February 5, 1995
Dear Shareholder:
As of December 31, 1995, the net asset value (NAV) of the Parnassus Fund
was $31.77, so after consideration of the dividend of $1.27 paid on December 15,
the overall return for 1995 was 0.62%. This compares to a return of 37.57% for
the S&P 500 and 30.79% for the average growth fund according to Lipper
Analytical Services. Although the Fund didn't lose any money, we lagged the
market by over 30%.
Our fourth quarter results were also dismal. The Fund lost 10.92% in the
quarter compared to gains of 6.02% for the S&P and 2.36% for the average growth
fund.
After four straight years of handily beating the market--sometimes by
enormous margins--1995 turned the tables on us and sent the Parnassus Fund down
toward the bottom of the rankings. As a Parnassus Fund shareholder, I'm sure you
have a keen interest in knowing just how this happened.
Part of the reason for our poor performance was general market conditions.
Large capitalization ("big-cap") companies did much better than small and
medium-sized ones during the year. Since most of our companies are medium-sized,
we had to fight a stiff headwind all year long.
Also during the year, the growth-oriented investment style did better than
the value-oriented investment style. Most investors put their money into
companies whose earnings were growing sharply and whose businesses had momentum
in the market place. Our money went into companies that were out of favor and
were experiencing temporary difficulties and those out-of-favor companies stayed
out of favor.
The market's favoritism toward "big-cap" companies and growth-oriented
issues, though, still only explains part of our shortfall. Many of the companies
in which we hold the largest positions were stock market disasters in 1995.
Because there was no pattern to these disasters, the only way I can let you know
what happened is to talk about some of these companies in detail.
THE SHOCKING CASE OF SUNRISE MEDICAL
The most unnerving incident occurred on October 26 when Richard Chandler,
the chief executive officer of Sunrise Medical, announced that the company had
discovered that its BioClinic division had inflated assets and earnings for
several years. The next day, the stock dropped 40% as it went from $23.50 to
$14.13 a share on heavy volume--nine times higher than normal. Fraudulent
accounting had induced panic selling.
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The news came as a heavy blow to me personally. I had always admired
Richard Chandler, both for his business acumen and for his sense of social
responsibility. Sunrise makes the Quickie wheelchairs and a line of recovery and
rehabilitation products including walkers, respirators and therapeutic
mattresses for home and hospital. The company has been a good corporate citizen
and has made significant contributions to the disabled. Although Chandler was
not involved in cooking the books, it was still disconcerting to be investing in
a company where some members of the management team were involved in dishonest
practices.
After the October 26 announcement, the company stopped talking to
shareholders, analysts and the press while outside auditors conducted an
investigation. During this period, we added to our position in Sunrise stock
increasing the Fund's position by 150,000 shares at an average cost of just over
$16.00. Although there was some risk that the stock could go down even further,
I figured that the company was still undervalued. Because of the uncertainty
surrounding the accounting irregularities, investors were driving the issue down
to bargain levels.
On January 4, the company announced the extent of the damage. Earnings in
the BioClinic Division (therapeutic mattresses) had been overstated by $4
million in fiscal 1994 and by $11 million in fiscal 1995. I was stunned by the
latter number. The company's stated earnings for fiscal 1995 were $30 million so
over a third of that figure was hot air. Besides the total of $15 million in
false earnings, the company announced a charge of at least $17 million
additional to cover the audit, legal fees and restructuring to sell off part of
the BioClinic Division.
Not only did the company have $32 million less, but its remarkable record
of earnings growth was based on falsified documents. Stated earnings showed 25
straight quarters of earnings growth. Now the company's earnings did not look as
impressive.
At the beginning of the year, Sunrise's stock price was $27.63 a share and
at the end of the year it was at $18.50 for a loss of 33%. Because of our large
position in Sunrise, it had a major impact on the Fund's performance for 1995.
Although the Sunrise situation has been an ordeal, I still think there's
value in the stock. I like Dick Chandler and I think he's learned a lot about
accounting controls. Sunrise is in a good business and, in most respects, it's a
well-managed company. I still expect to get a good return from Sunrise's stock,
but it will take quite a bit longer than I had anticipated. Although we lost a
lot on the stock in 1995, it should contribute to improved returns for the
Parnassus Fund in future years. Sometimes, long-term investors have to be
patient.
TECHNOLOGY STOCKS DID WELL, BUT NOT OURS
Although technology companies as a group did very well in 1995, the ones in
our portfolio did not. A good example is Advanced Micro Devices (AMD), a
semiconductor manufacturer based in Silicon Valley that competes with Intel in
the market for the microprocessors that are the brains of personal computers
(PCs). PC users know that every few years a new generation of microprocessors
appears that are much more powerful than those of the previous generation. In
the case of the dominant operating system (Microsoft), the Intel chips have been
known as 8086, 286, 386, 486 and now the Pentium (fifth generation).
AMD has competed with Intel in all these generations. To compete with
Intel's Pentium chip, AMD began development of what it called the K-5 which was
supposed to be ready in 1995. As it turns out, the company is having
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trouble with the K-5 and it won't be ready until the middle of 1996--one year
late. Since each generation has only a finite life, AMD has lost at least a
year's worth of earnings from its K-5 chip. Chip prices are highest at the
beginning of a cycle so a late delivery causes a proportionately greater loss in
earnings. Although AMD is successfully producing the 486 chip, prices are
dropping for this generation and sales are declining as Intel persuades computer
makers to emphasize the Pentium.
At the beginning of 1995, AMD's stock was trading at $24.88 a share and it
ended the year at $16.50 for a decline of 34%. Because we hold a large position
in the company, AMD's decline had a substantial and negative impact on the
Fund's performance for 1995.
AMD's failure to perform on the K-5 has lowered my opinion of the company,
but I'm not ready to sell our shares. There are three reasons for this decision.
First of all, the stock is very undervalued. Earnings for 1995 were $2.85 a
share and it was trading at $16.50 at year's end so the price/earnings ratio is
only 5.8 which is extremely low. By comparison, the P/E ratio of the S&P 500 is
around 18. For 1996, earnings will probably decline to around $2.20 per share
because of the merger with NexGen, but even so, the P/E ratio will be only 7.5.
Second, only 25% of AMD's revenues are derived from the sale of
microprocessors while 75% comes from other kinds of semiconductors such as flash
memories, programmable logic devices and circuits for communication equipment.
These businesses are all doing quite well.
Third, AMD is taking steps to become competitive with Intel again. The K-5
fiasco, of course, makes one wonder about the company's ability to develop new
generations of microprocessors. AMD is now, however, in the process of merging
with NexGen, a small semiconductor concern that already has a fifth generation
microprocessor in production and a sixth generation ready to go. Although
there's no guarantee of success, there's a strong possibility that AMD will be
competitive with Intel again because of the merger. So even though AMD's stock
is down for a reason, my view is that Wall Street is overreacting and that we'll
enjoy good gains in the years to come.
Another of our technology companies that did not do well was Apple
Computer. Unlike AMD, Apple did not have any trouble in developing a new
product. On the contrary, the Power Macintosh has had an excellent reception
and, in fact, demand has exceeded supply. And that is a problem of another sort.
Apple's sales forecasts were far too conservative and its management was
unable to increase production fast enough or soon enough. The company lost
millions of dollars in sales.
The other problem Apple faced was a pricing/cost problem. For most of its
history, Apple has been able to charge a premium over other personal computers
because of its more advanced technology and ease of use. The introduction of the
Windows software, though, has narrowed the gap between Apple and the other PCs.
This forced Apple to reduce prices to a more competitive level.
This price reduction was definitely the right thing to do, but the
corollary is that you have to reduce costs as well. Unfortunately, controlling
costs is harder than reducing prices. Apple's management has not shown the
ability to control costs and the result is a huge drop in profits.
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At the beginning of 1995, Apple sold for $38.75 and it dropped to $31.88 at
the end of the year for a decline of 18%. Because Apple is one of our largest
positions, the drop made a big impact on the Parnassus Fund.
The difficulties in production, forecasting and cost control raise
questions about the quality of management at Apple. The company has never had
great management, but for the most part, it's been adequate. What's made Apple a
great company is not its general managers, but rather its technology and its
culture. Apple needs a change of management, but it's unclear if the board has
the will to make that change.
Even in its current state, though, there's a lot more value in Apple than
the current price indicates. Given the superior technology, the ease of use, the
name recognition and the millions of devoted users, Apple has tremendous value.
We're not sure how this value will be recognized, but we think the price will be
substantially higher in the future.
Another disappointing technology stock was Genus, the manufacturer of
equipment used in making semiconductors. The Fund paid around $3 a share for the
stock a couple of years ago and by the beginning of 1995, it had reached $8.00 a
share. By year-end, it had dropped to $7.50. Although this represented a decline
of only 6.3%, that is not the whole story.
Because of increased sales and earnings, the stock hit a high of $17.13
during 1995 before dropping back to a trading range of $14.00 to $15.00 per
share. On October 19, the company announced earnings of 14 cents a share
compared to 9 cents the year before. This represented an increase in earnings of
56%. The stock promptly dropped 29% to $8.88 a share on the news of increased
earnings.
The problem was that Wall Street was expecting even higher earnings and
when they didn't materialize, investors sold the stock at any price they could
get. The company also announced that third quarter bookings were softer than
expected and that necessary price discounting would put pressure on margins.
Genus was also incurring additional costs in bringing out its next generation
product. The company added that its long-term prospects still looked good.
The sharp drop in Genus' stock hurt the Fund's 1995 performance. Yet, there
is still a lot of value in the company. Genus has unique products that are in
demand by semiconductor companies. I expect the stock price to be sharply higher
before the end of 1996.
Although I have neither the time nor the space to discuss any more of the
technology stocks, let me just say that I seem to have picked every technology
company that had a bad year. Hopefully, we'll have better luck in 1996.
WEAKNESS IN RETAIL
The Parnassus Fund was also affected by weakness in the retail sector. As
with the technology stocks, I don't have enough space to discuss every company,
but I would like to talk about two in detail to give you a flavor for what
happened in 1995 and what I expect to happen in the future. The two companies I
have chosen are Toys `R' Us and CML.
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We bought our first share of Toys `R' Us at $29.13 on January 30 of 1995.
The stock ended the year at $21.75 for a drop of 25%. An earlier quarterly
report this year described in detail why the Parnassus Fund invested in the
company. We won't repeat all that again except to say that Toys `R' Us is an
enormously successful company. It wrote the book on toy retailing and its
management is extremely capable.
There are two principal reasons why its stock price has not fared well in
1995. First is the general weakness in the retail sector. Although the American
economy has been quite strong, the retail sector has not been. The problem is
that we have too many stores in the United States today. Current consumer
purchasing power just cannot support all the retail establishments. Retailers
have expanded much more quickly than retail sales have grown. For that reason,
retail earnings have suffered and retail prices have hardly gone up at all for
the last few years.
The second difficulty for Toys `R' Us is the emergence of new competition.
Not too long ago, Toys `R' Us was the only big toy seller around. Many
department stores and chain outlets had closed down their toy departments
because they could not compete with Toys `R' Us' low prices and vast selection.
Toy manufacturers were justifiably concerned about this state of affairs.
They felt that Toys `R' Us had too much power in the marketplace. To protect
themselves, they encouraged the big discounters--K-Mart, Wal-Mart and Target--to
expand their toy departments and compete more vigorously. They offered the
discounters attractive terms and helped them beef up their toy departments.
The result is that Toys `R' Us is having a hard time adjusting to the new
competition. They're having to spend more money to remodel stores and improve
service. In my view, the company's difficulties are temporary. Before long, I
expect earnings to be growing again and the stock price to climb back. Toys `R'
Us made the Parnassus Fund look bad in 1995, but it should make us look much
better in the years to come.
CML is the holding company for NordicTrack exercise equipment, the Nature
Company, Smith & Hawken garden supply stores and Britches of Georgetown, a men's
clothing retailer. CML traded as high as $32 a share in 1993, hit a high of
$22.50 in 1994 and had dropped to $10 a share when the Parnassus Fund started
buying the stock in late 1994 and early 1995. Since then, the stock has dropped
another 50% so that it traded at $5.13 at the end of 1995. Contributing to this
decline was a loss of 30 cents per share in the fall quarter of 1995.
The company got hit by some of the same retail weakness that hit Toys `R'
Us and other retail shares. Britches of Georgetown has had especially poor
performance and CML is now in the process of selling that business and taking a
loss.
NordicTrack which accounts for most of CML's sales has experienced some of
that same retail weakness. NordicTrack has also had to compete with a whole host
of imitators selling exercise equipment. Although the company has a superior
product, competition has been stiff over the last few years. This put pressure
on prices and margins. Also, sales generated per dollar spent on advertising
have decreased in recent years which means costs are much higher.
NordicTrack also had design problems with its new WalkFit machine (a
treadmill) that didn't function properly. It incurred heavy costs in fixing the
machines and redesigning the product.
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The Nature Company has also been hurt by the weak retail environment. In
the past, the Nature Company had a winning formula, operating stores that
emphasized appreciation of nature and the environment. Recently, sales have
declined at their stores due to a stale product line and increasing competition.
The Smith & Hawken subsidiary has become more successful as both earnings
and sales are growing. However, Smith & Hawken accounts for only 7% of CML's
sales so it didn't have a substantial impact on the bottom line.
If CML is to make a comeback, both NordicTrack and the Nature Company will
have to improve dramatically. Both operations are taking steps to improve their
results. NordicTrack has improved its advertising and introduced a NordicRider
which will sell into a popular segment of the industry. The Nature Company has
improved its cost control and enhanced its merchandising with new and
interesting products. Because the stock is so cheap, CML should make substantial
gains if the new measures are effective.
THERE WERE SOME WINNERS
Not all the companies in our portfolio did poorly during the year. Five of
them gained more than 30% each during the period. Two of them were companies
sensitive to interest rate changes and their shares moved up in response to
falling interest rates. One of the companies was in the health care field and,
believe it or not, two of the companies were involved in retailing. These five
companies gained enough to prevent the Parnassus Fund from actually taking a
loss in 1995.
The Student Loan Marketing Association, better known as Sallie Mae,
increased an astounding 103% during the year as its stock went from $32.50 to
$66.00. Sallie Mae meets the Fund's social criteria because it helps to finance
higher education. It buys student loans from banks and other lenders which gives
those institutions enough liquidity to make more loans. Sallie Mae gets its
money by selling bonds in the capital markets. Like all financial institutions,
Sallie Mae does much better in a low rate environment than in a high rate
environment.
There was more than falling interest rates behind the incredible increase
in the price of the stock. For a couple of years now, the Clinton administration
has been trying to have the government make direct student loans rather than
guaranteeing loans that are made by banks. This, of course, would reduce the
number of loans made by private lenders and that, in turn, would reduce the
amount of business Sallie Mae could do. When the Republicans gained control of
Congress last year, sentiment swung against direct lending and moved back to
letting private lenders do the job. Congress has now limited the percentage of
direct loans that the government can make which has improved the prospects for
Sallie Mae. The company has also improved its ability to control costs and has
sharpened its focus.
H.F. Ahmanson, the parent of Home Savings, the nation's largest savings and
loan, saw its stock price increase 64% as its shares went from $16.13 to $26.50.
Here again, declining interest rates helped the savings and loan industry as did
the improved outlook for real estate prices in California where Home has the
majority of its loans.
Advanced Technology Laboratories (ATL) increased by 32% for the year
because its stock went from $18.50 to $24.50 a share. An FDA advisory panel
recommended that ATL's ultrasound machine be approved for use in diagnosing
breast tumors for cancer. If final approval is given, this would open a much
larger market for the company.
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At the present time, if a woman discovers a lump in her breast, a biopsy
may be necessary. A biopsy is actually breast surgery where a physician cuts
into the breast to remove a piece of tissue for further analysis. This procedure
is costly and traumatic for the woman.
With ultrasound, 35% of the biopsies could be eliminated since the machine
can, in many cases, determine whether a tumor is cancerous or not. This
procedure would be in line with the Fund's principles of having a positive
social impact. There is also a significant cost savings with ultrasound. A
biopsy costs between $2,500 and $5,000 while an ultrasound examination costs
between $75 and $300.
Longs Drugs saw an increase of 51% in its stock price as it went from
$31.75 to $47.88. Company earnings in the fall quarter jumped 37% from the
previous year. Longs has better cost control and its data processing system now
allows better inventory control and more rapid replacement of items that are
selling well. The company now has much better focus. Also, the California
economy has strengthened quite a bit in the past year; most of the company's
drugstores are located here in California. Longs' experience shows that
retailers can do well even in the current environment if they control costs and
sharpen their focus.
Another retailer that did well in 1995 was Liz Claiborne. Although Liz is
technically not in the retail industry since it has only a modest number of
stores and it's mostly a manufacturer, I think of the company as a retailer
since its women's apparel line is tied closely to the retail industry. In any
case, this retailer and apparel maker saw its stock increase by a factor of 63%
during the year as the shares went from $16.88 to $27.50. Although sales
decreased by 5% for the quarter ending September 30, earnings increased by 12%.
Helping this big earnings increase were cost control measures and a much better
designed line of clothes. The latter allowed Liz to sell more products at full
price rather than having to mark down merchandise to move it.
TABLES AND GRAPH
<TABLE>
Below is a graph and table comparing the performance of the Parnassus Fund
with the S&P 500, the NASDAQ Composite Index and the average growth fund over
the past one, five and ten-year periods. The graph and the total return column
of the performance table as well as the "Value of $10,000" table assume that the
maximum sales charge of 3.5% was deducted from the initial investment in the
Parnassus Fund. The overall return column in the performance table shows
investment performance only and does not deduct the sales charge. The
performance figures for the average growth fund also do not deduct any sales
charges that may apply.
- - ---------------------------------------------------------------------------------------------------------------
<CAPTION>
Average Annual Average Annual S&P 500 NASDAQ Average
Total Return Overall Return Index Index Growth Fund
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One Year ( 2.91%) 0.62% 37.57% 39.92% 30.79%
Five Years 21.63% 22.50% 16.58% 22.99% 15.84%
Ten Years 11.22% 11.62% 14.88% 12.47% 12.98%
- - ---------------------------------------------------------------------------------------------------------------
<FN>
Returns for average growth fund supplied by Lipper Analytical Services.
</FN>
</TABLE>
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Value on December 31, 1995 of
$10,000 invested on January 1, 1986
-----------------------------------------
The Parnassus Fund $28,978
S&P 500 Index $40,023
NASDAQ Index $33,881
Average Growth Fund $32,381
As you can see from the graph on a ten-year basis, the Parnassus Fund was
up with the S&P 500 and substantially ahead of the NASDAQ and the average growth
fund as of the middle of the year. Unfortunately, our poor performance in the
second half has placed us behind all the averages as of the end of 1995.
For the five-year period, we're still substantially ahead of the S&P and
the average growth fund. In fact, we're the 18th best performing growth fund out
of the 237 followed by Lipper. Anyway you look at it, though, we have a lot of
catching up to do in 1996.
THE OUTLOOK
Last year was both difficult and disappointing for all of us. Although I'm
not happy with our performance in 1995, I do have a positive outlook for 1996
and beyond. The companies in our portfolio are very undervalued and the
likelihood is that we will see some strong gains in the future.
It's impossible to predict when this might happen. The stock market is just
too quirky and uncertain. All we can do is analyze companies, find ones that are
undervalued, invest our money and then hope for the best.
A quote I like comes from Charlie Munger, Vice Chairman of Berkshire
Hathaway, and partner of Warren Buffett. "As long as I get to the right
destination, I don't mind a bumpy ride."
I think we're headed in the right direction and we'll reach our
destination. It's just that it will take us some time and there are a lot of
bumps in the road.
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SHAREHOLDER LETTERS
We have received about ten letters concerning the strike at the Detroit
News and the Detroit Free Press. The two newspapers are published together under
a joint operating agreement. One of our portfolio companies, Knight-Ridder
publishes the Detroit Free Press. I answered all the letters on an individual
basis, but we don't have the space to print all of them here so I'm running just
one of them with my reply.
Dear Mr. Dodson:
After discovering that your fund owns shares in Knight-Ridder, I'm
writing to call your attention to the Detroit Newspaper strike, now in
its fifth month. Enclosed is a newspaper clipping about the strike.
Although Knight-Ridder (and its Joint Operating Agreement
partner, Gannett) have some legitimate complaints concerning work
rules, particularly involving "district managers" who have too much
control over newspaper distribution, the way the companies have gone
about negotiating strongly suggests that they are more interested in
breaking their unions than they are in bargaining in good faith. Note
that they have refused to submit to binding arbitration. The article
doesn't mention that the unions offered to continue working under the
old contract while negotiations continued, but management refused. The
strike has created bitter divisions among employees and within the
community, and has permanently damaged the reputations of the two
newspapers.
Given that your fund takes treatment of employees (and community
sensitivity) into consideration when making investment decisions, I
hope you will evaluate Knight-Ridder based on its conduct of this
labor dispute. I am a new (and very small) investor in your fund, and
will probably hold on to my investment regardless of the presence of
Knight-Ridder in your portfolio. Thank you for considering these
issues.
Sincerely,
Ken Garber
Ann Arbor, Michigan
Dear Mr. Garber:
I agree with most of what you say. There are some real problems
with the union's position and the work rules. Both newspapers need to
cut costs and I was hoping that the union would negotiate something
with that in mind. In my view, it was also unwise for them to go out
on strike. Nevertheless, I'm bothered by some of management's tactics.
Historically, Knight-Ridder has been community-minded and a socially
responsible company, but I fear they may be going down the wrong path
in this situation.
We have sold our shares in the company, not because of the
strike, but because we felt that the market price represented full
value for the company. Given this situation, we haven't had to make a
decision on whether or not to keep them in the portfolio for social
reasons. It would be a real struggle and I'm relieved I haven't had to
make that decision.
Yours truly,
Jerome L. Dodson
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Dear Mr. Dodson:
I enjoy reading the reports from the Parnassus Fund and am
generally pleased with its performance, although the last quarter was
somewhat disappointing. I have noticed in several reports that Toys
`R' Us has been lauded for various actions, which, perhaps, could be
interpreted as either "responsible" or "promotional". I was therefore
surprised to learn, during a vacation in Sweden this summer, that Toys
`R' Us was involved in one of the most publicized and bitter
union-company conflicts of the year. If I understand the nature of the
protracted conflict correctly, the company essentially desired to
bypass union-established employment practices, for example working
hours during Christmas and the New Year--in a common phrase, union
busting. An American living in Sweden in a letter to a major morning
paper (Svenska Dagbladet, I believe), furthermore scolded Toys `R' Us
for an alleged unwillingness to accept customs different from those in
the US. She concluded with an intention never again to set her foot in
a Toys `R' Us store anywhere, as this conflict had made her
embarrassed to be American.
Apparently the conflict ended with both parties claiming victory.
I could not follow the story suffi- ciently to make a call either way,
but certainly it raises questions in my mind about the true social
responsibility of the Toy `R' Us chain. I would be interested in
learning whether you were aware of this conflict, and if so, what your
judgment is.
Sincerely,
Magnus Persmark
Chapel Hill, North Carolina
Dear Magnus Persmark:
Thank you for your letter regarding Toys `R' Us. My view of the
labor dispute is somewhat different than that of the American living
in Sweden. There was no "union-busting" or any other unethical
practice involved. It was simply a disagreement between management and
labor.
The dispute involved the Swedish union's demand that Toys `R' Us
accept a standard contract that the union had with other retailers in
Sweden. It was the company's position that it shouldn't have to sign a
standard contract since different stores had different needs. Toys `R'
Us wanted to negotiate a separate contract with the union. In my view,
there was nothing wrong with this. The strike is now over and both
sides gave a little. That's life in the real world.
I'm sorry for the American who will never set foot inside a Toys
`R' Us store again and I'm sorry that she's embarrassed to be an
American. For my part, I think Toys `R' Us is a good company and I'm
proud to be an American.
Toys `R' Us has been very successful in Sweden and they've made a
valuable social contribution by bringing down the price of toys in
Sweden. The Swedes have received the company enthusiastically and
they're flocking to the stores.
At the present time, Sweden's unemployment rate is over 10% while
the U.S. rate is a bit over 5%. That's a huge difference. Part of the
reason for Sweden's poor performance is the inflexibility of some of
its unions and the rigidity of its bureaucracy. In my view, a dose of
American ingenuity and dynamism could help the Swedish economy quite a
bit.
Thank you for your letter.
Yours truly,
Jerome L. Dodson
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INTERNS
We are very pleased to have five well qualified interns working with us
this semester. Roderick Hsiao comes to us from the office of Congressman Robert
Matsui in Washington, D.C. where he worked for three years as a senior
legislative assistant. His congressional work concentrated on health care and
conversion of military bases to civilian use. Mr. Hsiao is a graduate of Oberlin
College where he studied economics and received a Master's Degree in Public
Policy from the John F. Kennedy School of Government at Harvard University.
Benjamin Suppe is a graduate of Pomona College in Claremont, California
where he studied international relations. He also attended Nanjing University in
China where he studied Mandarin as well as Chinese history and literature. He
has worked for Cargill Investor Services in New York and for Citibank in San
Francisco.
Carrie Lo is a senior at the University of California at Berkeley where she
is majoring in Business Administration and minoring in Asian-American Studies.
Her work experience includes stints at Fidelity Investments, PaineWebber and the
Smith Mitchell Investment Group. She has also worked as a sign-artist at the
University of California Athletic Department. Ms. Lo has also served as
President of the Undergraduate Finance Association and as writer, editor and
advertising representative at the Cal Business Weekly.
Kumar Patel is a graduate of San Francisco State University where he
studied finance and international business. His work experience includes four
years in hotel management including stints at a four-star hotel and a Best
Western Inn. At San Francisco State, he was a member of the Asian Business
Association and the Indian and Pakistani Cultural Association.
Marcus Lo is a senior at the University of California at Berkeley where he
is studying business administration. His work experience includes a finance
internship with Merrill Lynch and a job as a marketing analyst with the
Telegraph Area Association in Berkeley. Mr. Lo is President of the Pi Alpha Phi
Fraternity at Berkeley and won the YMCA Service Above Self Award in 1990 and
1992.
401(K) AND 403(B)
I would also like to announce that the Parnassus Fund is available for
401(k) plans. If you're interested in getting your company to offer the
Parnassus Fund as a 401(k) option, please call us at (415) 778-0200 or (800)
999-3505. The Parnassus Fund is now available as part of the California State
University TSA-403(b) program.
Yours truly,
Jerome L. Dodson
President
11
<PAGE>
THE PARNASSUS FUND
- - --------------------------------------------------------------------------------
<TABLE>
UNREALIZED GAIN (LOSS) SUMMARY AS OF DECEMBER 31, 1995 (UNAUDITED)
<CAPTION>
Number of Per Per Unrealized
Shares Issuer Cost Share Market Value Share Gain (Loss)
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
40,000 Acme Metals, Inc. $ 639,125 $15.98 $ 570,000 $14.25 $ (69,125)
570,000 Advanced Micro Devices 13,322,158 23.37 9,405,000 16.50 (3,917,158)
265,000 Advanced Technology Labs, Inc. 4,204,531 15.87 6,492,500 24.50 2,287,969
340,000 Apple Computer, Inc. 12,680,625 37.30 10,837,500 31.88 (1,843,125)
1,188,400 CML Group, Inc. 8,737,495 7.35 6,090,550 5.13 (2,646,945)
350,000 Calgon Carbon Corporation 3,984,967 11.39 4,200,000 12.00 215,033
100,000 Chemed Corporation 2,682,787 26.83 3,887,500 38.88 1,204,713
241,200 Ethan Allen Interiors 5,101,404 21.15 4,914,450 20.38 (186,954)
1,150,000 Genus, Inc. 3,977,438 3.46 8,625,000 7.50 4,647,562
520,000 Groundwater Technology, Inc. 7,958,625 15.31 7,280,000 14.00 (678,625)
250,000 H.B. Fuller Company 8,171,305 32.69 8,687,500 34.75 516,195
320,000 H.F. Ahmanson & Company 5,851,073 18.28 8,480,000 26.50 2,628,927
320,000 Handleman Company 3,567,275 11.15 1,840,000 5.75 (1,727,275)
338,000 Herman Miller, Inc. 7,435,750 22.00 10,140,000 30.00 2,704,250
80,000 Houghton Mifflin Company 3,258,000 40.73 3,440,000 43.00 182,000
698,700 Huffy Corporation 9,987,053 14.29 7,074,338 10.13 (2,912,715)
410,000 Inland Steel Industries 9,574,895 23.35 10,301,250 25.13 726,355
369,400 Kenetech Corporation 2,295,288 6.21 554,100 1.50 (1,741,188)
550,000 Limited, Inc. 10,005,938 18.19 9,487,500 17.25 (518,438)
530,000 Liz Claiborne, Inc. 9,848,938 18.58 14,575,000 27.50 4,726,062
122,600 Longs Drug Stores 4,117,315 33.58 5,869,475 47.88 1,752,160
550,000 Mentor Graphics Corporation 5,914,562 10.75 10,037,500 18.25 4,122,938
940,000 Morgan Products, Ltd. 5,741,156 6.11 5,522,500 5.88 (218,656)
190,000 Phillips-Van Heusen 2,086,587 10.98 1,876,250 9.88 (210,337)
320,000 Radius, Inc. 3,202,932 10.01 630,000 1.97 (2,572,932)
810,000 Sequent Computer Systems, Inc. 12,964,062 16.01 11,745,000 14.50 (1,219,062)
160,000 Southwest Airlines 2,796,150 17.48 3,680,000 23.00 883,850
130,000 Student Loan Marketing Association 4,868,100 37.45 8,580,000 66.00 3,711,900
377,500 Sullivan Dental Products 3,949,650 10.46 3,586,250 9.50 (363,400)
88,200 Sun Company, Inc. 2,445,574 27.73 2,414,475 27.38 (31,099)
770,000 Sunrise Medical, Inc. 17,909,577 23.26 14,245,000 18.50 (3,664,577)
460,000 T.J. International 8,183,760 17.79 8,510,000 18.50 326,240
850,000 Tandem Computers 10,191,774 11.99 9,031,250 10.63 (1,160,524)
490,000 Toys R Us, Inc. 12,672,317 25.86 10,657,500 21.75 (2,014,817)
420,000 Wellman, Inc. 9,161,821 21.81 9,555,000 22.75 393,179
------------ ------------ ----------
Totals $239,490,007 $242,822,388 $3,332,381
============ ============ ==========
</TABLE>
12
<PAGE>
THE PARNASSUS FUND
- - --------------------------------------------------------------------------------
<TABLE>
STOCKS SOLD JANUARY 1, 1995 THROUGH DECEMBER 31, 1995 (UNAUDITED)
<CAPTION>
Realized No. of Per Sale Per
Company Gain (loss) Shares Cost Share Proceeds Share
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BHA Group, Inc. $ 8,062 13,900 $ 176,113 $ 12.67 $ 184,175 $ 13.25
Borland International (528,068) 285,000 3,805,130 13.35 3,277,062 11.50
Carolina Freight Corporation (414,094) 185,000 2,275,850 12.30 1,861,756 10.06
CML Group, Inc. (1,371,945) 310,000 3,138,863 10.13 1,766,918 5.70
Coherent, Inc. 2,214,488 165,000 2,057,512 12.47 4,272,000 25.89
Cummins Engine 948,947 35,000 641,125 18.32 1,590,072 45.43
Electro Scientific Industries 4,368,532 215,000 1,348,968 6.27 5,717,500 26.59
Golden West Financial Corporation 1,112,919 73,000 2,582,110 35.37 3,695,029 50.62
Gundle Environmental Systems 80,308 90,000 490,435 5.45 570,743 6.34
Handleman Company (97,958) 30,000 324,600 10.82 226,642 7.55
Huffy Corporation (334,309) 61,200 959,954 15.69 625,645 10.22
Kinetic Concepts, Inc. 523,413 150,000 584,063 3.89 1,107,476 7.38
Knight-Ridder, Inc. 744,004 95,000 4,763,175 50.14 5,507,179 57.97
Kenetech Corporation (1,673,185) 180,600 2,107,338 11.67 434,153 2.40
Longs Drug Stores 43,404 7,400 251,918 34.04 295,322 39.91
Magma Power Company 370,410 55,000 1,762,250 32.04 2,132,660 38.78
Margaux, Inc. (104,638) 2,065,000 662,188 0.32 557,550 0.27
Matrix Service Company (713,100) 304,000 1,640,725 5.40 927,625 3.05
Protocol Systems, Inc. 723,626 175,000 1,146,874 6.55 1,870,500 10.69
Phillips-Van Heusen (1,316,370) 250,000 3,792,313 15.17 2,475,943 9.90
Raymond Corporation 939,378 87,450 662,560 7.58 1,601,938 18.32
Student Loan Marketing Association 462,156 20,000 845,150 42.26 1,307,306 65.37
Sequent Computer Systems, Inc. 1,153,120 200,000 3,515,630 17.58 4,668,750 23.34
Toys R Us, Inc. (349,538) 50,000 1,496,000 29.92 1,146,462 22.93
Texas Industries 1,628,240 139,600 3,028,674 21.70 4,656,914 33.36
United Stationers, Inc. 1,960,034 450,000 5,039,937 11.20 6,999,971 15.56
Zurn Industries, Inc. (1,740,956) 220,000 5,932,204 26.96 4,191,248 19.05
---------- ----------- -----------
Totals $8,636,880 $55,031,659 $63,668,539
========== =========== ===========
</TABLE>
<TABLE>
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION AS OF DECEMBER 31, 1995
<CAPTION>
Percent of Percent of
Shares Common Stocks Net Assets Market Value Shares Common Stocks Net Assets Market Value
- - ------------------------------------------------------ ------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
AIR TRANSPORT APPAREL
160,000 Southwest Airlines 1.5% $ 3,680,000 550,000 Limited, Inc. $ 9,487,500
-------------- 530,000 Liz Claiborne, Inc. 14,575,000
ALTERNATIVE ENERGY 190,000 Phillips-Van Heusen 1,876,250
369,400 Kenetech Corporation* 0.2% 554,100 -------------
-------------- Total 10.0% 25,938,750
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
13
<PAGE>
THE PARNASSUS FUND
- - --------------------------------------------------------------------------------
<TABLE>
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION AS OF DECEMBER 31, 1995
(CONTINUED)
<CAPTION>
Percent of Percent of
Shares Common Stocks Net Assets Market Value Shares Common Stocks Net Assets Market Value
- - ------------------------------------------------------ ------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BUILDING MATERIALS MEDICAL EQUIPMENT
940,000 Morgan Products, Ltd.* $ 5,522,500 265,000 Advanced Technology
460,000 T.J. International 8,510,000 Labs, Inc.* $ 6,492,500
-------------- 770,000 Sunrise Medical, Inc.* 14,245,000
Total 5.4% 14,032,500 ---------------
-------------- Total 8.0% 20,737,500
---------------
CHEMICALS MEDICAL PRODUCTS
250,000 H.B. Fuller Company 8,687,500 377,500 Sullivan Dental Products 1.4% 3,586,250
420,000 Wellman, Inc. 9,555,000 ---------------
-------------- MICROELECTRONIC
Total 7.0% 18,242,500 PROCESSING EQUIPMENT
-------------- 1,150,000 Genus, Inc.* 3.3% 8,625,000
COMPUTER ---------------
PERIPHERALS PETROLEUM REFINING
320,000 Radius, Inc.* 0.2% 630,000 & MARKETING
-------------- 88,200 Sun Company, Inc. 0.9% 2,414,475
COMPUTER SOFTWARE ---------------
550,000 Mentor Graphics PUBLISHING
Corporation* 3.9% 10,037,500 80,000 Houghton Mifflin Company 1.3% 3,440,000
-------------- ---------------
COMPUTERS RECREATIONAL
340,000 Apple Computer, Inc. 10,837,500 PRODUCTS
810,000 Sequent Computer 1,188,400 CML Group, Inc. 6,090,550
Systems, Inc.* 11,745,000 320,000 Handleman Company 1,840,000
850,000 Tandem Computers, Inc.* 9,031,250 698,700 Huffy Corporation 7,074,338
-------------- ---------------
Total 12.2% 31,613,750 Total 5.8% 15,004,888
-------------- ---------------
DIVERSIFIED SERVICE RETAIL
& SUPPLY 241,200 Ethan Allen Interiors* 4,914,450
100,000 Chemed Corporation 1.5% 3,887,500 122,600 Longs Drug Stores 5,869,475
-------------- 490,000 Toys R Us, Inc.* 10,657,500
ENVIRONMENTAL ---------------
SERVICES Total 8.3% 21,441,425
350,000 Calgon Carbon Corporation 4,200,000 ---------------
520,000 Groundwater SEMICONDUCTORS
Technology, Inc.* 7,280,000 570,000 Advanced Micro Devices* 3.6% 9,405,000
-------------- ---------------
Total 4.4% 11,480,000 STEEL
-------------- 40,000 Acme Metals, Inc.* 570,000
FINANCIAL SERVICES 410,000 Inland Steel Industries 10,301,250
320,000 Ahmanson (H.F.) & ---------------
Company 8,480,000 Total 4.2% 10,871,250
130,000 Student Loan Marketing ---------------
Association 8,580,000
-------------- Total Common Stocks
Total 6.7% 17,060,000 (Cost $239,490,007) 93.7% $242,822,388
-------------- -----------------------------------------------
FURNITURE
338,000 Herman Miller, Inc. 3.9% 10,140,000
--------------
<FN>
*Non-income producing
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
14
<PAGE>
<TABLE>
THE PARNASSUS FUND
- - --------------------------------------------------------------------------------
<CAPTION>
PORTFOLIO OF INVESTMENTS STATEMENT OF ASSETS AND LIABILITIES
BY INDUSTRY CLASSIFICATION DECEMBER 31, 1995
AS OF DECEMBER 31, 1995 (CONTINUED)
<S> <C> <C> <C> <C>
Percent Assets:
of Net Investments in securities, at market value
Short-Term Investments Assets Market Value (identified cost $239,490,007) (Note 1) $242,822,388
- - -------------------------------------------------------------- Temporary investments in short term securities
Bank of California (at cost, which approximates market) 15,324,372
Money Market Account Cash 325,278
(variable rate-5.13% as of 12-31-95) $ 7,715,739 Receivables:
Dividends and interest 221,090
South Shore Bank Capital shares sold 741,886
Money Market Account Other assets 157,044
(variable rate-5.00% as of 12-31-95) 2,044,415 ------------
Total assets 259,592,058
Goldman Sachs ------------
Institutional Liquid Assets
(variable rate-5.50% as of 12-31-95) 5,395,429 Liabilities:
Accounts payable 219,232
Community Capital Bank Capital shares redeemed 240,269
(variable rate-5.41% as of 12-31-95) 100,000 ------------
Total liabilities 459,501
Alternatives Federal Credit Union ------------
(variable rate-2.68% as of 12-31-95) 25,000 Net Assets (equivalent to $31.77
per share based on 8,155,476.764
Self Help Credit Union shares of capital stock outstanding) $259,132,557
(variable rate-2.84% as of 12-31-95) 25,617 ============
Bank of California Account Net assets consist of:
(variable rate-2.45% as of 12-31-95) 18,172 Distributions in excess of
net investment income $ (120,662)
Total Short-Term Investments Unrealized appreciation on investments 3,332,381
(cost $15,324,372) 5.9% 15,324,372 Undistributed net realized gain 92,111
----- ------------ Capital paid-in 255,828,727
------------
Total Investments 99.6% 258,146,760 Total Net Assets $259,132,557
Other Assets and Liabilities- Net 0.4% 985,797 ============
----- ------------ Computation of net asset value and offering
Total Net Assets 100.0% $259,132,557 price per share:
===== ============ Net asset value and redemption price
per share ($259,132,557 divided by
8,155,476.764 shares) $ 31.77
============
Offering price per share (100/96.5 of $31.77)* $ 32.92
============
<FN>
*On investments of $15,000 or more, the sales charge is reduced as stated
in the Prospectus in the section entitled "How to Purchase Shares".
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
15
<PAGE>
<TABLE>
THE PARNASSUS FUND
- - --------------------------------------------------------------------------------
<CAPTION>
STATEMENT OF OPERATIONS STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1995 YEARS ENDED DECEMBER 31, 1995 AND 1994
<S> <C> <C> <C> <C>
Investment Income: 1995 1994
Dividends $ 2,826,646 -------------- ---------------
Interest 842,920 From Operations:
------------ Net investment income $ 1,277,122 $ 551,591
Total investment income 3,669,566 Net realized gain from
------------ security transactions 8,636,880 11,497,032
Net unrealized appreciation
Expenses: (depreciation) during
Investment advisory fees (Note 5) 1,582,602 the year (16,126,308) 2,747,785
Transfer agent fees (Note 5) 433,417 ------------- -------------
Reports to shareholders 134,814
Fund administration (Note 5) 54,500 Increase (decrease) in
Registration fees and expenses 65,243 net assets derived from
Custody fees 67,726 operations (6,212,306) 14,796,408
Professional fees 32,155
Trustee fees and expenses 8,000 Dividends to shareholders:
Other expenses 13,987 From net investment income (1,277,031) (2,069,097)
------------ From realized capital gains (8,643,338) (9,982,176)
Total expenses 2,392,444
------------ Increase in Net Assets from
Net Investment Income 1,277,122 Capital Share Transactions 114,270,902 59,475,618
------------ ------------- -------------
Realized and Unrealized Increase in Net Assets 98,138,227 62,220,753
Gain (Loss) on Investments:
Realized gain from security transactions: Net Assets:
Proceeds from sales 63,668,539 Beginning of year 160,994,330 98,773,577
Cost of securities sold (55,031,659) ------------- -------------
------------
Net realized gain 8,636,880 End of year
------------ (including accumulated
net investment loss of
Unrealized appreciation of investments: $120,662 in 1995 and
Beginning of year 19,458,689 $120,752 in 1994) $ 259,132,557 $ 160,994,330
End of year 3,332,381 ============= =============
------------
Unrealized depreciation during year (16,126,308)
------------
Net Realized and Unrealized
Loss on Investments (7,489,428)
------------
Net Decrease in Net Assets Resulting
from Operations $ (6,212,306)
============
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
16
<PAGE>
THE PARNASSUS FUND
- - --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies
The Parnassus Fund (the Fund) is an open-end, diversified management
investment company (mutual fund), registered under the Investment Company
Act of 1940, as amended. The following is a summary of significant
accounting policies of the Fund.
Securities Valuations - Investment securities are stated at market value
based on recorded closing sales on a national securities exchange or on the
NASD's National Market System, or in the absence of a recorded sale, and for
over-the-counter securities, at the mean between the last recorded bid and
asked prices. Short-term securities are money market instruments and are
valued at cost, which approximates market value.
Federal Income Taxes - It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required.
Security Transactions - In accordance with industry practice, security
transactions are accounted for on the date the securities are purchased or
sold (trade date). Realized gains and losses on security transactions are
determined on the basis of first-in, first-out for both financial statement
and federal income tax purposes.
Investment Income, Expenses, and Distributions - Dividend income is recorded
on the ex-dividend date. Interest income and estimated expenses are accrued
daily. Distributions to shareholders are recorded on the record date.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
2. Distributions
Net realized gains are distributed in the year in which the gains arise. On
December 15, 1995, an income dividend distribution of $1,277,031 ($0.164 per
share), and a capital gains distribution of $8,643,338 ($1.11 per share)
were paid to shareholders of record on that date.
<TABLE>
3. Capital Stock
As of December 31, 1995, there were an unlimited number of shares of no par
value capital stock authorized and capital paid-in aggregated $255,828,727.
Transactions in capital stock (shares) were as follows:
<CAPTION>
1995 1994
-------------------------- ---------------------------
Shares Amount Shares Amount
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold 3,586,999 $126,741,948 1,897,730 $62,470,557
Shares issued through dividend reinvestment 273,013 8,826,500 344,586 10,978,525
Shares repurchased (610,655) (21,297,546) (441,247) (13,973,464)
--------- ----------- --------- -----------
Net Increase 3,249,357 $114,270,902 1,801,069 $59,475,618
========= ============ ========= ===========
</TABLE>
4. Purchases and Sales of Securities
Purchases and sales of securities for the year ended December 31, 1995 were
$157,927,126 and $55,031,659, respectively. For federal income tax purposes,
the aggregate cost of securities and unrealized appreciation at December 31,
1995 are the same as for financial statement purposes. Of the $3,332,381 of
net unrealized appreciation at December 31, 1995, $31,029,333 related to
appreciation of securities and $27,696,952 related to depreciation of
securities.
17
<PAGE>
THE PARNASSUS FUND
- - --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. Transactions with Affiliates and Related Parties
Under terms of an agreement which provides for furnishing investment
management and advice to the Fund, Parnassus Investments received fees
computed monthly, based on the Fund's average daily net assets for the
month, at an annualized rate of 1% of the first $10,000,000, 0.75% of th
next $20,000,000, and 0.70% of the next $70,000,000, and 0.65% of the next
$100,000,000 and 0.60% of the balance. Fees paid by the Fund to Parnassus
Investments under the agreement totaled $1,582,602 for the year ended
December 31, 1995.
Under terms of a separate agreement which provides for furnishing transfer
agent and fund administration services to the Fund, Parnassus Investments
received fees paid by the Fund totaling $487,917 for the year ended December
31, 1995. The transferagent fee is $2.10 per month per account ($2.07 prior
to December, 1995), and the fund administration fee is $5,000 per month
($4,500 prior to December, 1995).
In its capacity as underwriter and general distributor of the shares of the
Fund, Parnassus Investments received commissions on sales of the Fund's
shares for the year ended December 31, 1995 totaling $1,897,143, of which
$564,362 was paid to other dealers. Commissions are deducted from the gross
proceeds received from the sale of the shares of the Fund and, as such, are
not expenses of the Fund.
Jerome L. Dodson is the President of the Fund and is the President and sole
shareholder of Parnassus Investments.
During 1995, the Fund incurred legal fees of $2,034 to Richard D. Silberman,
counsel for the Fund. Mr. Silberman is also the Secretary of the Fund.
6. Financial Highlights
<TABLE>
Selected data for each share of capital stock outstanding, total return and
ratios/supplemental data for each of the ten years in the period ended
December 31 are as follows:
<CAPTION>
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
------ ------ ------ ------- ------- ------ ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at begining of period $32.82 $31.81 $29.94 $23.53 $16.09 $20.62 $20.46 $16.16 $18.09 $17.79
------ ------ ------ ------- ------- ------ ------- ------- ------ ------
Income from investment operations:
Net investment income (loss) 0.15 2.73 0.27 0.01 0.06 0.16 0.27 (0.05) (0.04) (0.09)
Net realized and unrealized
gain (loss) on securities 0.07 1.00 4.84 8.60 8.29 (4.52) 0.30 6.90 (1.19) 0.53
------ ------ ------ ------- ------- ------ ------- ------- ------ ------
Total from investment operations 0.22 3.73 5.11 8.61 8.35 (4.36) 0.57 6.85 (1.23) 0.44
------ ------ ------ ------- ------- ------ ------- ------- ------ ------
Distributions:
Dividends from net investment
income (0.16) (0.47) (0.25) 0.04) (0.06) (0.17) (0.18) .-- (0.03) (0.03)
Distributions from net realized
gain on securities (1.11) (2.25) (2.99) (2.16) (0.85) .-- (0.23) (2.55) (0.67) (0.11)
------ ------ ------ ------- ------- ------ ------- ------- ------ ------
Total distributions (1.27) (2.72) (3.24) (2.20) (0.91) (0.17) (0.41) (2.55) (0.70) (0.14)
------ ------ ------ ------- ------- ------ ------- ------- ------ ------
Net asset value at end of period $31.77 $32.82 $31.81 $ 29.94 $ 23.53 $16.09 $ 20.62 $ 20.46 $16.16 $18.09
====== ====== ====== ======= ======= ====== ======= ======= ====== ======
TOTAL RETURN* 0.62% 11.98% 17.31% 36.80% 52.56% (21.16%) 2.85% 42.44% (7.95%) 2.39%
RATIOS / SUPPLEMENTAL DATA:
Ratio of expenses to average
net assets 1.02% 1.14% 1.26% 1.47% 1.51% 1.77% 1.65% 2.15% 2.13% 2.58%
Ratio of net investment income (loss)
to average net assets 0.54% 0.43% 0.13% 0.02% 0.26% 0.87% 1.21% (0.49%) (0.24%) (0.13%)
Portfolio turnover rate 29.10% 28.10% 21.00% 32.80% 24.61% 38.25% 11.45% 32.34% 31.69% 31.22%
Net assets, end of period (000's) $259,133 $160,994 $ 98,774 $56,237 $ 31,833 $ 20,738 $ 23,048 $10,863 $ 5,374 $ 3,321
<FN>
* Total return figures do not adjust for the sales charge.
</FN>
</TABLE>
18
<PAGE>
THE PARNASSUS FUND
- - -------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Trustees of The Parnassus Fund:
We have audited the accompanying statement of assets and liabilities of The
Parnassus Fund (the "Fund"), including the portfolio of investments by industry
classification, as of December 31, 1995, and the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights (Note 6) for
each of the nine years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial statements (not
presented herein) and financial highlights of the Fund for the year ended
December 31, 1986 were audited by other auditors whose report, dated January 16,
1987, expressed an unqualified opinion on those statements and financial
highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned at December 31, 1995 by correspondence with the custodian and
brokers; where replies were not received, we performed other auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Fund as of December 31, 1995, the results of its operations, the changes in its
net assets and financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
San Francisco, California
January 25, 1996
19
<PAGE>
THE
One Market-Steuart Tower #1600 PARNASSUS FUND
San Francisco, California 94105
415-778-0200 ANNUAL REPORT
800-999-3505
Investment Adviser
Parnassus Investments
One MarketSteuart 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
Bank of California
475 Sansome Street
San Francisco, California 94111
Distributor
Parnassus Investments
One MarketSteuart Tower #1600
San Francisco, California 94105
DECEMBER 31, 1995
