THE PARNASSUS FUND
Semiannual Report June 30, 2000
--------------------------------------------------------------------------------
August 7, 2000
Dear Shareholder:
As of June 30, 2000, the net asset value per share (NAV) of The Parnassus
Fund was $64.16 so the overall return for the quarter was 0.05%. Some of you may
think that a gain of five-hundredths of one percent is not a great return, but I
would like to point out that the S&P 500 Index lost 2.66%, the Wilshire 5000
lost 4.34% and the technology-laden NASDAQ lost an amazing 13.23%. Even a small
gain compares favorably with all these indices that finished in the red.
The average mid-cap value fund followed by Lipper, Inc. lost 1.77% which
was better than all the major indices. In general, small and mid-cap companies
tended to do better than large-cap companies and the "value" style of investing
tended to do better than the "growth" style of investing in the second quarter.
This is a reversal of the pattern set in the past few years when large-cap
handily beat small and mid-cap and the "growth" style outpaced the "value"
style.
In my view, we were fortunate to have had any kind of positive return
during the quarter given the sharp decline in technology stocks. Beginning in
late March and continuing into April and May, technology stocks which soared in
1999 turned around and plummeted.
For the year-to-date, our performance is running well ahead of the indices.
Since the first of the year, the Fund is up 26.62% compared to a loss of 0.42%
for the S&P, a loss of 0.69% for the Wilshire 5000 and a loss of 2.46% for the
NASDAQ. The average mid-cap value fund is up 4.38% since January 1. For the
year-to-date, Parnassus placed second among the 186 mid-cap value funds followed
by Lipper, Inc. and we also placed second of 183 mid-cap value funds for the 12
months ending June 30.
Below is a table comparing The Parnassus Fund with the Lipper Mid-Cap Value
Average, the Wilshire 5000 and the S&P 500 over the past one, three, 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%). The performance figures for the average mid-cap value fund do not
deduct any sales charges that may apply.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Periods Ending Average Annual Average Annual Lipper Mid-Cap Wilshire 5000 S&P 500
June 30, 2000 Total Return Overall Return Value Average Index Index
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One Year 56.36% 62.03% 5.57% 9.68% 7.25%
Three Years 24.61% 26.09% 9.91% 19.12% 19.60%
Five Years 18.45% 19.30% 14.04% 22.50% 23.72%
Ten Years 18.75% 19.18% 12.91% 17.30% 17.74%
-------------------------------------------------------------------------------------------------------------------
<FN>
Past performance is no guarantee of future returns. Principal value will
fluctuate and an investor's shares, when redeemed, may be worth more or less
than their original cost. The Wilshire 5000 and the S&P 500 are unmanaged
indices of common stocks and it is not possible to invest directly in an index.
An index has no expenses subtracted from its return as do mutual funds.
For the three, five and ten-year periods ending June 30, 2000, The Parnassus
Fund placed #5 of 130 funds, #13 of 83 funds and #2 of 33 funds, respectively,
in the Lipper mid-cap value category.
</FN>
</TABLE>
HOW DID WE AVOID THE "TECH WRECK?"
Since the fourth quarter of 1998, technology stocks have been the market
leaders. If you didn't own technology stocks, chances are you didn't do very
well in 1999. After a year-and-a-half of strong performance, though, technology
stocks dropped off sharply in the second quarter. The NASDAQ index which is
dominated by technology stocks dropped 13% in the second quarter. This figure,
though, understates the magnitude of the decline since technology stocks made
something of a comeback in June. Before this comeback, the NASDAQ at one point
had dropped over 30% from its high on March 10.
This decline was not due to any underlying economic change. The technology
business remains strong with demand for computers, semiconductors and other
technology products at all-time highs. Rather, the drop in prices for technology
stocks was caused by investors' changing their opinion of what these stocks were
worth. In plain language, they got scared by sky-high multiples and sold their
high-fliers.
As most of you know, our portfolio has had a high percentage of technology
issues for the last few years. As of the first of the year, 67% of the portfolio
was in technology and at other times, it was over 70%. This does not mean that
up to 70% of our purchases were technology issues, but rather sharp appreciation
of those stocks caused their percentage to increase. Given our rather large
commitment to technology, how were we able to avoid the "tech wreck?"
The answer is twofold. First, we started selling technology issues in
February and March. The technology percentage dropped from 67% on December 31 to
46% on March 31. We were concerned by the high levels at which tech stocks were
trading and we decided to sell off many of our shares.
Second, the technology shares we kept were those in stronger companies. We
have avoided Internet issues and other more speculative technology shares. The
companies we own actually make a profit and have good prospects for the future.
Although many of our technology stocks had price declines, a number of our
technology issues actually increased in value during the second quarter.
<PAGE>
For example, Mentor Graphics climbed 31.4%, Apex went up 26.9%, Credence
Systems rose 17.2% and Intel managed a small gain of 1.3%. Although our position
in technology as a whole declined during the quarter, the decline was small
enough so that our non-technology issues made up for the loss.
As we sold technology issues during the quarter, we invested in industries
that were out of favor and were trading at bargain prices. Retail, medical and
financial stocks traded at low prices early in the year and we used the proceeds
from our technology sales to invest in these industries. As technology issues
dropped during the quarter, our non-technology stocks increased in value.
LOSERS WERE MOSTLY TECHNOLOGY ISSUES
During the quarter, 13 of our stocks posted a loss. Not surprisingly, eight
of those 13 stocks were technology issues and five were in other industries.
Adaptec makes chips for use in connecting hard disk drives and other peripheral
equipment to the central processing unit of computers. By dropping 41.1% to
$22.75, Adaptec had the dubious distinction of being the biggest loser in the
portfolio. The reason for the decline is somewhat ironic. Because of strong
demand for microprocessors, Intel and other manufacturers have been unable to
produce enough so there is a shortage in some areas. One of the areas where
there was a shortage was for generic computer makers who reduced their purchases
from Adaptec since they couldn't get enough microprocessors to produce all the
computers they could sell. In my view, there is no reason why Adaptec fell as
much as it did and we will continue holding the stock. We expect it to be among
our best performers in the future.
Office Depot declined 39.0% to $7.05 at the time we sold it. The company
earned less than expected and comparable store sales declined versus the same
quarter last year.
Gap dropped 37.8% to $31 a share because of weakness at its core Gap stores
and because of lower comparable sales at its Old Navy unit. The reason Old Navy
had lower comparable store sales was because it had an unusually strong quarter
last year which made this year's quarter seem weak only by comparison. Because
most analysts and institutional investors rely heavily on comparable store
sales, the stock got knocked down. We think the analysts and institutional
investors who sold were shortsighted and did not dig deeply enough behind the
numbers. We used this price drop as an opportunity to double our position to
400,000 shares at an average cost of $31.09. Gap is off to a good start in the
third quarter and by mid-July it was trading around $37 a share for a gain of
19%.
Symantec saw its shares decline 28.2% as the price sagged to $53.94. Strong
competition from McAfee's anti-virus products was a factor. The company also had
less corporate sales as a percentage of revenue which displeased investors since
corporate sales are more profitable than consumer sales.
<PAGE>
Three semiconductor capital equipment stocks declined during the quarter
despite the fact that each of them had record orders and business prospects look
excellent. They got caught in the undertow of the technology slump. Electro
Scientific Industries dropped 24.1% as it went to $44.03, Lam Research declined
16.8% as its stock hit $37.50 and Cognex lost 10.3% as its stock moved down to
$51.75. LSI Logic, a manufacturer of specialized integrated circuits, saw a
downward move of 24.8% as its stock sank to $54.19 although business is booming.
It suffered the same fate as its semiconductor capital equipment counterparts:
strong fundamentals, but lower valuation by investors. We expect these stocks to
rise over the next six months as investors realize semiconductor sales will
remain strong through next year.
Two software companies also declined because of changing investor opinions.
These two also experienced lower demand because of hardware product cycles: a
lag at the end of one product line, but before the introduction of another.
Autodesk dropped 23.8% to $34.69 and BMC Software declined 12.6% as its stock
sagged to $36.48.
Target Stores decreased 22.4% as the stock went to $58 on weaker retail
sales. Nordstrom dropped 18.2% to $24.13 because of slower sales of women's
apparel. Wellman declined 18.3% to $16.19 on continuing weakness in its fiber
business.
FEW TECHNOLOGY STOCKS WERE AMONG THE WINNERS
Fourteen companies in the portfolio gained more than 15% during the
quarter, but only three of them were technology issues. This reverses a trend
going back six quarters.
Cardinal Health was the company with the biggest move upward; the stock
soared 61.3% to $74. Cardinal distributes drugs and other medical supplies. Good
cost control helped improve its margins. The stock benefited from investors'
selling dot-com issues and putting money into real companies that actually make
a profit.
AnnTaylor had a 44.0% increase in its stock price as it went to $33.13 a
share. A very attractive line of women's clothes translated into strong sales
growth and comparable store sales that were higher relative to the previous
year.
Wild Oats, a natural foods supermarket chain, climbed 36.7% to hit $12.56.
The stock had a big sell-off earlier in the year and the Fund invested at $9.19
a share because we thought that investors put too low a valuation on the
company. The stock moved up when investors re-evaluated the stock. Investors
liked Wild Oats' plan to close some of their underperforming stores and focus on
fewer formats.
Two pharmaceutical stocks posted strong gains during the quarter as
investors concluded that drug companies deserve a higher valuation. Strong
earnings at both companies also propelled their shares higher. Schering-Plough
climbed 37.8% to $50.63 while Merck moved up 22.1% to $75.88.
<PAGE>
Household products company Clorox gained 35.8% with its stock going to
$44.81. The company has now successfully integrated its First Brands acquisition
(Glad bags, STP auto products, etc.) and it appears to be gaining market share
from a weakened Procter & Gamble.
Mentor Graphics was one of the few technology companies to post strong
gains as it increased 31.4% with its stock hitting $19.88. After years of
mediocre performance, Mentor has developed some exciting new products including
its Calibre software tool for verifying that a semiconductor design can actually
be produced.
Another technology company that posted a strong quarter was Apex whose
shares soared 26.9% to $47.13. Apex makes switches that enable many servers to
be controlled by one monitor and keyboard, thus saving space and costs. The
company merged with Cybex at the end of the quarter and the merged operation is
now known as Avocent.
Kroger Stores also posted a strong quarter as its stock gained 25.6% going
to $22.06 a share. Kroger went through a merger last year and the stock price
had dropped to very low levels. Now that time has passed and the integration has
gone well, the stock price has made a comeback.
MedQuist, a medical transcription company, gained 27.8% during the quarter
as its stock closed at $34. Phillips, the Dutch electronics company, made a
tender offer at $51 a share for 65% of the company, but the stock dropped back
to $34 after the partial tender offer. We tendered our shares so we sold 65% of
them at $51 and we are now holding the rest.
UnumProvident, a disability insurance company, gained 18.5% with its stock
going to $20.06 a share. After a period of sales force instability and high
claims losses, turnover of the sales staff has stabilized and claims losses have
declined.
Credence Systems, a maker of testers for semiconductors, was the third
technology company to post a substantial gain as it climbed 17.2% with its stock
going to $55.19. The strong semiconductor market has increased demand for
Credence's semiconductor testing equipment.
Venator, the parent of Foot Locker, had a 14.7% increase in its stock price
as it went to $10.25. Strong comparable store gains translated into higher
earnings.
J.C. Penney increased 15.8% with a move to $18.44 a share. The move was
basically a bounce off extremely low valuations when investors decided that
prospects for the company were not so bad after all.
<PAGE>
PARNASSUS IN THE NEWS
The June issue of Mutual Funds magazine named The Parnassus Fund as one of
its five-star funds. The rating applies to the top 20% of stock funds on the
basis of "risk-adjusted" returns.
Investor's Business Daily gave the Fund an "A" rating because our total
return for the 36 months ended May 31 beat 91% of all other funds. Enclosed you
will also find a reprint of an article from Investor's Business Daily of June 15
that talks about The Parnassus Fund.
I have also appeared on CNBC and CNN this year talking about our investment
philosophy and some of the companies we invest in. We usually don't have enough
lead time to announce these television appearances in the quarterly reports and
sometimes an appearance is cancelled if there is breaking news elsewhere.
However, if you have e-mail, we can let you know about any scheduled
appearances. If you would like to be notified about any television appearances,
just e-mail Marie Chen. Her e-mail address is [email protected].
COMPANY NOTES
Intel recently donated $2 million to help launch the new National Hispanic
Cultural Center in Albuquerque, New Mexico. Intel's contribution, the largest
business grant to the Center, will be used for both physical and Internet-based
resources and research tools that will be used to preserve and promote Hispanic
culture and arts.
Over the next five years, Merck & Co. will donate $100 million in vaccines
to be used against hepatitis B, a blood-borne disease that causes liver failure
and cancer. The vaccine will be used to inoculate 1.5 million children in Africa
and Southeast Asia.
Eckerd Drugstores, a subsidiary of J.C. Penney, announced the Third Annual
Salute to Women program that will choose 100 women as the Eckerd 100 from among
3,000 nominees nationwide -- one from each of Eckerd's 3,000 drugstores. Each of
the 100 women will be honored for her volunteer efforts and Eckerd will donate
$1,000 to a charity named by each of the women. The company will also pay
expenses for each of the Eckerd 100 to attend an educational symposium in
Washington, D.C. this fall and they will also attend a sneak preview of the new
documentary "I am My Mother's Daughter" which focuses on women and self-esteem.
Electro Scientific Industries (ESI) recently completed the establishment of
it new on-site child development center. Oregon's Child Care Division said it
was one of the best start-up centers they had ever seen.
<PAGE>
PERSONNEL MATTERS
We have five excellent interns with us this summer. Steve Kim is a senior
at the University of California at Berkeley where he studies at the Haas School
of Business and is a member of the Golden Key National Honor Society. He is also
the Treasurer of the California Investment Association, a student investment
club. His previous experience includes an internship in the investment
management department of Sanwa Bank and working as accounting manager for the
Berkeley division of an international student intern exchange program. In his
spare time, he plays golf and basketball as well as the trombone.
Shun-Ning Wong is a senior at Princeton University where he studies
philosophy and serves as editor-in-chief of the Princeton Law Journal. He acted
with the Princeton Triangle Club and sang in the Princeton University Chapel
Choir. Shun-Ning spent the summer of 1999 studying at Beijing Normal University
in China. Other experience includes serving as an intern investigator with the
Washington, D.C. Public Defender's office.
Alexander Gradow studies at the Koblenz Graduate School of Management in
Germany where he majors in finance and marketing and he has also studied
business at the University of Nottingham in England. Previous experience
includes work at the Gemini Consulting Group in Cologne, Germany and with
Mercedes-Benz in Paris, France.
Jeff Wang is a senior at the University of California at Berkeley where he
is studying international business. At UC, he was the founder of Cal Portal, an
undergraduate website providing useful information to students. He also
developed a website for the Berkeley Consulting group and reorganized the data
network for Jobscience. He also served as an analyst for the UC Berkeley
Committee on Student Fees that dealt with the efficient use of registration
fees.
Sonia Gupta is a junior at the University of California at Berkeley where
she is majoring in Economics and Spanish. She has worked as a program assistant
for MESA (Mathematics Engineering Science Achievement) to encourage high school
students to study math and science. She has also worked as a volunteer at the
Berkeley Free Clinic and as a mentor for children with neglected backgrounds.
She is a member of the Golden Key National Honor Society and rows on the UC
lightweight crew team. She recently finished the San Francisco half-marathon.
In addition to talking about our interns in each quarterly report, we also
do a profile of one staff member. This month, we've chosen Todd Ahlsten,
Director of Research for Parnassus Investments. Shareholders who look at
Parnassus photos know that most staff members have dark hair (myself included).
Todd is a striking exception to that pattern and at 6'4" with blonde hair and
blue eyes, he does tend to stand out.
Todd grew up in Santa Rosa, California (50 miles north of San Francisco)
where he attended high school and played on the basketball and golf teams. He
also worked at the Oakmont Golf Course in Santa Rosa. After high school, he
attended Santa Rosa Junior College.
After two years, he transferred to the University of California at Berkeley
where he earned a bachelor's degree from the Haas School of Business and
graduated at the top of his class with a 4.0 average. He was an active member of
the Undergraduate Finance Association and was elected to Beta Gamma Sigma, the
national business honor society. During 1993 and 1994, he interned for the
Sonoma County Economic Development Board where he worked on small business
issues. In the fall of 1994 during his senior year at Berkeley, he interned at
The Parnassus Fund where his performance made him one of the best interns ever
to come through the program.
Since I pride myself on having a good eye for talent, I hired him as a
financial analyst in March of 1995. In May of 1998, he was promoted to Director
of Research. In that position, he not only manages all the Fund's research, but
he also supervises the intern program, inspiring legions of young people and
teaching them security analysis. Todd also serves as a spokesman for Parnassus,
appearing on radio and television and talking to the press. He also helps to
edit these quarterly reports, especially checking the numbers and making sure
that what I say about the Fund and the companies in the portfolio is accurate.
More recently, he has even started reviewing all the companies in the portfolio
and giving me information on which to base my reports to shareholders.
Todd has also helped to refine our analytical techniques and serves as my
alter ego when I'm thinking about making an investment in a company. At the end
of this year, he will become co-manager of the Parnassus Equity Income Fund and
will eventually become sole portfolio manager while keeping his duties as
research director.
Todd's main philanthropic interest is Food for the Hungry, an international
organization that works on agricultural development issues. His younger brother,
Neil, works for the organization in Ethiopia. Neil also interned at The
Parnassus Fund and did an excellent job. Prior to working overseas, Neil did
volunteer work in the San Francisco Bay Area on homeless issues. To gain a
deeper understanding of the homeless issue, Neil even spent a week on the
streets with no place to stay at night and only 25 cents in his pocket.
Todd spends his spare time playing sports and socializing with friends. He
also attends University of California football games and watches the San
Francisco Giants play baseball at their new park on San Francisco Bay.
Yours truly,
Jerome L. Dodson
President
<PAGE>
<TABLE>
<CAPTION>
THE PARNASSUS FUND
STOCKS SOLD JANUARY 1, 2000 THROUGH JUNE 30, 2000 (UNAUDITED)
Realized Number Per Sale Per
Company Gain (Loss) of Shares Cost Share Proceeds Share
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AT&T Corporation $ (214,927) 100,000 $ 3,559,125 $35.59 $ 3,344,198 $33.44
Adaptec, Inc. 3,464,387 100,000 1,947,503 19.48 5,411,890 54.12
Advanced Micro Devices, Inc. 8,912,551 460,000 8,925,913 19.40 17,838,464 38.78
AnnTaylor Stores Corporation 1,853,554 200,000 3,451,580 17.26 5,305,134 26.53
Autodesk, Inc. 223,109 10,000 248,750 24.88 471,859 47.19
Baldor Electric 49,421 100,000 1,792,723 17.93 1,842,144 18.42
Borders Group, Inc. (411,540) 150,000 2,348,775 15.66 1,937,235 12.91
Boston Scientific Corporation 455,443 100,000 2,088,033 20.88 2,543,476 25.43
Cardinal Health, Inc. 1,081,656 100,000 3,608,563 36.09 4,690,219 46.90
Cognex Corporation 11,143,395 475,000 10,604,077 22.32 21,747,472 45.78
Compaq Computer Corporation 2,891,566 200,000 2,391,577 11.96 5,283,143 26.42
Consolidated Stores Corporation (672,163) 300,000 5,175,300 17.25 4,503,137 15.01
Credence Systems Corporation 4,441,456 125,000 6,937,500 55.50 11,378,956 91.03
Delta Air Lines, Inc. 94,853 100,000 5,050,863 50.51 5,145,716 51.46
DENTSPLY International, Inc. 651,263 200,000 5,547,281 27.74 6,198,544 30.99
Electro Scientific Industries, Inc. 17,779,897 325,000 5,062,832 15.58 22,842,729 70.29
FEI Company 6,733,318 355,000 2,876,048 8.10 9,609,366 27.07
Helix Technology Corporation 7,228,029 225,000 4,146,614 18.43 11,374,643 50.55
Henry Schein, Inc. (2,634,570) 502,500 11,367,037 22.62 8,732,467 17.38
Hewlett-Packard Company 1,261,220 30,000 2,248,675 74.96 3,509,895 117.00
Johnson & Johnson 74,487 10,000 673,013 67.30 747,500 74.75
The Kroger Company 129,949 130,000 2,137,175 16.44 2,267,124 17.44
Lam Research Corporation 19,948,003 200,000 5,265,250 26.33 25,213,253 126.07
Liz Claiborne, Inc. 26,288 10,000 320,600 32.06 346,888 34.69
MedQuist, Inc. 1,754,561 77,690 2,207,629 28.42 3,962,190 51.00
Mentor Graphics Corporation 624,999 100,000 913,750 9.14 1,538,749 15.39
Merck & Company, Inc. 389,596 45,000 2,851,659 63.37 3,241,254 72.03
Office Depot, Inc. (1,719,913) 475,000 5,069,928 10.67 3,350,015 7.05
Oxford Health Plans, Inc. (821,289) 550,000 8,993,594 16.35 8,172,305 14.86
Quantum Corp -DLT & Storage (1,318,390) 525,000 7,273,853 13.85 5,955,463 11.34
Quantum Corp.-Hard Disk Drive (467,004) 262,500 2,649,277 10.09 2,182,273 8.31
Schering-Plough Corporation 38,785 10,000 413,100 41.31 451,885 45.19
STERIS Corporation (1,643,217) 550,000 7,298,734 13.27 5,655,517 10.28
Symantec Corporation 2,313,522 50,000 844,812 16.90 3,158,334 63.17
Target Corporation 200,469 21,500 1,309,565 60.91 1,510,034 70.23
UnumProvident Corporation 314,496 50,000 709,250 14.19 1,023,746 20.47
Watson Pharmaceuticals, Inc. 842,890 150,000 5,297,100 35.31 6,139,990 40.93
Wellman, Inc. 2,796,990 260,000 2,595,845 9.98 5,392,835 20.74
Whole Foods Market, Inc. 5,631,730 600,000 20,039,126 33.40 25,670,856 42.78
Xerox Corporation (793,994) 150,000 3,906,765 26.05 3,112,771 20.75
------------ ------------- ------------
Total $92,654,875 $170,148,794 $262,803,669
============ ============= ============
</TABLE>
<PAGE>
<TABLE>
THE PARNASSUS FUND
<CAPTION>
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION AS OF JUNE 30, 2000 (UNAUDITED)
Percent of
Shares Common Stocks Net Assets Market Value
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AIR TRANSPORT
100,000 Delta Air Lines 1.1% $ 5,056,250
------------
APPAREL
300,000 AnnTaylor Stores1, 2 2.2% 9,937,500
------------
COMPUTER PERIPHERALS
500,000 Adaptec, Inc.1, 2 11,375,000
700,000 Apex1, 2 32,987,500
------------
Total 9.6% 44,362,500
------------
COMPUTER SOFTWARE
300,000 Autodesk, Inc. 10,406,250
230,000 BMC Software Inc.1, 2 8,391,406
300,000 Electronics for Imaging, Inc.1 7,593,750
600,000 Mentor Graphics1, 2 11,925,000
200,000 Symantec1, 2 10,787,500
------------
Total 10.7% 49,103,906
------------
COMPUTERS
400,000 Compaq Computer 2.2% 10,200,000
------------
CONSUMER PRODUCTS
200,000 Clorox 2 1.9% 8,962,500
------------
FINANCIAL SERVICES
250,000 Chase Manhattan Bank 11,515,625
250,000 Fannie Mae 13,046,875
400,000 Freddie Mac 16,200,000
------------
Total 8.9% 40,762,500
------------
HEALTH CARE
175,000 Cardinal Health Inc. 12,950,000
51,600 MedQuist 1 1,754,400
------------
Total 3.2% 14,704,400
------------
INDUSTRIAL
36,000 Baldor Electric 670,500
300,000 Calgon Carbon Corp. 2,325,000
100,000 Wellman, Inc. 1,618,750
------------
Total 1.0% 4,614,250
------------
INDUSTRIAL
AUTOMATION
200,000 Cognex Corporation1 2.2% 10,350,000
------------
</TABLE>
<PAGE>
<TABLE>
THE PARNASSUS FUND
<CAPTION>
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION AS OF JUNE 30, 2000 (UNAUDITED)
Percent of
Shares Common Stocks Net Assets Market Value
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INSURANCE
500,000 UnumProvident 2.2% $ 10,031,250
------------
MEDICAL PRODUCTS
300,000 Boston Scientific Corp.1 6,581,250
197,500 Henry Schein, Inc.1, 2 3,406,875
100,000 DENTSPLY
International, Inc. 3,081,250
------------
Total 2.8% 13,069,375
------------
MICROELECTRONIC
PROCESSING
50,000 Applied Materials, Inc.1 4,531,250
200,000 Credence Systems Corp.1 11,037,500
272,000 Electro Scientific
Industries, Inc.1 11,976,500
300,000 Lam Research Corporation1, 2 11,250,000
12,500 Novellus Systems, Inc.1 707,032
------------
Total 8.7% 39,502,282
------------
PHARMACEUTICALS
175,000 Merck & Co., Inc. 13,278,125
300,000 Schering-Plough
Corporation 15,187,500
------------
Total 6.2% 28,465,625
------------
RETAIL
425,000 Gap, Inc. 13,175,000
200,000 J.C. Penney Co., Inc. 3,687,500
800,000 Nordstrom Inc. 19,300,000
500,000 Kroger Co.1 11,031,250
250,000 Target Corp. 14,500,000
1,000,000 Venator Group, Inc.1 10,250,000
400,000 Wild Oats Markets1, 2 5,025,000
------------
Total 16.7% 76,968,750
------------
SEMICONDUCTORS
400,000 Intel Corporation 53,475,000
400,000 LSI Logic Corporation1, 2 21,675,000
------------
Total 16.3% 75,150,000
------------
Total common stocks
(Cost $302,045,633) 95.90% $ 441,241,088
------------
</TABLE>
<PAGE>
<TABLE>
THE PARNASSUS FUND
<CAPTION>
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION AS OF JUNE 30, 2000 (CONTINUED)
Percent of
Short-Term Investments Net Assets Market Value
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Union Bank of California
Deposit Account
(variable rate 5.39% ) $ 202,593
South Shore Bank
Money Market Account
(variable rate 4.60% ) 316,260
Goldman Sachs-FS
Government Portfolio
(variable rate 6.30% ) 591,262
Janus
Government Portfolio
(variable rate 6.43% ) 5,000,000
Albina Community
Capital Bank
Certificate of Deposit 5.83%,
matures 1/24/01 100,000
Community Capital Bank
(variable rate 5.05% ) 100,000
Community Bank of The Bay
Certificate of Deposit 4.83%,
matures 9/4/00 103,695
Wainwright Bank & Trust Co.
Certificate of Deposit 5.10%,
matures 10/22/00 100,000
Alternatives Federal
Credit Union
(variable rate 2.79% ) 27,929
Self Help Credit Union
Certificate of Deposit 5.040%,
matures 1/16/01 32,186
Repurchase Agreements:
Lehman Bros.
Triparty Repurchase Ageement
(Repurchase agreement with
Lehman Bros. dated 6/30/00,
effective yield is 7.205%
due 7/3/00, Face value is
$23,565,591 with price at 100)3 23,565,591
Commercial Paper:
Centiorior Fuel Corp
(effective yield is 6.845%,
matures 7/17/00) 3 3,389,755
<PAGE>
THE PARNASSUS FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION AS OF JUNE 30, 2000 (CONTINUED)
Percent of
Short-Term Investments Net Assets Market Value
-------------------------------------------------------------------------------------------------------------------
Federal Signal Corp
(effective yield is 7.100%,
matures 7/5/00) 3 $ 19,972,428
OGE Energy Corporation
(effective yield is 6.978%,
matures 7/11/00) 3 7,979,893
OGE Energy Corporation
(effective yield is 7.117%,
matures 7/12/00) 3 6,983,433
Floating Rate Securities:
CS First Boston
(variable rate 6.294%,
matures 4/11/01) 3 9,999,000
Bear Stearns Co.
(variable rate 7.405%,
matures 1/8/01) 3 10,000,000
Bear Stearns Co.
(variable rate 7.325%,
matures 5/8/01) 3 10,000,000
US Agency Discount Note:
Federal Home Loan Bank
Discount Note
(effective yield is 6.402%,
matures 7/7/00) 9,950,456
-------------
Total short-term investments 23.6% 108,414,481
-------------
Total investments 119.5% 549,655,569
Payable upon return of securities loaned -20.0% (91,890,100)
Other assets and liabilities-net 0.5% 2,342,875
------ -------------
Total net assets 100.0% $ 460,108,344
====== -------------
<FN>
1 Non-income producing
2 This security or partial position of this security is on loan at June 30,
2000 (Note 1). The total value of securities on loan at June 30, 2000 was
$89,337,263.
3 This security purchased with cash collateral held from securities lending.
</FN>
</TABLE>
<PAGE>
THE PARNASSUS FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000 (UNAUDITED)
Assets:
Investments in securities, at market value
(identified cost $302,045,633) (Note 1) $ 441,241,088
Temporary investments in short-term securities
(at cost which approximates market) 108,414,482
Receivables:
Dividends and interest 199,048
Capital shares sold 169,615
Securities sold 4,289,310
Other assets 106,990
-------------
Total assets 554,420,533
-------------
Liabilities:
Payable upon return of securities loaned 91,890,100
Payable for securities purchased 1,236,109
Capital shares redeemed 1,086,102
Other liabilities 99,878
-------------
Total liabilities 94,312,189
-------------
Net assets (equivalent to $64.16 per share based on
7,171,545.924 shares of capital stock outstanding) $ 460,108,344
=============
Net assets consisting of:
Distributions in excess of net investment income $ (4,278,571)
Unrealized appreciation on investments 139,195,455
Accumulated net realized gain 95,806,780
Capital paid-in 229,384,680
-------------
Total net assets $ 460,108,344
=============
Computation of net asset value and offering price per share:
Net asset value and redemption price
per share ($460,108,344 divided by 171,545.924 shares) $ 64.16
=============
Offering price per share (100/96.5 of $64.16)+ $ 66.49
=============
+ 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, 2000 (UNAUDITED)
Investment income:
Dividends $ 810,065
Interest 634,895
Other income 1,599
----------------
Total investment income 1,446,559
----------------
Expenses:
Investment advisory fees (Note 5) 1,392,182
Transfer agent fees (Note 5) 236,277
Reports to shareholders 96,380
Fund administration (Note 5) 35,000
Registration fees and expenses (11,919)
Custody fees 36,061
Service provider fees (Note 5) 70,511
Professional fees 36,584
Trustee fees and expenses 49,352
Other expenses 14,241
----------------
Total expenses 1,954,669
----------------
Net investment loss (508,110)
----------------
Realized and unrealized
gain on investments:
Realized gain from security transactions:
Proceeds from sales 263,963,949
Cost of securities sold (170,078,392)
----------------
Net realized gain 93,885,557
----------------
Unrealized appreciation of investments:
Beginning of year 137,582,937
End of period 139,195,455
----------------
Unrealized appreciation during the period 1,612,518
----------------
Net realized and unrealized gain on investments 95,498,075
----------------
Net increase in net assets resulting from operations $ 94,989,965
================
<PAGE>
THE PARNASSUS FUND
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
AND YEAR ENDED DECEMBER 31, 1999
June 30, 2000 1999
--------------------------------------------------------------------------------
From operations:
Net investment loss $ (508,110) $ (1,526,327)
Net realized gain (loss)
from security transactions 93,885,557 20,579,421
Net unrealized appreciation
(depreciation) during the year 1,612,518 104,178,350
-------------- --------------
Increase (decrease) in net assets resulting
from operations 94,989,965 123,231,444
Dividends to shareholders:
From realized capital gains 0 (18,110,353)
Decrease in net assets from capital share
transactions 1,301,600 (44,066,022)
-------------- --------------
Increase in net assets 96,291,565 61,055,069
Net assets:
Beginning of year 363,816,779 302,761,710
-------------- --------------
End of period
(including distributions in excess of
net investment income of $4,278,572
in 2000 and $3,770,461 in 1999) $ 460,108,344 $ 363,816,779
============== =============
<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, 2000, there was undistributed net capital gain of $95,806,780.
3. Capital Stock
As of June 30, 2000 there were an unlimited number of shares of no par
value capital stock authorized and capital paid-in aggregated $229,384,681.
Transactions in capital stock (shares) were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000 YEAR ENDED DECEMBER 31, 1999
---------- --------------- ---------- ----------------
Shares Amount Shares Amount
---------- --------------- ---------- ----------------------
<S> <C> <C> <C> <C>
Shares sold 758,465 $ 47,148,034 310,313 $ 12,698,171
Shares issued through dividend reinvestment -- -- 344,842 16,107,565
Shares repurchased (766,478) (45,846,570) (1,830,350) (72,871,758)
---------- --------------- ---------- ----------------
Net decrease (8,013) $ 1,301,464 (1,179,195) $ (44,066,022)
========== =============== ========== ================
</TABLE>
4. Purchases and Sales of Securities
Purchases of securities for the six months ended June 30, 2000 were
$251,887,742. For federal income tax purposes, the aggregate cost of
securities and unrealized appreciation at June 30, 2000 are the same as for
financial statement purposes. Of the $139,195,455 of netunrealized
appreciation at June 30, 2000, $152,030,805 related to appreciation of
securities and $12,835,350 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 $1,392,182 for the six months ended
June 30, 2000.
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 $271,277 for the six months ended
June 30, 2000. 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 $70,511 for the six months ended June 30, 2000.
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, 2000 totaling $147,564 of which
$38,326 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, 2000, and for
each of the five years ended December 31 are as follows:
<TABLE>
<CAPTION>
June 30, 2000
(unaudited) 1999 1998 1997 1996 1995
------------- ------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of year $ 50.67 $36.24 $ 35.74 $34.39 $ 31.77 $ 32.82
------------- ------- --------- -------- --------- --------
Income from investment operations:
Net investment income (loss) (0.07) (0.21) (0.06) (0.14) (0.06) 0.15
Net realized and unrealized gain on securities 13.56 17.29 0.56 10.04 3.77 0.07
------------- ------- --------- -------- --------- --------
Total from investment operations 13.49 17.08 0.50 9.90 3.71 0.22
------------- ------- --------- -------- --------- --------
Distributions:
Dividends from net investment income .-- .-- .-- .-- .-- (0.16)
Distributions from net realized gain
on securities .-- (2.65) .-- (8.55) (1.09) (1.11)
------------- ------- --------- -------- --------- --------
Total distributions 0.00 (2.65) 0.00 (8.55) (1.09) (1.27)
------------- ------- --------- -------- --------- --------
Net asset value at end of period $ 64.16 $50.67 $36.24 $35.74 $34.39 $31.77
============= ======= ========= ======== ========= ========
Total return* 26.62% 47.74% 1.40% 29.70% 11.68% 0.62%
Ratios/supplemental data:
Ratio of expenses to average net assets 0.91% 1.07% 1.10% 1.11% 1.10% 1.02%
Ratio of net investment income (loss) to
average net assets (0.24%) (0.50%) (0.09%) (0.44%) (0.17%) 0.54%
Portfolio turnover rate 60.90% 65.70% 99.20% 68.90% 59.60% 29.10%
Net assets, end of period (000's) $ 460,108 $ 363,817 $ 302,762 $ 337,425 $ 268,235 $ 259,133
Total return figures do not adjust for the sales charge.
</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
Gardner, Carton & Douglas
321 N. Clark Street
Chicago, IL 60610
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.
