hsbc mutual fund - kotak mahindra bank · hsbc asset management issue of units of rs.10/- per unit...

This Offer Document sets forth concisely the information about the Scheme that a prospective investor ought to know before investing. The particulars of the Scheme have been prepared in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, as amended till date, and filed with Securities and Exchange Board of India (SEBI). The Units being offered for public subscription have not been approved or disapproved by SEBI nor has SEBI certified the accuracy or adequacy of this Offer Document.

This Offer Document will remain effective till a 'material change' (other than a change in Fundamental Attributes and within the purview of this Offer Document) occurs and thereafter the changes shall be filed with SEBI and circulated to the Unitholders.

Investors may also like to obtain further changes after the date of this Offer Document from the Mutual Fund/its Investor Service Centers or distributors.

This Offer Document should be retained for future references.

This Offer Document is dated March 31, 2005.

HSBC Asset Management

Issue of Units of Rs.10/- per unit for cash at par

plus applicable load during the Initial Public Offer and at NAV based prices thereafter.

HSBC Mutual Fund

Offer Document

Sponsor:

Regd. Office: 52/60, Mahatma Gandhi Road, Fort, Mumbai 400 001

Trustee: Board of TrusteesOffice: 52/60, Mahatma Gandhi Road, Fort, Mumbai 400 001

Asset Management Company: HSBC Asset Management (India) Private LimitedCorp. & Regd. Office: 52/60, Mahatma Gandhi Road, Fort,

Mumbai 400 001

HSBC Securities and Capital Markets (India) Private Limited

HSBC COD KCMY

HSBC Midcap Equity Fund (HMEF)An open-ended Growth Scheme

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E mail id: [email protected]

Visit us at : www.assetmanagement.hsbc.co.in

Initial Offer Opens on : April 12, 2005

Earliest Closing of Initial Offer : April 13, 2005

Earliest closing may take effect any day between April 13, 2005 & May 03, 2005 if subscriptions aggregating Rs. 700 crores are received in the Scheme

(Please refer 'Highlights and Scheme Summary’ sections inside for further details)

Initial Offer Closes on : May 03, 2005

Scheme Re-opens for continuous sale and repurchase within 30 days from closing of the Initial Offer

(Please refer 'Highlights and Scheme Summary' sections inside for further details)

Offer Document

HSBC Mutual Fund local knowledge makes a world of difference 1

HSBC MIDCAP EQUITY FUND

SPONSORHSBC Securities and Capital Markets (India) Private LimitedRegistered Office52/60, Mahatma Gandhi Road,Fort, Mumbai - 400 001

TRUSTEEBoard of TrusteesOffice52/60, Mahatma Gandhi Road,Fort, Mumbai - 400 001

ASSET MANAGEMENT COMPANYHSBC Asset Management (India) Private LimitedRegistered & Corporate Office52/60, Mahatma Gandhi Road,Fort, Mumbai - 400 001

REGISTRAR AND TRANSFER AGENTSComputer Age Management Services (P) Ltd. (CAMS)OfficeA & B Lakshmi Bhawan,609 Anna Salai,Chennai - 600 006

CUSTODIANJPMorgan Chase BankOfficeMafatlal Centre, 9th Floor,Nariman Point,Mumbai - 400 021

AUDITORSPrice WaterhouseOffice252, Veer Savarkar Marg,Shivaji Park, Dadar (West),Mumbai - 400 028

LEGAL ADVISORSAmarchand & Mangaldas & Suresh A. Shroff & Co.OfficePeninsula Chambers,Peninsula Corporate Park,Ganpatrao Kadam Marg,Lower Parel, Mumbai - 400 013

Offer Document

2 local knowledge makes a world of difference HSBC Mutual Fund


TABLE OF CONTENTS

Page No. Page No.

Highlights .................................................................................... 3Definitions ................................................................................... 4Risk Factors and Special Considerations ................................ 6

Standard Risk Factors ........................................................... 6Scheme Specific Risk Factors .............................................. 7Special Considerations .......................................................... 8

Due Diligence Certificate ........................................................... 9Scheme Summary ..................................................................... 10

SECTION IConstitution of the Mutual Fund ........................................ 12Sponsor ................................................................................ 12Board of Trustees (the Trustees) ........................................ 12Summary of Substantive Provisions of the Trust Deed .... 14Trusteeship Fees .................................................................. 16Investment Manager ............................................................ 16Board of Directors of the AMC ......................................... 16Powers, Duties and Responsibilities of the AMC ............. 17Asset Management Fees ..................................................... 18Key Employees of the AMC and Relevant Experience .... 19Fund Manager ..................................................................... 21Custodian ............................................................................. 21Registrars & Transfer Agents ............................................. 21Fund Accountant ................................................................. 21Auditors ............................................................................... 21Collecting Bankers .............................................................. 21

SECTION IIInvestment Objectives & Policies ...................................... 22Change in Investment Pattern ............................................. 23Listing .................................................................................. 23Investment Approach and Risk Control ............................. 23Portfolio Turnover ............................................................... 23Procedure followed for Investment Decisions ................... 24Investments by the AMC in the Scheme ........................... 24Fundamental Attributes ....................................................... 24Special Considerations ........................................................ 24Trading in Derivatives ........................................................ 24Exposure to Derivatives ...................................................... 24Valuation of Derivative Products ........................................ 26Position of Debt Markets in India ...................................... 26Investment Restrictions for the Scheme ............................. 27Valuation of Assets and Net Asset Value ........................... 28Accounting Policies and Standards .................................... 32Guidelines for Identification andProvisioning for Non-Performing Assets ........................... 33

SECTION IIIUnits & the Initial Offer ..................................................... 35Extension of the Initial Offer Period .................................. 35Minimum Subscription Amount ......................................... 35On-going Subscriptions ....................................................... 35Minimum Amount for Application .................................... 36Allotment and Refund ......................................................... 36

Options Offered Under the Scheme ................................... 36Who Can Apply? ................................................................ 36How to Apply? .................................................................... 37Sales, Repurchase and Switches of Unitson On-going basis ............................................................... 37Switching Options ............................................................... 39Account Statements ............................................................. 39Product Add ons .................................................................. 39Pledge .................................................................................. 40Joint Applicants ................................................................... 40Nomination Facility ............................................................ 41Transfer & Transmission of Units ...................................... 41Master Account/Folio .......................................................... 41Fractional Units ................................................................... 41Right to Limit Redemptions ............................................... 41Suspension of Sale / Repurchase / Switch of Units .......... 42NRIs / FIIs .......................................................................... 42Redemption by NRIs / FIIs ................................................ 42

SECTION IVLoad Structure & Recurring Expenses ............................... 43Initial Issue Expenses .......................................................... 44Recurring Expenses ............................................................. 44Condensed Financial Information ....................................... 45

SECTION VUnitholders' Rights & Services .......................................... 51Ease of Transactions ........................................................... 51Problem Resolution ............................................................. 51Information about the Scheme ............................................ 51Account Statements / Transaction Confirmation ............... 51Receiving Account Statement / Correspondence by e-mail ... 51NAV Information ................................................................ 52Personal Identification Number (PIN) ................................ 52Rights of Unitholders of the Scheme ................................. 52Duration of the Scheme / Winding Up .............................. 53Procedure and Manner of Winding Up .............................. 53Taxation on investing in Mutual Funds ............................. 53

SECTION VIOther Matters ...................................................................... 56Unitholder Grievances Redressal Mechanism .................... 56Associate Transactions ........................................................ 56Dealing with Associate Companies .................................... 57Dividends and Distributions ............................................... 62Penalties and Pending Litigations ...................................... 62Borrowing by the Mutual Fund .......................................... 63Securities Lending by the Mutual Fund ............................. 63Underwriting ....................................................................... 63Inter-Scheme Transfers ....................................................... 63Policy on Offshore Investments by the Scheme ................ 64General Information ............................................................ 64Documents available for Inspection ................................... 64

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The Sponsor of HSBC Mutual Fund is HSBC Securities and CapitalMarkets (India) Private Limited, a member of the HSBC Group, oneof the largest banking and financial services organisations in theworld, with a market capitalisation of US$ 190 billion at December31, 2004. At the end of 2004, HSBC had total assets of US$ 1277billion and shareholders' funds of US$ 86.6 billion. Headquarteredin London, HSBC operates through long-established businesses infive regions: Europe, The Asia Pacific Region, the Americas, TheMiddle East and Africa. Through its global network of over 9800offices in 77 countries and territories, HSBC provides acomprehensive range of financial services to more than 110 millioncustomers:personal, commercial, corporate, institutional andinvestment and private banking clients.

HSBC Asset Management is the core global investment managementbusiness of the HSBC Group. With 380 dedicated investmentprofessionals across Europe, Africa, Asia Pacific and the Americas,HSBC Asset Management has strong global investment capabilitiesthat are delivered to clients locally. For institutions, corporates andfinancial intermediaries, a comprehensive range of investmentmanagement solutions are offered. For high net worth individuals,HSBC Asset Management works with the relationship managers ofthe individuals to provide bespoke portfolio management services.

HSBC Asset Management has funds under management of US$ 204billion which are part of the total of US$ 476 billion managed bythe HSBC Group as a whole (as at December 31, 2004).

HSBC Asset Management (India) Private Limited, the AssetManagement Company (AMC) of HSBC Mutual Fund is a subsidiaryof HSBC Securities and Capital Markets (India) Private Limited.

HSBC Midcap Equity Fund : The Initial Public Offer is for anopen-ended Equity Scheme seeking to generate long term capitalgrowth from an actively managed portfolio of equity and equityrelated securities primarily being mid cap stocks. The Initial Offeris for issue of units at Face Value of Rs. 10 plus applicable load. Onan ongoing basis, units of the Scheme will be available forsubscriptions and redemptions at Net Asset Value (NAV) basedprices.

Initial Offer PeriodThe Initial Offer Period for the Scheme will commence from April 12,2005 and close on May 3, 2005. The earliest closing date will beApril 13, 2005.

It is the intent of the Trustees / AMC to collect subscriptions in theScheme of Rs. 700 crores with a view to protect the interest of theunit holders from the liquidity risk inherent to a Midcap Fund.Towards this intent, the Trustees / AMC reserve the right to announceclosure of the Initial Public Offer on any date commencing from theEarliest Closing Date and extending up to the Final Closing Dateof the Offer. The announcement will be made by displaying a noticein the Investor Service Centres and issuing advertisements in 2newspapers, at least 1 day prior to closing the Initial Public Offer.However, as it is not possible to ensure that the amount ofsubscriptions received in the Initial Public Offer would be exactlyRs. 700 crores, it is possible that the AMC collects subscriptionsover Rs. 700 crores. Subject to the applications being in accordancewith the terms of this Offer, full and firm allotment will be madeto all applicants. The excess amount collected in the IPO would beretained in the Fund but further subscriptions into the Fund on anon-going basis would be temporarily suspended until the assetsunder management fall below Rs. 700 crores, due to redemptions,market forces or for any other reason. All decisions of the Trustees /

AMC will take effect prospectively and will be communicated bydisplaying a notice in the Investor Service Centres and issuingadvertisements in 2 newspapers, at least 1 day prior to the decisiontaking effect. All decisions of the Trustees / AMC will be made inthe interest of the investors and will be subject to the SEBIRegulations.

Ongoing SubscriptionsThe Trustees / AMC reserve the right to temporarily suspendsubscriptions, switches into the Scheme, if the assets undermanagement of the Scheme exceeds Rs. 700 crores. However, as itmay not be possible to ensure that the assets under managementdoes not exceed Rs. 700 crores at the point of time of subscription,any excess amounts collected in the Scheme would be retained untilthe suspension of subscriptions, switches into the Scheme takeseffect. The suspension will be for a minimum period of 1 month oruntil the assets under management fall below Rs. 700 crores, dueto redemptions, market forces or for any other reason, whicheveris later. The suspension will not however affect Dividend reinvestmentoptions, Systematic Investment Plans, Systematic Transfer Plans orother standing instructions which have been entered into by theinvestors at any time prior to the date from which the suspensiontakes effect. The Trustees / AMC also reserve the right to reviewthe amount, frequency and methodology by which the suspensionof further sale of units will be enforced. All decisions of the Trustees /AMC will take effect prospectively and be communicated to theinvestors from time to time by arranging to display a notice in theInvestor Service Centres and issuing advertisements in 2 newspapers,at least 1 day prior to the decision taking effect. All decisions of theTrustees / AMC will be made in the interest of the investors and willbe subject to the SEBI Regulations.

TransparencyThe AMC will calculate and disclose the first NAVs of the Schemenot later than 30 days from the closure of the Initial Offer Period.Subsequently, the NAVs will be calculated and disclosed at the closeof every Business Day. In addition, the AMC will disclose detailsof the portfolio of the Scheme every 6 months.

LiquidityBeing an open ended Scheme, Units may be purchased or redeemedon every Business Day at NAV based prices, subject to provisionsof entry / exit load, if any. The Fund will, under normal circumstances,endeavor to despatch redemption proceeds within 2 Business Days.

Load StructureInvestors subscribing to the Units in the Initial Public Offer will becharged an entry load of 2.25% on investments below Rs. 5 crores.No entry load will be charged on investments of Rs. 5 crores andabove. No exit load shall be charged. The load structure is subjectto change from time to time and such changes shall be implementedprospectively.

Load in case of investments by Fund-of-Funds (FOF) scheme: Noload (entry/exit) will be charged in case of investments made byFund-of- Funds Schemes launched by mutual funds in HSBC MidcapEquity Fund.

TaxationThe following are certain taxation provisions updated as per theFinance Act, 2004 and are subject to changes from time to time.

� Dividend distributed by the Fund shall be tax-free in the handsof the unitholders.

� Investments in the Scheme will be exempt from Wealth Tax.

Investors in the Scheme are not being offered any guaranteed /assured returns.

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In this Offer Document, the following words and expressions shall have the meaning specified herein, unless the context otherwise requires:

ADRs and GDRs ADRs are negotiable certificates issued to represent a specified number of shares (or oneshare) in a foreign stock that is traded on a U.S. exchange. ADRs are denominated in U.S.dollars.

GDRs are negotiable certificates held in the bank of one country representing a specificnumber of shares of a stock traded on an exchange of another country.

Asset Management Company or HSBC Asset Management (India) Private Limited, incorporated under the provisions of theAMC or Investment Manager Companies Act, 1956, and approved by SEBI to act as Investment Manager for the Schemes

of HSBC Mutual Fund.

Applicable NAV The Net Asset Value applicable for purchases / redemptions / switches etc., based on theBusiness Day and relevant cut-off times on which the application is accepted at an InvestorService Centre.

Business Day A day other than (1) Saturday and Sunday or (2) a day on which The Stock Exchange,Mumbai or National Stock Exchange of India Limited or Reserve Bank of India or banksin Mumbai are closed or (3) a day on which there is no RBI clearing / settlement of securitiesor (4) a day on which the sale and / or redemption and / or switches of Units is suspendedby the Trustees / AMC or (5) a book closure period as may be announced by the Trustees /AMC.

The AMC reserves the right to change the definition of Business Day(s).

Provided that the days when the banks in any location where the AMC's Investor ServiceCentres are located, are closed due to a local holiday, such days will be treated as non BusinessDays at such centres for the purposes of accepting fresh subscriptions. However, if theInvestor Service Centre in such locations is open on such local holidays, then redemptionand switch requests will be accepted at those centres, provided it is a Business Day for theScheme on an overall basis. Notwithstanding the above, the AMC may declare any day asa Business Day / Non Business Day.

Benchmark CNX Midcap 200 Index

The HSBC Midcap Equity Fund which is benchmarked to CNX Midcap 200 Index is notsponsored, endorsed, sold or promoted by India Index Services & Products Limited (IISL).IISL is not responsible for any errors or omissions or the results obtained from the use ofsuch index and in no event shall IISL have any liability to any party for any damages ofwhatsoever nature (including lost profits) resulted to such party due to purchase or sale orotherwise of such product benchmarked to such index.

Call money / Money at Call Refers to the money lent by Mutual Funds in the Interbank Call Money Market, subject tonecessary regulatory approvals.

Custodian JPMorgan Chase Bank, Mumbai, registered under the SEBI (Custodian of Securities)Regulations, 1996, currently acting as Custodian to the Scheme or any other custodianapproved by the Trustees.

Designated Collection Centre Such centres as may be designated by the AMC for collection of subscriptions and / orredemptions and / or switches in the Scheme.

Depository Depository as defined in the Depositories Act, 1996.

Derivatives A financial instrument, traded on or off an exchange, the price of which is directly dependentupon (i.e., "derived from") the value of one or more underlying securities, equity indices, debtinstruments, commodities, other derivative instruments, or any agreed upon pricing index orarrangement (e.g., the movement over time of the Consumer Price Index or freight rates) etc.is known as a derivative. Derivatives involve the trading of rights or obligations based onthe underlying product, but do not directly transfer property.

Distributor Such persons / firms / companies / corporates as may be appointed by the AMC to distribute /sell / market the Schemes of the Fund.

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

Equity related securities Convertible Debentures, Equity Warrants, Convertible Preference Shares, FCCBs, EquityMutual Funds etc. are considered equity related securities.

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FII Foreign Institutional Investors, registered with SEBI under Securities and Exchange Boardof India (Foreign Institutional Investors) Regulations, 1995 as amended from time to time.

Floating Rate Debt Instruments Floating Rate Debt Instruments are instruments where interest rates are reset periodically andare generally linked to a benchmark rate. Say an instrument on which the interest providedby the issuer is some basis points above daily MIBOR.

Fund or Mutual Fund HSBC Mutual Fund, a trust set up under the provisions of the Indian Trusts Act, 1882 andregistered with SEBI under the Securities and Exchange Board of India (Mutual Funds)Regulations, 1996 vide Registration No. MF/046/02/5 dated May 27, 2002.

HMEF HSBC Midcap Equity Fund

HSCI or Sponsor or Settlor HSBC Securities and Capital Markets (India) Private Limited, a company incorporated underthe provisions of the Companies Act, 1956.

Initial Public Offer or Offer for purchase of Units of HSBC Midcap Equity Fund during the Initial Offer Period.Initial Issue or IPOInitial Offer Period

Investment Management Agreement The Agreement dated February 7, 2002 entered into between the Trustees of HSBCMutual Fund and HSBC Asset Management (India) Private Limited as amended fromtime to time.

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

Load In case of repurchase / switch out of a Unit, the sum of money deducted from the applicableNAV on the repurchase / switch out (Exit Load) and in the case of sale / switch in of a Unit,a sum of money to be paid by the prospective investor on the sale / switch in of a Unit inaddition to the applicable NAV (Entry Load).

Midcap Stocks Mid Cap companies are generally those companies that are either included in the CNXMidcap 200 Index or ones that fall within market capitalization requirement of CNX Midcap200 Index.

NAV Net Asset Value of the Units of the Scheme, Plan(s) (including Option(s) if any, therein)calculated in the manner provided in this Offer Document or as may be prescribed by theRegulations from time to time.

Offer Document This document issued by HSBC Mutual Fund, Offering units of HSBC Midcap Equity Fund,a Scheme of HSBC Mutual Fund, for subscription.

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

Registrar Computer Age Management Services (P) Ltd. (CAMS), registered under the SEBI (Registrarsto an Issue and Share Transfer Agents) Regulations, 1993, currently acting as Registrar tothe Scheme or any other registrar appointed by the AMC from time to time.

Repo / Reverse repo Sale / purchase of Government Securities as may be allowed by RBI from time to time withsimultaneous agreement to repurchase / resell them at a later date.

Repurchase / Redemption Repurchase / redemption of Units of the Scheme.

Sale / Subscription Sale / subscription of Units of the Scheme.

Scheme HSBC Midcap Equity Fund (including, as the context permits, the Options / Sub-options).

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

SEBI Regulations or Regulations Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 as amended fromtime to time, including by way of circulars or notifications issued by SEBI, the Governmentof India or RBI.

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

Offer Document



Trustees The Board of Trustees of HSBC Mutual Fund and approved by SEBI to act as the Trusteesof the Schemes of the Fund or any other Trustee as may be appointed from time to time bythe Sponsor and as approved by SEBI.

Trust Deed The Trust Deed dated 7 February, 2002 made by and between the Sponsor and the Trusteesestablishing HSBC Mutual Fund, as amended from time to time.

Trust Fund Amounts settled / contributed by the Sponsor towards the corpus of the HSBC Mutual Fundand additions / accretions thereto.

Unit The interest of an investor which consists of one undivided share in the net assets of theScheme.

Unitholder or Investor A holder of Units in the Scheme of HSBC Mutual Fund offered under this Offer Document.

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� Mutual funds and securities investments are subject to marketrisks and there is no assurance or guarantee that the objectivesof the Scheme will be achieved.

� As with any investment in securities, the NAV of the Unitsissued under the Scheme can go up or down depending on thefactors and forces affecting the capital markets.

� Past performance of the Sponsor, Mutual Fund, AMC or anyassociates of the Sponsor / AMC does not indicate the futureperformance of the Scheme of the Mutual Fund.

� HSBC Midcap Equity Fund (HMEF) is the name of the Schemeand does not in any manner indicate either the quality of theScheme or its future prospects and returns.

� The Sponsor is not responsible or liable for any loss or shortfallresulting from the operation of the Scheme beyond the initialcontribution of Rs. 1,00,000 (Rupees One Lakh only) made byit towards setting up the Mutual Fund. The associates of thesponsor are not responsible or liable for any loss or shortfallresulting from the operation of the Scheme.

� 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 Scheme' investments include,but are not limited to, fluctuations in the 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.

� Investment decisions made by the AMC may not always beprofitable.

� From time to time and subject to the Regulations, the Sponsor,their affiliates, associates, subsidiaries, the Mutual Fund andthe AMC may invest directly or indirectly in the Scheme.These entities may acquire a substantial portion of the Scheme'sUnits and collectively constitute a major investor in the Scheme.Accordingly, redemption of Units held by such entities mayhave an adverse impact on the Scheme because the timing ofsuch redemption may impact the ability of other Unitholdersto redeem their Units.

� As the liquidity of the Scheme's investments could, at times,be restricted by trading volumes and settlement periods, thetime taken by the Fund for redemption of Units may be

significant in the event of an inordinately large number ofredemption requests or of a restructuring of the Scheme'sportfolio. In view of this, the Trustees have the right, in theirsole discretion to limit redemptions (including suspendingredemption) under certain circumstances, as described underthe section titled "Right to Limit Redemptions".

� Redemptions due to change in the fundamental attributes of theScheme or due to any other reasons may entail tax consequences.The Trustees, the Mutual Fund, the AMC, their directors ortheir employees shall not be liable for any tax consequencesthat may arise.

� The tax benefits described in this Offer Document are asavailable under the present taxation laws and are availablesubject to conditions. The information given is included forgeneral purpose only and is based on advice received by theAMC regarding the law and practice in force in India and theinvestors should be aware that the relevant fiscal rules or theirinterpretation may change. As is the case with any investment,there can be no guarantee that the tax position or the proposedtax position prevailing at the time of an investment in theScheme will endure indefinitely. In view of the individualnature of tax consequences, each investor is advised to consulthis/ her own professional tax advisor.

� Neither this Offer Document nor the Units have been registeredin any jurisdiction. The distribution of this Offer Document incertain jurisdictions may be restricted or totally prohibited andaccordingly, persons who come into possession of this OfferDocument are required to inform themselves about, and toobserve, any such restrictions.

� Prospective investors should review / study this Offer Documentcarefully and in its entirety and shall not construe the contentshereof or regard the summaries contained herein as advicerelating to legal, taxation, or financial / investment matters andare advised to consult their own professional advisor(s) as tothe legal, tax, financial or any other requirements or restrictionsrelating to the subscription, gifting, acquisition, holding, disposal(sale, switch or redemption or conversion into money) of Unitsand to the treatment of income (if any), capitalisation, capitalgains, any distribution, and other tax consequences relevant totheir subscription, acquisition, holding, capitalisation, disposal(sale, transfer, switch or conversion into money) of Unitswithin their jurisdiction of nationality, residence, incorporation,domicile etc. or under the laws of any jurisdiction to whichthey or any managed funds to be used to purchase/gift Unitsare subject, and also to determine possible legal, tax, financialor other consequences of subscribing / gifting, purchasing orholding Units before making an application for Units.

Offer Document



� HSBC Mutual Fund / the AMC have not authorised any personto give any information or make any representations, eitheroral or written, not stated in this Offer Document in connectionwith issue of Units under the Scheme. Prospective investorsare advised not to rely upon any information or representationsnot incorporated in this Offer Document as the same have notbeen authorised by the Fund or the AMC. Any subscription,purchase or sale made by any person on the basis of statementsor representations which are not contained in this OfferDocument or which are inconsistent with the informationcontained herein shall be solely at the risk of the investor.

� To the best of the knowledge and belief of the Trustees and theAMC, information contained in this Offer Document is inaccordance with the SEBI regulations and the facts statedherein are correct and this Offer Document does not omitanything likely to have an impact on the importance of suchinformation.

� The Scheme and individual Plan(s), if any under the Schemeshall have a minimum of 20 investors and no single investorshall account for more than 25% of the corpus of the Scheme/Plan(s). However if such a situation arises during the IPO ofthe Scheme, in accordance with the SEBI Regulations, theFund will endeavour to ensure that within a three months timeperiod or the end of the succeeding calendar quarter from theclose of the Initial Public Offering (IPO) of the Scheme,whichever is earlier, the Scheme complies with these twoconditions failing which the provisions of Regulation 39 (2) (c)of SEBI (Mutual Funds) Regulations, 1996 would becomeapplicable automatically without any reference from SEBI andaccordingly the Scheme / Plan(s) shall be wound up and theunits would be redeemed at applicable NAV. The two conditionsmentioned above shall also be complied within each subsequentcalendar quarter thereafter, on an average basis, as specified bySEBI. The Fund shall adhere to the requirements prescribed bySEBI from time to time in this regard.

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Equity or Equity related Securities:� Subject to the stated investment objective, the Scheme proposes

to invest in equity and equity related securities. Equityinstruments by nature are volatile and prone to price fluctuationson a daily basis due to both macro and micro factors. Tradingvolumes, settlement periods and transfer procedures may restrictthe liquidity of these investments. Different segments offinancial markets have different settlement periods and suchperiods may be extended significantly by unforeseencircumstances. The inability of the Scheme to make intendedsecurities' purchases due to settlement problems could causethe Scheme to miss certain investment opportunities. In theview of the Fund Manager, investing in Mid and Small Capstocks are riskier than investing in Large Cap stocks.

� The Scheme 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.

Debt Instruments :Subject to the stated investment objective, the Scheme proposes toinvest in debt and related instruments.

� Price-Risk or Interest Rate Risk: As with all debt securities,changes in interest rates may affect the NAV of the Scheme asthe prices of securities increase as interest rates decline anddecrease as interest rates rise. Prices of long-term securities

generally fluctuate more in response to interest rate changesthan do short-term securities. Indian debt markets can be volatileleading to the possibility of price movements up or down infixed income securities and thereby to possible movements inthe NAV.

In the case of floating rate instruments, an additional risk couldbe due to the change in the spreads of floating rate instruments.If the spreads on floating rate papers rise, then there could bea price loss on these instruments. Secondly in the case of fixedrate instruments that have been swapped for floating rates, anyadverse movement in the fixed rate yields vis-à-vis swap ratescould result in losses. However, floating rate debt instrumentswhich have periodical interest rate reset, carry a lower interestrate risk as compared to fixed rate debt instruments. In a fallinginterest rate scenario the returns on floating rate debt instrumentsmay not be better than those on fixed rate debt instruments.

� Liquidity or Marketability Risk: This refers to the ease withwhich a security can be sold at or near to its valuation yield-to-maturity (YTM). The primary measure of liquidity risk isthe spread between the bid price and the offer price quoted bya dealer. Liquidity risk is today characteristic of the Indianfixed income market.

� Credit Risk: Credit risk or default risk refers to the risk that anissuer of a fixed income security may default (i.e. will beunable to make timely principal and interest payments on thesecurity). Because of this risk, corporate debentures are soldat a yield above those offered on Government Securities, whichare sovereign obligations. Normally, the value of a fixed incomesecurity will fluctuate depending upon the changes in theperceived level of credit risk as well as any actual event ofdefault. The greater the credit risk, the greater the yield requiredfor someone to be compensated for the increased risk.

� Reinvestment Risk: This risk refers to the interest rate levelsat which cash flows received from the securities in the Schemeare reinvested. The additional income from reinvestment is the"interest on interest" component. The risk is that the rate atwhich interim cash flows can be reinvested may be lower thanthat originally assumed.

� Benchmark Risk: The floating rate segment of the domesticdebt market is not very developed. Currently, majority of theissuance of floating rate papers is linked to NSE MIBOR. Asthe floating rate segment develops further, more benchmarkrates for floating papers may be available in future. The fewernumber of benchmark rates could result in limited diversificationof the benchmark risk.

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.Further even among corporate bonds, bonds which are AAArated are comparatively less risky than bonds which are AArated.

Securitised debt: Securitised debt papers carry credit risk of theObligors and are dependent on the servicing of the PTC /Contributions etc. However these are offset suitably byappropriate pool selection as well as credit enhancementsspecified by Rating Agencies. In cases where the underlyingfacilities are linked to benchmark rates, the securitized debtpapers may be adversely impacted by adverse movements inbenchmark rates. However this risk is mitigated to an extent

Offer Document



by appropriate credit enhancement specified by rating agencies.Securitised debt papers also carry the risks of prepayment bythe obligors. In case of prepayments of securities debt papers,it may result in reduced actual duration as compared to theexpected duration of the paper at the time of purchase, whichmay adversely impact the portfolio yield. These papers alsocarry risk associated with the collection agent who is responsiblefor collection of receivables and depositing them. TheInvestment teams evaluates the risks associated with suchinvestments before making an investment decision.

The underlying assets in the case of investment in securitizeddebt could be mortgages or other assets like credit cardreceivables, automobile / vehicle / personal / commercial /corporate loans and any other receivables / loans / debt.

The risks associated with the underlying assets can be describedas under :

Credit card receivables are unsecured. Automobile / vehicleloan receivables are usually secured by the underlyingautomobile / vehicle and sometimes by a guarantor. Mortgagesare secured by the underlying property. Personal loans areusually unsecured. Corporate loans could be unsecured orsecured by a charge on fixed assets / receivables of the companyor a letter of comfort from the parent company or a guaranteefrom a bank / financial institution. As a rule of thumb, underlyingassets which are secured by a physical asset / guarantor areperceived to be less risky than those which are unsecured. Byvirtue of this, the risk and therefore the yield in descendingorder of magnitude would be credit card receivables, personalloans, vehicle /automobile loans, mortgages and corporate loansassuming the same rating.

�� #� ��

ADRs / GDRs : It is the AMC's belief that investment in ADRs /GDRs 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. Since the Scheme would invest onlypartially in ADRs / GDRs, there may not be readily available andwidely accepted benchmarks to measure performance of the Scheme.To manage risks associated with foreign currency and interest rateexposure, the Fund may use derivatives for efficient portfoliomanagement including hedging and in accordance with conditionsas may be stipulated by SEBI / RBI from time to time.

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 ceiling 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 that the assets of the Scheme will be invested in ADRs/GDRs denominated in foreign currencies, the Indian Rupeeequivalent of the net assets, distributions and income may beadversely affected by changes in the value of certain foreign

currencies relative to the Indian Rupee. The repatriation of capitalto India may also be hampered by changes in regulations concerningexchange controls or political circumstances as well as the applicationto it of other restrictions on investment.

� Derivatives: The Fund may use derivative instruments likestock index futures, interest rate swaps, forward rate agreementsor other derivative instruments for the purpose of hedging andportfolio balancing, as permitted under the Regulations andguidelines.

As and when the Schemes trade in the derivatives market thereare risk factors and issues concerning the use of derivatives thatinvestors should understand. Derivative products are specialisedinstruments that require investment techniques and risk analysesdifferent from those associated with stocks and bonds. The useof a derivative requires an understanding not only of theunderlying 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 toforecast price or interest rate movements correctly. There is thepossibility that a loss may be sustained by the portfolio as aresult of the failure of another party (usually referred to as the"counter party") to comply with the terms of the derivativescontract. Other risks in using derivatives include the risk ofmispricing or improper valuation of derivatives and the inabilityof derivatives to correlate perfectly with underlying assets,rates and indices. Thus, derivatives are highly leveragedinstruments. Even a small price movement in the underlyingsecurity could have a large impact on their value. Also, themarket for derivative instruments is nascent in India.

� Stock Lending: The risks in lending portfolio securities, as withother extensions of credit, consist of the failure of anotherparty, in this case the approved intermediary, to comply withthe terms of agreement entered into between the lender ofsecurities i.e. the Scheme and the approved intermediary. Suchfailure to comply can result in the possible loss of rights in thecollateral put up by the borrower of the securities, the inabilityof the approved intermediary to return the securities depositedby the lender and the possible loss of any corporate benefitsaccruing to the lender from the securities deposited with theapproved intermediary. The Mutual Fund may not be able tosell such lent securities and this can lead to temporary illiquidity.

��

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

� The terms defined in this Offer Document include the pluralas well as the singular.

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

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

Note (Abbreviations used) : HEF - HSBC Equity Fund, HIOF -HSBC India Opportunities Fund, HCF - HSBC Cash Fund, HIF-ST- HSBC Income Fund - Short Term Plan, HIF-IP - HSBC IncomeFund Investment Plan, HIIF-ST- HSBC Institutional Income Fund -Short Term Plan, HIIF-IP - HSBC Institutional Income Fund -Investment Plan, HGF-LT - HSBC Gilt Fund - Long Term Plan,HGF-ST - HSBC Gilt Fund - Short Term Plan, HMIP-R - HSBCMIP Regular Plan, HMIP-S - HSBC MIP Savings Plan, HFRF-LT -HSBC Floating Rate Fund - Long Term Plan, HFRF-ST - HSBCFloating Rate Fund - Short Term Plan.

Offer Document



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It is confirmed that:

i) The draft Offer Document forwarded to SEBI is in accordance with the SEBI (Mutual Funds)Regulations, 1996 and the guidelines and directives issued by SEBI from time to time.

ii) All legal requirements connected with the launching of the Scheme as also the guidelines,instructions, etc. issued by the Government 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 and adequate to enable the investorsto make a well-informed decision regarding investment in the proposed Scheme.

iv) The intermediaries named in the Offer Document, are registered with SEBI and till date suchregistration is valid.

For HSBC Asset Management (India) Private Limited(Investment Manager to HSBC Mutual Fund)

Sd/-Kashmira Mathew

Head of Compliance & Company Secretary

Place : MumbaiDate : January 18, 2005

Offer Document



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Name of the Scheme HSBC Midcap Equity Fund

Investment Objective The Fund is an open ended Equity Scheme seeking to generate long term capital growth froman actively managed portfolio of equity and equity related securities primarily being midcapstocks. However, it could move a portion of its assets towards fixed income securities if the fundmanager becomes cautious or negative on the Indian equity markets.

Plan(s) –

Option(s) / Sub-option(s) Dividend (Payout / Reinvestment) and Growth

Dividend Declaration of dividend and its frequency will inter alia depend upon the distributable surplus.Dividend may be declared from time to time at the discretion of the Trustees.

Minimum Application Amount Rs. 5,000/-

Minimum additional investment Re. 1/-

Initial Offer The Initial Offer Period for the Scheme will commence from April 12, 2005 and close onMay 3, 2005. The earliest closing date will be April 13, 2005. The initial offer price of Unitsof the Scheme will be Rs. 10/- per unit, for cash at face value plus applicable load.

The Trustees reserve the right to extend the closing date of the Initial Offer Period, subject tothe condition that the subscription to the Initial Offer shall not be kept open for more than 30days.

It is the intent of the Trustees / AMC to collect subscriptions in the Scheme of Rs. 700 croreswith a view to protect the interest of the unit holders from the liquidity risk inherent to a MidcapFund. Towards this intent, the Trustees / AMC reserve the right to announce closure of the InitialPublic Offer on any date commencing from the Earliest Closing Date and extending up to theFinal Closing Date of the Offer. The announcement will be made by displaying a notice in theInvestor Service Centres and issuing advertisements in 2 newspapers, at least 1 day prior toclosing the Initial Public Offer. However, as it is not possible to ensure that the amount ofsubscriptions received in the Initial Public Offer would be exactly Rs. 700 crores, it is possiblethat the AMC collects subscriptions over Rs. 700 crores. Subject to the applications being inaccordance with the terms of this Offer, full and firm allotment will be made to all applicants.The excess amount collected in the IPO would be retained in the Fund but further subscriptionsinto the Fund on an on-going basis would be temporarily suspended until the assets undermanagement fall below Rs. 700 crores, due to redemptions, market forces or for any other reason.All decisions of the Trustees / AMC will take effect prospectively and will be communicatedby displaying a notice in the Investor Service Centres and issuing advertisements in 2 newspapers,at least 1 day prior to the decision taking effect. All decisions of the Trustees / AMC will bemade in the interest of the investors and will be subject to the SEBI Regulations.

On-going Subscriptions The Units of the Scheme shall be available for subscription at Applicable NAV based prices,subject to prevalent load provisions, if any on every business day not later than 30 days afterthe close of the Initial Offer Period.

The Trustees / AMC reserve the right to temporarily suspend subscriptions, switches into theScheme, if the assets under management of the Scheme exceeds Rs. 700 crores. However, asit may not be possible to ensure that the assets under management does not exceed Rs. 700 croresat the point of time of subscription, any excess amounts collected in the Scheme would beretained until the suspension of subscriptions, switches into the Scheme takes effect. Thesuspension will be for a minimum period of 1 month or until the assets under management fallbelow Rs. 700 crores, due to redemptions, market forces or for any other reason, whichever islater. The suspension will not however affect Dividend reinvestment options, Systematic InvestmentPlans, Systematic Transfer Plans or other standing instructions which have been entered into bythe investors at any time prior to the date from which the suspension takes effect. The Trustees /AMC also reserve the right to review the amount, frequency and methodology by which thesuspension of further sale of units will be enforced. All decisions of the Trustees / AMC willtake effect prospectively and be communicated to the investors from time to time by arrangingto display a notice in the Investor Service Centres and issuing advertisements in 2 newspapers,at least 1 day prior to the decision taking effect. All decisions of the Trustees / AMC will bemade in the interest of the investors and will be subject to the SEBI Regulations.

Offer Document



The AMC will calculate and disclose the first NAVs not later than30 days from the closure of the Initial Offer Period. On an ongoingbasis, NAVs will be calculated and published for every BusinessDay. NAV of the Scheme / Option(s) shall be made available at allInvestor Service Centres of the AMC. The AMC shall have the NAVpublished in two daily newspapers and updated on AMC's website(www.assetmanagement.hsbc.co.in). As presently required by theSEBI Regulations, a complete statement of the Scheme portfoliowould be published by the Mutual Fund as an advertisement in oneEnglish daily circulating in the whole of India and in a newspaperpublished in the language of the region where the head office of themutual fund is situated, within 1 month from the close of each halfyear (i.e. 31 March and 30 September ) or mailed to the Unitholders.

The AMC and the Trustees reserve the right to introduce such other

plans as they deem necessary from time to time, in accordance withthe SEBI Regulations. The AMC and the Trustees reserve the rightto increase / decrease the Initial Offer Period.

The AMC shall update the NAVs on the website of Association ofMutual Funds in India - AMFI (www.amfiindia.com) by 8.00 p.m.on every Business Day. In case of any delay, the reasons for suchdelay would be explained to AMFI and SEBI by the next day. If theNAVs are not available before commencement of business hours onthe following day due to any reason, the Fund shall issue a pressrelease providing reasons and explaining when the Fund would beable to publish the NAVs.

NAV will be determined on every Business Day, except underspecial circumstances specified in this Offer Document.

Offer Document



SECTION I

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HSBC Mutual Fund ("the Mutual Fund" or "the Fund") has beenconstituted as a Trust in accordance with the provisions of the IndianTrusts Act, 1882 (2 of 1882) vide a Trust Deed dated February 7,2002. The office of the Sub-Registrar of Assurances at Mumbai hasregistered the Trust Deed establishing the Fund under the RegistrationAct, 1908. The Fund was registered with SEBI vide registrationnumber MF/046/02/5 dated May 27, 2002.

The office of the Mutual Fund is at 52/60, Mahatma Gandhi Road,Fort, Mumbai - 400 001.

The Trust has been formed for the purpose of pooling of capital fromthe public for collective investment in securities / any other propertyfor the purpose of providing facilities for participation by personsas beneficiaries in such properties / investments and in the profits /income arising therefrom.

��

HSBC Securities and Capital Markets (India) Private Limited(HSCI).HSCI is a member of the HSBC Group, one of the largest bankingand financial services organisations, in the world. Headquartered inLondon, HSBC operates through long-established businesses infive regions: Europe, The Asia Pacific Region, the Americas, TheMiddle East and Africa. Through its global network of over 9800offices in 77 countries and territories, HSBC provides acomprehensive range of financial services to more than 110 millioncustomers: personal, commercial, corporate, institutional andinvestment and private banking clients.

HSCI offers integrated investment banking services, Equities andInvestment Banking Advisory. HSCI is a member of The StockExchange, Mumbai and National Stock Exchange and is also acategory I merchant banker registered with Securities and ExchangeBoard of India.

Equities: HSCI is primarily an institutional stockbroker, with aclient base spanning foreign institutional investors, Indian financialinstitutions, mutual funds and select retail clients. The business isbacked by comprehensive research covering around 62 of India'slargest, actively traded securities across 13 industry groups.

Investment Banking Advisory: HSCI provides public and privatesector corporates and government clients with strategic and financialadvice in the areas of mergers and acquisitions, primary and secondarymarket funding, privatisations, structured financial solutions andproject export finance.

HSCI has contributed an amount of Rs. 100,000 (Rupees One LakhOnly) to the corpus of the Fund. HSCI is not responsible nor liablefor any loss or shortfall resulting from the operation of the Schemebeyond this contribution.

HSCI holds 75% of the paid-up equity share capital of the AMC.The balance is held by resident Indian individuals.

Given below is a brief summary of HSCI's financials:

Year ended December 31 (Rs. '000)

Description 2004* 2002 2001

Total Income 698,271 519,689 468,469

Profit Before Tax 171,523 126,675 56,112

Profit After Tax 100,799 50,265 33,412

Free Reserves / 47,217 (97,783) (142,254)(Accumulated Losses)

Net Worth 1,078,289 940,525 878,237

Earnings per Share (Rs.) 7.72 3.55 3.24

Book Value per 138.05 120.41 85.18Share (Rs.) / (Net Worth /No. of Shares)

Dividend % – – –

Paid-Up Capital (Equity) 781,072 781,072 781,072

(Preference) 250,000 250,000 250,000

Share Capital on – – –amalgamation pendingallotment

* 15 months period from January 1, 2003 to March 31, 2004

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The Sponsor has appointed a Board of Individual Trustees (the Trustees) for managing the HSBC Mutual Fund.

The Board presently comprises the following:

N. P. Gidwani Director92B, Embassy Apartments, 46 Napean Sea Road, Rampart Finance Private LimitedMumbai - 400 036 AFL Private LimitedChairman of the Board of Trustees Tolani Shipping Company LimitedChartered Accountant Technova Imaging Systems Private LimitedIndependent financial / management consultant Technova Graphics Private Limited

Marsh (India) Private LimitedLastra Niraj Private LimitedADRC LimitedADRC (Cayman) Limited, British West Indies

Offer Document



Blair Chilton Pickerell DirectorLa Hacienda, Lower House 1, HSBC Asset Management (Singapore) Limited29 Mt. Kellett Road, HSBC Life (International) LimitedThe Peak, Hong Kong HSBC Asset Management (Taiwan) LimitedBusiness Executive HSBC Asset Management (Bahamas) LimitedChief Executive, Asia-Pacific, HSBC Asset Management (Hong Kong) LimitedHSBC Asset Management (Hong Kong) Limited HSBC Asset Management Securities (Hong Kong) Limited

HSBC Investment Funds (Hong Kong) LimitedSINOPIA Greater China LimitedHSBC Asset Management LimitedThe Taiwan Fund, Inc.

Nasser Munjee DirectorChampagne House, Asea Brown Boveri Limited69, Worli Seaface, HDFC LimitedMumbai - 400 018 Repro India LimitedEconomist/ Consultant Cummins India LimitedSenior Advisor - Infrastructure, KPMG Gujarat Ambuja Cements Limited

KPIT Cummins Infosystems LimitedVoltas LimitedThe Jammu & Kashmir Bank LimitedMahindra & Mahindra Financial Services LimitedSkanska Cementation India LimitedSowil LimitedUnichem Laboratories LimitedSecurities Trading Corporation of India LimitedTata Infotech Limited

Manu Tandon Director16, Solitaire, 4 Samadhi Road, NilOff Pune - Nagar Road, Pune - 411 006Managing DirectorBeck India Limited

Mehli Mistri Director302, Belmont, 3rd Floor Tracmail (Bermuda) Ltd.37-D, Napean Sea Road,Mumbai - 400 036ExecutiveEx-MD Saudi American Bank (Citibank affiliate),Ex-CEO ANZ Grindlays Bank

Dilip J. Thakkar Director12-B Accropolis, Blueberry Trading Company Private LimitedLittle Gibbs Road, Chrysanthemum Investments Private LimitedMalabar Hill, Deccan Florabase LimitedMumbai - 400 006 Essar Oil LimitedChartered Accountant Hamlet Constructions (India) Private LimitedPartner - Jayantilal Thakkar & Co., Himatsingka Seide India LimitedPartner - Jayantilal Thakkar Associates India Consultancy Group Private Limited

Indo Count Industries Ltd.Matsushita Lakhanpal Battery India LimitedMonotona Exports LimitedNandan Investments Private LimitedOmega Management Services LimitedPAE Ltd.Rajasvi Properties Holdings Private LimitedStarrock Investments & Trading Private LimitedThirumalai Chemicals LimitedThe Ruby Mills LimitedTownship Real Estate Developers Private LimitedWalchandnagar Industries Limited, MumbaiWindmere Hospitality (India) Pvt. Ltd.

Mr. N. P. Gidwani and Mr. Blair Chilton Pickerell are associated with the Sponsor. Mr. Nasser Munjee, Mr. Manu Tandon, Mr. Mehli Mistriand Mr. Dilip J. Thakkar are independent Trustees. Thus, 4 out of the 6 Trustees are independent Trustees.

Offer Document



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Pursuant to the Trust Deed dated February 7, 2002 constituting theMutual Fund and in terms of the SEBI (Mutual Funds) Regulations,1996, the rights and obligations of the Trustees are as under:

� The Trustees shall have a right to obtain from the AMC suchinformation as is considered necessary by them.

� The Trustees shall ensure before the launch of any scheme thatthe AMC has: -

� Systems in place for its back office, dealing room andaccounting;

� Appointed all key personnel including fund manager(s)for the Scheme and submitted to the Trustees their bio-datawhich shall contain the educational qualifications, pastexperience in the securities market within 15 days of theirappointment;

� Appointed auditors to audit the accounts of the Scheme;

� Appointed compliance officer who shall be responsiblefor monitoring the compliance of the Act, rules andregulations, notifications, guidelines, instructions etc.issued by the Board or the Central Government and forredressal of investors' grievances. The compliance officerso appointed shall immediately and independently reportto the Board any non-compliance observed;

� Appointed registrars and laid down parameters for theirsupervision;

� Prepared a compliance manual and designed internalcontrol mechanisms including internal audit systems and

� Specified norms for empanelment of brokers and marketingagents.

� The Trustees shall ensure that the AMC has been diligent inempanelling brokers, in monitoring securities transactions withbrokers and avoiding undue concentration of business with anybroker.

� The Trustees are required to ensure that the AMC has not givenany undue or unfair advantage to any associate or dealt withany of the associates of the AMC in any manner detrimentalto the interests of the Unitholders.

� The Trustees are required to ensure that the transactions enteredinto by the AMC are in accordance with the SEBI (MutualFunds) Regulations, 1996 and the provisions of the Scheme.

� The Trustees are required to ensure that the AMC has beenmanaging the Scheme independently of other activities and hastaken adequate steps to ensure that the interest of investors ofone Scheme are not compromised with those of any otherScheme or of other activities of the AMC.

� The Trustees are required to ensure that all the activities of theAMC are in accordance with the provisions of SEBI (MutualFunds) Regulations, 1996.

� Where the Trustees have reason to believe that the conduct ofthe business of the Fund is not in accordance with theRegulations and the provisions of the Scheme, they are requiredto take such remedial steps as are necessary by them and toimmediately inform SEBI of the violation and the action takenby them.

� Each of the Trustees are required to file with the Fund thedetails of his securities' transactions on a quarterly basis, inaccordance with guidelines issued by SEBI from time to time.

� The Trustees are accountable for and are required to be thecustodian of the Fund's property of the respective Scheme andto hold the same in trust for the benefit of the Unitholders inaccordance with the SEBI (Mutual Funds) Regulations, 1996and the provisions of the Trust Deed.

� The Trustees are required to take steps to ensure that thetransactions of the Fund are in accordance with the provisionsof the Trust Deed.

� The Trustees are responsible for the calculation of any incomedue to be paid to the Fund and also of any income received inthe Mutual Fund for the holders of the Units of any Schemein accordance with the SEBI (Mutual Funds) Regulations,1996 and the Trust Deed.

� The Trustees are required to obtain the consent of the Unitholdersof a Scheme:

� When required to do so by SEBI in the interest of theUnitholders of that Scheme; or

� Upon the request of three-fourths of the Unitholders ofany Scheme under the Fund for that Scheme; or

� If a majority of the Trustees decide to wind up the Schemeor prematurely redeem the Units.

� 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, shall be carried outunless:

� a written communication about the proposed change issent to each Unitholder and an advertisement is given inone English daily newspaper having nationwide circulationas well as in a newspaper published in the language of theregion where the Head Office of the Mutual Fund issituated; and

� the Unitholders are given an option to exit at the prevailingNet Asset Value without any exit load.

� The Trustees are required to call for the details of transactionsin securities by the key personnel of the AMC in their ownnames or on behalf of the AMC and report the same to SEBIas and when called for.

� The Trustees are required to review quarterly, all transactionscarried out between the Fund, the AMC and its associates.

� The Trustees are required to review quarterly the net worth ofthe AMC and in case of any shortfall ensure that the AMCmakes up for the shortfall as per clause (f) of sub regulation(1) of Regulation 21 of SEBI (Mutual Funds) Regulations,1996.

� The Trustees are required to periodically review all servicecontracts such as custody arrangements, transfer agency ofsecurities and satisfy themselves that such contracts are executedin the interest of the Unitholders.

� The Trustees are required to ensure that there is no conflict ofinterest between the manner of deployment of its net worth bythe AMC and the interest of the Unitholders.

Offer Document



� The Trustees are required to periodically review the investorcomplaints received and the redressal of the same by the AMC.

� The Trustees are required to abide by the Code of Conduct asspecified in the Fifth Schedule of the SEBI (Mutual Funds)Regulations, 1996.

� The Trustees have to furnish to SEBI on a half yearly basis:-

� a report on the activities of the Fund;

� a certificate stating that the Trustees have satisfiedthemselves that there have been no instances of self dealingor front running by any of the Trustees, directors and keypersonnel of the AMC;

� a certificate to the effect that the AMC has been managingthe Scheme independently of any other activities and incase any activities of the nature referred to in Regulation24, sub regulation (2) of the SEBI (Mutual Funds)Regulations, 1996 have been undertaken, the AMC hastaken adequate steps to ensure that the interest of theUnitholders is protected.

� The independent Trustees are required to give their commentson the report received from the AMC regarding the investmentsby the Mutual Fund in the securities of the group companiesof the Sponsor.

� No amendment to the Trust Deed shall be carried out withoutprior approval of SEBI and Unitholders' approval / consentwill be obtained where it affects the interests of Unitholders asper the procedure / provisions laid down in the Regulations.

� The Trustees shall exercise due diligence as under:

A. General Due Diligence:

� The Trustees shall be discerning in the appointment of thedirectors of the AMC.

� The Trustees shall review the desirability of thecontinuance of the AMC if substantial irregularities areobserved in the Schemes and shall not allow the AMC tofloat any new Scheme.

� The Trustees shall ensure that all service providers holdappropriate registrations from SEBI or the concernedregulatory authority.

� The Trustees shall arrange for test checks of servicecontracts.

� The Trustees shall immediately report to SEBI any specialdevelopments in the Mutual Fund.

B. Specific Due Diligence:

The Trustees shall:

� Obtain internal / concurrent audit reports at regular intervalsfrom independent auditors appointed by the Trustees.

� Obtain compliance certificates at regular intervals fromthe AMC.

� Hold meetings of Trustees frequently and ensure that atleast 6 such meetings shall be held in each year.

� Consider the reports of the independent auditor andcompliance reports of the AMC at the meeting of theTrustees for appropriate action.

� Maintain records of the decisions of the Trustees at theirmeetings and of the minutes of the meetings.

� Prescribe and adhere to the code of ethics by the Trustees,the AMC and its personnel.

� Communicate in writing to the AMC of the deficienciesand check on the rectification of deficiencies.

� The Trustees shall maintain high standards of integrity andfairness in all their dealings and in the conduct of their business.

� The Trustees shall render at all times high standards of service,exercise due diligence, ensure proper care and exerciseindependent professional judgement.

� The independent Trustees shall pay specific attention to thefollowing as may be applicable, namely:

� The Investment Management Agreement and thecompensation paid under the Agreement.

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

� Selection of the AMC's independent directors.

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

� Selecting and nominating individuals to fill independentdirectors' vacancies.

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

� The reasonableness of fees paid to sponsors, AMC andany others for services provided.

� Principal underwriting contracts and renewals.

� Any service contracts with the associates of the AMC.

� Notwithstanding anything contained in sub-regulations(1) to (25) of Regulation 18 of the SEBI (Mutual Funds)Regulations, 1996, the Trustees shall not be held liable foracts done in good faith if they have exercised adequatedue diligence honestly.

� The Regulations provide that the meetings of the Trusteesshall be held at least once in every 2 calendar months andat least 6 such meetings shall be held every year. Further,as per the Regulations, for the purposes of constituting thequorum for the meetings of the Trustees, at least oneIndependent Trustee or Director should be present duringsuch meetings.

The supervisory role of the Trustees will be discharged by reviewingthe information and the operations of the Fund based on the reportssubmitted at the meetings of the Trustees, by reviewing the reportssubmitted by the Internal Auditor and the bi-monthly and half yearlycompliance reports. Presently the Board of Trustees are required tohold a meeting at least once in 2 calendar months and at least 6 suchmeetings are required to be held every year. During the period fromFebruary 2002 up to March 2005, the Board of Trustees met 19times.

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.

Offer Document



The Trustees may require or give verification of identity or otherdetails regarding any subscription or related information from / ofthe Unitholders as may be required under any law, which may resultin delay in dealing with the applications, Units, benefits, distribution,etc.

��

Pursuant to the Trust Deed constituting the Fund, the Fund isauthorised to pay the Independent Trustees a fee for their servicesfor meetings of the Board of Trustees / Committee meetings attendedby such Trustees, as may be mutually agreed between the Sponsorand the Board of Trustees from time to time, subject to the SEBIRegulations.

��+��!��%��,��

HSBC Asset Management (India) Private Limited (the InvestmentManager or the AMC), is a company incorporated under theCompanies Act, 1956, having its registered office at 52/60, MahatmaGandhi Road, Fort, Mumbai 400 001.

The paid-up equity share capital of the AMC is Rs. 12 crores. Outof the total equity paid-up capital, HSBC Securities and CapitalMarkets (India) Private Limited holds 75%, with the balance 25%being held by Indian resident individuals.

The AMC is appointed as the Investment Manager of HSBC MutualFund vide Investment Management Agreement (IMA) datedFebruary 7, 2002, executed between the Trustees and the AMC.

SEBI approved the AMC to act as the Investment Manager of theFund vide its letter No. MFD/BC/163/2002 dated May 27, 2002.

The AMC will manage the Scheme of the Fund as mentioned inthis Offer Document, in accordance with the provisions of IMA,the Trust Deed, the SEBI Regulations and the objectives of theScheme.

The AMC renders non-binding investment advisory services as asub-advisor in respect of HSBC Global Investment Funds - IndianEquity Fund (HGIF), the HSBC Group's India dedicated offshorefund registered in Luxembourg and other offshore funds managed /advised by the HSBC Group which invest in Indian securities. HGIFis a growth oriented fund investing in Indian equities listed on localexchanges or those available as international depository receipts.This Fund is registered with SEBI vide registration number IN-LU-FD-0330-95 dated December 6, 1995 and the registration has beenduly renewed. In accordance with the SEBI Regulations, an assetmanagement company, subject to certain conditions, is also permittedto undertake activities in the nature of portfolio management services,management and advisory services to offshore funds, pension funds,provident funds, venture capital funds, management of insurancefunds, financial consultancy and exchange of research on commercialbasis and such other activities as may be permitted by SEBI fromtime to time. Subject to these activities being assessed as desirableand economically viable, the AMC may undertake any or all ofthese activities after satisfying itself that there is no potential conflictof interest.

�� "�� "��%�

Niall S K Booker Director52/60, Mahatma Gandhi Road, HSBC Securities and Capital Markets (India) Private LimitedFort, Mumbai - 400 001 Bombay Chamber of Commerce & IndustryChairman of the Board of Directors HSBC Software Development (India) Private LimitedBank ExecutiveGroup General Manager & Chief Executive Officer, India -The Hongkong and Shanghai Banking Corporation Limited

Sanjiv Duggal Director52/60, Mahatma Gandhi Road, NilFort, Mumbai - 400 001Fund ManagerDirector & Chief Investment Officer -HSBC Asset Management (India) Private Limited

Nawshir Khurody Director12 A Darbhanga Mansion, Eureka Forbes LimitedCarmicheal Road, Samrat Holdings LimitedMumbai - 400 026 Voltas LimitedExecutive Khurody Technical Services Private LimitedEx-Chairman - Tata Infomedia Limited Vantech Investments LimitedEx-CEO & MD - Voltas Limited NextGen Publishing LimitedEx-CEO & MD - Merind Limited Forbes Gokak Ltd.

Forbes Infotainment Limited

Vithal Palekar Director415, Samudra Mahal, Dextrous Solutions LimitedWorli, Royen Investments LimitedMumbai - 400 018Chartered AccountantEx-Chairman and Managing Director -Johnson & Johnson LimitedPartner - Borkar & Muzumdar, Chartered Accountants

Offer Document



Jagjit Lal Pasricha Director4B Sunny Side, NilBride Street,Bangalore - 560 025Social workPresident, Multiple Sclerosis Society of IndiaEx-Joint Managing Director -Motor Industries Company Limited, MICO Bosch Group

Sanjay Prakash Director52/60, Mahatma Gandhi Road, NilFort, Mumbai - 400 001Chief Executive OfficerHSBC Asset Management (India) Private Limited

Mr. Niall S K Booker, Mr. Sanjiv Duggal and Mr. Sanjay Prakash are associated with the Sponsor. Mr. Nawshir Khurody, Mr. Vithal Palekarand Mr. Jagjit Lal Pasricha are independent Directors. Thus, 3 out of the 6 Directors are independent Directors.

� -��.�� *�#�� "��%�

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

� Floating Scheme of the Mutual Fund after approval of the sameby the Trustees and investing and managing the funds mobilisedunder various Scheme, in accordance with the provisions of theTrust Deed and the Regulations.

� Evaluating investment opportunities for further investments bythe Mutual Fund.

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

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

� Issuing, selling, repurchasing and cancelling the Units as perthe terms of the respective Scheme of the Mutual Fund.

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

� Opening and operating bank accounts in the name and onbehalf of each scheme in relation to the investments made bythe Mutual Fund.

� 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.

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

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

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

� Setting up an effective establishment for servicing of Unitholdersunder the various Scheme and also to protect the interest of theUnitholders.

� 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� The AMC shall take all reasonable steps and exercise due

diligence to ensure that the investment of funds pertaining toany Scheme is not contrary to the provisions of the SEBIRegulations and the Trust Deed.

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

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

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

� The Trustees at the request of the AMC may terminate theassignment of the AMC at any time provided that suchtermination shall become effective only after the Trustees haveaccepted the termination of assignment and communicatedtheir decision in writing to the AMC.

� Notwithstanding anything contained in any contract oragreement of termination, the AMC or its directors or otherofficers shall not be absolved of liability to the Mutual Fundfor their acts of commissions or omissions, while holding suchposition or office.

� The AMC shall not through any broker associated with theSponsor, purchase or sell securities, which is average of 5% ormore of the aggregate purchases and sales of securities madeby the Mutual Fund in all its Scheme. Provided that for thesepurposes, aggregate purchase and sale of securities shall excludesale and distribution of Units issued by the Mutual Fund.Provided further that the aforesaid limit of 5% shall apply fora block of any 3 months.

� The AMC shall not purchase and sell through any broker (otherthan a broker associated with the Sponsor) which is average

Offer Document



of 5% or more of the aggregate purchases and sale of securitiesmade by the Mutual Fund in all its Scheme, unless the AMChas recorded in writing the justification for exceeding the limitof 5% and reports of all such investments are sent to theTrustees on a quarterly basis. Provided that the aforesaid limitshall apply for a block of 3 months.

� The AMC shall not utilise the services of the Sponsor or anyof its associates, employees or their relatives, for the purposeof any securities' transactions and distribution and sale ofsecurities, provided that the AMC may utilise such services ifdisclosure to that effect is made to the Unitholders and thebrokerage or commission paid is also disclosed in the halfyearly annual accounts of the Mutual Fund.

� The AMC shall file with the Trustees the details of transactionsin securities by key personnel of the AMC in their own nameor on behalf of the AMC and shall also report to SEBI, as andwhen required by SEBI.

� In case the AMC enters into any securities' transaction withany of its associates a report to that effect shall be sent to theTrustees at their next meeting.

� In case any company has invested more than 5% of the net assetvalue of a Scheme, the investment made by that Scheme or byany other Scheme of the same Mutual Fund in that companyor its subsidiaries shall be brought to the notice of the Trusteesby the AMC and be disclosed in the half yearly / annualaccounts of the respective Scheme with justification for suchinvestment provided that the latter investment has been madewithin 1 year of the date of the former investment calculatedon either side.

� The AMC shall file with the Trustees and SEBI

� Detailed bio-data of all its directors along with theirinterest in other companies within 15 days of theirappointment; and any change in the interest of directorsevery 6 months.

� A quarterly report to the Trustees giving details andadequate justification about the purchase and sale ofsecurities of the group companies of the Sponsor or theAMC as the case may be, by the Mutual Fund during thequarter.

� Each director of the AMC shall file the details of histransactions of dealing in securities with the Trustees ona quarterly basis in accordance with guidelines issued bySEBI from time to time.

� The AMC shall not appoint any person as key personnel whohas been found guilty of any economic offence or involved inviolation of securities laws.

� The AMC shall appoint registrars and share transfer agentswho are registered with SEBI. Provided if the work relating tothe transfer of Units is processed in-house, the charges atcompetitive market rates may be debited to the Scheme and forrates higher than the competitive market rates, prior approvalof the Trustees shall be obtained and reasons for charginghigher rates shall be disclosed in the annual accounts.

� The AMC shall abide by the Code of Conduct as specified inthe Fifth Schedule of the SEBI Regulations.

� The AMC shall

� Not act as a trustee of any mutual fund

� 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 consultancyand exchange of research on commercial basis if any ofsuch activities are not in conflict with the activities of theMutual Fund without the prior approval of the Trusteesand SEBI. Provided that the AMC may itself or throughits subsidiaries undertake such activities if it satisfiesSEBI that the key personnel of the AMC, the systems,back office, bank and securities accounts are segregatedactivity wise and there exists systems to prohibit accessto inside information of various activities. Provided furtherthat the AMC shall meet capital adequacy requirements,if any, separately for each such activity and obtain separateapproval, if necessary under the relevant regulations;

� Not invest in any of its Scheme unless full disclosure ofits intention to invest has been made in the Offer Document.

� Not be entitled to charge any fees on its investment in thatScheme.

� 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 Schemeproperty in any way.

� The independent Directors of the AMC shall pay specificattention to the following as may be applicable, namely:

� The Investment Management Agreement and the compensationpaid under the Agreement.

� Service contracts with affiliates - whether the AMC has chargedhigher fees than outside contractors for the same services.

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

� Code of ethics must be designed to prevent fraudulent, deceptiveor manipulative practices by insiders in connection with personalsecurities transactions.

� The reasonableness of fees paid to Sponsors, AMC and anyothers for services provided.

� Principal underwriting contracts and renewals.

� Any service contracts with the associates of the AMC.

��%��,�!��

In the terms of the Investment Management Agreement and theRegulations, the AMC is entitled to an investment management andadvisory fee at the rate of 1.25% per annum of the weekly averagenet assets outstanding in each accounting year for the Schemeconcerned, as long as the net assets do not exceed Rs. 100 crores(Rupees One Hundred Crores Only) and 1.00% of the excess amountover Rs. 100 crores (Rupees One Hundred Crores Only), where netassets so calculated exceed Rs. 100 crores (Rupees One HundredCrores). For Scheme launched on a no load basis, the AMC isentitled to collect an additional management fee not exceeding 1%of the weekly average net assets outstanding in each financial year.

Offer Document



��)�!�# )�� "��%��#�+��/��

Sanjay Prakash, Chief Executive Officer40 yearsB.A. (Hons) Economics

Experience :Over 18 years experience in areas of banking, asset management,sales, operations, finance and technology.

� HSBC Asset Management (India) Private LimitedChief Executive Officer from April 2003 to present

� HSBC Asset Management (India) Private LimitedChief Operating Officer from December 2001 to March 2003

� HSBC Securities and Capital Markets (India) Private LimitedChief Operating Officer (Designate) - HSBC Asset Management(India) Private Limited from April 2001 to December 2001.

� ANZ Grindlays Asset Management Company Private Limited(now Standard Chartered Asset Management)Head - Operations, India from September 1999 to March 2001

� ANZ Grindlays Bank (now Standard Chartered Bank)Area Manager - Operations, Western India from October 1996to August 1999

Area BPR Team Leader, Western India from July 1997 toJanuary 1998

Area Manager - Operations, Eastern India from January 1996to September 1996

Branch Manager, Shakespeare Sarani, Calcutta from July 1994to December 1996

Audit Manager Retail Services, Group Audit, South Asia fromJanuary 1993 to June 1994

Computer Auditor / Auditor Systems & Research, Group Audit,South Asia from June 1991 to December 1992

Internal Auditor, ANZ Bank, Melbourne, Australia from April1990 to May 1991

Sanjiv Duggal, Director & Chief Investment Officer41 yearsCA, England and Wales

Associate of the Institute of Investment Management and Research

Foundation course in Accountancy

Various A and O levels

Experience:Over 10 years experience in fund management

� HSBC Asset Management (India) Private LimitedDirector & Chief Investment Officer from June 2002 to present

� HSBC Asset Management (Europe) LimitedHead of Equities, Indian Subcontinent from 1996 to May 2002

� Hill Samuel GroupFund Manager, Emerging and Asian Equities from 1991 to1996

� Heron GroupSenior internal auditor from 1990 to 1991

� Touche RossAudit Supervisor from 1988 to 1990

� Bright Grahame MurrayAudit Supervisor from 1984 to 1988

Was Senior Fund Manager of HSBC Global Investment Funds -Indian Equity Fund, the HSBC Group's India dedicated offshorefund with a track record of over 7 years. Built up this fund from$ 10m to $ 300m at peak through active marketing and strongconsistent performance. Has experience of managing a range ofemerging and Asian markets equity funds.

Achievements (HSBC Global Investment Funds - Indian EquityFund):

� Winner of the South China Morning Post Fund Manager of theYear Awards

2002 - 3 year award

2001 - 3 year award

2000 - 1 and 3 year awards

� Winner of the Lipper Funds Award for the category of Fundof the Year 2002 - Equity India

� Winner of Standard Chartered Investment Fund Awards for2000

� Winner of the Banco Swiss Fund Guide Award in 2000 for 4thbest Asian fund over 3 years

� Winner of Benchmark Investment Fund Award for best Indiafund in 1998

� Second in 1998 in Indian Equity category for S&P Micropalawards

� 5 star rated by S&P Micropal

� 5 star rated by Morning Star

S. Venkatesh Iyer, Chief Operating Officer39 yearsChartered Accountant

Experience:Over 15 years experience in Operations, Finance, Customer Serviceetc.

� HSBC Asset Management (India) Private LimitedChief Operating Officer from August 2004 to date

� Prudential ICICI Asset Management CompanyAssociate Vice President - Operations from July 2004 to August2004

� Sundaram Asset Management Co. Ltd.Vice President - Operations, from August 2003 to July 2004

� Quintant Services LimitedLead Consultant from May 2003 to July 2003

� Capital Group International Inc.Consultant, from December 1999 to May 2003

� Birla Sun Life Asset Management Company LimitedController Operations, June 1996 to November 1999

� Ernst & Young, Accounting Firm, KuwaitSenior Accountant from December 1991 to September 1995

Offer Document



Anthony Heredia, Head of Sales & Distribution32 yearsB. Com., CA

Experience:

Over 9 years experience in sales and distribution

� HSBC Asset Management (India) Private LimitedHead of Sales and Distribution from December 2001 to present

� Birla SunLife Asset Management CompanyAssistant Vice President - Business Development from October1995 to November 2001

Kashmira Mathew, Head of Compliance & Company Secretary34 yearsB. Com. (Hons), ACS

Experience:

Over 9 years experience in legal, secretarial and compliance

� HSBC Asset Management (India) Private LimitedHead of Compliance & Company Secretary from December2001 to present

� HSBC Securities and Capital Markets (India) Private LimitedAssistant Company Secretary, Deputy Company Secretary fromJune 1996 to December 2001

� Reliance Industries LimitedManagement Trainee from June 1994 to October 1995

K. Sriram, Head of Finance & Customer Service32 yearsB. Com., AICWA, ACA

Experience:

Over 8 years experience in financial & management accounting.

� HSBC Asset Management (India) Private LimitedHead of Finance from December 2001 to June 2004.Head of Finance & Customer Service from July 2004 to present.

� HSBC Securities and Capital Markets (India) Private LimitedHead of Finance (Designate) - HSBC Asset Management (India)Private Limited from September 2001 to December 2001.

� Templeton Asset Management (India) Private LimitedManager, Senior Manager - Corporate Accounting from June2000 to September 2001

� Stock Holding Corporation of India LimitedExecutive, Asst. Manager from May 1996 to June 2000

Gordon Rodrigues, Fund Manager - Fixed Income38 yearsMasters in Management Studies (Finance)Bachelor of Engineering (Electronics)

Experience:Over 11 years experience in debt and fixed income trading

� HSBC Asset Management (India) Private LimitedFund Manager - Fixed Income from March 2002 to present

� HSBC TreasurySenior Trader - Credit Products, November 2000 - March 2002

Trader - Credit Products, September 1998 - October 2000

Manager, Treasury Marketing, Western India, April 1997 -August 1998

Assistant Manager, Treasury Marketing, Western India, July1994 - March 1997

� Merwanjee Securities, MumbaiDealer (Broking), July 1993 - July 1994

� Raychem RPG Ltd., MumbaiAssistant Manager (on deputation from RPG Enterprises Ltd.),June 1992 - June 1993

� Wipro Infotech Ltd., MumbaiSenior Systems Executive, July 1988 - June 1990

Shailendra Jhingan, Fund Manager33 yearsMasters in Management Studies (Finance)B.A. (Hons) Economics

Experience:

Over 9 years experience in research and fund management

� HSBC Asset Management (India) Private LimitedFund Manager from December 2002 to present

� Birla Sun Life Mutual FundFund Manager from February 2000 to November 2002

� JM Morgan StanleyEconomist & Fixed Income Analyst from July 1997 to February2000

� Fortress FinancialResearch Analyst from 1995 to June 1997

K. R. Shanbhag, Senior Analyst35 yearsMasters of Management Studies (Finance)Bachelor of Engineering (Mechanical)

Profile:

Over 11 years experience in equity research and fund management.This involved equity research on various sectors and companies andmarketing investment ideas to fund managers. In the previous roleas a fund manager with ING Investment Management (India) Pvt.Ltd., was responsible for managing day to day investment activitiesof the equity fund and the equity portion of the balanced fund.

� HSBC Asset Management (India) Private LimitedSenior Analyst from May 2002 till date

� ING Investment Management (India) Pvt. Ltd.Fund Manager - Equity Markets from July 1998 till May 2002

� Indosuez W I Carr Securities (India) Pvt. Ltd.Research Analyst from March 1998 till July 1998

� ING Barings Securities India Pvt. Ltd.Research Analyst from November 1994 till March 1998

� Synthesis, Sundar Iyer EquityEquity Analyst from June 1993 till October 1994

Offer Document



Viresh Mehta, Senior Analyst36 yearsMasters in Management Studies (Finance)Bachelor of Engineering (Mechanical)

Experience:Over 12 years experience in equity markets.

� UBS Warburg India Pvt. Ltd.Head of Dealing and Sales Trading from August 1995 toMarch 2002.

� Prabhudas Lilladher Pvt. Ltd.Institutional Sales from October 1993 to July 1995.

� DSP Financial Consultant LimitedAnalyst from June 1992 to October 1993.

Anand Narayan, Senior Dealer33 yearsMasters in Financial Management

Experience:Over 13 years experience in dealing

� HSBC Asset Management (India) Private LimitedSenior Dealer from August 2004 to date

� Kotak SecuritiesAVP from December 2001 to July 2004

� Cazenove India HoldingsDealer from June 1999 to November 2001

� Indsec Sec. & Fin.AVP from May 1997 to June 1999

� Paterson & Co.Dealer from May 1991 to May 1997

Presently the AMC has two dedicated equity research analyst, onededicated equity dealer and a total of eight employees in theinvestment management department.

Presently all the key personnel are based in the corporate office ofthe AMC.

��%��,��

K. R. Shanbhag

� !�#�� ""� ��

Kashmira MathewHead of Compliance & Company SecretaryHSBC Asset Management (India) Private Limited52/60, Mahatma Gandhi Road,Fort, Mumbai - 400 001

��+�� #�� ""� ��

K. SriramHead of Finance & Customer ServiceHSBC Asset Management (India) Private Limited52/60, Mahatma Gandhi Road,Fort, Mumbai - 400 001

��

JPMorgan Chase Bank, Mumbai has been appointed as Custodianof the Scheme of HSBC Mutual Fund. 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 Custody Agreement dated July 4, 2002, with the Custodian,and the salient features of the said Agreement are to:

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

� Ensure benefits due on the holdings are received

� Provide detailed information and other reports as required bythe AMC

� Maintain confidentiality of the transactions

� Be responsible for the loss or damage to the assets belongingto the Scheme due to negligence on its part or on the part ofits approved agents

� 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 Custody Agreement.

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

��,��0��"��,��

Computer Age Management Services (P) Ltd. (CAMS), A & BLakshmi Bhawan, 609 Anna Salai, Chennai 600 006 have beenappointed as Registrar and Transfer Agents. The Registrar isregistered with SEBI under the SEBI (Registrars to an Issue andShare Transfer Agents) Regulations, 1993 vide registration numberINR000002813. As Registrars to the Scheme, CAMS will handlecommunications with investors, perform data entry services anddespatch account statements. The AMC and the Trustees havesatisfied themselves that the Registrar 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 tohandle investor complaints.

��

JPMorgan Chase Bank, Mumbai has been appointed as the FundAccountant for Scheme. The Fund Accountant provides fundaccounting, NAV calculation and other related services.

The Fund Accountant is entitled to remuneration for its services inaccordance with the terms of the Fund Administration Agreement.The Trustees / AMC have the right to change the Fund Accountant,if necessary.

��

Price Waterhouse, Chartered Accountants, 252, Veer Savarkar Marg,Shivaji Park, Dadar (West), Mumbai - 400 028 shall be the Auditorsfor the Scheme offered under this Offer Document. The Trusteeshave the right to change the Auditors.

� ##� ��,��

The collecting bankers for transactions in the IPO and on an on-going basis will be The Hongkong and Shanghai Banking CorporationLimited (SEBI registration no. INBI00000027) and HDFC BankLimited (SEBI registration no. INBI00000063) and such other banksregistered with SEBI as collecting bankers as may be decided by theAMC from time to time. Applications for the Initial Public Offerwill be accepted at the Collection Centres designated by the AMC.

Offer Document



SECTION II

��1��%��2��1��0��

HSBC Midcap Equity Fund (HMEF)Type of SchemeAn open-ended diversified equity Scheme seeking long-term capitalgrowth from a diversified portfolio of equity and equity relatedsecurities, primarily being midcap stocks. The Scheme can alsoinvest in small cap equity and equity related securities and variousfixed income securities.

Investment ObjectiveThe Fund is an open ended Equity Scheme seeking to generate longterm capital growth from an actively managed portfolio of equityand equity related securities primarily being midcap stocks. However,it could move a portion of its assets towards fixed income securitiesif the fund manager becomes cautious or negative on the Indianequity markets.

There can be no assurance that the Scheme objective can be realised.

Investment PatternThe corpus of the Scheme will be primarily invested in midcapequity and equity related securities. The Scheme can also invest insmall cap equity and equity related securities and various fixedincome securities. The Scheme can actively move its assets betweenequity and fixed income securities depending on its view on thesemarkets.

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:

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

� ADRs / GDRs issued by the Indian companies, subject to theguidelines issued by the Reserve Bank of India and Securitiesand Exchange Board of India.

� Stock index futures and such other derivative instrumentspermitted by SEBI / RBI.

� Securities issued / guaranteed by the Central, State and localgovernments (including but not limited to coupon bearingbonds, zero coupon bonds and treasury bills).

� Debt obligations of domestic government agencies and statutorybodies, which may or may not carry a Central / State Governmentguarantee.

� Corporate debt (of both public and private sector undertakings).

� Debt obligations of banks (both public and private sector) andfinancial institutions.

� Money market instruments permitted by SEBI and / or RBI,having residual maturities of up to 1 year.

� Certificate of Deposits (CDs).

� Commercial Papers (CPs).

� Bills of Exchange / Promissory Notes.

� Securitised Debt.

� Call Money / Money at Call.

� Floating rate debt instruments.

� Repurchase and reverse repurchase obligations in securities.

� The non-convertible part of convertible securities.

� Any other domestic fixed income securities.

� Pass through, Pay through or other Participation Certificatesrepresenting interest in a pool of assets including receivables.

� Any other instruments as may be permitted by SEBI from timeto time.

The securities mentioned above could be listed, unlisted, privatelyplaced, secured, unsecured, rated or unrated and of any maturity.The securities may be acquired through Initial Public Offerings(IPOs), secondary market operations and private placement, rightsoffers or negotiated deals.

The Scheme may participate in securities lending as permitted underthe Regulations.

The asset allocation under the Scheme will be as follows:

S. Type of Security Normal RiskNo. Allocation Profile

(% ofCorpus)

1. Equities & equity related securities 65 - 100% Highof companies that are generallyeither included in the CNXMidcap 200 Index or ones that fallwithin market capitalizationrequirement of CNX Midcap 200Index, at the point of investment.

2. Equities & equity related securities 0 - 35% Highof companies whose marketcapitalization does not exceed themarket capitalization of the largestconstituent of the CNX Midcap 200Index at the point of investmentand which are not part of theCNX Midcap 200 Index.

3. Debt instruments & 0 - 35% Low toMoney Market instruments medium(including money at call)

Under normal circumstances, the Scheme shall invest at least 65%of the net assets under the Scheme in Equity and Equity relatedSecurities which fall within the definition of midcap companies.

The Scheme may review the above pattern of investments based onviews on the equity and debt markets and asset liability managementneeds and the portfolio shall be reviewed and rebalanced on aregular basis. However, at all times the portfolio will adhere to theoverall investment objective of the Scheme.

Mid Cap stocks will comprise equity stocks of companies which aregenerally those that are either included in the CNX Midcap 200Index or ones that fall within the market capitalization requirementof CNX Midcap 200 Index, at the point of investment.

Investors may note that securities which provide higher returns,typically display higher volatility. Accordingly, the investmentportfolio of the Scheme would reflect moderate to high volatility inits equity and equity related investments and low to moderatevolatility in its debt and money market investments.

Offer Document



If the Scheme decides to invest in securitised debt, it is the intentionof the Investment Manager that such investments will not normallyexceed 30% of the corpus of the Scheme and if the Scheme decidesto invest in ADRs/GDRs issued by Indian Companies, it is theintention of the Investment Manager that such investments will not,normally exceed 30% of the assets of the Scheme.

For investments in ADRs / GDRs, the Fund Manager would considerthe premium / discount to the underlying stock and the possibilityof the discount narrowing or the premium expanding, liquiditymanagement of the portfolio, secondary and primary offerings ofADRs / GDRs.

Securitized debt, while relatively illiquid compared to other debtinvestments provides a higher yield pickup. Hence only if the FundManager becomes cautious or negative on the Indian equity marketsfor a reasonably long period of time would he consider investing insuch instruments to improve the yield to the fund and investors asopposed to putting the monies in reverse repo and short term moneymarket instruments. No investments shall be made in foreignsecuritized debt.

HMEF shall not have exposure of more than 50% of the net assetsin derivative instruments. These limits will be reviewed by theAMC, from time to time. Investments in derivatives would be inaccordance with the SEBI Regulations, viz. for hedging andrebalancing the portfolio.

��,� �� +��!��

Subject to the Regulations, the asset allocation pattern indicatedabove for the Scheme may change from time to time, keeping inview market conditions, market opportunities, applicable regulationsand political and economic factors. It must be clearly understoodthat the percentages stated above are only indicative and not absoluteand that they can vary substantially depending upon the perceptionof the Investment Manager, the intention being at all times to seekto protect the interests of the Unitholders, and meet the objectiveof the Scheme. 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 shall beeffected only in accordance with the provisions of sub regulation(15A) of Regulation 18 of the Regulations, as detailed in this OfferDocument.

��,

Being open ended Scheme under which sale and repurchase of Unitswill be made on continuous basis by the Mutual Fund, the Units ofthe Scheme are generally not proposed to be listed on any stockexchange. However, the Mutual Fund may at its sole discretion, listthe Units under the Scheme on one or more stock exchanges at alater date.

��+��!�� #

HSBC Midcap Equity Fund (HMEF)The aim of the HSBC Midcap Equity Fund is to deliver above-benchmark returns by providing long-term capital growth from anactively managed portfolio, primarily comprising of midcap stocks.Income is not a primary consideration in the investment policiesof the HSBC Midcap Equity Fund. The Scheme aims to bepredominantly invested in midcap equity and equity relatedsecurities and also invest in small cap equity and equity relatedsecurities. However, it could move a portion of its assets towardsfixed income securities if the fund becomes cautious or negativeon equity markets.

A top down and bottom up approach will be used to invest in equityand equity related instruments. Investments will be pursued in selectsectors based on the Investment Team's analysis of business cycles,regulatory reforms, competitive advantage etc. Selective stockpicking will be done from these sectors. The fund manager inselecting scrips will focus on the fundamentals of the business, theindustry structure, the quality of management, corporate governancetrends, sensitivity to economic factors, the financial strength of thecompany and the key earnings drivers.

Since investing requires disciplined risk management, the AMCwould incorporate adequate safeguards for controlling risks in theportfolio construction process. Risk will also be reduced throughadequate diversification of the portfolio. Diversification will beachieved by spreading the investments over a range of industries /sectors.

The Scheme may however, invest in unlisted and / or privatelyplaced and / or unrated debt securities subject to the limits indicatedunder "Investment Restrictions for the Scheme prescribed in thisOffer Document, from issuers of repute and sound financial standing.If investment is made in unrated debt securities, the approval of theBoard of the AMC and the Trustees or the Investment ManagementCommittee (within the broad parameters approved by the Board ofthe AMC and the Trustees) shall be obtained, as per the Regulations.

As per the asset allocation pattern indicated above, for investmentin debt securities and money market instruments, the Fund mayinvest a part of the portfolio in various debt securities issued bycorporates and/or state and central government. Such governmentsecurities may include securities which are supported by the abilityto borrow from the treasury or supported only by the sovereignguarantee or of the state government or supported by GOI / stategovernment in some other way.

With the aim of controlling risks, rigorous in depth credit evaluationof the instruments proposed to be invested in will be carried out bythe Investment Team of the AMC. The credit evaluation includesa study of the operating environment of the company, the past trackrecord as well as the future prospects of the issuer, the short as wellas long-term financial health of the issuer. The AMC will also beguided by the ratings of rating agencies such as CRISIL, CARE andICRA or any other rating agency as approved by the regulators.

In addition, the Investment Team of the AMC will study the macroeconomic conditions, including the political, economic environmentand factors affecting liquidity and interest rates. The AMC woulduse this analysis to attempt to predict the likely direction of interestrates and position the portfolio appropriately to take advantage ofthe same.

The Scheme may invest in other Scheme(s) managed by the AMCor in the schemes of any other mutual fund, provided it is inconformity with the investment objectives of the Scheme and interms of the prevailing Regulations. As per the Regulations, noinvestment management fees will be charged for such investments.

� ��" #� �� +��

Portfolio turnover is defined as lesser of purchases and salesas a percentage of the average corpus of the Scheme during aspecified period of time. The Scheme being an open-endedScheme, it is expected that there would be a number of subscriptionsand redemptions on a daily basis. Consequently, it is difficult toestimate with any reasonable measure of accuracy, the likelyturnover in the portfolio(s). Active asset allocation would impactportfolio turnover.

Offer Document



�� " ## -��" � ��+��!��

The Fund Manager of the Scheme is responsible for making buy /sell decisions in respect of the securities in the Scheme's portfolio.The investment decisions are made on a daily basis keeping in viewthe market conditions and all relevant aspects.

The Board of the AMC has constituted an Investment ManagementCommittee that meets at periodic intervals. The InvestmentManagement Committee, at its meetings, reviews investments ,including investments in unrated debt instruments. The approval ofunrated debt instruments is based on parameters laid down by theBoard of the AMC and the Trustees. The details of such investmentsare communicated by the AMC to the Trustees in their periodicalreports along with a disclosure regarding how the parameters havebeen complied with. Such reportings shall be in the manner prescribedby SEBI from time to time. The Committee also reviews theperformance of the Scheme and general market outlook and formulatethe broad investment strategy at their meetings.

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 Unitholders ofthe respective Scheme. The Fund may follow internal guidelines asapproved by the Board of the AMC and the Trustees from time totime. All individual equity holdings in securities above 5% of theportfolio will not exceed 40% of the portfolio.

In case of HMEF performance will be benchmarked against CNXMid Cap 200 Index. The Boards may review the benchmark selectionprocess from time to time, and make suitable changes as to use ofthe benchmark, or related to composition of the benchmark, wheneverit deems necessary.

The Chief Investment Officer will bring to the notice of the AMCBoard, specific factors if any, which are impacting the performanceof the Scheme. The Board on consideration of all relevant factorsmay, if necessary, give appropriate directions to the AMC. Similarly,the performance of the Scheme will be submitted to the Trustees.The Chief Investment Officer will explain to the Trustees, thedetails on the Schemes' performance vis-à-vis the benchmark returns.

The AMC will keep a record of all investment decisions.

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The AMC may invest in the Scheme at any time during the IPO orduring the continuous offer period subject to the SEBI Regulations& circulars issued by SEBI and to the extent permitted by its Boardof Directors from time to time. As per the existing SEBI Regulations,the AMC will not charge investment management and advisory feeon the investment made by it in the Scheme.

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The investment objective together with the investment approachand the investment pattern will comprise the principal fundamentalattributes of the Scheme. The other fundamental attributes of theScheme shall be the following:

� Type of Scheme i.e. open ended scheme

� Terms of issue relating to listing, repurchase / redemption,fees, expenses.

In accordance with Regulation 18(15A) of the SEBI Regulations,the Trustees shall ensure that no change in the fundamental attributesof the Scheme and the Plan(s) / Option(s) thereunder or the trust orfee and expenses payable or any other change which would modifythe Scheme and the Plan(s) / Option(s) thereunder and affect theinterests of Unitholders is carried out unless:

� 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

� The Unitholders are given an option to exit at the prevailingNet Asset Value without any exit load.

�� #� ��

The Scheme may also use various derivative and hedging productsfrom time to time, as would be available and permitted by SEBI,in an attempt to protect the value of the portfolio and enhanceUnitholders' interest.

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SEBI has permitted all mutual funds to participate in derivativestrading subject to observance of guidelines issued by it in thisbehalf. Pursuant to this, mutual funds may use various derivativeand hedging products from time to time, as would be available andpermitted by SEBI, in an attempt to protect the value of the portfolioand enhance Unitholders' interest.

Accordingly, the Fund may use derivative instruments like stockindex futures, options on stocks and stock indices, interest rateswaps, forward rate agreements or such other derivative instrumentsas may be introduced from time to time for the purpose of hedging,portfolio balancing or any other purpose, as permitted under theRegulations and guidelines.

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HMEF shall not have exposure of more than 50% of the net assetsin derivative instruments. These limits will be reviewed by theAMC, from time to time.

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 therewith. Please note that the exampleshave been given for illustration purposes only.

Interest Rate Swaps (IRS) and Forward Rate Agreements (FRA)BenefitsBond markets in India are not very liquid. Investors run the risk ofilliquidity in such markets. Investing for short-term periods forliquidity purposes has its own risks. Investors can benefit if the Fundremains in call market for the liquidity and at the same time takeadvantage of fixed rate by entering into a swap. It adds certainty tothe returns without sacrificing liquidity.

IRSAn IRS is an agreement between two parties (counter parties) toexchange, on particular dates in the future, one series of cash flows(fixed interest) for another series of cashflows (variable or floatinginterest) in the same currency and on the same principal for anagreed period of time. The exchange of cashflows need not occuron the same date. As floating rate instruments tend to be relativelyless liquid, swapping a fixed rate instrument into floating returnscan help in improving the liquidity of the fund.

FRAA FRA is an agreement between two counter parties to pay or toreceive the difference between an agreed fixed rate (the FRA rate)and the interest rate prevailing on a stipulated future date, based ona notional amount, for an agreed period. In short, in a FRA, interestrate is fixed now for a future period. The special feature of FRAsis that the only payment is the difference between the FRA rate and

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the reference rate and hence are single settlement contracts. As inthe case of IRS, notional amounts are not exchanged.

The Scheme will use derivative instrument for the purpose of hedgingand portfolio balancing. Hedging does not mean maximisation ofreturns but only reduction of systematic or market risk inherent inthe investment.

Basic Structure of a SwapAssume that the Scheme has a Rs. 20 crore floating rate investmentlinked to MIBOR (Mumbai Inter Bank Offered Rate). Hence, theScheme is currently running an interest rate risk and stands to loseif the interest rate moves down. To hedge this interest rate risk, theScheme can enter into a 6 month MIBOR swap. Through this swap,the Scheme will receive a fixed predetermined rate (assume 12%)and pays the "benchmark rate" (MIBOR), which is fixed by theNational Stock Exchange (NSE) or any other agency such as Reuters.This swap would effectively lock-in the rate of 12% for the next 6months, eliminating the daily interest rate risk. This is usuallyrouted through an intermediary who runs a book and matches dealsbetween various counterparties.

The steps will be as follows :� Assuming the swap is for Rs. 20 crore June 1, 2001 to

December 1, 2001. The Scheme is a fixed rate receiver at 12%and the counterparty is a floating rate receiver at the overnightrate on a compounded basis (say NSE MIBOR).

� On 1 June, 2001 the Scheme and the counterparty will exchangeonly a contract of having entered this swap. This documentationwould be as per International Securities Dealers Association(ISDA).

� On a daily basis, the benchmark rate fixed by NSE will betracked .

� On December 1, 2001 the following will be calculated :

� The Scheme is entitled to receive interest on Rs. 20 crore at12% for 184 days i.e. Rs. 1.21 crore, (this amount is knownat the time the swap was concluded) and will pay thecompounded benchmark rate.

� The counterparty is entitled to receive daily compounded callrate for 184 days & pay 12% fixed.

� On December 1, 2001, if the total interest on the daily overnightcompounded benchmark rate is higher than Rs. 1.21 crore, theScheme will pay the difference to the counter party. If the dailycompounded benchmark rate is lower, then the counterpartywill pay the Scheme the difference.

� Effectively the Scheme earns interest at the rate of 12% p.a.for 6 months without lending money for 6 months fixed, whilethe counterparty pays interest @ 12% p.a. for 6 months on Rs.20 crore, without borrowing for 6 months fixed.

Swaps have its own drawbacks like credit risk, settlement risk.However, these risks are substantially reduced as the amount involvedis interest streams and not principal.

Index FuturesBenefits� Investment in stock index futures can give exposure to the

index without directly buying the individual stocks.Appreciation in index stocks can be effectively captured throughinvestment in Stock Index Futures.

� The Fund can sell futures to hedge against market movementseffectively without actually selling the stocks it holds.

The stock index futures are instruments designed to give exposureto the equity market indices. The Stock Exchange, Mumbai and theNational Stock Exchange have started trading in index futures of 1,2 and 3 month maturities. The pricing of an index future is thefunction of the underlying index and interest rates.

IllustrationSpot Index: 10701 month Nifty Future Price on day 1: 1075Fund buys 100 lotsEach lot has a nominal value equivalent to 200 Units of the underlyingindex

Situation 1Let us say that on the date of settlement, the future price = closingspot price = 1085Profits for the Fund = (1085-1075)* 100 lots * 200 = Rs. 200,000

Situation 2Let us say that on the date of settlement, the future price = Closingspot price = 1070Loss for the Fund = (1070-1075)* 100 lots * 200 = (Rs. 100,000)

The net impact for the Fund will be in terms of the differencebetween the closing price of the index and cost price (ignoringmargins for the sake of simplicity). Thus, it is clear from the examplethat the profit or loss for the Fund will be the difference of theclosing price (which can be higher or lower than the purchase price)and the purchase price. The risks associated with index futures aresimilar to the one with equity investments. Additional risks couldbe on account of illiquidity and hence mispricing of the future at thetime of purchase.

Buying OptionsBenefits of buying a call optionBuying a call option on a stock or index gives the owner the right,but not the obligation, to buy the underlying stock / index at thedesignated strike price. Here the downside risks are limited to thepremium paid to purchase the option.

IllustrationIf 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 stockprice goes below Rs. 190 during the tenure of the call, the Fundavoids the loss it would have incurred had it straightaway boughtthe stock instead of the call option. The Fund gives up the premiumof Rs. 15 that has to be paid in order to protect the Fund from thisprobable downside. If the stock goes above Rs. 190, it can exerciseits right and own Hindustan Lever at a cost price of Rs. 190, therebyparticipating in the upside of the stock.

Benefits of buying a put optionBuying a put option on a stock originally held by the buyer giveshim / her the right, but not the obligation, to sell the underlying stockat the designated strike price. Here the downside risks are limitedto the premium paid to purchase the option.

IllustrationIf 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 ofsay Rs. 12 to buy this put.

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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. TheFund gives up the fixed premium of Rs. 12 that has to be paid inorder to protect the Fund from this probable downside. If the stockgoes above Rs. 190, say to Rs. 220, it will not exercise its option.The Fund will participate in the upside of the stock, since it can nowsell the stock at the prevailing market price of Rs. 220.

Writing OptionsBenefits of writing an option with underlying stock holding (Coveredcall 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 fixedby the contract (the strike price). The writer receives a premium forselling a call, but if the call option is exercised, he has to sell theunderlying stock at the strike price. This is advantageous if the strikeprice is the level at which the writer wants to exit his holding / bookprofits. The writer effectively gains a fixed premium in exchangefor the probable opportunity loss that comes from giving up anyupside if the stock goes up beyond the strike price.

IllustrationLet us take for example Infosys Technologies, where the Fund holdsstock, 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. Sellingthis call gives the call owner the right to buy from the Fund, Infosysat 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 wouldhave got if it just held the stock and decided to sell it at Rs. 3700.This is because the Fund by writing the covered call gets an additionalRs. 150 per share of Infosys. In case the price is below Rs. 3700during the tenure of the call, then it will not be exercised and theFund will continue to hold the shares. Even in this case the returnsare higher than if the Fund had just held the stock waiting to sellit at Rs. 3700.

Benefits of writing put options with adequate cash holdingWriting put options with adequate cash holdings is a strategy wherethe writer (say, the Fund) will have an amount of cash and will sellput options on a stock. This will give the buyer of this put optionthe right to sell stock to the writer (the Fund) at a pre-designatedprice (the strike price). This strategy gives the put writer a premium,but if the put is exercised, he has to buy the underlying stock at thedesignated strike price. In this case the writer will have to acceptany downside if the stock goes below the exercise price. The writereffectively gains a fixed premium in exchange for giving up theopportunity to buy the stock at levels below the strike price. Thisis advantageous if the strike price is the level at which the writerwants to buy the stock.

IllustrationLet 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 buy

Infosys at Rs. 3500 when it goes below this price. The Fund willtake on itself any downside if the price goes below Rs. 3500. Butthe returns for the Fund are higher than what it would have got ifit just waited till the price reached this level and bought the stockat Rs. 3500, as per its original view. This is because the Fund bywriting the put gets an additional Rs. 100 per share of Infosys. Incase the price stays above Rs. 3500 during the tenure of the put, thenit will not be exercised and the Fund will continue to hold cash. Evenin this case the returns are higher than if the Fund had just held cashwaiting to buy Infosys at Rs. 3500.

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� The traded derivatives shall be valued at market price inconformity with the stipulations of sub clauses (i) to (v) ofclause 1 of the Eighth Schedule to the Securities and ExchangeBoard of India (Mutual Funds) Regulations, 1996, as amendedfrom time to time.

� The valuation of untraded derivatives shall be done inaccordance with the valuation method for untraded investmentsprescribed in sub clauses (i) and (ii) of clause 2 of the EighthSchedule to the Securities and Exchange Board of India (MutualFunds) Regulations, 1996 as amended from time to time.

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The major players in the Indian debt markets today are banks,financial institutions, insurance companies and mutual funds. Theinstruments in the market can be broadly categorised as those issuedby corporates, banks, financial institutions and those issued bystate / central governments. The risks associated with any investmentare - 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. Interestrate risk is present in all debt securities and depends on a varietyof macroeconomic factors. The liquidity risk in the corporatesecurities market is higher as compared to that in case of governmentsecurities. Liquidity in the corporate debt market has been improvingdue to the entry of more players and due to various measures takenby the regulators in this direction over a period of time. SEBI'sdirective of a compulsory rating by a rating agency for any publicissuance over 18 months, dematerialisation, entry of private insurancecompanies and growth of fixed income mutual funds have enhancedliquidity in the corporate debt market. The setting up of clearingcorporations, real time gross settlement and electronic clearingsystem for government securities will considerably enhance thedepth and width of the Indian debt markets and bring it at par withdeveloped markets.

The following table attempts to give a broad overview of the availableinstruments in the financial markets and their risk - return profile.The data is based on the market conditions as on the date of the OfferDocument and may vary substantially depending upon the factorsand forces affecting the securities market including the fluctuationsin the interest rates.

The indicative yields and liquidity on various securities, currently,are as under :

Issuer Instrument Maturity Yields Liquidity

GOI Treasury Bill 91 days 5.25-5.35% Medium

GOI Treasury Bill 364 days 5.55-5.75% Medium

GOI Short Dated 1-3 Yrs 5.50-6.50% Mediumto High

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GOI Medium Dated 3-5 Yrs 6.25-7.25% Mediumto High

GOI Medium Dated 5-10 Yrs 6.50-7.50% High

GOI Long Dated 10-15Yrs 6.75-7.75% High

GOI Long Dated >15Yrs 7.25-8.25% High

GOI Reverse Repo 1 day to 4.50-5.50% High14 days

Corporate Taxable 364 days 5.90-6.25% Low toDebt Bonds Medium

(AAA)

Corporate Taxable 1-3 Yrs 5.90-6.75% Low toDebt Bonds Medium

(AAA)

Corporate Taxable 3-5 Yrs 6.50-7.25% MediumDebt Bonds

(AAA)

Corporate Taxable 5-10 Yrs 6.90-7.50% MediumDebt Bonds

(AAA)

Corporate Floating 364 days NSE Low toDebt Rate Bond MIBOR + Medium

(AAA) (0. 40-0.75%)

Corporate Floating 1-3 Yrs NSE Low toDebt Rate Bond MIBOR + Medium

(AAA) (0.40-1.00%)

Corporate Floating 3-5 Yrs NSEDebt Rate Bond MIBOR +

(AAA) (0.75-1.50%) Medium

Corporate CPs(P1+) 3 months 5.65-6.85% MediumDebt

Corporate CPs(P1+) 1 Year 5.95-6.25% MediumDebt

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All investments by the Scheme and the Mutual Fund, will alwaysbe within the investment restrictions as specified in the SEBI (MutualFunds) Regulations, 1996, as amended from time to time. Pursuantto the Regulations, the following investment and other restrictionsare presently applicable to the Scheme:

� The Scheme shall not invest more than 15% of its NAV in debtinstruments issued by a single issuer, which are rated not belowinvestment grade by a credit rating agency authorised to carryout such activity under the SEBI Act, 1992. Such investmentlimit may be extended to 20% of the NAV of the Scheme withthe prior approval of the Board of Trustees and the Board ofthe AMC. Provided that, such limit shall not be applicable forinvestments in government securities and money marketinstruments. Provided further that investment within such limitcan be made in mortgage backed securitised debt which arerated not below investment grade by a credit rating agencyregistered with SEBI.

� The Scheme shall not invest more than 10% of its NAV inunrated debt instruments issued by a single issuer and the totalinvestment in such instruments shall not exceed 25% of theNAV of the Scheme. All such investments shall be made withthe prior approval of the Board of Trustees and the Board ofthe AMC or a Committee constituted in this behalf.

� The Fund under all its Scheme shall not own more than 10%of any company's paid up capital carrying voting rights

� Transfer of investments from one Scheme to another Schemein the Mutual Fund is permitted provided:

– Such transfers are done at the prevailing market price forquoted instruments on spot basis (spot basis shall have thesame meaning as specified by a Stock Exchange for spottransactions); and

– The securities so transferred shall be in conformity withthe investment objective of the Scheme to which suchtransfer has been made.

� The aggregate inter-scheme investment in line with theinvestment objectives, made by all the Schemes under thesame management or in schemes under management of anyother asset management company shall not exceed 5% of theNet Asset Value of the Fund. No investment management feesshall be charged for investing in other Schemes of the Fund orin the Schemes of any other Mutual Fund.

� The initial issue expenses in respect of any Scheme may notexceed 6% of the funds raised under that Scheme.

� The Fund shall get the securities purchased or transferred inthe name of the Fund on account of the concerned Scheme,wherever investments are intended to be of a long-term nature.

� The Fund may buy and sell securities on the basis of deliveriesand shall in all cases of purchases take delivery of relativesecurities and in all cases of sale, deliver the securities and willnot make any short sales or engage in carry forward transactionor badla finance. Provided that the Mutual Fund shall enter intoderivative transactions on a recognised stock exchange for thepurpose of hedging and portfolio balancing, in accordancewith the guidelines issued by SEBI.

� Pending deployment of funds of a Scheme in securities interms of the investment objectives of the Scheme, the AMCcan invest the funds of the Scheme in short term deposits ofscheduled commercial banks .

� The Scheme shall not make any investment in:

– Any unlisted security of an associate or group companyof the Sponsor; or

– Any security issued by way of private placement by anassociate or group company of the Sponsor; or the listedsecurities of group companies of the Sponsor which is inexcess of 25% of the net assets of the Scheme of theMutual Fund.

� The Scheme shall not invest more than 10 per cent of its NAVin the equity shares or equity related instruments of anyCompany.

� The Scheme shall not invest more than 10% of its NAV in theunlisted equity shares or equity related instruments in case ofthe Scheme.

Issuer Instrument Maturity Yields Liquidity

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� The Fund shall not borrow except to meet temporary liquidityneeds of the Fund for the purpose of repurchase / redemptionof Units or payment of interest and dividend to the Unitholders.Provided that the Fund shall not borrow more than 20% of thenet assets of any individual Scheme and the duration of theborrowing shall not exceed a period of 6 months.

� The entire Scheme's investments will be in transferable securities(whether in capital markets or money markets) or in privatelyplaced debentures or securitised debt, or bank deposits or inmoney at call.

� Debentures, irrespective of any residual maturity period (aboveor below 1 year), shall attract the investment restrictions asapplicable 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.

� No loans for any purpose shall be advanced by the Scheme.

� The Fund may lend securities in accordance with the stocklending scheme of SEBI.

� The Scheme shall not invest in a fund of funds scheme.

� The Scheme will comply with any other regulations applicableto the investments of mutual funds from time to time.

The Trustees may alter the above restrictions from time to time tothe extent that changes in the Regulations may allow and as deemedfit in the general interest of the Unitholders.

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The NAV of the Units of the Scheme will be computed by dividingthe net assets of the Scheme by the number of Units outstanding onthe 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� Traded securities shall be valued at the last quoted closing

price on the Stock Exchange.

� When the securities are traded on more than one recognisedstock exchange, the securities shall be valued at the officialclosing price on the stock exchange where the security isprincipally traded. It would be left to the AMC to select theappropriate stock exchange, and the AMC shall record thereasons for the selection and change if any in writing. Thereshould, however, be no objection for all scrips being valued atthe prices quoted on the stock exchange where a majority ofthe investments are principally traded.

� When on a particular valuation day, a security has not beentraded on the principal stock exchange; the value at which itis traded on another stock exchange will be used.

Trades in ADRs/GDRs shall be accounted for on the dayfollowing the trade on the relevant stock exchanges where suchADRs/GDRs are listed viz. New York Stock Exchange,NASDAQ, London Stock Exchange (LSE), Luxembourg StockExchange etc. The valuation of such investments shall be doneat the last traded price of the previous day on the relevantexchange where the ADR/GDR is listed and traded. For instance,in case of GDR listed on LSE, the last traded price on LSE shallbe used for the purpose of valuation. In case of GDRs listedon more than one foreign stock exchange, the scheme shall usethe last traded price on LSE, in the absence of which last traded

price on Luxembourg stock exchange shall be used. If the GDRwas not traded on Luxembourg stock exchange too, the lasttraded price on such other stock exchange as the AMC maydeem appropriate shall be used for portfolio valuation, theintention being to provide fair valuation to the investors of theScheme. In case of an ADR listed on more than one stockexchange the last traded price on NYSE shall be used forvaluation. If the ADR is not traded on NYSE, the last tradedprice on NASDAQ shall be used for valuation and if the ADRis not traded on NASDAQ too, the last traded price on suchother stock exchange as the AMC may deem appropriate shallbe used for portfolio valuation, the intention being to providefair valuation to the investors of the Scheme.

In the absence of prices on any exchange on the concernedvaluation date, the price prevailing at the close of business onthe previous date of trade in such ADR/GDR shall be used forvaluation provided that such previous date is not more than 30days prior to the date of valuation.

However, the AMC reserves the right to choose the price forvaluation of ADRs/GDRs which may be different from theprocedure given above depending upon the prevailingcircumstances, the intention being to provide fair valuation tothe investors of the Scheme. Such valuation procedure shall beratified by the Trustees of the Fund.

The AMC shall use the rates released by Reuters (rate as onthe date of portfolio valuation) for the purpose of conversionof the last traded price for the purpose of portfolio valuation.The AMC retains the right to use the average of TT buy andsell USD / INR rates as released by banks / rates released byother sources as the AMC may deem reasonable in the absenceof appropriate release from Reuters. In case such quotes are notavailable on any day, the foreign exchange rates as availablefor the immediately preceding day may be used. The AMC alsoreserves the right to choose appropriate rates for conversion ofthe last traded price for the purpose of valuation, dependingupon the prevailing circumstances, the intention being to providefair valuation to the investors of the Scheme.

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 exchangeor any 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.

� 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 SecuritiesThinly Traded Equity / Equity Related SecuritiesThinly traded securities as defined in the Regulations shall bevalued in 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 than50,000 (Fifty Thousand Only) shares, it shall be considered as athinly traded security and valued accordingly.

For example, if the volume of trade is 100,000 and value isRs. 400,000, the share does not qualify as thinly traded. Also if the

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volume traded is 40,000, but the value of trades is Rs. 600,000, theshare does not qualify as thinly traded. In order to determine whethera security 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 monthand publishes / provides the required information along with thedaily quotations, 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 bevalued accordingly.

In case trading in an equity security is suspended up to 30 days, thenthe last traded price would be considered for valuation of thatsecurity. If an equity security is suspended for more than 30 days,then the AMC / Trustees will decide the valuation norms to befollowed and such norms would be documented and recorded.

Thinly Traded Debt SecuritiesThinly traded securities as defined in the Regulations shall bevalued in the manner as specified in the guidelines issued by SEBI,as follows:

A debt security (other than Government Securities) shall beconsidered as a thinly traded security if on the valuation date, thereare no individual trades in that security in marketable lots (currentlyRs. 5 crore) on the principal stock exchange or any other stockexchange.

A thinly traded debt security as defined above would be valued asper the norms set for non-traded debt security.

Non-Traded SecuritiesWhen a security (other than Government Securities) is not tradedon any stock exchange for a period of 30 days prior to the valuationdate, the scrip must be treated as a 'non traded' security.

Valuation Of Non-Traded / Thinly Traded SecuritiesNon-traded / thinly traded securities shall be valued "in good faith"by the AMC on the basis of the valuation principles laid downbelow:

Non-traded / Thinly Traded Equity SecuritiesBased on the latest available Balance Sheet, net worth shall becalculated as follows:

Net Worth per share = [share capital reserves (excludingrevaluation reserves) - miscellaneous expenditure and debitbalance in P&L A/c] divided by number of paid up shares.

� Average capitalisation rate (P/E ratio) for the industry basedupon either BSE or NSE data (which should be followedconsistently and changes, if any noted with proper justificationthereof) shall be taken and discounted by 75% i.e. only 25%of the industry average P/E shall be taken as capitalisation rate(P/E ratio). Earnings per share of the latest audited annualaccounts will be considered for this purpose.

� The value as per the net worth value per share and the capitalearning value calculated as above shall be averaged and furtherdiscounted by 10% for ill-liquidity so as to arrive at the fairvalue per share.

� In case the EPS is negative, EPS value for that year shall betaken as zero for arriving at capitalised earning.

� 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.

� 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 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 theScheme to which it belongs would be compared on the date ofvaluation.

Non-Traded / Thinly Traded Debt Securities of Upto 182 Days toMaturityAs the money market securities are valued on the basis of amortisation(cost plus accrued interest till the beginning of the day plus thedifference between the redemption value and the cost spreaduniformly over the remaining maturity period of the instruments)a similar process should be adopted for non-traded debt securitieswith residual maturity of upto 182 days, in the absence of any otherstandard benchmarks in the market. Debt securities purchased withresidual maturity of upto 182 days are to be valued at cost (includingaccrued interest till the beginning of the day) plus the differencebetween the redemption value (inclusive of interest) and cost spreaduniformly over the remaining maturity period of the instrument. Incase of a debt security with maturity greater than 182 days at thetime of purchase, the last valuation price plus accrued interestshould be used instead of purchase cost. All other non-tradedNon-Government debt instruments shall be valued using the methodsuggested below.

Non-Traded / Thinly Traded Debt Securities of Over 182 Days toMaturityFor the purpose of valuation, all non traded debt securities wouldbe classified 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.

� All non-government investment grade debt securities, classifiedas not traded, shall be valued on yield to maturity basis asdescribed below.

� All non-government non-investment grade performing debtsecurities would be valued at a discount of 25% to the facevalue.

� All non-government non-investment grade non-performingdebt securities would be valued based on the provisioningnorms.

The approach in valuation of non traded debt securities is based onthe concept of using spreads over the benchmark rate to arrive atthe yields for pricing the non traded security.

The yields for pricing the non traded debt security would be arrivedat using the process as defined below.

Step AA risk free benchmark yield is built using the government securities(GOI Securities) 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.

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Step BA matrix of spreads (based on the credit risk) are built for markingup the benchmark yields. The matrix is built based on traded corporatepaper on the wholesale debt segment of an appropriate stock exchangeand the primary market issuances. The matrix is restricted only toinvestment grade corporate paper.

Step CThe yields as calculated above are marked-up / marked-down forilliquidity risk.

Step DThe yields so arrived are used to price the portfolio.

MethodologyConstruction of Risk Free BenchmarkUsing Government of India dated securities, the benchmark shall beconstructed as below:

Government of India dated securities will be grouped into thefollowing duration buckets viz., 0.5-1 years, 1-2 years, 2-3 years,3-4 years, 4-5 years, 5-6 years and 6 years and the volume weightedyield would be computed for each bucket.

These duration buckets may be changed to reflect the market valuemore closely by any agency suggested by AMFI giving benchmarkyield / matrix of spreads over benchmark yield. Accordingly, therewill be a benchmark YTM for each duration bucket.

The benchmark as calculated above will be set at least weekly, andin the event of any significant movement of prices of Governmentsecurities on account of any event impacting interest rates on anyday such as change in the RBI policies, the benchmark will be resetto reflect any change in the market conditions.

Note: The concept of duration over tenor has been chosen in orderto capture the reinvestment risk. It is intended to gradually movetowards a methodology that incorporates the continuous curveapproach for valuation of such securities. However, in view of thecurrent lack of liquidity in the corporate bond markets, a continuouscurve approach to valuation would be necessarily based on limiteddata points, and this would result in out of line valuations. As aninterim methodology therefore it is proposed that the DurationBucket approach be adopted and continuously tracked in order tofine-tune the duration buckets on a periodic basis. Over the next fewyears it is expected that with the deepening of the secondary markettrading, it would be possible to make a gradual move from theDuration Bucket approach towards a continuous curve approach.

Building a Matrix of Spreads for Marking-up the Benchmark YieldMark up for credit risk over the risk free benchmark YTM ascalculated in step A, will be determined using the trades of corporatedebentures / bonds of different ratings. All trades on appropriatestock exchange during the fortnight prior to the benchmark date willbe used in building the corporate YTM and spread matrices. Initiallythese matrices will be built only for corporate securities of investmentgrade. The matrices are dynamic and the spreads will be computedevery week. The matrix will be built for all duration buckets forwhich the benchmark GOI matrix is built to effectively link thecorporate matrix with the GOI securities matrix. Accordingly:

� 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;

� For each rating category, average volume weighted yield willbe obtained both from trades on the appropriate stock exchangeand from the primary market issuances;

� 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;

� 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;

� In each rating category, all outliers will be removed forsmoothening the YTM matrix;

� Spreads will be obtained by deducting the YTM in each durationcategory from the respective YTM of the GOI securities;

� 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 thereason of practicality, carrying the spreads from the last matrixwill fill the gaps in the matrix.

Mark-up / Mark-down YieldThe Yields calculated would be marked-up / marked-down to accountfor the ill-liquidity risk, promoter background, finance companyrisk and the issuer class risk. As the level of ill-liquidity risk wouldbe higher for non rated securities the marking process for rated andnon rated securities would be differentiated as follows:

Adjustments for Securities rated by External Rating AgenciesThe Yields so derived out of the above methodology could beadjusted to account for risk mentioned above by an appropriatediscount or premium as may be required. The range of the markupsfor both discount as well as premium is given below:

PremiumA Discretionary premium of up to -50 Basis Points for securitieshaving a duration of up to 2 years and up to - 25 Basis Points forsecurities having duration higher than 2 years will be permitted tobe provided for the above mentioned types of risks. The rationalefor the above discount structure is to take cognizance of the differentialinterest rate risk of the securities. This structure will be reviewedperiodically.

Discount

SEBI has revised the discretionary 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 SecuritiesTo value an unrated security, the fund manager has to assign aninternal credit 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 accountfor the illiquidity risk.

Offer Document



The yields derived from the above methodology could be adjustedto account for risk mentioned above. SEBI has revised thediscretionary discount limits as below :

Category Discretionary discount overbenchmark yield in basis points

Unrated Instruments Discretionary Discount ofwith duration up to 2 up to +50 over and above theyears mandatory Discount of +50

Unrated Instruments Discretionary Discount ofwith duration over 2 up to +50 over and above theyears mandatory Discount of +25

The benchmark yield / matrix of spreads over benchmark yieldobtained from any agency suggested by AMFI as a provider ofbenchmark yield / matrix of spreads over benchmark yield to mutualfunds, must be applied for valuation of securities on the day onwhich the bench mark yield / matrix of spreads over benchmarkyield is released by the aforesaid agency.

Valuation of securities with Put / Call optionsThe option embedded securities would be valued as follows:

Securities with Call optionThe securities with call option shall be valued at the lower of thevalue as obtained by valuing the security to final maturity andvaluing the 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 isto be taken as the value of the instrument.

Securities with Put optionThe securities with put option shall be valued at the higher of thevalue as obtained by valuing the security to final maturity andvaluing the 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 isto be taken as the value of the instruments.

Securities with both Put and Call option on the same dayThe 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 securitiesGovernment securities will be valued as per the prices for GovernmentSecurities released by an agency suggested by AMFI for the sakeof uniformity in calculation of NAVs.

Illiquid Securities� All funds shall disclose as on March 31 and September 30 the

scheme-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.

� The Mutual Fund is not allowed to transfer illiquid securitiesamong its Scheme.

Fixed Income and Money Market Securities� Debt instruments shall generally be valued on a yield to maturity

basis on the basis of the capitalisation factor for comparable

traded securities and with an appropriate discount for a lowerliquidity.

� 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 beginningof the day plus the difference between the redemption valueand the cost spread uniformly over the remaining maturityperiod of the instruments.

Valuation of "Repo"Where instruments have been bought on ̀ repo' basis, the instrumentmust be valued at the resale price after deduction of applicableinterest up to date of resale. Where an instrument has been sold ona `repo' basis, adjustment must be made for the difference betweenthe repurchase price (after deduction of applicable interest up to dateof repurchase) and the value of the instrument. If the repurchaseprice exceeds the value, the depreciation must be provided for andif the repurchase price is lower than the value, credit must be takenfor the appreciation.

Valuation of unlisted equity sharesUnlisted equity shares of a company shall be valued "in good faith"on the basis of the valuation principles laid down below:

� Based on the latest available audited balance sheet, net worthshall be calculated as lower of the following:

� 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.

� 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(excluding revaluation reserves) minus Miscellaneousexpenditure not written off or deferred revenue expenditure,intangible assets and accumulated losses] divided by {Numberof Paid up Shares plus Number of Shares that would be obtainedon conversion / exercise of Outstanding Warrants and Options}.

The lower of the above shall be used for calculation of networth per share and for further calculation to arrive at the fairvalue per share as stated below.

� Average capitalisation rate (P/E ratio) for the industry basedupon either BSE or NSE data (which shall be followedconsistently and changes, if any, noted with proper justificationthereof) shall be taken and discounted by 75% i.e. only 25%of the Industry average P/E shall be taken as capitalisation rate(P/E ratio). Earnings per share of the latest audited annualaccounts will be considered for this purpose.

� 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:

� All calculations as aforesaid shall be based on audited accounts.

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� 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.

� If the net worth of the company is negative, the share wouldbe marked down to zero.

� In case the EPS is negative, EPS value for that year shall betaken as zero for arriving at capitalised earning.

� 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 determineif a security accounts for more than 5% of the total assets ofthe Scheme, 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 thevalue derived using the aforesaid methodology.

Valuation of convertible debentures and bondsIn 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 warrantsIn respect of warrants to subscribe for shares attached to instruments,the warrants shall be valued at the value of the share which wouldbe obtained on exercise of the warrant as reduced by the amountwhich would be payable on exercise of the warrant. A discountsimilar to the discount to be determined in respect of convertibledebentures (as referred in valuation of convertible debentures andbonds above) shall be deducted to account for the period which mustelapse before the warrant can be exercised;

Valuation of Derivative Products� The traded derivatives shall be valued at market price in

conformity with the stipulations of sub clauses (i) to (v) ofclause 1 of the Eighth Schedule to the Regulations.

� The valuation of untraded derivatives shall be done inaccordance with the valuation method for untraded investmentsprescribed in sub clauses (i) and (ii) of clause 2 of the EighthSchedule to the 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 beaccrued on a periodic basis, provided the non-daily accrual does notaffect the NAV calculations by more than 1%.

Changes in securities and in number of UnitsAny changes in securities and in the number of Units will be

recorded in the books not later than the first valuation date followingthe date of transaction. If this is not possible, given the frequencyof NAV disclosure, the recording may be delayed up to a period of7 days following the date of the transaction, provided as a result ofsuch non recording, the NAV calculation shall not be affected bymore than 1%.

In case the NAV of the Scheme differs by more than 1%, due to non- recording of transactions, the investors or Scheme as the case maybe, shall be paid the difference in amount as follows:-

� If the investors are allotted units at a price higher than NAVor are given a price lower than NAV at the time of sale of theirUnits, they shall be paid the difference in amount by theScheme.

� If the investors are charged lower NAV at the time of purchaseof their Units or are given higher NAV at the time of sale oftheir Units, the AMC shall pay the difference in amount to theScheme. The AMC 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.

NAV of Units under the Scheme shall be calculated as shown below:

Market or Fair Value of Scheme’sinvestments (+) Current Assets

(-) Current Liabilities and ProvisionsNAV (Rs.) = ______________________________________

No. of Units outstanding under Scheme

The first NAV will be calculated and announced not later than 30days from the close of the IPO. Subsequently, the NAV of theScheme will be calculated as of the close of every Business Day.NAVs of the Scheme shall be disclosed up to 4 decimal places. Thevaluation of the Scheme' assets and calculation of the Scheme' NAVshall be subject to audit on an annual basis and such regulations asmay be prescribed by SEBI from time to time.

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In accordance with the Regulations, the AMC will follow theaccounting policies and standards, as detailed below:

� The AMC, for the Scheme and its Plan(s), shall keep andmaintain proper books of account, records and documents, soas to explain its transactions and to disclose at any point of timethe financial position of the Scheme and, in particular, give atrue and fair view of the state of affairs of the Fund.

� For the purposes of the financial statements, the Scheme andits Plan(s) shall mark all investments to market and carryinvestments in the balance sheet at market value. However,since the unrealised gain arising out of appreciation oninvestments cannot be distributed, provision shall be made forexclusion of this item when arriving at distributable income.

� 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 atthe time of sale for the period from the last interest due date

Offer Document



up to the date of sale must not be treated as an addition to salevalue but shall be credited to Interest Recoverable Account.

� In determining the holding cost of investments and the gainsor loss on sale of investments, the "average cost" method shallbe followed for each security.

� Transactions for purchase or sale of investments shall berecognised as of the trade date and not as of the settlement date,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 privateplacement or purchases or sales through private treaty, thetransaction would be recorded, in the event of a purchase, asof the date on which the Scheme obtains an enforceableobligation to pay the price or, in the event of a sale, when theScheme obtains an enforceable right to collect the proceeds ofsale or an enforceable obligation to deliver the instrumentssold.

� Where income receivable on investments has accrued but hasnot been received for a period specified in the guidelines issuedby SEBI, provision shall be made by debit to the revenueaccount the income so accrued in the manner specified byguidelines issued by SEBI.

� When Units are sold in the Scheme and its Plans, an appropriatepart of the sale proceeds shall be credited to an EqualisationAccount and when Units are repurchased an appropriate amountshall be debited to Equalisation Account. The net balance onthis account shall be credited or debited to the Revenue Account.The balance on the Equalisation Account debited or creditedto the Revenue Account shall not decrease or increase the netincome of the Fund but is only an adjustment to the distributablesurplus. It shall therefore be reflected in the Revenue Accountonly after the net income of the Fund is determined.

� When Units are sold, after considering the equalisation asabove, the difference between the sale price and the face valueof the Unit, if positive, shall be credited to reserves and ifnegative, shall be debited to reserve, the face value beingcredited to Capital Account. Similarly, when the Units arerepurchased, after considering the equalisation as above, thedifference between the purchase price and face value of theUnit, if positive, shall be debited to reserves and, if negative,shall be credited to reserves, the face value being debited to theCapital Account.

� The cost of investments acquired or purchased shall includebrokerage, stamp charges and any charge customarily includedin the broker's bought note. In respect of privately placed debtinstruments any front-end discount offered shall be reducedfrom the cost of the investment.

� Underwriting commission shall be recognised as revenue onlywhen there is no devolvement on the Scheme and its Plans.Where there is devolvement on the Scheme and the Plansthereunder, the full underwriting commission received and notmerely the portion applicable to the devolvement shall bereduced from the cost of the investment.

The accounting policies and standards outlined above are as per theexisting Regulations and are subject to change as per changes in theRegulations.

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Definition of a Non-Performing Asset (NPA)An 'asset' shall be classified as non-performing, if the interest and /or principal amount have not been received or remained outstandingfor 1 quarter from the day such income / installment has fallen due.

Effective date for classification and provisioning of NPAsThe definition of NPA may be applied after a quarter past due dateof the interest. For e.g. if the due date for interest is 30.06.2001, itwill be classified as NPA from 01.10.2001.

Treatment of income accrued on the NPA and further accrualsAfter the expiry of the 1st quarter from the date the income hasfallen due, there will be no further interest accrual on the asset i.e.if for example, the due date for interest falls on 30.06.2001 and ifthe interest is not received, accrual will continue till 30.09.2001after which there will be no further accrual of income. In short,taking the above example, from the beginning of the 2nd quarterthere will be no further accrual on income.

On classification of the asset as NPA from a quarter past due dateof interest, all interest accrued and recognised in the books ofaccounts of the Fund till the date, should be provided for. For e.g.if interest income falls due on 30.06.2001, accrual will continue till30.09.2001 even if the income as on 30.06.2001 has not beenreceived. Further, no accrual will be done from 01.10.2001 onwards.Full provision will also be made for interest accrued and outstandingas on 30.06.2001.

Provision for NPAs - Debt SecuritiesBoth secured and unsecured investments once they are recognisedas NPAs call for provisioning in the same manner.

The value of the asset must be provided in the following manner orearlier at the discretion of the Fund. The Fund will not have discretionto extend the period of provisioning. The provisioning against theprincipal amount or installments should be made at the followingrates irrespective of whether the principal is due for repayment ornot.

10% of the book value of the asset should be provided for after 6months past due date of interest i.e. 3 months from the date ofclassification of the asset as NPA.

20% of the book value of the asset should be provided for after 9months past due date of interest i.e. 6 months from the date ofclassification of the asset as NPA.

Another 20% of the book value of the assets should be provided forafter 12 months past due date of interest i.e. 9 months from the dateof classification of the asset as NPA.

Another 25% of the book value of the assets should be provided forafter 15 months past due date of interest i.e. 12 months from the dateof classification of the asset as NPA.

The balance 25% of the book value of the asset should be providedfor after 18 months past due date of the interest i.e. 15 months fromthe date of classification of the assets as NPA.

Book value for the purpose of provisioning for NPAs shall be takenas a value determined as per the prescribed valuation method.

Offer Document



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 30.06.2002 and the interest is not received till1st quarter after due date i.e. 30.09.2002. This provisioning will bedone in following phased manner:

10% provision 01.01.2003 6 months past due date ofinterest i.e. 3 months from thedate of classification of asset asNPA (01.10.2002)

20% provision 01.04.2003

20% provision 01.07.2003

25% provision 01.10.2003

25% provision 01.01.2004

Thus, 1 1/2 years past the due date of income or 1 1/4 year fromthe date of classification of the 'asset' as an NPA, the 'asset' will befully provided for. If any installment is fallen due, during the periodof interest default, the amount of provision should be installmentamount or above provision amount, whichever is higher.

Reclassification of assetsUpon reclassification of assets as 'performing assets':

� In case a company has fully cleared all the arrears of interest,the interest provisions can be written back in full.

� The asset will be reclassified as performing on clearance of allinterest arrears and if the debt is regularly serviced over thenext two quarters.

� 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.

� The provision made for the principal amount can be writtenback in the following manner: -

� 100% of the asset provided for in the books will be writtenback at the end of the 2nd calendar quarter where theprovision of principal was made due to the interest defaultsonly.

� 50% of the asset provided for in the books will be writtenback at the end of the 2nd calendar quarter and 25% afterevery subsequent quarter where both installments andinterest were in default earlier.

� 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.

Receipt of past duesWhen the Fund has received income / principal amount after theirclassifications as NPAs:

� For the next 2 quarters, income should be recognised on cashbasis and thereafter on accrual basis. The asset will be continuedto be classified as NPA for these two quarters.

� 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.

� If part payment is received towards principal, the asset continuesto be classified as NPA and provisions are continued as per thenorms set at 'Provision for NPAs - Debt Securities' above. Anyexcess provision will be written back.

Classification of Deep Discount Bonds as NPAsInvestments in Deep Discount Bonds can be classified as NPAs, ifany two of the following conditions are satisfied:

� If the rating of the Bond comes down to grade 'BB' or below.

� If the company is defaulting in their commitments in respectof other assets, if available.

� Full net worth erosion.

Provision should be made as per the norms set at 'Provision forNPAs - Debt Securities' above as soon as the asset is classified asNPA.

Full provision can be made if the rating comes down to grade 'D'.

Reschedulement of an assetIn case any company defaults either interest or principal amount andthe Fund has accepted a Reschedulement of the schedule of payments,then the following practice may be adhered to:

� In case it is a first reschedulement and only interest is indefault, the status of the asset namely, 'NPA' may be continuedand existing provisions should not be written back. This practiceshould be continued for two quarters of regular servicing of thedebt. Thereafter, this is classified as 'performing asset' and theinterest provided may be written back.

� 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.

� If the reschedulement is done for a second / third time orthereafter, the characteristic of NPA should be continued for8 quarters of regular servicing of the debt. The provisionshould be written back only after it is reclassified as 'performingasset'.

Disclosure in the Half Yearly Portfolio ReportsThe Mutual Fund shall make scripwise 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 arerecognised 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 investmentuntil all installments have become overdue.

Offer Document



SECTION III

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The offer is being made for subscription of Units of HSBC MidcapEquity Fund which is an open-ended Growth Scheme.

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The Initial Offer Period for the Scheme will commence from April 12,2005 and close on May 3, 2005. The earliest closing date will beApril 13, 2005.

It is the intent of the Trustees / AMC to collect subscriptions in theScheme of Rs. 700 crores with a view to protect the interest of theunit holders from the liquidity risk inherent to a Midcap Fund.Towards this intent, the Trustees / AMC reserve the right to announceclosure of the Initial Public Offer on any date commencing from theEarliest Closing Date and extending up to the Final Closing Dateof the Offer. The announcement will be made by displaying a noticein the Investor Service Centres and issuing advertisements in 2newspapers, at least 1 day prior to closing the Initial Public Offer.However, as it is not possible to ensure that the amount ofsubscriptions received in the Initial Public Offer would be exactlyRs. 700 crores, it is possible that the AMC collects subscriptionsover Rs. 700 crores. Subject to the applications being in accordancewith the terms of this Offer, full and firm allotment will be madeto all applicants. The excess amount collected in the IPO would beretained in the Fund but further subscriptions into the Fund on anon-going basis would be temporarily suspended until the assetsunder management fall below Rs. 700 crores, due to redemptions,market forces or for any other reason. All decisions of the Trustees /AMC will take effect prospectively and will be communicated bydisplaying a notice in the Investor Service Centres and issuingadvertisements in 2 newspapers, at least 1 day prior to the decisiontaking effect. All decisions of the Trustees / AMC will be made inthe interest of the investors and will be subject to the SEBIRegulations.

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The initial offer price of Units of the Scheme will be Rs. 10/- perunit, for cash at face value plus applicable load.

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The Trustees reserve the right to extend the closing date of the InitialOffer Period, subject to the condition that the subscription to theInitial Offer shall not be kept open for more than 30 days.

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The minimum subscription (target) amount for the HSBC MidcapEquity Fund shall be Rs. 1 Crore.

In accordance with the SEBI Regulations, if the Mutual Fund failsto collect the minimum subscription amount of Rs. 1 crore (RupeesOne Crore Only) in the HSBC Midcap Equity Fund, the MutualFund and the AMC shall be liable to refund the subscription amountwithin a period of 6 weeks from the date of closure of subscriptionlist to the applicants of the Scheme.

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The Trustees / AMC reserve the right to temporarily suspendsubscriptions, switches into the Scheme, if the assets undermanagement of the Scheme exceeds Rs. 700 crores. However, as itmay not be possible to ensure that the assets under managementdoes not exceed Rs. 700 crores at the point of time of subscription,any excess amounts collected in the Scheme would be retained until

the suspension of subscriptions, switches into the Scheme takeseffect. The suspension will be for a minimum period of 1 month oruntil the assets under management fall below Rs. 700 crores, dueto redemptions, market forces or for any other reason, whicheveris later. The suspension will not however affect Dividend reinvestmentoptions, Systematic Investment Plans, Systematic Transfer Plans orother standing instructions which have been entered into by theinvestors at any time prior to the date from which the suspensiontakes effect. The Trustees / AMC also reserve the right to reviewthe amount, frequency and methodology by which the suspensionof further sale of units will be enforced. All decisions of the Trustees /AMC will take effect prospectively and be communicated to theinvestors from time to time by arranging to display a notice in theInvestor Service Centres and issuing advertisements in 2 newspapers,at least 1 day prior to the decision taking effect. All decisions of theTrustees / AMC will be made in the interest of the investors and willbe subject to the SEBI Regulations.

The above can be explained by the following illustration :

Assets under management cross Rs. 700 crores - March 14, 2005.

AMC learns of the excess : at end of day - March 14, 2005 / openingMarch 15, 2005.

AMC takes steps to issue notices at ISCs and to issue advertisement- March 15, 2005.

Advertisement suspending subscriptions, switches until furthernotice, appears in the newspapers - March 17, 2005.

Further subscriptions, switches into the Scheme will cease to beaccepted from - March 18, 2005.

Suspension will be for a minimum period of 1 month ie, up to -April 17, 2005.

If on April 17, 2005, the assets under management do not fall belowRs. 700 crores, the suspension continues.

Assets under management fall below Rs. 700 crores - April 17, 2005

AMC learns of the fall : end of day - April 17, 2005 / openingApril 18, 2005.

AMC takes steps to issue notices at ISCs and to issue advertisement- April 18, 2005.

Advertisement allowing subscriptions, switches appears in thenewspapers - April 20, 2005.

Further subscriptions, switches into the Scheme will be acceptedfrom - April 21, 2005.

Assets under management fall below Rs. 700 crores - anytime afterApril 17, 2005 (T day).

AMC learns of the fall : end of day - T day / opening T+1 day.

AMC takes steps to issue notices at ISCs and to issue advertisement- T+1 day.

Advertisement allowing subscriptions, switches appears in thenewspapers - T+3 day.

Further subscriptions, switches into the Scheme will be acceptedfrom - T+4 day.

Note : all dates mentioned in the illustration are assumed to beBusiness Days

Offer Document



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The Scheme will offer for sale and repurchase, Units on everyBusiness Day not later than 30 days after the close of the InitialOffer Period. The Units of the Scheme shall be available forsubscription at Applicable NAV based prices, subject to prevalentload provisions, if any on every business day not later than 30 daysafter the close of the Initial Offer Period.

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Minimum Application amounts under the Scheme / Option(s) shallbe as under :

Scheme Minimum AdditionalApplication investment

Amount (Rs.) (Re.)

HSBC Midcap Equity Fund 5000 1

The AMC reserves the right to change the minimum applicationamount from time to time.

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All applicants will receive full and firm allotment of Units, providedthe applications are complete in all respects and are found to be inorder. The Trustees retain the sole and absolute discretion toreject any application. The process of allotment of Units andmailing of account statements reflecting the allotments will becompleted within 30 days from the date of closure of the InitialOffer Period. In addition to the above, refund of subscription moneyto applicants whose applications are invalid for any reason whatsoeverwill commence immediately after the allotment process is completed.

No interest will be payable on any subscription money refundedwithin 6 weeks from the closure of the Initial Offer Period. Intereston subscription amount will be payable for amounts refunded laterthan 6 weeks from the closure of the Initial Offer Period at the rateof 15% per annum for the period in excess of 6 weeks and will becharged to the AMC. Refund orders will be marked "A/c. payeeonly" and will be in favour of and be despatched to the Sole / FirstApplicant, by registered post

�� ""�� !�

Under HMEF investors will have a choice of two Options viz.Dividend Option and Growth Option.

Dividend OptionUnder the Dividend Option, dividend shall be distributed subject toavailability of distributable profits, as computed in accordance withSEBI Regulations. Investors in HSBC Midcap Equity Fund have thechoice of opting for either payout or reinvestment of the dividends.

The Trustees reserve the right of dividend declaration.

Growth OptionUnder this Option, income earned on the Scheme's corpus willremain invested in the Scheme and will be reflected in the Net AssetValue (NAV). Unitholders who opt for this Option will not receiveany dividend in normal circumstances.

Investors should indicate the Scheme and / or Option etc., 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 Scheme and / or Option etc. the following defaultswill be flagged off :

Indication not made Default

Scheme Name Application Rejected

Dividend / Growth Option / Growth Option /Sub-options Sub-option

Dividend Payout / Reinvestment Dividend Reinvestment

Mode of holding (in cases where Jointthere are more than one applicant)

4� ��#)5

The following persons are eligible and may apply for subscriptionto the Units of the Scheme (subject, wherever relevant, to purchaseof units of mutual funds being permitted and duly authorised undertheir respective constitutions, charter documents, corporate / otherauthorisations and relevant statutory provisions etc):

� Indian resident adult individuals either singly or jointly.

� Minor through parent / lawful guardian.

� Companies, bodies corporate, public sector undertakings,association of persons, bodies of individuals, societies registeredunder the Societies Registration Act, 1860, mutual fund schemes(so long as the purchase of units is permitted under the respectiveconstitutions).

� Religious and Charitable Trusts, Wakfs or endowments ofprivate trusts (subject to receipt of necessary approvals asrequired) and Private Trusts authorised to invest in mutual fundschemes under their trust deeds.

� Partnership Firms.

� Karta of Hindu Undivided Family (HUF).

� Banks (including Co-operative Banks and Regional RuralBanks) & Financial Institutions.

� Non-resident Indians (NRIs) / Persons of Indian Origin on fullrepatriation basis (subject to RBI approval, if required) or onnon-repatriation basis.

� Foreign Institutional Investors (FIIs) registered with SEBI onfull repatriation basis (subject to RBI approval, if required).

� Army, Air Force, Navy and other para-military funds andeligible institutions.

� Scientific and Industrial Research Organisations.

� Provident / Pension / Gratuity and such other Funds as andwhen permitted to invest.

� International Multilateral Agencies approved by theGovernment of India / RBI.

� Other Schemes of HSBC Mutual Fund subject to the conditionsand limits prescribed in SEBI Regulations.

� Trustees, AMC or Sponsor or their associates (if eligible andpermitted under prevailing laws), may subscribe to the Unitsunder the Scheme.

� ��6

Subscriptions from residents in the United States of America andCanada shall not be accepted by the Schemes of HSBC MutualFund.

The Fund reserves the right to include / exclude new / existing

Offer Document



categories of investors to invest in the Scheme from time to time,subject to SEBI Regulations and other prevailing statutoryregulations, if any.

� -� ��#)5

� The Application Form for the sale of Units of the Scheme willbe available at the Investor Service Centres / DesignatedCollection Centres / Distributors.

� Payment should be made by cheque or bank draft drawn on anybank which is situated at and is a member of the Banker'sClearing House located at the place where the application issubmitted or in a manner acceptable to the AMC, which isevidenced by receipt of credit in Bank Account of the Fund.

� Outstation cheques will not be accepted and applicationsaccompanied by such cheques are liable to be rejected.

� No cash, money orders and postal orders will be accepted.

Post dated cheques will not be accepted other than in thecase of Systematic Investment Plans or as may be decidedby the AMC from time to time.

� Bank charges for outstation demand drafts will be borne by theAMC and will be limited to the bank charges as per tablebelow. The AMC will not entertain any request for refund ofdemand draft charges.

Amount DD charges

Upto Rs. 500 Rs. 10/- per instrument

Rs. 501- Rs. 1000/- Rs. 15/- per instrument

Rs. 1001 - Rs. 5000/- Rs. 20/- per instrument

Rs. 5001 - Rs. 10000/- Rs. 25/- per instrument

Rs. 10001 - Rs. 1 lakh Rs. 2.50 per Rs. 1000/-or part thereof

Rs. 100001 - Rs. 10 lakh Rs. 2.00 per Rs. 1000/-or part thereof

Above Rs. 10 lakh Rs. 1.50 per Rs. 1000/- orpart thereof subject to amaximum of Rs. 5000/-

� Applications should be made in adherence to the minimumamount requirements as mentioned in the Offer Document.

� All cheques and bank drafts must be drawn in the name of theScheme or their abbreviations e.g. "HSBC Midcap EquityFund" or "HMEF" and crossed "Account Payee only". Aseparate cheque or bank draft must accompany each Application.

� The Application Forms together with the cheque / demanddraft can be tendered at any of the Designated CollectionCentres.

On-line investment facility may also be available. Please visit ourwebsite at www.assetmanagement.hsbc.co.in

Applications not complete in any respect are liable to be rejected.In order to protect the interest of investors from fraudulent encashmentof cheques, cheques specify the name of the Unitholder and the bankname and account number where payments are to be credited. SEBIRegulations make it mandatory for an investor to mention the detailsof his / her /its bank account. It is important for applicants to

mention their bank name, bank account number, branch address,account type in their applications for subscription or repurchase ofUnits.

PAN of Sole / First Applicant, Second Applicant and Third Applicantmust be mentioned if the amount invested is Rs. 50,000/- or moreirrespective of mode of holding. In case a person does not have aPAN while entering such a transaction, he shall make a declarationin Form No. 60 /61 (as may be applicable). Applications without thisinformation will be rejected as per the presently applicableregulations. It is also to be noted that furnishing an incorrect PANor not furnishing these details could invite a penalty of Rs. 10,000,as per the provisions of the Income Tax Act, 1961.

PAN must be mentioned in the transaction request by an investorif there is a payment of an amount of Rs. 50000 or more to a MutualFund for purchase of its units. In case such transaction is enteredinto by a minor who does not have a PAN, he shall quote the PANof his father or mother or guardian, as the case may be. The investoris compulsorily required to provide a copy of the PAN Card / PANLetter / Copy of assessment order/ refund order from the IncomeTax department mentioning the PAN. In case a person does not havea PAN while entering such a transaction, he shall make a declarationin Form No. 60 /61 (as may be applicable). Necessary supportingdocuments required with the Forms are to be submitted by theinvestor.

SEBI has issued the Securities and Exchange Board of India (CentralDatabase of Market Participants) Regulations, 2003 which interaliarequire that specified intermediaries, other entities, specified listedcompanies and specified investors shall make application forallotment of Unique Identification Numbers (UIN) for itself and forits related persons in accordance with these regulations. Vide circularMRD/DOP/MAPIN/Cir -26/2004 dated August 16, 2004, SEBI hasinter-alia prescribed that no specified investor being a body corporateshall buy, sell or deal in units of mutual fund unless such specifiedinvestor, its promoter and directors have been allotted UIN by 31stDecember 2004. Further vide circular MAPIN/Cir-37/2004 datedOctober 27, 2004 SEBI has interalia specified that all residentinvestors not being body corporate who enter into any transactionin units of mutual funds of values Rs. 100000 or more are requiredto obtain a UIN before March 31, 2005. SEBI vide Press ReleasePR-48/2005 dated February 24, 2005 has extended the date toDecember 31, 2005. Foreign institutional investor, sub-accountsand foreign venture capital investors are also required to obtain aUIN before March 31, 2005. HSBC Mutual Fund shall be acting inaccordance with the rules and regulations as may be prescribed bySEBI in this regard.

An application made may be accepted or rejected in the sole andabsolute discretion of the Trustees. The Trustees may reject anyapplication for purchase of Units, if in the opinion of the Trustees,increasing the size of any or all of the Scheme's Unit capital is notin the general interest of the Unitholders, or the Trustees for anyother reason believe it would be in the best interest of the Schemeor its Unitholders to accept / reject such an application. Providedalways that the Trustees' rights will be subject to applicable SEBIRegulations, if any.

��#��.�� -�� "$�� 3, ��,��

The Scheme will offer Units for sale, repurchase and switch onevery Business Day based on the Applicable NAV.

The cut off times for determining Applicable NAVs for subscriptions,

Offer Document



redemptions and switches to be made at the Investor Service Centres /Designated Collection Centres (designated as ‘Official Points ofAcceptance’ from time to time) are as per the following table :

Scheme / Subscription Redemption Switch-in Switch-outPlan

HMEF 3.00 p.m. 3.00 p.m. 3.00 p.m. 3.00 p.m.

Where a request for redemption / switch is received after thecut-off time as mentioned above, the request will be deemed to havebeen received on the next Business Day.

Sale of UnitsThe Units of the Scheme will be available at the sale price, whichis based on the Applicable NAV, subject to sales load and subjectto the minimum application amount specifications. Subscriptionson an ongoing basis will be made only by specifying the amount tobe invested and not the number of Units to be subscribed. The totalnumber of Units allotted will be determined with reference to theapplicable sale price and fractional Units may be created. FractionalUnits will be computed and accounted for up to three decimal placesfor all Scheme. Fractional Units will in no way affect the investor'sability to redeem Units. The AMC reserves the right to review theterms of acceptance of subscription requests and reserves the rightto change the basis for subscription from amount basis to any otherbasis, subject to the SEBI Regulations.

Sales PriceThe sale price of the Units, on an ongoing basis, is based on theApplicable NAV. As per SEBI Regulations, an entry load upto amaximum of 7% may be charged for all subscriptions made underthe Plans / Options available under the Scheme, provided that thedifference between the repurchase price and the sale price of theUnits shall not exceed the permissible limit of 7% calculated on thesale price.

The AMC reserves the right to impose different entry loads underthe various Plans / Options available under the Scheme.

Sale Price = Applicable NAV * (1 + Entry Load, if any)

Example :

If the Applicable NAV is Rs.15 and the sales load applicable is 2%,the sales price is calculated as follows:

Sales Price = 15 * (1+ 0.02)

= 15 * 1.02

= 15.30

Applicable NAV for sale of UnitsApplicable NAV for HMEF shall be the NAV as at the close ofBusiness day

Repurchase of UnitsThe repurchase request can be made on a pre-printed form or bysuch other method(s) as may be acceptable to the Fund / AMC fromtime to time. Such request should be submitted at any of the InvestorService Centres / Designated Collection Centres.

The repurchase would be permitted to the extent of credit balancein the Unitholder's account. The repurchase request can be made byspecifying the rupee amount or the number of Units to be repurchased.Repurchase requests can be made for a minimum amount ofRs.1000/- (Rupees One Thousand Only) and multiples of Re. 1/-(Rupee One Only) thereof in case of all the Schemes of HSBCMutual Fund. Where a request for a repurchase is for both amount

and number of Units, the amount requested for repurchase will beconsidered as the definitive request.

If the balance in the Unitholder's account does not cover the amountof repurchase request, then the Mutual Fund is authorised to closethe account of the Unitholder and send the entire such (lesser)balance to the Unitholder.

In case an investor has purchased Units on more than 1 BusinessDay (either under the Initial Offer Period or through subsequentpurchases), the Units purchased prior in time (i.e. those Units whichhave been held for the longest period of time), will be deemed tohave been redeemed first i.e. on a First-in-First-Out basis.

Unitholders may also request for redemption of their entire holdingand close the account by indicating the same to the Fund / AMC.

Where however, the Unitholder 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 will beredeemed.

In case the Units are standing in the names of more than oneUnitholder, 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', anyone of the Unitholders will have the power to make redemptionrequests, without it being necessary for all the Unitholders to sign.However, in all cases, the proceeds of the redemption will be paidto the first-named holder only.

Repurchase PriceThe repurchase price of the Units, on an ongoing basis, is based onthe Applicable NAV. As per SEBI Regulations, an exit load upto amaximum of 7% may be charged for all redemptions under thePlans / Options available under the Scheme, provided that thedifference between the repurchase price and the sale price of theUnits shall not exceed the permissible limit of 7% calculated on thesale price.

The AMC reserves the right to impose different exit loads under thevarious Plans / Options available under the Scheme.

Repurchase Price = Applicable NAV * (1 - Exit Load, if any)

Example

If the Applicable NAV is Rs.15 and the exit load applicable is 0.5%,the repurchase price is calculated as follows:

Repurchase Price = 15 * (1 - 0.005)

= 15 * 0.995

= 14.925

Applicable NAV for Repurchase of UnitsApplicable NAV for HMEF would be the Net Asset Value per Unitat the close of the Business Day on which a valid request forredemption is accepted.

Please see 'Right to Limit Redemptions' and 'Suspension of Sale /Repurchase / Switch of Units'.

As per the Regulations, the Fund shall despatch the redemptionproceeds within 10 Business Days from the date of acceptance ofredemption request at any of the Investor Service Centres.

Under normal circumstances, the Fund will endeavor to despatchthe redemption proceeds within 2 Business Days from the date ofreceiving a valid redemption request.

Offer Document



The redemption cheque will be issued in favour of the Sole / FirstUnitholder's registered name and bank account number, and will bemailed to the registered address of the Sole / First holder as indicatedin the original Application Form. The Fund may also directly creditthe investor's bank account with the redemption proceeds, in lieu ofissue of redemption cheque. The redemption cheque will be payableat par at all the places where the Investor Service Centres arelocated. The bank charges for collection of cheques at all otherplaces will be borne by the AMC.

A fresh Account Statement / Transaction Confirmation will be sentto the redeeming investors, indicating the new balance to the creditin the Account.

The Fund may close a Unitholder's account if as a consequence ofa redemption, the balance falls below Rs. 1000/-.

Further, as Units may not be held by any person in breach of theRegulations, law or requirements of any governmental, statutoryauthority including, without limitation, Exchange ControlRegulations, the Mutual Fund may mandatorily redeem all the Unitsof any Unitholder where the Units are held by a Unitholder in breachof the same.

The Trustees may mandatorily redeem Units of any Unitholder inthe event it is found that the Unitholder has submitted informationeither in the application or otherwise that is false, misleading orincomplete.

If a Unitholder makes a redemption request immediately afterpurchase of Units, the Fund shall have a right to withhold theredemption request till sufficient time has elapsed to ensure that theamount remitted by him (for purchase of Units) is realised and theproceeds have been credited to the concerned Scheme's Account.However, this is only applicable if the value of redemption is suchthat some or all of the freshly purchased Units may have to beredeemed to effect the full redemption.

�-�� ,��

On an on-going basis, the Unitholders have the option to switch allor part of their investment from one scheme to any of the otherScheme(s) offered by the Fund, which is available for investmentat that time, subject to prevailing load structure.

Investors also have the option of switching between various Plans /Options of the same Scheme. To effect a switch, a Unitholder mustprovide clear instructions. A request for a switch may be specifiedeither in terms of amount or in terms of the number of Units of theScheme from which the switch is sought. Where a request for switchis for both amount and number of Units, the amount requested willbe considered as the definitive request. Such instructions may beprovided in writing and lodged on any Business Day at any of theInvestor Service Centres / Designated Collection Centres. AnAccount Statement / Transaction Confirmation reflecting the newholding will be despatched to the Unitholders normally within 3Business Days of completion of the switch transaction.

The switch will be effected by redeeming units from the scheme inwhich the units are held and investing the net proceeds in the otherScheme / Plans / Options, subject to the minimum balance, minimumapplication amount and subscription / redemption criteria applicablefor the respective Scheme.

Valid requests for 'switch out' shall be treated as redemptions andfor 'switch in' shall be treated as purchases, after considering anyprevalent exit and entry loads or a combination thereof for switches.

A switch by NRI / FII Unitholders will be subject to the compliance

of procedures and / or final approval of the Reserve Bank of Indiaand / 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.

� ��!��

An account statement will be sent by ordinary post / courier / e-mailto each Unitholder, stating the number of units allotted, not laterthan 30 Business Days from the close of the Initial Offer Period. Asunits of the Scheme will be non-transferable, the Account Statementsshall be non-transferable. If the Unitholder so desires, non-transferable unit certificates will be issued within 6 weeks of thereceipt of request for the certificate.

Also, an Account Statement reflecting the net balance of theUnitholder will be mailed to the Unitholder by ordinary post /courier after every financial transaction (other than dividenddeclaration) is effected, except in exceptional circumstances. TheAccount Statement shall not be construed as a proof of title and isonly a computer-printed statement indicating the details oftransactions under the Scheme.

Under normal circumstances on an on-going basis, AccountStatements will be mailed to the investor within 3 Business Daysof acceptance of the purchase, redemption, switch request for theScheme, provided that the Fund reserves the right to reverse thetransaction of crediting units in the Unitholder's account, in theevent of non-realisation of any cheque or other instrument remittedby the investor . The Unit balance shown on the account statementis subject to realisation of cheque, fulfilment of regulatoryrequirements, fulfilment of requirements of the Offer Document(s) /Addendum(s) and furnishing necessary information to the satisfactionof the Mutual Fund.

All Units will rank pari passu among Units within the same Option /Sub-Option, i.e. either the Dividend Sub-Option or the Growth Sub-Option, as to assets, earnings and the receipt of dividend distributions,if any, as may be declared by the Trustees. Allotment of Units anddespatch of Account Statements to NRIs / FIIs will be subject toRBI's general permission dated 30 March, 1999 to mutual funds, interms of Notification no. FERA.195/99-RB or such othernotifications, guidelines issued by RBI from time to time.

��

Systematic Investment Plan (SIP)Unitholders of the Scheme can benefit by investing specific rupeeamounts periodically, for a continuous period. SIP allows the investorsto invest a fixed amount every month or quarter for purchasingadditional Units of the Scheme at NAV based prices. The requirementof 'Minimum Amount for Application' will not be applicable in caseof SIPs, . An investor can start an SIP by providing at least 6 post-dated cheques of Rs. 1000 (Rs. One Thousand) each, for a block of6 months in advance, in case he wishes to invest monthly.

Unitholders wishing to invest on a quarterly basis must provide atleast 2 post-dated cheques, for a minimum of Rs. 3,000 (RupeesThree Thousand Only) per cheque for a block of 6 months.

Post-dated cheques for SIP should be dated on either the 3rd, 10th,17th or 26th of every month in case of monthly SIPs and should bedated 10th of the relevant month in case of quarterly SIPs. If thesedates fall on a holiday, the transaction will be taken as of the nextBusiness Day. The cheques should be drawn in the name of theScheme / Plan or its abbreviation i.e., "HSBC Midcap EquityFund" or "HMEF" and crossed "Account Payee only" and must

Offer Document



be payable at the locations where the applications are submitted atthe Investor Service Centres. Outstation cheques will not be acceptedand applications accompanied by such cheques are liable to berejected. The Mutual Fund may have arrangements with organisationsto accept group SIPs whereby the employees of such organisationscan opt for a direct deduction from their salary and invest in theScheme in which the SIP facility is available. The Mutual Fund willdecide the terms and conditions on which such group SIPs wouldbe made available.

The AMC reserves the right to introduce / discontinue SIP from timeto time. The AMC reserves the right to have differential loadstructures for investors who opt for the SIP.

Systematic Encashment Plan (SEP)Unitholders have the benefit of enrolling themselves under theSystematic Encashment Plan. The SEP allows the Unitholder towithdraw sums of money each month / quarter from his investmentsin the Scheme. SEP is ideal for Unitholders seeking a regular inflowof funds for their needs in a tax efficient manner. It is also suitedto retired persons or individuals who wish to invest a lumpsum andwithdraw from the investment over a period of time.

Investors can opt for either monthly or quarterly withdrawals. TheUnitholder may avail of this Plan by sending a written request tothe Registrar.

The amount thus withdrawn by redemption will be converted intoUnits at the Applicable NAV based prices and the number of Unitsso arrived at will be subtracted from the Units balance to the creditof that Unitholder. The SEP transaction will be on the first BusinessDay of every month / quarter. The Fund may close a Unitholder'saccount if the balance falls below Rs 1,000/- in the respectiveOptions/sub-options within 30 days from the date on which a writtenintimation in this regard is sent to the Unitholder.

The SEP may be terminated or modified on a written notice to theRegistrar of at least 14 days by a Unitholder of the Scheme and itwill terminate automatically if all Units are liquidated or withdrawnfrom the account by the Unitholder.

Under SEP investors can opt for withdrawal of a Fixed Amount orthe Capital Appreciation on their investment.

Under the Fixed Amount Option, the investor specifies the fixedamount that he would like to receive on a regular basis irrespectiveof the gain / loss on the Fund in the specified period. The minimumamount which the Unitholder can withdraw is Rs. 1000/- (RupeesOne Thousand Only) and in multiples of Re.1 (Rupee One Only)thereafter.

The Capital Appreciation Option allows the automatic redemptionof the incremental amount i.e. appreciation on the original investment.For example, if the appreciation on the initial investment in a periodis Rs. 5000/- and Rs. 4500/- in the next period, then the investorwould receive only the appreciation i.e. Rs. 5000/- and Rs. 4500/-in the respective periods. Unitholders should note that in the eventof there being no capital appreciation, no withdrawal / paymentwould be effected.

The AMC reserves the right to introduce / discontinue SEP fromtime to time. The AMC reserves the right to have differential loadstructures for investors who opt for the SEP.

Systematic Transfer Plan (STP)Investors can opt for the Systematic Transfer Plan by investing alumpsum amount in the HSBC Income Fund, HSBC Cash Fund,HSBC MIP, HSBC Floating Rate Fund and HSBC Gilt Fund and

providing a standing instruction to transfer sums at monthly intervals(for a minimum period of 3 months) into HSBC Midcap EquityFund. Investors could also opt for STP from an existing account byquoting their account / folio number. Investors could choose tospecify the fixed sum to be transferred every month. Alternatively,in the Growth Sub-Options under the Regular, Institutional andInstitutional Plus Options of HSBC Cash Fund and in the GrowthSub-Options under the Regular and Institutional Option of HSBCFloating Rate Fund Short Term Plan, investors could opt toautomatically transfer the capital appreciation (between theimmediately preceding STP date and the present STP date) in thevalue of their investments to HSBC Midcap Equity Fund.

Transfers would be effected as of the first Business Day of everymonth in case of transfer from HSBC Income Fund, HSBC GiltFund, HSBC Floating Rate Fund Long Term Plan and HSBC MIPand would be effected on the first, tenth and the twentieth day ofthe month in case of transfer from HSBC Cash Fund and HSBCFloating Rate Fund Short Term Plan. If these dates fall on a holiday,the transaction will be effected as of the next Business Day. Transfersmust be for a minimum amount of Rs.1,000/- in case of STPs wherea fixed sum is specified to be transferred every month.

The AMC reserves the right to introduce / discontinue STP fromtime to time. The AMC reserves the right to have differential loadstructures for investors who opt for the STP.

�#��,�

If in conformity with the guidelines and notifications issued bySEBI / Government of India / any other regulatory body from timeto time, Units under the Scheme may be offered as security by wayof a pledge / charge in favour of scheduled banks, financialinstitutions, non-banking finance companies (NBFCs), or any otherbody. The AMC and / or the ISC will note and record such pledgedUnits. A standard form for this purpose is available on request fromany ISC. Disbursement of such loans will be at the entire discretionof the bank / financial institution / NBFC or any other body concernedand the Mutual Fund assumes no responsibility thereof. The Pledgorwill not be able to redeem / switch Units that are pledged until theentity to which the Units are pledged provides written authorisationto the Mutual Fund that the pledge / lien charge may be removed.As long as Units are pledged, the pledgee will have completeauthority to redeem such Units.

��#� �� -�� " �� ) 7 �)� �� 7��,�� )7��7��

The original Power of Attorney or a duly notarised copy of thePower of Attorney shall be required to be submitted whereapplications are made under a Power of Attorney.

A company, body corporate, eligible institutions, registered society,trusts, partnership or other eligible non-individuals who apply in theScheme should furnish a certified copy of resolution or authority tomake the application as the case may be and a certified copy of theMemorandum and Articles of Association and / or bye-laws and /or Trust Deed and / or Partnership Deed and certificate of registrationor any other document as the case may be. In case of a Trust / Fund,it shall submit a certified true copy of the resolution from theTrustee(s) authorising such purchases. The officials should sign theapplication under their official designation and furnish a list ofauthorised signatories. All communications and payments shall bemade to the First Applicant only.

2 ��#� ��

In the event an account has more than one registered owner, the first-named holder (as determined by reference to the original Application

Offer Document



Form) shall receive all Account Statements, notices andcorrespondence with respect to the account, as well as the proceedsof any redemption requests or dividends or other distributions. Inaddition, such Unitholder shall have voting rights associated withsuch Units, as per the applicable guidelines. Applicants can specifythe mode of holding in the Application Form as 'Jointly' or 'Anyoneor Survivor'. In the case of holding specified as 'Jointly', alltransactions / instructions would have to be signed by all jointholders. However, in cases of holding specified as 'Anyone orSurvivor', any one of the Unitholders will have the power to maketransaction requests / provide instructions, without it being necessaryfor all the Unitholders to sign. However, in all cases, all distributionswill be made to the first-named holder only.

In case of death / insolvency of any one or more of the personsnamed in the register of Unitholders as the joint holders of anyUnits, the AMC shall not be bound to recognise any person(s) otherthan the remaining holders. In all such cases, redemption proceedsshall be paid to the first named of such remaining Unitholders.

� !�� #��)

The AMC will provide an option to the Unitholder to nominate aperson in whom all the Units held by the Unitholder shall vest inthe event of his death. Where the Units are held by more than oneperson jointly, all the joint Unitholders may together nominate aperson by signing the nomination form indicating the name of theperson in whom all the rights in the Units shall vest in the event ofdeath of all the joint Unitholders.

The nomination can be made only by individuals applying for /holding Units on their own behalf singly or jointly. Non-individualsincluding society, trust, body corporate, partnership firm, Karta ofHindu Undivided Family, holder of Power of Attorney cannotnominate.

A minor can be nominated and in that event, the name and addressof the Guardian of the minor Nominee shall be provided by theUnitholder.

The Nominee shall not be a society, trust (other than a religious orcharitable trust), body corporate, partnership firm, Karta of HinduUndivided Family, holder of Power of Attorney. A non-residentIndian can be a Nominee subject to the exchange controls in forcefrom time to time. Nomination can also be made in favour of theCentral Government, State Government, Local Authority, any persondesignated by virtue of his office or a religious or charitable trust.

Nomination in respect of the Units stands rescinded upon thetransmission of Units.

Transmission of Units in favour of a Nominee, shall be a validdischarge by the Mutual Fund / AMC / Trustees against the legalheirs of the Unitholder(s).

The cancellation of Nomination can be made only by those individualswho hold Units on their own behalf singly or jointly and who madethe original nomination.

On cancellation of the nomination, the nomination shall standrescinded and the Mutual Fund / AMC / Trustees shall not be underany obligation to transmit the Units in favour of the Nominee.

The nomination facility extended under the Scheme is in accordancewith SEBI regulations and subject to other applicable laws. Thesingle / joint / surviving Unitholders can subsequently write to theISC requesting for a Nomination Form in order to nominate anyperson to receive the Units upon his / her / their death, subject tocompletion of necessary formalities. Further, if either the Mutual

Fund or the AMC incur any loss whatsoever arising out of anylitigation or harm that it may suffer in relation to the nomination,they will be entitled to be indemnified absolutely from the deceasedUnitholders' estate. Upon the demise of the Unitholder, the Unitswould be transmitted in favour of the Nominee subject to theNominee executing suitable indemnities in favour of the MutualFund and the AMC and necessary documentation to the satisfactionof the Mutual Fund.

Investors / Unitholders are advised to read the instructions carefullybefore nominating.

The Mutual Fund can call for such documents from the Nomineeas deemed necessary.

��"��0��!�� "$��

As the Scheme stands ready to redeem Units on a continuous basisas laid down herein, the transfer facility is found redundant. Unitsof the Scheme shall therefore be non transferable. However, if atransferee becomes a holder of Units by operation of law includingupon enforcement of a pledge, then the Trustees shall, subject toproduction of such evidence, which in their opinion is sufficient,proceed to effect the transfer within 30 days from the date oflodgement if the intended transferee is otherwise eligible to hold theUnits. A person becoming entitled to hold the Units in consequenceof the death, insolvency, or winding up of the sole holder or thesurvivors of joint holders, upon producing evidence anddocumentation to the satisfaction of the Fund and upon executingsuitable indemnities in favour of the Fund and the AMC, shall beregistered as a Unitholder.

%�� 7� #�

As an investor friendly measure, unless otherwise requested by theUnitholder, one Master / Folio Number may be assigned for oneinvestor investing in different Scheme(s) of the Mutual Fund. Insuch a case, one consolidated Account Statement will be provided.The number of Units allotted to a Unitholder or repurchased by aUnitholder will be reflected in his / her account and a Statement tothis effect will be issued to the Unitholder. The AMC reserves theright to assign the existing Master Account / Folio number againstmultiple applications and / or subsequent purchases under a newapplication form by an existing Unitholder, with identical mode ofholding and address.

�� #$��

Since a request for redemption or purchase is generally made inrupee amounts and not in terms of number of Units of the Scheme,an investor may be left with fractional Units. Fractional Units willbe computed and accounted for up to three decimal places for theScheme. However, fractional Units will in no way affect the investor'sability to redeem the Units, either in part or in full, standing to theUnitholder's credit.

��,�� !��!��

The Trustees may, in the general interest of the Unitholders of theScheme offered under this Offer Document, and keeping in view theunforeseen circumstances / unusual market conditions, limit thetotal number of Units which may be redeemed on any Business Dayto 5% of the total number of Units then in issue, under the Schemeand Plan(s) thereof, or such other percentage as the Trustees maydetermine. Any Units, which by virtue of these limitations are notredeemed on a particular Business Day, will be carried forward forredemption to the next Business Day, in order of receipt. Redemptionsso carried 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 extent multiple

Offer Document



redemption requests are received at the same time on a singleBusiness Day, redemptions will be made on pro-rata basis, based onthe size of each redemption request, the balance amount beingcarried forward for redemption to the next Business Day. In addition,the Trustees reserve the right in their sole discretion, to limitredemptions with respect to any single account to an amount ofRs. 1 crore (Rupees One Crore Only) in a single day.

�� "��#�7�� 7�-�� "$��

The Mutual Fund at its sole discretion reserves the right to withdrawsale and / or repurchase and / or switch of the Units in the Scheme(including any one of the Plan of any of the Scheme) temporarilyor indefinitely, if in the opinion of the AMC, the general marketconditions are not favourable and / or suitable investmentopportunities are not available for deployment of funds. However,the suspension of sale / repurchase / switch either temporarily orindefinitely will be with the approval of the Trustees.

The sale / repurchase / switch of the Units may be suspended underthe following conditions:

� When one or more stock exchanges or markets, which providebasis for valuation for a substantial portion of the assets of theScheme is closed otherwise than for ordinary holidays.

� When, as a result of political, economic or monetary events orany circumstances outside the control of the Trustees and theAMC, the disposal of the assets of the Scheme is not reasonable,or would not reasonably be practicable without being detrimentalto the interests of the Unitholders.

� In the event of breakdown in the means of communication usedfor the valuation of investments of the Scheme, without whichthe value of the securities of the Scheme cannot be accuratelycalculated.

� During periods of extreme volatility of markets, which in theopinion of the AMC are prejudicial to the interests of theUnitholders of the Scheme.

� In case of natural calamities, strikes, riots and bandhs.

� In the event of any force majeure or disaster that affects thenormal functioning of the AMC, ISC or the Registrar.

� If so directed by SEBI.

In the above eventualities, the time limits indicated above, for

processing of requests for purchase, switch 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 or theirrespective agents, until it has been confirmed in writing by the AMCor its agents and payment has been received.

Suspension or restriction of repurchase / redemption facility underany Scheme / Plan of the Mutual Fund shall be made applicable onlyafter the approval from the Board of Directors of the AMC and theTrustees. The approval from the AMC Board and the Trusteesgiving details of circumstances and justification for the proposedaction shall also be informed to SEBI in advance.

��7��

The Foreign Exchange Management (Transfer or Issue of Securityby a Person Resident Outside India) Regulations, 2000 (the "FEMARegulations") permit a NRI to purchase on repatriation or non-repatriation basis, without limit, units of domestic mutual funds.Payment for such units must be made either by: (i) inward remittancethrough normal banking channels; or (ii) out of funds held in theNRE / FCNR account, in the case of purchases on a repatriationbasis or out of funds held in the NRE / FCNR / NRO account, inthe case of purchases on a non-repatriation basis.

The FEMA Regulations also permit a registered FII to purchase, onrepatriation basis, units of domestic mutual funds provided the FIIrestricts allocation of its total investment between equity and debtinstruments in the ratio of 70:30. Payment by the FII must be madeeither by inward remittance through normal banking channels or outof funds held in foreign currency account or non resident rupeeaccount maintained by the FII with a designated branch of anauthorised dealer with the approval of the RBI in terms of paragraph2 of Schedule 2 to the FEMA Regulations.

��!�� *)��7��

Units held by an NRI investor and FIIs may be redeemed by suchinvestor by tendering Units to the Mutual Fund or for payment ofmaturity proceeds, subject to any procedures laid down by RBI fromtime to time.

The Fund will not be liable for any delays or for any loss on accountof any exchange fluctuations, while converting the rupee amount inforeign exchange in the case of transactions with NRIs / FIIs.

Provisions with respect to NRIs / FIIs stated above, is as per theAMC's understanding of the laws currently prevalent in India.

Offer Document



SECTION IV

��$��$��0��$��8��

Sales of Units under the Scheme could attract an entry load (as a% of the invested amount). Repurchases could attract an exit load(as a % of the Applicable NAV for redemptions). Unitholders shouldnote that the AMC retains the right to change / impose an entry /exit load as per the provisions below:

� �� #��*#� �""��

Particulars HSBC Midcap Equity Fund(as a % of NAV)

Sales Load For investments below(Maximum sales load = 7%) Rs. Five Crores - 2.25%

For investments of Rs. Fivecrores and above - Nil

Sales load on issue of Unitsin lieu of Dividend(Dividend Reinvestment) Nil

Repurchase / redemption Load Nil

Entry load collected during the Initial Offer Period shall be used tomeet initial issue expenses.

��, ��,��

Particulars HSBC Midcap Equity Fund(as a % of NAV)

Entry load imposed on For investments belowpurchases Rs. Five Crores - 2.25%

For investments of Rs. Fivecrores and above - Nil

Load on issue of units in lieuof dividend(dividend reinvestment) Nil

Exit Load imposed on sales Nil

Switchover Fee As per the prevailing loadstructure of the Scheme

No entry load shall be applicable in case of investments into HSBCMidcap Equity Fund by way of Systematic Investment Plan (SIP)and / or Systematic Transfer Plan (STP) (specified by way of a fixedamount in case of HSBC Income Fund, HSBC Cash Fund, HSBCMIP, HSBC Gilt Fund and HSBC Floating Rate Fund or by way ofcapital appreciation in the Growth Sub-Options under the Regular,Institutional and Institutional Plus Options of HSBC Cash Fund andin the Growth Sub-Option under the Regular and Institutional Optionsof HSBC Floating Rate Fund Short Term Plan) where each suchinvestment / amount of capital appreciation by way of SIP/STP isof Rs. 25 Lakh or below. However an exit load of 2.25% shall beapplicable on the fixed amount or capital appreciation of Rs. 25 lakhor below by way of SIP / STP, if such amount is redeemed / switchedout of the Scheme within 2 years from the date of the relevantinvestment / transfer.

In case of investments of more than Rs. 25 Lakh by way of SIP/STP,an entry load of 2.25% will be charged on each such investment.However such load shall not be charged to investors opting toautomatically shift the capital appreciation in the value of theirinvestments in the Growth Sub-Option under the Regular, Institutional

and Institutional Plus Options of HSBC Cash Fund and in theGrowth Sub-Option under the Regular and Institutional Options ofHSBC Floating Rate Fund Short Term Plan on the first, tenth andthe twentieth day of every month to HSBC Midcap Equity Fund.However an exit load of 2.25% shall be applicable on amount ofcapital appreciation of more than Rs. 25 lakh by way of SIP / STP,if such amount is redeemed / switched out of the Scheme within 2years from the date of the relevant investment / transfer.

No load shall be applicable in case of Switch in / Switch out, from /to HSBC Midcap Equity Fund to / from HSBC Equity Fund / HSBCIndia Opportunities Fund.

Load in case of dividend reinvestments : Where investors opt forreinvestment of dividend earned from the Weekly Dividend Sub-Option under Institutional and Institutional Plus Options of HSBCCash Fund and under the Weekly Dividend Sub-Option under theInstitutional Option of HSBC Floating Rate Fund Short Term Plan,in to HSBC Midcap Equity Fund, an exit load of 2.25% shall beapplicable on the amount of dividend reinvested, if such amount isredeemed / switched out of HSBC Midcap Equity Fund within 2years from the date of the reinvestment. No entry load will becharged for the amount of dividend reinvestment transferred in tothe HSBC Midcap Equity Fund.

Load in case of investments by Fund-of-Funds (FOF) scheme: Noload (entry/exit) will be charged by HSBC Midcap Equity Fund, onthe investments made by Fund-of- Funds Schemes launched bymutual funds.

The entry / exit load set forth above is subject to change at thediscretion of the AMC and such changes shall be implementedprospectively.

Subject to the Regulations, the Trustees reserve the right to modify /alter the load structure and may decide to introduce a differentialload structure on the Units subscribed / redeemed on any BusinessDay. Such changes will be applicable for prospective investments.The Addendum detailing the changes in load structure will beattached to Offer Documents and Abridged Offer Documents. TheAddendum will also be circulated to all the distributors / brokers sothat the same can be attached to all the Offer Documents andAbridged Offer Documents in stock. This Addendum will also besent along with the newsletter to the Unitholders immediately afterthe changes. The Trustees / AMC shall arrange to display a noticein the Investor Service Centers of the AMC before the change ofthe then prevalent load structure. Changes in the load structure maybe stamped in the acknowledgement slip issued by the Fund afterthe changes in load structure. The changes may also be disclosedin the Statements of Account issued after the introduction of suchload. The load collected from the Unitholders under each Plan willbe credited to a separate account in the respective Plan accounts andwill be offset against distribution and marketing expenses inaccordance with SEBI Regulations. Surplus of load, if any, chargedover planned marketing and distribution expenses to be defrayedwill be credited to the respective Plans whenever felt appropriateby the AMC.

The repurchase price however, will not be lower than 93% of theNAV and the sales price will not be higher than 107% of the NAV,provided that the difference between the repurchase price and thesales price at any point in time shall not exceed the permitted limitas prescribed by SEBI from time to time, which is presently 7%calculated on the sales price.

Offer Document



��# ��/��

SEBI Regulations prescribe that the total initial issue expenses shallnot exceed 6% of the initial resources raised under the Scheme andany excess beyond 6% shall be borne by the AMC. The informationprovided above is based on estimates and Trustees / AMC reservethe right to review the load / expense structure.

Initial issue expenses are estimated as under

Expense Head HSBC Midcap Equity Fund(as % of amount mobilised)

Advertising Expenses 1.00%Agent Commissions 2.50%Registrar Expenses 0.10%Marketing expenses 0.20%Miscellaneous Expenses 0.25%Bankers Fees 0.05%Legal Fees 0.05%Printing & Distribution 0.10%

Total 4.25%

The above estimates are subject to change as per actuals and arebased on the minimum subscription (target) amount of Rs. 1 crore(Rupees One Crore Only). The estimates include the entry load of2.25% collected during the Initial Offer Period.

Out of Rs. 100 (Rupees one hundred only) contributed by theinvestor, Rs. 98 will be available for investment in cases where entryload is NIL and Rs. 95.75 will be available in cases where entry loadis 2.25%, during the Initial Public Offer.

Initial Issue Expenses to the extent borne by the Scheme would beamortised over a period of five years and would be included in theNAV. However the same would not be included in the NAV fordetermining the Investment Management Fee. Policies followed inthis respect would be in accordance with the SEBI Regulations. Anillustration is provided for further clarification :

Particulars

Face Value of Units (Rs. per Unit) A 10

Entry Load (2.25% of Face Value) B 0.2250

Issue Price (A + B) C 10.2250

Maximum IPO Expenses perSEBI Regulations (A x 6%) D 0.60

Estimated IPO Expenses E 0.425

Estimated IPO Expense to be borne outof Entry Load during the IPO (B) F 0.225

Balance Estimated IPO Expenses to becharged to the Scheme (E-F) G 0.20

Estimated Amount available forinvestment for every Rs. 10 plus entryload (wherever applicable), ascontributed by investor (C-F-G) H 9.80

Amortisation of IPO expenses per day(Rs. per unit) - [0.20/(365x5)] I 0.0001

Balance IPO expense to be carriedforward (G-I) J 0.1999

NAV on day 1 (A-I) K 9.9999

Note : IPO expenses charged to the Scheme will be amortised overa period of five years.

Initial issue expenses of Past Scheme(s)

HEF HIOF

Expense Head Estimated Actuals Estimated Actualsas per as perOffer Offer

Document Document

(as a % of amount mobilised)

AdvertisingExpenses 1.00 0.00 1.00 0.13

Agent Commissions 1.50 2.00 1.50 1.87

Registrar Expenses 0.10 0.00 0.10 0.00

Marketing Expenses 0.25 0.00 0.25 0.00

MiscellaneousExpenses 0.25 0.00 0.25 0.00

Bankers Fees 0.05 0.00 0.05 0.00

Legal Fees 0.05 0.00 0.05 0.00

Printing &Distribution 0.10 0.00 0.10 0.00

Total 3.30 2.00 3.30 2.00

The initial issue expenses to the extent of the entry load of 2%(amounting to Rs. 70,36,142/- in HEF and amounting to Rs. 52,11,807in HIOF) were borne by the Mutual Fund. Expenses over and above2% in HEF and HIOF and the entire initial issue expenses for HIF,HCF, HMIP, HIIF, HGF and HFRF were borne by the AMC, detailsof which are as under:

Expense Head HEF / HGF HMIP / HFRF(Rs. in lacs) HIF / HIOF

HCF /HIIF

Printing 21.81 2.30 22.22 4.38

Business Promotion 24.19 31.40 9.34

Advertising 23.14 80.13 3.62

Brokerage 27.99 71.17 1.35

Registrar's Fees 5.47 8.01

Professional Fees 2.38 3.20

Total 102.60 2.30 215.31 21.89

�� ,�/��

Description (% per annumof averagenet assets)

Investment Management & Advisory Fees 1.25%

Additional Fees (if any) -

Trustee Fees 0.05%

Custodian Fees 0.20%

Marketing & Selling Expenses 0.30%

Registrar & Transfer Agent Fees 0.10%

Audit Fees 0.01%

Offer Document



Costs related to investor communications 0.04%

Cost of providing account statements,dividend, redemption warrants etc. 0.05%

Cost of statutory advertisements 0.05%

Other Expenses 0.05%

Total Annual Recurring Expenses 2.10%

Amortized portion ofInitial Issue Expenses* 0.40%

TOTAL 2.50%

* The Initial Issue Expenses to the extent borne by the Scheme andamortised over a period of five years will be within the maximumlimit of annual recurring expense that can be charged to the Schemeas per the SEBI Regulations. To the extent that the amortised portionof the initial issue expenses falls short of the above stated percentage(ie, 0.40%), such portion will be adjusted against the total AnnualRecurring Expenses charged to the Scheme, subject overall to themaximum permissible limits as per the SEBI Regulations, at allpoints in time.

The purpose of the above table is to assist the investor inunderstanding the various costs and expenses that an investor in theScheme will bear directly or indirectly.

The above expenses are subject to change and may increase /decrease as per actual and / or any change in the Regulations. Theseestimates have been made in good faith as per information available

Description (% per annumof averagenet assets)

to the AMC and the total expenses may be more than as specifiedin the table above. However, as per the Regulations, the total recurringexpenses that can be charged to the Scheme in this Offer Documentshall be subject to the applicable guidelines. Expenses over andabove the permitted limits will be borne by the AMC.

The recurring expenses of the Scheme, 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. Currently, as per theRegulations, the maximum recurring expenses that can be chargedto the Scheme shall be subject to a percentage limit of averageweekly net assets as given below:

�9��)� ��!��

First Next Next OverRs. 100 crore Rs. 300 crore Rs. 300 crore Rs. 700 crore

2.50% 2.25% 2.00% 1.75%

Subject to Regulations and this Offer Document, expenses over andabove the prescribed ceiling will be borne by the AMC, Trustees orthe Sponsor.

As per SEBI regulations, the AMC is entitled to an investmentmanagement and advisory fee at the rate of 1.25% per annum of theweekly average net assets outstanding in each accounting year forthe scheme concerned, as long as the net assets do not exceedRs. 100 crore (rupees one hundred crores only) and 1.00% of theexcess amount over Rs. 100 crore (rupees one hundred crores only),where net assets so calculated exceed Rs. 100 crore (rupees onehundred crores only). For schemes launched on a no load basis, theAMC is entitled to collect an additional management fee notexceeding 1% of the weekly average net assets outstanding in eachfinancial year.

��%�� ":;��*��).:<<=

HISTORICAL PER UNIT STATISTICS HSBC Equity Fund HSBC India Opportunities Fund HSBC Cash Fund^

1-Apr-04 1-Apr-03 14-Nov-02 1-Apr-04 22-Jan-04 1-Apr-04 1-Apr-03 14-Nov-0228-Feb-05 31-Mar-04 31-Mar-03 28-Feb-05 31-Mar-04 28-Feb-05 31-Mar-04 31-Mar-03

NAV at the beginning of the period (Rs.)

Dividend Option 18.06 10.09 10.00 9.62 10.00 NA NA NA

Growth Option 27.41 10.09 10.00 9.62 10.00 NA NA NA

Regular Option - Dividend NA NA NA NA NA 10.1883 10.1866 10.0000

Regular Option - Growth NA NA NA NA NA 10.6981 10.1866 10.0000

Monthly - Dividend NA NA NA NA NA NA NA NA

Quarterly - Dividend NA NA NA NA NA NA NA NA

Institutional Option - Dividend NA NA NA NA NA NA NA NA

Institutional Option - Growth NA NA NA NA NA 10.6979 NA NA

Institutional Option - Daily Dividend NA NA NA NA NA 10.4372 NA NA

Institutional Option - Weekly Dividend NA NA NA NA NA 10.4435 NA NA

Institutional Option - Monthly Dividend NA NA NA NA NA 10.4415 NA NA

Institutional Plus Option - Growth NA NA NA NA NA NA NA NA

Institutional Plus Option - Daily Dividend NA NA NA NA NA NA NA NA

Institutional Plus Option - Weekly Dividend NA NA NA NA NA NA NA NA

Institutional Plus Option - Monthly Dividend NA NA NA NA NA NA NA NA

Offer Document



Net Income Per unit (Rs.) 2.7719 3.9459 0.0824 1.1991 (0.0990) 0.4620 0.2717 0.1207

Dividends Paid out (Rs. per Unit) #

Regular Dividend Option 1.53 4.15 - - - 0.49 0.34 0.00




Institutional Option - Daily Dividend NA NA NA NA NA 1.82 0.17 NA

Institutional Option - Weekly Dividend NA NA NA NA NA 0.58 0.17 NA

Institutional Option - Monthly Dividend NA NA NA NA NA 2.06 0.13 NA

Institutional Plus Option - Daily Dividend NA NA NA NA NA 0.33 NA NA

Institutional Plus Option - Weekly Dividend NA NA NA NA NA 0.36 NA NA

Institutional Plus Option - Monthly Dividend NA NA NA NA NA 0.42 NA NA

Transfer to Reserves (Rs. in crores) 0.00 213.88 0.35 0.00 -11.11 0.00 68.62 3.81

NAV at the End of the year / period (Rs.)

Dividend Option 22.9995 18.06 10.09 13.7374 9.62 NA NA NA

Growth Option 37.8048 27.41 10.09 13.7374 9.62 NA NA NA

Regular Option - Dividend NA NA NA NA NA 10.1908 10.1883 10.1866

Regular Option - Growth NA NA NA NA NA 11.1511 10.6981 10.1866




Institutional Option - Growth NA NA NA NA NA 11.1609 10.6979 NA

Institutional Option - Daily Dividend NA NA NA NA NA 10.4401 10.4372 NA

Institutional Option - Weekly Dividend NA NA NA NA NA 10.4473 10.4435 NA

Institutional Option - Monthly Dividend NA NA NA NA NA 10.4570 10.4415 NA

Institutional Plus Option - Growth NA NA NA NA NA 10.3650 NA NA

Institutional Plus Option - Daily Dividend NA NA NA NA NA 10.0056 NA NA

Institutional Plus Option - Weekly Dividend NA NA NA NA NA 10.0073 NA NA

Institutional Plus Option - Monthly Dividend NA NA NA NA NA 10.0125 NA NA

Net Assets at End of Year / period (Rs. Crores) 1,622.67 982.81 46.14 486.87 273.21 2,735.21 1,701.30 207.48

Ratio of Recurring Expenses toAverage Daily Net Assets (%) (Annualised) 1.97% 2.28% 2.41% 2.29% 2.26% 0.53% 0.65% 0.52%

Date of Allotment 10-Dec-02 10-Dec-02 10-Dec-02 24-Feb-04 24-Feb-04 4-Dec-02 4-Dec-02 4-Dec-02

Annualised Return (Since inception) 81.94% 113.92% 0.90% 37.37% -3.80% 4.99% 5.22% 5.77%

Benchmark Returns (Since inception) 47.51% 64.38% -6.13% 24.94% -0.08% 4.34% 4.48% 4.82%

Benchmark Index BSE 200 BSE 200 BSE 200 BSE 500 BSE 500 Crisil Crisil CrisilLiquid Liquid LiquidFund Fund FundIndex Index Index

HISTORICAL PER UNIT STATISTICS HSBC Equity Fund HSBC India Opportunities Fund HSBC Cash Fund^

1-Apr-04 1-Apr-03 14-Nov-02 1-Apr-04 22-Jan-04 1-Apr-04 1-Apr-03 14-Nov-0228-Feb-05 31-Mar-04 31-Mar-03 28-Feb-05 31-Mar-04 28-Feb-05 31-Mar-04 31-Mar-03

Offer Document



HISTORICAL PER UNIT STATISTICS HSBC Income Fund HSBC Income Fund HSBC Gilt Fund- Short Term Plan - Investment Plan - Short Term Plan

1-Apr-04 1-Apr-03 14-Nov-02 1-Apr-04 1-Apr-03 14-Nov-02 1-Apr-04 28-Nov-0328-Feb-05 31-Mar-04 31-Mar-03 28-Feb-05 31-Mar-04 31-Mar-03 28-Feb-05 31-Mar-04


Dividend Option NA NA NA NA NA NA 10.0627 10.0000

Growth Option NA NA NA NA NA NA 10.1027 10.0000

Regular Option - Dividend 10.0892 10.0956 10.0000 10.3623 10.2551 10.0000 NA NA

Regular Option - Growth 10.7945 10.1714 10.0000 11.2673 10.2551 10.0000 NA NA



Institutional Option - Dividend 10.5270 NA NA 11.1170 NA NA NA NA

Institutional Option - Growth 10.8193 NA NA 11.3207 NA NA NA NA

Institutional Option - Daily Dividend NA NA NA NA NA NA NA NA

Institutional Option - Weekly Dividend NA NA NA NA NA NA NA NA

Institutional Option - Monthly Dividend NA NA NA NA NA NA NA NA





Net Income Per unit (Rs.) 0.9854 0.5529 0.2741 (0.0450) 0.7830 0.2405 0.1863 0.0867

Dividends Paid out (Rs. per Unit) #

Regular Dividend Option 0.50 0.52 0.06 0.27 0.74 0.00 1.85 0.04



Institutional Option - Dividend 1.46 0.36 NA ^^ 0.32 NA NA NA







Transfer to Reserves (Rs. in crores) 0.00 8.70 1.35 0.00 37.71 6.06 0.00 0.02


Dividend Option NA NA NA NA NA NA 10.1299 10.0627

Growth Option NA NA NA NA NA NA 10.2612 10.1027

Regular Option - Dividend 10.1442 10.0892 10.0956 10.3219 10.3623 10.2551 NA NA

Regular Option - Growth 11.1908 10.7945 10.1714 11.3224 11.2673 10.2551 NA NA



Institutional Option - Dividend 10.6778 10.5270 NA ^^ 11.1170 NA NA NA

Offer Document



Institutional Option - Growth 11.2574 10.8193 NA 11.4550 11.3207 NA NA NA








Net Assets at End of Year / period (Rs. Crores) 74.51 254.18 83.36 91.53 534.90 256.69 0.94 2.22

Ratio of Recurring Expenses toAverage Daily Net Assets (%) (Annualised) 1.03% 1.06% 1.37% 1.68% 1.84% 2.05% 0.99% 1.01%

Date of Allotment 10-Dec-02 10-Dec-02 10-Dec-02 10-Dec-02 10-Dec-02 10-Dec-02 5-Dec-03 5-Dec-03

Annualised Return (Since inception) 5.19% 5.93% 1.71% 5.75% 9.42% 2.55% 2.02% 1.03%

Benchmark Returns (Since inception) 4.29% 5.33% 1.62% 4.59% 7.99% 1.62% 3.93% 1.78%

Benchmark Index Crisil Crisil Crisil Crisil Crisil Crisil I-Sec- I-Sec-Short Short Short Composite Composite Composite SI-Bex SI-BexTerm Term Term Bond Bond BondBond Bond Bond Fund Fund FundFund Fund Fund Index Index IndexIndex Index Index

HISTORICAL PER UNIT STATISTICS HSBC MIP - Regular Plan HSBC MIP - Savings Plan HSBC HSBCFloating Floating

Rate Fund Rate Fund– Short – LongTerm Term

Plan^^^^ Plan^^^^

1-Apr-04 22-Jan-04 1-Apr-04 22-Jan-04 16-Nov-04 16-Nov-0428-Feb-05 31-Mar-04 28-Feb-05 31-Mar-04 28-Feb-05 28-Feb-05


Dividend Option NA NA NA NA NA NA

Growth Option NA NA NA NA NA NA

Regular Option - Dividend NA NA NA NA 10.0000 10.0000

Regular Option - Growth 10.0854 10.0000 10.0961 10.0000 10.0000 10.0000

Monthly - Dividend 10.0854 10.0000 10.0961 10.0000 NA NA

Quarterly - Dividend 10.0854 10.0000 10.0961 10.0000 NA NA

Institutional Option - Dividend NA NA NA NA NA NA

Institutional Option - Growth NA NA NA NA 10.0000 10.0000

Institutional Option - Daily Dividend NA NA NA NA 10.0000 NA

Institutional Option - Weekly Dividend NA NA NA NA 10.0000 10.0000

Institutional Option - Monthly Dividend NA NA NA NA 10.0000 10.0000

Institutional Plus Option - Growth NA NA NA NA NA NA

HISTORICAL PER UNIT STATISTICS HSBC Income Fund HSBC Income Fund HSBC Gilt Fund- Short Term Plan - Investment Plan - Short Term Plan

1-Apr-04 1-Apr-03 14-Nov-02 1-Apr-04 1-Apr-03 14-Nov-02 1-Apr-04 28-Nov-0328-Feb-05 31-Mar-04 31-Mar-03 28-Feb-05 31-Mar-04 31-Mar-03 28-Feb-05 31-Mar-04

Offer Document



Institutional Plus Option - Daily Dividend NA NA NA NA NA NA

Institutional Plus Option - Weekly Dividend NA NA NA NA NA NA

Institutional Plus Option - Monthly Dividend NA NA NA NA NA NA

Net Income Per unit (Rs.) 0.5682 0.0428 0.6760 0.0400 0.1228 0.1071

Dividends Paid out (Rs. per unit) #

Regular Dividend Option NA NA NA NA 0.10 0.11










Transfer to Reserves (Rs. in crores) 0.00 2.63 0.00 2.32 0.00 0.00


Dividend Option NA NA NA NA NA NA

Growth Option NA NA NA NA NA NA

Regular Option - Dividend NA NA NA NA 10.0128 10.0270

Regular Option - Growth 10.5523 10.0854 10.7319 10.0961 10.1590 10.1676




Institutional Option - Growth NA NA NA NA 10.1648 10.1735




Institutional Plus Option - Growth NA NA NA NA NA NA




Net Assets at End of Year / period (Rs. Crores) 203.14 318.98 160.21 252.79 1,190.67 569.52


Rate Fund Rate Fund– Short – LongTerm Term

Plan^^^^ Plan^^^^


Offer Document



Ratio of Recurring Expenses toAverage Daily Net Assets (%) (Annualised) 1.95% 1.94% 1.95% 1.94% 0.59% 0.67%

Date of Allotment 24-Feb-04 24-Feb-04 24-Feb-04 24-Feb-04 16-Nov-04 16-Nov-04

Annualised Return (Since inception) 5.52% 0.85% 7.32% 0.96% 5.28% 1.68%

Benchmark Returns (Since inception) 3.28% 0.87% 3.28% 0.87% 4.91% 1.37%

Benchmark Index Crisil Crisil Crisil Crisil Crisil CrisilMIP MIP MIP MIP Liquid Liquid

Blended Blended Blended Blended Fund FundIndex Index Index Index Index Index

Notes :

1) # The dividend paid out is calculated based on the total amount of dividend declared during the period including distribution taxwherever applicable divided by the number of units as on the last day of the relevant period.

2) ^^ The Institutional Option - Dividend of HSBC Income fund - Investment plan was fully redeemed on September 09, 2004. Henceno NAVs were calculated for Institutional Option - Dividend as at February 28, 2005. Further Dividend Per Unit has also accordinglynot been calculated.

3) ^ The Institutional Plus Option of HSBC Cash Fund were launched on June 02, 2004.

4) ^^^^ The HSBC Floating Rate Fund was launched during the current year on November 16, 2004

5) Returns are annualized for periods over one year except in case of the returns of HSBC Cash Fund and HSBC Floating Rate Fund -Short Term Plan which are annualized for periods over 30 days.

6) HSBC Institutional Income Fund - Short Term Plan, HSBC Institutional Income Fund - Investment Plan and HSBC Gilt Fund - LongTerm Plan were wound up with effect from July 1, 2004, December 30, 2004 and January 31, 2005 respectively hence historical perunit statistics have not been provided.


Rate Fund Rate Fund- Short - LongTerm Term

Plan^^^^ Plan^^^^


Offer Document



SECTION V

��

��

The Fund believes in providing the investor with superior servicesto make the investor's experience in dealing with the Fund anefficient and satisfactory one. In order to achieve these goals, theFund endeavours to continuously establish and upgrade systems tohandle transactions efficiently and resolve any investor grievancespromptly.

��

The Fund intends to make every transaction for the investor a simpleand convenient one. The Fund provides the following services:

Investor Service Centres in major metrosThe Fund presently has Investor Service Centres in 8 cities. Inaddition to this, the Fund presently has a tie up with the Registrarwho has set up Investor Service Centres in various cities. The detailsof Investor Service Centres are given in the inside back cover of theOffer Document. Over a period of time, the Fund will endeavourto add further Investor Service Centres and / or sales offices in othercities.

Each ISC of the AMC provides investors with requisite informationand help in processing transactions in the Scheme of the MutualFund. Adequate training will be imparted to personnel managing theInvestor Service Centres, with a view to early resolution of queries.

Process transactions in a timely mannerUnder the Regulations, the Fund / the Registrar / the AMC shalldespatch to the Unitholders, the dividend warrants within 30 daysof the date of declaration of dividend and the redemption proceedswithin 10 Business Days from the date of acceptance of the requestfor redemption or repurchase proceeds, as the case may be.

Under normal circumstances, the Fund will endeavour to completeall monetary transactions within 2 Business Days from the date ofacceptance of a transaction request in respect of the Scheme at theInvestor Service Centres.

Ordinarily, non-monetary transactions or requests will be processed(with the exception of issue of Unit certificates) within 7 BusinessDays under the Scheme.

Investors should note that completion of monetary / non-monetarytransactions within the respective number of Business Day(s) asindicated above, would be done on "best efforts" basis and completionof all such transactions are subject to the time limits as prescribedunder the Regulations.

�� !��

The Fund will follow-up with the Investor Service Centres and theRegistrar on complaints and enquiries received from investors withan endeavour to resolve them promptly.

For this purpose, Mr. K. Sriram has been appointed the InvestorRelations Officer. He can be contacted at the Corporate Office ofthe AMC. The address and phone numbers are:

52/60, Mahatma Gandhi Road,Fort, Mumbai - 400 001Phone: (91)(22) 22734343Fax: (91)(22) 22734375E-mail: [email protected]

�� !� �"� ��"� �

A schemewise Annual Report of the Fund or an abridged summarythereof shall be mailed to all Unitholders as soon as may be but notlater than 6 months from 31 March of each year. The abridgedannual report shall contain such details as are required under theRegulations. A full copy of the annual report shall be made availablefor inspection at the Head Office of the Fund and a copy shall bemade available to the Unitholders on request, on payment of nominalfees if any.

The Fund shall before the expiry of 1 month from the close of eachhalf year, that is as on 31 March and 30 September, publishits unaudited financial results in one English daily newspapercirculating in the whole of India and in a newspaper published inthe language of the region where the Head Office of the Fund issituated and update the same on the AMC's website atwww.assetmanagement.hsbc.co.in and on AMFI's website atwww.amfiindia.com, within 1 month from the close of each halfyear, in the formats as prescribed by SEBI.

The AMC will disclose the NAV of each Plan of every Scheme ofthe Fund on every Business Day.

The Fund shall before the expiry of 1 month from the close of eachhalf year (31 March and 30 September) send to the Unitholders acomplete statement of the Scheme's portfolios or if such statementis not sent to the Unitholders, it will be published by way of anadvertisement in one English daily newspaper circulating in thewhole of India and in a newspaper published in the language of theregion where the Head Office of the Mutual Fund is situated. TheScheme's portfolios shall also be displayed on the AMC's websiteat www.assetmanagement.hsbc.co.in, 1 month from the close ofeach half year. The statement shall be in the format as prescribedby SEBI.

The Mutual Fund will produce and mail to existing Unitholders,quarterly reports on the functioning of the Mutual Fund and theScheme. These quarterly reports will also provide existing andpotential investors with a summary of the current thinking of theAMC and outline the investment strategy with respect to the Scheme.

The Mutual Fund shall disclose large unitholdings in the Scheme,which are over 25% of the NAV. The information on the number ofsuch investors and total holdings by them in percentage terms, shallbe disclosed in the allotment letters after the Initial Public Offer andin the annual and the half yearly results.

The annual report containing accounts of the AMC shall be displayedon the website of the AMC. Unitholders, if they so desire, mayrequest for the annual report of the AMC.

#��!�� $ ��

The AMC shall endeavour to mail Account Statements / TransactionConfirmations within 3 Business Days for purchases, redemptionsand switches.

��% #��!�� $ ��&��'��( �) ��

The Mutual Fund will encourage the investors to provide theire-mail addresses for all correspondence. The Mutual Fund's websitemay facilitate request for Account Statement by Unitholders. TheMutual Fund will endeavour to send Account Statements and anyother correspondence including Annual Reports using e-mail as themode for communication as may be decided from time to time.

Offer Document



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 theelectronically delivered Account Statement, the Unitholder shallpromptly advise the Mutual Fund to enable the Mutual Fund tomake the delivery through alternate means. Failure to advise theMutual Fund of such difficulty within 24 hours after receiving thee-mail will serve as an affirmation regarding the acceptance by theUnitholder of the Account Statement.

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 MutualFund or anyone involved in creating, producing, delivering ormanaging the Account Statements of the Unitholders, be liable forany direct, indirect, incidental, special or consequential damagesthat may result from the use of or inability to use the service or outof the breach of any warranty. The use and storage of any informationincluding, without limitation, the password, account information,transaction activity, account balances and any other informationavailable on the Unitholder's personal computer is at the risk andsole responsibility of the Unitholder.

�#� ��

The NAV of the Scheme will be calculated daily and announced bythe Fund on each Business Day. The Unitholders may obtain theinformation on NAV on any day, by calling the office of the AMCor any of the Investor Service Centres or on the website of the AMCat www.assetmanagement.hsbc.co.in. The Fund will publish NAVsdaily, in at least two daily newspapers. Further, the AMC shallpublish the purchase and redemption prices of Units daily in anewspaper with all India circulation.

The AMC shall update the NAVs on the website of Association ofMutual Funds in India - AMFI (www.amfiindia.com) by 8.00 p.m.on every Business Day. In case of any delay, the reasons for suchdelay would be explained to AMFI and SEBI by the next day. If theNAVs are not available before commencement of business hours onthe following day due to any reason, the Fund shall issue a pressrelease providing reasons and explaining when the Fund would beable to publish the NAVs.

�� '�� ! �� *��+

The PIN facility may be made available to the Unitholders.Unitholders will be required to indicate their desire to avail of thisfacility and also indicate their bank account number, name of thebank and branch in the application for purchasing Units at a futuredate. A Form together with detailed terms and conditions will bemailed to such Unitholders subject to which usage of the PIN willbe permitted. On receipt of the Form duly signed, the PIN will bemailed to each Unitholder.

Unitholders may use the PIN to carry out one or more of thefollowing types of transactions (as may be enabled by the MutualFund) by calling the ISCs / Call centre only:

� purchase

� redemption

� switch

� static data changes viz. address change, change of bank mandateetc.

The Unitholder will be asked for the PIN before the request isaccepted. In the interest of the Unitholder, the ISC reserves the right

to ask for a fax confirmation of the request and any other additionalinformation about the account of the Unitholder. The PIN shouldnever be disclosed to any person or written down where any otherperson may discover it. All transactions conducted with use of thisPIN will be the responsibility of the Unitholder and the Unitholderwill abide by the record of the transactions generated. The MutualFund and the ISC / Registrar shall not accept any responsibility forthe unauthorised use of the PIN.

�%"�� "��'�� "� ��"� �

� Unitholders of the Scheme have a proportionate right in thebeneficial ownership of the assets of the Scheme and in caseof Dividend Option(s), wherever applicable, to the dividenddeclared, if any, by the Fund under the Scheme.

� When the Fund declares a dividend under the Scheme, theFund shall despatch the dividend warrants to the Unitholderswithin 30 days from the date of declaration of dividend.

� The Fund shall despatch the redemption proceeds to theUnitholders within 10 Business Days from the date of acceptanceof the request for the same.

� The Trustees are bound to make such disclosures to theUnitholders as are essential in order to keep them informedabout any information known to Trustees which may have anadverse bearing on their investments.

� The appointment of the AMC for the Fund can be terminatedby a majority of the Trustees or by 75% of the Unitholders ofany one or more of the Scheme of the Fund and any changein the appointment of the AMC shall be subject to the priorapproval of SEBI and the Unitholders of the respective Schemes.

� The Trustees are obliged to convene a meeting on a requisitionof 75% of the Unitholders of a Scheme.

� 75% of the Unitholders of a Scheme can pass a resolution towind up the Scheme.

� Unitholders have the right to inspect all the documents listedunder "Documents Available for Inspection" in this OfferDocument.

� The Trustees shall obtain the consent of the Unitholders:

� Whenever required to do so by SEBI, in the interest of theUnitholders

� Whenever required to do so on a requisition made by three-fourths of the Unitholders of the Scheme

� When the Trustees decide to wind-up or prematurely redeemthe Units.

� 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:

� A written communication about the proposed change is sent toeach Unitholder and

� An advertisement is given in one English daily newspaperhaving nationwide circulation as well as in newspaper publishedin the language of the region where the Head Office of theMutual Fund is situated and

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

Offer Document



� Subject to the Regulations and the guidelines issued by SEBI,the consent of the Unitholders of the Scheme will be obtainedthrough voting, by mail. Detailed modalities of the same,including the principles for entitlement of votes for eachUnitholder will be finalised in consultation with and afterobtaining the approval of SEBI and the Trustees.

� The annual report containing accounts of the AMCwould be displayed on the website of the AMC(i.e. www.assetmanagement.hsbc.co.in). Unitholders, if theyso desire, may request for the annual report of the AMC.

Minimum Number of Investors in Schemes/Plans of Mutual FundsThe Scheme and individual Plan(s) under the Scheme shall have aminimum of 20 investors and no single investor shall account formore than 25% of the corpus of the Scheme/Plan(s). However ifsuch a situation arises during the IPO of the Scheme, in accordancewith the SEBI Regulations, the Fund will endeavour to ensure thatwithin a three months time period or the end of the succeedingcalendar quarter from the close of the Initial Public Offering (IPO)of the Scheme, whichever is earlier, the Scheme complies with thesetwo conditions failing which the provisions of Regulation 39 (2) (c)of SEBI (Mutual Funds) Regulations, 1996 would become applicableautomatically without any reference from SEBI and accordingly theScheme / Plan(s) shall be wound up. The two conditions mentionedabove shall also be complied with in each subsequent calendarquarter thereafter, on an average basis, as specified by SEBI. TheFund shall follow such regulations as may be set in place by theregulatory authorities from time to time.

�!�� "� ��"� � $ ,��'��% !&

Being open-ended, the duration of the Scheme is perpetual. TheAMC, the Fund and the Trustees reserve the right to make suchchanges / alterations to all or any of the Scheme (including thecharging of fees and expenses) offered under this Offer Documentto the extent permitted by the applicable Regulations. However, interms of the Regulations a scheme may be wound up after repayingthe amount due to the Unitholders:

� On the happening of any event, which in the opinion of theTrustees, requires the Scheme to be wound up

� If seventy five per cent (75%) of the Unitholders of the Schemepass a resolution that the Scheme be wound up

� If SEBI so directs in the interest of the Unitholders.

Where the Scheme is so wound up, the Trustees shall give noticeof the circumstances leading to the winding up of the Scheme to:

� SEBI and

� In two daily newspapers having a circulation all over India andin one vernacular newspaper with circulation in Mumbai.

On and from the date of the publication of notice of winding up, theTrustees or the AMC, as the case may be, shall:

� Cease to carry on any business activities in respect of theScheme so wound up

� Cease to create or cancel Units in the Scheme

� Cease to issue or redeem Units in the Scheme

��'!�� ' -�� ,��'��% !&

The Trustees shall call a meeting of the Unitholders of the relevantScheme to approve by simple majority of the Unitholders presentand voting at the meeting, resolution for authorising the Trustees orany other person to take steps for the winding up of the Scheme.

The Trustees or the person authorised as above, shall dispose of theassets of the Scheme concerned in the best interest of the Unitholdersof 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 Unitholders inproportion to their respective interest in the assets of the Scheme,as on the date the decision for winding up was taken.

On completion of the winding up, the Trustees shall forward toSEBI and the Unitholders, 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, expenses of theScheme for winding up, net assets available for distribution to theUnitholders and a certificate from the auditors of 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 cease to exist.

After the receipt of the report referred to above, if SEBI is satisfiedthat all measures for winding up of the Scheme have been compliedwith, the Scheme shall cease to exist.

��.�� % �� -!�!�� /!�'�

As per the taxation laws in force and as per the amendments proposedtherein by the Finance Bill, 2005 ("the FB") the tax benefits that areavailable to the investors investing in the Units of the Schemes arestated herein below. The information so stated is based on theMutual Fund's understanding of such tax laws in force as of the dateof this Offer Document, which have been vetted by the taxconsultants.

The following information is provided for only general informationpurposes. In view of the individual nature of tax benefits, eachinvestor is advised to consult with his or her own tax consultant withrespect to the specific tax implications arising out of their participationin the scheme.

The following benefits may accrue to the Unitholders with effectfrom the financial year commencing from April 1, 2005 (unlessotherwise stated) subject to the FB being enacted as the Finance Act,2005.

A. INCOME TAX1. Exemption u/s. 10(35)Under the provisions of Section 10(35) of the Act income receivedin respect of the units of a mutual fund specified u/s. 10(23D) willbe exempt from income tax in the hands of all unitholders. In viewof this position, no tax needs to be deducted at source from suchdistribution by the fund. However, by virtue of the proviso to section10(35), this exemption does not apply to income arising on "transfer"of units of a mutual fund.

2. Long Term Capital Gainsi. On units of equity oriented funds :

Section 10(38) exempts long term capital gains arising from thetransfer of units of an equity oriented fund provided the transactionof sale is entered into on or after the date on which the securitiestransaction tax is made applicable and such transaction is chargeableto the securities transaction tax.

Offer Document



ii. On units of funds other than the equity oriented funds:� For Individuals and Hindu Undivided Families ("HUF"s) :

Long-term capital gains in respect of units held for a period ofmore than 12 months will be chargeable u/s.112 at the rate of20% (plus surcharge), as applicable. Capital gains would becomputed after reducing the aggregate of cost of acquisition(as adjusted by cost inflation index notified by the CentralGovernment) and expenditure incurred wholly and exclusivelyin connection with transfer.

An assessee will have an option to apply for concessional rateof tax of 10% (plus surcharge) provided the long term capitalgains are computed without substituting indexed cost in placeof cost of acquisition.

Further, in the case of Individuals and HUFs, being resident,where taxable income as reduced by long-term capital gains,is below the basic exemption limit, the long-term capital gainswill be reduced to the extent of the shortfall and only thebalance long-term capital gains will be subjected to income taxat 20% (plus surcharge) or 10% (plus surcharge) as the casemay be.

� For Partnership firms, Indian Companies and other residents:Long term capital gains will be subjected to the income tax atthe rate of 20% (plus surcharge) or 10% (plus surcharge) as thecase may be.

� For non-residents and foreign companies: Long-term capitalgains will be subjected to the income tax at of 20% (plussurcharge). However, no benefit of Cost Inflation Indexationis available.

� For Non-resident Indians : Under section 115E of the Act fornon-resident Indians, income by way of long-term capital gainsin respect of Units is chargeable at the rate of 10% (plussurcharge). However, no benefit of Cost Inflation Indexationis available.

Non-resident Indians may opt for computation of long-termcapital gains as per section 112, if it is more beneficial.

� For Overseas Financial Organizations, including OverseasCorporate Bodies fulfilling conditions laid down under section115AB (Offshore Funds) : Under section 115AB of the Act,long term capital gains in respect of units held for a period ofmore than 12 months will be chargeable at the rate of 10% (plussurcharge). Such gains would be calculated without indexationof cost of acquisition.

� For Foreign Institutional Investors ("FIIs"): Under section115AD of the Act, long term capital gains in respect of unitsheld for more than 12 months would be taxed at the rate of 10%plus surcharge. Such gains would be calculated withoutindexation of cost of acquisition.

Tax on long term capital gains in all the above cases is proposedto be further increased by the Education Cess ("EC") calculated@ 2% on tax plus surcharge as per the FB.

3. Capital Loss� Section 94(7) disallows any capital loss, arising to a unitholder

if he acquires units of a mutual fund within a period of threemonths prior to the record date fixed for declaration of dividendor distribution of income and sells or transfers such unitswithin a period of nine months from such record date, to theextent of dividend or income received or receivable on suchunits.

� Section 94(8) provides that if a person buys or acquires units("the original units") of a mutual fund within a period of threemonths prior to the record date fixed for allotment of bonusunits and sells the original units within nine months from thedate of allotment of bonus units then the loss arising on suchsale or transfer shall be ignored. Further, such loss shall bedeemed to be the cost of acquisition or purchase of the bonusunits.

4. Short Term Capital Gainsi. On units of equity oriented funds :Section 111A provides that the short term capital gains arising fromthe transfer of units of an equity oriented fund will be taxed at 10%(plus applicable surcharge) provided the transaction of sale is enteredinto on or after the date on which the securities transaction tax ismade applicable and such transaction is chargeable to the securitiestransaction tax.

ii. On units of funds other than equity oriented funds:� Short term Capital Gains in respect of Units held for a period

of not more than 12 months is added to the total income. Totalincome including short-term capital gains is chargeable to taxas per the relevant slab rates. The maximum tax rates applicableto different categories of assesses are as follows:

Resident Individuals and HUF 30% plus surcharge,as applicable.

Partnership Firms 30% plus surcharge

Indian companies 30% plus surcharge

Non-Resident Indians 30% plus surcharge

Foreign Companies 40% plus surcharge

Overseas financial Organisations 30% plus surcharge

FIIs 30% plus surcharge

Tax on short term capital gains in all the above cases is proposedto be further increased by the EC calculated @ 2% on tax plussurcharge as per the FB.

5. Tax Deduction at Source on Capital Gains(i) No tax is required to be deducted at source on capital gains

arising to any resident unit holder.

(ii) Under section 195 of Act, tax shall be deducted at source inrespect of capital gains as under:

a. In case of a non-resident other than a company -

� Long term capital gains onunits of equity oriented funds Nil

� Long term capital gains on 20% plusunits of funds other than surchargeequity oriented funds

� Short term capital gains on units 10% plusof equity oriented funds surcharge

� Short term capital gains on units 30% plusof funds other than surchargeequity oriented funds

b. In case of a foreign company -

� Long term capital gains on units Nilof equity oriented funds

� Long term capital gains on units 20% plusof funds other than equity oriented surchargefunds

Offer Document



� Short term capital gains on units 10% plusof equity oriented funds surcharge

� Short term capital gains on units 40% plusof funds other than equity surchargeoriented funds

Tax Deducted At Source on short term and long term capitalgains in all the above cases is proposed to be further increasedby the EC calculated @ 2% on tax plus surcharge as per theFB.

(iii) Under section 196B of the Act tax at 10% plus surcharge andEC calculated @ 2% on tax plus surcharge as per the FB shallbe deducted at source from long term capital gains on unitsother than the units of equity-oriented mutual funds earned byOverseas Financial Organisations.

(iv) Under Section 196D of the Act, no deduction shall be madefrom any income by way of capital gains, in respect of transferof securities referred to in Section 115AD of the Act.

As per circular no. 728 dated October 1995 by CBDT, in thecase of a remittance to a country with which a Double TaxationAvoidance Agreement (DTAA) is in force, the tax should bededucted at the rate provided in the Finance Act of the relevantyear or at the rate provided in DTAA whichever is morebeneficial to the assessee.

In order for the unitholder to obtain the benefit of a lower rateunder the DTAA, the unitholder would be required to providethe fund with a certificate obtained from his Assessing Officerstating his eligibility for the lower rate.

6. Investments by Charitable and Religious TrustsUnits of Mutual Fund Schemes referred to in clause 23D of section10 of the Act constitute an eligible avenue for investment by charitableor religious trusts per rule 17C of the Income Tax Rules, 1962, readwith clause (xii) of sub-section (5) of section 11 of the Income TaxAct, 1961.

B. WEALTH TAXUnits held under the Schemes of Mutual Fund are not treated asassets within the meaning of section 2(ea) of the Wealth Tax Act,1957 and are, therefore, not liable to Wealth-Tax

C. GIFT TAXIf units of Mutual Fund Scheme are gifted, no gift tax shall bepayable either by the donor or the donee as the Gift Tax has beenabolished.

Notes:

(i) HSBC AMC also confirms that the Income Tax/Wealth Tax/Capital Gains Tax and investment by NRIs/FIIs/OCBs are

subject to relevant requirements under the Income Tax, FEMAand RBI Directions.

(ii) As per Section 54ED capital gains arising from transfer of along term capital asset being listed securities or units of UTI/mutual funds, shall be exempt from tax, if such capital gainsare invested in equity shares by way of a public issue. Thesection provides for a lock-in period of one year and if thenewly acquired shares are sold or transferred during the period,the capital gains earlier claimed exempt, would become taxablein the year of sale of the newly acquired shares.

(iii) An investor who sells units of an equity oriented fund to themutual fund will have to pay 0.2% of the sale price of the unitsas securities transaction tax which tax would be collected bythe prescribed person in case of every mutual fund.

(iv) Section 88E provides that where the total income of a personincludes income chargeable under the head "Profits and gainsof business or profession" arising from sale of units of equityoriented funds, he shall get rebate equal to the securitiestransaction tax paid by him in the course of his business. Suchrebate is to be allowed from the amount of income tax inrespect of such transactions calculated by applying averagerate of income tax.

(v) Section 80C provides that an individual or HUF shall getdeduction, in respect of contribution to any units of any MutualFunds notified under clause 23D of section 10 or from theAdministrator or the specified company under any planformulated in accordance with such scheme as the CentralGovernment may, by notification in the Official gazette, specifyin this behalf and in respect of contribution by an individualto any pension fund set up by the Mutual Fund notified underclause 23D of section 10 or by the Administrator or the specifiedcompany, as the Central Government may, by notification inthe Official Gazette, specify in this behalf, out of his incomechargeable to tax being the aggregate sum does not exceed onelakh rupees.

�� ' �'� &�� $ ��'��' # �!��

The unclaimed redemption amounts and dividend amounts may bedeployed by the mutual fund in call money market or money marketinstruments and the investors who claim these amounts during aperiod of 3 years from the due date shall be paid at the prevailingnet asset value. After a period of 3 years, this amount will betransferred to a pool account and the investors can claim the amountat the NAV prevailing at the end of the third year. The income earnedon such funds will be used for the purpose of investor education.The AMC will make continuous efforts to remind the investorsthrough letters to take their unclaimed amounts. Further, theinvestment management fee charged by the AMC for managingunclaimed amounts shall not exceed 50 basis points.

Offer Document



SECTION VI

�� -#��

��"��'�� '�� -��"��

Investor grievances are normally be received at the Corporate Office of the AMC or at the Investor Service Centres or directly by the Registrar.All grievances are generally forwarded to the Registrar for their necessary action. The complaints are closely followed up with the Registrarto ensure timely redressal and prompt investor service.

Given below is the status of complaints received up to March 18, 2005

Since Inception to March 18, 2005

HSBC Mutual Fund - Consolidated Report for all schemes

Name of Complaint Opening Total Queries resolved within PendingBalance Complaints 24 Hrs. 48 Hrs. 72 Hrs. Above 72 Hrs.

March 2005 T+0 T+1 T+2 > T+2

Complaints Received from SEBI 0 0 0 0 0 0 0

Correction in Investor Details 0 1189 1136 10 25 18 0

Non - Allotment of Units 0 0 0 0 0 0 0

Non - receipt of Account Statement 0 268 246 9 5 8 0

Non - receipt of Dividend Warrant 0 85 80 1 2 2 0

Non - receipt of Redemption Warrant 0 73 69 0 1 3 0

Total 0 1615 1531 20 33 31 0

#��#� �#��#��

INVESTMENT IN ASSOCIATE COMPANIES

During the period November 14, 2002 to February 28, 2005, HSBC Mutual Fund had invested in the following associate companiesof the Sponsor

(Rs. in crores)

Name of the Investing Scheme Name of the Associate Particulars Amount ofInvestment

HSBC Cash Fund HSBC Fixed Deposit 344.29

HSBC Income Fund – Short Term Plan HSBC Fixed Deposit 57.65

HSBC Institutional Income Fund – Investment Plan HSBC Fixed Deposit 1.00

HSBC Institutional Income Fund – Short Term Plan HSBC Fixed Deposit 29.03

HSBC MIP - Regular HSBC Fixed Deposit 6.00

HSBC MIP - Savings HSBC Fixed Deposit 3.00

HSBC Floating Rate Fund - Long Term Plan HSBC Fixed Deposit 60.00

The above investments were considered sound. Before making the investments, the AMC evaluated the same on merits and on arms' lengthbasis and in accordance with the objectives of the Scheme.

��'��0��% ��%�� 0��" ��&�� !�� #�� &��

The AMC has till date, not entered into any underwriting contracts in respect of any public issue made by any of its associate companies.

�!��&�� !�� ' ��%�' �( �"� �&�� ( �� #��

The Mutual Fund subscribed to the public issue of Maruti Udyog Limited during the half year ended September 30, 2003. The Fund wasallotted 62300 shares @ Rs. 125.00 per share. The Schemes of HSBC MF subscribed to public issues of Biocon Ltd. (allotted 75000 shares@ Rs 315 per share) and Gas Authority of India Limited (allotted 849520 shares @ Rs. 195 per share) during the half year ended March 31,2004. The Schemes of HSBC Mutual Fund subscribed to the public issue of Jet Airways India Limited during the half year ended March 31,2005. The Fund was allotted 63623 shares @ Rs 1100 per share. HSBC Securities and Capital Markets (India) Pvt. Ltd., the Sponsor wasthe book running lead manager / co-book running lead manager in these issues. However these were subscribed through merchant bankers /brokers other than the Sponsor.

Offer Document



��% 0��" #�� &��

The AMC has utilised the services of its associate, The Hongkong and Shanghai Banking Corporation Limited as the Collecting Banker andfor procuring Unit subscriptions for Scheme of the Fund. The Collecting Banker's fees and commissions payable are at similar rates offeredto other collecting bankers and distributors by the Scheme.

The Hongkong and Shanghai Banking Corporation Limited and HSBC Primary Dealership (India) Private Limited are on the panel of selectedcounterparties with which the Mutual Fund places money in fixed deposits and / or enters into transactions for purchase / sale of debtinstruments.

These associates were counterparties to the Mutual Fund with respect to purchase / sale of the abovementioned instruments. The AMC hasutilised the services of the Sponsor for purchase / sale of securities on behalf of the Mutual Fund.

DEALINGS WITH ASSOCIATE COMPANIES (PERIOD 14/11/02 TO 28/02/2005)

HSBC Mutual Fund has utilised the services of the following associates for the purpose of securities transactions (aggregatepurchase and sale) & Deals with associates as counterparty:

(Rs. in crores)

Name of the Particulars HEF HCF HIF HIIF HGF HIOF HMIP HFRFAssociate

IP ST IP ST LT ST R S ST LT

The Hongkong Commercial Paper 4.95 19.79and Shanghai Fixed Deposit 344.29 57.65 1.00 29.03 6.00 3.00 60.00Banking DiscountedCorporation Instruments 3.21Limited Government

Securities 36.33 468.65 73.86 159.66 69.90 46.13 1.79 23.34 26.30PSU/PFI Bonds/

Corporate Debt 25.01 40.74 30.85 5.05 5.18Treasury Bills 221.21 4.99 1.29 14.99

HSBC Primary GovernmentDealership Securities 18.86 135.34 153.76 21.01 65.84 7.22 12.54 0.37 11.67 24.61 21.30 1.05 2.06(India) Private Treasury Bills 67.60 571.63 261.93 46.58 121.19 43.14 18.57 1.34 26.84 132.21 78.18 14.11Limited

HSBC Securities Equity Shares 207.56 57.62 10.34 8.83and CapitalMarkets (India)Private Limited(Sponsor)

BORROWINGS BY HSBC MUTUAL FUND FROM ASSOCIATE COMPANIES

(Rs. in crores)

Name of the Particulars HEF HCF HIF HIIF HGF HIOF HMIP HFRFAssociate

IP ST IP ST LT ST R S ST LT

The Hongkong Borrowings forand Shanghai redemptions /Banking switch-outs 12.00 81.75CorporationLimited

HEF : HSBC Equity Fund, HIF-IP : HSBC Income Fund - Investment Plan, HIF-ST : HSBC Income Fund - Short Term Plan, HIIF-IP : HSBC InstitutionalIncome Fund - Investment Plan, HIIF-ST : HSBC Institutional Income Fund - Short Term Plan, HGF-LT : HSBC Gilt Fund - Long Term Plan,HGF-ST : HSBC Gilt Fund - Short Term Plan, HIOF : HSBC India Opportunities Fund, HMIP-R : HSBC MIP - Regular, HMIP-S : HSBC MIP - Savings,HFRF-LT : HSBC Floating Rate Fund - Long Term Plan, HFRF-ST : HSBC Floating Rate Fund - Short Term Plan

Offer Document



AMOUNT PAID BY HSBC MUTUAL FUND TO ASSOCIATE COMPANIES (14/11/02 to 28/02/05)

(Rs. in lacs)

Name of the Particulars HEF HIF HCF HIIF HGF HMIP HIOF HFRFAssociate

IP ST IP ST LT ST R S LT ST

HSBC Securities Brokerage onand Capital Equity Deals 46.04 2.58 2.20 14.38Markets (India)Private Limited

The Hongkong Commision onand Shanghai DistributionBanking of units 780.28 258.62 62.70 146.99 11.23 18.29 0.42 0.18 102.39 56.31 407.01 1.81 3.85CorporationLimited

The Hongkong Collection /and Shanghai Bank Charges 3.96 0.54 0.17 1.38 0.01 0.11 0.42 0.58 0.03 0.10BankingCorporationLimited

The Hongkong Settlementand Shanghai Charges 35.89#BankingCorporationLimited

HSBC Securities Brokerage onand Capital Debt Deals 0.05Markets (India)Private Limited

HSBC Asset InvestmentManagement Management &(India) Private Advisory Fee 1,650.54 638.63 286.39 943.60 145.48 114.33 13.92 0.82 227.72 171.56 400.69 20.15 56.27Limited

The Hongkong Interest onand Shanghai borrowings forBanking redemptions/Corporation switch-outs 0.40 **Limited

** Interest of Rs. 1.35 lacs on borrowings has been borne by HSBC AMC

# Charges paid by all the schemes of HSBC Mutual Fund towards settlment of Government Securities transactions through the constituentSGL account.


The AMC has used the designated branches of The Hongkong andShanghai Banking Corporation Limited as Collecting Centres /Investor Service Centres and Collecting / Distributing Agents. Thepercentage of brokerage paid to associate broker was in line withthe norms relating to brokerage payment for transactions of theMutual Fund.

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 subsidiaries of theSponsor on the date of this Offer Document are:

� HSBC Primary Dealership (India) Private Limited

� HSBC Asset Management (India) Private Limited

The AMC may utilise the services of the Sponsor, group companiesand any other subsidiary or associate company of the Sponsorestablished or to be established at a later date, in case such acompany (including employees or relatives) is in a position toprovide the requisite services to the AMC. The AMC will conductits business with the aforesaid companies (including employees orrelatives) on commercial terms and on arms' length basis and atmutually agreed terms and conditions to the extent permitted underthe SEBI Regulations, after evaluation of the competitiveness of thepricing offered by the Sponsor, associate companies (includingemployees or relatives) and the services to be provided by them.

Offer Document



HSBC MUTUAL FUND

Disclosure under Regulation 25(11) of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 as amended

Investments made by the schemes of HSBC Mutual Fund in Companies or their subsidiaries that have invested more than 5%of the net assets of any scheme

Company Name Schemes invested Investment made by Aggregate cost of Outstanding as atin by the Company schemes of HSBC acquisition during February 28, 2005

Mutual Fund in the the period ended (At Market /company/subsidiary February 28, 2005 Fair Value)

(Rs. in Lakhs) (Rs. in Lakhs)

Bharti Televentures Ltd. HIF-ST HMIP-R 960.90 –HFRF-ST HMIP-S 735.92 –

HEF 6,502.20 –HIOF 2,405.83 –

Canara Bank HCF HEF 5,092.60 1,966.95HIOF 822.39 –HMIP-R 1,154.83 1,060.76HMIP-S 669.67 530.38

Electro Steel Castings Ltd. HIIF-IP HCF 8,000.67 1,500.00

Grasim Industries HIIF-ST HIF-IP 505.27 –HIIF-IP 505.27 –HMIP-R 270.81 52.58HMIP-S 395.50 75.90HEF 7,069.37 8,298.29HIOF 1,092.59 1,182.40

HCL Technologies Ltd. HIF-ST HMIP-R 509.32 175.60HIIF-ST HMIP-S 716.73 200.54HIF-IP HEF 7,864.36 4,757.04

HIOF 2,262.96 1,002.64

HCL Infosystems Limited HIF-ST 994.14 –(Subsidiary of HCL Technologies HCF 1,976.35 –Limited) HMIP-R 9.04 –

HMIP-S 5.52 –HEF 4,792.94 8,286.76HIOF 3,048.07 3,173.88

HDFC Bank Ltd. HIF-ST HIF-ST 100.00 –HIIF-ST HCF 11,463.76 –

HIIF-ST 2,000.00 –HMIP-R 4,500.00 –HMIP-S 3,500.00 –HFRF-ST 2,500.00 –

Hero Honda Motors Limited HIIF-IP HMIP-R 323.21 –HMIP-R HMIP-S 530.80 –HMIP-S HEF 2,952.54 –HFRF-LT HIOF 1,102.16 –HFRF-ST

Hindalco Industries Limited HIF-IP HIF-IP 1,056.34 522.50HIIF-IP HMIP-R 886.81 235.44HFRF-LT HMIP-S 334.84 277.10HCF HEF 3,807.05 2,298.70

HIOF 1,228.50 1,058.79HFRF-LT 527.98 522.50HIF-ST 528.14 –

Associate transactions, if carried out, will be as per the SEBIRegulations and the limits prescribed thereunder. The Scheme shallnot make any investment in:

� Any unlisted security of an associate or group company of theSponsor

� Any security issued by way of private placement by an associateor group company of the Sponsor

� The listed securities of group companies of the Sponsor whichis in excess of 25% of the net assets.

The AMC may avail the services of the Sponsor and / or its associatesfor usage of premises as Investor Service Centres and / or to act ascollection and distribution agents. The Sponsor / associates shall bepaid a fee based on the quality of services rendered. These fees shallbe debited to the Scheme, subject to SEBI Regulations.

Offer Document






Hindustan Lever Limited HCF HMIP-R 113.52 –HMIP-S 152.44 –HEF 279.22 –

Hindustan Lever Chemicals HIOF 206.64 –(Subsidiary ofHindustan Lever Limited)

Indian Aluminium Company Ltd. HFRF-LT HMIP-R 547.49 –HIF-IP – 500.40HIF-ST 521.76 521.52

Indian Rayon & Industries Ltd. HFRF-LT HEF 806.94 1,618.25HIOF 1,146.01 2,471.60

Indo Gulf Fertilisers Limited HGF-LT HIOF 191.76 219.57

Industrial Development Bank of India HIF-ST HIF-IP 7,223.80 –HCF HIF-ST 6,225.62 1,038.52HIF-IP HCF 34,708.59 3,509.06HFRF-ST HIIF-ST 3,826.04 –

HIIF-IP 2,956.22 –HMIP-R 3,905.89 519.26HMIP-S 2,555.63 1,513.43HEF 4,798.20 –HIOF 756.82 114.00HFRF-LT 5,090.11 4,602.86HFRF-ST 5,572.36 2,541.32

IDBI Capital Markets HCF 1,500.00 –(Subsidiary of IndustrialDevelopment Bank of India)

Infrastructure Leasing & HCF HIF-ST 5,835.11 –Financial Services Ltd. HCF 83,893.77 3,500.00

HIIF-ST 3,500.00 –HIIF-IP 494.32 –HFRF-LT 3,357.75 3,365.17

Infrastucture Development HFRF-LT HIF-IP 503.47 –Finance Co. Ltd. HIF-ST HIIF-IP 1,046.05 –

HCF 2,443.96 –HFRF-ST 1,499.53 –

ITC Limited HCF HMIP-R 444.02 64.71HFRF-ST HMIP-S 533.34 64.71

HEF 11,315.57 2,737.86HIOF 438.40 –

Mahindra & Mahindra Limited HIIF-ST HMIP-R 949.25 204.14HMIP-S 1,201.33 257.86HCF 433.42 –HEF 13,729.25 9,741.58HIOF 4,799.99 3,223.20

Mahindra & Mahindra HIF-ST 2,503.02 –Financial Services (Subsidiary of HCF 44,441.12 13,502.96Mahindra & Mahindra Limited) HIIF-ST 3,501.75 –

HMIP-R 505.60 –HMIP-S 505.60 –HFRF-ST 4,504.50 3,004.42HFRF-LT 2,500.00 2,500.00

Polaris Software Ltd. HIIF-ST HEF 304.28 –HIOF 50.55 45.76

Offer Document



Raymonds Limited HGF-LT HCF 35,000.00 –HIIF-IP HFRF-ST 9,500.00 –

HFRF-LT 1,000.00 –

Sterlite Industries Ltd. HFRF-ST HCF 21,781.65 1,700.00HEF 1,102.01 2,649.42HIOF 1,016.41 1,284.62HFRF-ST 2,000.00 –HFRF-LT 2,000.00 –

Hindustan Zinc Limited HIOF 78.87 –(Subsidiary of Sterlite Industries)

The Great Eastern Shipping Co Ltd. HIIF-ST HIOF 958.92 892.08HEF 2,104.77 1,956.90

Tata Iron and Steel Co. Ltd. HIIF-IP HEF 8,753.35 3,800.25HCF HIOF 2,106.94 1,539.10

HMIP-R 352.81 –HMIP-S 335.05 –

Tata SSL HIF-ST 500.00 –(Subsidiary of Tata Iron and HCF 1,500.00 –Steel Co. Ltd)

Tata Motors Limited HMIP-R HMIP-R 488.58 –HCF HMIP-S 553.03 –HFRF-LT HEF 7,940.61 177.36

HIOF 1,874.07 –

Tata Sons Limited HCF HMIP-R 507.61 502.79

The Tata Power Co. Ltd. HCF HEF 413.08 –HMIP-R 167.30 –HMIP-S 185.20 –

UTI Bank Limited HIF-ST HIF-IP 533.94 –HIF-ST 842.66 –HCF 42,668.77 12,719.12HIIF-ST 473.31 –HIIF-IP 533.94 –HMIP-R 2,528.23 501.39HMIP-S 1,500.00 501.39HFRF-ST 4,930.67 –

Vijaya Bank HIIF-IP HEF 1,085.86 762.60HIOF 198.00 127.10

Wipro Limited HCF HMIP-R 354.80 –HMIP-S 374.82 –HEF 1,771.49 –HIOF 133.53 –


The above investments comprise equity shares, debentrures / bonds, commercial paper, fixed deposits and other debt instruments.

These investments have been made on account of their high credit quality and competitive yield for the investment in fixed income/ moneymarket insturments and in case of equity shares because of attractive valuations of these companies.

In case of equity shares the investments are made because of attractive valuations of these companies.




Offer Document



��'��'� ��' ��!��

Dividend may be declared from time to time. Such dividends ifdeclared, will be paid under normal circumstances, only to thoseUnitholders who have opted for Dividend Option.

However, it must be distinctly understood that the actual declarationof dividends under the Scheme and the frequency thereof will, inter-alia, depend upon the distributable surplus of the Scheme. TheTrustees reserve the right of dividend declaration and to change thefrequency, date of declaration and the decision of the Trustees in thisregard shall be final. There is no assurance or guarantee to unitholders as to the rate of dividend distribution nor that dividend willbe regularly paid.

The dividend that may be paid out of the net surplus of the Schemewill be paid only to those Unitholders whose names appear in theregister of Unitholders on the notified record date. The dividend willbe at such rate as may be decided by the AMC in consultation withthe Trustees.

The AMC shall despatch to the Unitholders, the dividend warrantswithin 30 days of the date of declaration of dividend.

�� ' ��'��% ��%��

� Cases of penalties awarded by SEBI under the SEBI Act or anyof 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. For Sponsor and its associates,other than the penalties as mentioned above, the penaltiesawarded by any financial regulatory body, including stockexchanges, for defaults in respect of shareholders,debentureholders and depositors.Additionally, penaltiesawarded for any economic offence and violation of any securitieslaws.

No penalties have been awarded by SEBI under the SEBI Actor any of its regulations against the Sponsor or any companyassociated with the Sponsor in any capacity including the AssetManagement Company, Board of Trustees, or any of thedirectors or key personnel (specifically the fund managers) ofthe Asset Management Company. No penalties have beenawarded in the case of the Sponsor or its associates by anyfinancial regulatory body, including stock exchanges, fordefaults in respect of shareholders, debentureholders anddepositors. No penalties have been awarded against the AssetManagement Company, Sponsor or Trustees for any economicoffence.

Penalties imposed by a financial regulatory body or governmentauthority against the Sponsor and its associates carrying onbusiness in India, for irregularities / violations in the financialservices sector, during the last five years:

– On the Sponsor: Rs 5000 by National Stock Exchange inJuly 2001 for not indicating names of authorised signatorieson contract notes and for furnishing trade data oncumulative basis on contract notes issued. Rs 5000 byNational Securities Depository Limited in August 2001for not taking database backup on 26 August 2001. Finesof Rs. 5000 each for 4 quarters during 2002 to 2003 andfor 2 quarters in 2004 by The Stock Exchange, Mumbai,Rs. 10,000 each for 5 quarters during 2001 to 2002 andRs 5000 for 4 quarters during 2003 and for 4 quarters in2004 by National Stock Exchange for not fully complying

with the requirements of collecting margins from all non-institutional clients. Exchanges/depository levy fines fromtime to time on matters inherent to the stock brokingbusiness.

– Penalty of Rs 210,000 has been levied by the Directorateof Enforcement on The Hongkong and Shanghai BankingCorporation Limited, New Delhi Branch under theprovisions of the erstwhile Foreign Exchange RegulationAct, 1973 for accepting cash deposits aggregating to Rs2.2 m into NRE account by persons other than the NREaccount holders during May 1992 to April 1994. Anappeal against the said order has been filed by the Bankbefore the Appellate Tribunal.

Penalties (considered on the basis of the top 10 monetarypenalties) imposed by a financial regulatory body orgovernment authority against associates of the Sponsorcarrying on business in the UK, for irregularities / violationsin the financial services sector, during last five years:

– In September 1998, HSBC Futures was finedapproximately US$18,000 by the London InternationalFutures and Options Exchange (LIFFE) for failing tocorrectly settle a futures trade.

– In October 1999, HSBC Investment Bank plc was finedapproximately US$15,000 by the London Stock Exchangefor failure to have adequate procedures and controls inplace when inputting orders to SETS (the automated pricedriven quotation system of the Exchange).

– In March 1999, HSBC Investment Bank plc was finedapproximately US$7,500 by the London Stock Exchangefor a breach of its rules in connection with a workedprincipal agreement ("WPA").

– In April 1998, HSBC Investment Bank plc was finedapproximately US$7,500 by the London Stock Exchangefor failing to disclose a block trade in accordance with itsrules.

– In August 1998, HSBC Insurance Brokers Limited (INUK)was fined approximately US$3,000 by Lloyd's of Londonfor failing to obtain prior consent from the Council ofLloyd's for two of INUK's directors to hold commondirectorships with insurance companies.

Suspensions / cancellation of certificate of registration (forviolations in the financial services sector) of associates of theSponsor carrying on business outside India, during the last tenyears:

– The Capital Markets Supervisory Board in Indonesiapenalised HSBC Securities Indonesia ("HCID") fortransactions in September 2001 that were not in accordancewith the trading rules following a stock split. HCID paida fine of US$ 10,000 in January 2002. HCID was one ofa number of firms suspended by the Jakarta StockExchange; however, the suspension was subsequentlyretracted.

– In June 2001, HSBC Fund Administration (Guernsey)Limited dealings in various third party funds weretemporarily suspended by the regulator following anadverse auditors report.

– In May 2001, HSBC Securities Indonesia was suspendedfrom trading for one day for late submission of a regulatoryreturn, caused by an input error.

Offer Document



– In 1998, the Japanese authorities imposed a limited tradingban and fines totalling approximately US$70,000 on HSBCSecurities (Japan) Limited for certain discrepancies in thebooking and reporting of transactions.

– In July 2001, The Hongkong and Shanghai BankingCorporation Limited in Bangkok was suspended fromdealing in the REPO market for 10 days following abreach of Bank of Thailand's reporting requirements.

� Any pending material litigation proceedings incidental to thebusiness of the Mutual Fund to which the Sponsor of theMutual Fund or any company associated with the Sponsor inany capacity including the AMC, Board of Trustees / TrusteeCompany or any of the directors or key personnel is a party.Any pending criminal cases against the Sponsor or any companyassociated with the Sponsor in any capacity including theAMC, Board of Trustees / Trustee Company or any of thedirectors or key personnel.

There are no pending material litigation proceedings incidentalto the business of the Mutual Fund or pending criminal casesto which the Sponsor of the Mutual Fund or any companyassociated with the Sponsor in any capacity including theAMC, Board of Trustees or any of the directors or key personnelis a party.

� Any deficiency in the systems and operations of the Sponsorof the Mutual Fund or any company associated with the sponsorin any capacity including the AMC or the Trustee Companywhich SEBI has specifically advised to be disclosed in the offerdocument, or which has been notified by any other regulatoryagency.

There are no deficiencies in the systems and operations of theSponsor of the Mutual Fund or any company associated withthe sponsor in any capacity including the AMC or the Boardof Trustees which SEBI has specifically advised to be disclosedin the offer document or which has been notified by any otherregulatory agency to be disclosed in an offer document.

� Any enquiry / adjudication proceedings under the SEBI Actand the Regulations made thereunder, that are in progressagainst the Sponsor of the Mutual Fund or any companyassociated with the Sponsor in any capacity including theAMC, Board of Trustees / Trustee Company or any of theDirectors or key personnel of the Asset Management Company.

The Sponsor was acting as a merchant banker under the SEBI(Substantial Acquisitions of Shares and Takeovers) Regulations,1997 for an open offer made by Global Green Company Limitedfor the shares of Saptarishi Agro Industries Limited in the year2000. Some of the shares of the target company were not listedat the time of the open offer but were stated as listed in the letterof offer. An enquiry is in progress under SEBI (Procedure forHolding Enquiry by Enquiry Officer and Imposing Penalty)Regulations 2002 for alleged contravention of SEBI (SubstantialAcquisitions of Shares and Takeovers) Regulations, 1997 andSEBI (Merchant Bankers) Regulations, 1992. The Sponsor hassubmitted that there has been no failure on the part of theSponsor to comply with its obligations as a merchant banker.Subsequent to the enquiry officer's recommendation of a minorpenalty ie the Sponsor be censured, a show cause notice hasbeen issued by SEBI requiring the Sponsor to show cause asto why the said penalty should not be imposed. The Sponsorhas reiterated its earlier stand and submitted that there has beenno failure on the part of the Sponsor to comply with itsobligations as a merchant banker.

Other than as disclosed above, there are no other enquiries /adjudication proceedings under the SEBI Act and theRegulations made thereunder, that are in progress against theSponsor of the Mutual Fund or any Company associated withthe Sponsor in any capacity including the AMC, Board ofTrustees / Trustee Company or any of the Directors or keypersonnel of the Asset Management Company.

HSBC Asia Pacific Holdings (UK) Limited holds 14.62% ofthe equity share capital of UTI Bank Limited as a financialinvestment and the HSBC Group has no management controlor Board representation on UTI Bank Limited.

The above information has been disclosed in good faith as perthe information available to the AMC.

1��0��% �( �"� -!�!�� /!�'

Under the Regulations, the Fund is allowed to borrow to meet itstemporary liquidity needs for the purpose of repurchase / redemptionof Units or payment of interest or dividend to the Unitholders.Further, as per the Regulations, the Fund shall not borrow more than20% of the Net Assets of the Scheme and the duration of suchborrowing shall not exceed a period of 6 months. The Fund mayraise such borrowings after approval by the Trustees from its Sponsor/ associates / group companies / commercial banks in India or anyother entity at market related rates prevailing at the time and applicableto similar borrowings. The security for such borrowings, if required,will be as determined by the Trustees. Such borrowings, if raised,may result in a cost, which would be dealt with in consultation withthe Trustees.

��!�� '��% �( �"� -!�!�� /!�'

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 valueof collateral security offered etc.

��'��0��%

Subject to SEBI Regulations, the Scheme may enter into underwritingagreements after the Mutual Fund obtains the necessary registrationin terms of the Securities and Exchange Board of India (Underwriters)Regulations, 1993 and the Securities and Exchange Board of India(Underwriters) Rules, 1993 authorising it to carry on activities asunderwriters. The capital adequacy norms for the purpose ofunderwriting shall be the net assets of the Scheme and theunderwriting obligation of the Scheme shall not at any time exceedthe total Net Asset Value of the Scheme. For the purposes of theRegulations, the underwriting obligation will be deemed as ifinvestments are made in such securities.

��)��"� � ��

Transfer of investments from one Scheme to another Scheme in theMutual Fund shall be permitted provided:

� Such transfers are done at the prevailing market price forquoted instruments on spot basis;

Offer Document



� The securities so transferred shall be in conformity with theinvestment objective of the transferee Scheme and

� Inter-Scheme transfers shall be done in accordance with theSEBI (Mutual Fund) Regulations.

��( �� "�� ( �"� ��"� ��' �"� �� "��!�'��

SEBI regulations and circulars issued by it permit mutual funds toinvest in ADRs / GDRs issued by Indian companies, foreign debtsecurities, government securities of foreign countries, units / securitiesissued by overseas mutual funds or unit trusts, subject to the termsand conditions prescribed, up to a specified percentage of net assetsmanaged as on the date of last audited balance sheet subject tomaximum of US$50 million. The minimum limit presently prescribedis US$ 5 million.

It is the Investment Manager's belief that ADRs/GDRs issued byIndian Companies / foreign securities etc. offer new investment andportfolio diversification opportunities into multi-market and multi-currency products. The Fund would look to invest in ADRs/GDRsissued by Indian Companies / foreign securities in order to diversifythe portfolio in terms of variety of instruments held and enhancereturns by taking advantage of market movements in global markets,which may or may not be in sync with the Indian markets. Investmentin foreign securities would only be looked at if they provide a return,liquidity, ease of settlement and valuation, transaction costs betterthan equivalent local investments. Hence only if the Fund Managerbecomes cautious or negative on the Indian equity markets for areasonably long period of time, would he consider investing in suchsecurities. The Fund will look to identify and capture profitableopportunities as and when they arise. However, such investmentsalso entail additional risks. Such investment opportunities may bepursued by the Investment Manager provided they are consideredappropriate in terms of the overall investment objectives of theScheme. The Scheme may then, if necessary, seek permission fromSEBI and RBI to invest abroad in accordance with the investmentobjectives of the Scheme and in accordance with any guidelinesissued by SEBI / RBI from time to time.

Since the Scheme would invest only partially in ADRs/GDRs issuedby Indian Companies / foreign securities etc., there may not bereadily available and widely accepted benchmarks to measureperformance of the Scheme. To manage risks associated with foreigncurrency , the Fund may use derivatives for efficient portfoliomanagement including hedging and in accordance with conditionsas may be stipulated by SEBI / RBI from time to time.

Offshore investments will be made subject to any / all approvals andconditions thereof as may be stipulated by SEBI / RBI being fulfilledand provided such investments do not result in expenses to the Fundin excess of the ceiling, if any, on expenses prescribed by SEBI foroffshore investment, and if no such ceiling is prescribed by SEBI,the expenses to the Scheme(s) shall be limited to the level which,in the opinion of the Trustees, is reasonable and consistent withcosts and expenses attendant to international investing. The Fundmay, where necessary, appoint other intermediaries of repute asadvisors, 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.

��

Power to make RulesSubject to the Regulations, the Trustees may from time to time,prescribe such terms and make such rules for the purpose of givingeffect to the Scheme and the Plans thereunder with power to theAMC to add to, alter or amend all or any of the terms and rules thatmay be framed from time to time.

Power to remove DifficultiesIf any difficulty arises in giving effect to the provisions of theScheme and the Plans thereunder, the Trustees may, subject to theRegulations, take any action not inconsistent with such provisions,which appears to be necessary, desirable or expedient, for the purposeof removing such difficulty.

Scheme to be binding on the UnitholdersSubject to the Regulations, the Trustees may from time to time, addor otherwise vary or alter all or any of the features of plans and termsof the Scheme after obtaining the prior permission of SEBI and theUnitholders (where necessary), and the same shall be binding on allthe Unitholders of the Scheme and the Plans thereunder and anyperson or persons claiming through or under them, shall do so asif each Unitholder or such person expressly had agreed that suchfeatures and terms shall be so binding.

��! �� #�� &��

The following documents will be available for inspection at theoffice of the Mutual Fund at 52/60 Mahatma Gandhi Road, Fort,Mumbai 400 001 during business hours on any day (excludingSaturdays, Sundays and public holidays):

� Memorandum and Articles of Association of the AMC

� Investment Management Agreement

� Trust Deed and amendments thereto, if any

� Mutual Fund Registration Certificate

� Agreement between the Mutual Fund and the Custodian

� Agreement with Registrar and Share Transfer Agents

� Consent of Auditors to act in the said capacity

� Consent of Legal Advisors to act in the said capacity

� Securities and Exchange Board of India (Mutual Funds)Regulations, 1996 and amendments thereof from time to time.

� Indian Trusts Act, 1882

Notwithstanding anything contained in this Offer Document, theprovisions of the SEBI (Mutual Funds) Regulations, 1996 and theguidelines thereunder shall be applicable.

Note:The Trustees approved this Offer Document vide resolution passedon January 17, 2005

For and on behalf of the Board of Directors ofHSBC Asset Management (India) Private Limited

Sanjay PrakashChief Executive Officer

Place: MumbaiDate: January 18, 2005


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