March 30, 1998
Securities and Exchange Commission
450 Fifth Street NW
Washington, DC 20549
Re: The Parnassus Fund
1940 Act File No. 811-4044
1933 Act File No. 2-93131
Ladies and Gentlemen:
Enclosed herewith for filing on behalf of The Parnassus Fund, pursuant to the
Securities Act of 1933 and the Investment Company Act of 1940 is the following:
Electronic filing of the Post-Effective Amendment No. 16 to the
Registration Statement on Form N-1A which contains a total of 95 pages.
This filing will become effective on April 1, 1998, pursuant to Rule 485 (b) of
the 1933 Act. It complies with the requirements for an annual amendment to the
registration statement pursuant to Regulation 270.8b-16 of the 1940 Act.
Yours truly,
Jerome L. Dodson
President
<PAGE>
1933 Act File No.: 2-93131
1940 Act File No.: 811-4044
Securities and Exchange Commission
Washington, DC 20549
Form N-1A
REGISTRATION UNDER THE SECURITIES ACT OF 1933
Post Effective Amendment No. 16
and/or
REGISTRATION UNDER THE INVESTMENT ACT OF 1940
Amendment No. 18
_____________________
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)
----------------------
It is proposed that this filing will become effective
X On April 1, 1998 pursuant to paragraph (b) of Rule 485
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, 1997 was filed on February 25, 1998.
<PAGE>
THE PARNASSUS FUND
Cross Reference Index
ITEM REFERENCE
---- ---------
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.13)
Item 5. Management of the Fund Management (p.6); The Adviser
(p.8) General Information (p.13)
Item 6. Capital Stock and other Securities Distributions and Taxes (p.11);
How to Purchase Shares (p.8)
Management (p.6)
Item 7. Purchase of Securities How to Purchase Shares (p.8)
Item 8. Redemption or Repurchase How to Redeem Shares (p.10)
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 Control Persons (B-5)
Holders 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-7)
Securities Being Offered
Item 20. Tax Status Prospectus (p.13)
Item 21. Underwriters Portfolio Transactions and
Brokerage (B-6)
Item 22. Calculation of Performance Data Performance Advertising and
Calculation of Total Return and
Yield (B-7); Prospectus (p.12)
Item 23. Financial Statements Financial Statements (B-9)
<PAGE>
THE PARNASSUS FUND
PROSPECTUS-APRIL 1, 1998
The Parnassus Fund (the "Fund") is a diversified open-end management
investment company, managed by Parnassus Investments (the "Adviser"). The Fund's
investment objective is to achieve long-term growth of capital. 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 April 1, 1998,
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 8
Financial Highlights 3 How to Redeem Shares 10
The Legend of Mt. Parnassus 3 Distributions and Taxes 11
Investment Objective and Policies 4 Performance Information 12
Principal Investment Restrictions 6 General Information 13
Management 6
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.
<PAGE>
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....................................................0.66%
12b-1 Fees .........................................................None
Other Operating Expenses ..........................................0.45%
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
$46 $69 $94 $165
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 page 10 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 the Fund did not engage in such directed
brokerage in 1997 and if it does so in the future, such directed brokerage is
expected to occur on an irregular basis, so the effect on the expense ratios
cannot be calculated with any degree of certainty.
2
<PAGE>
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:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at $34.39 $31.77 $32.82 $31.81 $29.94 $23.53 $16.09 $20.62 $20.46 $16.16
beginning of period --------------------------------------------------------------------------------------------------------
Income From Investment
Operations:
Net investment income(loss) (0.14) (0.06) 0.15 2.73 0.27 0.01 0.06 0.16 0.27 (0.05)
Net realized and
unrealized gain
(loss) on securities 10.04 3.77 0.07 1.00 4.84 8.60 8.29 (4.52) 0.30 6.90
--------------------------------------------------------------------------------------------------------
Total from investment
operations 9.90 3.71 0.22 3.73 5.11 8.61 8.35 (4.36) 0.57 6.85
--------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net - - (0.16) (0.47) (0.25) (0.04) (0.06) (0.17) (0.18) -
investment income
Distributions from net
realized gain on securities (8.55) (1.09) (1.11) (2.25) (2.99) (2.16) (0.85) - (0.23) (2.55)
--------------------------------------------------------------------------------------------------------
Total distributions (8.55) (1.09) (1.27) (2.72) (3.24) (2.20) (0.91) (0.17) (0.41) (2.55)
--------------------------------------------------------------------------------------------------------
Net asset value at end of
period $35.74 $34.39 $31.77 $32.82 $31.81 $29.94 $23.53 $16.09 $20.62 $20.46
========================================================================================================
Total Return * 29.70% 11.68% 0.62% 11.98% 17.31% 36.80% 52.56% 2.85% 42.44% (21.16%)
Ratios/Supplemental Data:
Ratio of expenses to 1.11% 1.10% 1.02% 1.14% 1.26% 1.47% 1.51% 1.77% 1.65% 2.15%
average net assets
Ratio of net investment
income (loss) to average
net assets (0.44%) (0.17%) 0.54% 0.43% 0.13% 0.02% 0.26% 0.87% 1.21% (0.49%)
Portfolio turnover rate 68.90% 59.60% 29.10% 28.10% 21.00% 32.80% 24.61% 38.25% 11.45% 32.34%
Average commission per share** $0.024 $0.033
Net Assets, End of
Period(000) $337,425 $268,235 $259,133 $160,994 $98,774 $56,237 $31,833 $20,738 $23,048 $10,863
<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.
Note: This information is taken from financial statements audited by Deloitte &
Touche LLP that were published in the Fund's annual reports.
</FN>
</TABLE>
THE LEGEND OF MT. PARNASSUS
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.
3
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 OBJECTIVE AND POLICIES
Objective
The Fund's investment objective is to achieve long-term growth of capital.
The Fund will attempt to achieve this objective 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 emphasizes equity securities issued by established
companies. Established companies are defined as those that have at least $150
million in annual sales.
Selection Process
In general, the Fund's Adviser uses three basic criteria in identifying equity
securities eligible for the Fund's portfolio:
1) the stock is selling at a depressed level compared to its price history for
the past five years (see I below);
2) the issuer is financially sound with good prospects for the future (see II
below); and
3) the issuer has, in the Adviser's judgement, enlightened and progressive
management (see III below).
Generally, the Fund seeks to purchase equity securities that meet the above
criteria. How the Adviser determines if a security 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 evaluates each security to
determine whether it has:
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 70% or less of the highest market
price achieved during the past five years;
3) a market price whose ratio to sales per share is below its historical
average over the past five years; and
4) a market price that is at a 30% or greater discount to its intrinsic
value as calculated by the Adviser.
The ratios given above are not absolute limits, but represent guidelines
generally followed by the Adviser. A security may be selected for the Fund's
portfolio even if it does not meet all of the above tests, but generally will
not be selected if it does not meet any of such tests.
II. FINANCIAL CONSIDERATIONS. The Adviser applies 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 generally considers 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) earnings history and the outlook for future earnings; and
4) the company's net cash flow.
4
III. QUALITATIVE FACTORS. There are also five qualitative factors that, in the
Adviser's opinion, constitute "enlightened and progressive management" of
issuers:
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.
Social Policy
The Adviser looks for certain social policies in the companies in which the
Fund invests. These social policies are: (1) treating employees fairly; (2)
sound environmental protection policies; (3) a good equal employment opportunity
program; (4) quality products and services; (5) a record of civic commitment;
and (6) ethical business practices. Obviously, no company will be perfect in all
categories, but the Adviser makes value judgements in deciding which companies
best meet the criteria.
Although the Fund emphasizes 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.
The social criteria of The Parnassus Fund limit the availability of
investment opportunities. However, the Trustees and the Adviser believe that
there are sufficient investments available that can meet the Fund's social
criteria and still enable the Fund to provide a competitive rate of return.
Other Policies
The Parnassus Fund may invest up to 5% of its assets in community
development loan funds such as those that provide financing for small business
and for low and moderate income housing. The Fund will not make loans to a
project itself, but rather will invest money in an intermediary community loan
fund. With projects having a strong, positive social impact, the Fund may invest
in obligations issued by community loan funds at below-market interest rates.
Generally, there is no secondary market, and thus no liquidity, for these
investments. In general, the Fund seeks to invest in community organizations
that have had a successful record in making these kinds of loans and that are
deemed creditworthy by the Adviser.
The Fund may purchase foreign securities up to a maximum of 15% of the
value of its total net assets. Such investments increase a portfolio's
diversification and may enhance return, but they also involve some special risks
such as: exposure to potentially adverse local political and economic
developments; nationalization and exchange controls; potentially lower liquidity
and higher volatility; possible problems arising from accounting, disclosure,
settlement and regulatory practices that differ from U.S. standards; and the
chance that fluctuations in foreign exchange rates will decrease the
investment's value (favorable change can increase its value). The Fund may also
invest up to 5% of its total net assets in venture capital limited partnerships.
These investments will not be liquid and will likely involve a higher degree of
risk than most portfolio securities.
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, or for other reasons at the discretion of the Adviser,
all or part of the assets may be invested in money market instruments or in
investment grade, long-term debt securities. 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 entity 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.
The Fund may also lend its portfolio securities to broker-dealers and other
institutional borrowers to generate income. The Fund will receive collateral to
secure the borrower's obligation; however, if the borrower defaults on its
obligation, the Fund bears the risk of delay in the recovery of its portfolio
securities and the risk of loss in rights in the collateral. See the Statement
of Additional Information for further details on repurchase agreements and
securities lending.
5
PRINCIPAL INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which are
fundamental policies and, as such, 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) or purchase more than 10% of the outstanding voting
securities of any one issuer; (ii) invest more than 25% of the value of its
total assets in securities of issuers in any one industry; or (iii) borrow money
except from banks for temporary or emergency purposes in amounts not exceeding
10% of the Fund's total assets. (Generally, 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 ("SEC") (and
an operating although not a fundamental policy of the Fund) that the Fund may
not make certain illiquid investments if thereafter more than 15% of the value
of its net assets would be so invested. Investments included in this 15% limit
are: (i) those which are restricted, i.e., those which cannot freely be sold for
legal reasons; (ii) fixed time deposits subject to withdrawal penalties (other
than overnight deposits); (iii) repurchase 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 or commercial paper issued under section 4 (2) of the Securities Act of
1933, as amended ("1933 Act"), or securities eligible for resale under Rule 144A
of the 1933 Act that have been determined to be liquid pursuant to procedures
adopted by the Board of Trustees.
Unless otherwise stated, the Fund's investment policies are operating
policies, i.e., non-fundamental, and may be changed by the Board of Trustees
without shareholder approval.
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*, 54, 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. He is also President and Trustee of The Parnassus
Income Trust.
David L. Gibson, 58, 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. Mr. Gibson is also a Trustee of The
Parnassus Income Trust.
Gail L. Horvath, 48, 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. Ms.
Horvath is also a Trustee of The Parnassus Income Trust.
6
<PAGE>
Herbert A. Houston, 54, is the Chief Executive Officer of the
Haight-Ashbury Free Clinics, Inc. Previously, he worked as Development Director
for the National Association for Sickle Cell Disease, Vice President of the Bay
Area Black United Fund and as an executive for the Combined Federal Campaign and
the United Way of the Bay Area. He is a graduate of California State University
at Hayward and holds a Master's degree in Public Administration & Health
Services from the University of Southern California. Mr. Houston is also a
Trustee of The Parnassus Income Trust.
Cecilia C.M. Lee, 54, is President of Ultra Media, a Silicon Valley-based
electronics firm. She is active in community affairs with the Stanford
Children's Hospital and the Cupertino Children's Choir. Ms. Lee is a Director of
the Tech Museum of Innovation and the Asian-American Manufacturers Association.
She is also on the Advancement Board of the West Valley-Mission Community
College. She received a bachelor's degree from the National Music and Art
Institute of Taiwan. Ms. Lee is also a Trustee of The Parnassus Income Trust.
Leo T. McCarthy, 67, is President of the Daniel Group, a partnership
involved in foreign trade. His current directorships include Linear Technology,
Open Data Systems and the U.S. National Gambling Impact Study Commission. He has
also served as a Regent of the University of California. From 1969 to 1982, he
served as a member of the California State Assembly, six years as Speaker. From
1983 to 1995, he served as Lieutenant Governor of the State of California where
his major responsibility was economic development. He holds a B.S. from the
University of San Francisco and a J.D. from San Francisco Law School and is
licensed to practice law in California. Mr. McCarthy is also a Trustee of The
Parnassus Income Trust and a Director of the Forward Global Fund, another mutual
fund.
Donald E. O'Connor, 61, is a retired executive who spent 28 years as Vice
President of Operations for the Investment Company Institute, (the "ICI" is the
trade association of the mutual fund industry.) During that period, he also
spent 10 years as Chief Operating Officer of the ICI Mutual Insurance Company.
Prior to joining the ICI, he spent six years with the SEC, including four years
as Branch Chief of Market Surveillance. He currently serves as a Trustee of the
Advisors Series Trust, another mutual fund. He is a graduate of The George
Washington University and holds a Masters in Business Administration from the
same institution. Mr. O'Connor is also a Trustee of The Parnassus Income Trust.
Howard M. Shapiro, 66, is a consultant to non-profit organizations
specializing in marketing, fund-raising and organizational structure.
Previously, he worked for 28 years in marketing, advertising and public
relations. He is Chairman of the Board of the Portland Housing Authority and is
Vice Chairman of the Board of the Albina Community Bank in Portland. He also
serves on the Board of Oregon's State Accident Insurance Fund and the Multnomah
County Investment Council. Mr. Shapiro is a graduate of the University of
Washington. He is also a Trustee of The Parnassus Income Trust. He is no
relation to Joan Shapiro.
Joan Shapiro, 55, is a consultant in development banking, community
reinvestment, ethical investing and corporate social responsibility. For 20
years, she worked with the South Shore Bank of Chicago, most recently as
Executive Vice President. She is a former President of the Social Investment
Forum, the national trade association of the social investment industry. Active
in Chicago's civic and cultural life for 25 years, she is a Governor of
International House of the University of Chicago and a member of the President's
Council of Cornell Women. She is a graduate of Cornell University. Ms. Shapiro
is also a Trustee of The Parnassus Income Trust. She is no relation to Howard
Shapiro.
Howard Fong, 52, 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 1989. Mr. Fong
graduated from San Francisco State University with a degree in business
administration. Mr. Fong is also Vice President and Treasurer of The Parnassus
Income Trust.
Richard D. Silberman, 60, 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 Law, 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. Mr. Silberman is also Secretary and general
counsel of The Parnassus Income Trust.
*Denotes "interested" trustee as defined in the Investment Company Act of 1940.
7
<PAGE>
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 13 years of 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; and 0.60% of the amount above $200 million. For 1997, the Fund
paid the Adviser 0.66% of its average daily 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, subject to its obligation to obtain best
execution, 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.
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:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SALES CHARGE AS A PERCENTAGE OF
- --------------------------------------------------------------------------------
DEALER DISCOUNT
OFFERING NET ASSET AS A PERCENTAGE
AMOUNT OF TRANSACTION AT OFFERING PRICE PRICE VALUE OFFERING PRICE
- --------------------------------------------------------------------------------
<S> <C> <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>
8
<PAGE>
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(s)
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, Inc., 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 or 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
obtain the reduced sales charges shown above. To receive the reduced sales
charge, you can complete the "letter of intent" section on the application or
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 Trust 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 a Uniform Transfers to Minors Act (UTMA) or a
Uniform Gifts to Minors 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.
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(S), SEP(S)) 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 p.m. San Francisco time; otherwise, it will be
processed the next business day.
9
Purchases Via Parnassus Automatic Investment Plan (PAIP)
After making an initial investment to open an account, a Fund 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 as of
1:00 p.m. that same day. Otherwise, the order will be processed at the offering
price next calculated, typically as of the close of the New York Stock Exchange
("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 ordinarily determined as of the
close of trading on the NYSE, usually 4:00 p.m. Eastern time, on each day that
the NYSE 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. In general, 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.
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 Trust). 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 unauthorized 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 written 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 written instructions in proper form. Give your
account number and indicate the number of shares you wish
10
<PAGE>
to redeem. All owners of the account must sign unless the account application
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.
REINVESTMENT PRIVILEGE. If you redeem some or all of your shares and then
change your mind, you may reinvest 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 Fund and invests the proceeds in shares of The Parnassus Income
Trust, the shareholder may reinvest the proceeds of the redemption of those
shares back into the Fund at any time without a sales charge. The Fund resumes
the right to modify or eliminate this exchange privilege in the future.
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. 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 has qualified 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 tax on either its net
investment income or on its net 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. Tax-exempt and tax-deferred shareholders, of course, will
not be required to pay taxes on any amount paid to them. IRAs and other
tax-deferred retirement accounts are not required to pay taxes until
distribution.
Any net long-term capital gains ("capital gain distributions") distributed
to shareholders are taxable as such to shareholders. Tax-exempt and tax-deferred
shareholders, of course, will not be required to pay taxes on any amounts paid
to them. As a result of tax law changes enacted in 1997, there are different
maximum federal income tax rates applicable to your capital gain distributions
if you are a noncorporate taxpayer depending on the Fund's holding period and
your marginal rate of federal income tax -- generally, 28% for gains recognized
on securities held for more than one year but not more than 18 months and 20%
(10% if you are in the 15% marginal tax bracket) for gains recognized on
securities held for more than 18 months.
Income dividends and capital gain distributions will ordinarily 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 distributions 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.
11
<PAGE>
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. Individuals do not qualify for this
deduction---only corporations.
The dividend and capital gain 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.
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. 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, 1997 TOTAL RETURN OVERALL RETURN
One Year 25.16% 29.70%
Five Years 13.06% 13.87%
Ten Years 16.11% 16.52%
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 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 Composite Stock
Price 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 fund 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 the
ranking 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
expense 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 original 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.
12
<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
judgement 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. 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 its outstanding shares, or upon liquidation and distribution of its
assets, if approved by the vote of the holders of more than 50% of its
outstanding shares. If not so terminated, the Fund will continue indefinitely.
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.)
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.
Parnassus Investments, One Market-Steuart Tower #1600, San Francisco, California
94105, is the Fund's transfer agent and accounting agent. Jerome L. Dodson, the
Fund's President, is the sole stockholder of Parnassus Investments.
13
<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
www.parnassus.com
14
<PAGE>
The Parnassus Fund
One Market
Steuart Tower #1600
San Francisco, CA 94105
(415) 778-0200
STATEMENT OF ADDITIONAL INFORMATION April 1, 1998
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Fund's prospectus dated April 1, 1998, 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
Operating Policies B-3 6
Repurchase Agreements B-3
Lending Portfolio Securities B-3
Management B-4 8
Performance B-7 18
Net Asset Value B-7 14
Shareholder Services B-7 11
General B-8 19
Financial Statements B-9
<PAGE>
Investment Objectives and Policies
The investment objective of the Fund is to realize long-term growth of
capital. 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 (the "1940 Act") 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 would then be invested in securities of a single issuer or (ii)
the Fund would hold more than 10% of the outstanding voting securities of any
one 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) 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.
(7) 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.
(8) Participate on a joint (or joint and several) basis in any trading
account in securities.
(9) 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.
(10) 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.
B-2
<PAGE>
(11) Make loans except through repurchase agreements; however, the Fund may
engage in securities lending and may also acquire debt securities and other
obligations consistent with the Fund's investment objective and its other
investment policies and restrictions. Investing in a debt instrument that is
convertible into equity or investing in a community loan fund is not considered
the making of a loan.
Operating Policies
- ------------------
The Fund has adopted the following operating policies which may be changed by a
vote of the majority of the Fund's Trustees:
(1) The Fund may purchase warrants up to a maximum of 5% of the value of its
total net assets.
(2) The Fund may not hold or purchase foreign currency except as may be
necessary in the settlement of foreign securities transactions.
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.
Lending Portfolio Securities
- ----------------------------
To generate additional income, the Fund may lend its portfolio securities
to broker-dealers, banks or other institutional borrowers of securities. The
Fund must receive 102% collateral in the form of cash or U.S. Government
securities. This collateral will be valued daily. Should the market value of the
loaned securities increase, the borrower must furnish additional collateral to
the Fund. During the time portfolio securities are on loan, the borrower pays
the Fund any dividends or interest received on such securities. While the Fund
does not have the right to vote securities that are on loan, the Fund intends to
terminate the loan and regain the right to vote if that is considered important
B-3
<PAGE>
with respect to the investment. The borrower can repay the loan at any time and
the Fund can demand repayment at any time.
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 Fund
One Market and Trustee an President and Director of
Steuart Tower #1600 Parnassus Investments since
San Francisco, CA 94105 June of 1984.
Howard Fong Vice President Vice President and Treasurer of
The Parnassus Fund and Treasurer The Parnassus Fund and of
One Market Parnassus Investments since
Steuart Tower #1600 February of 1989.
San Francisco, CA 94105
David L. Gibson Trustee Attorney in private practice.
5840 Geary Boulevard
San Francisco, CA 94118
Gail L. Horvath Trustee Owner and Director of New
Just Desserts Product Development at Just
1970 Carroll Avenue Desserts.
San Francisco, CA 94124
Herbert A. Houston Trustee Chief Executive Officer of the
Haight Ashbury Free Clinics Haight Ashbury Free Clinics,
Presidio Building 1003 Inc.
O'Reilly Avenue
P.O. Box 29917
San Francisco, CA 94129
Cecilia C.M. Lee Trustee President of Ultra Media, a
2048 Corporate Court Silicon Valley-based
San Jose, CA 95131 electronics firm.
Leo T. McCarthy Trustee President of the Daniel Group,
One Market a partnership involved in
Steuart Tower #1600 foreign trade. A former member
San Francisco, CA 94105 of the California State
Assembly from 1969-1982 and
former Lieutenant Governor of
the State of California from
1983-1995.
B-4
<PAGE>
Donald E. O'Connor Trustee Retired. Executive for the
One Market Investment Company Institute
Steuart Tower #1600 1969-1997.
San Francisco, CA 94105
Howard M. Shapiro Trustee Consultant to non-profit
American Bank Building organizations specializing in
621 SW Morrison Street, marketing, fund-raising and
Ste. #600 organizational structure.
Portland, OR 97205
Joan Shapiro Trustee Consultant in development
One Market banking, community reinvestment,
Steuart Tower #1600 ethical investing, and corporate
San Francisco, CA 94105 social responsibility. Executive
with South Shore Bank of Chicago
1977-1997.
Richard D. Silberman Secretary Attorney specializing in
465 California St. #1020 business and securities law.
San Francisco, CA 94104 Private practice.
The Fund pays each of its Trustees who is not affiliated with the Adviser or the
Distributor annual fees of $10,500 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.
CONTROL PERSONS
As of December 31, 1997, no shareholder owned more than 5% of the
outstanding securities of the Fund. Trustees and Officers of The Parnassus Fund
owned less than 1% of the outstanding shares.
The Adviser
- -----------
Parnassus Investments acts as the Fund's investment adviser. Under
Parnassus Investment's Investment Advisory Agreement ("Agreement") 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."
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 Agreement provides that the Adviser shall not be liable to the Fund for
any loss to the Fund except by reason of the Adviser's 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.
B-5
<PAGE>
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% of the
amount above $200 million. Any such reductions are accrued and paid in the same
manner as the Adviser's fee and are subject to readjustment during the year.
During 1995, 1996 and 1997, the Fund paid to Parnassus Investments under the
investment advisory contract the sums of $1,582,602, $1,736,345 and $2,120,608,
respectively.
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 1995, 1996 and 1997, Parnassus Investments received
$1,897,143, $663,213 and $447,056, respectively, of which amounts the following
was paid to other broker/dealers: $564,362 in 1995, $220,044 in 1996 and
$156,972 in 1997.
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 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 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 Fund 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. To the extent that
electronic or other products provided by brokers are used by the Adviser for
research purposes, the Adviser will use its best judgement to make a reasonable
allocation of the cost of the product attributable to non-research use.
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.
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.
B-6
<PAGE>
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 1995, 1996 and 1997, the Fund paid $578,760, $617,143 and $574,269,
respectively, in brokerage commissions. Of those amounts, the following was paid
in conjunction with research services: $317,075 in 1995, $327,624 in 1996 and
$525,000 in 1997.
Parnassus Investments has clients other than The Parnassus Fund that have
objectives similar to the Fund. Normally, orders for securities trades are
placed separately for each client. However, some recommendations may result in
simultaneous buying or selling of securities along with the Fund. As a result,
the demand for securities being purchased or the supply of securities being sold
may increase, and this could have an adverse effect on the price of those
securities. Parnassus Investments does not favor one client over another in
making recommendations or placing orders, and in some situations, orders for
different clients may be grouped together. In certain cases where the aggregate
order is executed in a series of transactions at various prices on a given day,
each participating client's proportionate share of such order reflects the
average price paid or received with respect to the total order. Also, should
only a partial order be filled, each client would ordinarily receive a pro rata
share of the total order.
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, 1997
was 25.16%, 13.06% and 16.11%. These results are based on historical earnings
and asset value fluctuations and are not intended to indicate future
performance.
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 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 Nasdaq Stock Market 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. Bonds and other fixed-income securities are valued by a third-party
pricing service. 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
thirteen-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
B-7
<PAGE>
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 thirteen-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.
Dividends and capital gain 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 gain
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.
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 series of
shares or classes thereof which may have separate assets and liabilities and
which may differ from each other as to dividends and other features. Shares of
each
B-8
<PAGE>
series or class thereof would be entitled to vote as a series or class only to
the extent required by the 1940 Act or as permitted by the Trustees.
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 or
her office.
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.
FINANCIAL STATEMENTS
The Fund's Annual Report to Shareholders dated December 31, 1997, 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, 1997, may be
obtained free of charge by writing or calling the Fund.
B-9
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(i) Selected financial highlights from January 1, 1988, through
December 31, 1997, appears in Part A.
(ii) Audited financial statements as of December 31, 1997, are
incorporated by reference. These statements appear in the annual
report dated December 31, 1997, and are on file with the
Commission. Financial statements include statement of assets and
liabilities, statement of operations, statement of changes in net
assets, Portfolio of Investments by Industry Classification,
notes to financial statements and independent auditors' report.
(b) Exhibits
(1) Declaration of Trust: Amended and Restated as of March 30,
1998: included
(2) By-laws: Amended and Restated as of March 30, 1998: included
(3) Not applicable
(4) Not applicable
(5) Investment advisory contract: Amended as of March 30, 1998:
included
(6) Distribution agreement and dealer agreement: on file
(7) Not applicable
(8) Custodian agreement: on file
(9) Shareholder Servicing Plan and Agreement: on file
(10) Opinion and Consent of Counsel: on file
(11) Consent of Deloitte & Touche LLP: included
(12) Not applicable
(13) Investment letters: on file
(14) Individual Retirement Account Form: included; Simplified
Employee Pension Plan: on file; Roth IRA: included
(15) Not applicable
(16) Schedule for computation of each performance quote: included
Item 25. Persons Controlled by or under Common Control with Registrant:
Registrant is not controlled by or under common control with any other
person, except to the extent Registrant may be deemed to be under
common control with The Parnassus Income Trust by virtue of having the
same individuals as Trustees.
Item 26. Number of Holders of Securities: As of December 31, 1997, there were
20,550 holders of the Registrant's shares of beneficial interest.
Item 27. Indemnification: Under the provisions of the Fund's Declaration of
Trust, the Fund will indemnify its present or former Trustees,
officers, employees and certain other agents against liability incurred
in such capacity except that no such person may be indemnified if there
has been an adjudication of liability against that person based on a
finding of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office.
Item 28. The Fund's investment adviser, Parnassus Investments, is the
investment adviser to The Parnassus Income Trust and also serves as
investment adviser for separate portfolios.
Item 29. (a) Parnassus Investments serves as underwriter for both The Parnassus
Fund and The Parnassus Income Trust.
(b) The officers and directors of Parnassus Investments are as follows:
Name and Principal
Business Address Position with Distributor Position with Registrant
- ---------------- ------------------------- ------------------------
Jerome L. Dodson President and Director President and Trustee
One Market
Steuart Tower #1600
San Francisco, CA 94105
Howard Fong Treasurer Vice President and
One Market Treasurer
Steuart Tower #1600
San Francisco, CA 94105
Susan Loughridge Secretary None
One Market
Steuart Tower #1600
San Francisco, CA 94105
Thao N. Dodson Director None
One Market
Steuart Tower #1600
San Francisco, CA 94105
(c) None
Item 30. Location of Accounts and Records: All accounts, books and records are
in the physical possession of Jerome L. Dodson at Registrant's
headquarters at One Market, Steuart Tower #1600, San Francisco, CA
94105.
Item 31. Management Services: Discussed in Part A.
Item 32. Not applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485 (b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City and County of San Francisco and the State of California
on the 28th day of March 1998.
The Parnassus Fund
(Registrant)
By:___________________________
Jerome L. Dodson
President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
<PAGE>
Signature Title Date
- --------- ----- ----
Principal Executive Officer March 27, 1998
- ---------------------- and Trustee --------------
Jerome L. Dodson
Principle Financial and March 27, 1998
- ---------------------- Accounting Officer --------------
Howard Fong
Trustee March 27, 1998
- ---------------------- --------------
David L. Gibson
Trustee March 27, 1998
- ---------------------- --------------
Gail L. Horvath
Trustee March 27, 1998
- ---------------------- --------------
Herbert A. Houston
Trustee March 27, 1998
- ---------------------- --------------
Cecilia C.M. Lee
Trustee March 27, 1998
- ---------------------- --------------
Leo T. McCarthy
Trustee March 27, 1998
- ---------------------- --------------
Donald E. O'Connor
Trustee March 27, 1998
- ----------------------- --------------
Howard M. Shapiro
Trustee March 27, 1998
- ----------------------- --------------
Joan Shapiro
<PAGE>
LIST OF EXHIBITS
(1) Declaration of Trust: Amended and Restated as of March 30, 1998
(2) By laws: Amended and restated as of March 30, 1998
(5) Investment Advisory Agreement: Amended as of March 30, 1998
(11) Consent of Deloitte & Touche LLP
(14) Individual Retirement Account Form & Roth IRA
(16) Schedule for computation of each performance quote
<PAGE>
EXHIBIT 1
THE PARNASSUS FUND
AMENDED AND RESTATED
DECLARATION OF TRUST
DECLARATION OF TRUST, made April 2, 1984, as amended, and as restated
effective March 30, 1998:
WHEREAS, the Trustees desire to establish a trust fund under the laws
of the Commonwealth of Massachusetts, for the investment and reinvestment of
funds contributed thereto;
NOW THEREFORE, the Trustees declare that all money and property
contributed to the trust fund hereunder shall be held and managed under this
Declaration of Trust IN TRUST as herein set forth below.
FIRST: This Trust shall be known as THE PARNASSUS FUND.
SECOND: Whenever used herein, unless otherwise required by the context
or specifically provided:
1. All terms used in this Declaration of Trust which are defined in the
1940 Act shall have the meanings given to them in the 1940 Act.
2. The "Trust" refers to THE PARNASSUS FUND.
3. "Shareholder" means a record owner of Shares of the Trust.
4. The "Trustees" refer to the individual trustees in their capacity as
trustees hereunder of the Trust and their successor or successors
for the time being in office as such trustees.
5. "Shares" means the equal proportionate units of interest into which
the beneficial interest of each Series or Class thereof shall be
divided from time to time and includes fractions of shares as well
as whole shares (all of the units of a Series or of a single Class
may be referred to as "Shares" as the context may require).
6. "Series" refers to series of Shares of the Trust established in
accordance with the provisions of Article FOURTH.
7. "Class" refers to the class of Shares of a Series of the Trust
established in accordance with the provisions of Article FOURTH.
8. The "1940 Act" refers to the Investment Company Act of 1940, as
amended from time to time.
9. "Commission" means the Securities and Exchange Commission.
10."Board" or "Board of Trustees" means the Board of Trustees of the
Trust.
11. In this Declaration of Trust, the masculine embraces the feminine.
THIRD: The purpose or purposes for which the Trust is formed and the
business or objects to be transacted, carried on and promoted by it are as
follows:
1. To hold, invest and reinvest its funds, and in connection therewith
to hold part or all of its funds in cash, and to purchase or otherwise acquire,
hold for investment or otherwise, sell, sell short, assign, negotiate, transfer,
exchange or otherwise dispose of or turn to account or realize upon, securities
(which term "securities" shall for the purposes of this Declaration of Trust,
without limitation of the generality thereof, be deemed to include any stocks,
shares, bonds, debentures, notes, mortgages or other obligations, and any
certificates, receipts, warrants or other instruments representing rights to
receive, purchase or subscribe for the same, or evidencing or representing any
other rights or interests therein, or in any property or assets) created or
issued by any issuer (which term "issuer" shall for the purposes of this
Declaration of Trust, without limitation of the generality thereof be deemed to
include any persons, firms, associations, corporations, syndicates,
combinations, organizations, governments, or subdivisions thereof) or in any
other financial instruments whether or not considered as securities or
commodities; and to exercise, as owner or holder of any securities or other
financial instruments, all rights, powers and privileges in respect thereof; and
to do any and all acts and things for the preservation, protection, improvement
and enhancement in value of any or all such securities or other financial
instruments.
2. To borrow money and pledge assets in connection with any of the
objects or purposes of the Trust, and to issue notes or other obligations
evidencing such borrowings, to the extent permitted by the 1940 Act and by the
Trust's fundamental investment policies under the 1940 Act.
3. To issue and sell its Shares in such amounts and on such terms and
conditions, for such purposes and for such amount or kind of consideration
(including without limitation thereto, securities or other financial
instruments) now or hereafter permitted by the laws of the Commonwealth of
Massachusetts and by this Declaration of Trust, as the Trustees may determine.
4. To purchase or otherwise acquire, hold, dispose of, resell,
transfer, reissue or cancel (all without the vote or consent of the Shareholders
of the Trust) its Shares, in any manner and to the extent now or hereafter
permitted by the laws of Massachusetts and by this Declaration of Trust.
5. To conduct its business in all its branches at one or more offices
in Massachusetts and elsewhere in any part of the world, without restriction or
limit as to extent.
6. To carry out all or any of the foregoing objects and purposes as
principal or agent, and alone or with associates or, to the extent now or
hereafter permitted by the laws of Massachusetts, as a member of, or as the
owner or holder of any stock of, or share of interest in, any issuer, and in
connection therewith to make or enter into such deeds or contracts with any
issuers and to do such acts and things and to exercise such powers, as a natural
person could lawfully make, enter into, do or exercise.
7. To do any and all such further acts and things and to exercise any
and all such further powers as may be necessary, incidental, relative,
conducive, appropriate or desirable for the accomplishment, carrying out or
attainment of all or any of the foregoing purposes or objects.
The foregoing objects and purposes shall, except as otherwise expressly
provided, be in no way limited or restricted by reference to, or inference from,
the terms of any other clause of this or any other Articles of this Declaration
of Trust, and shall each be regarded as independent and construed as powers as
well as objects and purposes, and the enumeration of specific purposes, objects
and powers shall not be construed to limit or restrict in any manner the meaning
of general terms or the general powers of the Trust now or hereafter conferred
by the laws of the Commonwealth of Massachusetts nor shall the expression of one
thing be deemed to exclude another, though it be of like nature, not expressed;
provided, however, that the Trust shall not carry on any business, or exercise
any powers, in any state, territory, district or country except to the extent
that the same may lawfully be carried on or exercised under the laws thereof.
FOURTH: (a) The beneficial interest in the Trust shall be divided into
such transferable Shares, without par value, of one or more separate and
distinct Series or Classes thereof as the Trustees shall from time to time
create and establish. The number of Shares is unlimited and upon issuance in
accordance with the terms hereof shall be fully paid and nonassessable. The
Trustees shall have full power and authority, in their sole discretion and
without obtaining any prior authorization or vote of the Shareholders of the
Trust, to create and establish (and to change in any manner) Shares with such
preferences, terms of conversion, voting powers, rights and privileges as the
Trustees may from time to time determine, to divide or combine the Shares into a
greater or lesser number, to classify or reclassify any unissued Shares into one
or more Series or Classes of Shares, to abolish any one or more Series or
Classes of Shares, and to take such other action with respect to the Shares as
the Trustees may deem desirable. Contributions to the Trust may be accepted for,
and Shares shall be redeemed as, whole Shares or 1/1,000ths of a Share or
multiple thereof. The Trustees, in their discretion without a vote of the
Shareholders, may divide the Shares of any Series into Classes. In such event,
each Class of a Series shall represent interests in the assets of that Series
and have identical voting, dividend, liquidation and other rights and the same
terms and conditions, except that expenses allocated to a Class of a Series may
be borne solely by such Class as shall be determined by the Trustees and a Class
of a Series may have exclusive voting rights with respect to matters affecting
only that Class. Without limiting the authority of the Trustees set forth in
this Article FOURTH to establish and designate Series or Classes, the Trustees
have established and designated the Series of Shares and Classes, if any, listed
in Schedule A attached hereto and made a part hereof.
(b) The establishment of any Series or Class in addition to those set
forth in (a) above shall be effective upon the adoption of a resolution by a
majority of the then Trustees setting forth such establishment and designation
and the relative rights and preferences of the Shares of such Series or Class
thereof. At any time that there are no Shares outstanding of any particular
Series previously established and designated, the Trustees may by a majority
vote abolish that Series and the establishment and designation thereof. At any
time that there are no shares outstanding of any particular Class of a Series,
the Trustees may by a majority vote abolish that Class and the establishment and
designation thereof. The Trustees by a majority vote may change the name of any
Series or Class.
(c) All consideration received by the Trust for the issue or sale of
Shares of a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall be
referred to as "assets belonging to" that Series. In addition, any assets,
income, earnings, profits, and proceeds thereof, funds, or payments which are
not readily identifiable as belonging to any particular Series shall be
allocated by the Trustees between and among one or more of the Series in such
manner as they, in their sole discretion, deem fair and equitable. Each such
allocation shall be conclusive and binding upon the Shareholders of all Series
for all purposes, and shall be referred to as assets belonging to that Series.
The assets belonging to a particular Series shall be so recorded upon the books
of the Trust, and shall be held by the Trustees in Trust for the benefit of the
holders of Shares of that Series. The assets belonging to each particular Series
shall be charged with the liabilities of that Series and all expenses, costs,
charges and reserves attributable to that Series except that liabilities and
expenses allocated solely to a particular Class shall be borne by that Class.
Any general liabilities, expenses, costs, charges or reserves of the Trust or
Series which are not readily identifiable as belonging to any particular Series
or Class shall be allocated and charged by the Trustees between or among any one
or more of the Series or Classes in such manner as the Trustees in their sole
discretion deem fair and equitable. Each such allocation shall be conclusive and
binding upon the Shareholders of all Series or Classes for all purposes. Any
creditor of any Series may look only to the assets of that Series to satisfy
such creditor's debt. See Article EIGHTH, paragraph 1.
(d) The ownership of Shares shall be recorded in the books of the Trust
or a transfer agent. The Trustees may make such rules as they consider
appropriate for the transfer of Shares and similar matters. The record books of
the Trust or any transfer agent, as the case may be, shall be conclusive as to
who are the holders of Shares and as to the number of Shares held from time to
time by each.
(e) The Trustees shall accept investments in the Trust from such
persons and on such terms as they may from time to time authorize.
(f) Shareholders shall have no preemptive or other right to subscribe
to any additional Shares or other securities issued by the Trust or the
Trustees.
FIFTH: The following provisions are hereby adopted with respect to
voting Shares of the Trust and certain other rights:
1. The Shareholders shall have power to vote (i) for the election of
Trustees to the extent provided in the By-Laws, (ii) with respect to the
amendment of this Declaration of Trust as provided in Article EIGHTH, paragraph
12, (iii) to the same extent as the shareholders of a Massachusetts business
corporation, as to whether or not a court action, proceeding or claim should be
brought or maintained derivatively or as a class action on behalf of the Trust
or the Shareholders, and (iv) with respect to such additional matters relating
to the Trust as may be required by the 1940 Act or authorized by law, by this
Declaration of Trust, or the By-Laws of the Trust or any registration statement
of the Trust with the Commission or any State, or as the Trustees may consider
desirable. On any matter submitted to a vote of the Shareholders, all Shares
shall be voted by individual Series, except: (i) when required by the 1940 Act,
Shares shall be voted in the aggregate and not by individual Series; and (ii)
when the Trustees have determined that the matter affects only the interests of
one or more Classes, then only the Shareholders of such Class or Classes shall
be entitled to vote thereon.
2. At all meetings of Shareholders each Shareholder shall be entitled
to one vote for each Share standing in his name on the books of the Trust on the
date, fixed in accordance with the By-Laws, for determination of Shareholders
entitled to vote at such meeting except (if so determined by the Board of
Trustees) for Shares redeemed prior to the meeting. Any fractional Share shall
carry proportionately all the rights of a whole Share, including the right to
vote and the right to receive dividends. The presence in person or by proxy of
the holders of one-third of the Shares outstanding and entitled to vote thereat
shall constitute a quorum at any meeting of the Shareholders. If at any meeting
of the Shareholders there shall be less than a quorum present, the Shareholders
present at such meeting may, without further notice, adjourn the same from time
to time until a quorum shall attend, but no business shall be transacted at any
such adjourned meeting except such as might have been lawfully transacted had
the meeting not been adjourned.
3. Each Shareholder, upon request to the Trust in proper form
determined by the Trust, shall be entitled to require the Trust to redeem all or
any part of the Shares standing in the name of the Shareholder. The method of
computing such net asset value, the time at which such net asset value shall be
computed and the time within which the Trust shall make payment therefor, shall
be determined as hereinafter provided in Article SEVENTH of this Declaration of
Trust. Notwithstanding the foregoing, the Trustees, when permitted or required
to do so by the 1940 Act, may suspend the right of the Shareholders to require
the Trust to redeem Shares.
4. No Shareholder shall, as such holder, have any right to purchase or
subscribe for any security of the Trust which it may issue or sell, other than
such right, if any, as the Trustees, in their discretion, may determine.
5. Notwithstanding anything elsewhere contained in this Declaration of
Trust or in the By-Laws of the Trust, so long as the By-Laws of the Trust do not
provide for regular annual meetings of Shareholders of the Trust, the
Shareholders of the Trust shall have such rights, and the Trust, the Board of
Trustees, and the Trustees shall have such obligations as would exist if the
Trust were a common law trust covered by Section 16(c) of the 1940 Act. In the
event that the Trust has outstanding two or more Series, each such Series shall
be considered as if it were a separate common law trust covered by said Section
16(c). However, the Trust may at any time or from time to time apply to the
Commission for one or more exemptions from all or part of said Section 16(c)
and, if an exemptive order or orders are issued by the Commission, such order or
orders shall be deemed part of said Section 16(c) for the purposes of this
paragraph 5.
SIXTH: The person who shall act as initial Trustees are the persons
initially executing this Declaration of Trust or any counterpart thereof.
However, the By-Laws of the Trust may fix the number of Trustees at a
number greater than that of the number of initial Trustees and may authorize the
Trustees to increase or decrease the number of Trustees, to fill the vacancies
created by any such increase in the number of Trustees, to set and alter the
terms of office of the Trustees and to lengthen or lessen their own terms or
make their terms of indefinite duration, all subject to the 1940 Act. Unless
otherwise provided by the By-Laws of the Trust, the Trustees need not be
Shareholders.
SEVENTH: The following provisions are hereby adopted for the purpose of
defining, limiting and regulating the powers of the Trust and of the Trustees
and Shareholders.
1. As soon as any Trustee is duly elected by the Shareholders or the
Trustees and shall have accepted this trust, the Trust estate shall vest in the
new Trustee or Trustees, together with the continuing Trustees without any
further act or conveyance, and he shall be deemed a Trustee hereunder.
2. The death, declination, resignation, retirement, removal, or
incapacity of the Trustees, or any one of them, shall not operate to annul the
Trust or to revoke any existing agency created pursuant to the terms of this
Declaration of Trust.
3. The assets of the Trust shall be held separate and apart from any
assets now or hereafter held in any capacity other than as Trustee hereunder by
the Trustees or any successor Trustees. All of the assets of the Trust shall at
all times be considered as vested in the Trustees. Except as provided in this
Declaration of Trust, no Shareholder shall have, as such holder of beneficial
interest in the Trust, any authority, power or right whatsoever to transact
business for or on behalf of the Trust, or on behalf of the Trustees, in
connection with the property or assets of the Trust, or in any part thereon,
except the rights to receive the income and distributable amounts arising
therefrom as set forth herein.
4. The Trustees in all instances shall act as principals, and are and
shall be free from the control of the Shareholders. The Trustees shall have full
power and authority to do any and all acts and to make and execute any and all
contracts and instruments that they may consider necessary or appropriate in
connection with the management of the Trust. The Trustees shall not in any way
be bound or limited by present or future laws or customs in regard to Trust
investments, but shall have full authority and power to make any and all
investments which they, in their uncontrolled discretion, shall deem proper to
accomplish the purposes of this Trust. Subject to any applicable limitation in
this Declaration of Trust or in the By-Laws of the Trust, the Trustees shall
have power and authority:
(a) to adopt By-Laws not inconsistent with this Declaration of
Trust providing for the conduct of the business of the Trust and to amend and
repeal them to the extent that they do not reserve that right to the
Shareholders;
(b) to elect and remove such officers and appoint and
terminate such officers as they consider appropriate with or without cause;
(c) to employ a bank or trust company as custodian of any
assets of the Trust subject to any conditions set forth in this Declaration of
Trust or in the By-Laws;
(d) to retain a transfer agent and Shareholder servicing
agent, or both;
(e) to provide for the distribution of Shares either through a
principal underwriter or the Trust itself or both;
(f) to set record dates in the manner provided for in the
By-Laws of the Trust;
(g) to delegate such authority as they consider desirable to
any officers of the Trust and to any agent, custodian or underwriter;
(h) to vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or property held in Trust
hereunder; and to execute and deliver powers of attorney to such person or
persons as the Trustees shall deem proper, granting to such person or persons
such power and discretion with relation to securities or property as the
Trustees shall deem proper;
(i) to exercise powers and rights of subscription or otherwise
which in any manner arise out of ownership of securities held in trust
hereunder;
(j) to hold any security or property in a form not indicating
any trust, whether in bearer, unregistered or other negotiable form; or either
in its own name or in the name of a custodian or a nominee or nominees, subject
in either case to proper safeguards according to the usual practice of
Massachusetts business trusts or investment companies;
(k) to consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or concern, any
security of which is held in the Trust; to consent to any contract, lease,
mortgage, purchase or sale of property by such corporation or concern, and to
pay calls or subscriptions with respect to any security held in the Trust;
(l) to compromise, arbitrate, or otherwise adjust claims in
favor of or against the Trust or any matter in controversy including, but not
limited to, claims for taxes;
(m) to make, in the manner provided in the By-Laws,
distributions of income and of capital gains to Shareholders;
(n) to borrow money to the extent and in the manner permitted
by the 1940 Act and the Trust's fundamental policy thereunder as to borrowing;
and
(o) to enter into investment advisory or management contracts,
subject to the 1940 Act, with any one or more corporations, partnerships,
trusts, associations or other persons; if the other party or parties to any such
contract are authorized to enter into securities transactions on behalf of the
Trust, such transactions shall be deemed to have been authorized by all of the
Trustees.
5. No one dealing with the Trustees shall be under any obligation to
make any inquiry concerning the authority of the Trustees, or to see to the
application of any payments made or property transferred by the Trustees or upon
their order.
6. (a) The Trustees shall have no power to bind any Shareholder
personally or to call upon any Shareholder for the payment of any sum of money
or assessment whatsoever other than such as the Shareholder may at any time
personally agree to pay by way of subscription to any Shares or otherwise. Every
note, bond, contract or other undertaking issued by or on behalf of the Trust or
the Trustees relating to the Trust shall include a recitation limiting the
obligation represented thereby to the Trust and its assets (but the omission of
such a recitation shall not operate to bind any Shareholder).
(b) Except as otherwise provided in this Declaration of Trust
or the By-Laws, whenever this Declaration of Trust calls for or permits any
action to be taken by the Trustees hereunder, such action shall mean that taken
by the Board of Trustees by vote of the majority of a quorum of Trustees as set
forth from time to time in the By-Laws of the Trust or as required pursuant to
the provisions of the 1940 Act and the rules and regulations promulgated
thereunder.
(c) The Trustees shall possess and exercise any and all such
additional powers as are reasonably implied from the powers herein contained
such as may be necessary or convenient in the conduct of any business or
enterprise of the Trust, to do and perform anything necessary, suitable, or
proper for the accomplishment of any of the purposes, or the attainment of any
one or more of the objects, herein enumerated, or which shall at any time appear
conducive to or expedient for the protection or benefit of the Trust, and to do
and perform all other acts or things necessary or incidental to the purposes
herein before set forth, or that may be deemed necessary by the Trustees.
(d) The Trustees shall have the power to determine
conclusively whether any moneys, securities, or other properties of the Trust
property are, for the purposes of this Trust, to be considered as capital or
income and in what manner any expenses or disbursements are to be borne as
between capital and income whether or not in the absence of this provision such
moneys, securities, or other properties would be regarded as capital or income
and whether or not in the absence of this provision such expenses or
disbursements would ordinarily be charged to capital or to income.
7. The By-Laws of the Trust may divide the Trustees into classes and
prescribe the tenure of office of the several classes, but no class shall be
elected for a period shorter than that from the time of the election following
the division into classes until the next meeting of Shareholders.
8. The Shareholders shall have the right to inspect the records,
documents, accounts and books of the Trust, subject to reasonable regulations of
the Trustees, not contrary to Massachusetts law, as to whether and to what
extent, and at what times and places, and under what conditions and regulations,
such right shall be exercised.
9. Any Trustee, or any officer elected or appointed by the Trustees or
by any committee of the Trustees or by the Shareholders or otherwise, may be
removed at any time, with or without cause, in such lawful manner as may be
provided in the By-Laws of the Trust.
10. If the By-Laws so provide, the Trustees shall have power to hold
their meetings, to have an office or offices and, subject to the provisions of
the laws of Massachusetts, to keep the books of the Trust outside of said
Commonwealth at such places as may from time to time be designated by them.
11. Securities held by the Trust shall be voted in person or by proxy
by the President or a Vice-President, or such officer or officers of the Trust
as the Trustees shall designate for the purpose, or by a proxy or proxies
thereunto duly authorized by the Trustees, except as otherwise ordered by vote
of the holders of a majority of the Shares outstanding and entitled to vote in
respect thereto.
12. (a) Subject to the provisions of the 1940 Act, any Trustee, officer
or employee, individually, or any partnership of which any Trustee, officer or
employee may be a member, or any corporation or association of which any
Trustee, officer or employee may be an officer, director, trustee, employee or
stockholder, may be a party to, or may be pecuniarily or otherwise interested
in, any contract or transaction of the Trust, and in the absence of fraud no
contract or other transaction shall be thereby affected or invalidated; provided
that in case a Trustee, or a partnership, corporation or association of which a
Trustee is a member, officer, director, trustee, employee or stockholder is so
interested, such fact shall be disclosed or shall have been known to the
Trustees or a majority thereof; and any Trustee who is so interested, or who is
also a director, officer, trustee, employee or stockholder of such other
corporation or association or a member of such other corporation or association
or a member of such partnership which is so interested, may be counted in
determining the existence of a quorum at any meeting of the Trustees which shall
authorize any such contract or transaction, and may vote thereat to authorize
any such contract or transaction, with like force and effect as if he were not
such director, officer, trustee, employee or stockholder of such other trust or
corporation or association or a member of a partnership so interested.
(b) Specifically, but without limitation of the foregoing, the
Trust may enter into a management or investment advisory contract or
underwriting contract and other contracts with, and may otherwise do business
with any manager or investment adviser and/or any sub-adviser for the Trust
and/or principal underwriter of the Shares of the Trust or any subsidiary or
affiliate of any such manager or investment adviser and/or sub-adviser and/or
principal underwriter and may permit any such firm or corporation to enter into
any contracts or other arrangements with any other firm or corporation relating
to the Trust notwithstanding that the Board of the Trust may be composed in part
of partners, directors, officers or employees of any such firm or corporations,
and officers of the Trust may have been or may be or become partners, directors,
officers or employees of any such firm or corporation, and in the absence of
fraud the Trust and any such firm or corporation may deal freely with each
other, and no such contract or transaction between the Trust and any such firm
or corporation shall be invalidated or in any way affected thereby, nor shall
any Trustee or officer of the Trust be liable to the Trust or to any Shareholder
or creditor thereof or to any other person for any loss incurred by it or him
solely because of the existence of any such contract or transaction; provided
that nothing herein shall protect any Trustee or officer of the Trust against
any liability to the Trust or to its security holders to which he would
otherwise be subject by reason or willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
(c) (1) As used in this paragraph the following terms shall
have the meanings set forth below:
(i) the term "indemnitee" shall mean any present or
former Trustee, officer or employee of the Trust, any
present or former Trustee or officer of another trust
or corporation whose securities are or were owned by
the Trust or of which the Trust is or was a creditor
and who served or serves in such capacity at the
request of the Trust, any present or former
investment adviser, sub-adviser or principal
underwriter of the Trust and the heirs, executors,
administrators, successors and assigns of any of the
foregoing; however, whenever conduct by an indemnitee
is referred to, the conduct shall be that of the
original indemnitee rather than that of the heir,
executor, administrator, successor or assignee;
(ii) the term "covered proceeding" shall mean any
threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative
or investigative, to which an indemnitee is or was a
party or is threatened to be made a party by reason
of the fact or facts under which he or it is an
indemnitee as defined above;
(iii) the term "disabling conduct" shall mean willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of
the office in question;
(iv) the term "covered expense" shall mean expenses
(including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably
incurred by an indemnitee in connection with a
covered proceeding; and
(v) the term "adjudication of liability" shall mean, as
to any covered proceeding and as to any indemnitee,
an adverse determination as to the indemnitee whether
by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent.
(d) The Trust shall not indemnify any indemnitee for any
covered expenses in any covered proceeding if there has been an adjudication of
liability against such indemnitee expressly based on a finding of disabling
conduct.
(e) Except as set forth in (d) above, the Trust shall
indemnify any indemnitee for covered expenses in any covered proceeding, whether
or not there is an adjudication of liability, upon request of the indemnitee for
such indemnification.
(f) Covered expenses incurred by an indemnitee in connection
with a covered proceeding shall be advanced by the Trust to an indemnitee prior
to the final disposition of a covered proceeding upon the request of the
indemnitee and the undertaking by or on behalf of the indemnitee to repay the
advance if the indemnitee shall be adjudicated to not be entitled to
indemnification under this Article or otherwise under the 1940 Act.
(g) Nothing herein shall be deemed to affect the right of the
Trust and/or any indemnitee to acquire and pay for any insurance covering any or
all indemnitees to the extent permitted by the 1940 Act or to affect any other
indemnification rights to which any indemnitee may be entitled to the extent
permitted by the 1940 Act.
13. (a) The term "Net Asset Value" of any Series shall mean that amount
by which the assets of that series exceed its liabilities, all as determined by
or under the direction of the Trustees. Net Asset Value per Share shall be
determined separately for each Series of Shares and shall be determined on such
days and at such times as the Trustees may determine. Such determination may be
made on a Series-by-Series or Class-by-Class basis, as appropriate, and shall
include any expenses allocated to a specific Series or Class. The determination
shall be made with respect to securities for which market quotations are readily
available at the market value of such securities; and with respect to other
securities and assets, at the fair value as determined in good faith by the
Trustees, provided, however, that the Trustees, without Shareholder approval,
may alter the method of appraising portfolio securities insofar as permitted
under the 1940 Act and the rules, regulations and interpretations thereof
promulgated or issued by the Commission or insofar as permitted by any order of
the Commission applicable to the Series. The Trustees may delegate any of their
powers and duties under this paragraph 13 with respect to appraisal of assets
and liabilities. At any time the Trustees may cause the Net Asset Value per
Share last determined to be determined again in a similar manner and may fix the
time when such redetermined values shall become effective.
(b) Payment of the net asset value of Shares of the Trust
properly surrendered to it for redemption shall be made by the Trust within
seven days after tender of such Shares to the Trust for such purpose plus any
period of time during which the right of the holders of the shares of the Trust
to require the Trust to redeem such shares has been suspended. Any such payment
may be made in portfolio securities of the Trust and/or in cash, as the Trustees
shall deem advisable, and no Shareholder shall have a right, other than as
determined by the Trustees, to have his Shares redeemed in kind.
EIGHTH:
1. In case any Shareholder or former Shareholder shall be held to be
personally liable solely by reason of his being or having been a Shareholder and
not because of his acts or omissions or for some other reason, the Shareholder
or former Shareholder (or his heirs, executors, administrators or other legal
representatives or in the case of a corporation or other entity, its corporate
or other general successor) shall be entitled out of the Trust estate to be held
harmless from and indemnified against all loss and expense arising from such
liability. This Trust shall, upon request by the Shareholder, assume the defense
of any claim made against any Shareholder for any act or obligation of the Trust
and satisfy any judgment thereon.
2. It is hereby expressly declared that a trust and not a partnership
is created hereby. No Trustee hereunder shall have any power to bind personally
either the Trust's officers or any Shareholder. All persons extending credit to,
contracting with or having any claim against the Trust or the Trustees shall
look only to the assets of the Trust for payment under such credit, contract or
claim; and neither the Shareholders nor the Trustees, nor any of their agents,
whether past, present or future, shall be personally liable therefor. Nothing in
this Declaration of Trust shall protect a Trustee against any liability to which
such Trustee would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee hereunder.
3. The exercise by the Trustees of their powers and discretion
hereunder in good faith and with reasonable care under the circumstances then
prevailing, shall be binding upon everyone interested. Subject to the provisions
of paragraph 2 of this Article EIGHTH, the Trustees shall not be liable for
errors of judgment or mistakes of fact or law. The Trustees may take advice of
counsel or other experts with respect to the meaning and operation of this
Declaration of Trust, and the subject to the provisions of paragraph 2 of this
Article EIGHTH, shall be under no liability for any act or omission in
accordance with such advice or for failing to follow such advice. The Trustees
shall not be required to give any bond as such, nor any surety if a bond is
required.
4. This Trust shall continue without limitation of time but subject to
the provisions of sub-sections (a), (b) and (c) of this paragraph 4.
(a) The Trustees, with the favorable vote of the holders of more than
50% of the outstanding Shares entitled to vote may sell and convey the assets of
the Trust (which sale may be subject to the retention of assets for the payment
of liabilities and expenses) to another issuer for a consideration which may be
or include securities of such issuer. Upon making provision for the payment of
liabilities, by assumption by such issuer or otherwise, the Trustees shall
distribute the remaining proceeds ratably among the holders of the Shares of the
Trust then outstanding.
(b) The Trustees, with the favorable vote of the holders of more than
50% of the outstanding Shares entitled to vote, may at any time sell and convert
into money all the assets of the Trust. Upon making provision for the payment of
all outstanding obligations, taxes and other liabilities, accrued or contingent,
of the Trust, the Trustees shall distribute the remaining assets of the Trust
ratably among the holders of the outstanding Shares.
(c) Upon completion or the distribution of the remaining proceeds or
the remaining assets as provided in sub-sections (a) and (b), the Trust shall
terminate and the Trustees shall be discharged of any and all further
liabilities and duties hereunder and the right, title and interest of all
parties shall be canceled and discharged.
5. The original or a copy of this instrument and of each declaration of
trust supplemental hereto shall be kept at the office of the Trust where it may
be inspected by any Shareholder. A copy of this instrument and of each
Supplemental Declaration of Trust shall be filed with the Massachusetts
Secretary of State, as well as any other governmental office where such filing
may from time to time be required. Anyone dealing with the Trust may rely on a
certificate by an officer of the Trust as to whether or not any such
Supplemental Declarations of Trust have been made and as to any matters in
connection with the Trust hereunder, and with the same effect as if it were the
original, may rely on a copy certified by an officer of the Trust to be a copy
of this instrument or of any such Supplemental Declaration of Trust. In this
instrument or in any such Supplemental Declaration of Trust, references to this
instrument, and all expressions like "herein," "hereof" and "hereunder" shall be
deemed to refer to this instrument as amended or affected by any such
Supplemental Declaration of Trust. This instrument may be executed in any number
of counterparts, each of which shall be deemed an original.
6. The trust set forth in this instrument is created under and is to be
governed by and construed and administered according to the laws of the
Commonwealth of Massachusetts. The Trust shall be of the type commonly called a
Massachusetts business trust, and without limiting the provisions hereof, the
Trust may exercise all powers which are ordinarily exercised by such a trust.
7. The Board of Trustees is empowered to cause the redemption of the
Shares held in any account in the aggregate net asset value of such Shares
(taken at cost or value, as determined by the Board) has been reduced by a
Shareholder to $500 or less upon such notice to the Shareholders in question,
with such permission to increase the investment in question and upon such other
terms and conditions as may be fixed by the Board of Trustees in accordance with
the 1940 Act.
8. In the event that any person advances the organizational expenses of
the Trust, such advances shall become an obligation of the Trust subject to such
terms and conditions as may be fixed by, and on a date fixed by, or determined
in accordance with criteria fixed by the Board of Trustees, to be amortized over
a period or periods to be fixed by the Board.
9. Whenever any action is taken under this Declaration of Trust under
any authorization to take action which is permitted by the 1940 Act, such action
shall be deemed to have been properly taken if such action is in accordance with
the construction of the 1940 Act then in effect as expressed in "no action"
letters of the staff of the Commission or any release, rule, regulation or order
under the 1940 Act or any decision of a court of competent jurisdiction,
notwithstanding that any of the foregoing shall later be found to be invalid or
otherwise reversed or modified by any of the foregoing.
10. Any action which may be taken by the Board of Trustees under this
Declaration of Trust or its By-Laws may be taken by the description thereof in
the then effective prospectus or Statement of Additional Information relating to
the Shares under the Securities Act of 1933 or in any proxy statement of the
Trust rather than by formal resolution of the Board.
11. Whenever under this Declaration of Trust, the Board of Trustees is
permitted or required to place a value on assets of the Trust, such action may
be delegated by the Board, and/or determined in accordance with a formula
determined by the Board, to the extent permitted by the 1940 Act.
12. If authorized by the vote of the Trustees, the Trustees shall amend
or otherwise supplement this instrument, by making a Declaration of Trust
supplemental hereto, which thereafter shall form a part hereof; any such
Supplemental Declaration of Trust may be executed by and on behalf of the Trust
and the Trustees by any officer or officers of the Trust. A restated Declaration
of Trust, integrating into an single instrument all of the provisions of the
Declaration of Trust which are then in effect and operative, may be executed
from time to time by a majority of the Trustees. Notwithstanding the forgoing,
no amendment that would have a material adverse impact upon the rights of the
shareholders may be made without the favorable vote of the holders of more than
50% of the outstanding Shares entitled to vote, or by any larger vote which may
be required by applicable law in a particular case.
NINTH: The resident agent for the Fund in the Commonwealth of
Massachusetts shall be: The United States Corporation Company, P.O. Box 591,
Wilmington, DE 19899-0591.
<PAGE>
IN WITNESS WHEREOF, the undersigned, being all of the Trustees of the
Trust, have executed this Amended and Restated Declaration of Trust as of the
30th day of March 1998.
- ------------------------------------ ---------------------------------
Jerome L. Dodson David L. Gibson
- ------------------------------------ ---------------------------------
Gail L. Horvath Herbert A. Houston
- ------------------------------------ ---------------------------------
Cecilia C.M. Lee Leo T. McCarthy
- ------------------------------------ ---------------------------------
Donald E. O'Connor Howard M. Sharpiro
- ------------------------------------
Joan Shapiro
<PAGE>
EXHIBIT 2
THE PARNASSUS FUND and THE PARNASSUS INCOME TRUST
RESTATED BY-LAWS
As of March 27, 1998
ARTICLE I
SHAREHOLDERS
Section 1. Place of Meeting. All meetings of the Shareholders (which
term as used herein shall, together with all other terms defined in the
Declaration of Trust, have the same meaning as in the Declaration of Trust)
shall be held at the principal office of the Trust or at such other place as may
from time to time be designated by the Board of Trustees and stated in the
notice of meeting.
Section 2. Calling of Meetings. Meetings of the Shareholders for any
purpose or purposes (including the election of Trustees) may be called by the
Chairman of the Board of Trustees, if any, or by the President or by the Board
of Trustees and shall be called by the Secretary upon receipt of the request in
writing signed by Shareholders holding not less than one-third in amount of the
entire number of Shares issued and outstanding and entitled to vote thereat.
Such request shall state the purpose or purposes of the proposed meeting.
Section 3. Notice of Meetings. Not less than ten days' and not more
than ninety days' written or printed notice of every meeting of Shareholders,
stating the time and place thereof (and the general nature of the business
proposed to be transacted at any special or extraordinary meeting), shall be
given to each Shareholder entitled to vote thereat by leaving the same with him
or at his residence or usual place of business or by mailing it, postage prepaid
and addressed to him at his address as it appears upon the books of the Trust.
No notice of the time, place or purpose of any meeting of Shareholders
need be given to any Shareholder who attends in person or by proxy or to any
Shareholder who, in writing executed and filed with the records of the meeting,
either before or after the holding thereof, waives such notice.
Section 4. Record Dates. The Board of Trustees may fix, in advance, a
date, not exceeding ninety days and not less than ten days preceding the date of
any meeting of Shareholders, and not exceeding ninety days preceding any
dividend payment date or any date for the allotment of rights, as a record date
for the determination of the Shareholders entitled to receive such dividends or
rights, as the case may be; and only Shareholders of record on such date shall
be entitled to notice of and to vote at such meeting or to receive such
dividends or rights, as the case may be.
Section 5. Quorum, Adjournment of Meetings. The presence in person or
by proxy of the holders of record of one-third of the Shares of the stock of the
Trust issued and outstanding and entitled to vote thereat, shall constitute a
quorum at all meetings of the Shareholders. If at any meeting of the
Shareholders there shall be less than a quorum present, the Shareholders present
at such meeting may, without further notice, adjourn the same from time to time
until a quorum shall attend, but no business shall be transacted at any such
adjourned meeting except such as might have been lawfully transacted had the
meeting not been adjourned.
Section 6. Voting and Inspectors. At all meetings of Shareholders every
Shareholder of record entitled to vote thereat shall be entitled to vote at such
meeting either in person or by proxy appointed by instrument in writing
subscribed by such Shareholder or his duly authorized attorney-in-fact.
All elections of Trustees shall be had by a plurality of the votes cast
and all questions shall be decided by a majority of the votes cast, in each case
at a duly constituted meeting, except as otherwise provided in the Declaration
of Trust or in these By-Laws or by specific statutory provision superseding the
restrictions and limitations contained in the Declaration of Trust or in these
By-Laws.
At any election of Trustees, the Board of Trustees prior thereto may,
or, if they have not so acted, the Chairman of the meeting may, and upon the
request of the holders of ten per cent (1 0%) of the Shares entitled to vote at
such election shall, appoint two inspectors of election who shall first
subscribe an oath of affirmation to execute faithfully the duties of inspectors
at such election with strict impartiality and according to the best of their
ability, and shall after the election make a certificate of the result of the
vote taken. No candidate for the office of Trustee shall be appointed such
inspector.
The Chairman of the meeting may cause a vote by ballot to be taken upon
any election or matter, and such vote shall be taken upon the request of the
holders of ten per cent (10%) of the Shares entitled to vote on such election or
matter.
Section 7. Conduct of Shareholders' Meetings. The meetings of the
Shareholders shall be presided over by the Chairman of the Board of Trustees, if
any, or if he shall not be present, by the President, or if he shall not be
present, by a Vice-President, or if neither the Chairman of the Board of
Trustees, the President nor any Vice-President is present, by a chairman to be
elected at the meeting. The Secretary of the Trust, if present, shall act as
Secretary of such meetings, or if he is not present, an Assistant Secretary
shall so act; if neither the Secretary nor an Assistant Secretary is present,
then the meeting shall elect its secretary.
Section 8. Concerning Validity of Proxies, Ballots, Etc. At every
meeting of the Shareholders, all proxies shall be received and taken in charge
of and all ballots shall be received and canvassed by the secretary of the
meeting, who shall decide all questions touching the qualification of voters,
the validity of the proxies, and the acceptance or rejection of votes, unless
inspectors of election shall have been appointed as provided in Section 6, in
which event such inspectors of election shall decide all such questions.
ARTICLE II
BOARD OF TRUSTEES
Section 1. Number of Tenure of Office. The business and property of the
Trust shall be conducted and managed by a Board of Trustees consisting of nine
(9) persons, which number may be increased or decreased as provided in Section 2
of this Article. The Board of Trustees may sit and alter the terms of office of
the Trustees, may lengthen or lessen their own terms or make their terms of
indefinite duration, all subject to the 1940 Act. Trustees need not be
Shareholders. No one shall continue to serve as an independent Trustee after the
end of the calendar year in which that person achieves the age of seventy-five
(75).
Section 2. Increase or Decrease in Number of Trustees; Removal. The
Board of Trustees may increase the number of Trustees to a number not exceeding
fifteen, and may elect Trustees to fill the vacancies created by any such
increase in the number of Trustees; the Board of Trustees may likewise decrease
the number of Trustees to a number not less than three. Vacancies occurring
other than by reason of any such increase shall be filled as provided for a
Massachusetts business corporation. In the event that after proxy material has
been printed for a meeting of Shareholders at which Trustees are to be elected
any one or more management nominees dies or becomes incapacitated, the
authorized number of Trustees shall be automatically reduced by the number of
such nominees, unless the Board of Trustees prior to the meeting shall otherwise
determine. Any Trustee at any time may be removed either with or without cause
by resolution duly adopted by the affirmative votes of the holders of the
majority of the Shares of the Trust present in person or by proxy at any meeting
of Shareholders at which such vote may be taken, provided that a quorum is
present, or by such larger vote as may be required by Massachusetts law. Any
Trustee at any time may be removed for cause by resolution duly adopted at any
meeting of the Board of Trustees provided that notice thereof is contained in
the notice of such meeting and that such resolution is adopted by the vote of at
least two thirds of the Trustees whose removal is not proposed. As used herein,
"for cause" shall mean any cause which under Massachusetts law would permit the
removal of a Trustee of a business trust.
Section 3. Place of Meeting. The Trustees may hold their meetings, have
one or more offices, and keep the books of the Trust outside Massachusetts, at
any office or offices of the Trust or at any other place as they may from time
to time by resolution determine, or, in the case of meetings, as they may from
time to time by resolution determine or as shall be specified or fixed in the
respective notices or waivers of notice thereof.
Section 4. Regular Meetings. Regular meetings of the Board of Trustees
shall be held at such time and on such notice, if any, as the Trustees may from
time to time determine.
Section 5. Special Meetings. Special meetings of the Board of Trustees
may be held from time to time upon call of the Chairman of the Board of
Trustees, if any, the President or two or more of the Trustees, by oral or
telegraphic or written notice duly served on or sent or mailed to each Trustee
not less than one day before such meeting. No notice need be given to any
Trustee who attends in person or to any Trustee who, in writing executed and
filed with the records of the meeting either before or after the holding
thereof, waives such notice. Such notice or waiver of notice need not state the
purpose or purposes of such meeting.
Section 6. Quorum. One-third of the Trustees then in office shall
constitute a quorum for the transaction of business, provided that a quorum
shall in no case be less than two Trustees. If at any meeting of the Board there
shall be less than a quorum present (in person or by open telephone line, to the
extent permitted by the 1940 Act), a majority of those present may adjourn the
meeting from time to time until a quorum shall have been obtained. The act of
the majority of the Trustees present at any meeting at which there is a quorum
shall be the act of the Board, except as may be otherwise specifically provided
by statute, by the Declaration of Trust or by these By-Laws.
Section 7. Executive Committee. The Board of Trustees may, by the
affirmative vote of a majority of the entire Board, elect from the Trustees an
Executive Committee to consist of such number of Trustees as the Board may from
time to time determine. The Board of Trustees by such affirmative vote shall
have power at any time to change the members of such Committee and may fill
vacancies in the Committee by election from the Trustees. When the Board of
Trustees is not in session, the Executive Committee shall have and may exercise
any or all of the powers of the Board of Trustees in the management of the
business and affairs of the Trust (including the power to authorize the seal of
the Trust to be affixed to all papers which may require it) except as provided
by law and except the power to increase or decrease the size of, or fill
vacancies on the Board. The Executive Committee may fix its own rules of
procedure, and may meet, when and as provided by such rules or by resolution of
the Board of Trustees, but in every case the presence of a majority shall be
necessary to constitute a quorum. In the absence of any member of the Executive
Committee the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a member of the Board of Trustees to act in the
place of such absent member.
Section 8. Other Committees. The Board of Trustees, by the affirmative
vote of a majority of the entire Board, may appoint other committees which shall
in each case consist of such number of members and shall have and may exercise
such powers as the Board may determine in the resolution appointing them. A
majority of all members of any such committee may determine its action, and fix
the time and place of its meetings, unless the Board of Trustees shall otherwise
provide. The Board of Trustees shall have power at any time to change the
members and powers of any such committee, to fill vacancies, and to discharge
any such committee.
Section 9. Informal Action by and Telephone Meetings of Trustees and
Committees. Any action required or permitted to be taken at any meeting of the
Board of Trustees or any committee thereof may be taken without a meeting, if a
written consent to such action is signed by all members of the Board, or of such
committee, as the case may be. Trustees or members of a committee of the Board
of Trustees may participate in a meeting by means of a conference telephone or
similar communications equipment; such participation shall, except as otherwise
required by the 1940 Act, have the same effect as presence in person.
Section 10. Compensation of Trustees. Trustees shall be entitled to
receive such compensation from the Trust for their services as may from time to
time be voted by the Board of Trustees.
Section 11. Dividends. Dividends or distributions payable on the Shares
may, but need not be, declared by specific resolution of the Board as to each
dividend or distribution; in lieu of such specific resolutions, the Board may,
by general resolution, determine the method of computation thereof, the method
of determining the Shareholders to which they are payable and the methods of
determining whether and to which Shareholders they are to be paid in cash or in
additional Shares.
ARTICLE III
OFFICERS
Section 1. Executive Officers. The executive officers of the Trust
shall be chosen by the Board of Trustees. These may include a Chairman of the
Board of Trustees, and shall include a President, a Secretary and a Treasurer.
The Chairman of the Board of Trustees, if any, shall be selected from among the
Trustees. The Board of Trustees may also in its discretion appoint one or more
Vice-Presidents, Assistant Secretaries, Assistant Treasurers, (the number
thereof to be determined by the Board of Trustees) and other officers, agents
and employees, who shall have such authority and perform such duties as the
Board or the Executive Committee may determine. The Board of Trustees may fill
any vacancy which may occur in any office. Any two offices, except those of
President and Vice-President, may be held by the same person, but no officer
shall execute, acknowledge or verify any instrument in more than one capacity,
if such instrument is required by law or by these By-Laws to be executed,
acknowledged or verified by two or more officers.
Section 2. Term of Office. The term of office of all officers shall be
as fixed by the Board of Trustees; however, any officer may be removed from
office at any time with or without cause by the vote of a majority of the entire
Board of Trustees.
Section 3. Powers and Duties. The officers of the Trust shall have such
powers and duties as generally pertain to their respective offices, as well as
such posers and duties as may from time to time be conferred by the Board of
Trustees or the Executive Committee.
ARTICLE IV
INDEMNIFICATION
Section 1. Definitions. As used in this Article the following terms
shall have the meanings set forth below:
(a) The term "indemnitee" shall mean any present or former
Trustee, officer or employee of the Fund, any present or former Trustee or
officer of another trust or corporation whose securities are or were owned by
the Fund or of which the Fund is or was a creditor and who served or serves in
such capacity at the request of the Fund, any present or former investment
adviser, sub-adviser or principal underwriter of the Fund and the heirs,
executors, administrators, successors and assigns of any of the foregoing;
however, whenever conduct by an indemnitee is referred to, the conduct, shall be
that of the original indemnitee rather than that of the heir, executor,
administrator, successor or assignee.
(b) The term "covered proceeding" shall mean any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, to which an indemnitee is or was a party or is
threatened to be made a party by reason of the fact or facts under which he, she
or it is an indemnitee as defined above.
(c) The term "disabling conduct" shall mean willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office in question.
(d) The term "covered expenses" shall mean expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by an indemnitee in connection with a covered proceeding.
(e) The term "adjudication of liability" shall mean, as to any
covered proceeding and as to any indemnitee, an adverse determination as to the
indemnitee whether by judgment, order, settlement, conviction or upon a plea of
nolo contendere or its equivalent.
Section 2. Discretionary Advancement of Expenses. The Fund may advance
to an indemnitee, prior to the final disposition of a covered proceeding,
covered expenses incurred by the indemnitee in connection with the covered
proceeding if the Fund receives an undertaking by or on behalf of the indemnitee
to repay the advance in the event there is an adjudication of liability against
the indemnitee expressly based on a finding of disabling conduct. Such
undertaking may be accepted by the Fund at any time prior to such adjudication
and without reference to the financial ability of the indemnitee to make
repayment.
Section 3. Other Rights. Nothing herein shall be deemed to affect the
right of the Fund and/or any indemnitee to acquire and pay for any insurance
covering any or all indemnitees to the extent permitted by the 1940 Act or to
affect any other indemnification rights to which any indemnitee may be entitled
to the extent permitted by the 1940 Act.
ARTICLE V
SHARES
Section 1. Certificates of Shares. Each Shareholder of the Trust may be
issued a certificate or certificates for his Shares in such form as the Board of
Trustees may from time to time prescribe, but only if and to the extent and on
the conditions prescribed by the Board.
Section 2. Transfer of Shares. Shares shall be transferable on the
books of the Trust by the holder thereof in person or by his duly authorized
attorney or legal representative, upon surrender and cancellation of
certificates, if any, for the same number of Shares, duly endorsed or
accompanied by proper instruments of assignment and transfer, with such proof of
the authenticity of the signature as the Trust or its agent may reasonably
require; in the case of shares not represented by certificates, the same or
similar requirements may be imposed by the Board of Trustees.
Section 3. Stock Ledgers. The stock ledgers of the Trust, containing
the name and address of the Shareholders and the number of shares held by them
respectively, shall be kept at the principal offices of the Trust or, if the
Trust employs a transfer agent, at the offices of the transfer agent of the
Trust.
Section 4. Lost, Stolen or Destroyed Certificates. The Board of
Trustees may determine the conditions upon which a new certificate may be issued
in place of a certificate which is alleged to have been lost, stolen or
destroyed; and may, in their discretion, require the owner of such certificate
or his legal representative to give bond, with sufficient surety to the Trust
and the transfer agent, if any, to indemnify it and such transfer agent against
any and all loss or claims which may arise by reason of the issue of a new
certificate in the place of the one so lost, stolen or destroyed.
ARTICLE VI
SEAL
The Board of Trustees shall provide a suitable seal of the Trust, in
such form and bearing such inscriptions as it may determine.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall be fixed by the Board of Trustees.
ARTICLE VIII
AMENDMENT OF BY-LAWS
The By-Laws of the Trust may be altered, amended, added to or repealed
by the Shareholders or by majority vote of the entire Board of Trustees, but any
such alteration, amendment, addition or repeal of the By-Laws by action of the
Board of Trustees may be altered or repealed by the Shareholders.
<PAGE>
EXHIBIT 5
THE PARNASSUS FUND
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 27th day of March, 1998, by and between THE
PARNASSUS FUND (the "Fund"), a Massachusetts business trust, and PARNASSUS
INVESTMENTS (the "Adviser").
W I T N E SS E T H :
In consideration of the mutual promises and agreements herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, it is hereby agreed by and between the parties hereto as follows:
1. In General
----------
The Adviser agrees, all as more fully set forth herein, to act as
managerial investment adviser to the Fund with respect to the
investment of its assets and to supervise and arrange the purchase and
sale of securities held in the portfolio of the Fund and generally
administer the affairs of the Fund.
2. Duties and Obligation of the Adviser with respect to Management of the
------------------------------------------------------------------------
Fund
----
(a) Subject to the succeeding provisions of this section and
subject to the direction and control of the Board of Trustees
of the Fund, the Adviser shall:
(i) Decide what securities shall be purchased or sold by the
Fund and when; and
(ii)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.
(b) Any investment purchases or sales made by the Adviser shall at
all times conform to, and be in accordance with, any
requirements imposed by: (1) the provisions of the Investment
Company Act of 1940 (the "Act") and of any rules or
regulations in force thereunder; (2) any other applicable
provisions of law; (3) the provisions of the Declaration of
Trust and By-Laws of the Fund as amended from time to time;
(5) any policies and fundamental policies of the Fund, as
reflected in its registration statement under the Act, or as
amended by the shareholders of the Fund.
(c) The Adviser shall also administer the affairs of the Fund and,
in connection therewith, shall be responsible for (i)
maintaining the Fund's books and records (other than financial
or accounting books and records or those being maintained by
the Fund's custodian, transfer agent or accounting services
agent); (ii) overseeing the Fund's insurance relationships;
The Adviser shall give the Fund the benefit of its best
judgement and effort in rendering services thereunder, but the
Adviser shall not be liable 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 made and such other individual, firm or corporation 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 this Agreement.
The Fund agrees that the word "Parnassus" in its name is
derived from the name of the Adviser and is the property of
the Adviser for copyright and all other purposes and that,
therefore, such word may be freely used by the Adviser as to
other investment companies or other investment products. The
Fund further agrees that, in the event that the Adviser ceases
to be the Fund's investment adviser for any reason, the Fund
will (unless the Adviser otherwise consents in writing)
promptly take all necessary steps to change its name to a name
not including the word "Parnassus".
It is agreed that the Adviser shall have no responsibility
or liability for the accuracy or completeness of the Fund's
Registration Statement under the 1940 Act or the Securities
Act of 1933 except for information supplied by the Adviser for
inclusion therein. The Fund agrees to indemnify the Adviser to
the full extent permitted by the Fund's Declaration of Trust.
3. Broker-Dealer Relationships
---------------------------
In connection with its duties set forth in Section 2(a)(ii) of
this Agreement 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 judgment, implement the policy of 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 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 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 discretion. The Adviser
shall use its judgment 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. 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 (i)
were for purposes contemplated by this Agreement; (ii) were 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) were 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
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 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.
4. Allocation of Expenses
----------------------
The Adviser agrees that it will furnish the Fund, at the
Adviser's expense, with all office space and facilities, and equipment
and clerical personnel necessary for carrying out its duties under this
Agreement. The Adviser will also pay all compensation of all Trustees,
officers and employees of the Fund who are affiliated persons of the
Adviser. All costs and expenses not expressly assumed by the Adviser
under this Agreement shall be paid by the Fund, including, but not
limited to (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, shareholder
servicing or transfer agent and accounting services agent; (vii)
expenses incident to the issuance of its shares, including stock
certificates and issuance of shares 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 or any successor; and (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.
5. Compensation of the Adviser
---------------------------
(a) The Fund agrees to pay the Adviser and the Adviser agrees to
accept as full compensation for all services rendered by the
Adviser hereunder, an annual management fee payable monthly
and computed 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.
(b) 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,
extraordinary expenses and sales charges and distribution
fees) 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 subject to readjustment during the year. The
payment of the management fee at the end of any month will be
reduced or postponed or, if necessary, a refund will be made
to the Fund so that at no time will there be any accrued but
unpaid liability under this expense limitation.
6. Duration and Termination
------------------------
(a) This Agreement shall go into effect on the date set forth
above and shall, unless terminated as hereinafter provided,
continue in effect until December 31, 1998, and thereafter
from year to year, but only so long as such continuance is
specifically approved at least annually by the Fund's Board of
Trustees, including the vote of a majority of the Trustees who
are not parties to this Agreement or "interested persons" (as
defined in the Act) of any such party cast in person at a
meeting called for the purpose of voting on such approval, or
by the vote of the holders of a "majority" (as so defined) of
the outstanding voting securities of the Fund and by such a
vote of the Trustees.
(b) This Agreement may be terminated by the Adviser at any time
without penalty upon giving the Fund sixty (60) days' written
notice (which notice may be waived by the Fund) and may be
terminated by the Fund at any time without penalty upon giving
the Adviser sixty (60) days' written notice (which notice may
be waived by the Adviser), provided that such termination by
the Fund shall be directed or approved by the vote of a
majority of all its Trustees in office at the time or by the
vote of the holders of a majority (as defined in the Act) of
the voting securities of the Fund at the time outstanding and
entitled to vote. This Agreement shall automatically terminate
in the event of its assignment (as so defined).
IN WITNESS WHEREOF, the parties hereto have caused the foregoing
instrument to be executed by duly authorized persons and their seals to be
hereunto affixed, all as of the day and year first above written.
THE PARNASSUS FUND
Date: March 27, 1998 By___________________________
Richard Silberman, Secretary
PARNASSUS INVESTMENTS
Date: March 27, 1998 By____________________
Jerome L. Dodson, President
<PAGE>
EXHIBIT 11
Deloitte & Touche LLP
50 Fremont Street
San Francisco, CA 94105-2230
Telephone: (415) 247-4000
Facsimile: (415) 247-4329
INDEPENDENT AUDITORS' CONSENT
The Parnassus Fund:
We consent to (a) the incorporation by reference in this Post-Effective
Amendment No. 16 to Registration Statement No. 2-93131 of the Parnassus Fund on
Form N-1A of our report dated January 16, 1998 appearing in the Fund's 1997
Annual Report to Shareholders incorporated by reference in the Statement of
Additional Information, which is part of such Registration Statement, (b) the
reference to us under the heading "Financial Highlights" in the Prospectus,
which is a part of such Registration Statement, and (c) the reference to us
under the heading "General Information" in such Prospectus.
Deloitte & Touche LLP
March 27, 1998
<PAGE>
EXHIBIT 14
INDIVIDUAL RETIREMENT ACCOUNT FORM & ROTH IRA
PENDING
<PAGE>
Exhibit 16
Calculation of Parnassus Fund Total Return
------------------------------------------
The Parnassus Fund calculates its average annual total return quotations for the
one-year, five-year and ten-year periods ended on the date of the most recent
balance sheet included in the registration statement, by finding the average
annual compounded rates of return over the one, five and ten year periods that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5, or 10
year periods at the end of the 1, 5, or 10 year
periods (or fractional portion thereof);
These calculations incorporate the following assumptions:
1. The maximum sales load (or other charges deducted from payments) is deducted
from the initial $1,000 payment.
2. All dividends and distributions by the Fund are reinvested at the price
stated in the prospectus on the reinvestment dates during the period, i.e., any
sales load charged upon reinvestment of dividends would be reflected.
3. All recurring fees, if any, charged to all shareholder accounts are included.
4. The ending redeemable value assumes a complete redemption at the end of the
1, 5, or 10 year periods and the deduction of all nonrecurring charges deducted
at the end of each period.
<PAGE>
Exhibit 16- Page 2
One Year SEC Total Return Calculation:
- --------------------------------------
Starting NAV: $34.39
Ending NAV: $35.74
Total Distributions during the period: $8.55
On 12/31/97, a $1,000 investment made on 12/31/96 would be worth: $1,251.60
Average Annual Total Return: 25.16%
Five Year SEC Total Return Calculation:
- ---------------------------------------
Starting NAV: $29.94
Ending NAV: $35.74
Total Distributions during the period: $16.87
On 12/31/97, a $1,000 investment made on 12/31/92 would be worth: $1,847.50
Average Annual Total Return: 13.06%
Ten Year SEC Total Return Calculation:
- --------------------------------------
Starting NAV: $16.16
Ending NAV: $35.74
Total Distributions during the period:$23.11
On 12/31/97, a $1,000 investment made on 12/31/87 would be worth: $4,452.90
Average Annual Total Return: 16.11%
