<PAGE>
THE PARNASSUS FUND
Cross Reference Index
<TABLE>
<CAPTION>
ITEM REFERENCE
---- ---------
<S> <C> <C>
Part A. Information Required in a Prospectus
Item 1. Cover Page Cover Page (p.1)
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 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-6)
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-9)
</TABLE>
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<PAGE>
THE PARNASSUS FUND
PROSPECTUS-MAY 1, 1997 AS REVISED DECEMBER 8, 1997
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 (SAI) dated May 1, 1997 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
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder of the
Fund will incur.
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------------------------------------------------------
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)
- --------------------------------------------------------------------------------
Management Fees.............................................0.68%
12b-1 Fees..................................................None
Other Operating Expenses....................................0.50%
Transfer Agent & Accounting Fees+...........0.25%
Shareholder Service Fees....................0.10%
Reports to Shareholders.....................0.06%
Total Fund Operating Expenses...............................1.18%
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
- --------------------------------------------------------------------------------
$47 $71 $98 $173
<PAGE>
The expenses shown above are cumulative--not ones you pay every year. For
example, the $173 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-6 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.
+The Fund compensates 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
- --------------------------------------------------------------------------------
Selected data for each share of capital stock outstanding, total return and
ratios/supplemental data for each of the ten years in the period ended December
31 are as follows: <CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------
Net asset value at beginning of
period 31.77 32.82 31.81 29.94 23.53 16.09 20.62 20.46 16.16 18.09
-------------------------------------------------------------------------------------------------
Income From Investment Operations:
Net investment income(loss) (0.06) 0.15 2.73 0.27 0.01 0.06 0.16 0.27 (0.05) (0.04)
Net realized and unrealized gain
(loss) on securities 3.77 0.07 1.00 4.84 8.60 8.29 (4.52) 0.30 6.90 (1.19)
-------------------------------------------------------------------------------------------------
Total from Investment Operations 3.71 0.22 3.73 5.11 8.61 8.35 (4.36) 0.57 6.85 (1.23)
-------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment
income .- (0.16) (0.47) (0.25) (0.04) (0.06) (0.17) (0.18) .- (0.03)
Distributions from net realized
gain on securities (1.09) (1.11) (2.25) (2.99) (2.16) (0.85) .- (0.23) (2.55) (0.67)
-------------------------------------------------------------------------------------------------
Total Distributions (1.09) (1.27) (2.72) (3.24) (2.20) (0.91) (0.17) (0.41) (2.55) (0.70)
-------------------------------------------------------------------------------------------------
Net asset value at end of period 34.39 31.77 32.82 31.81 29.94 23.53 16.09 20.62 20.46 16.16
=================================================================================================
Total Return * 11.68% 0.62% 11.98% 17.31% 36.80% 52.56% (21.16%) 2.85% 42.44% (7.95%)
Ratios/Supplemental Data:
Ratio of expenses to average net
assets 1.10% 1.02% 1.14% 1.26% 1.47% 1.51% 1.77% 1.65% 2.15% 2.13%
Ratio of net investment
income(loss)
to average net assets (0.17%) 0.54% 0.43% 0.13% 0.02% 0.26% 0.87% 1.21% (0.49%) (0.24%)
Portfolio turnover 59.60% 29.10% 28.10% 21.00% 32.80% 24.61% 38.25% 11.45% 32.34% 31.69%
Average commission per share ** $0.033 .- .- .- .- .- .- .- .- .-
Net Assets,End of Period (000's) $268,235 $259,133 $160,994 $98,774 $56,237 $31,833 $20,738 $23,048 $10,863 $5,374
<FN>
* Total return figures do not adjust for the sales charge.
** Average commission rate is calculated for the periods beginning on or after January 1, 1996.
</FN>
</TABLE>
Note: This information is taken from audited financial statements that were
published in the Fund's annual reports and 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
- --------------------------------------------------------------------------------
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 $150 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).
<PAGE>
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 whose ratio to book value per share is lower than its
historical average over the past five years;
2) a market price that has declined to 65% or less of the highest
market price achieved during the past five years; and
3) a market price whose ratio to sales per share is below its
historical average over the past five years.
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 the Statement of Additional
Information for further details.
<PAGE>
PRINCIPAL INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
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) 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) 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 fundamental 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
- --------------------------------------------------------------------------------
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 a 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.
<PAGE>
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 trustee" 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 twelve years experience managing the Fund.
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 1996, the Fund paid the Adviser 0.68% 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 custodian, 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-6 of the SAI
for more information on brokerage and portfolio transactions.
(Paragraphs deleted)
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
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:
<PAGE>
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF
- -----------------------------------------------------------------------------------------------------------------
DEALER DISCOUNT
OFFERING NET ASSET AS A PERCENTAGE
AMOUNT OF TRANSACTION AT OFFERING PRICE PRICE VALUE OF OFFERING PRICE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
</TABLE>
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, accounts opened pursuant to Uniform Gift to Minor's Act (UGMA), 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.
<PAGE>
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, UGMA
accounts, and certain employee benefit plans or tax qualified retirement plans
(e.g. IRA, SEP) which have a $500 minimum. Subsequent 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.
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 as of 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 is the market value of
such securities. However, 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. See the Statement of Additional Information for details.
<PAGE>
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.
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. You may also send your redemption instructions by
FAX to (415) 778-0228 if the redemption is less than $25,000. 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. If you wish
to have redemption proceeds sent by wire transfer or by overnight mail, there
will be a charge of $10 per transaction. 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. <PAGE>
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 invest
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 $500 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.
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.
The Fund may be required to impose backup withholding at a rate of 31% from any
income dividends and capital gain distributions and upon payment of redemption
proceeds. Shareholders can eliminate any backup withholding requirements by
furnishing certification of taxpayer identification numbers and reporting
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.
<TABLE>
<CAPTION>
Performance Figures
FOR PERIODS ENDING DECEMBER 31, 1996 AVERAGE ANNUAL TOTAL RETURN AVERAGE ANNUAL OVERALL RETURN
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
One Year 7.77% 11.68%
Five Years 14.27% 15.09%
Ten Years 12.20% 12.60%
<FN>
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.
</FN>
</TABLE>
The Fund may also advertise its cumulative total return for prior periods and
compare its performance to the performance of other selected mutual funds,
selected market indicators such as the Standard & Poor's 500 stock index or
non-market indices or averages of mutual fund industry groups.
The Fund may quote its performance rankings and/or other information as
published by recognized independent mutual funds statistical services or by
publications of general interest. In connection with a ranking, the Fund may
provide additional information, such as the particular category to which it
relates, the number of funds in that category, the criteria upon which the
ranking is based, and the effect of sales charges, fee waivers and/or expenses
reimbursements.
All Fund performance information is historical and is not intended to represent
or guarantee future results. The value of Fund shares when redeemed may be more
or less than their orginal cost. 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.
<PAGE>
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 $2.30 per account per month. As
accounting agent, Parnassus Investments receives a fee of $70,000 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 an
omnibus 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.)
<PAGE>
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>
