Annual Report 2008-09 From the Managing Director’s Desk Dear Investor, The year 2008-09 has been one of the toughest ones for the markets and the mutual fund industry, wherein the equity markets touched new lows after peaking. A lot of factors were responsible for this, including the global crisis. The markets witnessed a major downfall in October 2008, and later recovered slightly, towards the end of the financial year. We appreciate the patience shown by our investors who did not panic but stayed invested with a long term horizon. I am happy to share with you that we continue to increase our investor base and over 57 lakh investors have shown trust in SBI Mutual Fund. Enclosed is the annual report for the year 2008-09 for your perusal. While our Assets under Management (AuM) stood at Rs. 26382.68 crores as on 318t March 2009 (Source: http://www.amfiindia.com), we “have managed to win the trust and faith of over 57 lakhs investors, with our consistent performance. And a testimony to this is in the form of various awards that we have won during the year. SBI Mutual Fund has been voted as the ‘Best Equity Fund-House Runner Up1 in the country, by Outlook Money - NDTV Profit Awards 2008. Moreover, SBI Mutual Fund has won many other prestigious awards for scheme performance during the year. SBI Mutual Fund launched SBI Gold Exchange Traded Scheme (SBI GETS) in March 2009 and offered a new asset class for investors. Gold has been one of the traditional investment avenues and an asset class which has always seen huge interest from investors. Now investors can invest in gold with ease and convenience, and at the same time, have liquidity through stock exchange. It will be our endeavour to introduce innovative products in line with our investors’ financial requirements. I assure you that we shall continue to maintain high standards of investment performance in the future, too. It has always been our endeavour to help our investors achieve their financial dreams, and one of the tools to ensure that an investor stays on course with his/her dreams, is by investing through a Systematic Investment Plan (SIP) in some of our award winning schemes like Magnum Contra Fund, Magnum Taxgain Scheme, Magnum Balanced Fund and Magnum Multiplier Plus Scheme, just to name a few. Lastly, I would also like to assure you of our commitment to provide unparalleled service to our investors and cater to your information, investment and servicing needs. Please feel free to call at our dedicated customer care numbers, 1 -800-425-5425 and 080-26599420, from Monday to Saturday (8am-10pm) or write to us at [email protected] with your queries. Alterna- tively, you can also visit your nearest Investor Service Centre / Investor Service Desk for any assistance. We are also constantly increasing our service network by opening new Investor Service Centres and Investor Service Desks to service our valued investors better. We have also been adding more distributors, thereby strengthening our distribution network to offer our award- winning products through them. I am more than confident that your trust and faith in us will earn rich dividends for you in the future. Warm regards, Achal Kumar Gupta Managing Director Annual Report 2008-09 1 MAGNUM TAXGAIN SCHEME REPORT OF THE BOARD OF DIRECTORS OF SBI MUTUAL FUND TRUSTEE COMPANY PRIVATE LIMITED FOR THE YEAR 2008-09 The Directors of SBI Mutual Fund Trustee Company Private Limited have pleasure in presenting the Audited Accounts in respect of the schemes of SBI Mutual Fund for the year ended 31st March 2009. The scheme wise financial statements for the year 2008-09, are enclosed with the report of the auditors. The significant accounting policies through which the financial statements of the schemes are drawn up and the explanatory notes to accounts of each of the schemes are also attached. The financial statements have been prepared as per the SEBI (Mutual Fund) Regulations 1996, in the manner required and exhibit true and fair view of the operating results. THE ECONOMY The Indian economy managed 6.7 per cent economic growth in 2008-09 despite the manufacturing sector recording a dismal performance. A 5.8 per cent growth rate during the last quarter of the fiscal, at a time when most developed economies have shrunk, puts India among the top-most growing nations. The growth rate during 2008-09 is lower than the nine per cent in the preceding fiscal, but not as low as expected by certain analysts and quite in the range projected by the RBI: 6.5-7 per cent. However, manufacturing growth turned negative at 1.4 per cent in the fourth quarter, pulling down Q4 GDP growth to 5.8 per cent from 8.6 per cent during the corresponding period of the previous year. GDP growth in the third quarter of 2008-09 has been revised to 5.8 per cent from 5.3 per cent estimated provisionally. Agriculture posted 1.6 per cent growth in 2008-09 against 4.9 per cent in 2007-08, even as it bettered performance in the fourth quarter of the last fiscal to 2.7 per cent against 2.2 per cent in the same period in the previous fiscal. The Central Statistical Organisation had pegged GDP growth at 7.1 per cent for 2008-09 in its advance estimates. The downward revision in the GDP growth rate is mainly on account of lower than anticipated performance in almost all the sectors excluding construction and community, social and personal services. CAPITAL MARKETS 2008-09 was a difficult year for the stock markets worldwide. The global financial crisis, which began in 2007 took a turn for the worse in September 2008, with the collapse of several international financial institutions, including investment banks, mortgage lenders and insurance companies leading to a global crash in stock markets. The slowdown intensified with the US, Europe and Japan sliding into recession. The Bombay Stock Exchange (BSE) Sensex fell from 15,644 as at the end of March 2008 to 9,708 as at the end of March, 2009, while the National Stock Exchange (NSE) index Nifty 50 fell from 4,735 to 3,021 during the same period. The markets ramined volatile throughout the year. However, towards the end of the year, the negative sentiment prevailing globally seemed to be waning with investors expecting that low interest rates, stimulus plans and banking bail-outs would lead to a recovery in the world economy. In India, the economy seemed to be getting back into a growth path with major sectors such as cement, steel, automobiles and tourism showing recovery. The year saw negative FII flows, with net sales of equities worth USD 11.8 bn (Previous Year USD 12.9 bn). The domestic mutual funds, however, net bought equities worth Rs. 6,984 crore (Previous Year Rs 13,685 crore) during the year. MUTUAL FUND INDUSTRY During the year, the following important developments took place in the Mutual Fund Industry: a) The filing fee & Registration fee payable by mutual funds were revised. b) SEBI enhanced the aggregate ceiling for overseas investment to US $ 7 billion. c) Notification on Real Estate Mutual Fund Schemes and Initial Issue Expenses was issued. d) The formats of Standard Offer Document and Key Information Memorandum were revised. e) Existing mutual fund schemes were allowed to engage in short selling of securities as well as lending and borrowing of securities after making additional disclosures including risk factors in the Scheme Information Document. f) SEBI clarified that the SEBI circular no. SEBI/IMD/CIR No.1/91171/07 dated April 16, 2007 shall not apply to term deposits placed as margins for trading in cash and derivatives market. g) E-mailing of Abridged Scheme-wise Annual Reports was permitted, if so mandated. h) Valuation procedure of Debt securities was revised. i) In respect of purchase of units in Income/ Debt oriented schemes (other than liquid fund schemes and plans) with amount equal to or more than Rs. 1 crore, irrespective of the time of receipt of application, the closing NAV of the day on which the funds are available for utilization was made applicable. j) In case of Close Ended Schemes (except Equity Linked Savings Schemes) to be launched on or after December 12, 2008, (i) Mandatory listing was introduced; (ii) Listing fee was made a permissible expense to be charged under Regulation 52(4); (iii) Trustees are to ensure that before launch of the scheme the in-principle approval for listing has been obtained from the stock exchange(s) and appropriate disclosures are made in the Scheme Information Document; (iv) NAV to be computed and published on daily basis; (v) Close ended debt scheme shall invest only in such securities which mature on or before the date of the maturity of the scheme. k) In case of liquid schemes, the tenure of the securities held in the portfolio from the one year was reduced and SEBI directed to discontinue the nomenclature of “Liquid Plus Scheme” since it gives a wrong impression of added liquidity. l) SEBI also decided that the Mutual Funds shall not offer/communicate any indicative portfolio and indicative yield. m) Monthly Portfolio disclosure norms were introduced for debt oriented close-ended and interval schemes/plans. During the year, the total resources mobilised by the mutual fund industry stood at Rs 54,26,353 crore (Previous year Rs. 44,64,376 crore) while the total repurchase/redemption amount was Rs. 54,54,649 crore (Previous year Rs.