UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-06673
The Parnassus Income Trust
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(Exact name of registrant as specified in charter)
One Market--Steuart Tower #1600, San Francisco, California 94105
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(Address of principal executive offices) (Zip code)
Bryant Cherry
The Parnassus Income Trust
One Market--Steuart Tower #1600, San Francisco, California 94105
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(Name and address of agent for service)
Registrant's telephone number, including area code: (415) 778-0200
Date of fiscal year end: December 31
Date of reporting period: December 31, 2003
Item 1: Reports to Shareholders
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THE PARNASSUS INCOME TRUST
Annual Report December 31, 2003
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February 16, 2004
Dear Shareholder:
Enclosed is the annual report for the Parnassus Income Trust. The Trust has
three funds, and the portfolio manager for each fund wrote the individual
reports. Todd Ahlsten wrote the reports for the Equity Income Fund and the
Fixed-Income Fund, while Stephen Dodson and Ben Liao co-authored the California
Tax-Exempt Fund report.
As you know, the Parnassus Income Trust issues two shareholder reports per
year: an annual report and a semiannual report. We have decided to increase the
frequency of our shareholder reports, so beginning this year, we will be
reporting to you on a quarterly basis. This means you will be receiving reports
four times a year. Our next report will be as of March 31, 2004.
Yours truly,
Jerome L. Dodson
President
NOTICE
Parnassus proxy voting policies and procedures are now on our website
(www.parnassus.com) and on the website of the Securities and Exchange Commission
(www.sec.gov). You can also request a printed copy by calling (800) 999-3505. On
the Parnassus website, you can also find a record of our votes cast at
shareholder meetings.
Equity Income Fund
As of December 31, 2003, the net asset value per share (NAV) of the Equity
Income Fund was $24.00, so after taking dividends into account, the total return
for the year was 15.69%. This compares to a gain of 28.68% for the S&P 500 and a
gain of 26.03% for the average equity income fund followed by Lipper. Despite
giving up some ground in 2003, our long-term record continues to be outstanding.
The Fund's three, five and ten-year returns beat the Lipper averages for every
period.
Below are a table and graph that compare the performance of the Fund with
the S&P 500 and the average equity income fund followed by Lipper. Average
annual total returns are for the one, three, five and ten-year periods.
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Average Annual Total Returns Equity Income Lipper Equity Income S&P 500
for periods ended December 31, 2003 Fund Fund Average Index
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One Year 15.69% 26.03% 28.68%
Three Years 7.01% 0.33% (4.02%)
Five Years 9.86% 2.92% (0.56%)
Ten Years 10.99% 9.54% 11.04%
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<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 S&P 500 is an unmanaged index of common stocks and
it is not possible to invest directly in an index. An index doesn't take any
expenses into account, but mutual fund returns do. Returns shown in the table do
not reflect the deduction of taxes a shareholder would pay on fund distributions
or redemption of shares.
</FN>
[INSERT GRAPH]
Value on December 31, 2003
of $10,000 invested on December 31, 1993
- ----------------------------------------------------------------------
Equity Income Fund $28,366
Lipper Equity Income Fund Average $24,877
S&P 500 Index $28,508
Marks on the horizontal axis indicate end of year. Past performance is not
predictive of future performance. Returns shown in the graph and table do not
reflect the deduction of taxes a shareholder would pay on fund distributions or
the redemption of fund shares.
STRATEGY
The goal of the Parnassus Equity Income Fund is to generate a long-term
return that exceeds the S&P 500. We try to do this by investing in good
businesses that are undervalued, are run by sound management, and have good
growth prospects. At Parnassus Investments, we consider a "good business" to be
a company that can generate a 15%+ return on equity and has a defendable market
position and solid growth. To identify these stocks, our research team does
intensive research, which includes speaking with executives, analysts, industry
contacts, as well as performing in depth financial analysis to determine the
merits of each company we analyze. The Fund will typically hold about 120
positions and at least 80% of them (by market value) will pay dividends or
interest. Our aim is to have the Fund's yield (after expenses) exceed that of
the S&P 500.
The Parnassus Equity Income Fund also takes social factors into account.
Our goal is to own ethical companies that are good places to work, have strong
community involvement and sell products that have a positive social impact.
ANALYSIS OF 2003
After four consecutive years of beating the S&P 500, the Equity Income
Fund's winning streak came to an end in 2003. While in most years, I would be
pleased to report a 15% return, it doesn't look too good this year compared to
our benchmarks. We underperformed the S&P 500 by almost 13% in 2003 because we
held an average of approximately 40% of our assets in cash and defensive
convertible bonds during the year.
The Fund began the year holding 19% in cash as the economy looked weak and
the country faced a looming war in Iraq. By March 12th, the S&P 500 was down
11.8% for the year versus our loss of 5%, so our defensive strategy was working
well. I held about 15% of the portfolio in cash as I felt the war would slow the
economy's fragile recovery.
The stock market began its big rally on March 13th, about a week before the
war started, as investors suddenly became optimistic the conflict would be short
and successful. By June 30th, the S&P 500 had leaped an amazing 21.2% versus 10%
for the Fund. With 15% of the Fund in cash and another 15% in convertible bonds,
our portfolio faced a stiff headwind. While corporate earnings were improving
during the second quarter, most of the gains were due to cost cutting and
currency gains -- not sustainable drivers of growth. As a result, many of our
stocks became fully valued based on future profit projections. We began selling
stocks that had reached our intrinsic value targets, and our cash position
approached 40% by late June.
Throughout the summer and into the fall, stocks continued to move higher as
investors became increasingly bullish about the economy. By November, I was
amazed when I read Barron's "Up and Down Wall Street" column one Saturday
morning and saw management insiders were selling stock at a ferocious rate --
selling 61 times more stock in dollar terms than they were buying. At the same
time, the S&P 500 was trading at a bubbly 28 times trailing earnings, so we
continued to hold about 50% of the Fund in cash and convertible bonds. A steep
market correction seemed imminent. The correction never came, and we finished
the year lagging our peers.
While I regret not being fully invested in 2003, the Fund stayed true to
its "value discipline" of owning good companies at undervalued prices. I'm proud
that over the past five years (which includes the "bubble year" of 1999, the
"three-year" bear market and the boom of 2003) our Fund generated an annual
return of 9.86% versus a loss of 0.56% for the S&P 500. The Fund won't
outperform the S&P every year, but I'm confident our strategy of buying good
companies at undervalued prices based on solid research will pay off over the
long term.
STRATEGY FOR 2004
While valuations remain high, the economy looks strong for 2004. Consumers
are spending, interest rates remain low and companies are beginning to buy
equipment. While I think there will be a market correction at some point in
2004, the economic outlook is strong, and stock prices could rise for some time.
Based on this view, we plan to become fully invested over the next month or
so. We're buying stocks that meet four main criteria. First, we look for
businesses that generate a 15% return on equity. Second, we don't want to
overpay so we're avoiding stocks with a PE ratios over 20 times forward
earnings. Third, we want growth and good long-term business fundamentals.
Finally, companies must be socially responsible. Areas where we're finding value
include healthcare, pharmaceuticals, financial services and energy. These
industries are poised for growth this year based on a strong economy. In
addition, they have limited downside risk if the economic growth slows. We are
avoiding technology as the NASDAQ trades at a bubble-like 131 times trailing
earnings according to Bloomberg. If the stock market continues to rise, we
should generate a nice return for our investors. If stock prices do experience a
correction, the Fund may decline, but hopefully our loss would be less than the
overall market because we're buying good, undervalued companies.
LOSERS
Only two stocks had a significant negative impact on the Fund. As I
mentioned in the semiannual report in 2003, our investment in TECO Energy which
owns Tampa Electric in Florida, reduced the Fund's NAV by 12 cents as the stock
fell 33.7% from $15.47 to our average selling price of $10.26. We bought the
stock because it offered a 12% dividend yield and a turnaround seemed to be at
hand as insiders were buying a lot of stock. Unfortunately, further analysis
showed the company had too much debt and would need to cut the dividend. We sold
the stock for a loss, and this learning experience taught me to keep an even
closer eye on balance sheets.
Pharmaceutical giant Merck cost the Fund six cents as the stock fell 18.4%
for the year from $56.61 to $46.20. During the fourth quarter, the company
announced that three major drugs in its pipeline had failed in Phase III trials.
While this was a big setback, Merck is still a great company, so we used this
price decline as an opportunity to add to our position.
WINNERS
The Fund had a lot of winners in 2003. Unfortunately with such a large cash
position, we didn't have enough homerun hitters in our line up. For the year, we
had 10 stocks that added at least 10 cents to the NAV. Invitrogen, a major
supplier of research tools and kits for biotechnology research, soared 123% from
$31.33 to $70 and added 36 cents to the NAV. Demand has been strong for
Invitrogen's drug research products, and a new CEO has boosted the growth rate
with good acquisitions and cost control.
Our investment in Baxter Corporation's convertible preferred stock rose
28.7% from $44.24 to $55.25 and added 20 cents to the NAV. The stock rose as
investors anticipated a recovery in Baxter's blood therapy business, improved
cash flow and better cost control.
Synovus Financial, a bank holding company in the Southeast, added 16 cents
to the NAV as its stock jumped 48.6% from our average cost of $19.22 to our
selling price of $28.12. The stock rose as bank earnings were strong, and the
company's investment in credit card processing firm, Total Systems, did well.
Pfizer boosted the NAV by 15 cents as the stock rose 15.5% from $30.57 to
$35.33. Earnings were strong in 2003 and should be boosted further in 2004 due
to the company's Pharmacia acquisition. Longer term, Pfizer's pipeline of new
products looks strong.
Patterson Dental increased the NAV by 13 cents as the stock jumped 46.7%
from $43.74 to $64.16. Patterson has great management and continues to gain
market share in the dental distribution market.
One of my favorite stocks in the portfolio, insurance broker A.J.
Gallagher, also added 13 cents to the NAV as the company reported record
earnings during 2003. The company has increased its dividend by a 20% annual
rate since 1984, and I expect another big dividend increase later this month.
Our convertible bond investment in Ciena, a networking equipment company,
added 12 cents to the NAV as the bond price rose 16% to 92 from our cost of
83.37. Ciena reduced its negative cash flow during the year which improved its
financial outlook. The bond also rose as interest rates declined.
Cisco Systems increased the NAV by 12 cents as the stock jumped 85.4% to
$24.29 from $13.10. While Cisco's sales didn't grow much in 2003, investors
anticipated a big spending recovery for networking and enterprise system
equipment.
Mentor Graphics' convertible bond boosted the NAV 12 cents as the bond rose
37.3% from 80.83 to our average selling price of 100.07. The company reported
strong orders for its chip design verification software which boosted profits.
The Fund's Home Depot investment added 10 cents to the NAV as the stock
jumped 70% from our average cost of $20.83 to $35.49. CEO Robert Nardelli
improved Home Depot's store layout and marketing which pushed same store sales
higher.
SOCIAL NOTES
The January 12th edition of Fortune magazine just hit the newsstands, and
I'm pleased to report that six of our current holdings made their list of 100
Best Companies to Work For. In addition, eight "alumni" positions we owned last
year also made the list.
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Current Holdings "2003 Alumni
Holdings"
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Cisco Systems Adobe Software
Genentech American Express
J.M. Smucker Intel
Medtronic Eli Lilly
Merck IBM
Xilinx Nvidia
SEI Corporation
Synovus Financial
I also wanted to commend one of the companies mentioned above, medical
device maker, Medtronic, for being recently selected by Business Week as having
one of the ten best boards in corporate America. CEO Art Collins is the only
member of management on the Board. In addition, he doesn't serve on any of
Medtronic's Board committees or is he affiliated in any way with any of his
Director's companies or institutions. In an era where too many corporate boards
have acted as puppets to the CEO and failed their employees and shareholders,
Medtronic's Board is independent and represents strong corporate governance. The
results show as Medtronic has grown revenues 20% annually for the past ten
years, generated a 20%+ return on equity and is a great place to work. All of us
should be proud to be Medtronic shareholders.
Thank you for investing in the Parnassus Equity Income Fund.
Yours truly,
Todd Ahlsten
Portofolio Manager
Fixed-Income Fund
As of December 31, 2003, the net asset value per share (NAV) of the
Fixed-Income Fund was $16.00, so after taking dividends into account, the total
return for the year was 5.30%. This compares to a return of 5.23% for the Lehman
Government/Corporate Bond Index and 5.03% for the average A-Rated bond fund
followed by Lipper. The average 30-day Day SEC yield for the year was 3.09%.
Below you will find a table and graph 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.
I'm pleased to report that our one, three, five and ten-year returns beat
the Lipper A-Rated Bond Fund Average for every period. In fact, for the
three-year period ended December 31, 2003, our annual return of 9.56% beats the
Lipper average by over 2.6% annually and places us #3 out of 154 Funds in our
category*. We underperformed the Lehman Government/Corporate Bond Index for the
five and ten-year periods, but it is important to note that this index takes no
expenses into account.
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Average Annual Total Returns Fixed-Income Lipper A-Rated Bond Lehman Government/
for periods ended 12/31/03 Fund Fund Average Corporate Bond Index
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One Year 5.30% 5.03% 5.23%
Three Years 9.56% 6.89% 8.23%
Five Years 5.59% 5.52% 6.77%
Ten Years 6.24% 6.19% 7.04%
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<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. An index doesn't take any expenses into account, but
mutual fund returns do. Returns shown in the table do not reflect the deduction
of taxes a shareholder would pay on fund distributions or redemption of shares.
* For the one, three, five, and ten-year periods ended 12/31/03, the Parnassus
Fixed-Income Fund placed #61 of 200 funds, #3 of 154 funds, #60 out of 124
funds, and #27 out of 59 funds, respectively.
</FN>
[INSERT GRAPH]
Value on December 31, 2003
of $10,000 invested on December 31, 1993
-------------------------------------------------------------------
Fixed-Income Fund $18,325
Lipper A-Rated Bond Fund Average $18,229
Lehman Government/Corporate Bond Index $19,634
Marks on the horizontal axis indicate end of year. Past performance is not
predictive of future performance. Returns shown in the graph and table do not
reflect the deduction of taxes a shareholder would pay on fund distributions or
the redemption of fund shares.
ANALYSIS OF 2003
The Fund had a pretty good year in 2003 with a 5.30% return versus a 5.03%
gain for our peers, but we could have done better. We began the year with
duration of 4.4 years and 14.6% of the Fund in convertible bonds. This strategy
worked well during the first half of 2003 as interest rates fell, which boosted
our bond prices. In addition, our convertible bond investments soared based on a
rising stock market, which added 3.1% to our return. As a result, the Fund was
up 6.73% during the first half versus 4.73% for the Lipper A-Rated Bond Fund
Average.
Unfortunately, the Fund took a hit between mid-June and early September
when the ten-year U.S. Treasury Bond yield jumped from 3.23% to 4.73% based on
the outlook for better economic growth. Interest rates and bond prices are
inversely related, so when interest rates rise, bond prices fall. While our
duration on June 30th was relatively short at 5.3 years, we took a 2% NAV hit on
four of our longer-duration bonds when rates spiked higher. (Duration is a
measure of how much, in percentage terms, a bond price will change for a 1%
change in yield. For example, a bond with duration of five years would drop 5%
for every 1% increase in interest rates.) With the economic outlook improving
and interest rates on the rise, we sold those positions and shortened our
duration to approximately three years by the end of July. We made this move to
reduce our downside risk, because longer maturity bond prices typically fall
more than shorter duration bond prices when interest rates rise.
Despite amazing growth of 8.2% for the third quarter, the yield for the
ten-year U.S. Treasury Bond fell from 4.73% on September 3rd to 4.25% by
year-end as inflation remained low. The fact that interest rates fell during
that time was remarkable, because typically, high economic growth sparks
inflation fears which push rates higher. Since our portfolio had such a short
duration, our bond prices rose less than our peers, and we underperformed during
the second half of the year.
While I miscalculated the direction of interest rates during the second
half of 2003, I'm pleased with the Fund's long-term returns. Our strategy of
using yield curve analysis for our bond investments, in combination with buying
attractive convertible securities to boost yield, has provided a good long-term
return for our shareholders.
OUTLOOK FOR 2004
As of this writing, we expect a strong economy in 2004 and higher interest
rates. Based on this outlook, our duration is short at 2.87 years, and our
30-day SEC yield is low at 1.67%. Our current yield is low because of low
interest rates, and our maturity is relatively short. However, this strategy
should cushion the portfolio if rates rise. Over the next month or so, I plan to
increase our convertible bond exposure from about 5% of the Fund to 20%. This
portfolio strategy is targeted to boost our return as convertible bond prices
should increase along with a better economy and higher stock prices.
Thank you for investing in the Parnassus Fixed-Income Fund.
Yours truly,
Todd Ahlsten
Portofolio Manager
California Tax-Exempt Fund
As of December 31, 2003, the net asset value per share (NAV) of the
California Tax-Exempt Fund was $17.14. Taking dividends into account, the total
return for 2003 was 3.88%. The average California municipal bond fund followed
by Lipper had a return of 4.23%. The result was rather disappointing given that
we had outperformed in the first three quarters of the year. Our long-term
return numbers are still excellent, though, and the five and ten-year returns
are still above the Lipper averages.
Below you will find a table and a graph that compare our annual returns to
various indices over the past one, three, five and ten-year periods. The 30-day
SEC yield for December 2003 was 2.41%.
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Average Annual Total Returns California Lipper California Municipal Lehman Municipal
for periods ended 12/31/03 Tax-Exempt Fund Bond Fund Average Bond Index
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One Year 3.88% 4.23% 5.31%
Three Years 5.18% 5.23% 6.66%
Five Years 4.97% 4.61% 5.82%
Ten Years 5.57% 5.30% 6.03%
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<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. An index doesn't take expenses into account, but mutual fund returns do.
Returns shown in the table do not reflect the deduction of taxes a shareholder
would pay on fund distributions or redemption of shares.
</FN>
Value on December 31, 2003
of $10,000 invested on December 31, 1993
- -------------------------------------------------------------------------
CaliforniaTax-Exempt Fund $17,203
Lipper California Municipal Bond Fund Average $16,758
Lehman MunicipalBond Index $17,952
Marks on the horizontal axis indicate end of year. Past performance is not
predictive of future performance. Returns shown in the graph and table do not
reflect the deduction of taxes a shareholder would pay on fund distributions or
the redemption of fund shares.
While we outperformed our peers through the first nine months of the year,
we gave back much of our earlier gains in the last three months. For better and
then worse, the Fund's performance was tied to the health of the state of
California. Because of its budget problems, California has to pay a higher rate
of interest to its bondholders than other states. This is good for the yield on
new purchases of bonds, but it's bad for our existing portfolio, because market
value drops as interest rates rise. This strategy helped us outperform for three
fourths of the year, but hurt us towards the end of the year, when political
uncertainty in California became reality. Californians, acting on their
political frustrations, voted out Governor Gray Davis in a recall election and
elected Arnold Schwarzenegger as governor. Soon after taking office, he pledged
to fulfill his campaign promise of repealing the unpopular increase in the
vehicle license fees. While the repeal of the vehicle tax might have been
popular with voters, the credit agencies felt this was fiscally irresponsible.
Moody's downgraded California bonds to Baa1 from A3, just a few steps above junk
status. The credit downgrade had a significant impact on the California General
Obligation (G.O.) bonds. The three California G.O. bonds we own lost more than
2% of their value in the last three months. Since these three bonds account for
about 12% of the portfolio, this loss was the primary reason for our poor
quarter. Since we own a higher percentage of California G.O. bonds than the
average California municipal bond fund, we underperformed our peers in the last
quarter.
OUTLOOK
We continue to believe that California G.O. bonds are some of the best
values in California municipal bonds and will generate superior returns over the
long run. Naturally, there are still some concerns about the budgetary process,
but nothing that would cause the state to default on its debt. The improved
economy will also bring in higher tax revenue for the state and help alleviate
the budget deficit.
We are still anticipating interest rates to rise slowly, and holding
shorter maturity bonds will expose us less to interest rate risk, since rising
interest rates would lower the value of the bonds held by the Fund. The downside
to this strategy is that it lowers the Fund's yield. Some shareholders have
expressed concern, but we feel it's necessary to ensure good long-term
performance. It's only a matter of time before interest rates rise, and we want
to continue providing our shareholders good returns when that time comes.
Thank you for investing in the Fund.
Yours truly,
Ben Liao Stephen J. Dodson
Co-Portfolio Manager Co-Portfolio Manager
THE PARNASSUS INCOME TRUST
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,
including the portfolios of investments by industry classification, of The
Parnassus Income Trust (the "Trust") (comprising the Equity Income Fund,
Fixed-Income Fund and California Tax-Exempt Fund), as of December 31, 2003, 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 7) 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 auditing standards generally
accepted in the United States of America. 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. Our procedures included confirmation of
securities owned as of December 31, 2003, by correspondence with the custodian.
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, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the funds constituting The Parnassus Income Trust as of December 31,
2003, the results of their operations for the year then ended, the changes in
their net assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then ended, in
conformity with accounting principles generally accepted in the United States of
America.
Deloitte & Touche LLP
San Francisco, California
February 20, 2004
THE PARNASSUS INCOME TRUST
EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION, DECEMBER 31, 2003
- -------------------------------------------------------------------------------------------------------------------
Percent of
Shares Common Stocks Net Assets Market Value
AIR TRANSPORT
5,000 Southwest Airlines 2 0.0% $ 80,700
APPAREL
5,000 Ann Taylor Stores 1 195,000
2,400 Limited Brands 43,272
5,000 Liz Clairborne, Inc. 177,300
4,000 Russell Corporation 70,240
4,000 The Stride Rite Corporation 45,520
Total 0.1% $ 531,332
AUTO PARTS
250,000 Genuine Parts Company2 8,300,000
14,900 Modine Manufacturing Co. 402,002
Total 1.4% $ 8,702,002
BANKING
350,000 AmSouth Bancorporation 8,575,000
70,000 Bank One Corporation 3,191,300
3,000 Dime Bancorp - Warrant 510
10,000 Golden West Financial 1,031,900
1,500 Redwood Empire Bancorp 39,225
55,000 Wells Fargo & Company 3,238,950
Total 2.5% $ 16,076,885
BIOTECHNOLOGY
10,000 Genentech, Inc.1, 2 0.1% $ 935,700
BUILDING PRODUCTS
100,000 ElkCorp 0.4% $ 2,670,000
CHEMICAL
1,000 Air Products & Chemicals 52,830
100,000 Calgon Carbon Corp. 621,000
3,400 H.B. Fuller Company 101,116
1,000 Millipore Corporation 1 43,050
171,100 Wellman, Inc.2 1,746,931
Total 0.4% $ 2,564,927
COMPUTERS
38,200 RadiSys Corporation1, 2 0.1% $ 644,052
ENTERTAINMENT
70,500 Cedar Fair, L.P. 2 0.3% $ 2,167,875
FINANCIAL SERVICES
50,000 Automatic Data Processing 2 $ 1,980,500
25,000 First Data Corp.2 1,027,250
50,000 Charles Schwab Corp. 592,000
30,000 SLM Corporation 1,130,400
Total 0.8% $ 4,730,150
HEALTHCARE
50,000 Apria Healthcare
Group, Inc.1, 2 1,423,500
125,000 First Health Group Corp.1 2,432,500
50,000 HCA Inc. 2,148,000
150,000 Health Management
Associates, Inc. 3,600,000
24,120 Medco Health Solutions, Inc.1 819,839
86,535 MedQuist Inc.1 1,389,752
52,200 Province Healthcare Company1 835,200
30,000 UnitedHealth Group, Inc.2 1,745,400
Total 2.3% $ 14,394,191
HOME APPLIANCES
3,000 Maytag Corporation 83,550
1,000 Whirlpool Corporation 2 72,650
Total 0.0% $ 156,200
HOME PRODUCTS
700 Church & Dwight Co., Inc. 0.0% $ 27,720
INDUSTRIAL
100,000 Baldor Electric Company 2,285,000
85,000 Ryerson Tull, Inc. 973,250
10,000 Teleflex Incorporated 483,300
67,234 WD 40 Company 2,377,394
Total 1.0% $ 6,118,944
INSURANCE
1,000 Ambac Financial Group, Inc. $ 69,390
50,000 American Int'l Group, Inc. 3,314,000
100,000 Lincoln National Corp. 4,037,000
35,000 Nationwide Financial
Services 1,157,100
5,100 SAFECO Corporation 198,543
175,000 St. Paul Companies, Inc.2 6,938,750
Total 2.5% $ 15,714,783
INSURANCE BROKERS
400,000 Arthur J. Gallagher 2 2.1% $ 12,996,000
MACHINERY
1,000 Black & Decker Corp.2 49,320
1,000 Deere & Company2 65,050
1,000 Illinois Tool Works, Inc.2 83,910
25,000 Regal-Beloit Corp. 550,000
57,000 Snap-on Inc. 1,837,680
11,200 The Stanley Works 424,144
Total 0.5% $ 3,010,104
MEDICAL EQUIPMENT
125,000 Baxter International Inc.2 3,815,000
15,000 Bausch & Lomb Inc. 778,500
100,000 Becton Dickinson 4,114,000
5,000 Invacare Corporation 201,850
165,000 Invitrogen Corp.1, 2 11,550,000
252,600 Laboratory Corporation of
America Holdings1, 2 9,333,570
15,000 Lincare Holdings, Inc.1 450,450
100,000 Medtronic, Inc. 4,861,000
100,000 Patterson Dental Co.1 6,416,000
75,000 Sybron Dental
Specialties, Inc.1 2,107,500
Total 6.9% $ 43,627,870
OIL
4,000 Sunoco, Inc.2 0.0% $ 204,600
PHARMACEUTICALS
5,000 Forest Laboratories, Inc.1, 2 $ 309,000
450,000 Johnson & Johnson 23,247,000
20,000 MedImmune, Inc.1 508,000
300,000 Merck & Company 13,860,000
700,000 Pfizer Inc. 24,731,000
Total 9.9% $ 62,655,000
PRINTING
100,000 Banta Corp. 4,050,000
98,800 Ennis Business Forms 1,511,640
10,000 John Harland 273,000
34,900 The Standard Register 587,367
Total 1.0% $ 6,422,007
PUBLISHING
1,000 Gannett Co.2 89,160
5,500 Knight-Ridder, Inc.1, 2 425,535
5,000 LEE Enterprises 218,250
25,000 McGraw-Hill Companies, Inc. 1,748,000
Total 0.4% $ 2,480,945
REAL ESTATE INVESTMENT TRUST
400,000 Equity Office Properties Trust2 1.8% $ 11,460,000
RESTAURANTS
91,945 Bob Evans Farms, Inc.2 0.5% $ 2,984,535
RETAIL
175,000 Department 56, Inc. 2,292,500
500 Ethan Allen Interiors, Inc. 20,940
30,000 The Home Depot, Inc. 1,064,700
67,700 Longs Drug Stores Corp. 1,674,898
125,000 Target Corporation 4,800,000
Total 1.6% $ 9,853,038
SEMICONDUCTORS
1,000 Xilinx, Inc.1, 2 0.0% $ 38,740
SOFTWARE
50,000 Mentor Graphics Corp.1 $ 727,000
5,000 PeopleSoft, Inc.1, 2 114,000
Total 0.1% $ 841,000
TELECOMMUNICATION EQUIPMENT
5,000 ADC Telecommunications1, 2 14,850
150,000 Cisco Systems, Inc.1 3,643,500
Total 0.6% $ 3,658,350
TELECOMMUNICATION PROVIDER
425,000 SBC Communications, Inc. 11,079,750
125,000 Verizon Communications, Inc. 4,385,000
Total 2.5% $ 15,464,750
UTILITIES
460,400 AGL Resources, Inc. 13,397,640
100,000 Atmos Energy 2,430,000
42,500 Cascade Natural Gas 896,325
80,000 Energen Corporation 3,282,400
17,600 IDACORP, Inc.2 526,592
250,000 Kinder Morgan, Inc. 14,775,000
225,000 Keyspan Energy Corporation 8,280,000
15,000 MDU Resources Group 357,150
110,000 National Fuel Gas 2,688,400
250,000 NiSource Inc.2 5,485,000
160,000 New Jersey Resources2 6,161,600
57,600 Northwest Natural Gas Co. 1,771,200
141,000 ONEOK Inc.2 3,113,280
72,600 Peoples Energy Corporation 3,052,104
7,812 Philadelphia Suburban 172,645
75,000 UGI Corporation 2,542,500
44,300 Vectren Corporation 1,091,995
Total 11.1% $ 70,023,831
Total common stocks
(cost $ 277,051,425) 50.9% $ 321,236,231
Percent of
Shares Preferred Stocks Net Assets Market Value
- -------------------------------------------------------------------------------------------------------------------
275,000 Baxter International
Preferred 7.000%, due 02/16/06 2 $ 15,193,750
10,000 Cummins, Inc.
Preferred 7.000%, due 06/15/312 627,500
55,439 First Republic
Preferred 8.875%, Series B 1,455,274
50,000 KeySpan Corp.
Preferred 8.750%, due 05/16/05 2,695,000
325,000 ONEOK, Inc.
Preferred 8.500%, due 02/16/06 2 10,000,250
100,000 St. Paul Co.
Preferred 9.000%, due 08/16/05 7,395,000
35,000 TECO Energy
Preferred 9.500%, due 01/15/05 2 581,000
40,000 Zions Bancorp
Preferred 8.000%, due 09/01/32 1,090,800
Total investment in preferred stocks
(cost $ 33,919,982) 6.2% $ 39,038,574
Principal Percent of
Amount $ Convertible Bonds Net Assets Market Value
- -------------------------------------------------------------------------------------------------------------------
2,000,000 Brocade Communications
2.000%, due 01/01/07 $ 1,802,500
18,000,000 Ciena Corp.
3.750%, due 02/01/08 16,560,000
2,000,000 ETrade Group
6.000%, due 02/01/07 2,045,000
4,602,000 Lam Research
4.000%, due 06/01/06 4,717,050
6,700,000 PMC-Sierra
3.750%, due 08/15/06 6,674,540
1,000,000 RadiSys Corporation
5.500%, due 08/15/07 956,250
5,691,000 RF Micro Devices
3.750%, due 08/15/05 5,676,773
801 TranSwitch Corporation
4.500%, due 09/12/05 712
103,125 TranSwitch Corporation
5.450%, due 09/30/07 102,094
3,000,000 TriQuint Semiconductor
4.000%, due 03/01/07 2,880,000
3,250,000 Vitesse Semiconductor Corporation
4.000%, due 03/15/05 3,217,500
Total investment in convertible bonds
(cost $40,523,147) 7.1% $ 44,632,419
Total investment in stocks and convertible bonds
(cost $351,494,554) 64.2% $404,907,224
Principal Percent of
Amount $ Short-Term Investments Net Assets Market Value
- -------------------------------------------------------------------------------------------------------------------
U.S. Government Agency
Discount Notes
17,250,000 Federal Home Loan Mortgage Corporation
Zero Coupon,
1.040% equivalent,
matures 03/01/04 $ 17,220,100
10,000,000 Federal National Mortgage Association
Zero Coupon,
1.060 equivalent,
matures 01/09/04 9,997,644
31,000,000 Federal National Mortgage Association
Zero Coupon,
1.050% equivalent,
matures 01/21/04 30,981,917
33,000,000 Federal National Mortgage Association
Zero Coupon,
1.075% equivalent,
matures 02/25/04 32,945,802
31,750,000 Federal National Mortgage Association
Zero Coupon,
1.050% equivalent,
matures 03/24/04 31,673,139
(cost $122,818,602) 19.5% $ 122,818,602
Registered Investment
Companies - Money
Market Funds
20,148,645 Goldman Sachs FSGovernment Fund
variable rate 0.910% 20,148,645
24,772,084 Janus Government Fund
variable rate 0.970% 24,772,084
123,435 Scudder Government Fund
variable rate 0.940% 123,435
(cost $45,044,164) 7.1% $ 45,044,164
Community Development
Loans 3
100,000 Vermont Community Loan Fund $ 98,263
3.000%, matures 04/16/04
100,000 Boston Community Loan Fund 97,025
3.000%, matures 06/30/04
(cost $200,000) 0.0% $ 195,288
Securities Purchased
with Cash Collateral from
Securities Lending
Certificate of Deposit
5,000,000 First Tennessee Bank, N.A.
variable rate 1.090%,
matures 01/29/04
(cost $5,000,000) 0.8% $ 5,000,000
Commercial Paper
2,500,000 Countrywide Home Loans
1.121%, matures 01/30/04 2,497,589
5,000,000 Concord Minutement Cap Co. A
1.122%, matures 01/22/04 4,992,222
5,000,000 General Electric Capital Corp.
1.092%, matures 02/10/04 4,990,614
4,000,000 Queens Health Systems
1.121%, matures 01/14/04 3,994,898
(cost $16,475,323) 2.6% $ 16,475,323
Repurchase Agreements
7,505,012 Bank of America Securities LLC
Triparty RepurchaseAgreement
(Repurchase agreement
with The Bank of New York
dated 12/31/03, effective yield is 1.050%
matures 01/02/04,collateralized by
Bank of America Mortgage Securities MARM
par value $7,505,012, 10/25/33, total market
value $7,880,263) $ 7,505,012
15,000,000 Lehman Bros.
Triparty Repurchase Agreement (Repurchase agreement with The
Bank of New York dated 12/31/03, effective yield is 1.080%
matures 01/02/04, collateralized by Yorktown
Capital Commercial Paper
par value $ 15,000,000, 12/25/18, total market
value $15,750,432) 15,000,000
(cost $22,505,012) 3.6% $ 22,505,012
Floating Rate Securities
6,000,000 Bear Stearns Co. Inc.
FO MTN
variable rate 2.259%,
matures 02/03/04 6,002,955
2,500,000 CSFB Bank CD 08/06/04
variable rate 1.170%,
matures 08/06/04 2,502,065
3,000,000 Washington Mutual Bank, FA FCD
variable rate 1.170%,
matures 01/16/04 $ 3,000,000
(cost $11,505,020) 1.8% $ 11,505,020
Master Note
5,000,000 Bear Stearns & Co.
Master Note
variable rate 1.150%,
matures 01/07/04
(cost $5,000,000) 0.8% $ 5,000,000
Total securities lending
(cost $60,485,355) 9.6% $ 60,485,355
Total short-term securities
(cost $228,548,121) 36.3% $228,543,409
Total securities 100.5% $633,450,633
Payable upon return of securities loaned - 9.6% (60,485,355)
Other assets and liabilities - net 9.1% 57,284,001
Total net assets 100.0% $630,249,279
<FN>
1 These securities are non-income producing.
2 This security or partial position of this security is on loan at December 31,
2003 (Note 1). The total value of securities on loan at December 31, 2003 was
$58,675,535.
3 Market value adjustments have been made on these securities to reflect early
withdrawal/call penalties.
Fund holdings will vary over time.
Fund shares are not FDIC insured.
</FN>
THE PARNASSUS INCOME TRUST
EQUITY INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2003
Assets
Investments in securities, at market value
(identified cost $351,494,554) (Note 1) $404,907,224
Temporary investments in short-term securities
(identified cost $228,548,121) 228,543,409
Cash 56,242,521
Receivables:
Dividends and interest 1,464,120
Other assets 24,457
Total assets $ 691,181,731
Liabilities
Payable upon return of securities loaned 60,485,355
Capital shares redeemed 56,791
Fees payable to Parnassus Investments 390,306
Total liabilities $ 60,932,452
Net assets (equivalent to $24.00
per share based on 26,262,497 shares of capital
stock outstanding) $ 630,249,279
Net assets consist of
Undistributed net investment income 318,960
Unrealized appreciation on securities 53,407,958
Undistributed net realized gain 2,483,904
Capital paid-in 574,038,457
Total net assets $ 630,249,279
Computation of net asset value and offering price per share
Net asset value and redemption price per share
($630,249,279 divided by 26,262,497 shares) $ 24.00
THE PARNASSUS INCOME TRUST
EQUITY INCOME FUND
STATEMENT OF OPERATIONS
DECEMBER 31, 2003
Investment Income
Dividends $ 6,919,619
Interest 6,177,493
Total investment income $ 13,097,112
Expenses
Investment advisory fees (Note 5) 2,959,382
Transfer agent fees (Note 5) 267,153
Fund administration (Note 5) 149,786
Service provider fees (Note 5) 619,189
Reports to shareholders (Note 5) 45,867
Registration fees and expenses 23,149
Custody fees (Note 5) 53,082
Professional fees (Note 5) 60,788
Trustee fees and expenses (Note 5) 7,065
Other expenses 162,143
Total expenses $ 4,347,604
Fees paid indirectly (Note 5) (55,391)
Net expenses $ 4,292,213
Net investment income $ 8,804,899
Realized and Unrealized Gain on Investments
Realized gain from security
transactions:
Proceeds from sales 242,760,562
Cost of securities sold 236,890,131
Net realized gain $ 5,870,431
Change in unrealized appreciation of securities:
Beginning of period 97,913
End of period 53,407,958
Net change in unrealized appreciation of securities $ 53,310,045
Net realized and unrealized gain on securities $ 59,180,476
Net increase in net assets resulting from operations $ 67,985,375
THE PARNASSUS INCOME TRUST
EQUITY INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 2003 AND 2002
YEAR ENDED YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
- --------------------------------------------------------------------------------
From operations
Net investment income $ 8,804,899 $ 3,717,813
Net realized (loss) gain from
security transactions 5,870,431 (3,386,526)
Net change in unrealized
appreciation (depreciation)
of securities 53,310,045 (6,048,288)
Increase (decrease) in
net assets resulting
from operations $ 67,985,375 $ (5,717,001)
Dividends to shareholders
From net investment income (10,160,220) (2,512,266)
From realized capital gains -- (1,660,312)
Increase in net assets from
capital share transactions 298,994,695 197,818,255
Increase (decrease) in net assets $ 356,819,850 $ 187,928,676
Net assets
Beginning of period 273,429,429 85,500,753
End of period
including undistributed
net investment income
of $318,960 in 2003 and
$1,674,281 in 2002 $630,249,279 $ 273,429,429
THE PARNASSUS INCOME TRUST
FIXED-INCOME FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION, DECEMBER 31, 2003
Principal Percent of
Amount $ Corporate Bonds Net Assets Market Value
- -------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES
500,000 Bank One Corporation
Notes, 6.000%, due 02/17/09 $ 547,728
500,000 Goldman Sachs Group
Notes, 6.650%, due 05/15/09 565,574
500,000 Norwest Financial Inc.
Notes, 6.850%, due 07/15/09 572,976
Total 4.9% $ 1,686,278
INSURANCE
700,000 International Lease
Finance Corporation
Notes, 5.625%, due 06/01/07 2.2% $ 753,784
RETAIL
400,000 Target Corporation
Notes, 7.500%, due 08/15/10 1.4% $ 474,333
Total investment in corporate bonds
(cost $2,586,042) 8.5% $ 2,914,395
Convertible Bonds
- -------------------------------------------------------------------------------------------------------------------
1,000,000 Ciena Corp.
3.750%, due 02/01/08 $ 920,000
199 TranSwitch Corporation
4.500%, due 09/12/05 177
651,750 TranSwitch Corporation
5.450%, due 09/30/07 645,233
Total investment in convertible bonds
(cost $1,398,299) 4.6% $ 1,565,410
Principal U.S. Government Percent of
- -------------------------------------------------------------------------------------------------------------------
Amount $ Agency Securities Net Assets Market Value
- -------------------------------------------------------------------------------------------------------------------
1,000,000 Federal Home Loan Bank
5.000%, due 05/28/15 $ 987,964
2,000,000 Federal Home Loan Mortgage Corporation
6.375%, due 08/01/11 2,140,478
2,000,000 Federal Home Loan Mortgage Corporation
6.250%, due 03/15/12 2,146,372
1,000,000 Federal National Mortgage Association
5.500%, due 07/18/12 1,024,225
3,000,000 Federal National Mortgage Association
5.125%, due 04/22/13 3,013,256
Total investment in U.S. Government
Agency securities
(cost $9,278,666) 27.3% $ 9,312,295
Total investments in corporate bonds,
convertible bondsand U.S. Government securities
(cost $13,263,007) 40.4% $ 13,792,100
Principal U.S. Government Percent of
- -------------------------------------------------------------------------------------------------------------------
Amount Short-Term Investments Net Assets Market Value
- -------------------------------------------------------------------------------------------------------------------
U.S. Government Agency
Discount Notes
1,500,000 Federal Home Loan Mortgage Corporation
Zero Coupon,
1.020% equivalent,
matures 02/24/04 1,497,620
3,200,000 Federal National Mortgage Association
Zero Coupon,
1.050% equivalent,
matures 01/21/04 3,198,133
8,500,000 Federal Home Loan Mortgage Corporation
Zero Coupon,
1.080% equivalent,
matures 02/24/04 $ 8,491,330
1,800,000 Federal National Mortgage Association
Zero Coupon,
1.020% equivalent,
matures 02/25/04 1,797,195
(cost $14,984,278) 43.9% $ 14,984,278
Registered Investment
Companies - Money Market Funds
670,985 Goldman Sachs FS
Government Fund
variable rate 0.910% 670,985
1,236,874 Janus Government Fund
variable rate 0.970% 1,236,874
1,255 Scudder Government Fund
variable rate 0.940% 1,255
(cost $1,909,114) 5.6% $ 1,909,114
Total investment in short-term securities
(cost $16,893,392) 49.5% $ 16,893,392
Total securities 90.0% $ 30,685,492
Other assets and liabilities - net 10.0% 3,412,325
Total net assets 100.0% $ 34,097,817
<FN>
Fund holdings will vary over time.
Fund shares are not FDIC insured.
</FN>
THE PARNASSUS INCOME TRUST
FIXED-INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2003
Assets
Investments in securities, at market value
(identified cost $13,263,007) (Note 1) $ 13,792,100
Temporary investments in short-term securities
(at cost which approximates market value) 16,893,392
Cash 3,197,217
Receivables:
Interest 234,794
Capital shares sold 423
Total assets $ 34,117,926
Liabilities
Capital shares redeemed 3,957
Fees payable to Parnassus Investments 8,578
Accrued expenses 7,574
Total liabilities $ 20,109
Net assets (equivalent to $16.00
per share based on 2,131,263 shares of
capital stock outstanding) $ 34,097,817
Net assets consist of
Accumulated net investment income --
Unrealized appreciation on securities 529,093
Undistributed net realized gain 61,744
Capital paid-in 33,506,980
Total net assets $ 34,097,817
Computation of net asset value and offering price
per share Net asset value and offering price per share
($34,097,817 divided by 2,131,263 shares) $ 16.00
THE PARNASSUS INCOME TRUST
FIXED-INCOME FUND
STATEMENT OF OPERATIONS
DECEMBER 31, 2003
Investment income
Interest $ 1,161,268
Total investment income $ 1,161,268
Expenses
Investment advisory fees (Note 5) 138,162
Transfer agent fees (Note 5) 43,811
Fund administration (Note 5) 10,398
Reports to shareholders 6,309
Registration fees and expenses 16,301
Professional fees 9,216
Custody fees 3,234
Trustee fees and expenses 899
Other expenses 25,377
Total expenses before fee waiver $ 253,707
Fees waived by Parnassus Investments (Note 5) (83,516)
Net expenses $ 170,191
Net investment income $ 991,077
Realized and Unrealized Gain on Investments
Realized gain from security transactions:
Proceeds from sales 25,902,558
Cost of securities sold 25,353,189
Net realized gain $ 549,369
Change in unrealized appreciation of securities:
Beginning of period 818,832
End of period 529,093
Net change in unrealized appreciation of securities $ (289,739)
Net realized and unrealized gain on securities $ 259,630
Net increase in net assets resulting from operations $ 1,250,707
THE PARNASSUS INCOME TRUST
FIXED-INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 2003 AND 2002
year ended year ended
December 31, 2003 December 31, 2002
- --------------------------------------------------------------------------------
From operations
Net investment income $ 991,077 $ 836,212
Net realized gain from
security transactions 549,369 58,908
Net change in unrealized
appreciation of securities (289,739) 977,923
Increase in net assets
resulting from operations $ 1,250,707 $ 1,873,043
Dividends to shareholders
From net investment income (1,060,578) (847,626)
From realized capital gains (135,873) --
Increase in net assets from
capital share transactions 14,951,960 5,118,714
Increase in net assets $ 15,006,216 $ 6,144,131
Net assets
Beginning of period 19,091,601 12,947,470
End of period
(including accumulated
net investment income
of $0 in 2003 and
$20,047 in 2002) $ 34,097,817 19,091,601
THE PARNASSUS INCOME TRUST
CALIFORNIA TAX-EXEMPT FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION, DECEMBER 31, 2003
Principal Percent of
- -------------------------------------------------------------------------------------------------------------------
Amount $ Municipal Bonds Net Assets Market Value
- -------------------------------------------------------------------------------------------------------------------
EDUCATION
300,000 Folsom School District
5.600%, due 08/01/11 $ 340,932
450,000 Los Altos Unified School District
5.250%, due 08/01/10 514,296
440,000 Los Angeles Unified School District
5.500%, due 07/01/13 514,562
450,000 Morgan Hill Unified School District
4.900%, due 08/01/13 493,871
410,000 Sacramento Unified School District
5.750%, due 07/01/17 487,400
Total 9.5% $ 2,351,061
ENVIRONMENT
400,000 California Department of Water Resources -
Central Valley Projects
5.125%, due 12/01/16 433,040
1,100,000 California Department of Water Resources -
Power Supply Revenues
5.500%, due 05/01/09 1,229,415
500,000 Central Coast Water
5.000%, due 10/01/16 533,770
315,000 Los Angeles City Public Works - Parks
5.500%, due 10/01/12 353,165
200,000 Los Angeles Wastewater System
5.000%, due 06/01/11 220,234
1,000,000 San Francisco Public Utilities -
Clean Water Revenue
5.000%, due 10/01/09 1,131,540
Total 15.7% $ 3,901,164
GENERAL OBLIGATION
1,000,000 State of California
6.600%, due 02/01/09 $ 1,148,590
700,000 State of California
6.100%, due 10/01/09 796,432
1,000,000 State of California
5.000%, due 03/01/08 1,076,260
300,000 Oakland General Obligation
5.500%, due 12/15/11 340,614
Total 13.5% $ 3,361,896
HEALTH CARE
400,000 California Health Facilities-Kaiser Permanente
5.000%, due 10/01/08 447,496
415,000 Loma Linda Hospital
4.850%, due 12/01/10 465,319
Total 3.7% $ 912,815
HOUSING
1,000,000 ABAG Financing Authority
4.250%, due 11/15/12 1,014,960
275,000 Los Angeles Community Redevelopment
5.000%, due 07/01/13 299,354
Total 5.3% $ 1,314,314
INFRASTRUCTURE IMPROVEMENTS
500,000 CA Infrastructure & Economic Development
5.000%, due 10/01/12 564,215
1,000,000 CA Public Works - UCLA Hospital
5.375%, due 10/01/13 1,133,140
960,000 CA Public Works - Community Colleges
5.500%, due 12/01/09 1,065,226
910,000 CA Statewide Communities Development -
EAH-East Campus Apartments
4.500%, due 08/01/10 960,196
1,000,000 Indian Wells Redevelopment Agency
4.500%, due 09/01/11 $ 1,087,750
600,000 La Quinta Redevelopment Agency
7.300%, due 09/01/11 763,620
350,000 Metro Water District - Southern California
5.250%, due 07/01/15 379,684
450,000 Oakland Redevelopment Agency
3.400%, due 09/01/09 458,721
860,000 Rialto Redevelopment Agy
4.000%, due 09/01/07 898,614
425,000 Rialto Redevelopment Agy
4.500%, due 09/01/13 433,346
Total 31.2% $ 7,744,512
PUBLIC TRANSPORTATION
1,000,000 Contra Costa Transit Authority
4.000%, due 03/01/09 1,075,840
325,000 Los Angeles Metro Transit Authority
5.500%, due 07/01/10 375,684
250,000 Los Angeles Metro Transit Authority
5.000%, due 07/01/13 271,615
1,000,000 San Francisco International Airport
5.000%, due 05/01/10 1,123,470
390,000 San Francisco Bay Area Rapid Transit
5.500%, due 07/01/07 435,742
400,000 San Francisco Bay Area Rapid Transit
5.250%, due 07/01/13 441,400
Total 15.0% $ 3,723,751
Total investments in municipal bonds
(cost $22,374,937) 93.9% $ 23,309,513
- -------------------------------------------------------------------------------------------------------------------
Principal Percent of
- -------------------------------------------------------------------------------------------------------------------
Amount $ Short-Term Investments Net Assets Market Value
Registered Investment
Companies - Money
Market Funds
701,207 Highmark California Tax-Exempt Fund
variable rate 0.620% $ 701,207
1,890 Goldman Sachs California Tax-Exempt Fund
variable rate 0.580% 1,890
707 California Investment Trust Tax Free Fund
variable rate 0.530% 707
(cost $703,804) 2.8% $ 703,804
Floating Rate Securities
700,000 California Department of Water Resources
variable rate 1.250%,
due 05/01/22 2.8% $ 700,000
Total investment in short-term securities
(cost $1,403,804) 5.7% $ 1,403,804
Total securities 99.6% $ 24,713,317
Other assests and liabilities - net 0.4% 111,211
Total net assets 100.0% $ 24,824,528
<FN>
Fund holdings will vary over time.
Fund shares are not FDIC insured.
</FN>
THE PARNASSUS INCOME TRUST
CALIFORNIA TAX-EXEMPT FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2003
Assets
Investments in securities, at market value
(identified cost $22,374,937) (Note 1) $ 23,309,513
Temporary investments in short-term securities
(at cost, which approximates market) 1,403,804
Receivables:
Interest 330,427
Capital shares sold 15,645
Other assets 476
Total assets $ 25,059,865
Liabilities
Capital shares redeemed 199,503
Fees payable to Parnassus Investments 8,835
Distributions payable 20,239
Accrued expenses 6,760
Total liabilities $ 235,337
Net assets (equivalent to $17.14
per share based on 1,448,668 shares
of capital stock outstanding) $ 24,824,528
Net assets consist of
Undistributed net investment income 9,817
Unrealized appreciation on investments 934,576
Undistributed net realized gain 21,607
Capital paid-in 23,858,528
Total net assets $ 24,824,528
Computation of net asset value and offering price per share
Net asset value andoffering price per share
($24,824,528 divided by 1,448,668 shares) $ 17.14
THE PARNASSUS INCOME TRUST
CALIFORNIA TAX-EXEMPT FUND
STATEMENT OF OPERATIONS
DECEMBER 31, 2003
Investment income
Interest $ 962,072
Total investment income $ 962,072
Expenses
Investment advisory fees (Note 5) 130,109
Transfer agent fees (Note 5) 12,514
Fund administrative expense (Note 5) 11,970
Reports to shareholders 8,227
Registration fees and expenses 1,701
Professional fees 14,025
Custody fees 2,508
Trustee fees and expenses 1,015
Service provider fees (Note 5) 27,719
Other expenses 7,337
Total expenses before fee waiver $ 217,125
Fees waived by Parnassus Investments (Note 5) (56,001)
Total expenses $ 161,124
Net investment income $ 800,948
Realized and Unrealized Gain on Investments
Realized gain from security transactions:
Proceeds from sales 4,317,412
Cost of securities sold 4,045,459
Net realized gain $ 271,953
Change in unrealized appreciation of securities:
Beginning of period 1,018,786
End of period 934,576
Net change in unrealized appreciation of securities $ (84,210)
Net realized and unrealized gain on securities $ 187,743
Net increase in net assets resulting from operations $ 988,691
THE PARNASSUS INCOME TRUST
CALIFORNIA TAX-EXEMPT FUND
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 2003 AND 2002
year ended year ended
- --------------------------------------------------------------------------------
December 31, 2003 December 31, 2002
- --------------------------------------------------------------------------------
From operations
Net investment income $ 800,948 $ 773,722
Net realized gain from
security transactions 271,953 325,194
Net change in unrealized
appreciation of securities (84,210) 686,085
Increase in net assets
resulting from operations $ 988,691 $ 1,785,001
Dividends to shareholders
From net investment income (807,627) (761,866)
From realized capital gains (250,346) (370,679)
Increase (decrease) in net
assets from capital share
transactions (1,269,019) 6,619,410
Increase (decrease) in
net assets $ (1,338,301) $ 7,271,866
Net assets
Beginning of period 26,162,829 18,890,963
End of period
(including undistributed
net investment income
of $9,817 in 2003 and
$20,776 in 2002) $ 24,824,528 $ 26,162,829
THE PARNASSUS INCOME TRUST
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: Investment securities are stated at market value
based on recorded closing sales on a national securities exchange or on the
Nasdaq's National Market System official closing price, or in the absence
of a recorded sale, and for over-the-counter securities, at the mean
between the last recorded bid and asked prices. Securities without an
active market are priced at their fair value, in accordance with procedures
established by the Trustees. Short-term securities are money market
instruments and are valued at amortized cost, which approximates market
value. Certain other 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 toregulated investment companies and
to distribute all of its taxable and tax-exempt income to shareholders;
therefore, no federal income tax provision is required.
Securities Transactions: Securities transactions are recorded 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. The Fixed-Income and California
Tax-Exempt Funds pay income dividends monthly and capital gain dividends
annually.
Investment Income and Expenses: Dividend income is recognized on the
ex-dividend date and interest income is recogniz-ed on an accrual basis.
Discounts and premiums on securities purchased are amortized over the lives
of the respective securities using the constant yield method, which
approximates the interest method. Expenses are recorded on an accrual
basis.
Securities Lending: The Equity Income Fund lends its securities to approved
financial institutions 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. Income from securities lending, in the
amount of $77,492, is included in interest income on the Statement of
Operations.
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 Trust's 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 accounting principles generally accepted in the United States of
America 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. Tax Matters and Distributions
Income distributions and capital gain distributions are determined in
accordance with income tax regulations, which may differ from accounting
principles generally accepted in the United States of America. These
differences are primarily due to differing treatments of income and gains
on various investment securities held by the Trust, timing differences and
differing characterization of distributions made by the Trust.
Permanent differences incurred during the year ended December 31, 2003,
resulting from differences in book and tax accounting, that have been
reclassified at year-end to undistributed net investment income,
undistributed net realized gain (loss) and capital paid-in were as follows:
Undistributed Net Undistributed Net Capital
Fund Investment Income Realized Gain (Loss) Paid-in
-------------------------------------------------------------------------------------------------------------------
The Parnassus Income Trust - Fixed-Income Fund $ 49,454 $ (49,454) $ --
-------------------------------------------------------------------------------------------------------------------
The Parnassus Income Trust - California Tax-Exempt Fund $ (4,280) $ -- $ 4,280
-------------------------------------------------------------------------------------------------------------------
<FN>
Permanent book-tax differences, if any, are not included in ending
undistributed net investment income (loss) for the purposes of calculating
net investment income (loss) per share in the financial highlights.
</FN>
3. Capital Stock
Equity Income Fund: As of December 31, 2003, there were an unlimited number
of authorized shares of capital stock, no par value. Paid-in capital
aggregated $574,038,457. Transactions in capital stock (shares) were as
follows:
- --------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2003 Year Ended December 31, 2002
Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------
Shares sold 21,806,608 $464,928,454 11,026,793 $ 237,856,300
Shares issued through dividend reinvestment 416,260 9,370,176 180,091 3,803,779
Shares repurchased (8,855,314) (175,303,935) (2,112,055) (43,841,824)
- -------------------------------------------------------------------------------------------------------------------
Net increase 13,367,554 $298,994,695 9,094,829 $ 197,818,255
- -------------------------------------------------------------------------------------------------------------------
Fixed-Income Fund: As of December 31, 2003, there was an unlimited number
of authorized shares of capital stock, no par value. Paid-in capital
aggregated $33,506,980. Transactions in capital stock (shares) were as
follows:
- --------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2003 Year Ended December 31, 2002
Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------
Shares sold 1,416,444 $ 21,276,069 469,465 $ 7,147,110
Shares issued through dividend reinvestment 63,100 1,017,411 46,188 703,766
Shares repurchased (550,524) (7,341,520) (179,931) (2,732,162)
- -------------------------------------------------------------------------------------------------------------------
Net increase 929,020$ $ 14,951,960 335,722 $ 5,118,714
- -------------------------------------------------------------------------------------------------------------------
California Tax-Exempt Fund: As of December 31, 2003, there was an unlimited
number of authorized shares of capital stock, no par value. Paid-in capital
aggregated $23,858,528. Transactions in capital stock (shares) were as
follows:
- --------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2003 Year Ended December 31, 2002
Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------
Shares sold 416,172 $ 7,158,418 805,150 $ 13,182,672
Shares issued through dividend reinvestment 54,377 933,074 59,347 1,012,363
Shares repurchased (543,745) (9,360,511) (480,179) (7,575,625)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (73,196) $ (1,269,019) 384,318 $ 6,619,410
- -------------------------------------------------------------------------------------------------------------------
4. Purchases and Sales of Securities
Equity Income Fund: Purchases and sales of securities were $363,960,867 and
$242,760,562, respectively, for the year ended December 31, 2003. For
federal income tax purposes, the aggregate cost of securities and
unrealized appreciation at December 31, 2003 were $352,026,410 and
$52,880,814, respectively. Of the $52,880,814 of net unrealized
appreciation at December 31, 2003, $54,128,116 related to appreciation of
securities and $1,247,302 related to depreciation of securities.
Fixed-Income Fund: Purchases and sales of securities were $23,501,870 and
$25,902,558, respectively, for the year ended December 31, 2003. For
federal income tax purposes, the aggregate cost of securities and
unrealized depreciation at December 31, 2003 were the same as for financial
statement purposes. Of the $529,093 of net unrealized appreciation at
December 31, 2003, $546,318 related to appreciation of securities and
$17,225 related to depreciation of securities.
California Tax-Exempt Fund: Purchases and sales of securities were
$6,657,139 and $4,317,412, respectively, for the year ended December 31,
2003. For federal income tax purposes, the aggregate cost of securities and
unrealized appreciation at December 31, 2003 were $22,370,851 and $938,662,
respectively. Of the $938,662 of net unrealized appreciation at December
31, 2003, $938,662 related to appreciation of securities and none 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 payable 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.
Fees paid by the Equity Income Fund to Parnassus Investments under the
agreement totaled $2,959,382 for the year ended December 31, 2003. For the
year ended December 31, 2003, Parnassus Investments agreed to reduce its
investment advi-sory fee to the extent necessary to limit total operating
expenses to 0.87% of net assets for the Fixed-Income Fund and 0.75% of net
assets for the California Tax-Exempt Fund.
As a result of this fee waiver, the following were actually charged in
2003. For the Fixed-Income Fund, the investment advisory fee was 0.20%.
Parnassus Investments received net advisory fees totaling $54,646 from the
Fixed-Income Fund for the year ended December 31, 2003. For the California
Tax-Exempt Fund, the investment advisory fee was 0.29%. Parnassus
Investments received net advisory fees totaling $74,108 from the California
Tax-Exempt Fund for the year ended December 31, 2003.
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 $495,632 for the year
ended December 31, 2003. The transfer agent fee was $2.70 per month per
account (for an aggregate amount of $323,478 for the year ended December
31, 2003). The fund administration fee was $6,667 per month for the first
seven months ending July 31, 2003. Beginning August 1, 2003, the fund
administration fee became $25,097 per month. The aggregate amount of the
fund administration fee was $172,154 for the year ending December 31, 2003.
Equity Income Fund: Included in the statement of operations under the
caption "Custody fees" are expenses totaling $17,805 for the year ended
December 31, 2003. Included in the statement of operations under the
caption "Reports to shareholders" are expenses totaling $17,478 for the
year ended December 31, 2003. Included in the statement of operations under
the caption "Professional fees" are expenses totaling $1,515 for the year
ended December 31, 2003. Included in the statement of operations under the
caption "Other expenses" are expenses totaling $18,593 for the year ended
December 31, 2003. These amounts, in aggregate, are $55,391 and were paid
for the Equity Income Fund by a third-party broker-dealer.
Jerome L. Dodson is the President of the Trust and is the majority
stockholder of Parnassus Investments.
6. Geographic and Industry Concentration Risk Factors
The California Tax-Exempt Fund primarily invests in debt obligations issued
by the State of California and its political subdivisions, agencies and
public authorities to obtain funds for various public purposes. There are
certain risks arising from the concentration of investments in California
municipal securities. The California Tax-Exempt Fund is more susceptible to
factors adversely affecting issuers of California municipal securities than
a fund that is not concentrated in these issuers to the same extent.
Uncertain economic conditions or governmental developments may affect the
ability of California municipal securities issuers to meet their financial
obligations.
7. 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:
- ----------------------------------------------------------------------------------------------------------
Equity Income Fund 2003 2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 21.20 $22.50 $ 21.48 $23.13 $ 20.13
Income (loss) from investment operations:
Net investment income 0.44 0.49 0.67 0.33 0.24
Net realized and unrealized gain on securities 2.85 (1.32) 1.43 1.06 4.26
Total income (loss) from investment operations 3.29 (0.83) 2.10 1.39 4.50
Distributions:
Dividends from net investment income (0.49) (0.29) (0.45) (0.36) (0.26)
Distributions from net realized gains .-- (0.18) (0.63) (2.68) (1.24)
Total distributions (0.49) (0.47) (1.08) (3.04) (1.50)
Net asset value at end of year $ 24.00 $ 21.20 $22.50 $21.48 $23.13
Total return 15.69% (3.69%) 9.97% 6.36% 22.78%
Ratios/supplemental data:
Ratio of expenses to average net assets (actual)* 0.95% 0.96% 1.00% 0.97% 1.08%
Decrease reflected in the above expense ratios due to
expenses waived by Parnassus Investments .-- .-- 0.18% 0.18% 0.19%
Decrease reflected in the above expense ratios due to
fees paid indirectly 0.01% 0.07% .-- .-- .--
Ratio of net investment income to average net assets 1.95% 2.29% 3.10% 1.34% 1.09%
Portfolio turnover rate 79.21% 42.01% 86.78% 97.42% 39.53%
Net assets, end of year (000's) $ 630,249 $273,429 $ 85,501 $ 55,421 $ 45,999
- ----------------------------------------------------------------------------------------------------------
Fixed-Income Fund 2003 2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 15.88 $ 14.94 $14.19 $ 14.49 $ 15.98
Income (loss) from investment operations:
Net investment income 0.58 0.82 0.87 0.89 0.81
Net realized and unrealized gain (loss) on securities 0.26 0.95 0.72 (0.29) (1.49)
Total income (loss) from investment operations 0.84 1.77 1.59 0.60 (0.68)
Distributions:
Dividends from net investment income (0.65) (0.83) (0.84) (0.90) (0.81)
Distributions from net realized gains (0.07) .-- .-- .-- .--
Total distributions (0.72) (0.83) (0.84) (0.90) (0.81)
Net asset value at end of year $ 16.00 $15.88 $14.94 $ 14.19 $ 14.49
Total return 5.30% 12.20% 11.31% 4.32% (4.32%)
Ratios/supplemental data:
Ratio of expenses to average net assets (actual)* 0.62% 0.81% 0.83% 0.78% 0.87%
Decrease reflected in the above expense ratios due to
expenses waived by Parnassus Investments 0.30% 0.27% 0.32% 0.35% 0.36%
Ratio of net investment income to average net assets 3.59% 5.36% 5.84% 6.18% 5.36%
Portfolio turnover rate 125.74% 59.00% 21.19% 19.19% 13.47%
Net assets, end of year (000's) $ 34,098 $ 19,092 $ 12,947 $ 10,309 $ 11,006
- ----------------------------------------------------------------------------------------------------------
California Tax-Exempt Fund 2003 2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 17.19 $ 16.61 $16.90 $15.82 $ 16.88
Income (loss) from investment operations:
Net investment income 0.53 0.59 0.70 0.72 0.72
Net realized and unrealized gain (loss) on securities 0.12 0.83 (0.18) 1.10 (1.05)
Total income (loss) from investment operations 0.65 1.42 0.52 1.82 (0.33)
Distributions:
Dividends from net investment income (0.53) (0.59) (0.70) (0.71) (0.72)
Distributions from net realized gains (0.17) (0.25) (0.11) (0.03) (0.01)
Total distributions (0.70) (0.84) (0.81) (0.74) (0.73)
Net asset value at end of year $ 17.14 $ 17.19 $16.61 $ 16.90 $ 15.82
Total return 3.88% 8.66% 3.09% 11.75% (2.01%)
Ratios/supplemental data:
Ratio of expenses to average net assets (actual)* 0.62% 0.73% 0.65% 0.52% 0.70%
Decrease reflected in the above expense ratios due to
expenses waived by Parnassus Investments 0.21% 0.22% 0.20% 0.25% 0.25%
Ratio of net investment income to average net assets 3.08% 3.45% 4.19% 4.27% 4.42%
Portfolio turnover rate 16.16% 41.73% 23.14% 8.13% 1.75%
Net assets, end of year (000's) $ 24,825 $ 26,163 $ 18,891 $ 17,186 $ 7,777
<FN>
For the year ended December 31, 2003, Parnassus Investments has agreed to a
0.87% limit on expenses for the Fixed-Income and 0.75% for the California
Tax-Exempt Fund (See Note 5 for details). Certain fees were waived for the years
ended December 31, 2003, 2002, 2001, 2000, and 1999 for the Fixed-Income Fund
and the California Tax-Exempt Fund. For the Equity Income Fund, certain fees
were waived for the years ended December 31, 2001, 2000, and 1999.
</FN>
THE PARNASSUS INCOME TRUST
TAX INFORMATION (UNAUDITED)
YEAR ENDED DECEMBER 31, 2003
The following tax information represents disclosures of various tax
benefits passed through to shareholders. Of the distributions made from net
investment income in the California Tax-Exempt Fund, 100% is tax-exempt for
regular federal income tax purposes.
In accordance with the Code, the following Funds are designating the
following amount of long-term capital gain dividends:
Fixed-Income Fund $ 199,048
California Tax-Exempt Fund $ 271,953
THE PARNASSUS INCOME TRUST
INDEPENDENT TRUSTEES+ (UNAUDITED)
Number of
Portfolios
in the Fund
Term of Office Complex
Name, Age and and Length of Overseen Other Directorships
Address* Service Principal Occupation(s) During Past 5 Years by Trustee Held by Trustee
- ---------------------------------------------------------------------------------------------------------------------------
Herbert A. Houston Since 1998 Health care consultant and owner of several Four The Parnassus Fund
Age 60 small businesses; Chief Executive Officer of
the Haight Ashbury Free Clinics, Inc. from
1987 to 1998; Trustee of the Parnassus Fund
since 1998 and the Parnassus Income Trust
since inception.
- ---------------------------------------------------------------------------------------------------------------------------
Donald V. Potter Since 2002 President and owner of Windermere Four The Parnassus Fund
Age 58 Associates, a consulting firm specializing Media Arts Group, Inc.
in business strategy, since 1984; Partner in
McKinsey & Company, an international
consulting firm, from 1979 to 1984.
- ---------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEESS. (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------
Jerome L. Dodson Since 1985 President and Trustee of the Parnassus Fund Four The Parnassus Fund
Age 60 and the Parnassus Income Trust since
their inceptions; President and Director of
Parnassus Investments since June 1984;
portfolio manager of the Parnassus Fund
since its inception.
- ---------------------------------------------------------------------------------------------------------------------
<FN>
+ "Independent" trustees are trustees who are not deemed to be "interested
persons" of the Funds as defined in the Investment Company Act of 1940.
* Unless otherwise noted, the address of the Trustees is c/o Parnassus
Investments, One Market-Steuart Tower, Suite 1600, San Francisco, CA 94105.
ss. "Interested" trustee as defined in the Investment Company Act of 1940
because of his ownership in the Funds' investment adviser and because he is
an officer of the Trusts.
The Statement of Additional Information (SAI) contains further information about
the Fund's trustees and is available without charge upon request. To request
information, call Parnassus Investments toll free at (800) 999-3505.
</FN>
The Parnassus Income Trust
One Market-Steuart Tower, Suite 1600
San Francisco, CA 94105
415.778.0200
800.999.3505
www.parnassus.com
Investment Adviser
Parnassus Investments
One Market-Steuart Tower
Suite 1600
San Francisco, CA 94105
Legal Counsel
Foley & Lardner
777 E. Wisconsin Avenue
Milwaukee, WI 53202
Independent Auditors
Deloitte & Touche LLP
50 Fremont Street
San Francisco, CA 94105
Custodian
Union Bank of California
475 Sansome Street
San Francisco, CA 94111
Distributor
Parnassus Investments
One Market-Steuart Tower
Suite 1600
San Francisco, CA 94105
This report must be preceded or accompanied by a
current prospectus.
Item 2: Code of Ethics
As of the 12/31/03 the registrant has adopted a code of ethics
that applies to the registrant's principal executive officer and
principal financial officer. During the fiscal year ending
12/31/03 there were no amendments to any provisions of this code
of ethics.
Item 3: Audit Committee Financial Expert
On July 22, 2003, the Board of Trustees of the Parnassus Funds
determined that Donald Potter, Chairman of the Board's Audit
Committee, qualified as an "audit committee financial expert" as
defined by Form N-CSR. The Trustee's decision was based on Mr.
Potter's understanding of generally accepted accounting
principles (GAAP), experience applying GAAP, familiarity with
internal controls and procedures for financial reporting and
understanding of audit committee functions. He gained this
knowledge from thirty years of experience as a strategy
consultant for major corporations while working at McKinsey & Co.
Management Consultants and at his own firm, Windermere
Associates. He also spent four years working as a financial
executive for a Fortune 500 company. He served as Chairman of
the Audit Committee of Media Arts Group and has also served on
the Audit Committees of DLJ Direct and Peer Foods. Mr. Potter is
a graduate of Harvard Business School where he was named a Baker
Scholar for finishing in the top 5% of his class. Mr. Potter is
an independent trustee.
Item 4: Principal Accountant Fees and Services
(a) Audit Fees
The aggregate fees billed for each of the last two fiscal years
for professional services rendered by the principal accountant
for the audit of the registrant's annual financial statements or
services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements
for those fiscal years was $114,525.
(b) Audit-Related Fees
There were no fees billed in each of the last two fiscal years
for assurance and related services by the principal accountant
that are reasonably related to the performance of the audit of
the registrant's financial statements and are not reported under
paragraph (a) of this Item.
(c) Tax Fees
The aggregate fees billed in each of the last two fiscal years
for professional services rendered by the principal accountant
for tax compliance, tax advice, and tax planning was $27,560.
(d) All Other Fees
There were no fees billed in each of the last two fiscal years
for products and services by the principal accountant, other than
the services reported in paragraphs (a) through (c) of this Item.
(e) (1) The Audit Committee's pre-approval policies
and procedures for non-audit services are as follows: Explicit
pre-approval by the Audit Committee Chair shall be required for
any individual non-audit engagement to be performed by the
independent accountants with estimated fees of $10,000 or less
and the Audit Committee Chair shall report such approval to the
full Audit Committee at the next regularly scheduled meeting.
Explicit pre-approval by the full Audit Committee shall be
required for any individual non-audit engagement to be performed
by the independent accountants with estimated fees in excess of
$10,000. Officers of the Funds shall furnish the Audit Committee
at least annually with a listing of all fees paid to the
independent accountants including non-audit services performed.
(e) (2) 9.5%.
(f) Not applicable.
(g) The aggregate non-audit fees billed by the
registrant's accountant for services rendered to the registrant,
and rendered to the registrant's investment adviser were $31,460,
which amount includes the $27,560 set forth in 4(c).
(h) The registrant's Audit Committee of the board of
directors has not considered whether the provision of non-audit
services that were rendered to the registrant's investment
adviser for the amount of $3,900 by the registrant's principal
accountant are compatible with maintaining the principal
accountant's independence.
Item 5: Not applicable.
Item 6: Reserved.
Item 7: Not applicable.
Item 8: Reserved.
Item 9: Controls and Procedures.
(a) Based on the evaluation of the Parnassus Income Trust's disclosure
controls and procedures as of February 27, 2004, these controls
and procedures are effective in providing reasonable assurance,
that the information required to be disclosed on Form N-CSR is
recorded, processed, summarized and reported within the time
periods specified by the rules and forms of the Securities and
Exchange Commission.
(b) There were no significant deficiencies or material weaknesses
in the Parnassus Income Trust's (the Trust) internal controls subsequent
to the date of evaluation. However, the Trust is in the midst of
an accounting software change. As a result, internal controls are
being evaluated and changed as necessary, on an ongoing basis as
the system evolves.
Item 10: Exhibits attached hereto.
10(a) Code of Ethics.
10(b)(1) Section 302 certification.
10(b)(2) Section 906 certification.
Pursuant to the requirements of the Securities Exchange Act of
1934 and the Investment Company Act of 1940, the registrant has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
(Registrant) The Parnassus Income Trust
By: /s/ Jerome L. Dodson
----------------------------------
Jerome L. Dodson
President
Date: March 8, 2004
Pursuant to the requirements of the Securities Exchange Act of
1934 and the Investment Company Act of 1940, this report has been
signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
By: /s/ Jerome L. Dodson
--------------------------------
Jerome L. Dodson
President
Date: March 8, 2004
By: /s/ Bryant Cherry
--------------------------------
Bryant Cherry
Vice President
Date: March 8, 2004