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. 17
and/or
REGISTRATION UNDER THE INVESTMENT ACT OF 1940
Amendment No. 19
_____________________
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 May 1, 1999 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, 1998 was filed on February 8, 1999.
<PAGE>
The Parnassus FUND
Prospectus
MAY 1, 1999
PROSPECTUS-MAY 1, 1999
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The Parnassus Fund (the "Fund") is a mutual fund, managed by Parnassus
Investments (the "Adviser") that invests in a diversified group of securities.
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.
TABLE OF CONTENTS
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Investment Summary 2 The Adviser 9
Performance Information 3 How to Purchase Shares 9
Fund Expenses 4 How to Redeem Shares 13
The Legend of Mt. Parnassus 5 Distributions and Taxes 14
Investment Objective and Policies 5 Financial Highlights 15
Management 7 General Information 15
Like securities of all mutual funds, these securities have not been approved or
disapproved by the Securities and Exchange Commission (SEC), and the SEC has not
determined if this prospectus is accurate or complete. Any representation to the
contrary is a criminal offense.
1
<PAGE>
INVESTMENT SUMMARY
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Investment Objective and Principal Strategies
The Parnassus Fund is a stock fund whose goal is to achieve long-term growth
of capital. The Fund invests mainly in domestic stocks and subscribes to the
"contrarian" strategy of investing. This means that the Fund's Adviser seeks
stocks that are currently out of favor with the investment community, but are
believed to be financially sound and to have good prospects for the future. To
determine a company's prospects, the Adviser reviews the company's profit and
loss statement, sales and earnings histories, net cash flow and outlook for
future earnings.
The Fund takes social as well as financial factors into account in making
investment decisions. In general, The Parnassus Fund looks for companies that
respect the environment, treat their employees well, have effective equal
employment opportunity policies and good community relations as well as ethical
business dealings. The Fund will not invest in companies that are involved with
gambling or manufacture alcohol or tobacco products. The Fund also screens out
weapons contractors and those that generate electricity from nuclear power.
Principal Risks of Investing in the Fund
Investing in the Fund may result in a loss of money. When you sell your
shares, they may be worth more or less than what you paid for them. The Fund's
share price changes daily based on the value of its holdings. Stock markets are
volatile and stock values fluctuate in response to the fortunes of individual
companies and in response to general market and economic conditions both here
and abroad. For best results, investors should have a long-term perspective and
plan to hold their shares for at least three years. (Legally, shareholders may
redeem at any time, but the fund manager recommends a minimum three-year holding
period.)
2
<PAGE>
Performance Information
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The bar chart below provides an indication of the risks of investing in The
Parnassus Fund by showing changes in the Fund's performance from year to year
over a 10-year period. The returns in the chart do not include the effect of the
sales charge which would have made the returns lower. How the Fund performed in
the past is not necessarily an indication of how the Fund will perform in the
future.
During the ten-year period shown in the bar chart, the highest return for a
quarter was 44.6% (quarter ending December 31, 1998) and the lowest return for a
quarter was -26.9% (quarter ending September 30, 1990).
Below is a table comparing the performance of The Parnassus Fund with the S&P
500 index and the average growth fund followed by Lipper, Inc. The total return
column of the table assumes that the maximum sales charge of 3.5% was deducted
from the initial investment. The performance figures for the average growth fund
do not deduct any sales charges that may apply. Figures are average annual
returns for the one, five and ten-year periods ending December 31, 1998.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Periods Ending Average Annual Lipper Growth Fund S&P 500
December 31, 1998 Total Return Average Index
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
One Year (2.15%) 22.86% 28.58%
Five Years 9.81% 19.03% 24.01%
Ten Years 12.23% 17.18% 19.18%
<FN>
Past performance is no guarantee of future returns. Investment return and
principal will fluctuate and an investor's shares, when redeemed, may be worth
more or less than their original cost.
</FN>
</TABLE>
The S&P 500 is the Standard & Poor's Composite Index of 500 Stocks, a widely
recognized index of common stock prices. An individual cannot invest in the S&P
500 and the index does not take any investing expenses into account as do the
figures for The Parnassus Fund and Lipper's average growth fund.
3
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FUND EXPENSES
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This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
Shareholder Fees (paid by the investor directly)
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) ..................... 3.5%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends ........... None
Redemption Fees ........................................................None
Annual Fund Operating Expenses (paid from fund assets)
Management Fees ...................................................... 0.66%
12b-1 Fees ............................................................ None
Other Operating Expenses ............................................. 0.44%
Total Fund Operating Expenses ........................................ 1.10%
The Example in this table is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds. The
Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5%* return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:
One Year Three Years Five Years Ten Years
$458 $687 $935 $1,643
The expenses shown above are the total fees paid throughout the time
period--not ones you pay every year. For example, the $1,643 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.
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. The Fund did
not engage in such directed brokerage in 1998. 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.
The 5% figure is an example that regulations require all mutual funds
to use as an illustration. It should not be considered a representation of
past or future performance. Actual performance and expenses may be more or
less than those shown.
4
<PAGE>
THE LEGEND OF MT. PARNASSUS
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Parnassus is a mountain in central Greece whose twin peaks rise more than
8,000 feet above sea level. A dense forest covers the slopes of Mt. Parnassus,
but the summit is rocky and, most of the time, covered with snow. The mountain
plays a prominent role in Greek mythology because on its southern slope,
overlooking the Gulf of Corinth, lies Delphi, site of the famous oracle.
Originally, the oracle belonged to Gaia, the earth goddess. Later, Mother Earth
was worshipped under the name Delphyne and she controlled the oracle along with
her serpent-son, Python, and her priestess-daughters who controlled the rites.
Eventually, the Greek god, Apollo, took over the site, doing away with Python,
but keeping the priestesses.
The most "Greek" of the gods, Apollo represented enlightenment and
civilization and presided over the establishment of cities. Identified with the
development of Greek codes of law, Apollo was also the god of light, a master
musician and skilled archer. Legend has it that Python, an enormous serpent
raised in the caves of Mt. Parnassus, controlled the site of Delphi. When
Apollo, representing civilization, challenged Python, representing anarchy,
there was a heroic struggle, but the god finally killed the dragon by shooting a
hundred arrows into its body.
There were many oracles in ancient Greece, but only the one at Delphi
achieved a record of reliability. Apollo's temple at Delphi soon became an
enormous storehouse of treasures that were gifts of those who had consulted the
oracle.
The oracle communicated through the voice of a priestess who spoke while in a
trance. The priests of Delphi, who interpreted the sayings of the priestess,
obtained a great deal of knowledge and information from talking to the people
who came from all over the Greek world to consult at the shrine of Apollo. Quite
often, the oracle went against the prevailing wisdom of the time and,
frequently, the proud were humbled and the lowly were justified.
INVESTMENT OBJECTIVE AND POLICIES
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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.
5
<PAGE>
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 and compared to its intrinsic value as calculated
by the Adviser (contrarian principle);
2) the issuer is financially sound with good prospects for the future
(financial principle); and
3) the company, in the Adviser's judgment, meets the social criteria below
(social principle).
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 judgments 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 Trust 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.
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.
6
<PAGE>
MANAGEMENT
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The Trustees and officers are listed below, together with their principal
occupations during at least the past five years.
Jerome L. Dodson*, 55, 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, 59, 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 J.D. 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, 49, Trustee, is co-owner of 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.
Herbert A. Houston, 55, is a health care consultant. Previously, he spent
12 years as the Chief Executive Officer of the Haight-Ashbury Free Clinics, Inc.
Mr. Houston is on the Board of the Alameda County Medical Center and is a Health
Commissioner for Alameda County. 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, 55, is President of hybridArts.com, a Silicon
Valley-based electronics firm. She is a San Francisco Asian Art commissioner and
serves on the board of public television station KQED. 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, 68, 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.
7
<PAGE>
Donald E. O'Connor, 62, 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, 67, 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, 56, 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, 53, 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, 61, 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.
8
<PAGE>
THE ADVISER
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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. It supervises and arranges the
purchase and sale of securities held in the portfolio of the Fund. The Adviser
has had 14 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. The fee
is computed and payable at the end of each month. The following annual
percentages of the Fund's average daily net assets are used: 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 1998, the Fund paid the Adviser 0.66% of its average daily net
assets.
HOW TO PURCHASE SHARES
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Because the sales charge on its shares is lower than that charged by many
other investment companies which impose a sales charge, The Parnassus Fund is
what is commonly called a "low load" fund.
Shares of the Fund may be purchased by sending a check directly to the
Adviser, which is also the Fund's principal underwriter ("Distributor") (see
"Direct Purchase of Shares" below), or by ordering shares through a
broker-dealer which is a member of the National Associations of
Securities Dealers, Inc. and has signed a sales agreement with the
Distributor (see "Purchases through a Broker-Dealer" below). The purchase price
per share is the offering price, which is the net asset value per share as of
the next calculation after the order is placed, plus a sales charge calculated
as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Dealer Discount
Sales Charge as a Percentage of 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>
9
<PAGE>
These types of 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, ROTH 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.
10
<PAGE>
Direct Purchase of Shares
- --------------------------------------------------------------------------------
An investor should complete and mail an application form and send it along
with a check payable to The Parnassus Fund. It should be sent to the Fund at the
following address:
The Parnassus Fund
One Market-Steuart Tower #1600
San Francisco, California 94105
An initial investment must be at least $2,000 except for PAIP accounts, UGMA
accounts and certain employee benefit plans or tax qualified retirement plans
(e.g. IRA(s), SEP(s)) which have a $500 minimum. Additional investments for all
accounts must be at least $50. With additional 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.
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
All orders places with broker-dealers must be received by the Fund prior to
1:00 p.m. San Francisco time in order to be processed that day. Any order
received after 1:00 p.m. will be processed the following business day. The
broker-dealer is responsible for placing purchase orders promptly with the
Distributor and for forwarding payment within three business days.
11
<PAGE>
Net Asset Value
The Fund's net asset value (NAV) per share is usually calculated at 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. 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
If a shareholders wishes to use telephone transfer privileges, he or she must
indicate this 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.
12
<PAGE>
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
You may sell or redeem your Fund shares by offering them for "repurchase" or
"redemption" directly to the Fund or through your dealer. If you offer shares
through your dealer before the close of the New York Stock Exchange and your
dealer transmits your offer to the Distributor before 1:00 p.m. (San Francisco
time) that day, you will receive that day's price. Your dealer may charge for
this service, but you can avoid this charge by selling your shares directly to
the Fund as described below.
To sell your shares directly to the Fund (that is, to redeem your shares),
you must send your 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 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.
Wiring funds will require a signature guarantee. 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.
13
<PAGE>
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
All dividends from net investment income together with distributions of
short-term capital gains (collectively, "income dividends"), will be taxable as
ordinary income to shareholders even though paid in additional shares. Any net
long-term capital gains ("capital gain distributions") distributed to
shareholders are taxable as such. Tax-exempt and tax-deferred shareholders, of
course, will not be required to pay taxes on any amount paid to them. Holders of
IRAs and other tax-deferred retirement accounts are not required to pay taxes
until distribution. (Tax-exempt retirement accounts, of course, never have to
pay taxes.)
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. An exchange of the Fund's
shares for shares of another fund will be treated as a sale of the Fund's shares
for tax purposes and any gain on the transaction may be subject to state and
federal income tax. Annually, you will receive on Form 1099 the dollar amount
and tax status of all distributions you received.
The Fund may be required to impose backup withholding at a rate of 31% from
any income dividends and capital gain distributions and upon payment of
redemption proceeds. Shareholders can eliminate any backup withholding
requirements by furnishing certification of U.S. 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.
14
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for each share of capital stock outstanding, total return and
ratios/supplemental data for each of the five years in the period ended December
31 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year $ 35.74 $ 34.39 $ 31.77 $ 32.82 $ 31.81
Income from investment operations:
Net investment income (loss) (0.06) (0.14) (0.06) 0.15 2.73
Net realized and unrealized gain on securities 0.56 10.04 3.77 0.07 1.00
Total from investment operations 0.50 9.90 3.71 0.22 3.73
Distributions:
Dividends from net investment income .-- .-- .-- (0.16) (0.47)
Distributions from net realized gain on securities .-- (8.55) (1.09) (1.11) (2.25)
Total distributions 0.00 (8.55) (1.09) (1.27) (2.72)
Net asset value at end of year $36.24 $35.74 $34.39 $31.77 $32.82
Total return* 1.40% 29.70% 11.68% 0.62% 11.98%
Ratios/supplemental data:
Ratio of expenses to average net assets 1.10% 1.11% 1.10% 1.02% 1.14%
Ratio of net investment income (loss) to
average net assets (0.09%) (0.44%) (0.17%) 0.54% 0.43%
Portfolio turnover rate 99.20% 68.90% 59.60% 29.10% 28.10%
Net assets, end of year (000's) $302,762 $337,425 $268,235 $259,133 $160,994
<FN>
Total return figures do not adjust for the sales charge.
Note: This information is taken from financial statements audited by
Deloitte & Touche LLP that were published in the Fund's 1998
annual report.
</FN>
</TABLE>
GENERAL INFORMATION
- --------------------------------------------------------------------------------
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.
15
<PAGE>
Investment Adviser
Parnassus Investments
One Market-Steuart Tower #1600
San Francisco, California 94105
www.parnassus.com
Independent Auditors
Deloitte & Touche LLP
50 Fremont Street
San Francisco, California 94105
Custodian
Union Bank of California
475 Sansome Street
San Francisco, California 94111
You can obtain additional
information about The Parnassus Fund. A Statement
of Additional Information (SAl) dated May 1,
1999 has been
filed with the SEC and is incorporated in this
prospectus by reference (i.e., legally forms
a part of the prospectus). The Fund also publishes
an annual, a semiannual and two quarterly
reports each year that discuss the Fund's holdings
and how recent market conditions as well as the
Fund's investment strategies affected performance.
For a free copy of any of these documents or
to ask questions about the Fund,
call Parnassus Investments at (800) 999-3505.
The SAl, the Fund's annual, semiannual and
quarterly reports and other related materials are
also available on the SEC's Internet Web site (http://www.sec.gov). You can
also obtain copies
of this information upon paying a duplicating fee,
by writing the Public Reference Section of
the SEC, Washington, D.C. 20549-6009.
You can also review and copy
information about the Fund, including the SAl, at
the SEC's Public Reference Room in Washington,
D.C.
Call 800-SEC-0330 for information on
the operation of the SEC's Public Reference Room.
The Investment Company Act of 1940
File Number for The Parnassus Fund is 811-4044.
16
<PAGE>
The Parnassus Fund
One Market
Steuart Tower #1600
San Francisco, CA 94105
(800) 999-3505
STATEMENT OF ADDITIONAL INFORMATION May 1, 1999
The Parnassus Fund (the "Fund") is a diversified open-end management investment
company. Parnassus Investments is the Fund's adviser.
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Fund's prospectus dated May 1, 1999. The Fund's Annual
Report to Shareholders dated December 31, 1998 is expressly incorporated by
reference and made a part of this Statement of Additional Information. You may
obtain a free copy of the prospectus or the annual report by calling the Fund at
(800) 999-3505.
TABLE OF CONTENTS
Page
Investment Objective and Policies B-2
Management B-4
Adviser B-6
Performance Advertising B-8
Net Asset Value B-9
Shareholder Services B-9
Distributions and Taxes B-10
General B-10
Financial Statements B-11
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
(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.
Other Policies
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.
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.
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.
(3) 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.
B-3
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
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 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
of the Fund are as follows:
B-4
Name and Address Position with Fund Principal Occupation
- ---------------- ------------------ During Past Five Years
----------------------
Jerome L. Dodson, 55* President President of The Parnassus Fund,
Parnassus Investments and Trustee The Parnassus Income Trust and
One Market President and Director of
Steuart Tower #1600 Parnassus Investments.
San Francisco, CA 94105
Howard Fong, 53 Vice President Vice President and Treasurer of
Parnassus Investments and Treasurer The Parnassus Fund, The Parnassus
One Market Income Trust and of Parnassus
Steuart Tower #1600 Investments.
San Francisco, CA 94105
David L. Gibson, 59 Trustee Attorney in private practice.
5840 Geary Boulevard
San Francisco, CA 94118
Gail L. Horvath, 49 Trustee Owner of Just Desserts Bakery.
Just Desserts
1970 Carroll Avenue
San Francisco, CA 94124
Herbert A. Houston, 55 Trustee Health Care Consultant since
4550 Sequoyah Road October 1998. Chief Executive
Oakland, CA 94605 Officer of theHaight Ashbury Free
Clinics, Inc. 1986-1998.
Cecilia C.M. Lee, 55 Trustee President of hybridArts.com, a
2048 Corporate Court Silicon Valley-based electronics
San Jose, CA 95131 firm.
Leo T. McCarthy, 68 Trustee President of the Daniel Group, a
One Market partnership involved in foreign
Steuart Tower #1600 trade. A member of the California
San Francisco, CA 94105 State Assembly from 1969-1982 and
Lieutenant Governor of the State
of California from 1983-1995.
Donald E. O'Connor, 62 Trustee Retired. Executive for the
One Market Investment Company Institute
Steuart Tower #1600 1969-1997.
San Francisco, CA 94105
Howard M. Shapiro, 67 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, 56 Trustee Consultant in development
One Market banking, community reinvestment,
Steuart Tower #1600 ethical investing, and corporate
San Francisco, CA 94105 social responsibility. Executive
with SouthShore Bank of Chicago
1977-1997.
B-5
<PAGE>
Richard D. Silberman, 61 Secretary Attorney specializing in business
1061 Eastshore, #200 and securities law. Private
Albany, CA 94710 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, 1998, 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.
Jerome L. Dodson, President of The Parnassus Fund, owns 100% of the stock
in the Adviser, Parnassus Investments, and as such can be considered the control
person of the Adviser.
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. During 1996, 1997 and 1998, the Fund paid to
Parnassus Investments under the investment advisory contract the sums of
$1,736,345, $2,120,608 and $2,022,491, 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 1996, 1997 and 1998, Parnassus Investments received
$663,213, $447,056 and $420,326, respectively, of which amounts the following
was paid to other broker/dealers: $220,044 in 1996, $156,972 in 1997 and
$147,111 in 1998.
Parnassus Investments may arrange for third parties to provide certain
services including account maintenance, record keeping 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
B-6
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.) For 1996, 1997 and 1998,
respectively, the Fund paid service providers the following amounts: $62,154,
$165,778 and $178,997. For 1996, 1997 and 1998, respectively, the Adviser,
Parnassus Investments, paid service providers the following amounts: $47,737,
$131,396 and $127,772.
In addition to the Adviser's fee, 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.
Parnassus Investments is the fund accounting agent, in this capacity, handles
all fund accounting and pricing services, including calculating the daily net
asset values. PI received the following amounts from The Parnassus Fund for
1996, 1997 and 1998 respectively: $65,000, $70,000 and $70,000.
Portfolio Transactions and Brokerage
The Investment Advisory 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
B-7
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.
Research services provided through brokerage will be those providing
information and analyses that directly assist the portfolio manager making
investment decisions. Examples of such research services include Bloomberg
information and research, HOLT cash flow analyses, KLD social research,
publications containing investment information and recommendations and
individual reports written on specific companies.
During 1998, The Parnassus Fund paid PaineWebber, Inc. a total of $213,892
in brokerage commissions under a "soft dollar" agreement whereby PaineWebber
would provide research services to the Fund. During 1998, The Parnassus Fund and
the Parnassus Equity Income Fund maintained a joint account at Salomon Smith
Barney and the two funds together directed $29,000 in brokerage to pay for a
Bloomberg terminal. Allocation of commissions and research services were
approximately 80% to The Parnassus Fund and 20% to the Equity Income Fund.
The Adviser may also use brokerage commissions to reduce certain expenses
of the Fund subject to "best execution." For example, the Adviser may enter into
an agreement to have a brokerage firm pay part or all of the Fund's custodian
fee since this benefits the Fund's shareholders.
In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission although the price of the security usually includes a profit to the
dealer. Money market instruments usually trade on a "net" basis as well. On
occasion, certain money market instruments may be purchased directly from an
issuer in which case, no commissions or discounts are paid. In underwritten
offerings, securities are purchased at a fixed price which includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount.
During 1996, 1997 and 1998, the Fund paid $617,143, $574,269 and $615,635,
respectively, in brokerage commissions. Of those amounts, the following was paid
in conjunction with research services: $327,624 in 1996, $525,000 in 1997 and
$510,000 in 1998.
Parnassus Investments may have 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
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
B-8
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.
The Fund calculates total return by taking the total number of Fund shares
purchased with a hypothetical $1,000 investment, adding all additional Fund
shares purchased within the period with reinvested dividends, calculating the
value of those shares at the end of the period and dividing the result by the
initial $1,000 investment. For periods of more than one year, the cumulative
total return is then adjusted for the number of years, taking compounding into
account to calculate average annual total return during that period. A Fund will
quote total return for the most recent one-year period and the average annual
total return will be quoted for the most recent five-and ten-year periods, or
for the life of the Fund, if shorter.
Total return is computed according to the following formula:
P(1 + T)n = ERV
where P = a hypothetical initial payment of $1,000, T = total return, n = number
of years and ERV = ending redeemable value. Total return is historical
information and is not intended to indicate future performance.
<TABLE>
<CAPTION>
PERFORMANCE FIGURES
Periods Ending Average Annual Average Annual
December 31, 1998 Total Return Overall Return
<S> <C> <C>
One Year (2.15%) 1.40%
Five Years 9.81% 10.60%
Ten Years 12.23% 12.63%
<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.
B-9
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
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.
B-10
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.
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.
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 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.
B-11
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.
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, 1998, 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, 1998, may be
obtained free of charge by writing or calling the Fund.
<PAGE>
PART C
OTHER INFORMATION
Item 22. Financial Statements and Exhibits
(a) Financial Statements
(i) Selected financial highlights from January 1,
1994, through December 31, 1998, appear in Part A.
(ii) Audited financial statements as of December 31,
1998, are incorporated by reference. These statements
appear in the annual report dated December 31, 1998,
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.
Item 23. Exhibits
(a) Declaration of Trust: on file
(b) By-laws: on file
(c) Instruments Defining Rights of Security Holders: on file
(d) Investment advisory contract: on file
(e) Distribution agreement and dealer agreement: on file
(f) Bonus or Profit Sharing Contracts: on file
(g) Custodian agreement: on file
(h) Shareholder Servicing Plan and Agreement: on file
(i) Opinion and Consent of Counsel: on file
(j) Consent of Deloitte & Touche LLP: included
(k) Omitted Financial Statements: not applicable
(l) Investment letters: on file
(m) Rule 12b-1 Plan: not applicable
(n) Financial Data Schedule pursuant to Rule 483 under the
1933 Securities Act: Incorporated in Part A
(o) Rule 18f-3 Plan: not applicable
Item 24. 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 25. 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 26. 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 27. (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 Position
Business Address with Distributor Position with Registrant
---------------- ---------------- ------------------------
Jerome L. Dodson President President and Trustee
One Market and Director
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 28. 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 29. Management Services: Discussed in Part A and Part B.
Item 30. Undertakings: 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 Twenty-sixth day of February 1999.
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
and Trustee
________________________ ____2/26/99___
Jerome L. Dodson
Principle Financial and
________________________ Accounting Officer ____2/26/99____
Howard Fong
________________________ Trustee ____2/26/99____
David L. Gibson
Trustee
________________________ ____2/26/99____
Gail L. Horvath
Trustee
________________________ ____2/26/99____
Herbert A. Houston
Trustee
________________________ ____2/26/99____
Cecilia C.M. Lee
Trustee
________________________ ____2/26/99____
Leo T. McCarthy
Trustee
________________________ _____2/26/99____
Donald E. O'Connor
Trustee
________________________ _____2/26/99____
Howard M. Shapiro
________________________ Trustee _____2/26/99____
Joan Shapiro
<PAGE>
LIST OF EXHIBITS
(J) CONSENT OF DELOITTE & TOUCHE LLP
<PAGE>
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. 17 to Registration Statement No. 2-93131 of the Parnassus Fund on
Form N-1A of our report dated January 15, 1999 appearing in the Fund's 1998
Annual Report to Shareholders incorporated by reference in the Statement of
Additional Information ("SAI"), which is part of such Registration Statement,
(b) the reference to us under the heading "General" in the SAI, (c) the
reference to us under the heading "Financial Highlights" in the Prospectus,
which is a part of such Registration Statement, and (d) the reference to us
under the heading "General Information" in such Prospectus.
Deloitte & Touche LLP
February 25, 1999
