IL&FS GILT Fund

A Scheme under IL&FS Mutual Fund

ISSUE OF UNITS AT Rs 10/- PER UNIT FOR CASH AT PAR

(1) HIGHLIGHTS

(a) "IL&FS GILT Fund" is an Open-ended Gilt Scheme of IL&FS Mutual Fund (the Fund)

(b) The Sponsor of the Fund is Infrastructure Leasing & Financial Services Limited (IL&FS).

(c) IL&FS is one of the leading multifaceted organisation in India with an asset base of over Rs. 25 billion

(d) The AMC has been promoted by IL&FS and is a subsidiary of IL&FS

(e) "IL&FS GILT Fund" (the Scheme) will have two perpetual plans with separate Investment Portfolios to suit the requirements of investors – Short-Term Plan for those investors who wish to invest for short-term periods and Long-Term Plan for those investors who wish to invest for longer periods.

(f) In addition to the perpetual plans mentioned above, the AMC / Scheme would also offer Series Plans (with fixed maturity dates) for investors who wish to stay invested till the Plans maturity.

(g) All the Plans shall offer Growth options – resulting in cumulative growth and Dividend Option – resulting in dividend distributions with a facility for Dividend reinvestment

(h) Initial Issue Expenses will be borne by IL&FS Asset Management Company Limited

(i) The investment objective of the Scheme is to generate credit risk-free return for the investors through investment in sovereign securities issued by the Central Government and / or State Government of varying maturity to suit the investment plans. The scheme is not a money market mutual fund.

(j) Switching - Unitholders can switch from one plan to another (if eligible) or to other schemes of IL&FS Mutual Fund at applicable loads if any.

(k) Full and firm allotment would be made to all the applicants, subject to the application being complete in all respects and is in accordance with the terms of the offer.

(l) The fund will disclose the scheme’s Net Asset Value (NAV) on all Business days and the investment portfolio every six months  

(m) This fund is eligible for investments by Provident / Pension/ Gratuity/ Superannuation and such other retirement, employee benefit and other similar funds as per Press note dated March 31, 1999 issued by Department of Economic Affairs, Ministry of Finance, Government of India, New Delhi.

Offer Opens : To be decided

Earliest Closing To be decided

Offer Closes: To be decided

The Trustee reserves the right to extend the Closing date subject to a maximum of 30 days from the date of Opening.

(2) RISK FACTORS

(a) Mutual funds, like securities investments, are subject to market and other risks and there can be no guarantee against loss resulting from an investment in the Scheme nor can there be any assurance that the Scheme’s objectives will be achieved.

(b) As with any investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on various factors that may affect the values of the Scheme’s investments. The NAV of the Units issued under the Scheme can go up or down. In addition to the factors that affect the value of individual securities, the NAV of the Scheme can be expected to fluctuate with movements in the broader bond markets and may be influenced by factors affecting capital markets in general, such as, but not limited to, changes in interest rates, changes in governmental policies and increased volatility in the bond and money markets

(c) The past performance of the funds managed by the Sponsors, AMC, Mutual Fund and their affiliates/associates is not necessarily indicative of the future performance of the scheme and its future prospects or returns.

(d) Investors in the Scheme are not being offered a guaranteed or assured rate of return. Investment decisions made by the Investment Manager may not always be profitable

(e) ‘IL&FS GILT Fund’ is the name of the scheme and does not in any manner indicate either the quality of the scheme or its future prospects and returns.

(3) SCHEME SPECIFIC RISK FACTORS & SPECIAL CONSIDERATIONS :

(a) Government securities where a fixed return is offered, run price-risk like any other fixed income security. When interest rates decline, the value of a portfolio of fixed income securities can be expected to rise. Conversely, when interest rates rise, the value of a portfolio of fixed income securities can be expected to decline. The extent of such fall or rise in the prices is a function of the existing coupon, days to maturity and the increase or decrease in the level of interest rates. The new level of interest rate is determined by the rates at which government raises new money and / or the price levels at which the market is already dealing in the existing securities. However, Government securities are unique in the sense that their credit risk always remains zero.

(b) Trading volumes, settlement periods and transfer procedures may restrict the liquidity of the investments made by the Scheme. Different segments of the Indian financial markets have different settlement periods and such periods may be extended significantly by unforeseen circumstances leading to delays in receipt of proceeds from sale of securities. The NAV of the Units of the Scheme can go up or down because of various factors that affect the capital markets in general.

(c) As the liquidity of the investments made by the Scheme could, at times, be restricted by trading volumes and settlement periods, the time taken by the Mutual Fund for redemption of Units may be significant in the event of an inordinately large number of redemption requests or a restructuring of the Scheme. In view of the above, the Trustee has the right, in its sole discretion, to limit redemptions (including suspending redemptions) under certain circumstances, as described on Page 65 under the title “Right to Limit Redemptions”.

(d) Securities which are not quoted on the stock exchanges are inherently illiquid in nature and carry a larger amount of liquidity risks, in comparison to securities that are listed on the exchanges or offer other exit options to the investor, including a put option. The AMC may choose to invest in unlisted securities that offer attractive yields. This may increase the risk of the portfolio

(e) As zero coupon securities do not provide periodic interest payments to the holder of the security, theses securities are more sensitive to changes in interest rate hence the risk of zero coupon securities is higher. The AMC may choose to invest in zero coupon securities that offer attractive yields. This may increase the risk of the portfolio

(f) From time to time and subject to the Regulations, any unitholder or the Sponsor, investment companies of the Sponsor, funds managed by the Sponsor, their affiliates, associate companies, subsidiaries, the AMC and the Trustee Company may acquire a substantial portion of the Scheme Units and collectively constitute a major investor in the Scheme. Accordingly, redemption of Units by such entities may have an adverse impact on the Units of the Scheme because the timing of such redemption may impact the ability of other Unit holders to redeem their Units.

(g) The AMC, on behalf of the respective Plans, may also invest in Government Securities issued by G-7 nations and other Foreign Governments as and when permitted by the concerned regulatory authorities in India.

Risk Factors of investment in Overseas financial Assets

To the extent that the assets of the schemes will be invested in securities denominated in foreign currencies, the Indian rupee equivalent of the net assets, distributions and income may be adversely affected by changes in the value of certain foreign currencies relative to the Indian Rupee (If Indian rupee appreciates against these foreign currency). The repatriation of capital to India may also be hampered by changes in regulations concerning exchange controls or political circumstances as well as the application to it of other restrictions on investment. The scheme may have to pay applicable taxes on gains from such investment

(h) The Scheme may use various derivative products, from time to time, in an attempt to protect the value of the portfolio and enhance Unit holders’ interest. Derivative products are specialised instruments that require investment techniques and risk analysis different from those associated with stocks and bonds. The use of a derivative requires an understanding not only of the underlying instrument but also of the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Other risks include, the risk of mispricing or improper valuation and the inability of derivatives to correlate perfectly with underlying assets, rates and indices. See paragraph on Derivatives and Hedging products in Section II

(i) The Scheme may undertake underwriting activities in order to augment its income after complying with the approval and compliance processes specified in the Regulations and any other applicable guidelines. Underwriting obligations run a risk of devolvement

(4) DISCLAIMER

(a) The scheme particulars of "IL&FS GILT Fund", the scheme offered under this offer document have been prepared in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 as amended till date and filed with the Securities and Exchange Board of India and also in accordance with Reserve Bank of India guidelines IDMC no. 2741 / 03.01.00/95-96 dated April 20, 1996 for availing liquidity support. The units of the scheme being offered for public subscription have not been approved or disapproved by SEBI, nor has SEBI certified the accuracy or adequacy of the offer document

(b) The offer document contains information necessary for an investor to make an informed investment decision in the scheme described herein. The Prospective investors are advised to review this Offer Document carefully and in its entirety and consult with their legal, tax and financial advisors to determine possible legal, tax and financial or other consequences of subscribing to, purchasing or holding Units under this Scheme, before making an application for Units and retain the same for their reference.

(c) Investors may note that this offer document remains effective during the tenure of the scheme. Any material changes shall be filed with SEBI and circulated to all unitholders or may be publicly notified by advertisements in the newspapers and is subject to all applicable regulations. Investors may also like to ascertain about any further changes after the date of this Offer Document from the Mutual Fund/it’s Investor Service Centres/distributors or brokers.

(d) The Sponsors are not responsible or liable for any loss resulting from the operation of the Scheme beyond the initial contribution of an amount of Rs. 100,000 made by them towards setting up the Fund or such other accretions and additions to the initial corpus set up by the Sponsors

(e) IL&FS Mutual Fund, and/or the AMC have not authorised any person to give any information or make any representations, either oral or written, not stated in this Offer Document in connection with the issue of Units under the Scheme. Prospective investors are advised not to rely upon any information or representations not incorporated in this Offer Document as the same have not been authorised by the Fund or the AMC. Any purchase made by any person on the basis of statements or representations which are not contained or which are inconsistent with the information contained in this Offer Document shall be solely at the risk of the purchaser.

(f) Neither this offer Document nor the Units have been registered in any jurisdiction. The distribution of this document in certain jurisdiction/s may be restricted or subject to registration requirements and accordingly, persons who come into possession of this document are required to inform themselves about and to observe any such restrictions.

The Offer Document is dated September 3, 2001

TABLE OF CONTENTS

IL&FS GILT Fund Offer Document

	Page
Summary	9
Definitions	11
SECTION I
[1] The Constitution of IL&FS Mutual Fund	13
[2] The Sponsors	13
[3] The Trustee	16
[4] Duties & Responsibilities of the Trustee	18
[5] Summary of Substantive Provisions of Trust Deed	22
[6] Trusteeship fees	23
[7] The Asset Management Company	23
[8] Duties & Responsibilities of the Asset Management Company	27
[9] AMC Fees	28
[10] Previous Schemes of IL&FS Mutual Fund	28
[11] The Auditor	29
[12] The Custodian	29
[13] The Registrar	29
SECTION II
[1] Investment Objective, Policies & limitations of the Scheme	31
[a] Type of Scheme	31
[b] Investment Objective	31
[c] Investment Focus	31
[d] Investment Pattern & Risk Profile	31
[e] Fundamental attributes	31
[f] Change in fundamental attributes	32
[g] Change in Investment Pattern	32
[h] Investment Limitations and Restrictions	32
[i] Underwriting by the Scheme	33
[j] Borrowing by the Scheme	34
[2] Indian Government Securities Market	34
[3] Investment Strategy & Risk Control	34
[4] Investment in Overseas Financial Assets	35
[5] Risk Factors in investment in Overseas Financial Assets	35
[6] Derivatives and Hedging Products	36
[6] Portfolio Turnover Policy	38
[7] Computation of NAV	38
[8] Valuation of Securities and determination of Net Asset Value	38
[9] Accounting Policies & Standards	40
SECTION III
[1] Scheme Expenses & Load Structure	42
[2] Contingent Deferred Sales Load (CDSC)	43
[3] Utilisation of load	43
[4] Initial Issue Expenses for present scheme	43
[5] Annual Recurring Expenses	43
[6] Fees and Expenses for Past Schemes and Condensed Financial Information	45

SECTION IV
[1] The Initial Offer	49
[2] Issuance of Units/Refund – IPO	50
[a] Basis of Allotment	50
[b] Account Statements	50
[c] Refunds	50
[3] Investment Plans	50
[4] Investment Options	52
[5] Right to offer Additional Investment Plan/s and/or facility	53
[6] Who can Invest	53
[7] How to apply	55
[8] Mode of Payment	56
[9] Issue of Units on an on-going basis	56
[10] Switching	61
[11] Systematic Investment Plan	61
[12] Systematic Withdrawal Plan	62
[13] Other Facilities	62
[14] Dividends	63
[15] Nomination and Lien Facility	63
[16] Listing	65
[17] Right to close a Unitholders Account	65
[18] Right to limit Redemption	65
[19] Suspension of Sale / Redemption / Switching options of the Units	65
[20] Special Marketing Campaign	66
SECTION V
[1] NAV Information	68
[2] Account statements	68
[3] Receiving Account Statements / Correspondence by e-mail	68
[4] Other Disclosure of Information	69
[5] Householdings	69
[6] Rights of Unit Holders	69
[7] Documents available for Inspection	71
[8] General Information	71
[a] Power to make rules	71
[b] Power to remove Difficulties	71
[c] Scheme to be binding on the Unit Holders	71
[d] Register of IL&FS GILT Fund Unit Holders	72
[9] Investor Grievance Redressal	72
[10] Tax Benefits of Investing in Mutual Fund	73
SECTION VI
[1] Procedure and manner of winding-up	77
[2] Associate Transactions	78
[3] Disclosure under 25(11)	80
[4] Penalties & Litigations	80
[5] General	81
[6] Restructuring	81
[7] Due Diligence Certificate	82