Fund Fact Sheet
As of September 30, 2013, the net asset value ("NAV") of the Parnassus Fund was $50.05, so the total return for the quarter
was 9.26%. This compares to a gain of 5.24% for the S&P 500 Index ("S&P 500") and a gain of 6.88% for the Lipper Multi-
Cap Core Average, which represents the average return of the multi-cap core funds followed by Lipper ("Lipper average"). For
the quarter then, we were well ahead of both of our benchmarks.
You may remember that we were way behind our benchmarks in the first quarter of the year, but strong performance in both
the second and third quarters has pushed us quite a bit ahead of the benchmarks for the year-to-date period. As we will see
shortly, technology and telecommunications stocks have powered our performance. For the year-to-date, we have gained
23.22%, compared to 19.79% for the S&P 500 and 21.28% for the Lipper average.
Below is a table, comparing the Parnassus Fund with the S&P 500 and the Lipper average over the past one-, three-, five- and
ten-year periods. You'll note that the Fund is ahead of both benchmarks for all time periods.
Performance data quoted represent past performance and are no guarantee of future returns.
Current performance may be lower or higher than the performance data quoted. Current
performance information to the most recent month-end is available on the Parnassus website
(www.parnassus.com). Investment return and principal value will fluctuate so that an
investor’s shares, when redeemed, may be worth more or less than their original principal cost.
Returns shown in the table do not reflect the deduction of taxes a shareholder may pay on fund
distributions or redemption of shares. The S&P 500 Composite Stock Index (also known as the
S&P 500) is an unmanaged index of common stocks, and it is not possible to invest directly in
an index. Index figures do not take any expenses, fees or taxes into account, but mutual fund
returns do. Prior to May 1, 2004, the Parnassus Fund charged a sales load (maximum of
3.5%), which is not reflected in the total return calculations.
Before investing, an investor should carefully consider the investment objectives, risks, charges
and expenses of the Fund and should carefully read the prospectus or summary prospectus,
which contain this and other information. The prospectus or summary prospectus can be
obtained on the Parnassus website, or by calling (800) 999-3505.
Two companies each cut 12¢ off the NAV during
the quarter. Riverbed Technology sank 6.2%
during the quarter from $15.56 to $14.59. The
company makes software to optimize wide-area
networks (WANs), which speed the flow of
information within an organization from site-toremote-
site. A significant portion of Riverbed's
revenue comes from the government, so concerns
about the sequestration and the political
controversy over the national budget affected the
EZchip Semiconductor sliced 12¢ off the NAV, as
its stock dropped 8.7% from $26.99 to $24.64 by
the end of the quarter. Israel-based EZchip designs
semiconductors used in data centers, enterprise
networks and telecommunications equipment.
The shares dropped after Cisco, the company's
largest customer, announced it had designed its
own chip, but the stock partially recovered after
investors realized that Cisco's chips would not
replace EZchip's in its network-processors. We're
holding the stock because the costs for Cisco to
switch to an in-house chip are significant, and the
amount Cisco pays to EZchip is relatively modest
compared to the former's revenue. We expect that
EZchip, with its best-in-class technology, will
remain the undisputed leader in networkprocessors.
Six companies made positive contributions to the
value of each Parnassus share during the quarter:
two telecommunication companies, two
technology companies, one energy company and
one logistics company. Fortunately, each winner
had a much bigger impact on the Fund than each
of the losers, as all six companies added 21¢ or
more to each fund share.
Ciena makes telecommunications equipment for optical networks, and its stock climbed 28.6% from $19.42 to $24.98 for a
contribution of 73¢ to each Parnassus share. Telephone companies are increasing their purchases from Ciena to handle
rapidly increasing traffic on their networks. Ciena's equipment not only helps them add capacity, but also saves operating
costs, since new equipment is much easier to maintain than legacy products. Ciena announced a record level of order
backlog, so the stock should continue to do well.
Finisar contributed 72¢ to the NAV as its stock soared 33.5% from $16.95 to $22.63. The company makes optical equipment
for telecommunications networks. Finisar's sales were much higher than expected, as revenue from its data-communications
division increased. Demand from customers who are upgrading their data-center equipment to handle soaring Internet traffic
accounted for most of the increase. The data-communications division now accounts for 70% of the company's revenue.
Applied Materials, the biggest maker of equipment used in semiconductor manufacturing, saw its stock climb 17.6% from
$14.91 to $17.54, boosting the value of each fund share by 44¢. In September, the company agreed to buy Tokyo Electron, a
rival Japanese equipment producer. The deal will combine two of the industry's three biggest players, resulting in a new
company with a market capitalization of about $29 billion. The combined company will benefit from an expanded customer
base, greater market opportunities and higher earnings potential because of lower costs.
Oil- and gas-producer W&T Offshore saw an increase of 24.0% in its
stock price from $14.29 to $17.72, for a gain of 27¢ for each fund share.
Supply disruptions in the Middle East caused crude oil prices to jump
10.8% during the quarter from $93 to $103 per barrel, so earnings
increased for W&T. The company also announced a significant oil
discovery in the Gulf of Mexico and drilled nine successful wells in the
West Texas Permian Basin.
Autodesk, the leading software provider for architects, engineers and
designers, added 25¢ to each fund share, as its stock jumped from
$33.94 to $41.17 for a gain of 21.3%. Strong demand for its design
software by engineering and construction firms drove better-thanexpected
earnings. Investor sentiment moved higher after the company
announced plans to shift to a more predictable subscription-based
business model. We think that Autodesk has a bright future, as
manufacturing and construction firms adopt the company's innovative
3D design software.
Expeditors International, a freight-forwarder serving shippers for air and
ocean deliveries, contributed 21¢ to the NAV, as its stock rose 15.9%
from $38.01 to $44.06. We bought our shares in late 2012 and early
2013, when demand for air freight was weak, hoping that earnings
would move higher when the cycle turned up. The company has been
gaining market share, and the stock moved higher last quarter on better
earnings, when demand for air freight increased for the first time since
the first quarter of 2011.
Outlook and Strategy
Note: This section represents the thoughts of Jerome L. Dodson and applies to
the Parnassus Fund and the Parnassus Workplace Fund.
The market has had a tremendous run this year with the S&P 500 up
almost 20%. Because of this, stocks are not cheap anymore, and my
view is that the market is fully-valued. For the past couple of weeks, it's
been hard to find stocks to buy. It's been easier to find stocks that are
fully-priced and ready to sell. It seems to me that the market may be due
for a correction.
The market, however, does strange things. For example, on October 1, when the government shut down, the market actually
had a great day and moved higher. With government employees being furloughed and government contractors facing reduced
revenue, one would think that the stock market would move sharply lower, as it did right before the shut-down. Such
perversity, though, is not rare. These seemingly irrational moves inspired the saying that "the market climbs a wall of worry."
There is no doubt that the government shut-down is bad for the economy and for consumer confidence. In fact, for the eight
days prior to the shut-down, the market moved lower in seven of those eight days in anticipation. When the event actually
occurred, the market moved higher. Investors sold on anticipation, then bought on the actual event. Strength in
manufacturing and housing construction overwhelmed the negative news.
What does an investor do in these uncertain times? My strategy is to focus on the individual company and not pay too much
attention to the daily economic news. I look for companies that have good businesses and are undervalued. From these, I
choose ones that are good corporate citizens. I have no special ability to predict the direction of the economy, but I have done
a good job over the years in picking companies that increase in value over time. That's all I can do, so that's the path I'm
Jerome L. Dodson
The information above represents the Letter from Parnassus Investments, management's
discussion and analysis of fund performance, and Responsible Investing Notes as
excerpted from the Report. Please click on the "Full Report" link above to
view the Report in its entirety.