THE PARNASSUS INCOME TRUST
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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)
Jack Gee
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: June 30, 2004
ITEM 1: REPORTS TO SHAREHOLDERS
THE PARNASSUS INCOME TRUST
Equity Income Fund (PRBLX)
Fixed-Income Fund (PRFIX)
California Tax-Exempt Fund (PRCLX)
SEMIANNUAL REPORT JUNE 30, 2004
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August 9, 2004
DEAR SHAREHOLDER:
The Parnassus Funds will hold a shareholders meeting on Tuesday, October 5,
2004 at 6:00 p.m. at the Sheraton-Palace Hotel in San Francisco. The purpose of
the meeting will be to elect four Trustees to the Funds' board and to vote on a
proposal to reduce the mandatory retirement age of independent Trustees from 75
to 70. The idea behind lowering the retirement age is to prevent the board from
getting too old. The current Trustees are all around 60 years old, so it
wouldn't affect the current board for about ten years. This means that no
current board member will take it personally. Although some people are vigorous
well into their 70s, not everyone is. If approved, this proposal should minimize
the chance that someone will have to undertake the unpleasant job of suggesting
that a Trustee resign because of underperformance due to age.
Four candidates have been nominated for the Trustee positions: Herbert A.
Houston, Jeanie S. Joe, Jerome L. Dodson and Donald V. Potter. Herb Houston has
served as a Trustee for the Parnassus Income Trust since 1992 and since 1998 for
the Parnassus Fund. He is a graduate of California State University at Hayward
and holds master's degrees in public health and public administration from the
University of Southern California. From 1987 through 1998, Mr. Houston was chief
executive officer of the Haight Ashbury Free Clinics. Since 1998, he has been a
healthcare consultant and has owned and operated several small businesses.
Donald Potter is a graduate of Notre Dame University and of Harvard
Business School. His professional career has been in management consulting,
having been a partner with McKinsey & Co. and President of Windermere
Associates. He is the principal of StrategyStreet, a business strategy
consulting firm. He has served as a Trustee of the Parnassus Fund and the
Parnassus Income Trust since 2002.
Jeanie Joe graduated in dietetics from the University of California at
Berkeley and received a master's in public health from UCLA. She has worked as a
clinical dietician. Since 1995, she has been President of Geo/Resource
Consultants, a geotechnical and environmental consulting firm.
There will be a reception at 6:00 pm on October 5 and the formal meeting
will begin at 7:00 p.m. After the meeting, Todd Ahlsten, portfolio manager of
the Parnassus Equity Income Fund, and I will answer questions until 8:30. If
you're in the San Francisco Bay Area, we hope you will join us.
You should have already received a formal mailing including a proxy
statement. This contains more information about the meeting, but I wanted to
remind you so you can mark your calendar. Your vote is important, so please mark
your proxy ballot and send it back right away. You can also vote by telephone or
on the Internet. I hope you will vote for me and the other three candidates, and
I hope you will vote to lower the retirement age. Also, if you plan to attend
the reception, please RSVP by marking the proxy ballot, so we will know how many
people to expect. I hope to see you on October 5.
1
[PHOTO OMITTED]
Above you will find a picture of the Trustees taken in the reception area
of the Funds' offices. From left to right are Herb Houston, Jeanie Joe, Jerome
Dodson and Donald Potter.
PERSONNEL MATTERS
Two new people have recently joined our staff. Jack Gee has joined us as
our new chief financial officer. Jack is a certified public accountant (CPA) and
holds a bachelor's degree in accounting from California State University at
Hayward. He has served as chief financial officer at two other mutual fund
groups: SIFE Trust Fund and Fremont Investment Advisors.
Marc Mahon joins as Manager - Fund Administration. He holds a bachelor's
degree in finance from Arizona State University and is an MBA candidate at
California State University in Hayward. Previously, he worked at Barclays Global
Investors and for Fremont Investment Advisors.
Below you will find semiannual reports on each of the three funds in the
Parnassus Income Trust. Todd Ahlsten wrote the reports on the Equity Income Fund
and the Fixed-Income Fund, while co-managers Ben Liao and Stephen Dodson wrote
the California Tax-Exempt Fund report.
Yours truly,
/s/ Jerome L. Dodson
Jerome L. Dodson
President
2
EQUITY INCOME FUND
As of June 30, 2004, the net asset value per share (NAV) of the Equity
Income Fund was $24.38, so after taking dividends into account, the total return
for the first six months of the year was 2.84%. This compares to a gain of 3.44%
for the S&P 500 and a gain of 3.15% for the average equity income fund followed
by Lipper. While the Fund underperformed its last year because of our defensive
strategy, its long-term returns remain excellent. The Fund's three, five and
ten-year returns beat the Lipper average and S&P 500 for every period. We are
pleased to report that our five-year return of 8.13%, which encompasses the
three-year bear market and two bull-market years, beat the S&P 500's return by
over 10% annually.
Below is a table that compares 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 Parnassus Equity Lipper Equity Income S&P 500
for periods ended June 30, 2004 Income Fund Fund Average Index
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One Year 10.16% 18.27% 19.11%
Three Years 6.42% 1.71% (0.68%)
Five Years 8.13% 1.77% (2.19%)
Ten Years 12.39% 10.42% 11.80%
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Performance data quoted represent past performance and are no guarantee of
future returns. Current performance may be lower or higher than the
performance data quoted, and current performance information is on the
Parnassus website (www.parnassus.com). Before investing, an investor should
consider the investment objectives, risks, charges and expenses of the
Equity Income Fund and should read the prospectus which contains this
information. The prospectus is on the Parnassus website or you can get one
by calling (800) 999-3505. Investment return and principal value will
fluctuate, so that 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. Index
figures do not 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. On
March 31, 1998 the Fund changed its investment objective from a balanced
portfolio to and equity-income portfolio.
MARKET RECAP
Our return of 2.84% was essentially in line with the S&P 500's gain of
3.15% for the first half of 2004. However, during the first six months of the
year, the stock market was like a bumpy airline flight. Soaring oil prices,
violence in Iraq and uneven economic data provided a stiff headwind for stock
prices. However, strong corporate profits and significant pockets of economic
strength provided the lift required to push stocks higher by midyear.
The year started strong as the S&P 500 was up 3% by January 27 due to
strong corporate profits and optimism about the economic recovery.
Unfortunately, this excitement faded fast and the S&P 500 plunged 5.6% from
March 5 to March 24 due to investor concerns over higher interest rates, renewed
inflation and soaring oil prices. We used this March decline to become fully
invested after our defensive positioning of 2003.
Being fully invested, we were pleased when the S&P 500 jumped 5.2% from
March 25 to April 6 as oil prices fell, and investors looked forward to strong
first quarter earnings. However, because of high oil prices and
3
weak economic data, this rally was also short-lived and the S&P 500 slid 5.3% to
a new yearly low of 1076 by May 12. Fortunately, oil prices fell in June, and a
renewed outlook for strong corporate profits ignited a rally which pushed our
Fund's return to a positive 2.84% for the first half.
STRATEGY
While the market has been choppy this year, we remain focused on owning
good companies for the long term. We look to buy stocks with price-earnings
(P/E) multiples below 20, that have earnings growth of at least 10%, and have
returns on equity of at least 15%. As of this writing, the Fund is fully
invested with less than 3% cash. While the economic recovery has been uneven, I
feel stock prices can rise during the second half of 2004 based on strong
corporate profits and good economic data. While interest rates will likely
increase during the second half of 2004, they are still very low in absolute
terms, and this should keep the economy growing. Inflation also remains low
which is a positive for the economy and stock prices. The S&P 500, valued at 21
times trailing earnings, is not a bargain, but we have found good companies to
own that trade for 15-18 times earnings with solid growth prospects.
To give you an example of the investment opportunities we are finding, I
want to talk about one of our largest holdings, Gannett Corporation. Gannett is
an international publisher that owns 101 daily newspapers including USA TODAY,
the nation's largest-selling daily newspaper. The company also owns 22
television stations in major U.S. markets. Starting with the valuation and
financials, Gannett fits our profile as the company trades at only 16 times
estimated 2004 earnings, which is at the low end of its five-year P/E range of
14-27. In addition, Gannett has a five-year average return on equity of 21% and
is run by a well regarded CEO named Douglas McCorkindale. Few executives can say
they've worked for a company like Gannett that has increased earnings per share
in 32 of the past 35 years.
While the financial ratios are attractive, the most interesting part of the
Gannett story is that there are several important catalysts that may move the
stock higher. First and foremost, advertising budgets are finally rebounding due
to the improving economy. Second, Gannett's sales will jump from major political
advertising during the second half of this year. Finally, profits at Gannett's
13 NBC-affiliates will rise during the third quarter as they air the 2004 Summer
Olympics.
While 2004 will be strong, 2005 should be another record year for Gannett
as the company will increase the price for USA TODAY from 50(cent) to 75(cent),
which should add about $40 million to net income. Gannett owns great media
properties, and with over $1.2 billion a year of free cash flow, the company has
significant resources to either buy back stock or acquire other media companies.
Management does a great job controlling costs, so revenue growth translates into
good profit growth.
Gannett is also a good corporate citizen. The company's Gannett Foundation
has donated $96.5 million from 1991-2003 to charitable organizations. Gannett is
also known for strong corporate governance and diversity as the company has had
many prominent women on its board, including former first lady Roslyn Carter. I
had a chance to speak with CFO Gracia Martore during March and was very
impressed with her management skills. Gannett also has a remarkable record for
diversity at the operating level. Each year, an executive's performance review
is partially based on success in achieving diversity.
I think Gannett's stock can rise 32% over the next year from $81 to $107
and boost the return of the Parnassus Equity Income Fund. My estimate is based
on 20 times projected 2005 earnings of $5.35 per share. If the economy softens,
I feel our downside risk is only 10%.
4
As of this writing, major industry weightings of the Fund include
healthcare, financial services, insurance and publishing. These are industries
where we have found undervalued businesses that can benefit from improving
economic conditions. We have significantly reduced our investments in
natural-gas utilities as those stocks typically fall when interest rates rise.
We continue to own a few utility companies, because they either benefit from
higher natural-gas prices or offer above-average growth potential. The SEC yield
for June was 1.64%.
LOSERS
The Fund had three stocks which hurt the NAV by 4(cent) or more during the
first half of 2004. The biggest loser was First Health Group, which is a
full-service health benefits provider. First Health's stock plunged 19.8% from
$19.46 to $15.61, which hurt the Fund's NAV by 9(cent). The company's earnings
fell below plan as its network added fewer members than expected and was hit by
intense price competition. We are holding onto our shares as the stock now
trades for only 10 times earnings, and we feel First Health's preferred provider
network has significant value.
Hospital operator Health Management Associates (HMA) fell 9.2% from $24 to
$21.80, our average selling price, which cost the Fund 5(cent). We sold our
shares because of concerns about increasing bad debt and lower patient admission
growth.
TriQuint Semiconductor, a company that designs and makes computer chips for
cell phones and communication equipment fell 33.9% from our average cost of
$8.31 to our selling price of $5.49, which reduced our NAV by 4(cent). I made
the mistake of buying a mediocre business that appeared set for recovery. Once
it became clear TriQuint's new product wins weren't equating into a strong
profit ramp, I sold the stock.
WINNERS
The Fund's biggest winner was Electro Scientific Industries (ESI), the
Portland, Oregon-based maker of semiconductor capital equipment. The stock
jumped 24.6% from our average cost of $22.60 to $28.31 which added 16(cent) to
the NAV. In June, ESI announced that orders rose an amazing 310% versus last
year as the company's customers began to add capacity after three years of
depressed investment.
Johnson & Johnson added 8(cent) to the NAV as its stock price increased
7.8% to $55.70 from $51.66. The company's stock price was depressed at the
beginning of the year due to concerns about its weak drug pipeline and new
competition in the drug-eluting stent market. Johnson & Johnson reported strong
first-half earnings and the stock bounced back.
Pitney Bowes, the leading maker of postage meters and mailing equipment,
increased the NAV by 7(cent) as its stock rose 9.2% from our average cost of
$40.94 to $44.25. The stock increased as investors expected the company to
report stronger earnings because of higher sales of digital postal meters and
other benefits from a stronger economy.
Genuine Parts Corporation, the owner of Napa Auto Parts, added 6(cent) to
the NAV as the stock rose 19.5% to $39.68 from $33.20. The company had a strong
start to the year as sales increased 9% during the first quarter.
Quest Diagnostics, the leading laboratory company, added 5(cent) to the NAV
as its stock price climbed 16.1% from our average cost of $73.34 to $84.95.
Earnings are strong based on new clinical tests, lower bad-debt expenses and
stable pricing.
5
Dental-distribution company Patterson Dental also increased the NAV by
5(cent) as its stock rose 21.1% from $64.16 to our average selling price of
$77.76. Patterson is a great company that is having another record year be-cause
of market share gains and acquisitions. We did, however, sell the stock because
it reached our calculated intrinsic value.
COMPANY NOTES
One of my favorite new investments in the Fund is called Trex Company, the
largest manufacturer of composite decking products, or "imitation lumber," as
our President Jerry Dodson likes to call it. Trex is a great example of "doing
well by doing good" as the company essentially makes its sturdy composite lumber
by blending reclaimed polyethylene (plastic grocery bags) with recycled wood
chips. After hearing about the company from an industry contact at a Saturday
morning brunch, I called Trex's headquarters to start the research process. I
was quite pleased when Trex's CFO Paul Fletcher was willing to fly across the
country from Winchester, Virginia to meet me in a little-known town called
Fernley, Nevada to tour the company's west coast manufacturing operation.
After a five hour drive, which took me from beautiful San Francisco to the
tumbleweed terrain of the Nevada desert, I met Mr. Fletcher in the lobby of
Trex's 250,000 square foot facility in Fernley. After an hour discussing the
company's financial statements and business plan over a cup of coffee, Fletcher
handed me goggles and a pair of earplugs. Along with the Fernley plant manager,
we entered the manufacturing facility. I was amazed to see these huge bails of
reclaimed polyethylene that were being unbundled and put into a grinding
operation. Adjacent to the grinding operation was a sister process called the
"hammermill" operation, where chips of waste wood (from crates, for example)
were ground up like flour. These two ingredients, along with a few other
additives for color, were then sent to one of eight manufacturing lines for
mixing where the materials were heated to approximately 600 degrees and joined
together. Once mixed, the batch was extruded into boards and put on a conveyor
belt where they were left to cool for 12 hours. We then walked over to an
embossing area where I watched a machine add grain to the boards to complete the
manufacturing process for Trex's new "Accents" line.
The plant employs about 130 people, and I was truly impressed with its
efficiency and technology. After touring the main manufacturing site, Fletcher
showed me an impressive quality-control room where Trex was testing boards for
strength, texture and color. Most impressive was a special machine that
simulated intense sunlight so they could determine if the boards met their
"fade" criteria.
In May, Trex made Business Ethics "100 Best Corporate Citizens" list, and
in June, Trex was listed in Fortune's Small Business Magazine's 2004 List of
"100 Fastest Growing Small Companies." Trex should boost the return of the
Parnassus Equity Income Fund as the company has the potential to grow at least
20% annually over the next several years as more decks are built with composite
lumber. If you are interested in seeing pictures of Trex's products, check out
the company's website at www.trex.com.
Thank you for investing in the Parnassus Equity Income Fund.
Yours truly,
/s/ Todd C. Ahlsten
Todd C. Ahlsten
Portfolio Manager
6
FIXED-INCOME FUND
As of June 30, 2004, the net asset value per share (NAV) of the
Fixed-Income Fund was $15.87, so after taking dividends into account, the total
return for the first six months of the year was 0.16%. This compares to a loss
of 0.19% for the Lehman Government/Corporate Bond Index and a loss of 0.18% for
the average A-Rated bond fund followed by Lipper. The 30-day SEC yield for June
was 2.25%. Below you will find a table that compares the performance of the
Fixed-Income Fund with that of the Lehman Government/Corporate Bond Index and
the Lipper A-Rated Bond Fund Average.
The Parnassus Fixed-Income Fund had a good first half in 2004, as we were
able to generate a slight gain of 0.16% versus a loss of 0.18% for our peers. As
we anticipated, interest rates rose dramatically during the second quarter as
the ten-year Treasury bond yield increased from 4.25% to 4.58%.
While we underperformed our peers over the past year because of poor
performance during the second half of 2003, our long-term returns remain
excellent. The Fund's three, five and ten-year returns beat the Lipper A-Rated
Average for every period.
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Average Annual Total Returns Parnassus Lipper A-Rated Bond Lehman Government/
for periods ended June 30, 2004 Fixed-Income Fund Fund Average Corporate Bond Index
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One Year (1.18%) 0.04% (0.72%)
Three Years 6.96% 5.70% 6.74%
Five Years 6.36% 6.09% 7.11%
Ten Years 7.09% 6.74% 7.44%
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Performance data quoted represent past performance and are no guarantee of
future returns. Current performance may be lower or higher than the
performance data quoted, and current performance information is on the
Parnassus website (www.parnassus.com). Before investing, an investor should
consider the investment objectives, risks, charges and expenses of the
Fixed-Income Fund and should read the prospectus which contains this
information. The prospectus is on the Parnassus website, or you can get one
by calling (800) 999-3505. Investment return and principal value will
fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost. The Lehman Government/Corporate Bond
Index is a widely recognized, unmanaged index measuring the performance of
bonds and other fixed-income securities, and it is not possible to invest
directly in an index. Index figures do not 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.
STRATEGY
Our portfolio remains defensive as we expect higher interest rates during
the second half of 2004. On June 30, the Federal Reserve announced its first
rate hike in four years as it increased the federal funds rate by 0.25% to
1.25%. With an improving economy and four Federal Reserve meetings left this
year, I'm expecting at least three, and potentially four, more quarter-point
increases in the federal funds rate. This would place that rate at 2.00%-2.25%
by year-end. Given this environment, our main strategy is to preserve capital by
keeping a short duration. Duration essentially measures how much, in percentage
terms, a bond price will change for a 1% movement in yield. As of this writing,
our duration is only 1.5 years. This "short duration" strategy served us well
during the second quarter as the Fund's loss of 0.97% was much less than the
average Lipper A-Rated Fund, which fell 2.71%.
7
We have placed 11% of the Fund in convertible bonds and convertible
preferred stock as those issues should rise in value with a stronger economy and
rising stock prices. In addition, these investments should help the Fund's
monthly dividend. However, based on our portfolio strategy, the Fund's dividend
will remain low because short duration bonds offer lower yields. That said, as
we saw during the second quarter, this strategy should cushion our portfolio
should rates continue to increase.
I anticipate we will maintain our defensive strategy for the next several
months as we wait for interest rates to stabilize at a higher level. Once that
happens, we will extend the portfolio's duration which will position the Fund
for higher returns.
Yours truly,
/s/ Todd C. Ahlsten
Todd C. Ahlsten
Portfolio Manager
CALIFORNIA TAX-EXEMPT FUND
As of June 30, 2004, the net asset value per share (NAV) of the California
Tax-Exempt Fund was $16.80. Taking dividends into account, the total return for
the first half of 2004 was a negative 0.60%. The average California
municipal-bond fund followed by Lipper, Inc. had a loss of 0.96%. This places us
#25 out of the 128 funds followed by Lipper for year-to-date returns.* The
results showed that our strategy of keeping the Fund defensively positioned paid
off in the rising interest-rate environment of the past two quarters.
Below you will find a table that compares our annual returns to various
indices over the past one, three, five and ten-year periods. The 30-day SEC
yield for June 2004 was 2.74%.
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Average Annual Total Returns Parnassus California Lipper California Municipal Lehman Municipal
for periods ended June 30, 2004 Tax-Exempt Fund Bond Fund Average Bond Index
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One Year 0.19% 0.23% 0.76%
Three Years 4.85% 4.49% 5.41%
Five Years 5.21% 4.74% 5.87%
Ten Years 6.07% 5.70% 6.44%
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Performance data quoted represent past performance and are no guarantee of
future returns. Current performance may be lower or higher than the
performance data quoted, and current performance information is on the
Parnassus website (www.parnassus.com). Before investing, an investor should
consider the investment objectives, risks, charges and expenses of the Fund
and should read the prospectus which contains this information. The
prospectus is on the Parnassus website or you can get one by calling (800)
999-3505. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost. Returns shown in the table do not reflect the deduction of
taxes a shareholder would pay on fund distributions or redemption of
shares. 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.
8
* For the one, three, five, and ten-year periods ended 6/30/04, the
Parnassus California Tax-Exempt Fund placed #65 of 128 funds, #33 of 110
funds, #21 of 96 funds, and #17 of 57 funds, respectively.
On June 30, the Federal Reserve raised the federal-funds rate for the first
time in four years, increasing the benchmark rate by 0.25% to 1.25%. While this
decision was made at the end of the second quarter, the decision was very much
expected since early in the year. Historically, the Fed had a policy of secrecy
about its monetary-policy decisions, and investors spent a lot of time trying to
figure out what the Fed would do next. Once the Fed announced its decision,
markets would move decisively, causing joy or grief, depending on the direction
and amount of the change in rates. The Fed has since adopted a policy of greater
communication with the public and investors, giving the market more insight into
how it arrives at its decision and what investors can anticipate in its next
decision. In short, the bond market has been moving downward (with interest
rates moving upward) long before the Fed's decision became official.
But what does this all mean for us? Well, it means that the value of the
bonds in our portfolio decreased over the first half of the year as the economy
recovered and interest rates increased. As most of you have been aware of, we've
been anticipating this since last year and adjusted our portfolio accordingly.
We did adjust our portfolio a little too early, and that caused the Fund to
underperform late last year. However, our portfolio was in good shape when rates
finally rose this year. The Fund did lose 2.09% in the second quarter of 2004 as
bond prices dropped, but we still managed to outperform the Lipper average,
which lost 2.46% during the same period (the Fund ranked #22 of 128 funds in the
second quarter). While we don't want to cheer when the fund loses money, we did
outperform 80% of our peers in the first half of the year.
California state bonds got a boost in May as Moody's Investors Services
raised the bond rating one notch to A3 from Baa1. An improved economy and
optimism about progress on a balanced state budget prompted the upgrade. The
other two rating agencies, Standard & Poor's and Fitch Ratings, still have
ratings two notches below Moody's rating. We anticipate that they will boost
California's credit rating once they see more evidence of an economic recovery
and fiscal austerity.
OUTLOOK
The Fed has said that they intend to increase rates at a "measured" pace.
The economy is certainly recovering, but the rate of the recovery is slow,
keeping inflation in check. This means that rates will continue to rise, but
probably not very quickly. To continue generating good returns for our
shareholders in this market, it comes down to a balancing act between keeping
the Fund defensively positioned as rates increase and generating enough yield.
And unfortunately, the two have a mathematically inverse relationship. We will
continue balancing as we monitor economic data and make the appropriate
adjustments to the portfolio as necessary.
And as always, thank you for investing in the Fund.
Yours truly,
/s/ Ben Liao /s/ Stephen J. Dodson
Ben Liao Stephen J. Dodson
Co-Portfolio Manager Co-Portfolio Manager
9
THE PARNASSUS INCOME TRUST
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EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION, JUNE 30, 2004 (UNAUDITED)
Percent of
Shares Common Stocks Net Assets Market Value
- --------------------------------------------------------------------------------
APPAREL
500,000 Liz Claiborne, Inc. 2.5% $ 17,990,000
--------------
AUTO PARTS
250,000 Genuine Parts Company2 1.4% $ 9,920,000
--------------
BANKING
550,000 AmSouth Bancorporation2 14,008,500
70,000 Bank One Corporation 3,570,000
10,000 Golden West Financial
Corp. 1,063,500
150,000 New York Community
Bancorp 2,944,500
25,000 Washington Mutual Inc. 966,000
600,000 Wells Fargo & Company 34,338,000
--------------
Total 7.8% $ 56,890,500
--------------
BUILDING PRODUCTS
100,000 Elcor Corp. 2,394,000
216,100 Trex Company, Inc.1, 2 8,157,775
--------------
Total 1.4% $ 10,551,775
--------------
CHEMICAL
100,000 Calgon Carbon Corp. 0.1% $ 670,000
--------------
CONSUMER PRODUCTS
50,000 Colgate-Palmolive Company 0.4% $ 2,922,500
--------------
COMPUTERS
400,000 Flextronics International
Ltd.1 6,380,000
38,200 RadiSys Corporation1, 2 709,374
--------------
Total 1.0% $ 7,089,374
--------------
ELECTRONIC INSTRUMENTS
225,000 Diebold, Inc. 11,895,750
150,000 Merix Corporation1 1,701,000
--------------
Total 1.8% $ 13,596,750
--------------
ENTERTAINMENT
70,500 Cedar Fair, L.P.2 0.3% $ 2,224,275
--------------
Percent of
Shares Common Stocks Net Assets Market Value
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FINANCIAL SERVICES
275,000 Charles Schwab Corp. $ 2,642,750
10,000 Fannie Mae 713,600
10,000 Freddie Mac 633,000
50,000 GATX Corporation2 1,360,000
25,000 H&R Block, Inc. 1,192,000
275,000 SLM Corporation2 11,123,750
--------------
Total 2.4% $ 17,665,100
--------------
HEALTH CARE SERVICES
50,000 Apria Healthcare Group, Inc.1, 2 1,435,000
500,000 First Health Group Corp.1, 2 7,805,000
350,500 Laboratory Corporation
of America Holdings1 13,914,850
15,000 Lincare Holdings, Inc.1, 2 492,900
52,200 Province Healthcare Company1 895,230
125,000 Quest Diagnostics2 10,618,750
30,000 UnitedHealth Group, Inc.2 1,867,500
--------------
Total 5.0% $ 37,029,230
--------------
INDUSTRIAL
100,000 Baldor Electric Company 2,335,000
117,234 WD-40 Company 3,509,986
--------------
Total 0.8% $ 5,844,986
--------------
INSURANCE
400,000 American Int'l Group, Inc. 28,512,000
125,000 HCC Insurance Holdings 4,176,250
14,389 Harleysville Group 271,233
100,000 Lincoln National
Corporation 4,725,000
100,000 Montpelier Re Holdings 3,495,000
35,000 Nationwide Financial
Services 1,316,350
186,500 RenaissanceRe Holdings 10,061,675
325,000 St. Paul Travelers Companies, Inc. 13,175,500
--------------
Total 9.0% $ 65,733,008
--------------
The accompanying notes are an integral part of these financial statements.
10
THE PARNASSUS INCOME TRUST
================================================================================
Percent of
Shares Common Stocks Net Assets Market Value
- --------------------------------------------------------------------------------
INSURANCE BROKERS
650,000 Arthur J. Gallagher 2.7% $ 19,792,500
--------------
MACHINERY
57,000 Snap-on Inc.2 0.3% $ 1,912,350
--------------
MEDICAL EQUIPMENT
25,000 Becton Dickinson 1,295,000
50,000 Guidant Corporation 2,794,000
125,000 Invitrogen Corp.1 8,998,750
100,000 Medtronic, Inc. 4,872,000
75,000 Sybron Dental
Specialties, Inc.1 2,238,750
--------------
Total 2.7% $ 20,198,500
--------------
MICROELECTRONIC
PRODUCTS
1,000,000 Credence Systems Corp.1, 2 13,800,000
100,000 Cymer, Inc.1, 2 3,744,000
500,000 Electro Scientific
Industries Inc.1 14,155,000
--------------
Total 4.3% $ 31,699,000
--------------
OFFICE EQUIPMENT
500,000 Pitney Bowes Inc. 3.0% $ 22,125,000
--------------
PACKAGED FOODS
500,000 H.J. Heinz Company 19,600,000
33,800 The J.M. Smucker
Company2 1,551,758
--------------
Total 2.9% $ 21,151,758
--------------
PHARMACEUTICALS
5,000 Forest Laboratories, Inc.1 283,150
450,000 Johnson & Johnson 25,065,000
300,000 Merck & Company 14,250,000
675,000 Pfizer Inc. 23,139,000
50,000 Pharmaceutical Products
Development1 1,588,500
--------------
Total 8.8% $ 64,325,650
--------------
Percent of
Shares Common Stocks Net Assets Market Value
- --------------------------------------------------------------------------------
PRINTING
100,000 Banta Corp. $ 4,441,000
100,000 Ennis Business Forms 1,950,000
--------------
Total 0.9% $ 6,391,000
--------------
PUBLISHING
350,000 Gannett Co. 29,697,500
25,000 McGraw-Hill Companies,
Inc. 1,914,250
150,000 Tribune Company 6,831,000
--------------
Total 5.2% $ 38,442,750
--------------
REAL ESTATE
INVESTMENT TRUSTS
100,000 Alexandria Real Estate 5,678,000
400,000 Equity Office Properties
Trust 10,880,000
100,000 The Rouse Company2 4,750,000
--------------
Total 2.9% $ 21,308,000
--------------
RESTAURANTS
91,945 Bob Evans Farms, Inc. 0.3% $ 2,517,454
--------------
RETAIL
725,000 Foot Locker, Inc. 17,646,500
30,000 The Home Depot, Inc. 1,056,000
300,000 Leapfrog Enterprises1, 2 5,967,000
125,000 Mattel, Inc. 2,281,250
35,000 The Nautilus Group2 682,850
125,000 Target Corporation2 5,308,750
--------------
Total 4.5% $ 32,942,350
--------------
SOFTWARE
125,000 Intuit Inc.1 4,822,500
50,000 Mentor Graphics
Corporation1, 2 773,500
100,000 SunGard Data Systems,
Inc.1 2,600,000
--------------
Total 1.1% $ 8,196,000
--------------
SERVICES
1,300,000 The ServiceMaster
Company 2.2% $ 16,016,000
--------------
The accompanying notes are an integral part of these financial statements.
11
THE PARNASSUS INCOME TRUST
================================================================================
EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION, JUNE 30, 2004 (UNAUDITED)
Percent of
Shares Common Stocks Net Assets Market Value
- --------------------------------------------------------------------------------
TELECOMMUNICATION EQUIPMENT
150,000 Cisco Systems, Inc.1 0.5% $ 3,555,000
--------------
TELECOMMUNICATION PROVIDER
125,000 Verizon Communications, Inc. 0.6% $ 4,523,750
--------------
UTILITIES
350,000 AGL Resources, Inc. 10,167,500
42,500 Cascade Natural Gas2 937,975
80,000 Energen Corporation 3,839,200
250,000 Kinder Morgan, Inc. 14,822,500
250,000 Keyspan Energy Corporation2 9,175,000
15,000 MDU Resources Group 360,450
350,000 ONEOK, Inc. 7,696,500
25,000 Questar Corporation 966,000
100,000 UGI Corporation 3,210,000
--------------
Total 7.0% $ 51,175,125
--------------
Total investment in
common stocks
(cost $571,070,804) 83.8% $ 614,399,685
--------------
Shares Preferred Stocks
- --------------------------------------------------------------------------------
55,439 First Republic
Preferred 8.875%,
Series B 1,414,249
55,000 Zions Bancorp
Preferred 8.000%,
due 09/01/32 1,432,750
--------------
Total investment in
preferred stocks
(cost $2,819,746) 0.4% $ 2,846,999
--------------
Convertible Percent of
Shares Preferred Stocks Net Assets Market Value
- --------------------------------------------------------------------------------
275,000 Baxter International2
Preferred 7.000%,
due 02/16/06 $ 15,664,000
10,000 Cummins, Inc.2
Preferred 7.000%,
due 06/15/31 722,500
50,000 KeySpan Corp.
Preferred 8.750%,
due 05/16/05 2,585,000
325,000 ONEOK, Inc.
Preferred 8.500%,
due 02/16/06 9,421,750
125,000 St. Paul Co.
Preferred 9.000%,
due 08/16/05 9,252,500
35,000 TECO Energy
Preferred 9.500%,
due 01/15/05 452,900
225,000 Toys R Us2
Preferred 6.250%,
due 08/01/06 10,251,000
--------------
Total investment in
convertible preferred
stocks
(cost $42,707,314) 6.6% $ 48,349,650
--------------
The accompanying notes are an integral part of these financial statements.
12
THE PARNASSUS INCOME TRUST
================================================================================
Principal Percent of
Amount $ Convertible Bonds Net Assets Market Value
- --------------------------------------------------------------------------------
2,000,000 Brocade Communications
2.000%, due 01/01/07 $ 1,810,000
20,000,000 Ciena Corp.
3.750%, due 02/01/08 17,575,000
2,000,000 ETrade Group
6.000%, due 02/01/07 2,047,500
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 5,662,545
10,000,000 TriQuint Semiconductor
4.000%, due 03/01/07 9,575,000
3,250,000 Vitesse Semiconductor
Corporation
4.000%, due 03/15/05 3,254,062
--------------
Total investment in
convertible bonds
(cost $39,580,444) 5.6% $ 40,880,357
--------------
Total investment in stocks
and convertible bonds
(cost, $656,178,308) 96.4% $ 706,476,691
--------------
Principal Percent of
Amount $ Short-term Investments Net Assets Market Value
- --------------------------------------------------------------------------------
Registered Investment
Companies-
Money Market Funds
83,402 Goldman Sachs FS
Government Fund
variable rate 1.000% $ 83,402
319,715 Janus Government Fund
variable rate 1.070% 319,715
123,944 Scudder Government Fund
variable rate 0.950% 123,944
--------------
Total (cost $527,061) 0.1% $ 527,061
--------------
Community Development
Loan3
100,000 Vermont Community
Loan Fund
2.000%, matures 04/16/05
(cost $100,000) 0.0% $ 95,249
--------------
Securities Purchased
With Cash Collateral From
Securities Lending
Floating Rate Securities
2,500,000 CSFB Bank CD
variable rate 1.150%,
matures 08/06/04 2,502,065
10,000,000 First Tennessee Bank, MTN
variable rate 1.080%,
matures 06/07/05 9,997,980
5,000,000 Lehman Brothers MTN
variable rate 1.590%,
matures 05/16/05 5,000,000
5,000,000 Morgan Stanley Dean
Witter CP
variable rate 1.580%,
matures 02/18/05 5,000,000
--------------
Total (cost $22,500,045) 3.1% $ 22,500,045
--------------
The accompanying notes are an integral part of these financial statements.
13
THE PARNASSUS INCOME TRUST
================================================================================
EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION, JUNE 30, 2004 (UNAUDITED)
CONTINUED
Principal Percent of
Amount $ Short-term Investments Net Assets Market Value
- --------------------------------------------------------------------------------
Commercial Paper
5,000,000 Countrywide Home
Loans CP
1.330% equivalent,
matures 07/06/04 $ 4,998,707
5,000,000 Four Winds Funding DCP
1.750% equivalent,
matures 07/01/04 4,999,757
--------------
Total (cost $9,998,464) 1.4% $ 9,998,464
--------------
Master Note
5,000,000 Bear Stearns & Co
Master Note Agreement
variable rate 1.650%,
matures 07/07/04
(cost $5,000,000) 0.7% $ 5,000,000
--------------
Repurchase Agreements
14,465,554 Bank of America
Securities LLC
Triparty Repurchase
Agreement
(Repurchase agreement
with The Bank of New York
dated 06/30/04, effective
yield is 1.550%, matures
07/01/04,Collateral:
BofA CMO,
10.000%, 04/25/34;
BofA CMO,
0.362%, 04/25/19;
CSFB CMO,
4.815%, 05/25/34
total par value $38,759,141,
total market value
$15,187,191) 14,465,554
Principal Percent of
Amount $ Short-term Investments Net Assets Market Value
- --------------------------------------------------------------------------------
25,000,000 Dresdner Kleinwort Benson
Triparty Repurchase
Agreement
(Repurchase agreement
with JPMorgan Chase Bank
dated 06/30/04, effective
yield is 1.550%, matures
07/01/04, Collateral:
Merrill Lynch MTN,
0.000%, 08/18/05;
Merrill Lynch MTN,
0.000%, 07/11/05
total par value $26,230,000,
total market value
$26,254,754) $ 25,000,000
20,000,000 Lehman Brothers
Triparty Repurchase
Agreement
(Repurchase agreement
with JPMorgan Chase Bank
dated 06/30/04, effective
yield is 1.580%, matures
07/01/04, Collateral:
FUNBC CMO,
6.460%, 01/12/43
GMACC 2002-C2 X1 CMO,
0.000%, 10/15/38;
LBUBS 2003-C7 XCP CMO,
0.669%, 07/15/37;
LBFRC 2003-C4A X1 CMO,
0.000%, 07/11/15;
LBFRC 2003-C4A X2 CMO,
0.000%, 07/11/15;
LBFRC 2003-C4A LFL CMO,
1.465%, 07/11/15;
Salomon BRT CMO,
0.010%, 06/18/20;
SASCO 02-11A 1-A2 CMO,
0.000%, 05/25/32
total par value $942,440,510,
total market value
$20,682,550) 20,000,000
--------------
Total (cost $59,465,554) 8.1% $ 59,465,554
--------------
The accompanying notes are an integral part of these financial statements.
14
THE PARNASSUS INCOME TRUST
================================================================================
Principal Percent of
Amount $ Short-term Investments Net Assets Market Value
- --------------------------------------------------------------------------------
Total securities
purchased with cash
collateral from
securities lending
(cost $96,964,063) 13.2% $ 96,964,063
--------------
Total short-term
securities
(cost $97,591,124) 13.3% $ 97,586,373
--------------
Total securities
(cost $753,769,432) 109.7% $ 804,063,064
Payable upon return of
securities loaned -13.2% (96,964,063)
Other assets and
liabilities - net 3.5% 26,006,446
--------------
Total net assets 100.0% $ 733,105,447
====== ==============
1 These securities are non-income producing.
2 This security or partial position of this security was on loan at June
30, 2004 (Note 1). The total value of securities on loan at June 30,
2004 was $93,613,677.
3 Market value adjustment has been made on this security to reflect
early withdrawal/call penalties.
Fund holdings will vary over time.
Fund shares are not FDIC insured.
EQUITY INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2004 (UNAUDITED)
Assets
Investments in securities, at market value
(identified cost $656,178,308) (Note 1) $ 706,476,691
Temporary investments in short-term securities
(identified cost $97,591,124) 97,586,373
Cash 17,102,062
Receivables:
Dividends and interest 1,890,457
Securities sold 39,388,068
Capital shares sold 1,268,944
Other assets 277,236
--------------
Total assets $ 863,989,831
--------------
Liabilities
Payable upon return of securities loaned 96,964,063
Capital shares redeemed 1,303,984
Fees payable to Parnassus Investments 423,095
Other liabilities 32,098,662
Accounts payable and accrued expenses 94,580
--------------
Total liabilities $ 130,884,384
--------------
Net assets (equivalent to $24.38 per share
based on 30,067,401 shares of capital
stock outstanding) $ 733,105,447
==============
Net assets consist of
Undistributed net investment income 779,073
Unrealized appreciation on securities 50,293,632
Undistributed net realized gain 14,694,774
Capital paid-in 667,337,968
--------------
Total net assets $ 733,105,447
==============
Computation of net asset value and
offering price per share
Net asset value and offering price per share
($733,105,447 divided by 30,067,401 shares) $ 24.38
==============
The accompanying notes are an integral part of these financial statements.
15
THE PARNASSUS INCOME TRUST
================================================================================
EQUITY INCOME FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED)
Investment income
Dividends $ 7,351,467
Interest 1,913,275
Securities lending 74,767
Other income 1,150
--------------
Total investment income $ 9,340,659
--------------
Expenses
Investment advisory fees (Note 5) 2,265,633
Transfer agent fees (Note 5) 131,141
Fund administrative expense (Note 5) 142,479
Service provider fees 495,998
Reports to shareholders 74,915
Registration fees and expenses 16,875
Custody fees 11,057
Professional fees 64,685
Trustee fees and expenses 28,960
Other expenses 45,880
--------------
Total expenses $ 3,277,623
--------------
Net investment income $ 6,063,036
--------------
Realized and unrealized gain on investments
Realized gain from security transactions:
Proceeds from sales 161,178,275
Cost of securities sold 145,952,377
--------------
Net realized gain $ 15,225,898
--------------
Change in unrealized appreciation
(depreciation) of securities:
Beginning of period 53,407,958
End of period 50,293,632
--------------
Net change in unrealized appreciation
(depreciation) of securities $ (3,114,326)
--------------
Net realized and unrealized gain on securities $ 12,111,572
--------------
Net increase in net assets resulting
from operations $ 18,174,608
==============
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED)
AND YEAR ENDED DECEMBER 31, 2003
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
------------- -----------------
From operations
Net investment income $ 6,063,036 $ 8,804,899
Net realized gain from
security transactions 15,225,898 5,870,431
Net change in unrealized
appreciation (depreciation)
of securities (3,114,326) 53,310,045
-------------- --------------
Increase in net assets
resulting from operations $ 18,174,608 $ 67,985,375
Dividends to shareholders
From net investment income (5,849,364) (10,160,220)
From realized capital gains (3,015,028) --
Increase in net assets from
capital share transactions 93,545,952 298,994,695
-------------- --------------
Increase in net assets $ 102,856,168 $ 356,819,850
Net assets
Beginning of period 630,249,279 273,429,429
-------------- --------------
End of period
(including undistributed
net investment income
of $779,073 in 2004 and
$318,960 in 2003) $ 733,105,447 $ 630,249,279
============== ==============
The accompanying notes are an integral part of these financial statements.
16
THE PARNASSUS INCOME TRUST
================================================================================
FIXED-INCOME FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION, JUNE 30, 2004 (UNAUDITED)
Principal Percent of
Amount $ Corporate Bonds Net Assets Market Value
- --------------------------------------------------------------------------------
FINANCIAL SERVICES
500,000 Bank One Corporation
Notes, 6.000%,
due 02/17/09 $ 531,440
500,000 Goldman Sachs Group
Notes, 6.650%,
due 05/15/09 544,378
500,000 Norwest Financial Inc.
Notes, 6.850%,
due 07/15/09 557,853
--------------
Total 4.5% $ 1,633,671
--------------
INSURANCE
700,000 International Lease
Finance Corporation
Notes, 5.625%,
due 06/01/07 2.0% $ 734,593
--------------
RETAIL
400,000 Target Corporation
Notes, 7.500%,
due 08/15/10 1.2% $ 460,478
--------------
Total investment in
corporate bonds
(cost $2,586,968) 7.7% $ 2,828,742
--------------
Convertible Bond
- --------------------------------------------------------------------------------
1,000,000 Ciena Corp.
3.750%,
due 02/01/08
(cost $834,306) 2.4% $ 878,750
--------------
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 $ 967,025
2,000,000 Federal Home Loan
Mortgage Corporation
6.375%, due 08/01/11 2,073,690
2,000,000 Federal Home Loan
Mortgage Corporation
6.250%, due 03/15/12 2,095,408
1,000,000 Federal National
Mortgage Association
5.500%, due 07/18/12 1,008,036
3,000,000 Federal National
Mortgage Association
5.125%, due 04/22/13 2,969,745
--------------
Total investment in
U.S. Government
Agency securities
(cost $9,215,983) 24.9% $ 9,113,904
--------------
Shares Convertible Preferred Stocks
- --------------------------------------------------------------------------------
23,000 St. Paul Company
Preferred 9.000%,
due 8/16/05 1,702,460
55,000 Oneok, Inc.
Preferred 8.500%,
due 02/16/06 1,594,450
--------------
Total investment in
convertible preferred
stocks (cost $3,379,872) 9.0% $ 3,296,910
--------------
Total investment in
corporate bonds,
convertible bond, U.S.
Government Agency
securities and convertible
preferred stock
(cost, $16,017,129) 44.0% $ 16,118,306
--------------
The accompanying notes are an integral part of these financial statements.
17
THE PARNASSUS INCOME TRUST
================================================================================
FIXED-INCOME FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION, JUNE 30, 2004 (UNAUDITED)
CONTINUED
Principal Percent of
Amount $ Short-term Investments Net Assets Market Value
- --------------------------------------------------------------------------------
U.S. Government Agency
Discount Notes
2,200,000 Federal Home Loan
Mortgage Corporation
Zero Coupon,
1.581% equivalent,
matures 08/19/04 $ 2,196,481
3,000,000 Federal Home Loan
Mortgage Corporation
Zero Coupon,
1.000% equivalent,
matures 07/01/04 3,000,000
10,000,000 Federal Home Loan
Mortgage Corporation
Zero Coupon,
0.84% equivalent,
matures 07/07/04 9,998,367
--------------
(cost $15,194,848) 41.5% $ 15,194,848
--------------
Principal Percent of
Amount $ Short-term Investments Net Assets Market Value
- --------------------------------------------------------------------------------
Registered Investment Companies-
Money Market Funds
1,274,443 Goldman Sachs FS
Government Fund
variable rate 1.000% $ 1,274,443
1,582,841 Janus Government Fund
variable rate 1.070% 1,582,841
1,261 Scudder Government
Fund
variable rate 0.950% 1,261
--------------
(cost $2,858,545) 7.8% $ 2,858,545
--------------
Total investment in
short-term securities
(cost $18,053,393) 49.3% $ 18,053,393
--------------
Total securities
(cost $34,070,522) 93.3% $ 34,171,699
Other assets and
liabilities - net 6.7% 2,437,185
------ --------------
Total net assets 100.0% $ 36,608,884
====== ==============
Fund holdings will vary over time.
Fund shares are not FDIC insured.
The accompanying notes are an integral part of these financial statements.
18
THE PARNASSUS INCOME TRUST
================================================================================
FIXED-INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2004 (UNAUDITED)
Assets
Investments in securities, at market value
(identified cost $16,017,129) (Note 1) $ 16,118,306
Temporary investments in short-term securities
(at cost which approximates market value) 18,053,393
Cash 2,235,779
Receivables:
Interest 215,486
Capital shares sold 27,280
Other assets 721
--------------
Total assets $ 36,650,965
--------------
Liabilities
Fees payable to Parnassus Investments 8,471
Distributions payable 31,306
Accrued expenses 2,304
--------------
Total liabilities $ 42,081
--------------
Net assets (equivalent to $15.87
per share based on 2,306,831
shares of capital stock outstanding) $ 36,608,884
==============
Net assets consist of
Undistributed net investment income $ 20,759
Unrealized appreciation on securities 36,981
Accumulated net realized gain 224,551
Capital paid-in 36,326,593
--------------
Total net assets $ 36,608,884
==============
Computation of net asset value and
offering price per share
Net asset value and offering price per share
($36,608,884 divided by 2,306,831 shares) $ 15.87
==============
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED)
Investment income
Interest $ 403,118
Dividend 66,344
--------------
Total investment income $ 469,462
--------------
Expenses
Investment advisory fees (Note 5) 89,178
Transfer agent fees (Note 5) 24,792
Fund administrative expense (Note 5) 7,713
Reports to shareholders 4,639
Registration fees and expenses 9,479
Professional fees 10,097
Custody fees 1,537
Trustee fees and expenses 1,587
Other expenses 13,637
--------------
Total expenses before fee waiver $ 162,659
Fees waived by Parnassus Investments (Note 5) (49,300)
--------------
Net expenses $ 113,359
--------------
Net investment income $ 356,103
--------------
Realized and unrealized gain (loss) on investments
Realized gain from security transactions:
Proceeds from sales 1,329,888
Cost of securities sold 1,152,340
--------------
Net realized gain $ 177,548
--------------
Change in unrealized appreciation (depreciation)
of securities:
Beginning of period 529,093
End of period 36,981
--------------
Net change in unrealized appreciation
(depreciation) of securities $ (492,112)
--------------
Net realized and unrealized
gain (loss) on securities $ (314,564)
--------------
Net increase in net assets resulting
from operations $ 41,539
==============
The accompanying notes are an integral part of these financial statements.
19
THE PARNASSUS INCOME TRUST
================================================================================
FIXED-INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED)
AND YEAR ENDED DECEMBER 31, 2003
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
------------- -----------------
From operations
Net investment income $ 356,103 $ 991,077
Net realized gain
from security transactions 177,548 549,369
Net change in unrealized
appreciation (depreciation)
of securities (492,112) (289,739)
-------------- --------------
Increase in net assets
resulting from operations $ 41,539 $ 1,250,707
Dividends to shareholders
From net investment income (350,085) (1,060,578)
From realized capital gains -- (135,873)
Increase in net assets from
capital share transactions 2,819,613 14,951,960
-------------- --------------
Increase in net assets $ 2,511,067 $ 15,006,216
Net assets
Beginning of period 34,097,817 19,091,601
-------------- --------------
End of period
(including undistributed
net investment income
of $20,759 in 2004 and
$0 in 2003) $ 36,608,884 $ 34,097,817
============== ==============
The accompanying notes are an integral part of these financial statements.
20
THE PARNASSUS INCOME TRUST
================================================================================
CALIFORNIA TAX-EXEMPT FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION, JUNE 30, 2004 (UNAUDITED)
Principal Percent of
Amount $ Municipal Bonds Net Assets Market Value
- --------------------------------------------------------------------------------
EDUCATION
300,000 Folsom School District
5.650%, due 08/11/11 $ 332,961
450,000 Los Altos Unified
School District
5.250%, due 08/01/10 495,513
440,000 Los Angeles Unified
School District
5.500%, due 08/01/13 492,950
450,000 Morgan Hill Unified
School District
4.900%, due 08/01/13 477,567
410,000 Sacramento Unified
School District
5.750%, due 07/01/17 468,101
--------------
Total 9.1% $ 2,267,092
--------------
ENVIRONMENT
400,000 California Department
of Water Resources -
Central Valley Projects
5.125%, due 12/01/16 418,780
1,100,000 California Department
of Water Resources -
Power Supply Revenues
5.500%, due 05/01/09 1,201,485
500,000 Central Coast Water
5.000%, due 10/01/16 520,375
315,000 Los Angeles City Public
Works - Parks
5.500%, due 10/01/12 344,106
200,000 Los Angeles Wastewater
System
5.000%, due 06/01/11 214,566
1,000,000 San Francisco Public
Utilities - Clean Water
Revenue
5.000%, due 10/01/09 1,092,410
--------------
Total 15.1% $ 3,791,722
--------------
Principal Percent of
Amount $ Municipal Bonds Net Assets Market Value
- --------------------------------------------------------------------------------
GENERAL OBLIGATION
1,000,000 State of California
6.600%, due 02/01/09 $ 1,131,714
700,000 State of California
6.100%, due 10/01/09 787,962
1,000,000 State of California
5.000%, due 03/01/08 1,065,460
300,000 Oakland General Obligation
5.500%, due 12/15/11 329,928
--------------
Total 13.3% $ 3,315,064
--------------
HEALTH CARE
400,000 California Health
Facilities - Kaiser
Permanente
5.000%, due 10/01/08 434,740
415,000 Loma Linda Hospital
4.850%, due 12/01/10 448,333
--------------
Total 3.5% $ 883,073
--------------
HOUSING
1,000,000 ABAG Financing Authority
4.250%, due 11/15/12 990,380
275,000 Los Angeles Community
Redevelopment
5.000%, due 07/01/13 291,833
--------------
Total 5.1% $ 1,282,213
--------------
The accompanying notes are an integral part of these financial statements.
21
THE PARNASSUS INCOME TRUST
================================================================================
CALIFORNIA TAX-EXEMPT FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION, JUNE 30, 2004 (UNAUDITED)
CONTINUED
Principal Percent of
Amount $ Municipal Bonds Net Assets Market Value
- --------------------------------------------------------------------------------
INFRASTRUCTURE
IMPROVEMENTS
500,000 CA Infrastructure &
Economic Development
5.000%, due 10/01/12 $ 546,245
1,000,000 CA Public Works -
UCLA Hospital
5.375%, due 10/01/13 1,095,830
960,000 CA Public Works -
Community Colleges
5.500%, due 12/01/09 1,053,523
910,000 CA Statewide Communities
Development - EAH-East
Campus Apartments
4.500%, due 08/01/10 920,893
1,000,000 Indian Wells
Redevelopment Agency
4.500%, due 09/01/11 1,056,960
600,000 La Quinta Redevelopment
Agency
7.300%, due 09/01/11 735,138
350,000 Metro Water District -
Southern California
5.250%, due 07/01/15 381,332
450,000 Oakland Redevelopment Agency
3.400%, due 09/01/09 446,270
860,000 Rialto Redevelopment Agency
4.000%, due 09/01/07 882,532
425,000 Rialto Redevelopment Agency
4.500%, due 09/01/13 426,823
--------------
Total 30.2% $ 7,545,546
--------------
Principal Percent of
Amount $ Municipal Bonds Net Assets Market Value
- --------------------------------------------------------------------------------
PUBLIC
TRANSPORTATION
1,000,000 Contra Costa Transit
Authority
4.000%, due 03/01/09 $ 1,041,840
325,000 Los Angeles Metro
Transit Authority
5.500%, due 07/01/10 362,768
250,000 Los Angeles Metro
Transit Authority
5.000%, due 07/01/13 264,578
1,000,000 San Francisco
International Airport
5.000%, due 05/01/10 1,086,940
390,000 San Francisco
Bay Area Rapid Transit
5.500%, due 07/01/07 423,813
400,000 San Francisco
Bay Area Rapid Transit
5.250%, due 07/01/13 427,772
--------------
Total 14.4% $ 3,607,711
--------------
Total investments
in municipal bonds
(cost, $22,274,254) 90.7% $ 22,692,421
--------------
The accompanying notes are an integral part of these financial statements.
22
THE PARNASSUS INCOME TRUST
================================================================================
Principal Percent of
Amount $ Short-term Investments Net Assets Market Value
- --------------------------------------------------------------------------------
Registered Investment
Companies-
Money Market Funds
251,010 California Investment
Trust Tax Free Fund
variable rate 0.530% $ 251,010
302,129 Goldman Sachs California
Tax-Exempt Fund
variable rate 0.580% 302,129
771,291 Highmark California
Tax-Exempt Fund
variable rate 0.620% 771,291
--------------
(cost $1,324,430) 5.3% $ 1,324,430
--------------
Floating Rate Security
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 $2,024,430) 8.1% $ 2,024,430
--------------
Total securities 98.8% $ 24,716,851
Other assets and
liabilities - net 1.2% 295,096
------ --------------
Total net assets 100.0% $ 25,011,947
====== ==============
Fund holdings will vary over time.
Fund shares are not FDIC insured.
The accompanying notes are an integral part of these financial statements.
23
THE PARNASSUS INCOME TRUST
================================================================================
CALIFORNIA TAX-EXEMPT FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2004 (UNAUDITED)
Assets
Investments in securities, at market value
(identified cost $22,274,254) (Note 1) $ 22,692,421
Temporary investments in short-term securities
(at cost which approximates market value) 2,024,430
Receivables:
Interest 322,409
Capital shares sold 10,272
Other assets 458
--------------
Total assets $ 25,049,990
--------------
Liabilities
Fees payable to Parnassus Investments 10,190
Distributions payable 15,810
Accrued expenses 12,043
--------------
Total liabilities $ 38,043
--------------
Net assets (equivalent to $16.80
per share based on 1,489,101 shares
of capital stock outstanding) $ 25,011,947
==============
Net assets consist of
Undistributed net investment income $ 6,172
Unrealized appreciation on securities 418,167
Accumulated net realized gain 21,607
Capital paid-in 24,566,001
--------------
Total net assets $ 25,011,947
==============
Computation of net asset value and
offering price per share
Net asset value and offering price per share
($25,011,947 divided by 1,489,101 shares) $ 16.80
==============
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED)
Investment income
Interest $ 435,955
--------------
Total investment income $ 435,955
--------------
Expenses
Investment advisory fees (Note 5) 63,025
Transfer agent fees (Note 5) 6,089
Fund administrative expense (Note 5) 5,610
Reports to shareholders 3,086
Registration fees and expenses 830
Professional fees 7,058
Custody fees 1,468
Trustee fees and expenses 1,129
Service provider fees 10,010
Other expenses 5,136
--------------
Total expenses before fee waiver $ 103,441
Fees waived by Parnassus Investments (Note 5) (22,304)
--------------
Net expenses $ 81,137
--------------
Net investment income $ 354,818
--------------
Realized and unrealized gain (loss) on investments
Realized gain from security transactions:
Proceeds from sales --
Cost of securities sold --
--------------
Net realized gain $ --
--------------
Change in unrealized appreciation (depreciation)
of securities:
Beginning of period 934,576
End of period 418,167
--------------
Net change in unrealized appreciation
(depreciation) of securities $ (516,409)
--------------
Net realized and unrealized
gain (loss) on securities $ (516,409)
--------------
Net increase (decrease) in net assets resulting
from operations $ (161,591)
==============
The accompanying notes are an integral part of these financial statements.
24
THE PARNASSUS INCOME TRUST
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED)
AND YEAR ENDED DECEMBER 31, 2003
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
------------- -----------------
From operations
Net investment income $ 354,818 $ 800,948
Net realized gain from
security transactions -- 271,953
Net change in unrealized
appreciation (depreciation)
of securities (516,409) (84,210)
-------------- --------------
Increase (decrease) in
net assets resulting
from operations $ (161,591) $ 988,691
Dividends to shareholders
From net investment income (358,463) (807,627)
From realized capital gains -- (250,346)
Increase (decrease) in net
assets from capital share
transactions 707,473 (1,269,019)
-------------- --------------
Increase (decrease)
in net assets $ 187,419 $ (1,338,301)
Net assets
Beginning of period 24,824,528 26,162,829
-------------- --------------
End of period
(including undistributed
net investment income
of $6,172 in 2004 and
$9,817 in 2003) $ 25,011,947 $ 24,824,528
============== ==============
The accompanying notes are an integral part of these financial statements.
25
THE PARNASSUS INCOME TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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 VALUATIONS: Short-term securities are money-market instruments
and are valued at amortized cost, which approximates market value. A
market-value adjustment is applied to certain short-term securities to
reflect penalties for early withdrawal and early call. Equity securities
that are listed or traded on a national securities exchange are stated at
market value based on recorded closing sales on the exchange or on the
Nasdaq's National Market System official closing price. In the absence of a
recorded sale, and for over-the-counter securities, equity securities are
stated at the mean between the last recorded bid and asked prices.
Long-term fixed income securities are valued each business day using
independent pricing services ("Services") approved by the Board of
Trustees. For fixed-income securities with an active market, the pricing
services value them at the "bid" price where such quotes are readily
available from brokers and dealers and are representative of the actual
market for such securities. Other fixed-income securities experiencing a
less active market are valued as determined by the Services based on
methods which include consideration of trading in securities of comparable
yield, quality, coupon, maturity and type, as well as indications as to
values from dealers and other market data without exclusive reliance upon
quoted prices or over-the-counter prices, since such valuations are
believed to reflect more accurately the value of such securities.
Equity and fixed-income securities without an active market are priced at
their fair value, in accordance with procedures established by the
Trustees. In determining fair value, the trustees may consider a variety of
information including but not limited to the following: price based upon a
multiple of earnings or sales, a discount from the market value of a
similar security, fundamental analytical data, and an evaluation of 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 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 annually. 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 recognized 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.
26
THE PARNASSUS INCOME TRUST
- --------------------------------------------------------------------------------
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 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.
3. CAPITAL STOCK
EQUITY INCOME FUND: As of June 30, 2004, there were an unlimited number of
authorized shares of capital stock, no par value. Paid-in capital
aggregated $667,337,968. Transactions in capital stock (shares) were as
follows:
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
---------------------------- -----------------------------
Shares Amount Shares Amount
---------- ------------- ---------- ------------
Shares sold 8,155,365 $ 199,019,334 21,806,608 $464,928,454
Shares issued through dividend reinvestment 339,453 8,287,148 416,260 9,370,176
Shares repurchased (4,689,914) (113,760,530) (8,855,314) (175,303,935)
---------- ------------- ---------- ------------
Net increase 3,804,904 $ 93,545,952 13,367,554 $298,994,695
========== ============= ========== ============
FIXED-INCOME FUND: As of June 30, 2004, there was an unlimited number of
authorized shares of capital stock, no par value. Paid-in capital
aggregated $36,326,593. Transactions in capital stock (shares) were as
follows:
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
---------------------------- -----------------------------
Shares Amount Shares Amount
---------- ------------- ---------- ------------
Shares sold 445,540 $ 7,147,207 1,416,444 $ 21,276,069
Shares issued through dividend reinvestment 18,658 298,089 63,100 1,017,411
Shares repurchased (288,630) (4,625,683) (550,524) (7,341,520)
---------- ------------- ---------- ------------
Net increase 175,568 $ 2,819,613 929,020 $ 14,951,960
========== ============= ========== ============
27
THE PARNASSUS INCOME TRUST
================================================================================
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
CALIFORNIA TAX-EXEMPT FUND: As of June 30, 2004, there was an unlimited
number of authorized shares of capital stock, no par value. Paid-in capital
aggregated $24,566,001. Transactions in capital stock (shares) were as
follows:
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
---------------------------- -----------------------------
Shares Amount Shares Amount
---------- ------------- ---------- ------------
Shares sold 153,314 $ 2,631,340 416,172 $ 7,158,418
Shares issued through dividend reinvestment 18,281 311,534 54,377 933,074
Shares repurchased (131,162) (2,235,401) (543,745) (9,360,511)
---------- ------------- ---------- ------------
Net increase (decrease) 40,433 $ 707,473 (73,196) $ (1,269,019)
========== ============= ========== ============
4. PURCHASES AND SALES OF SECURITIES
EQUITY INCOME FUND: Purchases and sales of securities were $443,761,597 and
$161,178,275, respectively, for the six months ended June 30, 2004. For
federal income tax purposes, the aggregate cost of securities and
unrealized appreciation as of June 30, 2004 were $654,376,226 and
$52,100,465, respectively. Of the $52,100,465 of net unrealized
appreciation as of June 30, 2004, $58,617,747 related to appreciation of
securities and $6,517,282 related to depreciation of securities.
FIXED-INCOME FUND: Purchases and sales of securities were $3,379,872 and
$1,329,888, respectively, for the six months ended June 30, 2004. For
federal income tax purposes, the aggregate cost of securities and
unrealized appreciation as of June 30, 2004 were the same as for financial
statement purposes. Of the $101,177 of net unrealized appreciation as of
June 30, 2004, $289,089 related to appreciation of securities and $187,912
related to depreciation of securities.
CALIFORNIA TAX-EXEMPT FUND: There were no purchases or sales of securities
during the six months ended June 30, 2004. For federal income tax purposes,
the aggregate cost of securities and unrealized appreciation as of June 30,
2004 were $22,562,499 and $129,922, respectively. Of the $129,922 of net
unrealized appreciation as of June 30, 2004, $384,023 related to
appreciation of securities and 254,101 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 $2,265,633 for the six months ended June 30, 2004. For
the six months ended June 30, 2004, Parnassus Investments has contractually
agreed to reduce its investment advisory 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
2004. For the Fixed-Income Fund, the investment advisory fee was 0.22%.
Parnassus Investments received net advisory fees totaling $39,878 from the
Fixed-Income Fund for the six months ended June 30, 2004. For the
California Tax-Exempt Fund, the investment advisory fee was 0.32%.
Parnassus Investments received net advisory fees totaling $40,721 from the
California Tax-Exempt Fund for the six months ended June 30, 2004.
28
THE PARNASSUS INCOME TRUST
================================================================================
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 $317,824 for the six
months ended June 30, 2004. The transfer agent fee was $2.70 per month per
account. The funds pay a monthly fee based on the number of accounts on
record at month-end. The aggregate payment was $162,022 for the six months
ended June 30, 2004. The fund administration fee was $25,967 per month in
aggregate for all three Funds (this amount is allocated between the Funds
based on net assets). The aggregate payment was $155,802 for the six months
ended June 30, 2004.
Jerome L. Dodson is the president of the Trust and is the president and
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 sub-divisions, 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 the six months ended June 30, 2004 and for
each of the five years ended December 31 are as follows:
=============================================================================================================================
JUNE 30, 2004
Equity Income Fund (unaudited) 2003 2002 2001 2000 1999
-----------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 24.00 $ 21.20 $ 22.50 $ 21.48 $ 23.13 $ 20.13
--------- --------- --------- -------- -------- --------
Income (loss) from investment operations:
Net investment income 0.40 0.44 0.49 0.67 0.33 0.24
Net realized and unrealized gain (loss) on securities 0.28 2.85 (1.32) 1.43 1.06 4.26
--------- --------- --------- -------- -------- --------
Total income (loss) from investment operations 0.68 3.29 (0.83) 2.10 1.39 4.50
--------- --------- --------- -------- -------- --------
Distributions:
Dividends from net investment income (0.20) (0.49) (0.29) (0.45) (0.36) (0.26)
Distributions from net realized gains (0.10) -- (0.18) (0.63) (2.68) (1.24)
--------- --------- --------- -------- -------- --------
Total distributions (0.30) (0.49) (0.47) (1.08) (3.04) (1.50)
--------- --------- --------- -------- -------- --------
Net asset value at end of period $ 24.38 $ 24.00 $ 21.20 $ 22.50 $ 21.48 $ 23.13
========= ========= ========= ======== ======== ========
Total return 2.84% 15.69% (3.69%) 9.97% 6.36% 22.78%
Ratios/supplemental data:
Ratio of gross expenses to average net assets* 0.95% 0.96% 1.03% 1.18% 1.15% 1.27%
Ratio of net expenses to average net assets* 0.95% 0.95% 0.96% 1.00% 0.97% 1.08%
Ratio of net investment income to average net assets* 1.76% 1.95% 2.29% 3.10% 1.34% 1.09%
Portfolio turnover rate 12.39% 79.21% 42.01% 86.78% 97.42% 39.53%
Net assets, end of period (000's) $ 733,105 $ 630,249 $ 273,429 $ 85,501 $ 55,421 $ 45,999
* Annualized for periods less that one year.
29
THE PARNASSUS INCOME TRUST
================================================================================
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
=============================================================================================================================
JUNE 30, 2004
Fixed-income Fund (unaudited) 2003 2002 2001 2000 1999
-----------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 16.00 $ 15.88 $ 14.94 $ 14.19 $ 14.49 $ 15.98
--------- --------- --------- -------- -------- --------
Income (loss) from investment operations:
Net investment income 0.30 0.58 0.82 0.87 0.89 0.81
Net realized and unrealized gain (loss) on securities (0.27) 0.26 0.95 0.72 (0.29) (1.49)
--------- --------- --------- -------- -------- --------
Total income (loss) from investment operations 0.03 0.84 1.77 1.59 0.60 (0.68)
--------- --------- --------- -------- -------- --------
Distributions:
Dividends from net investment income (0.16) (0.65) (0.83) (0.84) (0.90) (0.81)
Distributions from net realized gains -- (0.07) -- -- -- --
--------- --------- --------- -------- -------- --------
Total distributions (0.16) (0.72) (0.83) (0.84) (0.90) (0.81)
--------- --------- --------- -------- -------- --------
Net asset value at end of period $ 15.87 $ 16.00 $ 15.88 $ 14.94 $ 14.19 $ 14.49
========= ========= ========= ======== ======== ========
Total return 0.16% 5.30% 12.20% 11.31% 4.32% (4.32%)
Ratios/supplemental data:
Ratio of gross expenses to average net assets* 0.91% 0.92% 1.08% 1.15% 1.13% 1.23%
Ratio of net expenses to average net assets* 0.64% 0.62% 0.81% 0.83% 0.78% 0.87%
Ratio of net investment income to average net assets* 2.00% 3.59% 5.36% 5.84% 6.18% 5.36%
Portfolio turnover rate 3.71% 125.74% 59.00% 21.19% 19.19% 13.47%
Net assets, end of period (000's) $ 36,609 $ 34,098 $ 19,092 $ 12,947 $ 10,309 $ 11,006
* Annualized for periods less that one year.
30
THE PARNASSUS INCOME TRUST
================================================================================
=============================================================================================================================
JUNE 30, 2004
California Tax-exempt Fund (unaudited) 2003 2002 2001 2000 1999
-----------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 17.14 $ 17.19 $ 16.61 $ 16.90 $ 15.82 $ 16.88
--------- --------- --------- -------- -------- --------
Income (loss) from investment operations:
Net investment income 0.45 0.53 0.59 0.70 0.72 0.72
Net realized and unrealized gain (loss) on securities (0.55) 0.12 0.83 (0.18) 1.10 (1.05)
--------- --------- --------- -------- -------- --------
Total income (loss) from investment operations (0.10) 0.65 1.42 0.52 1.82 (0.33)
--------- --------- --------- -------- -------- --------
Distributions:
Dividends from net investment income (0.24) (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 (0.24) (0.70) (0.84) (0.81) (0.74) (0.73)
--------- --------- --------- -------- -------- --------
Net asset value at end of period $ 16.80 $ 17.14 $ 17.19 $ 16.61 $ 16.90 $ 15.82
========= ========= ========= ======== ======== ========
Total return (0.60%) 3.88% 8.66% 3.09% 11.75% (2.01%)
Ratios/supplemental data:
Ratio of gross expenses to average net assets* 0.82% 0.83% 0.95% 0.85% 0.77% 0.95%
Ratio of net expenses to average net assets* 0.62% 0.62% 0.73% 0.65% 0.52% 0.70%
Ratio of net investment income to average net assets* 2.81% 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 period (000's) $ 25,012 $ 24,825 $ 26,163 $ 18,891 $ 17,186 $ 7,777
* Annualized for periods less that one year.
For the six months ended June 30, 2004, 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
six months ended June 30, 2004 and 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.
DISCLOSURES
Parnassus proxy voting policies and procedures are available on our website
(www.parnassus.com), on the Securities and Exchange Commission's website
(www.sec.gov), and by calling us at (800) 999-3505. On the Parnassus website,
you can also find a record of our votes cast at shareholder meetings.
31
DISCLOSURES
Parnassus proxy voting policies and procedures are available on our website
(www.parnassus.com), on the Securities and Exchange Commission's website
(www.sec.gov), and by calling us at (800) 999-3505. On the Parnassus website,
you can also find a record of our votes cast at shareholder meetings.
THE PARNASSUS INCOME TRUST
One Market-Steuart Tower, Suite 1600
San Francisco, CA 94105
415.778.0200
800.999.3505
www.parnassus.com
Investing with a conscience
INVESTMENT ADVISER INDEPENDENT
Parnassus Investments AUDITORS
One Market-Steuart Tower Deloitte & Touche LLP
Suite 1600 50 Fremont Street
San Francisco, CA 94105 San Francisco, CA 94105
LEGAL COUNSEL DISTRIBUTOR
Foley & Lardner LLP Parnassus Investments
777 E. Wisconsin Avenue One Market-Steuart Tower
Milwaukee, WI 53202 Suite 1600
San Francisco, CA 94105
This report must be preceded or accompanied by a current prospectus.
ITEM 2. CODE OF ETHICS.
Not applicable for semi-annual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable for semi-annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable for semi-annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASES.
Not applicable
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 10. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR
270.30a-3(c))) are effective, as of a date within 90 days of the filing date of
the report that includes the disclosure required by this paragraph, based on
their evaluation of these controls and procedures required by Rule 30a-3(b)
under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under
the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or
240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR
270.30a-3(d)) that occurred during the registrant's last fiscal half-year (the
registrant's second fiscal half-year in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 11. EXHIBITS.
(a)(1) Not applicable.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
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.
The Parnassus Income Trust
By: /s/ Jerome L. Dodson
-------------------------------------
Jerome L. Dodson,
President
Date: August 23, 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: August 23, 2004
By: /s/ Jack Gee
-------------------------------------
Jack Gee,
Chief Financial Officer
Date: August 23, 2004