1933 Act File No.: 2-93131
1940 Act File No.: 811-4044
Securities and Exchange Commission
Washington, DC 20549
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Form N-1A
REGISTRATION UNDER THE SECURITIES ACT OF 1933
Post Effective Amendment No. 13
and/or
REGISTRATION UNDER THE INVESTMENT ACT OF 1940
Amendment No. 15
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THE PARNASSUS FUND
(Exact Name of Registrant as Specified in Charter)
One Market - Steuart Tower #1600
San Francisco, CA 94105
(Address of Principal Executive Office)
Registrant's Telephone Number including Area Code: (415) 778-0200
Jerome L. Dodson
One Market - Steuart Tower #1600
San Francisco, CA 94105
(Name and Address of Agent for Service)
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It is proposed that this filing will become effective
On May 1, 1996 pursuant to paragraph (b) of Rule 485
X 60 days after filing pursuant to paragraph (a) of Rule 485
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Issuer has registered an indefinite number of securities under the Securities
Act of 1933 pursuant to Section 270.24f-2 and the Rule 24f-2 notice for issuer's
fiscal year ending December 31, 1995 was filed on February 26, 1996.
<PAGE>
<TABLE>
THE PARNASSUS FUND
Cross Reference Index
<CAPTION>
ITEM REFERENCE
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<S> <C> <C>
Part A. INFORMATION REQUIRED IN A PROSPECTUS
Item 1. Cover Page Cover Page
Item 2. Synopsis; Fee Information Fund Expenses (p.2)
Item 3. Financial Highlights Financial Highlights (p.3)
Item 4. General Description of Registrant Investment Objective (p.4)
Principal Investment Restrictions (p.6);
General Information (p.15)
Item 5. Management of the Fund Management (p.7); The Adviser (p.8)
General Information (p.15)
Item 6. Capital Stock and other Securities Distributions and Taxes (p.13); How to
How to Purchase Shares (p.9)
Management (p.7)
Item 7. Purchase of Securities Being How to Purchase Shares (p.9)
Offered
Item 8. Redemption or Repurchase How to Redeem Shares (p.12)
Item 9. Legal Proceedings None
Part B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 10. Cover Page Cover Page (B-1)
Item 11. Table of Contents Table of Contents (B-1)
Item 12. General Information & History General (B-8)
Item 13. Investment Objective & Policies Investment Objectives & Policies (B-2)
Item 14. Management of the Registrant Management (B-4)
Item 15. Control Person & Principal Holders None
of Securities
Item 16. Investment Advisory & Other The Adviser (B-5)
Services
Item 17. Brokerage Allocation & Other The Adviser (B-5); Portfolio
Practices Transactions and Brokerage (B-5)
Item 18. Capital Stock & Other Securities General (B-8)
Item 19. Purchase, Redemption & Pricing of Net Asset Value (B-6)
Securities Being Offered
Item 20. Tax Status Prospectus (p.13)
Item 21. Underwriters Portfolio Transactions and Brokerage (B-5)
Item 22. Calculation of Performance Data Performance Advertising and Calculation of Total
Return and Yield (B-4); Prospectus
(p.14)
Item 23. Financial Statements Financial Statements (B-8)
</TABLE>
<PAGE>
The Parnassus Fund
PROSPECTUS
MAY 1, 1996
INVESTMENT ADVISER
Parnassus Investments
One Market-Steuart Tower #1600
San Francisco, California 94105
LEGAL COUNSEL
Richard D. Silberman, Esq.
465 California Street #1020
San Francisco, California 94104
AUDITORS
Deloitte & Touche LLP
50 Fremont Street
San Francisco, California 94105
CUSTODIAN
Union Bank of California
475 Sansome Street
San Francisco, California 94111
DISTRIBUTOR
Parnassus Investments
One Market-Steuart Tower #1600
San Francisco, California 94105
<PAGE>
THE PARNASSUS FUND
PROSPECTUS-MAY 1, 1996
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The Parnassus Fund (the "Fund") is a diversified open-end management investment
company, managed by Parnassus Investments (the "Adviser"). The Fund's principal
investment objective is to achieve long-term growth of capital; current income
is a secondary objective. The Adviser chooses the Fund's investments using
social as well as financial criteria. In general, the Adviser will choose
investments that it believes will have a positive social impact.
This Prospectus provides you with the basic information you should know before
investing in the Fund. You should read it and keep it for future reference. A
Statement of Additional Information dated May 1, 1996 containing additional
information about the Fund has been filed with the Securities and Exchange
Commission and is incorporated by reference in this Prospectus in its entirety.
You may obtain a copy of the Statement of Additional Information without charge
by calling or writing the Fund at the address listed above.
TABLE OF CONTENTS
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Fund Expenses 2 How to Purchase Shares 9
Financial Highlights 3 How to Redeem Shares 12
The Legend of Mt. Parnassus 3 Distributions and Taxes 13
Investment Policy 4 Performance Information 14
Principal Investment Restrictions 6 General Information 15
Management 7
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
FUND EXPENSES
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The following table illustrates all expenses and fees that a shareholder of the
Fund will incur.
SHAREHOLDER TRANSACTION EXPENSES
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Maximum Sales Load Imposed on Purchases ................................. 3.5%
Maximum Sales Load Imposed on Reinvested Dividends ...................... None
Redemption Fees.......................................................... None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)*
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Management Fees .......................................................... 0.67%
12b-1 Fees .............................................................. None
Other Operating Expenses .............................................. 0.44%
Transfer Agent & Accounting Fees+............... 0.21%
Shareholder Service Fees ....................... 0.09%
Reports to Shareholders ........................ 0.06%
Total Fund Operating Expenses ............................................ 1.11%
The purpose of this table is to assist the investor in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly. The following example illustrates the expenses that you would pay on
a $1000 investment over various time periods assuming (1) a 5% annual rate of
return and (2) redemption at the end of each time period. As noted in the table
above, the Fund charges no redemption fees of any kind.
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
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$46 $69 $94 $165
<PAGE>
The expenses shown above are cumulative--not ones you pay every year. For
example, the $165 figure for ten years is not the annual expense figure, but the
total cumulative expenses a shareholder would have paid for the entire ten-year
period. This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or lesser than those
shown. For a fuller description of expenses, see pages 8 and 9 of this
prospectus.
From time to time, the Fund may direct brokerage commissions to firms that may
pay certain expenses of the Fund subject to "best execution." This is done only
when brokerage costs are reasonable and the Fund determines that the reduction
of expenses is in the best interest of the shareholders. See page B-7 of the SAI
for more information. Since this happens on an irregular basis, the effect on
the expense ratios cannot be calculated with any degree of certainty.
* All percentages are based on expenses for the fiscal year ended December
31, 1995 except for shareholder service fees which are based on estimates for
1996.
+The Fund will compensate Parnassus Investments for its services as
Transfer Agent and Accounting Agent in the form of fixed fees, which are not
based upon a percentage of the average net assets of the Fund.
<TABLE>
FINANCIAL HIGHLIGHTS
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Selected data for each share of capital stock outstanding and ratios through the
years ended December 31, 1995, 1994, 1993, 1992, 1991, 1990, 1989, 1988, 1987
and 1986 are as follows:
<CAPTION>
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at begining of period $ 32.82 $ 31.81 $29.94 $23.53 $16.09 $20.62 $20.46 $16.16 $18.09 $17.79
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.15 2.73 0.27 0.01 0.06 0.16 0.27 (0.05) (0.04) (0.09)
Net realized and unrealized
gain (loss) on securities 0.07 1.00 4.84 8.60 8.29 (4.52) 0.30 6.90 (1.19) 0.53
Total from investment operations 0.22 3.73 5.11 8.61 8.35 (4.36) 0.57 6.85 (1.23) 0.44
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DISTRIBUTIONS:
Dividends from net investment
income (0.16) (0.47) (0.25) (0.04) (0.06) (0.17) (0.18) .__ (0.03) (0.03)
Distributions from net realized
gain on securities (1.11) (2.25) (2.99) (2.16) (0.85) .__ (0.23) (2.55) (0.67) (0.11)
Total distributions (1.27) (2.72) (3.24) (2.20) (0.91) (0.17) (0.41) (2.55) (0.70) (0.14)
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Net asset value at end of period $31.77 $32.82 $31.81 $29.94 $23.53 $16.09 $20.62 $ 20.46 $16.16 $18.09
====================================================================================================================================
TOTAL RETURN* 0.62% 11.98% 17.31% 36.80% 52.56% (21.16%) 2.85% 42.44% (7.95%) 2.39%
RATIOS / SUPPLEMENTAL DATA:
Ratio of expenses to average
net assets 1.02% 1.14% 1.26% 1.47% 1.51% 1.77% 1.65% 2.15% 2.13% 2.58%
Ratio of net investment income (loss)
to average net assets 0.54% 0.43% 0.13% 0.02% 0.26% 0.87% 1.21% (0.49%) (0.24%) (0.13%)
Portfolio turnover rate 29.10% 28.10% 21.00% 32.80% 24.61% 38.25% 11.45% 32.34% 31.69% 31.22%
Net assets, end of period (000's) $259,133 $160,994 $98,774 $56,237 $31,833 $20,738 $23,048 $10,863 $ 5,374 $ 3,321
<FN>
* Total return figures do not adjust for the sales charge.
</FN>
</TABLE>
Note: This information is taken from audited financial statements that were
published in the Fund's annual reports. 1986 information was audited by Coopers
& Lybrand. 1987-95 information was audited by Deloitte & Touche LLP.
<PAGE>
THE LEGEND OF MT. PARNASSUS
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Parnassus is a mountain in central Greece whose twin peaks rise more than 8,000
feet above sea level. A dense forest covers the slopes of Mt. Parnassus, but the
summit is rocky and, most of the time, covered with snow. The mountain plays a
prominent role in Greek mythology because on its southern slope, overlooking the
Gulf of Corinth, lies Delphi, site of the famous oracle. Originally, the oracle
belonged to Gaia, the earth goddess. Later, Mother Earth was worshipped under
the name Delphyne and she controlled the oracle along with her serpent-son,
Python, and her priestess-daughters who controlled the rites. Eventually, the
Greek god, Apollo, took over the site, doing away with Python, but keeping the
priestesses.
The most "Greek" of the gods, Apollo represented enlightenment and civilization
and presided over the establishment of cities. Identified with the development
of Greek codes of law, Apollo was also the god of light, a master musician and
skilled archer. Legend has it that Python, an enormous serpent raised in the
caves of Mt. Parnassus, controlled the site of Delphi. When Apollo, representing
civilization, challenged Python, representing anarchy, there was a heroic
struggle, but the god finally killed the dragon by shooting a hundred arrows
into its body.
There were many oracles in ancient Greece, but only the one at Delphi achieved a
record of reliability. Apollo's temple at Delphi soon became an enormous
storehouse of treasures that were gifts of those who had consulted the oracle.
The oracle communicated through the voice of a priestess who spoke while in a
trance. The priests of Delphi, who interpreted the sayings of the priestess,
obtained a great deal of knowledge and information from talking to the people
who came from all over the Greek world to consult at the shrine of Apollo. Quite
often, the oracle went against the prevailing wisdom of the time and frequently,
the proud were humbled and the lowly were justified.
INVESTMENT POLICY
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Objective
The Fund's investment objective is to achieve long-term growth of capital with
current income as a secondary objective. The Fund will attempt to achieve these
objectives by investing primarily in "equity securities" based on the criteria
described below. "Equity securities" consist of common stocks or securities
having the characteristics of common stocks which include convertible preferred
stocks, convertible debt securities or warrants (up to 5% of total assets).
There can be no assurance that the Fund will achieve its objective.
The Fund's portfolio will emphasize equity securities issued by established
companies. Established companies are defined as those that (1) are traded on the
New York Stock Exchange, (2) are listed as a "Fortune 500" company or (3) are
traded either on the American Stock Exchange or the NASD's National Market
System and are mature (more than ten years of continuous operation) and pay a
dividend. The Fund may, however, invest in equity securities of companies that
may not pay a dividend and may be traded over-the-counter; usually, not more
than 30% of the Fund's assets will be so invested. Securities of companies in
this 30% category may not have the same liquidity as those of larger companies.
In general, the Fund will not invest in companies with less than $100 million in
annual sales.
Policies
The Fund's Adviser uses three basic criteria in selecting equity securities for
the Fund's portfolio:
1) the stock must be selling at a depressed price compared to the market
as a whole and compared to its price history for the past five years
(see I below);
2) the issuer must be financially sound with good prospects for the future
(see II below); and
3) the issuer must have, in the Adviser's judgment, enlightened and
progressive management (see III below).
For a stock to be purchased by the Fund, it must meet all of the above criteria.
How the Adviser determines if a stock meets these criteria is discussed below.
I. The Contrarian Principle. The first criterion listed above can be called
"contrarian" since it leads to the purchase of stocks that are out of favor with
the investment community. The Adviser expects each stock selected to have:
1) a market price no more than 150% of book value per share except for
smaller or high growth companies which may have a market price of up to 200% of
book value;
2) a market price that has declined to 65% or less of the highest market
price achieved during the past five years;
<PAGE>
3) a price/earnings ratio which is (a) below the price/earnings ratio of all
stocks in the S&P 500 and (b) below its average for the preceding ten years; and
4) a ratio of market price to sales per share below 0.40 or below 1.00 for
high growth or high margin businesses. The ratios given above are not absolute
limits, but represent guidelines followed by the Adviser. A stock may be
selected for the Fund's portfolio even if it does not meet all of the above
tests, but will not be selected if it does not meet any of such tests.
II. FINANCIAL CONSIDERATIONS. The Adviser will apply financial criteria to
each stock that meets its "contrarian" standards in an effort to determine
whether the issuer is financially sound and has good prospects for the future.
The Adviser will consider the following factors in determining whether or not a
company is financially sound:
1) financial strength, in the form of net assets, as determined by an
analysis of the company's balance sheet;
2) total annual sales of the company compared to its sales five years ago;
3) outlook for future earnings;
4) the company's net cash flow; and
5) dividend and earnings history for the past ten years.
III. "RENAISSANCE" FACTORS. There are also five qualitative factors that, in
the Adviser's opinion, constitute "enlightened and progressive management" of
issuers. These factors--known as "Renaissance" Factors--are:
1) the quality of the company's products and services;
2) the degree to which the company is marketing-oriented and stays close to
the customer;
3) the sensitivity of the company to the communities where it operates;
4) the company's treatment of its employees; and
5) the company's ability to innovate and respond well to change.
Although the Fund will emphasize positive reasons for investing in a company,
our operating policies call for excluding companies that manufacture alcohol or
tobacco products or are involved with gambling. The Fund also screens out
weapons contractors and those that generate electricity from nuclear power.
On the positive side, the Fund looks for a number of important attributes to
determine if a firm is a "Renaissance" company. These include a good
environmental protection policy, an effective equal employment opportunity
program, a record of civic commitment and a history of ethical business
dealings.
Other Policies
Under normal circumstances, the Fund will have virtually all of its assets
invested in equity securities. However, for temporary defensive purposes, or
pending the investment of the proceeds from sales of shares of the Fund or sales
of portfolio securities, all or part of the assets may be invested in money
market instruments or in investment grade, long-term debt securities, and the
Fund may also enter into repurchase agreements, which basically involve the
purchase by the Fund of debt securities and their resale at an agreed-upon
price. While the Fund intends to be fully "collateralized" as to such
agreements, and the collateral will be marked to market daily, if the person
obligated to repurchase from the Fund defaults or enters bankruptcy, there may
be delays and expenses in liquidating the securities, a possible decline in
their value and potential loss of interest. See Statement of Additional
Information for further details.
<PAGE>
PRINCIPAL INVESTMENT RESTRICTIONS
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The Fund is subject to certain investment restrictions which are fundamental
policies that cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities. The Fund's investment
objective is such a policy, as are restrictions that provide that the Fund may
not (i) with respect to 75% of its net assets, invest more than 5% of the value
of its net assets in securities of any one issuer (other than obligations issued
or guaranteed by the United States Government, its agencies or its
instrumentalities); (ii) with respect to 75% of its net assets, purchase more
than 10% of the outstanding voting securities or of any class of securities of
any one issuer; (iii) invest more than 25% of the value of its total assets in
securities of issuers in any one industry; or (iv) borrow money except from
banks for temporary or emergency purposes in amounts not exceeding 10% of the
Fund's total assets. (The Fund will not make additional investments while such
borrowings are outstanding.) It is possible for the Fund to make limited
investments in the securities of other investment companies. Additional
information about the Fund's investment restrictions is contained in the
Statement of Additional Information.
It is the position of the Securities and Exchange Commission (and an operating
although not a fundmental policy of the Fund) that open-end investment companies
such as the Fund should not make certain investments if thereafter more than 15%
of the value of their net assets would be so invested. The investments included
in this 15% limit are (i) those which are restricted, i.e., those which cannot
freely be sold for legal reasons (which the Fund does not expect to own); (ii)
fixed time deposits subject to withdrawal penalties (other than overnight
deposits); (iii) re-purchase agreements having a maturity of more than seven
days; and (iv) investments for which market quotations are not readily
available. However, the 15% limit does not include obligations which are payable
at principal amount plus accrued interest within seven days after purchase.
MANAGEMENT
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The Fund's Board of Trustees decides on matters of general policy and supervises
the activities of the Fund's Adviser. The Fund's officers conduct and supervise
the daily business operations of the Fund. The Trustees and officers are listed
below, together with their principal occupations during at least the past five
years.
Jerome L. Dodson*, President and Trustee, is also President of Parnassus
Investments. From 1975 to 1982, Mr. Dodson served as President and Chief
Executive Officer of Continental Savings and Loan Association in San Francisco.
From 1982 to 1984, he was President of Working Assets Money Fund and he also
served as a Trustee from 1988 to 1991. He is a graduate of the University of
California at Berkeley and of Harvard University's Graduate School of Business
Administration where he concentrated in finance. Mr. Dodson is the Fund's
portfolio manager.
Gail L. Horvath, Trustee, is co-owner and director of new product development at
Just Desserts, a San Francisco-based bakery and cafe. A co-founder of Just
Desserts, her experience includes market research, product planning and product
development. For four years, she served as director of Continental Savings of
America. She is a graduate of Ohio State University.
David L. Gibson, Trustee, is an attorney in private practice specializing in
taxation and personal financial planning. From 1973 to 1984, he was with the
Crown Zellerbach Corporation where he served as tax counsel and, later, as
Director of Public Affairs. Mr Gibson is active in civic affairs and his special
interests include senior citizens and environmental protection. He holds a
bachelor's degree in business administration from Virginia Polytechnic
Institute, an MBA from Golden Gate University, a JD from Washington and Lee
University and an LLM from William and Mary.
Howard Fong*, Vice President and Treasurer, is also Vice President of Parnassus
Investments. Mr. Fong began his career as an examiner with the California
Department of Savings and Loan. In 1979, he joined Continental Savings where he
worked until 1988, most recently as Senior Vice President and Chief Financial
Officer. He joined the Parnassus Fund in 1988. Mr. Fong graduated from San
Francisco State University with a degree in business administration.
Richard D. Silberman, Secretary, is an attorney specializing in business law. He
has been general counsel to the Parnassus Fund since its inception. He holds a
bachelor's degree in business administration from the University of Wisconsin, a
Bachelor of Laws, also from the University of Wisconsin and a Master of Law from
Stanford University. He is a member of both the Wisconsin and California Bars.
*Denotes "interested person" as defined in the Investment Company Act of 1940.
The Adviser
Parnassus Investments (the "Adviser"), One Market-Steuart Tower #1600, San
Francisco, California 94105 acts as investment adviser to the Fund, subject to
the control of the Fund's Board of Trustees, and as such supervises and arranges
the purchase and sale of securities held in the portfolio of the Fund. The
Adviser has had eleven years experience managing the Fund and its President had
previous experience advising investment companies.
<PAGE>
For its services, the Fund, under an Investment Advisory Agreement (the
"Agreement") between the Fund and the Adviser, pays the Adviser a fee, computed
and payable at the end of each month, at the following annual percentages of the
Fund's average daily net assets: 1.00% of the first $10 million in assets; 0.75%
of the amount above $10 million in assets up to $30 million; 0.70% of the amount
above $30 million up to $100 million; 0.65% of the amount above $100 million up
to $200 million; 0.60% of the amount above $200 million up to $400 million;
0.55% of the amount above $400 million up to $600 million; and 0.50% of the
amount above $600 million. For 1995, the Fund paid the Adviser 0.67% of its
average net assets.
In addition to the fee payable to the Adviser, the Fund is responsible for its
operating expenses, including: (i) interest and taxes; (ii) brokerage
commissions; (iii) insurance premiums; (iv) compensation and expenses of its
Trustees other than those affiliated with the Adviser; (v) legal and audit
expenses; (vi) fees and expenses of the Fund's cutodian, transfer agent and
accounting services agent; (vii) expenses incident to the issuance of its
shares, including issuance on the payment of, or reinvestment of, dividends;
(viii) fees and expenses incident to the registration under Federal or state
securities laws of the Fund or its shares; (ix) expenses of preparing, printing
and mailing reports and notices and proxy material to shareholders of the Fund;
(x) all other expenses incidental to holding meetings of the Fund's
shareholders; (xi) dues or assessments of or contributions to the Investment
Company Institute and the Social Investment Forum; (xii) such non-recurring
expenses as may arise, including litigation affecting the Fund and the legal
obligations which the Fund may have to indemnify its officers and Trustees with
respect thereto. In allocating brokerage transactions, the investment advisory
agreement states that the Adviser may consider research provided by brokerage
firms or whether those firms sold shares of the Fund. See page B-7 of the SAI
for more information on directed brokerage.
HOW TO PURCHASE SHARES
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Because the sales charge on its shares is lower than that charged by many other
investment companies which impose a sales charge, the Parnassus Fund is what is
commonly called a "low load" fund.
Shares of the Fund may be purchased by sending a check directly to the Adviser,
which is also the Fund's principal underwriter ("Distributor") (see "Direct
Purchase of Shares" below), or by ordering shares through a broker-dealer which
is a member of the National Associations of Securities Dealers, Inc. and has
signed a sales agreement with the Distributor (see "Purchases through a
Broker-Dealer" below). The purchase price per share is the offering price, which
is the net asset value per share as of the next calculation after the order is
placed, plus a sales charge calculated as follows:
SALES CHARGE AS A PERCENTAGE OF
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DEALER DISCOUNT
OFFERING NET ASSET AS A PERCENTAGE
AMOUNT OF TRANSACTION AT OFFERING PRICE PRICE VALUE OF OFFERING PRICE
- --------------------------------------------------------------------------------
Less than $15,000 3.5% 3.63 3.5%
$15,000 but less than $25,000 3.0 3.09 3.0%
$25,000 but less than $50,000 2.5 2.56 2.5%
$50,000 but less than $100,000 2.0 2.04 2.0%
$100,000 but less than $250,000 1.5 1.52 1.5%
$250,000 but less than $500,000 1.0 1.01 1.0%
$500,000 but less than $1,000,000 0.5 0.50 0.5%
$1,000,000 or more No Sales Charge
Investors in the following categories may combine their purchases into a single
transaction to qualify for a reduced sales charge: 1) an individual, his or her
spouse and their children purchasing for his, her or their own account and 2) a
trustee or other fiduciary purchasing for a single trust estate or single
fiduciary account.
Certain categories of people may invest in the Parnassus Fund without paying a
sales charge. These categories include Trustees, officers and employees of the
Parnassus Fund and the Fund's investment adviser, representatives registered
with the National Association of Securities Dealers, custodial accounts
qualifying under Section 403(b) or Section 401(k) of the Internal Revenue Code,
pension, profit-sharing or other employee benefit plans qualified under section
401 of the Internal Revenue Code and discretionary accounts of bank trust
departments and registered investment advisers. Investors may be charged a
transaction or other fee in connection with purchases or redemptions of Fund
shares at net asset value (i.e. without a sales charge) on their behalf by an
investment adviser, a brokerage firm or other financial institution.
Statement of Intention (Letter of Intent)
A single investor may also obtain the reduced sales charges shown above by
completing a Statement of Intention. By expressing in writing an intent to
invest $15,000 or more within a thirteen month period, a single investor may
also obtain the reduced sales charges shown above. You can obtain a form for
this purpose by writing or calling the Fund or you can write your own letter of
intent.
While a shareholder is not obligated to fulfill a letter of intent, if the goal
is not met, the purchaser is required to pay the difference between the sales
charge actually paid and the one that would otherwise have been due had no
Statement of Intention been signed.
Rights of Accumulation
A single investor may also obtain a cumulative quantity discount (known as a
right of accumulation) by adding his or her current purchase to the net asset
value (at the close of business on the previous day) of all shares previously
purchased and still owned in the Fund. The applicable sales charge is then based
on this total. A shareholder may also add the total of any investment in the
Parnassus Income Fund to the Parnassus Fund total for purposes of calculating
the sales charge. To benefit from any right of accumulation (ROA), a shareholder
must identify any ROA links to other accounts and communicate these links to the
Fund's shareholder service staff.
Other Information
The Fund also offers additional services to investors, including plans for the
systematic investment and withdrawal of money as well as IRA and SEP plans.
Information about these plans is available from the Distributor.
The minimum initial investment in the Fund is $2,000 except for retirement plans
and PAIP accounts which have a $500 minimum initial investment. The minimum
additional investment is $50. The distributor reserves the right to reject any
order.
Direct Purchase of Shares
An investor should complete and mail an application form and send it along with
a check payable to the Parnassus Fund. It should be sent to the Fund at the
following address:
The Parnassus Fund
One Market-Steuart Tower #1600
San Francisco, California 94105
An initial investment must be at least $2,000 except for PAIP accounts and
certain employee benefit plans or tax qualified retirement plans (e.g. IRA, SEP)
which have a $500 minimum. Subse-quent investments for all accounts must be at
least $50. With subsequent investments, shareholders should write the name and
number of the account on the check. Checks do not need to be certified, but are
accepted subject to collection and must be drawn in United States dollars on
United States banks. The investment will be processed at the public offering
price calculated on the same business day it is received if it arrives before
1:00 pm San Francisco time; otherwise, it will be processed the next business
day.
<PAGE>
Purchases Via Parnassus Automatic Investment Plan (PAIP)
After making an initial investment to open an account, a Parnassus shareholder
may purchase additional shares ($50 minimum) via the Parnassus Automatic
Investment Plan (PAIP). On a monthly or quarterly basis, your money will
automatically be transferred from your bank account to your Fund account on the
day of your choice (3rd or 18th day of the month). You can elect this option by
filling out the PAIP section on the new account form. For further information,
call the Fund and ask for the free brochure called "Automatic Investing and
Dollar-Cost Averaging".
Purchases Through A Broker-Dealer
Broker-dealers may place orders on behalf of clients by calling the Distributor.
If a client places an order with a broker-dealer prior to 1:00 p.m. San
Francisco time on any business day (see below) and the broker-dealer forwards
the order to the Distributor prior to 1:00 p.m. San Francisco time on that day,
the order will be processed at the offering price calculated that same day.
Otherwise, the offering price will be calculated as of the close of the NYSE the
next business day. The broker-dealer is responsible for placing purchase orders
promptly with the Distributor and for forwarding payment within three business
days.
Net Asset Value
The Fund's net asset value per share is determined at 4:00 p.m. Eastern time on
each day that the New York Stock Exchange is open for trading ("business day")
and on any other day that there is a sufficient degree of trading in investments
held by the Fund to affect the net asset value, except that the net asset value
may not be determined on any day that there are no transactions in shares of the
Fund. The net asset value per share is the value of the Fund's assets, less its
liabilities, divided by the number of shares of the Fund outstanding. The value
of the Fund's portfolio securities will be the market value of such securities.
However, if the Fund's Trustees determine that the market value of any security
is not its fair value, they may determine a different price for that security
that does reflect its fair value. See the Statement of Additional Information
for details.
Telephone Transfers
Shareholders who elect to use telephone transfer privileges must so indicate on
the account application form. The telephone transfer privilege allows a
shareholder to effect exchanges from the Fund into an identically registered
account in another one of the Parnassus Funds (e.g. The Parnassus Income Fund).
Neither the Fund nor Parnassus Investments will be liable for following
instructions communicated by telephone reasonably believed to be genuine; a loss
to the shareholder may result due to an unauthorized transaction. The Fund and
Parnassus Investments will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. Procedures may include one
or more of the following: recording all telephone calls requesting telephone
exchanges, verifying authorization and requiring some form of personal
identification prior to acting upon instructions and sending a statement each
time a telephone exchange is made. The Fund and Parnassus Investments may be
liable for any losses due to un-authorized or fraudulent instructions only if
such reasonable procedures are not followed. Of course, shareholders are not
obligated in any way to authorize telephone transfers and may choose to make all
exchanges in writing. The telephone exchange privilege may be modified or
discontinued by the Fund at any time upon 60 days' written notice to
shareholders.
<PAGE>
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
You may sell or redeem your Fund shares by offering them for "repurchase" or
"redemption" directly to the Fund or through your dealer. If you offer shares
through your dealer before the close of the New York Stock Exchange and your
dealer transmits your offer to the Distributor before 1:00 p.m. (San Francisco
time) that day, you will receive that day's price. Your dealer may charge for
this service, but you can avoid this charge by selling your shares directly to
the Fund as described below.
To sell your shares directly to the Fund (that is, to redeem your shares), you
must send your instructions to the Fund at One Market-Steuart Tower #1600, San
Francisco, California 94105. Your shares will be redeemed at the net asset value
next determined after receipt by the Fund of your instructions in proper form.
Give your account number and indicate the number of shares you wish to redeem.
All owners of the account must sign unless the account application form states
that only one signature is necessary for redemptions. All redemption checks must
be sent to the address-of-record on the account. The Fund must have a
change-of-address on file for 30 days before we send redemption or distribution
checks to the new address. Otherwise, we require a signature guarantee or the
check must be sent to the old address. The Fund usually requires additional
documents when shares are registered in the name of a corporation, agent or
fiduciary or if you are a surviving joint owner. In the case of a corporation,
we usually require a corporate resolution signed by the secretary. In the case
of an agent or fiduciary, we usually require an authorizing document. In the
case of a surviving joint owner, we usually require a copy of the death
certificate. Contact the Fund by phone at (800) 999-3505 if you have any
questions about requirements for redeeming your shares.
If the Fund has received payment for the shares you wish to redeem and you have
provided the instructions and any other documents needed in correct form, the
Fund will promptly send you a check for the proceeds from the sale. Ordinarily,
the Fund must send you a check within seven days unless the New York Stock
Exchange is closed for other than weekends or holidays. However, payment may be
delayed for any shares purchased by check for a reasonable time (not to exceed
15 days from the date of such purchase) necessary to determine that the purchase
check will be honored. Rules of the Securities and Exchange Commission also
authorize delayed redemptions during periods when trading on the Exchange is
restricted or during an emergency which makes it impractical for the Fund to
dispose of its securities or to determine fairly the value of its net assets or
during any other period authorized by the Commission for the protection of
investors.
REINVESTMENT PRIVILEGE. If you redeem some or all of your shares and then change
your mind, you may re-invest them without sales charge at the net asset value if
you do so within 60 days. This privilege may be exercised only once by a
shareholder with respect to this Fund. However, a shareholder has not used up
this one-time privilege if the sole purpose of a prior redemption was to in-vest
the proceeds at net asset value in an Individual Retirement Account or SEP. If
the shareholder has realized a gain on the redemption, the transaction is
taxable and reinvestment will not alter any capital gains tax payable. If there
has been a loss on the redemption, some or all of the loss may not be allowed as
a tax deduction depending on the amount reinvested. If a shareholder redeems
shares from the Parnassus Fund and invests the proceeds in shares of the
Parnassus Income Fund, the shareholder may reinvest the proceeds of those shares
back into the Parnassus Fund at any time without a sales charge.
REDEMPTION OF SMALL ACCOUNTS. The Trustees may, in order to reduce the expenses
of the Fund, redeem all of the shares of any shareholder whose account is worth
less than $1,000 as a result of a redemption. This will be done at the net asset
value determined as of the close of business on the business day preceding the
sending of such notice of redemption. The Fund will give shareholders whose
shares are being redeemed 60 days' prior written notice in which to purchase
sufficient shares to avoid such redemption.
<PAGE>
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
By paying out substantially all its net investment income (among other things),
the Fund believes it qualifies as a regulated investment company under
Subchapter M of the Internal Revenue Code. The Fund intends to continue to
qualify and, if so, it will not pay federal income taxes on either its net
investment income or on its capital gains. Instead, each shareholder will be
responsible for his or her own taxes. All dividends from net investment income
together with distributions of short-term capital gains (collectively, "income
dividends"), will be taxable as ordinary income to shareholders even though paid
in additional shares. Any net long-term capital gains ("capital gain
distributions") distributed to shareholders are taxable as such to shareholders.
Tax-exempt shareholders, of course, will not be required to pay taxes on any
amounts paid to them.
Income dividends and capital gains distributions will be paid once a year and
they are taxable in the year received. For the convenience of investors, all
payments are made in shares of the Fund and there is no sales charge for this
reinvestment. Shareholders who prefer to receive payment of income dividends
and/or capital gain distribution in cash should notify the Fund at least five
days prior to the payment date. Annually, you will receive on Form 1099 the
dollar amount and tax status of all Distributions you received.
Under the Interest and Dividend Tax Compliance Act of 1983, the Fund may be
required to impose backup withholding at a rate of 20% from any income dividends
and capital gain distributions and upon payment of redemption proceeds.
Shareholders can eliminate any backup withholding requirements by complying with
provisions of that Act relating to the furnishing and certification of taxpayer
identification numbers and reporting of dividends.
To the extent that income dividends are derived from qualifying dividends paid
by domestic corporations whose shares are owned by the Fund, such dividends, in
the hands of the Fund's corporate shareholders, will be eligible for the 70%
dividends received deduction.
The distribution is usually made in December of each year. If an investor
purchases shares just before the distribution date, he or she will be taxed on
the distribution even though it's a return of capital.
<PAGE>
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund may advertise its total return for prior periods.
Any such advertisement would include at least average annual total return
quotations for one, five and ten year periods. The total return of the Fund for
a particular period represents the increase (or decrease) in the value of a
hypothetical investment in the Fund, from the beginning to the end of the
period. Total return is calculated by subtracting the value of the initial
investment from the ending value and showing the difference as a percentage of
the initial investment; the calculation assumes the initial investment is made
at the maximum public offering price (maximum sales charge) and that all income
dividends or capital gains distributions during the period are reinvested in
Fund shares at net asset value. Total return is based on historical earnings and
asset value fluctuations and is not intended to indicate future performance. No
adjustments are made to reflect any income taxes payable by shareholders on
dividends and distributions paid by the Fund. Average annual total return
quotations for periods of two or more years are computed by finding the average
annual compounded rate of return over the period that would equate the initial
amount invested to the ending redeemable value. Quotations of "overall return"
are the same as "total return" except that "overall return" calculations do not
deduct the sales charge.
Performance Figures
- --------------------------------------------------------------------------------
FOR PERIODS ENDING AVERAGE ANNUAL AVERAGE ANNUAL
DECEMBER 31, 1995 TOTAL RETURN OVERALL RETURN
- --------------------------------------------------------------------------------
One Year (2.91%) 0.62%
Five Years 21.63% 22.50%
Ten Years 11.88% 12.24%
Total return is the return to an individual shareholder after paying the
maximum sales charge.
Overall return gives the investment performance of the Fund. Overall return
does not take into account payment of the sales charge. This return figure
should be used for comparative purposes such as comparing the Parnassus Fund's
performance to published returns in newspapers and magazines.
The Fund's annual report contains additional performance information
including a discussion by management. You may obtain a copy of the annual report
without charge by calling or writing the Fund.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust on April 4,1984. The
Declaration of Trust provides the Trustees will not be liable for errors of
judgment or mistakes of fact or law, but nothing in the Declaration of Trust
protects a Trustee against any liability to which he or she would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.
Shareholders are entitled to one vote for each full share held (and fractional
votes for fractional shares) and may vote in the election of Trustees and on
other matters submitted to meetings of shareholders. It is not contemplated that
regular annual meetings of shareholders will be held. The Declaration of Trust
provides that the Fund's shareholders have the right, upon the declaration in
writing or vote of more than two-thirds of its outstanding shares, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on the removal
of a Trustee upon the written request of the record holders of ten per cent of
its shares. In addition, ten shareholders holding the lesser of $25,000 worth or
one percent of Fund shares may advise the Trustees in writing that they wish to
communicate with other shareholders for the purpose of requesting a meeting to
remove a Trustee. The Trustees will then, if requested by the applicants, mail
at the applicants' expense the applicants' communication to all other
shareholders. No amendment may be made to the Declaration of Trust without the
affirmative vote of the holders of more than 50% of its outstanding shares.
The holders of shares have no pre-emptive or conversion rights. Shares when
issued are fully paid and non-assessable, except as set forth above. The Fund
may be terminated upon the sale of its assets to another issuer, if such sale is
approved by the vote of the holders of more than 50% of our outstanding shares,
or upon liquidation and distribution of its assets, if approved by the vote of
the holders of more than 50% of our outstanding shares. If not so terminated,
the Fund will continue indefinitely.
Deloitte & Touche LLP, 50 Fremont Street, San Francisco, California 94105 has
been selected as the Fund's independent auditors.
Union Bank of California, 475 Sansome Street, San Francisco, California
94111, has been selected as the custodian of the Fund's assets. Shareholder
inquiries should be directed to the Fund.
Parnassus Investments, One Market-Steuart Tower #1600, San Francisco, California
94105, is the Fund's transfer agent and accounting agent. As transfer agent,
Parnassus Investments receives a fee of $2.10 per account per month. As
accounting
<PAGE>
agent, Parnassus Investments receives a fee of $54,000 per year. Jerome L.
Dodson, the Fund's President, is the sole stockholder of Parnassus Investments.
Parnassus Investments may also arrange for third parties to provide certain
services including account maintenance, recordkeeping and other personal
services to their clients who invest in the Fund. For these services, the Fund
may pay Parnassus Investments an aggregate service fee at a rate not to exceed
0.25% per annum of the Fund's average daily net assets. Parnassus Investments
will not keep any of this fee for itself, but will instead use the fee to pay
the third party service providers. (Service providers who do not maintain a
single, aggregated account for their clients will be limited to a fee of 0.10%
per annum paid by the Fund. Parnassus Investments, however, may elect to pay
such service providers an additional 0.15% from its own funds for a total not to
exceed 0.25% per annum.)
INVESTMENT ADVISER
Parnassus Investments
One Market-Steuart Tower #1600
San Francisco, California 94105
LEGAL COUNSEL
Richard D. Silberman, Esq.
465 California Street #1020
San Francisco, California 94104
AUDITORS
Deloitte & Touche LLP
50 Fremont Street
San Francisco, California 94105
CUSTODIAN
Union Bank of California
475 Sansome Street
San Francisco, California 94111
DISTRIBUTOR
Parnassus Investments
One Market-Steuart Tower #1600
San Francisco, California 94105
<PAGE>
The Parnassus Fund
One Market
Steuart Tower #1600
San Francisco, CA 94105
(415) 778-0200
STATEMENT OF ADDITIONAL INFORMATION DATED May 1, 1996
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Fund's prospectus dated May 1, 1996, a copy of which may
be obtained by calling or writing the Fund at the address listed above.
TABLE OF CONTENTS
Cross-reference to
Page page in prospectus
---- ------------------
Investment Objective and Policies B-2 4
Investment Restrictions B-2 6
Repurchase Agreements B-3
Management B-4 7
Performance B-4 14
Net Asset Value B-7 11
Shareholder Services B-7 9
General B-8 15
Financial Statements B-8
<PAGE>
Investment Objectives and Policies
The investment objective of the Fund is to realize long-term growth of
capital. Current income is a secondary objective. The Fund's strategy with
respect to the composition of its portfolio is described in the prospectus.
Investment Restrictions
The Fund has adopted the following restrictions (in addition to those
indicated in the Prospectus) as fundamental policies which may not be changed
without the approval of the holders of a "majority" (as defined in the
Investment Company Act of 1940) of the Fund's outstanding shares. A vote of the
holders of a "majority" (as so defined) of the Fund's outstanding shares means a
vote of the holders of the lesser of (i) 67% of the shares represented at a
meeting at which more than 50% of the outstanding shares are represented or (ii)
more than 50% of the outstanding shares.
The Fund may not:
(1) With respect to 75% of its total net assets, purchase any security, other
than obligations of the U.S. Government, its agencies or instrumentalities
("U.S. Government securities"), if as a result: (i) more than 5% of the Fund's
total net assets (taken at current value) would then be invested in securities
of a single issuer or (ii) the Fund would hold more than 10% of any class of
securities of an issuer (taking all common stock issues as a single class) or
more than 10% of the outstanding voting securities of an issuer.
(2) Purchase any security if, as a result, the Fund would have 25% or more of
its net assets (at current value) invested in a single industry.
(3) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions).
(4) Make short sales of securities, purchase on margin or purchase puts,
calls, straddles or spreads.
(5) Issue senior securities, borrow money or pledge its assets except that
the Fund may borrow from a bank for temporary or emergency purposes in amounts
not exceeding 10% (taken at the lower of cost or current value) of its total
assets (not including the amount borrowed) and pledge its assets to secure such
borrowings. The Fund will not make additional purchases while borrowings are
outstanding.
(6) Invest in securities of any issuer if, to the knowledge of the Fund, any
officer or Trustee of the Fund or officer or director of the Adviser owns more
than one-half of 1% of the outstanding securities of such issuer and such
officers and Trustees who own more than one-half of 1% own in the aggregate more
than 5% of the outstanding securities of such issuer.
(7) Buy or sell commodities or commodity contracts including futures
contracts or real estate, real estate limited partnerships or other interests in
real estate although it may purchase and sell securities which are secured by
real estate and securities of companies which invest or deal in real estate.
(8) Act as underwriter except to the extent that in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter under
certain federal securities laws.
(9) Make investments for the purpose of exercising a controlling influence
over the management or policies of a company, except that the Fund may seek to
influence the social policies of the companies it invests in.
(10) Participate on a joint or joint and several basis in any trading account
in securities.
(11) Purchase any security restricted as to disposition under federal
securities laws.
B-2
<PAGE>
(12) Invest in securities of other registered investment companies except
that the Fund may invest up to 10% of its assets (taken at current value) in
other funds, but no more than 5% of its assets in any one fund and the Fund may
not own more than 3% of the outstanding voting shares of any one fund except as
part of a merger, consolidation or other acquisition.
(13) Invest in interests in oil, gas or other mineral exploration or
development programs or in oil, gas or other mineral leases although it may
invest in the common stocks of companies which invest in or sponsor such
programs.
(14) Make loans except through repurchase agreements or deposits in community
loan funds.
(15) Purchase foreign securities or currencies.
(16) Purchase warrants, if as a result, the Fund would then have more than 5%
of its total assets (taken at current value) invested in warrants. Included
within that amount, but not to exceed 2% of the value of the Fund's assets, may
be warrants which are not listed on the New York Stock Exchange or the American
Stock Exchange.
Repurchase Agreements
The Fund may purchase the following securities subject to repurchase
agreements: certificates of deposit, certain bankers' acceptances and securities
which are direct obligations of, or that are fully guaranteed as to principal,
by the United States or any agency or instrumentality of the United States. A
repurchase transaction occurs when at the time the Fund purchases a security,
the Fund also resells it to the vendor (normally a commercial bank or a
broker-dealer) and must deliver the security (and/or securities substituted for
them under the repurchase agreement) to the vendor on an agreed-upon date in the
future. Such securities, including any securities so substituted, are referred
to as the "Resold Securities". The Adviser will consider the creditworthiness of
any vendor of repurchase agreements and continuously monitor the collateral so
that it never falls below the resale price. The resale price is in excess of the
purchase price in that it reflects an agreed-upon market interest rate effective
for the period of time during which the Fund's money is invested in the Resold
Securities. The majority of these transactions run from day to day and the
delivery pursuant to the resale typically will occur within one to five days of
the purchase. The Fund's risk is limited to the ability of the vendor to pay the
agreed-upon sum upon the delivery date.
If there is a default, the Resold Securities constitute security for the
repurchase obligation and will be promptly sold by the Fund. However, there may
be delays and costs in establishing the Fund's rights to the collateral and the
value of the collateral may decline. The Fund will bear the risk of loss in the
event that the other party to the transaction defaults on its obligation and the
Fund is delayed or prevented from exercising its right to dispose of the
underlying securities, including the risk of a possible decline in the value of
the underlying securities during the period in which the Fund seeks to assert
its rights.
Repurchase agreements can be considered as loans "collateralized" by the
Resold Securities (such agreements being defined as "loans" in the 1940 Act.)
The return on such "collateral" may be more or less than that from the
repurchase agreement. The Resold Securities will be marked to market every
business day so that the value of the "collateral" is at least equal to the
value of the loan including the accrued interest earned thereon. All Resold
Securities will be held by the Fund's custodian either directly or through a
securities depository.
B-3
<PAGE>
MANAGEMENT
The Trustees and Officers of the Fund are as follows:
Principal Occupation
Name and Address Position with Fund During Past Five Years
- ---------------- ------------------ -----------------------
Jerome L. Dodson* President President of the Parnassus
One Market and Trustee Fund and President and
Steuart Tower #1600 Director of Parnassus
San Francisco, CA 94105 Investments since June of
1984; President and Trustee of
Working Assets Money Fund from
June 1982 until June 1984 and
Trustee from June 1988 until
December 1991. President of
Continental Savings of America
from 1976 until 1982.
Gail L. Horvath Trustee Director of New Product
c/o Just Desserts Development At Just Desserts.
1970 Carroll Avenue
San Francisco, CA 94124
David L. Gibson Trustee Tax Counsel and later,
5840 Geary Boulevard Director of Public Affairs for
San Francisco, CA 94118 the Crown Zellerbach
Corporation 1973-1984. Since
1984, attorney in private
practice.
Richard D. Silberman Secretary Attorney specializing in
465 California St. #1020 business and securities law.
San Francisco, CA 94104 Private practice.
Howard Fong* Vice President and Senior Vice President and
The Parnassus Fund Treasurer . Chief Financial Officer of
One Market Continental Savings of America
Steuart Tower #1600 from 1979 though June of 1988;
San Francisco, CA 94105 Vice President and Treasurer
of the Parnassus Fund and of
Parnassus Investments since
December of 1988
The Fund expects to pay each of its Trustees who is not affiliated with the
Adviser or the Distributor annual fees of $4500 in addition to reimbursement for
certain out-of-pocket expenses. The Trustees and Officers of the Fund as a group
own less than 1% of the Fund's outstanding shares.
*"Interested" Trustee as defined in the 1940 Act.
Performance Advertising
The Fund's average annual total return (computed in the manner described in
the prospectus) for the one, five and ten year periods ending December 31, 1995
was (2.91%), 21.63% and 11.88%. These results are based on historical earnings
and asset value fluctuations and are not intended to indicate future
performance.
From time to time, the Fund may quote its relative performance in sales
literature or advertisements in newspapers, magazines or other publications. The
source for these quotations will be Lipper Analytical Services, Morningstar
Mutual Fund Values, Wiesenberger Investment Companies, Schabacker Investment
Management or other recognized independent sources. We will either quote our
relative performance compared to all funds followed by the independent source or
our relative performance in the growth fund category.
B-4
<PAGE>
The Adviser
Parnassus Investments acts as the Fund's investment adviser. Under Parnassus
Investments' contract with the Fund, Parnassus Investments acts as investment
adviser and, subject to the supervision of the Board of Trustees, directs the
investments of the Fund in accordance with its investment objective, policies
and limitations. Parnassus Investments also provides the Fund with all necessary
office facilities and personnel for servicing the Fund's investments, and pays
the salaries and fees of all officers and all Trustees of the Fund who are
"interested persons" and all personnel performing research relating to
investment activities. Parnassus Investments also provides the management and
administrative services necessary for the operation of the Fund including
supervising relations with the custodian, transfer agent, independent
accountants and attorneys. The Adviser also prepares all shareholder
communication, maintains the Fund's records, registers the Fund's shares under
state and federal laws and does the staff work for the Board of Trustees.
The Investment Advisory Agreement provides that the Adviser shall not be
liable to the Fund for any loss sustained by reason of the purchase, sale or
retention of any security, whether or not such purchase, sale or retention shall
have been based upon its own investigation and research or upon investigation
and research made by any other individual, firm or corporation, if such
purchase, sale or retention shall have been selected in good faith. Nothing
contained therein shall, however, be construed to protect the Adviser against
any liability to the Fund or its security holders by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
by reason of its reckless disregard of its obligations and duties under the
Agreement.
The Fund pays the Adviser a fee for services performed at the annual rate of
1% of the Fund's average daily net assets up to $10 million, then declining to
0.75% of assets above $10 million up to $30 million, 0.70% above $30 million up
to $100 million, 0.65% above $100 million to $200 million, 0.60% above $200
million up to $400 million, 0.55% above $400 million up to $600 million and
0.50% of the amount above $600 million. However, the Investment Advisory
Agreement between the Fund and the Adviser provides that in the event the
expenses of the Fund (including the fees of the Adviser and amortization of
organization expenses, but excluding interest, taxes, brokerage commissions and
extraordinary expenses) for any fiscal year exceed the limits set by applicable
regulations of state securities commissions, the Adviser will reduce its fee by
the amount of such excess. Any such reductions are accrued and paid in the same
manner as the Adviser's fee and are subject to readjustment during the year.
Currently, the Fund believes that the most restrictive applicable expense
limitation of state securities commissions is 2.5% of the Fund's average net
assets up to $30 million, 2.0% of the next $70 million and 1.5% of the amount
above $100 million. During 1993, 1994 and 1995, the Fund paid to Parnassus
Investments under the investment advisory contract the sums of $590,906,
$919,073 and $1,582,602 respectively.
The Investment Advisory Agreement provides that the Adviser shall not be
liable to the Fund for any error of judgement by the Adviser or for any loss
sustained by the Fund except in the case of a breach of fiduciary duty with
respect to the receipt of compensation for services (in which case any award of
damages will be limited as provided in the 1940 Act) or of willful misfeasance,
bad faith, gross negligence or reckless disregard of duty.
As the Fund's underwriter, Parnassus Investments makes a continuous offering
of the Fund's shares and receives fees and commissions for distributing the
Fund's shares. For 1993, 1994 and 1995, Parnassus Investments received $753,198,
$1,021,612 and 1,897,143 respectively of which amounts the following was paid to
other broker/dealers: $113,958 in 1993, $232,100 in 1994 and $564,362 in 1995.
Portfolio Transactions and Brokerage
The Agreement states that in connection with its duties to arrange for the
purchase and the sale of securities held in the portfolio of the Fund by placing
purchase and sale orders for the Fund, the Adviser shall select such
broker-dealers ("brokers") as shall, in the Adviser's judgement, implement the
policy of
B-5
<PAGE>
the Fund to achieve "best execution", i.e. prompt and efficient execution at the
most favorable securities price. In making such selection, the Adviser is
authorized in the Agreement to consider the reliability, integrity and financial
condition of the broker. The Adviser is also authorized to consider whether the
broker provides brokerage and/or research services to the Fund and/or other
accounts of the Adviser. The Agreement states that the commissions paid to such
brokers may be higher than another broker would have charged if a good faith
determination is made by the Adviser that the commission is reasonable in
relation to the services provided, viewed in terms of either that particular
transaction or the Adviser's overall responsibilities as to the accounts for
which it exercises investment discretion and that the Adviser shall use its
judgement in determining that the amount of commissions paid are reasonable in
relation to the value of brokerage and research services provided and need not
place or attempt to place a specific dollar value on such services or on the
portion of commission rates reflecting such services.
The Agreement provides that to demonstrate that such determinations were in
good faith and to show the overall reasonableness of commissions paid, the
Adviser shall be prepared to show that commissions paid were (i) for purposes
contemplated by this Agreement; (ii) not allocated or paid for products or
services which were readily and customarily available and offered to the public
on a commercial basis; and (iii) within a reasonable range as compared to the
rates charged by qualified brokers to other institutional investors as such
rates may become known from available information. The Fund recognizes in the
Agreement that, on any particular transaction, a higher than usual commission
may be paid due to the difficulty of the transaction in question. The Adviser is
also authorized in the Agreement to consider sales of shares as a factor in the
selection of brokers to execute brokerage and principal transactions, subject to
the requirements of "best execution", as defined above.
The research services discussed above may be in written form or through
direct contact with individuals and may include information as to particular
companies and securities as well as market, economic or institutional areas and
information assisting the Fund in the valuation of its investments. The research
which the Adviser receives for the Fund's brokerage commissions, whether or not
useful to the Fund may be useful to the Adviser in managing the accounts of the
Adviser's other advisory clients. Similarly, the research received for the
commissions of such accounts may be useful to the Fund.
The Adviser may also use brokerage commissions to reduce certain expenses of
the Fund subject to "best execution." For example, the Adviser may enter into an
agreement to have a brokerage firm pay part or all of the Fund's custodian fee
since this benefits the Fund's shareholders. Similarly, the Adviser may use
brokerage commissions to acquire computer software and hardware (including
peripherals) for use with the Fund's transfer agent and fund accounting work if
such use benefits fund shareholders by reducing expenses. If a certain piece of
equipment is used for both Fund purposes and for non-Fund purposes by the
Adviser (e.g. marketing), the Adviser will allocate the cost on a pro rata
basis. Recognizing the inherent conflicts in such an allocation process, the
Adviser will exercise its best judgement in fairly apportioning the costs.
In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission although the price of the security usually includes a profit to the
dealer. Money market instruments usually trade on a "net" basis as well. On
occasion, certain money market instruments may be purchased directly from an
issuer in which case, no commissions or discounts are paid. In underwritten
offerings, securities are purchased at a fixed price which includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount.
During 1993, 1994 and 1995, the Fund paid $95,741, $118,545 and $578,760
respectively in brokerage commissions. Of those amounts, the following was paid
in conjunction with research services: $95,741 in 1993, $118,545 in 1994 and
$317,075 in 1995.
NET ASSET VALUE
In determining the net asset value of the Fund's shares, common stocks that
are listed on national securities exchanges are valued at the last sale price on
the exchange on which each stock is principally
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traded as of the close of the New York Stock Exchange (which is currently 4:00
pm New York time) or, in the absence of recorded sales, at the average of
readily available closing bid and asked prices on such exchanges. Securities
traded on the NASD National Market System are also valued at the last recorded
sale price as of 4:00 pm New York time. Other unlisted securities are valued at
the quoted bid price in the over-the-counter market. Securities and other assets
for which market quotations are not readily available are valued at their fair
value as determined in good faith by the Adviser under procedures established by
and under the general supervision and responsibility of the Fund's Board of
Trustees. Short-term investments which mature in less than 60 days are valued at
amortized cost (unless the Board of Trustees determines that this method does
not represent fair value) if their original maturity was 60 days or less or by
amortizing the value as of the 61st day prior to maturity if their original term
to maturity exceeded 60 days.
SHAREHOLDER SERVICES
Statement of Intention
Reduced sales charges are available to investors who enter into a written
Statement of Intention (Letter of Intent) providing for the purchase within a
thirteen month period of a specified number of shares of the Fund. All shares of
the Fund previously purchased and still owned are also included at the then net
asset value in determining the applicable reduction.
A Statement of Intention permits a purchaser to establish a total investment
goal to be achieved by any number of investments over a 13-month period. Each
investment made during the period will receive the reduced sales commission
applicable to the amount represented by the goal as if it were a single
investment. Shares totaling 3.5% of the dollar amount of the Statement of
Intention will be held in escrow by the Transfer Agent in the name of the
shareholder. The effective date of a Statement of Intention may be back-dated up
to 90 days in order that investments made during this 90-day period, valued at
purchaser's cost, can be applied to the fulfillment of the Statement of
Intention goal.
The Statement of Intention does not obligate the investor to purchase nor the
Fund to sell the indicated amount. In the event the Statement of Intention goal
is not achieved within the thirteen-month period, the purchaser is required to
pay the difference between the sales commission otherwise applicable to the
purchases made during this period and sales charges actually paid. Such payments
may be made directly to the Distributor or, if not paid, the Distributor will
liquidate sufficient escrowed shares to obtain such difference. If the goal is
exceeded in an amount which qualifies for a lower sales commission, a price
adjustment is made by refunding to the purchaser the amount of excess sales
commissions, if any, paid during the 13-month period. Investors electing to
purchase shares of the Fund pursuant to a Statement of Intention should
carefully read such Statement of Intention.
Systematic Withdrawal Plan
A Systematic Withdrawal Plan (the "Plan") is available for shareholders
having shares of the Fund with a minimum value of $10,000 based upon the
offering price. The Plan provides for monthly checks in an amount not less than
$100 or quarterly checks in an amount not less than $200 (which amounts are not
necessarily recommended).
Dividends and capital gains distributions on shares held under the Plan are
invested in additional full and fractional shares at net asset value. Withdrawal
payments should not be considered as dividends, yield or income. If periodic
withdrawals continuously exceed reinvested dividends and capital gains
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares and any gain
or loss realized must be recognized for federal income tax purposes. Although
the shareholder may invest $10,000 or more in a Systematic Withdrawal Plan,
withdrawals made concurrently with purchases of additional shares are
inadvisable because of the sales charges applicable to the purchase of
additional shares.
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Tax-Sheltered Retirement Plans
Through the Distributor, retirement plans are available: Individual
Retirement Accounts (IRAs) and Simplified Employee Pension Plans (SEPs).
Adoption of such plans should be on advice of legal counsel or tax adviser.
Retirement accounts have a minimum initial investment of $500 and each
subsequent investment must be at least $50. For further information regarding
plan administration, custodial fees and other details, investors should contact
the Distributor.
GENERAL
The Fund was organized as a Massachusetts business trust on April 4, 1984.
Its Declaration of Trust permits the Fund to issue an unlimited number of full
and fractional shares of beneficial interest and to divide or combine the shares
to a greater or lesser number of shares without thereby changing the
proportionate beneficial interest in the Fund. Each share represents an interest
in the Fund proportionately equal to the interest of each other share.
Certificates representing shares will not be issued. Upon the Fund's
liquidation, all shareholders would share pro rata in its net assets available
for distribution to shareholders. If they deem it advisable and in the best
interests of shareholders, the Board of Trustees may create additional classes
of shares which may differ from each other only as to dividends or each of which
may have separate assets and liabilities (in which case any such class would
have a designation including the word "Series"). If additional classes
designated as "Series" were created, shares of each class would be entitled to
vote as a class only to the extent required by the Investment Company Act of
1940 or as permitted by the Trustees. Income and operating expenses would be
allocated fairly among the classes, generally on the basis of relative net asset
value.
The Declaration of Trust contains an express disclaimer of shareholder
liability for its acts or obligations and requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered into or
executed by the Fund or its Trustees. The Declaration of Trust provides for
indemnification and reimbursement of expenses out of the Fund's property for any
shareholder held personally liable for its obligations. The Declaration of Trust
also provides that the Fund shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the Fund and satisfy
any judgement thereon. Thus, while Massachusetts law permits a shareholder of a
trust such as this to be held personally liable as a partner under certain
circumstances, the risk of a shareholder incurring financial loss on account of
shareholder liability is highly unlikely and is limited to the relatively remote
circumstances in which the Fund would be unable to meets its obligations.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgement or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Financial Statements
The Fund's Annual Report to Shareholders dated December 31, 1995 is expressly
incorporated by reference and made a part of this Statement of Additional
Information. A copy of the Annual Report which contains the Fund's audited
financial statements for the year ending December 31, 1995 may be obtained free
of charge by writing or calling the Fund.
