Fund Fact
Sheet
Parnassus Small-Cap Fund
Parnassus Funds Quarterly Report: March 31, 2012
Ticker: PARSX
As of March 31, 2012, the NAV of the Parnassus Small-Cap Fund was $23.49, so the total return for the quarter was 16.98%.
By comparison, the Russell 2000 Index ("Russell 2000") of smaller companies was up 12.44%, while the Lipper Small-Cap
Core Average, which represents the average small-cap core fund followed by Lipper ("Lipper average"), was up 11.99%. The
Small-Cap Fund's strong performance marks a comeback for the Fund after a difficult year in 2011. We beat the Russell 2000
by more than four percentage points, and we beat the Lipper average by almost five percentage points.
Below is a table comparing the performance of the Parnassus Small-Cap Fund with the Russell 2000 and the Lipper average
over the one-, three-, and five-year periods and the period since inception. As you can see from the table, we're lagging the
benchmarks for the one-year period, because of our difficult 2011, but we're ahead of the indices for the three-year period,
and we're substantially ahead of our benchmarks for the five-year period and for the period since inception.
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 Russell 2000 Index 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. Small-cap companies can
be particularly sensitive to changing economic conditions and have fewer financial resources
than large-cap companies. 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, 2012, Parnassus Investments has
contractually agreed to limit the total operating expenses to 1.20% of net assets, exclusive of
acquired fund fees, until May 1, 2013. This limitation may be continued indefinitely by the
Adviser on a year-to year basis.
Company Analysis
Five companies had the strongest impact on the Fund's performance; each one added 21¢ or more to the NAV. The biggest
winner was EZchip Semiconductor, a designer of semiconductors used in data centers, enterprise networks and
telecommunications equipment. The stock rose an amazing 53.0% from $28.33 to $43.33, boosting the price of each fund
share by 31¢. EZchip provides Ethernet processors for networking equipment in local area networks (LANs). As companies have more and more data to move around their
LANs, speed, reliability and functionality become
increasingly important. Because the company's
high-quality network processors meet this need,
there has been a strong and growing demand for
its products, which has meant higher earnings.
Finisar makes optical equipment for
telecommunications networks, and its stock
contributed 30¢ to each fund share, as it rose from
$16.75 to $20.15 during the quarter. In previous
reports, I wrote about reduced orders at Finisar,
because of excess inventory building up with
customers. That inventory seems to have declined
to normal levels, so investors are anticipating that
telecom service-providers will have to increase
their equipment purchases to meet the demand
for bandwidth.
Homebuilder PulteGroup soared 40.3% from
$6.31 to $8.85, while adding 26¢ to each fund
share. More jobs, the improving economy and
higher home sales pushed all homebuilder stocks
higher.
First Horizon, a Tennessee-based bank, added 23¢
to the NAV, as its stock came roaring back from a
depressed level during a difficult period, climbing
29.8% from $8.00 to $10.38. The bank faced
problems in the 2007-through-late 2011 time
frame, because of a poorly-timed expansion
outside of Tennessee with construction loans,
mortgages and home-equity lending; a high
percentage of these loans went bad. It appears that
the losses from these loans have been contained and the bank has strengthened its balance sheet. The Fund was able to
acquire its shares at bargain-basement prices, so our shareholders have
benefited. We think the bank has strong earnings power, and the current
management team has learned a lesson from its predecessors' disastrous
out-of-state forays, and is committed to building shareholder value.
Yours truly,
Jerome L. Dodson
Portfolio Manager
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.