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PIT AR'99.word 2/23/2000 Page 36 of 36
THE PARNASSUS INCOME TRUST
Annual Report December 31, 1999
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February 7, 2000
Dear Shareholder:
Here is your annual report for 1999. Below you'll find an analysis of each
of the three funds in The Parnassus Income Trust. Both the Equity Income Fund
and the California Tax-Exempt Fund had terrific years, finishing near the top of
their categories. The Fixed-Income Fund underperformed this year, but is still
ahead of its peers for both the five-year period and since inception.
EQUITY INCOME FUND
As of December 31, 1999, the net asset value per share (NAV) of the Equity
Income Fund was $23.13, so after taking dividends into account, the total return
for the year was 22.78%. This compares to an average return of 3.34% for all the
equity income funds followed by Lipper. We also beat the S&P 500 which finished
with a gain of 21.04% for the year compared to our return of 22.78%. Besides
beating the S&P in total return, we also beat the S&P in terms of dividend
yield. For the year, our yield (dividends divided by share price) was 1.35%
compared to 1.26% for the S&P 500.
Also interesting is that since we changed the investment objective from a
balanced fund to an equity income fund on March 31, 1998, the Fund has returned
an average of 16.87% per year compared to 2.14% for the average equity income
fund. This means that since we changed to our new investment objective, we've
had the best performance of the 208 equity income funds followed by Lipper.*
Thus far, I can say that the change of investment objective has been an
unqualified success.
Below you will find a graph and a table that gives the performance of the
Equity Income Fund and its predecessor for the one, three and five-year periods
ended December 31, 1999 and also since inception. Periods before March 31, 1998
are not completely comparable since it was a balanced fund before then.
* For periods ended December 31, 1999, the Equity Income Fund placed #8 of 219
equity income funds, #13 of 162 funds, #39 of 113 funds and #25 of 55 funds
respectively, for the one, three and five-year periods and since inception on
August 31, 1992.
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Returns Equity Income Lipper Equity Income S&P 500 Wilshire 5000
for periods ended 12/31/99 Fund Fund Average Index Index
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One Year 22.78% 3.34% 21.04% 23.82%
Three Years 17.88% 13.20% 27.52% 26.13%
Five Years 18.13% 17.36% 28.46% 27.11%
Since Inception 8/31/92 14.73% 14.24% 21.43% 20.83%
<FN>
Past performance is no guarantee of future returns. Principal value will
fluctuate and an investor's shares, when redeemed, may be worth more or less
than their original cost. The Wilshire 5000 and the S&P 500 are unmanaged
indices of common stocks and it is not possible to invest directly in an index.
</FN>
</TABLE>
STRATEGY AND ANALYSIS
The reason we beat the average equity income fund by such a wide margin is
because we held large positions in technology stocks. Although the major stock
market indices went up quite a bit during the year, most of the gain can be
attributed to technology issues. The broader market saw as many stocks go down
as went up. This was also true with our portfolio. We have a little over 150
companies in the portfolio and about half went up and about half went down. This
is more than a little surprising given the fact that we earned almost 23% for
the year.
The solution to this paradox is that we owned bigger positions in our
winners than we did in our losers. Also, our winners went up more than our
losers went down. Although half our stocks went down during the year, only a few
of them went down very much. Consequently, our losers didn't have a tremendous
impact on the NAV. For each company, we'll indicate how much it affected the NAV
(in cents per share) as well as how much the stock went down. Only two positions
could be called disasters with each going down enough to affect the Fund by
about 30 cents. Three other issues went down enough to affect the NAV by 6 cents
or more a share.
The biggest disappointment was our investment in a convertible bond issued
by Read-Rite, a maker of electronic heads for use in disk drives. We paid $1.1
million for the bond and then sold it for $439,500 for a drop of 60% which
translated into a loss of 30 cents a share for the Fund. Continuing weakness in
the disk drive industry caused losses for Read-Rite. A convertible bond pays
interest like any other bond, but it can also be converted into the common stock
of the company. A big drop in the stock price caused the sharp decline in the
market value of the bond. Normally, we would continue to hold a convertible bond
after a stock price decline since it would continue paying interest. In this
case, though, the company's finances were so weak that we felt it was necessary
to sell the bond at a loss because of the risk involved.
<PAGE>
The other big loss was caused by Compaq because of our large position in
the company. Difficulties in competing with Dell's distribution system and
problems with a merger caused a decline in earnings. The stock dropped 35%
during the year to $27.19 for a loss of 29 cents on the NAV. We're still holding
our Compaq shares since we expect better performance from the company in the
future.
Xerox dropped 61.5% during the year going to $22.69 a share for a loss of
11 cents on the NAV. A poorly executed sales force reorganization and strong
competition from Canon resulted in the loss.
J.C. Penney saw its stock plummet 57.5% to $19.94 for a negative impact of
7 cents on each fund share. Earnings declined as the company got caught in a
squeeze play, being pressured by discount stores on the low end and specialty
retailers on the high end.
SAFECO Insurance lost 42% during the year as its stock collapsed to $24.88
for a decline of 6 cents on the NAV. Heavy losses in its casualty business plus
strong industry competition in auto insurance drove down earnings.
Fortunately, our winners made a much bigger impact on the Fund than our
losers. Eight of our top ten winners were technology companies and they all had
a positive impact of 15 cents or more on the NAV during the year. The one having
the greatest impact on the Fund was Helix Technology, a Massachusetts-based
company that supplies cryogenic pumps to create vacuums for use in making
semiconductors. Strong demand for semiconductor equipment and the company's
development of a new system to monitor the performance of vacuum pumps helped
boost the stock price by an amazing 245% to end the year at $44.81. This was
enough to increase the Fund's share price by an astounding 87 cents.
Cisco Systems, the largest supplier of networking equipment for the
internet, rose 131% during the year as its stock price went to $107.13. Strong
demand for networking equipment contributed to earnings growth and Cisco added
79 cents to the Fund's share price.
Credence Systems makes testing machines for semiconductor manufacturers and
we bought a convertible debenture issued by the company early in the year. The
bond went up 74% by the end of the year plus we earned interest on our money
which meant that it contributed 46 cents per share to the Fund. The surge in
semiconductor production last year meant much more testing had to be done and
this resulted in greatly increased revenue for Credence. We also bought stock in
the company as well as the convertible bond and the stock climbed 58% to $86.50
from the time we bought it until the end of the year for an additional 16 cents
gain for the Fund.
<PAGE>
Amidst the boom in semiconductors, naturally the world's largest
manufacturer, Intel, had a great year as its stock rose 39% to $82.31 for a gain
of 26 cents on the NAV. The company makes a large variety of chips, but its
mainstay is the microprocessor for personal computers where it holds a dominant
position.
American International Group (AIG), the large insurance company, saw its
stock climb 40% to $108.13 for the year as recovery in Asia and Europe helped it
post a strong growth in earnings. The company contributed 21 cents to the NAV.
Hewlett-Packard, the Silicon Valley pioneer and maker of printers and
servers, saw its stock price increase 67% to $114.13. A dynamic new woman chief
executive and stronger emphasis on products for the internet helped move the
shares higher. HP accounted for an increase of 18 cents per share to the Fund.
Lucent, the manufacturer of telecommunications equipment, moved the Fund up
17 cents a share since its stock rose 100% from the time we bought it in
mid-year until the end of 1999. The worldwide demand for telecommunications
equipment boosted Lucent's share price.
LSI Logic gained 319% during the year as its stock price soared to $67.50
and contributed 15 cents to our NAV. LSI makes custom chips for a variety of
uses including DVD video players, the Sony PlayStation, computer networking and
internet communication.
Another convertible bond we invested in was issued by Lam Research, a
semiconductor capital equipment maker that has excellent products and good cost
control. Because of the strong resurgence in the semiconductor market, earnings
soared and we made a capital gain of $300,000 or 35% when we sold the bond. This
meant a gain of 15 cents on the NAV plus we earned interest on the bond during
the holding period.
Wellman, the nation's largest recycler of plastic, had an 83% gain in its
stock as it went to $18.63 a share on strong demand for its plastic bottle
resin. The company contributed 15 cents a share to the Fund.
COMPANY NOTES
Fortune's new list of the "100 Best Companies to Work For" is now out and
16 of our portfolio companies are on the list. The article was written by two
longtime Parnassus Fund shareholders, Milton Moskowitz and Robert Levering.
They've been compiling this list for more than a decade and they're having a
positive impact on workers in American business as each year more corporations
improve their policies in an effort to make the list. Here are the companies in
the Fund's portfolio in the order they made the list.
1. Cisco Systems 5. Merck & Company 9. Federal Express 13. Lands' End
2. Charles Schwab 6. Adobe Systems 10. Intel 14. General Mills
3. Enron 7. Hewlett-Packard 11. Johnson & Johnson 15. Nordstrom
4. Amgen 8. Lucent Technologies 12. Whole Foods Market 16. Quantum
Also of note is that our auditors, Deloitte & Touche, also made the list as
one of the best companies to work for.
<PAGE>
FIXED-INCOME FUND
As of December 31, 1999, the net asset value per share (NAV) of the
Fixed-Income Fund was $14.49. Taking into account dividends paid during the
year, the total return for 1999 was a loss of 4.32%. This compares to a loss of
2.15% for the Lehman Government/Corporate Bond Index and a loss of 2.58% for the
average A-rated bond fund followed by Lipper. The 30-day SEC yield for December
was 6.50%. Below you will find a graph and a 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.
<TABLE>
<CAPTION>
Average Annual Total Returns Fixed-Income Lipper A-Rated Bond Lehman Government/
for periods ended 12/31/99 Fund Fund Average Corporate Bond Index
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
One Year (4.32%) (2.58%) (2.15%)
Three Years 4.22% 4.59% 5.54%
Five Years 7.45% 6.91% 7.61%
Since Inception 8/31/92 5.87% 5.79% 6.13%
<FN>
Past performance is no guarantee of future returns. Principal value will
fluctuate and an investor's shares, when redeemed, may be worth more or less
than their original cost. The Lehman Government/Corporate Bond Index is an
unmanaged index of fixed-income securities and it is not possible to invest
directly in an index.
</FN>
</TABLE>
As you can see from the table, the Fixed-Income Fund underperformed both
the Lipper A-rated Bond Fund Average as well as the Lehman Government/ Corporate
Bond Index. Both the Lipper average and the Lehman index had a negative return,
but unfortunately, our return was even more negative than the two benchmarks.
First, let's talk about the bond market in general and then about the Fund's
performance.
The reason bonds did not do well during 1999 was because of the increase in
interest rates. For example, the bellwether 30-year Treasury bond was yielding
5.09% at the beginning of 1999, but by the end of the year, its yield was 6.48%
which is an increase of almost one-and-a-half percent. That's a lot in the bond
market. For this reason, it was a terrible year for all fixed-income securities.
(As you may remember, the market value of bonds and other fixed-income
securities go down when interest rates rise. They go up when interest rates
fall.)
Normally, interest rates go up only when inflation starts to head higher.
Typically, inflation enters the picture as economic activity expands. Interest
rates increase in response to higher inflation and this slows down the economy.
When the economy slows down, interest rates drop back down. This is the typical
interest rate cycle.
<PAGE>
Although typical, that's not what's happening this time. Although economic
activity is robust as the economists like to say, inflation is very modest.
Interest rates are rising primarily in reaction to fears that inflation might
increase sometime in the future. In other words, investors are anticipating an
increase in inflation even before there's any sign that it's happening. The main
source of inflation concerns is, of course, Alan Greenspan, our mighty leader of
the Federal Reserve Board (the Fed). Not only is he fanning the flames of
inflation fears, but he's also raising interest rates through his power as
Chairman of the Fed. (The Fed uses open market transactions in Treasury
securities to raise or lower interest rates, i.e., they buy or sell massive
quantities of Treasury securities to control interest rates.)
The Fed can control short-term interest rates directly through open market
transactions, but it has no direct control over long-term interest rates. Since
he can't control long-term interest rates directly, he has to instill fear in
fixed-income investors so they will, in turn, bid up interest rates in the bond
market. Greenspan does this mainly through speeches where he says things like,
"Although there's no sign that inflation is out of control, economic activity is
very robust so we must be ever vigilant to prevent reigniting inflation." I must
admit that Greenspan has done a great job over the past 12 years, but I do think
he's too quick on the trigger when it comes to raising interest rates.
While I can blame the poor bond market on Chairman Greenspan's raising
interest rates, unfortunately, I can't blame the Fund's underperformance on him.
I have to assume that responsibility myself.
For the most part, our underperformance was caused by our bond positions in
three issuers: J.C. Penney, Xerox and Polaroid. Although all three of these
companies are socially responsible, their business performance has not matched
their performance as corporate citizens.
Our J.C. Penney bond dropped 15.9% from the time we bought it during the
year until the end of 1999 which knocked 11 cents off the NAV. Poor
merchandising in its stores caused weaker sales and lower earnings. Because of
this trend, investors decided that the company's financial condition was
weakening and forced down the price of the bond. We will continue holding the
bond since it has a nice yield and its credit rating is still investment grade.
We hope to get a better return on the bond in 2000.
The Xerox bond dropped 8.50% during the year which caused the NAV to
decline by 10 cents. A poorly executed sales force reorganization and strong
competition from Canon contributed to the lower bond price. As with J.C. Penney,
we're hanging onto the bond because of an attractive yield, an investment grade
credit rating and our expectation of better performance in the future.
Polaroid was the third bond issuer that gave us trouble. We sold the
Polaroid bond during the year since its financial position had deteriorated
quite a bit and unlike Penney and Xerox, we didn't think it could make a
comeback in 2000. The bond dropped 23% from the first of the year until the time
we sold it for a loss of 9 cents on the NAV.
Although we underperformed our peers in 1999, the track record for the past
five years and since inception still looks good. As you can see from the table,
we've outperformed the Lipper A-rated average for the last five years and since
inception.
<PAGE>
CALIFORNIA TAX-EXEMPT FUND
As of December 31, 1999, the net asset value per share (NAV) of the
California Tax-Exempt Fund was $15.82. Taking dividends into account, the total
return during 1999 for the Fund was a loss of 2.01%. Although this kind of
return may not make you want to do handsprings, I would like to point out that
the average California tax-exempt fund followed by Lipper lost 5.16% during the
year. This means that our return was over 3% better than the average fund. This
performance placed us third out of the 107 funds followed by Lipper.*
For each shareholder report, we compare our return with that of Lehman
Municipal Bond Index which is an index of municipal bond returns nationwide.
Unfortunately, Lehman no longer keeps an index for California muni bonds so we
have to use the national one. Most years, the results for muni bonds nationwide
and California muni bonds are fairly similar. This year, the Lehman Muni Bond
Index lost 2.06% while the average California muni bond fund lost 5.16% which is
an enormous difference.
There are a couple of reasons for this disparity. First, California issued
more muni bonds last year on a proportional basis than the average state in the
nation and this excess supply pushed down the market value of California bonds
which hurt results. Second, because the California muni bond market is more
active than most states, fluctuations tend to be greater so last year's increase
in interest rates moved the California market down more than that of most
states.
Even with this disparity, the Fund was able to beat the Lehman Muni Bond
Index which dropped 2.06% compared to the Fund's drop of 2.01%. Keep in mind
that the Lehman index does not take expenses into account, but the results for
our fund and the others do. Given this situation, our performance was even more
remarkable.
Below you will find a graph and a table that show our returns in comparison
with indices over the past one, three and five-year periods and since inception.
Lipper California
<TABLE>
<CAPTION>
Average Annual Total Returns California Municipal Bond Lehman Municipal
for periods ended 12/31/99 Tax-Exempt Fund Fund Average Bond Index
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
One Year (2.01%) (5.16%) (2.06%)
Three Years 4.37% 3.02% 4.43%
Five Years 7.16% 6.10% 6.92%
Since Inception 8/31/92 5.88% 5.13% 5.91%
<FN>
Past performance is no guarantee of future returns. Principal value will
fluctuate and an investor's shares, when redeemed, may be worth more or less
than their original cost. The Lehman Municipal Bond Index is an unmanaged index
of fixed-income securities and it is not possible to invest directly in an
index.
Note: The 30-day SEC yield for the Fund in December was 2.06%
* For the periods ended December 31, 1999, the Parnassus California Tax-Exempt
Fund placed #5 of 93 California tax-exempt funds, #11 of 78 funds and #6 of
49 funds, respectively, for the three and five-year periods and since
inception on August 31, 1992.
</FN>
</TABLE>
<PAGE>
The reason the Fund lost money during the year was a poor bond market
caused by a sharp increase in interest rates. For more details on interest rates
and the bond market, see the discussion under the Fixed-Income Fund.
Although the Fund had a small loss for the year, we did much better than
most of our peer group. There are a number of reasons why the Fund has
outperformed most other California tax-exempt funds. First, we keep our expenses
relatively low. Second, we try to minimize trading, preferring to hang onto our
bonds for a long period of time. Third, we concentrate our buying on bonds with
10-year maturities which is long enough to get a good yield, but short enough to
avoid the most extreme interest rate risks. Fourth, we negotiate with
market-makers on each bond we buy to get a better price and, therefore, a higher
yield. Fifth, we buy bonds that have good credit.
Regarding this last point, I recently saw an interesting study by Frank
Rizzo, a noted municipal bond specialist, who serves as head of public finance
for Fitch IBCA, a municipal bond rating concern. Rizzo discovered that most
municipal bonds are not very risky and are, perhaps, underrated. The Fitch study
found that the default rate on municipal bonds is less than 2%. However, there
is a great disparity among types of municipal bonds in terms of their loss
rates.
The study found the following default rates: 0.04% for water & sewer bonds,
0.05% for education projects, 2.62% for health care bonds, 4.86% for multifamily
housing and 14.89% for industrial development bonds. I thought the disparity in
default rates for these bonds was fascinating.
Another thing I found interesting was that the kind of bonds we buy for
social purposes tend to have lower default rates. For example, water and
educational bonds which are positive from a social standpoint also have very low
default rates -- virtually zero. Health care bonds which also have a strong
social purpose are a little higher, but still relatively low. One area that is
somewhat disappointing is multi-family housing which has a positive social
purpose, but has a somewhat high default rate at 4.86%. Industrial development
bonds (which the Fund tends to avoid on social grounds) had the highest default
rate at 14.89%.
This study certainly will help me in managing the Fund in the future.
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, 1999, 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, 1999 by correspondence with the custodian and
brokers. 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, 1999, 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 14, 2000
<PAGE>
<TABLE>
<CAPTION>
THE PARNASSUS INCOME TRUST
EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION, DECEMBER 31, 1999
Percent of
Shares Common Stocks Net Assets Market Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
AIR TRANSPORT
4,000 Delta Air Lines, Inc. $ 199,250
3,000 Federal Express Corp.1 122,812
Total 0.7% 322,062
APPAREL
2,000 Liz Claiborne, Inc. 75,250
1,000 The Limited, Inc. 43,313
1,000 Reebok International Ltd.1 8,187
5,000 Russell Corporation 83,750
8,000 The Stride Rite Corporation 52,000
Total 0.6% 262,500
APPAREL RETAILING
6,000 Gap, Inc. (The) 276,000
500 Lands' End, Inc.1 17,375
2,000 Lillian Vernon Corporation 22,250
Total 0.7% 315,625
AUTO PARTS
1,200 Bandag, Inc. 30,000
10,000 Dana Corporation 299,375
Total 0.7% 329,375
BANKING
3,000 Bank One Corporation 96,000
4,000 Chase Manhattan 310,750
2,500 Dime Bancorp 37,813
4,500 Golden West Financial 150,750
11,000 Washington Mutual Inc. 284,625
17,000 Wells Fargo Company 687,437
Total 3.4% 1,567,375
BUILDING MATERIALS
1,500 Armstrong World Corp. 50,062
4,000 Apogee Enterprises, Inc. 20,250
2,000 INTERFACE, Inc. 11,500
1,500 T.J.International, Inc. 63,000
Total 0.3% 144,812
<PAGE>
Percent of
Shares Common Stocks Net Assets Market Value
- ---------------------------------------------------------------------------------
CHEMICALS
4,000 Air Products & Chemicals $ 134,250
50,000 Calgon Carbon 293,750
500 H.B.Fuller Company 27,969
1,450 Millipore Corporation 56,006
1,000 PE Biosystems Group 120,312
35,000 Wellman, Inc. 651,875
Total 2.8% 1,284,162
COMPUTER PERIPHERALS
3,000 Adaptec, Inc.1 149,625
26,000 Cisco Systems, Inc. 2,785,250
9,000 Lucent Technologies, Inc. 673,313
7,000 Quantum Corp. DLT & Storage Systems 1 105,875
3,500 Quantum Corp. Hard Disk Drive1 24,281
Total 8.1% 3,738,344
COMPUTER SYSTEMS
45,000 Compaq Computer Corp. 1,223,437
8,000 Hewlett-Packard Company 913,000
5,000 International Business Machines 540,000
Total 5.8% 2,676,437
ELECTRIC UTILITIES
2,000 Idaho Power Company 53,625
2,500 LG&E Energy Corporation2 43,594
6,000 Avista Corporation 91,500
Total 0.4% 188,719
ELECTRONIC INSTRUMENTS
15,000 Baldor Electric Company 271,875
1,000 Tektronix, Inc. 38,875
Total 0.7% 310,750
ENTERTAINMENT
2,000 Cedar Fair 0.1% 38,750
<PAGE>
Percent of
Shares Common Stocks Net Assets Market Valu
- ---------------------------------------------------------------------------------
FINANCIAL SERVICES
21,000 Fannie Mae $ 1,311,187
17,000 Freddie Mac 800,063
5,000 Charles Schwab Corp. 191,250
2,000 SLM Holding Corporation 84,500
Total 5.2% 2,387,000
FOOD RETAILERS
7,000 The Kroger Co.1 132,125
12,000 Whole Foods Market, Inc.1, 2 556,500
Total 1.5% 688,625
HEALTH CARE SERVICES
8,000 Oxford Health Plans, Inc. 0.2% 101,500
HOME APPLIANCES
2,000 Maytag Corporation 96,000
4,000 Whirlpool Corporation 260,250
Total 0.8% 356,250
HOME PRODUCTS
700 Church & Dwight Co., Inc. 18,681
6,000 Clorox Company2 302,250
3,500 Colgate-Palmolive Co. 227,500
12,000 Proctor & Gamble Co. 1,314,750
Total 4.0% 1,863,181
HOUSEWARES
1,500 Black & Decker Corp. 78,375
1,500 Corning, Inc. 193,406
3,000 Newell Company 87,000
Total 0.8% 358,781
INDUSTRIAL AUTOMATION
10,000 Cognex Corporation1 0.8% 390,000
INSURANCE
500 Aetna, Inc.2 27,906
13,500 American Int'l Group, Inc. 1,459,687
1,500 Chubb Corporation1 84,469
1,500 CIGNA Corporation 120,844
6,800 SAFECOCorporation1 169,150
6,000 St. Paul Companies, Inc.1 202,125
4,000 UnumProvident Corp. 128,250
Total 4.8% 2,192,431
INSURANCE BROKERS
5,000 Marsh & McLennan Co., Inc. 1.0% 478,437
MACHINERY
2,500 Cummins Engine Co., Inc.2 120,781
1,000 Deere & Company 43,375
1,000 Illinois Tool Works, Inc. 67,563
3,000 Snap-on Inc. 79,687
2,000 The Stanley Works 60,250
Total 0.8% 371,656
<PAGE>
Percent of
Shares Common Stocks Net Assets Market Value
- -------------------------------------------------------------------------------
MEDICAL EQUIPMENT
6,000 Becton Dickinson $ 160,500
4,000 DENTSPLY International, Inc. 94,500
8,000 Henry Schein, Inc.1, 2 106,500
4,000 Invacare Corporation 80,250
20,000 Steris Corporation 1 205,000
Total 1.4% 646,750
MICROELECTRONIC PROCESSING EQUIPMENT
1,000 Applied Materials, Inc. 126,688
10,000 Credence Systems Corp.1, 2 865,000
3,000 Electronic Scientific Industries1 219,000
55,000 Helix Technology Corp. 2,464,688
2,000 Novellus Systems1 245,063
Total 8.5% 3,920,439
MISCELLANEOUS
5,000 Chemed Corporation 143,125
5,000 Minnesota Mining & Mfg. 489,375
4,000 WD 40 Company 88,500
Total 1.6% 721,000
NATURAL GAS
3,000 AGL Resources Inc. 51,000
1,000 Connecticut Energy Corp. 38,875
1,000 Eastern Enterprises 57,437
4,800 Energen Corporation 86,700
7,000 Enron Corporation 310,625
2,000 Equitable Resources, Inc. 66,750
8,000 Keyspan Energy Corporation 185,500
4,000 MCN Corporation 95,000
1,000 New Jersey Resources 39,063
3,000 Northwest Natural Gas Co. 65,812
2,000 ONEOK Inc. 50,250
2,000 Peoples Energy Corporation 67,000
5,000 UGI Corporation 102,188
3,000 Washington Gas Light Co. 82,500
1,000 WICOR Inc. 29,188
Total 2.9% 1,327,888
OFFICE EQUIPMENT
1,500 Avery Dennison Corp. 109,313
2,000 Herman Miller, Inc. 46,000
3,000 Pitney Bowes Inc. 144,937
10,000 Xerox Corporation 226,875
Total 1.1% 527,125
<PAGE>
Percent of
Shares Common Stocks Net Assets Market Value
- ---------------------------------------------------------------------------------
OIL
5,000 Sunoco, Inc. 0.3% 117,500
PACKAGED FOODS
1,500 Campbell Soup Company 58,031
1,000 Dreyer's Grand Ice Cream 17,000
6,000 General Mills Incorporated 214,500
7,000 Heinz (H.J.) Company 278,688
10,000 Kellogg Company1 308,125
2,000 Quaker Oats Company 131,250
4,800 Ralston Purina Group 133,800
Total 2.5% 1,141,394
PHARMACEUTICALS
2,000 Amgen Inc.1 120,125
6,000 Bristol-Myers Squibb Co. 385,125
10,000 Johnson & Johnson 932,500
4,000 McKesson HBOC, Inc. 90,000
18,000 Merck & Company 1,207,125
4,000 Mylan Laboratories 100,750
5,000 Schering-Plough Corp. 211,875
1,000 Watson Pharmaceuticals, Inc.1 35,812
Total 6.7% 3,083,312
PRINTING
1,500 Banta Corp. 33,844
3,000 Deluxe Corporation 82,313
3,000 Donnelley (R.R.) & Sons Co. 74,437
Total 0.4% 190,594
PUBLISHING
3,000 Gannett 244,687
1,000 Houghton Mifflin Company 42,188
1,500 Knight-Ridder, Inc.1 89,250
3,200 McGraw-Hill Companies, Inc. 197,200
Total 1.2% 573,325
RESTAURANTS
4,000 Luby's Cafeterias, Inc. 0.1% 45,500
<PAGE>
Percent of
Shares Common Stocks Net Assets Market Value
- --------------------------------------------------------------------------------
RETAILING - GENERAL
2,000 Borders Group, Inc.1 $ 32,500
4,000 Consolidated Stores Corp.1 65,000
3,750 Dollar General 85,313
8,000 Dayton Hudson Corp. 587,500
5,000 Nordstrom, Inc.2 131,563
5,000 Penny (J.C.) Company, Inc.1 99,687
Total 2.2% 1,001,563
SEMICONDUCTORS
5,000 Advanced Micro Devices, Inc.1 144,687
23,000 Intel Corporation 1,893,187
6,000 LSI Logic Corporation 405,000
8,000 Micron Technology, Inc.1 622,000
Total 6.7% 3,064,874
SOFTWARE - SERVICES
1,000 Adobe Systems 67,250
7,000 Autodesk, Inc.2 236,250
25,000 Mentor Graphics Corp.1 329,688
3,000 Symantec Corporation1 175,875
Total 1.8% 809,063
SPECIALTY RETAILING
2,000 Costco Companies, Inc.1 182,500
1,500 Ethan Allen Interiors Inc. 48,094
1,000 Longs Drug Stores Corp. 25,813
2,000 Mattel Inc. 26,250
3,000 Toys "R" Us, Inc.1 42,937
9,000 Walgreen Co. 263,250
Total 1.3% 588,844
TELECOMMUNICATIONS
11,000 AT&T Corporation 558,938
8,000 US West Communications Group 576,000
Total 2.5% 1,134,938
---------
Total common stocks 85.4% 39,260,881
</TABLE>
<TABLE>
<CAPTION>
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 $ 968,530
1,900,000 Central Garden & Pet Company
Convertible Bond, 6.000%, due 11/15/03 1,376,664
1,500,000 Credence Systems Corporation
Convertible Bond, 5.250%, due 9/15/02 2,036,055
1,000,000 Quantum Corp. DLT & Storage Systems
Convertible Bond, 7.000%, due 8/01/04 770,630
-------
Total convertible bonds 11.2% 5,151,879
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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 0.9% 400,000
-------
Total investment in securities
(Cost, $34,715,510) 97.5% 44,812,760
</TABLE>
<TABLE>
<CAPTION>
Percent of
Short-Term Investments Net Assets Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Union Bank of California
Money Market Fund,
variable rate 4.660% $ 612,795
Goldman Sachs
Government Portfolio
variable rate 4.870% 54,657
Goldman Sachs
Treasury Portfolio
variable rate 4.840% 49,617
Repurchase Agreements
Greenwich Capital
Triparty Repurchase
Agreement(Repurchase agreement
with Greenwich Capital
dated 12/31/99, effective
yield is 5.200% due 1/3/00.
Face value is $2,108,526
with price at 100).3 2,108,526
Total short-term investments 6.1% 2,825,595
Total investments 103.6% 47,638,355
Payable upon return of securities loaned - 4.6% (2,108,526)
Other assets and liabilities - net 1.0% 469,469
Total net assets 100.0% $ 45,999,298
<FN>
1 Non-income producing.
2 This security or partial position of this security is on loan at December
31, 1999 (Note 1). The total value of securities on loan at December 31,
1999 was $2,046,082.
3 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
DECEMBER 31, 1999
Assets:
Investments in securities, at market value
(identified cost $34,715,510) (Note 1) $ 44,812,760
Temporary investments in short-term securities
(at cost, which approximates market) 2,825,595
Receivables:
Dividends and interest 133,608
Capital shares sold 389,201
Other assets 12,976
Total assets 48,174,140
Liabilities:
Payable upon return of securities loaned 2,108,526
Accounts payable and accrued expenses 66,316
Total liabilities 2,174,842
Net assets (equivalent to $23.13
per share based on 1,988,684.883
shares of capital stock outstanding) $ 45,999,298
Net assets consist of:
Distributions in excess of net investment income $ (2,336)
Unrealized appreciation on investments 10,097,250
Accumulated net realized loss (22,605)
Capital paid-in 35,926,989
Total net assets $ 45,999,298
Computation of net asset value and offering price per share:
Net asset value and offering price per share
($45,999,298 divided by 1,988,684.883 shares) $ 23.13
<PAGE>
THE PARNASSUS INCOME TRUST
EQUITY INCOME FUND
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
Investment income:
Dividends $ 556,886
Interest 356,696
Total investment income 913,582
Expenses:
Investment advisory fees (Note 5) 309,495
Transfer agent fees (Note 5) 85,091
Fund administrative expense (Note 5) 34,250
Reports to shareholders 32,265
Registration fees and expenses 15,577
Professional fees 18,904
Custody fees 18,062
Trustee fees and expenses 10,586
Other expenses 10,641
Subtotal of expenses before fee waiver 534,871
Fees waived by Parnassus Investments (Note 5) (80,162)
Total expenses 454,709
Net investment income 458,873
Realized and unrealized gain on investments:
Realized gain from security transactions:
Proceeds from sales 17,891,325
Cost of securities sold (15,586,256)
Net realized gain 2,305,069
Unrealized appreciation of investments:
Beginning of year 4,119,931
End of year 10,097,250
Unrealized appreciation during year 5,977,319
Net realized and unrealized gain
on investments 8,282,388
Net increase in net assets resulting
from operations $ 8,741,261
<PAGE>
THE PARNASSUS INCOME TRUST
EQUITY INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
From operations:
Net investment income $ 458,873 $ 903,201
Net realized gain from
security transactions 2,305,069 4,299,817
Net unrealized appreciation
(depreciation) during
the year 5,977,319 (1,186,144)
Increase in net assets
resulting from operations 8,741,261 4,016,874
Dividends to shareholders:
From net investment income (495,676) (1,386,043)
From realized capital gains (2,336,820) (3,780,700)
Increase (decrease) in
net assets from capital
share transactions (812,845) 3,205,750
Increase in net assets 5,095,920 2,055,881
Net assets:
Beginning of year 40,903,378 38,847,497
End of year
[including undistributed
(distributions in excess) of
net investment income
of ($2,336) in 1999 and
$34,467 in 1998] $ 45,999,298 $ 40,903,378
<PAGE>
<TABLE>
<CAPTION>
THE PARNASSUS INCOME TRUST
FIXED-INCOME FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION, DECEMBER 31, 1999
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 $ 443,070
500,000 BankBoston Corporation
Notes, 6.375%, due 03/25/08 460,850
500,000 Chase Manhattan Corp.
Notes, 6.000%, due 02/15/09 450,340
500,000 First Union National Bank
Notes, 5.800%, due 12/01/08 441,175
500,000 Goldman Sachs Group
Notes, 6.650%, due 05/15/09 464,605
500,000 Household Finance Corp.
Notes, 6.500%, due 11/15/08 462,690
500,000 J.P. Morgan & Co, Inc.
Notes, 6.000%, due 01/15/09 446,175
500,000 Norwest Financial Inc.
Notes, 6.850%, due 07/15/09 475,070
Total 33.1% 3,643,975
INDUSTRIAL
500,000 Dana Corporation
Notes, 6.500%, due 03/01/09 455,090
480,000 John Deere Capital Corp.
Notes, 6.000%, due 02/15/09 428,827
500,000 Illinois Tool Works
Notes, 5.750%, due 03/01/09 448,100
500,000 Xerox Corporation
Notes, 7.200%, due 04/01/16 462,020
Total 16.3% 1,794,037
RETAIL
500,000 The Gap, Inc.
Notes, 6.900%, due 09/15/07 484,200
500,000 Penney (J.C.) Company, Inc.
Debentures, 7.650%, due 08/15/16 429,160
500,000 Nordstrom, Inc.
Notes, 6.625%, due 01/15/09 433,535
350,000 Reebok International Ltd.
Notes, 6.750%, due 09/15/05 315,665
Total 15.1% 1,662,560
TELECOMMUNICATONS
550,000 AT&T Corporation
Notes, 6.000%, due 03/15/09 499,411
500,000 U.S. West Capital
Funding Inc.
Notes, 6.500%, due 11/15/18 429,955
Total 8.4% 929,366
Total corporate bonds 72.9% 8,029,938
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Principal U.S. Government Percent of
Amount Agency Securities Net Assets
- -------------------------------------------------------------------------------
<S> <C> <C>
$ 500,000 Federal Home Loan
Mortgage Corp.
6.510%, due 01/08/07 $ 484,330
850,000 Federal National Mortgage Association
6.770%, due 09/01/05 843,710
500,000 Federal National Mortgage Association
6.140%, due 11/25/05 481,165
450,000 Federal National Mortgage Association
7.350%, due 03/28/05 458,163
Total U.S. Government Agency securities 20.6% 2,267,368
Total investments in securities
(Cost, $10,998,936) 93.5% $10,297,306
Percent of
Short-Term Investments Net Assets
- ---------------------------------------------------------------------------------
Union Bank of California
Money Market Fund,
variable rate 4.660% $ 403,447
Goldman Sachs
Government Portfolio,
variable rate 4.870% 5,437
Goldman Sachs
Treasury Portfolio,
variable rate 4.840% 5,738
Founders National Bank
Certificate of Deposit
4.750%, matures 1/3/2000 100,000
Total short-term investments 4.7% 514,622
Total investments 98.2% 10,811,928
Other assets and liabilities - net 1.8% 194,498
Total net assets 100.0% $11,006,426
</TABLE>
<PAGE>
THE PARNASSUS INCOME TRUST
FIXED-INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
Assets:
Investments in securities, at market value
(identified cost $10,998,936) (Note 1) $ 10,297,306
Temporary investments in short-term securities
(at cost, which approximates market) 514,622
Receivables:
Interest receivable 220,994
Other assets 17,134
Total assets 11,050,056
Liabilities:
Accounts payable and accrued expenses 43,630
Total liabilities 43,630
Net assets (equivalent to $14.49
per share based on 759,528.784
shares of
capital stock outstanding) $ 11,006,426
Net assets consist of:
Undistributed net investment income $ 4,723
Unrealized depreciation on investments (701,630)
Accumulated net realized loss (60,635)
Capital paid-in 11,763,968
Total net assets $ 11,006,426
Computation of net asset value and offering price per share:
Net asset value and offering price per share
($11,006,426 divided by 759,528.784 shares) $ 14.49
<PAGE>
THE PARNASSUS INCOME TRUST
FIXED-INCOME FUND
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
Investment income:
Interest $ 701,009
Total investment income 701,009
Expenses:
Investment advisory fees (Note 5) 56,224
Transfer agent fees (Note 5) 25,201
Fund administrative expense (Note 5) 9,600
Reports to shareholders 8,464
Registration fees and expenses 13,405
Professional fees 7,331
Custody fees 1,112
Trustee fees and expenses 2,970
Other expenses 13,600
Subtotal of expenses before fee waiver 137,907
Fees waived by Parnassus Investments (Note 5) (39,832)
Total expenses 98,075
Net investment income 602,934
Realized and unrealized loss on investments:
Realized loss from security transactions:
Proceeds from sales 1,153,814
Cost of securities sold (1,213,149)
Net realized loss (59,335)
Unrealized appreciation (depreciation) of investments:
Beginning of year 324,472
End of year (701,630)
Unrealized depreciation during year (1,026,102)
Net realized and unrealized
loss on investments (1,085,437)
Net decrease in net assets resulting
from operations $ (482,503)
<PAGE>
THE PARNASSUS INCOME TRUST
FIXED-INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
From operations:
Net investment income $ 602,934 $ 512,511
Net realized gain (loss)
from security transactions (59,335) 250,670
Net unrealized depreciation
during the year (1,026,102) (53,573)
Increase (decrease) in
net assets resulting
from operations (482,503) 709,608
Dividends to shareholders:
From net investment income (602,863) (553,195)
From realized capital gains 0 (213,198)
Increase in net assets from
capital share transactions 609,320 1,855,768
Increase (decrease)
in net assets (476,046) 1,798,983
Net assets:
Beginning of year 11,482,472 9,683,489
End of year
(including undistributed
net investment income
of $4,723 in 1999
and $4,652 in 1998) $ 11,006,426 $ 11,482,472
<PAGE>
<TABLE>
<CAPTION>
THE PARNASSUS INCOME TRUST
CALIFORNIA TAX-EXEMPT FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION, DECEMBER 31, 1999
Principal Percent of
Amount Municipal Bonds Net Assets Market Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EDUCATION
$ 45,000 State of California
6.000%, due 01/01/21 $ 47,610
5,000 State of California
6.000%, due 01/01/21 5,017
170,000 State of California
6.125%, due 10/01/11 184,382
250,000 California Education Facilities -
California Institute of Technology
6.000%, due 01/01/21 255,000
85,000 California Public Works -
University of California at San Diego Facilities
7.375%, due 04/01/06 91,473
100,000 California Public Works - Community College Projects
5.500%, due 12/01/06 105,064
130,000 California Public Works - University of California
5.400%, due 06/01/08 133,594
175,000 California Public Works - California State University
6.200%, due 10/01/08 185,647
300,000 Folsom School District
5.650%, due 08/11/11 308,610
100,000 Franklin-McKinley School District
5.600%, due 07/01/07 103,054
100,000 Kern High School District
5.600%, due 08/01/13 100,482
100,000 Los Angeles Municipal Improvement -
Central Library Projects
5.200%, due 06/01/07 100,403
250,000 Murrieta Valley Unified School District
5.500%, due 09/01/10 255,120
100,000 Natomas Unified School District
5.750%, due 09/01/13 101,202
300,000 Oakland General Obligation
5.500%, due 12/15/11 306,048
175,000 Palos Verdes California Library District
5.000%, due 08/01/13 167,583
110,000 Pasadena Recreational/Library Improvements
5.750%, due 01/01/13 110,526
130,000 Pomona Unified School District
5.500%, due 08/01/11 134,098
110,000 Santa Monica Unified School District
5.400%, due 08/01/11 114,961
Total 36.1% 2,809,874
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Principal Percent of
Amount Municipal Bonds Net Assets Market Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ENVIRONMENT
$ 80,000 Burbank Waste Disposal
5.300%, due 05/01/09 $ 80,625
75,000 California Pollution Control
North County Recycling Center
6.750%, due 07/01/17 80,054
125,000 California Public Works - Energy Efficiency
5.250%, due 05/01/08 126,601
150,000 East Bay Regional Park
5.000%, due 09/01/14 141,138
315,000 Los Angeles City Public Works - Parks
5.500%, due 10/01/12 318,405
35,000 Midpeninsula Regional Open Space District
6.250%, due 07/01/08 37,089
Total 10.1% 783,912
HEALTH CARE
350,000 California Health Facilities
Kaiser Permanente
5.000%, due 10/01/08 347,526
200,000 California Health Facilities
Cedar Sinai Medical Center
5.125%, due 08/01/17 180,434
Total 6.8% 527,960
HOUSING
205,000 Belmont Redevelopment Agency
6.400%, due 08/01/09 223,991
100,000 Glendale Redevelopment Agency
5.500%, due 12/01/12 100,924
275,000 Los Angeles Community Redevelopment
5.000%, due 07/01/13 261,891
275,000 Pasadena Community Development
6.000%, due 08/01/14 277,458
175,000 San Jose Redevelopment Agency
6.000%, due 08/01/15 182,296
200,000 University Of California Housing
5.500%, due 11/01/10 203,846
Total 16.1% 1,250,406
INFRASTRUCTURE
IMPROVEMENTS
90,000 East Bay Municipal Utility District
6.000%, due 06/01/20 90,219
150,000 Los Angeles City General Obligation
5.250%, due 09/01/11 148,635
350,000 Los Angeles Municipal Improvement
Police Emergency
4.600%, due 09/01/13 314,657
200,000 Los Angeles Wastewater System
5.500%, due 06/01/12 201,524
200,000 Pomona Public Financing Authority
6.000%, due 10/01/06 204,088
Total 12.3% 959,123
<PAGE>
Principal Percent of
Amount Municipal Bonds Net Assets Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
PUBLIC TRANSPORTATION
$ 250,000 Los Angeles Metro
Transit Authority
5.000%, due 07/01/13 $ 238,082
150,000 Los Angeles Metro
Transit Authority
4.500%, due 07/01/13 131,726
110,000 San Diego Mass
Transit Authority
5.000%, due 06/01/07 110,497
350,000 San Francisco
International Airport
5.000%, due 05/01/07 352,926
125,000 San Francisco Bay Area
Rapid Transit
5.650%, due 07/01/10 128,694
Total 12.3% 961,925
Total investments
in securities
(Cost, $7,283,739) 93.7% 7,293,200
Short-Term Investments
- -----------------------------------------------------------------------------------------------------------------------------------
Highmark California
Tax-Exempt Fund
(variable rate 3.160%) 4.6% 354,312
Total investments 98.3% 7,647,512
Other assests and liabilities - net 1.7% 129,488
Total net assets 100.0% $ 7,777,000
</TABLE>
<PAGE>
THE PARNASSUS INCOME TRUST
CALIFORNIA TAX-EXEMPT FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
Assets:
Investments in securities, at market value
(identified cost $7,283,739) (Note 1) $ 7,293,200
Temporary investments in short-term securities
(at cost, which approximates market) 354,312
Receivables:
Interest receivable 124,429
Capital
shares sold 10,000
Other assets 745
Total assets 7,782,686
Liabilities:
Accounts payable and accrued expenses 5,686
Total liabilities 5,686
Net assets (equivalent to $15.82
per share based on 491,649.471
shares of capital stock outstanding) $ 7,777,000
Net assets consist of:
Undistributed net investment income $ 6,009
Unrealized appreciation on investments 9,461
Undistributed net realized gain 2,263
Capital paid-in 7,759,267
Total net assets $ 7,777,000
Computation of net asset value and offering price per share:
Net asset value and offering price per share
($7,777,000 divided by 491,649.471 shares) $ 15.82
<PAGE>
THE PARNASSUS INCOME TRUST
CALIFORNIA TAX-EXEMPT FUND
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
Investment income:
Interest $ 394,131
Total investment income 394,131
Expenses:
Investment advisory fees (Note 5) 38,469
Transfer agent fees (Note 5) 8,938
Fund administrative expense (Note 5) 6,150
Reports to shareholders 4,592
Registration fees and expenses 980
Professional fees 5,698
Custody fees 752
Trustee fees and expenses 1,895
Other expenses 5,802
Subtotal of expenses before fee waiver 73,276
Fees waived by Parnassus Investments (Note 5) (19,542)
Total expenses 53,734
Net investment income 340,397
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 depreciation of investments:
Beginning of year 514,367
End of year 9,461
Unrealized depreciation during year (504,906)
Net realized and unrealized
loss on investments (500,705)
Net decrease in net assets resulting
from operations $ (160,308)
<PAGE>
THE PARNASSUS INCOME TRUST
CALIFORNIA TAX-EXEMPT FUND
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
From operations:
Net investment income $ 340,397 $ 313,207
Net realized gain from
security transactions 4,201 47,248
Net unrealized appreciation
(depreciation) during
the year (504,906) 59,647
Increase (decrease) in
net assets resulting
from operations (160,308) 420,102
Dividends to shareholders:
From net investment income (338,368) (312,860)
From realized capital gains (3,825) (41,455)
Increase in net assets from
capital share transactions 937,627 756,332
Increase in net assets 435,126 822,119
Net assets:
Beginning of year 7,341,874 6,519,755
End of year
(including undistributed
net investment income
of $6,009 in 1999 and
$3,980 in 1998) $ 7,777,000 $ 7,341,874
<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
August 31, 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 expenses 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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. Dividends To Shareholders
Equity Income Fund: The Fund paid income dividends totaling $495,676
(aggregate of $0.259 per share) during the year ended December 31, 1999. On
December 17, 1999, a capital gains distribution of $2,336,820 ($1.241 per
share) was paid to shareholders of record on December 16, 1999.
Fixed-Income Fund: The Fund paid income dividends totaling $602,863
(aggregate of $0.814 per share) during the year ended December 31, 1999.
California Tax-Exempt Fund: The Fund paid income dividends totaling
$338,368 (aggregate of $0.721 per share) during the year ended December 31,
1999. On December 17, 1999, a capital gains distribution of $3,825 ($0.008
per share) was paid to shareholders of record on December 16, 1999.
3. Capital Stock
<TABLE>
<CAPTION>
Equity Income Fund: As of December 31, 1999, there were an unlimited number
of shares of no par value capital stock authorized and capital paid-in
aggregated $35,926,989. Transactions in capital stock (shares) were as
follows:
1999 1998
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 313,500 $ 6,954,055 297,061 $ 6,148,449
Shares issued through dividend reinvestment 118,936 2,623,924 232,138 4,682,202
Shares repurchased (475,945) (10,390,824) (375,702) (7,624,901)
Net increase (decrease) (43,509) $ (812,845) 153,497 $ 3,205,750
</TABLE>
<TABLE>
<CAPTION>
Fixed-Income Fund: As of December 31, 1999, there were an unlimited number
of shares of no par value capital stock authorized and capital paid-in
aggregated $11,763,968. Transactions in capital stock (shares) were as
follows:
1999 1998
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 215,444 $ 3,290,183 284,746 $ 4,150,311
Shares issued through dividend reinvestment 31,742 479,317 36,006 580,000
Shares repurchased (206,257) (3,160,180) (206,004) (2,874,543)
Net increase 40,929 $ 609,320 114,748 $ 1,855,768
</TABLE>
<TABLE>
<CAPTION>
California Tax-Exempt Fund: As of December 31, 1999, there were an
unlimited number of shares of no par value capital stock authorized and
capital paid-in aggregated $7,759,267. Transactions in capital stock
(shares) were as follows:
1999 1998
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 81,320 $ 1,275,501 70,957 $ 1,192,890
Shares issued through dividend reinvestment 15,540 253,900 15,164 255,358
Shares repurchased (40,164) (591,774) (41,023) (691,916)
Net increase 56,696 $ 937,627 45,098 $ 756,332
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. Purchases of Securities
Equity Income Fund: Purchases of securities for the year ended December 31,
1999 were $20,790,209. For federal income tax purposes, the aggregate cost
of securities and unrealized appreciation at December 31, 1999 were the
same as for financial statement purposes. Of the $10,097,250 of net
unrealized appreciation at December 31, 1999, $12,224,023 related to
appreciation of securities and $2,126,773 related to depreciation of
securities.
Fixed-Income Fund: Purchases of securities for the year ended December 31,
1999 were $7,365,359. For federal income tax purposes, the aggregate cost
of securities and unrealized depreciation at December 31, 1999 were the
same as for financial statement purposes. Of the ($701,630) of net
unrealized depreciation at December 31, 1999, $11,321 related to
appreciation of securities and $712,951 related to depreciation of
securities.
California Tax-Exempt Fund: Purchases of securities for the year ended
December 31, 1999 were $869,200. For federal income tax purposes, the
aggregate cost of securities and unrealized appreciation at December 31,
1999 were the same as for financial statement purposes. Of the $9,461 of
net unrealized appreciation at December 31, 1999, $159,499 related to
appreciation of securities and $150,038 related to depreciation of
securities.
5. Investment Advisory Agreement and Transactions with Affiliates Under terms
of an agreement which provides for furnishing investment management and
advice to the 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 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 $229,333 from the Equity Income Fund for the year ended December
31, 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 $16,392 from the Fixed-Income Fund for
the year ended December 31, 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 $18,927 from the California Tax-Exempt Fund for the year ended
December 31, 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 $169,230 for the year ended December 31,
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>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year $20.13 $ 20.68 $18.56 $19.58 $15.70
Income from investment operations:
Net investment income 0.24 0.75 0.79 0.98 0.88
Net realized and unrealized gain on securities 4.26 1.49 2.86 0.37 3.93
Total from investment operations 4.50 2.24 3.65 1.35 4.81
Distributions:
Dividends from net investment income (0.26) (0.73) (0.79) (0.97) (0.90)
Distributions from net realized gains (1.24) (2.06) (0.74) (1.40) (0.03)
Total distributions (1.50) (2.79) (1.53) (2.37) (0.93)
Net asset value at end of year $23.13 $ 20.13 $20.68 $18.56 $19.58
Total return 22.78% 11.05% 20.15% 7.09% 31.13%
Ratios/supplemental data:
Ratio of expenses to average net assets (actual)* 1.08% 1.05% 1.05% 0.80% 0.72%
Decrease reflected in the above expense ratios due to
undertakings by Parnassus Investments 0.19% 0.24% 0.30% 0.60% 0.82%
Ratio of net investment income to average net assets 1.09% 2.30% 4.04% 4.56% 4.76%
Portfolio turnover rate 39.53% 166.32% 34.12% 47.80% 15.36%
Net assets, end of year (000's) $ 45,999 $ 40,903 $ 38,847 $ 33,362 $ 26,779
</TABLE>
<TABLE>
<CAPTION>
Fixed-Income Fund 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year $15.98 $16.04 $15.43 $15.73 $13.79
Income from investment operations:
Net investment income 0.81 0.84 0.90 0.92 0.95
Net realized and unrealized gain (loss) on securities (1.49) 0.25 0.67 (0.31) 1.95
Total from investment operations (0.68) 1.09 1.57 0.61 2.90
Distributions:
Dividends from net investment income (0.81) (0.85) (0.89) (0.91) (0.96)
Distributions from net realized gains 0.00 (0.30) (0.07) .-- .--
Total distributions (0.81) (1.15) (0.96) (0.91) (0.96)
Net asset value at end of year $14.49 $15.98 $16.04 $15.43 $15.73
Total return (4.32%) 6.97% 10.60% 4.08% 21.58%
Ratios/supplemental data:
Ratio of expenses to average net assets (actual)* 0.87% 0.79% 0.82% 0.83% 0.90%
Decrease reflected in the above expense ratios due to
undertakings by Parnassus Investments 0.36% 0.40% 0.43% 0.50% 0.73%
Ratio of net investment income to average net assets 5.36% 4.92% 5.79% 5.98% 6.20%
Portfolio turnover rate 13.47% 44.98% 17.15% 2.80% 12.10%
Net assets, end of year (000's) $ 11,006 $ 11,482$ 9,683 $ 8,384 $ 6,585
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
California Tax-Exempt Fund 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year $16.88 $16.72 $16.02 $16.06 $14.28
Income from investment operations:
Net investment income 0.72 0.75 0.74 0.80 0.82
Net realized and unrealized gain (loss) on securities (1.05) 0.26 0.71 (0.06) 1.78
Total from investment operations (0.33) 1.01 1.45 0.74 2.60
Distributions:
Dividends from net investment income (0.72) (0.75) (0.75) (0.78) (0.82)
Distributions from net realized gains (0.01) (0.10) .-- .-- .--
Total distributions (0.73) (0.85) (0.75) (0.78) (0.82)
Net asset value at end of year $15.82 $16.88 $16.72 $16.02 $16.06
Total return (2.01%) 6.12% 9.33% 4.78% 18.60%
Ratios/supplemental data:
Ratio of expenses to average net assets (actual)* 0.70% 0.67% 0.67% 0.54% 0.50%
Decrease reflected in the above expense ratios due to
undertakings by Parnassus Investments 0.25% 0.30% 0.32% 0.46% 0.69%
Ratio of net investment income to average net assets 4.42% 4.43% 4.69% 4.96% 5.30%
Portfolio turnover rate 1.75% 9.40% 10.00% .--% 13.10%
Net assets, end of year (000's) $ 7,777 $ 7,342$ 6,520 $ 5,835 $ 4,483
<FN>
* 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,
1999, 1998, 1997, 1996 and 1995.
</FN>
</TABLE>
<PAGE>
Investment Adviser
Parnassus Investments
One Market-Steuart Tower #1600
San Francisco, California 94105
Legal Counsel
Gardner, Carton & Douglas
321 N. Clark Street #3300
Chicago, IL 60610
Independent Auditors
Deloitte & Touche LLP
50 Fremont Street
San Francisco, California 94105
Custodian
Union Bank of California
475 Sansome Street
San Francisco, California 94111
Distributor
Parnassus Investments
One Market-Steuart Tower #1600
San Francisco, California 94105
www.parnassus.com
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