THE PARNASSUS INCOME FUND
SEMIANNUAL REPORT
JUNE 30, 1997
July 28, 1997
Dear Shareholder:
Here is your semiannual report covering the first half of 1997. Below
you'll find an analysis of each portfolio. As the portfolio manager for the
Balanced and the Fixed-Income Portfolios, I wrote those sections. As portfolio
manager for the California Tax-Exempt Portfolio, David Pogran wrote that report.
BALANCED PORTFOLIO
As of June 30, 1997, the net asset value per share (NAV) of the Balanced
Portfolio was $19.18. Taking into account dividends paid, the total return for
the first six months of the year was 5.66%. This compares to a total return of
10.21% for the average balanced fund according to Lipper Analytical Services.
Below is a table summarizing average annual total returns for the one and
three-year periods and for the life of the Portfolio.
<TABLE>
<CAPTION>
----------------------------------------------------------------
Average Annual
Balanced Portfolio Total Return
----------------------------------------------------------------
<S> <C>
One Year 9.92%
Three Years 15.68%
Since Inception 9/1/92 12.50%
----------------------------------------------------------------
<FN>
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.
</FN>
</TABLE>
The reason the Balanced Portfolio underperformed for the last six months is
because we're more income-oriented than the average balanced fund. All of our
stocks pay a healthy dividend and the Portfolio has a good yield. Our 30-day SEC
yield for June was 4.32% which is higher than the average balanced fund. The
reason we have this higher yield is because our stocks pay higher dividends and
to get these higher dividend-paying stocks, we invest in a relatively high
portion of utility stocks. (See portfolio for more details.)
Unfortunately, utility stocks have not done very well these past six
months. The Dow Jones Utility Average had a total return (including reinvested
dividends) of 0.00% for the last six months. In other words, the return was
completely flat. What was gained in dividends was lost in lower stock prices.
In my view, there are two reasons for this phenomenon. First, interest
rates increased a bit over the last six months and as interest rates go up,
utility prices usually go down. Second, utilities are undergoing a period of
deregulation and this brings competition and uncertainty.
In contrast to utility stocks with no total return, the S&P 500 increased
by 20.62% for the year-to-date. This means that most balanced portfolios had
better returns than we did because they had fewer utility stocks and more of the
S&P 500 stocks in their portfolios.
Given this situation, what should our investment strategy be? Because of
our stated investment objective, we need to keep an income orientation with the
Portfolio. However, I think we could still be true to our investment objective
by reducing the yield somewhat in favor of achieving more total return through
more growth in principal. One way of doing this might be to reduce the
percentage of utilities in our portfolio and invest in stocks with a lower
dividend, but better prospects for growth.
One difficulty with this strategy, though, is that stocks in general as
measured by the S&P 500 may be somewhat overvalued while utilities as measured
by the Dow Jones Utility Average may be somewhat undervalued. There might be a
correction to the S&P 500 while utility stocks might go up somewhat. If this
were to happen, we would be leaping out of utilities at just the wrong time and
investing in S&P stocks just as they stop going up and start going down. Given
this situation, any change in strategy has to be executed carefully.
Since preservation of capital is an important objective with the Balanced
Portfolio, it's important to try and defend against any sharp downdrafts. Had
the market plummeted over the past six months, we probably would have
outperformed the S&P 500 instead of underperforming. In any case, a 5.66% total
return for six months is not too bad, but it's just not as good as the soaring
stock market. Over the next six months, though, I do plan to move some assets
out of utilities and into some growth-type stocks, but still keep the
conservative income-nature of the Portfolio intact. Our yield may drop a bit,
but total return potential should increase.
INDIVIDUAL ISSUES
Overall, our individual equity issues did reasonably well. Only two stocks
dropped more than 10% while five issues increased by more than 10%. John Harland
was the biggest loser of the period, dropping 30.9% as it went from $33.00 to
$22.81. John Harland is in the check-printing and financial services business
and the company has recently undergone a restructuring as it closes 20
check-printing facilities and moves their operation to other plants.
Unfortunately, costs are not yet under control and this hurt the stock. The
company also reduced the dividend yield from 3.2% to 1.4% to save cash and use
it for business expansion. This also contributed to the downward pressure on the
stock. We plan to continue holding the stock since we expect future performance
to improve and the stock should follow.
LG&E Energy dropped 10.0% during the period, going from $24.50 to $22.06.
This Kentucky-based utility acquired KU Energy in May and the stock dropped
after the merger announcement because the transaction will reduce earnings for
the first year. Longer-term, the merger appears more positive because the
combined company will have more customers and will save on operating costs
through consolidation.
The Heinz Corporation made the biggest gain for the year-to-date as its
stock climbed 29.0% as it increased from $35.75 to $46.13. This Pittsburgh-based
food company went through a restructuring that included selling underperforming
assets, closing plants and reorganizing its divisions. Investors applauded the
move by bidding up the stock price in anticipation of lower costs and higher
earnings.
Another winner was the Sun Corporation which saw its stock increase 27.2%,
going from $24.38 to $31.00. Like Heinz, Sun went through a restructuring that
involved cost-cutting at its refineries. Earnings increased and so did the
stock.
Cilcorp, an Illinois-based electric utility, had a stock price increase of
12.5% as its shares moved from $36.63 to $41.19. The company is a low cost
producer and with deregulation coming, Cilcorp should be able to expand its
customer base and its earnings.
Energen, a holding company with a natural gas utility and an energy
exploration and production subsidiary, had an 11.4% gain in share price,
increasing from $30.25 to $33.69. During the latest quarter, earnings from
exploration and production doubled over the previous year.
People's Energy Corporation enjoyed a good return for the first half of
1997 as the stock price appreciated 10.5%, rising from $33.88 to $37.44. Cold
weather in the Chicago area increased gas usage and revenue and earnings rose.
The company also increased its dividend.
For a report on the fixed-income section of the Balanced Portfolio, see the
next section on the Fixed-Income Portfolio. The bond portion of the Balanced
Portfolio is managed the same way as the Fixed-Income Portfolio.
<PAGE>
FIXED-INCOME PORTFOLIO
As of June 30, 1997, the net asset value per share (NAV) of the
Fixed-Income Portfolio was $15.39. Taking into account dividends paid, total
return for the six months ending June 30 was 3.11%. This compares to a return of
2.74% for the Lehman Government/Corporate Bond Index and 2.68% for the average
A-rated bond fund according to Lipper Analytical Services. So we beat both the
index and the average A-rated bond fund. For the six month period, we placed
28th out of the 123 A-rated bond funds followed by Lipper.
For the twelve months ending June 30, the Fixed-Income Portfolio had a
total return of 8.24% compared to 7.75% for the Lehman index and 7.69% for the
average A-rated bond fund. So we beat the index and the average fund for the
one-year period as well.
Below is a table summarizing average annual total returns for the one and
three-year periods and for the life of the Portfolio.
<TABLE>
<CAPTION>
--------------------------------------------------------------
Average Annual
Fixed-Income Portfolio Total Return
--------------------------------------------------------------
<S> <C>
One Year 8.24%
Three Years 9.55%
Since Inception 9/1/92 6.96%
--------------------------------------------------------------
<FN>
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.
</FN>
</TABLE>
ANALYSIS
Not only did the Portfolio beat the average A-rated bond fund, but we also
beat the Lehman Government/ Corporate Bond Index which is a measure of return
for bonds. However, the Lehman index doesn't include expenses that a mutual fund
must pay. In our case, the expense ratio of 0.83% is relatively high for a bond
fund because our assets are only about $9 million. (As assets increase, the
expense ratio should come down so tell your friends about the Fixed-Income
Portfolio.) We beat the Lehman index even with a handicap of 0.83%.
There are two main reasons we were able to do this. First, we purchased new
bonds with a maturity around ten years rather than longer-term bonds. With
yields increasing slightly over the six-month period, longer bonds dropped more
in price than shorter bonds. (The yield of the 30-year Treasury bond went from
6.64% on 12-31-96 to 6.78% on 6-30-97.)
A second reason for our outperformance was timely investment of new cash
proceeds. We bought bonds right after sharp increases in interest rates. This
meant that we bought the bonds at a lower price and our yield was slightly
higher.
For example, Federal Reserve Chairman Alan Greenspan and the Board
increased the federal funds rate by one quarter of one percent in March and this
caused interest rates in general to increase. This was an opportune time to buy
bonds.
During the first six months of the year, interest rates moved up and down
quite a bit. Each time that it appeared that the economy was growing strongly,
interest rates would shoot up because of fears that the Federal Reserve would
tighten. We took advantage of some of these spikes to buy new bonds.
We'll follow the same strategy during the second half of the year. Interest
rates are coming down now since there is no sign of inflation. If they keep
coming down, we'll use this opportunity to sell some of our longer maturity
bonds that remain and invest the proceeds in bonds with 10-year maturities. This
will give us pretty good yields and will also protect us better from any sharp
interest rate surges. We'll lose a little in yield, but the increased safety
should compensate for that.
JOAN SHAPIRO
Joan Shapiro, an original investor with the Parnassus Fund and a Trustee of
the Parnassus Income Fund, has retired after 20 years with the South Shore Bank
in Chicago. As many of you know, South Shore is the nation's most prominent
development bank, having gone into depressed areas of Chicago and pioneered
community economic development. Joan joined South Shore in 1976 and became
Director of Development Deposits in 1982 where she increased assets from $20
million to $150 million. Prior to her retirement, she served as Executive Vice
President with responsibilities for marketing, communications, press relations
and raising capital.
In addition to service as a Parnassus Trustee, Joan was a founding board
member of the Social Investment Forum and served as President for two years. She
has made significant contributions to Parnassus and to the social investment
movement. Joan is a very youthful retiree so I'm sure we'll be hearing more from
her before too long. I hope all of you will join me in wishing her well in
whatever her next venture may be.
Yours truly,
Jerome L. Dodson
President
<PAGE>
CALIFORNIA TAX-EXEMPT PORTFOLIO
July 28, 1997
Dear Shareholder:
As of June 30, 1997, the net asset value (NAV) of the California Tax-Exempt
Portfolio was $16.13. Including dividend reinvestment, the total return for the
Portfolio for the first half of 1997 was 3.20%. For the same period, the Lehman
Municipal Bond Index posted a 3.20% return and the average California municipal
bond fund gained 2.82%. Our first half performance placed us 20th out of the 109
funds followed by Lipper Analytical Services.
The table below gives performance comparisons for the last twelve months,
the last three years and since the Portfolio's inception.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
California Tax-Exempt Lipper California Municipal
Portfolio Bond Fund Average
-------------------------------------------------------------------------
<S> <C> <C>
One Year 8.73% 8.07%
Three Years 8.18% 7.35%
Life of the Fund 6.90% 6.37%
-------------------------------------------------------------------------
<FN>
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.
</FN>
</TABLE>
As you can see, the Portfolio continues to outperform the average
California municipal bond fund by a substantial margin. For the three years
ending June 30, 1997, our performance ranked 12th of 72 California municipal
bond funds followed by Lipper. I'm pleased to report that Mutual Funds magazine
awarded our Portfolio five stars out of five possible stars meaning that our
portfolio was among the top 20% of its peers for risk-adjusted return.
For June 1997, our 30-day yield was 4.66%. For the first six months of
1997, our average 30-day yield was 4.79%. A single individual with taxable
income between $25,484 and $32,207 would have to yield 7.24% on a taxable
investment to equal the Portfolio's year-to-date average 30-day yield after
taxes.
ANALYSIS
While California's economic recovery and continued low inflation ultimately
resulted in good performance for your Portfolio in the first half, the Portfolio
and the bond market had a downturn in March and April. In March, the Federal
Reserve Board raised the federal funds rate 1/4 of a percent. At the time, first
quarter economic growth looked very strong, and Federal Reserve Chairman Alan
Greenspan wanted to stifle any inflation that robust growth might cause. Some
weeks later, the government reported first quarter economic growth at 5.8%, the
highest growth rate since this portfolio's inception in September 1992.
Because bond prices fall when interest rates rise, the bond market traded
down for several weeks after the Fed rate increase. Fortunately, the bond market
has since recovered. Second quarter growth looks like it will be much more
subdued than the first quarter and inflation remains very low. As measured by
the Consumer Price Index, May's annual inflation rate of 2.2% was the lowest in
over ten years.
Thanks to the State's economic rebound, California's municipal bonds
continued to outperform the nationwide municipal market in the first six months
of 1997. A stronger economy improves California's credit quality.
Our ongoing strategy of concentrating our bond maturities at 15 years
continues to help our performance. During the last six months, the yield curve
"flattened" slightly, meaning that yields on longer bonds decreased about 10
basis points while the yields on shorter bonds increased by around 8 basis
points. By holding more longer bonds that went up in price and less shorter
maturity bonds that decreased in price, we once again outperformed the average
California municipal bond fund.
While these variations in relative price performance make interesting
discussion, the impact of income on performance is typically greater than price
changes. Income is the most important component of total return for a portfolio
like ours. Price changes can add to or reduce total return, but over the long
haul and in most years, income will account for most of our total return. For
our Portfolio, first half bond price increases added 0.62% to our total return
while income added 2.58%. Together, price change and income resulted in our
first half total return of 3.20%. For the life of the fund, the cumulative total
return (not annualized) has been 38.05%. Price change accounted for 1/5 of that
total return, while income provided a far more significant 4/5 of our total
return.
NEW HOLDINGS
In November 1996, Measure I was presented to Oakland voters for approval.
Measure I proposed bonds funding $45.42 million of repairs, construction,
acquisitions and improvements to City libraries, museums and other cultural and
recreational facilities. Oakland voters resoundingly approved Measure I with
77.6% voting for the Measure. (As a resident of Oakland, I'm proud to say my
vote was part of that majority.) In March 1997, these bonds were offered for
sale and the Portfolio purchased $300,000 of them.
Libraries, museums and recreation facilities are vital educational and
cultural resources. Sadly, in these times of tight budgets, these resources
often get cut. Our Portfolio will continue to support projects that improve the
environment, education and housing in California. Thank you for investing with
us.
Yours truly,
David Pogran
Portfolio Manager
<PAGE>
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION, JUNE 30, 1997 (UNAUDITED)
Percent of
Shares Common Stocks Net Assets Market Value
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
DIVERSIFIED SERVICE
AND SUPPLY
40,000 Chemed Corporation 4.4% $ 1,497,500
------------
ELECTRIC UTILITIES
30,000 CILCORP 1,235,625
12,000 Ipalco Enterprises 375,000
50,000 LG & E Energy Corporation 1,103,125
85,000 Washington Water Power 1,668,125
------------
Total 12.8% 4,381,875
------------
FOOD - PROCESSING
25,000 Heinz (H.J) 3.4% 1,153,125
------------
NATURAL GAS
35,000 Black Hills Corporation 997,500
45,000 Brooklyn Union Gas 1,288,125
55,000 Energen Corporation 1,852,812
30,000 Equitable Resources 851,250
55,000 ONEOK 1,770,313
40,000 People's Energy 1,497,500
45,000 UGI Corporation 995,625
10,000 Wicor, Inc. 389,375
------------
Total 28.2% 9,642,500
------------
PETROLEUM REFINING
& MARKETING
70,000 Sun Company 6.3% 2,170,000
------------
PRINTING
45,000 Deluxe Corporation 1,535,625
30,000 John H. Harland Company 684,375
------------
Total 6.5% 2,220,000
------------
RESTAURANT
60,000 Luby's Cafeterias, Inc. 3.5% 1,196,250
------------
RETAIL
12,000 J.C. Penney Company, Inc. 1.8% 626,250
------------
TOTAL COMMON STOCKS 66.9% $ 22,887,500
------------
<PAGE>
Principal Percent of
Amount Corporate Bonds Net Assets Market Value
- -----------------------------------------------------------------------------
AIR TRANSPORT
$ 330,000 Delta Airlines
9.750%, due 05/15/21 $ 395,660
27,733 Delta Airlines
8.540%, due 01/02/07 29,344
21,648 Delta Airlines
8.540%, due 01/02/07 22,911
100,000 Delta Airlines
10.375%, due 02/01/11 123,006
40,000 Delta Airlines
9.250%, due 03/15/22 45,890
150,000 Federal Express
9.650%, due 06/15/12 178,305
20,000 Southwest Airlines
7.875%, due 09/01/07 21,100
------------
Total 2.4% 816,216
------------
COMPUTERS
350,000 Digital Equipment
Corporation
7.750%, due 04/01/23 0.9% 310,296
------------
FOOD-PROCESSING
650,000 Quaker Oats Company
9.280%, due 12/08/09 2.2% 762,541
------------
HOME APPLIANCES
122,000 Whirlpool
9.100%, due 02/01/08 0.4% 139,102
------------
INSURANCE
950,000 Aetna Life and Casualty
6.750%, due 09/15/13 2.6% 885,761
------------
PUBLISHING
220,000 Knight-Ridder
9.875%, due 04/15/09 0.8% 268,864
------------
RETAIL
605,000 Dayton Hudson
9.625%, due 02/01/08 708,146
25,000 Dayton Hudson
8.500%, due 12/01/22 25,915
114,000 Dayton Hudson
7.875%, due 06/15/23 111,287
550,000 J.C. Penney Company, Inc.
7.125%, due 11/15/23 518,865
350,000 Reebok International
6.750%, due 09/15/05 335,237
------------
Total 5.0% 1,699,450
------------
TELECOMMUNICATIONS
350,000 U.S. West Capital Funding
6.350%, due 02/06/08 0.9% 324,436
------------
TOTAL CORPORATE BONDS 15.2% $ 5,206,666
------------
<PAGE>
Principal U.S. Government Percent of
Amount Agency Bonds Net Assets Market Value
- -----------------------------------------------------------------------------
$ 200,000 Federal Farm Credit Bank
5.810%, due 11/10/03 $ 191,828
300,000 Federal Home Loan Bank
5.850%, due 12/15/03 288,159
1,000,000 Federal Home Loan Bank
6.840%, due 05/01/06 1,009,380
150,000 Federal Home Loan Bank
8.170%, due 12/16/04 163,278
1,000,000 Federal Home Loan
Mortgage Corporation
5.825%, due 02/06/06 943,770
1,150,000 Federal National
Mortgage Association
6.770%, due 09/01/05 1,156,980
500,000 Federal National
Mortgage Association
6.140%, due 11/25/05 482,745
1,000,000 Federal National
Mortgage Association
5.800%, due 02/22/06 941,940
------------
TOTAL U.S. GOVERNMENT
AGENCY BONDS 15.1% $ 5,178,080
------------
<PAGE>
Principal Community Percent of
Amount Development Loans Net Assets Market Value
- ----------------------------------------------------------------------------
$ 100,000 Boston Community
Loan Fund $ 100,000
100,000 Institute for Community
Economics Loan Fund 100,000
100,000 Low Income Housing
Fund 100,000
------------
TOTAL COMMUNITY
DEVELOPMENT LOANS 0.9% $ 300,000
------------
TOTAL INVESTMENT IN SECURITIES
(Cost $31,261,257) 98.1% $ 33,572,246
------------
<PAGE>
Percent of
Short-Term Investments Net Assets Market Value
------------------------------------------------------------------------
Union Bank of California
Money Market Fund,
variable rate - 4.780% $ 403,303
Goldman Sachs
Government Portfolio - 5.050% 1,681
Goldman Sachs
Treasury Portfolio - 5.050% 1,722
Wainwright Bank & Trust Co.
5.400% 100,000
------------
TOTAL SHORT-TERM
INVESTMENTS 1.5% $ 506,706
------------
TOTAL INVESTMENTS 99.6% 34,078,952
OTHER ASSETS AND
LIABILITIES - NET 0.4% 123,125
------ ------------
TOTAL NET ASSETS 100.0% $ 34,202,077
====== ============
<FN>
*The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997 (UNAUDITED)
<S> <C>
Assets:
Investments in securities, at market value
(identified cost $31,261,257) (Note 1) $ 33,572,246
Temporary investments in short-term securities
(at cost, which approximates market) 506,706
Receivables:
Dividends and interest 263,873
Capital shares sold 27,321
Other assets 13,581
------------
Total assets 34,383,727
------------
Liabilities:
Accounts payable and accrued expenses 181,650
------------
Total liabilities 181,650
------------
Net Assets (equivalent to $19.18
per share based on 1,782,859.317
shares of capital stock outstanding) $ 34,202,077
============
Net assets consist of:
Distributions in excess of net investment income $ (810)
Unrealized appreciation on investments 2,310,989
Undistributed net realized gain 323,703
Capital paid-in 31,568,195
------------
Total Net Assets $ 34,202,077
============
Computation of net asset value and
offering price per share:
Net asset value and offering price per share
($34,202,077 divided by 1,782,859.317 shares) $ 19.18
===========
<FN>
*The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<S> <C>
Investment Income:
Dividends $ 526,966
Interest 384,395
------------
Total investment income 911,361
------------
Expenses:
Investment advisory fees (Note 5) 125,720
Transfer agent fees (Note 5) 45,080
Fund administration expense (Note 5) 17,521
Reports to shareholders 12,744
Registration fees and expenses 9,273
Professional fees 6,264
Custody fees 5,653
Trustee fees and expenses 2,338
Other expenses 5,449
------------
Subtotal of expenses before fee waiver 230,042
Fees waived by Parnassus Investments (Note 5) (58,730)
------------
Total expenses 171,312
------------
Net Investment Income 740,049
------------
Realized and Unrealized Gain on Investments:
Realized gain from security transactions:
Proceeds from sales 6,028,624
Cost of securities sold (5,713,706)
------------
Net realized gain 314,918
------------
Unrealized appreciation of investments:
Beginning of year 1,485,451
End of period June 30, 1997 2,310,989
------------
Unrealized appreciation during the year 825,538
------------
Net Realized and Unrealized Gain on Investments 1,140,456
------------
Net Increase in Net Assets Resulting from Operations $ 1,880,505
============
<FN>
*The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND YEAR ENDED DECEMBER 31, 1996
June 30, 1997 1996
------------- ------------
<S> <C> <C>
From Operations:
Net investment income $ 740,049 $ 1,396,812
Net realized gain from
security transactions 314,918 2,473,597
Net unrealized appreciation
(depreciation) during the period 825,538 (1,711,490)
------------- ------------
Increase in net assets
resulting from operations 1,880,505 2,158,919
Dividends to shareholders:
From net investment income (737,413) (1,384,215)
From realized capital gains 0 (2,469,121)
Increase (Decrease) in
Net Assets from Capital
Share Transactions (302,821) 8,276,966
------------- ------------
INCREASE IN NET ASSETS 840,271 6,582,549
Net Assets:
Beginning of period 33,361,806 26,779,257
------------- ------------
End of period
(including distributions in
excess of net investment
income of $810 in 1997
and $3,447 in 1996) $ 34,202,077 $ 33,361,806
============ ============
<FN>
*The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIXED-INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION, JUNE 30, 1997 (UNAUDITED)
Principal Percent of
Amount Corporate Bonds Net Assets Market Value
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
AIR TRANSPORT
$ 71,000 Delta Airlines
Debentures, 10.375%,
due 02/01/11 $ 87,334
40,000 Delta Airlines
Debentures, 9.250%,
due 03/15/22 45,890
174,000 Delta Airlines
Debentures, 9.750%,
due 05/15/21 208,621
60,665 Delta Airlines
Notes 8.540%,
due 01/02/07 64,190
147,000 Federal Express
Debentures, 9.650%,
due 06/15/12 174,739
20,000 Federal Express
Senior Notes, 10.000%,
due 04/15/99 21,195
------------
Total 7.0% 601,969
------------
COMPUTERS
25,000 Digital Equipment
Corporation
Notes, 7.125%,
due 10/15/02 24,011
130,000 Digital Equipment
Corporation
Notes, 8.625%,
due 11/01/12 128,883
178,000 Digital Equipment
Corporation
Notes, 7.750%,
due 04/01/23 157,808
------------
Total 3.6% 310,702
------------
ELECTRONICS
400,000 Polaroid Corporation
Notes, 7.250%,
due 01/15/07 4.6% 399,876
------------
FINANCIAL SERVICES
300,000 BankAmerica Corporation
Notes, 7.125%,
due 03/01/09 3.5% 296,949
------------
FOOD-PROCESSING
350,000 Quaker Oats Company
Notes, 9.280%,
due 12/08/09 4.8% 410,599
------------
HOME APPLIANCES
300,000 Whirlpool
Debentures, 9.100%,
due 02/01/08 4.0% 342,054
------------
INSURANCE
350,000 Aetna Life and Casualty
Notes, 6.750%,
due 09/15/13 326,333
31,000 Aetna Life and Casualty
Notes, 8.000%,
due 01/15/16 30,121
150,000 Cigna Corporation
Notes, 7.400%,
due 05/17/07 151,504
------------
Total 5.9% 507,958
------------
PUBLISHING
80,000 Knight-Ridder
Notes, 9.875%,
due 04/15/09 1.1% 97,769
------------
RETAIL
12,000 Dayton Hudson
Debentures, 9.250%,
due 11/15/16 12,263
90,000 Dayton Hudson
Debentures, 9.625%,
due 02/01/08 105,344
100,000 Dayton Hudson
Notes, 7.875%,
due 06/15/23 97,620
65,000 Dayton Hudson
Notes, 8.500%,
due 12/01/22 67,380
325,000 J.C. Penney Company, Inc.
Debentures, 7.125%,
due 11/15/23 306,602
200,000 The Limited
Notes, 7.500%,
due 03/15/23 180,442
350,000 Reebok International
Debentures, 6.750%,
due 09/15/05 335,237
------------
Total 12.8% 1,104,888
------------
TELECOMMUNICATIONS
350,000 U.S. West Capital Funding
Notes, 6.350%,
due 02/06/08 3.8% 324,436
------------
TOTAL CORPORATE BONDS 51.1% $ 4,397,200
------------
<PAGE>
Principal U.S. Government Percent of
Amount Agency Securities Net Assets Market Value
- ----------------------------------------------------------------------------
$ 400,000 Federal Home Loan
Mortgage Corporation
CMO 1530-N
7.000%, due 06/15/23 $ 386,492
500,000 Federal Home Loan Bank
6.840%, due 05/01/06 504,690
500,000 Federal Home Loan
Mortgage Corp.
6.400%, due 12/13/06 489,575
300,000 Federal National
Mortgage Association
6.720%, due 08/01/05 300,909
850,000 Federal National
Mortgage Association
6.770%, due 09/01/05 855,160
500,000 Federal National
Mortgage Association
6.140%, due 11/25/05 482,745
500,000 Federal National
Mortgage Association
5.800%, due 02/22/06 470,970
450,000 Federal National
Mortgage Association
7.350%, due 03/28/05 468,288
------------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES 46.1% $ 3,958,829
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $8,270,391) 97.2% $ 8,356,029
------------
<PAGE>
Percent of
Short-Term Investments Net Assets Market Value
- -----------------------------------------------------------------------------
Union Bank of California
Money Market Fund,
variable rate - 4.780% $ 97,136
Goldman Sachs
Government Portfolio -
5.050% 5,603
Goldman Sachs
Treasury Portfolio -
5.050% 3,455
------------
TOTAL SHORT-TERM
INVESTMENTS 1.2% $ 106,194
------------
TOTAL INVESTMENTS 98.4% 8,462,223
OTHER ASSETS AND
LIABILITIES - NET 1.6% 140,946
------ ------------
TOTAL NET ASSETS 100.0% $ 8,603,169
====== ============
<FN>
*The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIXED-INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997 (UNAUDITED)
<S> <C>
Assets:
Investments in securities, at market value
(identified cost $8,270,391) (Note 1) $ 8,356,029
Temporary investments in short-term securities
(at cost, which approximates market) 106,194
Receivables:
Interest 152,456
Other assets 5,705
------------
Total assets 8,620,384
------------
Liabilities:
Accounts payable and accrued expenses 17,215
------------
Total liabilities 17,215
------------
NET ASSETS (equivalent to $15.39
per share based on 558,842.800
shares of capital stock outstanding) $ 8,603,169
============
Net assets consist of:
Undistributed net investment income $ 2,347
Unrealized appreciation on investments 85,638
Accumulated net realized loss (66,711)
Capital paid-in 8,581,895
------------
Total Net Assets $ 8,603,169
============
Computation of net asset value and
offering price per share:
Net asset value and offering price per share
($8,603,169 divided by 558,842.800 shares) $ 15.39
===========
<FN>
*The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIXED-INCOME PORTFOLIO
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<S> <C>
Investment Income:
Interest $ 312,390
------------
Total investment income 312,390
------------
Expenses:
Investment advisory fees (Note 5) 20,917
Transfer agent fees (Note 5) 11,857
Fund administration expense (Note 5) 4,412
Reports to shareholders 3,620
Registration fees and expenses 6,942
Professional fees 2,216
Custody fees 347
Trustee fees and expenses 597
Other expenses 2,494
------------
Subtotal of expenses before fee waiver 53,402
Fees waived by Parnassus Investments (Note 5) (18,812)
------------
Total expenses 34,590
------------
Net Investment Income 277,800
------------
Realized and Unrealized Gain (Loss) on Investments:
Realized loss from security transactions:
Proceeds from sales 3,674
Cost of securities sold (3,665)
------------
Net realized gain 9
------------
Unrealized appreciation (depreciation) of investments:
Beginning of year 100,680
End of period June 30, 1997 85,638
------------
Unrealized depreciation during the year (15,042)
------------
Net Realized and Unrealized Loss on Investments (15,033)
------------
Net Increase in Net Assets Resulting from Operations $ 262,767
============
<FN>
*The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIXED-INCOME PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND YEAR ENDED DECEMBER 31, 1996
June 30, 1997 1996
------------- -----------
<S> <C> <C>
From Operations:
Net investment income $ 277,800 $ 430,512
Net realized gain
from security transactions 9 2,712
Net unrealized appreciation
(depreciation) during the period (15,042) (92,885)
------------- -----------
Increase in net assets
derived from operations 262,767 340,339
Dividends to shareholders:
From net investment income (278,410) (424,348)
Increase in Net Assets from
Capital Share Transactions 235,117 1,883,135
------------- -----------
INCREASE IN NET ASSETS 219,474 1,799,126
Net Assets:
Beginning of period 8,383,695 6,584,569
------------- -----------
End of period
(including undistributed
net investment income of
$2,347 in 1997 and
$2,958 in 1996) $ 8,603,169 $ 8,383,695
============= ===========
<FN>
*The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA TAX-EXEMPT PORTFOLIO
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION, JUNE 30, 1997 (UNAUDITED)
Principal Percent of
Amount Municipal Bonds Net Assets Market Value
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
EDUCATION
$ 50,000 State of California
6.000%, due 01/01/21 $ 51,398
170,000 State of California
6.125%, due 10/01/11 187,211
250,000 California Education
Facilities - California
Institute of Technology
6.000%, due 01/01/21 252,792
105,000 California Public Works -
University of California
at San Diego Facilities
7.375%, due 04/01/06 116,175
100,000 California Public Works -
Community College Projects
5.500%, due 12/01/06 104,515
130,000 California Public Works -
University of California
5.400%, due 06/01/08 133,998
175,000 California Public Works -
California State University
6.200%, due 10/01/08 188,962
300,000 Folsom School District
5.650%, due 08/11/11 311,610
100,000 Franklin-McKinsey
School District
5.600%, due 07/01/07 105,015
100,000 Kern High School District
5.600%, due 08/01/13 103,842
100,000 Los Angeles Municipal
Improvement -
Central Library Projects
5.200%, due 06/01/07 101,330
250,000 Murrieta Valley Unified
School District
5.500%, due 09/01/10 256,402
100,000 Natomas Unified
School District
5.750%, due 09/01/13 103,044
300,000 Oakland General
Obligation
5.500%, due 12/15/11 308,601
110,000 Pasadena Recreational/
Library Improvements
5.750%, due 01/01/13 110,384
130,000 Pomona Unified
School District
5.500%, due 08/01/11 135,108
130,000 San Francisco Unified
School District
6.200%, due 06/15/11 138,897
110,000 Santa Monica Unified
School District
5.400%, due 08/01/11 111,113
------------
Total 45.2% 2,820,397
------------
HEALTH CARE
60,000 California Health
Facilities-Feedback
Foundation
6.500%, due 12/01/22 1.0% 64,093
------------
PUBLIC
TRANSPORTATION
200,000 Los Angeles County
Transportation
Commission
6.250%, due 07/01/16 200,014
70,000 City of Sacramento -
Light Rail
6.000%, due 07/01/12 71,823
110,000 San Diego
Mass Transit Authority
5.000%, due 06/01/07 111,612
125,000 San Francisco
Bay Area Rapid Transit
5.650%, due 07/01/10 129,021
------------
Total 8.2% 512,470
------------
HOUSING
205,000 Belmont Redevelopment
Agency
6.400%, due 08/01/09 219,116
55,000 California Housing
Finance - Multi-Family
6.750%, due 02/01/09 55,207
100,000 Glendale Redevelopment
Agency
5.500%, due 12/01/12 101,917
50,000 Los Angeles Community
Redevelopment
6.000%, due 07/01/17 51,598
275,000 Pasadena Community
Development
6.000%, due 08/01/14 279,884
175,000 San Jose Redevelopment
Agency
6.000%, due 08/01/15 189,236
200,000 University Of California
Housing
5.500%, due 11/01/10 204,748
------------
Total 17.8% 1,101,706
------------
INFRASTRUCTURE
IMPROVEMENTS
90,000 East Bay Municipal
Utility District
6.000%, due 06/01/20 92,114
150,000 Los Angeles City
General Obligation
5.250%, due 09/01/11 150,087
200,000 Los Angeles
Wastewater System
5.500%, due 06/01/12 203,262
200,000 Pomona Public Financing
Authority
6.000%, due 10/01/06 216,888
150,000 San Francisco Public
Safety Improvement
5.750%, due 06/15/12 153,528
------------
Total 13.1% 815,879
------------
ENVIRONMENT
80,000 Burbank Waste Disposal
5.300%, due 05/01/09 81,055
75,000 California Pollution
Control-North County
Recycling Center
6.750%, due 07/01/17 85,289
125,000 California Public Works -
Energy Efficiency
5.250%, due 05/01/08 127,769
235,000 Northern California
Geothermal Project
5.800%, due 07/01/09 243,013
50,000 East Bay Regional Park
5.750%, due 09/01/12 50,802
50,000 East Bay Regional Park
6.300%, due 09/01/09 53,030
125,000 Los Angeles City
Public Works - Parks
6.100%, due 10/01/09 134,155
35,000 Midpeninsula Regional
Open Space District
6.250%, due 07/01/08 37,535
------------
Total 13.0% 812,648
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $5,873,036) 98.3% $ 6,127,193
------------
Short-Term Investments
Highmark California
Tax-Exempt Fund,
variable rate - 3.730% 0.1% $ 7,489
------------
TOTAL INVESTMENTS 98.4% 6,134,682
OTHER ASSETS AND
LIABILITIES - NET 1.6% 102,534
------ ------------
TOTAL NET ASSETS 100.0% $ 6,237,216
====== ============
<FN>
*The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA TAX-EXEMPT PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997 (UNAUDITED)
<S> <C>
Assets:
Investments in securities, at market value
(identified cost $5,873,036) (Note 1) $ 6,127,193
Temporary investments in short-term securities
(at cost, which approximates market) 7,489
Receivables:
Interest 103,372
Other assets 6,177
------------
Total assets 6,244,231
------------
Liabilities:
Accounts payable and accrued expenses 7,015
Total liabilities 7,015
NET ASSETS (equivalent to $16.13
per share based on 386,715.333
shares of capital stock outstanding) $ 6,237,216
============
Net assets consist of:
Distributions in excess of
net investment income $ (147)
Unrealized appreciation on investments 254,157
Accumulated net realized loss (28,901)
Capital paid-in 6,012,107
------------
Total Net Assets $ 6,237,216
============
Computation of net asset value and
offering price per share:
Net asset value and offering price per share
($6,237,216 divided by 386,715.333 shares) $ 16.13
============
<FN>
*The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA TAX-EXEMPT PORTFOLIO
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<S> <C>
Investment Income:
Interest $ 167,970
------------
Total investment income 167,970
------------
Expenses:
Investment advisory fees (Note 5) 15,061
Transfer agent fees (Note 5) 4,149
Fund administration expense (Note 5) 3,067
Reports to shareholders 1,969
Registration fees and expenses 694
Professional fees 1,810
Custody fees 253
Trustee fees and expenses 404
Other expenses 2,707
------------
Subtotal of expenses before fee waiver 30,114
Fees waived by Parnassus Investments (Note 5) (10,498)
------------
Total expenses 19,616
------------
Net Investment Income 148,354
------------
Realized and Unrealized Gain on Investments:
Realized gain from security transactions:
Proceeds from sales 128,877
Cost of securities sold 124,392
------------
Net realized gain 4,485
------------
Unrealized appreciation of investments:
Beginning of year 208,529
End of period June 30, 1997 254,157
------------
Unrealized appreciation during the year 45,628
------------
Net Realized and Unrealized Gain on Investments 50,113
------------
Net Increase in Net Assets Resulting from Operations $ 198,467
============
<FN>
*The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA TAX-EXEMPT PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND YEAR ENDED DECEMBER 31, 1996
June 30, 1997 1996
------------- -----------
<S> <C> <C>
From Operations:
Net investment income $ 148,354 $ 259,435
Net realized gain from
security transactions 4,485 0
Net unrealized appreciation
during the period 45,628 5,632
------------- -----------
Increase in net assets
derived from operations 198,467 265,067
Dividends to shareholders:
From net investment income (148,481) (256,479)
Increase in Net Assets from
Capital Share Transactions 352,189 1,343,304
------------- -----------
INCREASE IN NET ASSETS 402,175 1,351,892
Net Assets:
Beginning of period 5,835,041 4,483,149
------------- -----------
End of period
(including distributions in
excess of net investment
income of $147 in 1997
and $20 in 1996) $ 6,237,216 $ 5,835,041
============= ===========
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies
The Parnassus Income Fund (the Fund), organized on August 8, 1990 as a
Massachusetts Business Trust, is registered under the Investment Company
Act of 1940 as a diversified, open-end investment management company
comprised of three separate portfolios, each offering separate shares. The
Fund began operations on June 1, 1992. The following is a summary of
significant accounting policies of the fund.
Securities valuation: The Fund's investments are valued each business day
by independent pricing services ("Services") approved by the Board of
Trustees. Investments are valued at the mean between the "bid" and "ask"
prices where such quotes are readily available and are representative of
the actual market for such securities. Other investments are carried at
fair value as determined by the Services based on methods which include
consideration of (1) yields or prices of securities of comparable quality,
coupon, maturity and type (2) indications as to values from dealers and (3)
general market conditions.
Federal income taxes: The Fund intends to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and
to distribute all of its income to shareholders; therefore, no federal
income tax provision is required.
Security transactions: In accordance with industry practice, securities
transactions are accounted for on the date the securities are purchased or
sold (trade date). Realized gains and losses on securities transactions are
determined on the basis of first-in, first-out for both financial statement
and federal income tax purposes. Interest income, adjusted for amortization
of premium and, when appropriate, discount on investments, is earned from
settlement date and recognized on the accrual basis.
Dividends to shareholders: Distributions to shareholders are recorded on
the record date. The Balanced Portfolio pays income dividends quarterly and
capital gain dividends once a year, generally in December. The Fixed-Income
and California Tax-Exempt Portfolios pay income dividends monthly and
capital gain dividends annually.
Investment income and expenses: Dividend income is recorded on the
ex-dividend date. Interest income and estimated expenses are accrued daily.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
<PAGE>
2. Dividends To Shareholders
<TABLE>
<CAPTION>
Balanced Portfolio
The Portfolio declared the following dividends during the six months ended June 30, 1997.
<S> <C> <C>
Dividend per share: $0.205 $0.210
Record date: 3/28/97 6/27/97
Ex-dividend date: 3/31/97 6/30/97
Payment date: 3/31/97 6/30/97
</TABLE>
<TABLE>
<CAPTION>
Fixed-Income Portfolio
The Portfolio declared the following dividends during the six months ended June 30, 1997.
<S> <C> <C> <C> <C> <C> <C>
Dividend per share: $0.077 $0.085 $0.085 $0.100 $0.078 $0.083
Record date: 1/30/97 2/27/97 3/28/97 4/29/97 5/29/97 6/27/97
Ex-dividend date: 1/31/97 2/28/97 3/31/97 4/30/97 5/30/97 6/30/97
Payment date: 1/31/97 2/28/97 3/31/97 4/30/97 5/30/97 6/30/97
</TABLE>
<TABLE>
<CAPTION>
California Tax-Exempt Portfolio
The Portfolio declared the following dividends during the six months ended June 30, 1997.
<S> <C> <C> <C> <C> <C> <C>
Dividend per share: $0.066 $0.070 $0.063 $0.069 $0.063 $0.064
Record date: 1/30/97 2/27/97 3/28/97 4/29/97 5/29/97 6/27/97
Ex-dividend date: 1/31/97 2/28/97 3/31/97 4/30/97 5/30/97 6/30/97
Payment date: 1/31/97 2/28/97 3/31/97 4/30/97 5/30/97 6/30/97
</TABLE>
<PAGE>
3. Capital Stock
Balanced Portfolio: As of June 30, 1997, there were an unlimited number of
shares of no par value capital stock authorized and capital paid-in
aggregated $31,586,195. Transactions in capital stock (shares) were as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 1996
---------------------------------------------------------
Shares Amount Shares Amount
---------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 128,514 $ 2,387,158 485,421 $ 9,526,654
Shares issued through dividend reinvestment 36,070 671,249 190,947 3,587,500
Shares repurchased (179,611) (3,361,228) (246,116) (4,837,188)
--------- ------------- --------- ------------
NET INCREASE (15,027) $ (302,821) 430,252 $ 8,276,966
========= ============= ========= ============
</TABLE>
Fixed-Income Portfolio: As of June 30, 1997, there were an unlimited number
of shares of no par value capital stock authorized and capital paid-in
aggregated $8,581,895. Transactions in capital stock (shares) were as
follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1997 1996
---------------------------------------------------------
Shares Amount Shares Amount
---------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 57,492 $ 872,842 221,021 $ 3,333,554
Shares issued through dividend reinvestment 12,327 187,891 19,702 300,611
Shares repurchased (54,217) (825,616) (115,949) (1,751,030)
--------- ------------- --------- ------------
NET INCREASE 15,602 $ 235,117 124,774 $ 1,883,135
========= ============= ========= ============
</TABLE>
California Tax-Exempt Portfolio: As of June 30, 1997, there were an
unlimited number of shares of no par value capital stock authorized and
capital paid-in aggregated $6,012,107. Transactions in capital stock
(shares) were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 1996
---------------------------------------------------------
Shares Amount Shares Amount
---------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 53,476 $ 849,621 95,909 $1,509,468
Shares issued through dividend reinvestment 6,833 109,071 12,131 191,716
Shares repurchased (37,914) (606,503) (22,783) (357,880)
--------- ------------- --------- ------------
NET INCREASE 22,395 $ 352,189 85,257 $1,343,304
========= ============= ========= ============
</TABLE>
<PAGE>
4. Purchases of Securities
Balanced Portfolio: Purchases of securities for the six months ended June
30, 1997 were $5,371,340. For federal income tax purposes, the aggregate
cost of securities and unrealized appreciation at June 30, 1997 were the
same as for financial statement purposes. Of the $2,310,989 of net
unrealized appreciation at June 30, 1997, $2,817,618 related to
appreciation of securities and $506,629 related to depreciation of
securities.
Fixed-Income Portfolio: Purchases of securities for the six months ended
June 30, 1997 were $1,322,436. For federal income tax purposes, the
aggregate cost of securities and unrealized appreciation at June 30, 1997
were the same as for financial statement purposes. Of the $85,638 of net
unrealized appreciation at June 30, 1997, $162,181 related to appreciation
of securities and $76,543 related to depreciation of securities.
California Tax-Exempt Portfolio: Purchases of securities for the six months
ended June 30, 1997 were $599,250. For federal income tax purposes, the
aggregate cost of securities and unrealized appreciation at June 30, 1997
were the same as for financial statement purposes. Of the $254,157 of net
unrealized appreciation at June 30, 1997, $254,586 related to appreciation
of securities and $429 related to depreciation of securities.
5. Investment Advisory Agreement and Transactions with Affiliates
Under terms of an agreement which provides for furnishing investment
management and advice to the Fund, Parnassus Investments is entitled to
receive fees computed monthly, based on the Fund's average daily net assets
for the month, at the following annual rates:
Balanced Portfolio: 0.75% of the first $30,000,000, 0.70% of the next
$70,000,000 and 0.65% of the amount above $100,000,000.
Fixed Income Portfolio and California Tax-Exempt Portfolio: 0.50% of the
first $200,000,000, 0.45% of the next $200,000,000 and 0.40% of the amount
above $400,000,000.
Parnassus Investments has agreed to reduce its investment advisory fee to
the extent necessary to limit total operating expenses to 1.25% of net
assets for the Balanced Portfolio and 1.00% of net assets for the
Fixed-Income and California Tax-Exempt Portfolios.
For the Balanced Portfolio, the investment advisory fee was 0.30% for the
first three months of 1997. Beginning April 1, 1997, this fee was increased
to 0.50%. Parnassus Investments received net advisory fees totaling $66,990
from the Balanced Portfolio for the six months ended June 30, 1997. For the
Fixed-Income Portfolio, Parnassus Investments waived the investment
advisory fee for the first three months of 1997. Beginning April 1, 1997 an
investment advisory fee of 0.10% was charged to the Fixed-Income Portfolio.
Parnassus Investments received net advisory fees totaling $2,105 from the
Fixed Income Portfolio for the six months ended June 30, 1997. For the
California Tax-Exempt Portfolio, the investment advisory fee was 0.10% for
the first three months of 1997. Beginning April 1, 1997, this fee was
increased to 0.20%. Parnassus Investments received net advisory fees
totaling $4,563 from the California Tax-Exempt Portfolio for the six months
ended June 30, 1997.
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 $86,239 for the six months ended
June 30, 1997. The transfer agent fee is $2.30 per month per account and a
fund administration fee is $4,167 per month.
Jerome L. Dodson is the President of the Fund and is the sole stockholder
of Parnassus Investments.
For the six month period ended June 30, 1997, the Fund incurred legal fees
of $1,584 to Richard D. Silberman, counsel for the Fund. Mr. Silberman is
also the Secretary of the Fund.
6. Financial Highlights
Selected data for each share of capital stock outstanding, total returns
and ratios/supplemental data for the six months ended June 30, 1997 and
years ended December 31, 1996, 1995, 1994, 1993 and seven month period
ended December 31, 1992 are as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
JUNE 30, 1997
Balanced Portfolio (UNAUDITED) 1996 1995 1994 1993 1992
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $18.56 $19.58 $15.70 $17.46 $16.17 $ .-
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.42 0.98 0.88 0.80 1.20 0.17
Net realized and unrealized
gain (loss) on securities 0.62 0.37 3.93 (1.75) 1.36 16.15
------ ------ ------ ------ ------ ------
Total from investment operations 1.04 1.35 4.81 (0.95) 2.56 16.32
------ ------ ------ ------ ------ ------
DISTRIBUTIONS:
Dividends from net investment income (0.42) (0.97) (0.90) (0.81) (1.21) (0.15)
Distributions from net realized gain
on securities .- (1.40) (0.03) .- (0.06) .-
------ ------ ------ ------ ------ ------
Total distributions (0.42) (2.37) (0.93) (0.81) (1.27) (0.15)
------ ------ ------ ------ ------ ------
Net asset value at end of period $19.18 $18.56 $19.58 $15.70 $17.46 $16.17
------ ------ ------ ------ ------ ------
TOTAL RETURN* 5.66% 7.09% 31.13% (5.39%) 15.91% 8.58%
RATIOS / SUPPLEMENTAL DATA:
Ratio of expenses to average
net assets (actual)** 1.02% 0.80% 0.72% 0.83% 0.81% .-%
Decrease reflected in the above expense
ratios due to undertakings by
Parnassus Investments 0.35% 0.60% 0.82% 0.88% 1.24% 1.14%
Ratio of net investment income to
average net assets 4.40% 4.56% 4.76% 5.15% 4.94% 2.44%
Portfolio turnover rate 32.90% 47.80% 15.36% 6.50% 33.40% 23.54%
Average commission per share*** $ 0.070 $ 0.069
Net assets, end of period (000's) $34,202 $33,362 $26,779 $17,087 $11,542 $3,241
-------------------------------------------------------------------------------------------------------------------
JUNE 30, 1997
Fixed-Income Portfolio (UNAUDITED) 1996 1995 1994 1993 1992
-------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $15.43 $15.73 $13.79 $15.89 $15.33 $ .-
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.51 0.92 0.95 1.02 1.03 0.36
Net realized and unrealized
gain (loss) on securities (0.04) (0.31) 1.95 (2.08) 0.57 15.32
------ ------ ------ ------ ------ ------
Total from investment operations 0.47 0.61 2.90 (1.06) 1.60 15.68
------ ------ ------ ------ ------ ------
DISTRIBUTIONS:
Dividends from net investment income (0.51) (0.91) (0.96) (1.04) (1.03) (0.35)
Distributions from net realized gain
on securities .- .- .- .- (0.01) .-
------ ------ ------ ------ ------ ------
Total distributions (0.51) (0.91) (0.96) (1.04) (1.04) (0.35)
------ ------ ------ ------ ------ ------
Net asset value at end of period $15.39 $15.43 $15.73 $13.79 $15.89 $15.33
------ ------ ------ ------ ------ ------
TOTAL RETURN* 3.11% 4.08% 21.58% (6.76%) 10.59% 2.87%
RATIOS / SUPPLEMENTAL DATA:
Ratio of expenses to average
net assets (actual)** 0.83% 0.83% 0.90% 0.81% 0.68% .-%
Decrease reflected in the above expense
ratios due to undertakings by
Parnassus Investments 0.45% 0.50% 0.73% 0.98% 1.00% 1.18%
Ratio of net investment income to
average net assets 6.64% 5.98% 6.20% 7.00% 6.43% 3.20%
Portfolio turnover rate .-% 2.80% 12.10% 5.20% 10.90% 15.29%
Net assets, end of period (000's) $8,603 $8,384 $6,585 $4,545 $4,160 $2,093
-------------------------------------------------------------------------------------------------------------------
JUNE 30, 1997
California Tax-Exempt Portfolio (UNAUDITED) 1996 1995 1994 1993 1992
-------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $16.02 $16.06 $14.28 $16.10 $15.06 $ .-
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.40 0.80 0.82 0.80 0.77 0.19
Net realized and unrealized
gain (loss) on securities 0.11 (0.06) 1.78 (1.81) 1.16 15.05
------ ------ ------ ------ ------ ------
Total from investment operations 0.51 0.74 2.60 (1.01) 1.93 15.24
------ ------ ------ ------ ------ ------
DISTRIBUTIONS:
Dividends from net investment income (0.40) (0.78) (0.82) (0.81) (0.78) (0.18)
Distributions from net realized gain
on securities .- .- .- .- (0.11) .-
------ ------ ------ ------ ------ ------
Total distributions (0.40) (0.78) (0.82) (0.81) (0.89) (0.18)
------ ------ ------ ------ ------ ------
Net asset value at end of period $16.13 $16.02 $16.06 $14.28 $16.10 $15.06
------ ------ ------ ------ ------ ------
TOTAL RETURN* 3.20% 4.78% 18.60% (6.36%) 13.03% 1.70%
RATIOS / SUPPLEMENTAL DATA:
Ratio of expenses to average
net assets (actual)** 0.65% 0.54% 0.50% 0.39% 0.48% .-%
Decrease reflected in the above expense
ratios due to undertakings by
Parnassus Investments 0.35% 0.46% 0.69% 0.87% 0.99% 2.10%
Ratio of net investment income to
average net assets 4.92% 4.96% 5.30% 5.37% 4.89% 2.10%
Portfolio turnover rate 2.10% .-% 13.10% 12.00% 20.46% .-%
Net assets, end of period (000's) $6,237 $5,835 $4,483 $3,902 $3,256 $1,061
<FN>
* 1992 ratios reflect returns for seven months of operation and are not annualized. June 30, 1997 ratios reflect
returns for six months of operation and are not annualized.
** Parnassus Investments has agreed to a 1.25% limit on expenses for the Balanced Portfolio and 1% limit for the
Fixed-Income and California Tax-Exempt Portfolios (See Note 5 for details). Certain fees were waived for the six
month period ended June 30, 1997 and years ended December 31, 1996, 1995, 1994 and 1993. All expenses were waived
for the seven-month period ended December 31, 1992; therefore, the actual ratio of expenses to average net assets
for each portfolio was 0%.
*** Average commission rate is calculated for the periods beginning January 1, 1996 and applies only to portfolios with
equity holdings.
</FN>
</TABLE>
<PAGE>
THE PARNASSUS INCOME FUND
One Market-Steuart Tower #1600
San Francisco, California 94105
415-778-0200
800-999-3505
networth.quicken.com/parnassus
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.
