-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OMuTfDJSSi2cmxit/ths258uM03PB8lZ0ZWHvTvkwweCkoJ6t4TDl3MXJz656d87 qpJIqTWWOtoALJg/9Wtxrg== 0000950149-03-002015.txt : 20030821 0000950149-03-002015.hdr.sgml : 20030821 20030821143435 ACCESSION NUMBER: 0000950149-03-002015 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030821 EFFECTIVENESS DATE: 20030821 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARNASSUS INCOME FUND CENTRAL INDEX KEY: 0000866256 IRS NUMBER: 946633178 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-06673 FILM NUMBER: 03859915 BUSINESS ADDRESS: STREET 1: ONE MARKET STEUART TOWER STREET 2: SUITE 1600 CITY: SAN FRANCISCO STATE: CA ZIP: 94105 BUSINESS PHONE: 4157780200 MAIL ADDRESS: STREET 1: ONE MARKET STEUART TOWER STREET 2: SUITE 1600 CITY: SAN FRANCISCO STATE: CA ZIP: 94105 N-CSRS 1 f92643nvcsrs.txt FORM N-CSRS 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 ---------------------------------------------------- (Exact name of registrant as specified in charter) One Market -- Steuart Tower #1600, San Francisco, California 94105 ---------------------------------------------------- (Address of principal executive offices) (Zip code) Bryant Cherry The Parnassus Fund One Market -- Steuart Tower #1600, San Francisco, California 94105 ---------------------------------------------------- (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 - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 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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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
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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
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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
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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
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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
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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
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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
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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 EX-99.CERT 3 f92643exv99wcert.txt SECTION 302 CERTIFICATIONS EXHIBIT 99. CERT I, Jerome Dodson, certify that: 1. I have reviewed this report on Form N-CSRS of the Parnassus Income Trust; 2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of trustees: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. August 18, 2003 Jerome L. Dodson President EXHIBIT 99. CERT I, Bryant Cherry, certify that: 1. I have reviewed this report on Form N-CSRS of the Parnassus Income Trust; 2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a)designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b)evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c)presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of trustees: a)all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. August 18, 2003 Bryant Cherry Vice President EX-99.906CERT 4 f92643exv99w906cert.txt SECTION 906 CERTIFICATIONS EXHIBIT 99.906 CERT Certification Pursuant to Section 906 of the Sarbanes-Oxley Act Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of The Parnassus Income Trust, hereby certifies, to such officer's knowledge, that the report on Form N-CSRS of The Parnassus Income Trust for the period ended June 30, 2003 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form N-CSRS fairly presents, in all material respects, the financial condition and results of operations of The Parnassus Income Trust. Jerome L. Dodson Chief Executive Officer, Parnassus Income Trust August 18, 2003 Bryant Cherry Chief Financial Officer, Parnassus Income Trust August 18, 2003 A signed original of this written statement required by Section 906 has been provided to the Parnassus Income Trust and will be retained by the Parnassus Income Trust and furnished to the SEC or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----