Templeton Mutual Fund

Sponsor: Templeton International Inc., Florida, USA.

Asset Management Company: Templeton Asset Management (India) Pvt. Ltd.

In this Offer Document all references to "U.S.$" or "$" are to United States of America Dollars and "Rs." are to Indian Rupees. The Reference Rate for exchanges between the United States Dollar and the Indian Rupee has been taken at U.S.$1.00 = Rs.48. This Offer Document is dated ________. The Offer Document sets forth concisely the information about the Scheme that a prospective investor ought to know before investing. The Offer Documcent should be retained for future reference.

This Offer Document will remain effective till a ‘Material Change’ (other than a change in Fundamental Attributes and within the purview of the Offer Document) occurs and thereafter the changes shall be filed with SEBI and circulated to the Unitholders along with the quarterly reports.

The Scheme particulars have been prepared in accordance with Securities and Exchange Board of India (Mutual Funds) Regulations 1996, as amended till the date of this offer document, and filed with 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.

• Interest rate movement (Basis Risk): As the fund will invest in floating rate instruments, these instruments’ coupon will be reset periodically in line with the benchmark index movement. Normally, the interest rate risk of a floating rate instrument compared to a fixed rate instrument is limited. The changes in the prevailing rates of interest will likely affect the value of the Scheme’s holdings until the next reset date and thus the value of the Schemes’ Units. Increased rates of interest, which frequently accompany inflation and/or a growing economy, are likely to have a negative effect on the value of the Units. The value of securities held by the Scheme generally will vary inversely with changes in prevailing interest rates.The fund could be exposed to the interest rate risk (i) to the extent of time gap in resetting of the benchmark rates, and (ii) to the extent the benchmark index fails to capture the interest rate movement.
• Spread Movement (Spread Risk): Though the basis (i.e. benchmark) gets readjusted on a regular basis, the spread (i.e. markup) over benchmark remains constant. This can result in some volatility to the holding period return of floating rate instruments
• Settlement Risk (Counterparty Risk): The floating rate assets may also be created by swapping a fixed return to a floating rate return. In such a swap, there may be an additional risk of counterparty who will pay floating rate return and receive fixed rate return.

• Liquidity Risk: Due to the evolving nature of the floating rate market, there may be an increased degree of liquidity risk in the portfolio from time to time.

1. The Scheme proposes to invest primarily in floating rate debt instruments or fixed rate debt instruments swapped for floating rate return. Trading volumes, settlement periods and transfer procedures may restrict the liquidity of these investments. The length of time for settlement may affect the Scheme in the event the Scheme has to meet an inordinately large number of redemption requests. In addition, the Trustee has the right, in its sole discretion, to limit redemptions under certain circumstances. See section on "Right to limit redemptions". The Scheme will retain certain investments in cash or cash equivalents for its day-to-day liquidity requirements.
2. The Scheme will use techniques like interest rate swaps, options on interest rates, warrants, forward rate agreement and other derivative instruments that may be permitted and / or that may become permissible under SEBI/RBI Regulations and / or Regulations and / or statutory modification or re-enactment thereof for efficient portfolio management and to attempt to hedge or reduce the risk of such fluctuation. However, these techniques and instruments, if imperfectly used have the risk of the Scheme incurring losses due to mismatches particularly in a volatile market. The Fund’s ability to use these techniques may be limited by market conditions, regulatory limits and tax considerations (if any). The use of these techniques is dependent on the ability to predict movements in the prices of securities being hedged and movements in interest rates. There exists an imperfect correlation between the hedging instruments and the securities or market sectors being hedged. Besides, the fact that skills needed to use these instruments are different from those needed to select the Fund’s / Scheme’s securities. There is a possible absence of a liquid market for any particular instrument at any particular time even though the futures and options may be bought and sold on an organized exchange. The use of these techniques involves possible impediments to effective portfolio management or the ability to meet repurchase /redemption requests or other short-term obligations because of the percentage of the Scheme’s assets segregated to cover its obligations.
3. Subject to necessary approvals and within the Investment Objective of the Scheme, the Scheme may also invest in overseas financial assets subject to the approval of the concerned regulatory authorities. To the extent that the assets of the Scheme 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 India Rupee. 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 investments.
4. Subject to the SEBI Regulations, the Mutual Fund may, if the Trustee permits, engage in Securities Lending. Securities Lending means the lending of security to another person or entity for a fixed period of time, at a negotiated compensation in order to enhance returns of the portfolio. The securities lent will be returned by the borrower on the expiry of the stipulated period.

9. The risk associated with investment in debt securities are:

• Interest Rate Risk: As with all the debt securities, changes in the interest rates may affect the Scheme’s Net Asset Value as the prices of securities generally increase as interest rates decline and generally decrease as interest rates rise. Prices of long term securities generally fluctuate more in response to interest rate changes than do short-term securities. Indian debt markets can be volatile leading to the possibility of price movements up or down in fixed income securities and thereby possible movements in the NAV.
• Liquidity or Marketability Risk: This refers to the ease with which a security can be sold at or near to its valuation yield-to-maturity (YTM). The primary measure of liquidity risk is the spread between the bid price and the offer price quoted by a dealer. Liquidity risk is today characteristic of the Indian fixed income market
• Credit Risk: Credit risk or default risk refers to the risk that an issuer of a fixed income security may default (i.e. will be unable to make timely principal and interest payments on the security). Because of this risk corporate debentures are sold at a yield above those offered on Government Securities which are sovereign obligations and free of credit risk. Normally the value of a fixed income security will fluctuate depending upon the changes in the perceived level of credit risk as well as any actual event of default. The greater the credit risk, the greater the yield required for someone to be compensated for the increased risk.
• Reinvestment Risk: This risk refers to the interest rate levels at which cash flows received for the securities in the Scheme is reinvested. The additional risk from reinvestment is the "interest on interest" component. The risk is that the rate at which interim cash flows can be reinvested may be lower than that originally assumed.

1. Prospective investors should review / study this Offer carefully and in its entirety and shall not construe the contents hereof or regard the summaries contained herein as advice relating to legal, taxation, or financial/ investment matters and are advised to consult their own professional advisor(s) as to the legal or any other requirements or restrictions relating to the subscription, gifting, acquisition, holding, disposal (sale, transfer, switch or redemption or conversion into money) of Units and to the treatment of income (if any), capitalization, capital gains, any distribution, and other tax consequences relevant to their subscription, acquisition, holding, capitalization, disposal (sale, transfer, switch or redemption or conversion into money) of Units within their jurisdiction / of nationality, residence, domicile etc. or under the laws of any jurisdiction to which they or any managed Funds to be used to purchase/gift Units are subject, and (also) to determine possible legal, tax, financial or other consequences of subscribing / gifting to, purchasing or holding Units before making an application for Units.

11. Neither this Offer Document nor the units have been registered in any jurisdiction. The distribution of this Offer Document in certain jurisdictions may be restricted or subject to registration requirements and, accordingly, persons who come into possession of this Offer Document in certain jurisdictions are required to inform themselves about, and to observe, any such restrictions. No person receiving a copy of this offer document or any accompanying application form in such jurisdiction may treat this Offer Document or such application form as constituting an invitation to them to subscribe for Units, nor should they in any event use any such application form, unless in the relevant jurisdiction such an invitation could lawfully be made to them and such application form could lawfully be used without compliance with any registration or other legal requirements.

No person has been authorized to give any information or to make any representations not confirmed in this Offer Document in connection with this Offer or the issue of Units, and any information or representations not contained herein must not be relied upon as having been authorized by the Mutual Fund, the Investment Manager. Neither the delivery of this Offer Document nor any sale made hereunder shall, under any circumstances, create any implication that the information contained herein is correct as of any time subsequent to the close of the Initial Offering Period.

In this Offer Document the following definitions have been used:

It is confirmed that:

1. The 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

2. All legal requirements connected with the launching of the Scheme as also the guidelines, instructions, etc., issued by the Government and any other competent authority in this behalf, have been duly complied with.

3. The disclosure made in the offer document are true, fair and adequate to enable the investors to make a well informed decision regarding investment in the proposed Scheme.

4. The intermediaries named in the offer document are registered with SEBI and till date such registration is valid.

Date: November 20, 2001 Signature:Sd/-

Place: Mumbai Name: Vivek Pai

Note: The Due Diligence Certificate as stated above was submitted to Securities and Exchange Board of India on November 20, 2001.

* AMC reserve the right to introduce/increase/decrease the entry/exit load on a prospective basis.

The information that is provided under this section seeks to assist the investor in understanding the following: -

1. The expense structure of the current Scheme and types of different fees and their percentage the investor is likely to incur on purchasing and selling the units of the Scheme.

2. The financial information (condensed) relating to the previous schemes launched by the Fund.

1. UNITHOLDER TRANSACTION EXPENSES OR SALES LOAD

The Trustee reserves the right to introduce/increase/decrease a Load/Fee for the items (i) to (v) above at any time in future on a prospective basis. However such increase/decrease/introduction would be subject to the limits prescribed under the Regulations.

As and when a sales load is introduced, the sales load collected on on-going sales of units shall be retained in the Fund and maintained in a separate account and would strictly and fully be utilised by the Investment Manager in providing distribution related services to the Mutual Fund relating to the sale, promotion, advertising and marketing of Units of the Scheme, including payments to brokers/registrars for their services in connection with the distribution of the Units.

a) Present Scheme

All expenses relating to the initial offer of units under TFRF shall be borne by the AMC.

Details of estimated initial issue expenses for the scheme are as follows:

All Initial Issue Expenses will be borne by the Investment Manager. As such for every Rs. 100/- contributed by the investor, whole of Rs. 100/- will be available to the scheme for investment.

2. Name of the Scheme : Templeton India Income Fund (TIIF)

3. Name of the Scheme : Templeton India Liquid Fund (TILF)

This Scheme was launched in June 1998. All initial expenses were borne by the Investment Manager.

4. Name of the Scheme: Templeton India Government Securities Fund (TGSF)

5. Name of the Scheme: Templeton Monthly Income Plan (TMIP)

This Scheme was launched in January 2000. All initial expenses were borne by the Investment Manager.

6. Name of the Scheme: Franklin India Growth Fund (FIGF)

7. Name of the Scheme : Franklin India Index Fund (FIIF)

This scheme was launched in June, 2000. All the initial expenses, in excess of the entry load, were borne by the Investment Manager.

8. Name of the Scheme : Franklin India Balance Fund (FIBF)

This Scheme was launched in June, 2000. All the initial expenses, in excess of the entry load, were borne by the Investment Manager.

 

9. Name of the Scheme : Franklin India Index Tax Fund (FITF)

This Scheme was launched in February 2001. All the initial expenses, in excess of the entry load, were borne by the Investment Manager.

10. Name of the Scheme : Templeton India Liquid Plus (TILP)

None of the expenses in any of the schemes above, have exceeded 6% of initial resources mobilised.

The ongoing fees and expenses of operating the Scheme on an annual basis, expressed as a percentage of the amount of the Scheme’s average weekly net assets, are estimated to be as follows:

• On the first Rs. 100 crores of the average weekly net assets: 2.50%
• On the next Rs. 300 crores of the average weekly net assets: 2.25%
• On the next Rs. 300 crores of the average weekly net assets: 2.00%
• On the balance of assets: 1.75%

• On the first Rs. 100 crores of the weekly average net assets: 1.25%
• On the balance of the net assets: 1.00%

The ongoing fees and expenses of the schemes are charged daily.

@Returns for periods less than one year have been given in absolute terms without annualising the same. Returns for periods greater than one year are on compounded annualised basis.

@Returns for periods less than one year have been given in absolute terms without annualising the same. Returns for periods greater than one year are on compounded annualised basis.

GP-Growth Plan, DP-Dividend Plan, MP-Monthly Dividend Plan, QP-Quarterly Dividend Plan, HP-Half-Yearly Dividend Plan;

FIGF & TMIP were launched on February 7, 2000, TGSF was launched on June 21, 1999, TILF (DP) was launched on April 1, 2000, FITF was launched on February 26, 2001

TILP was launched on April 23, 2001.

@Returns for periods less than one year have been given in absolute terms without annualising the same. Returns for periods greater than one year are on compounded annualised basis.

As of March 31, 2001 the Fund did not have any borrowings other RBI refinance facility (less than 20% of NAV) against government securities under Templeton India Government Securities Fund (TGSF).

Franklin Resources Inc. is a diversified financial services company based in San Mateo, California, USA. Through its operating subsidiaries it provides a wide range of investment products and services to worldwide clients. Templeton International Inc., the sponsor of the Templeton Mutual Fund, is a wholly owned subsidiary of Templeton Worldwide Inc., which in turn is a wholly owned subsidiary of Franklin Resources Inc. The Franklin Templeton Group is one of the world’s largest investment management companies. Following are some of the key data relating to Franklin Templeton’s Global Operations.

US $ 251.6 billion as at October 31, 2001 (Rs. 12,07,680 crores approximately)

More than 10 million worldwide.

The Franklin Templeton Group is one the world’s largest investment management groups. Created from the merger of Franklin Resources, Inc., Mutual Fund Series and Templeton Worldwide, Inc., this group offers a wide range of investment products and services to worldwide clients. The group’s equity funds are largely driven by the following two philosophies.

First, the group manages a large number of global funds following the firm’s well-known ‘bottom-up value investing’ approach. One of the most prominent tenets of this approach is: "Never follow the crowd. Superior performance is possible only if you invest differently from the crowd." This is reflected in Templeton’s time tested strategy of buying bargains wherever they exist.

Second, the group manages a number of funds following a growth-oriented style of equity investing. This includes funds like Franklin Growth Fund, Franklin Blue Chip Fund, and Franklin Dynatech Fund (focussed on technology stocks). These funds take a more top-down approach and may be focused on a country, industry or sector. Funds following this approach essentially seek investment opportunities in those companies that are geared towards growth or are experiencing a turn-around in their operations.

In India, Templeton launched the ‘Templeton India Growth Fund’; an equity fund that invests based on the firm’s value investing philosophy, in August 1996. Recently, Templeton has launched ‘Franklin India Growth Fund’ that would invest in growth-oriented companies, which in the view of the Portfolio Manager are Companies of high growth potential. An investor will now have the choice between two approaches to stock selection – ‘growth investment’ process and ‘value investment" process. One of the key aspects of successful investing in the equity markets is to appreciate the distinction between the varied investment styles of ‘growth’ and ‘value’. This differentiation can help investors in setting realistic expectations about how the funds are likely to perform under different market conditions. The ‘growth investment’ process will look for companies with above average earnings, which will be even more valuable tomorrow. Since these companies are growing well, they will typically have higher stock prices relative to earnings otherwise known as high P-E stocks. The ‘value investment ’ process will look for stocks that may be worth more than what their current market prices reflect. For example, a stock might be inexpensive as compared to the broader market because the concerned company may have temporarily fallen out of favour with other investors or its profitability may have suffered. These stocks tend to have low P-E ratios. As can be expected from the contrarian investment philosophies, ‘value’ and ‘growth’ stocks don’t usually move in tandem. That is why rather than choosing any one style, an investor may rather consider combing ‘growth’ and ‘value’ investments and create a more diversified portfolio. Such a portfolio may have the potential to reduce overall risk and appreciate in value through any market conditions.

As part of Templeton’s major thrust on investing in emerging markets around the world, Templeton has been investing in India for the past several years. These investments are based on original research and first hand understanding of the forces those influence the economic environment. Templeton has established offices at Ahmedabad, Bangalore, Calcutta, Chennai, Hyderabad, Kochi, Lucknow, Mangalore, Mumbai, New Delhi and Pune with the current total staff numbers at 64. Templeton is also planning to open more offices in India.

Templeton presently has ten schemes and the aggregate assets under management as on October 31, 2001 are Rs. 3,488.28 crores. The schemewise details are as given below:

GP-Growth Plan, DP-Dividend Plan, MP-Monthly Dividend Plan, QP-Quarterly Dividend Plan, HP-Half-Yearly Dividend Plan;

The sponsor of Templeton Mutual Fund is Templeton International, Inc. Templeton International Inc., is a wholly owned subsidiary of Templeton Worldwide Inc., which in turn is a wholly owned subsidiary of Franklin Resources Inc.

The Sponsor was responsible for setting up and establishing the Templeton Mutual Fund. The Sponsor is the Settlor of the Mutual Fund Trust. The Sponsor has entrusted a sum of Rs. 1 lakh to the Trustee as the initial contribution towards the corpus of the Mutual Fund. The sponsor has delegated the trustee functions to the Trustee and the Investment Management functions to The Investment Manager. The Sponsor is represented by the Directors on the Boards of the Trustee and the Investment Manager in accordance with the Regulations. The Sponsor shall be responsible for discharging its functions and responsibilities towards the Fund in accordance with Regulations and the various constitutive documents of the Fund.

(All figures are in Rupees million except per share data) (US $= Rs 48.00/-)

Templeton Trust Services Private Limited (the "Trustee"), through its Board of Directors, shall discharge its obligations to the Templeton Mutual Fund as the Trustee of the Mutual Fund. The Trustee ensures that the transactions entered into by the AMC are in accordance with the SEBI Regulations and reviews the activities carried on by the AMC on a quarterly basis. The Board of Directors of Templeton Trust Services Private Limited held seven meetings during the year 2000-2001.

In accordance with Regulation 18(15) of SEBI Regulations, the Trustees shall obtain the consent of the unitholders -

1. whenever required to do so by SEBI in the interest of the unitholders; or
2. whenever required to so on the requisition made by three-fourths of the unitholders of any Scheme; or
3. When the majority of the trustees decide to wind up or prematurely redeem the units.

In accordance with Regulation 18(15A) of SEBI Regulations, the trustees shall ensure that no change in the fundamental attributes of any scheme or the trust or fees and expenses payable or any other change which would modify the scheme and affects the interest of unitholders, shall be carried out unless,-

Explanation: In terms of SEBI Regulations and circular dated February 4, 1998, "Fundamental Attributes" means and includes the following:

1. Type of a Scheme

• Open ended-Close ended-Interval Scheme
• Sectoral Fund-Equity Fund-Balance Fund-Income Fund-Index Fund-Any other type of Fund.

2. Investment Objective

• Main Objective - Growth-Income-Both
• Investment pattern - The tentative Equity-Debt-Money Market portfolio break-up with minimum and maximum asset allocation, while retaining the option to alter the asset allocation for a Institutional period on defensive considerations.

2. Terms of Issue

• Liquidity provisions such as listing, repurchase, redemption
• Aggregate fees and expenses charged to the Scheme
• Any safety net or guarantee provided

The members of the Board of Directors of the Trustee ("the Board of the Trustee") are: -

• Samuel J. Forester, Jr.*, Chairman Templeton Worldwide, Inc.

Samuel J. Forester joined the Templeton organisation in 1990 as President of Templeton Global Bond Managers. He became Managing Director of Templeton Worldwide, Inc. in December 1994. He is responsible for overseeing several international offices where Templeton has a presence, for further developing the closed-end Mutual Fund business, establishing new overseas locations, and building the international business. He is a member of the team responsible for the global expansion of the Franklin Templeton Global Alliance. Prior to joining Templeton, Mr. Forester worked for 16 years for Merrill Lynch in U.K. U.S.A and the Middle East. For the year immediately prior to his joining Templeton, Mr. Forester ran his own investment-counselling firm in Houston, Texas, managing both U.S and foreign assets. He holds a Bachelor of Business Administration degree in Marketing from the University of Arkansas.

Gregory E. McGowan is Executive Vice President, Director and General Counsel for International Development of Templeton Worldwide, Inc. Mr. McGowan serves on various Templeton Boards of Directors and also serves as Executive Vice President and General Counsel of the U.S. holding company, Templeton Global Investors, Inc. and Templeton International Inc., the Organisation responsible for the expansion and operation of Templeton business outside of North America. Prior to joining the Templeton organisation in 1986, Mr. McGowan was a senior attorney for the United States Securities and Exchange Commission. He holds a B.A. Degree in Economics/International Affairs from the University of Pennsylvania and M.A. Degree from the University of Paris and a Juris Doctor from Georgetown University Law Centre.