March 30, 1998
Securities and Exchange Commission
450 Fifth Street NW
Washington, DC 20549
Re: The Parnassus Income Trust
1940 Act File No. 811-6673
1933 Act File No. 33-36065
Ladies and Gentleman:
Enclosed herewith for filing on behalf of The Parnassus Income Trust, pursuant
to the Securities Act of 1933 and the Investment Company Act of 1940 is the
following:
Electronic filing of the Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A which contains a total of 108
pages.
This filing will become effective on April 1, 1998, pursuant to Rule 485 (b) of
the 1933 Act. It complies with the requirement for an annual amendment to the
registration statement pursuant to Regulation 270.8b-16 of the 1940 Act.
Yours truly,
Jerome L. Dodson
President
<PAGE>
1933 Act File No.: 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. 8
-
and/or
REGISTRATION UNDER THE INVESTMENT ACT OF 1940
Amendment No. 10
--------------------------
THE PARNASSUS INCOME TRUST
(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 April 1, 1998 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, 1997 was filed on February 25, 1998.
<PAGE>
THE PARNASSUS INCOME TRUST
Cross Reference Index
ITEM REFERENCE
---- --------
Part A. Information Required in a Prospectus
Item 1. Cover Page Cover Page (p.1)
Item 2. Synopsis; Fee Information Trust 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.9);
General Information(p.17)
Item 5. Management of the Trust Management (p.11); The Adviser
(p.12) General Information (p.17)
Item 6. Capital Stock and other Dividends and Taxes (p.15); How
Securities to Purchase Shares (p.13);
Management (p.11)
Item 7. Purchase of Securities Being How to Purchase Shares (p.13)
Offered
Item 8. Redemption or Repurchase How to Redeem Shares (p.14)
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-12)
Item 13. Investment Objective & Policies Investment Objectives &
Policies (B-2)
Item 14. Management of the Registrant Management (B-7)
Item 15. Control Person & Principal Control Persons (B-8)
Holders of Securities
Item 16. Investment Advisory & Other The Adviser (B-9)
Services
Item 17. Brokerage Allocation & Other The Adviser (B-9); Portfolio
Practices Transactions and Brokerage (B-10)
Item 18. Capital Stock & Other General (B-12)
Securities
Item 19. Purchase, Redemption & Pricing Net Asset Value (B-11)
of Securities Being Offered
Item 20. Tax Status Prospectus (p.21)
Item 21. Underwriters Portfolio Transactions and
Brokerage (B-10)
Item 22. Calculation of Performance Data Performance Advertising and
Calculation of Total Return and
Yield (B-8); Yield of Fixed-
Income and California Tax-Exempt
Funds (B-9);Effective Yield (B-9)
Item 23. Financial Statements Financial Statements (B-13)
<PAGE>
THE PARNASSUS INCOME TRUST
PROSPECTUS-APRIL 1, 1998
The Parnassus Income Trust (the "Trust") is a "no load," diversified,
open-end series management investment company managed by Parnassus Investments
(the "Adviser"). The Adviser chooses the Trust's investments for all funds
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 Trust has three funds. The Equity Income Fund (formerly, the Balanced
Portfolio) invests primarily in stocks that pay a dividend, and its investment
objective is both current income and capital appreciation. The Fixed-Income Fund
invests primarily in bonds and other fixed-income investments, and its
investment objective is current income and preservation of capital. The
California Tax-Exempt Fund (for California residents only) has as its investment
objective a high level of current income exempt from federal and California
personal income tax consistent with prudent investment management.
This Prospectus provides you with the basic information you should know
before investing in the Trust. You should read it and keep it for future
reference. A Statement of Additional Information ("SAI") dated April 1, 1998
containing additional information about the Trust 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
TrustExpenses 2 Management 11
Financial Highlights 3 The Adviser 12
The Legend of Mt. Parnassus 4 How to Purchase Shares 13
Investment Objective and Policies 5 How to Redeem Shares 14
Other Investment Policies 9 Dividends and Taxes 15
Performance Information 10 General Information 17
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>
TRUST EXPENSES
The following table illustrates all expenses and fees that a shareholder of
the Trust will incur.
SHAREHOLDER TRANSACTION EXPENSES
CALIFORNIA
EQUITY INCOME FIXED-INCOME TAX-EXEMPT
FUND FUND FUND
Maximum Sales load Imposed on Purchases
(as a percentage of offering price) None None None
Redemption Fees None None None
ANNUAL TRUST OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees (after fee waiver) 0.45% 0.08% 0.18%
12b-1 Fees None None None
Other expenses (after expense
reimbursement) 0.60% 0.74% 0.49%
Total Fund Operating Expenses 1.05%* 0.82%* 0.67%*
The purpose of this table is to assist the investor in understanding the
various costs and expenses that a shareholder in the Trust will bear directly or
indirectly. The following example illustrates the expenses that you would pay on
a $1,000 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 Trust charges no redemption fees of any kind.
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
Equity Income Fund $11 $33 $58 $128
Fixed-Income Fund 8 26 46 101
California Tax-Exempt Fund 7 21 37 83
The expenses shown above are cumulative--not ones you pay every year. For
example, the $128 figure for ten years with the Equity Income Fund 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, a Fund may direct brokerage commissions to firms that
may pay certain expenses of a 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 Fund's shareholders. See
page B-9 of the SAI for more information. Since the Fund did not engage in such
directed brokerage in 1997 and if it does so in the future, such directed
brokerage is expected to occur on an irregular basis, so the effect on the
expense ratios cannot be calculated with any degree of certainty.
* 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
Equity Income Fund and 1.00% of net assets for the Fixed-Income and California
Tax-Exempt Funds. For 1997, 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 Equity Income, Fixed-Income and California Tax-Exempt Funds would
have been 1.35%, 1.25% and 0.99%, respectively.
2
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for each share of capital stock outstanding, total return and
ratios/supplemental data for the years ended December 31, 1997, 1996, 1995,
1994, 1993 and for the seven-month period ended December 31, 1992, are as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Equity Income Fund 1997 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $18.56 $19.58 $15.70 $17.46 $16.17 -
----------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.79 0.98 0.88 0.80 1.20 0.17
Net realized and unrealized gain (loss) on securities 2.86 0.37 3.93 (1.75) 1.36 16.15
----------------------------------------------------------------
Total from investment operations 3.65 1.35 4.81 (0.95) 2.56 16.32
----------------------------------------------------------------
DISTRIBUTIONS:
Dividends from net investment income (0.79) (0.97) (0.90) (0.81) (1.21) (0.15)
Distributions from net realized gains (0.74) (1.40) (0.03) - (0.06) -
----------------------------------------------------------------
Total distributions (1.53) (2.37) (0.93) (0.81) (1.27) (0.15)
----------------------------------------------------------------
Net asset value at end of period $20.68 $18.56 $19.58 $15.70 $17.46 $16.17
================================================================
TOTAL RETURN * 20.15% 7.09% 31.13% (5.39%) 15.91% 8.58%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets (actual)** 1.05% 0.80% 0.72% 0.83% 0.81% -%
Decrease reflected in the above expense ratios due to
undertakings by Parnassus Investments 0.30% 0.60% 0.82% 0.88% 1.24% 1.14%
Ratio of net investment income to average net assets 4.04% 4.56% 4.76% 5.15% 4.94% 2.44%
Portfolio turnover rate 34.12% 47.80% 15.36% 6.50% 33.40% 23.54%
Average commission per share*** $0.061 $0.069
Net Assets, End of Period (000's) $38,847 $33,362 $26,779 $17,087 $11,542 $3,241
- -----------------------------------------------------------------------------------------------------------------------
Fixed-Income Fund 1997 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $15.43 $15.73 $13.79 $15.89 $15.33 -
----------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.90 0.92 0.95 1.02 1.03 0.36
Net realized and unrealized gain (loss) on securities 0.67 (0.31) 1.95 (2.08) 0.57 15.32
----------------------------------------------------------------
Total from investment operations 1.57 0.61 2.90 (1.06) 1.60 15.68
----------------------------------------------------------------
DISTRIBUTIONS:
Dividends from net investment income (0.89) (0.91) (0.96) (1.04) (1.03) (0.35)
Distributions from net realized gains (0.07) - - - (0.01) -
----------------------------------------------------------------
Total distributions (0.96) (0.91) (0.96) (1.04) (1.04) (0.35)
----------------------------------------------------------------
Net asset value at end of period $16.04 $15.43 $15.73 $13.79 $15.89 $15.33
================================================================
TOTAL RETURN * 10.60% 4.08% 21.58% (6.76%) 10.59% 2.87%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets (actual)** 0.82% 0.83% 0.90% 0.81% 0.68% -%
Decrease reflected in the above expense ratios due to
undertakings by Parnassus Investments 0.43% 0.50% 0.73% 0.98% 1.00% 1.18%
Ratio of net investment income to average net assets 5.79% 5.98% 6.20% 7.00% 6.43% 3.20%
Portfolio turnover rate 17.15% 2.80% 12.10% 5.20% 10.90% 15.29%
Net Assets, End of Period (000's) $9,683 $8,384 $6,585 $4,545 $4,160 $2,093
- -----------------------------------------------------------------------------------------------------------------------
California Tax-Exempt Fund 1997 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $16.02 $16.06 $14.28 $16.10 $15.06 -
----------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.74 0.80 0.82 0.80 0.77 0.19
Net realized and unrealized gain (loss) on securities 0.71 (0.06) 1.78 (1.81) 1.16 15.05
----------------------------------------------------------------
Total from investment operations 1.45 0.74 2.60 (1.01) 1.93 15.24
----------------------------------------------------------------
DISTRIBUTIONS:
Dividends from net investment income (0.75) (0.78) (0.82) (0.81) (0.78) (0.18)
Distributions from net realized gains - - - - (0.11) -
----------------------------------------------------------------
Total distributions (0.75) (0.78) (0.82) (0.81) (0.89) (0.18)
----------------------------------------------------------------
Net asset value at end of period $16.72 $16.02 $16.06 $14.28 $16.10 $15.06
================================================================
TOTAL RETURN * 9.33% 4.78% 18.60% (6.36%) 13.03% 1.70%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets (actual)** 0.67% 0.54% 0.50% 0.39% 0.48% 0%
Decrease reflected in the above expense ratios due to
undertakings by Parnassus Investments 0.32% 0.46% 0.69% 0.87% 0.99% 2.10%
Ratio of net investment income to average net assets 4.69% 4.96% 5.30% 5.37% 4.89% 2.10%
Portfolio turnover rate 10.00% -% 13.10% 12.00% 20.46% -%
Net Assets, End of Period (000's) $6,520 $5,835 $4,483 $3,902 $3,256 $1,061
- -----------------------------------------------------------------------------------------------------------------------
<FN>
* 1992 ratios reflect returns for seven months of operation and are not annualized.
**Parnassus Investments agreed to a 1.25% limit on expenses for the Equity Income Fund and 1% for the Fixed-Income and
California Tax-Exempt Funds (See Note 5 for details). Certain fees were waived for the years ended December 31, 1997,
1996, 1995, 1994 and 1993. All expenses were waived for the seven-month period ended December 31, 1992; so, the actual
ratio of expenses to average net assets for each Fund for 1992 was 0%.
***Average commission rate is calculated for the periods beginning January 1, 1996 and applies only to Funds with equity
holdings.
Note: This information is taken from financial statements audited by Deloitte & Touche LLP that were published in the
Trust's annual reports.
</FN>
</TABLE>
THE LEGEND OF MT. PARNASSUS
Parnassus is a mountain in central Greece whose twin peaks rise more than
8,000 feet above sea level. A dense forest covers the slopes of Mt. Parnassus,
but the summit is rocky and, most of the time, covered with snow. The mountain
plays a prominent role in Greek mythology because on its southern slope,
overlooking the Gulf of Corinth, lies Delphi, site of the famous oracle.
Originally, the oracle belonged to Gaia, the earth goddess. Later, Mother
Earth was worshipped under the name Delphyne and she controlled the oracle along
with her serpent-son, Python, and her priestess-daughters who controlled the
rites. Eventually, the Greek god, Apollo, took over the site, doing away with
Python, but keeping the priestesses.
The most "Greek" of the gods, Apollo represented enlightenment and
civilization and presided over the establishment of cities. Identified with the
development of Greek codes of law, Apollo was also the god of light, a master
musician and a skilled archer. Legend has it that Python, an enormous serpent
raised in the caves of Mt. Parnassus, controlled the site of Delphi. When
Apollo, representing civilization, challenged Python, representing anarchy,
there was a heroic struggle, but the god finally killed the dragon by shooting a
hundred arrows into its body.
There were many oracles in ancient Greece, but only the one at Delphi
achieved a record of reliability. Apollo's temple at Delphi soon became an
enormous storehouse of treasures that were gifts of those who had consulted the
oracle.
4
<PAGE>
The oracle communicated through the voice of a priestess who spoke while in
a trance. The priests of Delphi, who interpreted the sayings of the priestess,
obtained a great deal of knowledge and information from talking to the people
who came from all over the Greek world to consult at the shrine of Apollo. Quite
often, the oracle went against the prevailing wisdom of the time and frequently,
the proud were humbled and the lowly were justified.
INVESTMENT OBJECTIVE AND POLICIES
SOCIAL POLICY
The Adviser looks for certain social policies in the companies in which the
Trust invests. These social policies are: (1) treating employees fairly; (2)
sound environmental protection policies; (3) a good equal employment opportunity
program; (4) quality products and services; (5) a record of civic commitment;
and (6) ethical business practices. Obviously, no company will be perfect in all
categories, but the Adviser makes value judgements in deciding which companies
best meet the criteria. The Adviser also considers social factors other than
these six (as discussed under the investment objectives of each of the three
Funds).
Although the Trust emphasizes positive reasons for investing in a company,
our operating policies call for excluding companies that manufacture alcohol or
tobacco products or are involved with gambling. The Trust also screens out
weapons contractors and those that generate electricity from nuclear power.
The social criteria of The Parnassus Income Trust limit the availability of
investment opportunities. However, the Trustees and the Adviser believe that
there are sufficient investments available that can meet the Trust's social
criteria and still enable each Fund to provide a competitive rate of return.
EQUITY INCOME FUND
The investment objective of the Equity Income Fund is both current
income and capital appreciation. The Fund tries to achieve this objective by
investing primarily in a diversified portfolio of equity securities. Equity
securities may include common and preferred stock as well as securities that are
convertible into these instruments such as convertible bonds. As an operating
policy, at least 75% of the Fund's total assets will normally be invested in
equity securities that pay a dividend (or interest in the case of convertible
debt instruments), and up to 25% of the Fund's total assets may be invested in
non-dividend paying equity securities, in investment grade debt securities or in
money market instruments. However, for temporary, defensive purposes, the Fund
may invest all its assets in money market instruments or investment grade debt.
The Fund seeks to invest in equity securities that pay above-average
dividends and which the Adviser believes have the capacity to raise dividends in
the future and also have the potential for capital appreciation. The Fund seeks
to achieve a yield for its shareholders that exceeds the yield on the securities
comprising the S&P 500 Composite Stock Price Index. Issuers of securities in
which the Fund invests must meet the social criteria stated in this Prospectus.
The Equity Income Fund may, as an operating policy, also invest up to 10%
of its assets in community development loan funds such as those that provide
financing for small business and for low and moderate income housing. The Fund
will not make loans to a project itself, but rather will invest money in an
intermediary community loan fund. With projects having a strong, positive social
impact, the Fund may invest in obligations issued by community loan funds at
below market interest rates. Generally, there is no secondary market, and thus
no liquidity, for these investments. In general, the Fund seeks to invest in
community organizations that have had a successful record in making these kinds
of loans and that are deemed creditworthy by the Adviser.
5
<PAGE>
RISK FACTORS
As with all investments, there are a number of risk factors associated with
the Equity Income Fund. Equity securities in the Fund pose 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 Equity Income Fund invests primarily in stocks that pay a
dividend, 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 is 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 Fund.
There are also special risks involved with community development
investments which may comprise as much as 10% of the Fund. These investments do
not have liquidity, and community loan funds do not 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 investments. In fact, one of the social objectives
of The Parnassus Income Trust is to establish a publicly available track record
for community development investments.
FIXED-INCOME FUND
The investment objective of the Fixed-Income Fund is a high level of
current income consistent with safety and capital preservation. The Adviser
seeks 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 rated within the four highest categories as determined by a
nationally-recognized rating service such as Standard & Poor's, a division of
The McGraw-Hill Companies, Inc. ("Standard & Poors") or Moody's Investors
Service, Inc. ("Moody's"). Securities in the lowest of these four categories are
considered investment grade, but they may have speculative elements about them.
The Fixed-Income Fund ordinarily will have at least 65% of its net assets in
securities rated "A" or better. See the Appendix in the SAI 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 Fund may invest in long-term, intermediate-term or
short-term fixed-income securities or any combination thereof, depending on
market conditions, and these securities may also have floating or variable
interest rates. Securities in this Fund may include preferred stock, convertible
preferred stock and convertible bonds.
The Fixed-Income Fund invests only in investment grade securities. The Fund
will not invest in "high-yield" or "junk" bonds. Because of this emphasis on
quality and safety, the Fund's yield may not be as high as it otherwise might
be.
This Fund may, as an operating policy, also invest up to 10% of its assets
in community development loan funds. See the section on the Equity Income Fund
for details.
RISK FACTORS
The Adviser anticipates that the Fixed-Income Fund's average weighted
maturity will be between 5 and 20 years. Because of this relatively long
maturity, the value of this Fund will vary inversely with changes in interest
rates. As interest rates go up, the net asset value (NAV) will likely go down,
and as interest rates drop, the NAV of this Fund will likely go up. The
Fixed-Income Fund is intended for investors who can accept the fact that there
will be principal fluctuations. The NAV of the Fund may also be affected by
factors other than interest rates such as credit risk and general market
factors.
6
<PAGE>
CALIFORNIA TAX-EXEMPT FUND
The investment objective of the California Tax-Exempt Fund 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 pursues 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 Fund is for
California residents only. David Pogran is the portfolio manager for the
California Tax-Exempt Fund.
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 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 federal alternative minimum tax. The California Tax-Exempt Fund
will minimize its investment in such bonds, and no more than 20% of the Fund's
assets will be invested in bonds whose income is treated as a tax preference
item under the federal alternative minimum tax.
The Fund 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 Fund 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 Fund 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
Fund will put no more than 5% of its assets into any one fund.
Normally, the Fund 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, and the Fund may engage in repurchase transactions involving U.S.
Government securities.
The California Tax-Exempt Fund 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 or Fitch Investors
Services, Inc. ("Fitch"), or if unrated, being similar in quality, in the
Adviser's opinion, to securities in one of 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 SAI
contains a description of the ratings of Moody's, Fitch and Standard & Poor's.)
The Fund will not invest more than 20% of its total assets in securities rated
in the fourth highest category. If the rating on a security held by the Fund
falls below investment grade after purchase, the Adviser will consider such an
event in its evaluation of the security, but it will not necessarily result in
an automatic sale of that security. The Fund 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 Fund emphasizes safety and
avoids 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 Fund will not finance activities
with a negative social or environmental impact as determined by the Trustees 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.
7
<PAGE>
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 Fund will apply the social
criteria listed under the "Social Policy" heading in this Prospectus to the
company.
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 regarding 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 factors it deems relevant and make a determination if a given security meets
the Trust's social criteria.
As a fundamental policy, with respect to 75% of its net assets, the
California Tax-Exempt Fund 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 Fund.)
Under normal circumstances, the California Tax-Exempt Fund intends to
invest 100% of its assets in California municipal obligations. As a matter of
fundamental investment policy, the Fund 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 Fund will invest at least 65 % of its
assets in California municipal obligations. Usually, the Fund will substantially
exceed these minimum requirements, but the Fund 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 Fund invests primarily in California
municipal securities, there are special risks involved. Changes in the State
constitution and other laws raise questions about the ability of State and
municipal issuers to obtain sufficient revenue to pay their bond obligations. In
particular, 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, a weak California 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 Standard & Poor's, 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, Standard & Poor's
and Fitch upgraded ratings on California's general obligation bonds from A to
A+. The governor's budgets for 1997-1998 is balanced as proposed. However, these
proposed budgets are based on certain revenue and expenditure assumptions. If
these assumptions are not met, future budget deficits could materialize.
The Fund typically invests 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 Fund will be adjusted accordingly. Since the value of debt
obligations typically varies inversely with changes in interest rates, the net
asset value (NAV) per share of the Fund will also fluctuate in this manner. As
interest rates go up, the NAV will likely go down and as interest rates drop,
the NAV will likely go up. The California Tax-Exempt Fund is intended for
investors who can accept the fact that there will be principal fluctuations.
(See the SAI for a further discussion of risk factors involved with investing in
California tax-exempt securities.)
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<PAGE>
OTHER INVESTMENT POLICIES
As an operating policy, the Equity Income Fund may purchase foreign
securities up to a maximum of 15% of the value of its total net assets, but the
Fixed-Income and California Tax-Exempt Funds may not purchase foreign
securities. Such investments increase a portfolio's diversification and may
enhance return, but they also involve some special risks such as exposure to
potentially adverse local political and economic developments; nationalization
and exchange controls; potentially lower liquidity and higher volatility;
possible problems arising from accounting, disclosure, settlement, and
regulatory practices that differ from U.S. standards; and the chance that
fluctuations in foreign exchange rates will decrease the investment's value
(favorable change can increase its value).
Under normal circumstances, each Fund of the Trust 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 a Fund's assets may be invested
in money market instruments or in repurchase agreements. In these situations, a
Fund will not be following its investment objective.
Repurchase agreements involve the purchase by a Fund of debt securities and
their resale at an agreed-upon price. In order to minimize risk, a 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 or other collateral with a
value at least equal to the total repurchase price. Repurchase agreements are
always for periods of less than one year, and, as an operating policy, no more
than 5% of a Fund's assets may be invested in repurchase agreements.
To generate additional income, a Fund may lend its portfolio securities to
broker-dealers, banks or other institutional borrowers of securities. A Fund
must receive 102% collateral in the form of cash or U.S. Government securities.
This collateral will be valued daily. Should the market value of the loaned
securities increase, the borrower must furnish additional collateral to that
Fund. During the time portfolio securities are on loan, the borrower pays that
Fund any dividends or interest received on such securities. While a Fund does
not have the right to vote securities that are on loan, each Fund intends to
terminate the loan and regain the right to vote if that is considered important
with respect to the investment. The borrower can repay the loan at any time and
each Fund can demand repayment at any time.
Each Fund is subject to certain investment restrictions which are
fundamental policies that, as such, cannot be changed without the approval of
the holders of a majority of that Fund's outstanding voting securities. An
operating policy of a Fund 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
Fund is a fundamental policy as are restrictions that provide that each Fund may
not: (i) with respect to 75% of its net assets, invest more than 5% of the value
of its net assets in securities of any one issuer (other than obligations issued
or guaranteed by the United States Government, its agencies or
instrumentalities); (ii) with respect to 75% of its net assets, purchase more
than 10% of the outstanding voting 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 its total assets. (A Fund may not make
additional investments while any borrowings are outstanding.) It is possible for
a Fund to make limited investments in the securities of other investment
companies. See the SAI for more details on the Trust's investment restrictions.
An operating (although not fundamental) policy of the Trust is that it may
not make an investment if, thereafter, more than 15% of a Fund's net assets
would be illiquid. If the Trust finds itself with more than 15% of a Fund's net
assets so invested, it will take action to bring that Fund's illiquid assets
below 15%. Illiquid assets include: (i) those which are restricted, i.e. those
which cannot be freely sold for legal reasons; (ii) fixed time deposits subject
to withdrawal penalties (other than overnight time deposits); (iii) repurchase
agreements having a maturity of more than seven days; and (iv) investments for
which market quotations are not readily available. However, the 15% limit does
not include obligations which are payable at principal amount plus accrued
interest within seven days after purchase or commercial paper issued under
section 4 (2) of the Securities Act of 1933, as amended ("1933 Act"), or
securities eligible for resale under Rule 144A of the 1933 Act that have been
determined to be liquid pursuant to procedures adopted by the Board of Trustees.
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<PAGE>
PERFORMANCE INFORMATION
YIELD OF FUNDS
From time to time, the Equity Income, the Fixed-Income and the California
Tax-Exempt Funds may each advertise its yields including current yield,
effective yield and, for the California Tax-Exempt Fund, 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 Fund may also advertise its tax-equivalent yield.
The Fund 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
Fund's yield that is not tax-exempt.
TOTAL RETURN
The Equity Income Fund, the Fixed-Income Fund and the California Tax-Exempt
Fund may each advertise "total return." Total return refers to the total change
in value of an investment in the Fund over a specific time period. It differs
from yield in that yield figures measure only the income component of the Fund'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 SAI.
A Fund will quote total return for the most recent one-year period and the
average annual total return will be quoted for the most recent five-and ten-year
periods, or for the life of the Fund, if shorter.
COMPARISON OF FUNDS
A Fund may also advertise its cumulative total return for prior periods and
compare its performance to the performance of other selected mutual funds,
selected market indicators such as the Standard & Poor's 500 Composite Stock
Price Index or non-market indices or averages of mutual fund industry groups.
A 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, a Fund may
provide additional information, such as the particular category to which the
ranking relates, the number of funds in that category, the criteria upon which
the ranking is based, and the effect of sales charges, fee waivers and/or
expense reimbursements.
All Fund performance information is historical and is not intended to
represent or guarantee future results. The value of Fund shares when redeemed
may be more or less than their original cost.
<TABLE>
<CAPTION>
PERFORMANCE FIGURES
AVERAGE ANNUAL TOTAL RETURN
EQUITY INCOME FIXED-INCOME CALIFORNIA TAX-EXEMPT
For Periods Ending December 31, 1997 FUND FUND FUND
<S> <C> <C> <C>
One Year 20.15% 10.60% 9.33%
Three Years 19.05% 11.86% 10.76%
Five Years 13.10% 7.61% 7.53%
Life of Fund (date of inception was 9/1/92) 13.97% 7.69% 7.39%
</TABLE>
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Prior to April 1, 1998, the Equity Income Fund was known as the Balanced
Portfolio and has a primary investment objective of current income and capital
preservation, with capital appreciation a secondary objective. The Trust'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 Trust.
MANAGEMENT
The Trust's Board of Trustees decides on matters of general policy and
supervises the activities of the Adviser. The Trust's officers conduct and
supervise the daily business operations of the Trust. The Trustees and officers
are listed below together with their principal occupations during at least the
past five years.
Jerome L. Dodson*, 54, President and Trustee, is also President of 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 Equity Income Fund and the Fixed-Income Fund. He is also a Trustee of The
Parnassus Fund.
David L. Gibson, 58, Trustee, is an attorney in private practice
specializing in taxation and personal financial planning. From 1973 to 1984, he
was with the Crown Zellerbach Corporation where he served as tax counsel and,
later, as Director of Public Affairs. Mr. Gibson is active in civic affairs and
his special interests include senior citizens and environmental protection. He
holds a bachelor's degree in business administration from Virginia Polytechnic
Institute, an MBA from Golden Gate University, a JD from Washington and Lee
University and an LLM from William and Mary. Mr. Gibson is also a Trustee of The
Parnassus Fund.
Gail L. Horvath, 48, Trustee, is co-owner and director of new product
development at Just Desserts, a San Francisco-based bakery and cafe. A
co-founder of Just Desserts, her experience includes market research, product
planning and product development. For four years, she served as a director of
Continental Savings of America. She is a graduate of Ohio State University. Ms.
Horvath is also a Trustee of The Parnassus Fund.
Herbert A. Houston, 54, 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. Mr. Houston is also a
Trustee of The Parnassus Fund.
Cecilia C.M. Lee, 54, is President of Ultra Media, a Silicon Valley-based
electronics firm. She is active in community affairs with the Stanford
Children's Hospital and the Cupertino Children's Choir. Ms. Lee is a Director of
the Tech Museum of Innovation and the Asian-American Manufacturers Association.
She is also on the Advancement Board of the West Valley-Mission Community
College. She received a bachelor's degree from the National Music and Art
Institute of China. Ms. Lee is also a Trustee of The Parnassus Fund.
Leo T. McCarthy, 67, is President of the Daniel Group, a partnership
involved in foreign trade. His current directorships include Linear Technology,
Open Data Systems and the U.S. National Gambling Impact Study Commission. He has
also served as a Regent of the University of California. From 1969 to 1982, he
served as a member of the California State Assembly, six years as Speaker. From
1983 to 1995, he served as Lieutenant Governor of the State of California where
his major responsibility was economic development. He holds a B.S. from the
University of San Francisco and a J.D. from San Francisco Law School and is
licensed to practice law in California. Mr. McCarthy is also a Trustee of The
Parnassus Fund and a Director of the Forward Global Fund, another mutual fund.
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<PAGE>
Donald E. O'Connor, 61, is a retired executive who spent 28 years as Vice
President of Operations for the Investment Company Institute, (the "ICI" is the
trade association of the mutual fund industry.) During that period, he also
spent 10 years as Chief Operating Officer of the ICI Mutual Insurance Company.
Prior to joining the ICI, he spent six years with the Securities and Exchange
Commission ("SEC"), including four years as Branch Chief of Market Surveillance.
He currently serves as a Trustee of the Advisors Series Trust, another mutual
fund. He is a graduate of The George Washington University and holds a Masters
in Business Administration from the same institution. Mr. O'Connor is also a
Trustee of The Parnassus Fund.
Howard M. Shapiro, 66, 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. Mr.
Shapiro is also a Trustee of The Parnassus Fund. He is no relation to Joan
Shapiro.
Joan Shapiro, 55, is a consultant in development banking, community
reinvestment, ethical investing and corporate social responsibility. For 20
years, she worked with the South Shore Bank of Chicago, most recently as
Executive Vice President. She is a former President of the Social Investment
Forum, the national trade association of the social investment industry. Active
in Chicago's civic and cultural life for 25 years, she is a Governor of
International House of the University of Chicago and a member of the President's
Council of Cornell Women. She is a graduate of Cornell University. Ms. Shapiro
is also a Trustee of The Parnassus Fund. She is no relation to Howard Shapiro.
Howard Fong, 52, Vice President and Treasurer, is also Vice President of
Parnassus Investments. Mr. Fong began his career as an examiner with the
California Department of Savings and Loan. In 1979, he joined Continental
Savings where he worked until 1988, most recently as Senior Vice President and
Chief Financial Officer. He joined The Parnassus Fund in 1989. Mr. Fong
graduated from San Francisco State University with a degree in business
administration. Mr. Fong is also Vice President and Treasurer of The Parnassus
Fund.
Richard D. Silberman, 60, Secretary, is an attorney specializing in
business law. He has been general counsel to The Parnassus Income Trust 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. Mr. Silberman is also
Secretary and general counsel of The Parnassus Fund.
David Pogran, Portfolio Manager, has managed the California Tax-Exempt Fund
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, Mr. Pogran spent eight years
in retail management.
*Denotes "interested" trustee as defined in the Investment Company Act of
1940.
THE ADVISER
Parnassus Investments (the "Adviser"), One Market-Steuart Tower #1600, San
Francisco, California 94105 acts as investment adviser to each Fund subject to
the control of the Trust's Board of Trustees, and as such, supervises and
arranges the purchase and sale of securities held in the Funds' portfolios. The
Adviser has been the investment manager of The Parnassus Fund since 1985 and The
Parnassus Income Trust since 1992.
For its services, the Trust, under an Investment Advisory Agreement (the
"Agreement") between the Trust and the Adviser, pays the Adviser a fee, computed
and payable at the end of each month, at the following annual percentages of
each Fund's average daily net assets: for the Equity Income Fund, 0.75% of the
first $30 million, 0.70% of the next $70 million and 0.65% of the amount above
$100 million; and for the Fixed-Income Fund and the California Tax-Exempt Fund,
the fee is
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<PAGE>
0.50% of the first $200 million, 0.45% of the next $200 million and 0.40% of the
amount above $400 million. However, the following were actually charged in 1997.
For the Equity Income Fund, the investment advisory fee was 0.30% for the first
three months of 1997. Beginning April 1, 1997, this fee was increased to 0.50%.
Parnassus Investments received net advisory fees totaling $157,501 from the
Equity Income Fund for the year ended December 31, 1997. For the Fixed-Income
Fund, Parnassus Investments waived the investment advisory fee for the first
three months of 1997. Beginning April 1, 1997 an investment advisory fee of
0.10% was charged to the Fixed-Income Fund. Parnassus Investments received net
advisory fees totaling $6,667 from the Fixed-Income Fund for the year ended
December 31, 1997. For the California Tax-Exempt Fund, the investment advisory
fee was 0.10% for the first three months of 1997. Beginning April 1, 1997, this
fee was increased to 0.20%. Parnassus Investments received net advisory fees
totaling $10,911 from the California Tax-Exempt Fund for the year ended December
31, 1997.
Parnassus Investments has agreed to reduce its investment advisory fee to
the extent necessary to limit total operating expenses to 1.25% of net assets
for the Equity Income Fund and 1.00% of net assets for the Fixed-Income and
California Tax-Exempt Funds.
In addition to the fee payable to the Adviser, the Trust 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 Trust'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 Trust or its shares; (ix) expenses of preparing, printing
and mailing reports and notices and proxy material to shareholders of the Trust;
(x) all other expenses incidental to holding meetings of the Trust'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 Trust and
the legal obligations which the Trust 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-10 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 Trust. It should be sent
to the Trust at the following address.
The Parnassus Income Trust
One Market-Steuart Tower #1600
San Francisco, California 94105
An initial investment must be at least $2,000 except for certain employee
benefit plans or tax qualified retirement plans (such as IRAs or SEPs) and
accounts opened pursuant to the Uniform Gifts to Minors Act ("UGMA") or Uniform
Transfers to Minors Act ("UTMA"), 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. Investments in
the Equity Income Fund and the California Tax-Exempt Fund, 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 they are received. If an investment in
either of these Funds is received after 1:00 p.m. San Francisco time, it will be
processed the next business day.
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<PAGE>
An investment in the Fixed-Income Fund, if received before 12:00 noon San
Francisco time, will be processed at the net asset value calculated on the same
business day it is received. An investment in this Fund received after 12:00
noon San Francisco time will be processed on the next business day.
OTHER INFORMATION
The Trust 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 Trust is $2,000 and the minimum
subsequent investment is $50, except for retirement plans, UGMA or UTMA 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 the purchase of Trust shares, but investors
may be charged a transaction or other fee in connection with purchases or
redemptions of Trust 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 a Fund account ($500 minimum), a
shareholder may purchase additional Fund shares ($50 minimum) via the PAIP. On a
monthly or quarterly basis, your money will automatically be transferred from
your bank account to your Trust 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 Trust and ask for the
free brochure called "Automatic Investing and Dollar-Cost Averaging."
NET ASSET VALUE
The net asset value ("NAV") for each Fund will be calculated on every day
the New York Stock Exchange ("NYSE") is open for trading ("business day") and on
any other day there is a sufficient degree of trading in investments held by the
Fund to affect the net asset value. The NAV of the Equity Income Fund and the
California Tax-Exempt Fund will ordinarily be determined as of the close of
trading on the NYSE, usually 4:00 p.m. Eastern time. The NAV of the Fixed-Income
Fund will ordinarily be determined as of one hour prior to the close of trading
on the NYSE, usually 3:00 p.m. Eastern time. The NAV 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 a Fund's assets, less its
liabilities, divided by the number of outstanding shares of that Fund. In
general, the value of a 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 Trust's Board of Trustees. See the SAI for details.
HOW TO REDEEM SHARES
You may sell or redeem your shares by offering them for "repurchase" or
"redemption" directly to the Trust. To sell your shares to the Trust (that is,
to redeem your shares), you must send your written instructions to the Trust 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 NAV next determined after
receipt by the Trust of your written instructions in proper form. Give your
account number and indicate the number of shares you wish to redeem. All owners
of the account must sign unless the account application states that only one
signature is necessary for redemptions. All redemption checks must be sent to
the address of record on the account. The Trust 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
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<PAGE>
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 Trust usually requires additional
documents when shares are registered in the name of a corporation, agent or
fiduciary or if you are a surviving joint owner. In the case of a corporation,
we usually require a corporate resolution signed by the secretary. In the case
of an agent or fiduciary, we usually require an authorizing document. In the
case of a surviving joint owner, we usually require a copy of the death
certificate. Contact the Trust by phone at (800) 999-3505 if you have any
questions about requirements for redeeming your shares.
If the Trust 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 Trust will promptly send you a check for the proceeds from the sale.
Ordinarily, the Trust must send you a check within seven days unless the NYSE 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 Trust to determine that the
purchase check will be honored.
EXCHANGE PRIVILEGES. The proceeds of a redemption of shares of a Fund can
be used to purchase shares of another Fund. The proceeds of a redemption of
shares from the Trust can also be used to purchase shares of The Parnassus Fund,
but the purchase of Parnassus Fund shares will be subject to a sales charge if
no sales charge was paid on the Fund shares redeemed. If shares are redeemed
from The Parnassus Fund and the proceeds invested in shares of the Trust, there
will be no additional sales charge if those Trust shares are redeemed and the
proceeds invested back into The Parnassus Fund.
There is no limit on the number or dollar amount of exchanges. The Trust
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.
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 a Fund into an
identically registered account in another Fund or The Parnassus Fund. Neither
the Trust 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 Trust 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 Trust and Parnassus Investments may be liable for any
losses due to unauthorized or fraudulent instructions only if such reasonable
procedures are not followed. Of course, shareholders are not obligated in any
way to authorize telephone transfers and may choose to make all exchanges in
writing. The telephone exchange privilege may be modified or discontinued by the
Trust 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 Trust, 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 NAV determined as of the close of business on the business day preceding
the sending of such notice of redemption. The Trust 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 Equity Income Fund normally declares and pays dividends from net
investment income ("income dividends") on a quarterly basis. The Fixed-Income
Fund and the California Tax-Exempt Fund normally declare and pay income
dividends on a monthly basis. Dividends from net long-term capital gains
("capital gains dividends") are paid once a year (usually in December) for each
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.
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TAXATION OF THE TRUST
By paying out substantially all its net investment income (among other
things), each Fund has qualified as a regulated investment company under
Subchapter M of the Internal Revenue Code. Each Fund intends to continue to
qualify and, if so, it will not pay federal income tax on either its net
investment income or on its net capital gains. Instead, each shareholder will be
responsible for his or her own taxes.
TAXATION OF SHAREHOLDERS
For the Equity Income Fund and the Fixed-Income Fund, all dividends from
net investment income together with distributions of short-term capital gains
(collectively, "income dividends") will be taxable as ordinary income to
shareholders even though paid in additional shares. Any net long-term capital
gains ("capital gain distributions") distributed to shareholders are taxable as
such to shareholders. Tax-exempt and tax-deferred shareholders, of course, will
not be required to pay taxes on any amounts paid to them. IRAs and other
tax-deferred retirement accounts are not required to pay taxes until
distribution.
As a result of tax law changes enacted in 1997, there are different maximum
federal income tax rates applicable to your capital gain distributions if you
are a noncorporate taxpayer depending on the Fund's holding period and your
marginal rate of federal income tax -- generally, 28% for gains recognized on
securities held for more than one year but not more than 18 months and 20% (10%
if you are in the 15% marginal tax bracket) for gains recognized on securities
held for more than 18 months. Annually, shareholders will receive on Form 1099
the dollar amount and tax status of all dividends received.
For shareholders of these Funds, the Trust 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 a Fund, such dividends,
in the hands of that 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 FUND
This Fund 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
net long-term capital gains, if any, are taxable to shareholders as a long-term
capital gain regardless of how long their shares of the Fund 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 capital gain dividends received
on such shares.
The Fund will notify shareholders each January as to the federal and
California tax status of dividends paid during the previous calendar year.
16
<PAGE>
GENERAL INFORMATION
The Trust 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 Fund), 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 Trust as a whole,
specifically including election of Trustees and selection of the Trust'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 Trust'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 Trust shares may advise the Trustees in writing
that they wish to communicate with other shareholders for the purpose of
requesting a meeting to remove a Trustee. The Trustees will then, if requested
by the applicants, mail at the applicants' expense the applicants' communication
to all other shareholders. No amendment may be made to the Declaration of Trust
without the affirmative vote of the holders of more than 50% of the Trust's
outstanding shares, or upon liquidation and distribution of its assets, if
approved by the vote of the holders of more than 50% of the Trust's outstanding
shares. If not so terminated, the Trust will continue indefinitely. Prior to
April 1, 1998, The Parnassus Income Trust was known as The Parnassus Income Fund
and each of the Trust's series was known as a Portfolio rather than a Fund.
Deloitte & Touche LLP, 50 Fremont Street, San Francisco, CA 94105, has been
selected as the Trust's independent auditors.
Union Bank of California, 475 Sansome Street, San Francisco, CA 94111, has
been selected as the custodian of the Trust's assets.
Parnassus Investments, One Market-Steuart Tower #1600, San Francisco,
California 94105, is the Trust's transfer agent and accounting agent. Jerome L.
Dodson, the Fund's President, is the sole stockholder of Parnassus Investments.
17
<PAGE>
INVESTMENT ADVISER
Parnassus Investments
One Market-Steuart Tower #1600
San Francisco, California 94105
LEGAL COUNSEL
Richard D. Silberman, Esq.
465 California Street #1020
San Francisco, California 94104
AUDITORS
Deloitte & Touche LLP
50 Fremont Street
San Francisco, California 94105
CUSTODIAN
Union Bank of California
475 Sansome Street
San Francisco, California 94111
DISTRIBUTOR
Parnassus Investments
One Market-Steuart Tower #1600
San Francisco, California 94105
www.parnassus.com
18
<PAGE>
The Parnassus Income Trust
One Market
Steuart Tower - Suite #1600
San Francisco, CA 94105
(415) 778-0200
STATEMENT OF ADDITIONAL INFORMATION April 1, 1998
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Trust's Prospectus dated April 1, 1998, a copy of which
may be obtained by calling or writing the Trust at the address listed above.
TABLE OF CONTENTS
Page Cross-reference to page in prospectus
---- -------------------------------------
Investment Objective and
Policies B-2 5
Investment Restrictions B-2 10
Repurchase Agreements B-3 10
Special Risk Factors B-4 6,7,9
Management B-7 14
Performance B-8 12
Net Asset Value B-11 18
Shareholder Services B-11 17
General B-12 23
Financial Statements B-13
Appendix B-14
<PAGE>
Investment Objectives and Policies
The main investment objective of the Trust is to provide shareholders
with current income by investing in securities that have a positive impact on
society. The Trust offers investors a choice of three Funds: the Equity Income
Fund, the Fixed-Income Fund and the California Tax-Exempt Fund. The Trust's
Prospectus describes its strategy with respect to the composition of each Fund.
Investment Restrictions
- -----------------------
The Trust has adopted the following restrictions (in addition to those
indicated in the Prospectus) as fundamental policies which may not be changed as
to a Fund without the approval of the holders of a "majority" (as defined in the
Investment Company Act of 1940 (the "1940 Act") of that Fund's outstanding
shares. A vote of the holders of a "majority" (as so defined) of a Fund's
outstanding shares means a vote of the holders of the lesser of (i) 67% of the
Fund's 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 Trust may not:
(1) With respect to 75% of a Fund's 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 the Fund's total net assets (taken
at current value) would then be invested in securities of a
single issuer or (ii) the Fund would hold more than 10% of the
outstanding voting securities of any one issuer.
(2) Purchase any security if as a result any Fund 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 Trust 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 Fund may borrow from a bank for temporary or
emergency purposes in amounts not exceeding 10% (taken at the
lower of cost or current value) of its net assets (not
including the amount borrowed) and pledge its assets to secure
such borrowings. A Fund will not make additional purchases
while any borrowings are outstanding.
(6) Buy or sell commodities or commodity contracts including
futures contracts or real estate, real estate limited
partnerships or other interests in real estate although it may
purchase and sell securities of companies which invest or deal
in real estate.
(7) Act as underwriter except to the extent that in connection
with the disposition of portfolio securities, it may be deemed
to be an underwriter under certain federal securities laws.
(8) Participate on a joint (or joint and several) basis in any
trading account in securities.
(9) Invest in securities of other registered investment companies
except that each Fund may invest up to 10% of its assets in
money market funds, but no more than 5% of its assets in any
one fund and no Fund may own more than 3% of the outstanding
voting shares of any one fund. This
B-2
<PAGE>
restriction, however, does not apply to a transaction that is
a part of a merger, consolidation or other acquisition.
(10) Invest in interests in oil, gas or other mineral exploration
or development programs or in oil, gas or other mineral leases
although it may invest in the common stocks of companies which
invest in or sponsor such programs.
(11) Make loans except through repurchase agreements; however, the
Trust may engage in securities lending and may also acquire
debt securities and other obligations consistent with the
applicable Fund's investment objective(s) and its other
investment policies and restrictions. Investing in a debt
instrument that is convertible into equity or investing in a
community loan fund is not considered the making of a loan.
Operating Policies
- ------------------
The Trust has adopted the following operating policies which may be changed
by a vote of the majority of the Fund's Trustees:
(1) The Equity Income Fund may purchase warrants up to a maximum of 5%
of the value of its total net assets, but the Fixed-Income and
California Tax-Exempt Funds may not purchase warrants.
(2) No Fund may hold or purchase foreign currency except the Equity
Income Fund to the extent necessary to settle foreign securities
transactions.
Repurchase Agreements
- ---------------------
The Trust 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 Trust purchases a security,
the Trust 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 Trust'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. A 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 Trust. However, there may
be delays and costs in establishing the Trust's rights to the collateral and the
value of the collateral may decline. A 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 Trust's custodian either directly or through a
securities depository.
B-3
<PAGE>
Lending Portfolio Securities
- ----------------------------
To generate additional income, a Fund may lend its portfolio securities to
broker-dealers, banks or other institutional borrowers of securities. A Fund
must receive collateral in the form of cash or U.S. Government securities at
least equal to 102% of the value of the securities loaned. This collateral will
be valued daily. Should the market value of the loaned securities increase, the
borrower must furnish additional collateral to that fund. During the time
portfolio securities are on loan, the borrower pays that Fund any dividends or
interest received on such securities. While a Fund does not have the right to
vote securities that are on loan, the Fund may terminate the loan and regain the
right to vote if that is considered important with respect to the investment.
The borrower can repay the loan at any time and the lending Fund can demand
repayment at any time.
SPECIAL RISK FACTORS AFFECTING CALIFORNIA MUNICIPAL SECURITIES
Developments in California could adversely affect the market values or
marketability on municipal securities issued in the State or could result in a
default. 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 California Tax-Exempt Fund 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
B-4
<PAGE>
public schools and community colleges. Since Proposition 98 and 111 allocated 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.
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.
B-5
<PAGE>
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. Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
("Standard & Poors") or Moody's Investors Service, Inc. ("Moody's") 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.
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 California Tax-Exempt Fund 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 Fund in that the market value of some municipal securities might drop
substantially.
B-6
<PAGE>
MANAGEMENT
The Trustees and Officers of the Fund are as follows:
Principal Occupation
Name and Address Position with Trust During Past Five Years
- ---------------- ------------------- ----------------------
Jerome L. Dodson* President and Trustee President of the Parnassus
The Parnassus Income Trust Fund and President and
One Market Director of Parnassus
Steuart Tower #1600 Investments since June of
San Francisco, CA 94105 1984.
Howard Fong Vice President Vice President-Treasurer of
The Parnassus Income Trust and Treasurer Parnassus Investments since
One Market February of 1989.
Steuart Tower #1600
San Francisco, CA 94105
David L. Gibson Trustee Tax Counsel and later,
5840 Geary Boulevard Director of Public Affairs
San Francisco, CA 94118 for the Crown Zellerbach
Corporation 1973-1984.
Since 1984, attorney in
private practice.
Gail L. Horvath Trustee Owner and Director of New
Just Desserts Product Development at Just
1970 Carroll Avenue Desserts.
San Francisco, CA 94124
Herbert A. Houston Trustee Chief Executive Officer of
Presidio Building, #1003 the Haight Ashbury Free
O'Reilly Avenue Clinics, Inc. 1987-Present.
P.O. Box 29917
San Francisco, CA 94129
Cecilia C.M. Lee Trustee President of Ultra Media, a
2048 Corporate Court Silicon Valley-based
San Jose, CA 95131 electronics firm.
Leo T. McCarthy Trustee President of the Daniel
One Market Group, a partnership
Steuart Tower #1600 involved in foreign trade.
San Francisco, CA 94105 A former member of the
California State Assembly
from 1969 to 1982 and
former Lieutenant Governor
of the State of California
from 1983-1995.
Donald E. O'Connor Trustee Retired. Executive for the
One Market Investment Company
Steuart Tower #1600 Institute 1969-1997.
San Francisco, CA 94105
B-7
<PAGE>
David Pogran Portfolio Manager Portfolio Manager of
The Parnassus Income Trust California Tax-Exempt Fund.
One Market Director of Research for
Steuart Tower #1600 Parnassus Investments.
San Francisco, CA 94105
Howard Shapiro Trustee Consultant to non-profit
The Parnassus Income Trust organizations specializing
One Market in marketing, advertising,
Steuart Tower #1600 fund-raising and
San Francisco, CA 94105 organizational structure.
Joan Shapiro Trustee Consultant in development
The Parnassus Income Trust banking, community
One Market reinvestment, ethical
Steuart Tower #1600 investing, and corporate
San Francisco, CA 94105 social responsibility.
Executive with South Shore
Bank of Chicago 1977-1997.
Richard D. Silberman Secretary Attorney specializing in
465 California St., #1020 business law. Private
San Francisco, CA 94104 practice.
The Trust 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 December 31, 1997, the following shareholders owned more than 5% of
the voting securities of the respective Funds of the Trust. The Side By Side
Limited Partnership owned 8.29% of the Fixed-Income Fund. MIFLA & Co., a trust,
owned 5.82% and Otis Cary & Alice Cary, Trustees owned 5.66% of the voting
securities of the California Tax-Exempt Fund. Trustees and Officers of The
Parnassus Income Trust owned less than 1% of the outstanding securities of the
Equity Income Fund, of the Fixed-Income Fund and of the California Tax-Exempt
Fund.
PERFORMANCE ADVERTISING
Each Fund of the Trust may advertise "total return." The Trust calculates
total return by taking the total number of Fund shares purchased with a
hypothetical $1,000 investment, adding all additional Fund shares purchased
within the period with reinvested dividends, calculating the value of those
shares at the end of the period and dividing the result by the initial $1,000
investment. For periods of more than one year, the cumulative total return is
then adjusted for the number of years, taking compounding into account to
calculate average annual total return during that period.
Total return is computed according to the following formula:
B-8
<PAGE>
n
P(1 + T) = ERV
where P = a hypothetical initial payment of $1,000, T = total return, n = number
of years and ERV = ending redeemable value. Total return is historical
information and is not intended to indicate future performance.
Yield of Equity Income, Fixed-Income and California Tax-Exempt Funds
- --------------------------------------------------------------------
The Equity Income, Fixed-Income and California Tax-Exempt Funds may each
also advertise its 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 Fund'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 Fund 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 Fund'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 California Tax-Exempt Fund 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 the California Tax-Exempt Fund 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 the Fund's
yield that is not tax-exempt.
THE ADVISER
Parnassus Investments acts as the Trust's investment adviser. Under its
Investment Advisory Agreement ("Agreement") with the Trust, the Adviser acts as
investment adviser for each Fund and subject to the supervision of the Board of
Trustees, directs the investments of each Fund in accordance with its investment
objective, policies and limitations. The Adviser also provides the Trust with
all necessary office facilities and personnel for servicing the Trust's
investments and pays the salaries and fees of all officers and all Trustees of
the Trust who are "interested persons." The Adviser also provides the management
and administrative services necessary for the operation of the Trust including
supervising relations with the custodian, transfer agent, independent
accountants and attorneys. The Adviser also prepares all shareholder
communications, maintains the Trust's records, registers the Trust'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 Trust, under the Agreement, pays the Adviser a fee,
computed and payable at the end of each month at the following annual
percentages of average daily net assets: for the Equity Income Fund, 0.75% of
the first $30 million, 0.70% of the next $70 million and 0.65% of the amount
above $100 million; and for the Fixed-Income Fund and the California Tax-Exempt
Fund, the fee is 0.50% of the first $200 million, 0.45% of the
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<PAGE>
next $200 million and 0.40% of the amount above $400 million. Parnassus
Investments waived the advisory fee for all Funds in 1995. During 1996 and 1997,
Parnassus Investments received the following sums under the Agreement from the
following Funds: Equity Income Fund $47,641 in 1996 and $157,501 in 1997;
California Tax-Exempt Fund $1,433 in 1996 and $10,911 in 1997. Advisory fees
were waived for the Fixed-Income Fund in 1996 and $6,667 was received in 1997.
The Agreement provides that the Adviser shall not be liable to the Trust
for any loss to the Trust except by reason of the Adviser's willful misfeasance,
bad faith or gross negligence in the performance of its duties, or by reason of
its reckless disregard of its obligations and duties under the Agreement.
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 a 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 Trust to achieve "best execution," i.e., prompt and efficient
execution at the most favorable securities price. In making such selection, the
Adviser is authorized in the Agreement to consider the reliability, integrity
and financial condition of the broker. The Adviser is also authorized to
consider whether the broker provides brokerage and/or research services to the
Trust 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 nor attempt to place specific dollar value on such services
nor on the portion of commission rates reflecting such services.
The Trust recognizes in the Agreement that, on any particular transaction,
a higher than usual commission may be paid due to the difficulty of the
transaction in question. The Adviser is also authorized in the Agreement to
consider sales of Fund shares as a factor in the selection of brokers to execute
brokerage and principal transactions, subject to the requirements of "best
execution," as defined above.
The research services discussed above may be in written form or through
direct contact with individuals and may include information as to particular
companies and securities as well as market, economic or institutional areas and
information assisting the Fund in the valuation of its investments. The research
which the Adviser receives for a Fund's brokerage commissions, whether or not
useful to that 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 a 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 Fund brokerage commissions to reduce certain
expenses of that Fund subject to "best execution." For example, the Adviser may
enter into an agreement to have a brokerage firm pay part or all of a Fund's
custodian fee since this benefits the Fund's shareholders.
In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission although the price of the security usually includes a profit to the
dealer. Money market instruments usually trade on a "net" basis as well. On
occasion, certain money market instruments may be purchased directly from an
issuer in which case no commissions or discounts are paid. In underwritten
offerings, securities are purchased at a fixed price which includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount.
B-10
<PAGE>
During 1995, 1996 and 1997, the Equity Income Fund paid $10,983, $96,786
and $46,914, respectively in brokerage commissions. Of these amounts, the
following was paid in conjunction with research services: $10,983 in 1995,
$41,850 in 1996 and $46,914 in 1997. Neither the Fixed-Income Fund nor the
California Tax-Exempt Fund paid commissions in 1995, 1996 or 1997 since these
Funds buy their securities on a "net" basis that includes the dealer mark-up.
Parnassus Investments has clients other than The Parnassus Income Trust
that have objectives similar to the Trust. Normally, orders for securities
trades are placed separately for each client. However, some recommendations may
result in simultaneous buying or selling of securities along with the Trust. As
a result, the demand for securities being purchased or the supply of securities
being sold may increase, and this could have an adverse effect on the price of
those securities. Parnassus Investments does not favor one client over another
in making recommendations or placing orders, and in some situations, orders for
different clients may be grouped together. In certain cases where the aggregate
order is executed in a series of transactions at various prices on a given day,
each participating client's proportionate share of such order reflects the
average price paid or received with respect to the total order. Also, should
only a partial order be filled, each client would ordinarily receive a pro rata
share of the total order.
NET ASSET VALUE
In determining the net asset value of the Equity Income Fund's shares,
common stocks that are listed on national securities exchanges are valued at the
last sale price on the exchange on which each stock is principally traded as of
the close of the New York Stock Exchange ("NYSE")(which is currently 4:00 p.m.
New York time) or, in the absence of recorded sales, at the average of readily
available closing bid and asked prices on such exchanges. Securities traded on
The Nasdaq Stock Market are also valued at the last recorded sale price as of
4:00 p.m. 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. Municipal bonds are ordinarily valued as of the close of trading on the
NYSE, usually at 4:00 p.m. Eastern time. Taxable bonds and other securities held
by the Fixed-Income Fund are ordinarily valued one hour prior to the close of
the NYSE, normally at 3:00 p.m. Eastern time.
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 Trust'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 a 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.
Dividends and capital gain distributions on shares held under the Plan are
invested in additional full and fractional shares at net asset value. Withdrawal
payments should not be considered as dividends, yield or income. If periodic
withdrawals continuously exceed reinvested dividends and capital gain
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
B-11
<PAGE>
Furthermore, each withdrawal constitutes a redemption of shares and any
gain or loss realized must be recognized for federal income tax purposes.
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 Trust 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 a Fund of the Trust. Each
share represents an interest in a Fund of the Trust 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 Trust's liquidation, all
shareholders of Fund would share pro rata in the net assets available for
distribution to shareholders of the Fund. Shares of each Fund are entitled to
vote separately as a group only to the extent required by the Investment Company
Act of 1940 or as permitted by the Trustees. Trust operating expenses will be
allocated fairly among the Funds, generally on the basis of their relative net
asset value.
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 Trust or its Trustees. The Declaration of Trust provides for
indemnification and reimbursement of expenses out of the Trust's property for
any shareholder held personally liable for its obligations. The Declaration of
Trust also provides that the Trust shall, upon request, assume the defense of
any claim made against any shareholder for any act or obligation of the Trust
and satisfy any judgement thereon. Thus, while Massachusetts law permits a
shareholder of a trust such as this to be held personally liable as a partner
under certain circumstances, the risk of a shareholder incurring financial loss
on account of shareholder liability is highly unlikely and is limited to the
relatively remote circumstances in which the Trust 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 or
her office.
Deloitte & Touche LLP, 50 Fremont Street, San Francisco, California 94105, has
been selected as the Trust's independent auditors.
Union Bank of California, 475 Sansome Street, San Francisco, California 94111,
has been selected as the custodian of the Trust's assets. Shareholder inquiries
should be directed to the Trust.
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.
B-12
<PAGE>
Financial Statements
- --------------------
The Trust's Annual Report to shareholders dated December 31, 1997, is
expressly incorporated by reference and made a part of this Statement of
Additional Information. A copy of the Annual Report which contains the Trust's
audited financial statements for the year ending December 31, 1997, may be
obtained free of charge by writing or calling the Trust.
B-13
<PAGE>
APPENDIX
--------
CORPORATE BOND RATINGS
----------------------
Moody's Investors Service, Inc. ("Moody's")
- -------------------------------------------
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, a division of The McGraw-Hill Companies, Inc.
- ----------------------------------------------------------------------------
("Standard & Poor's")
- ---------------------
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.
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
B-14
<PAGE>
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:
- --------
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 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:
- ------------------
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
B-15
<PAGE>
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 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 Services, Inc.
- -------------------------------
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-16
<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, 1997 appears in Part A.
(ii) Audited financial statements as of
December 31, 1997, are incorporated by
reference. These statements appear in the
annual report dated December 31, 1997, and
are on file with the Commission. Financial
statements include statement of assets and
liabilities, statement of operations,
statement of changes in net assets,
Portfolio of Investments by Industry
Classification, notes to financial
statements and independent auditors' report.
(b) Exhibits
(1) Declaration of Trust: Amended and Restated
as of March 30, 1998: included
(2) By-laws: Amended and Restated as of March
30, 1998: included
(3) Not applicable
(4) Not applicable
(5) Investment advisory contract: Amended as
of March 30, 1998: included
(6) Distribution agreement and dealer
agreement: on file
(7) Not applicable
(8) Custodian agreement: on file
(9) Not applicable
(10) Opinion and Consent of Counsel: on file
(11) Consent of Deloitte & Touche LLP: included
(12) Not applicable
(13) Investment letters: on file
(14) Individual Retirement Account Form:
included; Simplified Employee Pension
Plan: on file; Roth IRA: included
(15) Not applicable
(16) Schedule for computation of each
performance quote: included
Item 25. Persons Controlled by or under Common Control with Registrant:
Registrant is not controlled by or under common control with any other
person, except to the extent Registrant may be deemed to be under
common control with The Parnassus Fund by virtue of having the same
individuals as Trustees of each entity.
Item 26. Number of Holders of Securities as of December 31, 1997
Title of Class Number of Record Holders
- -------------- ------------------------
Balanced Portfolio 3,232
Fixed-Income Portfolio 841
California Tax-Exempt Portfolio 307
Item 27. Indemnification
Under the provisions of the Fund's Declaration of
Trust, the Fund will indemnify its present or former
Trustees, officers, employees and certain other
agents against liability incurred in such capacity
except that no such person may be indemnified if
there has been an adjudication of liability against
that person based on a finding of willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of
his or her office.
Item 28. 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
Trust.
(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 Director President and Trustee
One Market
Steuart Tower #1600
San Francisco, CA 94105
Howard Fong Treasurer Vice President
One Market and 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
<PAGE>
(c) None
Item 30. Location of Accounts and Records: All accounts, books and records
are in the physical possession of Jerome L. Dodson at Registrant's
headquarters at One Market-Steuart Tower #1600, San Francisco, CA 94105
.
Item 31. Management Services: Discussed in Part A.
Item 32. Not applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485 (b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City and County of San Francisco and the State of California
on the 28th day of March 1998.
The Parnassus Income Trust
(Registrant)
By:___________________________
Jerome L. Dodson
President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
<PAGE>
Signature Title Date
- --------- ----- ----
Principal Executive Officer
- ------------------------- and Trustee March 27, 1998
Jerome L. Dodson
Principle Financial and
- ------------------------- Accounting Officer March 27, 1998
Howard Fong
- ------------------------- Trustee March 27, 1998
David L. Gibson
- ------------------------- Trustee March 27, 1998
Gail L. Horvath
- ------------------------- Trustee March 27, 1998
Herbert A. Houston
- ------------------------- Trustee March 27, 1998
Cecilia C.M. Lee
- ------------------------- Trustee March 27, 1998
Leo T. McCarthy
- ------------------------- Trustee March 27, 1998
Donald E. O'Connor
- ------------------------- Trustee March 27, 1998
Howard M. Shapiro
- ------------------------- Trustee March 27, 1998
Joan Shapiro
<PAGE>
LIST OF EXHIBITS
(1) Declaration of Trust: Amended and Restated as of March 30, 1998
(2) By laws: Amended and restated as of March 30, 1998
(5) Investment Advisory Agreement: Amended as of March 30, 1998
(11) Consent of Deloitte & Touche LLP
(14) Individual Retirement Account Form & Roth IRA
(16) Schedule for computation of each performance quote
<PAGE>
EXHIBIT 1
THE PARNASSUS INCOME TRUST
AMENDED AND RESTATED
DECLARATION OF TRUST
DECLARATION OF TRUST, made August 1, 1990, as PARNASSUS INCOME FUND,
and as restated effective March 30, 1998:
WHEREAS, the Trustees desire to establish a trust fund under the laws
of the Commonwealth of Massachusetts, for the investment and reinvestment of
funds contributed thereto;
NOW THEREFORE, the Trustees declare that all money and property
contributed to the trust fund hereunder shall be held and managed under this
Declaration of Trust IN TRUST as herein set forth below.
FIRST: This Trust shall be known as THE PARNASSUS INCOME TRUST.
SECOND: Whenever used herein, unless otherwise required by the context
or specifically provided:
1. All terms used in this Declaration of Trust which are defined in the
1940 Act shall have the meanings given to them in the 1940 Act.
2. The "Trust" refers to THE PARNASSUS INCOME TRUST.
3. "Shareholder" means a record owner of Shares of the Trust.
4. The "Trustees" refer to the individual trustees in their capacity as
trustees hereunder of the Trust and their successor or successors for the time
being in office as such trustees.
5. "Shares" means the equal proportionate units of interest into which
the beneficial interest of each Series or Class thereof shall be divided from
time to time and includes fractions of shares as well as whole shares (all of
the units of a Series or of a single Class may be referred to as "Shares" as the
context may require).
6. "Series" refers to series of Shares of the Trust established in
accordance with the provisions of Article FOURTH.
7. "Class" refers to the class of Shares of a Series of the Trust
established in accordance with the provisions of Article FOURTH.
8. The "1940 Act" refers to the Investment Company Act of 1940, as
amended from time to time.
9. "Commission" means the Securities and Exchange Commission.
10. "Board" or "Board of Trustees" means the Board of Trustees of the
Trust.
11. In this Declaration of Trust, the masculine embraces the feminine.
THIRD: The purpose or purposes for which the Trust is formed and the
business or objects to be transacted, carried on and promoted by it are as
follows:
1. To hold, invest and reinvest its funds, and in connection therewith
to hold part or all of its funds in cash, and to purchase or otherwise acquire,
hold for investment or otherwise, sell, sell short, assign, negotiate, transfer,
exchange or otherwise dispose of or turn to account or realize upon, securities
(which term "securities" shall for the purposes of this Declaration of Trust,
without limitation of the generality thereof, be deemed to include any stocks,
shares, bonds, debentures, notes, mortgages or other obligations, and any
certificates, receipts, warrants or other instruments representing rights to
receive, purchase or subscribe for the same, or evidencing or representing any
other rights or interests therein, or in any property or assets) created or
issued by any issuer (which term "issuer" shall for the purposes of this
Declaration of Trust, without limitation of the generality thereof be deemed to
include any persons, firms, associations, corporations, syndicates,
combinations, organizations, governments, or subdivisions thereof) or in any
other financial instruments whether or not considered as securities or
commodities; and to exercise, as owner or holder of any securities or other
financial instruments, all rights, powers and privileges in respect thereof; and
to do any and all acts and things for the preservation, protection, improvement
and enhancement in value of any or all such securities or other financial
instruments.
2. To borrow money and pledge assets in connection with any of the
objects or purposes of the Trust, and to issue notes or other obligations
evidencing such borrowings, to the extent permitted by the 1940 Act and by the
Trust's fundamental investment policies under the 1940 Act.
3. To issue and sell its Shares in such amounts and on such terms and
conditions, for such purposes and for such amount or kind of consideration
(including without limitation thereto, securities or other financial
instruments) now or hereafter permitted by the laws of the Commonwealth of
Massachusetts and by this Declaration of Trust, as the Trustees may determine.
4. To purchase or otherwise acquire, hold, dispose of, resell,
transfer, reissue or cancel (all without the vote or consent of the Shareholders
of the Trust) its Shares, in any manner and to the extent now or hereafter
permitted by the laws of Massachusetts and by this Declaration of Trust.
5. To conduct its business in all its branches at one or more offices
in Massachusetts and elsewhere in any part of the world, without restriction or
limit as to extent.
6. To carry out all or any of the foregoing objects and purposes as
principal or agent, and alone or with associates or, to the extent now or
hereafter permitted by the laws of Massachusetts, as a member of, or as the
owner or holder of any stock of, or share of interest in, any issuer, and in
connection therewith to make or enter into such deeds or contracts with any
issuers and to do such acts and things and to exercise such powers, as a natural
person could lawfully make, enter into, do or exercise.
7. To do any and all such further acts and things and to exercise any
and all such further powers as may be necessary, incidental, relative,
conducive, appropriate or desirable for the accomplishment, carrying out or
attainment of all or any of the foregoing purposes or objects.
The foregoing objects and purposes shall, except as otherwise expressly
provided, be in no way limited or restricted by reference to, or inference from,
the terms of any other clause of this or any other Articles of this Declaration
of Trust, and shall each be regarded as independent and construed as powers as
well as objects and purposes, and the enumeration of specific purposes, objects
and powers shall not be construed to limit or restrict in any manner the meaning
of general terms or the general powers of the Trust now or hereafter conferred
by the laws of the Commonwealth of Massachusetts nor shall the expression of one
thing be deemed to exclude another, though it be of like nature, not expressed;
provided, however, that the Trust shall not carry on any business, or exercise
any powers, in any state, territory, district or country except to the extent
that the same may lawfully be carried on or exercised under the laws thereof.
FOURTH: (a) The beneficial interest in the Trust shall be divided into
such transferable Shares, without par value, of one or more separate and
distinct Series or Classes thereof as the Trustees shall from time to time
create and establish. The number of Shares is unlimited and upon issuance in
accordance with the terms hereof shall be fully paid and nonassessable. The
Trustees shall have full power and authority, in their sole discretion and
without obtaining any prior authorization or vote of the Shareholders of the
Trust, to create and establish (and to change in any manner) Shares with such
preferences, terms of conversion, voting powers, rights and privileges as the
Trustees may from time to time determine, to divide or combine the Shares into a
greater or lesser number, to classify or reclassify any unissued Shares into one
or more Series or Classes of Shares, to abolish any one or more Series or
Classes of Shares, and to take such other action with respect to the Shares as
the Trustees may deem desirable. Contributions to the Trust may be accepted for,
and Shares shall be redeemed as, whole Shares or 1/1,000ths of a Share or
multiple thereof. The Trustees, in their discretion without a vote of the
Shareholders, may divide the Shares of any Series into Classes. In such event,
each Class of a Series shall represent interests in the assets of that Series
and have identical voting, dividend, liquidation and other rights and the same
terms and conditions, except that expenses allocated to a Class of a Series may
be borne solely by such Class as shall be determined by the Trustees and a Class
of a Series may have exclusive voting rights with respect to matters affecting
only that Class. Without limiting the authority of the Trustees set forth in
this Article FOURTH to establish and designate Series or Classes, the Trustees
have established and designated the Series of Shares and Classes, if any, listed
in Schedule A attached hereto and made a part hereof.
(b) The establishment of any Series or Class in addition to those set
forth in (a) above shall be effective upon the adoption of a resolution by a
majority of the then Trustees setting forth such establishment and designation
and the relative rights and preferences of the Shares of such Series or Class
thereof. At any time that there are no Shares outstanding of any particular
Series previously established and designated, the Trustees may by a majority
vote abolish that Series and the establishment and designation thereof. At any
time that there are no shares outstanding of any particular Class of a Series,
the Trustees may by a majority vote abolish that Class and the establishment and
designation thereof. The Trustees by a majority vote may change the name of any
Series or Class.
(c) All consideration received by the Trust for the issue or sale of
Shares of a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall be
referred to as "assets belonging to" that Series. In addition, any assets,
income, earnings, profits, and proceeds thereof, funds, or payments which are
not readily identifiable as belonging to any particular Series shall be
allocated by the Trustees between and among one or more of the Series in such
manner as they, in their sole discretion, deem fair and equitable. Each such
allocation shall be conclusive and binding upon the Shareholders of all Series
for all purposes, and shall be referred to as assets belonging to that Series.
The assets belonging to a particular Series shall be so recorded upon the books
of the Trust, and shall be held by the Trustees in Trust for the benefit of the
holders of Shares of that Series. The assets belonging to each particular Series
shall be charged with the liabilities of that Series and all expenses, costs,
charges and reserves attributable to that Series except that liabilities and
expenses allocated solely to a particular Class shall be borne by that Class.
Any general liabilities, expenses, costs, charges or reserves of the Trust or
Series which are not readily identifiable as belonging to any particular Series
or Class shall be allocated and charged by the Trustees between or among any one
or more of the Series or Classes in such manner as the Trustees in their sole
discretion deem fair and equitable. Each such allocation shall be conclusive and
binding upon the Shareholders of all Series or Classes for all purposes. Any
creditor of any Series may look only to the assets of that Series to satisfy
such creditor's debt. See Article EIGHTH, paragraph 1.
(d) The ownership of Shares shall be recorded in the books of the Trust
or a transfer agent. The Trustees may make such rules as they consider
appropriate for the transfer of Shares and similar matters. The record books of
the Trust or any transfer agent, as the case may be, shall be conclusive as to
who are the holders of Shares and as to the number of Shares held from time to
time by each.
(e) The Trustees shall accept investments in the Trust from such
persons and on such terms as they may from time to time authorize.
(f) Shareholders shall have no preemptive or other right to subscribe
to any additional Shares or other securities issued by the Trust or the
Trustees.
FIFTH: The following provisions are hereby adopted with respect to
voting Shares of the Trust and certain other rights:
1. The Shareholders shall have power to vote (i) for the election of
Trustees to the extent provided in the By-Laws, (ii) with respect to the
amendment of this Declaration of Trust as provided in Article EIGHTH, paragraph
12, (iii) to the same extent as the shareholders of a Massachusetts business
corporation, as to whether or not a court action, proceeding or claim should be
brought or maintained derivatively or as a class action on behalf of the Trust
or the Shareholders, and (iv) with respect to such additional matters relating
to the Trust as may be required by the 1940 Act or authorized by law, by this
Declaration of Trust, or the By-Laws of the Trust or any registration statement
of the Trust with the Commission or any State, or as the Trustees may consider
desirable. On any matter submitted to a vote of the Shareholders, all Shares
shall be voted by individual Series, except: (i) when required by the 1940 Act,
Shares shall be voted in the aggregate and not by individual Series; and (ii)
when the Trustees have determined that the matter affects only the interests of
one or more Classes, then only the Shareholders of such Class or Classes shall
be entitled to vote thereon.
2. At all meetings of Shareholders each Shareholder shall be entitled
to one vote for each Share standing in his name on the books of the Trust on the
date, fixed in accordance with the By-Laws, for determination of Shareholders
entitled to vote at such meeting except (if so determined by the Board of
Trustees) for Shares redeemed prior to the meeting. Any fractional Share shall
carry proportionately all the rights of a whole Share, including the right to
vote and the right to receive dividends. The presence in person or by proxy of
the holders of one-third of the Shares outstanding and entitled to vote thereat
shall constitute a quorum at any meeting of the Shareholders. If at any meeting
of the Shareholders there shall be less than a quorum present, the Shareholders
present at such meeting may, without further notice, adjourn the same from time
to time until a quorum shall attend, but no business shall be transacted at any
such adjourned meeting except such as might have been lawfully transacted had
the meeting not been adjourned.
3. Each Shareholder, upon request to the Trust in proper form
determined by the Trust, shall be entitled to require the Trust to redeem all or
any part of the Shares standing in the name of the Shareholder. The method of
computing such net asset value, the time at which such net asset value shall be
computed and the time within which the Trust shall make payment therefor, shall
be determined as hereinafter provided in Article SEVENTH of this Declaration of
Trust. Notwithstanding the foregoing, the Trustees, when permitted or required
to do so by the 1940 Act, may suspend the right of the Shareholders to require
the Trust to redeem Shares.
4. No Shareholder shall, as such holder, have any right to purchase or
subscribe for any security of the Trust which it may issue or sell, other than
such right, if any, as the Trustees, in their discretion, may determine.
5. Notwithstanding anything elsewhere contained in this Declaration of
Trust or in the By-Laws of the Trust, so long as the By-Laws of the Trust do not
provide for regular annual meetings of Shareholders of the Trust, the
Shareholders of the Trust shall have such rights, and the Trust, the Board of
Trustees, and the Trustees shall have such obligations as would exist if the
Trust were a common law trust covered by Section 16(c) of the 1940 Act. In the
event that the Trust has outstanding two or more Series, each such Series shall
be considered as if it were a separate common law trust covered by said Section
16(c). However, the Trust may at any time or from time to time apply to the
Commission for one or more exemptions from all or part of said Section 16(c)
and, if an exemptive order or orders are issued by the Commission, such order or
orders shall be deemed part of said Section 16(c) for the purposes of this
paragraph 5.
SIXTH: The person who shall act as initial Trustees are the persons
initially executing this Declaration of Trust or any counterpart thereof.
However, the By-Laws of the Trust may fix the number of Trustees at a
number greater than that of the number of initial Trustees and may authorize the
Trustees to increase or decrease the number of Trustees, to fill the vacancies
created by any such increase in the number of Trustees, to set and alter the
terms of office of the Trustees and to lengthen or lessen their own terms or
make their terms of indefinite duration, all subject to the 1940 Act. Unless
otherwise provided by the By-Laws of the Trust, the Trustees need not be
Shareholders.
SEVENTH: The following provisions are hereby adopted for the purpose of
defining, limiting and regulating the powers of the Trust and of the Trustees
and Shareholders.
1. As soon as any Trustee is duly elected by the Shareholders or the
Trustees and shall have accepted this trust, the Trust estate shall vest in the
new Trustee or Trustees, together with the continuing Trustees without any
further act or conveyance, and he shall be deemed a Trustee hereunder.
2. The death, declination, resignation, retirement, removal, or
incapacity of the Trustees, or any one of them, shall not operate to annul the
Trust or to revoke any existing agency created pursuant to the terms of this
Declaration of Trust.
3. The assets of the Trust shall be held separate and apart from any
assets now or hereafter held in any capacity other than as Trustee hereunder by
the Trustees or any successor Trustees. All of the assets of the Trust shall at
all times be considered as vested in the Trustees. Except as provided in this
Declaration of Trust, no Shareholder shall have, as such holder of beneficial
interest in the Trust, any authority, power or right whatsoever to transact
business for or on behalf of the Trust, or on behalf of the Trustees, in
connection with the property or assets of the Trust, or in any part thereon,
except the rights to receive the income and distributable amounts arising
therefrom as set forth herein.
4. The Trustees in all instances shall act as principals, and are and
shall be free from the control of the Shareholders. The Trustees shall have full
power and authority to do any and all acts and to make and execute any and all
contracts and instruments that they may consider necessary or appropriate in
connection with the management of the Trust. The Trustees shall not in any way
be bound or limited by present or future laws or customs in regard to Trust
investments, but shall have full authority and power to make any and all
investments which they, in their uncontrolled discretion, shall deem proper to
accomplish the purposes of this Trust. Subject to any applicable limitation in
this Declaration of Trust or in the By-Laws of the Trust, the Trustees shall
have power and authority:
(a) to adopt By-Laws not inconsistent with this Declaration of
Trust providing for the conduct of the business of the Trust and to amend and
repeal them to the extent that they do not reserve that right to the
Shareholders;
(b) to elect and remove such officers and appoint and
terminate such officers as they consider appropriate with or without cause;
(c) to employ a bank or trust company as custodian of any
assets of the Trust subject to any conditions set forth in this Declaration of
Trust or in the By-Laws;
(d) to retain a transfer agent and Shareholder servicing
agent, or both;
(e) to provide for the distribution of Shares either through a
principal underwriter or the Trust itself or both;
(f) to set record dates in the manner provided for in the
By-Laws of the Trust;
(g) to delegate such authority as they consider desirable to
any officers of the Trust and to any agent, custodian or underwriter;
(h) to vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or property held in Trust
hereunder; and to execute and deliver powers of attorney to such person or
persons as the Trustees shall deem proper, granting to such person or persons
such power and discretion with relation to securities or property as the
Trustees shall deem proper;
(i) to exercise powers and rights of subscription or otherwise
which in any manner arise out of ownership of securities held in trust
hereunder;
(j) to hold any security or property in a form not indicating
any trust, whether in bearer, unregistered or other negotiable form; or either
in its own name or in the name of a custodian or a nominee or nominees, subject
in either case to proper safeguards according to the usual practice of
Massachusetts business trusts or investment companies;
(k) to consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or concern, any
security of which is held in the Trust; to consent to any contract, lease,
mortgage, purchase or sale of property by such corporation or concern, and to
pay calls or subscriptions with respect to any security held in the Trust;
(l) to compromise, arbitrate, or otherwise adjust claims in
favor of or against the Trust or any matter in controversy including, but not
limited to, claims for taxes;
(m) to make, in the manner provided in the By-Laws,
distributions of income and of capital gains to Shareholders;
(n) to borrow money to the extent and in the manner permitted
by the 1940 Act and the Trust's fundamental policy thereunder as to borrowing;
and
(o) to enter into investment advisory or management contracts,
subject to the 1940 Act, with any one or more corporations, partnerships,
trusts, associations or other persons; if the other party or parties to any such
contract are authorized to enter into securities transactions on behalf of the
Trust, such transactions shall be deemed to have been authorized by all of the
Trustees.
5. No one dealing with the Trustees shall be under any obligation to
make any inquiry concerning the authority of the Trustees, or to see to the
application of any payments made or property transferred by the Trustees or upon
their order.
6. (a) The Trustees shall have no power to bind any Shareholder
personally or to call upon any Shareholder for the payment of any sum of money
or assessment whatsoever other than such as the Shareholder may at any time
personally agree to pay by way of subscription to any Shares or otherwise. Every
note, bond, contract or other undertaking issued by or on behalf of the Trust or
the Trustees relating to the Trust shall include a recitation limiting the
obligation represented thereby to the Trust and its assets (but the omission of
such a recitation shall not operate to bind any Shareholder).
(b) Except as otherwise provided in this Declaration of Trust
or the By-Laws, whenever this Declaration of Trust calls for or permits any
action to be taken by the Trustees hereunder, such action shall mean that taken
by the Board of Trustees by vote of the majority of a quorum of Trustees as set
forth from time to time in the By-Laws of the Trust or as required pursuant to
the provisions of the 1940 Act and the rules and regulations promulgated
thereunder.
(c) The Trustees shall possess and exercise any and all such
additional powers as are reasonably implied from the powers herein contained
such as may be necessary or convenient in the conduct of any business or
enterprise of the Trust, to do and perform anything necessary, suitable, or
proper for the accomplishment of any of the purposes, or the attainment of any
one or more of the objects, herein enumerated, or which shall at any time appear
conducive to or expedient for the protection or benefit of the Trust, and to do
and perform all other acts or things necessary or incidental to the purposes
herein before set forth, or that may be deemed necessary by the Trustees.
(d) The Trustees shall have the power to determine
conclusively whether any moneys, securities, or other properties of the Trust
property are, for the purposes of this Trust, to be considered as capital or
income and in what manner any expenses or disbursements are to be borne as
between capital and income whether or not in the absence of this provision such
moneys, securities, or other properties would be regarded as capital or income
and whether or not in the absence of this provision such expenses or
disbursements would ordinarily be charged to capital or to income.
7. The By-Laws of the Trust may divide the Trustees into classes and
prescribe the tenure of office of the several classes, but no class shall be
elected for a period shorter than that from the time of the election following
the division into classes until the next meeting of Shareholders.
8. The Shareholders shall have the right to inspect the records,
documents, accounts and books of the Trust, subject to reasonable regulations of
the Trustees, not contrary to Massachusetts law, as to whether and to what
extent, and at what times and places, and under what conditions and regulations,
such right shall be exercised.
9. Any Trustee, or any officer elected or appointed by the Trustees or
by any committee of the Trustees or by the Shareholders or otherwise, may be
removed at any time, with or without cause, in such lawful manner as may be
provided in the By-Laws of the Trust.
10. If the By-Laws so provide, the Trustees shall have power to hold
their meetings, to have an office or offices and, subject to the provisions of
the laws of Massachusetts, to keep the books of the Trust outside of said
Commonwealth at such places as may from time to time be designated by them.
11. Securities held by the Trust shall be voted in person or by proxy
by the President or a Vice-President, or such officer or officers of the Trust
as the Trustees shall designate for the purpose, or by a proxy or proxies
thereunto duly authorized by the Trustees, except as otherwise ordered by vote
of the holders of a majority of the Shares outstanding and entitled to vote in
respect thereto.
12. (a) Subject to the provisions of the 1940 Act, any Trustee, officer
or employee, individually, or any partnership of which any Trustee, officer or
employee may be a member, or any corporation or association of which any
Trustee, officer or employee may be an officer, director, trustee, employee or
stockholder, may be a party to, or may be pecuniarily or otherwise interested
in, any contract or transaction of the Trust, and in the absence of fraud no
contract or other transaction shall be thereby affected or invalidated; provided
that in case a Trustee, or a partnership, corporation or association of which a
Trustee is a member, officer, director, trustee, employee or stockholder is so
interested, such fact shall be disclosed or shall have been known to the
Trustees or a majority thereof; and any Trustee who is so interested, or who is
also a director, officer, trustee, employee or stockholder of such other
corporation or association or a member of such other corporation or association
or a member of such partnership which is so interested, may be counted in
determining the existence of a quorum at any meeting of the Trustees which shall
authorize any such contract or transaction, and may vote thereat to authorize
any such contract or transaction, with like force and effect as if he were not
such director, officer, trustee, employee or stockholder of such other trust or
corporation or association or a member of a partnership so interested.
(b) Specifically, but without limitation of the foregoing, the
Trust may enter into a management or investment advisory contract or
underwriting contract and other contracts with, and may otherwise do business
with any manager or investment adviser and/or any sub-adviser for the Trust
and/or principal underwriter of the Shares of the Trust or any subsidiary or
affiliate of any such manager or investment adviser and/or sub-adviser and/or
principal underwriter and may permit any such firm or corporation to enter into
any contracts or other arrangements with any other firm or corporation relating
to the Trust notwithstanding that the Board of the Trust may be composed in part
of partners, directors, officers or employees of any such firm or corporations,
and officers of the Trust may have been or may be or become partners, directors,
officers or employees of any such firm or corporation, and in the absence of
fraud the Trust and any such firm or corporation may deal freely with each
other, and no such contract or transaction between the Trust and any such firm
or corporation shall be invalidated or in any way affected thereby, nor shall
any Trustee or officer of the Trust be liable to the Trust or to any Shareholder
or creditor thereof or to any other person for any loss incurred by it or him
solely because of the existence of any such contract or transaction; provided
that nothing herein shall protect any Trustee or officer of the Trust against
any liability to the Trust or to its security holders to which he would
otherwise be subject by reason or willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
(c) (1) As used in this paragraph the following terms
shall have the meanings set forth below:
(i) the term "indemnitee" shall mean any present or
former Trustee, officer or employee of the Trust,
any present or former Trustee or officer of another
trust or corporation whose securities are or were
owned by the Trust or of which the Trust is or was
a creditor and who served or serves in such
capacity at the request of the Trust, any present
or former investment adviser, sub-adviser or
principal underwriter of the Trust and the heirs,
executors, administrators, successors and assigns
of any of the foregoing; however, whenever conduct
by an indemnitee is referred to, the conduct shall
be that of the original indemnitee rather than that
of the heir, executor, administrator, successor or
assignee;
(ii) the term "covered proceeding" shall mean any
threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative
or investigative, to which an indemnitee is or was
a party or is threatened to be made a party by
reason of the fact or facts under which he or it is
an indemnitee as defined above;
(iii) the term "disabling conduct" shall mean willful
misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the
conduct of the office in question;
(iv) the term "covered expense" shall mean expenses
(including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably
incurred by an indemnitee in connection with a
covered proceeding; and
(v) the term "adjudication of liability" shall mean, as
to any covered proceeding and as to any indemnitee,
an adverse determination as to the indemnitee
whether by judgment, order, settlement, conviction
or upon a plea of nolo contendere or its
equivalent.
(d) The Trust shall not indemnify any indemnitee for any
covered expenses in any covered proceeding if there has been an adjudication of
liability against such indemnitee expressly based on a finding of disabling
conduct.
(e) Except as set forth in (d) above, the Trust shall
indemnify any indemnitee for covered expenses in any covered proceeding, whether
or not there is an adjudication of liability, upon request of the indemnitee for
such indemnification.
(f) Covered expenses incurred by an indemnitee in connection
with a covered proceeding shall be advanced by the Trust to an indemnitee prior
to the final disposition of a covered proceeding upon the request of the
indemnitee and the undertaking by or on behalf of the indemnitee to repay the
advance if the indemnitee shall be adjudicated to not be entitled to
indemnification under this Article or otherwise under the 1940 Act.
(g) Nothing herein shall be deemed to affect the right of the
Trust and/or any indemnitee to acquire and pay for any insurance covering any or
all indemnitees to the extent permitted by the 1940 Act or to affect any other
indemnification rights to which any indemnitee may be entitled to the extent
permitted by the 1940 Act.
13. (a) The term "Net Asset Value" of any Series shall mean that amount
by which the assets of that series exceed its liabilities, all as determined by
or under the direction of the Trustees. Net Asset Value per Share shall be
determined separately for each Series of Shares and shall be determined on such
days and at such times as the Trustees may determine. Such determination may be
made on a Series-by-Series or Class-by-Class basis, as appropriate, and shall
include any expenses allocated to a specific Series or Class. The determination
shall be made with respect to securities for which market quotations are readily
available at the market value of such securities; and with respect to other
securities and assets, at the fair value as determined in good faith by the
Trustees, provided, however, that the Trustees, without Shareholder approval,
may alter the method of appraising portfolio securities insofar as permitted
under the 1940 Act and the rules, regulations and interpretations thereof
promulgated or issued by the Commission or insofar as permitted by any order of
the Commission applicable to the Series. The Trustees may delegate any of their
powers and duties under this paragraph 13 with respect to appraisal of assets
and liabilities. At any time the Trustees may cause the Net Asset Value per
Share last determined to be determined again in a similar manner and may fix the
time when such redetermined values shall become effective.
(b) Payment of the net asset value of Shares of the Trust
properly surrendered to it for redemption shall be made by the Trust within
seven days after tender of such Shares to the Trust for such purpose plus any
period of time during which the right of the holders of the shares of the Trust
to require the Trust to redeem such shares has been suspended. Any such payment
may be made in portfolio securities of the Trust and/or in cash, as the Trustees
shall deem advisable, and no Shareholder shall have a right, other than as
determined by the Trustees, to have his Shares redeemed in kind.
EIGHTH:
1. In case any Shareholder or former Shareholder shall be held to be
personally liable solely by reason of his being or having been a Shareholder and
not because of his acts or omissions or for some other reason, the Shareholder
or former Shareholder (or his heirs, executors, administrators or other legal
representatives or in the case of a corporation or other entity, its corporate
or other general successor) shall be entitled out of the Trust estate to be held
harmless from and indemnified against all loss and expense arising from such
liability. This Trust shall, upon request by the Shareholder, assume the defense
of any claim made against any Shareholder for any act or obligation of the Trust
and satisfy any judgment thereon.
2. It is hereby expressly declared that a trust and not a partnership
is created hereby. No Trustee hereunder shall have any power to bind personally
either the Trust's officers or any Shareholder. All persons extending credit to,
contracting with or having any claim against the Trust or the Trustees shall
look only to the assets of the Trust for payment under such credit, contract or
claim; and neither the Shareholders nor the Trustees, nor any of their agents,
whether past, present or future, shall be personally liable therefor. Nothing in
this Declaration of Trust shall protect a Trustee against any liability to which
such Trustee would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee hereunder.
3. The exercise by the Trustees of their powers and discretion
hereunder in good faith and with reasonable care under the circumstances then
prevailing, shall be binding upon everyone interested. Subject to the provisions
of paragraph 2 of this Article EIGHTH, the Trustees shall not be liable for
errors of judgment or mistakes of fact or law. The Trustees may take advice of
counsel or other experts with respect to the meaning and operation of this
Declaration of Trust, and the subject to the provisions of paragraph 2 of this
Article EIGHTH, shall be under no liability for any act or omission in
accordance with such advice or for failing to follow such advice. The Trustees
shall not be required to give any bond as such, nor any surety if a bond is
required.
4. This Trust shall continue without limitation of time but subject to
the provisions of sub-sections (a), (b) and (c) of this paragraph 4.
(a) The Trustees, with the favorable vote of the holders of more than
50% of the outstanding Shares entitled to vote may sell and convey the assets of
the Trust (which sale may be subject to the retention of assets for the payment
of liabilities and expenses) to another issuer for a consideration which may be
or include securities of such issuer. Upon making provision for the payment of
liabilities, by assumption by such issuer or otherwise, the Trustees shall
distribute the remaining proceeds ratably among the holders of the Shares of the
Trust then outstanding.
(b) The Trustees, with the favorable vote of the holders of more than
50% of the outstanding Shares entitled to vote, may at any time sell and convert
into money all the assets of the Trust. Upon making provision for the payment of
all outstanding obligations, taxes and other liabilities, accrued or contingent,
of the Trust, the Trustees shall distribute the remaining assets of the Trust
ratably among the holders of the outstanding Shares.
(c) Upon completion or the distribution of the remaining proceeds or
the remaining assets as provided in sub-sections (a) and (b), the Trust shall
terminate and the Trustees shall be discharged of any and all further
liabilities and duties hereunder and the right, title and interest of all
parties shall be canceled and discharged.
5. The original or a copy of this instrument and of each declaration of
trust supplemental hereto shall be kept at the office of the Trust where it may
be inspected by any Shareholder. A copy of this instrument and of each
Supplemental Declaration of Trust shall be filed with the Massachusetts
Secretary of State, as well as any other governmental office where such filing
may from time to time be required. Anyone dealing with the Trust may rely on a
certificate by an officer of the Trust as to whether or not any such
Supplemental Declarations of Trust have been made and as to any matters in
connection with the Trust hereunder, and with the same effect as if it were the
original, may rely on a copy certified by an officer of the Trust to be a copy
of this instrument or of any such Supplemental Declaration of Trust. In this
instrument or in any such Supplemental Declaration of Trust, references to this
instrument, and all expressions like "herein," "hereof" and "hereunder" shall be
deemed to refer to this instrument as amended or affected by any such
Supplemental Declaration of Trust. This instrument may be executed in any number
of counterparts, each of which shall be deemed an original.
6. The trust set forth in this instrument is created under and is to be
governed by and construed and administered according to the laws of the
Commonwealth of Massachusetts. The Trust shall be of the type commonly called a
Massachusetts business trust, and without limiting the provisions hereof, the
Trust may exercise all powers which are ordinarily exercised by such a trust.
7. The Board of Trustees is empowered to cause the redemption of the
Shares held in any account in the aggregate net asset value of such Shares
(taken at cost or value, as determined by the Board) has been reduced by a
Shareholder to $500 or less upon such notice to the Shareholders in question,
with such permission to increase the investment in question and upon such other
terms and conditions as may be fixed by the Board of Trustees in accordance with
the 1940 Act.
8. In the event that any person advances the organizational expenses of
the Trust, such advances shall become an obligation of the Trust subject to such
terms and conditions as may be fixed by, and on a date fixed by, or determined
in accordance with criteria fixed by the Board of Trustees, to be amortized over
a period or periods to be fixed by the Board.
9. Whenever any action is taken under this Declaration of Trust under
any authorization to take action which is permitted by the 1940 Act, such action
shall be deemed to have been properly taken if such action is in accordance with
the construction of the 1940 Act then in effect as expressed in "no action"
letters of the staff of the Commission or any release, rule, regulation or order
under the 1940 Act or any decision of a court of competent jurisdiction,
notwithstanding that any of the foregoing shall later be found to be invalid or
otherwise reversed or modified by any of the foregoing.
10. Any action which may be taken by the Board of Trustees under this
Declaration of Trust or its By-Laws may be taken by the description thereof in
the then effective prospectus or Statement of Additional Information relating to
the Shares under the Securities Act of 1933 or in any proxy statement of the
Trust rather than by formal resolution of the Board.
11. Whenever under this Declaration of Trust, the Board of Trustees is
permitted or required to place a value on assets of the Trust, such action may
be delegated by the Board, and/or determined in accordance with a formula
determined by the Board, to the extent permitted by the 1940 Act.
12. If authorized by the vote of the Trustees, the Trustees shall amend
or otherwise supplement this instrument, by making a Declaration of Trust
supplemental hereto, which thereafter shall form a part hereof; any such
Supplemental Declaration of Trust may be executed by and on behalf of the Trust
and the Trustees by any officer or officers of the Trust. A restated Declaration
of Trust, integrating into an single instrument all of the provisions of the
Declaration of Trust which are then in effect and operative, may be executed
from time to time by a majority of the Trustees. Notwithstanding the forgoing,
no amendment that would have a material adverse impact upon the rights of the
shareholders may be made without the favorable vote of the holders of more than
50% of the outstanding Shares entitled to vote, or by any larger vote which may
be required by applicable law in a particular case.
NINTH: The resident agent for the Trust in the Commonwealth of
Massachusetts shall be: The United States Corporation Company, P.O. Box 591,
Wilminton, DE 19899-0591.
<PAGE>
IN WITNESS WHEREOF, the undersigned, being all of the Trustees of the
Trust, have executed this Amended and Restated Declaration of Trust as of the
30th day of March 1998.
- ------------------------- -------------------------
Jerome L. Dodson David L. Gibson
- ------------------------- -------------------------
Gail L. Horvath Herbert A. Houston
- ------------------------- -------------------------
Cecilia C.M. Lee Leo T. McCarthy
- ------------------------- -------------------------
Donald E. O'Connor Howard M. Sharpiro
- -------------------------
Joan Shapiro
<PAGE>
EXHIBIT 2
THE PARNASSUS FUND and THE PARNASSUS INCOME TRUST
RESTATED BY-LAWS
As of March 27, 1998
ARTICLE I
SHAREHOLDERS
Section 1. Place of Meeting. All meetings of the Shareholders (which
term as used herein shall, together with all other terms defined in the
Declaration of Trust, have the same meaning as in the Declaration of Trust)
shall be held at the principal office of the Trust or at such other place as may
from time to time be designated by the Board of Trustees and stated in the
notice of meeting.
Section 2. Calling of Meetings. Meetings of the Shareholders for any
purpose or purposes (including the election of Trustees) may be called by the
Chairman of the Board of Trustees, if any, or by the President or by the Board
of Trustees and shall be called by the Secretary upon receipt of the request in
writing signed by Shareholders holding not less than one-third in amount of the
entire number of Shares issued and outstanding and entitled to vote thereat.
Such request shall state the purpose or purposes of the proposed meeting.
Section 3. Notice of Meetings. Not less than ten days' and not more
than ninety days' written or printed notice of every meeting of Shareholders,
stating the time and place thereof (and the general nature of the business
proposed to be transacted at any special or extraordinary meeting), shall be
given to each Shareholder entitled to vote thereat by leaving the same with him
or at his residence or usual place of business or by mailing it, postage prepaid
and addressed to him at his address as it appears upon the books of the Trust.
No notice of the time, place or purpose of any meeting of Shareholders
need be given to any Shareholder who attends in person or by proxy or to any
Shareholder who, in writing executed and filed with the records of the meeting,
either before or after the holding thereof, waives such notice.
Section 4. Record Dates. The Board of Trustees may fix, in advance, a
date, not exceeding ninety days and not less than ten days preceding the date of
any meeting of Shareholders, and not exceeding ninety days preceding any
dividend payment date or any date for the allotment of rights, as a record date
for the determination of the Shareholders entitled to receive such dividends or
rights, as the case may be; and only Shareholders of record on such date shall
be entitled to notice of and to vote at such meeting or to receive such
dividends or rights, as the case may be.
Section 5. Quorum, Adjournment of Meetings. The presence in person or
by proxy of the holders of record of one-third of the Shares of the stock of the
Trust issued and outstanding and entitled to vote thereat, shall constitute a
quorum at all meetings of the Shareholders. If at any meeting of the
Shareholders there shall be less than a quorum present, the Shareholders present
at such meeting may, without further notice, adjourn the same from time to time
until a quorum shall attend, but no business shall be transacted at any such
adjourned meeting except such as might have been lawfully transacted had the
meeting not been adjourned.
Section 6. Voting and Inspectors. At all meetings of Shareholders every
Shareholder of record entitled to vote thereat shall be entitled to vote at such
meeting either in person or by proxy appointed by instrument in writing
subscribed by such Shareholder or his duly authorized attorney-in-fact.
All elections of Trustees shall be had by a plurality of the votes cast
and all questions shall be decided by a majority of the votes cast, in each case
at a duly constituted meeting, except as otherwise provided in the Declaration
of Trust or in these By-Laws or by specific statutory provision superseding the
restrictions and limitations contained in the Declaration of Trust or in these
By-Laws.
At any election of Trustees, the Board of Trustees prior thereto may,
or, if they have not so acted, the Chairman of the meeting may, and upon the
request of the holders of ten per cent (1 0%) of the Shares entitled to vote at
such election shall, appoint two inspectors of election who shall first
subscribe an oath of affirmation to execute faithfully the duties of inspectors
at such election with strict impartiality and according to the best of their
ability, and shall after the election make a certificate of the result of the
vote taken. No candidate for the office of Trustee shall be appointed such
inspector.
The Chairman of the meeting may cause a vote by ballot to be taken upon
any election or matter, and such vote shall be taken upon the request of the
holders of ten per cent (10%) of the Shares entitled to vote on such election or
matter.
Section 7. Conduct of Shareholders' Meetings. The meetings of the
Shareholders shall be presided over by the Chairman of the Board of Trustees, if
any, or if he shall not be present, by the President, or if he shall not be
present, by a Vice-President, or if neither the Chairman of the Board of
Trustees, the President nor any Vice-President is present, by a chairman to be
elected at the meeting. The Secretary of the Trust, if present, shall act as
Secretary of such meetings, or if he is not present, an Assistant Secretary
shall so act; if neither the Secretary nor an Assistant Secretary is present,
then the meeting shall elect its secretary.
Section 8. Concerning Validity of Proxies, Ballots, Etc. At every
meeting of the Shareholders, all proxies shall be received and taken in charge
of and all ballots shall be received and canvassed by the secretary of the
meeting, who shall decide all questions touching the qualification of voters,
the validity of the proxies, and the acceptance or rejection of votes, unless
inspectors of election shall have been appointed as provided in Section 6, in
which event such inspectors of election shall decide all such questions.
ARTICLE II
BOARD OF TRUSTEES
Section 1. Number of Tenure of Office. The business and property of the
Trust shall be conducted and managed by a Board of Trustees consisting of nine
(9) persons, which number may be increased or decreased as provided in Section 2
of this Article. The Board of Trustees may sit and alter the terms of office of
the Trustees, may lengthen or lessen their own terms or make their terms of
indefinite duration, all subject to the 1940 Act. Trustees need not be
Shareholders. No one shall continue to serve as an independent Trustee after the
end of the calendar year in which that person achieves the age of seventy-five
(75).
Section 2. Increase or Decrease in Number of Trustees; Removal. The
Board of Trustees may increase the number of Trustees to a number not exceeding
fifteen, and may elect Trustees to fill the vacancies created by any such
increase in the number of Trustees; the Board of Trustees may likewise decrease
the number of Trustees to a number not less than three. Vacancies occurring
other than by reason of any such increase shall be filled as provided for a
Massachusetts business corporation. In the event that after proxy material has
been printed for a meeting of Shareholders at which Trustees are to be elected
any one or more management nominees dies or becomes incapacitated, the
authorized number of Trustees shall be automatically reduced by the number of
such nominees, unless the Board of Trustees prior to the meeting shall otherwise
determine. Any Trustee at any time may be removed either with or without cause
by resolution duly adopted by the affirmative votes of the holders of the
majority of the Shares of the Trust present in person or by proxy at any meeting
of Shareholders at which such vote may be taken, provided that a quorum is
present, or by such larger vote as may be required by Massachusetts law. Any
Trustee at any time may be removed for cause by resolution duly adopted at any
meeting of the Board of Trustees provided that notice thereof is contained in
the notice of such meeting and that such resolution is adopted by the vote of at
least two thirds of the Trustees whose removal is not proposed. As used herein,
"for cause" shall mean any cause which under Massachusetts law would permit the
removal of a Trustee of a business trust.
Section 3. Place of Meeting. The Trustees may hold their meetings, have
one or more offices, and keep the books of the Trust outside Massachusetts, at
any office or offices of the Trust or at any other place as they may from time
to time by resolution determine, or, in the case of meetings, as they may from
time to time by resolution determine or as shall be specified or fixed in the
respective notices or waivers of notice thereof.
Section 4. Regular Meetings. Regular meetings of the Board of Trustees
shall be held at such time and on such notice, if any, as the Trustees may from
time to time determine.
Section 5. Special Meetings. Special meetings of the Board of Trustees
may be held from time to time upon call of the Chairman of the Board of
Trustees, if any, the President or two or more of the Trustees, by oral or
telegraphic or written notice duly served on or sent or mailed to each Trustee
not less than one day before such meeting. No notice need be given to any
Trustee who attends in person or to any Trustee who, in writing executed and
filed with the records of the meeting either before or after the holding
thereof, waives such notice. Such notice or waiver of notice need not state the
purpose or purposes of such meeting.
Section 6. Quorum. One-third of the Trustees then in office shall
constitute a quorum for the transaction of business, provided that a quorum
shall in no case be less than two Trustees. If at any meeting of the Board there
shall be less than a quorum present (in person or by open telephone line, to the
extent permitted by the 1940 Act), a majority of those present may adjourn the
meeting from time to time until a quorum shall have been obtained. The act of
the majority of the Trustees present at any meeting at which there is a quorum
shall be the act of the Board, except as may be otherwise specifically provided
by statute, by the Declaration of Trust or by these By-Laws.
Section 7. Executive Committee. The Board of Trustees may, by the
affirmative vote of a majority of the entire Board, elect from the Trustees an
Executive Committee to consist of such number of Trustees as the Board may from
time to time determine. The Board of Trustees by such affirmative vote shall
have power at any time to change the members of such Committee and may fill
vacancies in the Committee by election from the Trustees. When the Board of
Trustees is not in session, the Executive Committee shall have and may exercise
any or all of the powers of the Board of Trustees in the management of the
business and affairs of the Trust (including the power to authorize the seal of
the Trust to be affixed to all papers which may require it) except as provided
by law and except the power to increase or decrease the size of, or fill
vacancies on the Board. The Executive Committee may fix its own rules of
procedure, and may meet, when and as provided by such rules or by resolution of
the Board of Trustees, but in every case the presence of a majority shall be
necessary to constitute a quorum. In the absence of any member of the Executive
Committee the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a member of the Board of Trustees to act in the
place of such absent member.
Section 8. Other Committees. The Board of Trustees, by the affirmative
vote of a majority of the entire Board, may appoint other committees which shall
in each case consist of such number of members and shall have and may exercise
such powers as the Board may determine in the resolution appointing them. A
majority of all members of any such committee may determine its action, and fix
the time and place of its meetings, unless the Board of Trustees shall otherwise
provide. The Board of Trustees shall have power at any time to change the
members and powers of any such committee, to fill vacancies, and to discharge
any such committee.
Section 9. Informal Action by and Telephone Meetings of Trustees and
Committees. Any action required or permitted to be taken at any meeting of the
Board of Trustees or any committee thereof may be taken without a meeting, if a
written consent to such action is signed by all members of the Board, or of such
committee, as the case may be. Trustees or members of a committee of the Board
of Trustees may participate in a meeting by means of a conference telephone or
similar communications equipment; such participation shall, except as otherwise
required by the 1940 Act, have the same effect as presence in person.
Section 10. Compensation of Trustees. Trustees shall be entitled to
receive such compensation from the Trust for their services as may from time to
time be voted by the Board of Trustees.
Section 11. Dividends. Dividends or distributions payable on the Shares
may, but need not be, declared by specific resolution of the Board as to each
dividend or distribution; in lieu of such specific resolutions, the Board may,
by general resolution, determine the method of computation thereof, the method
of determining the Shareholders to which they are payable and the methods of
determining whether and to which Shareholders they are to be paid in cash or in
additional Shares.
ARTICLE III
OFFICERS
Section 1. Executive Officers. The executive officers of the Trust
shall be chosen by the Board of Trustees. These may include a Chairman of the
Board of Trustees, and shall include a President, a Secretary and a Treasurer.
The Chairman of the Board of Trustees, if any, shall be selected from among the
Trustees. The Board of Trustees may also in its discretion appoint one or more
Vice-Presidents, Assistant Secretaries, Assistant Treasurers, (the number
thereof to be determined by the Board of Trustees) and other officers, agents
and employees, who shall have such authority and perform such duties as the
Board or the Executive Committee may determine. The Board of Trustees may fill
any vacancy which may occur in any office. Any two offices, except those of
President and Vice-President, may be held by the same person, but no officer
shall execute, acknowledge or verify any instrument in more than one capacity,
if such instrument is required by law or by these By-Laws to be executed,
acknowledged or verified by two or more officers.
Section 2. Term of Office. The term of office of all officers shall be
as fixed by the Board of Trustees; however, any officer may be removed from
office at any time with or without cause by the vote of a majority of the entire
Board of Trustees.
Section 3. Powers and Duties. The officers of the Trust shall have such
powers and duties as generally pertain to their respective offices, as well as
such posers and duties as may from time to time be conferred by the Board of
Trustees or the Executive Committee.
ARTICLE IV
INDEMNIFICATION
Section 1. Definitions. As used in this Article the following terms
shall have the meanings set forth below:
(a) The term "indemnitee" shall mean any present or former
Trustee, officer or employee of the Fund, any present or former Trustee or
officer of another trust or corporation whose securities are or were owned by
the Fund or of which the Fund is or was a creditor and who served or serves in
such capacity at the request of the Fund, any present or former investment
adviser, sub-adviser or principal underwriter of the Fund and the heirs,
executors, administrators, successors and assigns of any of the foregoing;
however, whenever conduct by an indemnitee is referred to, the conduct, shall be
that of the original indemnitee rather than that of the heir, executor,
administrator, successor or assignee.
(b) The term "covered proceeding" shall mean any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, to which an indemnitee is or was a party or is
threatened to be made a party by reason of the fact or facts under which he, she
or it is an indemnitee as defined above.
(c) The term "disabling conduct" shall mean willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office in question.
(d) The term "covered expenses" shall mean expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by an indemnitee in connection with a covered proceeding.
(e) The term "adjudication of liability" shall mean, as to any
covered proceeding and as to any indemnitee, an adverse determination as to the
indemnitee whether by judgment, order, settlement, conviction or upon a plea of
nolo contendere or its equivalent.
Section 2. Discretionary Advancement of Expenses. The Fund may advance
to an indemnitee, prior to the final disposition of a covered proceeding,
covered expenses incurred by the indemnitee in connection with the covered
proceeding if the Fund receives an undertaking by or on behalf of the indemnitee
to repay the advance in the event there is an adjudication of liability against
the indemnitee expressly based on a finding of disabling conduct. Such
undertaking may be accepted by the Fund at any time prior to such adjudication
and without reference to the financial ability of the indemnitee to make
repayment.
Section 3. Other Rights. Nothing herein shall be deemed to affect the
right of the Fund and/or any indemnitee to acquire and pay for any insurance
covering any or all indemnitees to the extent permitted by the 1940 Act or to
affect any other indemnification rights to which any indemnitee may be entitled
to the extent permitted by the 1940 Act.
ARTICLE V
SHARES
Section 1. Certificates of Shares. Each Shareholder of the Trust may be
issued a certificate or certificates for his Shares in such form as the Board of
Trustees may from time to time prescribe, but only if and to the extent and on
the conditions prescribed by the Board.
Section 2. Transfer of Shares. Shares shall be transferable on the
books of the Trust by the holder thereof in person or by his duly authorized
attorney or legal representative, upon surrender and cancellation of
certificates, if any, for the same number of Shares, duly endorsed or
accompanied by proper instruments of assignment and transfer, with such proof of
the authenticity of the signature as the Trust or its agent may reasonably
require; in the case of shares not represented by certificates, the same or
similar requirements may be imposed by the Board of Trustees.
Section 3. Stock Ledgers. The stock ledgers of the Trust, containing
the name and address of the Shareholders and the number of shares held by them
respectively, shall be kept at the principal offices of the Trust or, if the
Trust employs a transfer agent, at the offices of the transfer agent of the
Trust.
Section 4. Lost, Stolen or Destroyed Certificates. The Board of
Trustees may determine the conditions upon which a new certificate may be issued
in place of a certificate which is alleged to have been lost, stolen or
destroyed; and may, in their discretion, require the owner of such certificate
or his legal representative to give bond, with sufficient surety to the Trust
and the transfer agent, if any, to indemnify it and such transfer agent against
any and all loss or claims which may arise by reason of the issue of a new
certificate in the place of the one so lost, stolen or destroyed.
ARTICLE VI
SEAL
The Board of Trustees shall provide a suitable seal of the Trust, in
such form and bearing such inscriptions as it may determine.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall be fixed by the Board of Trustees.
ARTICLE VIII
AMENDMENT OF BY-LAWS
The By-Laws of the Trust may be altered, amended, added to or repealed
by the Shareholders or by majority vote of the entire Board of Trustees, but any
such alteration, amendment, addition or repeal of the By-Laws by action of the
Board of Trustees may be altered or repealed by the Shareholders.
<PAGE>
EXHIBIT 5
THE PARNASSUS INCOME TRUST
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 27th day of March, 1998, by and between THE
PARNASSUS INCOME TRUST (the "Trust"), a Massachusetts business trust, and
PARNASSUS INVESTMENTS (the "Adviser").
W I T N E SS E T H :
In consideration of the mutual promises and agreements herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, it is hereby agreed by and between the parties hereto as follows:
1. In General
The Adviser agrees, all as more fully set forth herein, to act as
managerial investment adviser to the Trust with respect to the
investment of its assets and to supervise and arrange the purchase and
sale of securities held in the portfolio of the Trust and generally
administer the affairs of the Trust.
2. Duties and Obligation of the Adviser with respect to Management of the
Trust
(a) Subject to the succeeding provisions of this section and
subject to the direction and control of the Board of Trustees
of the Trust, the Adviser shall:
(i) Decide what securities shall be purchased or sold by the
Trust and when; and
(ii)Arrange for the purchase and the sale of securities held
in the portfolio of the Trust by placing purchase and sale
orders for the Trust.
(b) Any investment purchases or sales made by the Adviser shall at
all times conform to, and be in accordance with, any
requirements imposed by: (1) the provisions of the Investment
Company Act of 1940 (the "Act") and of any rules or
regulations in force thereunder; (2) any other applicable
provisions of law; (3) the provisions of the Declaration of
Trust and By-Laws of the Trust as amended from time to time;
(5) any policies and fundamental policies of the Trust, as
reflected in its registration statement under the Act, or as
amended by the shareholders of the Trust.
(c) The Adviser shall also administer the affairs of the Trust
and, in connection therewith, shall be responsible for (i)
maintaining the Trust's books and records (other than
financial or accounting books and records or those being
maintained by the Trust's custodian, transfer agent or
accounting services agent); (ii) overseeing the Trust's
insurance relationships;
The Adviser shall give the Trust the benefit of its best
judgement and effort in rendering services thereunder, but the
Adviser shall not be liable for any loss sustained by reason
of the purchase, sale or retention of any security, whether or
not such purchase, sale or retention shall have been based
upon its own investigation and research or upon investigation
and research made by any other individual, firm or
corporation, if such purchase, sale or retention shall have
been made and such other individual, firm or corporation shall
have been selected in good faith. Nothing contained therein
shall, however, be construed to protect the Adviser against
any liability to the Trust or its security holders by reason
of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless
disregard of its obligations and duties under this Agreement.
The Trust agrees that the word "Parnassus" in its name is
derived from the name of the Adviser and is the property of
the Adviser for copyright and all other purposes and that,
therefore, such word may be freely used by the Adviser as to
other investment companies or other investment products. The
Trust further agrees that, in the event that the Adviser
ceases to be the Trust's investment adviser for any reason,
the Trust will (unless the Adviser otherwise consents in
writing) promptly take all necessary steps to change its name
to a name not including the word "Parnassus".
It is agreed that the Adviser shall have no responsibility
or liability for the accuracy or completeness of the Trust's
Registration Statement under the 1940 Act or the Securities
Act of 1933 except for information supplied by the Adviser for
inclusion therein. The Trust agrees to indemnify the Adviser
to the full extent permitted by the Trust's Declaration of
Trust.
3. Broker-Dealer Relationships
In connection with its duties set forth in Section 2(a)(ii) of
this Agreement to arrange for the purchase and the sale of securities
held in the portfolio of the Trust by placing purchase and sale orders
for the Trust, the Adviser shall select such broker-dealers ("brokers")
as shall, in the Adviser's judgment, implement the policy of the Trust
to achieve "best execution", i.e. prompt and efficient execution at the
most favorable securities price. In making such selection, the Adviser
is authorized to consider the reliability, integrity and financial
condition of the broker.
The Adviser is also authorized to consider whether the broker
provides brokerage and/or research services to the Trust and/or other
accounts of the Adviser. The commissions paid to such brokers may be
higher than another broker would have charged if a good faith
determination is made by the Adviser that the commission is reasonable
in relation to the services provided, viewed in terms of either that
particular transaction or the Adviser's overall discretion. The Adviser
shall use its judgment in determining that the amount of commissions
paid are reasonable in relation to the value of brokerage and research
services provided and need not place or attempt to place a specific
dollar value on such services or on the portion of commission rates
reflecting such services. To demonstrate that such determinations were
in good faith and to show the overall reasonableness of commissions
paid, the Adviser shall be prepared to show that commissions paid (i)
were for purposes contemplated by this Agreement; (ii) were not
allocated or paid for products or services which were readily and
customarily available and offered to the public on a commercial basis;
and (iii) were within a reasonable range as compared to the rates
charged by qualified brokers to other institutional investors as such
rates may become known from available information. The Trust recognizes
that, on any particular transaction, a higher than usual commission may
be paid due to the difficulty of the transaction in question. The
Adviser is also authorized to consider sales of shares as a factor in
the selection of brokers to execute brokerage and principal
transactions, subject to the requirements of "best execution" as
defined above.
4. Allocation of Expenses
The Adviser agrees that it will furnish the Trust, at the
Adviser's expense, with all office space and facilities, and equipment
and clerical personnel necessary for carrying out its duties under this
Agreement. The Adviser will also pay all compensation of all Trustees,
officers and employees of the Trust who are affiliated persons of the
Adviser. All costs and expenses not expressly assumed by the Adviser
under this Agreement shall be paid by the Trust, including, but not
limited to (i) interest and taxes; (ii) brokerage commissions; (iii)
insurance premiums; (iv) compensation and expenses of its Trustees
other than those affiliated with the Adviser; (v) legal and audit
expenses; (vi) fees and expenses of the Trust's custodian, shareholder
servicing or transfer agent and accounting services agent; (vii)
expenses incident to the issuance of its shares, including stock
certificates and issuance of shares on the payment of, or reinvestment
of, dividends; (viii) fees and expenses incident to the registration
under Federal or state securities laws of the Trust or its shares; (ix)
expenses of preparing, printing and mailing reports and notices and
proxy material to shareholders of the Trust; (x) all other expenses
incidental to holding meetings of the Trust's shareholders; (xi) dues
or assessments of or contributions to the Investment Company Institute
and the Social Investment Forum or any successor; and (xii) such
non-recurring expenses as may arise, including litigation affecting the
Trust and the legal obligations which the Trust may have to indemnify
its officers and Trustees with respect thereto.
5. Compensation of the Adviser
(a) The Trust agrees to pay the Adviser and the Adviser agrees to
accept as full compensation for all services rendered by the
Adviser hereunder, an annual management fee payable monthly
and computed at the following annual percentages of each
Fund's average daily net assets: the Equity Income Fund, 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
Fund and the California Tax-Exempt Fund, 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.
(b) In the event the expenses of the Trust (including the fees of
the Adviser and amortization of organization expenses but
excluding interest, taxes, brokerage commissions,
extraordinary expenses and sales charges and distribution
fees) for any fiscal year exceed the limits set by applicable
regulations of state securities commissions, the Adviser will
reduce its fee by the amount of such excess. Any such
reductions are subject to readjustment during the year. The
payment of the management fee at the end of any month will be
reduced or postponed or, if necessary, a refund will be made
to the Trust so that at no time will there be any accrued but
unpaid liability under this expense limitation.
6. Duration and Termination
(a) This Agreement shall go into effect on the date set forth
above and shall, unless terminated as hereinafter provided,
continue in effect until December 31, 1998, and thereafter
from year to year, but only so long as such continuance is
specifically approved at least annually by the Trust's Board
of Trustees, including the vote of a majority of the Trustees
who are not parties to this Agreement or "interested persons"
(as defined in the Act) of any such party cast in person at a
meeting called for the purpose of voting on such approval, or
by the vote of the holders of a "majority" (as so defined) of
the outstanding voting securities of the Trust and by such a
vote of the Trustees.
(b) This Agreement may be terminated by the Adviser at any time
without penalty upon giving the Trust sixty (60) days' written
notice (which notice may be waived by the Trust) and may be
terminated by the Trust at any time without penalty upon
giving the Adviser sixty (60) days' written notice (which
notice may be waived by the Adviser), provided that such
termination by the Trust shall be directed or approved by the
vote of a majority of all its Trustees in office at the time
or by the vote of the holders of a majority (as defined in the
Act) of the voting securities of the Trust at the time
outstanding and entitled to vote. This Agreement shall
automatically terminate in the event of its assignment (as so
defined).
IN WITNESS WHEREOF, the parties hereto have caused the foregoing
instrument to be executed by duly authorized persons and their seals to be
hereunto affixed, all as of the day and year first above written.
THE PARNASSUS INCOME TRUST
Date: March 27, 1998 By___________________________
Richard Silberman, Secretary
PARNASSUS INVESTMENTS
Date: March 27, 1998 By___________________________
Jerome L. Dodson, President
<PAGE>
EXHIBIT 11
Deloitte & Touche LLP
50 Fremont Street
San Francisco, CA 94105-2230
Telephone: (415) 247-4000
Facsimile: (415) 247-4329
INDEPENDENT AUDITORS' CONSENT
The Parnassus Income Trust:
We consent to (a) the incorporation by reference in this Post-Effective
Amendment No. 8 to Registration Statement No. 33-36065 of the Parnassus Income
Trust (formerly The Parnassus Income Fund) on Form N-1A of our report dated
January 16, 1998 appearing in the Trust's 1997 Annual Report to Shareholders
incorporated by reference in the Statement of Additional Information, which is
part of such Registration Statement, (b) the reference to us under the heading
"Financial Highlights" in the Prospectus, which is a part of such Registration
Statement, and (c) the reference to us under the heading "General Information"
in such Prospectus.
Deloitte & Touche LLP
March 27, 1998
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EXHIBIT 14
INDIVIDUAL RETIREMENT ACCOUNT FORM & ROTH IRA
PENDING
<PAGE>
EXHIBIT 16
Calculation of Parnassus Income Trust Total Return
-------------------------------------------------
SEC regulations provide for calculating the one, five and ten year average
annual total return figures for the Fund. Since the total operating history of
the Parnassus Income Trust is five years and four months, we substitute
life-of-the-fund average annual total return for the ten year period. The Trust
calculates its average annual total return quotations for the periods ended on
the date of the most recent balance sheet included in the registration statement
by finding the average annual compounded rates of return that would equate the
initial amount invested to the ending redeemable value according to the
following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the periods (or
fractional portion thereof);
These calculations incorporate the following assumptions:
1. The maximum sales load (or other charges deducted from payments) is deducted
from the initial $1,000 payment.
2. All dividends and distributions by the Trust are reinvested at the price
stated in the prospectus on the reinvestment dates during the period, i.e., any
sales load charged upon reinvestment of dividends would be reflected.
3. All recurring fees, if any, charged to all shareholder accounts are included.
4. The ending redeemable value assumes a complete redemption at the end of the
year periods and the deduction of all nonrecurring charges deducted at the end
of each period.
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BALANCED FUND
-------------
One Year SEC Total Return Calculation:
- --------------------------------------
Starting NAV: $18.56
Ending NAV: $20.68
Assuming reinvestment of all dividends
On 12/31/97, $1,000.00 invested on 12/31/96 would be worth: $1,201.50
Average Annual Total Return: 20.15%
Five Year SEC Total Return Calculation:
- ---------------------------------------
Starting NAV: $16.17
Ending NAV: $20.68
Assuming reinvestment of all dividends
On 12/31/97, $1,000 invested on 12/31/92 would be worth: $1,850.30
Average Annual Total Return: 13.10%
Life of the Fund SEC Total Return Calculation:
- ----------------------------------------------
Starting NAV: $15.03
Ending NAV: $20.68
Assuming reinvestment of all dividends
On 12/31/97, $1,000 invested on 9/1/92 would be worth: $2,009.00
Average Annual Total Return: 13.97%
FIXED INCOME FUND
-----------------
One Year SEC Total Return Calculation:
- --------------------------------------
Starting NAV: $15.43
Ending NAV: $16.04
Assuming reinvestment of all dividends
On 12/31/97, $1,000.00 invested on 12/31/96 would be worth: $1,106.00
Average Annual Total Return: 10.60%
Five Year SEC Total Return Calculation:
- ---------------------------------------
Starting NAV: $15.33
Ending NAV: $16.04
Assuming reinvestment of all dividends
On 12/31/97, $1,000 invested on 12/31/92 would be worth: $1,443.20
Average Annual Total Return: 7.61%
Life of the Fund SEC Total Return Calculation:
- ----------------------------------------------
Starting NAV: $15.21
Ending NAV: $16.04
Assuming reinvestment of all dividends
On 12/31/97, $1,000 invested on 9/1/92 would be worth: $1,484.50
Average Annual Total Return: 7.69%
CALIFORNIA TAX-EXEMPT FUND
--------------------------
One Year SEC Total Return Calculation:
- --------------------------------------
Starting NAV: $16.02
Ending NAV: $16.72
Assuming reinvestment of all dividends
On 12/31/97, $1,000.00 invested on 12/31/96 would be worth: $1,093.30
Average Annual Total Return: 9.33%
Five Year SEC Total Return Calculation:
- ---------------------------------------
Starting NAV: $15.06
Ending NAV: $16.72
Assuming reinvestment of all dividends
On 12/31/97, $1,000 invested on 12/31/92 would be worth: $1,437.90
Average Annual Total Return: 7.53%
Life of the Trust SEC Total Return Calculation:
- -----------------------------------------------
Starting NAV: $14.99
Ending NAV: $16.72
Assuming reinvestment of all dividends
On 12/31/97, $1,000 invested on 9/1/92 would be worth: $1,462.40
Average Annual Total Return: 7.39%
