As I begin to pen my thoughts on the year that was and how we visualize
 the road ahead, my eye catches the stock ticker, which points to the
 Sensex being down by over 350 points today. A day in the market may not
 be symptomatic of the state of our economy and markets could tomorrow
 have recovered as much as they lost today.  However, the behavior of
 the public markets over the last 6-8 months does represent the degree
 of uncertainty prevalent globally. Mixed economic data from the United
 States nearly bankrupt headlines from Europe, and inflation concerns
 in Asia - the news flow is uncertain at best, a precursorto a double
 dip at worst
 
 Here in India, we have been able to deliver high growth in the second
 half of the last decade and even with a scaled down version we are
 likely to attain growth north of 7.5-8% this year. However, impressive
 as it may sound, we will not stand immune to the pain of a global
 slowdown. Last week, the Reserve Bank of India increased interest rates
 by 25 basis points, the 10* increase in just over a year. Foreign
 Direct Investment has also slowed by as much as a third during the
 first 9 months of FY2011 compared to the previous year. Add to this a
 persistently high inflation and Indias own local issues like the 2G
 controversy, uncertainty becomes a natural outcome
 
 It is against this backdrop that the robustness of MM Us business model
 stands out. IIMLs business has two unique drivers - on one side
 management fee from the Funds under management provides revenues akin
 to an annuity. On the other hand, income by way of Carried Interest
 arises from investment / fund performance. While Carried Interest does
 arise episodically, it has the potential of providing additional
 profits. We expect Carried Interest from one of our 2004 vintage Funds
 (Leverage India Fund) to start accruing by the end of this financial
 year. Thus, akin to the investment philosophy of our Funds, your
 Companys financial performance and its translation into shareholders
 rewards also requires patient nurturing and investing
 
 While the teams focus remains with identifying, guiding and growing
 investee companies, we remain focused on the need to grow our Assets
 under Management (AUM) Towards this end we initiated roadshows for 3
 new Funds during the last quarter of FY2011. Given the prevalent
 investment climate, we do expect a longer lead time in Fund marketing
 and Closings. However, backed by our Fund management experience and
 deep relationships with our Fund investors, we expect these new Fund
 raises to gain significant traction during the current year, with some
 of these Funds attaining Closings during FY2012 itself
 
 During the last year, another significant achievement has been our
 ability to divest from or attain liquidity in many of our investments.
 We effected 15 divestments during the year, thereby returning US$ 221
 mn capital to our Fund investors. We expect the pace of divestments
 from the older vintage Funds to continue This would lead to lower
 earning AUM. However, this reduction is expected to be largely offset
 by increased AUM from Closings of new Funds. Thus while the net impact
 on AUM growth during this year would be neutral, these divestments
 would bring us closer to the performance upside of Carried Interest
 
 During the last two years, we also undertook two important steps to
 seed future growth; first, we operationalized our Dubai office in order
 to capture expansion in non-India jurisdictions. Second, we set an
 industny trend when Saffron Asset Advisors merged with IIML, providing
 us with an inorganic AUM growth. Apart from size, the merger also helps
 us gain competence and enables us to develop a new breed of funds.
 Going forward, the key to future growth would be to leverage IL&FS
 skillsets for enhancing the infrastructure focus, by raising a variety
 of funds catering to each aspect of infrastructure development. These
 strategic initiatives are expected to show results in the next couple
 of years
 
 We believe that these initiatives reinforce our ability as a Fund
 manager and are key building blocks to success. We believe that we have
 strong foundations for delivering growth woven into our corporate DNA-
 innovation integrity and institutional parentage backed by people,
 partners and processes. We believe that we have been able to leverage
 off these foundations for delivering performance in the past and that
 the road ahead is promising. We thankyou for being our partner in this
 journey
 
 With Best Wishes
 
 Dr.ArchanaHingorani
 
 Chief Executive Officer & Executive Director
 
 June 20, 2011