1933 Act File No.: 33-36065
1940 Act File No.: 811-6673
Securities and Exchange Commission
Washington, DC 20549
Form N-1A
REGISTRATION UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 6
and/or
REGISTRATION UNDER THE INVESTMENT ACT OF 1940
Amendment No. 8
THE PARNASSUS INCOME FUND
(Exact Name of Registrant as Specified in Charter)
One Market
Steuart Tower - Suite #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 - Suite #1600
San Francisco, CA 94105
(Name and Address of Agent for Service)
It is proposed that this filing will become effective on May 1, 1997 pursuant
to paragraph (b) of Rule 485.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant
has registered an indefinite number of shares of beneficial interest under the
Securities Act of 1933 and the Rule 24f-2 notice for issuer's fiscal year ending
December 31, 1996 was filed on February 10, 1997.
THE PARNASSUS INCOME FUND
Cross Reference Index
ITEM REFERENCE
Part A. Information Required in a Prospectus
Item 1. Cover Page Cover Page
Item 2. Synopsis; Fee Information Fund Expenses (p.2)
Item 3. Financial Highlights Financial Highlights (p.3)
Item 4. General Description of Investment Objective (p.5)
Registrant Other Investment Policies (p.10);
General Information (p.19)
Item 5. Management of the Fund Management (p.13); The Adviser(p.14)
General Information (p.19)
Item 6. Capital Stock and other Dividends and Taxes (p.17);
Securities How to Purchase Shares (p.14)
Management (p.13)
Item 7. Purchase of Securities Being How to Purchase Shares (p.14)
Offered
Item 8. Redemption or Repurchase How to Redeem Shares (p.16)
Item 9. Legal Proceedings None
Part B Information Required in a Statement of Additional Information
Item 10. Cover Page Cover Page (B-1)
Item 11. Table of Contents Table of Contents (B-1)
Item 12. General Information & History General (B-14)
Item 13. Investment Objective & Policies Investment Objectives
& Policies (B-2)
Item 14. Management of the Registrant Management (B-8)
Item 15. Control Person & Principal Control Persons (B-9)
Holders of Securities
Item 16. Investment Advisory & Other The Adviser (B-11)
Services
Item 17. Brokerage Allocation & Other The Adviser (B-11); Portfolio
Practices Transactions and Brokerage (B-11)
Item 18. Capital Stock & Other Securities General (B-14)
Item 19. Purchase, Redemption & Pricing Net Asset Value (B-13)
of Securities Being Offered
Item 20. Tax Status Prospectus (p.17)
Item 21. Underwriters Portfolio Transactions and
Brokerage (B-11)
Item 22. Calculation of Performance Data Performance Advertising and
Calculation of Total Return
and Yield (B-10); Yield of
Fixed-Income and California
Tax-Exempt Portfolio (B-10);
Effective Yield (B-10)
Item 23. Financial Statements Financial Statements (B-15)
<PAGE>
THE PARNASSUS INCOME FUND
PROSPECTUS-MAY 1, 1997
The Parnassus Income Fund (the "Fund") is a "no load," diversified, open-end
series management investment company managed by Parnassus Investments (the
"Adviser"). The Adviser chooses the Fund's investments for all portfolios
according to social standards described in this Prospectus. In general, the
Adviser will choose investments that it believes will have a positive social
impact.
The Fund has three portfolios. The Balanced Portfolio invests in both stocks
and bonds and its investment objective is both current income and capital gains.
The Fixed-Income Portfolio invests primarily in bonds and other fixed-income
investments and its investment objective is current income and preservation of
capital. The California Tax-Exempt Portfolio (for California residents only) has
as its investment objective a high level of current income exempt from federal
and California personal income taxes consistent with prudent investment
management.
This Prospectus provides you with the basic information you should know
before investing in the Fund. You should read it and keep it for future
reference. A Statement of Additional Information (SAI) dated May 1, 1997
containing additional information about the Fund has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
Prospectus in its entirety. You may obtain a copy of the Statement of Additional
Information without charge by calling the Fund at (800) 999-3505.
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
Fund Expenses 2 Management 13
Financial Highlights 3 The Adviser 14
The Legend of Mt. Parnassus 4 How to Purchase Shares 14
Investment Objective and Policies 5 How to Redeem Shares 16
Other Investment Policies 10 Dividends and Taxes 17
Performance Information 11 General Information 19
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of the
Fund will incur.
SHAREHOLDER TRANSACTION EXPENSES
-----------------------------------------------------------------------------
CALIFORNIA
BALANCED FIXED-INCOME TAX-EXEMPT
PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------
Maximum Sales load Imposed on Purchases
(as a percentage of offering price) None None None
Redemption Fees None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
----------------------------------------------------------------------------
Management Fees (after fee waiver) 0.50% 0.10% 0.20%
12b-1 Fees None None None
Other expenses (after expense reimbursement) 0.65% 0.83% 0.51%
Total Fund Operating Expenses 1.15%* 0.93%* 0.71%*
The purpose of this table is to assist the investor in understanding the
various costs and expenses that a shareholder in the Fund will bear directly or
indirectly. The following example illustrates the expenses that you would pay on
a $1000 investment over various time periods assuming (1) a 5% annual rate of
return and (2) redemption at the end of each time period. As noted in the table
above, the Fund charges no redemption fees of any kind.
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
Balanced Portfolio $12 $37 $63 $140
Fixed-income Portfolio 9 30 51 114
California Tax-Exempt Portfolio 7 23 40 88
The expenses shown above are cumulative--not ones you pay every year. For
example, the $140 figure for ten years with the Balanced Portfolio is not the
annual expense, but the total cumulative expenses a shareholder would have paid
for the entire ten-year period. This example should not be considered a
representation of past or future expenses or performance. Actual expenses may be
greater or less than those shown.
From time to time, the Fund may direct brokerage commissions to firms that
may pay certain expenses of the Fund subject to "best execution." This is done
only when brokerage costs are reasonable and the Fund determines that the
reduction of expenses is in the best interest of the shareholders. See page B-11
of the SAI for more information. Since this happens on an irregular basis, the
effect on the expense ratios cannot be calculated with any degree of certainty.
* The Fund compensates Parnassus Investments for its services as Transfer
Agent and Accounting Agent in the form of fixed fees, which are not based upon a
percentage of the average net assets of the Fund. The Adviser has agreed to
reduce its management fee to the extent necessary to limit total operating
expenses to 1.25% of net assets for the Balanced Portfolio and 1.00% of net
assets for the Fixed-Income and California Tax-Exempt Portfolios. For 1996,
Parnassus Investments reduced its fees and reimbursed expenses so that the
expense ratios were even lower than these limits. Had there been no expense
reimbursement or fee waiver, total expense ratios for the Balanced, Fixed-Income
and California Tax-Exempt Portfolios would have been 1.40%, 1.33% and 1.00%
respectively.
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
Selected data for each share of capital stock outstanding, total return and ratios/supplemental data
the years ended December 31, 1996, 1995, 1994, 1993 and seven month period ended December 31, 1992 are
as follows:
- -------------------------------------------------------------------------------------------------------------
Balanced Portfolio 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $19.58 $15.70 $17.46 $16.17 $0.00
----- ----- ----- ----- -----
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.98 0.88 0.80 1.20 0.17
Net realized and unrealized gain
(loss) on securities 0.37 3.93 (1.75) 1.36 16.15
----- ----- ----- ----- -----
Total from investment operations 1.35 4.81 (0.95) 2.56 16.32
----- ----- ----- ----- -----
DISTRIBUTIONS:
Dividends from net investment income (0.97) (0.90) (0.81) (1.21) (0.15)
Distributions from net realized gain
on securities (1.40) (0.03) 0.00 (0.06) 0.00
----- ----- ----- ----- -----
Total distributions (2.37) (0.93) (0.81) (1.27) (0.15)
----- ----- ----- ----- -----
Net asset value at end of period $18.56 $19.58 $15.70 $17.46 $16.17
----- ----- ----- ------ -----
TOTAL RETURN * 7.09% 31.13% (5.39%) 15.91% 8.58%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net
assets (actual)** 0.80% 0.72% 0.83% 0.81% 0.00%
Decrease reflected in the above
expense ratios due to undertakings
by Parnassus Investments 0.60% 0.82% 0.88% 1.24% 1.14%
Ratio of net investment income to
average net assets 4.56% 4.76% 5.15% 4.94% 2.44%
Portfolio turnover rate 47.80% 15.36% 6.50% 33.40% 23.54%
Average commission per share*** $0.069 .- .- .- .-
Net assets, end of period (000's) $33,362 $26,779 $17,087 $11,542 $3,241
- -------------------------------------------------------------------------------------------------------------
Fixed-Income Portfolio 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $15.73 $13.79 $15.89 $15.33 $0.00
----- ----- ----- ----- -----
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.92 0.95 1.02 1.03 0.36
Net realized and unrealized gain
(loss) on securities (0.31) 1.95 (2.08) 0.57 15.32
----- ----- ----- ----- -----
Total from investment operations 0.61 2.90 (1.06) 1.60 15.68
----- ----- ----- ----- -----
DISTRIBUTIONS:
Dividends from net investment income (0.91) (0.96) (1.04) (1.03) (0.35)
Distributions from net realized
gain on securities 0.00 0.00 0.00 (0.01) 0.00
----- ----- ----- ----- -----
Total distributions (0.91) (0.96) (1.04) (1.04) (0.35)
----- ----- ----- ----- -----
Net asset value at end of period $15.43 $15.73 $13.79 $15.89 $15.33
----- ----- ----- ----- -----
TOTAL RETURN * 4.08% 21.58% (6.76%) 10.59% 2.87%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net
assets (actual)** 0.83% 0.90% 0.81% 0.68% 0.00%
Decrease reflected in the above
expense ratios due to undertakings
by Parnassus Investments 0.50% 0.73% 0.98% 1.00% 1.18%
Ratio of net investment income to
average net assets 5.98% 6.20% 7.00% 6.43% 3.20%
Portfolio turnover rate 2.80% 12.10% 5.20% 10.90% 15.29%
Net assets, end of period (000's) $8,384 $6,585 $4,545 $4,160 $2,093
- -------------------------------------------------------------------------------------------------------------
California Tax-Exempt Portfolio 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $16.06 $14.28 $16.10 $15.06 $ 0.00
----- ----- ----- ----- -----
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.80 0.82 0.80 0.77 0.19
Net realized and unrealized gain
(loss) on securities (0.06) 1.78 (1.81) 1.16 15.05
----- ----- ----- ----- -----
Total from investment operations 0.74 2.60 (1.01) 1.93 15.24
----- ----- ----- ----- -----
DISTRIBUTIONS:
Dividends from net investment income (0.78) (0.82) (0.81) (0.78) (0.18)
Distributions from net realized
gain on securities 0.00 0.00 0.00 (0.11) 0.00
----- ----- ----- ----- -----
Total distributions (0.78) (0.82) (0.81) (0.89) (0.18)
----- ----- ----- ----- -----
Net asset value at end of period $16.02 $16.06 $14.28 $16.10 $15.06
----- ----- ----- ----- -----
TOTAL RETURN * 4.78% 18.60% (6.36%) 13.03% 1.70%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net
assets (actual)** 0.54% 0.50% 0.39% 0.48% 0.00%
Decrease reflected in the above
expense ratios due to undertakings
by Parnassus Investments 0.46% 0.69% 0.87% 0.99% 2.10%
Ratio of net investment income to
average net assets 4.96% 5.30% 5.37% 4.89% 2.10%
Portfolio turnover rate 0.00% 13.10% 12.00% 20.46% 0.00%
Net assets, end of period (000's) $5,835 $4,483 $3,902 $3,256 $1,061
<FN>
* 1992 ratios relfect returns for seven months of operation and are not annualized.
** Parnassus Investments has agreed to a 1.25% limit on expenses for the Balanced Portfolio and 1% for
the Fixed-Income and California Tax-Exempt Portfolios (See Note 5 for details). Certain fees were
waived for years for the years ended December 31, 1996,1995, 1994 and 1993. All expenses were waived
for the seven-month period ended December 31, 1992; therefore, the actual ratio of expenses to
average net assets for each portfolio was 0%.
*** Average commission rate is calculated for the periods beginning January 1, 1996 and applies only to
portfolios with equity holdings.
</FN>
</TABLE>
Note: This information is taken from audited financial statements that were
published in the Fund's annual reports and was audited by Deloitte & Touche LLP.
THE LEGEND OF MT. PARNASSUS
- --------------------------------------------------------------------------------
Parnassus is a mountain in central Greece whose twin peaks rise more than
8,000 feet above sea level. A dense forest covers the slopes of Mt. Parnassus,
but the summit is rocky and, most of the time, covered with snow. The mountain
plays a prominent role in Greek mythology because on its southern slope,
overlooking the Gulf of Corinth, lies Delphi, site of the famous oracle.
Originally, the oracle belonged to Gaia, the earth goddess. Later, Mother
Earth was worshipped under the name Delphyne and she controlled the oracle along
with her serpent-son, Python, and her priestess-daughters who controlled the
rites. Eventually, the Greek god, Apollo, took over the site, doing away with
Python, but keeping the priestesses.
The most "Greek" of the gods, Apollo represented enlightenment and
civilization and presided over the establishment of cities. Identified with the
development of Greek codes of law, Apollo was also the god of light, a master
musician and a skilled archer. Legend has it that Python, an enormous serpent
raised in the caves of Mt. Parnassus, controlled the site of Delphi. When
<PAGE>
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
- -------------------------------------------------------------------------------
SOCIAL POLICY
The Adviser will look for certain social policies in the companies in which
it invests. These social policies are: (1) treating employees fairly (2) sound
environmental protection policies (3) a good equal employment opportunity policy
(4) quality products and services (5) sensitivity to the communities where they
operate and (6) ethical business practices. Obviously, no company will be
perfect in all categories, but the Adviser will make value judgements in
deciding which companies best meet the criteria. The Adviser will also consider
social factors other than these six (as discussed under the investment
objectives of each of the three portfolios).
Although the Fund will emphasize positive reasons for investing in a company,
our operating policies call for excluding companies that manufacture alcohol or
tobacco products or are involved with gambling. The Fund also screens out
weapons contractors and those that generate electricity from nuclear power.
The social criteria of the Parnassus Income 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 provide a competitive rate of return.
BALANCED PORTFOLIO
The primary objective of the Balanced Portfolio is current income and capital
preservation. Capital appreciation is a secondary objective. The Fund will try
to achieve this objective by investing in a diversified portfolio of
fixed-income and equity securities. There is no predetermined allocation of
assets for the Balanced Portfolio. The Adviser will determine the mix of
investments depending upon its view of the economic outlook and market
conditions. This portfolio will, however, maintain at least 25% of its assets in
fixed-income securities at all times.
The Balanced Portfolio may invest in both common and preferred stocks as well
as securities that are convertible into these instruments. A common stock issue
selected for this portfolio,
<PAGE>
however, must pay a dividend at least equal to that paid by the average stock in
the S&P 500. Issuers of equity securities must meet the social criteria stated
in this prospectus.
The Balanced Portfolio will have the same criteria for its fixed-income
investments as the Fixed-income Portfolio. For details, see the description of
the Fixed-income Portfolio below.
The Balanced Portfolio may also invest up to 10% of its assets in community
development loan funds such as those that provide financing for small business
and 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, this portfolio may lend
money at below market interest rates. Generally speaking, there will be no
secondary market for these loans and thus, there will be no liquidity for these
investments. Although the Fund may make concessions on interest rate and
liquidity, no concessions will be made on standards of creditworthiness. In
general, the Fund will work with community organizations that have had a
successful record in making these kinds of loans.
RISK FACTORS
As with all investments, there are a number of risk factors associated with
the Balanced Portfolio. The equity portion of the Balanced Portfolio poses a
risk in that an individual enterprise may fall on hard times and operate with
little or no profits; this would depress the price of its stock. There are also
risks associated with the economic cycle (e.g. a recession) as well as market
risks that might sharply reduce the valuation of all stocks or stocks in a
specific industry. Since the Balanced Portfolio will invest only in stocks that
pay a dividend, the equity portion of the portfolio will be invested in larger,
more mature companies. These companies tend to be safer and less volatile than
those companies that don't pay a dividend.
With preferred stock and higher-yielding common stocks such as utilities, a
major risk will be increased interest rates that will decrease the market value
of the securities in question. For a fuller description of interest rate risk,
see the Risk Factors section under Fixed-income Portfolio. The discussion of
risk factors in that section also applies to the fixed- income portion of the
Balanced Portfolio.
There are also special risks involved with community development loans which
may comprise as much as 10% of this portfolio. These loans do not have liquidity
and community loan funds don't have the same kind of financial resources as do
large commercial enterprises. Moreover, there is no publicly available track
record for community loan funds so it is hard to assess the history of these
kinds of loans. In fact, one of the social objectives of the Parnassus Income
Fund is to establish a publicly available track record for community development
loans.
FIXED-INCOME PORTFOLIO
The investment objective of the Fixed-income Portfolio is a high level of
current income consistent with safety and capital preservation. The Adviser will
try to achieve this objective by investing in a diversified portfolio of bonds
and other fixed-income instruments that are rated investment grade. "Investment
grade" means receiving a rating within the four highest categories as determined
by a nationally-recognized rating service such as Standard and Poor's
Corporation
<PAGE>
or Moody's Investors Service. Securities in the lowest of these four categories
are considered in-vestment grade, but they may have speculative elements about
them. The Fixed-Income Portfolio will have at least 65% of its net assets in
securities rated "A" or better. See the Appendix in the Statement of Additional
Information for a description of bond ratings. Obligations issued or guaranteed
by the United States Government, its agencies or instrumentalities need not have
a rating.
The fixed-income securities may be long-term, intermediate-term or short-term
or any combination thereof, depending on market conditions. They may also have
floating or variable interest rates. Securities in this Portfolio may include
preferred stock, convertible preferred stock and convertible bonds.
The Fixed-income Portfolio will invest only in investment grade securities.
We will not invest in "high-yield" or "junk" bonds. Because of this emphasis on
quality and safety, the yield may not be as high as it otherwise might be.
One of the social objectives of this portfolio is long-term support for
housing. In this regard, the Fund expects that a substantial portion of the
Fixed-income Portfolio will be invested in obligations of the Federal Home Loan
Mortgage Corporation (FHLMC or "Freddie Mac"), the Federal National Mortgage
Association (FNMA or "Fannie Mae") and the Government National Mortgage
Association (GNMA or "Ginnie Mae"). Other fixed-income securities that the
Adviser may choose from that have a positive social impact include obligations
of the Student Loan Marketing Association (higher education) and the Federal
Farm Credit System (family farms). This Portfolio may also invest up to 10% of
its assets in community development loan funds. See the section on the Balanced
Portfolio for details.
RISK FACTORS
The Adviser anticipates that the Fixed-income Portfolio's average weighted
maturity will be between 5 and 20 years. Because of this relatively long
maturity, the value of this portfolio will vary inversely with changes in
interest rates. As interest rates go up, the net asset value (NAV) will go down
and as interest rates drop, the NAV of this Portfolio will go up. The
Fixed-income Portfolio is intended for investors who can accept the fact that
there will be principal fluctuations. The NAV of the Portfolio may also be
affected by things other than interest rates such as credit risk and general
market factors.
CALIFORNIA TAX-EXEMPT PORTFOLIO
The investment objective of the California Tax-Exempt Portfolio is to provide
high current income exempt from both federal and California personal income tax
while choosing a portfolio that will have a positive social and environmental
impact. The Adviser will pursue this objective by investing in a diversified
portfolio of tax-exempt, investment grade securities issued by California state
and local governments and by other public authorities. This Portfolio is for
California residents only. David Pogran is the portfolio manager for the
California Tax-Exempt Portfolio.
The two principal classifications of municipal bonds are "general obligation"
and "revenue" bonds. General obligation bonds are backed by the taxing power of
the issuer and considered
<PAGE>
the safest type of municipal bond. Revenue bonds are backed by the revenue from
a specific project and may be backed by the credit and security of a private
user. Investments in revenue bonds have more potential risk. While interest on
private activity revenue bonds may be tax- exempt, it may be treated as a tax
preference item for taxpayers subject to the alternative minimum tax. The
California Tax-Exempt Portfolio will minimize its investment in such bonds and
no more than 20% of the Portfolio's assets will be invested in bonds whose
income is treated as a tax preference item under the federal alternative minimum
tax.
The Portfolio may also purchase a right to sell a security held by the Fund
back to the issuer of the security or another party at an agreed upon price at
any time during a stated period or on a certain date. These rights are referred
to as "demand features" or "puts." The Portfolio may also purchase floating or
variable rate obligations (including participations) as well as variable rate
demand notes (VRDNs) which feature interest rates that float with an index and a
"put" feature. For temporary purposes, the Portfolio may invest up to 10% of its
assets in no-load, open-end investment companies which invest in tax-exempt
securities with maturities of less than one year ("tax exempt money market
funds") but the Portfolio will put no more than 5% of its assets into any one
fund.
Normally, the Portfolio will have all its assets invested in tax-exempt
securities, but may temporarily invest in short-term taxable money market
instruments. Temporary investments will be limited to obligations issued or
guaranteed by the United States Government, its agencies or instrumentalities,
prime commercial paper or deposits with federally-insured financial
institutions.
The California Tax-Exempt Portfolio will contain only investment grade
securities, i.e. those that have been rated at the time of purchase in one of
the four highest categories by Moody's, Standard & Poor's Corporation or Fitch
Investors Service, or if unrated, being similar in quality, in the Adviser's
opinion, to the top four categories. These are considered "investment grade"
securities although bonds in the fourth highest category ("Baa") are regarded as
having an adequate capacity to pay principal and interest, but with greater
vulnerability to adverse economic conditions; they also have some speculative
characteristics. (An Appendix to the Statement of Additional Information
contains a description of the ratings of Moody's, Fitch and Standard & Poor's.)
The Portfolio will not invest more than 20% of its total assets in securities
rated in the fourth highest category. If the rating on an issue held by the
Portfolio falls below investment grade after purchase, the Adviser will consider
such an event in its evaluation of a specific security, but it will not
necessarily result in an automatic sale of that security. The Portfolio does,
however, have an operating policy that no more than 5% of its assets may consist
of securities which were rated investment grade at the time of purchase, but
subsequently drop below investment grade. Because the California Tax-Exempt
Portfolio will emphasize safety and avoid junk bonds and other securities below
investment grade, the yield may not be as high as it otherwise might be.
Examples of activities which the Trustees have determined have a positive
social and environmental impact include financing for schools, libraries,
hospitals, mass transit, low and moderate income housing, pollution control
facilities, renewable energy resources, energy conservation projects, park
development and open space acquisition. The Portfolio will not finance
activities with a negative social or environmental impact as determined by the
Trustees
<PAGE>
and the Adviser. Examples of activities with a negative social or environmental
impact include generating electricity from nuclear power, constructing freeways
when mass transit is more appropriate and building large-scale dams or other
water projects that encourage waste. For all activities not listed above, the
Adviser will make a determination on a case-by-case basis as to whether or not
the activity in question has a positive social and environmental impact.
Some municipal securities (usually industrial development bonds) are issued
to finance privately-operated sports facilities, convention centers, airports,
parking structures, factories or commercial developments. In these situations,
the Adviser will make decisions on a case-by-case basis as to the social value
of the project in question. For example, the Adviser would probably refrain from
investing in securities that financed a fast-food operation, but probably would
invest in an issue used to construct a plant that provided substantial benefits
to the local community and had no negative environmental consequences. In the
case of a project benefiting a specific company, the Portfolio will apply the
social criteria listed under the "Social Policy" heading in this Prospectus.
In the case of a sports facility, it might have positive benefits such as
jobs, community pride, economic development and family activities. On the other
hand, a new sports facility might have negative environmental consequences or
put too much demand on community financial resources for the benefit of a sports
franchise owner to the detriment of more important community needs. Another
important consideration in a sports stadium might be whether it encouraged
public transit or caused more traffic jams. In all cases such as a sports
facility where the Trustees have not determined whether an activity has a
positive or negative social/environmental impact, the Adviser will balance all
the relevant factors and make a determination if a given security meets the
Fund's social criteria.
As a fundamental policy, with respect to 75% of its net assets, the
California Tax-Exempt Portfolio will not purchase a security if, as a result of
the investment, more than 5% of its assets would be in the securities of any
single issuer. (For this purpose, each political subdivision, agency or
instrumentality and each multi-state agency which issues industrial development
bonds on behalf of a private entity, will be regarded as a separate issuer for
determining the diversification of the California Tax-Exempt Portfolio).
Under normal circumstances, the California Tax-Exempt Portfolio intends to
invest 100% of its assets in California municipal obligations. As a matter of
fundamental investment policy, the Port-folio will invest at least 80% of its
assets in municipal obligations, the interest on which will be free from federal
income taxation . As an operating policy, the Portfolio will invest at least 65
% of its assets in California municipal obligations. Usually, the Portfolio will
substantially exceed these minimum requirements, but the Portfolio may invest up
to 20% of assets in private activity bonds that may be subject to the federal
alternative minimum tax.
RISK FACTORS
Since the California Tax-Exempt Portfolio will invest primarily in
California municipal securities, there are special risks involved because of
recent changes in the State constitution and other laws that raise questions
about the ability of State and municipal issuers to obtain sufficient
<PAGE>
revenue to pay their bond obligations. California voters have approved
amendments to the State constitution which limit property taxes as well as the
ability of taxing entities to raise other types of taxes. In addition, another
constitutional amendment, popularly known as the Gann Initiative, limits
increases in revenue appropriations. Federal legislative proposals have
threatened the tax-exempt status or use of municipal securities. From mid-1990
to late 1993, California suffered the worst economic, fiscal and budget
conditions since the 1930's. The weak economy lowered tax revenues and increased
the need for social welfare expenditures causing recurring budget deficits. Due
to budgetary and fiscal stress, between October 1991 and July 1994, ratings on
the State's general obligation bonds were reduced from AAA to A by S&P, from Aaa
to A1 by Moody's and from AAA to A by Fitch. As of June 30, 1996, the economic
recovery that began in late 1993 has helped eliminate the State's budget
deficit. In 1996, S&P and Fitch upgraded ratings on California's general
obligation bonds from A to A+. The governor's budgets for 1996-1997 and
1997-1998 are balanced as proposed. However, these proposed budgets are based on
revenue and expenditure assumptions. If these assumptions are not met, future
budget deficits could materialize.
The Portfolio will invest in securities with maturities of more than one year
and the average maturity of all securities will usually be five years or more.
If the Adviser determines that market conditions warrant a shorter average
maturity, the Portfolio will be adjusted accordingly. Since the value of debt
obligations typically varies inversely with changes in interest rates, the net
asset value per share (NAV) of the Portfolio will also fluctuate in this manner.
As interest rates go up, the NAV will go down and as interest rates drop, the
NAV will go up. The California Tax-Exempt Portfolio is intended for investors
who can accept the fact that there will be principal fluctuations. (See the
Statement of Additional Information for a further discussion of risk factors
involved with investing in California tax-exempt securities.)
OTHER INVESTMENT POLICIES
- --------------------------------------------------------------------------------
Under normal circumstances, each portfolio of the Fund will have its assets
invested according to its stated investment objective. However, for temporary
defensive purposes or pending the investment of the proceeds of sales of Fund
shares or portfolio securities, all or part of the assets may be invested in
money market instruments or in repurchase agreements. In these situations, the
Fund's portfolios will not be following their investment objectives.
Repurchase agreements involve the purchase by the Fund of debt securities and
their resale at an agreed-upon price. In order to minimize risk, the Fund will
enter into repurchase agreements only with recognized securities dealers and
banks that present minimal credit risk and, in all instances, the agreements
will be collateralized by U.S. Government securities with a value equal to the
total repurchase price. Repurchase agreements are always for periods of less
than one year and no more than 5% of a portfolio's assets may be invested in
repurchase agreements.
The Fund is subject to certain investment restrictions which are fundamental
policies that cannot be changed without the approval of the holders of a
majority of the Fund's outstanding
<PAGE>
voting securities. An operating policy of the Fund or a Portfolio is one that
can be changed by the Board of Trustees. Each investment policy set forth in
this Prospectus is fundamental unless specifically described as an operating
policy. The investment objective of each portfolio is a fundamental policy as
are restrictions that provide that each portfolio may not: (i) with respect to
75% of a portfolio's net assets, invest more than 5% of the value of its net
assets in securities of any one issuer (other than obligations issued or
guaranteed by the United States Government, its agencies or instrumentalities);
(ii) with respect to 75% of a portfolio's net assets, purchase more than 10% of
the outstanding voting securities or of any class of securities of any issuer;
(iii) invest more than 25% of the value of its total assets in securities of
issuers in any one industry; or (iv) borrow money except from banks for
temporary or emergency purposes in amounts not exceeding 10% of each portfolio's
total assets. (A portfolio may not make additional investments while any
borrowings are outstanding.) It is possible for the Fund to make limited
investments in the securities of other investment companies. See the Statement
of Additional Information for more details on the Fund's investment
restrictions.
An operating (although not fundamental) policy of the Fund is that it should
not make an investment if, thereafter, more than 15% of a portfolio's net assets
would be illiquid. If the Fund finds itself with more than 15% of a portfolio's
net assets so invested, it will take action to bring the portfolio's illiquid
assets below 15%. Illiquid assets include: (i) those which are restricted, i.e.
those which cannot be freely sold for legal reasons (which the Fund does not
expect to own); (ii) fixed time deposits subject to withdrawal penalties (other
than overnight time deposits); (iii) re-purchase agreements having a maturity of
more than seven days; and (iv) investments for which market quotations are not
readily available. However, the 15% limit does not include obligations which are
payable at principal amount plus accrued interest within seven days after
purchase.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
YIELD OF PORTFOLIOS
From time to time, the Balanced, the Fixed-income and the California
Tax-Exempt Portfolios may advertise their yields including current yield,
effective yield and tax equivalent yield. Current yield refers to the income
generated by an investment over a specific time period which is then annualized
(i.e. the amount of income generated during a seven-day period is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
principal). Effective yield is calculated in a similar manner, but when
annualized, the income earned from the investment is assumed to be reinvested.
Effective yield differs from current yield because of the compounding effect of
reinvestment.
The California Tax-Exempt Portfolio may also advertise its tax equivalent
yield. The Portfolio calculates this by taking the tax-exempt current (or
effective) yield and dividing it by one minus the maximum income tax rate for
California residents (both federal and state) and adding it to that portion (if
any) of the Portfolio's yield that is not tax-exempt.
<PAGE>
TOTAL RETURN
The Balanced Portfolio, the Fixed-income Portfolio and the California Tax-
Exempt Portfolio may each advertise "total return." Total return refers to the
total change in value of an investment in the portfolio over a specific time
period. It differs from yield in that yield figures measure only the income
component of the Portfolio's investments while total return measures both income
and any change in principal (net asset value). For more information on how we
calculate yield and total return, please see the Statement of Additional
Information.
Total return is historical in nature and is not intended to indicate future
performance. The 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 Portfolio, if shorter.
COMPARISON OF FUND PORTFOLIOS
The Fund may also advertise its cumulative total return for prior periods and
compare its performance to the performance of other selected mutual funds,
selected market indicators such as the Standard & Poor's 500 stock index or
non-market indices or averages of mutual fund industry groups.
The Fund may quote its performance rankings and/or other information as
published by recognized independent mutual funds statistical services or by
publications of general interest. In connection with a ranking, the Fund may
provide additional information, such as the particular category to which it
relates, the number of funds in that category, the criteria upon which the
ranking is based, and the effect of sales charges, fee waivers and/or expenses
reimbursements.
All Fund performance information is historical and is not intended to
represent or guarantee future results. The value of Fund shares when redeemed
may be more or less than their orginal cost.
<TABLE>
<CAPTION>
PERFORMANCE FIGURES
- ----------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
- ----------------------------------------------------------------------------------------------------------
BALANCED FIXED-INCOME CALIFORNIA TAX-EXEMPT
FOR PERIODS ENDING DECEMBER 31, 1996 PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
One Year 7.09% 4.08% 4.78%
Three Years 9.93% 5.67% 5.18%
Life of Fund (date of inception was 9/1/92) 12.59% 7.03% 6.94%
</TABLE>
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.
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
<PAGE>
of the Fund. The Trustees and officers are listed below together with their
principal occupations during at least the past five years.
Jerome L. Dodson*, President and Trustee, is also President of the Parnassus
Fund and of Parnassus Investments, the Adviser. From 1975 to 1982, Mr. Dodson
served as President and Chief Executive Officer of Continental Savings of
America. From 1982 to 1984, he was President and Trustee of Working Assets Money
Fund and he also served as a Trustee from 1988 through 1991. He is a graduate of
the University of California at Berkeley and of Harvard University's Graduate
School of Business Administration. Mr. Dodson is the portfolio manager for both
the Balanced Portfolio and the Fixed-Income Portfolio.
Herbert A. Houston, Trustee, is the Chief Executive Officer of the Haight
Ashbury Free Clinics, Inc. Previously, he worked as Development Director for the
National Association for Sickle Cell Disease, Vice President of the Bay Area
Black United Fund and as an executive for the Combined Federal Campaign and the
United Way of the Bay Area. He is a graduate of California State University at
Hayward and holds a Master's degree in Public Administration & Health Services
from the University of Southern California.
Howard M. Shapiro, 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 a Trustee of the Portland Art Museum, and President of the
Portland Housing Authority. He has also served as a Director of the Social
Investment Forum. Mr. Shapiro is a graduate of the University of Washington. He
is no relation to Joan Shapiro.
Joan Shapiro, Trustee, is Executive Vice President of The South Shore Bank of
Chicago. She is a former President of The Social Investment Forum, the national
trade association of the social investment movement. She is also a Director of
the New Israel Fund and a Governor of International House at the University of
Chicago. She is a graduate of Cornell University. Ms. Shapiro is no relation to
Howard Shapiro.
Howard Fong, Vice President and Treasurer, is also Vice President of the
Parnassus Fund and of Parnassus Investments. Mr. Fong began his career as an
examiner with the California Department of Savings and Loan. In 1979, he joined
Continental Savings where he worked until 1988, most recently as Senior Vice
President and Chief Financial Officer. He joined the Parnassus Fund in 1988. Mr.
Fong graduated from San Francisco State University with a degree in business
administration .
Richard D. Silberman, Secretary, is an attorney specializing in business law.
He has been general counsel to the Parnassus Income Fund since its inception. He
holds bachelor's degrees in business administration and law from the University
of Wisconsin and a Master of Laws from Stanford University. He is a member of
both the Wisconsin and California Bars.
David Pogran, Portfolio Manager, has managed the California Tax Exempt
Portfolio since its inception in September 1992. He has been director of
research at Parnassus Investments, since 1989. He received his MBA from the
University of California at Berkeley, and his undergraduate studies were at the
University of Wisconsin at Madison. Prior to receiving his MBA, David spent
eight years in retail management.
*Denotes "interested trustee" as defined in the Investment Company Act of
1940
<PAGE>
THE ADVISER
- --------------------------------------------------------------------------------
Parnassus Investments (the "Adviser"), One Market-Steuart Tower #1600, San
Francisco, California 94105 acts as investment adviser to the Fund subject to
the control of the Fund's Board of Trustees, and as such, supervises and
arranges the purchase and sale of securities held in the Fund's portfolios. The
Adviser has been the investment manager of the Parnassus Fund since 1985 and the
Parnassus Income Fund since 1992.
For its services, the Fund, under an Investment Advisory Agreement (the
"Agreement") be-tween the Fund and the Adviser, pays the Adviser a fee, computed
and payable at the end of each month, at the following annual percentages of
each portfolio's average daily net assets; the Balanced Portfolio, 0.75% of the
first $30 million, 0.70% of the next $70 million and 0.65% of the amount above
$100 million. For the Fixed-income Portfolio and the California Tax-Exempt
Portfolio, the fee is 0.50% of the first $200 million, 0.45% of the next $200
million and 0.40% of the amount above $400 million.
In addition to the fee payable to the Adviser, the Fund is responsible for
its operating expenses, including: (i) interest and taxes; (ii) brokerage
commissions; (iii) insurance premiums; (iv) compensation and expenses of its
Trustees other than those affiliated with the Adviser; (v) legal and audit
expenses; (vi) fees and expenses of the Fund's custodian, transfer agent and
accounting services agent; (vii) expenses incident to the issuance of its
shares, including issuance on the payment of or reinvestment of dividends;
(viii) fees and expenses incident to the registration under federal or state
securities laws of the Fund or its shares; (ix) expenses of preparing, printing
and mailing reports and notices and proxy material to shareholders of the Fund;
(x) all other expenses incidental to holding meetings of the Fund's
shareholders; (xi) dues or assessments of or contributions to the Investment
Company Institute, the Social Investment Forum or any successor; (xii) such
nonrecurring expenses as may arise, including litigation affecting the Fund and
the legal obligations which the Fund may have to indemnify its officers and
Trustees with respect thereto. In allocating brokerage transactions, the
investment advisory agreement states that the Adviser may consider research
provided by brokerage firms or whether those firms sold shares of the Fund. See
page B-11 of the SAI for more information on brokerage and portfolio
transactions.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
DIRECT PURCHASE OF SHARES
To purchase shares, an investor should complete and mail the application form
along with a check payable to The Parnassus Income Fund. It should be sent to
the Fund at the following address.
The Parnassus Income Fund
One Market-Steuart Tower #1600
San Francisco, California 94105
<PAGE>
An initial investment must be at least $2,000 except for certain employee
benefit plans or tax qualified retirement plans (e.g. IRA, SEP) and accounts
opened pursuant to the Uniform Gift to Minor's Act (UGMA) which have a $500
minimum. Subsequent investments for all accounts must be at least $50. With
subsequent investments, shareholders should write the name and number of the
account on the check. Checks do not need to be certified, but are accepted
subject to collection and must be drawn in United States dollars on United
States banks. If received before 1:00 p.m. San Francisco time, the investment
will be processed at the net asset value calculated on the same business day it
is received. If the investment is received after 1:00 p.m. San Francisco time,
it will be processed the next business day.
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 and the minimum
subsequent investment is $50, except for retirement plans, UGMA accounts, and
Parnassus Automatic Investment Accounts (PAIP) which have a $500 minimum. The
distributor reserves the right to reject any order.
There is no sales charge for any portfolio of the Fund, but investors may
be charged a transaction or other fee in connection with purchases or
redemptions of Fund shares on their behalf by an investment adviser, a brokerage
firm or other financial institution.
PURCHASES VIA PARNASSUS AUTOMATIC INVESTMENT PLAN (PAIP)
After making an initial investment to open an account ($500 minimum), a
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."
NET ASSET VALUE
The Fund's net asset value per share is determined as of 4:00 p.m. Eastern
time on each day that the New York Stock Exchange is open for trading ("business
day") and on any other day that there is a sufficient degree of trading in
investments held by the Fund to affect the net asset value. The net asset value
may not be determined on any day that there are no transactions in shares of the
Fund.
The net asset value per share is the value of the Fund's assets, less its
liabilities, divided by the number of shares of the Fund outstanding. The value
of the Fund's portfolio securities is the market value of such securities.
However, securities and other assets for which market quotations are not readily
available are valued at their fair value as determined in good faith by the
Adviser under procedures established by and under the general supervision and
responsibility of the Fund's Board of Trustees. See the Statement of Additional
Information for details.
<PAGE>
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
You may sell or redeem your Fund shares by offering them for "repurchase" or
"redemption" directly to the Fund. To sell your shares to the Fund (that is, to
redeem your shares), you must send your instructions to the Fund at One
Market-Steuart Tower #1600, San Francisco, California 94105. You may also send
your redemption instructions by FAX to (415) 778-0228 if the redemption is less
than $25,000. Your shares will be redeemed at the net asset value next
determined after receipt by the Fund of your instructions in proper form. Give
your account number and indicate the number of shares you wish to redeem. All
owners of the account must sign unless the account application form states that
only one signature is necessary for redemptions. All redemption checks must be
sent to the address of record on the account. The Fund must have a
change-of-address on file for 30 days before we send redemption or distribution
checks to the new address. Otherwise, we require a signature guarantee or the
check must be sent to the old address. If you wish to have the redemption
proceeds sent by wire transfer or by overnight mail, there will be a charge of
$10 per transaction. The Fund usually requires additional documents when shares
are registered in the name of a corporation, agent or fiduciary or if you are a
surviving joint owner. In the case of a corporation, we usually require a
corporate resolution signed by the secretary. In the case of an agent or
fiduciary, we usually re-quire 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 days 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 for the Fund to
determine that the purchase check will be honored.
EXCHANGE PRIVILEGES. The proceeds of a redemption of shares from a portfolio
of the Fund can be used to purchase shares of another portfolio of the Fund. The
proceeds of a redemption of shares from the Fund can also be used to purchase
shares of the Parnassus Fund, but if no sales charge was paid on the shares
being redeemed from the Income Fund, those shares will be subject to a sales
charge when they are invested into the Parnassus Fund. If shares are redeemed
from the Parnassus Fund and invested in the Income Fund, there will be no
additional sales charge if those shares are transferred back into the Parnassus
Fund.
There is no limit on the number of or dollar amount of exchanges. The Fund
reserves the right to modify or eliminate this exchange privilege in the future.
The exchange privilege is only available in states where the exchange may be
legally made. The exchange of shares is treated as a sale and an exchanging
shareholder may, therefore, realize a taxable gain or loss.
<PAGE>
TELEPHONE TRANSFERS. Shareholders who elect to use telephone transfer
privileges must so indicate on the account application form. The telephone
transfer privilege allows a shareholder to effect exchanges from the Fund into
an identically registered account in another one of the Parnassus Funds (e.g.
The Parnassus Fund). Neither the Fund nor Parnassus Investments will be liable
for following instructions communicated by telephone reasonably believed to be
genuine; a loss to the shareholder may result due to an unauthorized
transaction. The Fund and the transfer agent will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine. Procedures
may include one or more of the following: recording all telephone calls
requesting telephone exchanges, verifying authorization and requiring some form
of personal identification prior to acting upon instructions and sending a
statement each time a telephone exchange is made. The Fund and Parnassus
Investments may be liable for any losses due to un-authorized or fraudulent
instructions only if such reasonable procedures are not followed. Of course,
shareholders are not obligated in any way to authorize telephone transfers and
may choose to make all exchanges in writing. The telephone exchange privilege
may be modified or discontinued by the Fund at any time upon 60 days' written
notice to shareholders.
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 order. This will be done at
the net asset value determined as of the close of business on the business day
preceding the sending of such notice of redemption. The Fund will give
shareholders whose shares are being redeemed 60 days' prior written notice in
which to purchase sufficient shares to avoid such redemption.
DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
The Balanced Portfolio normally declares and pays dividends from net
investment income ("income dividends") on a quarterly basis. The Fixed-income
Portfolio and the California Tax Exempt Portfolio normally declare and pay
income dividends on a monthly basis. Dividends from long-term capital gains
("capital gains dividends") are paid once a year (usually in mid-December) for
all portfolios of the Fund. Shareholders can have dividends paid in additional
shares and reinvested or paid out in cash. If an investor purchases shares just
before the dividend date, he or she will be taxed on the distribution even
though it's a return of capital.
TAXATION OF THE FUND
By paying out substantially all its net investment income (among other
things), the Fund believes it qualifies as a regulated investment company under
Subchapter M of the Internal Revenue Code. The Fund intends to continue to
qualify and, if so, it will not pay income taxes on either its net investment
income or on its capital gains. Instead, each shareholder will be responsible
for his or her own taxes.
<PAGE>
TAXATION OF SHAREHOLDERS
For the Balanced Portfolio and the Fixed-income Portfolio, all dividends from
net investment income together with distribution 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 gains dividends") are taxable as such to shareholders.
Tax-exempt shareholders, of course, will not be required to pay taxes on any
amount paid to them. (This includes IRAs and other tax-deferred retirement
accounts.) Annually, shareholders will receive on Form 1099 the dollar amount
and tax status of all dividends received.
The Fund may be required to impose backup withholding at a rate of 31% from
any income dividend and capital gain distribution upon payment of redemption
proceeds. Shareholders can eliminate any backup withholding requirements by
furnishing certification of taxpayer identification numbers and reporting
dividends.
To the extent that income dividends are derived from qualifying dividends
paid by domestic corporations whose shares are owned by the Fund, such
dividends, in the hands of the Fund's corporate shareholders, will be eligible
for the 70% dividends received deduction. Individuals do not qualify for this
deduction--only corporations.
CALIFORNIA TAX-EXEMPT PORTFOLIO
This Portfolio is for California residents only. Dividends derived from
interest on state and local obligations constitute "exempt-interest" dividends
on which shareholders are not subject to federal income tax. To the extent that
income dividends are derived from earnings attributable to California state and
local obligations, they will be exempt from federal and California personal
income tax. Such dividends may be subject to California franchise taxes and
corporate income taxes if received by a corporation subject to such taxes.
Dividends attributable to interest on certain private activity bonds issued
after August 7, 1986 must be included in federal alternative minimum taxable
income for the purpose of determining liability (if any) for the alternative
minimum tax (AMT) for individuals and for corporations.
Dividends derived from taxable interest and any distributions of short-term
capital gains are taxable to shareholders as ordinary income. Distributions of
long-term capital gains, if any, are taxable to shareholders as a long-term
capital gain regardless of how long their shares of the Portfolio have been held
except that losses on certain shares held less than six months will be treated
as long-term capital losses to the extent of the long-term capital gains
dividends received on such shares.
The Portfolio will notify shareholders each January as to the federal and
California tax status of dividends paid during the previous calendar year.
<PAGE>
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust on August 8,1990.
The Declaration of Trust provides the Trustees will not be liable for errors of
judgement or mistakes of fact or law, but nothing in the Declaration of Trust
protects a Trustee against any liability to which he or she would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.
Shareholders are entitled to one vote for each full share held (and
fractional votes for fractional shares) and may vote in the election of Trustees
and on other matters submitted to meetings of shareholders. In matters
pertaining to only one series of the Trust (i.e. one Portfolio), only holders of
that series are entitled to vote, so matters that require the approval of
outstanding shares must be approved by the holders of a majority of each series
that will be affected by the matter. On issues related to the Fund as a whole,
specifically including election of Trustees and ratification of the Fund's
principal underwriter and selection of the Fund's independent public
accountants, holders of all series will vote. 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 written request of the record holders of ten percent 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 applicant, mail at
the applicants' expense the applicant's communication to all other shareholders.
No amendment may be made to the Declaration of Trust without the affirmative
vote of the holders of more than 50% of our outstanding shares, or upon
liquidation and distribution of its assets, if approved by the vote of the
holders of more than 50% of our outstanding shares. If not so terminated, the
Fund will continue indefinitely.
Deloitte & Touche LLP, 50 Fremont Street, San Francisco, CA 94105 has been
selected as the Fund's independent auditors.
Union Bank of California, 475 Sansome Street, San Francisco, CA 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 $50,000 per year.
Jerome L. Dodson, the Fund's President, is the sole stockholder of Parnassus
Investments.
<PAGE>
INVESTMENT ADVISER
Parnassus Investments
One Market-Steuart Tower #1600
San Francisco, California 94105
LEGAL COUNSEL
Richard D. Silberman, Esq.
465 California Street #1020
San Francisco, California 94104
AUDITORS
Deloitte & Touche LLP
50 Fremont Street
San Francisco, California 94105
CUSTODIAN
Union Bank of California
475 Sansome Street
San Francisco, California 94111
DISTRIBUTOR
Parnassus Investments
One Market-Steuart Tower #1600
San Francisco, California 94105
<PAGE>
The Parnassus Income Fund
One Market
Steuart Tower - Suite #1600
San Francisco, CA 94105
(415) 778-0200
STATEMENT OF ADDITIONAL INFORMATION DATED May 1, 1997
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Fund's Prospectus dated May 1, 1997, a copy of which may
be obtained by calling or writing the Fund at the address listed above.
TABLE OF CONTENTS
Cross-reference to
Page page in prospectus
Investment Objective and Policies B-2 5
Investment Restrictions B-2 10
Repurchase Agreements B-4 10
Special Risk Factors B-5 6,7,9
Management B-8 13
Performance B-9 11
Net Asset Value B-13 15
Shareholder Services B-13 14
General B-14 19
Financial Statements B-15
Appendix B-16
<PAGE>
Investment Objectives and Policies
The main investment objective of the Fund is to provide
shareholders with current income by investing in securities that have a positive
impact on society. The Fund offers investors a choice of three portfolios: a
Balanced Portfolio, a Fixed-Income Portfolio and a California Tax-Exempt
Portfolio. The Fund's Prospectus describes its strategy with respect to the
composition of each portfolio.
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 present or represented by proxy 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 the
securities of any one issuer other than obligations of the U.S.
Government, its agencies or instrumentalities, if as a result: (i)
more than 5% of a portfolio's total net assets (taken at current
value) would then be invested in securities of a single issuer or
(ii) a portfolio would hold more than 10% of any class of
securities of an issuer (taking all common stock issues as a
single class) or more than 10% of the outstanding voting
securities of an issuer.
(2) Purchase any security if as a result any portfolio would have 25%
or more of its net assets (at current value) would be 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 each portfolio 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 net assets (not including
the amount borrowed) and pledge its assets to secure such
borrowings. The portfolio will not make additional purchases while
any borrowings are outstanding.
B-2
<PAGE>
(6) Invest in securities of any issuer if, to the knowledge of the
Fund, any officer or Trustee of the Fund or officer or director of
the Adviser owns more than one-half of 1% of the outstanding
securities of such issuer and such officers and Trustees who own
more than one-half of 1% own in the aggregate more than 5% of the
outstanding securities of such issuer.
(7) 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 of companies which invest or deal in real estate.
(8) 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.
(9) Make investments for the purpose of exercising a controlling
influence over the management or policies of a company, except
that the Fund may seek to influence the social policies of the
companies it invests in.
(10) Participate on a joint or joint and several basis in any trading
account in securities.
(11) Purchase any security restricted as to disposition under federal
securities laws.
(12) Invest in securities of other registered investment companies
except that each portfolio may invest up to 10% of its assets
(taken at current value) in money market funds, but no more than
5% of its assets in any one fund and no portfolio may own more
than 3% of the outstanding voting shares of any one fund. The
Adviser will waive its management fee on any portion of the Fund's
assets that are invested in another registered investment company.
This restriction, however, does not apply to a transaction that is
a part of a merger, consolidation or other acquisition.
(13) 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.
(14) Invest more than 5% of the Balanced Portfolio or more than 5% of
the Fixed-Income Portfolio in foreign securities. The California
Tax-Exempt Portfolio may not invest in foreign securities or
currencies.
(15) Purchase warrants, if as a result, a Portfolio would then have
more than 5% of its total assets (taken at current value) invested
in warrants. Included within that amount, but not to exceed 2% of
the value of a Portfolio's assets, may be warrants which are not
listed on the New York Stock Exchange or the American Stock
Exchange.
B-3
<PAGE>
(16) Make loans except through repurchase agreements. Each portfolio,
though, may invest no more than 5% of its assets in repurchase
agreements. The Balanced Portfolio and the Fixed-Income Portfolio,
however, may lend up to 10% of each Portfolio's assets to
community loan funds as described in the Prospectus. The Fund will
not make loans directly to a project itself, but rather will
invest in an intermediary community loan fund.
(17) Invest more than 5% of the assets of any one portfolio in the
securities of unseasoned issuers (i.e. those with less than three
years of continuous operation).
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.
B-4
<PAGE>
SPECIAL RISK FACTORS AFFECTING CALIFORNIA MUNICIPAL SECURITIES
Changes in California could adversely affect the market values,
marketability (the ability to sell or buy), or result in a default on municipal
securities issued in the State. The economic condition of the State affects tax
revenues and could have an adverse effect on municipal obligations. What follows
is a discussion of some of the more important legal and financial trends. This
discussion is based partly on information drawn from official prospectuses and
statements of the State of California.
Limitations on Taxes and Appropriations
- ---------------------------------------
Some municipal securities held in the portfolio may depend wholly
or partially on property taxes as a revenue source for payment of interest and
principal. Article XIIIA, popularly known as Proposition 13, limits ad valorem
property taxes (property taxes based on the property's value) to 1% of full cash
value of the property and limits increases in assessments to 2% per year except
in the case of new construction or a change in ownership. However, if voters
approve a bond issue, property taxes may be raised above the 1% level to pay
debt service on that bond.
In 1986, voters approved Proposition 62 which imposed limits on a
locality's raising or levying general taxes. Major portions of this initiative
were overturned in court soon after its passage in 1986. However, in September
1995, the California Supreme Court made a ruling supporting Proposition 62.
Article XIIIB (known as the Gann Initiative), enacted in 1979 via
a voter initiative, subjects State and local governments to annual spending
limitations. These limitations are adjusted annually to reflect changes in cost
of living and population and only apply to the appropriation of "proceeds of
taxes." Spendable funds exempted from these appropriation limits include the
proceeds of bond issues and revenue from user fees. Debt service on bonds issued
prior to January 1, 1979 or subsequently authorized by voters is not subject to
these limitations.
Article XIIIB's appropriation limitations did not constrain most
California governmental entities until the mid and late 1980's when many of
these entities approached their Article XIIIB spending limits. The passage of
Proposition 111 in 1990 allowed for greater increases in appropriation levels.
In November 1988, voters approved Proposition 98, a combined
initiative constitutional amendment and statute guaranteeing minimum State
funding for K-12 school districts and community college districts at a level
equal to the greater of (a) the same percentage of general fund revenues as the
percentage appropriated to such districts in 1986-87 or (b) the amount actually
appropriated to such districts from the general fund in the previous fiscal year
adjusted for growth in enrollment and changes in cost of living.
In June 1990, California voters approved Proposition 111 which
allowed for some increase in appropriation levels, but provided that one-half of
all revenues in excess of the state's appropriation limit must be allocated to
public schools and community colleges. Since Proposition 98 and 111 allocated
B-5
<PAGE>
a minimum funding level to schools, this could potentially reduce the resources
available for other State programs and put pressure on issuers of municipal
obligations.
In November 1996, voters approved Proposition 218. Proposition 218
further restricts the ability of local governments to levy special assessments
or property-related fees without voter approval.
Proposition 13, the Gann Initiative, Proposition 98, Proposition
111, and Proposition 218 were adopted as measures that qualified for the ballot
pursuant to California's initiative process. Other initiatives or similar
measures affecting the availability of revenue to pay California municipal
obligations could be adopted in the future.
State Financial Condition
- -------------------------
State General Fund revenues are principally derived from
California personal income tax (44% of total revenues), sales tax (35%),
corporate tax (12%) and the gross premium tax on insurance (3%). All of these
revenue sources can be affected by California's economic conditions.
From mid-1990 to late 1993, California suffered the worst
economic, fiscal and budget conditions since the 1930's. The weak economy
lowered tax revenues and increased the need for social welfare expenditures
causing recurring budget deficits. Due to budgetary and fiscal stress, between
October 1991 and July 1994, ratings on the State's general obligation bonds were
reduced from AAA to A by S&P, from Aaa to A1 by Moody's and from AAA to A by
Fitch.
Helped by the economic recovery that began in late 1993, the
State's 1995-1996 budget was the first balanced budget since the late 1980's. In
1996, S&P and Fitch upgraded ratings on California's general obligation bonds
from A to A+. The governor's budgets for 1996-1997 and 1997-1998 are balanced as
proposed. However, these proposed budgets are based on revenue and expenditure
assumptions. If these assumptions are not met, future budget deficits could
re-occur.
Since the passage of Proposition 13, property tax revenues
received by local governments have dropped by over 50%. In response, the
California Legislature has provided substantial additional revenue for local
governments. Because of budgetary pressure and limits on allocations of tax
revenues, California's state government has been shifting program
responsibilities from the state to county and city governments. To date, most
changes in program responsibilities from the state to local governments have
been balanced with increases in funding. However, cuts in state aid that are not
balanced by funding increases could hurt financially stressed local government
entities, particularly counties. Certain California municipal securities may be
obligations of issuers which rely in whole or in part on California state
revenues for payment of these obligations. The proportion of the State's general
fund that will be distributed in the future to counties, cities and their
various entities, is unclear.
B-6
<PAGE>
Revenues of Health Care Institutions
- ------------------------------------
Certain California tax-exempt securities may be obligations which
are payable solely from the revenues of health care institutions. Certain
measures taken under federal or California law to reduce health care costs may
adversely affect revenues of health care institutions and, consequently, payment
on those municipal obligations.
Revenues Secured by Deeds of Trust
- ----------------------------------
Some California municipal securities may be obligations which are
secured in whole or in part by a mortgage or deed of trust on real property. An
example would be bonds issued to finance low and moderate income housing.
Because of provisions of California law, the effective minimum period for
foreclosing on a mortgage could be in excess of seven months from the time of
initial default. This delay could disrupt the flow of revenue available to an
issuer for payment of debt service if such defaults occur with respect to a
substantial number of mortgages or deeds of trust. Other aspects of California
law could further delay foreclosure proceedings in the event of a default and
disrupt payments on municipal obligations.
Assessment Bonds (Mello-Roos Bonds)
- -----------------------------------
Typically, these bonds are secured by land undeveloped as of the
issuance. The plan is for the land to be developed using funds from the
issuance. Declining real estate values or a drop in real estate sales activity
can result in canceled or delayed development along with increased default risk.
The special assessments or taxes securing these bonds are not the personal
liability of the owner of the property assessed, so the lien on the property is
the only security for these bonds. Furthermore, in the event of delinquency in
payment of assessments or taxes on the properties involved, the issuer is not
required to make payments on the bonds, except in some instances where there is
a reserve account for bond payments.
Redevelopment Agency Debt
- -------------------------
"Tax Allocation" bonds issued by redevelopment agencies can be
affected by property tax limitations because these bonds are secured by the
increase in assessed valuation expected after a redevelopment project is
completed. Should the project not be completed, perhaps because of a natural
disaster like an earthquake, there could be no increase in assessed property
values to pay off the bonds. Moody's and S&P stopped rating tax allocation bonds
after the passage of Articles XIIIA and XIIIB, and since have only resumed
rating selected bonds of this nature.
Seismic Activity
- ----------------
California is a geologically active area subject to earthquakes.
Any California municipal security could be adversely affected by a catastrophic
earthquake. For example, a project might not be completed or might suffer an
interruption in revenue-generating capacity, or property values might drop
resulting in reduced tax assessments.
[paragraph omitted]
B-7
<PAGE>
The January 1994 Northridge (Los Angeles) earthquake caused an
estimated $20 billion or more in property damage. The state's share of the loss
after federal aid and insurance is estimated at $1.9 billion. Costs will be
covered from the state's general fund and borrowing from the federal government.
The state's ability to pay principal and interest on its bonds was not affected.
Although isolated instances of damage to some bond-financed facilities occurred,
reserves and insurance should be sufficient to ensure payment of principal and
interest according to all the major credit rating agencies. No credit rating on
any bond in the earthquake area was changed as a consequence of the Northridge
earthquake.
Orange County Default
- ---------------------
In December of 1994, Orange County declared bankruptcy after
discovering that its Treasurer had invested in risky derivative securities which
caused enormous losses to the county's investment fund. Estimates of the losses
approximate $1.7 billion. This bankruptcy disturbed the California municipal
bond market and the market value of uninsured Orange County bonds dropped
sharply. Because the portfolio held no uninsured Orange County bonds, it was not
substantially affected by the Orange County bankruptcy. However, other
California municipalities may mismanage their investment funds and, in the
future, they may also suffer losses which might have an effect on the Portfolio
in that the market value of some municipal securities might drop substantially.
MANAGEMENT
<TABLE>
The Trustees and Officers of the Fund are as follows:
<CAPTION>
Principal Occupation
Name and Address Position with Fund During Past Five Years
<S> <C> <C>
- ---------------- ------------------ --------------------------
Jerome L. Dodson* President and Trustee President of the Parnassus
The Parnassus Income Fund Fund and President and
One Market Director of Parnassus
Steuart Tower #1600 Investments since June of
San Francisco, CA 94105 1984; President and Trustee of
Working Assets Money Fund from
June 1982 until June 1984 and
Trustee from June 1988 until
December 1991. President of
Continental Savings of America
1976 until 1982.
Herbert A. Houston Trustee Chief Executive Officer of the
The Parnassus Income Fund Haight Ashbury Free Clinics,
One Market Inc. 1987-Present; Development
Steuart Tower #1600 Director, National Association
San Francisco, CA 94105 for Sickle Cell Disease, 1983
to 1987.
B-8
<PAGE>
Joan Shapiro Trustee Executive Vice President of
The Parnassus Income Fund The South Shore Bank of
One Market Chicago.
Steuart Tower #1600
San Francisco, CA 94105
Howard Shapiro Trustee Consultant to non-profit
The Parnassus Income Fund organizations specializing in
One Market marketing, advertising, fund-
Steuart Tower #1600 raising and organizational
San Francisco, CA 94105 structure.
Richard D. Silberman Secretary Attorney specializing in
465 California St., #1020 business law. Private
San Francisco, CA 94104 practice.
Howard Fong Vice President and Senior Vice President and
The Parnassus Income Fund Treasurer Chief Financial Officer of
One Market Continental Savings of America
Steuart Tower #1600 from 1979 through June of
San Francisco, CA 94105 1988; Vice President and
Treasurer of Parnassus
Investments since December of
1988.
</TABLE>
The Fund pays each of its Trustees who is not affiliated with the
Adviser or the Distributor annual fees of $1,500 in addition to reimbursement
for certain out-of-pocket expenses.
*"Interested" Trustee as defined in the 1940 Act.
CONTROL PERSONS
As of March 31, 1997, the following shareholders owned more than
5% of the voting securities of the respective portfolios of the Fund. Charles
Schwab & Co., owned 5.32% of the voting shares of the Balanced Portfolio. This
account, though, represented many shareholders. The Mary Jan Engstrom Trust
owned 9.90% and Side By Side Limited Partnership owned 8.85% of the Fixed-Income
Portfolio. MIFLA & Co., a trust, owned 5.84% and Otis Cary & Alice Cary,
Trustees owned 5.68% of the voting securities of the California Tax-Exempt
Portfolio. Trustees and Officers of the Parnassus Income Fund owned less than 1%
of the outstanding securities of the Balanced Portfolio, of the Fixed-Income
Portfolio and of the California Tax-Exempt Portfolio.
PERFORMANCE ADVERTISING
Each portfolio of the Fund may advertise "total return." The Fund
calculates total return by taking the total number of shares purchased with a
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<PAGE>
hypothetical $,000 investment, adding all additional 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.
Total return is computed according to the following formula:
n
P(1 + T) = ERV
where P = a hypothetical initial payment of $1000, 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.
Yield of Balanced, Fixed-Income and California Tax-Exempt Portfolios
- --------------------------------------------------------------------
The Balanced, Fixed-Income and California Tax-Exempt Portfolios
may also advertise their yield from time to time. Yield quotations are
historical and are not intended to indicate future performance. Yield quotations
refer to the aggregate imputed yield-to-maturity of each of the Portfolio's
investments based on the market value as of the last day of a given thirty-day
or one-month period less accrued expenses (net of reimbursements) divided by the
average daily number of outstanding shares entitled to receive dividends times
the net asset value on the last day of the period, compounded on a "bond
equivalent," or semiannual basis. The yield is computed according to the
following formula:
6
Yield = 2 [(a-b + 1) - 1]
----
cd
where a = dividends and interest earned during the period using the aggregate
imputed yield to maturity for each of the Portfolio's investments as noted
above: b = expenses accrued for the period (net of reimbursement); c = the
average daily number of shares outstanding during the period that were entitled
to receive dividends; and d = the net asset value per share on the last day of
the period.
Effective Yield
- ---------------
The Portfolio may also quote a tax equivalent yield which
demonstrates the taxable yield necessary to produce an after-tax yield
equivalent to that of a fund which invests in tax-exempt obligations. Such yield
is computed by dividing that portion of our yield (computed as indicated above)
which is tax-exempt by one minus the highest applicable income tax rate and
adding the product to that portion of our yield that is not tax-exempt.
B-10
<PAGE>
THE ADVISER
Parnassus Investments acts as the Fund's investment adviser. Under
its contract with the Fund, the Adviser 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. The
Adviser 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" and all
personnel performing research relating to research and investment activities.
The Adviser 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 communications, 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. Jerome L. Dodson owns all the outstanding stock of
the Adviser and, thus, can be considered the "control person" of the Adviser.
For its services, the Fund, under an Investment Advisory Agreement
(the "Agreement") between the Fund and the Adviser, pays the Adviser a fee,
computed and payable at the end of each month, at the following annual
percentages of each portfolio's average daily net assets: the Balanced
Portfolio, 0.75% of the first $30 million, 0.70% of the next $70 million and
0.65% of the amount above $100 million. For the Fixed-Income Portfolio and the
California Tax-Exempt Portfolio, the fee is 0.50% of the first $200 million,
0.45% of the next $200 million and 0.40% of the amount above $400 million.
Parnassus Investments waived the advisory fee for all portfolios in 1994 and
1995. During 1996, Parnassus Investments received the following sums under the
advisory contract from the following portfolios: Balanced Portfolio $47,641;
California Tax-Exempt Portfolio $1,433. Advisory fees were waived for the
Fixed-Income Portfolio.
The Agreement provides that the Adviser shall not be liable to the
Fund for any loss sustained by reason of the purchase, sale or retention of any
security, whether or not such purchase, sale or retention shall have been based
upon its own investigation and research or upon investigation and research made
by any other individual, firm or corporation, if such purchase, sale or
retention shall have been made and such other individual, firm or corporation
shall have been selected in good faith. Nothing contained therein shall,
however, be construed to protect the Adviser against any liability to the Fund
or its security holders by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations and duties under this agreement.
Portfolio Transactions and Brokerage
- ------------------------------------
The Agreement states that in connection with its duties to arrange
for the purchase and the sale of securities held in the portfolio of the Fund by
placing purchase and sale orders for the Fund, the Adviser shall select such
broker-dealers ("brokers") as shall, in the Adviser's judgement, implement the
policy of the Fund to achieve "best execution", i.e. prompt and efficient
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<PAGE>
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 as to 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 specific dollar value on such services or
on the portion of commission rates reflecting such services.
The Agreement provides that to demonstrate that such
determinations were in good faith and to show the overall reasonableness of
commissions paid, the Adviser shall be prepared to show that commissions paid
were: (i) for purposes contemplated by the Agreement; (ii) not allocated or paid
for products or services which were readily and customarily available and
offered to the public on a commercial basis; and (iii) within a reasonable range
as compared to the rates charged by qualified brokers to other institutional
investors as such rates may become known from available information. The Fund
recognizes 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
shares of the Parnassus Funds as a factor in the selection of brokers to execute
brokerage and principal transactions, subject to the requirements of "best
execution", as defined above.
The research services discussed above may be in written form or
through direct contact with individuals and may include information as to
particular companies and securities as well as market, economic or institutional
areas and information assisting the Fund in the valuation of its investments.
The research which the Adviser receives for the Fund's brokerage commissions,
whether or not useful to the Fund may be useful to the Adviser in managing the
accounts of the Adviser's other advisory clients. Similarly, the research
received for the commissions of such accounts may be useful to the Fund. To the
extent that electronic or other products provided by brokers are used by the
Adviser for research purposes, the Adviser will use its best judgement to make a
reasonable allocation of the cost of the product attributable to non-research
use.
The Adviser may also use brokerage commissions to reduce certain
expenses of the Fund subject to "best execution." For example, the Adviser may
enter into an agreement to have a brokerage firm pay part or all of the Fund's
custodian fee since this benefits the Fund's shareholders. Similarly, the
Adviser may use brokerage commissions to acquire computer software and hardware
(including peripherals) for use with the Fund's transfer agent and fund
accounting work if such use benefits fund shareholders by reducing expenses. If
a certain piece of equipment is used for both Fund purposes and
B-12
<PAGE>
for non-Fund purposes by the Adviser (e.g. marketing), the Adviser will allocate
the cost on a pro rata basis. Recognizing the inherent conflicts in such an
allocation process, the Adviser will exercise its best judgement in fairly
apportioning the costs.
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 1994, 1995 and 1996, the Balanced Portfolio paid $19,908,
$10,983 and $96,786 respectively in brokerage commissions. Of these amounts, the
following was paid in conjunction with research services: $19,908 in 1994,
$10,983 in 1995 and $41,850 in 1996. Neither the Fixed-Income Portfolio nor the
California Tax-Exempt Portfolio paid commissions in 1994, 1995 or 1996 since
these portfolios buy their securities on a "net" basis that includes the dealer
mark-up.
NET ASSET VALUE
In determining the net asset value of the Fund's shares, common
stocks and bonds 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 NASD
National Market System 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
prices 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
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. The plan
provides for monthly checks in an amount not less than $100 or quarterly checks
in an amount not less than $200.
B-13
<PAGE>
Dividends and capital gains 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 gains
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares
and any gain or loss realized must be recognized for federal income tax
purposes. Although the shareholder may invest $10,000 or more in a Systematic
Withdrawal Plan, withdrawals made concurrently with purchases of additional
shares are inadvisable because of the sales charges applicable to the purchase
of additional shares.
Tax-Sheltered Retirement Plans
- ------------------------------
Through the Distributor, retirement plans are available:
Individual Retirement Accounts (IRAs) and Simplified Employee Pension Plans
(SEPs). Adoption of such plans should be on advice of legal counsel or tax
adviser. Retirement accounts have a minimum initial investment of $500 and each
subsequent investment must be at least $50. For further information regarding
plan administration, custodial fees and other details, investors should contact
the Distributor.
GENERAL
The Fund's 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. Instead, each
shareholder will receive an annual statement and an additional statement each
time there is a transaction in the account. These statements will be evidence of
ownership. Upon the Fund's liquidation, all shareholders would share pro rata in
the net assets available for distribution to shareholders. If additional classes
designated as "Series" were created, shares of each class would be entitled to
vote as a class only to the extent required by the Investment Company Act of
1940 or as permitted by the Trustees. Operating expenses will be allocated
fairly among the classes, generally on the basis of relative net asset value.
This paragraph applies to all three portfolios.
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
B-14
<PAGE>
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 meet 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 or
she would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
Deloitte & Touche LLP, 50 Fremont Street, San Francisco, California 94105
has been selected as the Fund's independent auditors.
Union Bank of California, 475 Sansome Street, San Francisco, California
94111, has been selected as the custodian of the Fund's assets. Shareholder
inquiries should be directed to the Fund.
Parnassus Investments, One Market-Steuart Tower #1600, San Francisco,
California 94105, is the Fund's transfer agent and accounting agent. As transfer
agent, Parnassus Investments receives a fee of $2.30 per account per month. As
accounting agent, Parnassus Investments receives a fee of $50,000 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, 1996 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, 1996 may be
obtained free of charge by writing or calling the Fund.
B-15
<PAGE>
APPENDIX
--------
CORPORATE BOND RATINGS
----------------------
Moody's Investors Service
- -------------------------
Aaa: Best quality. These bonds carry the smallest degree of
investment risk and are generally referred to as "gilt-edge". Interest payments
are protected by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa: High quality by all standards. Together with the Aaa group,
they comprise what are generally known as high-grade bonds. They are rated lower
than the best bonds because margins of protection may not be as large as in Aaa
securities, fluctuations of protective elements may be of greater amplitude, or
there may be other elements present which make the long-term risks appear
somewhat greater than in Aaa securities.
A: Upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Medium-grade obligations; neither highly protected, nor
poorly secured. Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and, in fact, have speculative
characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate, and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Standard & Poor's Corporation:
- ------------------------------
AAA: Highest grade obligations. They possess the ultimate degree
of protection as to principal and interest. Marketwise, they move with interest
rates and hence provide the maximum safety on all counts.
AA: High-grade obligations. In the majority of instances, they
differ from AAA issues only in a small degree. Here, too, prices move with the
long-term money market.
B-16
<PAGE>
A: Upper-medium grade. They have considerable investment strength,
but are not entirely free from adverse effects of changes in economic and trade
conditions. Interest and principal are regarded as safe. They predominantly
reflect money rates in their market behavior but, to some extent, also economic
conditions.
BBB: Medium-grade; borderline between definitely sound obligations
and those where the speculative element begins to predominate. These bonds have
adequate asset coverage and normally are protected by satisfactory earnings.
Their susceptibility to changing conditions, particularly to depressions,
necessitates constant watching. Marketwise, the bonds are more responsive to
business and trade conditions than to interest rates. This group is the lowest
which qualifies for commercial bank investment.
BB, B, CCC, CC: Debt rated BB, B, CCC, and CC is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. MOTA
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties of major risk
exposures to adverse conditions.
MUNICIPAL BOND RATINGS
----------------------
Moody's Investors Service:
- --------------------------
Aaa: Municipal bonds which are rated Aaa are judged to be of the
best quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Municipal bonds which are rated Aa are judged to be a high
quality by all standards. Together with the Aaa group, they comprise what are
generally known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large or fluctuation of protective
elements
may be of greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa securities.
A: Municipal bonds which are rated A possess many favorable
investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
B-17
<PAGE>
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and, in fact, have speculative characteristics as well.
Conditional Rating: Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
Rating Refinements: Moody's may apply numerical modifiers, 1, 2
and 3 in each generic rating classification from Aa through B in its municipal
bond rating system. The modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a
mid-ranking; and modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
Standard & Poor's Corporation
- -----------------------------
AAA: Municipal bonds rated AAA are highest grade obligations. They
possess the ultimate degree of protection as to principal and interest. In the
market, they move with interest rates and, hence, provide the maximum safety on
all counts.
AA: Municipal bonds rated AA also qualify as high-grade
obligations and, in the majority of instances, differ from AAA issues only in
small degree. Here, too, prices move with the long-term money market.
A: Municipal bonds rated A are regarded as upper medium grade.
They have considerable investment strength but are not entirely free from
adverse effects of changes in economic and trade conditions. Interest and
principal are regarded as safe. They predominantly reflect money rates in their
market behavior, but also to some extent, economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity
to pay principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project being financed by the bonds being rated and
indicates that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default
B-18
<PAGE>
upon failure of, such completion. The investor should exercise his own judgement
with respect to such likelihood and risk.
Note: The S&P ratings may be modified by the addition of a plus (+) or minus (-)
sign to show relative standing within the major rating categories.
Fitch Investor's Service
- ------------------------
AAA: Bonds and notes rated AAA are regarded as being of the
highest quality, with the obligor having an extraordinary ability to pay
interest and repay principal which is unlikely to be affected by reasonably
foreseeable events.
AA: Bonds and notes rated AA are regarded as high quality
obligations. The obligor's ability to pay interest and repay principal is
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds and notes with higher ratings.
A: Bonds and notes rated A are regarded as being of good quality.
The obligor's ability to pay interest and repay principal is strong, but may be
more vulnerable to adverse changes in economic conditions and circumstances than
bonds and notes with higher ratings.
BBB: Bonds and notes rated BBB are regarded as being of
satisfactory quality. The obligor's ability to pay interest and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to weaken this ability than bonds with
higher ratings.
Note: Fitch ratings may be modified by the addition of a plus (+) or minus (-)
sign to show relative standing within the major rating categories. These are
refinements more closely reflecting strengths and weaknesses, and are not to be
used as trend indicators.
B-19
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(i) Selected financial highlights from June 1, 1992
(commencement of operations) through December 31, 1996
appears in Part A.
(ii) Audited financial statements as of December 31,
1996 are incorporated by reference. These statements
appear in the annual report dated December 31, 1996
and are on file with the Commission. Financial
statements include statement of assets and
liabilities, statement of operations, statement of
changes in net assets, Portfolio of Investments by
Industry Classification, notes to financial statements
and independent auditors' report.
(b) Exhibits
(1) Declaration of Trust: on file
(2) By-laws: on file
(3) Not applicable
(4) Not applicable
(5) Investment advisory contract: on file
(6) Distribution agreement and dealer agreement: on file
(7) Not applicable
(8) Custodian agreement: on file
(9) Custodian agreement: on file
(10) Opinion and Consent of Counsel: on file
(11) Consent of Deloitte & Touche LLP: included
(12) Not applicable
(13) Investment letters: on file
(14) Individual Retirement Account Form: on file; Simplified
Employee Pension Plan: on file
(15) Not applicable
(16) Schedule for computation of each performance quote:
on file
Item 25. Persons Controlled by or under Common Control with Registrant:
Registrant is not controlled by or under common control with any other
person.
Item 26. Number of Holders of Securities as of March 31, 1997
Title of Class Number of Record Holders
-------------- ------------------------
Balanced Portfolio 3,278
Fixed-Income Portfolio 855
California Tax-Exempt Portfolio 304
Item 27. Indemnification
Under the provisions of the Fund's Declaration of Trust, the Fund
is permitted to indemnify its present or former Trustees,
officers, employees and certain other agents against liability
incurred in such capacity except that no indemnification may be
paid to protect such a person from liability resulting from
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her
office ("disabling conduct"). Indemnification therefore requires
a determination that the indemnitee had not engaged in disabling
conduct. The required determination may be made by the final
decision of the court or other body before which the proceeding
was brought or, lacking such a decision, by the reasonable
determination of the Fund's Trustees, based upon a review of the
facts that is made by (a) the vote of a majority of a quorum of
Trustees who are neither "interested persons" nor parties to the
proceeding or (b) an independent legal counsel in a written
opinion.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to Trustees, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a Trustee,
officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 28. Business Connection of Investment Adviser
Parnassus Investments serves as the investment adviser to the
Parnassus Fund and also has individual portfolio clients.
Item 29. Principal Underwriter:
(a) Parnassus Investments is the distributor of both the
Parnassus Fund and the Parnassus Income Fund.
(b) The officers and directors of Parnassus Investments are as
follows:
Name and Principal Position with Position with
Business Address Distributor Registrant
- ---------------- ----------- ----------
Jerome L. Dodson President and President and
One Market Director Trustee
Steuart Tower #1600
San Francisco, CA 94105
Howard Fong Treasurer Vice President and
One Market Treasurer
Steuart Tower #1600
San Francisco, CA 94105
Thao N. Dodson Director None
One Market
Steuart Tower #1600
San Francisco, CA 94105
Susan Loughridge Secretary None
One Market
Steuart Tower #1600
San Francisco, CA 94105
(c) None
Item 30. Location of Accounts and Records: All accounts, books and records
are in the physical possession of Jerome L. Dodson at Registrant's
headquarters at One Market-Steuart Tower #1600, San Francisco, CA
94105 .
Item 31. Management Services: Discussed in Part A.
Item 32. Not applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485 (b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City and County of San Francisco and the State of California
on the 28th day of April, 1997.
The Parnassus Income Fund
(Registrant)
By:
----------------------
Jerome L. Dodson
President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
Signature Title Date
- --------- ----- ----
Principal Executive
Officer and Trustee April 28, 1997
- ---------------------
Jerome L. Dodson
Trustee April 28, 1997
- ---------------------
Herbert A. Houston
Trustee April 28, 1997
- ---------------------
Howard Shapiro
Trustee April 28, 1997
- ---------------------
Joan Shapiro
Principal Financial
and Accounting
- --------------------- Officer April 28, 1997
Howard Fong
<PAGE>
List of Exhibits
----------------
Exhibit 11 - Consent of Deloitte & Touche LLP
Deloitte & Touche LLP
50 Fremont Street
San Francisco, CA 94105-2230
Telephone: (415) 247-4000
Facsimile: (415) 247-4329
INDEPENDENT AUDITORS' CONSENT
The Parnassus Income Fund:
We consent to (a) the incorporation by reference in this Post-Effective
Amendment No. 6 to Registration Statement No. 33-36065 of the Parnassus Income
Fund on Form N-1A of our report dated January 17, 1997 appearing in the Fund's
1996 Annual Report to Shareholders in the Statement of Additional Information,
which is part of such Registration Statement, (b) the reference to us under the
heading "Financial Highlights" in the Prospectus, which is a part of such
Registration Statement, and (c) the reference to us under the heading "General
Information" in such Prospectus.
Deloitte & Touche LLP
April 24, 1997
