THE PARNASSUS INCOME TRUST
ANNUAL REPORT
DECEMBER 31, 1998
January 25, 1999
Dear Shareholder:
Here is your annual report covering all of 1998. Below you'll find an
analysis of each fund in the Parnassus Income Trust. All three funds had
attractive returns for the year.
EQUITY INCOME FUND
As of December 31, 1998, the net asset value per share (NAV) of the Equity
Income Fund was $20.13. Taking into account dividends paid, the total return for
the year was 11.05%. This compares to 10.89% for the average equity income fund
followed by Lipper Analytical Services.
As of early October, the Fund still had a net loss for the year and we were
behind the average equity income fund. Starting on October 8, though, the Fund
surged and we gained 23.39% during the fourth quarter. Part of this gain, of
course, was due to the resurgence of the stock market. We have about 160
companies in the portfolio so the Fund represents the broad economy. Besides the
comeback of the entire market, the strong performance of technology stocks also
helped us during the fourth quarter. At the present time, the Equity Income Fund
is somewhat overweighted in technology stocks and this helped us during the
quarter.
The investment objective of the Fund was changed from a balanced portfolio
on March 31, 1998. It took us a while to make all the changes to the portfolio
so it's only been a little more than six months that we've been completely
following our new objective. For that reason, it's hard to compare the Fund with
other indices and its previous performance. Nevertheless, you will find a graph
and table below that gives the performance of the Equity Income Fund and its
predecessor for the one and five year periods ending December 31, 1998 and also
for the life of the Fund.
<PAGE>
VALUE ON DECEMBER 31, 1998 OF $10,000 INVESTED ON SEPTEMBER 1, 1992
Equity Income Fund $22,313
Lipper Equity Income Fund Average $26,059
S&P 500 Index $34,302
[GRAPHIC HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Average Annual Total Returns Equity Income Lipper Equity Income S&P 500
for periods ending 12/31/98 Fund Fund Average Index
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
One Year 11.05% 10.89% 28.58%
Three Years 12.63% 19.06% 28.16%
Five Years 12.13% 16.71% 24.01%
Since Inception 9/1/92 13.51% 16.32% 21.48%
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
STRATEGY
We plan to keep the Fund broadly diversified so that it will generally
represent the economy. This means always having well over 100 companies in the
portfolio. At least 75% of the assets will be in dividend-paying stocks and we
will aim to have a yield at least equal to the S&P 500. The December 30-day SEC
yield for the Fund was 1.57% compared to 1.33% for the S&P 500.
We will not have equal or even nearly equal positions in all our portfolio
companies. In general, the bigger companies will have more assets invested in
them and the smaller companies will have fewer assets invested. From time to
time, though, we do make adjustments. If we think that a company is overvalued,
we may reduce the dollar amount we have invested in the company. Conversely, if
we think a company is undervalued, we might add to our investment in the
company. In terms of performance, our goal is to have a total return that
consistently beats the average equity income fund.
COMPANY NOTES
One of our portfolio companies, KeySpan Energy Corporation, announced that
its principal subsidiary, Brooklyn Union Gas, won an environmental award for its
fuel cell program. The award from the American Gas Association recognized the
company's 25-year commitment to developing one of the world's most
environmentally-sound, energy-efficient sources of electricity. Natural gas fuel
cells produce electricity and heat by converting chemical energy directly into
electricity without combustion or pollution. Brooklyn Union has installed three
fuel cells on Staten Island, one that supplies St. Vincent's Medical Center and
two that supply Sun Chemical, a dye manufacturer. As unit production costs
improve, natural gas fuel cells will supply more of the nation's electricity
needs.
Unum Life Insurance Company of America, the nation's largest provider of
disability insurance, was named by Working Mother magazine as one of the "100
Best Companies for Working Mothers." Besides doing a good job on family friendly
issues and promoting women, the company offers domestic partner benefits as well
as diversity awareness and education programs.
<PAGE>
FIXED-INCOME FUND
As of December 31, 1998, the net asset value per share (NAV) of the
Fixed-Income Fund was $15.98. Taking into account dividends paid during the
year, the total return for 1998 was 6.97%. This compares to a return of 9.47%
for the Lehman Government/Corporate Bond index and 7.47% for the average A-rated
bond fund followed by Lipper Analytical Services.
Below you will find a graph and table that compare the performance of the
Fixed-Income Fund with that of the Lehman Government/Corporate Bond Index and
the Lipper A-rated Bond Fund Average.
Value on December 31, 1998 OF $10,000 invested on September 1, 1992
Fixed-Income Fund $15,883
Lipper A-Rated Bond Fund Average $15,252
Lehman Government/Corporate Bond Index $15,800
[GRAPHIC HERE]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Average Annual Total Returns Fixed-Income Lipper A-Rated Bond Lehman Government/
for periods ending 12/31/98 Fund Fund Average Corporate Bond Index
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
One Year 6.97% 7.47% 9.47%
Three Years 7.18% 6.32% 7.33%
Five Years 6.90% 6.29% 7.30%
Since Inception 9/1/92 7.58% 6.89% 7.49%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Normally, the Fixed-Income Fund beats the Lipper A-rated Bond Fund Average,
but this year we were about a half percent behind: 6.97% vs. 7.47%. The reason
is that we kept about half our assets in shorter-term money market securities.
The reason for this policy was because of the low yields available for
longer-term bonds. Because the average A-rated fund had more long-term bonds,
they earned a slightly higher yield.
We chose to keep half our assets in more liquid securities for two reasons.
First, there was not much extra yield to earn by going out longer and, second,
we felt there was a risk that interest rates might go up. Interest rates, of
course, stayed down most of the year and we earned a bit less than we otherwise
might have. As most of you know, when interest rates go up, the value of bonds
go down and we wanted to guard against loss of principal.
Despite our slight underperformance this year, you can see by the graph
that we are still ahead of the average A-rated bond fund on a longer term basis.
At the present time, about half the portfolio is in 10-year bonds--some
corporates and some government agencies like Freddie Mac and Fannie Mae. I plan
to keep the portfolio with this mix until interest rates climb a bit higher. As
this is being written in January, the 10-year Treasury bond yield is 4.64% while
the 3-month Treasury bill is 4.3%. We're giving up about 0.34% in yield by
following this strategy. However, if interest rates climb, we'll probably make
up much more than that by locking in higher yields.
<PAGE>
CALIFORNIA TAX-EXEMPT FUND
As of December 31, 1998, the net asset value per share (NAV) of the
California Tax-Exempt Fund was $16.88. Taking dividends into account, the total
return during 1998 for the Fund was 6.12%. This compares to a return of 6.48%
for the Lehman Municipal Bond index and 5.77% for the average California
municipal bond fund followed by Lipper Analytical Services. (Keep in mind that
the Lehman index does not take expenses into account as do the results for our
fund and for the Lipper average fund.) Also keep in mind that the 6.12% return
is after taxes. For a person in the 37.42% combined bracket (income from $60,000
to $124,000) this would be equivalent to a taxable yield of 9.78%. This is quite
an attractive return and I'm glad that the Fund was able to achieve this kind of
yield for our shareholders.
Below you will find a graph that summarizes and compares our returns over
the one, three and five-year periods as well as since inception. The table below
also summarizes and compares these returns.
Value on December 31, 1998 OF $10,000 invested on September 1, 1992
California Tax-Exempt Fund $15,519
Lipper California Municipal Bond Fund Average $15,037
Lehman Municipal Bond Index $15,564
[GRAPHIC HERE]
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Lipper California
Average Annual Total Returns California Municipal Bond Lehman Municipal
for periods ending 12/31/98 Tax-Exempt Fund Fund Average Bond Index
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
One Year 6.12% 5.77% 6.48%
Three Years 6.73% 6.13% 6.69%
Five Years 6.19% 5.48% 6.23%
Since Inception 9/1/92 7.18% 6.65% 7.23%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
As you can see from the graph and table above, the Fund has outperformed
the average California municipal bond fund on a long-term basis. There are a
couple of reasons for this. First, we work hard to keep Fund expenses low.
Second, we buy quality issues and we vary the maturities of our securities
according to market conditions.
For example, when an investor can get a substantially higher yield for
taking a longer maturity, we will choose issues with longer maturities, say, 20
years or so. If there isn't much extra yield for a longer maturity, we'll invest
for a shorter period, say ten years. Also, during periods of low interest rates
like the present, we'll try to keep our assets relatively liquid and choose even
shorter maturities, say less than ten years. Then if interest rates go somewhat
higher (as I expect them to do), we'll make a longer commitment to get a better
yield.
As you can see from the enclosed portfolio listing, all the securities we
buy have a positive social impact. So one of the benefits we offer besides an
attractive return is having your money finance projects that will help society.
One recent bond we invested in was a revenue bond for the San Francisco airport.
The reason we invested in this project is that there will be a Bay Area Rapid
Transit (BART) station inside the new airport building. This will enable
passengers to ride from San Francisco right into the airport via rapid transit.
This should eliminate at least some auto traffic and have a positive impact on
the environment.
Yours truly,
Jerome L. Dodson
President
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Trustees of The Parnassus Income Trust:
We have audited the accompanying statements of assets and liabilities of
the portfolios comprising The Parnassus Income Trust (Equity Income Fund,
Fixed-Income Fund, and California Tax-Exempt Fund) (the "Trust"), formerly the
Parnassus Income Fund, including the portfolios of investments by industry
classification, as of December 31, 1998, and the related statements of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended and the financial highlights
(Note 6) for each of the five years in the period then ended. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned at December 31, 1998 by correspondence with the custodian and
brokers; where replies were not received, we performed other auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Trust as of December 31, 1998, the results of its operations, the changes in its
net assets and financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
San Francisco, California
January 15, 1999
<PAGE>
EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION, DECEMBER 31, 1998
Percent of
Shares Common Stocks Net Assets Market Value
- --------------------------------------------------------------------------------
AIR TRANSPORT
1,500 Federal Express Corporation 0.3% $ 133,875
-------------
APPAREL
4,500 Angelica Corporation 83,813
2,000 Liz Claiborne, Inc. 63,125
3,000 The Limited, Inc. 87,375
5,000 Reebok International Ltd. 74,375
2,000 Russell Corporation 41,000
4,000 The Stride Rite Corporation 35,000
-------------
Total 0.9% 384,688
-------------
APPAREL RETAILING
3,750 Gap, Inc. (The) 210,469
11,000 Penny (J.C.) Company, Inc. 515,625
1,000 Lands' End, Inc. 26,937
2,000 Lillian Vernon Corporation 33,000
-------------
Total 1.9% 786,031
-------------
AUTO PARTS
2,000 Bandag Corporation 79,875
10,000 Dana Corporation 408,750
700 Modine Manufacturing Co. 25,375
-------------
Total 1.2% 514,000
-------------
BANKING
10,000 BankBoston Corporation1 389,375
2,000 Chase Manhattan 136,500
3,000 Dime Bancorp 78,750
1,500 Golden West Financial 137,531
2,250 Providian Financial Corporation 168,750
6,000 Washington Mutual Inc. 229,125
17,000 Wells Fargo Company 678,937
-------------
Total 4.5% 1,818,968
-------------
BUILDING MATERIALS
3,500 Armstrong World Corp. 211,094
4,000 Apogee Enterprises, Inc. 45,000
3,000 Building Materials Holding Corp. 36,375
60,000 Morgan Products, Ltd. 210,000
1,500 TJ International, Inc. 38,531
-------------
Total 1.3% 541,000
-------------
CHEMICALS
2,500 Air Products & Chemicals 100,000
1,250 Cabot Corporation1 34,922
8,000 Calgon Carbon 60,000
1,200 Graco Inc. 35,400
3,000 M.A. Hanna Company 36,937
1,450 Millipore Corporation 41,053
4,000 Nalco Chemical Company 124,000
15,000 Wellman, Inc. 152,813
-------------
Total 1.4% 585,125
-------------
COMPUTER PERIPHERALS
7,000 Adaptec, Inc. 122,938
3,000 Ascend Communications, Inc. 197,250
12,000 Cisco Systems, Inc. 1,113,750
6,000 Quantum Corporation 127,500
6,000 Read-Rite Corporation 88,687
20,000 Western Digital Corporation1 301,250
-------------
Total 4.8% 1,951,375
-------------
COMPUTER SYSTEMS
40,000 Compaq Computer Corp. 1,680,000
35,000 Hewlett-Packard Company 2,397,500
2,000 International Business Machines 368,750
4,000 Sequent Computer Systems 48,250
-------------
Total 11.0% 4,494,500
-------------
<PAGE>
<TABLE>
<CAPTION>
EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION, DECEMBER 31, 1998 (CONTINUED)
Percent of
Shares Common Stocks Net Assets Market Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
ELECTRIC UTILITIES
2,000 Black Hills Corporation $ 52,750
1,000 CILCORP Inc. 61,187
2,000 Idaho Power Company 72,375
2,000 LG&E Energy Corporation 56,625
3,000 Washington Water Power 57,750
------------
Total 0.7% 300,687
------------
ELECTRONIC INSTRUMENTS
20,000 Baldor Electric Company 405,000
2,500 Perkin-Elmer Corporation 243,906
6,000 Tektronix, Inc.1 180,375
------------
Total 2.0% 829,281
------------
FINANCIAL SERVICES
2,000 Fannie Mae 148,000
2,000 Freddie Mac 128,875
4,500 Charles Schwab Corporation 252,844
3,000 SLM Holding Corporation 144,000
------------
Total 1.7% 673,719
------------
FOOD RETAILERS
3,000 Albertson's Inc.1 191,062
800 Whole Foods Market, Inc.1 38,700
------------
Total 0.6% 229,762
------------
HEALTH CARE SERVICES
5,000 Humana Health Plans, Inc. 89,063
3,000 Oxford Health Plans, Inc. 44,625
------------
Total 0.3% 133,688
------------
HOME APPLIANCES
2,000 Maytag Corporation1 124,500
1,700 Whirlpool Corporation 94,138
------------
Total 0.5% 218,638
------------
HOME PRODUCTS
1,400 Church & Dwight Co., Inc. 50,313
2,000 Clorox Company 233,625
2,400 Colgate-Palmolive Co. 222,900
10,000 Proctor & Gamble Company 913,125
------------
Total 3.5% 1,419,963
------------
HOUSEWARES
1,900 Black & Decker Corporation 106,519
3,000 Corning, Inc.1 135,000
2,500 Newell Company 103,125
4,500 Rubbermaid Incorporated 141,469
------------
Total 1.2% 486,113
------------
INSURANCE
5,000 Aetna, Inc. 393,125
11,000 American Int'l Group, Inc. 1,062,875
3,000 Chubb Corporation 194,250
5,000 CIGNA Corporation 386,562
5,500 SAFECO Corporation 236,156
5,000 St. Paul Companies, Inc. 173,750
1,400 Transamerica Corporation 161,700
2,500 UNUM Corporation 145,938
------------
Total 6.7% 2,754,356
------------
INSURANCE BROKERS
6,000 Marsh & McLennan Co., Inc. 0.9% 350,625
------------
MACHINERY
2,000 Cummins Engine Co., Inc. 71,000
1,000 Illinois Tool Works, Inc. 58,000
10,000 Snap-on Inc. 348,125
3,000 The Stanley Works 83,250
------------
Total 1.4% 560,375
------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION, DECEMBER 31, 1998 (CONTINUED)
Percent of
Shares Common Stocks Net Assets Market Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
MEDICAL EQUIPMENT
3,000 Acuson Corporation $ 44,438
2,000 ADAC Laboratories1 39,937
3,000 Coherent, Inc. 37,313
1,000 Safeskin Corporation 24,125
1,200 Dentsply 30,900
3,000 Invacare Corporation 72,000
2,600 Sunrise Medical Inc. 32,337
------------
Total 0.7% 281,050
------------
MISCELLANEOUS
2,000 Chemed Corporation 67,000
5,000 Jostens, Inc. 130,938
500 Minnesota Mining & Mfg. 36,906
2,000 Toro Company 57,000
4,000 WD 40 Company 114,500
------------
Total 1.0% 406,344
------------
NATURAL GAS
3,000 AGL Resources Inc. 69,187
2,000 Connecticut Energy Corp. 61,000
2,000 Eastern Enterprises 87,500
4,800 Energen Corporation 93,600
5,000 Enron Corporation 285,313
3,000 Equitable Resources, Inc. 87,375
6,000 Keyspan Energy Corp. 186,000
6,000 MCN Corporation1 114,375
2,500 New Jersey Resources 98,750
5,000 Northwest Natural Gas Co. 129,375
2,000 ONEOK Inc. 72,250
2,000 Peoples Energy Corporation 79,750
5,000 UGI Corporation 118,750
3,000 Washington Gas & Light Co. 81,000
2,500 WICOR Inc. 54,531
------------
Total 4.0% 1,618,756
------------
OFFICE EQUIPMENT
5,000 Herman Miller, Inc. 134,375
3,000 Pitney Bowes Inc. 198,187
2,700 Xerox Corporation 318,600
------------
Total 1.6% 651,162
------------
OIL
3,000 Chevron 0.6% 248,812
------------
PACKAGED FOODS
7,500 Campbell Soup Company 412,500
2,000 Dreyer's Grand Ice Cream 30,250
2,500 General Mills Incorporated 194,375
7,500 Heinz (H.J.) Company 424,688
12,000 Kellogg Company 409,500
2,900 Quaker Oats Company 172,550
4,800 Ralston Purina Group 154,200
------------
Total 4.4% 1,798,063
------------
PHARMACEUTICALS
500 Amgen Inc. 52,281
1,500 Bristol-Myers Squibb Co. 200,719
6,000 Johnson & Johnson 503,250
2,500 McKesson Corp. 197,656
4,000 Merck & Company 590,000
1,250 Mylan Laboratories1 39,375
------------
Total 3.9% 1,583,281
------------
PHOTOGRAPHY
4,000 Eastman Kodak 288,000
2,000 Polaroid Corporation 37,375
------------
Total 0.8% 325,375
------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION, DECEMBER 31, 1998 (CONTINUED)
Percent of
Shares Common Stocks Net Assets Market Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
PRINTING
1,000 Banta Corp. $ 25,063
3,000 Deluxe Corporation 109,687
2,800 Donnelley (R.R.) & Sons Co. 122,675
------------
Total 0.6% 257,425
------------
PUBLISHING
1,000 Houghton Mifflin Company 47,250
1,600 McGraw-Hill Co., Inc. 163,000
------------
Total 0.5% 210,250
------------
RESTAURANTS
5,000 Luby's Cafeterias, Inc. 0.2% 77,187
------------
RETAILING - GENERAL
4,500 Dollar General 106,313
2,000 Dayton-Hudson Corp. 108,500
5,600 Nordstrom, Inc. 194,250
5,000 Sears, Roebuck and Co. 212,500
------------
Total 1.5% 621,563
------------
SEMICONDUCTOR
CAPITAL EQUIPMENT
20,000 Applied Materials, Inc. 853,750
15,000 Cognex Corporation 300,000
1,000 Electro Scientific Industries 45,312
55,000 Helix Technology Corp. 715,000
2,500 Novellus Systems 123,750
------------
Total 5.0% 2,037,812
------------
SEMICONDUCTORS
10,000 Advanced Micro
Devices, Inc. 290,000
10,000 Intel Corporation 1,185,625
6,000 LSI Logic Corporation 96,750
6,000 Micron Technology, Inc.1 303,375
------------
Total 4.6% 1,875,750
------------
SOFTWARE - SERVICES
1,000 3Com Corporation 44,813
6,000 Adobe Systems 280,500
6,000 Autodesk, Inc. 256,125
2,000 Electronics for Imaging, Inc. 80,375
2,000 Mentor Graphics Corp. 17,000
2,000 Symantec Corporation 43,500
1,200 The Learning Company1 31,125
------------
Total 1.8% 753,438
------------
SPECIALTY RETAILING
2,000 Costco Companies, Inc. 144,375
600 Ethan Allen Interiors Inc. 24,600
1,000 Longs Drug Stores Corp. 37,500
1,000 Mattel Inc.1 23,500
5,000 Petco Animal Supplies, Inc. 50,313
2,000 Toys R Us, Inc. 33,750
4,000 Walgreen Co.1 234,250
------------
Total 1.3% 548,288
------------
STEEL
2,000 Nucor Corporation 0.2% 86,500
------------
TELECOMMUNICATIONS
2,000 AT&T Corporation1 150,500
7,636 U S West Communications
Group 493,477
------------
Total 1.6% 643,977
------------
TRANSPORTATION
2,500 Consolidated Freightways
Corp. 0.1% 39,687
------------
Total common stocks 81.2% 33,231,489
------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION, DECEMBER 31, 1998 (CONTINUED)
Principal Community Percent of
Amount Development Loans Net Assets Market Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 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 1.0% 400,000
------------
Total investment
in securities
(Cost, $29,511,558) 82.2% 33,631,489
------------
Short-Term Investments
- --------------------------------------------------------------------------------
Federal Home Loan Bank
Discount Note 5.065%,
matures 2/3/99 4,000,302
Goldman Sachs
Government Portfolio
(variable rate 4.900%) 52,194
Goldman Sachs
Treasury Portfolio
(variable rate 4.700%) 47,436
Lehman Bros.
Triparty Repurchase
Agreement
(Repurchase agreement
with Lehman Bros. dated
12/31/98, effective yield
5.45%, due 1/4/99. Face
value is $2,366,700 with
price at 100.)2 2,366,700
Union Bank of California
Money Market Fund,
(variable rate 4.300%) 4,286,780
------------
Total short-term
investments 26.3% 10,753,412
------------
Total investments 108.5% 44,384,901
Other assets and
liabilities - net -8.5% (3,481,523)
------ ------------
Total net assets 100.0% $ 40,903,378
====== =============
<FN>
1 This security or partial position of this security is on loan at December 31,
1998 (Note 1). The total value of securities on loan at December 31, 1998 was
$2,280,997.
2 This security purchased with cash collateral held from securities lending.
</FN>
</TABLE>
<PAGE>
EQUITY INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
Assets:
Investments in securities, at market value
(identified cost $29,511,558) (Note 1) $ 33,631,489
Temporary investments in short -term securities
(at cost, which approximates market) 10,753,412
Receivables:
Dividends and interest 41,458
Capital shares sold 142,323
Other assets 17,673
------------
Total assets 44,586,355
------------
Liabilities:
Payable unpon return of securities loaned 2,366,700
Dividends payable 382,115
Payable for securities purchased 743,205
Accounts payable and accrued expenses 190,957
------------
Total liabilities 3,682,977
------------
Net assets (equivalent to $20.13
per share based on 2,032,193.942
shares of capital stock outstanding) $ 40,903,378
=============
Net assets consist of:
Undistributed net investment income $ 34,467
Unrealized appreciation on investments 4,119,931
Undistributed net realized gain 9,146
Capital paid-in 36,739,834
------------
Total net assets $ 40,903,378
=============
Computation of net asset value and
offering price per share:
Net asset value and offering price per share
($40,903,378 divided by 2,032,193.942 shares) $ 20.13
=============
The accompanying notes are an integral part of these financial statements.
<PAGE>
EQUITY INCOME FUND
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
Investment income:
Dividends $ 781,908
Interest 535,153
------------
Total investment income 1,317,061
------------
Expenses:
Investment advisory fees (Note 5) 290,349
Transfer agent fees (Note 5) 89,180
Fund administrative expense (Note 5) 35,300
Reports to shareholders 28,461
Registration fees and expenses 18,700
Professional fees 17,889
Custody fees 8,882
Trustee fees and expenses 9,848
Other expenses 8,939
------------
Subtotal of expenses before fee waiver 507,548
Fees waived by Parnassus Investments (Note 5) (93,688)
------------
Total expenses 413,860
------------
Net investment income 903,201
------------
Realized and unrealized gain (loss) on investments:
Realized gain from security transactions:
Proceeds from sales 54,569,308
Cost of securities sold (50,269,491)
------------
Net realized gain 4,299,817
------------
Unrealized appreciation (depreciation) of investments:
Beginning of year 5,306,075
End of year 4,119,931
------------
Unrealized depreciation during year (1,186,144)
------------
Net realized and unrealized gain
on investments 3,113,673
------------
Net increase in net assets resulting
from operations $ 4,016,874
=============
The accompanying notes are an integral part of these financial statements.
<PAGE>
EQUITY INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
------------ ------------
From operations:
Net investment income $ 903,201 $ 1,409,396
Net realized gain from
security transactions 4,299,817 1,335,951
Net unrealized appreciation
(depreciation) during
the year (1,186,144) 3,820,624
------------ ------------
Increase in net assets
resulting from operations 4,016,874 6,565,971
Dividends to shareholders:
From net investment income (1,386,043) (1,407,411)
From realized capital gains (3,780,700) (1,335,937)
Increase in net assets from
capital share transactions 3,205,750 1,663,068
------------ ------------
Increase in net assets 2,055,881 5,485,691
Net assets:
Beginning of year 38,847,497 33,361,806
------------ ------------
End of year
[including undistributed
(distributions in excess of)
net investment income
of $34,467 in 1998 and
($1,462) in 1997] $ 40,903,378 $ 38,847,497
============ ============
The accompanying notes are an integral part of these financial statements.
<PAGE>
FIXED-INCOME FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION, DECEMBER 31, 1998
Principal Percent of
Amount Corporate Bonds Net Assets Market Value
- --------------------------------------------------------------------------------
FINANCIAL SERVICES
$ 500,000 BankBoston Corporation
Notes, 6.375%,
due 03/25/08 4.4% $ 502,125
-----------
PHOTO EQUIPMENT
AND SUPPLIES
400,000 Polaroid Corporation
Notes, 7.250%,
due 01/15/07 3.6% 418,220
-----------
RETAIL
500,000 The Gap, Inc.
Notes, 6.900%,
due 09/15/07 549,185
350,000 Reebok International Ltd.
Notes, 6.750%,
due 09/15/05 363,496
500,000 Sears, Roebuck and Co.
Global Bond, 7.000%,
due 06/15/07 534,020
-----------
Total 12.6% 1,446,701
-----------
Total corporate bonds 20.6% 2,367,046
-----------
U.S. Government
Agency Securities
- --------------------------------------------------------------------------------
$ 500,000 Federal Home Loan
Mortgage Corp.
6.510%, due 01/08/07 537,665
300,000 Federal National
Mortgage Association
6.720%, due 08/01/05 324,366
850,000 Federal National
Mortgage Association
6.770%, due 09/01/05 922,097
500,000 Federal National
Mortgage Association
6.140%, due 11/25/05 525,640
450,000 Federal National
Mortgage Association
7.350%, due 03/28/05 499,820
-----------
Total U.S. Government
Agency securities 24.5% 2,809,588
-----------
Total investments in
securities
(Cost, $4,852,162) 45.1% 5,176,634
-----------
<PAGE>
<TABLE>
<CAPTION>
FIXED-INCOME FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION, DECEMBER 31, 1998 (CONTINUED)
Percent of
Stort-Term Investments Net Assets Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Federal Home Loan Bank
Discount Note 4.950%,
matures 1/19/99 $ 2,572,472
Federal Home Loan Bank
Discount Note 5.090%,
matures 1/4/99 2,090,795
Founders National Bank
Certificate of Deposit
5.100%, matures 1/4/99 100,000
Goldman Sachs
Government Portfolio
(variable rate 4.900%) 505,438
Goldman Sachs
Treasury Portfolio
(variable 4.700%) 101,761
Union Bank of California
Money Market Fund,
(variable rate 4.300%) 829,787
-----------
Total short-term
investments 54.0% 6,200,253
-----------
Total investments 99.1% 11,376,887
Other assets and
liabilities - net 0.9% 105,585
------ -----------
Total net assets 100.0% $ 11,482,472
====== ============
</TABLE>
<PAGE>
FIXED-INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
Assets:
Investments in securities, at market value
(identified cost $4,852,162) (Note 1) $ 5,176,634
Temporary investments in short-term securities
(at cost, which approximates market) 6,200,253
Receivables:
Interest receivable 131,883
Other assets 46,427
-----------
Total assets 11,555,197
-----------
Liabilities:
Accounts payable and accrued expenses 72,725
-----------
Total liabilities 72,725
Net assets (equivalent to $15.98
per share based on 718,600.244
shares of capital stock outstanding) $ 11,482,472
============
Net assets consist of:
Undistributed net investment income $ 4,652
Unrealized appreciation on investments 324,472
Accumulated net realized loss (1,300)
Capital paid-in 11,154,648
-----------
Total net assets $ 11,482,472
============
Computation of net asset value and
offering price per share:
Net asset value and offering price per share
($11,482,472 divided by 718,600.244 shares) $ 15.98
============
The accompanying notes are an integral part of these financial statements.
<PAGE>
FIXED-INCOME FUND
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
Investment income:
Interest $ 594,548
-----------
Total investment income 594,548
-----------
Expenses:
Investment advisory fees (Note 5) 52,123
Transfer agent fees (Note 5) 24,120
Fund administrative expense (Note 5) 8,800
Reports to shareholders 7,411
Registration fees and expenses 14,000
Professional fees 6,335
Custody fees 900
Trustee fees and expenses 2,458
Other expenses 7,620
-----------
Subtotal of expenses before fee waiver 123,767
Fees waived by Parnassus Investments (Note 5) (41,730)
-----------
Total expenses 82,037
-----------
Net investment income 512,511
-----------
Realized and unrealized gain (loss)
on investments:
Realized gain from security transactions:
Proceeds from sales 3,684,798
Cost of securities sold (3,434,128)
-----------
Net realized gain 250,670
-----------
Unrealized appreciation (depreciation) of investments:
Beginning of year 378,045
End of year 324,472
-----------
Unrealized depreciation during year (53,573)
-----------
Net realized and unrealized
gain on investments 197,097
-----------
Net increase in net assets resulting
from operations $ 709,608
===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
FIXED-INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
------------ ----------
From operations:
Net investment income $ 512,511 $ 505,980
Net realized gain
from security transactions 250,670 108,669
Net unrealized appreciation
(depreciation) during
the year (53,573) 277,365
------------ ----------
Increase in net assets
resulting from operations 709,608 892,014
Dividends to shareholders:
From net investment income (553,195) (500,716)
From realized capital gains (213,198) (43,607)
Increase in net assets from
capital share transactions 1,855,768 952,103
------------ ----------
Increase in net assets 1,798,983 1,299,794
Net assets:
Beginning of year 9,683,489 8,383,695
------------ ----------
End of year
(including undistributed
net investment income
of $4,652 in 1998
and $8,222 in 1997) $ 11,482,472 $ 9,683,489
============ ============
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA TAX-EXEMPT FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION, DECEMBER 31, 1998
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 $ 54,787
170,000 State of California
6.125%, due 10/01/11 199,060
250,000 California Education Facilities -
California Institute of Technology
6.000%, due 01/01/21 262,328
95,000 California Public Works -
University of California at
San Diego Facilities
7.375%, due 04/01/06 106,237
100,000 California Public Works -
Community College Projects
5.500%, due 12/01/06 107,844
130,000 California Public Works -
University of California
5.400%, due 06/01/08 142,523
175,000 California Public Works -
California State University
6.200%, due 10/01/08 195,267
300,000 Folsom School District
5.650%, due 08/11/11 332,378
100,000 Franklin-McKinsey
School District
5.600%, due 07/01/07 107,795
100,000 Kern High School District
5.600%, due 08/01/13 109,741
100,000 Los Angeles Municipal
Improvement -
Central Library Projects
5.200%, due 06/01/07 105,323
250,000 Murrieta Valley Unified
School District
5.500%, due 09/01/10 269,095
100,000 Natomas Unified School
District
5.750%, due 09/01/13 108,690
300,000 Oakland General
Obligation
5.500%, due 12/15/11 327,990
175,000 Palos Verdes California
Library District
5.000%, due 08/01/13 183,454
110,000 Pasadena Recreational/
Library Improvements
5.750%, due 01/01/13 115,019
130,000 Pomona Unified
School District
5.500%, due 08/01/11 144,886
110,000 Santa Monica Unified
School District
5.400%, due 08/01/11 119,746
---------
Total 40.8% 2,992,163
---------
ENVIRONMENT
80,000 Burbank Waste Disposal
5.300%, due 05/01/09 83,405
75,000 California Pollution
Control,
North County
Recycling Center
6.750%, due 07/01/17 83,978
125,000 California Public Works -
Energy Efficiency
5.250%, due 05/01/08 132,478
150,000 East Bay Regional Park
5.000%, due 09/01/14 153,783
315,000 Los Angeles City
Public Works - Parks
5.500%, due 10/01/12 341,520
35,000 Midpeninsula Regional
Open Space District
6.250%, due 07/01/08 38,278
---------
Total 11.3% 833,442
---------
HEALTH CARE
200,000 California Health Facilities
Cedar Sinai Medical Center
5.125%, due 08/01/17 203,656
60,000 California Health Facilities
Feedback Foundation
6.500%, due 12/01/22 65,191
---------
Total 3.7% 268,847
---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA TAX-EXEMPT FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION, DECEMBER 31, 1998 (CONTINUED)
Principal Percent of
Amount Municipal Bonds Net Assets Market Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
HOUSING
$ 205,000 Belmont Redevelopment
Agency
6.400%, due 08/01/09 $ 228,394
55,000 California Housing Finance
Multi-Family
6.750%, due 02/01/09 55,138
100,000 Glendale Redevelopment
Agency
5.500%, due 12/01/12 107,667
275,000 Los Angeles Community
Redevelopment
5.000%, due 07/01/13 283,745
275,000 Pasadena Community
Development
6.000%, due 08/01/14 299,962
175,000 San Jose Redevelopment
Agency
6.000%, due 08/01/15 201,190
200,000 University Of California
Housing
5.500%, due 11/01/10 214,044
---------
Total 18.9% 1,390,140
---------
INFRASTRUCTURE
IMPROVEMENTS
90,000 East Bay Municipal
Utility District
6.000%, due 06/01/20 96,262
150,000 Los Angeles City
General Obligation
5.250%, due 09/01/11 157,130
200,000 Los Angeles Wastewater
System
5.500%, due 06/01/12 214,492
200,000 Pomona Public Financing
Authority
6.000%, due 10/01/06 222,402
---------
Total 9.4% 690,286
---------
PUBLIC TRANSPORTATION
250,000 Los Angeles Metro
Transit Authority
5.000%, due 07/01/13 258,043
110,000 San Diego Mass
Transit Authority
5.000%, due 06/01/07 115,092
350,000 San Francisco International
Airport
5.000%, due 05/01/07 372,995
125,000 San Francisco Bay Area
Rapid Transit
5.650%, due 07/01/10 135,326
---------
Total 12.0% 881,456
---------
Total investments
in securities
(Cost, $6,541,967) 96.1% 7,056,334
---------
Short-Term Investments
- --------------------------------------------------------------------------------
Highmark California
Tax-Exempt Fund,
(variable rate 3.100%) 2.4% 176,672
---------
Total investments 98.5% 7,233,006
Other assests and
liabilities - net 1.5% 108,868
------ ------------
Total net assets 100.0% $ 7,341,874
====== ============
</TABLE>
<PAGE>
CALIFORNIA TAX-EXEMPT FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
Assets:
Investments in securities, at market value
(identified cost $6,541,967) (Note 1) $ 7,056,334
Temporary investments in short-term securities
(at cost, which approximates market) 176,672
Receivables:
Interest receivable 118,227
Other assets 10,652
------------
Total assets 7,361,885
------------
Liabilities:
Accounts payable and accrued expenses 20,011
------------
Total liabilities 20,011
------------
Net assets (equivalent to $16.88
per share based on 434,952.585
shares of capital stock outstanding) $ 7,341,874
============
Net assets consist of:
Undistributed net investment income $ 3,980
Unrealized appreciation on investments 514,367
Undistributed net realized gain 1,887
Capital paid-in 6,821,640
------------
Total net assets $ 7,341,874
=============
Computation of net asset value and offering price per share:
Net asset value and offering price per share
($7,341,874 divided by 434,952.585 shares) $ 16.88
============
The accompanying notes are an integral part of these financial statements.
<PAGE>
CALIFORNIA TAX-EXEMPT FUND
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
Investment income:
Interest $ 360,457
------------
Total investment income 360,457
------------
Expenses:
Investment advisory fees (Note 5) 35,341
Transfer agent fees (Note 5) 8,722
Fund administrative expense (Note 5) 5,900
Reports to shareholders 3,970
Registration fees and expenses 1,674
Professional fees 5,095
Custody fees 600
Trustee fees and expenses 1,641
Other expenses 5,513
------------
Subtotal of expenses before fee waiver 68,456
Fees waived by Parnassus Investments (Note 5) (21,206)
------------
Total expenses 47,250
------------
Net investment income 313,207
------------
Realized and unrealized gain on investments:
Realized gain from security transactions:
Proceeds from sales 634,779
Cost of securities sold (587,531)
------------
Net realized gain 47,248
------------
Unrealized appreciation of investments:
Beginning of year 454,720
End of year 514,367
------------
Unrealized appreciation during year 59,647
------------
Net realized and unrealized
gain on investments 106,895
------------
Net increase in net assets resulting
from operations $ 420,102
============
The accompanying notes are an integral part of these financial statements.
<PAGE>
CALIFORNIA TAX-EXEMPT FUND
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
------------ ------------
From operations:
Net investment income $ 313,207 $ 290,227
Net realized gain from
security transactions 47,248 29,479
Net unrealized appreciation
during the year 59,647 246,191
------------ ------------
Increase in net assets
resulting from operations 420,102 565,897
Dividends to shareholders:
From net investment income (312,860) (286,574)
From realized capital gains (41,455) 0
Increase in net assets from
capital share transactions 756,332 405,391
------------ ------------
Increase in net assets 822,119 684,714
Net assets:
Beginning of year 6,519,755 5,835,041
------------ ------------
End of year
(including undistributed
net investment income
of $3,980 in 1998 and
$3,633 in 1997) $ 7,341,874 $ 6,519,755
=========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
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.
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 $1,386,043
(aggregate of $0.731 per share) during the year ended December 31, 1998. On
December 31, 1998, a capital gains distribution of $3,780,700 ($2.059 per
share) was paid to shareholders of record on December 30, 1998.
Fixed-Income Fund: The Fund paid income dividends totaling $553,195
(aggregate of $0.849 per share) during the year ended December 31, 1998. On
December 31, 1998, a capital gains distribution of $213,198 ($0.304 per
share) was paid to shareholders of record on December 30, 1998.
California Tax-Exempt Fund: The Fund paid income dividends totaling
$312,860 (aggregate of $0.746 per share) during the year ended December 31,
1998. On December 31, 1998, a capital gains distribution of $41,455 ($0.096
per share) was paid to shareholders of record on December 30, 1998.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. Capital Stock
<TABLE>
<CAPTION>
Equity Income Fund: As of December 31, 1998, there were an unlimited number
of shares of no par value capital stock authorized and capital paid-in
aggregated $36,739,834. Transactions in capital stock (shares) were as
follows:
1998 1997
- -------------------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 297,061 $ 6,148,449 243,713 $ 4,709,089
Shares issued through dividend reinvestment 232,138 4,682,202 124,257 2,482,385
Shares repurchased (375,702) (7,624,901) (287,159) (5,528,406)
--------- -------------- --------- -------------
Net increase 153,497 $ 3,205,750 80,811 $ 1,663,068
========= ============== ========= =============
</TABLE>
<TABLE>
<CAPTION>
Fixed-Income Fund: As of December 31, 1998, there were an unlimited number
of shares of no par value capital stock authorized and capital paid-in
aggregated $11,154,648. Transactions in capital stock (shares) were as
follows:
1998 1997
- -------------------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 284,746 $ 4,150,311 154,187 $ 2,410,292
Shares issued through dividend reinvestment 36,006 580,000 24,386 379,889
Shares repurchased (206,004) (2,874,543) (117,962) (1,838,078)
--------- -------------- --------- -------------
Net increase 114,748 $ 1,855,768 60,611 $ 952,103
========= ============== ========= =============
</TABLE>
<TABLE>
<CAPTION>
California Tax-Exempt Fund: As of December 31, 1998, there were an
unlimited number of shares of no par value capital stock authorized and
capital paid-in aggregated $6,821,640. Transactions in capital stock
(shares) were as follows:
1998 1997
- -------------------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 70,957 $ 1,192,890 72,701 $ 1,163,383
Shares issued through dividend reinvestment 15,164 255,358 12,758 206,661
Shares repurchased (41,023) (691,916) (59,924) (964,653)
--------- -------------- --------- -------------
Net increase 45,098 $ 756,332 25,535 $ 405,391
========= ============== ========= =============
4. Purchases of Securities
Equity Income Fund: Purchases of securities for the year ended December 31,
1998 were $50,405,623. For federal income tax purposes, the aggregate cost
of securities and unrealized depreciation at December 31, 1998 were the
same as for financial statement purposes. Of the $4,119,931 of net
unrealized appreciation at December 31, 1998, $4,640,748 related to
appreciation of securities and $520,817 related to depreciation of
securities.
Fixed-Income Fund: Purchases of securities for the year ended December 31,
1998 were $2,038,830. For federal income tax purposes, the aggregate cost
of securities and unrealized appreciation December 31, 1998 were the same
as for financial statement purposes. Of the $324,472 of net unrealized
appreciation December 31, 1998, $324,472 related to appreciation of
securities and $0 related to depreciation of securities.
California Tax-Exempt Fund: Purchases of securities for the year ended
December 31, 1998 were $1,219,990. For federal income tax purposes, the
aggregate cost of securities and unrealized appreciation December 31, 1998
were the same as for finan-cial statement purposes. Of the $514,367 of net
unrealized appreciation December 31, 1998, $516,297 related to appreciation
of securities and $1,930 related to depreciation of securities.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. Investment Advisory Agreement and Transactions with Affiliates
Under terms of an agreement which provides for furnishing investment
management and advice to the Trust, Parnassus Investments is entitled to
receive fees computed monthly, based on the Trust'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 1998. For the Equity Income
Fund, the investment advisory fee was 0.50%. Parnassus Investments received
net advisory fees totaling $196,661 from the Equity Income Fund for the
year ended December 31, 1998. For the Fixed-Income Fund, the investment
advisory fee was 0.10%. Parnassus Investments received net advisory fees
totaling $10,393 from the Fixed-Income Fund for the year ended December 31,
1998. For the California Tax-Exempt Fund, the investment advisory fee was
0.20%. Parnassus Investments received net advisory fees totaling $14,135
from the California Tax-Exempt Fund for the year ended December 31, 1998.
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 Trust, Parnassus Investments received fees
paid by the Trust totaling $172,022 for the year ended December 31, 1998.
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.
6. Financial Highlights
Selected data for each share of capital stock outstanding, total return and
ratios/supplemental data for each of the five years ended December 31 are
as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Equity Income Fund 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year $20.68 $18.56 $19.58 $15.70 $17.46
------- ------- ------ ------- ---------
Income from investment operations:
Net investment income 0.75 0.79 0.98 0.88 0.80
Net realized and unrealized gain (loss) on securities 1.49 2.86 0.37 3.93 (1.75)
------- ------- ------ ------- ---------
Total from investment operations 2.24 3.65 1.35 4.81 (0.95)
------- ------- ------ ------- ---------
Distributions:
Dividends from net investment income (0.73) (0.79) (0.97) (0.90) (0.81)
Distributions from net realized gains (2.06) (0.74) (1.40) (0.03) .--
------- ------- ------ ------- ---------
Total distributions (2.79) (1.53) (2.37) (0.93) (0.81)
------- ------- ------ ------- ---------
Net asset value at end of year $20.13 $20.68 $18.56 $19.58 $15.70
======= ======= ====== ======= =========
Total return 11.05% 20.15% 7.09% 31.13% (5.39%)
Ratios/supplemental data:
Ratio of expenses to average net assets (actual)* 1.05% 1.05% 0.80% 0.72% 0.83%
Decrease reflected in the above expense ratios due
to undertakings by Parnassus Investments 0.24% 0.30% 0.60% 0.82% 0.88%
Ratio of net investment income to
average net assets 2.30% 4.04% 4.56% 4.76% 5.15%
Portfolio turnover rate 166.32% 34.12% 47.80% 15.36% 6.50%
Net assets, end of year (000's) $ 40,903 $38,847 $ 33,362 $ 26,779 $ 17,087
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------
Fixed-Income Fund 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year $16.04 $15.43 $15.73 $13.79 $15.89
------- ------- ------ ------- ---------
Income from investment operations:
Net investment income 0.84 0.90 0.92 0.95 1.02
Net realized and unrealized gain (loss) on securities 0.25 0.67 (0.31) 1.95 (2.08)
------- ------- ------ ------- ---------
Total from investment operations 1.09 1.57 0.61 2.90 (1.06)
------- ------- ------ ------- ---------
Distributions:
Dividends from net investment income (0.85) (0.89) (0.91) (0.96) (1.04)
Distributions from net realized gains (0.30) (0.07) .-- .-- .--
------- ------- ------ ------- ---------
Total distributions (1.15) (0.96) (0.91) (0.96) (1.04)
------- ------- ------ ------- ---------
Net asset value at end of year $15.98 $16.04 $15.43 $15.73 $13.79
------- ------- ------ ------- ---------
Total return 6.97% 10.60% 4.08% 21.58% (6.76%)
Ratios/supplemental data:
Ratio of expenses to average net assets (actual)* 0.79% 0.82% 0.83% 0.90% 0.81%
Decrease reflected in the above expense ratios due
to undertakings by Parnassus Investments 0.40% 0.43% 0.50% 0.73% 0.98%
Ratio of net investment income to
average net assets 4.92% 5.79% 5.98% 6.20% 7.00%
Portfolio turnover rate 44.98% 17.15% 2.80% 12.10% 5.20%
Net assets, end of year (000's) $ 11,482 $ 9,683 $ 8,384 $ 6,585 $ 4,545
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
California Tax-Exempt Fund 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year $16.72 $16.02 $16.06 $14.28 $16.10
------- ------- ------ ------- ---------
Income from investment operations:
Net investment income 0.75 0.74 0.80 0.82 0.80
Net realized and unrealized gain (loss) on securities 0.26 0.71 (0.06) 1.78 (1.81)
------- ------- ------ ------- ---------
Total from investment operations 1.01 1.45 0.74 2.60 (1.01)
------- ------- ------ ------- ---------
Distributions:
Dividends from net investment income (0.75) (0.75) (0.78) (0.82) (0.81)
Distributions from net realized gains (0.10) .-- .-- .-- .--
------- ------- ------ ------- ---------
Total distributions (0.85) (0.75) (0.78) (0.82) (0.81)
------- ------- ------ ------- ---------
Net asset value at end of year $16.88 $16.72 $16.02 $16.06 $14.28
------- ------- ------ ------- ---------
Total return 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% 0.54% 0.50% 0.39%
Decrease reflected in the above expense ratios due
to undertakings by Parnassus Investments 0.30% 0.32% 0.46% 0.69% 0.87%
Ratio of net investment income to
average net assets 4.43% 4.69% 4.96% 5.30% 5.37%
Portfolio turnover rate 9.40% 10.00% .--% 13.10% 12.00%
Net assets, end of year (000's) $ 7,342 $ 6,520 $ 5,835 $ 4,483 $ 3,902
*Parnassus Investments has agreed to a 1.25% limit on expenses for the
Equity Income Fund and 1% for the Fixed-Income and California Tax-Exempt
Funds (See Note 5 for details). Certain fees were waived for the years
ended December 31, 1998, 1997, 1996, 1995 and 1994.
</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.
