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: Parnassus Funds (811-04044) and Parnassus Income Funds (811-06673)
Parnassus Funds
Parnassus Income Funds
(Exact name of registrant as specified in charter)
1 Market Street, Suite 1600, San Francisco, California 94105
(Address of principal executive offices) (Zip code)
Marc C. Mahon
Parnassus Funds
Parnassus Income Funds
1 Market Street, Suite 1600, San Francisco, California 94105
(Name and address of agent for service)
Registrants telephone number, including area code: (415) 778-0200
Date of fiscal year end: December 31
Date of reporting period: June 30, 2013
Item 1: Report to Shareholders
PARNASSUS FUNDS®
SEMIANNUAL REPORT ¡ JUNE 30, 2013
PARNASSUS FUNDS
Parnassus FundSM | PARNX | |
Parnassus Equity Income FundSM Investor Shares | PRBLX | |
Parnassus Equity Income Fund Institutional Shares | PRILX | |
Parnassus Mid-Cap FundSM | PARMX | |
Parnassus Small-Cap FundSM | PARSX | |
Parnassus Workplace Fund® | PARWX | |
Parnassus Asia FundSM | PAFSX | |
Parnassus Fixed-Income FundSM | PRFIX |
Letter from Parnassus Investments | 4 | |||
Fund Performance and Commentary | ||||
Parnassus Fund | 7 | |||
Parnassus Equity Income Fund | 10 | |||
Parnassus Mid-Cap Fund | 13 | |||
Parnassus Small-Cap Fund | 17 | |||
Parnassus Workplace Fund | 20 | |||
Parnassus Asia Fund | 22 | |||
Parnassus Fixed-Income Fund | 24 | |||
Responsible Investing Notes | 26 | |||
Fund Expenses | 28 | |||
Portfolios of Investments | ||||
Parnassus Fund | 30 | |||
Parnassus Equity Income Fund | 32 | |||
Parnassus Mid-Cap Fund | 35 | |||
Parnassus Small-Cap Fund | 37 | |||
Parnassus Workplace Fund | 39 | |||
Parnassus Asia Fund | 41 | |||
Parnassus Fixed-Income Fund | 42 | |||
Financial Statements | 46 | |||
Notes to Financial Statements | 53 | |||
Financial Highlights | 64 | |||
Additional Information | 67 |
PARNASSUS FUNDS | Semiannual Report 2013 |
August 2, 2013
Enclosed are the semiannual reports for all the Parnassus Funds. I think that youll find that they make for interesting reading, as they describe our investment strategy and the results for the quarter. They will also give you insights into the companies we invest in. Below is a photograph of a recent reunion of our interns.
Front Row (from left to right): Chi Tran-Brandli, Rachel Tan, Cina Loarie, Jerome Dodson, Thao Dodson, Rachel Chang, Madeline Lissner and Annie Lee. Middle Row: Lori Lai, Andrea Reichert, Hallie Marshall, Ben Allen, Katherine Loarie, Bryan Wong, Ian Sexsmith, Minh Bui, Matthew Gershuny, Robert Klaber, Fred Jones and Marie Lee. Back Row: Russ Caprio, Dan Beck, Josh Harrington, Iyassu Essayas, Ryan Wilsey, Peter Tsai, Gee Leung, Ben Hamlin, Billy Hwan and John Haskell.
Interns
We have eight terrific interns on our research team this summer. Ben Hamlin is an MBA candidate at the Haas School of Business at the University of California, Berkeley. Prior to business school, he spent four years in the equity capital markets division of Bank of America Merrill Lynch. He graduated with honors from Claremont McKenna College, with a degree in economics. Ben enjoys cooking, tennis, travelling, and serves on the board of a non-profit that assists microfinance recipients.
John Haskell earned an MBA from the Harvard Business School this past May. His experience includes stints at Boston Consulting Group, Eagle Capital Management and the Capital Group. John studied comparative literature and society at Columbia University, where he earned a bachelors degree with honors. He also studied in China on a Fulbright Grant and in Syria on a scholarship from the U.S. National Security Education Program. Johns favorite leisure activities are reading fiction and playing with his dachshund.
4
Semiannual Report 2013 | PARNASSUS FUNDS |
Annie Lee is an MBA candidate at the Wharton School at the University of Pennsylvania. She holds a bachelors degree in business administration and a masters degree in accounting from the University of Texas at Austin. She worked in Visas corporate finance group and the investment banking division of RBC Capital Markets. Annie is a founding board member of Nonprofit Investor, an organization that evaluates non-profits, and a board member of Leap, an arts education non-profit in San Francisco. In her free time, Annie enjoys traveling, playing piano and attending concerts.
Madeline Lissner is also an MBA candidate at the Wharton School. Previously, she was an investment banker in the New York offices of Centerview Partners and Citigroup. Madeline graduated magna cum laude from Harvard College, where she studied economics and served as Secretary of her class. At Wharton, Madeline has led character-development backpacking treks in locations such as Antarctica and Patagonia.
Bryan Wong is pursuing his MBA at the Haas School of Business at the University of California, Berkeley. Prior to business school, he was a senior associate at the David & Lucile Packard Foundation and an analyst at two hedge funds, Wohl Capital and Khan Capital Management. Bryan earned a bachelors degree from Yale University with distinction in political science and international studies. He is an avid San Francisco Giants fan and is looking forward to getting married in August.
The following three interns are helping our environmental, social and governance (ESG) research team this summer. Rachel Chang is a senior at the University of California, Berkeley, where she is pursuing a bachelors degree in business with a minor in energy and resources. She previously interned with a social impact consulting firm in Singapore and the Lawrence Berkeley National Laboratorys Department of Energy Efficiency.
Emily Dwyer graduated from Smith College in May, where she double-majored in economics and environmental science and policy. While at Smith, Emily served as the Student Liaison and Intern for the Environmental Science & Policy department. During her junior year, she studied at the Graduate Institute of International and Developmental Studies in Geneva, Switzerland, and interned for the United Nations Environment Programme Finance Initiative (UNEP FI).
Cina Loarie earned a bachelors degree in biology from Duke University and a masters degree in conservation from Scripps Institution of Oceanography at the University of California, San Diego. She worked as an analyst at the China Greentech Initiative in Beijing and as a project manager at the California Ocean Protection Council in Oakland. Cina holds a 100-ton captains license from the U.S. Coast Guard, making her the first certified skipper to intern at Parnassus Investments. Cina plans to pursue her masters degree in sustainable business administration from the Presidio Graduate School in San Francisco this coming fall.
In other personnel news, Amy Phan has accepted an offer to join Parnassus Investments as a full-time Marketing Associate in August, upon completion of her current internship with the firm. Amy graduated in May from the University of California, Berkeley as a quadruple major, with bachelors degrees in environmental economics and policy, media studies, political economy and sociology. She was on the leadership team of MarketingCamp San Francisco 2013 and is a strong advocate for the LGBTQIA community.
Andrew Saeta is currently interning on our sales and marketing team. He graduated from Stanford University in May with a bachelors degree in science, technology and society. As a member of the varsity swim team, Andrew earned four NCAA All-American honors, three PAC-12 First Team Academic All-American honors and competed in the 2008 and 2012 U.S. Olympic Trials. Andrews interests outside of the pool include designing and distributing custom t-shirts and playing guitar.
Flora Dai is a software engineer intern, working on improving the user experience on our website. She is working towards a bachelors degree in electrical engineering and computer science at the University of California, Berkeley. She is a music enthusiast and during her spare time, enjoys playing the piano.
Greg Owyang is an information technology intern, working to support our technology infrastructure. He is working towards a bachelors degree in mechanical engineering at the California State Polytechnic University, Pomona. He enjoys snowboarding and playing video games in his spare time.
5
PARNASSUS FUNDS | Semiannual Report 2013 |
Downey Blount is a Compliance Project Manager, who will be handling special projects over the next three months. Downey brings a wealth of experience, as her prior positions include Mutual Fund Administration Manager at Montgomery Asset Management and Chief Compliance Officer at Matthews International Capital Management. She has a bachelors degree from the University of California, Santa Barbara, and attended law school at the University of San Francisco. Downey is fluent in Spanish and spent a year living in Spain.
Yours truly,
Jerome L. Dodson
President
6
Semiannual Report 2013 | PARNASSUS FUNDS |
Ticker: PARNX
As of June 30, 2013, the net asset value per share (NAV) of the Parnassus Fund was $45.81, so the total return for the quarter was 6.61%. This compares favorably to 2.91% for the S&P 500 Index (S&P 500) and 2.57% 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, we beat the S&P 500 by 3.7 percentage points and the Lipper average by 4.04 percentage points. Although we lagged our benchmarks by quite a bit at the end of the first quarter, we bounced back nicely in the second quarter, so that now were only a little over a percentage point behind the S&P 500 for the year-to-date: 12.78% vs. 13.82%; and only about half a percentage point behind the Lipper average: 12.78% vs. 13.34%. As youll see in the Company Analysis section, technology and telecommunications stocks helped us the most in this comeback quarter, but we also had help from financial stocks and a consumer-products company.
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 ended June 30, 2013. Were ahead of both benchmarks for all periods except for the ten-year period, where were slightly behind both the S&P 500 and the Lipper average.
7
PARNASSUS FUNDS | Semiannual Report 2013 |
8
Semiannual Report 2013 | PARNASSUS FUNDS |
Outlook and Strategy
Note: This section represents my thoughts and applies to two of the funds that I manage: the Parnassus Fund and the Parnassus Workplace Fund, which are managed as a pair. The outlook and strategy for the Parnassus Small-Cap Fund appears in that Funds section and was written by myself and Portfolio Manager, Ryan Wilsey. There is no outlook and strategy section for the new Parnassus Asia Fund, since that section already contains general thoughts about the ideas behind the Asia Fund.
The economy continues to grow at a slow pace with modest increases in job creation. Normally after a recession, the economy starts to grow at a rapid clip, with new job creation sometimes exceeding 300,000 or 400,000 per month. Since 2009, the economy has expanded slowly with job creation hovering in the range of 100,000 to, at most, 200,000. Looked at in one way, this slow growth is frustrating, because the unemployment rate remains high, and there are concerns that the economy may fall into a recession again.
Looked at another way, the slow growth phenomenon may not be all bad. The measured pace of growth may prevent the economy from overheating. The stock market seems to like the slow and steady rate of growth, as it has moved sharply higher this year with a gain of 13.82% for the S&P 500 for the first six months of the year.
Many economists and top government officials, including Federal Reserve Chairman Ben Bernanke, are concerned that the rate of growth is so slow, that the economy could fall back into a recession. In fact, Chairman Bernanke has had the Fed purchase $85 billion of securities per month, mostly in mortgage securities, to stimulate the economy.
Although I agree with the Bernanke policy, I think its highly unlikely that the economy will fall back into a recession, even if the Fed tapers off its purchase of securities and reduces the economic stimulus. The reason for my optimism is the state of the housing market. As many of you know, Im convinced that almost without exception, the housing market is what drives the economy into a recession and pulls the economy out of a recession. It was clearly speculation in the housing market and abuse of subprime mortgages that drove us into the great recession of 2008. The crash of the housing market is what drove us to the brink of financial meltdown in 2008 and has kept the economy on its knees for so long.
Housing is now driving the economy forward. Existing home sales grew 12.9% in May, and home prices in the twenty largest American cities jumped 12.1% in April; the largest increase since 2006. At first glance, these numbers might cause concern that the housing market may be overheating again, but remember that these increases are from low bases. Lenders are more disciplined than they were in the 2006-2007 period, so its unlikely that things will get out of hand in the housing market at least not right away. Also, for most of the country, housing prices are still far below their peaks of 2007-2008.
As home prices recover and construction picks up, bricklayers, carpenters, plumbers and electricians have more work. People will buy more furniture, home appliances, pots and pans, dishes, drapes and rugs, and so on throughout the economy. This is a force that is not easy to stop, so the economy should keep growing. Interest rates will rise slowly, but this should not choke off the expansion, since they remain low compared to historic levels.
Our portfolio is positioned to take advantage of this growth in the economy, as evidenced by our continuing position in homebuilders and our holdings in telecommunications and technology stocks. Even with the big move up in the stock market this year, stocks dont appear to be overvalued. Volatility will continue, and may have big moves down when there are concerns that interest rates are moving higher. For us, though, this will be a good time to buy.
Yours truly,
Jerome L. Dodson
Portfolio Manager
9
PARNASSUS FUNDS | Semiannual Report 2013 |
Ticker: Investor Shares - PRBLX
Ticker: Institutional Shares - PRILX
As of June 30, 2013, the NAV of the Parnassus Equity Income Fund-Investor Shares was $33.17. After taking dividends into account, the total return for the second quarter was 1.40%. This compares to increases of 2.91% for the S&P 500 Index (S&P 500) and 2.17% for the Lipper Equity Income Fund Average, which represents the average return of the equity income funds followed by Lipper (Lipper average). For the first half of 2013, the Fund posted a return of 14.28%, which compares favorably to gains of 13.82% for the S&P 500 and 13.01% for the Lipper average.
10
Semiannual Report 2013 | PARNASSUS FUNDS |
it dropped 26.7% from $36.31 to $26.61, slicing 25¢ off the Funds NAV. In June, Iron Mountains management announced that the IRS had put on hold the companys application to become a real estate investment trust (REIT), and that the agency was tentatively adverse to the application before doing so. One silver lining is that the halt was not specific to Iron Mountain, but rather, applied to a large number of other applicants as well. Since a REIT structure would drastically reduce Iron Mountains tax bill and increase its dividend, the stock fell sharply on the news.
11
PARNASSUS FUNDS | Semiannual Report 2013 |
Schwabs earnings would be almost triple their current 15¢ quarterly rate. We trimmed our Schwab position in response to the big move up, but still held some stock at quarter-end.
Applied Materials, the manufacturer of semiconductor capital equipment, climbed 10.6% to $14.91 from $13.48 and increased the NAV by 14¢. The companys customers are steadily increasing their capacity to build chips for computing devices, such as smartphones and tablets. Importantly for an equipment maker like Applied Materials, as the technical specifications for these chips evolve, they become more difficult and expensive to manufacture. This trend should continue for many years, and the company is well-positioned to profit from it. Another positive is that Applied Materials management team has significantly improved over the past 18 months, with the promotion of Gary Dickerson to President and the addition of Bob Halliday as Chief Financial Officer. These executives have already reshaped the companys culture, with a focus on innovation, cost control and anticipating customer needs.
Google climbed 10.9% to $880.37 from $794.03 and added 13¢ to the NAV. The company reported excellent first quarter results in April, with revenues 31% higher than last year. Googles mobile advertising sales are surging, and the company has done an excellent job at monetizing its non-search services, such as YouTube. We trimmed our Google position at an average price of $908 during the quarter, because we expect more modest investment returns given the current valuation.
Outlook and Strategy
Our overall strategy is basically unchanged from last quarter. We still think there are pockets of fragility in the global economy, but are encouraged by the fact that the housing market in the United States has roared back to life. According to the latest Case-Shiller report, national home prices rose at an average annual rate of 12.1% in April and were up a record 2.5% as compared to the previous month. This real estate recovery has increased the wealth of millions of American homeowners and encouraged new home construction. Since a homebuilding recovery usually precedes a broader economic expansion, its a great sign that builders sought permits in May at the highest rate since the spring of 2008.
Federal Reserve Chairman Ben Bernanke has taken note of the strength in the real estate market and the overall economy. On June 19, he announced that if the economy keeps improving as he expects, the central bank would soon reduce the size of its quantitative easing (QE) program, which is designed to boost asset prices and keep interest rates low. Bernanke specified that by year-end the Fed would ratchet down its monthly bond purchases from the current pace of $85 billion and likely end the program in 2014. Since the Fed has played a major role in propping up debt markets, we expect bonds to display increased volatility as QE tapers off and eventually expires. We wouldnt be surprised to see turbulence in the stock market as well, since changes in the value of credit securities normally impact equity prices.
Were still paying close attention to events overseas that could potentially impair the value of our portfolio companies. Europes persistent economic contraction and fragile credit system top our list of global concerns. Amazingly, the 17 nations that comprise the Eurozone are, in aggregate, enduring their sixth consecutive quarter of recession. This is the longest recession for the region since records began in 1995. We think that Europes banking system is still vulnerable to a credit shock, so the Fund didnt own any financial firms with significant exposure to Europe as of quarter-end.
The market surge that culminated in the S&P 500s record high in May lifted many of our stocks close to their intrinsic values. Two stocks, Nike and Valeant Pharmaceuticals, actually exceeded our fair value assessment, so we no longer own them as of quarter-end. In addition to these outright sales, we trimmed a handful of other positions in the Fund. We reinvested the sales proceeds into existing portfolio companies, as well as three new holdings: Apple, Thomson Reuters and National Oilwell Varco. These are terrific businesses with stocks that we think offer asymmetric payoffs, with far more potentially to gain than to lose. We hope to write about these stocks in detail as Fund winners in future reports.
Thank you for your trust and investment with us,
Todd C. Ahlsten | Benjamin E. Allen | |||
Lead Portfolio Manager | Portfolio Manager |
12
Semiannual Report 2013 | PARNASSUS FUNDS |
Ticker: PARMX
As of June 30, 2013, the NAV of the Parnassus Mid-Cap Fund was $22.50, so the total return for the quarter was 1.08%. This compares to 2.21% for the Russell Midcap Index (Russell) and 2.57% 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 year-to-date, we are behind both the Russell and the Lipper average, as we have gained 11.00%, compared to 15.45% for the Russell and 13.34% for the Lipper average. Normally, wed be thrilled with an 11% return for six-months, but its hard to celebrate when were trailing our benchmarks by such a large margin.
Our strategy of owning high-quality businesses at good prices should continue to generate shareholder wealth over the long-term. Since we began managing the Fund on September 30, 2008, the Funds annualized return is 12.03%, ahead of the Russells 11.94% and the Lipper averages 8.77%. Were also proud of our five-year return, which is well ahead of both the Russell and Lipper averages. Our three-year return is slightly behind the Russell but well ahead of the Lipper average, which we consider to be adequate considering the Funds relatively low risk profile.
Below is a table comparing the Parnassus Mid-Cap Fund with the Russell and the Lipper average for the one-, three- and five-year periods ended June 30, 2013, and for the period since inception on April 29, 2005.
13
PARNASSUS FUNDS | Semiannual Report 2013 |
Company Analysis
Three stocks reduced the Funds NAV by 5¢ or more in the quarter, while three stocks added at least 7¢. The stock that hurt us the most was Iron Mountain, the nations largest document management company. The stock sank 26.7% to $36.31 from $26.61, slicing 17¢ from the NAV. In June, Iron Mountains management announced that the IRS had put on hold the companys application to become a real estate investment trust (REIT), and that the agency was tentatively adverse to the application before doing so. One silver lining is that the halt was not specific to Iron Mountain, but applied to a large number of other applicants as well. Since a REIT structure would drastically reduce Iron Mountains tax bill and increase its dividend, the stock fell sharply on the news.
14
Semiannual Report 2013 | PARNASSUS FUNDS |
Spectra Energy, a leading natural gas pipeline and storage company, added 7¢ to each Fund share, as its stock jumped 12.1% from $30.75 to $34.46. Strong distribution segment results, which saw higher customer usage due to colder weather, drove better than expected earnings results. Investor sentiment moved higher after the company announced plans to move its U.S. transmission and storage assets into a tax-advantaged master-limited partnership subsidiary.
Outlook and Strategy
Years of government stimulus, including near-zero inter-bank borrowing rates and over a trillion dollars of bond-buying, have driven mid-cap stocks up almost 200% from their March of 2009 lows. Investors now see easy Fed policy as a sign to buy stocks. So when the Fed recently signaled that it will probably wind down its $85 billion a month bond buying program next year, the markets sold off.
The stimulus of the past few years has helped get the country back on track. GDP has grown for the past fifteen quarters, consumer confidence hit a high in June, and the housing market is thriving, with home prices in multiple U.S. cities reaching record highs. The unemployment rate is also down to 7.6%, well below the 10% rate at recession peak.
We dont think investors should fear the end of stimulus. We expect the Fed to proceed slowly, in a way that encourages continued economic growth. The economy will eventually become self-sustaining, and this should drive further stock market gains. In the meantime, we are using the market turbulence to buy the best businesses we can.
Our process of finding undervalued companies is always on a stock-by-stock basis. We currently own more technology and industrial companies than our benchmarks, because were finding especially good bargains in these sectors. Most of our holdings in these areas also have secular growth drivers, robust free cash flow and significant cash balances, which help mitigate downside risk.
During the quarter, we initiated a few sizeable positions. Autodesk is the market leader in 3D design and engineering software, which is used to design everything from Nike sneakers to San Franciscos new Bay Bridge. Designers, architects and manufacturers are trained to use the companys quality software early in their careers, so its difficult for them to switch to competing products. This in turn allows Autodesk to consistently raise prices with little resistance from clients.
Autodesks sluggish European growth recently disappointed investors, but the company has opportunities to expand its business in North America, Latin America and Asia. The recovery in the manufacturing and construction sectors, particularly in the U.S., should boost demand for Autodesks engineering design software. Since we believe Autodesk is a great business, we bought the stock when the price dropped and the valuation became attractive.
Another new position is Intuit. You probably know Intuit for its user-friendly TurboTax software. What is less appreciated by investors is its small business software segment, which offers products that simplify small businesses day-to-day tasks. The company has over five million users of its QuickBooks accounting software. Like Autodesk, Intuits widespread adoption creates high switching costs. The companys competitive advantage is reflected in its impressive returns on capital, averaging 23.5% over the past ten years. We think management is top notch, and so is the companys workplace, which Fortune magazine recognized in 2012 in its Top 100 Best Places to Work survey.
We also bought Cardinal Health, a leading pharmaceutical distributor in the United States. Cardinal is poised to benefit from greater health care spending on prescription drugs, driven by an aging population and expansion of health care insurance. Similar to Patterson Companies, another leading medical distributor, which we own in the Fund, we believe Cardinal is a wide-moat franchise with good growth prospects, solid free cash flow generation and a reasonable valuation.
15
PARNASSUS FUNDS | Semiannual Report 2013 |
We remain committed to generating market-beating returns over the long-run, by focusing on our process of investing in attractively-valued, well-managed companies with strong growth prospects and competitive advantages.
Thank you for your investment in the Parnassus Mid-Cap Fund.
Matthew D. Gershuny | Lori A. Keith | |||
Lead Portfolio Manager | Portfolio Manager |
16
Semiannual Report 2013 | PARNASSUS FUNDS |
Ticker: PARSX
As of June 30, 2013, the NAV of the Parnassus Small-Cap Fund was $25.63, so the total return for the second quarter was a gain of 2.81%. By comparison, the Russell 2000 Index of smaller companies (Russell 2000) had a gain of 3.08%, and the Lipper Small-Cap Core Average, which represents the average return of the small-cap core funds followed by Lipper (Lipper average), had a gain of 2.44%. For the quarter, we underperformed the Russell 2000, but were slightly ahead of the Lipper average.
Year-to-date, the Fund is trailing both indices, up 7.83%, compared to 15.86% for the Russell 2000 and 14.78% for the Lipper average. Below is a table comparing the Parnassus Small-Cap Fund with the Russell 2000 and the Lipper average over the past one-, three- and five-year periods ended June 30, 2013 and the period since inception. Although our one- and three-year performance has been subpar, our longer-term five-year and since inception performance exceeded both benchmarks. Since our investment process (identifying high-quality businesses that are temporarily out-of-favor) remains the same, we expect to return to outperformance in the future.
17
PARNASSUS FUNDS | Semiannual Report 2013 |
manufacturing process. Additionally, most of Blounts sales are replacement chains sold to end customers, where its Oregon brand has excellent name recognition.
18
Semiannual Report 2013 | PARNASSUS FUNDS |
Interest rates have begun to rise, with the 10-year Treasury jumping from 1.6% at the beginning of May to 2.5% at the end of June, and we have positioned our portfolio to benefit. Our bank investments in First Horizon National, Pinnacle Financial Partners and TCF Financial benefit from increasing rates because they earn a higher return on their loans. Additionally, Insperity benefits because the company collects payroll cash from employers in advance of paying employees and can invest this cash in short-term investments. Recently, short-term investments have yielded very little, but as rates increase, this cash will generate meaningful earnings for Insperity.
Consumers and businesses continue to demand ever-faster Internet speeds. As carriers deploy faster networks, consumers have quickly found new ways to consume data, such as streaming their favorite television shows and sporting events. Finisar and Ciena make high-speed optical networking-equipment that moves enormous amounts of data very quickly. As carriers compete to attract and retain customers, we expect significant reinvestment in their networks, which will benefit both Finisar and Ciena.
Thanks to faster Internet speeds, business software is transitioning to a Software-as-a-Service (SaaS) model, where the software is hosted at a central data center and employees access it via high-speed Internet service. Our Riverbed Technology investment benefits from this transition, because it offers technology that accelerates data-transfer across the Internet. Using Riverbed, employees can access SaaS without any annoying delays.
We also own a collection of businesses that benefit from company-specific trends. For example, thanks to its superior technology, Gentex supplies nine out of ten auto-dimming rearview car mirrors around the world. Gentex will benefit for many years as this safety feature trickles down from luxury cars to mid- and lower-priced cars. Another example is our most recent investment, MRC Global, the largest distributor of pipes and valves to the energy sector. The company benefits from the rapid expansion of shale drilling in the U.S., which requires significant amounts of pipes and valves.
The Small-Cap Fund invests in high-quality businesses that are temporarily out-of-favor. We have positioned the Fund to benefit from a sustained housing recovery, higher interest rates, increased demand for faster Internet and competitively advantaged businesses with specific drivers. Our investment process remains the same since inception, so we expect to return to outperformance in the future. We thank you for investing in the Parnassus Small-Cap Fund.
Yours truly,
Jerome L. Dodson Lead Portfolio Manager |
Ryan Wilsey Portfolio Manager |
19
PARNASSUS FUNDS | Semiannual Report 2013 |
Ticker: PARWX
As of June 30, 2013, the NAV of the Parnassus Workplace Fund was $25.15, so the total return for the quarter was 4.75%. This compares favorably to 2.91% for the S&P 500 Index (S&P 500) and 2.65% for the Lipper Large-Cap Core Average, which represents the average return of the large-cap core funds followed by Lipper (Lipper average). Although we lagged the S&P 500 by more than two percentage points in the first quarter of the year, weve now practically closed the gap. For the year-to-date, were up 13.44%, compared to 13.82% for the S&P 500 and 13.19% for the Lipper average.
Below is a table comparing the Parnassus Workplace Fund with the S&P 500 and the Lipper average for the past one-, three- and five-year periods ended June 30, 2013, and for the period since inception. As you can see from the table, were ahead of all the benchmarks for all periods.
Company Analysis
Four companies each contributed 12¢ or more to the NAV of the Parnassus Workplace Fund. Only one company knocked 12¢ or more off the price of each fund share, and that was Autodesk, which sliced 15¢ off the NAV, as its stock sank 17.7% from $41.24 to $33.94. The company provides software for architects, engineers and designers, and weak demand in Europe caused the company to miss earnings expectations and lower revenue guidance for the full-year. Despite the weak start to the
20
Semiannual Report 2013 | PARNASSUS FUNDS |
21
PARNASSUS FUNDS | Semiannual Report 2013 |
Ticker: PAFSX
As of June 30, 2013, the NAV of the Parnassus Asia Fund was $14.95, so the total return since inception on April 30, 2013 was a loss of 0.33%. This compares favorably to a loss of 7.52% for the MSCI AC Asia Pacific Index (MSCI Index) and a loss of 7.95% for the Lipper Pacific Region Average, which represents the average return of the Asia Pacific Region funds followed by Lipper (Lipper average). Below you will find a table comparing the Asia Fund with the MSCI Index and the Lipper average for the period since inception.
As you can see, we are well ahead of both of our benchmarks, but I cannot credit my brilliance in stock-picking for these terrific results. As shown in the portfolio report, we have less than 6% of the Funds assets in stocks with the rest in cash. The reason we have been able to beat the benchmarks by so much is that we held most of our assets in cash, while the Asian markets had big moves down after the big run-up over the past year. So we were lucky to be in cash instead of Asian stocks over the past two months.
Why did we have so much cash on hand? The Fund invests principally in stocks of Asian companies that we believe are financially sound and have good prospects for the future. The companies in which the Fund invests must, in our opinion, be undervalued, but they must also have good prospects for long-term capital appreciation over the course of the expected holding period. As we invest the initial assets of the Fund, we are being very careful and deliberate in making investment decisions. We will continue to have cash holdings where we believe that such cash holdings, given the risks and characteristics of the available securities in which the Fund may invest, are more beneficial to shareholders than investments in such securities.
22
Semiannual Report 2013 | PARNASSUS FUNDS |
23
PARNASSUS FUNDS | Semiannual Report 2013 |
Ticker: PRFIX
As of June 30, 2013, the NAV of the Parnassus Fixed-Income Fund was $17.04, producing a loss for the quarter of 1.65% (including dividends). This compares favorably to a loss of 2.33% for the Barclays U.S. Aggregate Bond Index (Barclays Aggregate Index) and a loss of 3.06% for the Lipper A-Rated Bond Fund Average, which represents the average return of all A-rated bond funds followed by Lipper (Lipper average). For the first half of 2013, the Fund posted a loss of 2.07%, which compares favorably to losses of 2.44% for the Barclays Aggregate Index and 2.81% for the Lipper average.
Below is a table comparing the performance of the Fund with that of the Barclays Aggregate Index and the Lipper average. Average annual total returns are for the one-, three-, five- and ten-year periods ended June 20, 2013. For June 2013, the 30-day subsidized SEC yield was 0.82%, and the unsubsidized SEC yield was 0.71%.
Before discussing the Funds performance this quarter, I would like to briefly introduce myself. I joined Parnassus on May 1st as Portfolio Manager for the Fixed-Income Fund and was most recently with Wells Fargo in their Fixed Income Group. Its a pleasure to be part of such a dedicated team, and I am honored to have the privilege of working for you, our shareholders.
24
Semiannual Report 2013 | PARNASSUS FUNDS |
reacted by sending yields higher and prices lower, in anticipation of less demand for bonds coming from the Federal Reserve. Subsequently, the yield on the 10-Year Treasury climbed to 2.49% as of the close of the quarter.
Because of the Funds shortened duration during the last two months, it outperformed with a loss of 1.65%, as compared to the Barclays Aggregate Indexs negative 2.33% return.
Outlook and Strategy
There are several strategic differences between the allocation of the Fund and the Barclays Aggregate Index. Aside from having a shorter duration, the Fund also owns more corporate bonds than the benchmark. The corporate credits have been carefully selected using the same criteria as the Parnassus equity funds. In fact, many of the companies in which the Fund has invested are also holdings in Parnassus equity funds. Those credits should outperform their peers and the market as a whole due to their strong competitive advantages and improving fundamentals.
25
PARNASSUS FUNDS | Semiannual Report 2013 |
By Milton Moskowitz
Mondelez International, a new company, joined the Parnassus portfolio ranks in 2013, and one of its first initiatives, in June, was to launch a Cocoa Life Sustainability program in the Ivory Coast. Undertaken with the cooperation of the Ivorian government and CARE International, the program will help some 4,000 cocoa farmers in that West African country to boost their productivity and organize community development projects like building new schools. The first of a series of cocoa initiatives planned for the next three years, this is a logical investment for Mondelez since it considers itself the worlds largest chocolate maker, sold under such brand names as Cadbury, Milka, Toblerone and Lacta.
Mondelez was created last year when Kraft Foods decided to split itself in two. One part, still called Kraft Foods, retained the packaged grocery products, such as Kraft Macaroni & Cheese, Philadelphia cream cheese, Velveeta, Oscar Mayer meats and Maxwell House coffee. With revenues of $18.3 billion and 23,000 employees, Kraft ranks 151st on this years Fortune 500 list.
The second part holds all the fun snack products, such as Oreo cookies, Trident chewing gum, Nabisco crackers, LU cookies and the extensive chocolate larder of Cadbury, long an icon of social responsibility in the United Kingdom. With revenues of $35 billion and 110,000 employees, Mondelez debuted on the Fortune 500 list this year in the 88th position.
What about that name? Employees were asked to submit their ideas, and from the 1,700 names received the company took two monde, meaning world, and delez, a made-up word signifying delicious and cobbled them into Mondelez, pronounced mohn-dah-Leez. It flashes over the ticker-tape as MDLZ.
PepsiCo, another giant from the food and beverage world (No. 43 on the Fortune 500 list), is also a recent addition to our portfolio and it has an interesting problem. The companys Frito-Lay division blazed its way to the top of the snack market with a line of salty, high calorie treats: Fritos, Doritos, Lays potato chips, supplemented with sugary Pepsi-Cola. The people at PepsiCo are well aware of the healthy food movement, and they are incorporating it into their business strategy. PepsiCo has reduced the sodium and calories in its products, and now has in place such rules as these: We do not offer full-calorie soft drinks for students in K-12 SChools. We do not offer energy drinks for students in K-12 schools. Beyond that, PepsiCo has established a Global Nutrition Group, whose goal is to increase sales of nutritious products from $10 billion in 2010 to $30 billion by 2020. The brands defined as nutritious by PepsiCo include: Quaker Oats, Gatorade and Tropicana.
You will see a manifestation of this good-for-you policy this summer when PepsiCo enters the U.S. yogurt market with a partner, the Theo Muller Group, a 100-year old German dairy company. PepsiCo has also set up partnerships with two other dairy companies: Wimm-Bill-Dan in Russia and Almarie of Saudi Arabia. The new yogurt line will carry the Quaker brand name.
These two corporate behemoths, Mondelez and PepsiCo, share one unusual characteristic: each is headed by a woman. The CEO of Mondelez is Irene Rosenfeld, who has spent her entire working life in the food industry, virtually all of it with Kraft. For two years, 2004 to 2006, she headed up the Frito-Lay division of PepsiCo. The CEO of PepsiCo is India-born Indra Nooyi, who worked at the Boston Consulting Group before joining PepsiCo in 1994. She became the fifth CEO in Pepsis history in 2006. Only 21 companies on the Fortune 500 list have a female CEO.
Target, the nations fourth largest retailer, has philanthropy in its genes, having been nurtured by the Dayton department store chain based in Minneapolis. Dayton started the 5% Club 67 years ago; it was composed of companies which pledged to allocate 5% of taxable income to charity; Target continues to honor that pledge. This year it formed a partnership with Feed USA, tagging 50 different products whose sales would trigger food giveaways to needy families. The program is expected to generate donations of 10 million meals More than 2,000 children die each day due to diarrheal diseases caused by unsafe water, according to Chelsea Clinton. In 2010, Procter & Gamble made a commitment to the Clinton Global Initiative, promising to deliver two billion liters of clear water to developing countries every year until 2020. In May, it delivered its six billionth liter in Myanmar, claiming to have saved some 32,000 lives Google has set a high bar with its Global Impact Awards. In April, it announced a $3 million grant to three organizations Polaris Project, Liberty Asia and La Strada International that are engaged in identifying and quashing human trafficking (prostitution, slave labor, medical experimentation). Then, in June, Google went to London to announce four awards to non-profit groups working to improve the world. The winners were: Integrity Action, CDI Apps for Food, Solar Air and the Zoological society of London. Each grant was worth $750,000.
26
Semiannual Report 2013 | PARNASSUS FUNDS |
Milton Moskowitz is the co-author of the Fortune magazine survey, The 100 Best Companies to Work For, and the co-originator of the annual Working Mother magazine survey, The 100 Best Companies for Working Mothers. Mr. Moskowitz serves as a consultant to Parnassus Investments in evaluating workplaces for potential investments by the Parnassus Workplace Fund. Neither Fortune magazine nor Working Mother magazine has any role in the management of the Parnassus Funds, and there is no affiliation between Parnassus Investments and either publication.
27
PARNASSUS FUNDS | Semiannual Report 2013 |
As a shareholder of the Funds, you incur ongoing costs, which include portfolio management fees, administrative fees, shareholder reports, and other fund expenses. The Funds do not charge transaction fees, so you do not incur transaction costs such as sales charges (loads) on purchase payments, reinvested dividends, or other distributions, redemption fees, and exchange fees. The information on this page is intended to help you understand your ongoing costs of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds.
The following example is based on an investment of $1,000 invested at the beginning of the most recent six-month period and held for the period of January 1, 2013 through June 30, 2013.
Actual Expenses
In the example below, the first line for each Fund provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled Expenses Paid During Period to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of each Fund provides information about hypothetical account values and hypothetical expenses based on the Funds expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Funds actual return. You may compare the ongoing costs of investing in the Fund with other mutual funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
28
Semiannual Report 2013 | PARNASSUS FUNDS |
Please note that the expenses shown in the table are meant to highlight only your ongoing costs in these Funds. Therefore, the second line of each Fund is useful in comparing only ongoing costs and will not help you determine the relative total costs of owning other mutual funds, which may include transactional costs such as loads.
Beginning January 1, 2013 |
Ending June 30, 2013 |
Expenses Paid
During Period* |
||||||||||
Parnassus Fund: Actual | $1,000.00 | $1,127.77 | $4.75 | |||||||||
Hypothetical (5% before expenses) | $1,000.00 | $1,020.33 | $4.51 | |||||||||
Parnassus Equity Income Fund Investor Shares: Actual | $1,000.00 | $1,042.79 | $4.78 | |||||||||
Hypothetical (5% before expenses) | $1,000.00 | $1,020.33 | $4.51 | |||||||||
Parnassus Equity Income Fund Institutional Shares: Actual | $1,000.00 | $1,143.06 | $3.61 | |||||||||
Hypothetical (5% before expenses) | $1,000.00 | $1,021.42 | $3.41 | |||||||||
Parnassus Mid-Cap Fund: Actual | $1,000.00 | $1,110.01 | $6.28 | |||||||||
Hypothetical (5% before expenses) | $1,000.00 | $1,032.83 | $6.05 | |||||||||
Parnassus Small-Cap Fund: Actual | $1,000.00 | $1,078.25 | $6.18 | |||||||||
Hypothetical (5% before expenses) | $1,000.00 | $1,018.84 | $6.01 | |||||||||
Parnassus Workplace Fund: Actual | $1,000.00 | $1,134.42 | $6.03 | |||||||||
Hypothetical (5% before expenses) | $1,000.00 | $1,019.14 | $5.71 | |||||||||
Parnassus Asia Fund: Actual | $1,000.00 | $996.67 | $2.46 | |||||||||
Hypothetical (5% before expenses) | $1,000.00 | $1,006.03 | $2.47 | |||||||||
Parnassus Fixed-Income Fund: Actual | $1,000.00 | $979.26 | $3.34 | |||||||||
Hypothetical (5% before expenses) | $1,000.00 | $1,021.42 | $3.41 |
*Expenses are equal to the Funds annualized expense ratio of 0.90%, 0.90%, 0.68%, 1.20%, 1.20%, 1.14%, 5.00% and 0.68% for the Parnassus Fund, Parnassus Equity Income Fund Investor Shares, Parnassus Equity Income Fund Institutional Shares, Parnassus Mid-Cap Fund, Parnassus Small-Cap Fund, Parnassus Workplace Fund, Parnassus Asia Fund and Parnassus Fixed-Income Fund, respectively, multiplied by the average account value over the period, multiplied by the ratio of days in the period. The ratio of days in the period is 181/365 (to reflect the one-half year period) for the Parnassus Fund, Parnassus Equity Income Fund Investor Shares, Parnassus Equity Income Fund Institutional Shares, Parnassus Mid-Cap Fund, Parnassus Small-Cap Fund, Parnassus Workplace Fund and Parnassus Fixed-Income Fund and the ratio is 62/365 for the Parnassus Asia Fund (to reflect the period from inception to June 30, 2013).
29
PARNASSUS FUNDS | Semiannual Report 2013 |
Portfolio of Investments as of June 30, 2013 (unaudited)
The accompanying notes are an integral part of these financial statements.
30
Semiannual Report 2013 | PARNASSUS FUNDS |
PARNASSUS FUND
Portfolio of Investments as of June 30, 2013 (unaudited) (continued)
The accompanying notes are an integral part of these financial statements.
31
PARNASSUS FUNDS | Semiannual Report 2013 |
Portfolio of Investments as of June 30, 2013 (unaudited)
The accompanying notes are an integral part of these financial statements.
32
Semiannual Report 2013 | PARNASSUS FUNDS |
PARNASSUS EQUITY INCOME FUND
Portfolio of Investments as of June 30, 2013 (unaudited) (continued)
The accompanying notes are an integral part of these financial statements.
33
PARNASSUS FUNDS | Semiannual Report 2013 |
PARNASSUS EQUITY INCOME FUND
Portfolio of Investments as of June 30, 2013 (unaudited) (continued)
Principal ($) |
Short-Term Securities | Percent of Net Assets |
Market Value ($) |
|||||||||
Securities Purchased with Cash Collateral from Securities Lending | ||||||||||||
Registered Investment Companies | ||||||||||||
193,711,369 | Invesco Aim Government & Agency Portfolio Short-Term Investments Trust, Institutional Class variable rate, 0.02% |
3.0 | % | 193,711,369 | ||||||||
|
|
|||||||||||
Total short-term securities (cost $649,252,626) | 10.2 | % | 649,252,626 | |||||||||
|
|
|||||||||||
Total securities (cost $5,378,561,630) |
103.9 | % | 6,593,898,117 | |||||||||
|
|
|||||||||||
Payable upon return of securities loaned | (3.0 | %) | (193,711,369 | ) | ||||||||
Other assets and liabilities - net | (0.9 | %) | (52,589,667 | ) | ||||||||
|
|
|||||||||||
Total net assets | 100.0 | % | 6,347,597,081 | |||||||||
|
|
|||||||||||
W Fund ownership consists of 5% or more of the shares outstanding of the affiliated company, as defined under the Investment Company Act of 1940. |
| |||||||||||
q This security is non-income producing. |
| |||||||||||
l This security, or a partial position of this security, was on loan at June 30, 2013. The total value of the securities on loan at June 30, 2013 was $189,097,665. |
| |||||||||||
a Market value adjustments have been applied to these securities to reflect potential early withdrawal. |
|
The accompanying notes are an integral part of these financial statements.
34
Semiannual Report 2013 | PARNASSUS FUNDS |
Portfolio of Investments as of June 30, 2013 (unaudited)
The accompanying notes are an integral part of these financial statements.
35
PARNASSUS FUNDS | Semiannual Report 2013 |
PARNASSUS MID-CAP FUND
Portfolio of Investments as of June 30, 2013 (unaudited) (continued)
Principal Amount ($) |
Short-Term Securities | Percent of Net Assets |
Market Value ($) |
|||||||||
Time Deposits | ||||||||||||
15,260,281 | BBH Cash Management Service | |||||||||||
Citibank, Nassau 0.03%, due 07/01/2013 |
7.8 | % | 15,260,281 | |||||||||
|
|
|||||||||||
Securities Purchased with Cash Collateral from Securities Lending | ||||||||||||
Registered Investment Companies | ||||||||||||
6,267,614 | Invesco Aim Government & Agency Portfolio Short-Term Investments Trust, Institutional Class variable rate, 0.02% |
3.3 | % | 6,267,614 | ||||||||
|
|
|||||||||||
Total short-term securities (cost $21,527,895) |
11.1 | % | 21,527,895 | |||||||||
|
|
|||||||||||
Total securities (cost $179,831,836) |
103.9 | % | 202,263,558 | |||||||||
|
|
|||||||||||
Payable upon return of securities loaned | (3.3 | %) | (6,267,614 | ) | ||||||||
Other assets and liabilities - net | (0.6 | %) | (1,246,029 | ) | ||||||||
|
|
|||||||||||
Total net assets | 100.0 | % | 194,749,915 | |||||||||
|
|
|||||||||||
q This security is non-income producing. |
| |||||||||||
l This security, or a partial position of this security, was on loan at June 30, 2013. The total value of the securities on loan at June 30, 2013 was $6,104,384. |
|
The accompanying notes are an integral part of these financial statements.
36
Semiannual Report 2013 | PARNASSUS FUNDS |
Portfolio of Investments as of June 30, 2013 (unaudited)
The accompanying notes are an integral part of these financial statements.
37
PARNASSUS FUNDS | Semiannual Report 2013 |
PARNASSUS SMALL-CAP FUND
Portfolio of Investments as of June 30, 2013 (unaudited) (continued)
Principal ($) |
Short-Term Securities | Percent of Net Assets |
Market Value ($) |
|||||||||
Securities Purchased with Cash Collateral from Securities Lending | ||||||||||||
Registered Investment Companies | ||||||||||||
51,150,228 | Invesco Aim Government & Agency Portfolio Short-Term Investments Trust, Institutional Class variable rate, 0.02% |
7.4 | % | 51,150,228 | ||||||||
|
|
|||||||||||
Total short-term securities (cost $59,714,530) |
8.6 | % | 59,714,530 | |||||||||
|
|
|||||||||||
Total securities (cost $683,525,050) |
106.9 | % | 738,961,327 | |||||||||
|
|
|||||||||||
Payable upon return of securities loaned | (7.4 | %) | (51,150,228 | ) | ||||||||
Other assets and liabilities - net | 0.5 | % | 3,292,577 | |||||||||
|
|
|||||||||||
Total net assets | 100.0 | % | 691,103,676 | |||||||||
|
|
|||||||||||
q This security is non-income producing. |
| |||||||||||
l This security, or a partial position of this security, was on loan at June 30, 2013. The total value of the securities on loan at June 30, 2013 was $49,882,595. |
| |||||||||||
WFund ownership consists of 5% or more of the shares outstanding of the affiliated company, as defined under the Investment Company Act of 1940. |
|
The accompanying notes are an integral part of these financial statements.
38
Semiannual Report 2013 | PARNASSUS FUNDS |
Portfolio of Investments as of June 30, 2013 (unaudited)
The accompanying notes are an integral part of these financial statements.
39
PARNASSUS FUNDS | Semiannual Report 2013 |
PARNASSUS WORKPLACE FUND
Portfolio of Investments as of June 30, 2013 (unaudited) (continued)
Principal Amount ($) |
Short-Term Securities | Percent of Net Assets |
Market Value ($) |
|||||||||
Securities Purchased with Cash Collateral from Securities Lending |
|
|||||||||||
Registered Investment Companies | ||||||||||||
1,628,550 | Invesco Aim Government & Agency Portfolio Short-Term Investments Trust, Institutional Class variable rate, 0.02% |
0.5 | % | 1,628,550 | ||||||||
|
|
|||||||||||
Total short-term securities (cost $26,776,665) |
7.5 | % | 26,776,665 | |||||||||
|
|
|||||||||||
Total securities (cost $314,045,984) |
100.6 | % | 360,816,095 | |||||||||
|
|
|||||||||||
Payable upon return of securities loaned |
(0.5 | %) | (1,628,550 | ) | ||||||||
Other assets and liabilities - net | (0.1 | %) | (345,883 | ) | ||||||||
|
|
|||||||||||
Total net assets | 100.0 | % | 358,841,662 | |||||||||
|
|
|||||||||||
q This security is non-income producing. |
| |||||||||||
l This security, or a partial position of this security, was on loan at June 30, 2013. The total value of the securities on loan at June 30, 2013 was $1,585,584. |
|
The accompanying notes are an integral part of these financial statements.
40
Semiannual Report 2013 | PARNASSUS FUNDS |
Portfolio of Investments as of June 30, 2013 (unaudited)
Shares | Equities | Percent of Net Assets |
Market Value ($) |
|||||||||
Singapore | ||||||||||||
2,500 | Keppel Corp., Ltd. | 0.9 | % | 20,447 | ||||||||
|
|
|||||||||||
South Korea | ||||||||||||
20 | Samsung Electronics Co., Ltd. | 1.1 | % | 23,386 | ||||||||
|
|
|||||||||||
Thailand | ||||||||||||
30,000 | Thanachart Capital PCL | 1.7 | % | 36,885 | ||||||||
|
|
|||||||||||
United States | ||||||||||||
3,000 | Applied Materials Inc. | 2.0 | % | 44,730 | ||||||||
|
|
|||||||||||
Total investment in equities (cost $127,808) |
5.7 | % | 125,448 | |||||||||
|
|
|||||||||||
Principal ($) |
Short-Term Securities | Percent of Net Assets |
Market Value ($) |
|||||||||
Time Deposits | ||||||||||||
2,056,044 | BBH Cash Management Service Citibank, Nassau 0.03%, due 07/01/2013 |
93.9 | % | 2,056,044 | ||||||||
|
|
|||||||||||
Total short-term securities (cost $2,056,044) |
93.9 | % | 2,056,044 | |||||||||
|
|
|||||||||||
Total securities (cost $2,183,852) |
99.6 | % | 2,181,492 | |||||||||
|
|
|||||||||||
Other assets and liabilities - net | 0.4 | % | 7,959 | |||||||||
|
|
|||||||||||
Total net assets | 100.0 | % | 2,189,451 | |||||||||
|
|
The accompanying notes are an integral part of these financial statements.
41
PARNASSUS FUNDS | Semiannual Report 2013 |
Portfolio of Investments as of June 30, 2013 (unaudited)
The accompanying notes are an integral part of these financial statements.
42
Semiannual Report 2013 | PARNASSUS FUNDS |
PARNASSUS FIXED-INCOME FUND
Portfolio of Investments as of June 30, 2013 (unaudited) (continued)
The accompanying notes are an integral part of these financial statements.
43
PARNASSUS FUNDS | Semiannual Report 2013 |
PARNASSUS FIXED-INCOME FUND
Portfolio of Investments as of June 30, 2013 (unaudited) (continued)
Principal Amount ($) |
Short-Term Securities | Percent of Net Assets |
Market Value ($) |
|||||||||
Community Development Loans a | ||||||||||||
2,500,000 | MicroVest Plus, LP Note 2.50%, matures 10/15/2013 |
1.2 | % | 2,456,438 | ||||||||
Time Deposits | ||||||||||||
16,191,007 | BBH Cash Management Service Citibank, Nassau 0.03%, due 07/01/2013 |
8.2 | % | 16,191,007 | ||||||||
|
|
|||||||||||
Total short-term securities (cost $18,647,445) |
9.4 | % | 18,647,445 | |||||||||
|
|
|||||||||||
Total securities (cost $192,926,442) |
99.3 | % | 196,548,290 | |||||||||
|
|
|||||||||||
Other assets and liabilities - net | 0.7 | % | 1,351,675 | |||||||||
|
|
|||||||||||
Total net assets | 100.0 | % | 197,899,965 | |||||||||
|
|
|||||||||||
a Market value adjustments have been applied to these securities to reflect potential early withdrawal. |
|
The accompanying notes are an integral part of these financial statements.
44
Semiannual Report 2013 | PARNASSUS FUNDS |
THIS PAGE LEFT INTENTIONALLY BLANK
45
PARNASSUS FUNDS | Semiannual Report 2013 |
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2013 (unaudited)
Parnassus Fund |
Parnassus Equity Income Fund |
Parnassus Mid-Cap Fund |
||||||||||
Assets | ||||||||||||
Investments in stocks and bonds, at market value Unaffiliated | ||||||||||||
cost of $411,866,043, $4,433,323,096, $158,303,941, $601,556,958, $287,269,319, $127,808, $174,278,997 |
$ | 475,431,931 | $ | 5,589,876,734 | $ | 180,735,663 | ||||||
Investments in stocks and bonds, at market value Affiliated | ||||||||||||
cost of $ $0, $295,985,908, $0, $22,253,562, $0, $0, $0 |
- | 354,768,757 | - | |||||||||
Investments in short-term securities | ||||||||||||
(at cost which approximates market value) |
15,572,078 | 649,252,626 | 21,527,895 | |||||||||
Cash | 170,008 | 255,381 | - | |||||||||
Receivables | ||||||||||||
Investment securities sold | 6,443,136 | 6,317,200 | - | |||||||||
Dividends and interest |
384,965 | 3,844,196 | 163,253 | |||||||||
Capital shares sold |
117,129 | 11,679,218 | 373,089 | |||||||||
Due from Parnassus Investments |
71 | - | - | |||||||||
Other assets | 51,173 | 209,619 | 18,345 | |||||||||
Total assets |
$ | 498,170,491 | $ | 6,616,203,731 | $ | 202,818,245 | ||||||
Liabilities | ||||||||||||
Payable upon return of loaned securities | 11,783,820 | 193,711,369 | 6,267,614 | |||||||||
Payable for investment securities purchased | 5,663,988 | 66,480,124 | 1,718,060 | |||||||||
Capital shares redeemed | 83,217 | 5,811,725 | 44,467 | |||||||||
Fees payable to Parnassus Investments | - | 669 | 25 | |||||||||
Distributions payable | - | 2,208,582 | - | |||||||||
Accounts payable and accrued expenses | 221,551 | 394,181 | 38,164 | |||||||||
Total liabilities |
$ | 17,752,576 | $ | 268,606,650 | $ | 8,068,330 | ||||||
Net assets | $ | 480,417,915 | $ | 6,347,597,081 | $ | 194,749,915 | ||||||
Net assets consist of | ||||||||||||
Undistributed net investment income (loss) | 1,978,561 | 4,106,824 | 552,624 | |||||||||
Unrealized appreciation (depreciation) on securities and foreign currency | 63,565,888 | 1,215,336,487 | 22,431,722 | |||||||||
Accumulated net realized gain (loss) on securities and foreign currency | 52,164,757 | 380,847,380 | 4,523,464 | |||||||||
Capital paid-in | 362,708,709 | 4,747,306,390 | 167,242,105 | |||||||||
Total net assets |
$ | 480,417,915 | $ | 6,347,597,081 | $ | 194,749,915 | ||||||
Net asset value and offering per share | ||||||||||||
Net assets investor shares | $ | 480,417,915 | $ | 4,984,182,428 | $ | 194,749,915 | ||||||
Net assets institutional shares | - | $ | 1,363,414,653 | - | ||||||||
Shares outstanding investor shares | 10,488,307 | 150,280,305 | 8,654,826 | |||||||||
Shares outstanding institutional shares | - | 41,038,213 | - | |||||||||
Net asset values and redemption price per share | ||||||||||||
(Net asset value divided by shares outstanding) |
||||||||||||
Investor shares |
$ | 45.81 | $ | 33.17 | $ | 22.50 | ||||||
Institutional shares |
- | $ | 33.22 | - |
The accompanying notes are an integral part of these financial statements.
46
Semiannual Report 2013 | PARNASSUS FUNDS |
Parnassus Small-Cap Fund |
Parnassus Workplace Fund |
Parnassus Asia Fund |
Parnassus Fixed-Income Fund |
|||||||||||
$ |
671,046,765 |
|
$ | 334,039,430 | $ | 125,448 | $ | 177,900,845 | ||||||
8,200,032 | - | - | - | |||||||||||
59,714,530 | 26,776,665 | 2,056,044 | 18,647,445 | |||||||||||
- | - | - | - | |||||||||||
13,219,670 | 2,781,610 | - | - | |||||||||||
618,349 | 170,812 | 122 | 1,573,851 | |||||||||||
439,143 | 526,757 | 10,000 | 96,850 | |||||||||||
308 | - | - | 63 | |||||||||||
69,899 | 26,345 | 25,430 | 15,416 | |||||||||||
$ | 753,308,696 | $ | 364,321,619 | $ | 2,217,044 | $ | 198,234,470 | |||||||
51,150,228 | 1,628,550 | - | - | |||||||||||
5,649,024 | 3,703,265 | - | - | |||||||||||
5,249,240 | 91,556 | - | 210,954 | |||||||||||
- | 35 | 24,241 | - | |||||||||||
- | - | - | 36,248 | |||||||||||
156,528 | 56,551 | 3,352 | 87,303 | |||||||||||
$ | 62,205,020 | $ | 5,479,957 | $ | 27,593 | $ | 334,505 | |||||||
$ | 691,103,676 | $ | 358,841,662 | $ | 2,189,451 | $ | 197,899,965 | |||||||
(712,723 | ) | 1,190,810 | (4,431 | ) | 28,044 | |||||||||
|
55,436,277 |
|
46,770,111 | (2,360 | ) | 3,621,848 | ||||||||
|
28,557,028 |
|
19,112,262 | (497 | ) | 2,420,515 | ||||||||
607,823,094 | 291,768,479 | 2,196,739 | 191,829,558 | |||||||||||
$ | 691,103,676 | $ | 358,841,662 | $ | 2,189,451 | $ | 197,899,965 | |||||||
$ | 691,103,676 | $ | 358,841,662 | $ | 2,189,451 | $ | 197,899,965 | |||||||
- | - | - | - | |||||||||||
26,969,244 | 14,268,058 | 146,497 | 11,614,629 | |||||||||||
- | - | - | - | |||||||||||
$ | 25.63 | $ | 25.15 | $ | 14.95 | $ | 17.04 | |||||||
- | - | - | - |
The accompanying notes are an integral part of these financial statements.
47
PARNASSUS FUNDS | Semiannual Report 2013 |
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2013 (unaudited)
Parnassus Fund |
Parnassus Equity Income Fund |
Parnassus Mid-Cap Fund |
||||||||||
Investment income | ||||||||||||
Dividends Unaffiliated | $ | 3,662,767 | $ | 57,123,820 | $ | 1,411,063 | ||||||
Dividends Affiliated | - | 4,871,893 | - | |||||||||
Interest | 6,149 | 274,894 | 1,957 | |||||||||
Securities lending | 130,265 | 248,461 | 6,603 | |||||||||
Foreign withholding tax | (50,047 | ) | (1,143,715 | ) | (17,817 | ) | ||||||
Total investment income |
$ | 3,749,134 | $ | 61,375,353 | $ | 1,401,806 | ||||||
Expenses | ||||||||||||
Investment advisory fees | 1,561,766 | 17,626,508 | 683,746 | |||||||||
Transfer agent fees | ||||||||||||
Investor shares |
170,570 | 546,184 | 37,193 | |||||||||
Institutional shares |
- | 148,553 | - | |||||||||
Fund administration | 87,565 | 1,042,613 | 29,456 | |||||||||
Service provider fees | 172,175 | 3,954,893 | 150,546 | |||||||||
Reports to shareholders | 41,831 | 283,538 | 11,210 | |||||||||
Registration fees and expenses | 20,344 | 53,140 | 11,926 | |||||||||
Custody fees | 9,472 | 122,668 | 5,285 | |||||||||
Overdraft charges | 389 | - | - | |||||||||
Professional fees | 23,265 | 95,213 | 11,669 | |||||||||
Trustee fees and expenses | 10,979 | 117,474 | 3,012 | |||||||||
Proxy voting fees | 2,422 | 2,422 | 2,422 | |||||||||
Pricing service fees | 1,824 | 3,030 | 1,824 | |||||||||
Other expenses | 6,055 | 70,242 | 1,294 | |||||||||
Total expenses |
$ | 2,108,657 | $ | 24,066,478 | $ | 949,583 | ||||||
Fees waived by Parnassus Investments |
- | - | - | |||||||||
Net expenses |
$ | 2,108,657 | $ | 24,066,478 | $ | 949,583 | ||||||
Net investment gain (loss) |
$ | 1,640,477 | $ | 37,308,875 | $ | 452,223 | ||||||
Realized and unrealized gain (loss) on investments and foreign currency related transactions | ||||||||||||
Net realized gain from securities transactions | 48,451,534 | 347,409,185 | 4,105,953 | |||||||||
Net realized loss from foreign currency related transactions | - | - | - | |||||||||
Net change in unrealized appreciation (depreciation) of securities | 7,493,524 | 349,706,813 | 11,025,496 | |||||||||
Net change in unrealized depreciation on foreign currency related transactions | - | - | - | |||||||||
Net realized and unrealized gain (loss) on securities and foreign currency related transactions | $ | 55,945,058 | $ | 697,115,998 | $ | 15,131,449 | ||||||
Net increase (decrease) in net assets resulting from operations | $ | 57,585,535 | $ | 734,424,873 | $ | 15,583,672 |
The accompanying notes are an integral part of these financial statements.
48
Semiannual Report 2013 | PARNASSUS FUNDS |
Parnassus Fund |
Parnassus Fund |
Parnassus Asia Fund |
Parnassus Fund |
|||||||||||
$ | 3,241,441 | $ | 2,882,814 | $ | 70 | $ | - | |||||||
- | - | - | - | |||||||||||
3,352 | 3,303 | 95 | 2,643,141 | |||||||||||
279,110 | 524 | - | 235 | |||||||||||
(15,957 | ) | (45,515 | ) | - | - | |||||||||
$ | 3,507,946 | $ | 2,841,126 | $ | 165 | $ | 2,643,376 | |||||||
3,033,627 | 1,278,378 | 3,471 | 529,652 | |||||||||||
417,300 | 66,560 | 308 | 68,091 | |||||||||||
- | - | - | - | |||||||||||
125,755 | 57,436 | 113 | 37,981 | |||||||||||
481,483 | 259,701 | 469 | 121,479 | |||||||||||
85,164 | 24,569 | 1,834 | 30,343 | |||||||||||
26,131 | 16,038 | 3,479 | 15,870 | |||||||||||
16,053 | 6,150 | 586 | 5,856 | |||||||||||
- | - | - | - | |||||||||||
33,369 | 16,263 | 1,818 | 11,258 | |||||||||||
15,879 | 6,563 | 16 | 5,271 | |||||||||||
2,422 | 2,422 | 142 | - | |||||||||||
1,824 | 1,824 | 1,267 | 1,517 | |||||||||||
9,555 | 4,002 | 127 | 3,018 | |||||||||||
$ | 4,248,562 | $ | 1,739,906 | $ | 13,630 | $ | 830,336 | |||||||
(27,893 | ) | - | (9,034 | ) | (109,532 | ) | ||||||||
$ | 4,220,669 | $ | 1,739,906 | $ | 4,596 | $ | 720,804 | |||||||
$ | (712,723 | ) | $ | 1,101,220 | $ | (4,431 | ) | $ | 1,922,572 | |||||
31,961,695 | 17,158,350 | - | 1,976,396 | |||||||||||
- | - | (497 | ) | - | ||||||||||
20,845,444 | 21,266,576 | (2,271 | ) | (8,338,202 | ) | |||||||||
|
- |
|
- | (89 | ) | - | ||||||||
$ |
52,807,139 |
|
$ | 38,424,926 | $ | (2,857 | ) | $ | (6,361,806 | ) | ||||
$ | 52,094,416 | $ | 39,526,146 | $ | (7,288 | ) | $ | (4,439,234 | ) |
The accompanying notes are an integral part of these financial statements.
49
PARNASSUS FUNDS | Semiannual Report 2013 |
STATEMENT OF CHANGES IN NET ASSETS
June 30, 2013 (unaudited)
Parnassus Fund | Parnassus Equity Income Fund | |||||||||||||||
Six Months Ended June 30, 2013 |
Year Ended December 31, 2012 |
Six Months Ended June 30, 2013 |
Year Ended December 31, 2012 |
|||||||||||||
Investment income (loss) from operations | ||||||||||||||||
Net investment income (loss) |
$ | 1,640,477 | $ | 2,822,728 | $ | 37,308,875 | $ | 65,061,663 | ||||||||
Net realized gain from securities transactions |
48,451,534 | 38,628,021 | 347,409,185 | 158,577,885 | ||||||||||||
Net realized gain (loss) on foreign currency related transactions |
- | - | - | - | ||||||||||||
Net change in unrealized appreciation of securities |
7,493,524 | 49,389,071 | 349,706,813 | 429,061,129 | ||||||||||||
Net change in unrealized appreciation (depreciation) on foreign currency related transactions |
- | - | - | - | ||||||||||||
Increase (decrease) in net assets resulting from operations |
$ | 57,585,535 | $ | 90,839,820 | $ | 734,424,873 | $ | 652,700,677 | ||||||||
Distributions | ||||||||||||||||
From net investment income |
||||||||||||||||
Investor shares |
- | (9,038,094 | ) | (29,025,828 | ) | (99,149,285 | ) | |||||||||
Institutional shares |
- | - | (8,749,571 | ) | (25,615,604 | ) | ||||||||||
From realized capital gains |
||||||||||||||||
Investor shares |
- | (28,877,922 | ) | - | (58,989,019 | ) | ||||||||||
Institutional shares |
- | - | - | (14,243,218 | ) | |||||||||||
Distributions to shareholders |
$ | - | $ | (37,916,016 | ) | $ | (37,775,399 | ) | $ | (197,997,126 | ) | |||||
Capital share transactions | ||||||||||||||||
Investor shares |
||||||||||||||||
Proceeds from sale of shares |
71,700,881 | 142,515,430 | 806,626,043 | 919,395,706 | ||||||||||||
Reinvestment of dividends |
- | 36,803,472 | 27,567,518 | 148,863,674 | ||||||||||||
Shares repurchased |
(119,004,019 | ) | (116,678,830 | ) | (428,663,245 | ) | (820,365,375 | ) | ||||||||
Institutional shares |
||||||||||||||||
Proceeds from sale of shares |
- | - | 359,534,690 | 511,214,786 | ||||||||||||
Reinvestment of dividends |
- | - | 6,059,355 | 27,478,143 | ||||||||||||
Shares repurchased |
- | - | (150,465,861 | ) | (239,941,100 | ) | ||||||||||
Increase (decrease) in net assets from capital share transactions |
(47,303,138 | ) | 62,640,072 | 620,658,500 | 546,645,834 | |||||||||||
Increase in net assets |
$ | 10,282,397 | $ | 115,563,876 | $ | 1,317,307,974 | $ | 1,001,349,385 | ||||||||
Net Assets | ||||||||||||||||
Beginning of year |
470,135,518 | 354,571,642 | 5,030,289,107 | 4,028,939,722 | ||||||||||||
End of period |
$ | 480,417,915 | $ | 470,135,518 | $ | 6,347,597,081 | $ | 5,030,289,107 | ||||||||
Undistributed net investment income (loss) |
$ | 1,978,561 | $ | 338,083 | $ | 4,106,824 | $ | 4,573,346 | ||||||||
Shares issued and redeemed | ||||||||||||||||
Investor shares |
||||||||||||||||
Shares sold |
1,668,366 | 3,472,615 | 24,939,096 | 32,388,933 | ||||||||||||
Shares issued through dividend reinvestment |
- | 955,905 | 835,478 | 5,175,425 | ||||||||||||
Shares repurchased |
(2,752,936 | ) | (2,921,063 | ) | (13,262,395 | ) | (28,783,567 | ) | ||||||||
Institutional shares |
||||||||||||||||
Shares sold |
- | - | 11,121,261 | 17,890,411 | ||||||||||||
Shares issued through dividend reinvestment |
- | - | 183,319 | 953,852 | ||||||||||||
Shares repurchased |
- | - | (4,681,652 | ) | (8,287,202 | ) | ||||||||||
Net increase (decrease) in shares outstanding |
||||||||||||||||
Investor shares |
(1,084,570 | ) | 1,507,457 | 12,512,179 | 8,780,791 | |||||||||||
Institutional shares |
- | - | 6,622,928 | 10,557,061 |
The accompanying notes are an integral part of these financial statements.
50
Semiannual Report 2013 | PARNASSUS FUNDS |
Parnassus Mid-Cap Fund | Parnassus Small-Cap Fund | Parnassus Workplace Fund | ||||||||||||||||||||
Six Months Ended June 30, 2013 |
Year Ended December 31, 2012 |
Six Months Ended June 30, 2013 |
Year Ended December 31, 2012 |
Six Months Ended June 30, 2013 |
Year Ended December 31, 2012 |
|||||||||||||||||
$ | 452,223 | $ | 684,919 | $ | (712,723 | ) | $ | (108,870 | ) | $ | 1,101,220 | $ | 1,341,142 | |||||||||
4,105,953 | 3,940,018 | 31,961,695 | 2,546,701 | 17,158,350 | 19,713,405 | |||||||||||||||||
|
- |
|
- | - | - | - | - | |||||||||||||||
|
11,025,496 |
|
8,652,009 | 20,845,444 | 109,255,075 | 21,266,576 | 26,335,362 | |||||||||||||||
|
- |
|
- | - | - | - | - | |||||||||||||||
$ |
15,583,672 |
|
$ | 13,276,946 | $ | 52,094,416 | $ | 111,692,906 | $ | 39,526,146 | $ | 47,389,909 | ||||||||||
- | (1,876,476 | ) | - | - | - | (6,214,474 | ) | |||||||||||||||
- | - | - | - | - | - | |||||||||||||||||
- | (2,209,948 | ) | - | (125,438 | ) | - | (14,123,379 | ) | ||||||||||||||
- | - | - | - | - | - | |||||||||||||||||
$ | - | $ | (4,086,424 | ) | $ | - | $ | (125,438 | ) | $ | - | $ | (20,337,853 | ) | ||||||||
69,193,732 | 74,466,129 | 100,182,295 | 219,766,653 | 89,692,829 | 98,053,970 | |||||||||||||||||
- | 3,930,160 | - | 116,403 | - | 19,493,159 | |||||||||||||||||
(18,991,383 | ) | (19,922,223 | ) | (141,153,412 | ) | (296,295,200 | ) | (51,406,226 | ) | (79,838,936 | ) | |||||||||||
- | - | - | - | - | - | |||||||||||||||||
- | - | - | - | - | - | |||||||||||||||||
- | - | - | - | - | - | |||||||||||||||||
|
50,202,349 |
|
58,474,066 | (40,971,117 | ) | (76,412,144 | ) | 38,286,603 | 37,708,193 | |||||||||||||
$ | 65,786,021 | $ | 67,664,588 | $ | 11,123,299 | $ | 35,155,324 | $ | 77,812,749 | $ | 64,760,249 | |||||||||||
128,963,894 | 61,299,306 | 679,980,377 | 644,825,053 | 281,028,913 | 216,268,664 | |||||||||||||||||
$ | 194,749,915 | $ | 128,963,894 | $ | 691,103,676 | $ | 679,980,377 | $ | 358,841,662 | $ | 281,028,913 | |||||||||||
$ | 552,624 | $ | 100,402 | $ | (712,723 | ) | $ | - | $ | 1,190,810 | $ | 89,589 | ||||||||||
3,153,787 | 3,722,881 | 4,027,898 | 9,853,128 | 3,733,606 | 4,415,685 | |||||||||||||||||
- | 197,820 | - | 5,429 | - | 904,869 | |||||||||||||||||
(860,562 | ) | (1,023,892 | ) | (5,665,013 | ) | (13,368,770 | ) | (2,141,941 | ) | (3,655,031 | ) | |||||||||||
- | - | - | - | - | - | |||||||||||||||||
- | - | - | - | - | - | |||||||||||||||||
- | - | - | - | - | - | |||||||||||||||||
2,293,225 | 2,896,809 | (1,637,115 | ) | (3,510,213 | ) | 1,591,665 | 1,665,523 | |||||||||||||||
- | - | - | - | - | - |
The accompanying notes are an integral part of these financial statements.
51
PARNASSUS FUNDS | Semiannual Report 2013 |
STATEMENT OF CHANGES IN NET ASSETS
June 30, 2013 (unaudited) (continued)
Parnassus Asia Fund | Parnassus Fixed-Income Fund | |||||||||||||||
April 30, 2013 through June 30, 2013 (unaudited) |
Year Ended December 31, 2012 |
Six Months Ended June 30, 2013 (unaudited) |
Year Ended December 31, 2012 |
|||||||||||||
Investment income (loss) from operations | ||||||||||||||||
Net investment income (loss) |
$ | (4,431 | ) | $ | - | $ | 1,922,572 | $ | 3,933,652 | |||||||
Net realized gain from securities transactions |
- | - | 1,976,396 | 443,957 | ||||||||||||
Net realized gain (loss) on foreign currency related transactions |
(497 | ) | - | - | - | |||||||||||
Net change in unrealized appreciation (depreciation) of securities |
(2,271 | ) | - | (8,338,202 | ) | 99,851 | ||||||||||
Net change in unrealized appreciation (depreciation) on foreign currency related transactions |
(89 | ) | - | - | - | |||||||||||
Increase (decrease) in net assets resulting from operations |
$ | (7,288 | ) | $ | - | $ | (4,439,234 | ) | $ | 4,477,460 | ||||||
Distributions | ||||||||||||||||
From net investment income |
||||||||||||||||
Investor shares |
- | - | (1,922,903 | ) | (4,126,137 | ) | ||||||||||
Institutional shares |
- | - | - | - | ||||||||||||
From realized capital gains |
||||||||||||||||
Investor shares |
- | - | - | (59,237 | ) | |||||||||||
Institutional shares |
- | - | - | - | ||||||||||||
Distributions to shareholders |
$ | - | $ | - | $ | (1,922,903 | ) | $ | (4,185,374 | ) | ||||||
Capital share transactions | ||||||||||||||||
Investor shares |
||||||||||||||||
Proceeds from sale of shares |
2,196,739 | - | 23,882,608 | 60,356,563 | ||||||||||||
Reinvestment of dividends |
- | - | 1,679,472 | 3,656,843 | ||||||||||||
Shares repurchased |
- | - | (47,023,258 | ) | (50,304,715 | ) | ||||||||||
Institutional shares |
||||||||||||||||
Proceeds from sale of shares |
- | - | - | - | ||||||||||||
Reinvestment of dividends |
- | - | - | - | ||||||||||||
Shares repurchased |
- | - | - | - | ||||||||||||
Increase (decrease) in net assets from capital share transactions |
2,196,739 | - | (21,461,178 | ) | 13,708,691 | |||||||||||
Increase (decrease) in net assets |
$ | 2,189,451 | $ | - | $ | (27,823,315 | ) | $ | 14,000,777 | |||||||
Net Assets | ||||||||||||||||
Beginning of year |
- | - | 225,723,280 | 211,722,503 | ||||||||||||
End of period |
$ | 2,189,451 | $ | - | $ | 197,899,965 | $ | 225,723,280 | ||||||||
Undistributed net investment income (loss) |
$ | (4,431 | ) | $ | - | $ | 28,044 | $ | 28,376 | |||||||
Shares issued and redeemed | ||||||||||||||||
Investor shares |
||||||||||||||||
Shares sold |
146,497 | - | 1,371,790 | 3,432,411 | ||||||||||||
Shares issued through dividend reinvestment |
- | - | 96,725 | 207,470 | ||||||||||||
Shares repurchased |
- | - | (2,706,043 | ) | (2,862,335 | ) | ||||||||||
Institutional shares |
||||||||||||||||
Shares sold |
- | - | - | - | ||||||||||||
Shares issued through dividend reinvestment |
- | - | - | - | ||||||||||||
Shares repurchased |
- | - | - | - | ||||||||||||
Net increase (decrease) in shares outstanding |
||||||||||||||||
Investor shares |
146,497 | - | (1,237,528 | ) | 777,546 | |||||||||||
Institutional shares |
- | - | - | - |
The accompanying notes are an integral part of these financial statements.
52
Semiannual Report 2013 | PARNASSUS FUNDS |
Notes to Financial Statements (unaudited)
1. Organization
The Parnassus Funds are comprised of two Trusts, the Parnassus Funds trust and the Parnassus Income Funds trust (collectively the Trusts), organized as Massachusetts Business Trusts registered under the Investment Company Act of 1940 as diversified, open-end investment management companies, and are comprised of seven separate funds (each a Fund and, collectively the Funds). The Parnassus Funds trust includes the Parnassus Fund, which commenced operations on December 27, 1984, the Parnassus Mid-Cap Fund, the Parnassus Small-Cap Fund and the Parnassus Workplace Fund, which each commenced operations on April 29, 2005, and the Parnassus Asia Fund, which commenced operations on April 30, 2013. The Parnassus Income Funds trust includes the Parnassus Equity Income Fund and the Parnassus Fixed-Income Fund, both of which commenced operations on August 31, 1992. Each Fund has distinct investment objectives. In general, the Funds each seek long-term capital appreciation.
2. Significant Accounting Policies
Short-Term Securities
Short-term securities represent investments of excess cash and consist of time deposits, community development loans, certificates of deposit and money market funds.
Security Transactions and Related Investment Income and Expenses
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. 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.
Class Allocations
Income, fees and expenses (other than class-specific fees and expenses) and realized and unrealized gains and losses are allocated daily among the various shares classes based on their relative net assets. Class-specific fees and expenses, such as distribution, administrative and shareholder services, are charged directly to the respective share class.
Dividends and Distributions to Shareholders
Dividends and distributions to shareholders are recorded on the ex-dividend date to shareholders of record on the record date. The Parnassus Equity Income Fund pays income dividends quarterly and capital-gain dividends annually. The Parnassus Fixed-Income Fund pays income dividends monthly and capital-gain dividends annually. The other Funds pay income and capital-gain dividends annually.
Currency Translation
Assets and liabilities, including investment securities, denominated in currencies other than U.S. dollars are translated into U.S. dollars at the exchange rates supplied by pricing vendor on the valuation date. Purchases and sales of investment securities and income and expenses are translated into U.S. dollars at the exchange rates on the dates of such transactions. On the accompanying financial statements, the effects of changes in exchange rates on investment securities are included with the net realized gain or loss and net unrealized appreciation or depreciation on investments. The realized gain or loss and unrealized appreciation or depreciation resulting from all other transactions denominated in currencies other than U.S. dollars are disclosed separately.
3. Securities Valuations
Methods and Inputs
Equity securities that are listed or traded on a national securities exchange are stated at market value, based on recorded closing sales on the exchange or on the Nasdaqs National Market official closing price. In the absence of a recorded sale, and for over-the-counter securities, equity securities are stated at the mean between the last recorded bid and asked prices.
53
PARNASSUS FUNDS | Semiannual Report 2013 |
Notes to Financial Statements (unaudited) (continued)
Long-term, fixed-income securities are valued each business day using prices based on procedures established by independent pricing services and approved by the Board of Trustees (the Trustees). Fixed-income securities with an active market are valued at the bid price where such quotes are readily available from brokers and dealers and are representative of the actual market for such securities. Other fixed-income securities experiencing a less active market are valued as determined by the pricing services based on methods which include consideration of trading in securities of comparable yield, quality, coupon, maturity and type, as well as indications as to values from dealers and other market data without exclusive reliance upon quoted prices or over-the-counter prices, since such valuations are believed to reflect more accurately the value of such securities. Investments in registered investment companies are valued at their net asset value.
Investments where market quotations are not readily available are priced at their fair value by the Funds investment adviser (acting in good faith), in accordance with procedures established by the Trustees. These investments include certificates of deposit and community development loans. These investments carry interest rates ranging from 0.1% to 2.5% with maturities of one year or less. In determining fair value, the Funds investment adviser may consider a variety of information including, but not limited to, the following: price based upon a multiple of earnings or sales, fundamental analytical data and an evaluation of market conditions. A valuation adjustment is applied to certificates of deposit, community development loans and other community development investments as an estimate of potential penalties for early withdrawal.
Securities traded on a foreign exchange are valued at the close of trading on the primary exchange on which they trade. The Funds may additionally use independent pricing services to assist in determining a current market value for each security based on sources believed to be reliable. Events affecting the value of foreign investments may occur between the time at which the values are determined and when the Funds NAV is calculated, which is usually the close of trading on the NYSE. If these events cause market quotations to be unreliable, and the impact of events can be reasonably determined, the investments will be valued at their fair value in accordance with the Funds pricing procedures and with the assistance of third-party pricing services. Foreign securities held by the Funds may be traded on days and at times when the NYSE is closed. Accordingly, the NAV of the Funds may be significantly affected on days when shareholders have no access to the Funds.
The Funds follow Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosure, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Various inputs are used in determining the value of the Funds portfolio investments. These inputs are summarized in three levels, Level 1unadjusted quoted prices in active markets for identical investments, Level 2other significant observable inputs (including quoted prices for similar investments) and Level 3significant unobservable inputs (including the Funds own assumptions in determining the fair value of investments).
The Funds adopted Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2010-06 (ASU 2010-06), Improving Disclosures about Fair Value Measurements, which, among other things, amends ASC 820 to require entities to separately present purchases, sales, issuances, and settlements in their reconciliation of Level 3 fair value measurements (i.e., to present such items on a gross basis rather than on a net basis), and requires additional disclosure related to recurring and nonrecurring fair value measurements with respect to transfer in and out of Levels 1 and 2. It also clarifies existing disclosure requirements provided by ASC 820 regarding the level of disaggregation and the inputs and valuation techniques used to measure fair value.
Securities Lending
The Parnassus Funds, with the exception of the Parnassus Asia Fund, have entered into an agreement with Brown Brothers Harriman & Co., dated July 29, 2009 (Agreement), to provide securities lending services to the Funds. Under this program, the proceeds (cash collateral) received from borrowers are used to invest in money market funds.
Under the Agreement, the borrowers pay the Funds negotiated lenders fees and the Funds receive cash collateral in an amount equal to 102% of the market value of loaned securities. The borrower of securities is at all times required to post cash collateral to the portfolio in an amount equal to 100% of the market value of the securities loaned based on the previous days market value of the securities loaned, marked-to-market daily. Any collateral shortfalls are adjusted the next business day. If the borrower defaults on its obligations to return the securities loaned because of insolvency or other reasons, the
54
Semiannual Report 2013 | PARNASSUS FUNDS |
Notes to Financial Statements (unaudited) (continued)
portfolio could experience delays and costs in recovering the securities loaned. The Funds retained beneficial ownership and all economic benefits in the securities they have loaned and continues to receive interest paid by the securities and payments equivalent to dividends, and to participate in any changes in their market value, but does not have the proxy voting rights with respect to loaned securities. Each portfolio manager of the Funds has the responsibility to request that the securities lending agent call back securities which are out on loan to vote on material matters and it is the Funds policy that the portfolio managers vote on all material matters. However, the ability to timely recall shares for proxy voting purposes typically is not entirely within the control of the portfolio manager, the Funds or their securities lending agent. Under certain circumstances, the recall of shares in time for such shares to be voted may not be possible due to applicable proxy voting record dates and administrative considerations.
Income generated from securities lending is presented in the Statements of Operations. Cash collateral received by the Funds is reflected as an asset (securities purchased with cash collateral from securities lending) and the related liability (payable upon return of securities loaned) is presented in the Statements of Assets and Liabilities.
Community Development Investment Programs
The Funds may each invest up to 2% of their assets in community investments and community-development loan funds. Each of the Funds may invest in obligations issued by community loan funds at below-market interest rates if the projects financed have a positive social impact. Generally, there is no secondary market on loan funds and thus these are considered illiquid.
As part of our community development investment program, the Parnassus Equity Income Fund has entered into an agreement for fund investments through the Certificate of Deposit Account Registry Service (CDARS) network. The CDARS network allows members to place funds in time deposits with depository institutions whose accounts are insured by the Federal Deposit Insurance Corporation (FDIC). Provisions stipulate that participating institutions are FDIC insured, however, in the event of default or bankruptcy by any party to the agreement, the proceeds of the investment may be delayed or subject to legal proceedings and are subject to FDIC limits. While certain investments of the Funds may be bank deposits and may be covered by FDIC insurance, the Funds are themselves not covered by FDIC insurance.
The Parnassus Equity Income Fund and the Parnassus Fixed-Income Fund holds debt instruments issued by MicroVest Plus, LP, a microfinance limited partnership specializing in providing capital to international microfinance institutions (MFIs) that extend credit to developing countries and the entrepreneurial poor. This instrument may be subject to political and foreign currency exchange risk not normally associated with domestic debt instruments. MicroVest Plus, LPs investment in MFIs can be affected by, among other factors, commodity prices, inflation, interest rates, taxation, social instability, and other political, economic or diplomatic developments in or affecting the various countries where MFIs operate.
Use of Estimates
The preparation of financial statements in conformity with GAAP 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 amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Subsequent Events
Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were issued and has determined that there were no subsequent events requiring adjustment to or additional disclosure in the financial statements.
4. Risk Factors
Investing in the Parnassus Funds may involve certain risks including, but not limited to the following:
Market Conditions
The prices of, and the income generated by, the common stocks and other securities held by the Funds may decline in response to certain events taking place around the world, including those directly involving the companies whose securities
55
PARNASSUS FUNDS | Semiannual Report 2013 |
Notes to Financial Statements (unaudited) (continued)
are owned by the Funds; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency, interest rate and commodity price fluctuations. Additionally, the values of, and the income generated by, most debt securities held by the fund may be affected by changing interest rates and by changes in the effective maturities and credit ratings of these debt securities. The Funds investment adviser attempts to reduce these risks through diversification of the portfolio and ongoing credit analysis as well as by monitoring economic and legislative developments, but there can be no assurance that it will be successful at doing so. Investments in securities issued by entities based outside the U.S. may also be affected by currency controls; different accounting, auditing, financial reporting, and legal standards and practices; expropriation; changes in tax policy; greater market volatility; different securities market structures and higher transaction costs.
Investing Outside the U.S.
Securities of issuers domiciled outside the U.S., or with significant operations outside the U.S., may lose value because political, social, economic or market developments or instability in the countries or regions in which the issuer operates. These securities may also lose value due to changes in foreign currency exchange rates against the U.S. dollar and/or currencies of other countries. Securities markets in certain countries may be more volatile and/or less liquid than those in the U.S. Investments outside the U.S. may also be subject to different settlement and accounting practices and different regulatory, legal and reporting standards, and may be more difficult to value than those in the U.S. The risks of investing outside the U.S. may be heightened in connection with investments in emerging and developing countries.
5. Taxation and Distributions
Federal Income Taxes
The Trusts intend to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all taxable income to shareholders. Therefore, no federal income tax provision is required. Income distributions and capital-gain distributions are determined in accordance with income tax regulations, which may differ from U.S. Generally Accepted Accounting Principles (GAAP).
The Funds follow ASC 740, Income Taxes, relating to uncertainty in income taxes and disclosures. ASC 740 establishes a minimum threshold for income tax benefits to be recognized in the financial statements. These tax benefits must meet a more likely than not threshold, which means that based on technical merits, they have a more than 50% likelihood of being sustained upon examination by the tax authority. Tax benefits meeting this threshold are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority. As of and during the year ended December 31, 2011, the Funds did not have a liability for any unrecognized tax benefits. The Funds recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. During the year, the Funds did not incur interest or penalties. The Funds are not subject to examination by U.S. federal taxing authorities before 2010 or state taxing authorities before 2009.
The prices of, and the income generated by, the common stocks and other securities held by the Funds may decline in response to certain events taking place around the world, including those directly involving the companies whose securities are owned by the Funds; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency, interest rate and commodity price fluctuations. Additionally, the values of, and the income generated by, most debt securities held by the fund may be affected by changing interest rates and by changes in the effective maturities and credit ratings of these debt securities. The Funds investment adviser attempts to reduce these risks through diversification of the portfolio and ongoing credit analysis as well as by monitoring economic and legislative developments, but there can be no assurance that it will be successful at doing so. Investments in securities issued by entities based outside the U.S. may also be affected by currency controls; different accounting, auditing, financial reporting, and legal standards and practices; expropriation; changes in tax policy; greater market volatility; different securities market structures and higher transaction costs.
56
Semiannual Report 2013 | PARNASSUS FUNDS |
Notes to Financial Statements (unaudited) (continued)
Tax Matters and Distributions
At June 30, 2013, the cost of investments in long-term securities and net unrealized appreciation/depreciation for income tax purposes were as follows:
Parnassus Fund |
Parnassus Equity Income Fund |
Parnassus Mid-Cap Fund |
Parnassus Small-Cap Fund |
Parnassus Workplace Fund |
Parnassus Asia Fund |
Parnassus Fixed-Income Fund |
||||||||||||||||||||||
Cost of investment |
$412,703,945 | $4,729,388,608 | $158,334,964 | $623,950,400 | $287,339,561 | $127,808 | $174,278,997 | |||||||||||||||||||||
Unrealized appreciation | 76,039,557 | 1,239,369,915 | 23,513,968 | 90,553,712 | 48,579,211 | - | 6,125,807 | |||||||||||||||||||||
Unrealized depreciation | 12,473,669 | 24,033,428 | 1,082,246 | 35,117,435 | 1,809,100 | 2,360 | 2,503,959 | |||||||||||||||||||||
Net unrealized appreciation (depreciation) | $ | 63,565,888 | $ | 1,215,336,487 | $ | 22,431,722 | $ | 55,436,277 | $ | 46,770,111 | $ | (2,360 | ) | $ | 3,621,848 |
At December 31, 2012, estimated net capital loss carry forwards, which are available to offset future net short-term related capital gains, were as follows:
Fund | Deferred Capital Loss Carry Forwards | |||
Parnassus Small-Cap Fund | $ | 3,264,786 |
Post-October capital losses as of December 31, 2012, which are deferred until 2013 for income tax purposes were as follows:
Fund | Deferred Post-October Capital Loss | |||
Parnassus Workplace Fund | $ | 774 |
Net investment income and net ordinary income is the same for all Funds for financial statement and tax purposes during the six-month period ended June 30, 2013. Net realized gains differ for financial statement and tax purposes primarily due to differing treatments of wash sales.
57
PARNASSUS FUNDS | Semiannual Report 2013 |
Notes to Financial Statements (unaudited) (continued)
6. Fair Value Measurements
The following table summarizes the portfolios financial assets as of June 30, 2013, that is valued at fair value on a recurring basis:
Parnassus Fund | ||||||||||||||||
Investment Securities | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Equities: | ||||||||||||||||
Consumer Discretionary |
$ | 58,458,500 | $ | - | $ | - | $ | 58,458,500 | ||||||||
Consumer Staples |
19,068,050 | - | - | 19,068,050 | ||||||||||||
Energy |
11,432,000 | - | - | 11,432,000 | ||||||||||||
Financials |
66,831,400 | - | - | 66,831,400 | ||||||||||||
Healthcare |
39,148,600 | - | - | 39,148,600 | ||||||||||||
Industrials |
55,450,500 | - | - | 55,450,500 | ||||||||||||
Information Technology |
208,885,300 | - | - | 208,885,300 | ||||||||||||
Materials |
8,804,271 | - | - | 8,804,271 | ||||||||||||
Utilities |
7,353,310 | - | - | 7,353,310 | ||||||||||||
Short-Term Investments | 14,210,977 | - | 1,361,101 | 15,572,078 | ||||||||||||
Total | $ | 489,642,908 | $ | - | $ | 1,361,101 | $ | 491,004,009 | ||||||||
Parnassus Equity Income Fund | ||||||||||||||||
Investment Securities | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Equities: | ||||||||||||||||
Consumer Discretionary |
$ | 479,326,538 | $ | - | $ | - | $ | 479,326,538 | ||||||||
Consumer Staples |
1,159,153,960 | - | - | 1,159,153,960 | ||||||||||||
Energy |
543,690,073 | - | - | 543,690,073 | ||||||||||||
Financials |
127,380,000 | - | - | 127,380,000 | ||||||||||||
Healthcare |
496,515,134 | - | - | 496,515,134 | ||||||||||||
Industrials |
1,169,447,969 | - | - | 1,169,447,969 | ||||||||||||
Information Technology |
1,217,439,790 | - | - | 1,217,439,790 | ||||||||||||
Materials |
261,760,717 | - | - | 261,760,717 | ||||||||||||
Utilities |
489,931,310 | - | - | 489,931,310 | ||||||||||||
Short-Term Investments | 641,544,331 | - | 7,708,295 | 649,252,626 | ||||||||||||
Total | $ | 6,586,189,822 | $ | - | $ | 7,708,295 | $ | 6,593,898,117 | ||||||||
58
Semiannual Report 2013 | PARNASSUS FUNDS |
Notes to Financial Statements (unaudited) (continued)
Parnassus Mid-Cap Fund | ||||||||||||||||
Investment Securities | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Equities: | ||||||||||||||||
Consumer Discretionary |
$ | 16,233,454 | $ | - | $ | - | $ | 16,233,454 | ||||||||
Consumer Staples |
5,858,440 | - | - | 5,858,440 | ||||||||||||
Energy |
16,233,704 | - | - | 16,233,704 | ||||||||||||
Financials |
16,096,950 | - | - | 16,096,950 | ||||||||||||
Healthcare |
16,910,427 | - | - | 16,910,427 | ||||||||||||
Industrials |
43,978,135 | - | - | 43,978,135 | ||||||||||||
Information Technology |
42,314,426 | - | - | 42,314,426 | ||||||||||||
Materials |
7,072,115 | - | - | 7,072,115 | ||||||||||||
Utilities |
16,038,012 | - | - | 16,038,012 | ||||||||||||
Short-Term Investments | 21,527,895 | - | - | 21,527,895 | ||||||||||||
Total | $ | 202,263,558 | $ | - | $ | - | $ | 202,263,558 | ||||||||
Parnassus Small-Cap Fund | ||||||||||||||||
Investment securities | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Equities: | ||||||||||||||||
Consumer Discretionary |
$ | 64,493,000 | $ | - | $ | - | $ | 64,493,000 | ||||||||
Energy |
34,694,750 | - | - | 34,694,750 | ||||||||||||
Financials |
78,945,200 | - | - | 78,945,200 | ||||||||||||
Healthcare |
55,456,500 | - | - | 55,456,500 | ||||||||||||
Industrials |
110,235,500 | - | - | 110,235,500 | ||||||||||||
Information Technology |
229,856,594 | - | - | 229,856,594 | ||||||||||||
Materials |
67,870,454 | - | - | 67,870,454 | ||||||||||||
Utilities |
37,694,799 | - | - | 37,694,799 | ||||||||||||
Short-Term Investments | 59,714,530 | - | - | 59,714,530 | ||||||||||||
Total | $ | 738,961,327 | $ | - | $ | - | $ | 738,961,327 | ||||||||
Parnassus Workplace Fund | ||||||||||||||||
Investment securities | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Equities: | ||||||||||||||||
Consumer Discretionary |
$ | 25,258,000 | $ | - | $ | - | $ | 25,258,000 | ||||||||
Consumer Staples |
31,219,750 | - | - | 31,219,750 | ||||||||||||
Financials |
66,076,500 | - | - | 66,076,500 | ||||||||||||
Healthcare |
25,531,450 | - | - | 25,531,450 | ||||||||||||
Industrials |
48,997,900 | - | - | 48,997,900 | ||||||||||||
Information Technology |
128,535,080 | - | - | 128,535,080 | ||||||||||||
Utilities |
8,420,750 | - | - | 8,420,750 | ||||||||||||
Short-Term Investments | 26,776,665 | - | - | 26,776,665 | ||||||||||||
Total | $ | 360,816,095 | $ | - | $ | - | $ | 360,816,095 |
59
PARNASSUS FUNDS | Semiannual Report 2013 |
Notes to Financial Statements (unaudited) (continued)
Parnassus Asia Fund | ||||||||||||||||
Investment Securities |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Singapore |
$ | - | $ | 20,447 | $ | - | $ | 20,447 | ||||||||
South Korea |
- | 23,386 | - | 23,386 | ||||||||||||
Thailand |
- | 36,885 | - | 36,885 | ||||||||||||
United States |
44,730 | - | - | 44,730 | ||||||||||||
Short-Term Investments | 2,056,044 | - | - | 2,056,044 | ||||||||||||
Total | $ | 2,100,774 | $ | 80,718 | $ | - | $ | 2,181,492 | ||||||||
Parnassus Fixed-Income Fund | ||||||||||||||||
Investment Securities | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Convertible Bonds | $ | - | $ | 1,003,125 | $ | - | $ | 1,003,125 | ||||||||
Corporate Bonds | - | 65,110,053 | - | 65,110,053 | ||||||||||||
Supranational Bonds | - | 4,966,015 | - | 4,966,015 | ||||||||||||
U.S. Government Treasury Bonds | - | 106,821,652 | - | 106,821,652 | ||||||||||||
Short-Term Investments | 16,191,007 | - | 2,456,438 | 18,647,445 | ||||||||||||
Total | $ | 16,191,007 | $ | 177,900,845 | $ | 2,456,438 | $ | 196,548,290 |
The following table reconciles the valuation of the Funds Level 3 investment securities and related transactions as of June 30, 2013:
Parnassus Fund |
Parnassus Fund |
Parnassus Fixed-Income Fund |
||||||||||
Certificates of Deposit | Certificates of Deposit | |||||||||||
Community Development Loans |
Community Development Loans |
Community Development Loans |
||||||||||
Balance as of December 31, 2012 | $ | 1,384,196 | $ | 7,561,876 | $ | 2,382,055 | ||||||
Discounts/premiums amortization | (23,095 | ) | 146,419 | 74,383 | ||||||||
Purchases | 1,200,000 | 1,400,000 | - | |||||||||
Sales | (1,200,000 | ) | (1,400,000 | ) | - | |||||||
Balance as of June 30, 2013 | $ | 1,361,101 | $ | 7,708,295 | $ | 2,456,438 |
There were no significant transfers between Level 1 and Level 2. Additionally, there were no significant transfers in and/or out of Level 3.
60
Semiannual Report 2013 | PARNASSUS FUNDS |
Notes to Financial Statements (unaudited) (continued)
Quantitative information about Level 3 fair value measurement:
Fair Value at June 30, 2013 |
Valuation Technique |
Unobservable Input | Range / Weighted Average | |||||||
Parnassus Fund | ||||||||||
Certificates of Deposit | $ | 879,182 | Liquidity Discount | Discount for Lack of Marketability |
4% | |||||
Community Development Loans |
$ | 481,919 | Liquidity Discount | Discount for Lack of Marketability | 6% | |||||
Probability of Default | 6% | |||||||||
Parnassus Equity Income Fund | ||||||||||
Certificates of Deposit | $ | 346,944 | Liquidity Discount | Discount for Lack of Marketability | 4% | |||||
Community Development Loans |
$ | 7,361,351 | Liquidity Discount | Discount for Lack of Marketability | 6% | |||||
Probability of Default | 6% | |||||||||
Parnassus Fixed-Income Fund | ||||||||||
Community Development Loans |
$ | 2,456,438 | Liquidity Discount | Discount for Lack of Marketability | 6% | |||||
Probability of Default | 6% |
The significant unobservable inputs used in fair value measurement of the Funds Certificates of Deposits are a discount for lack of marketability. The significant unobservable inputs used in the fair value measurement of the Funds Community Development Loans are a discount for lack of marketability and a discount for the probability of default. Significant increases in any of these inputs in isolation would result in a lower fair value measurement. Generally, a change in the assumption used for probability of default should be accompanied by a directionally-similar change in the assumption used for the lack of marketability.
Certain foreign securities may be fair valued by independent pricing services if events occur between the time at which the market quotations are determined on the primary exchange and the close of trading on the NYSE. These events may affect the value of these securities and render market quotations unreliable. Such fair valuations are categorized as Level 2 investments. Foreign securities that are valued based on market quotations are categorized as Level 1 investments.
The Funds value securities and other assets for which market quotations are not readily available or reliable by appraisal at their fair value as determined in good faith by the Funds investment adviser under procedure established by and under the general supervision and responsibility of the Trustees. The Funds valuation committee is comprised of independent trustees who also comprise the Funds audit committee. The committee reviews the methodologies used by the Funds when securities have been identified as being fair valued and include the percentages used when determining liquidity discounts or discounts to be taken for lack of marketability. The Trustees review the changes in fair value measurement and methods used to substantiate the unobservable inputs on a quarterly basis.
7. Capital Stock
Capital stock consists of an unlimited number of authorized shares of capital stock with no par value.
61
PARNASSUS FUNDS | Semiannual Report 2013 |
Notes to Financial Statements (unaudited) (continued)
8. Investments in Affiliates
The 1940 Act defines affiliated companies to include investments in portfolio companies in which a fund owns 5% or more of the outstanding voting shares. During the six-month period ended June 30, 2013, the Funds below held 5% or more of the outstanding voting shares of the noted portfolio companies. During this period, other Funds in the Trust may also have held voting shares of the issuers at levels below 5%.
A summary of transactions in securities of issuers affiliated with a Fund for the six-month period ended June 30, 2013 is set forth below.
Beginning shares December 31, 2012 |
Shares purchased |
Shares sold |
Ending shares June 30, 2013 |
Market Value of affiliates at June 30, 2013 |
Dividend
Income June 30, 2013 |
|||||||||||||||||||
Parnassus Equity Income Fund | ||||||||||||||||||||||||
Name of Company: | ||||||||||||||||||||||||
Compass Minerals International Inc. | 1,432,083 | 302,221 | - | 1,734,304 | $ | 146,600,717 | $ | 1,890,391 | ||||||||||||||||
Northwest Natural Gas Co. | 1,563,129 | 103,871 | - | 1,667,000 | 70,814,160 | 1,439,224 | ||||||||||||||||||
W&T Offshore Inc. | 4,000,000 | 1,300,000 | - | 5,300,000 | 75,737,000 | 841,058 | ||||||||||||||||||
WD-40 Co. | 1,131,000 | - | - | 1,131,000 | 61,616,880 | 701,220 | ||||||||||||||||||
Total Affiliates | $ | 354,768,757 | $ | 4,871,893 | ||||||||||||||||||||
Parnassus Small-Cap Fund | ||||||||||||||||||||||||
Name of Company: | ||||||||||||||||||||||||
Ceragon Networks Ltd. | 2,900,000 | - | 288,525 | 2,611,475 | $ | 8,200,032 | $ | - | ||||||||||||||||
Total Affiliates | $ | 8,200,032 | $ | - |
9. Purchases and Sales of Securities
Purchases and proceeds from sales of securities for affiliated and unaffiliated holdings, excluding short-term securities, for the six-month period ended June 30, 2013 were as follows:
Fund | Affiliated Purchases |
Unaffiliated Purchases |
Affiliated Sales |
Unaffiliated Sales |
||||||||||||
Parnassus Fund | $ | - | $ | 157,726,815 | $ | - | $ | 205,041,069 | ||||||||
Parnassus Equity Income Fund | 44,517,444 | 1,316,500,279 | - | 849,980,238 | ||||||||||||
Parnassus Mid-Cap Fund | - | 56,771,127 | - | 12,944,314 | ||||||||||||
Parnassus Small-Cap Fund | - | 191,156,413 | 1,062,666 | 215,386,239 | ||||||||||||
Parnassus Workplace Fund | - | 100,680,629 | - | 77,058,579 | ||||||||||||
Parnassus Asia Fund | - | 127,808 | - | - | ||||||||||||
Parnassus Fixed-Income Fund | - | 22,236,639 | - | 47,179,841 |
10. Investment Advisory Agreement and Transactions with Affiliates
Under terms of an agreement which provides for furnishing investment management and advice to the Funds, Parnassus Investments is entitled to receive fees payable monthly, based on each Funds average daily net assets for the month, at the following annual rates:
Parnassus Fund: 1.00% of the first $10,000,000, 0.75% of the next $20,000,000, 0.70% of the next $70,000,000, 0.65% of the next $100,000,000 and 0.60% of the amount above $200,000,000. Parnassus Mid-Cap Fund and Parnassus Workplace Fund: 0.85% of the first $100,000,000, 0.80% of the next $100,000,000, 0.75% of the next $300,000,000 and 0.70% of the
62
Semiannual Report 2013 | PARNASSUS FUNDS |
Notes to Financial Statements (unaudited) (continued)
amount above $500,000,000. Parnassus Small-Cap Fund: 1.00% of the first $100,000,000, 0.90% of the next $100,000,000, 0.85% of the next $300,000,000 and 0.80% of the amount above $500,000,000. Parnassus Asia Fund: 1.10% of the first $100 million in assets, 1.05% of the next $400 million and 1.00% of the amount above $500 million. For a period including the six-month period ended June 30, 2013, Parnassus Investments has contractually agreed to reduce its investment advisory fee to the extent necessary to limit total operating expenses to 0.99% of net assets for the Parnassus Fund, 1.20% of net assets for the Parnassus Mid-Cap Fund, Parnassus Small-Cap Fund and Parnassus Workplace Fund and 1.45% of the net assets for the Parnassus Asia Fund.
Parnassus Equity Income Fund: 0.75% of the first $30,000,000, 0.70% of the next $70,000,000 and 0.65% of the next $400,000,000 and 0.60% of the amount above $500,000,000. Parnassus Fixed-Income 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. For a period including the six-month period ended June 30, 2013, Parnassus Investments has contractually agreed to reduce its investment advisory fee to the extent necessary to limit total operating expenses to 0.99% of net assets for the Parnassus Equity Income Fund Investor Shares, 0.78% of net assets for the Parnassus Equity Income Fund Institutional Shares, and 0.68% of net assets for the Parnassus Fixed-Income Fund.
Parnassus Investments receives fees under terms of a separate agreement which provides for furnishing transfer agent and fund administration services to the Funds. The transfer agent fee was $2.50 per month per account plus any out-of-pocket expenses for the Parnassus Fund, Parnassus Mid-Cap Fund, Parnassus Small-Cap Fund, Parnassus Workplace Fund and Parnassus Asia Fund. The transfer agent fee was $2.70 per month per account plus any out-of-pocket expenses for the Parnassus Equity Income Fund and Parnassus Fixed-Income Fund. The Funds pay the monthly fee based on the number of accounts on record at each month-end. The fund administration services fee reflects annual rates based on net assets for all Funds managed by Parnassus Investments and was allocated based on respective fund net assets. The fund administration services fee was 0.02% of average net assets under this new agreement for the six-month period ended June 30, 2013.
Parnassus Investments may also arrange for third parties to provide certain services, including account maintenance, recordkeeping and other personal services to their clients who invest in the Funds. For these services, the Funds may pay service providers an aggregate service fee on investment accounts at a rate not to exceed 0.25% per annum of average daily net assets. The Parnassus Equity Income Fund Institutional Shares does not pay service provider fees.
63
PARNASSUS FUNDS | Semiannual Report 2013 |
Financial Highlights (unaudited)
For
a Share Outstanding for the Period Ended |
Net Asset Value Beginning of Year |
Net Investment Income (Loss)(a) |
Net Realized and Unrealized Gain (Loss) on Securities(a) |
Total
from Investment Operations(a) |
Dividends from Net Investment Income |
Distributions from Net Realized Gains on Securities |
||||||||||||||||||
Parnassus Fund | ||||||||||||||||||||||||
Six-Month Period Ended June 30, 2013 (unaudited) | $ | 40.62 | $ | 0.14 | $ | 5.05 | $ | 5.19 | $ | - | $ | - | ||||||||||||
2012 |
35.23 | 0.28 | 8.64 | 8.92 | (0.80 | ) | (2.73 | ) | ||||||||||||||||
2011 |
40.49 | 0.13 | (2.25 | ) | (2.12 | ) | (0.12 | ) | (3.02 | ) | ||||||||||||||
2010 |
34.82 | 0.15 | 5.67 | 5.82 | (0.15 | ) | - | |||||||||||||||||
2009 |
23.59 | 0.09 | 11.22 | 11.31 | (0.08 | ) | - | |||||||||||||||||
2008 |
36.66 | 0.17 | (12.76 | ) | (12.59 | ) | (0.17 | ) | (0.31 | ) | ||||||||||||||
Parnassus Equity Income Fund Investor Shares | ||||||||||||||||||||||||
Six-Month Period Ended June 30, 2013 (unaudited) | 29.20 | 0.20 | 3.97 | 4.17 | (0.20 | ) | - | |||||||||||||||||
2012 |
26.35 | 0.39 | 3.64 | 4.03 | (0.74 | ) | (0.44 | ) | ||||||||||||||||
2011 |
26.31 | 0.32 | 0.48 | 0.80 | (0.31 | ) | (0.45 | ) | ||||||||||||||||
2010 |
24.45 | 0.30 | 1.85 | 2.15 | (0.29 | ) | - | |||||||||||||||||
2009 |
19.29 | 0.33 | 5.15 | 5.48 | (0.32 | ) | - | |||||||||||||||||
2008 |
25.31 | 0.27 | (6.05 | ) | (5.78 | ) | (0.24 | ) | - | |||||||||||||||
Parnassus Equity Income Fund Institutional Shares | ||||||||||||||||||||||||
Six-Month Period Ended June 30, 2013 (unaudited) | 29.26 | 0.23 | 3.95 | 4.18 | (0.22 | ) | - | |||||||||||||||||
2012 |
26.41 | 0.45 | 3.64 | 4.09 | (0.80 | ) | (0.44 | ) | ||||||||||||||||
2011 |
26.36 | 0.38 | 0.50 | 0.88 | (0.38 | ) | (0.45 | ) | ||||||||||||||||
2010 |
24.51 | 0.38 | 1.82 | 2.20 | (0.35 | ) | - | |||||||||||||||||
2009 |
19.34 | 0.31 | 5.22 | 5.53 | (0.36 | ) | - | |||||||||||||||||
2008 |
25.35 | 0.32 | (6.05 | ) | (5.73 | ) | (0.28 | ) | - | |||||||||||||||
Parnassus Mid-Cap Fund | ||||||||||||||||||||||||
Six-Month Period Ended June 30, 2013 (unaudited) | 20.27 | 0.06 | 2.17 | 2.23 | - | - | ||||||||||||||||||
2012 |
17.69 | 0.16 | 3.10 | 3.26 | (0.30 | ) | (0.38 | ) | ||||||||||||||||
2011 |
18.25 | 0.06 | 0.51 | 0.57 | (0.13 | ) | (1.00 | ) | ||||||||||||||||
2010 |
16.28 | 0.30 | 2.70 | 3.00 | (0.24 | ) | (0.79 | ) | ||||||||||||||||
2009 |
12.00 | 0.11 | 4.24 | 4.35 | (0.07 | ) | - | |||||||||||||||||
2008 |
17.39 | 0.06 | (5.21 | ) | (5.15 | ) | (0.03 | ) | (0.21 | ) | ||||||||||||||
Parnassus Small-Cap Fund | ||||||||||||||||||||||||
Six-Month Period Ended June 30, 2013 (unaudited) | 23.77 | (0.03 | ) | 1.89 | 1.86 | - | - | |||||||||||||||||
2012 |
20.08 | - | (c) | 3.69 | 3.69 | - | - | (c) | ||||||||||||||||
2011 |
23.95 | (0.04 | ) | (3.15 | ) | (3.19 | ) | - | (c) | (0.68 | ) | |||||||||||||
2010 |
17.92 | 0.15 | 6.53 | 6.68 | (0.47 | ) | (0.18 | ) | ||||||||||||||||
2009 |
12.63 | 0.13 | 5.24 | 5.37 | (0.08 | ) | - | |||||||||||||||||
2008 |
16.91 | 0.08 | (4.32 | ) | (4.24 | ) | (0.04 | ) | - | |||||||||||||||
Parnassus Workplace Fund | ||||||||||||||||||||||||
Six-Month Period Ended June 30, 2013 (unaudited) | 22.17 | 0.08 | 2.90 | 2.98 | - | - | ||||||||||||||||||
2012 |
19.64 | 0.12 | 4.13 | 4.25 | (0.50 | ) | (1.22 | ) | ||||||||||||||||
2011 |
20.81 | 0.05 | (0.40 | ) | (0.35 | ) | (0.05 | ) | (0.77 | ) | ||||||||||||||
2010 |
19.45 | 0.02 | 2.48 | 2.50 | 0.50 | 0.64 | ||||||||||||||||||
2009 |
12.22 | 0.03 | 7.56 | 7.59 | (0.33 | ) | (0.03 | ) | ||||||||||||||||
2008 |
17.60 | 0.05 | (5.33 | ) | (5.28 | ) | - | (0.10 | ) | |||||||||||||||
Parnassus Asia Fund | ||||||||||||||||||||||||
June 30, 2013 (unaudited)(d) |
15.00 | (0.04 | ) | (0.01 | ) | (0.05 | ) | - | - | |||||||||||||||
Parnassus Fixed-Income Fund | ||||||||||||||||||||||||
Six-Month Period Ended June 30, 2013 (unaudited) | 17.56 | 0.16 | (0.52 | ) | (0.36 | ) | (0.16 | ) | - | |||||||||||||||
2012 |
17.53 | 0.31 | 0.05 | 0.36 | (0.33 | ) | - | (c) | ||||||||||||||||
2011 |
16.90 | 0.33 | 0.88 | 1.21 | (0.34 | ) | (0.24 | ) | ||||||||||||||||
2010 |
16.74 | 0.45 | 0.65 | 1.10 | (0.59 | ) | (0.35 | ) | ||||||||||||||||
2009 |
16.19 | 0.51 | 0.69 | 1.20 | (0.64 | ) | (0.01 | ) | ||||||||||||||||
2008 |
16.29 | 0.47 | 0.01 | 0.48 | (0.57 | ) | (0.01 | ) |
64
Semiannual Report 2013 | PARNASSUS FUNDS |
Total Dividends and Distributions |
Net Asset Value End of Period |
Total Overall Return |
Net Assets End of Period (000s) |
Ratio of Gross Expenses to Average Net Assets |
Ratio of Net Expenses to Average Net Assets (Net of Waiver and Expense Offset Arrangements)(b) |
Ratio of Net Investment Income (Loss) to Average Net Assets |
Portfolio Turnover Rate |
|||||||||||||||||||||||
$ |
- |
|
$ | 45.81 | 12.78 | % | $ | 480,418 | 0.86 | % | 0.86 | % | 0.67 | % | 32.92 | % | ||||||||||||||
(3.53 | ) | 40.62 | 26.04 | 470,136 | 0.90 | 0.90 | 0.70 | 52.72 | ||||||||||||||||||||||
(3.14 | ) | 35.23 | (5.01 | ) | 354,572 | 0.94 | 0.94 | 0.33 | 74.43 | |||||||||||||||||||||
(0.15 | ) | 40.49 | 16.71 | 444,457 | 0.97 | 0.97 | 0.42 | 51.77 | ||||||||||||||||||||||
(0.08 | ) | 34.82 | 47.94 | 351,176 | 1.00 | 0.99 | 0.31 | 53.24 | ||||||||||||||||||||||
(0.48 | ) | 23.59 | (34.12 | ) | 173,911 | 1.01 | 0.99 | 0.51 | 98.38 | |||||||||||||||||||||
|
(0.20 |
) |
33.17 | 14.28 | 4,984,182 | 0.86 | 0.86 | 1.24 | 15.59 | |||||||||||||||||||||
(1.18 | ) | 29.20 | 15.43 | 4,023,309 | 0.90 | 0.90 | 1.38 | 24.34 | ||||||||||||||||||||||
(0.76 | ) | 26.35 | 3.13 | 3,398,905 | 0.94 | 0.94 | 1.19 | 63.04 | ||||||||||||||||||||||
(0.29 | ) | 26.31 | 8.89 | 3,150,408 | 0.99 | 0.99 | 1.23 | 54.30 | ||||||||||||||||||||||
(0.32 | ) | 24.45 | 28.73 | 2,364,691 | 0.99 | 0.99 | 1.63 | 60.16 | ||||||||||||||||||||||
(0.24 | ) | 19.29 | (22.95 | ) | 1,400,214 | 0.99 | 0.99 | 1.21 | 70.20 | |||||||||||||||||||||
|
(0.22 |
) |
33.22 | 14.31 | 1,363,415 | 0.69 | 0.69 | 1.41 | 15.59 | |||||||||||||||||||||
(1.24 | ) | 29.26 | 15.64 | 1,006,980 | 0.68 | 0.68 | 1.59 | 24.34 | ||||||||||||||||||||||
(0.83 | ) | 26.41 | 3.40 | 630,035 | 0.70 | 0.70 | 1.43 | 63.04 | ||||||||||||||||||||||
(0.35 | ) | 26.36 | 9.07 | 407,423 | 0.75 | 0.75 | 1.54 | 54.30 | ||||||||||||||||||||||
(0.36 | ) | 24.51 | 28.97 | 192,987 | 0.77 | 0.77 | 1.51 | 60.16 | ||||||||||||||||||||||
(0.28 | ) | 19.34 | (22.73 | ) | 137,501 | 0.79 | 0.78 | 1.44 | 70.20 | |||||||||||||||||||||
|
- |
|
22.50 | 11.00 | 194,750 | 1.15 | 1.15 | 0.55 | 8.43 | |||||||||||||||||||||
(0.68 | ) | 20.27 | 18.58 | 128,964 | 1.23 | 1.20 | 0.79 | 22.82 | ||||||||||||||||||||||
(1.13 | ) | 17.69 | 3.33 | 61,299 | 1.24 | 1.20 | 0.35 | 38.67 | ||||||||||||||||||||||
(1.03 | ) | 18.25 | 18.70 | 36,811 | 1.46 | 1.20 | 1.73 | 53.22 | ||||||||||||||||||||||
(0.07 | ) | 16.28 | 36.26 | 22,804 | 1.76 | 1.20 | 0.78 | 40.11 | ||||||||||||||||||||||
(0.24 | ) | 12.00 | (29.38 | ) | 6,672 | 2.25 | 1.20 | 0.40 | 132.74 | |||||||||||||||||||||
|
- |
|
25.63 | 7.83 | 691,104 | 1.21 | 1.20 | (0.20 | ) | 27.99 | ||||||||||||||||||||
- | (c) | 23.77 | 18.40 | 679,980 | 1.23 | 1.20 | (0.02 | ) | 32.85 | |||||||||||||||||||||
(0.68 | ) | 20.08 | (13.29 | ) | 644,825 | 1.22 | 1.20 | (0.18 | ) | 39.50 | ||||||||||||||||||||
(0.65 | ) | 23.95 | 37.37 | 445,343 | 1.30 | 1.20 | 0.75 | 35.33 | ||||||||||||||||||||||
(0.08 | ) | 17.92 | 42.50 | 115,168 | 1.47 | 1.20 | 0.81 | 46.00 | ||||||||||||||||||||||
(0.04 | ) | 12.63 | (25.08 | ) | 26,805 | 1.86 | 1.20 | 0.51 | 100.41 | |||||||||||||||||||||
|
- |
|
25.15 | 13.44 | 358,842 | 1.08 | 1.08 | 0.69 | 26.26 | |||||||||||||||||||||
(1.72 | ) | 22.17 | 20.03 | 281,029 | 1.14 | 1.14 | 0.54 | 69.25 | ||||||||||||||||||||||
(0.82 | ) | 19.64 | (1.62 | ) | 216,269 | 1.16 | 1.16 | 0.22 | 47.22 | |||||||||||||||||||||
(1.14 | ) | 20.81 | 12.96 | 143,491 | 1.25 | 1.20 | 0.09 | 53.85 | ||||||||||||||||||||||
(0.36 | ) | 19.45 | 62.13 | 95,300 | 1.36 | 1.20 | 0.16 | 32.73 | ||||||||||||||||||||||
(0.10 | ) | 12.22 | (29.94 | ) | 7,951 | 2.32 | 1.20 | 0.30 | 72.58 | |||||||||||||||||||||
- | 14.95 | (0.33 | )(e) | 2,189 | 4.29 | (f) | 1.45 | (f) | (1.40 | )(f) | - | (e) | ||||||||||||||||||
|
(0.16 |
) |
17.04 | (2.08 | ) | 197,900 | 0.78 | 0.68 | 1.81 | 11.23 | ||||||||||||||||||||
(0.33 | ) | 17.56 | 2.08 | 225,723 | 0.79 | 0.68 | 1.78 | 5.45 | ||||||||||||||||||||||
(0.58 | ) | 17.53 | 7.24 | 211,723 | 0.81 | 0.75 | 1.92 | 29.25 | ||||||||||||||||||||||
(0.94 | ) | 16.9 | 6.61 | 180,186 | 0.83 | 0.75 | 2.60 | 56.06 | ||||||||||||||||||||||
(0.65 | ) | 16.74 | 7.48 | 137,924 | 0.87 | 0.75 | 3.07 | 46.24 | ||||||||||||||||||||||
(0.58 | ) | 16.19 | 2.98 | 100,070 | 0.88 | 0.75 | 2.90 | 44.87 |
Please see footnotes on page 66.
65
PARNASSUS FUNDS | Semiannual Report 2013 |
Financial Highlights (unaudited) (continued)
(a) Income (loss) from operations per share is based on average daily shares outstanding.
(b) Parnassus Investments has contractually limited expenses to an annualized rate of 0.99% for the Parnassus Fund, 0.99% for the Parnassus Equity Income Fund Investor Shares, 0.78% for the Parnassus Equity Income Fund Institutional Shares, 1.20% for the Parnassus Mid-Cap Fund, the Parnassus Small-Cap Fund and the Parnassus Workplace Fund, 1.45% for the Parnassus Asia Fund and 0.68% for the Parnassus Fixed Income Fund. For the period ending June 30, 2013, Parnassus Investments has agreed to further reduce the total operating expenses from 0.75% to 0.68% of net assets for the Parnassus Fixed Income Funds. (See note 10 for details).
(c) Amount less than $0.01.
(d) The Parnassus Asia Fund commenced operations on April 30, 2013, and the period shown is from April 30, 2013 through June 30, 2013.
(e) Not annualized for periods less than one year.
(f) Annualized.
66
Semiannual Report 2013 | PARNASSUS FUNDS |
ADDITIONAL INFORMATION (unaudited)
Board of Trustees Consideration of Investment Advisory Agreements
Section 15(c) of the Investment Company Act of 1940 (the 1940 Act) requires that the Board of Trustees (the Trustees) of the Parnassus Funds trust and the Parnassus Income Funds trust (the Trusts) which collectively are known as the Parnassus Funds (the Funds), meet in person to review and consider the continuation of any investment advisory agreement. In this regard, the Trustees who are not interested persons of the Trusts, as defined in the 1940 Act, (the Independent Trustees) met in person on March 28, 2013 and reviewed and re-approved the Trusts investment advisory agreements with Parnassus Investments. The Independent Trustees were provided with relevant information by Parnassus Investments, as described below, and were assisted in their evaluation of the investment advisory agreements by independent legal counsel, from whom they received assistance and advice, including a written memorandum, regarding the legal standards applicable to the consideration of advisory arrangements and with whom they met separately from Parnassus Investments management. In addition, the Trustees consider matters bearing on the management of the Funds and other arrangements at regular meetings throughout the year, including reviews of investment results and performance data at each regular meeting and periodic presentations from Parnassus Investments. Prior to approving the continuation of the investment advisory agreements, the Independent Trustees considered:
| the nature, extent and quality of the services provided by Parnassus Investments; |
| the degree to which the Parnassus Fund, the Parnassus Equity Income Fund, the Parnassus Mid-Cap Fund, the Parnassus Small-Cap Fund, the Parnassus Workplace Fund, the Parnassus Asia Fund and the Parnassus Fixed-Income Fund are being managed in accordance with each Funds stated investment objective; |
| the investment performance of the each of the Funds; |
| the cost of the services to be provided and profits to be realized by Parnassus Investments from its relationship with each of the Funds; |
| the extent to which economies of scale would be realized as each of the Funds grew and whether fee levels reflect these economies of scale; |
| the expense ratio of each of the Funds; and |
| the manner in which portfolio transactions for the Funds are conducted, including the use of soft dollars. |
In considering the nature, extent and quality of the services provided by Parnassus Investments, the Independent Trustees reviewed written and oral reports prepared by Parnassus Investments describing the portfolio management, shareholder communication and servicing, prospective shareholder assistance and regulatory compliance services provided by Parnassus Investments to the Funds. The Independent Trustees also considered a written report prepared by Lipper, an independent provider of investment company data, comparing aspects of the portfolio management services provided by Parnassus Investments to similar services provided to a universe of comparable mutual funds (Universe). The Independent Trustees considered the experience of senior management and the qualifications, tenure, background and responsibilities of the portfolio managers primarily responsible for the day-to-day portfolio management of the Funds. The Independent Trustees evaluated the ability of Parnassus Investments, based on its financial condition, resources, reputation and other attributes to attract and retain qualified investment professionals, including research, advisory and supervisory personnel. The Independent Trustees further considered the compliance programs and compliance records of Parnassus Investments. In addition, the Independent Trustees took into account the administrative services provided to the Funds by Parnassus Investments. The Independent Trustees concluded that Parnassus Investments was providing essential services to the Funds.
The Independent Trustees compared the performance of each of the Funds to benchmark indices over various periods of time ending December 31, 2012 and to the Universe of comparable mutual funds as determined by Lipper. The Independent Trustees noted that the performance for the Parnassus Fund was above the median performance of the Universe for all time periods under review. The Parnassus Equity Income Funds performance was above the median performance of the Universe for the one-, two-, four-, five- and ten-year periods, and was below the median for the three-year period. The performance of the Parnassus Mid-Cap Fund and the Parnassus Workplace Fund was above the median of the Universe for all time periods under review. The Parnassus Small-Cap Funds performance was above the median performance of the Universe for the one-,
three-, four- and five-year periods, and was below the median for the two-year period. The Independent Trustees further noted that the performance of the Parnassus Fixed-Income Fund was below the median performance of the Universe for all time periods under review. The Adviser discussed the performance of the Fixed-Income Fund with the Independent Trustees, and discussed plans to replace the portfolio manager. A new portfolio manager assumed responsibility for the
67
PARNASSUS FUNDS | Semiannual Report 2013 |
ADDITIONAL INFORMATION (unaudited) (continued)
Fund on May 1, 2013. The Independent Trustees concluded that the overall performance of the Funds warranted the continuation of the investment advisory agreements.
In concluding that the advisory fees payable by each of the Funds were reasonable, the Independent Trustees reviewed a report of the costs of services provided, and the profits realized, by Parnassus Investments from its relationship with each Fund, and concluded that such profits were reasonable and not excessive when compared to profitability guidelines set forth in relevant court cases. The Independent Trustees also reviewed reports comparing each Funds expense ratio and the advisory fees paid by each Fund to that of the applicable Universe and concluded that the advisory fee paid by each Fund and each Funds expense ratio was within the range of its respective Universe. The Independent Trustees noted that the Funds advisory fees were below the median for each Funds respective Universe with the exception of the Parnassus Workplace Fund. The Independent Trustees noted that the investment advisory fee for each Fund contained a number of breakpoints in an effort to reflect economies of scale that might be realized as each Fund grew. The Independent Trustees also noted that actual or potential economies of scale will be reasonably shared with the Fund shareholders through these breakpoints, fee waivers and expense reimbursement arrangements applicable to the Funds.
The Independent Trustees reviewed reports discussing the manner in which portfolio transactions for the Funds were conducted, including the use of soft dollars. Based on these reports, the Independent Trustees concluded that the research obtained by Parnassus Investments was beneficial to the Funds and that Parnassus Investments was executing each Funds portfolio transactions in a manner designed to obtain best execution for the Funds.
Based on their careful consideration of the information and factors described above, the Independent Trustees concluded that the approval of the continuation of the investment advisory agreements for the Trusts was in the best interest of the Funds and their shareholders. The Independent Trustees unanimously approved the continuation of the investment advisory agreements for an additional one-year period.
Proxy Disclosures
Parnassus proxy voting policies and procedures are available, without charge, on our website (www.parnassus.com), on the Securities and Exchange Commissions website (www.sec.gov), and by calling us at (800) 999-3505. The Funds file a proxy voting record with the Securities and Exchange Commission for the 12 months ended June 30. The most recent report is available by calling Parnassus or obtaining it from the Securities and Exchange Commissions website or the Parnassus website.
Quarterly Portfolio Schedule
The Funds file their complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The quarterly portfolio holdings are available on the Securities and Exchange Commissions website (www.sec.gov). The Funds Form N-Q may also be reviewed and copied at the Securities and Exchange Commissions Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330.
68
Semiannual Report 2013 | PARNASSUS FUNDS |
THIS PAGE LEFT INTENTIONALLY BLANK
69
PARNASSUS FUNDS | Semiannual Report 2013 |
THIS PAGE LEFT INTENTIONALLY BLANK
70
Go Paperless with E-Delivery
Sign up for electronic delivery of prospectuses, shareholder reports
and account statements at www.parnassus.com/gopaperless
If you do not hold your account directly with Parnassus, please contact
the firm that holds your account to inquire about electronic delivery.
PARNASSUS FUNDS
1 Market Street, Suite 1600
San Francisco, CA 94105
(800) 999-3505
www.parnassus.com
This report must be preceded or accompanied by a current prospectus.
Item 2: Code of Ethics
Not applicable for semi-annual reports. The information required by this Item is only required in an annual report on Form N-CSR.
Item 3: Audit Committee Financial Expert
Not applicable for semi-annual reports. The information required by this Item is only required in an annual report on Form N-CSR.
Item 4: Principal Accountant Fees and Services
Not applicable for semi-annual reports. The information required by this Item is only required in an annual report on Form N-CSR.
Item 5: Not applicable.
Item 6: Included as part of the report to shareholders filed under Item 1 of this form.
Item 7: Not applicable.
Item 8: Not applicable.
Item 9: Not applicable.
Item 10: For the purposes of this Item, there have not been any material changes to the procedures by which shareholders may recommend nominees to the registrants board of trustees.
Item 11: Controls and Procedures.
(a) The registrants certifying officers have reasonably designed such disclosure controls and procedures to ensure material information relating to the registrant is made known to them by others, particularly during the period in which this report is being prepared. The registrants certifying officers have determined that the registrants disclosure controls and procedures are effective based on their evaluation of these controls and procedures as of a date within 90 days prior to the filing date of this report.
(b) There were no significant changes in the registrants internal controls over financial reporting, or in other factors that could significantly affect these controls, that occurred during the registrants fiscal half-year, including any corrective actions with regard to significant deficiencies and material weaknesses.
Item 12: Exhibits attached hereto.
(a)(1) Code of Ethics Not applicable for semi-annual reports.
(a)(2) Certification for each principal executive and principal financial officer of the registrant as required by Rule 30a-2 under the Act (17 CFR 270.30a-2(a)) Filed as an attachment to this filing.
(b) Certifications required by Rule 30a-2(b) under the Act (17 CFR 270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR 240.13a-14(b) or 240.15d-14(b)), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350). A certification furnished pursuant to this paragraph will not be deemed filed for purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference Filed as an attachment to this filing.
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.
Date: August 2, 2012 | By: /s/ Jerome L. Dodson | |||
Jerome L. Dodson | ||||
President |
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.
Date: August 2, 2013 | ||||
By: /s/ Jerome L. Dodson | ||||
Jerome L. Dodson | ||||
President | ||||
Date: August 2, 2013 | ||||
By: /s/ Marc C. Mahon | ||||
Marc C. Mahon | ||||
Treasurer |
EXHIBIT 99.CERT
CERTIFICATIONS BY PRESIDENT
AND TREASURER OF
Parnassus Funds and the Parnassus Income Funds
PURSUANT TO RULE 30a-2 OF
THE INVESTMENT COMPANY ACT OF 1940
I, Jerome L. Dodson and Marc C. Mahon, President and Treasurer respectively of the Parnassus Funds and the Parnassus Income Funds, certify that:
1. We have reviewed this report on Form N-CSRS of the Parnassus Funds and the Parnassus Income Funds;
2. Based on our knowledge, this report does not contain any untrue statement of a 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 our 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. We and the registrants other certifying officer(s) are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report, based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. We and the registrants other certifying officer(s) have disclosed to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize, and report financial data information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: August 2, 2013 |
/s/ Jerome L. Dodson | |||
Jerome L. Dodson | ||||
President | ||||
Date: August 2, 2013 |
/s/ Marc C. Mahon | |||
Marc C. Mahon | ||||
Treasurer |
EXHIBIT 99.906CERT
CERTIFICATIONS BY PRESIDENT AND TREASURER OF
Parnassus Funds and the Parnassus Income Funds
PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)
I, Jerome L. Dodson and Marc C. Mahon, President and Treasurer respectively of the Parnassus Funds and the Parnassus Income Funds (the Registrant).
This certification is being furnished pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in connection with the filing of the Registrants Semi-Annual Report on Form N-CSRS for the period ended June 30, 2013 (the Report).
We hereby certify that to the best of our knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 2, 2013 |
/s/ Jerome L. Dodson | |||
Jerome L. Dodson | ||||
President | ||||
Date: August 2, 2013 |
/s/ Marc C. Mahon | |||
Marc C. Mahon | ||||
Treasurer |
,A!^$D:<@UO$
M;^/0U83KO,?(5L@\VENG7Q;@_P!E$5A+FAZWGV!94$*I6AJT8T:]TE$6U0JM
M$RN@GE\RC;U`1O\`E(HSD*@TE6VH%!RE
6M+FF:X>X['5,TM]N/\`SEECW_I6?T?U4.W$^L6Y
MSZLRLO\`T@K#A#`'.8^LOK;6YUGILK]/;ZN_]-9^G345_6*U]SG7MJJ][:6V
M,:7SM:UC_P!&T?H_6WNKW?X/^<9>C0W]/XJL[>K\$HZCU,6^B_$;O$[MKG$%
ML>RYGL;[&O\`98QWZ7_0>JHNS^LE]+688:'./K/=)`8&;FN9&U^ZRWV^YGZ/
M_"IF8776^JYN8W>]SK&A\/:(91734YOIU_H=U>0^_P!#T'V^I_@O\&].)]8&
M5O+\NNRY]U3P7`;&U-VB^IK&U-]UNWZ6[_"?X/9^E7I_J_BKU?UO^:DQ\[JE
MEM8MPO2K<`ZPETEDEK/1^CM?97N]2U[?T.S^:]1"P^H]6?LHR,5C<@UO>X[H
M^@&[/T3O]);:VKZ>S]%D>_\`FDU^)]8K6;&YE=0(]SF@;YVU_0L]+:UKGLM_
MP/\`A_\`@O15W"JS66WNR7[VN(%>L\.L=OB&[/T3Z:OZ]/J?GI&J_1_%0N_T
MOK2(YN @L%GHJ2W6PG*JVJ*3@>#G($0,`0,K8B&+9
M"7P"QSSQR&+QEWF+V+'V("]P0F7O$("PQ@4ADY$["S"`$3U?H;95Z,L=E 82\V0=Y"FF3;V0'N=P?[IR(&*]LS,S_,J_6MN7E4XW11F8M65DMIM=
M7 6\5S&$@@3=$@'&;4>GO`8B3;6]K;6VM5G9WV:K=7"41:Z
M@.YK.L9Q`-EQ(S@%:+B--%T8(ZB54;H#I($4Y2/-U6N4%%L262))6+"#%L[V
M%"L-C;/&U[\E>\UM<6[0//`0-(#&&IG;4#N[,35Z1=V>C]#TV+P@NK:Y><;>
M<#>*1P/2[/I-F9W$J=!,Q,[L^UJ[5L5>"]THB\I_]YPF*78F^"3V5RG(\9]O
M_$EV[[/WPYF9VWV5[`^R^U^[BHF]I=F]I&.K]-S^AZP)S.3GY
@X+P^Z?AR'/^/`\/NG'J1F?9]AO:_&KAF.>Y#;<8QRVI09=TN;R6FM
M[A*68S#8"GY
4VW
<4PB.A6_8I0XO,8XPEM>\2P7.K/^GY=*OA-J=D6PJQYY8-W
M;A.I93'<^E/TLN+)4S7IN[F5J.H4.*AC._%C[*6IO!L&N^'WR&U#=OMCL4=Z
MT)9;5!N,)N?^LVZ_RFW[1.N,>XVQ#*C52ZRBI&Q->'JO/*$?N@[HVGN3&[!+
MM+[[GZ3VYEQ+B)"T%UJYVW*[UA=Q#S;82EMUV=AKCNE`IM:"-.,K)A'Q,H,2
MS%T_.8ZJ3R&YD(30$D@J<"SIS])X*WV&6[A,CPW-VQ1)
6LLN-&1*06U[&@MO?TP*CKH4U`B\R]P>1XK8IV293E5KQZU1OS$[V`V
MZ&-Z*I<+3LDNS'FDN)2TEO>`$.)W+JSPN)RLEO$[0Y'[FMC>D-R>NZU,4M15)C3FG%-2&UDI>:6I*@0HCB3B^ZW%X\/
M81B.8XKW&[>]GL@OUO@2[)W+BV.1AF8.,QYTVS)NT!UU>(WN8X%-R)EBN97"
M*W=X$ABI!-%\=9ZQPQXJJS]Q*[YYVZGXVN3A5@7@\R1EN(VJZNQF7[^@VJ\-
MW5J6N=M>_1[C,=N,FB6E*:E--K6EMC_M-2W"ZR7R2'MD[B=H
80K.W>U#J$7F=CJ[+DLY-J,V;;K=<[@(3[EG>K6%_?!;&-=Y_;E>),9:<^[?9-
M+[9(N+Q*$YLM$%N9C\8+)2D7:VMN2T`4"7HBR`5.DG4]&-ICE!;L_P!P3C<;
M*<9O!>4B+.-SA,/NK!CE;CT&\Q0>;;3K4T[D)(!-=/'A+W%VF<4B/
6-9B\]/+0S89!*TK<0@5ZAVI4M12
MJHT_"*C;K_CQSPZY]B7NR7$+,1TE5'"`I7-:4ZIK\TT//AY6/4[[-.Q-MPKV
MR=I+O99,NRY!?<3Q?,K_`'!HJN:KA;[RY%RJY6)$*X(G,6V-=(4D,NF"W'D%
MU*'"M2D^KOKU'FWN=MBE[O9!@T:V62XO7NTJN=SNUB8QDQ[^BWW:4;G