The Parnassus Fund
- --------------------------------------------------------------------------------
August 9, 1999
Dear Shareholder:
As of June 30, 1999, the net asset value per share (NAV) of The Parnassus
Fund was $41.84 so the overall return for the second quarter was 15.01%. This
compares to a return of 7.06% for the S&P 500 and 7.07% for the average growth
fund according to Lipper, Inc. For the quarter, then, our return was more than
double that of the S&P and the average growth fund.
For the year-to-date, the Fund is up 15.45% compared to 12.38% for the S&P
500 and 11.64% for the average growth fund. Our one-year returns also look good
compared to the market averages. The Fund is up 26.40% for the 12 months ending
June 30, 1999 compared to 22.76% for the S&P 500 and 18.87% for the average
growth fund.
Below you will find a table summarizing our average annual returns as of
June 30, 1999 for the one, five and ten-year periods. 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 21.98% 26.40%
-----------------------------------------------------------------
Five Years 13.59% 14.40%
-----------------------------------------------------------------
Ten Years 12.75% 13.15%
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.
While our performance in recent years has been somewhat disappointing
compared to the S&P 500, the numbers look much better over the past year. While
we had a good year in 1997, we underperformed substantially in 1996 and 1998. I
have to assume much of the responsibility for the underperformance in recent
years, but the gap between the Fund's numbers and the S&P 500 was greatly
magnified by the nature of the stock market over the past few years.
<PAGE>
The enormous gains in the major stock market averages over the past few
years have been due to a relatively small number of stocks while the broader
market averages have not done nearly as well. The major market indices -- the
Dow Jones Industrials, the NASDAQ and the S&P 500 -- are weighted by market
capitalization (i.e., a company's number of shares outstanding times the market
price). This means that big jumps in just the largest companies move the indices
even if the gains in most companies are much more modest or even nonexistent.
For example, in the S&P 500, the 50 largest companies account for more than half
the movement in the index. This means that even if 450 companies in the index
have little or no gain, the index could still show substantial upward movement
if the biggest 50 companies have large gains.
The result has been that the largest companies are overvalued while the
small and medium-sized companies are undervalued. Since The Parnassus Fund's
philosophy is to invest in undervalued companies, we have stayed away from most
of the biggest companies and concentrated on medium-sized ones (see shareholder
letter from R.S. Boreham later in this report). This has meant underperformance
by The Parnassus Fund in recent years.
Because of the disparity in valuations between the large-cap companies and
all the others, I had expected the trend to reverse itself a long time ago so
that the smaller companies would play catch-up and outperform the big stocks.
Although this has not happened in recent years, things did start to change in
the second quarter. Small and medium-sized companies outperformed the large-cap
stocks in this period and that helped the Fund achieve its strong gains in the
second quarter.
Because of the misleading movement of some of the major indices over the
past few years, I have decided to add another index to our quarterly reports.
While we will continue to compare the Fund to the S&P 500 since it's one of the
most widely-watched market indices, we will also be comparing the Fund to the
Wilshire 5000 which is a broad market index that includes almost all publicly
traded companies. While the Wilshire 5000 is also market-weighted, it is not
completely dominated by the biggest companies because so many stocks are
included. The index has grown past 5,000 to 7,394 companies, although it's still
called the Wilshire 5000. For the quarter, the Wilshire gained 7.80% compared to
15.01% for the Fund; for the year-to-date, the Wilshire was up 11.87% compared
to 15.45% for the Fund; and for the one-year ending June 30, 1999, the Wilshire
was up 19.59% compared to 26.40% for The Parnassus Fund.
WINNERS AND LOSERS
Only three of our portfolio companies lost more than 20% for the quarter
while 13 companies gained more than 20%. The biggest loser was Just For Feet, a
retailer of athletic and other shoes, which lost 48.5% during the quarter as
sales slowed and unsold inventory built up in its warehouses. The stock is now
at $6.44, but we're holding our position because we're expecting a strong
comeback over the next year.
ADAC Laboratories, a maker of equipment used in nuclear medicine, lost
46.2% during the quarter as its stock dropped to $7.33. The company had to
restate earnings because it recognized revenue on an extremely aggressive basis.
We have sold our entire position.
<PAGE>
Compaq Computer dropped 25.4% to $23.69 because of higher costs and slower
sales. The board has fired both the chief executive officer and the chief
financial officer and is making a number of other important changes. The Fund is
hanging on to its position in the company.
Ten of the 13 winners in the portfolio were technology companies. Right
now, technology accounts for slightly over 60% of total assets. Although we have
been selling off some of our positions in technology companies and we haven't
made any major new commitments in the sector, the percentage in technology
remains high because of the strong appreciation of those stocks. Technology
accounts for about 30% of the S&P and our goal is to get technology down to
around 40% of the portfolio. However, we don't want to sell off our technology
shares if we think they have the potential for greater appreciation.
The biggest winner in the portfolio, though, was not a technology company.
It was Wellman, the producer of fiber and the nation's largest recycler of
plastic bottles. The stock gained 79.6% as it went to $15.94 during the quarter.
Prospects for Wellman improved because of increased demand for the resin it
makes for use in manufacturing PET soda bottles.
Lam Research, a semiconductor capital equipment company, gained 61.0% as
its stock went to $46.69. During last year's depression in the semiconductor
capital equipment industry, Lam made big cuts in its cost structure but
continued its strong research efforts to develop innovative new machines. Now
that demand has picked up, Lam's earnings have soared.
Helix, the maker of cryogenic pumps for use in semiconductor manufacturing,
saw its stock climb 55.7% as it closed the quarter at $23.94. As with Lam
Research, the increased demand for semiconductor capital equipment was the
driving force behind the move.
Adaptec had an increase of 54.4% as its stock price soared to $35.31 a
share. The company makes controllers that regulate the flow of data between a
computer's central processing unit and its peripherals. Better focus by the new
management team and increased sales of its products helped the stock.
Symantec, the maker of anti-virus and other software, saw its stock
increase by 50.6% as it went to $25.50 a share. The company has a new chief
executive officer, Kenneth Thompson, a capable executive from IBM. The new CEO
has a great deal of respect in the technology community and will use his
relationships with other companies to grow revenue and increase profits at
Symantec.
LSI Logic Corporation, the semiconductor manufacturer with the
"system-on-a-chip" gained 48.9% during the quarter as its stock climbed to
$46.44. The company has seen a big increase in demand for its customized chips.
Hewlett-Packard, the maker of personal computers, workstations, printers
and test equipment, saw a 48.2% increase as its stock price climbed to $100.50.
HP was one of the few large-cap companies to be selling at a reasonable price
last year and early this year. Strong sales in two of its core businesses --
printers and personal computers -- combined with good cost control to propel the
stock higher.
Adobe Systems climbed 44.8% to $82.16. Traditionally, this company has kept
its expenses at a high level, but lately, costs have been more modest. At a
recent meeting, I asked John Warnock, the chief executive officer, if he had
stopped being the last of the big-time spenders. He swore that he had turned
over a new leaf and a new chief financial officer had put strong cost controls
in place. The company is also bringing out new versions of popular software
including PageMaker and Acrobat.
Whole Foods Markets had a 39.8% gain during the quarter as its stock rose
to $48.06 a share. We estimate that comparable store sales gained 8.5% for the
June quarter which compares with about a 2.5% gain for traditional supermarkets.
Better cost control improved earnings and moved the stock higher.
Quantum Corporation gained 34.0% as its stock went to $24.13 a share. The
company makes both hard disk drives and digital linear tape (DLT) storage
systems. This summer, each business will have its own stock and this will unlock
the value of the fast-growing DLT business.
Micrion, a semiconductor capital equipment company, saw its stock climb
33.3% to $11.25 because of increased demand for its equipment. Cognex, the
machine vision company that makes computers that "see", had a 33.3% gain to
$31.56 because of higher demand for its machines by companies that recognize the
value of its unique technology.
Reebok contributed a 29.5% gain for the Fund as its stock went from $15.88
at the start of the quarter to $20.56 at the time we sold our position. The
stock moved up during the quarter because of increased sales of its new DMX
athletic shoe and because its inventory position seemed to be under control.
After we sold the stock, the price dropped back below $16 because unsold
inventory climbed higher and sales of DMX and the Rockport brand started to
slow.
OUTLOOK AND STRATEGY
I'd like to begin this section of the semiannual report with a shareholder
letter. It's from R.S. Boreham who is not only a shareholder, but is also
Chairman of Baldor Electric, a very socially responsible company known for its
energy-efficient electric motors and its humane treatment of employees. Baldor
Electric is now in the Parnassus Equity Income Fund and has been in The
Parnassus Fund in the past.
Dear Jerry:
I just read with interest, as I always do, your March 31, 1999
quarterly report.
I usually understand what you mean, but you lost me on one point. You
say at one place the large high-cap companies are over-priced. I agree, and
I imagine most people do.
But then later in your letter you say "in the future, we should have
fewer companies below $1 billion (market cap)."
Since you feel, with much support, that the large ones are over-priced,
shouldn't you be looking for more smaller companies rather than fewer?
Am I missing something here?
Best regards,
R.S. Boreham, Jr.
Ft. Smith, Arkansas
<PAGE>
Dear Rollie:
Thank you for your letter. It's always great to hear from you. I'm
afraid I wasn't as coherent as I would like to have been.
What I meant to say is that most large-cap companies are overvalued
today. For that reason, we will shy away from most large-cap companies
except the few that are not overvalued.
As far as small-cap companies go, what I should have said is that I
don't think that the really small-cap companies are appropriate for The
Parnassus Fund (i.e., under $500 million in market cap). There are problems
with liquidity and even if their earnings are good, most institutional
investors probably will continue to avoid them which makes their prospects
uncertain right now.
Because of these two factors, we'll probably focus on mid-cap companies
with market capitalizations from $1 billion or so to $10 billion. Many of
these companies are undervalued and they have better prospects for
appreciation in the current climate than do small-cap companies.
Yours truly,
Jerome L. Dodson
As indicated earlier in this report, the small and medium-sized companies
did better in the most recent quarter than did the larger companies. It's
unclear if this most recent phenomenon represents a new trend or if it's just a
minor correction before the large-cap companies take off again. My own opinion
is that the small-cap and mid-cap companies will do better than the large-cap
companies over the next three years because of disparities in valuation. As I
indicated in my letter to Mr. Boreham, though, I'm reluctant to put much money
into small-cap companies because they might not appreciate much due to lack of
interest from institutional investors. I'm also reluctant to put much money into
large-cap companies since they may have reached a peak in valuation and may not
do much from here on out. Our strategy, then, will be to put most of our money
into mid-cap issues and those large-cap issues that still have modest
valuations. Most of our attention, though, will be placed on determining if an
individual company is a good business and appears to be a good investment.
The Fund has done well for the past year, but we still have a lot of work
to do to make up for our earlier underperformance. As Parnassus' Director of
Research, Todd Ahlsten, likes to say, "We still have a lot of wood to chop."
COMPANY NOTES
In a recent survey by the Gartner Group, Compaq Computer received highly
favorable ratings for its midrange server systems. Responses from 468 North
American midrange computer server users gave Compaq the highest rating in 6 of 8
categories.
Intel and Hewlett-Packard made grants to the Washington, D.C. Public School
System for a summer program to train high school teachers in integrating
computer technology into their existing curriculum. Teachers will also receive
computers and software through the grant.
<PAGE>
On June 9, Whole Foods Markets donated 5% of its gross sales to a network
of organizations that provide medical care and other support services to
farmworkers and their families. The event raised over $150,000 for health
clinics.
Robert J. Shillman, President of the "machine vision" company Cognex,
donated $3 million to Northeastern University to be used for a new classroom.
Adobe Systems recently became a sponsor of City Year by donating $500,000 to the
AmeriCorps national service program that will fund activities such as mentoring
school-aged children, running after-school programs, building urban gardens,
renovating housing developments and educating young adults about health issues.
Compaq is also a sponsor of this program.
YEAR 2000 COMPLIANCE
I am sure that most of you have been hearing about the Year 2000 problem,
also known as Y2K. The central issue is that many computers are not able to
recognize four-digit years. While they can read "99" as 1999, they cannot read
"00" as the year 2000. The reason for this is that several decades ago, memory
was very expensive and to save memory, programmers used only two digits to
record the year. For example, the year "1965" was recorded as "65". This was
great for saving expensive memory, but posed a problem when the year 2000 rolled
around.
In recent years, computer memory and storage space have become inexpensive
so most new systems are able to store and read four-digit years. Most of the
difficulties center around large, mainframe systems that were programmed many
years ago. Banks, airlines, brokerage firms, municipalities and large
corporations are examples of entities that have the older systems.
At Parnassus, Y2K involves two issues: our own internal compliance with Y2K
issues and compliance by companies in our portfolios. First, let's talk about
our internal compliance.
Howard Fong, our chief financial officer, headed up Y2K compliance for our
internal systems. I'm happy to say that we're in good shape on Year 2000 issues.
We didn't have any major issues with Y2K because our computer hardware and
software were installed in the 90's. Our operating system is based on the Apple
Macintosh which has always been able to recognize four-digit years. Most of our
work involved testing our internal system and getting assurances from outside
vendors that they had tested their systems and were Y2K compliant.
One interesting thing I learned during the testing process was that even
some personal computers made in the 1990's could not recognize the Year 2000. In
addition to our Macintoshes, we have some Compaqs for use with Windows-based
systems. All our Macintoshes passed the test, but we did find that one Compaq
could not recognize the Year 2000. Consequently, we replaced that computer. So
while most Y2K issues center around older systems that read only two-digit
years, you still need to test everything because there are some other reasons
why a computer system may not be Y2K compliant.
Our internal Y2K compliance has had a great deal of attention. Our Board of
Trustees has discussed the issue, we've had an audit, we've filled out
government forms and we've developed and carried out a detailed plan.
<PAGE>
Parnassus Investments has done everything possible to avoid disruptions
from the changeover to the Year 2000. We think we're ready. Even with all this
attention to the problem, though, we still recognize that the world is an
uncertain place and there's no guarantee that something unexpected might disrupt
Fund operations.
With regard to Y2K issues with portfolio companies, we looked at all
companies in both The Parnassus Fund and The Parnassus Income Trust. We gave
special attention to all companies that accounted for more than 0.5% of a fund.
We read all the Y2K disclosure statements and looked at things like expected
costs, clarity of disclosure and "red flags." We talked with companies about Y2K
where we had concerns.
One of our former interns, Bryant Cherry, headed up this project. He gave
special attention to companies where expected Y2K costs were more than 0.3% of
revenues or more than 3% of earnings before interest, taxes and depreciation.
Our conclusion is that Y2K won't be a serious problem at most of our companies.
There are still five companies where we have unresolved issues and we will check
back with them in September.
As with our internal compliance procedures, we've done everything possible
to check for Y2K issues with portfolio companies. We think we're in good shape,
but we can't guarantee that something unexpected might happen with one of our
holdings.
INTERNS
We have four highly qualified interns with us this summer. Dev Puri has
just completed his second year at the University of California Medical School in
San Francisco. He is a graduate of Stanford University where he majored in
English and spent a semester at Oxford studying 20th century British literature.
He has served as a volunteer co-ordinator of the UCSF Homeless Medical Clinic
and has been active in student government. His previous work experience includes
teaching public speaking to Stanford students and working as a high school
chemistry teacher.
Katrina Dodson will be a senior at the University of California at Berkeley
where she is an English major. She is a graduate of Lowell High School in San
Francisco where she was an editor for the newspaper and rowed on the crew team.
At Berkeley, she worked as a media relations coordinator for the athletic
department and also volunteered as a mentor/tutor in Oakland for inner-city
students aged 7 to 10. Her previous work experience includes a stint in London
as an editorial assistant for Variety newspaper. She will spend the first
semester of her senior year at the University of Hanoi in Vietnam. In the
interest of full disclosure, I would also like to add that she is my daughter.
Stefan de Greiff is a student at the Koblenz School of Corporate
Management. He is also a graduate of the Gutenberg Gymnasium (high school) in
Wiesbaden, Germany and studied at the University of Alcala de Henares in Madrid,
Spain. His experience includes work for A.T. Kearney Management Consultants in
Germany and internships with Volkswagen of Mexico and Commerzbank in Chicago and
Frankfurt.
Douglas Hamilton will be a senior at Princeton University where he is
studying political economy. He is a graduate of the Gilman School in Baltimore
where he coordinated a tutoring program and served as captain of the water polo
team. His experience includes developing a website and doing tax research. He
also serves as kitchen manager for his eating club at Princeton.
<PAGE>
Below you will find a photograph of the annual intern reunion dinner taken
on June 11, 1999. Sitting in the front row from left to right are Vivian Wang,
Heidi Chu, Lauren Wang, Jerome Dodson, Hillary Wenner, Herb Houston, Trustee,
Fana Houston, daughter of Herb Houston and Jeannie Hsu. Standing in the back row
from left to right are Ben Liao, Fred Jones, Andy Rubinson, Todd Ahlsten,
Stephen Dodson, Jeff Tha, Bryant Cherry, Vince Wood, Gee Leung, Dan Sullivan and
Robert Kimsey.
Finally, I would like to thank all you shareholders for investing in The
Parnassus Fund. I appreciate your commitment to socially responsible investing.
Yours truly,
Jerome L. Dodson
President
<PAGE>
<TABLE>
<CAPTION>
THE PARNASSUS FUND
Stocks Sold January 1, 1999 through June 30, 1999 (unaudited)
Realized Number Per Sale Per
Company Gain (Loss) of Shares Cost Share Proceeds Share
...................................................................................................................
<S> <C> <C> <C> <C> <C> <C>
ADAC Laboratories $ (5,215,538) 435,000 $ 8,402,439 $19.32 $ 3,186,901 $ 7.33
Adaptec, Inc. 1,074,990 165,000 3,778,442 22.90 4,853,432 29.41
Adobe Systems, Inc. 774,010 20,000 803,438 40.17 1,577,448 78.87
Advanced Micro Devices, Inc. (1,360,311) 300,000 7,072,750 23.58 5,712,439 19.04
Apex PC Solutions, Inc. 123,735 30,000 350,000 11.67 473,735 15.79
Applied Materials, Inc. 8,627,478 270,000 7,954,781 29.46 16,582,259 61.42
BankBoston Corporation 1,656,030 150,000 5,322,237 35.48 6,978,267 46.52
Building Materials Holding Corp. (408,046) 215,000 2,818,437 13.11 2,410,391 11.21
Consolidated Stores Corp. 65,414 10,000 258,975 25.90 324,389 32.44
Dayton Hudson 984,984 50,000 1,733,800 34.68 2,718,784 54.38
Electro Scientific Industries, Inc. 1,417,966 70,000 1,492,500 21.32 2,910,466 41.58
Electronics for Imaging, Inc. 5,444,393 275,000 5,544,437 20.16 10,988,830 39.96
Ethan Allen Interiors 316,334 25,000 910,000 36.40 1,226,334 49.05
FEI Company 9,372 10,000 98,750 9.88 108,122 10.81
The Gymboree Corporation (1,267,912) 150,000 2,489,503 16.60 1,221,591 8.14
Hewlett-Packard Company 5,018,157 120,000 5,473,031 45.61 10,491,188 87.43
Invacare Corporation 18,899 10,000 220,000 22.00 238,899 23.89
Just For Feet, Inc. (575,798) 240,000 2,866,750 11.94 2,290,952 9.55
LSI Logic Corporation 1,581,634 95,000 2,101,263 22.12 3,682,897 38.77
Lands' End, Inc. 2,238,076 175,000 3,081,982 17.61 5,320,058 30.40
Liz Claiborne, Inc. 177,781 89,800 2,786,457 31.03 2,964,238 33.01
Morgan Products, Ltd. (678,151) 209,700 1,272,879 6.07 594,728 2.84
Oxford Health Plans, Inc. 621,651 200,000 3,299,375 16.50 3,921,026 19.61
Petco Animal Supplies, Inc. (2,640,770) 400,000 5,973,565 14.93 3,332,795 8.33
Read-Rite Corporation (1,657,772) 400,000 5,292,030 13.23 3,634,258 9.09
Reebok International Ltd. 1,974,246 350,000 5,223,263 14.92 7,197,509 20.56
Sequent Computer Systems, Inc. (4,392,801) 425,000 10,003,428 23.54 5,610,627 13.20
Snap-on, Inc. (308,749) 160,000 5,145,087 32.16 4,836,338 30.23
Symantec Corp. (258,428) 75,000 1,814,626 24.20 1,556,198 20.75
Xylan Corporation 10,072,227 430,000 5,328,251 12.39 15,400,478 35.82
Total $23,433,101 $108,912,476 $132,345,577
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE PARNASSUS FUND
Portfolio of Investments by Industry Classification as of June 30, 1999 (unaudited)
Percent of
Shares Common Stocks Net Assets Market Value
...................................................................................................................
<S> <C> <C> <C>
APPAREL
300,000 Liz Claiborne, Inc. 2 $ 10,950,000
385,500 St. John Knits, Inc. 2 11,275,875
Total 7.4% 22,225,875
BUILDING MATERIALS
365,000 Building Materials Holding Corp.1 4,197,500
790,300 Morgan Products, Ltd.1 3,013,019
Total 2.4% 7,210,519
COMPUTER PERIPHERALS
235,000 Adaptec, Inc.1, 2 8,298,437
525,000 Quantum Corporation1 12,665,625
1,050,000 Western Digital Corporation1, 2 6,825,000
Total 9.2% 27,789,062
COMPUTER SOFTWARE
130,000 Adobe Systems Incorporated 10,680,313
35,000 Autodesk, Inc. 2 1,034,687
250,000 Symantec Corporation1 6,375,000
Total 6.0% 18,090,000
COMPUTERS
450,000 Compaq Computer Corporation 10,659,375
50,000 Hewlett-Packard Company 5,025,000
Total 5.2% 15,684,375
FURNITURE
140,000 Herman Miller, Inc.2 0.9% 2,940,000
HEALTH CARE
10,000 McKesson HBOC, Inc. 321,250
500,000 Oxford Health Plans, Inc.1 7,781,250
Total 2.7% 8,102,500
INDUSTRIAL
360,000 Wellman, Inc. 1.9% 5,737,500
MEDICAL PRODUCTS
200,000 Henry Schein, Inc.1, 2 $ 6,337,500
55,000 DENTSPLY International, Inc. 1,540,000
Total 2.6% 7,877,500
MICROELECTRONIC PROCESSING EQUIPMENT
5,000 Applied Materials, Inc.1 369,375
700,000 Cognex Corporation1 22,093,750
530,000 Electro Scientific Industries, Inc.1 22,144,062
465,000 FEI Company1, 2 3,836,250
600,000 Helix Technology Corporation2 14,362,500
400,000 Lam Research Corporation1, 2 18,675,000
160,000 Micrion Corporation1 1,800,000
Total 27.6% 83,280,937
RETAIL
370,000 Borders Group, Inc. 5,827,500
85,500 Department 56, Inc.1 2,287,125
325,000 Just For Feet, Inc. 2 2,092,188
460,000 Mattel 12,132,500
300,000 Whole Foods Market, Inc.1, 2 14,418,750
Total 12.2% 36,758,063
SEMICONDUCTORS
300,000 Advanced Micro Devices, Inc.1, 2 5,400,000
225,000 LSI Logic Corporation1, 2 10,448,438
400,000 Intel Corporation 23,800,000
Total 13.1% 39,648,438
Total common stocks
(Cost $221,914,663) 91.2% $275,344,769
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE PARNASSUS FUND
Portfolio of Investments by Industry Classification as of June 30, 1999 (unaudited)
Percent of
Short-Term Investments Net Assets Market Value
...................................................................................................................
<S> <C> <C>
Union Bank of California
Money Market Account (variable rate 4.15%) $ 11,942,478
South Shore Bank
Money Market Account (variable rate 4.42%) 302,534
Albina Community Capital Bank
Certificate of Deposit 5.00%, matures 1/24/00 114,439
Community Bank of The Bay
Certificate of Deposit 5.07%, matures 9/4/99 100,000
Community Capital Bank
(variable rate 4.40%) 100,000
Wainwright Bank & Trust Co.
Certificate of Deposit 5.10%, matures 10/22/99 100,000
Goldman Sachs
Government Portfolio (variable rate 4.30%) 59,732
Goldman Sachs
Treasury Obligation Portfolio (variable rate 4.40%) 27,245
Self Help Credit Union
Certificate of Deposit 4.17%, matures 1/16/00 30,812
Alternatives Federal Credit Union
(variable rate 2.750%) 27,170
Federal Home Loan Bank
Discount Note 4.99%, matures 7/23/99 14,950,100
Lehman Bros.
Triparty Repurchase Ageement
(Repurchase ageement with Lehman Bros. dated 6/30/99,
effective yield is 6.080% due 7/1/99. Face value is
$21,202,700 with price at 100).3 21,202,700
Amex Centurion
Floating Rate Security
(variable rate 4.950%, matures 4/19/00)3 $ 5,000,000
Bear Stearns Co.
Floating Rate Security
(variable rate 6.230%, matures 1/7/00)3 10,000,000
Household CCMT
Floating Rate Security
(variable rate 5.048%, matures 1/18/00) 3 10,000,000
Merrill Lynch & Co.
Floating Rate Security
(variable rate 5.060%, matures 9/23/99) 3 10,000,000
Merrill Lynch & Co.
Floating Rate Security
(variable rate 6.270%, matures 2/28/00) 3 2,500,000
Total short-term investments 28.6% 86,457,210
Total investments 119.8% 361,801,979
Payable upon return of
securities loaned -19.4% (58,702,700)
Other assets and liabilities-net - 0.4% (1,162,342)
Total net assets 100.0% $ 301,936,937
<FN>
1 Non-income producing
2 This security or partial position of this security is on loan
at June 30, 1999 (Note 1). The total value of securities on
loan at June 30, 1999 was $55,948,679.
3 This security purchased with cash collateral held from securities lending.
</FN>
</TABLE>
<PAGE>
THE PARNASSUS FUND
Statement of Assets and Liabilities
June 30, 1999 (unaudited)
Assets:
Investments in securities, at market value
(identified cost $221,914,663) (Note 1) $ 275,344,769
Temporary investments in short term securities
(at cost which approximates market) 86,457,210
Receivables:
Dividends and interest 169,418
Capital shares sold 83,974
Securities sold 1,576,386
Other assets 2,114
Total assets 363,633,871
Liabilities:
Payable upon return of securities loaned 58,702,700
Payable for securities purchased 2,717,791
Capital shares redeemed 276,443
Total liabilities 61,696,934
Net assets (equivalent to $41.84
per share based on 7,216,316.575
shares of capital stock outstanding) $ 301,936,937
Net assets consisting of:
Distributions in excess of net investment income $ (2,983,495)
Unrealized appreciation on investments 53,430,106
Accumulated net realized gain 22,885,256
Capital paid-in 228,605,070
Total net assets $ 301,936,937
Computation of net asset value and offering price per share:
Net asset value and redemption price
per share ($301,936,937 divided by
7,216,316.575 shares) $ 41.84
Offering price per share (100/96.5 of $41.84)+ $ 43.36
+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".
<PAGE>
THE PARNASSUS FUND
Statement of Operations
six months ended June 30, 1999 (unaudited)
Investment income:
Dividends $ 473,240
Interest 330,421
Other income 58,163
Total investment income 861,824
Expenses:
Investment advisory fees (Note 5) 982,273
Transfer agent fees (Note 5) 281,785
Reports to shareholders 88,784
Fund administration (Note 5) 35,000
Registration fees and expenses 12,397
Custody fees 34,216
Service provider fees (Note 5) 89,260
Audit fees 16,595
Trustee fees and expenses 48,957
Other expenses 11,918
Total expenses 1,601,185
Net investment loss (739,361)
Realized and unrealized gain on investments:
Realized gain from security transactions:
Proceeds from sales 132,345,577
Cost of securities sold (108,912,476)
Net realized gain 23,433,101
Unrealized appreciation of investments:
Beginning of year 33,404,587
End of period 53,430,106
Unrealized appreciation during the period 20,025,519
Net realized and unrealized
gain on investments 43,458,620
Net increase in net assets resulting
from operations $ 42,719,259
<PAGE>
THE PARNASSUS FUND
Statements of Changes in Net Assets six months ended June 30,
1999 (unaudited) and year ended December 31, 1998
June 30, 1999 1998
From operations:
Net investment loss $ (739,361) $ (283,661)
Net realized gain (loss)
from security transactions 23,433,101 (2,044,291)
Net unrealized appreciation
(depreciation) during
the year 20,025,519 (1,213,589)
Increase (decrease) in
net assets resulting
from operations 42,719,259 (3,541,541)
Decrease in net assets
from capital share
transactions (43,544,032) (31,121,888)
Decrease in net assets (824,773) (34,663,429)
Net assets:
Beginning of year 302,761,710 337,425,139
End of period
(including distributions in
excess of net investment
income of $2,983,495
in 1999 and $2,244,134
in 1998) $ 301,936,937 $ 302,761,710
<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
in-vestment 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.
Security Lending: The Fund lends its securities to approved brokers to earn
additional income and receives cash and/or securities as collateral to
secure the loans. Collateral is maintained at not less than 102% of the
value of loaned securities. Although the risk of lending is mitigated by
the collateral, the Fund could experience a delay in recovering its
securities and a possible loss of income or value if the borrower fails to
return them.
Repurchase Agreements: Securities purchased with cash collateral held from
securities lending may include investments in repurchase agreements secured
by U.S. government obligations or other securities. Securities pledged as
collateral for repurchase agreements are held by the Funds' custodian bank
until maturity of the repurchase agreements. Provisions of the agreements
ensure that the market value of the collateral is sufficient in the event
of default; however, in the event of default or bankruptcy by the other
party to the agreements, realization and/or retention of the collateral may
be subject to legal proceedings.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires manage-ment 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
June 30, 1999, there was undistributed net capital gain of $22,885,256.
3. Capital Stock
As of June 30, 1999 there were an unlimited number of shares of no par
value capital stock authorized and capital paid-in aggregated $228,605,070.
Transactions in capital stock (shares) were as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999 Year Ended December 31, 1998
<S> <C> <C> <C> <C>
Shares Amount Shares Amount
Shares sold 181,296 $ 6,881,269 1,367,451 $ 46,126,426
Shares issued through dividend reinvestment -- -- -- --
Shares repurchased (1,319,733) (50,425,301) (2,454,103) (77,248,314)
Net decrease (1,138,437) $(43,544,032) (1,086,652) $ (31,121,888)
</TABLE>
4. Purchases and Sales of Securities
Purchases of securities for the six months ended June 30, 1999 were
$69,866,698. For federal income tax purposes, the aggregate cost of
securities and unrealized appreciation at June 30, 1999 are the same as for
financial statement purposes. Of the $53,430,106 of net
<PAGE>
THE PARNASSUS FUND
Notes To Financial Statements (continued)
unrealized appreciation at June 30, 1999, $75,231,257 related to
appreciation of securities and $21,801,151 related to depreciation of
securities.
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 the
next $20,000,000, 0.70% of the next $70,000,000, 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 $982,273 for the six months ended
June 30, 1999.
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 $316,785 for the six months ended
June 30, 1999. The transfer agent fee is $2.30 per month per account, and
the fund administration fee is $5,833 per month. Parnassus Investments may
also arrange for third parties to provide certain services, including
account maintenance, recordkeeping and other personal services to their
clients who invest in the Fund. For these services, the Fund may pay
Parnassus Investments an aggregate service fee at a rate not to exceed
0.25% per annum of the Fund's average daily net assets. Parnassus
Investments will not keep any of this fee for itself, but will instead use
the fee to pay the third party service providers. Service provider fees
paid by the Fund totaled $89,620 for the six months ended June 30, 1999.
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 six months ended June 30, 1999 totaling $73,288 of which
$21,161 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.
6. Financial Highlights
Selected data for each share of capital stock outstanding, total return and
ratios/supplemental data for the six months ended June 30, 1999 each of the
five years in the year ended December 31 are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1999
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of year $ 36.24 $ 35.74 $34.39 $ 31.77 $32.82 $ 31.81
Income from investment operations:
Net investment income (loss) (0.14) (0.06) (0.14) (0.06) 0.15 2.73
Net realized and unrealized gain on securities 5.74 0.56 10.04 3.77 0.07 1.00
------ ----- ----- ----- ----- -----
Total from investment operations 5.60 0.50 9.90 3.71 0.22 3.73
------ ----- ----- ----- ----- -----
Distributions:
Dividends from net investment income -- -- -- -- (0.16) (0.47)
Distributions from net realized gain on securities -- -- (8.55) (1.09) (1.11) (2.25)
------ ----- ----- ----- ----- -----
Total distributions 0.00 0.00 (8.55) (1.09) (1.27) (2.72)
------ ----- ----- ----- ----- -----
Net asset value at end of period 41.84 36.24 35.74 34.39 31.77 32.82
====== ===== ===== ===== ===== =====
Total return* 15.45% 1.40% 29.70% 11.68% 0.62% 11.98%
Ratios/supplemental data:
Ratio of expenses to average net assets 1.08% 1.10% 1.11% 1.10% 1.02% 1.14%
Ratio of net investment income (loss) to
average net assets (0.50%) (0.09%) (0.44%) (0.17%) 0.54% 0.43%
Portfolio turnover rate 25.10% 99.20% 68.90% 59.60% 29.10% 28.10%
Net assets, end of period (000's) $301,937 $302,762 $337,425 $268,235 $259,133 $160,994
<FN>
* Total return figures do not adjust for the sales charge.
</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.
1061 Eastshore #200
Albany, California 94710
Independent 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 or profile.
