THE PARNASSUS FUND
Quarterly Report
September 30, 1998
October 26, 1998
Dear Shareholder:
As of September 30, 1998, the net asset value per share (NAV) of The
Parnassus Fund was $25.06 so the overall return for the quarter was a loss of
24.29%. This compares to a loss of 10.30% for the S&P 500 and a loss of 13.44%
for the average growth fund according to Lipper Analytical Services. Our loss
for the quarter, then, was substantially worse than that of the indices and the
average growth fund.
Below you will find a table summarizing our average annual returns as of
September 30, 1998 for the one, five and ten-year periods as well as for the
life of the Fund. The overall return figures give investment performance only
while the total return figures are reduced by the amount of the maximum sales
charge (3.5%).
------------------------------------------------------------------
Average Annual Average Annual
Total Return Overall Return
------------------------------------------------------------------
One Year (41.32%) (39.19%)
Five Years 3.68% 4.42%
Ten Years 8.62% 9.00%
Since Inception 12/31/84 9.51% 9.80%
------------------------------------------------------------------
Returns for average growth fund supplied by Lipper Analytical Services.
Past performance is no guarantee of future returns. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may be
worth more or less than their original cost.
WHAT HAPPENED IN THE THIRD QUARTER?
Two strong trends affected the prices of portfolio companies. First, small
and medium-sized companies dropped more than large capitalization issues. Even
minor earnings disappointments of smaller companies resulted in huge drops in
market value. Although we're not a small-cap fund and we have companies of all
different sizes in the portfolio, the Fund is heavily influenced by how well
small and medium-sized companies are doing.
The second trend was a continuation of what we described in the second
quarter report. There was weakness in some of the technology sectors where we
hold substantial positions: disk drives, semiconductors and semiconductor
capital equipment.
<PAGE>
The relative underperformance of smaller companies can be seen in a couple
of market indices. While the S&P dropped only 10.30% during the quarter, the
Russell 2000 index of smaller companies dropped 20.50%. Similarly, the average
growth fund dropped 13.44% while the average small-cap fund declined 21.55% --
closer to our decline of 24.29%.
This underperformance of smaller companies has been going on for several
years now. In general, the phenomenon seems to run in cycles. First, large-cap
companies will do better for a few years, then small-cap companies will do
better for a few years. No one knows exactly why it happens, but my view is that
momentum investors contribute a lot to the phenomenon. As large company stocks
increase in value, trend followers buy them and drive up the price even more.
This pattern goes on for several years until there is a huge mismatch in
valuation with large companies selling at much higher prices than smaller
companies on a relative basis. When the relative values are way out of
proportion, the trend reverses itself and smaller companies start moving up
faster than larger companies.
Our four biggest losers during the quarter were not technology issues, but
rather retailers that are in the small to medium category. St. John Knits, a
designer, manufacturer and retailer of women's apparel, dropped 58.3% during the
quarter as its stock went to $16.13 a share. It seems as if the decline was
unjustified by the fundamentals of the company. St. John is making money and
sales are growing. The company announced that earnings during the second quarter
would be 43 cents a share, a gain of 1 cent over the 42 cents earned in the
second quarter of 1997. Sales were up a substantial 23.5% from the previous
year's second quarter.
What caused the stock's price decline was the failure to meet analysts'
expectations and some operating difficulties. Analysts had expected the company
to earn 50 cents a share so the announcement of 43 cents was a disappointment.
Sales in the company's retail stores were up, but less than expected, so
management had to mark down prices. There were also some production mistakes
which increased operating expenses. Most of these difficulties seem temporary
and the company's financial position is strong so it's hard to see why the stock
dropped 58% during the quarter. Because its shares are trading at bargain
levels, the company is now buying back one million shares in the open market. We
plan to continue holding the stock.
Petco, a San Diego-based chain of retail stores selling pet food and
supplies, dropped 54.9% during the quarter to $9.00 per share. Here again, the
company is not losing money, but rather the stock fell when management announced
that earnings would be only 10 to 12 cents per share in the second quarter
compared to analysts' expectations of 21 cents. The company still expects to be
profitable for the year with analysts predicting 70-75 cents a share (down from
earlier estimates of $1.13). Petco had recently acquired 72 new stores from a
competitor and the earnings shortfall occurred because of difficulties with the
new stores. Again, the relatively minor problems here do not seem to justify
such a huge decrease in price and the problems seem to be of a temporary nature.
We will continue to hold the stock for both social and financial reasons.
<PAGE>
West Marine, a Northern California-based retailer of boating supplies, saw
its stock drop 50.7% as it sank to $8.88 a share. Inhospitable weather, new
stores detracting from its catalog business and operational problems in its new
distribution center in the Carolinas caused quarterly earnings to drop to 52
cents a share for the second quarter compared to analysts' estimates of 72
cents.
Finally, Gymboree, a retailer of children's clothes, had a drop of 50.5% in
its stock price as it went to $7.50. The company did not do a good job of
merchandising this year and its boys' clothes did not sell well. Gymboree makes
bright, colorful clothing which has done well in the past, but recent trends
favor the kind of clothes sold at GapKids, i.e., khakis and less colorful
clothing that's designed in the style of the adult clothes sold at the Gap.
Gymboree has been forced to mark down its apparel prices by substantial amounts
causing lower margins and decreased earnings. The company lost 3 cents per share
in the second quarter, but it should be profitable for the full year.
From the descriptions of what happened to these four companies, you can get
an idea of why the smaller and medium-sized companies are not doing as well in
the stock market as the large-cap companies. I'll talk about this subject more
in the Outlook and Strategy section of this report, but in the meantime, I'd
like to continue our company-by-company discussion with some technology issues.
Four semiconductor capital equipment stocks had substantial declines during
the quarter and thereby contributed to our poor return. The equipment stocks
fell further than the two other technology industries where we have substantial
investments: disk drives and semiconductors.
In a normal technology cycle, disk drive and semiconductor companies bounce
back before equipment companies. This is because disk drives and semiconductors
go directly into personal computers whereas equipment purchases can be deferred
until later in the cycle. Semiconductor companies need about six months of
strong sales before they start to buy new equipment. Although there has been a
slight uptick in sales of semiconductors and disk drives, sales of semiconductor
equipment are still declining.
During the quarter, Electro Scientific Industries saw its stock drop 49.7%
to $15.88 a share. The company makes lasers for use in semiconductor
manufacturing and the company has remained profitable during the downturn.
Lam Research, a Silicon Valley-based maker of a broad line of semiconductor
capital equipment, had a 47.7% decline in its stock as it dropped to $10.00
during the quarter. Although the company will probably have a modest loss in
1998, it should be profitable in 1999.
Cognex is a Massachusetts-based producer of vision products which are
computers that can "see." The company's main market is for machines that can
detect defects in semiconductors during the manufacturing process. The stock
dropped 37.2% during the quarter to $11.63 a share although the company
continues to be profitable during the downturn.
<PAGE>
Finally, Helix, a manufacturer of cryogenic pumps used to create vacuums
during the semiconductor manufacturing process, had a 34.2% drop in its stock as
it fell to $9.88 per share. Helix pays a dividend of 84 cents per share per year
so it has a yield of 8.5%. We'll get a good return on the stock as we wait for
its price to come back.
The reason why the semiconductor equipment stocks are doing so poorly is
that sales are still declining and it's uncertain when orders will pick up. Some
analysts are forecasting that there won't be an upturn in orders until the
middle of 1999. These stocks have fallen to levels far below anything I ever
anticipated. On a fundamental basis, though, they are still excellent companies
that even now are operating profitably on a year-to-year basis.
Given the dismal outlook, one might ask why we don't sell all our
semiconductor equipment stocks and buy them back in the middle of 1999. There
are three reasons why I think this is not a good idea. First, the timing is
uncertain. Orders could turn up sharply tomorrow. Although I don't know the
exact date, I think the rebound is imminent.
Second, the stock market always anticipates developments. By the time
equipment companies are seeing healthy increases in sales, the stocks will be
much higher.
Third, when the semiconductor equipment stocks come off a bottom, they move
very quickly. The last time these stocks hit a low was in early 1997. Within a
few months, most of them had doubled. Here is what happened the last time with
five of the companies that are currently in our portfolio.
Applied Materials sold for $23.75 on April 28, 1997, but it climbed to
$54.15 on August 20 for a gain of 128% in less than four months. Lam Research
sold for $31.50 on June 12, 1997 and then rose to $66.25 on August 20 for an
increase of 110% in less than 70 days. The stock of Electro Scientific
Industries stood at $27.13 on May 2, 1997, but had jumped to $62.88 by October 3
for a gain of 132% in five months. Cognex traded at $18.63 on April 4, 1997,
then hit $39.90 on August 21-- a leap of 114% in less than five months. Finally,
Helix sold for $15 a share on May 1, 1997, then ran up to $33.38 on August 21
for an increase of 125% in less than four months.
As you can see from these examples, being out of a stock for even a short
period of time can mean missing a substantial gain. For this reason, we've
chosen to stick with these companies even if a turnaround may be some time away.
Why do the stocks of semiconductor capital equipment companies move so
quickly? It's in the nature of the industry. Before too long, semiconductor
companies will have to order a new generation of capital equipment to keep up
with more advanced manufacturing processes. One well-known equipment company
says it has a large number of purchase orders outstanding waiting to be signed
by chief executive officers of customer companies. They haven't signed yet
because they're waiting for the last possible moment to commit before purchasing
expensive equipment. At some point, when business looks better, one company will
sign off and then the others will quickly follow.
<PAGE>
Since equipment companies can only manufacture a fixed number of machines
per quarter, not all the purchase requests can be honored at the same time.
During peak order times, companies have to wait their turn and receive their
machines according to a priority based on the order date. To get priority, all
the firms rush their orders in at the same time. A delay in receiving equipment
could mean lost orders and lost income down the road.
THERE WERE SOME WINNERS
Three of our technology companies turned in the best performance of the
quarter for our portfolio. Intel climbed 15.7% as its stock went to $85.70 a
share. The company announced increased revenue for the third quarter and said
they expected the second half of the year to have strong semiconductor sales.
This is quite positive for the Fund and if semiconductor sales continue to
strengthen, it should pull disk drive and equipment companies along with them.
Compaq Computer gained 11.7% for the period as its stock went to $31.63.
Early in the year, Compaq had excess inventory, but this has been worked down to
normal levels. The company announced that PC sales continue to grow at a good
rate.
Finally, Advanced Micro Devices (AMD) was up 8.8% as its stock reached
$18.56. Results at the company keep improving because of strong PC sales. AMD
has a strong position with low-priced computers which is the fastest growing
segment of the market.
OUTLOOK AND STRATEGY
As we discussed earlier in this report, the relative underperformance of
smaller companies was one of the factors that worked against us during the
quarter. This market weakness of smaller companies has been going on for several
years now, but my view is that this will probably change next year. My view is
based on historical precedent.
Since the Russell 2000 index of smaller companies was created almost 20
years ago (1979), it has lost more than 10% in only two years prior to this one:
1987 and 1990. In both those years, the Russell 2000 sharply underperformed the
"big-cap" S&P 500, but in each succeeding year, the Russell came roaring back to
outperform the S&P. In 1987, the S&P gained 5.25% while the Russell lost 10.80%.
In the following year (1988), the Russell gained 22.37% while the S&P gained
only 16.61%. The same thing happened in the 1990-91 period. The S&P lost 3.09%
in 1990 while the Russell lost 21.45%, but in 1991, there was a reversal with
the S&P gaining 30.47% and the Russell gaining 43.68%.
Not coincidentally, The Parnassus Fund did very well in 1988 and 1991. The
Fund gained 42.44% in 1988 and was the top-performing growth fund in the country
that year according to Lipper Analytical Services. The Fund gained 52.56% in
1991 to place among the top growth funds that year according to Lipper.
<PAGE>
Below you will find these figures summarized in a table.
1987 1988 1990 1991
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Russell 2000 (10.80%) 22.37% (21.45%) 43.68%
S&P 500 5.25% 16.61% (3.09%) 30.47%
The Parnassus Fund (7.95%) 42.44% (21.16%) 52.56%
---------------------------------------------------------------------------
Source: Bloomberg, L.P.
Clearly, there's no guarantee that smaller companies will outperform in
1999 and as the government regulators require us to say: past performance is no
guarantee of future returns.
I'm presenting these statistics, then, not as a guarantee that history will
repeat itself, but as background on why I'm staying with the current strategy.
Although we have not done well at all in 1998, we're staying with our investment
in technology and some of the smaller and medium-sized companies in the
portfolio. In my view, they're selling at bargain basement prices and the
intrinsic value of these issues is much higher than indicated by current market
quotations.
There are, of course, risks to this strategy. There's no certainty that
small and medium-sized companies will bounce back next year. They could continue
to underperform as they've done for several years now. There's also no guarantee
that our technology issues will perform better in 1999; they could continue to
be weak next year as well. Nevertheless, my analysis shows that the rewards
outweigh the risks and we'll stick to our current strategy.
Although one cannot predict when the turn will come, I doubt if it will be
before the end of the year. There will probably be a lot of tax-loss selling in
many of our issues because they've done so poorly this year. By the end of
December, most tax-loss selling should be over and January is usually seasonally
strong for technology issues and the Russell 2000.
The fact that I'm now staying with our current strategy does not mean that
I won't change some things in the future as a result of this experience. In
retrospect, there are two things that I wish I had done differently: more
diversity for the portfolio and a change in timing.
At the beginning of the year, I saw what I considered great bargains in
disk drives, semiconductors and semiconductor capital equipment. My view is
still that these issues were undervalued at the time, but I wish I had not put
so much of the Fund's assets in these three industries. In the future, I will be
much more reluctant to have such a concentration. Although it doesn't make sense
to sell off these issues now, it is a good lesson for the future.
The other issue is a related one and involves timing. Through the years, I
have had a tendency to invest too soon. It probably stems from a concern that an
undervalued stock will soon jump up in price and we'll miss out on an
opportunity. Had I waited a few months longer, we could have bought some of the
undervalued issues at much better prices. My New Year's Resolution for 1999 is
to wait a bit longer before committing the Fund's capital. If a stock jumps up
as we're waiting, I'll just have to live with it.
<PAGE>
SEC DECISION
On September 3, 1998, an SEC administrative law judge found technical
violations against Parnassus Investments, the Fund's management company, and two
Trustees of The Parnassus Fund, David Gibson and myself, and a former Trustee of
The Parnassus Fund, Marilyn Chou. All of us disagree with this decision since
our view is that no securities laws were violated. The judge imposed no
penalties either on the Trustees or on Parnassus Investments. The decision will
have no impact on either Parnassus Investments or on The Parnassus Fund.
Enclosed with this quarterly report, you will find a letter from the Fund's
independent Trustees not involved in the SEC case. You can read their view of
the case, but I would like to give you some background.
On May 28, 1997, the SEC staff instituted proceedings against two of the
Trustees of The Parnassus Fund, a former Trustee (collectively "The Trustees")
and Parnassus Investments (PI). The SEC staff alleged that the Trustees and PI
overvalued the shares of a company called Margaux, Inc. from December of 1990 to
January of 1993 and they also alleged that the Fund made a loan of $100,000 to
Margaux on April 28, 1989 that violated the Fund's investment policies of not
making loans. Finally, they charged that Parnassus Investments used credits from
brokerage commissions known as "soft dollars" to purchase $67,000 worth of
computer equipment that PI used for transfer agent and fund accounting work.
Investment regulations allow the use of soft dollars, but the SEC maintained
that these soft dollar credits were not permissible. Although he imposed no
penalties and said the violations were of a technical nature, the SEC
administrative law judge did make a decision in favor of the SEC. The Trustees
find it hard to believe that there were any violations and I would like to give
you our thoughts.
Regarding valuation, Margaux was delisted from the NASDAQ stock market on
August 30, 1990. This meant that there was no real market for the company's
stock so the Trustees had to value the stock according to estimated fair value.
The last quote on NASDAQ was 34.4 cents a share and we left the stock at that
level because we thought that was an accurate assessment of the company's fair
value.
The SEC implied that we should have marked Margaux's shares down to very
low values because of isolated, nonrepresentative trades. We disagreed with the
SEC's contention. We felt, based upon our analysis of Margaux's business, that
marking down the price to unrealistically low levels on the basis of a few
shares traded would hurt shareholders and would not be representative of
Margaux's fair value.
Our decision proved to be a wise one. Margaux was sold to another company
called Dover Diversified in 1995 for 27 cents a share -- far above the low
prices the SEC wanted us to use and close to the 34.4 cents a share the Trustees
said the company was worth. Considering the final sales price, the SEC's
position -- that the Trustees should have marked Margaux's stock down to prices
as low as 1 cent a share -- makes no sense at all.
After Margaux went into Chapter 11 reorganization, the Fund invested
$100,000 in Margaux in the form of a convertible debenture. The company needed
money for working capital and we thought it would be a good investment since the
company had a lot of value and we could convert our $100,000 into stock. The
Fund's investment policies state that we can invest in "convertible debt
securities" and the Margaux investment was a convertible debt security. However,
Margaux's Chapter 11 reorganization plan had to be approved by the court so our
investment had to be confirmed by the court to be convertible. Since some months
elapsed between the time we put up the $100,000 and the time we received court
confirmation of convertibility, the SEC claimed that the investment was a loan
and not an equity investment. (The Fund does not make loans.) In our view, the
SEC made a highly technical argument that was wrong. Both Margaux and the Fund
knew the investment was a convertible debt security and we had to act quickly to
get the working capital to the company. In the final analysis, the court
confirmed the convertibility and we did quite well on the investment. We
acquired the stock for 6.7 cents a share and sold it for 27 cents. An investment
with this kind of return would not usually be considered a loan.
The final issue was soft dollars. Parnassus Investments used soft dollars
to purchase computer hardware and software to use in the Fund's transfer agent
and fund accounting functions as well as for research. The SEC agreed that our
use of soft dollars for research was justified, but not for accounting or
transfer agent work. I disclosed to the independent Trustees that we were using
soft dollars to purchase computers and software. PI receives a fee from the Fund
for providing transfer agent and fund accounting services and PI reduced the fee
it would otherwise have charged to compensate for the use of soft dollars. In
this way, we saved the Fund and the shareholders money by keeping our fees low.
The SEC maintained that PI was getting a benefit from the soft dollars that
should not be allowed. We disagreed with the SEC, but because of the
controversy, PI paid the Fund $67,000 in cash to resolve the issue. The payment
was made in 1995.
Given this situation, charges of securities violations sound pretty
far-fetched. Even the judge seemed to have second thoughts when he wrote:
"Respondents' (i.e., the Trustees and Parnassus Investments) actions did not
involve fraud, but rather violations of technical provisions of the securities'
laws. Respondents' actions resulted in minimal harm to others and afforded them
no unjust enrichment. Furthermore, prior to this proceeding, Respondents had
never been the subject of an enforcement proceeding. Finally, I find the need
for civil penalties to serve as a deterrent against future violations is wholly
unnecessary. Therefore, I conclude that civil penalties are not appropriate in
this case." The judge made this comment in response to the SEC staff's request
that fines be levied as a penalty.
Despite the unfairness of the decision, we have decided not to appeal.
There are two reasons for this. First, the decision will have no impact on
either Parnassus Investments or The Parnassus Fund. Second, the appeal would
consume large amounts of time and money and those resources could be better
spent elsewhere. We also think that the SEC has already spent too much time and
money on a case where there was no fraud, no unjust enrichment and the alleged
violations were highly technical in nature. We think it's best to put this case
behind us and forget about it.
<PAGE>
ANNUAL DIVIDEND
The Fund will pay a dividend to all shareholders of record as of December
17, 1998 (record date). The dividend is payable to everyone who owns shares on
that day even if the shares were purchased only a few days before. Since the
dividend is taxable, I normally recommend that investors refrain from buying
more shares from late November until after the dividend is paid on December 18
(payment date). This year, however, I am changing my advice since the dividend
will be relatively small. The dividend is based on realized gains (i.e., stocks
we've already sold for a profit). We do have some realized gains now, but I
intend to sell off enough of our losers to cancel out most of the realized gains
(for tax purposes). Consequently, those of you who want to invest late in the
year can do so without any significant tax consequences. (I estimate that the
distribution will be less than $1.00 per share.) Those of you who think late
November or early December is a good time to make an additional investment can
go ahead without having to worry about much of a tax bite.
COMPANY NOTES
Intel Corporation donated $6 million to the Whitney Museum of American Art
for an exhibit that aims to be "a comprehensive record of the evolution of the
American visual culture" from silent film to television, painting, sculpture,
photography and computer science. After a nine month stay at the Whitney, the
1,400 pieces will go to the San Francisco Museum of Modern Art and then move on
to Europe. The gift is the largest single corporate donation to fund an
individual museum project. Separately, Intel also announced the donation to
school teachers of 6,000 Pentium II processors complete with motherboards and
kits designed to help them effectively use the World Wide Web.
Autodesk has pledged to donate a portion of funds recovered from its
anti-software piracy program to its Design Your Future Scholarship Fund. The
program supports young women who are pursuing higher education in
technology-related fields. Autodesk is the only major software company to be
headed by a woman.
MISCELLANEOUS
Rishi Chandna, our fall intern, is a junior at the University of California
at Berkeley where he's majoring in business administration and political
science. Rishi is a student senator at the University and also serves on the
University of California Police Review Board. His experience includes working as
a marketing representative for India House, an import firm. His non-profit
activities include tutoring young people and serving as a delegate at the Model
United Nations.
<PAGE>
Some shareholders have recently complained about late reports. After
researching the matter, we discovered that these late reports were not ones we
had mailed ourselves, but rather ones that went through third parties such as
brokerage firms. We have asked the brokerage firms and third parties to expedite
the reports, but we don't have direct control over the mailings. If your reports
are arriving late, you can call us at (800) 999-3505, give us your address and
ask us to mail the quarterly reports directly to you. This report should reach
you in late October or the first week of November. If it comes much later than
that, you should give us a call and ask to be put on the mailing list to receive
quarterly reports directly.
Yours truly,
Jerome L. Dodson
President
<PAGE>
<TABLE>
<CAPTION>
The Parnassus Fund Portfolio: September 30, 1998*
# of Shares Issuer Market Value Per Share
- --------------------------------------------------------------------------------
<S> <C> <C>
700,000 Adaptec, Inc. $ 6,650,000 $ 9.50
150,000 Adobe Systems, Inc. 5,203,125 34.69
600,000 Advanced Micro Devices, Inc. 11,137,500 18.56
175,000 Apogee Enterprises, Inc. 2,143,750 12.25
370,000 Applied Materials, Inc. 9,342,500 25.25
10,000 Autodesk, Inc. 262,500 26.25
25,000 BankBoston Corporation 825,000 33.00
580,000 Building Materials Holding Corp. 7,612,500 13.13
320,400 Centigram Communications Corp. 2,523,150 7.88
700,000 Cognex Corporation 8,137,500 11.63
450,000 Compaq Computer Corporation 14,231,250 31.63
10,000 Dayton Hudson Corporation 357,500 35.75
600,000 Electro Scientific Industries, Inc. 9,525,000 15.88
325,000 Electronics for Imaging, Inc. 6,865,625 21.13
600,000 FEI Company 4,800,000 8.00
621,500 The Gymboree Corporation 4,661,250 7.50
600,000 Helix Technology Corporation 5,925,000 9.88
170,000 Hewlett-Packard Company 8,999,375 52.94
5,000 Illinois Tool Works, Inc. 272,500 54.50
100,000 In Focus Systems 600,000 6.00
225,000 Intel Corporation 19,293,750 85.75
300,000 Lam Research Corporation 3,000,000 10.00
104,400 Lands' End, Inc. 1,931,400 18.50
177,000 Liz Claiborne, Inc. 4,635,188 26.19
550,000 LSI Logic Corporation 6,943,750 12.63
1,000,000 Morgan Products, Ltd. 2,625,000 2.63
885,000 Oxford Health Plans, Inc. 9,181,875 10.38
400,000 Petco Animal Supplies, Inc. 3,600,000 9.00
450,000 Quantum Corporation 7,143,750 15.88
700,000 Read-Rite Corporation 5,468,750 7.81
100,000 Reebok International, Ltd. 1,356,250 13.56
817,000 Sequent Computer Systems, Inc. 7,097,688 8.69
160,000 Snap-on Incorporated 4,930,000 30.81
400,000 St. John Knits, Inc. 6,450,000 16.13
150,000 Symantec Corporation 1,978,125 13.19
167,500 West Marine, Inc. 1,486,562 8.88
1,050,000 Western Digital Corporation 11,287,500 10.75
200,000 Xylan Corporation 2,650,000 13.25
-------------
Total Portfolio $ 211,134,613
Short Term Investments
and Other Assets $ 15,915,373
-------------
Total Net Assets $ 227,049,986
=============
The Net Asset Value
as of September 30, 1998 $ 25.06
<FN>
* Portfolio is current at time of printing, but composition is subject to change.
</FN>
</TABLE>
<PAGE>
The Parnassus Fund
One Market-Steuart Tower #1600
San Francisco, California 94105
415-778-0200
800-999-3505
www.parnassus.com
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
This report must be preceded or accompanied by a current prospectus.
