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 12
The Legend of Mt. Parnassus 5 Distributions and Taxes 13
Investment Objective and Policies 5 Financial Highlights 14
Management 7 General Information 15
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.
<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.)
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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.
[GRAPHIC HERE]
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>
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Periods Ending Average Annual S&P 500 Lipper Growth Fund
December 31, 1998 Total Return Index Average
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<S> <C> <C> <C>
One Year (2.15%) 28.58% 22.86%
Five Years 9.81% 24.01% 19.03%
Ten Years 12.23% 19.18% 17.18%
<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.
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.
</FN>
</TABLE>
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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 greater or less than
those shown.
<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.
<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 Fund also screens out
weapons contractors and those that generate electricity from nuclear power.
The social criteria of The Parnassus Fund limit the availability of
investment opportunities. However, the Trustees and the Adviser believe that
there are sufficient investments available that can meet the Fund's social
criteria and still enable the Fund to provide a competitive rate of return.
Other Policies
The Parnassus Fund may invest up to 5% of its assets in community development
loan funds such as those that provide financing for small business and for low
and moderate income housing. The Fund will not make loans to a project itself,
but rather will invest money in an intermediary community loan fund. With
projects having a strong, positive social impact, the Fund may invest in
obligations issued by community loan funds at below-market interest rates.
Generally, there is no secondary market, and thus no liquidity, for these
investments. In general, the Fund seeks to invest in community organizations
that have had a successful record in making these kinds of loans and that are
deemed creditworthy by the Adviser.
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.
<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 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 estate 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 and environmental issues. 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. She is a graduate of
Ohio State University. Ms. Horvath is also a Trustee of The Parnassus Income
Trust.
Herbert A. Houston, 55, Trustee, 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, Trustee, 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 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, Trustee, is President of the Daniel Group, a partnership
involved in foreign trade. His current directorships include Linear Technology
and Open Data Systems. He served eighteen years 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 admitted to practice law in California. Mr.
McCarthy is also a Trustee of The Parnassus Income Trust and a Director of
Forward Funds, another mutual fund.
<PAGE>
Donald E. O'Connor, 62, Trustee, 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, Trustee, 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, Trustee, is a consultant in corporate social responsibility
development banking and community reinvestment. 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.
Susan Loughridge, 50, Vice President and Shareholder Services Manager. Ms.
Loughridge is a graduate of University of Arizona. She began her career as an
examiner for the Federal Home Loan Bank Board and later joined Continental
Savings where she managed Branch Operations until 1991. She has served as
Shareholder Services Manager at Parnassus Investments since 1993. Ms. Loughridge
is also Vice President 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.
<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 Association 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>
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Dealer Discount
Sales Charge as a Percentage of Offering Net Asset as a Percentage
Amount of Transaction at Offering Price Price Value Offering Price
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<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>
<PAGE>
The 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 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.
<PAGE>
Direct Purchase of Shares
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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.
<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"). 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 shareholder 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.
<PAGE>
HOW TO REDEEM SHARES
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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 an original 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 a 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 reserves
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.
<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 to shareholders. Tax-exempt 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.
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 IRS Form 1099 showing 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.
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned on an investment in the
Fund assuming reinvestment of all dividends and distributions. This information
has been audited by Deloitte & Touche LLP, independent accountants, whose
report, along with the Fund's financial statements, is included in the Fund's
annual report. A free copy of the annual report is available upon request.
<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.
</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.
One issue with the potential to disrupt fund operations and affect
performance is the inability of some computers to recognize the year 2000.
Parnassus Investments has taken steps to enable its systems to handle this issue
and has scheduled final testing for its internal systems for the middle of 1999.
The investment adviser is also seeking confirmation from its service providers
and business partners that they are taking similar steps. These providers of
external systems have indicated they are working on this issue and they are
scheduled to complete testing in the first half of 1999. The Fund is also
collecting information on Year 2000 issues with regard to its portfolio
companies and deciding what investment action to take in light of the findings.
Nevertheless, there can be no assurance that these steps will be sufficient to
avoid any adverse impact upon the Fund.
<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 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.
