ESCORTS MUTUAL FUND

We are pleased to present the Eleventh Annual Report of Escorts Mutual Fund for the year ended March 31, 2007.

As per figures available with the Association of Mutual Funds in India (AMFI), as on 31^st March, 2007 the total assets under management in the mutual fund industry were Rs. 3,26,388 Crores. On the performance side, while the Equity Schemes gave competitive returns, the Income Schemes remained generally depressed.

The Finance Act, 2007 has amended Clause 2 Section 115 R of the Income-tax Act 1961so as to read as follows:

Any amount of income distributed by a Mutual Fund to its unitholders shall be chargeable to tax and such Mutual Fund shall be liable to pay additional income tax –

(ii) 12½% on income distributed to any person being an individual or a Hindu undivided family by a fund other than a money market mutual fund or a liquid fund;

(iii) 20% on income distributed to any other person by a fund other than a money market mutual fund or a liquid fund.

The Financial Year 2006-2007 has been a very good play for investors in equity markets. Large FII inflows of Rs. 25,235.50 led to strong economic growth where GDP growth rate was 9.30% as against 9.00% in the previous fiscal. The Sensex touched a high of 14723.88 on 9^th February, 2007 while S&P Nifty reached a high of 4245.30 on 8^th February, 2007. However, there were two major corrections in the markets in the months of May 2006 and February 2007 by 30% and 16% respectively, which was a major reason for low returns of mutual funds. The corporate earnings grew by 35% in 2006-07.The market capitalization was 33,67,350 Crores, FDI was $16bn and exports surged to US$125bn, near doubling in 3 years.

During the financial year 2006-2007, the bond market was volatile. There were concerns before RBI like acceleration in credit growth, high liquidity due to FII’s inflow, asset pricing and inflation. RBI, in its monetary policy for 2006-07 has increased the repo rate by 50bp to 7.00% and reverse repo rate by 25bp to 6.00%, respectively. During the year the corporate sector mobilized large sum of approx. Rs. 92,355 Crores by way of private placements. Yields on GoI Securities increased across the entire maturity spectrum due to pressure arising out of high level of sovereign borrowing and upward stance on short term interest rates and inflationary pressure.

Year in retrospect and Performance of the Schemes

During the year ended 31^st March, 2007 Escorts Mutual Fund launched one new scheme – Escorts High Yield Equity Plan. It managed all the ten open ended schemes successfully. Escorts Income Plan, Escorts Income Bond and Escorts Floating Rate Fund are Debt oriented schemes; Escorts Tax Plan, Escorts Growth Plan and Escorts High Yield Equity Plan are Equity oriented schemes; Escorts Balanced Fund and Escorts Opportunities Fund are balanced schemes, Escorts Gilt Plan is a gilt oriented scheme and Escorts Liquid Plan is a money market scheme.

Escorts Income Bond, an open ended income scheme has the investment objective to generate current income by investing predominantly in a well - diversified portfolio of Fixed Income securities with moderate risk levels. The scheme has provided a good return of 6.00% during the year as against the 3.72% of benchmark index.

Escorts Income Plan, an open ended scheme, has the investment objective to generate current income by investing predominantly in a well-diversified portfolio of Fixed Income securities with moderate risk levels. It provided a return of 4.74% during the year as against the 3.72% of benchmark index and paid an uninterrupted and regular monthly Dividend aggregating to 4.20% (net of Dividend Tax) for the financial year.

Escorts Tax Plan, an open-ended Equity Linked Savings Scheme, has the investment objective to generate capital appreciation by investing predominantly in a well-diversified portfolio of Equity Shares with growth potential. It provided a return of 4.84% during the year and declared a dividend of 25%.

Escorts Opportunities Fund, an open ended Scheme has the investment objective to generate long term capital appreciation by predominantly moving investments in a portfolio of equity and equity related securities amongst different sectors, present or future, expected to show high earnings such as Technology Sector, Media Sector, Entertainment Sector, Communications Sector, FMCG Sector, Pharmaceuticals Sector, Cyclical Sector, Real Estate Sector, Space Sector, Cybercity Sector etc. However, we are in the process of changing its investment objective so as to take advantage of the opportunities in equity shares as well as in fixed income securities, moving the investments between the two segments according to available opportunities. The scheme has paid monthly dividends aggregating to 18% (net of Dividend Tax) for the year.

Escorts Balanced Fund, an open-ended scheme, has the investment objective to generate long term capital appreciation and current income from a portfolio of equity & fixed-income securities. It provided a return of 3.92% during the year and declared 20% dividend during the year.

Escorts Growth Plan, an open-ended growth scheme, has the investment objective to generate capital appreciation by investing predominantly in a well-diversified portfolio of Equity Shares with growth potential. The scheme declared 30% dividend during the year.

Escorts Gilt Plan, an open-ended income scheme, has the investment objective of generation of income and capital appreciation through investments in government securities market. The aim is to generate returns commensurate with minimal credit risk by investing in securities created and issued by the Central Government and / or a State Government and / or repos / reverse repos in such government securities as may be permitted by RBI. The Scheme has provided a return of 3.85% during the year.

Escorts Liquid Plan, an open ended liquid scheme has the investment objective to provide income and liquidity consistent with the prudent risk from a portfolio comprising of money market and debt instruments. This income may be complemented by possible capital appreciation. The aim is to optimise returns while providing liquidity. The Scheme has provided a return of 6.29% during the year.

Escorts Floating Rate Fund, an open ended income scheme has the investment objective to generate regular income through investment in a portfolio comprising substantially of Floating Rate Debt Securities (including floating rate securitised debt, Money Market Instruments and Fixed Rate Debt Instruments swapped for floating rate returns). The scheme shall also invest in Fixed rate debt Securities (including fixed rate securitised debt, Money Market Instruments and Floating Rate Debt Instruments swapped for fixed returns). The Scheme has provided a return of 5.14% during the year.

Escorts High Yield Equity Plan, an open ended growth scheme has the investment objective to generate income by investing predominantly in well diversified portfolio of equity stocks providing high dividend yield but at the same time capture long term capital appreciation as and when the opportunity arises. This long term style of investment tries to locate, in a disciplined manner, shares, which for a variety of reasons are selling at prices which are substantially lower than the company’s actual business value or future earnings potential, and are also yielding a higher than normal dividend yield. The scheme was launched on 20.11.2006.

Escorts Mutual Fund was registered with the Securities and Exchange Board of India ('SEBI') on 3^rd July, 1996 vide registration no. MF/028/96/4. The objectives of the Mutual Fund, inter alia, include contribution to the development of the capital market and providing facilities for participation by holders of Units of the Mutual Fund in the profit or income arising therefrom.

The enclosed audited accounts of the Mutual Fund Schemes provide, in our view, an adequate disclosure of its affairs during the period under review. In addition, we state that:

· The liabilities and responsibilities of the Sponsor (Escorts Finance Limited) and the Trustee (Escorts Investment Trust Ltd.) are clearly delineated in the Trust Deed dated 15^th April, 1996. The Sponsor is not responsible or liable for any loss resulting from the operation of the schemes beyond the initial contribution made by it of an amount of Rs. One Lac only towards setting up of the mutual fund.

· The portfolio of investments of Escorts Income Bond, Escorts Income Plan, Escorts Tax Plan, Escorts Opportunities Fund, Escorts Balanced Fund, Escorts Growth Plan, Escorts Gilt Plan, Escorts Liquid Plan, Escorts Floating Rate Fund and Escorts High Yield Equity Plan Mutual Fund Schemes has been fully disclosed in the enclosed accounts. It is apparent that the Asset Management Company has sought to diversify risk across various industries and has selected the non-sovereign investments based on rigorous credit appraisal backed by ratings provided by independent credit rating agencies. The portfolio management of Escorts Tax Plan, Escorts Growth Plan and Escorts High Yield Equity Plan follow a diversified approach and use the declines in the markets to enhance exposure to quality stocks across sectors.

· Since the schemes permit investments, partly or wholly in shares, bonds, debentures and other scrips or securities whose values can fluctuate, the price and redemption value of the units, and income from them, can go up as well as down with the fluctuations in the markets value of its underlying investments.

· On a written request, present and prospective unitholders / investors can obtain a copy of the trust deed, the annual report of the schemes, the annual report of the asset management company (Escorts Asset Management Limited) and the text of the relevant schemes.

The Trustees wish to place on record their grateful thanks to the Unitholders for their continued support and to the Securities and Exchange Board of India, Reserve Bank of India, the Bankers and Custodians of Escorts Mutual Fund for the support provided during the year.

Disclosure pursuant to SEBI Circular No. MFD/CIR/9/120/2000, dated 24-11-2000 regarding details of unclaimed redemption and dividend and number of such investors for each scheme is as follows :

Statutory Details : Escorts Mutual Fund has been constituted as a Trust under the Indian Trust Act, 1882 with Escorts Finance Ltd. As its sponsor/settlor and Escorts Investment Trust Ltd. As its sole Trustee. Escorts Asset Management Ltd. has been incorporated under the provisions of the companies Act, 1956 and has been appointed as the investment manager of Escorts Mutual Fund. On written request, present and prospective unitholders / investors can obtain copy of the Trust Deed, the Annual Report at a price and text of the relevant scheme. Risk Factors : All Mutual Funds and securities investments are subject to market risks and there is no assurance and no guarantee that the Fund's objectives will be achieved. As with any investment in stocks and shares, the Net Asset Value (NAV) of the Units issued under the Schemes can go up or down depending on the factors and forces affecting the capital markets such as price and volume volatility in stock markets, interest rates, currency exchange rates, change in Government policies, taxation, political or economic developments and closure of stock exchanges, liquidity and settlement systems in equity and debt markets. Past performance of the Sponsor / Asset Management Company / Mutual Fund does not guarantee the future performance of the schemes of the Mutual Fund. Escorts Income Bond, Escorts Income Plan, Escorts Tax Plan, Escorts Opportunities Fund, Escorts Balanced Fund, Escorts Gilt Plan, Escorts Growth PLAN, Escorts Liquid Plan, Escorts Floating Rate Fund and Escorts High Yield Equity Plan are only the names of the Schemes and do not in any manner indicate either the quality of the Scheme or its future prospects and returns. Please read the Offer Documents before investing. The Annual Report shall be available to the Unitholders of the Schemes, for inspection at the Head Office of the Mutual Funds and if so required, on written request, present and prospective unitholders/investors can obtain a copy of the Trust deed, annual report at a price as may be specified by the Mutual Fund and the text of the relevant schemes. Loads : Escorts Income Plan - The scheme has no Entry Load. Under Option A the Minimum application amount is Rs. 1,000 /- and the Exit Load is as follows : For withdrawals made within 0-3 months applicable CDSL is 0.75%; for withdrawals made within 3-6 months applicable CDSL is 0.50%; for withdrawals made within 6 - 9 months applicable CDSL is 0.25%; for withdrawals made after 9 months, there is no CDSL. Under Option B :- Minimum application amount is Rs. 10,000/- and there is no Exit Load. Escorts Opportunities Fund - Under Option A the Scheme has an Entry Load of 1.00% and Minimum application amount is Rs. 1,000/-. Further, the Exit Load is as follows ::- For withdrawals made within 0 -3 months applicable CDSL is 0.75%; for withdrawals made within 3 - 6 months applicable CDSL is 0.50%; for withdrawals made within 6 - 9 months applicable CDSL is 0.25%; for withdrawals made after 9 months, there is no CDSL. Under Option B there is no Entry Load and Minimum application amount is Rs. 10,000/-. There is no Exit Load. Escorts Tax Plan - The Scheme has an Entry Load of 2.25%. There is no Exit Load. Escorts Balanced Fund - The Scheme has an Entry Load of 2.25%. There is no Exit Load. Escorts Growth PLAN - The Scheme has an Entry Load of Rs. 2.25%. There is no Exit Load. Escorts Gilt Plan – The scheme has no Entry Load. Under Option A the Minimum application amount is Rs. 1,000 /- and the Exit Load is as follows : For withdrawals made within 0-3 months applicable CDSL is 0.75%; for withdrawals made within 3-6 months applicable CDSL is 0.50%; for withdrawals made within 6 - 9 months applicable CDSL is 0.25%; for withdrawals made after 9 months, there is no CDSL. Under Option B :- Minimum application amount is Rs. 10,000/- and there is no Exit Load. Escorts High Yield Equity Plan - The Scheme has an Entry Load of 2.25%. There is no Exit Load.

As on 31.03.2007	Unclaimed redemption amount (Rs.)	Number of investors	Unclaimed dividend amount (Rs.)	Number of investors
Escorts Income Bond	2,219.88	2	17,172.88	12
Escorts Income Plan	46,582.09	22	2,735.59	16
Escorts Tax Plan	24,417.39	3	0	0
Escorts Opportunities Fund	10,721.20	2	7,976.50	29
Escorts Growth PLAN	69,362.83	3	27.48	16
Escorts Gilt Plan	0	0	0	0
Escorts Balanced Fund	4,641.5	5	8.20	6
Escorts Liquid Plan	0	0	0	0
Escorts Floating Rate Fund	0	0	0	0
Escorts High Yield Equity Plan	0	0	0	0

Tel : (011) 23321654, 23319991, 23325177 Fax : (91) 11 23761495

Report of the Trustees to the Unit Holders

Year in retrospect and Performance of the Schemes