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Title: |
Additional Information |
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Entities: |
Permanent Portfolio Family of Funds Inc; Federal National Mortgage Association; U.S. Bancorp |
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Date: |
2003 |
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Preview shows 22KB of 134KB total |
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$65 |
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ID: |
#2421826 |
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STATEMENT OF May 31, 2003
ADDITIONAL
INFORMATION
PERMANENT PORTFOLIO FAMILY OF FUNDS, INC.
600 Montgomery Street, 27th Floor San Francisco, California 94111
This Statement of Additional Information (the SAI) of Permanent Portfolio Family of Funds, Inc. (the Fund) is not a prospectus and should be read in conjunction with the Funds Prospectus dated May 31, 2003 (the Prospectus). The Prospectus and the Funds Annual Report to Shareholders for the year ended January 31, 2003, both of which are incorporated by reference herein, may be obtained without charge, upon request by calling the Shareholder Services Office, toll free, at (800) 531-5142, or by writing to the Shareholder Services Office, P.O. Box 5847, Austin, Texas 78763.
The Funds Permanent Portfolio reserves a limited right to redeem its shares in kind in certain circumstances, as explained herein under the heading REDEMPTION OF SHARES BY THE FUND - IN-KIND REDEMPTIONS.
OBJECTIVES AND POLICIES.......................................................1
The Four Portfolios.......................................................1
Investment Strategy.......................................................1
Permanent Portfolio...................................................1
Treasury Bill Portfolio...............................................2
Versatile Bond Portfolio..............................................2
Aggressive Growth Portfolio...........................................3
Investment Categories.....................................................4
Illiquid Investments......................................................6
Offsetting and Indirect Investments.......................................7
Strategic Portfolio Adjustments..........................................13
Investment Restrictions..................................................13
ORGANIZATION AND MANAGEMENT..................................................15
Fund History.............................................................15
Investment Adviser.......................................................15
Board of Directors.......................................................16
Standing Committees of the Board of Directors............................18
Code of Ethics...........................................................18
Share Ownership of Directors and Officers................................18
Share Ownership..........................................................18
Compensation.............................................................18
CONSULTANTS..................................................................19
DISTRIBUTIONS AND TAXES......................................................19
Foreign Taxes............................................................20
COMPUTATION OF NET ASSET VALUES..............................................20
PURCHASE OF SHARES FROM THE FUND.............................................21
REDEMPTION OF SHARES BY THE FUND.............................................22
Redemption Limitations...................................................22
In-Kind Redemptions......................................................22
In-Kind Redemption Requests..............................................23
Tax Consequences of In-Kind Redemptions..................................24
DISTRIBUTOR..................................................................24
PORTFOLIO TRANSACTIONS AND BROKERAGE.........................................24
TRANSFER AND DIVIDEND-DISBURSING AGENT.......................................25
CUSTODIAN....................................................................25
GENERAL INFORMATION..........................................................26
Capitalization...........................................................26
Regulatory Matters.......................................................26
Income Equalization Accounting...........................................26
Calculations of Performance Data.........................................26
After-Tax Returns........................................................28
FINANCIAL STATEMENTS.........................................................29
OBJECTIVES AND POLICIES
The Four Portfolios
The Fund has four separate portfolios (the Portfolios), the Permanent Portfolio, the Treasury Bill Portfolio, the Versatile Bond Portfolio and the Aggressive Growth Portfolio.
The Permanent Portfolio invests a fixed Target Percentage of its net assets in gold, silver, Swiss franc assets, stocks of real estate and natural resource companies, aggressive growth stocks and dollar assets such as U.S. Treasury bills, notes and bonds. The Permanent Portfolios objective is to preserve and increase the purchasing power value of its shares over the long term.
The Treasury Bill Portfolio invests in short-term U.S. Treasury bills, and may also invest in U.S. Treasury bonds and notes having a remaining maturity of thirteen months or less. The Portfolios objective is to earn high current income for the Portfolio, consistent with safety of principal.
The Versatile Bond Portfolio invests in a diversified portfolio of short-term corporate bonds rated A or higher by Standard & Poors. The Portfolios objective is to earn high current income for the Portfolio, while limiting risk to principal.
The Aggressive Growth Portfolio invests in U.S. stock market investments selected for high profit potential. The Aggressive Growth Portfolios objective is to achieve high, long-term appreciation in the value of its shares.
Solely for the purpose of holding overnight cash balances (but not for investment purposes), the Fund may hold investments up to 7 days in short-term U.S. Treasury securities or repurchase agreements with commercial banks and securities broker-dealers, in amounts ordinarily not to exceed 3% of the Funds net assets, or 4% if the repurchase agreement is entered into with the Funds Custodian, State Street Bank and Trust Company.
Investment Strategy
Permanent Portfolio
The Permanent Portfolios investment policies reflect the opinion of the Funds management that it is impossible to forecast inflation rates or other economic events with a high degree of reliability and that only investors who are willing to embrace a high degree of risk should act on such forecasts. An investment vehicle such as the Permanent Portfolio, whose goals include the preservation of purchasing power, should acknowledge a broad range of economic possibilities and, in order to preserve purchasing power over the long term, should incorporate investments for each of them. In the opinion of the Funds management, economic possibilities for the future are limited to the following:
| 1. | Rising inflation. From 1960 through 1980 the rate of inflation generally, with intermittent pauses and reversals, rose. The inflation rate generally fell from 1980 through 2002. The Funds management believes that if the pattern of rising inflation resumes, the investments most likely to appreciate would include gold, silver, Swiss franc assets and interests in real estate and natural resources. Gold, silver, real estate and natural resources tend to be profitable during periods of rising inflation because inflation and the fear of further inflation add to investor demand for assets whose values are not denominated in a fiat (non-convertible) currency. Swiss franc assets tend to appreciate during periods of rising inflation because, although the Swiss franc is a fiat currency, the Swiss government traditionally has acted with a high degree of restraint in permitting the issuance of new currency. Such restraint is generally taken to indicate that a currency will preserve its purchasing power. If the rate of inflation does rise, the prices of common stocks (other than those of real estate and natural resource companies) and, more especially, of dollar assets, are likely to decline. |
| 2. | Abruptly-slowing inflation. Most periods of extended inflation in U.S. history have been followed by abrupt declines in the rate of inflation and, in many cases, by deflation. The Funds management believes that if inflation should decline abruptly (or deteriorate into a deflation), the investments most likely to appreciate would include previously issued dollar assets such as U.S. Treasury securities, since interest rates on newly issued dollar investments of these types tend to decline during periods of declining inflation, thus increasing the value of previously issued securities. If the rate of inflation does decline abruptly, it is likely that gold, silver, Swiss franc assets and most common stocks would decline in value. |
| 3. | Gradually-slowing inflation. In the event that the rate of inflation declines slowly (a soft landing) and the economy escapes the trauma that has followed most inflations, the Funds management believes that common stocks would be among the investments most likely to appreciate. The results for stock market issues that tend to rise and fall to a greater degree than the stock market as a whole (the types of issues that the Funds management attempts to identify and include in the Permanent Portfolios investment portfolio as aggressive growth stocks) would be especially favorable. In the opinion of the Funds management, common stocks tend to appreciate during periods of gradually declining inflation because the effective rate of taxation faced by most operating businesses declines in step with the inflation rate (due to the interaction between inflation and the depreciation allowances provided for under the Internal Revenue Code), and because the occurrence of a soft landing indicates that the economy will not suffer the disruption associated with an abrupt decline in inflation. If the rate of inflation does decline gradually, it is likely that gold, Swiss franc assets and the stocks of real estate and natural resource companies would decline in value. |
The Permanent Portfolio attempts to achieve its objective by maintaining a combination of investments whose purchasing power as a whole should hold steady or increase in the variety of economic circumstances listed above. The Funds management is able to make no assessment as to the current state of the economy and has no opinion as to the occurrence of any particular economic possibility for the future.
As indicated above, the Permanent Portfolios investments include gold, silver, Swiss franc assets, various stock market issues and dollar assets. The investment categories were selected and the Target Percentages assigned in accordance with the Funds managements opinion of the volatility of the investments, and their past and anticipated future performances in varying economic circumstances. Of course, the Fund has no control over the manner in which particular investments respond to changes in economic conditions. For example, even in an inflationary climate there may be large-volume sellers of gold or silver whose actions would tend to depress the prices of those commodities.
Treasury Bill Portfolio
The Treasury Bill Portfolios investment policies reflect the opinion of the Funds management that among investors primary goals for their cash holdings are safety and liquidity plus, when possible, a way to reduce the tax burden on the income that cash can earn on money market investments. The Treasury Bill Portfolio was designed for investors who wish to avoid the risk of large price declines that can occur in the stock and bond markets and who may be concerned about the safety of banks, savings institutions and other money market funds, but who desire tax planning and check-writing privileges. The Treasury Bill Portfolio therefore invests only in U.S. Treasury securities and at least 80% of its assets in short-term U.S. Treasury bills and notes. The Treasury Bill Portfolio also provides those shareholder services described in the Prospectus under the heading Shareholder Account Services and Privileges, and follows the dividend and tax-planning policies described in the Prospectus under Objectives and Policies and Distributions and Taxes.
Versatile Bond Portfolio
The Versatile Bond Portfolios investment policies reflect the opinion of the Funds management that short-term (24 months or less), investment-grade (Standard & Poors ratings of A or higher) corporate bonds historically have provided high returns and their price fluctuations ordinarily are mild. Constructing a portfolio from such bonds can be a formula for achieving high current income without bearing the serious risks of buying junk bonds or long-term corporate, municipal or U.S. Treasury bonds. The Versatile Bond Portfolio therefore ordinarily invests at least 80% of its assets in such corporate bonds. In addition, the Versatile Bond Portfolio follows the same dividend and tax-planning policies as the Funds other Portfolios. The Versatile Bond Portfolio may purchase U.S. Treasury securities with remaining maturities of two years or less for temporary cash holdings.
Aggressive Growth Portfolio
The Aggressive Growth Portfolios investment policies reflect the opinion of the Funds management that the stock market has been the most successful long-term investment since 1926, and that an investor seeking to construct his own investment portfolio should include an investment whose profitability is linked directly to the stock market. The Funds management believes that stocks have been the most successful long-term investment because stocks represent ownership in the engines of wealth - factories, mines, airlines, telephone systems, research laboratories, publishing companies, financial service organizations and other productive enterprises - that turn out the goods and services people need and want. Stock market investments have earned the best profits because they feed capital to these engines of wealth, making them even more productive.
Stock market investors, however, need caution. While the stock markets total return has been high, it has not been smooth or steady. Most stocks are riskier than bonds or money market instruments; and, unlike gold, stocks are vulnerable to inflation. And there is no guarantee that the economic growth that underlies long-term stock market profits will continue in the future, which is one reason a prudent investor should carefully consider how much of his capital to invest in stocks. Stocks are tightly linked to the real world of production and commerce, and any shock in the economy (inflation, recession, political turmoil, bad news of any kind) can translate into a shock for the stock market. For an investor who holds only a limited portion of his investment portfolio in stocks, the Funds management believes that the stocks that the investor holds should be volatile, the kinds of stocks whose prices move faster and farther than the stock market as a whole. In addition, volatile stocks can reduce such an investors portfolios overall risk by minimizing the share of his portfolio that needs to be devoted to stocks. With less of his overall portfolio allocated to stocks, the investor is less vulnerable to any single economic event - such as inflation, deflation, or recession - that might be disastrous for the stock market as a whole.
The Aggressive Growth Portfolio invests in U.S. companies whose stocks have been selected for their high, long-term appreciation potential (higher than for the stock market as a whole). With such a selection, when the stock market as a whole rises, the value of shares in the Aggressive Growth Portfolio should rise more. Of course, no selection of stocks can be guaranteed to outrun a rising market. While the Aggressive Growth Portfolios stocks involve more risk than the average stock, especially when the stock market as a whole is declining, they also offer greater potential reward. During bull markets in stocks, volatile stocks can put the investor on the fast track to high stock market prices because, in the opinion of the Funds management, stocks in general typically gain much more during periods when the stock market as a whole is rising than they lose during periods that follow when the stock market as a whole is declining. Therefore, the Funds management believes that in the long term, volatile stocks should outperform other stocks.
The Aggressive Growth Portfolio is fully invested in the stock market at all times. It does not take on the unnecessary risks that come with attempts to switch in and out of the market. Its fully-invested policy assures that it will not miss out on a bull market in stocks because it has mistakenly decided to sit on the sidelines. And the Aggressive Growth Portfolio follows the same dividend and tax-planning policies as the Funds other Portfolios.
Investors in the following circumstances may find that the Aggressive Growth Portfolio can help to achieve their objectives. An investor who has only recently begun investing and has many earning years ahead of him may be willing to bear short-term risks for his capital, in order to maximize long-term appreciation. An investor whose wealth is mostly tied up in real estate, annuities, life insurance, pension plans or trusts may desire to use any cash available for a stock market investment in a way that is most effective. An investor who owns high-yielding stocks (those that pay high taxable dividends) may improve his after-tax return by replacing the high-yielding issues with shares in the Aggressive Growth Portfolio. Although this may tend to increase the short-term volatility of his stock market holdings, the Portfolios tax planning could permit more of his stock market profits to be retained, instead of being lost to current taxes, so that his capital may grow faster. And an investor who is interested in short-term stock trading may acquire shares in the Portfolio whenever he believes the time is right to invest in stocks, knowing that the Portfolio is always fully invested in stocks and being able to take advantage of the fact that the Portfolio invests only in volatile stocks. Thereby he can maintain a larger position in the stock market without risking too much of his speculative budget.
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