May 10, 1996
Dear Shareholder:
As of March 31, 1996, the net asset value (NAV) of the Parnassus Fund was
$30.69 so the overall return for the quarter was a loss of 3.40%. This compares
to a gain of 5.37% for both the S&P 500 and the average growth fund according to
Lipper Analytical Services. For the first quarter, then, we substantially
underperformed the major indices.
Below is a chart summarizing our one, five and ten-year returns for the
periods ending March 31, 1996. The overall return figures give investment
performance only while the total return figures are reduced by the amount of the
maximum sales charge.
- - --------------------------------------------------------------------------------
Average Annual Average Annual
Total Return Overall Return
- - --------------------------------------------------------------------------------
One Year (11.24%) (8.02%)
Five Years 13.96% 14.77%
Ten Years 9.74% 10.14%
Since Inception on 12/31/84 11.26% 11.61%
- - --------------------------------------------------------------------------------
What Caused The Decline?
Technology stocks were the main force driving down our performance during the
first quarter. Computer-related stocks have declined sharply over the past six
months and we have used this sell-off as an opportunity to increase the
percentage of our portfolio dedicated to technology. We see the current downturn
as a response to excess inventories of personal computers created by over
production last year. Once this inventory glut is gone, technology stocks should
start climbing again and the Fund should do better. In the meantime, though,
that sector has hurt our performance.
Apple Computer dropped 22.9% during the quarter as its stock went from $31.88
to $24.56. As a major shareholder in Apple, the Parnassus Fund had been among
the most vocal investors calling for the ouster of Michael Spindler, the former
President. My first public comments pointing out that Mr. Spindler was the main
problem at Apple appeared in a Barron's article by Eric Savitz and in Herb
Greenberg's Business Insider column in the San Francisco Chronicle. After that,
I was besieged by calls from the media including the Wall Street Journal, USA
Today, Business Week, MacWeek, Bloomberg Business News, CNBC and a host of
others. The media thrive on controversy and a disgruntled shareholder makes a
great story. Interestingly enough, I received a number of calls from Apple
employees who said that my comments in the Greenberg column were quite accurate.
In fact, one employee posted the Greenberg column on Apple's electronic mail
system. As the column circulated through the company, other employees added
their comments such as "Yes!", "That's true!" and "Right on!" I'm enclosing a
copy of the Greenberg column along with this quarterly report.
Apple has some great employees and some wonderful products. There are also 56
million Apple users in the world and the Macintosh has a cult-like following.
The company has a leading position in some important markets such as education,
multimedia and graphic design. According to a recent J.D. Power consumer survey,
Apple leads the industry in overall customer satisfaction for desktop personal
computers including top rankings for vendor reputation, upgradability,
connectivity, set-up, documentation and display. Clearly, this is a company with
some very important assets.
Unfortunately, the former president mismanaged those assets. Inventory and
production planning have been terrible. For example, late last year Apple made
far too many low-end Power Macs and not enough high-end machines. So while there
was a glut of low-priced machines on the market, there were actually shortages
of the higher-priced machines.
Since the high-end machines carry a much bigger margin than the low-end
machines, this phenomenon struck me as being a remarkable attempt at financial
suicide.
Another major problem was cost control. Although Apple has some great
employees, there are way too many of them. Spindler hired far too many people
with no thought given to productivity.
A third major mistake was neglecting relations with software developers.
Because Apple has somewhat less than 10% of the personal computer market,
developers concentrated on the Intel/Windows world since most PCs have that kind
of operating system. Given this situation, it was important for Apple to
maintain excellent relations with software developers and encourage them to
write for the Macintosh operating system. Unfortunately, this did not happen and
it is one important factor in limiting the number of good programs written for
the Mac.
I could go on and on about the company's mistakes, but the foregoing will
give you a flavor for the kind of management errors that were committed. Even
with all this, I still feel that there is a lot more value in the company than
the current stock price indicates. For that reason, we're holding on to our
stake in Apple. We're optimistic that the new chief executive officer, Dr.
Gilbert Amelio, will improve matters and that we'll see a better return on our
investment in the company.
<PAGE>
Another technology stock contributing to our poor quarterly performance was
Mentor Graphics which declined 21.9% going from $18.25 to $14.25 a share. The
Portland, Oregon-based company had slow order growth in the fourth quarter of
1995 and investors sold off the stock. We think order growth will improve and
its stock price should rebound sharply this year. Mentor is a leader in the
field of electronic design automation and the company's operations are sound.
Sequent Computer, another Portland-based company, saw its stock drop 19.8%
during the quarter because of depressed earnings. Its shares went from $14.50 to
$11.63. We're hopeful that we'll see some big gains in Sequent this year because
of new developments at the company. They've made improvements in the sales force
and they've introduced a new operating system for large computers called NUMA-Q.
By the end of the year, earnings should climb substantially.
Genus dropped 16.7% during the quarter as its stock went from $7.50 to $6.25.
The selloff was due to declining prices for semiconductors and since Genus makes
equipment for manufacturing semiconductors, Wall Street shunned the stock. We
think there's a lot of value in the company and the stock is mispriced.
Finally, Tandem Computers dropped 15.3% as its stock went from $10.63 to
$9.00. Tandem has been unable to achieve any consistency in earnings.
Three non-technology stocks also contributed to our disappointing returns.
Sunrise Medical, the company involved in the accounting fraud we discussed in
the annual report, dropped 24.3% as its stock went from $18.50 to $14.00 per
share. Overstated earnings had masked operating difficulties in the BioClinic
division. As these weaknesses became apparent, investors sold off the stock.
We're now doing a thorough review of the company and we'll make a decision on
the stock at a later date.
TJ International declined 14.9% as its stock went from $18.50 to $15.75. It's
been a difficult market for the company's building products, but we expect some
improvement in its fortunes later this year.
H.B. Fuller, the Minnesota-based maker of industrial adhesives, saw its stock
decline 14.4% as it went from $34.75 to $29.75. Weak European sales contributed
to disappointing earnings. Fuller's fortunes should improve by the end of the
year as the company cuts costs and demand for its products pick up.
Seven Winners
Five companies in the portfolio gained more than 20% during the quarter and
two more rose more than 10%.
Sullivan Dental Products saw its stock increase by 29% as it climbed from
$9.50 to $12.25 a share. The company is now beginning to realize some of its
strong earnings potential and the market is recognizing that this is an
undervalued stock.
Ethan Allen, the manufacturer and retailer of home furniture, had a gain of
28.8% as its stock went from $20.38 to $26.25. Remodeled stores and improved
management contributed to the company's good fortune along with better designed
products. Southwest Airlines increased 28.8% when its stock went from $23.00 to
$29.63. Low costs and efficient management helped the stock to rise.
Toys `R' Us increased 25.3% as its shares climbed from $21.75 to $27.25. The
company is responding to competition from the discount stores and having some
success. We discussed the company at length in a previous report.
Liz Claiborne continues its strong performance. The stock went up 24.6%
during the quarter, going from $27.50 to $34.25. The Fund invested in Liz
Claiborne a couple of years ago at an average cost of $18.47 and since that
time, it's increased over 85%. When we made our initial investment, the
company's stock price was depressed because of earnings difficulties. Costs were
too high and clothing designs had become pedestrian during the previous two
years. We saw a glimmer of hope as management committed itself to better cost
control and improved design in clothes that would be more appealing to women.
The company has been able to execute the plan and the stock has increased
substantially in price.
We're still holding onto our shares since we think there's more upside
potential.
Advanced Technology Laboratories, the maker of ultrasound equipment, saw its
stock increase 10.2% during the quarter on increased demand for its products.
The shares went from $24.50 to $27.00. The Limited increased its share price by
10.1% during the quarter as it went from $17.25 to $19.00. As the retail
environment improves, so do the company's prospects.
A Change In Strategy
I have not been happy with the Fund's performance over the past year. This
period of poor performance has touched off a lot of soul-searching and a series
of reviews of our investment strategy. While I have concluded that our essential
investment principles are still sound, I think we can certainly improve upon our
execution.
Much of the past year's underperformance, though, was caused by stock market
disasters that could not be foreseen. Examples include the accounting fraud at
Sunrise Medical and the failure of AMD to bring out a fifth generation
microprocessor according to the announced schedule. Similar disasters may happen
again in the future and there will be nothing we can do to keep from being
blindsided. We can only hope that they won't happen very often in the future and
when they do happen, we can only hope that our position in the stock will not be
as large as the ones we held last year. We can also hope that we won't have as
many of them in any one year as we did in 1995.
<PAGE>
There are, however, two very important changes we can make. First, we can do
a better job of identifying the factors that will cause an undervalued company
to increase in price. We have always done a good job of identifying companies
that are undervalued. The problem is that some companies stay undervalued for a
very long time. That is one of the things that happened to us last year.
Instead of just investing in companies that are undervalued, we need to make
sure that there is a catalyst or a change coming that will touch off a
revaluation. There has to be something in the wind that will improve earnings in
the not-too- distant future.
This catalyst for improved earnings can be a number of things: tighter cost
control, improved design or quality of products, increasing sales, better
general management or a change in the economy such as a stronger retail
environment. Looking back on the Fund's investment history, I can see that in
all of our successful investments, we identified a catalyst or some agent of
change ahead of time.
Let's look at some of the companies that were this quarter's winners. In the
case of Liz Claiborne, we identified better designed clothes, improved cost
control and superior inventory management.
In the case of Ethan Allen, the factors were better furniture design and
attractive remodeling of stores. For Sullivan Dental Products, it was a strategy
already in place to market quality products at lower cost than competitors. The
strategy only needed an improved sales force and enough time to work itself out.
For Toys `R' Us, the factors were better inventory control, sharper
competitive pricing and a long-term strategy to provide more service and more
interesting stores. Finally, for Advanced Technology Laboratories, the factor
was a better product that had more uses.
Of course, one could identify some strategy or some factor for almost all
companies. The trick is to determine which ones are for real and which ones will
be achieved in a reasonable length of time. Although we consider ourselves
long-term investors, John Maynard Keynes once said, "In the long run, we'll all
be dead."
For Parnassus purposes, we've decided to use 12 months as our time horizon.
In other words, if we don't see a change coming to an undervalued company in a
year, we'll defer investing. Of course, the change we anticipate may not
actually happen in 12 months. It may take longer, but if we set a timetable of a
year and nothing happens, we go back and take another look. If a rebound still
seems imminent, we can wait. If it seems as if nothing is going to happen for a
while, we'll sell the stock.
We've already started to implement this policy. In February, we went through
the entire portfolio and asked of each company, "Will something happen within
the next 12 months to improve earnings?" If we couldn't give a positive answer,
we sold the stock.
During the quarter, we've sold our positions in six companies. Two of the
sales occurred because the stocks were fully valued. We sold the Student Loan
Marketing Association at an average price of $73.61 compared to our cost of
$38.09 for a gain of 93.3% over two-and-a-half years. Similarly, we sold Longs
Drugs at an average price of $44.74 compared to our cost of $33.61 for a gain of
33.1% over three years. Four of the sales, though, were because we felt that
there was not much that would happen over the next year. We are also in the
process of selling off four more positions in the current quarter.
The second thing I think we can do to improve performance is have a better
"sell" discipline with companies that have already appreciated. The best way of
explaining this is to print a letter from a veteran shareholder, Mr. Kelvin
Smith of Stamford, Connecticut.
Dear Mr. Dodson:
I always look forward to reading your shareholder reports, so when the
Parnassus Fund annual report came, I immediately headed for my favorite reading
chair to peruse the contents. (Presumably you wrote it on February 5, 1996, not
1995; I know how hard it is to get used to the new year!)
I appreciate your willingness to look carefully at the causes of both the
successes and failures of each year (and each quarter). I feel that it helps me
to understand investing better, both in Parnassus and elsewhere. Thank you for
the effort you put into making your reports informative and readable.
One question occurred to me while reviewing the report which probably
wouldn't have come up at all reading a more typical, less informative report. I
read your description of the erratic ride of Genus and a light clicked on in the
back of my head. A few years back, you said that you were planning to take
profits more readily in stocks that had seen significant price appreciation as
part of an effort to reduce volatility. I went searching through my archives and
actually found this in the August 14, 1992 report (thereby proving that I'm a
pack rat). If Genus went from $3 to $17 when its quarterly earnings were in the
10 cent range (meaning a P/E of 40+), it seems to me it would have been a prime
candidate for profit taking. You didn't necessarily have to sell the entire
position if you felt it was poised for more growth, but you could have taken
<PAGE>
advantage of the sizable growth that had already taken place, especially since
the P/E indicated that it was riding on high expectations.
It is, of course, easy to second-guess. Had Genus fulfilled expectations,
we'd all be toasting your genius. But its drop to $7.50, all by itself, works
out to around $1 per fund share lost, 3% of the entire portfolio. And more
fundamentally, it seems to me that Genus had turned from a value, contrarian
stock to a go-go growth stock, an area of the market you've traditionally
avoided (I think wisely). So I'm simply suggesting that you may have lost sight
of ideas that served you well in the past and that might have helped out in this
situation as well.
In the past, lagging years have nearly always been followed by above-average
years. I wish you the best as you work to repeat history.
Sincerely,
Kelvin Smith
Stamford, Connecticut
Dear Mr. Smith:
You are, indeed, a sharp-eyed shareholder. You're the first one to point out
that the 1995 annual report was dated February 5, 1995 instead of 1996. I think
five or six people proofread the report and we still missed it. Our general
counsel, Richard Silberman, once said that he could find something wrong with
any document including one that he proofread himself.
Regarding Genus, you're absolutely correct. I should have reduced the size of
our position when the stock went above $15. In the past, you've been one of the
Fund's greatest admirers, but you've just become one of our severest critics.
Genus is an interesting case study because it represents one of the two areas
where our discipline has been lacking. The first area, of course, is not being
rigorous enough in identifying what will cause a company's earnings to improve
within twelve months. The second area is forgetting our previous resolution to
sell off part of a position when a stock starts to become fully valued.
Although I might quibble slightly with your numbers, I have no quarrel with
the essence of your comments. Genus actually was earning 40% more than 10 cents
a quarter. It kept hitting 14 cents a quarter and that would mean 56 cents per
share in earnings on an annual basis. That would mean a P/E ratio of 30 which is
still high, but not quite as high as the 40 you mentioned. Regardless of the
exact number, though, it's clear that Genus was no longer a "value" type of
investment, but had been taken over by the momentum-type investors and other
go-go growth people.
At the time, I thought that Genus could earn $1.00 per share on an annual
basis and that the P/E ratio could hit 20 given its growth. That would have
meant a stock price of $20 per share. Of course, it never got that high and it
started to decline after hitting 17.
The moral of the story is that you never want to test the upper limit of a
stock's price, but always leave a margin of safety. I still think we'll come out
all right on Genus since the company has excellent products and good cost
control. In the meantime, though, shareholders are suffering and we would have
done much better had I remembered my own lessons and sold off some of the stock.
Yours truly,
Jerome L. Dodson
President
Social Notes
One of our portfolio companies, Mentor Graphics, has one of the best child
care programs of any firm in the nation. Last fall, Working Mother magazine
named the company as one of the best places for working mothers for the third
year in a row. Milton Moskowitz, principal author of the article and a Parnassus
shareholder, said, "Mentor Graphics impressed us a third year by strengthening,
not just maintaining, its first-class child care facility and family benefits
program."
Mentor has a Child Development Center at the company's headquarters where
staff educates and cares for 115 children. "Our facility is a model, full-day,
year-round early childhood program staffed by dedicated, highly-trained early
development teachers," says Margaret Browning, Director of Mentor's Work/Life
and Benefit Programs. Jacqui Tull, a Mentor Graphics business analyst, says her
two-year old son and five-year old daughter have been learning since the day
they began going to the Center. "Even if I were at home with the children, I
couldn't provide them with all the learning opportunities they have at the
Development Center."
<PAGE>
For five years now, Liz Claiborne has conducted its WOMEN'S WORK family
violence awareness campaign. Last October, the company had an annual Charity
Shopping Day and ten percent of the gross sales were contributed to local
domestic violence agency partners. Jerome Chazen, Chairman of Liz Claiborne,
said, "Now at a time when awareness of family violence is at an all-time high,
we want to communicate the idea that everyone can create positive social change
on this issue." Liz Claiborne was the first major corporation to take on family
violence as a cause. Family violence is the leading cause of death and injury to
women, affecting more women than car accidents, muggings and rapes combined.
Last December, the U.S. Department of Labor announced the names of 31
retailers that monitored the work practices of their subcontractors and refused
to buy merchandise from sweatshops. "These trendsetters take that critical extra
step--beyond making sure that the hemlines are straight and the buttonholes are
finished--when delivering their garments to American consumers," said Labor
Secretary Robert Reich. "They make sure--by monitoring their contractors--that
the sweat of exploited workers is not part of a garment's design." Of the 31
retailers mentioned, 14 were units of Limited, Inc. including Express,
Structure, Victoria's Secret, Bath & Body Works, Lane Bryant, Lerner New York
and Abercrombie & Fitch.
One of our new investments, Quantum Corporation, a disk drive maker based in
the Silicon Valley town of Milpitas, has wired and connected every classroom in
Milpitas High School to the Internet. Quantum volunteers installed and connected
the cable and the company donated 60 hard disk drives to the school. "Our
partnership with Milpitas High School is representative of Quantum's commitment
to improving communities and, in this case, the educational systems in which we
operate," said Jennifer Sims, manager of government and community relations.
"Quantum's corporate giving strategy focuses on education, primarily K-12, with
emphasis on math, science and technology."
Sunrise Medical will be a sponsor of the 1996 Atlanta Paralympic Games in
August. The Games will showcase the talents of 4000 disabled athletes from more
than 100 countries worldwide. Wheelchair racers, blind swimmers and amputee high
jumpers will all be competing. Sports have a very positive impact on disabled
people. Through sports, they enjoy better health, a higher quality of life and
they also require less medical treatment.
Shareholder Letter
Dear Mr. Dodson:
I am a shareholder in the Parnassus Fund and also the general partner of a
number of vineyard limited partnerships as well as the current president of the
Sonoma County Grape Growers Association (SCGGA). I write to you in each of these
three capacities.
First, as a shareholder, I want to express my strong and continuing support
for the Fund's goals and strategies. Obviously, the Fund's performance in the
past year was far below the market, and I'm sure anyone who is in it for the
short term is terribly disappointed. My wife and I are in it for the long-term
and are unconcerned by annual results. We accept the bumpy ride. As Lao-Tzu
said, "success and failure have been called equal worries because success
burdens one with the fear of losing it." You've had great success, not only in
the long-term, but frequently in individual years. "Success" hasn't been called
"that bitch goddess" for nothing. It sure makes the failures harder to endure.
Please don't let the 1995 results induce you to make any major changes in the
Fund's approach.
Switching hats, as president of the SCGGA, there is one change I will lobby
for. My definition of "socially responsible" companies is similar to yours,
except when it comes to alcohol, specifically wine. Granted there are very few
pure stock plays in wine, but I hope you will at least consider excluding wine
from your definition of "social irresponsibility." There is no doubt that wine
can be abused as any alcohol can be. However, statistics show that wine is
abused far less often than other alcoholic beverages. (Of course I'm referring
to table wine, not the fortified kind associated with down and out winos.) Wine
is primarily consumed with the meals to enhance the flavor of food. Beer and
"spirits" are usual choices of those who want to imbibe more earnestly.
I would like you to think about, if not say, "tobacco, nuclear power, alcohol
except wine" when you discuss products harmful to society. Wine has a number of
positive benefits when consumed in moderation including health, complementing
food and biodiversity in agriculture.
Sincerely,
John G. Rauck
San Rafael, California
Dear Mr. Rauck:
Your letter has many persuasive points. There's certainly nothing wrong with
moderate amounts of wine with a meal. Although I don't drink, I think that the
majority of the Parnassus Fund's Trustees, officers and employees probably enjoy
moderate amounts of alcohol.
<PAGE>
The Fund's reason for avoiding alcohol as an investment has to do with the
tremendous abuse of alcohol in our society that leads to drunken driving,
highway deaths, loss of jobs and the physical abuse of others. In fact, the
negative impact from alcohol abuse is probably greater than that from drug
abuse. Given all this, I'm uncomfortable investing in a business that encourages
people to consume alcohol. Clearly though, a moderate amount of wine with a meal
is unlikely to lead to any of these terrible consequences.
Of course, wine (as in wino) is abused quite a bit and can lead to asocial
behavior. You seem to acknowledge this in your letter. Consequently, it's
difficult for me to make a blanket exception for wine. Nevertheless, your letter
has persuaded me to put it to a vote of the shareholders. We'll be having a
shareholders' meeting sometime in the next year and we'll put it on the agenda
at the time.
Yours truly,
Jerome L. Dodson
President
The picture that appears above was taken at the Parnassus Fund intern reunion
on June 16, 1995. From the left, starting with the top row are Ron Wagner,
intern, Fred Jones, intern, Ben Liao, staff member, Victor Thay, intern, Jason
Wong, intern, Lauren Wang, intern, Shan Green, intern and Sonny Vu, intern. In
the middle row are Amy Fujii, intern, Tony Huang, intern, Chris Melton, intern,
Kathy Wei, intern, Mark Williams, intern, David Pogran, director of research,
Natan Epstein, intern, Andy Rubinson, former staff member and Todd Ahlsten,
former intern and staff member. In the front row are Tim Pat, intern, Betty
Gibson, wife of David Gibson, David Gibson, Trustee, Thao Dodson, my wife, Jerry
Dodson, Vivian Wang, intern, Allen Young, intern, Casidy Ward, intern and Bill
Thomason, director of portfolio management.
Conclusion
Over the last couple of months, redemptions have increased substantially at
the Parnassus Fund. Unfortunately, most of those redeeming shareholders invested
in 1995--just as our performance wilted. I feel sad that those shareholders had
a negative return on their investment. Nevertheless, it provides a lesson to the
rest of us that one should not make equity investments with a short-term
horizon. In my own view, the minimum time horizon should be three years.
Those of you who have been in the Fund for a couple of years or longer have
had a good return on your money. Unfortunately, that's not true of investors who
joined us last year. To all of them, I express my regret for our poor
performance over the past year. As you can tell from this quarterly report,
we're doing our best to make the changes necessary to improve our performance
and provide the strong returns we achieved over the previous four years. In the
meantime, I want to thank shareholders for their patience during a difficult
period.
Yours truly,
Jerome L. Dodson
President
P.S. For those of you who have IRA accounts with us, we would like to
announce that the Bank of California and Union Bank have merged so the new name
of your IRA custodian is Union Bank of California.
P.P.S. Since the first of April, the Fund's performance has improved
substantially. For the month, we are up 9.1% compared to 1.1% for the S&P 500.
This remarkable climb in April has caused our year-to-date performance to go
from a loss of 3.4% to a gain of 5.4%. By comparison, the S&P 500 is up 6.1%
year-to-date so we're back in the race for 1996.
<PAGE>
The Parnassus Fund Portfolio: March 31, 1996
Number
of Shares Issuer Market Value Per Share
- - ------------------------------------------------------------------------------
40,000 Acme Steel Comp $ 730,000 $ 18.25
650,000.Advanced Micro Devices ........... 11,293,750 17.38
265,000 Advanced Technology Labs, Inc. ... 7,155,000 27.00
320,000 Ahmanson (H.F.) & Company ........ 7,800,000 24.38
340,000 Apple Computer, Inc. ............. 8,351,250 24.56
350,000 Calgon Carbon Corporation ........ 4,243,750 12.13
30,900 Chemed Corporation ............... 1,147,163 37.13
50,000 Cirrus Logic ..................... 903,125 18.06
145,000 Cypress Semiconductor Corporation 1,721,875 11.88
600,000 Electro Scientific Industries .... 10,650,000 17.75
303,600 Ethan Allen Interiors ............ 7,969,500 26.25
1,300,000 Genus, Inc. 8,125,000 6.25
495,500 Groundwater Technology, Inc. ..... 6,565,375 13.25
380,000 H.B. Fuller Company 11,305,000 29.75
130,000 Handleman Company 633,750 4.88
162,500 Herman Miller, Inc. 5,037,500 31.00
80,000 Houghton Mifflin Company 3,530,000 44.13
249,000 Huffy Corporation 2,645,625 10.63
410,000 Inland Steel Industries 10,147,500 24.75
24,000 Integrated Device Technology, Inc. 7,098,000 11.38
330,000 Limited, Inc. .................... 6,270,000 19.00
500,000 Liz Claiborne, Inc. .............. 17,125,000 34.25
620,000 Mentor Graphics Corporation ...... 8,835,000 14.25
940,000 Morgan Products, Ltd. ............ 5,170,000 5.50
557,500 Quantum Corporation .............. 10,035,000 18.00
930,000 Sequent Computer Systems, Inc. ... 10,811,250 11.63
160,000 Southwest Airlines ............... 4,740,000 29.63
577,500 Sullivan Dental Products ......... 7,074,375 12.25
50,000 Sun Company, Inc. ................. 1,443,750 28.88
770,000 Sunrise Medical, Inc. ............ 10,780,000 14.00
500,000 T. J. International .............. 7,875,000 15.75
850,000 Tandem Computers ................. 7,650,000 9.00
520,000 Toys R Us, Inc. .................. 14,170,000 27.25
451,000 Wellman, Inc. .................... 10,598,500 23.50
200,300 Zurn Industries, Inc. ............ 4,106,150 20.50
-------------
Total Portfolio .......................... $243,737,188
Short Term Investments and Other Assets .. 9,446,486
-----------
TOTAL NET ASSETS ......................... $253,183,674
============
The Net Asset Value as of March 31, 1996 $ 30.69
<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
