum prescribedamount. A minimum of 12 cheques of Rs. 500/- and inmultiples of Rs. 500/- in case of Monthly SIP and minimumof 4 cheques of Rs. 1500/- and in multiples of Rs. 500/- incase of quarterly SIP needs to be provided.

Here is an illustration using hypothetical figures to show how aSystematic Investment Plan can benefit an investor. Let usassume that Mr. ABC would like to invest Rs. 1,000 as a quarterlyinvestment for a period of four quarters, i.e. a total of Rs. 4,000.

Quarter Amount Public No. ofInvested Offering Units

(Rs.) Price (POP) purchased(Rs.)

1 1000 12 83.333

2 1000 15 66.667

3 1000 9 111.111

4 1000 12 83.333

TOTAL 4000 48 344.444

Average price (per unit) per quarter (quarters)=Rs.12.00 (i.e. Rs.48/4)

Average cost per unit = Rs. 11.61 (i.e. Rs. 4,000/344.444 units)

As can be seen from the example above, the average cost perunit is always lower than the average market price per unit,irrespective of a rise, fall or fluctuations in the market. A greaternumber of units were purchased when the per-unit cost waslow; fewer units were purchased when the per-unit cost washigh. Thus, Mr. ABC automatically gains without having tomonitor prices (NAV) on a day-to-day basis.

However, an investor should note that the market value of theScheme's units is subject to fluctuations. Before undertakingany plan for Systematic Investment, the investor should keep inmind that such a program does not assure a profit or protectagainst a loss.

Investors can start a SIP from the NFO itself. For investorswishing to avail of the Auto Debit Facility for SIP should fill in theAuto Debit form along with the application form. Alternativelyyou may contact the Karvy ISC / AMC Offices for moreinformation.

Systematic Transfer Plan (STP):

Subject to the lock-in provisions mentioned before, a unit holdermay establish a Systematic Transfer Plan and choose to transferon a monthly or quarterly basis from the Scheme to anotherDeutsche Mutual Fund scheme. An investor can also transferdividend declared in the Scheme under the Payout Option,subject to a minimum of such sum as may be specified bythe AMC from time to time, into Deutsche Alpha Equity Fund,Deutsche Investment Opportunity Fund, Deutsche MIP Fund,Deutsche Short Maturity Fund and Deutsche Premier BondFund. The transfer will be effected by way of redemption ofunits and a reinvestment of the redemption proceeds in anotherScheme(s).

Unitholders may change the amount (but not below the specifiedminimum) by giving written notice to the registrars.

The unit holder may avail of this plan by completing the enclosedApplication Form or by filling up the relevant portion of thetransaction statements. A systematic transfer plan may beterminated on appropriate written notice by the unit holder ofthe fund, and it will terminate automatically if all the units areliquidated or withdrawn from the account, or upon the Fund'sreceipt of notification of death or incapacity of the unit holder.The Investment Manager may change rules relating to the planfrom time to time.

Here is an illustration using hypothetical figures to explain theconcept of a Systematic Transfer Plan. Let us assume that Mr.ABC would like to transfer Rs. 1000 every month from DeutscheAlpha Equity Fund to Deutsche Premier Bond Fund for a periodof four months, i.e. a total of Rs. 4000.



Deutsche Alpha Equity Fund

Month Opening Applicable Amount No. of ClosingBalance NAV Redeemed Units Balanceof Units (Rs.) (Rs.) Redeemed of Units

(a) (b) (c) (d) (e)[c-b] [a-d]

1 5,000.000 11.00 1,000.00 90.909 4,909.091

2 4,909.091 11.08 1,000.00 90.253 4,818.838

3 4,818.838 11.15 1,000.00 89.686 4,729.152

4 4,729.152 11.20 1,000.00 89.286 4,639.866

Deutsche Premier Bond Fund

Month Amount Applicable No. of ClosingInvested NAV Units Balance

(Rs.) (Rs.) Allotted of Units(f) (g) (h) (i)

[f-g]

1 1000.00 11.000 90.909 90.909

2 1000.00 11.092 90.155 181.064

3 1000.00 11.129 89.855 270.919

4 1000.00 11.222 89.111 360.030

Note:

Subject to the lock-in provisions mentioned before, the Fundmay close an investor's account if the balance falls below theminimum prescribed balance (based on applicable NAV) in theSchemes from which Transfer is proposed to be done due toredemptions or STP and the investor fails to invest sufficientfunds to bring the value of the account to the prescribedminimum (based on applicable NAV) after a written intimation inthis regard is sent to the Unit holder.

Systematic Withdrawal Plan (SWP) :

Subject to the lock in provisions mentioned before, a Unit holdermay establish a Systematic Withdrawal Plan in any Scheme andreceive regular/ quarterly payments from the account. The Unitholder can opt to withdraw a fixed amount subject to a prescribedminimum amount per month or per quarter. The investor canalternatively withdraw capital appreciation. In case of withdrawalof capital appreciation, SWP is available in Growth Option only.The Unit holder may avail of SWP by filling up the relevant portionof the transaction statement or by completing an ApplicationForm and sending it to any of the ISCs mentioned at the reverseof this Offer Document.

The amount thus withdrawn by redemption shall be convertedinto Units at the applicable NAV (which is generally the firstbusiness day of the month in which the payment is scheduled),and such Units will be subtracted from the unit balance of thatUnit holder.

Unitholders may change the amount by giving appropriate writtennotice to the Registrars. A Systematic Withdrawal Plan may beterminated on written notice by the unit holder of the Scheme,and it will terminate automatically if all Units are liquidated orwithdrawn from the account, or upon the Fund's receipt ofnotification of death or incapacity of the Unit holder.

Here is an illustration using hypothetical figures to explain theconcept of a Systematic Withdrawal Plan. Let us assume thatMr. ABC has invested Rs. 10,000 and been allotted 1000 unitsduring the New Fund offer. Subsequently he would like to receiveRs. 1,000 for a period of four months, commencing from thebeginning of the next month.

Month Opening Amount Applicable No. of ClosingBalance Withdrawn NAV units Balanceof Units (Rs.) (Rs.) redeemed of Units

1 1000.000 1000 12 83.333 916.667

2 916.667 1000 15 66.667 850.000

3 850.000 1000 9 111.111 738.889

4 738.889 1000 12 83.333 655.556

Total 4000 344.444

Note:

Subject to the lock in provisions mentioned before, the Fundmay close an investor's account if the balance falls below theprescribed minimum balance (based on applicable NAV) due toredemptions or SWP, and the investor fails to invest sufficientfunds to bring the value of the account to the prescribed

minimum (based on applicable NAV) after a written intimation inthis regard is sent to the first named Unit holder.

B) Purchase of Units

1) Who can invest?

The following persons (subject to, wherever relevant, purchaseof units of mutual funds being permitted under respectiveconstitutions, and relevant statutory regulations) are eligible andmay apply for subscription to the Units of the Scheme.

As of now only investors specified in (1), (2) and (3) beloware eligible for the tax benefits under the Income Tax Act,1961. However, the benefit may extend to other investors ifpermitted under the relevant law at a subsequent stage.

1. Resident Adult Individuals either singly or jointly (notexceeding three)

2. Karta of Hindu Undivided Family (HUF)

3. Minors through parent / legal guardian

4. Companies, Bodies Corporate, Public Sector Undertakings,association of persons or bodies of individuals whetherincorporated or not and societies registered under theSocieties Registration Act, 1860 (so long as the purchaseof Units is permitted under the respective constitutions)

5. Religious, Charitable and Private Trusts, under the provisionsof 11(5) of Income Tax Act, 1961 read with Rule 17C ofIncome Tax Rules, 1962 (subject to receipt of necessaryapprovals as "Public Securities", wherever required)

6. Wakfs and Trustee of private trusts authorised to invest inmutual fund scheme under the Trust Deed

7. Partnership Firms

8. Banks (including Co-operative Banks and Regional RuralBanks) and Financial Institutions

9. Non Resident Indians (NRIs) / Persons of Indian originresiding abroad on full repatriation basis (subject to RBIapproval, if any) or on non-repatriation basis

10. Foreign Institutional Investors (FIIs) registered with SEBIon full repatriation basis (subject to RBI approval, if any)

11. Army, Air Force, Navy and other para-military funds andeligible institutions

12. Scientific and Industrial Research Organisations

13. International Multilateral Agencies approved by theGovernment of India

14. Non-Government Provident / Pension / Gratuity funds asand when permitted to invest

15. Others who are permitted to invest in the Scheme as pertheir respective constitutions

16. Trustees, AMC or Sponsor or their associates (if eligibleand permitted under prevailing laws), may subscribe to theUnits under the Scheme(s)

17. Other Scheme(s) of Deutsche Mutual Fund subject to theconditions and limits prescribed in SEBI regulations.

The Fund reserves the right to include / exclude new / existingcategories of investors to invest in the Scheme(s) from time totime, subject to SEBI Regulations, and other prevailing statutoryregulations, if any.

Prevention of Money Laundering and Know Your

Customer (KYC)

To ensure appropriate identification of the investor and with a view tomonitor transactions for the prevention of money laundering, the AMCreserves the right to: (a) scrutinise and verify the identity of the investor,unit holder, person making the payment on behalf of the investor andthe source of the funds invested, to be invested in Deutsche MutualFund; (b) reject any application, prevent further transactions by a unitholder and (c) to mandatorily redeem the units held by the unit holderat the applicable NAV prevalent at the time of such redemption.

In furtherance of the 'Know Your Customer' policy, the AMC shallhave absolute discretion to reject any application, prevent furthertransactions by an investor / unitholder, if after due diligence, the

33


investor / unitholder does not satisfy the 'Know Your Customer'requirements of the AMC or the AMC believes that the transaction issuspicious in nature as regards money laundering. In this behalf theAMC reserves the right to reject any application and effect a mandatoryredemption of units allotted.

2) Purchase Price

The purchase price of the Units on an ongoing basis, will be theApplicable NAV. Currently the Scheme does not intend tocharge any Entry Load. Please see VI "Fees & Expenses andLoad".

However, if an Entry Load is introduced, the Purchase Price willbe calculated as follows:

Purchase Price = Applicable NAV x (1 + Entry Load)

For Example - if the applicable NAV is Rs. 10.00; and the entryload is 2 per cent then the purchase price will be Rs. 10.20 perunit.

Investors may note that the Trustee has a right to modify theexisting Load Structure in any manner or introduce an Entry Loador Exit Load or CDSC or a combination of Entry Load and / orExit Load and / or CDSC and / or any other Load subject to amaximum as prescribed under the Regulations with prospectiveeffect. Should the Trustee on any date, change the Load structurein any manner, the investments made by the Unit Holders priorto such date will be subject to the Load structure applicableprior to such change.

The Fund shall ensure that the Redemption Price is not lowerthan 93% of the NAV and the Purchase Price is not higher than107% of the NAV, provided that the difference between theRedemption Price and Purchase Price of the Unit shall not exceedthe permissible limit of 7% of the Purchase Price, as providedfor under the Regulations.

3) How to Purchase?

The application forms or transaction slips for the purchase ofUnits of the Scheme will be available at the office of the AMC,the Designated Centres and the Investor Service Centres. NewUnit Holders can purchase Units by completing an ApplicationForm. Existing Unit Holders may use the form attached to thebottom of their Account Statement or fill out a deposit slip.

Application must be for a minimum amount of Rs. 500/- and inmultiples of Rs. 500/- thereafter.

Applications can be made either by way of a "Regular Application"i.e. along with a cheque / DD or under Direct Deposit ApplicationFacility i.e. along with account to account transfer instruction.The Fund may introduce other newer methods of applicationwhich will be notified as and when introduced.

Investors should complete the Application Form and deliver thesame along with cheque / draft (i.e. in case of "RegularApplication") or account to account transfer instructions (in caseavailing of 'Direct Deposit Application Facility') at any of the:

l Investor Service Centres, or

l Designated Centres, or

l AMC Offices

l By post to the Registrar, Karvy Computershare Private Ltd.,

46, Road No. 4, Street No. 1, Banjara Hills,Hyderabad 500 034.

The addresses of the ISCs and Designated Centres (OfficialPoints of Acceptance) respectively are given on the inside backcover of this Offer Document.

The Trustee shall, have absolute discretion to reject anyapplication for purchase of Units, if in its opinion, increasing thesize of the Unit Capital is not in the general interest of the UnitHolders, or if for any other reason it does not believe it would bein the best interest of the Scheme or its Unit Holders to acceptsuch an application.

Incomplete Applications or those not specifying the Scheme /option and / or accompanied by cheque / demand drafts /accountto account transfer instructions favouring scheme/option otherthan that specified in the application are liable to be rejected.

As per the directives issued by SEBI, it is mandatory forapplicants to mention their bank account no. in theirapplications for purchase of units. In case such details arenot mentioned, the application forms will be rejected.

In case if an investor makes a subscription in the Scheme andmakes the payment by way of a demand draft then the bankcharges paid by the investor would be borne by the AMC, subjectto the terms & conditions as may be notified by the AMC fromtime to time. The AMC will not entertain any request for refundof the demand draft charges.

4) Mode of Payment

Cash will not be accepted as a mode of payment. Payment bystock invests, out-station cheques and post-dated cheques willnot be accepted.

i) Resident Investors

Investors may make payments for subscription to the Unitsof the Scheme by bank draft / local MICR cheque payableat par, in the city in which the application form is submitteddrawn on a bank, which is a member of Bankers clearinghouse.

All cheques and drafts should be crossed "Account PayeeOnly" and made out in favour of "Deutsche Tax Saving Fund".

ii) NRIs, PIOs and FIIs

(a) Repatriation Basis - NRIs, PIOs

In terms of Schedule 5 of notification No. FEMA 20/2000dated May 3, 2000 issued under the Foreign ExchangeManagement Act, the RBI has granted a general permissionto mutual funds, as referred to in Clause (23D) of Section10 of the Act to issue and repurchase units of their schemeswhich are approved by SEBI to NRIs / PIOs subject toconditions set out in the aforesaid notification. Further,general permission is also granted to send such units toNRIs / PIOs to their place of residence or location as thecase may be.

NRI applications on a repatriation basis may be made outof fund remitted from abroad in free exchange throughnormal banking channels or by submitting payment bydemand drafts purchased from / cheques drawn on FCNR /NRE bank accounts payable at a city enlisted in the lastpage of this document where Karvy ISC is located. Suchapplicants would have to subsequently arrange to providea debit certificate from their bankers confirming that theamount has been paid by debiting a NRE / FCNR account.

(b) Non-Repatriation Basis - NRIs, PIOs

In case of NRIs / PIOs seeking to apply for Units on a non-repatriation basis, payments may be made by way of inwardremittance or by cheque / draft drawn out of NRO / NRSR /NRE / FCNR accounts maintained with an authorised dealerin India.

(c) FIIs

FIIs may pay their subscription amounts by direct remittancefrom abroad or out of their special Non-Resident RupeeAccounts maintained with a designated bank in India. TheRBI has granted mutual funds as referred to in Clause (23D)of Section 10 of the Act general permission to issue unitsof SEBI approved schemes, to send such units out of Indiato their global custodians and to repurchase units from FIIsand make payment therefore in terms of Schedule 5 ofnotification No. FEMA 20 / 2000 dated May 3, 2000 issuedunder the Foreign Exchange Management Act.

The Application Form must provide the FIIs Special Non-Resident Rupee Account details maintained with any oneof the RBI designated banks. All applications made under aPower of Attorney by any of the above mentionedcategories require that the Power of Attorney or a dulycertified copy thereof be lodged at the Registrar's office.

The NRIs, PIOs and FIIs shall also be required to furnishsuch other documents as may be necessary and as desiredby the Fund in connection with the investment in theScheme and as prescribed by regulations from time to time.



iii) Application under Power of Attorney /

Body Corporate / Registered Society / Trust /

Partnership etc.

In case of an application under a Power of Attorney or by alimited company or a body corporate or a registered society,or a trust, or a partnership or an association of persons orbody of individuals, the relevant Power of Attorney or therelevant resolution or the authority to make the applicationspecifying the mode of operation or the partnership deedand letter / authority given by all partners specifying modeof operation as the case may be, or duly certified copythereof, along with a certified copy of the Memorandumand Articles of Association, incorporation / constitutiondocuments and / or bye-laws / certificate of registrationmust be lodged at the Registrar's office within seven daysof the subscription. Sole proprietary firms would require tosubmit a completed nomination form to enable transmissionof units in the event of death of the sole proprietor. In caseof HUF, a list of all coparceners together with their dates ofbirth and specimen signatures must be lodged at theRegistrar's office within seven days of the subscription.

5) Mode of Holding

Applicants have to specify the 'mode of holding' in the applicationform. The mode of holding may be "Single", "Joint" or "Anyone orSurvivor".

Where Units are jointly held, the person first-named in theApplication Form will receive all notices and correspondenceswith respect to the Folio, as well as any distributions throughdividends, redemptions or otherwise. Such person shall holdthe voting right, if any, associated with the Units. However, alldocumentation / purchase applications / redemption requests /enrolment forms shall necessarily be signed by all the holders.The liability of the Mutual Fund in this regard shall be only to thefirst-named holder.

When Units are held as anyone or survivor, the person first-named in the Application Form will receive all notices andcorrespondences with respect to the Account, as well as anydistributions through dividends, redemptions or otherwise. Thefirst named holder shall exercise the voting right, if any,associated with the Units. All documentation /purchaseapplications / redemption requests / enrolment forms may besigned by any one of the joint holders and the Mutual Fund willact on the instructions of any one of the account holders. If twoor more persons apply for units without specifying the mode ofholding, they shall be deemed to have elected to hold the unitsjointly. Any change in the mode of holding will require thesignature of all the holders. By following the above procedure,the Mutual Fund and the AMC shall be discharged of all liabilitytowards the joint / remaining unitholders.

Investors are requested to carefully study the provisionspertaining to TRANSMISSION as well as NOMINATION givenbelow under "D) Facilities offered to Investors under the Scheme"before ticking the relevant box pertaining to the Mode of Holdingin the application form.

Note : The Trustee, at their discretion at a later date, may chooseto alter or add other modes of payment during the ContinuousOffer.

6) Allotment / Refunds

a) Folio Number & Issuance of Units

Every investor will be identified by a Folio Number. Pleasequote your folio number in all communications with theMutual Fund or the KARVY ISCs. The Trustee is entitled, inits sole and absolute discretion, to reject any applicationfor Units. Upon issue, a non-transferable AccountStatement (or, if requested, a non-transferable UnitCertificate) will be sent to each Unitholder. The AccountStatement or Unit certificate will be confirmation of theUnits purchased.

b) Allotment

All applicants will receive full and firm allotment of Units,provided the applications are complete in all respects andare found to be in order. The Trustees retain the sole andabsolute discretion to reject any application. The processof allotment of Units and mailing of account statements

reflecting the allotments will be completed within 30 daysfrom the date of closure of the New Fund Offer Period.

Allotment to NRIs / FIIs will be subject to RBI approval, ifany, required.

c) Account Statement

Units will be issued in registered, uncertificated form only.Unitholders may request a Unit certificate in lieu of anAccount Statement. After acceptance of an Investor'srequest and within three Business Days the Mutual Fundwill endeavor to mail to investors by post / courier AccountStatements confirming their Units held in the Scheme.Provided that the Fund reserves the right to reverse thetransaction of crediting units in the Unitholder's account,in the event of non-realization of any cheque or otherinstrument remitted by the investor.

All Units will rank pari passu, among Units within the sameOption, i.e. either the dividend option or the growth option,as to assets, earnings and the receipt of dividenddistributions, if any, as may be declared by the Trustees.Allotment of Units and despatch of Account Statements toNRIs / FIIs will be subject to RBI's general permission datedMarch 30, 1999 to mutual funds, in terms of NotificationNo. FERA195/99-RB or such other notifications, guidelinesissued by RBI from time to time.

Each Unitholder will receive an Account Statement /transaction slip (or, if requested, a Unit certificate) eachtime purchases during an New Fund offering period orredemption of Units are made. In addition, each Unitholderwill also receive an annual Account Statement as soon aspracticable after 31st March each year. Such annual AccountStatement will detail the investor's opening balance of Unitsheld as of 1st April of the prior year, all transactions thatoccurred during the preceding twelve months with respectto the Account and a closing balance of Units held and theNet Asset Value of the Units as of 31st March of such yearor the last NAV calculated during the relevant financial year.

Unitholders may verify the contents of Account Statementsand revert to their nearest KARVY ISC immediately in caseof any discrepancy. In the event the unitholder fails to informthe KARVY ISC within 15 days from the date of the AccountStatement, it shall be deemed to be correct.

d) Receiving Account Statement /

Correspondence by E-mail

The Mutual Fund will encourage the investor to providetheir email addresses for all correspondence. The MutualFund would endeavour to send all correspondences usinge-mail as the mode for communication as may be decidedfrom time to time. The Unit holder will be required todownload and print the Account Statement after receivingthe e-mail from the Mutual fund. Should the Unitholderexperience any difficulty in accessing the electronicallydelivered Account Statement, the Unitholder shall promptlyadvice the Mutual Fund to enable the mutual Fund to makethe delivery through alternate means. Failure to advice theMutual Fund of such difficulty within 24 Hours afterreceiving the e-mail would serve as an affirmation regardingthe acceptance by the Unitholder of the Account Statement.

It is Deemed that the Unitholder is aware of all securityrisks including possible third party interception of theaccount Statements and content of the Account statementsbeing known to third parties.

Under no circumstances, including negligence, shall theMutual Fund or anyone involved in creating, producing,delivering or managing the Accounts Statement of theUnitholders, be liable for any direct, indirect, incidental,special or consequential damages that may result from theuse of or inability to use the service or out of breach of anywarranty. The use and storage of any information including,without limitation, the password, account information,transaction activity, account balances and any otherinformation available on the Unitholder's personal computeris at the and sole responsibility of the unitholders.

C) Redemption of Units

Units purchased cannot be assigned / transferred/ pledged/ redeemed/Switched out until the completion of 3 years from the date of allotment

35


of the respective Unit. The AMC reserves the right to change theLock in period prospectively from time to time as may be permittedunder the regulations, notification of the Government for the EquityLinked Savings Scheme.

Thus investment in the Fund will have to be kept for a minimumperiod of 3 years from the date of allotment of Units and after thesaid period of 3 years, the Unit holders shall have the option to tenderthe Units to the Mutual Fund for Redemption / Switch.

It may however be noted that in the event of death of Unit holder, thenominee or legal heir, (subject to production of requisite documentaryevidence to the satisfaction of AMC) as the case may be, shall beable to redeem the investment only after the completion of 1 year orany time thereafter, from the date of allotment of the Units to thedeceased Unit holder.

Subject to the lock in stated above, the Units can be redeemed (soldback to the Fund) at the Redemption Price. The redemption requestcan be made for any amount of Rs. 500 and in multiples of Rs. 500/-thereafter. A Unit Holder may request redemption of a specifiedamount or a specified number of Units. If the redemption request ismade for a specified amount and the number of Units are also specifiedby the Unit Holder, the number of Units specified will be consideredfor deciding the redemption amount. If only the Unit Holder specifiesthe redemption amount, the Fund will divide the redemption amountso specified by the Redemption Price to arrive at the number of Unitsto be redeemed.

In case an investor has purchased Units on more than one BusinessDay (either under the New Fund Offer Period or through subsequentpurchases) the Units purchased first (i.e. those Units which have beenheld for the longest period of time), will be deemed to have beenredeemed first i.e. on a First-in-First-Out basis.

The Trustees may mandatorily redeem Units of any Unit holder inthe event it is found that the Unit holder has submitted informationeither in the application or otherwise that is false, misleading orincomplete or if the minimum balance is not maintained.

Unit Holders may also request for redemption of their entire holdingand close the account by indicating the same at an appropriate placein the Redemption Request Form.

1) Redemption Price

The Redemption Price of the Units will be calculated on the basisof the Applicable NAV subject to prevailing CDSC and the ExitLoad as mentioned in Chapter VI (A).

With the applicable Exit Load / CDSC, Redemption Price will becalculated as under

Redemption Price = Applicable NAV x (1-CDSC) or

Redemption Price = Applicable NAV x (1-Exit Load)

For Example - if the applicable NAV is Rs 10.00 and the exit loadis 2 per cent then the redemption price will be Rs. 9.80.

Please refer to Ch. VI (A) "Load Structure of the Scheme".

Please see VII (A)(7) "Applicable NAV".

2) How to Redeem?

The redemption requests can be made on the pre-printed formsor by using the form at the bottom of the Account Statement.The redemption request can be faxed to (with the original beingsent subsequently) or presented at any of the Investor ServiceCentres as listed in this Offer Document or at the CollectionCentres or can be sent to the Registrar, Karvy Consultants Ltd.,46, Road No. 4, Street No. 1, Banjara Hills, Hyderabad 500 034.

In case the Units are standing in the names of more than oneUnit Holder, where mode of holding is specified as 'Jointly',redemption requests will have to be signed by all joint holders.However, in cases of holding specified as 'Anyone or Survivor',any one of the Unit Holders will have the power to makeredemption requests, without it being necessary for all the UnitHolders to sign. However, in all cases, the proceeds of theredemption will be paid to the first-named holder only.

The Unit Holder may either request for mailing the redemptionproceeds to his / her address or avail of the Direct DepositApplication Facility. For details pertaining to applications by wayof Direct Deposit Application Facility please see "VII D) 6) DirectDeposit Application Facility for Purchase and Redemption ofUnits."

All redemptions are subject to the lock in provisions.

3) Payment of Proceeds

As per the Regulations, the Fund shall despatch the redemptionproceeds within 10 Business Days from the date of acceptanceof redemption request. In the event of delay /failure to despatchthe redemption / repurchase proceeds within the aforesaid 10Business Days, the AMC will be liable to pay interest to theUnitholders @ 15% p.a. for the period of delay. However, undernormal circumstances, the Fund will endeavour to despatch theredemption proceeds within 3 Business Days from the date ofthe Applicable NAV.

The redemption cheque will be issued in favour of the sole /firstUnit Holder's registered name and bank account number, ifprovided and will be sent to the Registered address of the sole /first holder as indicated in the original Application Form. Theredemption cheque will be payable at par at all the places wherethe Investor Service Centres or at the Designated Centres arelocated. The bank charges for collection of cheques at all otherplaces will be borne by the Unit Holder. For redemptions ofamounts above Rs. 5,000 the cheques is proposed to be sentby courier (where such facilities are available). With a view tosafeguarding their interest, it is desirable that the Unit Holdersindicate their Bank Account No., name of the Bank and Branchin the application for purchasing Units of the Scheme.

A fresh account statement will also be sent to the redeeminginvestors, indicating the new balance to the credit in the Account,along with the redemption cheque.

Provided that the Fund may close an investor's account if thebalance falls below Rs. 3,000 due to redemption and a period of30 days has elapsed after the issue of notice to the investor bythe Fund requesting him to bring the amount in the account toRs. 3,000, and he / she fails to do so.

Redemption by NRIs and FIIs

Credit balances in the account of an NRI / FIIs investor, may beredeemed by such investors in accordance with the proceduredescribed above and subject to any procedures laid down bythe RBI, if any. Such redemption proceeds will be paid by meansof a Rupee cheque payable to the NRIs / FIIs or by a foreigncurrency draft drawn at the then current rates of exchange lessbank charges thereof subject to RBI procedures and approvals.

In terms of the Schedule 5 of Notification No. FEMA 20/2000dated May 3, 2000 issued under the Foreign ExchangeManagement Act, 1999 (FEMA) the RBI has granted generalpermission to NRIs and FIIs who have purchased units issuedby mutual funds in accordance with the aforesaid notification totender units to the mutual funds for repurchase or for thepayment of maturity proceeds.

For the purpose of this section, the term "mutual funds" is asreferred to in Clause (23D) of Section 10 of Income-Tax Act,1961.

All redemptions are subject to the lock-in provisions.

4) Effect of Redemptions

The Unit capital and Reserves will stand reduced by an amountequivalent to the product of the number of Units redeemed andthe Applicable NAV. Units once redeemed will be extinguishedand will not be re-issued.

5) Fractional Units

Since a request for redemption or purchase is generally made inrupee amounts and not in terms of number of Units of theScheme(s), an investor may be left with fractional Units.Fractional Units will be computed and accounted for up to threedecimal places for all Scheme(s). However, fractional Units willin no way affect the investor's ability to redeem the Units, eitherin part or in full, standing to the Unitholder's credit.

6) Right to Limit Redemptions

The Trustee may, in the general interest of the Unitholders of allor any of the Scheme(s) offered under this Offer Document,and keeping in view the unforeseen circumstances / unusualmarket conditions, limit the total number of Units which may beredeemed on any Business Day to 5% of the total number ofUnits then in issue, under each Scheme and Plan(s) thereof, or



such other percentage as the Trustees may determine. Any Units,which by virtue of these limitations are not redeemed on aparticular Business Day, will be carried forward for redemptionto the next Business Day, in order of receipt. Redemptions socarried forward will be priced on the basis of the Applicable NAV(subject to the prevailing load) of the Business Day on whichredemption is made. Under such circumstances, to the extentmultiple redemption requests are received at the same time ona single Business Day, redemptions will be made on pro-ratabasis, based on the size of each redemption request, the balanceamount being carried forward for redemption to the nextBusiness Day(s). In addition, the Trustees reserve the right intheir sole discretion, to limit redemptions with respect to anysingle account to an amount of Rs. 100 lakhs (Rupees Onehundred lakhs only) in a single day.

7) Suspension of Sale and Redemption of Units

The Mutual Fund at its sole discretion reserves the right towithdraw sale and / or repurchase and/or switch of the Units inthe Scheme(s) (including any one of the Plan of any of theScheme(s)) temporarily or indefinitely, if in the opinion of theAMC, the general market conditions are not favourable and / orsuitable investment opportunities are not available fordeployment of funds. However, the suspension of sale /repurchase / switch either temporarily or indefinitely will be withthe approval of the Trustees.

The sale / repurchase / switch of the Units may be suspendedunder the following conditions:

l When one or more stock exchanges or markets, whichprovide basis for valuation for a substantial portion of theassets of the Scheme(s) is closed otherwise than forordinary holidays.

l When, as a result of political, economic or monetary eventsor any circumstances outside the control of the Trusteesand the AMC, the disposal of the assets of the Scheme(s)is not reasonable, or would not reasonably be practicablewithout being detrimental to the interests of theUnitholders.

l In the event of breakdown in the means of communicationused for the valuation of investments of the Scheme(s),without which the value of the securities of the Scheme(s)cannot be accurately calculated.

l During periods of extreme volatility of markets, which inthe opinion of the AMC are prejudicial to the interests ofthe Unitholders of the Scheme(s).

l In case of natural calamities, strikes, riots and bandhs.

l In the event of any force majeure or disaster that affectsthe normal functioning of the AMC, ISC or the Registrar.

l If so directed by SEBI.

In the above eventualities, the time limits indicated above, forprocessing of requests for purchase and redemption of Unitswill not be applicable. Further, an order to purchase Units is notbinding on and may be rejected by the Trustees, the AMC ortheir respective agents, until it has been confirmed in writing bythe AMC or its agents and payment has been received.

Suspension or restriction of repurchase / redemption facilityunder any Scheme / Plan of the Mutual Fund shall be madeapplicable only after the approval from the Board of Directors ofthe AMC and the Trustees. The approval from the AMC Boardand the Trustees giving details of circumstances and justificationfor the proposed action shall also be informed to SEBI in advance.

8) Unclaimed Redemption and Dividend Amount

As per circular No. MFD/CIR/9/120/2000, dated November 24,2000 issued by SEBI, the unclaimed redemption and dividendamounts shall be deployed by the Fund in call money market ormoney market instruments only. The investment managementfee charged by the AMC for managing such unclaimed amountsshall not exceed 50 basis points. The circular also specifies thatinvestors who claim these amounts during a period of three yearsfrom the due date shall be paid at the prevailing NAV. Thus, aftera period of three years, this amount can be transferred to a poolaccount and the investors can claim the said amounts at theNAV prevailing at the end of the third year.

In terms of the circular, the onus is on the AMC to make acontinuous effort to remind investors through letters to take theirunclaimed amounts.

D) Facilities offered to Investors under the Scheme

1) Switching

During the NFO period existing unitholders can switch in to theScheme at the New Fund offer price. The switch will be affectedat the applicable NAV for the day.

On an ongoing basis, the Unitholders have the option to switchall or part of their investment from one Scheme to any of theother Scheme(s) offered by the Fund, which is available forinvestment at that time, subject to prevailing load structure andlock in provisions.

A switch by NRIs / FIIs Unitholders will be subject to thecompliance of procedures and / or final approval of the ReserveBank of India or and any other agency, as may be required.

The AMC reserves the right to charge different (including zero)loads on Applicable NAV on switchover as compared to the sale/ repurchase as the case may be.

A switch has the effect of a redemption from one Scheme /Option and a purchase in the other Scheme / Option to whichthe switching has been done and the terms and conditionspertaining to same are specified below.

To effect a switch, a Unit Holder must provide clear instructions.Such instructions may be provided in writing or by completingthe transaction slip / form attached to the account statement ortelephonically by providing PIN number. Requests for switchingcan be sent to the Fund through the Investor Service Centres /Designated Centres / Office of the Registrar at Hyderabad. Allswitching requests received prior to the cut off timing on anyBusiness Day will be considered accepted on that Business Day,subject to the request being complete in all respects and providedthe Business Day is a Business Day for both, the Scheme fromwhich one is switching out and the Scheme into which one isswitching in. When a switching request is received after the cutoff time, then the request will deemed to have been receivedon the next Business Day. An account statement reflecting thenew holding will be despatched to the Unit holder within 3Business Days of the completion of the switch transaction.

The switch will be effected by redeeming Units from the Schemein which the Units are held and investing the net proceeds inthe other Scheme(s) / Plans / Options, subject to the minimumbalance, minimum application amount and subscription /redemption criteria applicable for the respective Scheme(s).

Applicable NAV for the switches would be the Net Asset Valueper Unit at the close of the Business Day for both, the Schemeswitched out of and the Scheme switched into, after consideringany prevalent exit and entry loads or a combination thereof forswitches.

i) Inter-Scheme Switching

Subject to the lock in provision, the Unit Holders will havethe option to switch all or part of their investment in theScheme, to any other scheme(s) established by the Fund,available for investment at that time. The switch will beeffected by way of redemption of Units from a Schemeand re-investment of the redemption proceeds in the otherscheme(s) selected by the Unit Holder at the prevailingterms of the Scheme to which the switch is taking place.

The price at which the Units will be switched out of theScheme will be based on the Redemption Price on theBusiness Day of acceptance of switching request and thenet proceeds will be invested in the other scheme(s) at theprevailing Purchase Price for units in that scheme(s) Pleasesee Ch. VII(C)(1) "Redemption Price".

The Mutual Fund reserves the right to charge a switchoveror exchange fee on interscheme transfers, which if chargedwill not exceed 0.05% of the net asset value of the amountbeing transferred. In the event that a Unitholder is liable topay the redemption load and the switchover or exchangefee due to a switch, the redemption load shall be applicableand the switchover or exchange fee shall be waived.

Please note that switch in from any other scheme inDeutsche Tax Saving Fund will be subject to the lock-inprovisions.

37


ii) Intra-Scheme Switching

Subject to the lock in provision, Unitholders have the optionto switch all or part of their investments from one Optionof the scheme to the other Option of the same scheme.The switch will be effected by way of a redemption of Unitsof the relevant Option and reinvestment of the redemptionproceeds in the other Option selected by the Unitholderon the prevailing terms of that scheme. The price at whichthe Units will be switched out will be at the Applicable NAVon the Business Day of acceptance of switching requestand the net proceeds will be invested in the other Optionat the Applicable NAV of that Option.

2) Pledge of Units

Subject to the Regulations, Units purchased in the Schemecannot be assigned / transferred / pledged / redeemed / Switchedout until the completion of 3 years from the date of allotment ofthe respective Unit. The AMC reserves the right to change theLock-in period prospectively from time to time as may bepermitted under the regulations, notification of the Governmentfor the Equity Linked Savings Scheme.

However, post the lock-in period the Units may be pledged infavour of approved scheduled commercial banks and otherinstitutions / companies by the Unitholder as security for raisingloans. Units are pledged by completing a form that is availableon request. The form may be requested from the KARVY InvestorService Centres or from the head office of the Mutual Fund.The Mutual Fund will record a pledge / charge / lien against Unitspledged. If required, the Mutual Fund will also issue a Unitcertificate to the Unitholder for the Units pledged. The Unitcertificate is non-transferable as per section 4, Transfer /Transmission Facility. The Unit certificate may be lodged by theUnitholder with the scheduled bank / institution to which theUnits are pledged as proof of a pledge / lien / charge beingrecorded by the Mutual Fund. Units that are pledged may notbe redeemed by the pledgor until the entity to which they arepledged provides written authorisation to the Mutual Fund thatthe pledge / charge / lien may be removed. As long as the Unitsare pledged, the pledgee scheduled bank / institution will havecomplete authority to redeem such Units. The AssetManagement Company reserves the right to change theprocedure for pledges from time to time.

3) Listing

The Scheme being open ended, the Units are not proposed tobe listed on any stock exchange. However, the Fund may at itssole discretion list the Units on one or more Stock Exchanges ata later date, and thereupon the Fund will make suitable publicannouncement to that effect.

Subject to the lock in provisions, the Fund will offer and redeemthe Units on a continuous basis during the Continuous OfferPeriod.

4) Transfer / Transmission

Account Statements and Unit certificates are not transferable.In an open-end Scheme, on any Business Day, the Mutual Fundrepurchases and issues Units on an ongoing basis, as such atransfer facility is not required. If a transferee becomes a holderof the Units by operation of law, or upon enforcement of a pledge,or due to the death, insolvency or winding up of the affairs of asole holder or the survivors of a joint holder, then subject to theproduction of evidence which in the opinion of the Mutual Fundis sufficient, the Mutual Fund will effect the transfer if theintended transferee is otherwise eligible to hold the Units. Unitsshall be transmitted in favour of the surviving jointholder(s) uponthe execution of suitable indemnities in favour of the mutualfund and the Asset Management Company by the survivingjointholder(s). Transmission of units / payment of sums standingto the credit of the deceased unitholder in favour of the survivingunitholders shall discharge the mutual fund and the AssetManagement Company of all liability towards the estate of thedeceased unitholder and his / her successors and legal heirs.Further, if either the mutual fund or the Asset ManagementCompany incur any loss whatsoever arising out of any litigationor harm that it may suffer in relation to the transmission, theywill be entitled to be indemnified absolutely from the deceasedunitholder's estate.

All Transfer / Transmission are subject to the lock-in provisions.

5) Nomination Facility

Applicants applying for Units singly / jointly can make anomination at the time of New Fund investment:

l The nomination can be made only by individuals applyingfor / holding units on their own behalf singly or jointly. Non-individuals including society, trust, body corporate,partnership firm, Karta of Hindu Undivided Family, holderof Power of Attorney cannot nominate. If the units are heldjointly, all joint holders will sign the nomination form.

l Only one person per folio can be nominated. If more thanone person is to be nominated, please contact the AMCfor the Nomination Form. A minor can be nominated and inthat event, the name, address and PAN/GIR No. and ITCircle / Ward / District (if available) of the Guardian of theminor nominee shall be provided by the Unit holder.

l The Nominee shall not be a trust, body corporate,partnership firm, Karta of Hindu Undivided Family or a Powerof Attorney holder. A non-resident Indian can be a Nomineesubject to the exchange controls in force, from time to time.Nomination can also be made in favour of the CentralGovernment, State Government, Local Authority, anyperson designated by virtue of his office or a religious orcharitable trust.

l Nomination in respect of the Units stands rescinded uponthe transmission of Units.

l Transmission of Units in favour of a Nominee shall be validdischarge by the AMC / Fund / Trustees against the legalheir.

However, the Mutual Fund / Trustee / AMC may requestthe nominee to execute suitable indemnities in favour ofthe Fund and / or the Trustee and / or the AMC, and tosubmit necessary documentation to the satisfaction of theFund before transmitting Units to his / her favour.Nominations received in the form prescribed by the AMCalone shall be valid.

l The cancellation of nomination can be made only by thoseindividuals who hold Units on their own behalf singly orjointly and who made the original nomination.

l On cancellation of the nomination, the nomination shallstand rescinded and the AMC / Fund / Trustees shall notbe under any obligation to transmit the Units in favour ofthe Nominee.

6) Direct Deposit Application Facility for Purchase

and Redemption of Units

Investors can avail of the Direct Deposit Application Facility forthe purchase and redemption of Units of the Scheme as andwhen it is offered in addition to a "Regular Application" and isavailable only to those investors who comply with therequirements at the time of application. The direct deposit ismade through an account to account transfer. The ability to makeaccount to account transfers without the need for cheques ordemand drafts reduces the time taken in obtaining use of fundsthereby reducing the opportunity cost attributable to lost intereston funds in transit. The Direct Deposit Application Facility istherefore an enhanced investor service feature that the Fund isoffering to investors who wish to avail of it. The Direct DepositApplication Facility will initially be available only in Mumbai andlater may be made available in other cities. Investors are advisedto contact any of the Investor Service Centres or the AMC toknow latest list of banks through which Investors can avail ofthe Direct Deposit Application Facility.

The direct deposit process would work as follows - The Fund atits discretion will open purchase and redemption accounts withvarious bank(s) (Designated Accounts) from time to time. Aninvestor who is interested in availing of the Direct DepositApplication Facility would have to open an account in the samebranch of the said bank unless the said bank has the necessaryonline facility. If the investor has a pre-existing account at thatbranch bank then the pre-existing account may suffice pendingapproval of the concerned bank. The investor would then be



able to instruct the bank to make direct deposits into the Fund'saccount when purchasing Units of the Scheme. The Fund inturn will be able to make direct deposits into the investor'saccount with the bank when paying redemption proceeds. Pleasenote that a Direct Deposit Subscription / Redemption applicationcannot be processed without the investor's bank details.

Investors are required to fill the same Application Formirrespective of whether they are making a regular application ora direct deposit application. Please refer to Ch. VII B) 3) How toPurchase?" and "Ch. VII C) Redemption of Units.

7) Personal Identification Number (PIN)

The PIN facility is proposed to be provided to only those UnitHolders who indicate their desire to avail of this facility and whoalso indicate their Bank Account No., name of the Bank andBranch in the application for purchasing Units. As and when thisfacility is offerred the Registrar will, within 30 days of allotmentof Units, mail to such Unit Holders, the 'Disclaimer Form'together with detailed terms and conditions subject to which itsusage is permitted. On receipt of the 'Disclaimer Form' dulysigned, the PIN will be mailed to each Unit Holder. Unit Holdersmay use the PIN to request a purchase, a redemption, a switchor an address change, by calling the Investor Service Centre inMumbai, Delhi, Bangalore, Kolkata and Chennai only. The UnitHolder will be asked for the PIN before the request is accepted.In the interest of the Unit Holder, the Investor Service Centreofficials reserve the right to ask for a fax confirmation of therequest and any other additional information about the accountof the Unit Holder.

This PIN should never be disclosed to any person or writtendown where any other person may discover it. Any suchdisclosures or inadequate protection of the confidentiality of thePIN is entirely at the Unit Holder's risk. All transactions conductedwith use of this PIN will be responsibility of the Unit Holder andthe Unit Holder will abide by the record of the transactionsgenerated. The Fund and the Registrar shall not accept anyresponsibility for the unauthorised use of the PIN.

8) Multiple Folio Holdings under Single Address

Normally, newsletters and annual report of the funds are sent toeach Unit holder, which results in certain households with oneor more members as the Unit holders of the Scheme gettingmultiple copies. It is the intent of the AMC to review andconsolidate the database and send each such "household" a singlenewsletter and annual report. The AMC feels that this will notinconvenience the Unit holders. In case it does, please write tothe AMC, for additional copies of newsletters or annual reportas required.

9) Group Life Insurance Cover (Insurance)

The AMC proposes to provide a Group Life Insurance Cover toall Resident Individual applicants who are allotted units underthe scheme, who have completed 18 years of age and are notover 50 years of age, as on the date of allotment of units. At alltimes, AMC will pay the insurance premium to the InsuranceCompany providing the Group Insurance cover to the Unitholdersof the Scheme. The Insurance Cover will become operative fromthe date of allotment of units during the New Fund Offer as wellas on an ongoing basis, subject to the realization of the amountinvested in the Scheme. The Insurance cover will be valid till theUnitholder attains the age of 60 years or redeems the investmentfrom the Scheme, whichever is earlier. Only the First / SoleUnitholder will be covered under the insurance scheme. Noinsurance cover will be provided for the second / third unitholder.Allottees who are non individuals as well as Non-resident Indians /Persons of Indian Origin / HUF will not be covered under theinsurance cover.

Each investor will be required to sign a health declaration at thetime of making the application for subscribing to the units of theScheme or at the time of switch in. The investor will mandatorilybe required to furnish his / her date of birth and details of thebeneficiary on the application form, in absence of which, noinsurance cover can be availed by the investor. Where theinvestor does not fill in the health declaration for any reasonwhatsoever, he/she will not be entitled to an Insurance Coverunder the insurance scheme.

The Insurance Cover will be governed by the terms andconditions of the insurance policy with the relevant Insurance

Company as determined by the AMC. The basis for computingthe Insurance cover would be the amount invested in the Schemeonly. The minimum Sum Assured shall be Rs.10,000 and themaximum Sum Assured per life irrespective of the amountinvested and the number of folios shall be Rs. 500,000/-. Thesaid limit for the insurance cover may be changed by the AMCby giving advance notice to all the Unitholders under the Scheme.

In case of death of the First Unitholder, his / her legalrepresentatives may file a claim directly with the designatedbranch of the Insurance Company supported by all relevantdocuments as required by the Insurance Company. Payment ofthe claim amount shall be made to the beneficiary by theInsurance Company directly. All insurance claims will be settledin India and shall be payable in Indian Rupees only.

The Insurance Cover, inter alia, will be subject to the followingexclusions and such other terms and conditions as may beprescribed by the Insurance Company issuing the policygoverning the cover:

The Group Insurance cover shall not extend to cover instancesof death due to suicide in the first year of cover.

· A waiting period of 45 days will be applicable from the date ofallotment of units during which only the claims due to accidentaldeaths will be admissible.

Where a unit holder invests in the Scheme more than once, theexclusions stated above will be applicable on all such additionalinvestment also.

Notwithstanding anything contained above, the Mutual Fund, Trustees,AMC, or their Directors, officers or employees shall not be liable forany claims (including but not limited to rejection of any claim, nonsettlement, delays etc.) arising out of the insurance cover providedto the unit holder.

Subject to what has been stated above, the AMC reserves a right tomodify / annul the said Insurance Cover on a prospective basis. TheAMC also reserves the right to change the insurance company fromtime to time.

VIII. Unit Holders' Rights andServices

A) Unit Holders' Rights

l Unitholders of the Scheme(s) have a proportionate right in thebeneficial ownership of the assets of the respective Scheme(s)and in case of Dividend Option, wherever applicable, to thedividend declared, if any, by the Fund under the Scheme(s).

l When the Fund declares a dividend under the Scheme(s), theFund shall despatch the dividend warrants to the Unitholderswithin 30 days from the date of declaration of dividend.

l The Trustees are bound to make such disclosures to theUnitholders as are essential in order to keep them informed aboutany information known to Trustees which may have an adversebearing on their investments.

l The appointment of the AMC for the Fund can be terminated bya majority of the Trustees or by 75% of the Unitholders of anyone or more of the Schemes of the Fund and any change in theappointment of the AMC shall be subject to the prior approvalof SEBI and the Unitholders of the respective Scheme(s).

l The Trustees are obliged to convene a meeting on a requisitionof 75% of the Unitholders of a Scheme.

l 75% of the Unitholders of a Scheme can pass a resolution towind up the Scheme.

l Unitholders have the right to inspect all the documents listedunder "Documents Available for Inspection" on page 52 of thisOffer Document.

l The Trustees shall obtain the consent of the Unitholders:

l Whenever required to do so by SEBI, in the interest of theUnitholders

l Whenever required to do so on a requisition made by three-fourths of the Unitholders of the Scheme

l When the Trustees decide to wind-up or prematurelyredeem the Units.

39


l 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 affect the interests of Unitholders is carried out unless:

l A written communication about the proposed change issent to each Unitholder and

l An advertisement is given in one English daily newspaperhaving nationwide circulation as well as in a newspaperpublished in the language of the region where the HeadOffice of the Mutual Fund is situated and

l Unitholders are given an option to exit at the prevailing NetAsset Value without any exit load.

Subject to the Regulations and the guidelines issued by SEBI, theconsent of the Unitholders of the Scheme(s) will be obtained throughvoting, by mail. Detailed modalities of the same, including theprinciples for entitlement of votes for each Unitholder will be finalizedin consultation with and after obtaining the approval of SEBI and theTrustees.

The annual report containing accounts of the AMC would be displayedon the website of the AMC. Unitholders, if they so desire, may requestfor the annual report of the AMC.

B) Voting Rights of the Unit Holders

Subject to the provisions of the Regulations as amended from timeto time, the consent of the Unit Holders shall be obtained, if necessarythrough postal ballot/mail or any other mode, in consultation withSEBI. Each Unit Holder shall be entitled to one vote for each unit heldby him in respect of each resolution to be passed.

Procedure for Conducting a Unitholder Vote

All issues to be voted upon will be intimated to Unitholders by mail /courier. Unitholders of record as of the most recent month end priorto the month in which a request for a vote is sent, will be eligible tovote. Unitholders are entitled to one vote per Unit held on all mattersto be voted upon by Unitholders. Issues to be put to vote will be sentout to Unitholders of record along with an explanation from the Trusteeas to why the vote is being requested. A ballot paper will also be sentto Unitholders. In case of joint holders or "anyone or survivor" theballot paper shall be sent to the first named holder. Unitholders willbe requested to respond by mailing back their ballot paper by aspecified cut-off date. Duly completed and signed ballots received onor before the close of working hours on the cut-off date would beconsidered a valid ballot. Valid ballots will be counted and if morethan 50% of the valid ballots received vote for the proposal then theproposal will stand carried and will be made binding on all Unitholdersin the Scheme. Unitholders who oppose the proposal will be allowedto redeem their holdings in the Scheme in the manner specified bySEBI Regulations. As each ballot may contain more than one proposal,Unitholders who cast a negative vote on any one of the proposals willbe allowed to redeem their holdings in the Scheme as aforesaid.Unitholders will be informed of the results of the voting either by mailor through an advertisement or by such other means as may bedecided by the Trustee. All proposals that have been accepted byUnitholders, will come into effect on the next Business Day followingthe date on which the valid ballots were counted or any other date asspecified in advance to Unitholders. In all matters to be voted uponthe Unitholders will be requested to return their ballots to the officesof the Scheme's Transfer Agent and the Transfer Agent will conductthe counting of the ballots in the presence of an independent thirdparty. Unitholders can inspect the votes cast, if so required by them,at the office of the Share Transfer Agent in Hyderabad. The votes willbe preserved for a period of one month after the cut-off date. Thescheme shall follow any other voting policy specified by SEBI forseeking Unitholders' consent.

C) Account Statements and Unit Certificates

Each Unit Holder will be sent an Account Statement within 3 BusinessDays from the date of Applicable NAV or from the date of acceptancewhichever is later in case of additional purchases or redemptions aremade. However, when additional Units are issued on account of thedividend which is to be reinvested under the "Dividend ReinvestOption", an Account Statement will be despatched to all such UnitHolders within 7 Business Days of declaration of dividend. In addition,the Unit Holders will also be sent an Account Statement, within 30days after March 31 for transactions in his/her account from April 1 ofthe preceding year. The Account Statement will show all transactionsdone during the twelve month period from April 1 of the precedingyear and will also indicate the closing balance of Units held and theirNAV as on March 31.

The Account Statements shall be non-transferable. This AccountStatement shall not be constructed as a proof of title and is only acomputer printed statement indicating the details of transactions underthe Scheme during the current financial year and giving the closingbalance of Units for the information of the Unit Holder.

Further, the Trustee also reserves the right to issue trade ConfirmationSlips on an ongoing basis in lieu of Account Statements, indicatingthe price, and the Units debited or credited to the Account of theInvestor, along with the closing balance of his Account. Under thissystem a periodical statement of holdings of the investors in theScheme and all other schemes of Deutsche Mutual Fund will be given.

Non-transferable Unit Certificates will be sent, if an applicant sodesires, within six weeks of the receipt of a request of the certificate.Unit Certificates will not be issued for any fractional units entitlement.

Units held, either in the form of Account Statement or Unit Certificates,are non-transferable. The Trustee reserves the right to make the Unitstransferable at a later date subject to the Regulations issued fromtime to time.

All Units will rank pari passu, among Units within the same Optioneither Growth Option or Dividend Option, as to assets, earnings andthe receipt of dividend distributions, if any, as may be declared by theTrustee.

The Mutual Fund will encourage the investors to provide their e-mailaddresses for all correspondence. The Mutual Fund's proposedwebsite would facilitate request for Account Statement byUnitholders. The Mutual Fund will endeavour to send AccountStatements and any other correspondence using e-mail as the modefor communication.

The Unitholder will be required to download and print the AccountStatement after receiving the e-mail from the Mutual Fund. Shouldthe Unitholder experience any difficulty in accessing the electronicallydelivered Account Statement, the Unitholder shall promptly advisethe Mutual Fund to enable the Mutual Fund to make the deliverythrough alternate means. Failure to advise the Mutual Fund of suchdifficulty within 24 hours after receiving the e-mail will serve as anaffirmation regarding the acceptance by the Unitholder of the AccountStatement.

It is deemed that the Unitholder is aware of all security risks includingpossible third party interception of the Account Statements andcontent of the Account Statements becoming known to third parties.

Under no circumstances, including negligence, shall the Mutual Fundor anyone involved in creating, producing, delivering or managing theAccount Statements of the Unitholders, be liable for any direct,indirect, incidental, special or consequential damages that may resultfrom the use of or inability to use the service or out of the breach ofany warranty. The use and storage of any information including,without limitation, the password, account information, transactionactivity, account balances and any other information available on theUnitholder's personal computer is at the risk and sole responsibilityof the Unitholder.

D) NAV Information

The NAV of the Scheme(s) will be calculated daily and announced bythe Fund on each Business Day. The Unit holders may obtain theinformation on NAV on any day, by calling the office of the AMC orany of the Investor Service Centres or on the proposed web site ofthe AMC. The Fund will publish NAVs daily, in at least two dailynewspapers. Further, the AMC shall publish the purchase andredemption prices of Units daily in a newspaper with all Indiacirculation.

The AMC shall update the NAVs on the web site of Association ofMutual Funds in India - AMFI (www.amfiindia.com) by 8.00 p.m.everyday. In case of any delay, the reasons for such delay would beexplained to AMFI and SEBI by the next day. If the NAVs are notavailable before commencement of business hours on the followingday due to any reason, the Fund shall issue a press release providingreasons and explaining when the Fund would be able to publish theNAVs.

E) Disclosure of Information under the Regulations

The annual report of the Scheme will be prepared and the AnnualReport or an abridged summary of the Annual Report will be mailedto all Unit Holders not later than six months from the date of theclosure of the relevant financial year.



Whenever the report is mailed in a summary form, the full AnnualReport will be available for inspection at the Registered Office of theTrustee and a copy made available on request to the Unit Holders onpayment of a nominal fee.

The Fund shall before the expiry of one month from the close of eachhalf year, that is as on March 31 and September 30, publish itsunaudited financial results in one national English daily newspapercirculating in the whole of India and in a newspaper published in thelanguage of the region where the Head office of the Fund is situated.These shall also be displayed on the website of the Mutual Fund andthat of AMFI.

Full portfolio in the prescribed format shall also be disclosed either bypublishing it in the newspapers or by sending to the unitholders withinone month from the end of each half-year and it shall also be displayedon the website of the Fund.

F) Duration of the Scheme

The duration of the Scheme is perpetual. However, the scheme maybe wound up under the following circumstances:

l· On the happening of any event which, in the opinion of the Board,requires the Scheme to be wound up OR

l· If seventy five per cent of the Unitholders pass a resolution thatthe Scheme be wound up OR

l· If SEBI so directs in the interest of the Unitholders OR

l· If number of unitholders or the individual unitholders holding inthe fund breaches the requirement of SEBI Circular datedDecember 12, 2003 ref SEBI/IMD/CIR No.10/22701/03.

Where the Scheme is so wound up, the Trustee shall give notice ofthe circumstances leading to the winding up of the Scheme to:

a) SEBI and

b) in two daily newspapers having a circulation all over India, avernacular newspaper with circulation in Mumbai.

On and from the date of the publication of notice of winding up, theTrustee or the Investment Manager, as the case may be, shall

a) cease to carry on any business activities in respect of the Schemeso wound up;

b) cease to create or cancel Units in the Scheme;

c) cease to issue or redeem Units in the Scheme.

G) Procedure and Manner of Winding Up

The Trustee shall call a meeting of the Unit Holders to approve bysimple majority of the Unit Holders present and voting at the meetingfor authorising the Trustee or any other person to take steps forwinding up of the Scheme.

The Trustee or the person authorised as above, shall dispose of theassets of the Scheme concerned in the best interest of Unit Holdersof the Scheme.

The proceeds of sale realised in pursuance of the above shall be firstutilised towards discharge of such liabilities as are due and payableunder the Scheme, and after meeting the expenses connected withsuch winding up, the balance shall be paid to the Unit Holders inproportion to their respective interest in the assets of the Scheme,as on the date when decision for winding up was taken. The Unitholdermay opt to switch-over to other eligible Schemes then in operation atthe prevailing terms of the Scheme to which the Unitholder isswitching to.

On completion of the winding up, the Trustee shall forward to SEBIand Unit Holders a report on the winding up, detailing, thecircumstances leading to the winding up, the steps taken for disposalof the assets of the Scheme before winding up, net assets availablefor distribution to the Unit Holders and a Certificate from the auditorsof the Fund.

Notwithstanding anything contained herein above, the provisions ofthe Regulations in respect of disclosures of half-yearly reports andannual reports shall continue to be applicable until winding up iscompleted or the Scheme ceases to exist.

After the receipt of the report referred to above, under "Procedureand Manner of Winding Up", if SEBI is satisfied that all measures forwinding up of the Scheme have been complied with, the Schemeshall cease to exist.

H) Services to Unit Holders

Investor Services

Deutsche Mutual Fund is committed to providing high quality serviceto its unitholders. This would encompass facilitating interactions withthe unitholders with the Fund, timely dissemination of informationabout the fund, schemes and the portfolios, ability to access accountrelated information in a speedy manner. The Fund will strive to upgradethe quality of service through implementation of appropriatetechnology, through ensuring quality consciousness amongst itsservice personnel and agencies associated with it. The Fund willprovide high degree of convenience for the unitholders' dealing withit. Following are the salient features of Investor service facilities thatthe fund has proposed to implement / proposed to implemented forthe convenience of the investors.

Facilitating Enquiries and Transactions

a) Investor Service by means of Technology

It will be the endeavour of the Fund to extensively usetechnological tools in rendering unitholder service. The fundproposes to design and operationalise a website that will beupdated daily for all relevant information in the fund. All theunitholders will have access to Newsletters, portfolio, and Fundfactsheets. Application Forms, Offer Documents and severalother friendly features will be available on the websites.

b) Investor Service Centres in select cities

Unitholders' enquiries and transactions during business hourswill be entertained at the Investor Service Centres / AMC's officeslisted at the end of this Offer Document. Unitholders / investorscan also write/e-mail/contact them at the AMC's Corporate officeat Mumbai. In addition unitholders may also contact the AMC atits corporate office for any additional service. The AMC will, incourse of time, seek to add more designated centres at othermajor locations to handle unitholder enquiries and transactionsbesides providing a high degree of convenience to theunitholders.

c) Investor Service through personal meetings

An Investor Relations personnel of the AMC will be availableevery business day during normal official hours of the AMC forpersonal meeting with any unitholder. The purpose of this facilityis to attend to any query related to investment needs of aunitholder, resolve any unitholder service related queries and toprovide such other services that the unitholder desires. Adequatesitting space has been provided for the unitholders to meet withthe Investor Relations Manager and discuss service relatedmatters in the AMC office.

d) Investor Service through Telecommunications

The Fund intends to implement activation of rendering fundinformation through the telephone at select centres. Reasonableprocedures need to be followed to assure that instructions fromunitholders are genuine. The unitholder would be liable for theloss resulting from a fraudulent telephone instruction that theFund reasonably believed as genuine. The procedures include:Telephone identification number; recording all telephoneinstructions, requesting personnel identification information(name, phone number, I.T. permanent account number; birth dateetc.) and sending written confirmation to the unitholders addressof record. The Fund reserves the right to refuse telephoneinstructions to certain unitholders.

In order to facilitate quick processing of transactions and / orinstructions of investors the AMC/Trustee/ Mutual Fund may (atits sole discretion and without being obliged in any manner todo so and without being responsible and/or liable in any mannerwhatsoever) accept and process any applications, supportingdocuments and/or instructions submitted by an investor/unitholder by facsimile ("Fax Submission") and the Investor/unitholder voluntarily and with full knowledge takes and assumesany and all risks associated therewith. The AMC/ Trustee/ MutualFund shall have no obligation to check or verify the authenticityor accuracy of Fax Submissions purporting to have been sent bythe Investor and may act thereon as if same had been duly givenby Investor.

The investor / unitholder shall indemnify the AMC / Trustee /Mutual Fund at all times and keep the AMC/Trustee/Mutual Fundindemnified and save harmless against any and all claims, losses,

41


damages, costs, liabilities and expense (including withoutlimitation, interest and legal fees) actually incurred, suffered orpaid by the AMC / Trustee / Mutual Fund (directly or indirectly)and also against all demands, actions, suits proceedings made,filed, instituted against the AMC / Trustee / Mutual Fund (by theinvestor or any third party), in connection with or arising out ofor relating to the AMC / Trustee / Mutual Fund accepting andacting pursuant to, in accordance with or relying upon, any FaxSubmission signed by the Investor or authorised representativeof the Investor. In all cases the investors will have to immediatelysubmit the original documents / instructions to the AMC / Mutualfund.

e) Investor Relations Manager

Mr. Murali Ramasubramanian is the Investor Relations Managerand can be contacted at the office of the AMC, the presentaddress being as follows:

Deutsche Asset Management (India) Private Limited,DB House, Hazarimal Somani Marg,Fort, Mumbai 400 001

f) Investor Service Standards

The Fund shall endeavor to adhere to the following timeschedules from date of receipt on an ongoing basis providedthe unitholder furnishes the Mutual Fund with all the requiredcorrect and complete supporting legal / other documents.

Service Standard Maximum

Redemption Within 3 Within 10Cheque Mailing Business days Business days

Updated Account Within 5 Within 30Statement Business days Business days

Purchase Within 3 Within 30Intimations Business days Business days

Address Change Within 10 Within 10Business days Business days

Ownership Within 30 Within 30Transmission Business days Business days

The above-mentioned time Schedule does not include postaltransit time.

g) Investment Grievances Redressal Mechanism

The Fund will follow-up with Investor Service Centres and theRegistrar on complaints and inquiries received from investorswith an endeavor to resolve them promptly. The fund will alsokeep a track of complaints received and resolved periodically.

The above is not an exhaustive details of services that the Fundendeavors to provide. As stated earlier the Fund shall constantlystrive to add more services & upgrade them for the convenienceof the unitholders.

Details of Queries and Complaints received and Resolved duringJanuary 2003 to December 2005

Description No. ofQueries PendingRecd. Resolved

T T+1 T+2 >T+2

Change ofAddress 1111 0 867 219 25 0

Change ofBank Details 1000 0 749 240 11 0

SEBI Referal 0 0 0 0 0 0

Client Referal 0 0 0 0 0 0

StockExchangeReferal 0 0 0 0 0 0

AgentQueries 0 0 0 0 0 0

Non Receiptof Dividend 41 4 4 10 23 0

Revalidationof Dividend 23 0 0 7 16 0

Non Receiptof A/cstatement 28 5 16 6 1 0

Non Receiptof Redemptionwarrant 27 9 4 7 7 0

RevalidationofRedemptionWarrant 8 0 4 4 0 0

NonencashmentofRedemptionwarrant 0 0 0 0 0 0

Miscellaneous 2454 12 1771 528 143 0

Total 4692 30 3415 1021 226 0

Note: Miscellaneous includes:

1. Request for Nominations

2. Request for procedures of Redemption / switch etc

3. Addition and deletion of Joint holders / Nominees

4. Change of Name due to marriage / divorce etc. / Transmission

5. Change of Dividend Option

6. Pledge / Lien

7. Consolidation of accounts

8. Email, Date of Birth, PAN, Circle, Bank Details and Contact Person- Mailer

Compliance Officer

Mr. Ashutosh Sharma, is the Compliance Officer of the AMC. He canbe contacted at the Corporate office of the AMC, presently at:

Deutsche Asset Management (India) Pvt. Limited,DB House, Hazarimal Somani Marg, Fort, Mumbai 400 001.(Phone: +91 22 207 2211, Fax: +91 22 207 4411)

IX. Taxation

THE INFORMATION SET FORTH BELOW IS BASED ON THEMUTUAL FUND'S UNDERSTANDING OF THE TAX LAWSPREVAILING AS OF DATE OF THIS OFFER DOCUMENT.CONSIDERING THE INDIVIDUAL NATURE OF TAXCONSEQUENCES, EACH INVESTOR IS ADVISED TO CONSULT HISOR HER OWN TAX ADVISOR WITH RESPECT TO THE SPECIFICTAX CONSEQUENCES TO HIM OR HER.

The information set out below outlines the tax implications withrespect to the Unitholders of the Scheme and with respect to theMutual Fund and is based on relevant provisions of the Indian IncomeTax Act, 1961 and Wealth Tax Act, 1957.

A. For Unitholders

1. Income from the Mutual Fund received by the Unitholders wouldbe tax free in the hands of the Unitholders as per the provisionsof section 10(35) of the Income Tax Act, 1961 (Act).

2. Under Section 2(29A) of the Act, read with section 2(42A) of theAct, a unit of a Mutual Fund is treated as a long term capitalasset if the same is held for more than 12 months. If the unit isheld for 12 months or less, the same is treated as a short termcapital asset.

3. As per section 10(38) of the Act, long term capital gain arisingfrom the sale of a unit of an equity oriented fund (an equityoriented fund is a fund where the investible funds are investedin equity shares of domestic companies to the extent of morethan 50% of the total proceeds of such fund) is exempt fromtax. However, at the time of sale of units (redemption) theUnitholder will have to pay Securities Transaction Tax (STT) of0.2% on the value of the sale.

Description No. ofQueries PendingRecd. Resolved

T T+1 T+2 >T+2



4. The capital loss resulting from sale of units would be availablefor setting off against other capital gains made by the investorand would reduce the tax liability of the investor to that extent.However, losses on transfer of long term capital assets wouldbe allowed to be set-off only against gains from transfer of long-term capital assets and the balance long-term capital loss shallbe carried forward separately for a period of eight assessmentyears to be set off only against long-term capital gains. Further,if the gains on sale of units are exempt from tax then the lossesfrom such units may not be allowed to be set off against othergains.

5. The units of this scheme are subject to lock in period of threeyears and accordingly the provisions of Act dealing with sale ofshares resulting in short term capital gains would not beapplicable.

6. Where the units are treated as 'stock in trade' and the profitsarising from the sale of units are taxed under the head "Profits &Gains of business or profession", an amount equal to the STTpaid by the Unitholder can be claimed as a rebate from the taxpayable on the income from such sale of units by virtue of theprovisions of section 88E of the Act. No deduction would beallowed for STT while calculating capital gains.

7. In terms of the provisions of section 80C an Individual or a HinduUndivided Family is entitled to claim a deduction for theinvestments made in specified securities etc. With effect fromApril 1, 2005 the maximum amount of deduction allowed is Rs100,000. Investment in a plan formulated by mutual fund inaccordance with the scheme notified by the Central Governmentqualifies for such deduction.

This plan is formulated in accordance with the Equity LinkedSavings Scheme, 2005 notified by the Central Government forthe purpose of Section 80C and accordingly Unitholders wouldbe entitled for the benefit under the said section.

8. As per the provisions of Section 194K and 196A of the Act, nodeduction of tax at source shall be made from income creditedor paid by a mutual fund to a Unitholder.

9. As per circular no. 715 dated August 8, 1995 issued by the CBDTin case of resident Unitholders, no tax is required to be deductedat source from capital gains arising at the time of repurchase orredemption of the units.

10. In case of non-resident Unitholders no tax would be deductedat source from the capital gains arising from the units on thebasis that such gains are exempt from tax.

11. Mutual Fund units are exempt from wealth tax.

B. For the Mutual Fund

1. Deutsche Mutual Fund is a Mutual Fund registered with SEBIand as such is eligible for benefits under Section 10(23D) of theAct. Accordingly, its entire income is exempt from income tax.

2. Mutual Funds are required to pay dividend distribution tax at therate of 14.025%, in the case of distributions to individuals andHUFs. An increased rate of 22.44%, is applicable for distributionsmade to persons other than an individual or a HUF. However, nodividend distribution tax is payable in case of an open-endedequity oriented fund.

X. Net Asset Value andValuation of Assets

A) Computation of Net Asset Value

The NAV of the Units of the Scheme(s) will be computed by dividingthe net assets of the Scheme(s) by the number of Units outstandingon the valuation date. The Fund shall value its investments accordingto the valuation norms, as specified in the Eighth Schedule of theRegulations, or such norms as may be prescribed by SEBI from timeto time. The broad valuation norms are detailed below:

Traded Securities

l Securities shall be valued at the last quoted closing price on thestock exchange.

l When the securities are traded on more than one exchange, thesecurities shall be valued at the last quoted closing price on theexchange where the security is principally traded. It would beleft to the AMC to select the appropriate stock exchange, butthe reasons for the selection should be recorded in writing. Thereshould however be no objection for all scrips being valued at theprices quoted on the stock exchange where a majority in valueof the investments are principally traded.

l When on a particular valuation day, a security has not been tradedon the selected stock exchange, the value at which it is tradedon another stock exchange may be used.

l When a security (other than debt securities) is not traded on anystock exchange on a particular valuation day, the value at whichit was traded on the selected stock exchange, as the case maybe, on the earliest previous day may be used provided such dateis not more than 30 days prior to valuation date.

l When a debt security (other than Government Securities) is nottraded on any stock exchange on a particular valuation day, thevalue at which it was traded on the principal stock exchange orany other stock exchange, as the case may be, on the earliestprevious day may be used, provided such date is not more than15 days prior to the valuation date.

l When a debt security (other than Government Securities) ispurchased by way of private placement, the value at which itwas bought may be used for a period of 15 days beginning fromthe date of purchase.

Thinly Traded Debt Securities

Thinly Traded Equity / Equity Related Securities

Thinly traded securities as defined in the Regulations shall be valuedin the manner as specified in the guidelines issued by SEBI, as follows:

When trading in an equity / equity related security (such as convertibledebentures, equity warrants, etc.) in a month is both less than Rs. 5lacs (Rupees Five Lakhs Only) and the total volume is less than 50,000(Fifty Thousand Only) shares, it shall be considered as a thinly tradedsecurity and valued accordingly.

For example, if the volume of trade is 1,00,000 and value is Rs.4,00,000, the share does not qualify as thinly traded. Also if the volumetraded is 40,000, but the value of trades is Rs. 6,00,000, the sharedoes not qualify as thinly traded. In order to determine whether asecurity is thinly traded or not, the volumes traded in all recognisedstock exchanges in India may be taken into account.

Where a stock exchange identifies the "thinly traded" securities byapplying the above parameters for the preceding calendar month andpublishes / provides the required information along with the dailyquotations, the same can be used by the Mutual Fund.

If the share is not listed on the stock exchanges which provide suchinformation, then it will be obligatory on the part of the mutual fundto make its own analysis in line with the above criteria to checkwhether such securities are thinly traded which would then be valuedaccordingly.

In case trading in an equity security is suspended upto 30 days, thenthe last traded price would be considered for valuation of that security.If an equity security is suspended for more than 30 days, then theAsset Management Company/Trustees will decide the valuation normsto be followed and such norms would be documented and recorded.

Thinly Traded Debt Securities

Thinly traded securities as defined in the Regulations shall be valuedin the manner as specified in the guidelines issued by SEBI, as follows:

A debt security (other than Government Securities) shall be consideredas a thinly traded security if on the valuation date, there are noindividual trades in that security in marketable lots (currently Rs 5crore) on the principal stock exchange or any other stock exchange.

A thinly traded debt security as defined above would be valued as perthe norms set for non-traded debt security.

Non-Traded Securities

l When a security (other than Government Securities) is not tradedon any stock exchange for a period of 15 days prior to thevaluation date, the scrip must be treated as a 'non traded'security.

Valuation of Non-Traded / Thinly Traded Securities

Non-traded / thinly traded securities shall be valued "in good faith" bythe Asset Management Company on the basis of the valuationprinciples laid down below:

Non-traded / thinly traded equity securities

Based on the latest available Balance Sheet, net worth shall becalculated as follows:

Net Worth per share = [share capital reserves (excluding revaluationreserves) - miscellaneous expenditure and debit balance in P&L A/c]divided by number of paid up shares.

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Average capitalisation rate (P/E ratio) for the industry based upon eitherBSE or NSE data (which should be followed consistently and changes,if any noted with proper justification thereof) shall be taken anddiscounted by 75% i.e. only 25% of the industry average P/E shall betaken as capitalisation rate (P/E ratio). Earnings per share of the latestaudited annual accounts will be considered for this purpose.

The value as per the net worth value per share and the capital earningvalue calculated as above shall be averaged and further discountedby 10% for ill-liquidity so as to arrive at the fair value per share.

In case the EPS is negative, EPS value for that year shall be taken aszero for arriving at capitalised earning.

In case where the latest balance sheet of the company is not availablewithin 9 months from the close of the year, unless the accountingyear is changed, the shares of such companies shall be valued atzero.

In case an individual security accounts for more than 5% of the totalassets of the scheme, an independent valuer shall be appointed forthe valuation of the said security.

To determine if a security accounts for more than 5% of the totalassets of the scheme, it should be valued by the procedure aboveand the proportion which it bears to the total net assets of the schemeto which it belongs would be compared on the date of valuation.

Non-Traded / Thinly Traded Debt Securities of upto 182

Days to maturity

As the money market securities are valued on the basis of amortization(cost plus accrued interest till the end of the day plus the differencebetween the redemption value and the cost spread uniformly overthe remaining maturity period of the instruments) a similar processwill be adopted for non-traded debt securities with residual maturityof upto 182 days, in the absence of any other standard benchmarksin the market. In case of a debt security with maturity greater than182 days at the time of purchase, the last valuation price should beused instead of purchase cost for valuation of the security for theperiod from 182 days prior to the maturity date. All other non-tradedNon Government debt instruments shall be valued using the methodsuggested below.

Non-Traded / Thinly Traded Debt Securities of over 182

Days to Maturity

For the purpose of valuation, all non traded debt securities would beclassified into "Investment grade" and "Non Investment grade"securities based on their credit ratings. The non-investment gradesecurities would further be classified as "Performing" and "NonPerforming" assets.

l All non government investment grade debt securities, classifiedas not traded, shall be valued on yield to maturity basis asdescribed below.

l All non government non-investment grade performing debtsecurities would be valued at a discount of 25% to the facevalue.

l All non government non-investment grade non-performing debtsecurities would be valued based on the provisioning norms.

The approach in valuation of non traded debt securities is based onthe concept of using spreads over the benchmark rate to arrive at theyields for pricing the non traded security.

The yields for pricing the non traded debt security would be arrived atusing the process as defined below.

l Step A: A risk free benchmark yield is built using the governmentsecurities (GOI Sec) as the base. GOI Securities are used as thebenchmarks as they are traded regularly, free of credit risk andtraded across different maturity spectrums every week.

l Step B: A matrix of spreads (based on the credit risk) are builtfor marking up the benchmark yields. The matrix is built basedon traded corporate paper on the wholesale debt segment of anappropriate stock exchange and the primary market issuances.The matrix is restricted only to investment grade corporate paper.

l Step C: The yields as calculated above are marked-up/marked-down for ill-liquidity risk.

l Step D: The yields so arrived are used to price the portfolio.

Methodology

Construction of Risk Free Benchmark

Using Government of India dated securities, the benchmark shall beconstructed as below:

l Government of India dated securities will be grouped into thefollowing duration buckets viz., 0.5-1 year, 1-2 years, 2-3 years,3-4 years, 4-5 years, 5-6 years and 6 years and the volumeweighted yield would be computed for each bucket. Theseduration buckets may be changed to reflect the market valuemore closely by any agency suggested by AMFI givingbenchmark yield / matrix of spreads over benchmark yield.Accordingly, there will be a benchmark YTM for each durationbucket.

l The benchmark as calculated above will be set at least weekly,and in the event of any significant movement of prices ofGovernment securities on account of any event impactinginterest rates on any day such as change in the RBI policies, thebenchmark will be reset to reflect any change in the marketconditions.

Note: The concept of duration over tenor has been chosen in order tocapture the reinvestment risk. It is intended to gradually move towardsa methodology that incorporates the continuous curve approach forvaluation of such securities. However, in view of the current lack ofliquidity in the corporate bond markets, a continuous curve approachto valuation would be necessarily based on limited data points, andthis would result in out of line valuations. As an interim methodologytherefore it is proposed that the Duration Bucket approach be adoptedand continuously tracked in order to fine-tune the duration bucketson a periodic basis. Over the next few years it is expected that withthe deepening of the secondary market trading, it would be possibleto make a gradual move from the Duration Bucket approach towardsa continuous curve approach.

Building a Matrix of Spreads for Marking-up the Benchmark

Yield

Mark-up for credit risk over the risk free benchmark YTM as calculatedin step A, will be determined using the trades of corporate debentures/bonds of different ratings. All trades on appropriate stock exchangeduring the fortnight prior to the benchmark date will be used in buildingthe corporate YTM and spread matrices. Initially these matrices willbe built only for corporate securities of investment grade. The matricesare dynamic and the spreads will be computed every week. The matrixwill be built for all duration buckets for which the benchmark GOImatrix is built to effectively link the corporate matrix with the GOIsecurities matrix. Accordingly:

l All traded paper (with minimum traded value of Rs. 1 crore)(Rupees One Crore Only) will be classified by their ratings andgrouped into 7 duration buckets; for rated securities, the mostconservative publicly available rating will be used;

l For each rating category, average volume weighted yield will beobtained both from trades on the appropriate stock exchangeand from the primary market issuances;

l Where there are no secondary trades on the appropriate stockexchange in a particular rating category and no primary marketissuances during the fortnight under consideration, then tradeson appropriate stock exchange during the 30 days period priorto the benchmark date will be considered for computing theaverage YTM for such rating category;

l If the matrix cannot be populated using any or all of the abovesteps, then credit spreads from trades on appropriate stockexchange of the relevant rating category over the AAA tradeswill be used to populate the matrix;

l In each rating category, all outliers will be removed forsmoothening the YTM matrix;

l Spreads will be obtained by deducting the YTM in each durationcategory from the respective YTM of the GOI securities;

l In the event of lack of trades in the secondary market and theprimary market the gaps in the matrix would be filled byextrapolation. If the spreads cannot be extrapolated for the reasonof practicality, carrying the spreads from the last matrix will fillthe gaps in the matrix.

Mark-up / Mark-down Yield

The Yields calculated would be marked-up/marked-down to accountfor the ill-liquidity risk, promoter background, finance company riskand the issuer class risk. As the level of ill-liquidity risk would be higherfor non rated securities the marking process for rated and non ratedsecurities would be differentiated as follows:

Adjustments for Securities rated by External Rating

Agencies

The Yields so derived out of the above methodology could be adjustedto account for risk mentioned above by an appropriate discount or



premium as may be required. The range of the markups for bothdiscount as well as premium is given below:

Premium

A Discretionary premium of up to -50 Basis Points for securities havinga duration of up to 2 years and up to 25 Basis Points for securitieshaving duration higher than 2 years will be permitted to be providedfor the above mentioned types of risks. The rationale for the abovediscount structure is to take cognizance of the differential interestrate risk of the securities. This structure will be reviewed periodically.

Discount

SEBI vide circular dated 20 February, 2002, has revised thediscretionary discount limits as below:

Category Discretionary discount overbenchmark yield in basis points

Rated Instruments with Discretionary Discount ofduration up to 2 years up to +100

Rated Instruments with Discretionary Discount ofduration over 2 years up to +75

Adjustments for Internally Rated Securities

To value an unrated security, the fund manager has to assign an internalcredit rating, which will be used for valuation. Since unratedinstruments tend to be more illiquid than rated securities, the yieldswould be mandatorily marked up by adding +50 basis point forsecurities having a duration of up to two years and +25 basis pointfor securities having duration of higher than two years to account forthe illiquidity risk.

The yields derived from the above methodology could be adjusted toaccount for risk mentioned above. SEBI vide circular dated 20 February,2002, has revised the discretionary discount limits as below:

Category Discretionary discount overbenchmark yield in basis points

Unrated Instruments with Discretionary Discount of up toduration up to 2 years +50 over and above the

mandatory Discount of +50

Unrated Instruments with Discretionary Discount of up toduration over 2 years +50 over and above the

mandatory Discount of +25

The benchmark yield / matrix of spreads over benchmark yield obtainedfrom any agency suggested by AMFI as a provider of benchmarkyield / matrix of spreads over benchmark yield to mutual funds, mustbe applied for valuation of securities on the day on which the benchmark yield/matrix of spreads over benchmark yield is released by theaforesaid agency.

Valuation of Securities with Put / Call options

The option embedded securities would be valued as follows:

Securities with Call option

The securities with Call option shall be valued at the lower of thevalue as obtained by valuing the security to final maturity and valuingthe security to Call option.

In case there are multiple call options, the lowest value obtained byvaluing to the various call dates and valuing to the maturity date is tobe taken as the value of the instrument.

Securities with Put option

The securities with Put option shall be valued at the higher of thevalue as obtained by valuing the security to final maturity and valuingthe security to Put option.

In case there are multiple put options, the highest value obtained byvaluing to the various put dates and valuing to the maturity date is tobe taken as the value of the instruments.

Securities with both Put and Call option on the same day

The securities with both Put and Call option on the same day wouldbe deemed to mature on the Put/Call day and would be valuedaccordingly.

Government Securities

Government securities will be valued as per the prices for GovernmentSecurities released by an agency suggested by AMFI for the sake ofuniformity in calculation of NAVs.

Illiquid Securities

l· Aggregate value of "illiquid securities" of scheme, which aredefined as non-traded, thinly traded and unlisted equity shares,shall not exceed 15% of the total assets of the scheme and anyilliquid securities held above 15% of the total assets shall beassigned zero value or such value as may be specified by SEBIfrom time to time.

l· All funds shall disclose as on March 31 and September 30 thescheme-wise total illiquid securities in value and percentage ofthe net assets while making disclosures of half yearly portfoliosto the Unitholders. In the list of investments, an asterisk markshall also be given against all such investments, which arerecognised as illiquid securities.

l· The Mutual Fund is not allowed to transfer illiquid securitiesamong its Scheme(s).

Fixed Income and Money Market Securities

l Debt instruments shall generally be valued on a yield to maturitybasis on the basis of the capitalization factor for comparabletraded securities and with an appropriate discount for a lowerliquidity.

l While investments in call money, bills purchased underrediscounting scheme and short term deposits with banks shallbe valued at cost plus accrual; other money market instrumentsshall be valued at the yield at which they are currently traded.For this purpose, instruments not traded for a period of 7 dayswill be valued at cost plus interest accrued till the beginning ofthe day plus the difference between the redemption value andthe cost spread uniformly over the remaining maturity period ofthe instruments.

Value of "Rights" entitlement

l· Until they are traded, the value of the "rights" entitlement wouldbe calculated as:

Vr = n/m x (Pex - Pof) where

Vr = Value of rights

N = no. of rights Offered

M = no. of original shares held

Pex = Ex-Rights price

Pof = Rights Offer price

l· Where the rights are not traded pari-passu with the existingshares, suitable adjustments would be made to the value ofrights. Where it is decided not to subscribe for the rights but torenounce them and renunciations are being traded, the rightswould be valued at the renunciation value.

Valuation of "Repo"

Where instruments have been bought on 'repo' basis, the instrumentmust be valued at the resale price after deduction of applicable interestup to date of resale. Where an instrument has been sold on a `repo'basis, adjustment must be made for the difference between therepurchase price (after deduction of applicable interest up to date ofrepurchase) and the value of the instrument. If the repurchase priceexceeds the value, the depreciation must be provided for and if therepurchase price is lower than the value, credit must be taken for theappreciation.

Valuation of unlisted equity shares

Unlisted equity shares of a company shall be valued "in good faith" onthe basis of the valuation principles laid down below:

l· Based on the latest available audited balance sheet, net worthshall be calculated as lower of the following:

l· Net worth per share = [share capital plus free reserves (excludingrevaluation reserves) minus Miscellaneous expenditure notwritten off or deferred revenue expenditure, intangible assetsand accumulated losses] divided by Number of Paid up Shares.

l· After taking into account the outstanding warrants and options,Net worth per share shall again be calculated and shall be =[share capital plus consideration on exercise of Option/Warrantsreceived/receivable by the Company plus free reserves(excludingrevaluation reserves) minus Miscellaneous expenditure notwritten off or deferred revenue expenditure, intangible assetsand accumulated losses] divided by {Number of Paid up Sharesplus Number of Shares that would be obtained on conversion/exercise of Outstanding Warrants and Options}.

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The lower of the above shall be used for calculation of net worth pershare and for further calculation to arrive at the fair value per share asstated below.

l· Average capitalisation rate (P/E ratio) for the industry based uponeither BSE or NSE data (which shall be followed consistentlyand changes, if any, noted with proper justification thereof) shallbe taken and discounted by 75% i.e. only 25% of the Industryaverage P/E shall be taken as capitalisation rate (P/E ratio).Earnings per share of the latest audited annual accounts will beconsidered for this purpose.

l· The value as per the net worth value per share and the capitalearning value calculated as above shall be averaged and furtherdiscounted by 15% for illiquidity so as to arrive at the fair valueper share.

The above methodology for valuation shall be subject to the followingconditions:

l· All calculations as aforesaid shall be based on audited accounts.

l· In case where the latest balance sheet of the company is notavailable within 9 months from the close of the year, unless theaccounting year is changed, the shares of such companies shallbe valued at zero.

l· If the net worth of the company is negative, the share would bemarked down to zero.

l· In case the EPS is negative, EPS value for that year shall betaken as zero for arriving at capitalised earning.

l· In case an individual security accounts for more than 5% of thetotal assets of the scheme, an independent valuer shall beappointed for the valuation of the said security. To determine if asecurity accounts for more than 5% of the total assets of thescheme, it should be valued in accordance with the procedureas mentioned above on the date of valuation.

At the discretion of the AMC and with the approval of the trustees,an unlisted equity share may be valued at a price lower than the valuederived using the aforesaid methodology.

Valuation of Convertible Debentures and Bonds

In respect of convertible debentures and bonds, the non-convertibleand convertible components shall be valued separately. The non-convertible component shall be valued on the same basis as wouldbe applicable to a debt instrument. The convertible component shallbe valued on the same basis as would be applicable to an equityinstrument. If, after conversion the resultant equity instrument wouldbe traded pari passu with an existing instrument, which is traded, thevalue of the latter instrument can be adopted after an appropriatediscount for the non-tradability of the instrument during the periodpreceding the conversion. While valuing such instruments, the factwhether the conversion is optional will also be factored in.

Valuation of Warrants

In respect of warrants to subscribe for shares attached to instruments,the warrants shall be valued at the value of the share which would beobtained on exercise of the warrant as reduced by the amount whichwould be payable on exercise of the warrant. A discount similar tothe discount to be determined in respect of convertible debentures(as referred in valuation of convertible debentures and bonds above)shall be deducted to account for the period which must elapse beforethe warrant can be exercised;

Valuation of Derivative Products

l The traded derivatives shall be valued at market price inconformity with the stipulations of sub clauses (i) to (v) of clause1 of the Eighth Schedule to the Regulations.

l The valuation of untraded derivatives shall be done in accordancewith the valuation method for untraded investments prescribedin sub clauses (i) and (ii) of clause 2 of the Eighth Schedule tothe Regulations.

Expenses and Incomes Accrued

All expenses and incomes accrued up to the valuation date shall beconsidered for computation of NAV. For this purpose, major expenseslike management fees and other periodic expenses would be accruedon a day to day basis. The minor expenses and income will be accruedon a periodic basis, provided the non-daily accrual does not affect theNAV calculations by more than 1%.

Changes in Securities and in number of Units

Any changes in securities and in the number of Units will be recordedin the books not later than the first valuation date following the dateof transaction. If this is not possible, given the frequency of NAV

disclosure, the recording may be delayed up to a period of 7 daysfollowing the date of the transaction, provided as a result of such nonrecording, the NAV calculation shall not be affected by more than1%.

In case the Net Asset Value of a Scheme differs by more than 1%,due to non - recording of the transactions, the investors or scheme/sas the case may be, shall be paid the difference in amount as follows:-

(i) If the investors are allotted units at a price higher than Net AssetValue or are given a price lower than Net Asset Value at the timeof sale of their units, they shall be paid the difference in amountby the Scheme.

(ii) If the investors are charged lower Net Asset Value at the time ofpurchase of their units or are given higher Net Asset Value atthe time of sale of their units, asset management company shallpay the difference in amount to the Scheme. The assetmanagement company may recover the difference from theinvestors.

The valuation guidelines as outlined above are as per prevailingRegulations and are subject to change from time to time in conformitywith changes made by SEBI.

SEBI has issued vide circular no. MFD/CIR/8/92/2000 dated September18, 2000 as amended by SEBI Circular dated March 28, 2001 andFebruary 20, 2002 (i) Guidelines for Valuation of Securities; and (ii)Guidelines for Identification and Provisioning of Non-performing Assets(NPAs) (Debt Securities) for Mutual Funds. These guidelines aresupplementary to the provisions specified in Eighth Schedule to SEBI(Mutual Funds) Regulations. The Fund will follow the guidelinespresently applicable and as may be amended from time to time.

Guidelines for Identification and Provisioning of Non-performing Assets(Debt Securities) for Mutual Funds as specified by SEBI Circular areas follows:

(A) Definition of a Non Performing Asset (NPA)

An 'asset' shall be classified as non performing, if the interestand / or principal amount have not been received or remainedoutstanding for one quarter from the day such income/installment has fallen due.

(B) Effective date for classification and provisioning of NPAs

The definition of NPA may be applied after a quarter past duedate of the interest. e.g. if the due date for interest is 30.06.2000,it will be classified as NPA from 01.10.2000.

(C) Treatment of income accrued on the NPA and further accruals

l After the expiry of the 1st quarter from the date the incomehas fallen due, there will be no further interest accrual onthe asset i.e. if the due date for interest falls on 30.06.2000and if the interest is not received, accrual will continue till30.09.2000 after which there will be no further accrual ofincome. In short, taking the above example, from thebeginning of the 2nd quarter there will be no further accrualon income.

l On classification of the asset as NPA from a quarter pastdue date of interest, all interest accrued and recognized inthe books of accounts of the Fund till the date, should beprovided for. e.g if interest income falls due on 30.06.2000,accrual will continue till 30.09.2000 even if the income ason 30.06.2000 has not been received. Further, no accrualwill be done from 01.10.2000 onwards. Full provision willalso be made for interest accrued and outstanding as on30.06.2000.

(D) Provision for NPAs - Debt Securities

l Both secured and unsecured investments once they arerecognized as NPAs call for provisioning in the same mannerand where these are related to close ended scheme thephasing would be such that to ensure full provisioning priorto the closure of the scheme or the scheduled phasingwhich ever is earlier.

l The value of the asset must be provided in the followingmanner or earlier at the discretion of the fund. Fund willnot have discretion to extend the period of provisioning.The provisioning against the principal amount or installmentsshould be made at the following rates irrespective ofwhether the principal is due for repayment or not.

l 10% of the book value of the asset should be provided forafter 6 months past due date of interest i.e. 3 months fromthe date of classification of the asset as NPA.

l 20% of the book value of the asset should be provided forafter 9 months past due date of interest i.e 6 months fromthe date of classification of the asset as NPA.



l Another 20% of the book value of the assets should beprovided for after 12 months past due date of interest i.e 9months from the date of classification of the asset as NPA.

l Another 25% of the book value of the assets should beprovided for after 15 months past due date of interest i.e.12 months from the date of classification of the asset asNPA.

l The balance 25% of the book value of the asset should beprovided for after 18 months past due date of the interesti.e 15 months from the date of classification of the assetsas NPA.

l Book value for the purpose of provisioning for NPAs shallbe taken as a value determined as per the prescribedvaluation method.

This can be explained by an illustration:

Let us consider that interest income is due on a half yearly basis andthe due date falls on 30.06.2000 and the interest is not received till1st quarter after due date i.e. 30.09.2000. This provisioning will bedone in following phased manner:

10% provision 01.01.2001 6 months past due date ofinterest i.e. 3 months fromthe date of classification ofasset as NPA (01.10.2000)

20% provision 01.04.2001

20% provision 01.07.2001

25% provision 01.10.2001

25% provision 01.01.2002

Thus, 1 1/2; years past the due date of income or 1 1/4; year from thedate of classification of the 'asset' as an NPA, the 'asset' will be fullyprovided for. If any installment is fallen due, during the period ofinterest default, the amount of provision should be installment amountor above provision amount, whichever is higher.

(E) Reclassification of assets

Upon reclassification of assets as 'performing assets':

1. In case a company has fully cleared all the arrears of interest,the interest provisions can be written back in full.

2. The asset will be reclassified as performing on clearance of allinterest arrears and if the debt is regularly serviced over thenext two quarters.

3. In case the company has fully cleared all the arrears of interest,the interest not credited on accrual basis would be credited atthe time of receipt.

4. The provision made for the principal amount can be written backin the following manner: -

l 100% of the asset provided for in the books will be writtenback at the end of the 2nd quarter where the provision ofprincipal was made due to the interest defaults only.

l 50% of the asset provided for in the books will be writtenback at the end of the 2nd quarter and 25% after everysubsequent quarter where both installments and interestwere in default earlier.

5. An asset is reclassified as 'standard asset' only when bothoverdue interest and overdue installments are paid in full andthere is satisfactory performance for a subsequent period of 6months.

(F) Receipt of past dues

When the fund has received income/principal amount after theirclassifications as NPAs;

l For the next 2 quarters, income should be recognized on cashbasis and thereafter on accrual basis. The asset will be continuedto be classified as NPA for these two quarters.

l During this period of two quarters although the asset is classifiedas NPA no provision needs to be made for the principal if thesame is not due and outstanding.

l If part payment is received towards principal, the asset continuesto be classified as NPA and provisions are continued as per thenorms set at (D) above. Any excess provision will be writtenback.

(G) Classification of Deep Discount Bonds as NPAs

Investments in Deep Discount Bonds can be classified as NPAs, ifany two of the following conditions are satisfied:

l If the rating of the Bond comes down to grade 'BB' or below.

l If the company is defaulting in their commitments in respect ofother assets, if available.

l Full Net worth erosion.

Provision should be made as per the norms set at (D) above as soonas the asset is classified as NPA.

Full provision can be made if the rating comes down to grade 'D'.

(H) Reschedulement of an asset

In case any company defaults either interest or principal amount andthe fund has accepted a

reschedulement of the schedule of payments, then the followingpractice may be adhered to:

i. In case it is a first reschedulement and only interest is in default,the status of the asset namely, 'NPA' may be continued andexisting provisions should not be written back. This practiceshould be continued for two quarters of regular servicing of thedebt. Thereafter, this be classified as 'performing asset' and theinterest provided may be written back.

ii. If the reschedulement is done due to default in interest andprincipal amount, the asset should be continued as non-performing for a period of 4 quarters, even though the asset iscontinued to be serviced during these 4 quarters regularly.Thereafter, this can be classified as 'performing asset' and allthe interest provided till such date should be written back.

iii. If the reschedulement is done for a second/third time orthereafter, the characteristic of NPA should be continued for eightquarters of regular servicing of the debt. The provision shouldbe written back only after it is reclassified as 'performing asset'.

(I) Disclosure in the Half Yearly Portfolio Reports

The mutual funds shall make scrip wise disclosures of NPAs on halfyearly basis along with the half yearly portfolio disclosure.

The total amount of provisions made against the NPAs shall bedisclosed in addition to the total quantum of NPAs and their proportionof the assets of the mutual fund scheme. In the list of investmentsan asterisk mark shall be given against such investments which arerecognized as NPAs. Where the date of redemption of an investmenthas lapsed, the amount not redeemed shall be shown as 'SundryDebtors' and not investment provided that where an investment isredeemable by installments that will be shown as an investment untilall installments have become overdue.

NAV of Units under the Scheme(s) shall be calculated as

shown below

Market or Fair Value of Scheme's investments (+)Current Assets(-) Current Liabilities and Provisions

NAV (Rs.) =No. of Units outstanding under Scheme

The first NAV will be calculated and announced not later than 30 daysfrom the close of the NFO. Subsequently, the NAV of the Scheme(s)will be calculated as of the close of every Business Day up to 2 decimalplaces. The valuation of the Scheme(s)' assets and calculation of theScheme(s)' NAV shall be subject to audit on an annual basis and suchregulations as may be prescribed by SEBI from time to time.

B) Accounting Policies & Standards

In accordance with the Regulations, the AMC will follow theaccounting policies and standards, as detailed below:

l The AMC, for each Scheme, shall keep and maintain properbooks of accounts, records and documents, for the Scheme soas to explain its transactions and to disclose at any point of timethe financial position of the Scheme and in particular give a trueand fair view of the state of affairs of the Fund.

l For the purposes of the financial statements, the Fund shall markall investments to market and carry investments in the balancesheet at market value. However, since the unrealised gain arisingout of appreciation on investments cannot be distributed,provisions shall be made for exclusion of this item when arrivingat distributable income.

l Dividend income earned by the Scheme and its Plans shall berecognized, not on the date the dividend is declared, but on the

47


date the share is quoted on an ex-dividend basis. Forinvestments, which are not quoted on the stock exchange,dividend income would be recognized on the date of declarationof dividend.

l In respect of all interest-bearing investments, income shall beaccrued on a day to day basis as it is earned. Therefore whensuch investments are purchased, interest paid for the periodfrom the last interest due date up to the date of purchase shouldnot be treated as a cost of purchase but shall be debited tointerest Recoverable Account. Similarly, interest received at thetime of sale for the period from the last interest due date up tothe date of sale must not be treated as an addition to sale valuebut shall be credited to Interest Recoverable Account.

l In determining the holding cost of investment and the gains orloss on sale of investments, the "average cost" method shall befollowed.

l Transaction for purchase or sale of investments shall berecognised as of the trade date and not as of the settlementdate, so that the effect of all investments traded during a financialyear are recorded and reflected in the financial statements forthat year. Where investment transactions take place outside thestock market, for example, acquisition through private placementor purchases or sales through private treaty, the transactionwould be recorded in the event of a purchase, as of the date onwhich the scheme obtains an enforceable obligation to pay theprice or, in the event of a sale, when the Scheme obtains anenforceable right to collect the proceeds of sale or an enforceableobligation to deliver the instruments sold.

l Where income receivable on investments has accrued buthas not been received for the period as specified in theSEBI guidelines for identification and provisioning for NPAs(referred to in clause 8 above), provision shall be made bydebiting to the revenue account the income so accrued inthe manner specified in the SEBI guidelines for identificationand provisioning for NPAs ( referred to in clause 8 above).Insofar as provision for the principal amount is concerned,the same shall be provided as specified in the aforesaidguidelines.

l Bonus shares to which the Scheme and the Plansthereunder becomes entitled shall be recognized only whenthe original shares on which the bonus entitlement accruesare traded on the stock exchange on an ex-bonus basis.Similarly, rights entitlements shall be recognized only whenthe original shares on which the right entitlement accruesare traded on the stock exchange on an ex-right basis.

l When Units are sold, the difference between the sale price andthe face value of the Unit, if positive, shall be credited to reservesand if negative, shall be debited to reserves, the face value beingcredited to the Capital Account. Similarly, when Units arerepurchased, the difference between the Purchase Price andface value of the Unit, if positive, shall be debited to reservesand, if negative, shall be credited to reserves, the face valuebeing debited to the Capital Account.

l When Units are sold an appropriate part of the sale proceedsshall be credited to an Equalisation Account and when Units arerepurchased an appropriate amount shall be debited toEqualisation Account. The net balance on this account shall becredited or debited to the Revenue Account. The balance on theEqualisation Account debited or credited to the Revenue Accountshall not decrease or increase the net income of the Fund but isonly an adjustment to the distributable surplus. It shall thereforebe reflected in the Revenue Account only after the net incomeof the Fund is determined.

l The cost of investments acquired or purchased shall include allsuch costs incurred for effecting such acquisition / purchase. Inrespect of privately placed debt instruments any front-enddiscount offered shall be reduced from the cost of theinvestment.

l Underwriting commission shall be recognised as revenue onlywhen there is no devolvement on the Scheme. Where there isdevolvement on the Scheme, the full underwriting commissionreceived and not merely the portion applicable to thedevolvement shall be reduced from the cost of the investment.

The accounting policies and standards as outlined above are as perthe existing Regulations and are subject to changes made from timeto time by AMC and/or Trustees. However such changes would be inconformity with the Regulations.

XI. Other Matters

A) Transactions with the Sponsors / Associates

Investment in Group Companies

The AMC has invested in following securities of AssociatesCompanies / Group Companies since inception till September 2005.

Name of the Associate /Group Company Name of the Scheme (Rs. In Crores)

DPBF DSMF DICPF DFRF

Kotak Mahindra Bank(Associate Co.)Fixed Deposit – 5 249 64Corporate Debt – 5.2 – –

Deutsche Securities(India) Private Limited(Group Company)Commercial Paper –(Including Interscheme) 6.32 21.36 24.6 –

Underwriting Obligations with respect to issues of

Associate Companies

The AMC has till date, not entered into any underwriting contracts inrespect of any public issue made by any of its associate companies.

Subscription in issues lead managed by the Sponsor or

any of its Associates

The Mutual Fund has not subscribed for allotments in any issues leadmanaged by the Sponsor or any of its associates except for the InitialPublic Offering of Jet Airways (India) Limited wherein DeutscheEquities (India) Pvt. Ltd. was one of the book running lead managersto the issue.

Dealing with Associate Companies

The AMC may from time to time, for the purpose of conducting itsnormal business, use the services (including brokerage services andsecurities transactions) of the Sponsor, its subsidiaries, associates ofthe Sponsor and employees or relatives. The associates of the Sponsoron the date of this Offer Document are:

Deutsche Bank

Deutsche Trustee Services (India) Pvt. Ltd.

Deutsche Network Services Pvt. Ltd.

Deutsche Securities (India) Pvt. Ltd.

Comfund Consulting Ltd.

Deutsche Equities (India) Pvt. Ltd.

Deutsche India Holdings Pvt. Ltd.

Deutsche Investments India Private Limited

The AMC may utilise the services of Sponsor, Group Companies andany other subsidiary or associate company of the Sponsor establishedor to be established at a later date, in case such a company (includingemployees or relatives) is in a position to provide the requisite servicesto the AMC. The AMC will conduct its business with the aforesaidcompanies (including employees or relatives) on commercial termsand on arms' length basis and at mutually agreed terms and conditionsto the extent permitted under the SEBI Regulations, after evaluationof the competitiveness of the pricing offered by the Sponsor, associatecompanies (including employees or relatives) and the services to beprovided by them.

Associates & Group Companies as Distributors -

The AMC has utilised the services of one of the associates namely,Deutsche Bank and Kotak Mahindra Bank as Distributors for procuringUnit subscriptions for units of Deutsche Alpha Equity Fund, DeutscheInvestment Opportunity Fund, Deutsche MIP Fund, Deutsche PremierBond Fund, Deutsche Short Maturity Fund, Deutsche Dynamic BondFund, Deutsche Floating Rate Fund and Deutsche Insta Cash PlusFund. The fees and commission payable were at the same ratesoffered to other distributors by the Scheme(s). Further, the AMC alsodealt with Deutsche Equity (India) Private Limited as secondary marketbroker in the Equity segment. The brokerage paid to the associate isat the same rate offered to other brokers in the segment.



Amount Paid / payable to Associates

Amount Paid / payable to Associates since inception till September 2005

(Amt. in Lac)

Particulars DPBF DSMF DICPF DDBF DFRF DIOF DMIPA DMIPB DAEF FTP

Deutsche BankCommission onDistribution of Units 33.36 67.20 45.72 2.80 17.88 41.89 6.94 5.53 78.97 2.62

Kotak MahindraBank Limited 6.99 5.24 9.95 0.03 0.76 0.10 0.36 0.13 10.49 1.00

Deutsche Equity(India) Pvt. Ltd. – – – – – 5.56 1.11 0.40 21.97 –

Associate transactions, if carried out, will be as per the SEBIRegulations and the limits prescribed thereunder. The Scheme(s) shallnot make any investment in:

l Any unlisted security of an associate or group company of theSponsor

l Any security issued by way of private placement by an associateor group company of the Sponsor

l The listed securities of group companies of the Sponsor whichis in excess of 25% of the net assets.

Deutsche branches to act as Investor Service Centres

The AMC may avail the services of the Sponsor and / or its associatesfor usage of designated branches as Investor Service Centres and/orto act as collection and distribution agents. The Sponsor / associatesshall be paid a fee based on the quality of services rendered. Thesefees shall be debited to the Scheme(s), subject to SEBI Regulations.

B) Stock Lending by the Fund

Subject to the Regulations and the applicable guidelines, the Schemeand the Plan(s) thereunder may, if the Trustees permit, engage instock lending. Stock lending means the lending of stock to anotherperson or entity for a fixed period of time, at a negotiatedcompensation. The borrower will return the securities lent on expiryof the stipulated period. Please refer to risks attached with stocklending. Each Scheme, under normal circumstances, shall not haveexposure of more than 50% of its net assets in stock lending. TheScheme may also not lend more than 50% of its net assets to anyone intermediary to whom securities will be lent. Securities Lendingcould be considered for the purpose of generating additional incometo unit holders on the longer term holdings of the Scheme. The AMCshall report to the Trustees on a quarterly basis as to the level oflending in terms of value, volume and the names of the intermediariesand the earnings / losses arising out of the transactions, the value ofcollateral security offered etc.

C) Policy on Offshore Investments by the Scheme

Offshore investments will be made subject to any / all approvals,conditions thereof as may be stipulated by SEBI / RBI and providedsuch investments do not result in expenses to the Fund in excess ofthe ceiling on expenses prescribed by and consistent with costs andexpenses attendant to international investing. The Fund may, wherenecessary, appoint other intermediaries of repute as advisors,custodian / sub-custodians etc. for managing and administering suchinvestments. The appointment of such intermediaries shall be inaccordance with the applicable requirements of SEBI and within thepermissible ceilings of expenses. The fees and expenses wouldillustratively include, besides the investment management fees,custody fees and costs, fees of appointed advisors and sub-managers,transaction costs and overseas regulatory costs. To the extent thatthe assets of the Scheme(s) will be invested in securities denominatedin foreign currencies, the Indian Rupee equivalent of the net assets,distributions and income may be adversely affected by changes inthe value of certain foreign currencies relative to the Indian Rupee.The repatriation of capital to India may also be hampered by changesin regulations concerning exchange controls or political circumstancesas well as the application to it of other restrictions on investment.

D) Borrowing by Mutual Fund

Under the Regulations, the Fund is allowed to borrow to meet itstemporary liquidity needs of the Scheme for the purpose of

repurchase, redemption of units or payment of interest or dividend tothe Unit Holders. Further, as per Regulations, the Fund shall not borrowmore than 20% of the Net Assets of the Scheme and the duration ofsuch borrowing shall not exceed a period of six months.

Unitholders should however note that in the normal course of theFund's operations there might be occasional instances of overdraft inthe collection account due to dishonor of cheque deposited by anInvestor. Since this unusual instance cannot be apprehended inadvance the AMC will endeavor to normalize the account within 1business day and AMC will also bear the cost incurred on suchinadvertent overdraft without affecting the Investors of the Fund.

E) Inter-Scheme Transfers

Transfers of investments from one scheme to another scheme in thesame mutual fund shall be allowed only if:

(a) such transfers are done at the prevailing market price for quotedinstrument on spot basis; and transfers of unquoted securitieswill be made as per the policy laid down by the Trustee fromtime to time; and

(b) the securities so transferred shall be in conformity with theinvestment objective of the scheme to which such transfer hasbeen made.

The Fund does not ordinarily envisage making inter-scheme transfersunder the Scheme. However, if such inter-scheme transfers are donethey will be effected based on the prescribed valuation norms, whichmay be amended by the AMC and / or Trustees from time to time.

F) Underwriting by a Scheme

In order to generate additional income, the Scheme may enter into

underwriting commitments for primary issues. In terms of the

guidelines issued by SEBI, the Mutual Fund may make, but has not

yet made, an application to SEBI for registration under SEBI

(Underwriters) Rules and Regulations, 1993.

In this connection, once granted permission by SEBI, a Scheme will

be subject to the following underwriting restrictions :

For the purposes of Regulation 7, of the SEBI (Underwriters)

Regulations, the capital adequacy of the Mutual Fund shall be the net

assets of the Scheme as applicable.

The total underwriting obligations of the Mutual Fund at any time

shall not exceed the total net asset value of the Scheme.

Any Underwriting commitment by the Mutual Fund will be made as if

the Mutual Fund is actually investing the amount under the Scheme.

Accordingly, all investment restrictions and prudential guidelines

related to investments individually and in aggregate pursuant to the

SEBI (MF) Regulations, 1996, insofar as they may be applicable, shall

apply to underwriting obligations, which may be undertaken by the

Scheme.

No underwriting commitment may be undertaken in respect of any

Scheme during the period of six months prior to the redemption of

the Scheme.

Underwriting commitments, if any, undertaken by the Scheme must

be in accordance with the investment objectives of the Scheme.

49


G) Disclosure under Regulation 25(11)

Disclosure under Regulation 25(11) of SEBI (MF) Regulations, 1996

Deutsche Mutual fund has made the following investments in companies which held units in excess of 5% of the net assets value of anyscheme of Deutsche Mutual Fund during the period ended September 30, 2005.

Company Name Schemes invested Invetsments made by schemes of Aggregated for Outstanding as atin by the Company Deutsche Mutual Fund in the the period under September 30, 2005

company / subsidiary Regulation 25 (11) at Market / Fair ValueAt cost

(Rupees in Lakhs) (Rupees in Lakhs)

Bank of Baroda DICPF DAEF 206.01 174.27

DSMF 1,157.62

Bharti Tele-Ventures Ltd. DICPF DIOF 124.18 –DFRF DAEF 402.23 –

DICPF 947.56 –DMIP A 11.85 –DMIP B 5.92 –

DSP Merrill Lynch DICPF DFRF 2,110.11 –Capital Ltd. DICPF 2,211.86 –

DSMF 144.32 –DMIP A 164.23 –DMIP B 69.67 –

Grasim Industries Ltd. DFTF 3 DAEF 154.50 184.94DSMF DIOF – 23.78

DMIP A – 27.89DMIP B – 6.61^DAEF 26.15 –

HCL Corporation Ltd. DAEF *****DIOF 108.06 –DFTF 3 *****DAEF 279.20 –

Hindalco Industries Ltd. DFRF DIOF 93.52 –DAEF 676.65 –DMIP A 14.03 –DMIP B 9.35 –@@@@DICPF 2,000.00 –@@@@DSMF 2,000.00 –

Hindustan Lever Ltd. DFTF DAEF 495.15 362.30DICPF DFRF 582.13 –DSMF DICPF 1,777.12 –

Hindustan Zinc Limited DFRF DAEF 35.78 –

Housing Development DICPF DAEF 275.45 –Finance Corporation DDBF 1,446.57 –

DFRF 2,392.59 8,523.55DICPF 26,438.96 10,031.40DPBF 17,955.05 99.80DSMF 15,918.12 2,433.71DMIP A 1,239.83 199.61DMIP B 200.00 99.80

Industrial Development DFRF DFTF 2 665.06 –Bank of India DICPF DFTF 3 2,427.54 438.08

DSMF DFTF 2,295.59 894.54DIOF 118.38 –DAEF 512.83 –DDBF 761.31 –DFRF 13,267.11 3,797.45DICPF 33,606.09 4,902.40DPBF 9,282.64 –DSMF 15,893.49 3,954.19DMIP A 1,390.68 –DMIP B 493.43 46.87^^DFTF 3,985.51 1,999.27^^DSMF 1,000.10 –$$$ DFRF 1,794.10 1,802.49$$$ DICPF 566.85 570.78

Infosys Technologies DICPF DIOF 480.71 –Limited DAEF 2,174.81 503.40

DMIP A 136.65 7.55DMIP B 25.99 –

Infrastructure DDBF DICPF 7,356.99 –Development Finance DICPF DSMF – 1,324.10Company Limited DSMF DMIP A – 6.01

DMIP B – 2.55



Infrastructure Leasing DICPF DFRF 29,418.34 508.30and Financial Services DICPF 8,939.91 –Limited DSMF 6,431.51 407.11

DMIP A 36.25 36.07DMIP B 72.50 72.15&&&&&& DIOF 1.97 –&&&&&& DAEF 11.94 21.98&&&&&& DMIP A 2.55 4.69&&&&&& DMIP B 1.04 –

ITC Limited DFRF DIOF 101.65 13.68DSMF DAEF 608.26 273.57DICPF DMIP A 28.10 10.26

DMIP B 12.20 –

Larsen & Toubro DAEF DIOF 102.23 –Limited DIOF DAEF 930.82 453.80

DICPF DFRF 1,000.00 –DICPF 900.00 –DSMF 100.00 –DMIP B 3.73 –^^^DFTF 2 1,200.55 1,200.83^^^DFTF 600.00 602.48^^^DFRF 2,700.00 2,504.14^^^DICPF 1,602.34 1,000.00^^^DSMF 700.00 702.90

LIC Housing Finance DFRF DFRF 1,266.63 3,250.90Limited DICPF 4,555.99 252.40

DPBF 4,229.55 –DSMF – 1,913.47

Mahindra & Mahindra DDBF DIOF 477.02 –Limited DAEF 943.87 –

DMIP A 73.23 –DMIP B 22.31 –^^^^^^^DAEF 1,300.00 –^^^^^^^DFRF 9,090.62 6,219.25^^^^^^^DICPF 22,019.75 7,720.83^^^^^^^DPBF 3,418.56 –^^^^^^^DSMF 9,781.86 2,071.07^^^^^^^DMIP A 310.78 100.02^^^^^^^DMIP B 207.19 –

Nestle India Limited DICPF DAEF 43.01 –

Patni Computer DFTF DIOF 136.35 30.76Systems Limited DAEF 192.41 –

DMIP A 22.04 –DMIP B 12.82 –

Raymond Limited DDBF DFRF 6,800.00 –DFRF DICPF 4,000.00 –

DSMF 500.00 –^^^^DFRF 493.36 –^^^^DICPF 810.11 –

Tata Chemicals Limited DDBF DAEF 16.34 –DSMF

Tata Motors Limited DICPF DFTF 2 697.55 697.55DFTF 3 2,590.89 2,590.89DIOF 568.28 37.41DAEF 1,697.05 160.34DFRF 3,128.32 2,296.24DICPF 2,090.00 –DSMF 697.55 697.55DMIP A 135.95 –DMIP B 36.39 –

The Tata Steel Limited DICPF DIOF 87.48 –DAEF 351.61 –DMIP A 16.54 –DMIP B 2.76 –

The Tata Power DICPF DIOF 170.03 –Company Limited DAEF 374.44 –

DMIP A 15.27 –

UTI Bank Limited DFRF DFRF 112.22 1,579.06DICPF 2,137.06 –DSMF 190.29 544.61

Videsh SancharNigam Ltd. DICPF DAEF 73.24 –

Company Name Schemes invested Invetsments made by schemes of Aggregated for Outstanding as atin by the Company Deutsche Mutual Fund in the the period under September 30, 2005

company / subsidiary Regulation 25 (11) at Market / Fair ValueAt cost

(Rupees in Lakhs) (Rupees in Lakhs)

51


^DAEF have invested in Ultratech Cemco which is a subsidiary ofGrasim Industries Limited. ^^ DSMF & DFTF have invested in IDBICapital Markets Limited which is a subsidiary of IDBI. $$$ DICPF &DFRF have invested in IDBI Home Finance Limited which is asubsidiary of IDBI. ^^^ DSMF, DICPF, DFRF, DFTF & DFTF2 haveinvested in L&T Finance Limited which is a subsidiary of Larsen &Toubro Limited. ^^^^DICPF & DFRF have invested in RaymondApparels which is a subsidiary of Raymond Limited. ̂ ^^^^^^DSMF,DICPF, DPBF, DAEF, DFRF, DMIP A, DMIP B have invested in Mahindraand Mahindra Financial Services which is subsidiary of Mahindra andMahindra Limited. @@@@ DSMF & DICPF have invested in IndianAluminium Limited which is a subsidiary of Hindalco Industries Limited.^^^^^^ DIOF,DMIP A,DMIP B & DAEF have invested in IL & FSInvestmart. which is a subsidiary of Infrastructure Leasing and FinancialServices Limited. *****DIOF & DAEF have invested in HCLTechnologies Ltd. which is a subsidiary of HCL Corporation Ltd.

The above investments comprise equity shares, debentrures / bonds,commercial paper and other debt instruments. These investmentshave been made on account of their high credit quality and competitiveyield for the investment in fixed income/ money market instrumentsand in case of equity shares because of attractive valuations of thesecompanies.

DDBF stands for Deutsche Dynamic Bond Fund, DMIP A stands forDeutsche MIP Fund Plan A, DAEF stands for Deutsche Alpha EquityFund, DMIP B stands for Deutsche MIP Fund Plan B, DFRF standsfor Deutsche Floating Rate Fund, DPBF stands for Deutsche PremierBond Fund, DICPF stands for Deutsche Insta Cash Plus Fund, DSMFstands for Deutsche Short Maturity Fund, DIOF stands for DeutscheInvestment Opportunities Fund, DFTF stands for Deutsche Fixed TermFund, DFTF 2 stands for Deutsche Fixed Term Fund Series 2 andDFTF 3 stands for Deutsche Fixed Term Fund Series 3.

H) Other business activity of the AMC

The asset management company in the year 2004 hascommenced advisory activity to an offshore fund and an IndianInsurance Company. The advice provided by the assetmanagement company is non discretionary and is therefore notbinding on the client. AMC has obtained necessary approval fromSEBI as required under regulation 24(2) before commencementof the activity. The AMC hereby confirms that the advisory activityis not in conflict with fund management activity of the company.

I) General Information

1) Power to make Rules

Subject to the Regulations, the Trustee may, from time to time,prescribe such terms and make such rules for the purpose ofgiving effect to a Scheme with power to the AMC to add to,alter or amend all or any of the terms and rules that may beframed from time to time.

2) Power to remove Difficulties

If any difficulties arise in giving effect to the provisions of aScheme, the Trustee may, subject to the Regulations, do anythingnot inconsistent with such provisions, which appears to it to benecessary, desirable or expedient, for the purpose of removingsuch difficulty.

3) Penalties and Pending Litigation

All cases of penalties awarded by SEBI under the SEBI Act orany of its regulations against the Sponsor of the Mutual Fund orany company associated with the Sponsor in any capacityincluding the Asset Management Company, Trustee Company/Board of Trustees, or any of the directors or key personnel(specifically the fund managers) of the Asset ManagementCompany and Trustee Company.

l NONE

For Sponsor and its associates, other than the penalties asmentioned above, the penalties awarded by any financialregulatory body, including stock exchanges, for defaults inrespect of shareholders, debentureholders and depositorsincluding penalties awarded for any economic offence andviolation of any securities laws.

Details of all cases of suspensions and cancellation of certificateof registration (for irregularities / violations in financial servicessector or for defaults in respect of share holders,debentureholders and depositors) of the AMC, Trustee Companyand sponsor or any associate of the sponsor shall be disclosedfor the last 10 years. (Mutual funds having associate companies

abroad shall make the above disclosures for foreign and Indianentities separately)

Indian: None

Foreign

Following an inspection from the Financial Service Agency Japan(FSA) Deutsche Trust Bank Limited (DTB), which is largelyresponsible for the management of public sector Japanese clientassets has been inter alia issued an administrative improvementorder concerning DTB's internal administration and compliancecontrols. The FSA has also suspended DTB from taking on newclients for a period of 3 months, effective from May 27th, 2004until August 27th, 2004.

Top 10 monetary penalties in case of foreign entities and allmonetary penalties in case of Indian entities, imposed againstthe AMC / Trustee Company / Sponsor or any associate of thesponsor (for irregularities / violations in the financial servicessector or for defaults in respect of share holders /debentureholders and depositors, in jurisdiction country asdetermined in the above clause, by any financial regulatory bodyor government authority or settlement arrived with any financialregulatory body during the last five years and details thereof :

l The Office of Special Director of Enforcement, Governmentof India, vide its order dated March 23, 2004 levied a penaltyof Rs. 25,00,000 under Section 50 of Foreign ExchangeRegulation Act, 1973 in the matter relating to salaries paidabroad in the earlier years. The Bank paid the penaltyamount on May 5, 2004. The Bank's management has filedan appeal against the order of the Enforcement Directoratewith the Appelatte Tribunal Foreign Exchange, New Delhi -10th May, 2004.

l Deutsche Bank, India had defaulted in maintenance of CashReserve Ratio (CRR) for all fortnights of the quarter endedJune 1996 and the first fortnight (ended 5 July 1996) of thequarter ended September 1996. In July 1999, RBI withdrewCRR interest and imposed a penalty of 5,25,000 for defaultin maintenance of CRR.

l In December 1999, RBI imposed a penalty of 2,17,000 fordefault in the maintenance of prescribed Statutory LiquidityRatio (SLR) on 8th and 22nd October 1999.

l Deutsche Bank has paid 1,00,000 to the CustomsAuthorities towards fine for Audi Car, in the Assessmentyear 1999-2000.

Foreign Entities

Germany

A fine of DM 4,000,000 pronounced by the Federal BankingSupervisory Office (BAK) on December 29, 1998 againstDeutsche Bank for insufficient reporting procedures in its anti-money laundering units.

Another case concerned administrative fines (not sentenced bybanking regulators) for errors in reporting statistical informationas requested by foreign commerce rules. Such fines werepronounced at seven occasions during the past five years anddid not exceed the amount of Euro 50,000 in the aggregate.

A fine of DM 50,000 pronounced by the former Federal SecuritiesTrade Supervisory Agency (BAWe) on August 16, 2001 againstDeutsche Bank for insufficient organisation of internal reportingprocedures with regard to substantial shareholding disclosureobligations. The decision related to incidents that occurredbetween 1998 and 2000.

A fine of DM 110,000 pronounced by the former Federal BankingSupervisory Office ("BAK", now "BAFin") against the formerBankers Trust Company Frankfurt branch for late filing of thestatutory annual accounts for the financial year 1999.

Due to system deficiencies Deutsche Bank AG and DeutscheBank 24 AG failed to be in a position to distinguish the individualacting person in online banking transactions in case of jointaccounts. The banking supervisory body of Germany (BAFin)imposed a fine of EUR 1,000,000 against both companies (Date:June 13, 2002).

Any pending material litigation proceedings incidental to thebusiness of the Mutual Fund to which the Sponsor of the MutualFund or any company associated with the Sponsor in any capacityincluding the AMC, Board of Trustees / Trustee Company or anyof the directors or key personnel is a party.

l NONE



Any pending criminal cases against the Sponsor or any companyassociated with the Sponsor in any capacity including the AMC,Board of Trustees/Trustee Company or any of the directors orkey personnel.

l NONE

Any deficiency in the systems and operations of the Sponsor ofthe Mutual Fund or any company associated with the sponsorin any capacity including the AMC or the Trustee Company whichSEBI has specifically advised to be disclosed in the offerdocument, or which has been notified by any other regulatoryagency.

l NONE

Any enquiry/adjudication proceedings under the SEBI Act andthe Regulations made thereunder, that are in progress againstthe Sponsor of the Mutual Fund or any company associated withthe Sponsor in any capacity such as the AMC, Board of Trustees/Trustee Company or any of the Directors or key personnel ofthe Asset Management Company.

A notice dated 30 June, 2004 issued by SEBI to DeutscheInternational Trust Corporation (C.I.) Limited (DITC) and DBMGOF(Mauritius) Limited (DBMG) is pending. DITC and DBMGOF havefiled their reply to the notice. DITC and DBMGOF are associatesof the Sponsor but are not directly associated with the Fund.

The above information has been disclosed in good faith as perthe information available to the AMC.

4) Scheme to be binding on the Unit Holders

Subject to the Regulations, the Trustee may, from time to time,add or otherwise vary or alter all or any of the features ofinvestment options/Facilities and terms of a Scheme afterobtaining the prior permission of SEBI and Unit Holders ifrequired, and the same shall be binding on all the Unit Holdersof such Scheme and any person or persons claiming through orunder them as if each Unit Holder or such person expressly hadagreed that such features, plans and terms shall be so binding.

5) Register of the Scheme's Unit Holders

Registers of Unit Holders under the scheme containingnecessary particulars will be maintained at the office of theRegistrar at Hyderabad and at such other places as the Trusteemay decide.

6) Website

The AMC proposes to host a website for the benefit of theunitholders and distributors. The website of the Fund/AMC isintended solely for the use of Resident Indians, Non ResidentIndians, persons of Indian Origin and Foreign InstitutionalInvestors registered with Securities and Exchange Board of India.The information provided on this Site is not intended fordistribution to, or use by, any person or entity in any jurisdictionor country where such distribution or use would be contrary tolaw or regulation or which would subject DeAM India or itsaffiliates to any registration requirement within such jurisdictionor country. This service does not constitute an offer to sell or asolicitation of an offer to buy any mutual fund units, shares,securities or other instruments to any person in any jurisdictionwhere it is unlawful to make such an offer or solicitation. It shallbe the sole responsibility of foreign residents including NRIs inforeign jurisdictions to verify whether the facility can be accessedand utilised in their respective jurisdictions. The AMC cannot beresponsible for any information contained in any website linkedfrom this website.

7) Omnibus Clause

Besides the AMC, the Trustee / Sponsor may also absorbexpenditures in addition to the limits laid down under Regulation52.

Further, any amendment / clarification and guidelines includingin the form of notes or circulars issued from time to time bySEBI for the operation and management of mutual fund shall beapplicable.

8) Jurisdiction

The jurisdiction for any matters arising out of this Scheme shallreside with the courts in India.

9) Books and Records

The books and records of the Mutual Fund will be maintained atits Head Office. The fiscal year of the Mutual Fund ends on 31stMarch in each year.

10) Documents available for Inspection

Copies of the following documents will be available for inspectionby the Unit Holders during the New Fund Offer Period on allBusiness Days between 10 a.m. and 3 p.m. at the RegisteredOffice of the AMC at DB House, Hazarimal Somani Marg, Fort,Mumbai 400 001.

l Copy of Memorandum and Articles of Association of theTrustee Company and the AMC.

l Copy of the Custodian Agreement between the Trusteeand JP MORGAN.

l Copy of the Investment Management Agreement.

l Copy of the Trust Deed.

l Copy of Mutual Fund Registration Certificate No.MF/047/02/10, 2002 dated October 28, 2002 from SEBI.

l Consent of the Auditors to act in the said capacity.

l Copy of Securities and Exchange Board of India (MutualFunds) Regulations, 1996.

l Copy of Indian Trust Act, 1882.

NOTWITHSTANDING ANYTHING CONTAINED IN THE OFFERDOCUMENT, THE PROVISIONS OF THE SEBI (MUTUAL FUNDS)REGULATIONS, 1996 AND THE GUIDELINES THEREUNDER ANDTHE GUIDELINES FOR EQUITY LINKED SAVING SCHEME SHALLBE APPLICABLE.

For DEUTSCHE ASSET MANAGEMENT (INDIA) PVT. LTD.

Investment Managers to Deutsche Mutual Fund

Sandeep Dasgupta Ashutosh SharmaChief Executive Officer Compliance Officer

Place : MumbaiDate : July 5, 2005

Due Diligence Certificate

It is confirmed that:

i. The draft Offer Document of 'Deutsche Tax Saving Fund'forwarded to SEBI is in accordance with the SEBI (Mutual Funds)Regulations, 1996 and Ministry of Finance (Dept. of EconomicAffairs), Government of India notifications, as amended and theguidelines and directives issued by SEBI from time to time.

ii. All legal requirements connected with the launching of theScheme as also the guidelines, instructions, etc. issued by theGovernment of India and any other competent authority in thisbehalf, have been duly complied with.

iii. The disclosures made in the Offer Document are true, fair andadequate to enable the investors to make a well-informeddecision regarding investment in the proposed Scheme(s).

iv. The intermediaries named in the Offer Document are registeredwith SEBI and till date such registration is valid.

For Deutsche Asset Management (India) Private Limited

(Investment Manager to Deutsche Mutual Fund)

Ashutosh SharmaCompliance Officer & Company Secretary

Place : MumbaiDate : July 5, 2005

Note:

1. The Offer Document was approved by the Trustees on June 29,2005.

2. The Due Diligence Certificate as stated above was submitted toSEBI on July 6, 2005.

Collection Centres (Only during New Fund Offer)

Deutsche BankBANGALORE : Raheja Tower, Post Box No - 5002, 26-27, M. G. Road, Bangalore - 560 001. CHENNAI : Kothari Building, Ground Floor, Nungambakkam HighRoad, Chennai - 600 034. GURGAON : Ground Floor, Infinity Tower, DLF, Phase II, Gurgaon. KOLKATA : Brooke House, Ground Floor, Shakespeare Sarani,Kolkata - 700 071. MUMBAI : Glacis, Plot No. 391, Linking Road, Khar, Mumbai - 400 052. SOUTH MUMBAI : 222, Kodak House, Ground Fl., Dr. D. N. Road, Fort,Mumbai - 400 001. NEW DELHI : 28, Kasturba Gandhi Marg, ECE House, Main Building, New Delhi - 110 001. NOIDA : F4 & F5, Sector 18, Noida.

HDFC BankAHMEDABAD : HDFC Bank House, Near Mithakali, Six Roads, Navrangpura, Ahmedabad - 380 009. BANGALORE : No. 8/24, Salco Centre Richmond Road,Bangalore - 560025. BARODA : 5th Floor, ‘Midway Heights’, Next to Panchmukhi Hanuman Temple, Lokmanya Tilak Rd., Kirti Mandir, Near Kala Ghoda, Raopura,Baroda - 390 001. BHAVNAGAR : Gopi Arcade, Opp. Takhteshwar Post Office. BHOPAL : E-1/57, Arera Colony, Bhopal - 462016. BHUBANESHWAR : HDFCBank Ltd, Junction of Janpath & Gandhi Marg Hotel Jajati Complex, Kharvelanagar, Unit - Iii, Master Canteen Square, Bhubaneswar - 751 001. CHANDIGARH :SCO 371/372 Sector 35-B Chandigarh. CHENNAI : 751 - B, Anna Salai, Mariam Centre, Chennai - 600 002. COCHIN : 2nd Floor, Elmar Square, M. G. Road,Ravipuram, Cochin - 682016. COIMBATORE : 1635 Classic Towers , Trichy Road, Coimbatore - 641 018. DEHRADUN : 56, Rajpur Road Dehradun - 248 001.GUWAHATI : Guwahati Branch House No 126, Opp Times of India, Bhangagarh, Guwahati - 781005. HYDERABAD : 6-1-73, 3rd Floor, Saeed Plaza, Lakdikapul,Hyderabad - 500004. HUBLI : T. B. Revankar Complex, Vivekanand Hospital Road, Hubli - 580029. INDORE : 3rd Floor, 9/1A, U. V. House, South Tukonj, Indore- 452001. JABALPUR : 1702, Napier Town, Model Road, Jabalpur - 482002. JAIPUR : HDFC Bank House, 1st Floor, O-10, Ashok Marg, Ahimsa Circle, C-Scheme,Jaipur. JALANDHAR : 911, G. T. Road, Near Narinder Cinema, Jalandhar. JALGAON : Facing Mahabal Rd., DSP Chowk, Jalgaon - 425001. JAMNAGAR : PlotNo 6, Park Colony, Opp. St. Ann’s School, Bedi Bunder Road, Jamnagar - 361008. JAMSHEDPUR : C/o Mithila Motors Ltd., Near Rammandir, Bistupur, Jamshedpur- 831 001. KANPUR : Navin Market Branch, 15/46, Civil Lines, Kanpur - 208001. KOLHAPUR : Jaju Arcade, Tarabai Park, Kolhapur - 416003. KOLKATA : CMSAbhilasha II, 6 Royd Street, 1st Floor, Kolkata - 700 016. LUCKNOW : Pranay Tower, Darbari Lal Sharma Marg, Beside Pratibha Cinema, Lucknow - 226001.LUDHIANA : CMS Deptt, 5th Floor, The Mall, Mall Road, Ludhiana. MANGALORE : M. N. Towers, Kadri, Mangalore - 575002. MUMBAI : Maneckji Wadia Bldg.,Nanik Motwani Marg, Mumbai 400 023. NAGPUR : 303 & 304, 3rd Floor Wardh Road, Transactional Banking Group, 12, Milestone, Near Lokmat Square, Nagpur- 440010. NASIK : Archit Centre, 3rd Floor,Chandak Circle, Link Road, Opposite Sandeep Hotel, Near Mahamarg Bus Stand, Nasik - 422 002. NEW DELHI :Fig-Ops 1st Floor, Kailash Bldg, 26 K. G. Marg, New Delhi - 110001. PANJIM : Minum Residency, 18th June Road, Panjim - 403001. PATNA : Rajendra Ram Plaza,Exhibition Road, Patna - 800 001. PUNE : 5th Floor, Millennium Tower, Bhandarkar Road, Shivajinagar Pune - 411 004. RAIPUR : Chawla Complex, Near VanijyaBhawan, Sai Nagar, Devendra Nagar Road, Raipur - 492 009. RAJKOT : Opp. Alfred High School, 2nd Floor, Panchratna Building, Jawahar Road, Rajkot.RANCHI : Ranchi Club Shopping Complex, Apt. No .11, Main Road, Ranchi - 834001 ROURKELA : Bisra Road, Dwivedi Bhawan, Dwivedi Square, Rourkela769001. SURAT : Chataniya Jyoti Building, Near Parle Point Circle, Surat - 395 007. TRIVANDRUM : Kenton Towers, Vazhuthacaud, Trivandrum 695 014.VIJAYAWADA : 40-1-48/2, M. G. Road, Labbipet Vijayawada - 520 010. VISAKHAPATNAM : Potluri Castle Dwaraka Nagar Visakhapatnam 1.

ICICI BankAHMEDABAD : JMC House, Opp. Primal Garden, Off. C.G. Road, Ambawadi, Ahmedabad - 380006. BANGALORE : ICICI Bank Towers, 1, Commissariat Road,Ground Floor, Bangalore - 560025. BHAVNAGAR : Ground Floor, Plot No. 2569, Ratnadeep, Opp. Central Salt Research Institute, Waghawadi Road, Bhavnagar- 364002. BHOPAL : Plot No. 11, Zone II, Alankar Palace Near Pragati Petrol Pump, M. P. Nagar, Bhopal. - 462011. BHUBANESWAR : OCCF Building, Opp SriyaTalkies, Unit - III, Bhubaneswar - 751001. CHANDIGARH : SCO 9-10-11, Sector 9-D, Chandigarh - 160017. CHENNAI : 110, Uthamar Gandhi Salai, NungambakkamHigh Road, Chennai. - 600034. COIMBATORE : Cheran Plaza, 1090, Trichy Road, Coimbatore - 641018. DEHRADUN : 52/15, Rajpur Road, Dilaram Bazar,Dehradun 248 001.GUWAHATI : Ground Floor, Shanti Complex, G S Road, Bhangagarh, Guwahati. - 781005. HUBLI : Eureka Junction, Travellers BungalowRoad, Hubli. - 580029. HYDERABAD : 6-2-1012, TGV Mansions, Opp. Institution of Engineers, Khairatabad, Hyderabad. - 500004. INDORE : Laxmi Towers, 576,M.G. Road, Indore. - 452001. JABALPUR : Kailash Automobiles, 124 Napier Town, Model Road, Jabalpur - 482001. JAIPUR : C-99, Shreeji Towers, SubhashMarg, Near Ahimsa Circle, C Scheme, Jaipur. - 302001. JAMNAGAR : Near M. P. Shah Medical College, Solarium Road, P. N. Marg, Jamnagar. - 361008.KANPUR : J.S Towers ; 16/106 - The Mall, Kanpur - 208001. KOCHI : Emgee Square, M.G. Road, Ernakulam, Kochi. - 682035. KOLHAPUR : Ground Floor,Vasant Plaza, Rajaram Road, Rajarampuri, Kolhapur. - 416001. KOLKATA : 22, R N Mukherjee Road, Kolkata. - 700001. LUCKNOW : 11, M.G. Road, HazaratGunj, Lucknow. - 226001. LUDHIANA : S.C.O. 146 / 147, Feroze Gandhi Market, Ludhiana. - 141001. MANGALORE : First Floor, Bharath Building, Post Box No. 44,Panje Mangesh Rao Road, Mangalore. - 575001. MUMBAI : Capital Markets Division, 30, Mumbai Samachar Marg, Mumbai - 400001. NAGPUR : Vishnu Vaibhav,222, Palm Road, Civil Lines, Nagpur. - 440001. NASHIK : U-1, Crown Commercial Complex, Opp. Rajiv Gandhi Bhavan (NMC), Utility Centre, Sharanpur Road,Nashik. - 422002. NEW DELHI : 9A, Phelps Building, Inner Circle, Connaught Place, New Delhi. - 110001. PANAJI : 65, Sindur Business Centre, Swami VivekanandRoad, Panaji - 403001.PATNA : 101 & 102 I Florr Kashi Palace, Dak Bunglow Road, Patna - 800001. PUNE : A-Wing, Shangrila Gardens, Bund Garden Road,Pune. - 411001. RAJKOT : Jai Hind Press annexe, Opp. Shardabaug, Babubhai Shah Marg, Rajkot. - 360001. RAIPUR : GE Road, Choubey Colony, Raipur. - 492010.RANCHI : Main Road (near Ratanlal Petrol Pump), Ranchi - 834001. ROURKELA : Plot No. 445, Madhsudan Chowk, Bisra Road, Rourkela - 769001. SURAT :Anjan Shalaka, Lal Bungalow, Athwa Lines, Surat. - 395007. THIRUVANANTHAPURAM : TC No: 2491, No. 1, M G Road, Thiruvananthapuram. - 695001.VADODARA : Landmark Building, Race Course Circle, Alkapuri, Vadodara. - 390007. VIJAYAWADA : D-40-1-52/5, Sainag Complex, M.G. Road,Vijayawada. - 520010. VISAKHAPATNAM : 47-14-18, Isnar Satyasri Complex, Main Road, Dwarkanagar, Visakhapatnam. - 530016.

Standard Chartered BankAHMEDABAD : Abhijeet II, Ground Floor, Meetakali, 6th Road, Ahmedabad - 380 006. BANGALORE : 26th Floor, West Wing, Raheja Tower, M. G. Road,Bangalore - 560001. BHOPAL : Ground Floor, Northern Wing, Alankar Complex, Plot No.10, Zone II, M P Nagar, Bhopal - 462011. BHUBANESHWAR : Plot No 3,Bapuji Nagar, Janpath Bhubaneshwar 751 009. CHENNAI : 19, Rajaji Salai Chennai - 600001. COCHIN : XXIV / 1633, KPK Menon Road, Willingdon Island,Cochin - 682003. COIMBATORE : 509, D. B. Road, R. S. Puram, Coimbatore - 641 002. GUWAHATI : G. N. Bardoli Road, Ambari - Guwahati - 781001. JAIPUR :H8, Showroom No.1, Bhagwat Bhawan, M. I. Road, Jaipur. JALANDHAR : Plot No. 34, G. T. Road, Jalandhar - 144 001. HYDERABAD : 6-3, 1090 Raj BhavanRoad, Somajiguda, Hyderabad - 500082. INDORE : D M Towers, 21 / 1 Race Course Road, Indore - 452 001. KANPUR : 16/105, M. G. Marg, Kanpur - 208 001.KOLKATA : 19 Netaji Subhas Road, Kolkata - 700001. LUCKNOW : 4 Shahnajaf Road Lucknow - 226001. LUDHIANA : SCO 16-17, Feroze Gandhi Market,Ludhiana - 141001. MUMBAI : 270 D. N. Road, Fort, Mumbai - 400001. NAGPUR : Narang House, Palm Road, Civil Line Nagpur - 440001. NEW DELHI : H2Connaught Circle, New Delhi - 110001. PUNE : Shrirang House, 364-365 Junglee Maharaj Road, Shivaji Nagar, Pune - 411 005. SURAT : Manav Mandir,UG4 & FF, Parle Point, Surat - 395007. RAJKOT : Business Empire, 5 Jagnath Plot, Gymkhana Road, Rajkot - 360002. PATNA : Bhagwati Dwaraka Arcade,Plot No. 830 P, Exhibition Road, Patna - 800 001. VADODARA : Gokulesh, R. C. Dutt Road, Vadodara - 390 009.

Official Points for Accepting Transactions(For Ongoing Transaction)

Karvy Investor Service CentresAHMEDABAD : 201-203, Shail Building, Opp. Madhusudan House, Near Navrangpura Tel. Exchange, Off C. G. Road, Ahmedabad 380 006. Tel. : 079-26420422/ 26402967. BANGALORE : 1st Floor, Surya Building, Rathna Avenue, 51 / 25, Richmond Road, Bangalore 560 025. Tel. : 080-25320085 / 86. BARODA : 31-34,Payal Complex, Beside Vadodara Stock Exchange, Sayajiguj, Baroda 390 005. Tel. : 0265-2225210 / 2225168 / 69. CHENNAI : Flat 2 - B, First Floor, WellingtonEstate No. 24, Ethiraj Salai, Commander-in-Chief Road, Chennai 600 105. Tel. : 044-52028858 (D) / 52028512. COCHIN : G 39, Panampally Nagar, Cochin 682036. Tel. : 0484-310884 / 322152. HYDERABAD : 21, Road No. 4, Street No.1, Banjara Hills, Hyderabad 500 034. Tel. : 040-23312454 Extn. 488 / 119.KOLKATA : 49, Jatindas Road, Kolkata 700 029. Tel. : 033-24659267 (D) / 24659263. LUCKNOW : 94, Mahatma Gandhi Marg, (Opp. Governor House)Hazratganj, Lucknow 226 001. Tel. : 0522-2236828 /19. MUMBAI : 16-22 , Bake House, Ground Floor, Maharashtra Chamber of Commerce Lane,Opp. MSC Bank, Fort, Mumbai 400 023. Tel. : 022-56346513 (D) / 56381746 to 50. NEW DELHI : 105-108, Arunachal Building, 19, Barakhamba Road,Connuaght Place, New Delhi 110 001. Tel. : 011-51511627 (D). PUNE : 202, Mahadkar Chambers, Opp. Karishma Heights, Karve Road, Pune 411 029.Tel. : 020-25456890 / 870 / 4028431.

Deutsche Asset Management (India) Private LimitedBANGALORE : Raheja Tower, 26-27, M.G. Road, Bangalore - 560 001. Tel : +91 (80) 5693 5651 / 52 / 2559 0110. CHENNAI : Suite #121, DBS Office BusinessCentre, 31A Cathedral Garden Road, Near Palmgroove Hotel, Nungambakkam, Chennai - 600 034. Tel: +91 (44) 5564 9695. KOLKATA : Brooke House,9 Shakespeare Sarani, Kolkata - 700 071. Tel : +91 (33) 2282 4040. MUMBAI : DB House, Hazarimal Somani Marg, Fort, Mumbai - 400 001. Tel: +91 (22) 5658 4600.NEW DELHI : Tolstoy House, 9th Floor, 15-17, Tolstoy Road, New Delhi - 110 001. Tel : +91 (11) 2372 1155.

cov 3Deutsche Tax Saving Fund

Deutsche Asset Management (India)

Private Limited

Registered & Corporate Office :



Tel: +91 (22) 5658 4600

Fax: +91 (22) 2207 4411

E-mail: [email protected]

Website: www.deutschemutual.com

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