UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
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 Fund
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, 2003
Item 1: Report(s) to Shareholders
THE PARNASSUS INCOME TRUST
SEMIANNUAL REPORT JUNE 30, 2003
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August 4, 2003
Dear Shareholder:
Enclosed you will find the reports for the three funds in the Parnassus
Income Trust: the Equity Income Fund, the Fixed-Income Fund and the California
Tax-Exempt Fund. The reports cover the first six months of 2003. Both the
Fixed-Income Fund and the California Tax-Exempt Fund outperformed their Lipper
peer group averages for the period. Because of its defensive posture, the Equity
Income Fund lagged its Lipper average for the year-to-date, but it continues to
be far ahead of the competition for the one, three, five and ten-year periods.
We have had many new shareholders coming into the Equity Income Fund and
that fund is now triple the size it was a year ago. I would like to welcome you
into the Fund and let you know that we'll do our best to take good care of your
money. Although that Fund slightly underperformed for this period, the long-term
record is excellent and we'll strive to do better in the future.
Todd Ahlsten manages the Equity Income Fund and the Fixed-Income Fund and
wrote those two reports. Stephen Dodson and Ben Liao manage the California
Tax-Exempt Fund. As many of you know, Ben took a leave late last year and he's
back with us on a full-time basis. It's great to have him back.
As many of you may know, mutual funds will soon be required to make public
their proxy voting policies and procedures and also disclose their actual votes
on proxy issues that come before the annual meetings of companies where they
hold shares. We have drafted our proxy voting policies and procedures, and they
should be on our website by August 5 and on the Securities and Exchange
Commission's website (www.sec.gov) sometime next year. For those shareholders
who prefer the old-fashioned way, you can request a copy of our policies by
calling our toll-free number.
Mutual funds are only required to disclose their actual votes once a year
in August for the previous fiscal year ending June 30. The first disclosures
would be in August of 2004 for the one year period ending June 30 of 2004. Since
we are a social investment fund, we have decided to do more than the regulations
require and we will be disclosing our actual votes in "real time." In other
words, once we're up and running, you will be able to go to our website and see
how we voted as soon as a meeting is held. Most annual meetings occur in the
spring and cover the previous calendar year so there will be very few proxy
votes to disclose until early next year. However, if there are any meetings held
later this year, we will disclose our votes on the site. The disclosures will
begin sometime late this year.
The mutual fund industry opposed disclosure of proxy votes, but the social
investment funds were in favor of it. Domini and Calvert were instrumental in
getting the proposal passed. We think it's a good policy and it will help to
enhance shareholder democracy and further the goals of the social investment
movement.
Yours truly,
Jerome L. Dodson
President
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8/5/2003 PAGE 1 OF 35
EQUITY INCOME FUND
As of June 30, 2003, the net asset value per share (NAV) of the Equity
Income Fund was $22.60, so after taking dividends into account, the total return
for the first six months of the year was 8.00%. This compares to a gain of
11.76% for the S&P 500 and a gain of 9.56% for the average equity income fund
followed by Lipper. While we slightly underperformed our peers and the S&P 500
for the first six months of 2003, our long term record is outstanding. The
Fund's one, three, five and ten-year returns beat the Lipper average and S&P 500
for every period. In fact, for the five years ending June 30, 2003, the Fund has
averaged 10.26% per year compared to a gain of 0.45% annually for the Lipper
average. This places the Fund first out of 131 equity income funds followed by
Lipper.*
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.
Average Annual Total Returns Parnassus Equity Lipper Equity Income S&P 500
for periods ended June 30, 2003 Income Fund Fund Average Index
- ------------------------------- ----------- ------------ -----
One Year 9.39% (1.95%) 0.25%
Three Years 3.02% (0.94%) (11.16%)
Five Years 10.26% 0.45% (1.6%)
Ten Years 10.47% 8.65% 10.02%
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.
*For the one, three, five, and ten-year periods ended 6/30/03, the Parnassus
Equity Income Fund placed #3 of 188 funds, #27 of 158 funds, #1 of 131 funds,
and #9 of 46 funds, respectively.
INVESTMENT STRATEGY
Since our Fund has continued to add new shareholders and has tripled in
size over the past year, I would like to review our investment process. Our
strategy is to own a portfolio of approximately 120 socially responsible
companies that are undervalued and have good business prospects, high returns on
capital and experienced management. Because we take market capitalization into
account, the Fund will primarily consist of larger companies rather than smaller
ones. As an equity income fund, the portfolio is targeted to have a dividend
yield (after expenses) above the S&P 500 and 80% of assets in securities that
pay dividends or interest. Our goal, over the long term, is to outperform the
S&P 500. We are not market timers, our buy and sell discipline is based on stock
valuations and business fundamentals. When stocks are trading below their
intrinsic values and have strong fundamentals, we plan to be fully invested.
When stock valuations are too high given company fundamentals and the economic
outlook, we will hold cash until we find attractive opportunities.
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8/5/2003 PAGE 2 OF 35
To determine if a stock is selling below its intrinsic value, we look at
financial ratios such as price-to-earnings (P/E), price-to-book, and
price-to-sales over a five-year period to determine if a stock is priced at the
low-end of its valuation range. We then estimate the company's intrinsic value
by looking at its business fundamentals and projecting its future cash flows. We
buy companies with a positive business outlook that are trading at least 20%
below their intrinsic value.
We also consider social responsibility. The Fund will not invest in
companies involved in nuclear power, tobacco, alcohol, gambling or weapons
contracting. We also avoid companies with poor environmental records. Our goal
is to own a portfolio of companies that sell goods and services that are
beneficial to society, are good places to work, have strong community
involvement and follow ethical business practices. We feel these types of
companies are more likely to outperform the market over time. Companies,
however, must pass both our financial and social screens to become part of the
portfolio.
ANALYSIS
During the first half of 2003, the Fund gained 8.00% compared to 9.56% for
the average equity income fund and 11.76% for the S&P 500. We underperformed
because of our defensive position involving a higher percentage of our assets in
cash. The Fund began the year with 19% cash as stock valuations looked too high
given our outlook for a slow economic recovery. By March 12th, the S&P 500 was
down 11.8% year-to-date as concerns about the potential war in Iraq and weak
earnings pushed the market lower. While we saw some bargains emerge as stock
prices fell, we held our cash position at 15% because of uncertain economic
conditions.
Stocks began a significant rally on March 13, approximately a week before
the war started. The S&P 500 jumped an amazing 10% in just two weeks from that
date as investors shifted their focus from war and recession to the prospects of
a big economic recovery.
Despite continued weak economic data, by mid May, the S&P 500 had jumped
nearly 18% and many of our stocks became fairly valued. As a result, we began
selling stocks that had reached their intrinsic value and our cash position
approached 40%. As the market continued its strong rally through June, we lagged
the market because of our large cash position.
As of this writing, the S&P 500 is now up 25% from its March 12th low and
very few stocks are undervalued. The S&P 500 trades at 32 times trailing
earnings with a paltry dividend yield of 1.65%. Second quarter earnings for S&P
500 companies are expected to increase only 7% versus last year and most of that
growth will come from cost cutting and currency gains related to a weak dollar.
These are unsustainable drivers of earnings growth. While consumer spending has
remained strong, it could be vulnerable to a slowdown with the unemployment rate
now at a 9-year high of 6.4%. We are bullish on the U.S. economy longer-term,
but we feel a robust recovery is needed to justify current prices. As investors
realize the second half recovery will be slower than expected, we anticipate the
S&P 500 could fall at least 15% from its current level of 1,003. Interestingly,
the S&P 500 has posted losses during the third quarter for five consecutive
years, so from a seasonal standpoint, we could see another move down. When stock
prices decline to value levels, we plan to be fully invested in socially
responsible, undervalued companies with strong business prospects. As of June
30, the portfolio was 42% stocks, 40% cash, 14% convertible bonds, and 4%
preferred stocks. The June SEC yield for the Fund was 1.79% versus a 1.67% yield
for the S&P 500.
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8/5/2003 PAGE 3 OF 35
LOSERS
Only six companies reduced the NAV by two cents or more. TECO Energy, Inc.
which owns Tampa Electric in Florida, lowered the NAV by 12 cents as its stock
fell 33.7% from $15.47 to our average selling price of $10.26. TECO seemed like
an attractive investment with a 12% dividend yield, insider buying by management
and prospects for improving cash flow. Unfortunately, upon further analysis, we
concluded the company had too much debt to maintain the dividend so we sold our
shares. After this experience with TECO, I've learned to keep an even closer eye
on a company's balance sheet.
Johnson & Johnson, the Fund's largest holding, fell 3.7% to $51.70 from
$53.71 which cost the Fund 5 cents. While the company is expected to report
record earnings during the first half of 2003, the stock fell due to concerns
that Procrit, J&J's top selling drug that stimulates production of red blood
cells, is losing market share versus Amgen. In addition, investors are concerned
about increasing competition from Boston Scientific in the heart stent business.
We are holding our stock as J&J is undervalued and has a strong pipeline of
products. This should provide for long-term growth and enable the company to
increase its dividend.
Power tool maker Stanley Works cost the Fund 4 cents as its stock price
fell 26.7% from $34.58 to $27.60. We bought our shares at $35.14 because of the
company's consistent earnings and attractive dividend yield. Unfortunately, due
to weak power tool sales at retailers such as Home Depot, Stanley Works' sales
fell below plan during the Christmas season and the first half of 2003. We sold
90% of our position at $28.82 as we anticipate sales will remain sluggish this
year.
WINNERS
While the Fund had over 100 companies that added to its gain, five
positions added 10 cents or more to the NAV and accounted for 40% of our return.
Home Depot added 12 cents to the NAV as it rose 34.2% from our average cost of
$20.83 to $27.95, the price at which we sold 90% of our position. After two
years of losing market share to competitor Lowe's, Home Depot's CEO Robert
Nardelli has started a turnaround with new marketing and an improved store
format. Home Depot's first quarter earnings were ahead of plan while Lowe's
reported disappointing results.
Our convertible bond investment in Mentor Graphics rose 23.8% to 100.07,
the price at which we sold our position, and added 12 cents to the NAV. Mentor
Graphics, which sells software to design computer chips and printed circuit
boards, saw its bonds rise in value as the company reported strong first quarter
orders and earnings.
Pfizer increased the NAV by 11 cents as its stock rose 11.7% to $34.15. The
company completed its acquisition of Pharmacia during the first quarter which
should boost long-term earnings growth.
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8/5/2003 PAGE 4 OF 35
Invitrogen, a leading supplier of research tools for the biotechnology
industry, added 11 cents to the NAV as its stock increased 22.5% to $38.40.
Demand has been strong for Invitrogen's research kits as pharmaceutical and
biotechnology firms continue to develop new drugs and therapies. The company's
new CEO is also pushing to increase Invitrogen's long-term growth with
acquisitions and new products.
Our investment in Baxter Corporation convertible preferred bonds jumped
22.4% to $49.02 and increased the NAV by 10 cents. While Baxter reported
disappointing earnings for the last year because of overcapacity in its plasma
therapy business, investors began to anticipate stronger earnings for the second
half of 2003.
COMPANY NOTES
In mid-June, I spent an hour at our offices with Paula Rosput, the CEO of
Atlanta-based ATG Corporation, one of the largest natural gas distributors in
the Southeast with over 1.5 million customers in Georgia. Besides being a superb
CEO who has delivered strong earnings at ATG, Ms. Rosput is an executive who
manages with high ethical principals. Not only did she serve as the chairperson
of United Way of Metro Atlanta during 2002, but she has also worked hard to
continue ATG's legacy of strong charitable giving in its local communities. On
April 15, ATG announced grants totaling $950,000 for 2003 that represent in-kind
gifts for low-income energy assistance programs, economic development projects,
leadership programs and other civic activities in Georgia, Tennessee, Texas and
Virginia. "Atlanta Gas Light Company has been a part of Georgia's growth for
over 100 years," said Rosput. "We take great pride that our roots run very deep
in the communities we serve around the state. These grants are a good way to
reinvest in our state and to provide some much-needed assistance to a number of
very deserving organizations in the communities where we live and work." I am
proud that we own 300,000 shares of ATG Corporation in the Equity Income Fund
and have Paula Rosput looking after our investment.
Thank you for investing in the Parnassus Equity Income Fund.
Yours truly,
Todd C. Ahlsten
Portfolio Manager
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8/5/2003 PAGE 5 OF 35
FIXED-INCOME FUND
As of June 30, 2003, the net asset value per share (NAV) of the
Fixed-Income Fund was $16.47, so after taking dividends into account, the total
return for the first six months of the year was 6.73%. This compares to a return
of 5.23% for the Lehman Government/Corporate Bond Index and 4.73% for the
average A-Rated bond fund followed by Lipper. The 30-day Day SEC yield for June
was 3.18%. 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 an outstanding first half of 2003,
beating the average Lipper A-Rated Bond Fund Average by 2%. Our 6.73% return
placed us #26 out of 213 funds followed by Lipper for year-to-date returns*. As
a result of this strong performance, we're now pleased to report that our one,
three, five and ten-year returns beat the Lipper A-Rated Average for every
period. 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.
Average Annual Total Returns Parnassus Lipper A-Rated Bond Lehman Government/
for periods ended June 30, 2003 Fixed-Income Fund Fund Average Corporate Bond Index
- ------------------------------- ----------------- ------------ --------------------
One Year 15.52% 10.78% 13.15%
Three Years 11.00% 9.13% 10.82%
Five Years 6.65% 6.23% 7.84%
Ten Years 6.70% 6.50% 7.35%
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 6/30/03, the Parnassus
Fixed-Income Fund placed #9 of 200 funds, #13 of 154 funds, #41 of 127 funds,
and #20 of 57 funds, respectively.
ANALYSIS
The Fund had a great first half return for two reasons. The main driver was
the convertible bond portion of our portfolio, which boosted the NAV by 58 cents
and accounted for 54% of our total return. Convertible bonds are debt that can
be converted into the stock of the issuing company. As you may remember, we
changed the prospectus in May of 2002 so that we could invest up to 15% of
assets in convertible bonds rated B- or better by a major credit rating service.
We recently increased this limit to 20% as of May 2003. Convertible bonds had
improved the performance for our Equity Income Fund and we felt they offered the
Fixed-Income Fund the potential for greater returns that more than compensated
for the higher risk.
The second positive factor was the continued cutting of interest rates by
the Federal Reserve during the first half of 2003. The Fund's bonds, which had a
duration of approximately six years, increased in value as interest rates fell.
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8/5/2003 PAGE 6 OF 35
WINNERS
Due to falling interest rates and solid credit ratings, 31 of our 33 bond
positions added to the NAV. (The two positions that declined posted small
losses.) The three biggest winners were all convertible bonds. Agere
Corporation, a semiconductor company that was spun off from Lucent, was our
biggest winner, adding 24 cents to the NAV as the bond jumped 40% from 77.08 to
108.00, the price at which we sold our position. We bought bonds last fall at a
remarkable 24% yield to maturity. While the company was losing money, it had
$907 million in cash versus $683 million of debt, most of which wasn't due until
2009. Agere's bond price rose dramatically as the company's outlook improved
based on new products and cost cutting.
Our investment in Quantum Corporation convertible bonds added 13 cents to
the NAV as the bonds jumped 17.8% from 85.50 to 100.75. Like Agere, Quantum was
posting losses but had a decent balance sheet with more cash than debt. In
January, CEO Rick Belluzzo restored Quantum to profitability and the bonds
soared.
TranSwitch Corporation, a semiconductor company that makes chips for
networking applications, also increased the NAV by 13 cents, increasing 35.3% to
79.00 from 58.36. We bought TranSwitch bonds because they were yielding an
attractive 26% and the company had a large cash position of $200 million
compared to its debt of $114 million. The bond price rose after the company's
offer to buy the bonds back. We're holding on as this security still offers an
attractive 17% yield to maturity.
OUTLOOK
As of this writing, interest rates seem to have hit bottom with the Fed
Funds Rate at a 40-year low of 1.0%. We anticipate rates will be stable
throughout the summer months as the economy remains sluggish. However, by fall,
we expect interest rates to rise as the economy shows signs of improvement. At
that time, we plan to shorten our duration, which is currently at 5.3 years.
This move should reduce our downside risk as longer maturity bonds normally fall
more than shorter maturity bonds when rates rise. We also hope to increase our
convertible bond exposure from 11.3% now to approximately 20%. Convertible bonds
typically rise in value along with the stock market. As a result, if the economy
improves and stock prices rise this fall, our convertible bonds should act as a
natural hedge against rising interest rates.
Thank you for investing in the Parnassus Fixed-Income Fund.
Yours truly,
Todd C. Ahlsten
Portfolio Manager
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8/5/2003 PAGE 7 OF 35
CALIFORNIA TAX-EXEMPT FUND
As of June 30, 2003, the net asset value per share (NAV) of the California
Tax-Exempt Fund was $17.37. Taking dividends into account, the total return for
the first half of 2003 was 3.07%. The average California municipal bond fund
followed by Lipper had a return of 3.02%. Municipal bond funds had a fairly
strong first half in 2003, and we're happy to say that we've continued to
outperform the average California municipal bond fund.
Below you will find a table that shows our annual returns compared to
various indices over the past one, three, five and ten-year periods. The 30-day
SEC yield for June 2003 was 2.26%, and the average maturity was 6.6 years.
Parnassus Lipper California
Average Annual Total Returns California Municipal Bond Lehman Municipal
for periods ended 6/30/03 Tax-Exempt Fund Fund Average Bond Index
- ------------------------- --------------- ------------ ----------
One Year 7.55% 7.39% 8.74%
Three Years 7.12% 7.36% 8.54%
Five Years 5.56% 5.04% 6.29%
Ten Years 6.02% 5.65% 6.37%
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.
When you look at the table, you'll notice that the Parnassus California
Tax-Exempt Fund has outperformed the Lipper average, but is still behind the
Lehman Municipal Bond Index. One reason for this is that the index has no
expenses while the Fund does. The other reason is that the Lehman index is based
on all states' municipal bonds while the Lipper average is based only on
California tax-exempt funds. Over the last ten years, general municipal bonds
have performed better than California bonds because the State of California's
bonds have seen their credit deteriorate over the past five years due to the
energy crisis in 2001 and the recurrent California budget crisis.
In the first half of 2003, the Parnassus California Tax-Exempt Fund
continued to perform well in a strong market for bonds. The uncertainty and
anxiety regarding the war in the Persian Gulf and its economic ramifications
sent bond prices higher (and yields lower) than 2002 levels. The anticipation of
another Federal Reserve Board rate cut sent bond prices, as well as the Fund's
NAV, even higher. The latter half of the second quarter was a boon for equity
investors, but it was partly at the expense of us bond investors. As bond
holders moved money out of bonds and into the stock market, bond prices receded
a bit. We had a good start for 2003, but we had to give back a bit of our
earlier gains towards the end of the second quarter.
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8/5/2003 PAGE 8 OF 35
OUTLOOK
As some of the earlier shareholders will remember, toward the end of last
year, we started shortening up the average maturity of our portfolio
significantly. When our average maturity was fairly long, the Fund was more
sensitive to movements in interest rates and bond prices. So when the bond
market went up, we tended to outperform. Now that our average maturity is
shorter (which is a defensive strategy), the Fund will not outperform in a
rising bond market, but the Fund is now better positioned when interest rates
begin to rise (which means lower bond prices).
While we believe the economic recovery is on its way, we don't believe the
economy will grow during the next year at the torrid pace of the late 1990s.
This should leave interest rates relatively low and stable.
As the economy slowly recoups its strength and interest rates start to
rise, we will continue to shorten our maturity. Reducing our average maturity
will decrease the yield and dividend of the Fund, but it will also help protect
us from declining bond prices. In all likelihood, we're not going to be able to
repeat the extraordinary gains of 2002 for 2003, but the California Tax-Exempt
Fund will continue to generate solid, low-risk, tax-free income.
PORTFOLIO MANAGERS
As of May 2003, Ben Liao and Stephen Dodson are co-portfolio managers of
the Fund. With Ben back from medical leave, he has replaced Jerome L. Dodson as
the co-portfolio manager. Stephen will continue working with Ben as a
co-portfolio manager. Before his leave at the end of last year, Ben had worked
as the portfolio manager of the Fund since 2001. So far, this arrangement has
worked out quite well, and barring any unforeseen circumstances, we plan to be
the investment team for many years ahead.
Thank you for investing in the Fund.
Yours truly,
Stephen J. Dodson Ben Liao
Co-Portfolio Manager Co-Portfolio Manager
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8/5/2003 PAGE 9 OF 35
THE PARNASSUS INCOME TRUST
EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION, JUNE 30, 2003 (UNAUDITED)
PERCENT OF
SHARES COMMON STOCKS NET ASSETS MARKET VALUE
------ ------------- ---------- ------------
AIR TRANSPORT
5,000 Southwest Airlines (2) 0.0% $ 86,000
APPAREL
5,000 Ann Taylor Stores (1) 144,750
6,000 Lillian Vernon Corp. (1) 43,380
2,400 Limited Brands 37,200
5,000 Liz Clairborne, Inc. 176,250
4,000 Russell Corporation 76,000
4,000 The Stride Rite Corp. 39,440
Total 0.1% $ 517,020
AUTO PARTS
335,900 Genuine Parts Company (2) 10,752,159
14,900 Modine Manufacturing Co. 283,100
Total 2.3% $ 11,035,259
BANKING
225,000 AmSouth Bancorporation 4,914,000
70,000 Bank One Corporation 2,602,600
3,000 Dime Bancorp - Warrant 450
10,000 Golden West Financial 800,100
1,000 Redwood Empire Bancorp 28,510
15,000 Wells Fargo & Company 756,000
Total 1.9% $ 9,101,660
BIOTECHNOLOGY
10,000 Genentech, Inc. (1, 2) 0.2% $ 721,200
CHEMICAL
1,000 Air Products & Chemicals 41,600
100,000 Calgon Carbon Corp. 575,000
3,400 H.B. Fuller Company 74,868
1,000 Millipore Corporation (1, 2) 44,370
2,000 Wellman, Inc. 22,400
Total 0.2% $ 758,238
COMPUTER PERIPHERALS
2,000 American Power
Conversion (1) 0.0% $ 31,220
COMPUTERS
38,200 RadiSys Corporation (1) 0.1% $ 511,880
ENTERTAINMENT
70,500 Cedar Fair, L.P. (2) 0.4% $ 1,974,000
FINANCIAL SERVICES
50,000 Automatic Data Processing 1,693,000
50,000 Charles Schwab Corp. (2) 504,500
30,000 SLM Corporation 1,175,100
325,000 Synovus Financial Corp. 6,987,500
Total 2.2% $ 10,360,100
HEALTHCARE
41,535 MedQuist Inc. (1) 840,253
30,000 UnitedHealth Group, Inc. 1,507,500
Total 0.5% $ 2,347,753
HOME APPLIANCES
3,000 Maytag Corporation 73,260
1,000 Whirlpool Corporation 63,700
Total 0.0% $ 136,960
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8/5/2003 PAGE 10 OF 35
PERCENT OF
SHARES COMMON STOCKS NET ASSETS MARKET VALUE
------ ------------- ---------- ------------
HOME PRODUCTS
700 Church & Dwight Co., Inc. 0.0% $ 22,911
INDUSTRIAL
100,000 Baldor Electric Company 2,060,000
85,000 Ryerson Tull, Inc. 746,300
67,234 WD 40 Company 1,913,480
Total 1.0% $ 4,719,780
INSURANCE
1,000 Ambac Financial Group, Inc. 66,250
50,000 American Int'l Group, Inc. 2,759,000
50,000 Lincoln National Corp. 1,781,500
35,000 Nationwide Financial Services 1,137,500
5,100 SAFECO Corporation 179,979
30,000 St. Paul Companies, Inc. 1,095,300
Total 1.5% $ 7,019,529
INSURANCE BROKERS
300,000 Arthur J. Gallagher (2) $ 8,160,000
2,000 Marsh & McLennan Co., Inc. 102,140
Total 1.7% $ 8,262,140
MACHINERY
1,000 Black & Decker Corp. 43,450
1,000 Deere & Company 45,700
1,000 Illinois Tool Works, Inc. 65,850
25,000 Regal-Beloit Corp. 477,500
57,000 Snap-on Inc. 1,654,710
11,200 The Stanley Works 309,120
Total 0.5% $ 2,596,330
MEDICAL EQUIPMENT
15,000 Bausch & Lomb Inc. 562,500
100,000 Becton Dickinson 3,885,000
5,000 Invacare Corporation 165,000
165,000 Invitrogen Corp. (1) 6,336,000
100,000 Patterson Dental Co. (1, 2) 4,540,000
75,000 Sybron Dental Specialties, Inc. (1) 1,770,000
Total 3.6% $ 17,258,500
OIL
4,000 Sunoco, Inc. 0.0% $ 150,960
PHARMACEUTICALS
325,000 Johnson & Johnson 16,802,500
200,000 Merck & Company 12,110,000
450,000 Pfizer Inc. 15,367,500
Total 9.4% $ 44,280,000
PRINTING
100,000 Banta Corp. 3,245,000
75,500 Ennis Business Forms 1,098,525
10,000 John Harland 261,600
79,400 The Standard Register 1,308,512
Total 1.2% $ 5,913,637
PUBLISHING
1,000 Gannett Co. $ 76,810
5,500 Knight-Ridder, Inc. (1) 379,115
5,000 LEE Enterprises 187,650
25,000 McGraw-Hill Companies, Inc. 1,550,000
Total 0.5% $ 2,193,575
RESTAURANTS
91,945 Bob Evans Farms, Inc. (2) 0.5% $ 2,573,541
- --------------------------------------------------------------------------------
8/5/2003 PAGE 11 OF 35
PERCENT OF
SHARES COMMON STOCKS NET ASSETS MARKET VALUE
------ ------------- ---------- ------------
RETAIL
175,000 Department 56, Inc. 2,682,750
500 Ethan Allen Interiors, Inc. 17,580
30,000 The Home Depot, Inc. (2) 993,600
67,700 Longs Drug Stores Corp. 1,123,820
125,000 Target Corporation 4,730,000
Total 2.0% $ 9,547,750
SEMICONDUCTORS
1,000 Xilinx, Inc. (1) 0.0% $ 25,300
SOFTWARE
50,000 Mentor Graphics Corporation (1, 2) 726,500
5,000 PeopleSoft, Inc. (1, 2) 87,800
Total 0.2% $ 814,300
TELECOMMUNICATION
EQUIPMENT
5,000 ADC Telecommunications (1) 11,500
150,000 Cisco Systems, Inc. (1) 2,518,500
Total 0.5% $ 2,530,000
TELECOMMUNICATION
PROVIDER
400,000 SBC Communications, Inc. 10,220,000
100,000 Verizon Communications,
Inc. 3,945,000
Total 3.0% $ 14,165,000
UTILITIES
300,000 AGL Resources, Inc. $ 7,632,000
85,000 Atmos Energy 2,108,000
42,500 Cascade Natural Gas 811,750
80,000 Energen Corporation 2,664,000
14,000 Equitable Resources, Inc. 570,360
17,600 IDACORP, Inc. 462,000
150,000 Keyspan Energy
Corporation 5,317,500
110,000 National Fuel Gas 2,865,500
160,000 New Jersey Resources 5,680,000
57,600 Northwest Natural Gas Co. 1,569,600
70,000 ONEOK Inc. (2) 1,374,100
29,900 Peoples Energy Corporation 1,282,411
6,250 Philadelphia Suburban 152,375
75,000 UGI Corporation 2,377,500
44,300 Vectren Corporation 1,109,715
44,100 WGL Holdings, Inc. 1,177,470
Total 7.8% $ 37,154,281
Total common stocks
(cost $178,318,894) 41.6% $ 196,808,823
- --------------------------------------------------------------------------------
8/5/2003 PAGE 12 OF 35
PRINCIPAL $ PERCENT OF
OR SHARES PREFERRED STOCKS NET ASSETS MARKET VALUE
--------- ---------------- ---------- ------------
175,000 Baxter International
Preferred 7.000%, due 02/16/06 (2) $ 8,578,500
10,000 Cummins, Inc.
Preferred 7.000%, due 06/15/31 (2) 534,500
55,439 First Republic
Preferred 8.875%, Series B 1,469,134
50,000 KeySpan Corp.
Preferred 8.750%, due 05/16/05 2,647,500
100,000 ONEOK, Inc.
Preferred 8.500%, due 02/16/06 2,818,000
35,200 St. Paul Co.
Preferred 9.000%, due 08/16/05 2,467,520
35,000 TECO Energy
Preferred 9.500%, due 01/15/05 (2) 671,650
40,000 Zions Bancorp
Preferred 8.000%, due 09/01/32 1,116,000
Total investment in preferred stocks
(cost $17,886,141) 2.4% $ 11,189,804
PRINCIPAL
AMOUNT $ CONVERTIBLE BONDS
-------- -----------------
2,000,000 Brocade Communications
2.000%, due 01/01/07 $ 1,645,000
18,000,000 Ciena Corp.
3.750%, due 02/01/08 14,940,000
2,000,000 ETrade Group
6.000%, due 02/01/07 1,940,000
1,000,000 Kulick and Soffa Industries
4.750%, due 12/15/06 793,750
4,602,000 Lam Research
4.000%, due 06/01/06 4,469,693
15,000,000 LSI Logic, Inc.
4.250%, due 03/15/04 14,850,000
6,500,000 LSI Logic, Inc.
4.000%, due 02/15/05 6,402,500
6,700,000 PMC-Sierra
3.750%, due 08/15/06 6,247,750
5,465,000 Quantum Corp.
7.000%, due 8/01/04 5,505,988
1,000,000 RadiSys Corporation
5.500%, due 08/15/07 940,000
5,691,000 RF Micro Devices
3.750%, due 08/15/05 5,619,863
125,801 TranSwitch Corporation
4.500%, due 09/12/05 99,383
3,000,000 TriQuint Semiconductor
4.000%, due 03/01/07 2,482,500
3,250,000 Vitesse Semiconductor Corporation
4.000%, due 03/15/05 3,018,438
Total investment in convertible bonds
(cost $66,074,090) 14.6% $ 68,954,863
Total investment in stocks
and convertible bonds
(cost, $261,218,027) 58.5% $ 276,953,490
- --------------------------------------------------------------------------------
8/5/2003 PAGE 13 OF 35
PRINCIPAL PERCENT OF
AMOUNT $ SHORT-TERM INVESTMENTS NET ASSETS MARKET VALUE
-------- ---------------------- ---------- ------------
U.S. GOVERNMENT AGENCY DISCOUNT NOTES
22,000,000 Federal Home Loan Mortgage Corporation
Zero Coupon, 1.160% equivalent,
matures 07/01/032 $ 22,000,000
17,000,000 Federal National Mortgage Association
Zero Coupon, 1.140% equivalent,
matures 07/07/03 16,996,770
19,000,000 Federal Home Loan Bank
Zero Coupon, 1.160% equivalent,
matures 07/11/03 18,963,267
32,000,000 Federal Home Loan Bank
Zero Coupon, 0.900% equivalent,
matures 07/21/03 31,984,000
54,000,000 Federal National Mortgage Association
Zero Coupon, 1.133% equivalent,
matures 08/06/03 53,938,790
15,420,000 Federal Home Loan Mortgage Corporation
Zero Coupon, 0.850% equivalent,
matures 08/19/032 15,402,160
10,000,000 Federal National Mortgage Association
Zero Coupon, 1.120% equivalent,
matures 08/22/03 9,983,822
Total (cost $169,268,809) 35.7% $ 169,268,809
REPURCHASE AGREEMENTS
769,711 Bank of America Securities LLC
Triparty Repurchase Agreement
(Repurchase agreement with The Bank
of New York dated 06/30/03,
effective yield is 1.440%
matures 07/01/033, collateralized by
Bank of America Mortgage Securities
CMO par value $769,711,
04/25/33, total market value $769,711) $ 769,711
6,504,347 Yorktown Capital LLC
Triparty Repurchase Agreement
(Repurchase agreement with The Bank
of New York dated 06/30/03,
effective yield is 1.440%
matures 07/01/03,3 collateralized by
Yorktown Capital Commercial Paper
par value $6,504,347, 08/15/03,
total market value $6,504,347) 6,504,347
Total (cost $7,274,058) 1.5% $ 7,274,058
REGISTERED INVESTMENT COMPANIES -
MONEY MARKET FUNDS
211,215 Goldman Sachs FS Government Fund
variable rate 0.990% $ 211,215
3,217,374 Janus Government Fund
variable rate 1.090% 3,217,374
112,345 Scudder Government Fund
variable rate 0.910% 112,345
Total (cost $3,540,934) 0.7% $ 3,540,934
COMMERCIAL PAPER
10,000,000 Four Winds Funding
variable rate 1.550%, matures 07/01/03(3) 9,999,569
4,000,000 Countrywide Home Loans
variable rate 1.500%, matures 07/01/03(3) 3,999,833
Total (cost $13,999,402) 3.0% $ 13,999,402
- --------------------------------------------------------------------------------
8/5/2003 PAGE 14 OF 35
PRINCIPAL PERCENT OF
AMOUNT $ SHORT-TERM INVESTMENTS NET ASSETS MARKET VALUE
-------- ---------------------- ---------- ------------
FLOATING RATE SECURITIES
2,500,000 American Honda Finance
variable rate 1.270%,
matures 07/09/033 2,499,250
3,000,000 Bear Stearns Co. FO MTN
variable rate 1.505%,
matures 02/03/043 3,000,000
2,500,000 Washington Mutual
Bank, FA FCD
variable rate 1.180%,
matures 11/26/033 2,500,000
3,000,000 Washington Mutual Bank, FA FCD
variable rate 1.170%,
matures 01/16/043 3,000,000
Total (cost $10,999,250) 2.3% $ 10,999,250
COMMUNITY DEVELOPMENT LOANS (4)
100,000 Vermont Community Loan Fund $ 95,233
100,000 Boston Community Loan Fund 100,000
Total (cost $200,000) 0.0% $ 195,233
Total short-term securities
(cost $205,282,453) 43.4% $ 205,277,686
Total securities 101.8% $ 482,231,176
Payable upon return of securities
loaned - 6.8% (32,272,710)
Other assets and liabilities - net 5.0% 23,573,906
Total net assets 100.0% $ 473,532,372
(1) These securities are non-income producing.
(2) This security or partial position of this security is on loan at June 30,
2003 (Note 1). The total value of securities on loan at June 30, 2003 was
$31,308,930.
(3) This security was purchased with cash collateral held from securities
lending.
(4) 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.
- --------------------------------------------------------------------------------
8/5/2003 PAGE 15 OF 35
THE PARNASSUS INCOME TRUST
EQUITY INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2003 (UNAUDITED)
ASSETS
Cash $ 18,155,053
Investments in securities, at market value
(identified cost $262,279,125) (Note 1) 286,066,490
Temporary investments in short-term securities
(identified cost $205,282,453) 205,277,686
Receivables:
Dividends and interest 1,562,118
Capital shares sold 1,433,443
Other assets 21,566
Total assets $ 512,516,356
LIABILITIES
Payable upon return of securities loaned 32,272,710
Dividends payable 238,350
Payable for securities purchased 5,474,325
Capital shares redeemed 998,599
Total liabilities $ 38,983,984
Net assets (equivalent to $22.60 per share
based on 20,955,226 shares of capital
stock outstanding) $ 473,532,372
Net assets consist of
Undistributed net investment income $ 1,219,835
Unrealized appreciation of securities 23,787,365
Accumulated net realized loss (3,068,114)
Capital paid-in 451,593,286
Total net assets $ 473,532,372
Computation of net asset value and offering price per share
Net asset value and offering price per share
($ 473,532,372 divided by 20,955,226 shares) $ 22.60
- --------------------------------------------------------------------------------
8/5/2003 PAGE 16 OF 35
THE PARNASSUS INCOME TRUST
EQUITY INCOME FUND
STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2003 (unaudited)
Investment income
Dividends $ 2,703,123
Interest 3,691,110
Total investment income $ 6,394,233
Expenses
Investment advisory fees (Note 5) 1,192,683
Transfer agent fees (Note 5) 111,459
Fund administrative expense (Note 5) 31,400
Service provider fees (Note 5) 123,935
Reports to shareholders 39,806
Registration fees and expenses 12,948
Professional fees (Note 5) 15,977
Custody fees (Note 5) 42,336
Trustee fees and expenses 2,755
Other expenses (Note 5) 72,863
Total of expenses before fee waiver 1,646,162
Fees paid indirectly (Note 5) (7,138)
Net expenses $ 1,639,024
Net investment income $ 4,755,209
Realized and unrealized gain on investments Realized gain from security
transactions:
Proceeds from sales 555,760,332
Cost of securities sold (555,438,928)
Net realized gain $ 321,404
Change in unrealized appreciation of securities:
Beginning of period 97,913
End of period 23,787,365
Net change in unrealized appreciation of securities $ 23,689,452
Net realized and unrealized loss on securities $ 24,010,856
Net decrease in net assets resulting from operations $ 28,766,065
- --------------------------------------------------------------------------------
8/5/2003 PAGE 17 OF 35
THE PARNASSUS INCOME TRUST
EQUITY INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED)
AND YEAR ENDED DECEMBER 31, 2002
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2003 DECEMBER 31, 2002
------------- -----------------
From operations
Net investment income $ 4,755,209 $ 3,717,813
Net realized gain (loss) from
security transactions 321,404 (3,386,526)
Net change in unrealized
appreciation (depreciation) of securities 23,689,452 (6,048,288)
Increase (decrease) in net assets resulting
from operations 28,766,065 (5,717,001)
Dividends to shareholders
From net investment income (5,208,186) (2,512,266)
From realized capital gains 0 (1,660,312)
Increase in net assets from
capital share transactions 176,545,064 197,818,255
Increase in net assets 200,102,944 187,928,676
Net assets
Beginning of period 273,429,429 85,500,753
End of period
(including undistributed
net investment income
of $1,219,835 in 2003
and $1,674,281 in 2002) $ 473,532,372 $ 273,429,429
- --------------------------------------------------------------------------------
8/5/2003 PAGE 18 OF 35
THE PARNASSUS INCOME TRUST
FIXED-INCOME FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION, JUNE 30, 2003 (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 $ 565,512
500,000 Goldman Sachs Group
Notes, 6.650%, due 05/15/09 587,481
500,000 Norwest Financial Inc.
Notes, 6.850%, due 07/15/09 595,860
Total 6.4% $ 1,748,853
INSURANCE
700,000 International Lease Finance Corporation
Notes, 5.625%, due 06/01/07 2.8% $ 761,279
RETAIL
400,000 Target Corporation
Notes, 7.500%, due 08/15/10 1.8% $ 492,322
Total investment in corporate bonds
(cost $2,585,143) 11.1% $ 3,002,454
CONVERTIBLE BONDS
1,000,000 Ciena Corp.
3.750%, due 02/01/08 $ 830,000
600,000 LSI Logic Inc.
4.000%, due 02/15/05 591,000
1,000,000 Quantum Corp.
7.000%, due 8/01/04 1,007,500
790,199 TranSwitch Corporation
4.500%, due 09/12/05 624,257
Total investment in convertible bonds
(cost $2,732,708) 11.2% $ 3,052,757
U.S. GOVERNMENT AGENCY SECURITIES
2,000,000 Federal Home Loan Bank
4.125%, due 06/19/18 $ 1,968,476
3,000,000 Federal Home Loan Bank
4.000%, due 06/26/18 2,928,171
1,500,000 Federal Home Loan Bank
4.250%, due 07/17/18 1,500,000
1,500,000 Federal Home Loan Bank
4.500%, due 04/30/18 1,507,379
1,000,000 Federal Home Loan Bank
5.000%, due 05/28/15 1,019,943
2,000,000 Freddie Mac
6.375%, due 08/1/11 2,222,622
2,000,000 Freddie Mac
6.250%, due 03/15/12 2,202,592
1,000,000 Fannie Mae
5.500%, due 07/18/12 1,057,077
2,000,000 Fannie Mae
4.250%, due 01/09/18 2,001,022
3,000,000 Fannie Mae
5.125%, due 04/22/13 3,083,022
Total investment in U.S. Government
Agency securities (cost $19,346,563) 71.9% $ 19,490,304
Total investments in corporate bonds,
convertible bonds and U.S. Government
Agency securities
(cost, $24,664,414) 94.2% $ 25,545,515
- --------------------------------------------------------------------------------
8/5/2003 PAGE 19 OF 35
PRINCIPAL PERCENT OF
AMOUNT $ SHORT-TERM INVESTMENTS NET ASSETS MARKET VALUE
-------- ---------------------- ---------- ------------
REGISTERED INVESTMENT COMPANIES -
MONEY MARKET FUNDS
19,177 Goldman Sachs FS Government Fund
variable rate 0.990% $ 19,177
919,397 Janus Government Fund
variable rate 1.090% 919,397
1,250 Scudder Government Fund
variable rate 0.910% 1,250
Total investment in short-term
securities (cost $939,824) 3.5% $ 939,824
Total securities 97.7% $ 26,485,339
Other assets and liabilities - net 2.3% 636,278
Total net assets 100.0% $ 27,121,617
Fund holdings will vary over time.
Fund shares are not FDIC insured.
- --------------------------------------------------------------------------------
8/5/2003 PAGE 20 OF 35
THE PARNASSUS INCOME TRUST
FIXED-INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2003 (UNAUDITED)
ASSETS
Cash $ 1,866,358
Investments in securities, at market value
(identified cost $24,664,414) (Note 1) 25,545,515
Temporary investments in short-term securities
(identified cost $939,824) 939,824
Receivables:
Interest receivable 321,230
Capital shares sold 112,865
Other assets 107,644
Total assets $ 28,893,436
LIABILITIES
Payable for shares redeemed 137,105
Accounts payable and accrued expenses 1,634,713
Total liabilities $ 1,771,819
Net assets (equivalent to $16.47 per share based on 1,647,155
shares of capital stock outstanding) $ 27,121,617
Net assets consist of
Distributions in excess of net investment income $ (120,771)
Unrealized appreciation on securities 881,101
Undistributed net realized gain 627,016
Capital paid-in 25,734,271
Total net assets $ 27,121,617
Computation of net asset value and offering price per share
Net asset value and offering price per share
($27,121,617 divided by 1,647,155 shares) $ 16.47
- --------------------------------------------------------------------------------
8/5/2003 PAGE 21 OF 35
THE PARNASSUS INCOME TRUST
FIXED-INCOME FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED)
Investment income
Interest $ 648,792
Total investment income $ 648,792
Expenses
Investment advisory fees (Note 5) 59,541
Transfer agent fees (Note 5) 21,335
Fund administrative expense (Note 5) 3,360
Reports to shareholders 3,248
Registration fees and expenses 11,299
Professional fees 2,298
Custody fees 949
Trustee fees and expenses 255
Other expenses 10,662
Total of expenses before fee waiver 112,947
Fees waived by Parnassus Investments (Note 5) (35,540)
Net expenses $ 77,407
Net investment income $ 571,385
Realized and unrealized gain on investments
Realized gain from security transactions:
Proceeds from sales 42,525,269
Cost of securities sold (41,595,955)
Net realized gain $ 929,315
Change in unrealized appreciation of securities:
Beginning of period 818,832
End of period 880,989
Net change in unrealized appreciation of securities $ 62,157
Net realized and unrealized gain on securities $ 991,471
Net increase in net assets resulting from operations $ 1,562,857
- --------------------------------------------------------------------------------
8/5/2003 PAGE 22 OF 35
THE PARNASSUS INCOME TRUST
FIXED-INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED)
AND YEAR ENDED DECEMBER 31, 2002
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2003 DECEMBER 31, 2002
- --------------------------------------------------------------------------------
From operations
Net investment income $ 571,385 $ 836,212
Net realized gain
from security transactions 929,315 58,908
Net change in unrealized
appreciation of securities 62,157 977,923
Increase in net assets
resulting from operations 1,562,857 1,873,047
Dividends to shareholders
From net investment income (709,948) (847,626)
From realized capital gains 0 0
Increase in net assets from
capital share transactions 7,177,107 5,118,714
Increase in net assets 8,030,015 6,144,131
Net assets
Beginning of period 19,091,601 12,947,470
End of period
(including undistributed
net investment income of
($120,771) in 2003 and
$20,047 in 2002) $ 27,121,617 $ 19,091,601
- --------------------------------------------------------------------------------
8/5/2003 PAGE 23 OF 35
THE PARNASSUS INCOME TRUST
CALIFORNIA TAX-EXEMPT FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY CLASSIFICATION, JUNE 30, 2003 (UNAUDITED)
PRINCIPAL PERCENT OF
AMOUNT $ MUNICIPAL BONDS NET ASSETS MARKET VALUE
- --------------------------------------------------------------------------------
EDUCATION
500,000 California State Education-
Santa Clara University
5.250%, due 09/01/18 $ 571,110
300,000 Folsom School District
5.650%, due 08/11/11 343,155
450,000 Los Altos Unified School District
5.250%, due 08/01/10 516,654
440,000 Los Angeles Unified School District
5.500%, due 08/01/13 519,891
450,000 Morgan Hill Unified School District
4.900%, due 08/01/13 498,713
410,000 Sacramento Unified School District
5.750%, due 07/01/17 495,932
Total 11.0% $ 2,945,454
ENVIRONMENT
400,000 California Department of
Water Resources -Central Valley Projects
5.125%, due 12/01/16 438,120
1,100,000 California Department of
Water Resources -Power Supply Revenues
5.500%, due 05/01/09 1,233,980
500,000 Central Coast Water
5.000%, due 10/01/16 538,945
315,000 Los Angeles City Public Works - Parks
5.500%, due 10/01/12 361,447
200,000 Los Angeles Wastewater System
5.000%, due 06/01/11 222,816
1,000,000 San Francisco Public
Utilities - Clean Water Revenue
5.000%, due 10/01/09 1,138,080
Total 14.7% $ 3,933,388
GENERAL OBLIGATION
1,000,000 State of California
6.600%, due 02/01/09 $ 1,175,610
700,000 State of California
6.100%, due 10/01/09 818,776
1,000,000 State of California
5.000%, due 03/01/08 1,097,430
300,000 Oakland General Obligation
5.500%, due 12/15/11 344,904
Total 12.8% $ 3,436,720
HEALTH CARE
400,000 California Health
Facilities-Kaiser Permanente
5.000%, due 10/01/08 451,500
415,000 Loma Linda Hospital
4.850%, due 12/01/10 466,618
Total 3.4% $ 918,118
- --------------------------------------------------------------------------------
8/5/2003 PAGE 24 OF 35
PRINCIPAL PERCENT OF
AMOUNT $ MUNICIPAL BONDS NET ASSETS MARKET VALUE
- --------------------------------------------------------------------------------
HOUSING
1,000,000 ABAG Financing Authority
4.250%, due 11/15/12 1,029,920
850,000 California Statewide
Community Redevelopment
5.500%, due 08/01/15 973,607
275,000 Los Angeles Community Redevelopment
5.000%, due 07/01/13 306,639
Total 8.6% $ 2,310,166
INFRASTRUCTURE IMPROVEMENTS
500,000 CA Infrastructure &
Economic Development
5.000%, due 10/01/12 $ 571,745
1,000,000 CA Public Works - UCLA Hospital
5.375%, due 10/01/13 1,147,400
960,000 CA Public Works - Community Colleges
5.500%, due 12/01/09 1,093,594
910,000 CA Statewide Communities Development -
EAH-East Campus Apartments
4.500%, due 08/01/10 959,613
1,000,000 Indian Wells Redevelopment Agency
4.500%, due 09/01/11 1,093,690
600,000 La Quinta Redevelopment Agency
7.300%, due 09/01/11 773,676
350,000 Metro Water District - Southern California
5.250%, due 07/01/15 383,723
450,000 Oakland Redevelopment Agency
3.400%, due 09/01/09 458,973
860,000 Rialto Redevelopment Agency
4.000%, due 09/01/07 895,733
425,000 Rialto Redevelopment Agency
4.500%, due 09/01/13 434,397
500,000 San Francisco Golden Gate Park
Improvement
4.750%, due 06/15/19 520,190
Total 31.1% $ 8,332,733
PUBLIC TRANSPORTATION
1,000,000 Contra Costa Transit Authority
4.000%, due 03/01/09 $ 1,073,620
325,000 Los Angeles Metro Transit Authority
5.500%, due 07/01/10 377,741
250,000 Los Angeles Metro Transit Authority
5.000%, due 07/01/13 276,593
1,000,000 San Francisco International Airport
5.000%, due 05/01/10 1,124,650
390,000 San Francisco Bay Area Rapid Transit
5.500%, due 07/01/07 441,511
400,000 San Francisco Bay Area Rapid Transit
5.250%, due 07/01/13 446,772
Total 13.9% $ 3,740,886
Total investments in municipal bonds
(cost, $24,389,672) 95.5% $ 25,617,465
- --------------------------------------------------------------------------------
8/5/2003 PAGE 25 OF 35
PRINCIPAL PERCENT OF
AMOUNT $ SHORT-TERM INVESTMENTS NET ASSETS MARKET VALUE
- --------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANIES -
MONEY MARKET FUNDS
721,212 Highmark California Tax-Exempt Fund
variable rate 0.620% $ 721,212
1,857 Goldman Sachs California Tax-Exempt Fund
variable rate 0.890% 1,857
692 California Investment Trust Tax Free Fund
variable rate 0.530% 692
Total investment in short-term securities
(cost $723,761) 2.7% $ 723,761
Total securities 98.2% $ 26,341,226
Other assets and liabilities - net 1.8% 495,246
Total net assets 100.0% $ 26,836,472
Fund holdings will vary over time.
Fund shares are not FDIC insured.
- --------------------------------------------------------------------------------
8/5/2003 PAGE 26 OF 35
THE PARNASSUS INCOME TRUST
CALIFORNIA TAX-EXEMPT FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2003 (UNAUDITED)
Assets
Investments in securities, at market value
(identified cost $24,389,672) (Note 1) $25,617,465
Temporary investments in short-term securities
(identified cost $723,761) 723,761
Receivables:
Interest receivable 340,989
Capital shares sold 209,191
Other assets 502
Total assets $26,891,907
Liabilities
Capital shares redeemed 36,470
Accounts payable and accrued expenses 18,965
Total liabilities $ 55,435
Net assets (equivalent to $17.39
per share based on 1,543,103
shares of capital stock outstanding) $26,836,472
Net assets consist of
Distributions in excess of net investment income $ (68,645)
Unrealized appreciation on investments 1,227,794
Undistributed net realized gain 210,560
Capital paid-in 25,466,763
Total net assets $26,836,472
Computation of net asset value and offering price per share
Net asset value and offering price per share
($26,836,472 divided by 1,543,103 shares) $ 17.39
- --------------------------------------------------------------------------------
8/5/2003 PAGE 27 OF 35
THE PARNASSUS INCOME TRUST
CALIFORNIA TAX-EXEMPT FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED)
Investment income
Interest $ 493,262
Total investment income $ 493,262
Expenses
Investment advisory fees (Note 5) 66,146
Transfer agent fees (Note 5) 6,564
Fund administrative expense (Note 5) 5,240
Reports to shareholders 5,332
Registration fees and expenses 111
Professional fees 5,868
Custody fees 1,366
Trustee fees and expenses 256
Other expenses 19,725
Total expenses before fee waiver 110,607
Fees waived by Parnassus Investments (Note 5) (26,145)
Net expenses $ 84,463
Net investment income $ 408,799
Realized and unrealized gain on securities
Realized gain from security transactions:
Proceeds from sales 6,141,862
Cost of securities sold 5,931,302
Net realized gain $ 210,560
Change in unrealized appreciation of securities:
Beginning of period 1,018,786
End of period 1,227,794
Net change in unrealized appreciation of securities $ 209,008
Net realized and unrealized gain on securities $ 419,568
Net increase in net assets resulting from operations $ 828,367
- --------------------------------------------------------------------------------
8/5/2003 PAGE 28 OF 35
THE PARNASSUS INCOME TRUST
CALIFORNIA TAX-EXEMPT FUND
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED)
AND YEAR ENDED DECEMBER 31, 2002
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2003 DECEMBER 31, 2002
- --------------------------------------------------------------------------------
From operations
Net investment income $ 408,799 $ 773,722
Net realized gain
from security transactions 210,560 325,194
Net change in unrealized
appreciation of securities 209,008 686,085
Increase in net assets
resulting from operations 828,367 1,785,001
Dividends to shareholders
From net investment income (498,220) (761,866)
From realized capital gains 0 (370,679)
Increase in net assets from
capital share transactions 343,496 6,619,410
Increase in net assets 673,643 7,271,866
Net assets
Beginning of period 26,162,829 18,890,963
End of period
(including undistributed
(over) net investment
income of ($68,645)
in 2003 and $20,776 in 2002) $ 26,836,472 $ 26,162,829
- --------------------------------------------------------------------------------
8/5/2003 PAGE 29 OF 35
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 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, 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 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 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 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. Income from
securities lending 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.
- --------------------------------------------------------------------------------
8/5/2003 PAGE 30 OF 35
THE PARNASSUS INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, 2003, there were an unlimited number of
authorized shares of capital stock, no par value. Paid-in capital
aggregated $451,593,287. Transactions in capital stock (shares) were as
follows:
Six Months Ended Year Ended
June 30, 2003 December 31, 2002
-------------------------------------------------------------------------------
Shares Amount Shares Amount
-------------------------------------------------------------------------------
Shares sold 12,152,893 $248,645,407 11,026,793 $237,856,300
Shares issued through
dividend reinvestment 217,409 4,755,333 180,091 3,803,779
Shares repurchased (4,310,019) (76,851,215) (2,112,055) (43,841,824)
Net increase 8,060,283 $176,549,525 9,094,829 $197,818,255
FIXED-INCOME FUND: As of June 30, 2003, there was an unlimited number of
authorized shares of capital stock, no par value. Paid-in capital
aggregated $25,734,271. Transactions in capital stock (shares) were as
follows:
Six Months Ended Year Ended
June 30, 2003 December 31, 2002
-------------------------------------------------------------------------------
Shares Amount Shares Amount
-------------------------------------------------------------------------------
Shares sold 692,249 $ 10,077,925 469,465 $ 7,147,110
Shares issued through
dividend reinvestment 36,737 596,877 46,188 703,766
Shares repurchased (284,074) (3,495,551) (179,931) (2,732,162)
Net increase 444,912 $ 7,179,251 335,722 $ 5,118,714
CALIFORNIA TAX-EXEMPT FUND: As of June 30, 2003, there was an unlimited
number of authorized shares of capital stock, no par value. Paid-in
capital aggregated $25,466,763. Transactions in capital stock (shares)
were as follows:
Six Months Ended Year Ended
June 30, 2003 December 31, 2002
-------------------------------------------------------------------------------
Shares Amount Shares Amount
-------------------------------------------------------------------------------
Shares sold 350,491 $ 4,218,534 805,150 $ 13,182,672
Shares issued through
dividend reinvestment 24,944 430,357 59,347 1,012,363
Shares repurchased (354,196) (4,305,395) (480,179) (7,575,625)
Net increase 21,239 $ 343,496 384,318 $ 6,619,410
- --------------------------------------------------------------------------------
8/5/2003 PAGE 31 OF 35
THE PARNASSUS INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. PURCHASES AND SALES OF SECURITIES
EQUITY INCOME FUND: Purchases and sales of securities were $230,135,077
and $192,181,716, respectively, for the six months ended June 30, 2003.
For federal income tax purposes, the aggregate cost of securities and
unrealized appreciation at June 30, 2003 were $467,561,578 and
$23,787,365, respectively. Of the $23,787,365 of net unrealized
appreciation at June 30, 2003, $29,932,585 related to appreciation of
securities and $6,145,220 related to depreciation of securities.
FIXED-INCOME FUND: Purchases and sales of securities were $21,501,870 and
$11,941,144, respectively, for the six months ended June 30, 2003. For
federal income tax purposes, the aggregate cost of securities and
unrealized depreciation at June 30, 2003 were the same as for financial
statement purposes. Of the $881,100 of net unrealized appreciation at June
30, 2003, $984,453 related to appreciation of securities and $103,353
related to depreciation of securities.
CALIFORNIA TAX-EXEMPT FUND: Purchases and sales of securities were
$6,657,139 and $5,931,302, respectively, for the six months ended June 30,
2003. For federal income tax purposes, the aggregate cost of securities
and unrealized appreciation at June 30, 2003 were 25,113,433 and
1,227,794, respectively. Of the $1,227,794 of net unrealized appreciation
at June 30, 2003, $1,234,305 related to appreciation of securities and
$6,511 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 $1,192,683 for the six months ended June 30, 2003.
For the six months ended June 30, 2003, Parnassus Investments 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 2002. For the
Fixed-Income Fund, the investment advisory fee was 0.23%. Parnassus
Investments received net advisory fees totaling $24,001 from the
Fixed-Income Fund for the six months ended June 30, 2003. For the
California Tax-Exempt Fund, the investment advisory fee was 0.29%.
Parnassus Investments received net advisory fees totaling $40,001 from the
California Tax-Exempt Fund for the six months ended June 30, 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 $179,358 for the six
months ended June 30, 2003. The transfer agent fee was $2.70 per month per
account (for an aggregate amount of $139,358 for the six months ended June
30, 2003) and the fund administration fee was $6,667 per month (for an
aggregate amount of $40,000 for the six months ended June 30, 2003).
Equity Income Fund: Included in the statement of operations under the
caption "Custody fees" are expenses totaling $6,128 for the six months
ended June 30, 2003. Included in the statement of operations under the
caption "Other expenses" are expenses totaling $275 for the six months
ended June 30, 2003. Included in the statement of operations under the
caption "Professional fees" are expenses totaling $734 for the six months
ended June 30, 2003. These amounts, in aggregate, are $7,137 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.
- --------------------------------------------------------------------------------
8/5/2003 PAGE 32 OF 35
THE PARNASSUS INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 the six months ended June 30, 2003, and
for each of the five years ended December 31 are as follows:
-----------------------------------------------------------------------------------------------------------------------------
June 30, 2003
EQUITY INCOME FUND (unaudited) 2002 2001 2000 1999 1998
-----------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 21.20 $ 22.50 $ 21.48 $ 23.13 $ 20.13 $ 20.68
Income (loss) from investment operations:
Net investment income 0.54 0.49 0.67 0.33 0.24 0.75
Net realized and unrealized gain (loss) on securities 1.14 (1.32) 1.43 1.06 4.26 1.49
Total income (loss) from investment operations 1.68 (0.83) 2.10 1.39 4.50 2.24
Distributions:
Dividends from net investment income (0.28) (0.29) (0.45) (0.36) (0.26) (0.73)
Distributions from net realized gains -- (0.18) (0.63) (2.68) (1.24) (2.06)
Total distributions (0.28) (0.47) (1.08) (3.04) (1.50) (2.79)
Net asset value at end of period $ 22.60 $ 21.20 $ 22.50 $ 21.48 $ 23.13 $ 20.13
Total return 8.00% (3.69%) 9.97% 6.36% 22.78% 11.05%
Ratios/supplemental data:
Ratio of expenses to average net assets (actual)* 0.92% 0.96% 1.00% 0.97% 1.08% 1.05%
Decrease reflected in the above expense ratios due
to undertakings by Parnassus Investments -- -- 0.18% 0.18% 0.19% 0.24%
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 2.68% 2.29% 3.10% 1.34% 1.09% 2.30%
Portfolio turnover rate 71.03% 42.01% 86.78% 97.42% 39.53% 166.32%
Net assets, end of period (000's) $473,532 $ 273,429 $ 85,501 $ 55,421 $ 45,999 $ 40,903
-----------------------------------------------------------------------------------------------------------------------------
June 30, 2003
FIXED-INCOME FUND (unaudited) 2002 2001 2000 1999 1998
-----------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 15.88 $ 14.94 $ 14.19 $ 14.49 $ 15.98 $ 16.04
Income (loss) from investment operations:
Net investment income 0.72 0.82 0.87 0.89 0.81 0.84
Net realized and unrealized gain (loss) on securities 0.34 0.95 0.72 (0.29) (1.49) 0.25
Total income (loss) from investment operations 1.06 1.77 1.59 0.60 (0.68) 1.09
Distributions:
Dividends from net investment income (0.47) (0.83) (0.84) (0.90) (0.81) (0.85)
Distributions from net realized gains -- -- -- -- -- (0.30)
Total distributions (0.47) (0.83) (0.84) (0.90) (0.81) (1.15)
Net asset value at end of period $ 16.47 $ 15.88 $ 14.94 $ 14.19 $ 14.49 $ 15.98
Total return 6.73% 12.20% 11.31% 4.32% (4.32%) 6.97%
Ratios/supplemental data:
Ratio of expenses to average net assets (actual)* 0.65% 0.81% 0.83% 0.78% 0.87% 0.79%
Decrease reflected in the above expense ratios due
to undertakings by Parnassus Investments 0.38% 0.27% 0.32% 0.35% 0.36% 0.40%
Ratio of net investment income to average net assets 4.80% 5.36% 5.84% 6.18% 5.36% 4.92%
Portfolio turnover rate 51.91% 59.00% 21.19% 19.19% 13.47% 44.98%
Net assets, end of period (000's) $ 27,122 $ 19,092 $ 12,947 $ 10,309 $ 11,006 $ 11,482
- --------------------------------------------------------------------------------
8/5/2003 PAGE 33 OF 35
THE PARNASSUS INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------------------------------------------------------------------------------------------
June 30, 2003
CALIFORNIA TAX-EXEMPT FUND (unaudited) 2002 2001 2000 1999 1998
-----------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 17.19 $ 16.61 $ 16.90 $ 15.82 $ 16.88 $ 16.72
Income (loss) from investment operations:
Net investment income 0.49 0.59 0.70 0.72 0.72 0.75
Net realized and unrealized gain (loss) on securities 0.03 0.83 (0.18) 1.10 (1.05) 0.26
Total income (loss) from investment operations 0.52 1.42 0.52 1.82 (0.33) 1.01
Distributions:
Dividends from net investment income (0.32) (0.59) (0.70) (0.71) (0.72) (0.75)
Distributions from net realized gains -- (0.25) (0.11) (0.03) (0.01) (0.10)
Total distributions (0.32) (0.84) (0.81) (0.74) (0.73) (0.85)
Net asset value at end of period $ 17.39 $ 17.19 $ 16.61 $ 16.90 $ 15.82 $16.88
Total return 3.07% 8.66% 3.09% 11.75% (2.01%) 6.12%
Ratios/supplemental data:
Ratio of expenses to average net assets (actual)* 0.64% 0.73% 0.65% 0.52% 0.70% 0.67%
Decrease reflected in the above expense ratios due
to undertakings by Parnassus Investments 0.36% 0.22% 0.20% 0.25% 0.25% 0.30%
Ratio of net investment income to average net assets 3.09% 3.45% 4.19% 4.27% 4.42% 4.43%
Portfolio turnover rate 23.02% 41.73% 23.14% 8.13% 1.75% 9.40%
Net assets, end of period (000's) $ 26,836 $ 26,163 $ 18,891 $ 17,186 $ 7,777 $ 7,342
* For the six months ended June 30, 2003, Parnassus Investments has agreed
to a 0.87% limit on expenses for the Fixed-Income Fund 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, 2003, and for the years ended
December 31, 2002, 2001, 2000, 1999, and 1998 for the Equity Income Fund,
the Fixed-Income Fund and the California Tax-Exempt Fund.
- --------------------------------------------------------------------------------
8/5/2003 PAGE 34 OF 35
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.
- --------------------------------------------------------------------------------
8/5/2003 PAGE 35 OF 35
Item 2: Code of Ethics - Not applicable to this semi-annual report.
Item 3: Audit Committee Financial Expert - Not applicable to this semi-annual
report.
Item 4: Principal Accountant Fees and Services - Not applicable to this
semi-annual report.
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 August 7, 2003, 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.
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 Fund
By: /s/ Jerome L. Dodson
----------------------------------
Jerome L. Dodson
President
Date: August 18, 2003
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 18, 2003
By: /s/ Bryant Cherry
--------------------------------
Bryant Cherry
Vice President
Date: August 18, 2003