Fund Fact Sheet
As of March 31, 2013, the net asset value per share ("NAV") of the Parnassus Fund was $42.97, so the total return for the
quarter was 5.79%. This compares to 10.61% for the S&P 500 Index ("S&P 500") and 10.44% for the Lipper Multi-Cap Core
Average, which represents the average multi-cap core fund followed by Lipper ("Lipper average"). Normally, I'd be delighted
with a return of almost 6% for a quarter, but this quarter, it doesn't look too good in comparison with our benchmarks. The
market moved sharply higher, but technology and telecommunications did not do as well as the market as a whole. As you
will read in the company analysis section, three of the stocks that hurt us the most were related to software and
telecommunications. I think these three companies are significantly undervalued and I believe they will bounce back before
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. For the one-year period, we're ahead of the Lipper average, but we lag the S&P 500 because of our relatively
weak performance for the quarter. The same thing applies to the three-year numbers. We are well ahead of both benchmarks
for the five-year period. We are, however, slightly behind the benchmarks for the ten-year period, primarily because some of
our best relative performance (in 2000, 2001 and early 2002) have dropped out of the ten-year numbers, leaving some of our
worst relative performance periods (in late 2003 and 2004) to lower the ten year average.
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. As described in the Fund's
current prospectus dated May 1, 2013, Parnassus Investments has contractually agreed to limit
the total operating expenses to 0.99% of net assets, exclusive of acquired fund fees, until
May 1, 2014. This limitation may be continued indefinitely by the Adviser on a year-to-year
Three companies sliced 19¢ or more off the value
of each Parnassus share for the quarter. Finisar
caused the most damage, cutting 34¢ off the NAV,
as its stock dropped 19.1% from $16.30 to
$13.19. The company makes optical equipment
used in telecommunications, and its customers
delayed investing in additional network capacity,
because they are hesitant to commit significant
sums of money until the economy strengthens.
Because Internet traffic continues to have strong
growth, at some point telecommunications
companies will have to make substantial new
investments in network capacity, and at that
point, Finisar sales should move much higher and
so will the stock.
Riverbed Technology also knocked 34¢ off the
NAV, as it sank 24.4% during the quarter from
$19.72 to $14.91. The company makes software
for use in optimizing wide-area networks (WANs),
which speed the flow of information within an
organization from site-to-remote-site. The stock
dropped after management reduced its earnings
outlook for the upcoming quarter, citing sluggish
public sector demand for its core WAN product
and higher integration costs from its recent
acquisition of OPNET Technologies. We expect
demand for Riverbed's core WAN optimization
software will rebound, as trends toward mobile
computing and virtualized workplaces drive
greater data traffic across wide-area networks. New
product releases and merger synergies should also
boost profits next year.
EZchip Semiconductor, a designer of semiconductors used in data centers, enterprise networks and telecommunications
equipment, saw its stock drop 27% during the quarter, from $33.07 to $24.13 for a loss of 19¢ per fund share. EZchip reduced
its long-term revenue outlook after one of its customers, Huawei, decided to design its own semiconductors rather than purchase
from EZchip. Investors are worried that other customers may begin to design their own chips. Although this is a risk, we think
that EZchip's technology is of such a high quality, and the costs to switch are so great, that the company will remain the
undisputed leader in network-processors. After the drop in price, the stock is trading at its lowest valuation in two years.
Four portfolio companies each added 19¢ or more to each fund share. The biggest winner was Applied Materials, which
added 35¢ to the NAV, as its stock climbed 17.8% from $11.44 to $13.48. The company is the biggest maker of
semiconductor manufacturing equipment, selling to large chipmakers like Intel and Taiwan Semiconductor Manufacturing.
Customers are increasing capacity to build chips for the growing markets for smartphones and tablets.
Shares of Charles Schwab, the San Francisco-based bank and brokerage firm, jumped 23.2% from $14.36 to $17.69 during
the quarter, contributing 33¢ to each fund share. Although earnings increased modestly in the first quarter, the driving force
was not net income, but rather an expected increase in interest rates. Interest rates, of course, are still very low, but as the
economy improves, investors anticipate higher rates, and this was enough to move Schwab's stock higher. There are three
ways that Schwab will make more money with rising rates. First, it will increase the interest earned on margin loans. Second,
it will increase the interest earned on loans made by the Schwab Bank. Third, it will enable Schwab to earn a full fee on
managing its money market funds. Because of low interest rates, Schwab had to waive most of its fees on these funds, which
last year amounted to $587 million.
Gilead Sciences, a biotech company specializing in medicine to treat HIV and liver diseases, added 27¢ to the NAV and rose
19.8% from $36.73 to $44.01, where we sold it during the quarter, because of significant increases in the share price. Stribild,
the company's new once-a-day HIV pill that produces higher viral suppression with fewer side effects, doubled in total
prescriptions from year-end 2012 to mid-March of 2013. Gilead also
continued to have success developing Sofosbuvir (previously called
GS-7977), producing more clinical trial data demonstrating the drug's
effectiveness in curing hepatitis C across different and often difficult-tocure
patient populations. Like Stribild, Sofosbuvir is a more effective
treatment and better tolerated than its competition.
Shares of homebuilder DR Horton rose 22.9% from $19.78 to $24.30,
contributing 19¢ to each fund share. The stock jumped after the company
reported that its quarterly earnings increased by 122%, well above
expectations, as both the number of homes sold and the average selling
price increased. The housing market continues to improve, and Horton's
broad geographic base and strong balance sheet enabled the company to
reap strong earnings. Chairman Donald R. Horton stated in the earnings
release that "DR Horton is in the best position it has ever been in its
35-year history," and the company's performance backs that up.
Outlook and Strategy
Note: This section represents my thoughts and applies to the three funds
that I manage: the Parnassus Fund, the Parnassus Small-Cap Fund and
the Parnassus Workplace Fund. The other portfolio managers discuss
their thoughts in their respective reports.
The last time I discussed outlook and strategy was three months ago, in
the annual report for 2012, and I was talking about the great
performance my three funds had for the year. Unfortunately, I can't brag
about our performance in the current quarter, so it's been a humbling
experience. In the last report, I said that housing stocks had powered
our performance, but that it was unlikely that they would continue
moving ahead at that speed in 2013. Instead, I indicated that
technology and telecommunications might be the big winners in 2013.
So far, that hasn't happened. While Applied Materials helped the Parnassus Fund and the Workplace Fund, and PMC-Sierra
helped the Small-Cap Fund, most technology and telecommunications stocks hurt our performance. Finisar, Riverbed and
EZchip cut significant value off the NAV of the Parnassus Fund and the Small-Cap Fund; Riverbed also subtracted a lot of
value from each share of the Workplace Fund.
That's the bad news. The good news is that I think our technology and telecom names have a lot more value than indicated in
their current quotations. I expect them to make positive contributions before the year is out.
The economy is clearly recovering, and the stock market is reflecting that recovery. However, stock market indices have come a
long way in a short period of time. My feeling is that we could have a correction before long. There might be a sharp decline,
but if it were to happen, I think it would only be a temporary phenomenon. The recovery may be rocky, but I believe we'll
continue to see more strength in the housing market, and this should help employment and manufacturing.
Despite the run-up in the stock market, I don't think that the shares in our portfolios are overvalued. All three of the funds
that I manage are positioned for a strong recovery. My views still haven't changed from the last report, when I said that
technology and telecommunications shares could drive strong performance in 2013. I also expect financial shares to help us
as the year unfolds.
Thank you very much for investing in the Parnassus Funds.
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.