The Parnassus Income Trust
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August 9, 1999
Dear Shareholder:
Here is your semiannual report covering the first half of 1999. Below
you'll find an analysis of each fund in the Parnassus Income Trust.
EQUITY INCOME FUND
As of June 30, 1999, the net asset value per share (NAV) of the Equity
Income Fund was $22.27. Taking into account dividends paid, the total return for
the first six months of the year was 11.30%. This compares to a return of 12.39%
for the S&P 500 and 8.99% for the average equity income fund according to
Lipper, Inc. While we finished about one percent behind the S&P, we beat the
average equity income fund by over two percent.
For the 12 months ending June 30, the Fund gained 21.41% compared to 22.77%
for the S&P and 11.36% for the average equity income fund. While we finished
1.36% behind the S&P, we beat the average equity income fund by an astonishing
10.05%. In fact, for the last year, the Fund placed 12th out of the 237 equity
income funds followed by Lipper. We changed our investment objective to equity
income on March 31, 1998, and it took us a few months to completely change the
portfolio so we've had about a year's experience with the new objective. For the
first year at least, I can say that the Fund's new investment strategy has been
an unqualified success.
The goal of the Equity Income Fund has never been to beat the S&P 500.
Since 75% of the Fund's assets must pay a dividend or interest, the Fund should
be more stable than the S&P, but lag behind its total return by a bit. What
amazes me is that our return is so close to the S&P 500 over the past year.
The S&P index is weighted by market capitalization (i.e., the number of
shares outstanding times the market price per share) which means that big jumps
in just the largest companies move the index even if the gains in most companies
are more modest or even non-existent. For example, the 50 biggest companies
account for more than half the weight in the index so it's possible for 450
companies to have little or no gain and the largest 50 companies to have big
gains and the index will show a substantial upward movement.
<PAGE>
Over the past few years, the largest capitalization companies (large-cap)
have had huge upward movement which has driven the increases in the major market
indices. Small and medium-sized companies (small-cap and mid-cap) have not done
nearly as well. Although the Equity Income Fund does take market capitalization
into account, we don't use the same weighting as the S&P and our average
capitalization is lower. Nevertheless, we've been able almost to keep up with
the S&P this past year.
Because the enormous gains in the major stock market averages over the past
few years have been somewhat misleading when looking at the stock market as a
whole, we will start comparing the Equity Income Fund to the Wilshire 5000 as
well as the S&P 500. While the Wilshire 5000 is also market-weighted, it is not
completely dominated by the biggest companies because so many stocks are
included. Although the Wilshire 5000 used to have 5000 companies in that index,
it now contains 7,394 although it's still called the Wilshire 5000. For the
year-to-date, the Wilshire was up 11.87% compared to 11.30% for the Fund. For
the 12 months ended June 30, the Wilshire was up 19.59% compared to 21.41% for
the Fund.
Below is a table summarizing average annual total returns for the one and
five-year periods as well as for the life of the Fund. All periods ended as of
June 30, 1999. Keep in mind that the only "pure" result for the Fund is the
one-year figure since before that the Fund followed a balanced investment
objective with both stocks and bonds.
Average Annual
Equity Income Fund Total Return
One Year 21.41%
Five Years 16.82%
Since inception on 8/31/92 14.24%
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.
The June 30-day SEC yield for the Equity Income Fund was 1.47% compared to 1.25%
for the S&P 500. For the last six months, our yield has averaged 1.43% compared
to 1.28% for the S&P 500 so we've met our objective of achieving a higher yield
than the S&P. I would also like to point out that the Fund's yield is quoted
after approximately 1% in expenses while the S&P yield has no expenses deducted
from it.
<PAGE>
STRATEGY AND ANALYSIS
There are almost 170 issues in our portfolio so we are broadly diversified.
We take market capitalization into account in the sense that bigger-cap
companies, in general, have a larger percentage of the Fund's assets than do
smaller-cap companies. We are not, however, an index fund so we will overweight
and underweight companies all the time. Possible reasons for overweighting might
be because a stock pays a nice dividend or because we like the business
prospects for a company or because we consider a stock undervalued. Possible
reasons for underweighting a stock might be a small or non-existent dividend,
uncertain future business prospects or a valuation that we think is too high.
Although we had high turnover in the portfolio last year as we were
changing our investment objective, our goal is to keep turnover relatively low
- -- hopefully under 30%. By comparison, the average equity fund has a turnover
ratio close to 100%. A lower turnover rate will help our return by reducing
taxes and trading costs.
With 170 issues in the portfolio, no one company has an overwhelming impact
on the Fund. However, some companies made more of a difference than others and I
would like to discuss those that had the most impact -- both positive and
negative. Because the size of our position in individual companies varies
greatly, a company's impact on the portfolio will be different from its
percentage gain or loss over the past six months. For that reason, we will
discuss each company in relation to its impact on the Fund in cents per share as
well as the percentage gain or loss of its stock price during the period.
While only about a third of the portfolio is in technology, 9 of the 17
companies having the most positive impact on the Fund were technology issues.
This is because at the beginning of the year, we overweighted technology in the
portfolio compared to the market as a whole. We thought the best values were
there and business prospects for the sector looked good.
Helix, a maker of cryogenic pumps for use in semiconductor manufacturing,
rose 84% during the first six months of the year to $23.94 which increased the
share price of the Fund by 31 cents. Helix is not well known and we took a much
bigger position in the company than justified by its size because it was paying
a generous dividend of 3.69% at the beginning of the year and its stock was way
undervalued. Increased demand for semiconductor capital equipment was the
driving force behind the move.
Applied Materials was the Fund's second biggest winner, adding 23 cents to
the NAV. Applied jumped 73% during the first half of the year to close at
$73.88. As with Helix, strong demand for semiconductor capital equipment was
responsible for the gain.
Hewlett-Packard moved the Fund up by 19 cents a share as the stock climbed
47% during the period. We took a big position in this issue because of the
company's large size, its dividend, its low valuation for a large-cap company
and its good prospects for the future. Strong sales in its major business areas
- -- personal computers, workstations and printers -- propelled the stock to
$100.50.
<PAGE>
Cisco Systems, the large networking company, boosted the Fund by 18 cents
per share as its stock gained 39% to close at $64.50. The company continues to
gain market share in the fast-growing business networking area including strong
sales to internet companies.
Lucent, a competitor of Cisco that also has a leading position in
telecommunications equipment, gained 81% to move the Fund up 14 cents. Strong
growth in revenue and earnings, especially in the company's wireless, optical
networking and microelectronic businesses, drove the stock up to $67.43 per
share.
Wellman, the producer of fiber and the nation's largest recycler of plastic
bottles, saw its shares rise 56% as it increased the value of the Fund by 10
cents. The stock climbed to $15.94 as demand increased for the resin it makes
for use in manufacturing PET soda bottles. We took a large position in this
modest-sized company because of its attractive 3.53% dividend and the extremely
low valuation on the stock.
AIG, the international insurance company, also contributed a 10 cents gain
to the Fund's share price as its stock increased 21% during the quarter. AIG is
a big company and we took a big position in its stock. The company had record
earnings last quarter -- up 20% from the previous year -- as the stock went to
$117.06 a share.
Three companies each contributed 9 cents per share to the Fund's value. LSI
Logic gained 186% as its stock went to $46.13 on increased demand for its
customized semiconductor chips. Cognex, a machine vision company that allows
computers to "see", gained 58% as its stock went to $31.56 on higher sales to
semiconductor manufacturers and to factories that need its inspection equipment.
IBM, a company that needs no introduction, rose 100% to $129.25 a share because
of stronger sales of equipment to companies involved in internet commerce.
Adobe Systems added 7 cents a share to the Fund as its stock soared 76%,
going to $82.16 on improved cost control and new versions of its popular
software including PageMaker and Acrobat.
Ascend Communications added 6 cents to the Fund's share price as its stock
went to $105.38 because of a takeover by Lucent. Brokerage firm Charles Schwab
contributed 5 cents per share as its stock climbed 95% to $109.50 on increased
internet trading.
Adaptec makes controllers that regulate the flow of data between a
computer's central processing unit and its peripherals. The company contributed
4 cents a share to the Fund's value as its stock moved up 101% to $35.31 because
of better focus by a new management team and increased sales of its products.
Nalco also added 4 cents per Fund share as its stock climbed 67% to $51.88 on a
buyout by a French company also involved in water treatment. The Gap was another
company that contributed 4 cents per Fund share as its stock went up 35% to
$50.38 because of strong growth at both its Banana Republic and Old Navy stores.
Cummins Engine increased the Fund's value by 3 cents a share as it saw its stock
price climb 61% to $57.13 as investors moved into cyclical stocks like Cummins.
<PAGE>
Unfortunately, not all our big moves were up. Five issues made substantial
negative impacts on the Fund. The biggest disappointment in the portfolio was
Compaq Computer which had a 44% drop in its stock price, bringing down the value
of the Fund by 42 cents a share. Higher costs and slower sales dropped the stock
price to $23.63 a share. The board has fired both the chief executive officer
and the chief financial officer and is making a number of important changes. We
took a big position in Compaq because of the large size of the company and
because of its past success. Unfortunately, the big position hurt the Fund.
We're sticking with the company because we think the stock is way undervalued
and we see some important gains in the future.
Our Read-Rite convertible bond dropped 44% to $41.38 to throw the Fund for
a loss of 25 cents. Read-Rite makes heads for disk drives and low prices in the
disk drive industry has hurt the company's business and reduced the company's
financial strength. Although the Read-Rite convertible bond hurt the Fund's
performance in the first half of the year, its yield to maturity is now 29%.
McKesson, the large drug wholesaler, saw a decline of 59% as its stock
price dropped to $32.13 and thereby reduced the value of the Fund by 14 cents a
share. Recently, McKesson bought a company called HBOC that provides software to
hospitals for healthcare management. HBOC appeared to be highly profitable and
to be growing at a substantial rate until reports of accounting fraud surfaced.
The chairman, president and chief financial officer of McKesson have all been
fired along with other top executives.
Western Digital cost the Fund 9 cents a share as its stock dropped 57% to
close the period at $6.50. Although Western Digital is gaining market share in
its disk drive business, there is excess capacity in the industry and prices are
very weak which is causing Western Digital to lose money.
Advanced Micro Devices (AMD) cost the Fund 6 cents a share because its
stock sunk 38% to $18.06. Stiff competition from Intel has forced down prices in
the microprocessor market and AMD is losing money. The company has, however,
just brought out a new chip that is equal to or better than Intel's top chip and
this should drive sales higher later in the year.
COMPANY NOTES
During the first half of the year, we sold three companies in the portfolio
because of social reasons. The first one is Providian Financial which is a
credit card company that is known as a subprime lender. At Parnassus, we have a
mixed view of subprime lenders. On the one hand, they provide credit to people
of limited means. People with low ratings need credit as well as more affluent
consumers so in this sense subprime lenders are providing a useful service.
The difficulty comes with the higher fees and interest that subprime
lenders charge. Somewhat higher rates are justified because costs are higher in
the subprime market. Some lenders, however, charge fees and interest at unfair
rates that are far higher than their extra costs would necessitate. In some
cases, subprime lenders also use misleading and deceptive tactics in making
loans or selling credit cards.
<PAGE>
I've concluded that Providian Financial falls within this latter category
and, for that reason, we've sold the stock. In May, our local television station
KRON reported that the San Francisco district attorney's office was
investigating allegations that Providian deliberately overcharges its borrowers.
Four lawsuits have been filed against the company in San Francisco Superior
Court accusing Providian of charging consumers for credit products and services
they didn't want, transferring balances from other credit cards without customer
approval and imposing excessive late fees.
Providian has a very high level of cardholder complaints compared to its
number of customers. Customers say that proper disclosures are not made and the
company loads up its cardholders with excessive debt and charges them excessive
fees. Fees account for 43% of Providian's revenue which is extremely high. The
company also charges customers $12.95 for "credit protection insurance" which
allows a cardholder to freeze finance charges in the event of job loss. Some
customers say they never ordered this feature and that when they called to
cancel it and get a refund, Providian said they had to keep the "insurance" or
else they would cancel the card.
A second company we sold was Eastman Kodak. Over the years, I've had
positive feelings for the company because it's always treated its employees
well. The firm has also had a community-oriented tradition. The weak spot of the
company is environmental protection. Although they've improved over the years,
they still put a lot of emissions into the air. I've been on the fence with
Eastman Kodak for some time, but the final straw came when I learned that the
company had underpaid female and minority employees for years. Although the
company agreed to give the workers a lump sum of $10 million and increase pay by
$3 million this year, I was disheartened by the pattern of discrimination going
back at least three years.
The third company we've sold is Sears. Sears has had a history of being a
good employer, but about 25 years ago, it began to falter as a retail business.
In the early 1990's, though, it seemed as if the company was undergoing a
renaissance. New stores opened and old ones were refurbished. Earnings increased
as Sears improved its merchandising. The company also seemed to be putting more
emphasis on social responsibility. They opened new stores in inner city areas
including Oakland, California.
There were consumer concerns about Sears back in the 80's when it came to
light that their auto division charged customers for repairs that were not made.
Sears made restitution and promised not to do it again.
Two recent developments have rekindled my concerns about Sears and made me
decide to sell the stock. On June 15, a 75-year old widow filed a suit claiming
that she paid $50 to have her tires balanced, but that Sears did not do the
work. "Sears systematically defrauded and cheated millions of customers out of
millions of dollars through its concealment, suppression or omission of the
material fact that AccuBalance (the balancing machine) service was being sold,
but not performed," the suit said. When the owner of the AccuBalance machine saw
that readings from the machines' mechanical counters were lower than Sears'
sales figures, Sears tried to hide its fraud by paying the machine owner $30
million, according to the suit.
<PAGE>
In another development, Sears pleaded guilty in February to a criminal
fraud charge, paid a fine of $60 million and paid more than $500 million to
settle class-action suits over its credit practices. The company now faces a new
class-action suit alleging that it forced consumers declaring bankruptcy to pay
off Sears credit card debt that it had no right to do.
On a more positive note, I'd like to point out that Baldor Electric Company
has been named to Fortune magazine's list of "100 Best Companies to Work for in
America," for the second straight year. Baldor makes energy-efficient electric
motors and has a remarkable record of humane treatment of its employees.
FIXED-INCOME FUND
As of June 30, 1999, the net asset value per share (NAV) of the
Fixed-Income Fund was $15.06. Taking into account dividends paid, total return
for the six months ending June 30 was a loss of 3.43%. By comparison, the Lehman
Government/Corporate Bond index lost 2.28% and the average A-rate bond fund
according to Lipper, Inc. lost 2.43%. The SEC 30-day yield for June was 6.11%.
Below is a table summarizing total returns for the one and five-year periods as
well as for the life of the Fund. All periods ended as of June 30, 1999.
Average Annual
Fixed-Income Fund Total Return
One Year 0.15%
Five Years 7.82%
Since inception on 8/31/92 6.46%
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.
We underperformed the average A-rated bond fund during the first half of
the year by one percent. The reason for this underperformance was because of
credit concerns about two of our issues. The Polaroid 7.25% '07 bond dropped
19.2% during the past six months because of a credit downgrade from Baa3 to Ba3.
The Reebok 6.75% '05 bond dropped 10.2% during the period. It did not receive a
formal downgrade, but because of softness in the athletic footwear industry, it
received a negative outlook and the value of the bond dropped in trading. The
market value has declined on these bonds, but we are receiving good yields so we
will continue to hold them.
In general, bond funds lost money during the first six months of the year.
The reason was the big increase in interest rates. For example, the 10-year
Treasury bond saw an increase from 4.65% at the start of the year to 5.79% on
June 30. As interest rates increase, bonds go down in market value.
<PAGE>
Despite, our recent difficulties, our long-term record remains good. We are
ahead of the average A-rated bond fund in terms of total return for both the
five-year and life-of-the fund periods. For the five years ending June 30, 1999,
the Fixed-Income Fund had an average annual total return of 7.82% compared to
7.08% for the average A-rated bond fund followed by Lipper. Since inception on
August 31, 1992, the Fund has had an average annual total return of 6.46%
compared to 6.33% for the average A-rated bond fund.
Over the next six months, we expect interest rates to stay where they are
so we will continue to hold our current portfolio unless there are new
developments.
CALIFORNIA TAX-EXEMPT FUND
As of June 30, 1999, the net asset value per share (NAV) of the California
Tax-Exempt Fund was $16.24. Taking into account dividends reinvested, the total
return for the Fund for the first half of the year was a loss of 1.73%. This
compares to a loss of 1.74% for the average California municipal bond fund
according to Lipper, Inc. and a loss of 0.90% for the Lehman California
Municipal Bond Index. The 30-day SEC yield for June was 3.98%. Below is a table
summarizing average annual total returns for the one and five-year periods as
well as for the life of the Fund. All periods ended as of June 30, 1999.
Average Annual
California Tax-Exempt Fund Total Return
One Year 1.87%
Five Years 6.94%
Since inception on 8/31/92 6.37%
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.
As with the Fixed-Income Fund, the reason for the loss during the first six
months of the year was an increase in interest rates. As interest rates go up,
the value of the bonds go down. We did, however, manage to beat the average
California municipal bond fund by a small margin. Over the longer-term, we have
a good lead over the average California fund. For the five years ending June 30,
1999, the Fund had an annual average total return of 6.94% compared to 6.47% for
the average California municipal bond fund followed by Lipper. Since inception
on August 31, 1992, the Fund's annual average total return was 6.37% compared to
6.05% for the average California fund.
<PAGE>
YEAR 2000 COMPLIANCE
I am sure that most of you have been hearing about the Year 2000 problem,
also known as Y2K. The central issue is that many computers are not able to
recognize four-digit years. While they can read "99" as 1999, they cannot read
"00" as the year 2000. The reason for this is that several decades ago memory
was very expensive and to save memory, programmers used only two digits to
record the year. For example, the year "1965" was recorded as "65". This was
great for saving expensive memory, but posed a problem when the year 2000 rolled
around.
In recent years, computer memory and storage space have become inexpensive
so most new systems are able to store and read four-digit years. Most of the
difficulties center around large, mainframe systems that were programmed many
years ago. Banks, airlines, brokerage firms, municipalities and large
corporations are examples of entities that have the older systems.
At Parnassus, Y2K involves two issues: our own internal compliance with Y2K
and compliance by entities in our portfolios. First, let's talk about our
internal compliance.
Howard Fong, our chief financial officer, headed up Y2K compliance for our
internal systems. I'm happy to say that we're in good shape on Year 2000 issues.
We didn't have any major issues with Y2K because our computer hardware and
software were installed in the 90's. Our operating system is based on the Apple
Macintosh which has always been able to recognize four-digit years. Most of our
work involved testing our internal system and getting assurances from outside
vendors that they had tested their systems and were Y2K compliant.
One interesting thing I learned during the testing process was that even
some personal computers made in the 1990's could not recognize the Year 2000. In
addition to our Macintoshes, we have some Compaqs for use with Windows-based
systems. All our Macintoshes passed the test, but we did find that one Compaq
could not recognize the Year 2000. Consequently, we replaced that computer. So
while most Y2K issues center around older systems that read only two-digit
years, you still need to test everything because there are some other reasons
why a computer system may not be Y2K compliant.
Our internal Y2K compliance has had a great deal of attention. Our Board of
Trustees has discussed the issue, we've had an audit, we've filled out
government forms and we've developed and carried out a detailed plan.
Parnassus Investments has done everything possible to avoid disruptions
from the changeover to the Year 2000. We think we're ready. Even with all this
attention to the problem, though, we still recognize that the world is an
uncertain place and there's no guarantee that something unexpected might disrupt
Fund operations.
With regard to Y2K and portfolio issues, we looked at all companies and
municipalities in both The Parnassus Fund and The Parnassus Income Trust. We
gave special attention to all companies that accounted for more than 0.5% of a
fund. We read all the Y2K disclosure statements and looked at things like
expected costs, clarity of disclosure and "red flags." We talked with companies
about Y2K where we had concerns.
<PAGE>
One of our former interns, Bryant Cherry, headed up this project. He gave
special attention to companies where expected Y2K costs were more than 0.3% of
revenues or more than 3% of earnings before interest, taxes and depreciation.
Our conclusion is that Y2K won't be a serious problem at most of our companies.
There are still five companies where we have unresolved issues and we will check
back with them in September.
We also looked at all the municipalities that issued bonds that are in the
California Tax-Exempt Fund. We paid special attention to bonds with a par value
of more than $100,000. Because of problems with Y2K in the healthcare field, we
also looked at issuers of hospital bonds. In looking at expected costs for Y2K,
we assumed that municipalities could handle costs of up to $250,000 without
major problems. We looked more carefully at those that had expected costs of
more than 2% of their annual budgets. We talked with the fiscal officer of the
municipality or the non-profit issuer. With only two exceptions, we're
comfortable with the Y2K issues in the California Tax-Exempt Fund. We'll
continue monitoring the progress on Y2K with the two issuers where we have
questions.
As with our internal compliance procedures, we've done everything possible
to check for Y2K issues with portfolio companies. We think we're in good shape,
but we can't guarantee that something unexpected might happen with one of our
holdings.
Finally, I would like to thank all of you for investing with Parnassus and
for your commitment to socially responsible investing.
Yours truly,
Jerome L. Dodson
President
<PAGE>
<TABLE>
<CAPTION>
THE PARNASSUS INCOME TRUST
Equity Income Fund
Portfolio of Investments by Industry Classification, June 30, 1999 (unaudited)
Percent of
Shares Common Stocks Net Assets Market Value
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<S> <C> <C> <C>
AIR TRANSPORT
3,000 Federal Express Corporation 0.4% $ 162,750
APPAREL
5,000 Angelica Corporation 88,125
3,000 Just For Feet, Inc.1 19,313
5,000 Liz Claiborne, Inc. 182,500
1,158 The Limited, Inc. 52,544
1,000 Reebok International Ltd. 18,625
3,000 Russell Corporation 60,937
4,000 The Stride Rite Corporation 41,250
Total 1.1% 463,294
APPAREL RETAILING
5,625 Gap, Inc. (The) 283,359
1,000 Lands' End, Inc. 48,500
2,000 Lillian Vernon Corporation 26,000
Total 0.8% 357,859
AUTO PARTS
10,000 Dana Corporation 460,625
700 Modine Manufacturing Co. 22,794
Total 1.1% 483,419
BANKING
2,000 Chase Manhattan 173,000
3,000 Dime Bancorp 60,375
1,500 Golden West Financial 147,000
6,000 Washington Mutual Inc. 213,375
17,000 Wells Fargo Company 726,750
Total 3.1% 1,320,500
BUILDING MATERIALS
2,000 Armstrong World Corp. 115,625
4,000 Apogee Enterprises, Inc. 53,750
2,000 INTERFACE, Inc. 17,250
40,000 Morgan Products, Ltd. 152,500
1,500 TJ International, Inc. 46,500
Total 0.9% 385,625
CHEMICALS
2,500 Air Products & Chemicals 101,875
1,250 Cabot Corporation 30,234
20,000 Calgon Carbon 118,750
500 H.B. Fuller Company 34,188
1,200 Graco Inc. 35,250
1,450 Millipore Corporation 58,816
4,000 Nalco Chemical Company 207,500
1,500 PE Biosystems Group 172,125
35,000 Wellman, Inc. 557,812
Total 3.1% 1,316,550
COMPUTER PERIPHERALS
4,000 Adaptec, Inc. 141,250
20,000 Cisco Systems, Inc. 1,290,000
8,950 Lucent Technologies, Inc.1 603,566
7,000 Quantum Corporation 168,875
20,000 Western Digital Corporation1 130,000
Total 5.6% 2,333,691
COMPUTER SYSTEMS
45,000 Compaq Computer Corp. 1,063,125
12,000 Hewlett-Packard Company 1,206,000
5,000 International Business Machines 646,250
4,000 Sequent Computer Systems 71,000
Total 7.0% 2,986,375
<PAGE>
ELECTRONICS & SEMICONDUCTORS
1,000 Applied Materials, Inc. 73,875
10,000 Advanced Micro Devices, Inc.1 180,625
15,000 Cognex Corporation 473,438
1,000 Electro Scientific Industries 41,781
55,000 Helix Technology Corp. 1,316,563
23,000 Intel Corporation 1,368,500
6,000 LSI Logic Corporation 276,750
10,000 Micron Technology, Inc.1 405,000
2,500 Novellus Systems 170,624
Total 10.1% 4,307,156
ELECTRIC UTILITIES
1,000 CILCORP Inc. 62,500
2,000 Idaho Power Company 63,000
2,000 LG&E Energy Corporation 42,000
6,000 Avista Corporation Preferred - Series L 102,000
Total 0.6% 269,500
ELECTRONIC INSTRUMENTS
20,000 Baldor Electric Company 405,000
750 Celera Genomics 12,141
6,000 Tektronix, Inc.1 179,625
Total 1.4% 596,766
ENTERTAINMENT
2,000 Cedar Fair 0.1% 49,875
FINANCIAL SERVICES
12,000 Fannie Mae 820,500
9,000 Freddie Mac 522,000
2,000 Charles Schwab Corporation 219,000
3,000 SLM Holding Corporation 137,438
Total 4.0% 1,698,938
FOOD RETAILERS
2,000 Albertson's Inc. 103,125
6,000 Whole Foods Market, Inc.1 288,375
Total 0.9% 391,500
HEALTH CARE SERVICES
2,000 Oxford Health Plans, Inc. 0.1% 31,125
HOME APPLIANCES
2,000 Maytag Corporation 139,375
4,000 Whirlpool Corporation 292,000
Total 1.0% 431,375
HOME PRODUCTS
1,000 Church & Dwight Co., Inc. 43,500
2,000 Clorox Company 210,625
2,400 Colgate-Palmolive Co. 236,400
12,000 Proctor & Gamble Co. 1,059,000
Total 3.6% 1,549,525
HOUSEWARES
1,500 Black & Decker Corp. 94,688
3,000 Corning, Inc. 210,375
6,000 Newell Company 278,250
Total 1.4% 583,313
INSURANCE
3,000 Aetna, Inc. 268,313
10,000 American Int'l Group, Inc. 1,170,625
3,000 Chubb Corporation1 208,500
5,000 CIGNA Corporation 445,000
6,800 SAFECO Corporation1 300,050
5,000 St. Paul Companies, Inc.1 159,062
2,800 Transamerica Corporation 210,000
4,000 UNUM Corporation 219,000
Total 7.0% 2,980,550
INSURANCE BROKERS
5,000 Marsh & McLennan Co. 0.9% 377,500
<PAGE>
MACHINERY
3,000 Cummins Engine Co., Inc. 171,375
1,000 Deere & Company 39,187
1,000 Illinois Tool Works, Inc. 82,000
3,000 Snap-on Inc. 108,563
5,000 The Stanley Works 160,937
Total 1.3% 562,062
MEDICAL EQUIPMENT
3,000 Acuson Corporation 51,563
3,000 Coherent, Inc. 55,875
1,200 Dentsply 33,600
1,000 Henry Schein, Inc. 31,687
3,000 Invacare Corporation 80,250
1,000 Safeskin Corporation 12,000
2,600 Sunrise Medical Inc. 18,525
Total 0.7% 283,500
MISCELLANEOUS
4,000 Chemed Corporation 133,000
4,000 Jostens, Inc. 84,250
3,000 Minnesota Mining & Mfg. 260,813
2,000 Toro Company 78,750
4,000 WD 40 Company 100,000
Total 1.5% 656,813
NATURAL GAS
3,000 AGL Resources Inc. 55,313
2,000 Connecticut Energy Corp. 77,125
2,000 Eastern Enterprises 79,500
4,800 Energen Corporation 89,400
5,000 Enron Corporation 408,750
3,000 Equitable Resources, Inc. 112,500
7,000 Keyspan Energy Corporation 184,625
6,000 MCN Corporation 126,375
1,000 New Jersey Resources 37,437
4,000 Northwest Natural Gas Co. 96,500
2,000 ONEOK Inc. 63,500
2,000 Peoples Energy Corporation 75,625
5,000 UGI Corporation 101,250
3,000 Washington Gas Light
Company 78,000
2,500 WICOR Inc. 69,844
Total 3.9% 1,655,744
OFFICE EQUIPMENT
2,000 Avery Dennison
Corporation 120,750
5,000 Herman Miller, Inc. 105,000
3,000 Pitney Bowes Inc. 192,750
5,400 Xerox Corporation 318,938
Total 1.7% 737,438
OIL
2,000 Chevron 190,125
5,000 Sunoco, Inc. 150,938
Total 0.9% 341,063
PACKAGED FOODS
7,500 Campbell Soup Company 336,563
2,000 Dreyer's Grand Ice Cream 30,250
3,000 General Mills Incorporated 241,125
7,000 Heinz (H.J.) Company 350,875
12,000 Kellogg Company1 396,000
2,900 Quaker Oats Company 192,487
4,800 Ralston Purina Group 146,100
Total 4.1% 1,693,400
<PAGE>
PHARMACEUTICALS
1,000 Amgen Inc. 60,875
5,000 Bristol-Myers Squibb Company 351,250
10,000 Johnson & Johnson 956,250
6,000 McKesson HBOC, Inc. 192,750
9,500 Merck & Company 703,000
1,250 Mylan Laboratories 33,125
Total 5.5% 2,297,250
PHOTOGRAPHY
2,000 Polaroid Corporation 0.1% 55,000
PRINTING
1,000 Banta Corp. 21,000
3,000 Deluxe Corporation 116,813
2,800 Donnelley (R.R.) & Sons Co. 103,775
Total 0.6% 241,588
PUBLISHING
3,000 Gannett 214,125
1,000 Houghton Mifflin Company 47,063
3,000 Knight-Ridder, Inc.1 164,812
3,200 McGraw-Hill Companies, Inc. 172,600
Total 1.4% 598,600
RESTAURANTS
4,000 Luby's Cafeterias, Inc. 0.1% 60,000
RETAILING - GENERAL
8,000 Borders Group, Inc. 126,500
1,000 Department 56, Inc. 26,875
3,750 Dollar General 108,750
1,000 Dayton Hudson Corporation 65,000
5,600 Nordstrom, Inc. 187,600
13,000 Penny (J.C.) Company, Inc.1 631,311
4,000 Sears, Roebuck and Co.1 178,250
Total 3.1% 1,324,286
SOFTWARE - SERVICES
3,000 3Com Corporation 80,062
4,000 Adobe Systems 328,625
5,000 Autodesk, Inc.1 147,813
2,000 Mentor Graphics Corporation 25,624
3,000 Symantec Corporation 76,500
Total 1.5% 658,624
SPECIALTY RETAILING
2,000 Costco Companies, Inc. 160,125
900 Ethan Allen Interiors Inc. 32,513
1,000 Longs Drug Stores Corp. 34,562
11,000 Mattel Inc. 290,125
3,000 Toys "R" Us, Inc. 62,062
8,000 Walgreen Co. 233,500
Total 1.9% 812,887
STEEL
2,000 Nucor Corporation 0.2% 94,875
TELECOMMUNICATIONS
3,750 AT&T Corporation 208,594
6,000 US West Communications Group 352,500
Total 1.3% 561,094
TRANSPORTATION
2,500 Consolidated Freightways Corp. 0.1% 32,109
Total common stocks 84.1% $ 35,743,519
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE PARNASSUS INCOME TRUST
Equity Income Fund
Portfolio of Investments by Industry Classification, June 30, 1999 (continued)
Principal Percent of
Amount Convertible Bonds Net Assets Market Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$1,000,000 Advanced Micro Devices, Inc.
Convertible Bond, 6.000%, due 5/15/05 $ 784,240
1,500,000 Credence Systems Corporation
Convertible Bond, 5.250%, due 9/15/02 1,348,020
1,000,000 Lam Research Corporation
Convertible Bond, 5.000%, due 9/01/02 938,150
1,500,000 Read-Rite Corporation
Convertible Bond, 6.500%, due 09/01/04 620,700
Total convertible bonds 8.7% 3,691,110
Community Development Loans
- -------------------------------------------------------------------------------------------------------------------
100,000 Boston Community Loan Fund 100,000
100,000 Cascadia Revolving 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% 400,000
Total investment in securities
(Cost $33,533,984) 93.7% $ 39,834,629
Short-Term Investments
- -------------------------------------------------------------------------------------------------------------------
Union Bank of California
Money Market Fund, variable rate 4.150% $ 1,491,271
Goldman Sachs
Government Portfolio 4.300% 53,379
Goldman Sachs
Treasury Portfolio 4.400% 48,484
Federal Home Loan Bank
Discount Note 4.990%, matures July 23, 1999 996,673
Lehman Brothers
Triparty Repurchase Agreement
(Repurchase Agreement with Lehman Bros. dated
6/30/99, effective yield is 6.080% due 7/1/99.
Face value is $3,488,500 with price at 100)2 3,488,500
Total short-term investments 14.3% 6,078,307
Total investments 108.0% 45,912,936
Payable upon return of securities loaned - 8.2% (3,488,500)
Other assets and liabilities - net 0.2% 76,735
Total net assets 100.0% $ 42,501,171
<FN>
1 This security or partial position of this security is on loan
at June 30, 1999 (Note 1). The total value of securities on loan at June 30, 1999 was $3,365,813.
2 This security purchased with cash collateral held from securities lending.
</FN>
</TABLE>
<PAGE>
THE PARNASSUS INCOME TRUST
Equity Income Fund
Statement of Assets and Liabilities
June 30, 1999 (unaudited)
Assets:
Investments in securities, at market value
(identified cost $33,533,984) (Note 1) $ 39,834,629
Temporary investments in short-term securities
(at cost, which approximates market) 6,078,307
Receivables:
Dividends and interest 120,786
Capital shares sold 3,170
Other assets 17,476
Total assets 46,054,368
Liabilities:
Payable upon return of securities loaned 3,488,500
Dividends payable 18,964
Accounts payable and accrued expenses 45,733
Total liabilities 3,553,197
Net assets (equivalent to $22.27
per share based on 1,908,717.337
shares of capital stock outstanding) $ 42,501,171
Net assets consist of:
Undistributed net investment income $ 23,825
Unrealized appreciation on investments 6,300,645
Undistributed net realized gain 2,021,217
Capital paid-in 34,155,484
Total net assets $ 42,501,171
Computation of net asset value and offering price per share:
Net asset value and offering price per share
($42,501,171 divided by 1,908,717.337 shares) $ 22.27
<PAGE>
THE PARNASSUS INCOME TRUST
Equity Income Fund
Statement of Operations
six months ended June 30, 1999 (unaudited)
Investment income:
Dividends $ 280,677
Interest 180,725
Total investment income 461,402
Expenses:
Investment advisory fees (Note 5) 152,552
Transfer agent fees (Note 5) 43,709
Fund administrative expense (Note 5) 17,125
Reports to shareholders 13,233
Registration fees and expenses 8,678
Professional fees 7,485
Custody fees 8,260
Trustee fees and expenses 5,225
Other expenses 5,050
Subtotal of expenses before fee waiver 261,317
Fees waived by Parnassus Investments (Note 5) (40,598)
Total expenses 220,719
Net investment income 240,683
Realized and unrealized gain on investments:
Realized gain from security transactions:
Proceeds from sales 8,050,443
Cost of securities sold (6,038,372)
Net realized gain 2,012,071
Unrealized appreciation of investments:
Beginning of year 4,119,931
End of period 6,300,645
Unrealized appreciation during period 2,180,714
Net realized and unrealized gain on investments 4,192,785
Net increase in net assets resulting from operations $ 4,433,468
<PAGE>
THE PARNASSUS INCOME TRUST
Equity Income Fund
Statements of Changes in Net Assets
six months ended June 30, 1999 (unaudited)
and year ended December 31, 1998
June 30, 1999 1998
From operations:
Net investment income $ 240,683 $ 903,201
Net realized gain from security transactions 2,012,071 4,299,817
Net unrealized appreciation (depreciation)
during the year 2,180,714 (1,186,144)
Increase in net assets resulting from operations 4,433,468 4,016,874
Dividends to shareholders:
From net investment income (251,325) (1,386,043)
From realized capital gains 0 (3,780,700)
Increase (decrease) in net assets from capital
share transactions (2,584,350) 3,205,750
Increase in net assets 1,597,793 2,055,881
Net assets:
Beginning of year 40,903,378 38,847,497
End of period
(including undistributed net investment income
of $23,825 in 1999 and $34,467 in 1998) $ 42,501,171 $ 40,903,378
<PAGE>
<TABLE>
<CAPTION>
THE PARNASSUS INCOME TRUST
Fixed-Income Fund
Portfolio of Investments by Industry Classification, June 30, 1999 (unaudited)
Principal Percent of
Amount Corporate Bonds Net Assets Market Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCIAL SERVICES
$500,000 Bank One Corporation
Notes, 6.000%, due 02/17/09 $ 463,010
500,000 BankBoston Corporation
Notes, 6.375%, due 03/25/08 475,040
500,000 Chase Manhattan Corporation
Notes, 6.000%, due 02/15/09 461,720
500,000 First Union National Bank
Notes, 5.800%, due 12/01/08 455,525
500,000 Household Finance Corporation
Notes, 6.500%, due 11/15/08 476,005
500,000 J.P. Morgan & Co, Inc.
Notes, 6.000%, due 01/15/09 461,980
500,000 Norwest Financial Inc.
Notes, 6.850%, due 07/15/09 493,155
Total 29.4% 3,286,435
INDUSTRIAL
500,000 Dana Corporation
Notes, 6.500%, due 03/01/09 475,480
480,000 John Deere Capital Corporation
Notes, 6.000%, due 02/15/09 446,410
500,000 Illinois Tool Works
Notes, 5.750%, due 03/01/09 467,510
500,000 Xerox Corporation
Notes, 7.200%, due 04/01/16 504,385
Total 16.9% 1,893,785
PHOTO EQUIPMENT
AND SUPPLIES
400,000 Polaroid Corporation
Notes, 7.250%,due 01/15/07 3.0% 338,000
RETAIL
500,000 The Gap, Inc.
Notes, 6.900%, due 09/15/07 505,775
500,000 Penny (J.C.) Company, Inc.
Debentures, 7.650%, due 08/15/16 493,480
350,000 Reebok International Ltd.
Notes, 6.750%, due 09/15/05 324,709
500,000 Sears, Roebuck and Co.
Global Bond, 7.000%, due 06/15/07 496,010
Total 16.3% 1,819,974
TELECOMMUNICATON
500,000 U.S. West Capital Funding Inc.
Notes, 6.500%, due 11/15/18 4.0% 449,870
Total corporate bonds 69.6% $ 7,788,064
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE PARNASSUS INCOME TRUST
Fixed-Income Fund
Portfolio of Investments by Industry Classification, June 30, 1999 (continued)
Principal U.S. Government Percent of
Amount Agency Securities Net Assets Market Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 500,000 Federal Home Loan Mortgage Corp.
6.510%, due 01/08/07 $ 499,925
300,000 Federal National Mortgage Association
6.720%, due 08/01/05 306,195
850,000 Federal NationalMortgage Association
6.770%, due 09/01/05 870,732
500,000 Federal NationalMortgage Association
6.140%, due 11/25/05 495,685
450,000 Federal NationalMortgage Association
7.350%, due 03/28/05 472,747
Total U.S. Government
Agency securities 23.6% 2,645,284
Total investments in securities
(Cost $10,771,871) 93.2% $ 10,433,348
Short-Term Investments
- -------------------------------------------------------------------------------------------------------------------
Union Bank of California
Money Market Fund,variable rate 4.150% $ 421,684
Goldman Sachs
Government Portfolio 4.300% 34,673
Goldman Sachs
Treasury Portfolio 4.400% 26,173
Founders National Bank
Certificate of Deposit 5.000%, matures 1/4/2000 100,000
Total short-term investments 5.2% 582,530
Total investments 98.4% 11,015,878
Other assets and liabilities - net 1.6% 172,944
Total net assets 100.0% $ 11,188,822
</TABLE>
<PAGE>
THE PARNASSUS INCOME TRUST
Fixed-Income Fund
Statement of Assets and Liabilities
June 30, 1999 (unaudited)
Assets:
Investments in securities, at market value
(identified cost $10,771,871) (Note 1) $ 10,433,348
Temporary investments in short-term securities
(at cost, which approximates market) 582,530
Receivables:
Interest receivable 203,146
Other assets 5,306
Total assets 11,224,330
Liabilities:
Accounts payable and accrued expenses 35,508
Total liabilities 35,508
Net assets (equivalent to $15.06
per share based on 743,134.138
shares of capital stock outstanding) $ 11,188,822
Net assets consist of:
Undistributed net investment income $ 4,010
Unrealized depreciation on investments (338,523)
Accumulated net realized loss (1,300)
Capital paid-in 11,524,635
Total net assets $ 11,188,822
Computation of net asset value and offering price per share:
Net asset value and offering price per share
($11,188,822 divided by 743,134.138 shares) $ 15.06
<PAGE>
THE PARNASSUS INCOME TRUST
Fixed-Income Fund
Statement of Operations
six months ended June 30, 1999 (unaudited)
Investment income:
Interest $ 318,566
Total investment income 318,566
Expenses:
Investment advisory fees (Note 5) 28,116
Transfer agent fees (Note 5) 12,770
Fund administrative expense (Note 5) 4,800
Reports to shareholders 3,706
Registration fees and expenses 7,438
Professional fees 3,085
Custody fees 446
Trustee fees and expenses 1,324
Other expenses 3,190
Subtotal of expenses before fee waiver 64,875
Fees waived by Parnassus Investments (Note 5) (20,150)
Total expenses 44,725
Net investment income 273,841
Realized and unrealized gain (loss) on investments:
Realized gain from security transactions:
Proceeds from sales 0
Cost of securities sold 0
Net realized gain 0
Unrealized appreciation (depreciation) of investments:
Beginning of year 324,472
End of period (338,523)
Unrealized depreciation during period (662,995)
Net realized and unrealized loss on investments (662,995)
Net decrease in net assets resulting from operations (389,154)
<PAGE>
THE PARNASSUS INCOME TRUST
Fixed-Income Fund
Statements of Changes in Net Assets
six months ended June 30, 1999 (unaudited)
and year ended December 31, 1998
June 30, 1999 1998
From operations:
Net investment income $ 273,841 $ 512,511
Net realized gain from security transactions 0 250,670
Net unrealized depreciation during the year (662,995) (53,573)
Increase (decrease) in net assets
resulting from operations (389,154) 709,608
Dividends to shareholders:
From net investment income (274,483) (553,195)
From realized capital gains 0 (213,198)
Increase in net assets from capital
share transactions 369,987 1,855,768
Increase (decrease) in net assets (293,650) 1,798,983
Net assets:
Beginning of year 11,482,472 9,683,489
End of period
(including undistributed net investment income
of $4,010 in 1999 and $4,652 in 1998) $ 11,188,822 $11,482,472
<PAGE>
<TABLE>
<CAPTION>
THE PARNASSUS INCOME TRUST
California Tax-Exempt Fund
Portfolio of Investments by Industry Classification, June 30, 1999 (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 $ 52,990
170,000 State of California
6.125%, due 10/01/11 187,925
250,000 California Education Facilities -
California Institute of Technology
6.000%, due 01/01/21 258,430
85,000 California Public Works -
University of California at San Diego Facilities
7.375%, due 04/01/06 93,441
100,000 California Public Works -
Community College Projects
5.500%, due 12/01/06 106,457
130,000 California Public Works - University of California
5.400%, due 06/01/08 136,785
175,000 California Public Works - California State University
6.200%, due 10/01/08 189,266
300,000 Folsom School District
5.650%, due 08/11/11 314,376
100,000 Franklin-McKinsey School District
5.600%, due 07/01/07 104,676
100,000 Kern High School District
5.600%, due 08/01/13 103,997
100,000 Los Angeles Municipal Improvement -
Central Library Projects
5.200%, due 06/01/07 101,650
250,000 Murrieta Valley Unified School District
5.500%, due 09/01/10 258,730
100,000 Natomas Unified School District
5.750%, due 09/01/13 107,567
300,000 Oakland General Obligation
5.500%, due 12/15/11 311,073
175,000 Palos Verdes California Library District
5.000%, due 08/01/13 174,904
110,000 Pasadena Recreational/Library Improvements
5.750%, due 01/01/13 112,556
130,000 Pomona Unified School District
5.500%, due 08/01/11 137,106
110,000 Santa Monica Unified School District
5.400%, due 08/01/11 116,569
Total 37.2% 2,868,498
ENVIRONMENT
80,000 Burbank Waste Disposal
5.300%, due 05/01/09 81,507
75,000 California Pollution Control, North County
Recycling Center
6.750%, due 07/01/17 81,766
125,000 California Public Works - Energy Efficiency
5.250%, due 05/01/08 128,626
150,000 East Bay Regional Park
5.000%, due 09/01/14 148,341
315,000 Los Angeles City Public Works - Parks1
5.500%, due 10/01/12 325,571
35,000 Midpeninsula Regional Open Space District
6.250%, due 07/01/08 37,700
Total 10.4% 803,511
<PAGE>
HEALTH CARE
350,000 California Health Facilities Kaiser Permanente
5.000%, due 10/01/08 357,648
200,000 California Health Facilities Cedar Sinai Medical Center
5.125%, due 08/01/17 194,704
Total 7.2% 552,352
HOUSING
205,000 Belmont Redevelopment Agency
6.400%, due 08/01/09 222,277
100,000 Glendale Redevelopment Agency
5.500%, due 12/01/12 101,588
275,000 Los Angeles Community Redevelopment
5.000%, due 07/01/13 271,865
275,000 Pasadena Community Development
6.000%, due 08/01/14 288,827
175,000 San Jose Redevelopment Agency
6.000%, due 08/01/15 191,429
200,000 University Of California Housing
5.500%, due 11/01/10 206,620
Total 16.6% 1,282,606
INFRASTRUCTURE IMPROVEMENTS
90,000 East Bay Municipal Utility District
6.000%, due 06/01/20 94,097
150,000 Los Angeles City General Obligation
5.250%, due 09/01/11 151,206
350,000 Los Angeles Municipal Improvement
Police Emergency
4.600%, due 09/01/13 329,137
200,000 Los Angeles Wastewater System
5.500%, due 06/01/12 202,963
200,000 Pomona Public Financing Authority
6.000%, due 10/01/06 214,980
Total 12.9% 992,383
PUBLIC TRANSPORTATION
250,000 Los Angeles Metro Transit Authority
5.000%, due 07/01/13 247,150
150,000 Los Angeles Metro Transit Authority
4.500%, due 07/01/13 138,723
110,000 San Diego Mass Transit Authority
5.000%, due 06/01/07 112,683
350,000 San Francisco International Airport
5.000%, due 05/01/07 360,147
125,000 San Francisco Bay Area Rapid Transit
5.650%, due 07/01/10 130,704
Total 12.8% 989,416
Total investments in securities
(Cost $7,283,953) 97.1% 7,488,766
Short-Term Investments
- -------------------------------------------------------------------------------------------------------------------
Highmark California
Tax-Exempt Fund, variable rate 3.040% 1.3% 98,428
Total investments 98.4% 7,587,194
Other assets and liabilities - net 1.6% 120,520
Total net assets 100.0% $ 7,707,714
</TABLE>
<PAGE>
THE PARNASSUS INCOME TRUST
California Tax-Exempt Fund
Statement of Assets and Liabilities
June 30, 1999 (unaudited)
Assets:
Investments in securities, at market value
(identified cost $7,283,953) (Note 1) $ 7,488,766
Temporary investments in short-term securities
(at cost, which approximates market) 98,428
Receivables:
Interest receivable 121,114
Capital shares sold 6,614
Other assets 63
Total assets 7,714,985
Liabilities:
Capital shares redeemed 694
Accounts payable and accrued expenses 6,577
Total liabilities 7,271
Net assets (equivalent to $16.24
per share based on 474,642.973
shares of capital stock outstanding) $ 7,707,714
Net assets consist of:
Undistributed net investment income $ 5,594
Unrealized appreciation on investments 204,813
Undistributed net realized gain 6,088
Capital paid-in 7,491,219
Total net assets $ 7,707,714
Computation of net asset value and offering price per share:
Net asset value and offering price per share
($7,707,714 divided by 474,642.973 shares) $ 16.24
<PAGE>
THE PARNASSUS INCOME TRUST
California Tax-Exempt Fund
Statement of Operations
six months ended June 30, 1999 (unaudited)
Investment income:
Interest $ 192,123
Total investment income 192,123
Expenses:
Investment advisory fees (Note 5) 19,418
Transfer agent fees (Note 5) 4,434
Fund administrative expense (Note 5) 3,075
Reports to shareholders 1,969
Registration fees and expenses 830
Professional fees 2,469
Custody fees 298
Trustee fees and expenses 879
Other expenses 2,753
Subtotal of expenses before fee waiver 36,125
Fees waived by Parnassus Investments (Note 5) (10,053)
Total expenses 26,071
Net investment income 166,052
Realized and unrealized gain (loss) on investments:
Realized gain from security transactions:
Proceeds from sales 130,178
Cost of securities sold 125,977
Net realized gain 4,201
Unrealized appreciation of investments:
Beginning of year 514,367
End of period 204,813
Unrealized depreciation during period (309,554)
Net realized and unrealized loss on investments (305,353)
Net decrease in net assets resulting from operations $ (139,301)
<PAGE>
THE PARNASSUS INCOME TRUST
California Tax-Exempt Fund
Statements of Changes in Net Assets
six months ended June 30, 1999 (unaudited)
and year ended December 31, 1998
June 30, 1999 1998
From operations:
Net investment income $ 166,052 $ 313,207
Net realized gain from security transactions 4,201 47,248
Net unrealized appreciation (depreciation)
during the year (309,554) 59,647
Increase (decrease) in net assets
resulting from operations (139,301) 420,102
Dividends to shareholders:
From net investment income (164,438) (312,860)
From realized capital gains 0 (41,455)
Increase in net assets from capital
share transactions 669,579 756,332
Increase in net assets 365,840 822,119
Net assets:
Beginning of year 7,341,874 6,519,755
End of period
(including undistributed net investment
income of $5,594 in 1999 and $3,980 in 1998) $ 7,707,714 $ 7,341,874
<PAGE>
THE PARNASSUS INCOME TRUST
California Tax-Exempt Fund
Notes To Financial Statements
1. Significant Accounting Policies
The Parnassus Income Trust (the "Trust"), formerly The Parnassus Income
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 funds,
each offering separate shares. The Equity Income Fund, formerly the
Balanced Portfolio, changed its primary investment objective from current
income and capital preservation to current income and capital appreciation;
this change was effective on March 31, 1998. The Trust began operations on
June 1, 1992. The following is a summary of significant accounting policies
of the Trust.
Securities Valuation: The Trust's investments are valued each business day
using 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 using 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 Trust intends to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and
to distribute all of its taxable 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.
Dividends To Shareholders: Distributions to shareholders are recorded on
the record date. The Equity Income Fund pays income dividends quarterly and
capital gain dividends once a year, generally in December. The Fixed-Income
and California Tax-Exempt Funds 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 ex-penses are accrued
daily. Interest income, adjusted for amortization of premium and, when
appropriate, discount on investments, is earned from settlement date and
recognized on the accrual basis.
Security Lending: The Equity Income 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, this fund could experience a delay in
recovering its securities and a possible loss of income or value if the
borrower fails to return them.
<PAGE>
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 management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
2. Dividends To Shareholders
Equity Income Fund: The Fund paid income dividends totaling $251,325
(aggregate of $0.13 per share) during the six months ended June 30, 1999.
Fixed-Income Fund: The Fund paid income dividends totaling $274,483
(aggregate of $0.38 per share) during the six months ended June 30, 1999.
California Tax-Exempt Fund: The Fund paid income dividends totaling
$164,438 (aggregate of $0.355 per share) during the six months ended June
30, 1999.
3. Capital Stock
Equity Income Fund: As of June 30, 1999, there were an unlimited number of
shares of no par value capital stock authorized and capital paid-in
aggregated $34,155,484. Transactions in capital stock (shares) were as
follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1999 1998
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 71,889 $ 1,494,162 297,061 $ 6,148,449
Shares issued through dividend reinvestment 10,308 221,049 232,138 4,682,202
Shares repurchased (205,674) (4,299,561) (375,702) (7,624,901)
Net increase (decrease) (123,477) $ (2,584,350) 153,497 $ 3,205,750
</TABLE>
<PAGE>
THE PARNASSUS INCOME TRUST
California Tax-Exempt Fund
Notes To Financial Statements
3. Capital Stock
<TABLE>
<CAPTION>
Fixed-Income Fund: As of June 30, 1999, there were an unlimited number of
shares of no par value capital stock authorized and capital paid-in
aggregated $11,524,635. Transactions in capital stock (shares) were as
follows:
Six Months Ended Year Ended
June 30, 1999 1998
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 121,544 $ 1,894,516 284,746 $ 4,150,311
Shares issued through dividend reinvestment 13,799 213,955 36,006 580,000
Shares repurchased (110,809) (1,738,484) (206,004) (2,874,543)
Net increase 24,534 $ 369,987 114,748 $ 1,855,768
</TABLE>
<TABLE>
<CAPTION>
California Tax-Exempt Fund: As of June 30, 1999, there were an unlimited
number of shares of no par value capital stock authorized and capital
paid-in aggregated $7,491,219. Transactions in capital stock (shares) were
as follows:
Six Months Ended Year Ended
June 30, 1999 1998
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 53,743 $ 836,109 70,957 $ 1,192,890
Shares issued through dividend reinvestment 7,233 120,875 15,164 255,358
Shares repurchased (21,286) (287,405) (41,023) (691,916)
Net increase 39,690 $ 669,579 45,098 $ 756,332
</TABLE>
4. Purchases of Securities
Equity Income Fund: Purchases of securities for the six months ended June
30, 1999 were $10,060,796. For federal income tax purposes, the aggregate
cost of securities and unrealized depreciation at June 30, 1999 were the
same as for financial statement purposes. Of the $6,300,645 of net
unrealized depreciation at June 30, 1999, $7,923,687 related to
appreciation of securities and $1,623,042 related to depreciation of
securities.
Fixed-Income Fund: Purchases of securities for the six months ended June
30, 1999 were $3,993,961. For federal income tax purposes, the aggregate
cost of securities and unrealized appreciation June 30, 1999 were the same
as for financial statement purposes. Of the ($338,523) of net unrealized
depreciation at June 30, 1999, $63,884 related to appreciation of
securities and $402,407 related to depreciation of securities.
California Tax-Exempt Fund: Purchases of securities for the six months
ended June 30, 1999 were $869,200. For federal income tax purposes, the
aggregate cost of securities and unrealized appreciation June 30, 1999 were
the same as for financial statement purposes. Of the $204,813 of net
unrealized appreciation June 30, 1999, $266,982 related to appreciation of
securities and $62,169 related to depreciation of securities.
<PAGE>
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:
Equity Income Fund: 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 Fund and California Tax-Exempt Fund: 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.
However, the following were actually charged in 1999. For the Equity Income
Fund, the investment advisory fee was 0.50%.
On February 1, 1999, the fee was increased to 0.55%. Parnassus Investments
received net advisory fees totaling $111,954 from the Equity Income Fund
for the six months ended June 30, 1999. For the Fixed-Income Fund, the
investment advisory fee was 0.10%. On February 1, 1999, the fee was
increased to 0.15%. Parnassus Investments received net advisory fees
totaling $7,966 from the Fixed-Income Fund for the six months ended June
30, 1999. For the California Tax-Exempt Fund, the investment advisory fee
was 0.20%. On February 1, 1999, the fee was increased to 0.25%. Parnassus
Investments received net advisory fees totaling $9,365 from the California
Tax-Exempt Fund for the six months ended June 30, 1999.
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 Equity Income Fund and 1.00% of net assets for the
Fixed-Income and California Tax-Exempt Funds.
Under terms of a separate agreement which provides for furnishing transfer
agent and fund administration services to the three funds, Parnassus
Investments received fees paid by the Trust totaling $85,913 for the six
months ended June 30, 1999. The transfer agent fee is $2.30 per month per
account and the fund administration fee is $4,167 per month.
Jerome L. Dodson is the President of the Fund and is the sole stockholder
of Parnassus Investments.
<PAGE>
THE PARNASSUS INCOME TRUST
California Tax-Exempt Fund
Notes To Financial Statements (continued)
<TABLE>
<CAPTION>
6. Financial Highlights
Selected data for each share of capital stock outstanding, total return and
ratios/supplementa data for the six months ended June 30, 1999, and each of
the five years ended December 31 are as follows:
- -------------------------------------------------------------------------------------------------------------------
June 30, 1999
Equity Income Fund (unaudited) 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of year $20.13 $20.68 $18.56 $19.58 $15.70 $17.46
Income from investment operations:
Net investment income 0.13 0.75 0.79 0.98 0.88 0.80
Net realized and unrealized gain (loss) on securities 2.14 1.49 2.86 0.37 3.93 (1.75)
Total from investment operations 2.27 2.24 3.65 1.35 4.81 (0.95)
Distributions:
Dividends from net investment income (0.13) (0.73) (0.79) (0.97) (0.90) (0.81)
Distributions from net realized gains 0.00 (2.06) (0.74) (1.40) (0.03) .--
Total distributions (0.13) (2.79) (1.53) (2.37) (0.93) (0.81)
Net asset value at end of period $22.27 $20.13 $20.68 $18.56 $19.58 $15.70
Total return 11.30% 11.05% 20.15% 7.09% 31.13% (5.39%)
Ratios/Supplemental Data:
Ratio of expenses to average net assets (actual)* 1.07% 1.05% 1.05% 0.80% 0.72% 0.83%
Decrease reflected in the above expense ratios due to
undertakings by Parnassus Investments 0.19% 0.24% 0.30% 0.60% 0.82% 0.88%
Ratio of net investment income to average net assets 1.16% 2.30% 4.04% 4.56% 4.76% 5.15%
Portfolio turnover rate 21.00% 166.32% 34.12% 47.80% 15.36% 6.50%
Net assets, end of period (000's) $42,501 $40,903 $38,847 $33,362 $26,779 $17,087
- -------------------------------------------------------------------------------------------------------------------
June 30, 1999
Fixed-Income Fund (unaudited) 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $15.98 $16.04 $15.43 $15.73 $13.79 $15.89
Income from investment operations:
Net investment income 0.38 0.84 0.90 0.92 0.95 1.02
Net realized and unrealized gain (loss) on securities (0.92) 0.25 0.67 (0.31) 1.95 (2.08)
Total from investment operations (0.54) 1.09 1.57 0.61 2.90 (1.06)
Distributions:
Dividends from net investment income (0.38) (0.85) (0.89) (0.91) (0.96) (1.04)
Distributions from net realized gains 0.00 (0.30) (0.07) -- -- --
Total distributions (0.38) (1.15) (0.96) (0.91) (0.96) (1.04)
Net asset value at end of period $15.06 $15.98 $16.04 $15.43 $15.73 $13.79
Total return (3.43%) 6.97% 10.60% 4.08% 21.58% (6.76%)
Ratios/Supplemental Data:
Ratio of expenses to average net assets (actual)* 0.78% 0.79% 0.82% 0.83% 0.90% 0.81%
Decrease reflected in the above expense ratios due to
undertakings by Parnassus Investments 0.36% 0.40% 0.43% 0.50% 0.73% 0.98%
Ratio of net investment income to average net assets 4.80% 4.92% 5.79% 5.98% 6.20% 7.00%
Portfolio turnover rate 0.00% 44.98% 17.15% 2.80% 12.10% 5.20%
Net assets, end of period (000's) $ 11,189 $ 11,482 $ 9,683 $ 8,384 $ 6,585 $ 4,545
<PAGE>
- -------------------------------------------------------------------------------------------------------------------
June 30, 1999
California Tax-Exempt Fund (unaudited) 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $16.88 $16.72 $16.02 $16.06 $14.28 $16.10
Income from investment operations:
Net investment income 0.36 0.75 0.74 0.80 0.82 0.80
Net realized and unrealized gain (loss) on securities (0.64) 0.26 0.71 (0.06) 1.78 (1.81)
Total from investment operations (0.28) 1.01 1.45 0.74 2.60 (1.01)
Distributions:
Dividends from net investment income (0.36) (0.75) (0.75) (0.78) (0.82) (0.81)
Distributions from net realized gains 0.00 (0.10) -- -- -- --
Total distributions (0.36) (0.85) (0.75) (0.78) (0.82) (0.81)
Net asset value at end of period $16.24 $16.88 $16.72 $16.02 $16.06 $14.28
Total return (1.73%) 6.12% 9.33% 4.78% 18.60% (6.36%)
Ratios/Supplemental Data:
Ratio of expenses to average net assets (actual)* 0.67% 0.67% 0.67% 0.54% 0.50% 0.39%
Decrease reflected in the above expense ratios due to
undertakings by Parnassus Investments 0.26% 0.30% 0.32% 0.46% 0.69% 0.87%
Ratio of net investment income to average net assets 4.27% 4.43% 4.69% 4.96% 5.30% 5.37%
Portfolio turnover rate 1.74% 9.40% 10.00% .--% 13.10% 12.00%
Net assets, end of period (000's) $7,708 $7,342 $6,520 $5,835 $4,483 $3,902
<FN>
* Parnassus Investments has agreed to a 1.25% limit on expenses for the Equity
Income Fund and 1% limit for the Fixed-Income and California Tax-Exempt Funds
(See Note 5 for details). Certain fees were waived for the six month period
ended June 30, 1999 and years ended December 31, 1998, 1997, 1996, 1995, and
1994.
</FN>
</TABLE>
<PAGE>
Investment Adviser
Parnassus Investments
One Market-Steuart Tower #1600
San Francisco, California 94105
Legal Counsel
Richard D. Silberman, Esq.
1061 Eastshore #200
Albany, California 94710
Independent Auditors
Deloitte & Touche llp
50 Fremont Street
San Francisco, California 94105
Custodian
Union Bank of California
475 Sansome Street
San Francisco, California 94111
Distributor
Parnassus Investments
One Market-Steuart Tower #1600
San Francisco, California 94105
www.parnassus.com
This report must be preceded or accompanied by a current prospectus or profile.
