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. 15
and/or
REGISTRATION UNDER THE INVESTMENT ACT OF 1940
Amendment No. 17
_____________________
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 (a) 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 will be filed on or about February 27,
1998.
<PAGE>
<TABLE>
<CAPTION>
THE PARNASSUS FUND
Cross Reference Index
ITEM REFERENCE
---- ---------
<S> <C> <C>
Part A. Information Required in a Prospectus
Item 1. Cover Page Cover Page (p.1)
Item 2. Synopsis; Fee Information Fund Expenses (p.2)
Item 3. Financial Highlights Financial Highlights (p.3)
Item 4. General Description of Registrant Investment Objective (p.4)
Principal Investment Restrictions (p.6); General
Information (p.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 Being 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 Holders of None
Securities
Item 16. Investment Advisory & Other Services The Adviser (B-5)
Item 17. Brokerage Allocation & Other Practices The Adviser (B-5); Portfolio Transactions and
Brokerage (B-6)
Item 18. Capital Stock & Other Securities General (B-8)
Item 19. Purchase, Redemption & Pricing of Securities Net Asset Value (B-7)
Being Offered
Item 20. Tax Status Prospectus (p.11)
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)
</TABLE>
<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 $173 figure for ten years is not the annual expense figure, but the
total cumulative expenses a shareholder would have paid for the entire ten-year
period. This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or lesser than those
shown. For a fuller description of expenses, see pages 8 and 9 of this
prospectus.
From time to time, the Fund may direct brokerage commissions to firms
that may pay certain expenses of the Fund subject to "best execution." This is
done only when brokerage costs are reasonable and the Fund determines that the
reduction of expenses is in the best interest of the shareholders. See page B-7
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.
(footnote deleted)
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
beginning of period 34.39 31.77 32.82 31.81 29.94 23.53 16.09 20.62 20.46 16.16
----------------------------------------------------------------------------------------------------
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 35.74 34.39 31.77 32.82 31.81 29.94 23.53 16.09 20.62 20.46
period
=====================================================================================================
TOTAL RETURN * 29.70% 11.68% 0.62% 11.98% 17.31% 36.80% 52.56% (21.16%) 2.85% 42.44%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to
average net assets 1.11% 1.10% 1.02% 1.14% 1.26% 1.47% 1.51% 1.77% 1.65% 2.15%
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 $337,425 $268,235 $259,133 $160,994 $98,774 $56,237 $31,833 $20,738 $23,048 $10,863
(000)
<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 audited financial statements that were published in the Fund's annual reports and was audited
by Deloitte & Touche LLP.
</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
<PAGE>
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
<PAGE>
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.
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.
On the positive side, the Fund looks for a number of important attributes
to determine if a firm is a socially responsible company. These include
equitable treatment of employees, a good environmental protection policy, an
effective equal employment opportunity program, a record of civic commitment and
a history of ethical business dealings.
Other Policies
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
<PAGE>
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. He has served as a Trustee of The Parnassus Income Trust since
1992.
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 since 1992.
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.
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 1988. Mr. Fong
graduated from San Francisco State University with a degree in business
administration.
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.
*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-7 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>
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. You can obtain a form for this
purpose by writing or calling the Fund or you can write your own letter of
intent.
While a shareholder is not obligated to fulfill a letter of intent, if the
goal is not met, the purchaser is required to pay the difference between the
sales charge actually paid and the one that would otherwise have been due had no
Statement of Intention been signed.
Rights of Accumulation
A single investor may also obtain a cumulative quantity discount (known as
a right of accumulation) by adding his or her current purchase to the net asset
value (at the close of business on the previous day) of all shares previously
purchased and still owned in the Fund. The applicable sales charge is then based
on this total. A shareholder may also add the total of any investment in The
Parnassus Income 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
<PAGE>
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 shareholders, of course, will not be required
to pay taxes on any amount paid to them. This includes IRAs and other
tax-deferred retirement accounts.
Any net long-term capital gains ("capital gain distributions") distributed
to shareholders are taxable as such to shareholders. Tax-exempt shareholders, of
course, will not be required to pay taxes on any amounts paid to them. 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.
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.
<TABLE>
<CAPTION>
PERFORMANCE FIGURES
---------------------------------------------------------------------------------------------------------------
FOR PERIODS ENDING DECEMBER 31, 1997 AVERAGE ANNUAL TOTAL RETURN AVERAGE ANNUAL OVERALL RETURN
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
One Year 25.16% 29.70%
Five Years 13.06% 13.87%
Ten Years 16.11% 16.52%
<FN>
Total return is the return to an individual shareholder after paying the maximum sales charge.
Overall return gives the investment performance of the Fund. Overall return does not take into account payment of the sales
charge. This return figure should be used for comparative purposes such as comparing The Parnassus Fund's performance to
published returns in newspapers and magazines.
</FN>
</TABLE>
The Fund may also advertise its cumulative total return for prior periods
and compare its performance to the performance of other selected mutual funds,
selected market indicators such as the Standard & Poor's 500 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
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>
<CAPTION>
TABLE OF CONTENTS
Cross-reference to
Page page in prospectus
---- ------------------
<S> <C> <C>
Investment Objective and Policies B-2 4
Investment Restrictions B-2
Operating Policies B-3 5
Repurchase Agreements B-3
Lending Portfolio Securities B-3
Management B-4 6
Performance B-7 12
Net Asset Value B-7 10
Shareholder Services B-7 8
General B-8 13
Financial Statements B-9
</TABLE>
<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.
<TABLE>
<CAPTION>
MANAGEMENT
The Trustees and Officers of the Fund are as follows:
Principal Occupation
Name and Address Position with Fund During Past Five Years
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Jerome L. Dodson* President President of the Parnassus Fund and
One Market and Trustee President and Director of Parnassus
Steuart Tower #1600 Investments since June of 1984; President and
San Francisco, CA 94105 Trustee of Working Assets Money Fund from
June 1982 until June 1984 and Trustee from
June 1988 until December 1991. President of
Continental Savings of America from 1976
until 1982.
Howard Fong Vice President and Treasurer Senior Vice President and Chief Financial
The Parnassus Fund Officer of Continental Savings of America
One Market from 1979 through June of 1988; Vice
Steuart Tower #1600 President and Treasurer of the Parnassus
San Francisco, CA 94105 Fund and of Parnassus Investments since
December of 1988.
David L. Gibson Trustee Tax Counsel and later, Director of Public
5840 Geary Boulevard Affairs for the Crown Zellerbach Corporation
San Francisco, CA 94118 1973-1984. Since 1984, attorney in private
practice.
Gail L. Horvath Trustee Owner and Director of New Product
Just Desserts Development at Just Desserts.
1970 Carroll Avenue
San Francisco, CA 94124
Herbert A. Houston Trustee Chief Executive Officer of the
Haight Ashbury Free Clinics Haight Ashbury Free Clinics, Inc.
Presidio Building 1003
O'Reilly Avenue
San Francisco, CA 94129
Cecilia C.M. Lee Trustee President of Ultra Media, a Silicon
2048 Corporate Court Valley-based electronics firm.
San Jose, CA 95131
Leo T. McCarthy Trustee President of the Daniel Group, a
One Market partnership involved in foreign
Steuart Tower #1600 trade. Directorships include Linear
San Francisco, CA 94105 Technology, Open Data Systems and
the U.S. National Gambling Impact
Study Commission. A former member of
the California State Assembly and
former Lieutenant Governor of the
State of California.
B-4
<PAGE>
Donald E. O'Connor Trustee Retired. Executive for the
One Market Investment Company Institute
Steuart Tower #1600 1969-1997. He currently serves as a
San Francisco, CA 94105 Trustee of the Advisors Series
Trust, another mutual fund.
Howard M. Shapiro Trustee Consultant to non-profit organizations
American Bank Building specializing in marketing, fund-raising
Portland, OR 97205 organizational structure. He is Chairman
of the Board of the Portland Housing
Authority and 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.
Joan Shapiro Trustee Consultant in development banking, community
One Market reinvestment, ethical investing, and
Steuart Tower #1600 corporate social responsibility. Executive
San Francisco, CA 94105 with South Shore Bank of Chicago 1977-1997.
Richard D. Silberman Secretary Attorney specializing in business
465 California St. #1020 and securities law. Private practice.
San Francisco, CA 94104
<FN>
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.
</FN>
</TABLE>
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
$160,162 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. In underwritten
B-6
<PAGE>
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 3.5% of the dollar amount of the
B-7
<PAGE>
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
B-8
<PAGE>
each 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 and Supplemental Declaration
of Trust: to follow
(2) By-laws: to follow
(3) Not applicable
(4) Not applicable
(5) Investment advisory contract: to follow
(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: to follow
(12) Not applicable
(13) Investment letters: on file
(14) Individual Retirement Account Form: on file;
Simplified Employee Pension Plan: on file
(15) Not applicable
(16) Schedule for computation of each performance
quote: on file
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:
<TABLE>
<CAPTION>
Name and Principal
Business Address Position with Distributor Position with Registrant
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
</TABLE>
(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 (a) 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 15th day of January 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.
Signature Title Date
- --------- ----- ----
Principal Executive Officer
and Trustee
________________ _______________
Jerome L. Dodson
Trustee
________________ _______________
Gail L. Horvath
Trustee
________________ _______________
David L. Gibson
Principle Financial and _______________
________________ Accounting Officer
Howard Fong
