Parnassus Funds N-CSRCertified annual shareholder report (management investment company)

Parnassus Fund

* For this report, we will quote total return to the portfolio, which includes price change and dividends.

The average annual total return for the Parnassus Fund – Institutional Shares from commencement (April 30, 2015) was 9.31%. Performance shown prior to the inception of the Institutional Shares reflects the performance of the Parnassus Fund – Investor Shares and includes expenses that are not applicable to and are higher than those of the Institutional Shares. The performance of Institutional Shares differs from that shown for the Investor Shares to the extent that the classes do not have the same expenses. Performance data quoted represent past performance and are no guarantee of future returns. Current performance may be lower or higher than the performance data quoted. Current performance information to the most recent month-end is available on the Parnassus website (www.parnassus.com). Investment return and principal value will fluctuate, so an investor’s shares, when redeemed, may be worth more or less than their original principal cost. Returns shown in the table do not reflect the deduction of taxes a shareholder may pay on fund distributions or redemption of shares. The S&P 500 is an unmanaged index of common stocks, and it is not possible to invest directly in an index. Index figures do not take any expenses, fees or taxes into account, but mutual fund returns do.

Before investing, an investor should carefully consider the investment objectives, risks, charges and expenses of the Fund and should carefully read the prospectus or summary prospectus, which contain this and other information. The prospectus or summary prospectus can be obtained on the Parnassus website or by calling (800) 999-3505.

Year in Review

The Parnassus Fund gained 29.82% on the year, trailing the S&P 500 by 167 basis points. (One basis point is 1/100^th of one percent.) Sector allocations had a positive impact on our relative performance, with the most

trends. We expect industry-wide pricing to increase to recoup the higher costs, increasing Progressive’s earnings. The second order impact is that many consumers will shop for a new policy upon receiving a higher bill, which plays into Progressive’s strength as their data-based pricing algorithms and telematics allow them to identify the safest drivers and offer them the lowest rates. We expect Progressive’s new policy growth will accelerate in a rising price environment, which would provide further upside to earnings.

Industrial conglomerate 3M reduced the Fund’s performance by 12 basis points, as the total return to our average selling price was negative 9.7%. We sold the stock during the second quarter, after the company reported weak quarterly earnings and significantly reduced its financial guidance for the full year, due to a slowdown in China and its automotive and electronics businesses. As were-evaluated our investment, we became concerned that more aggressive restructuring may be required to improve the company’s performance. We were also worried that 3M’s environmental liabilities for its historical production ofper- and poly-fluorinated substances (PFAS) could be significant, so we exited our position.

Our biggest winner in 2019 was Thomson Reuters. Thomson Reuters provides information and data for legal, tax and accounting professionals. The stock generated a total return of 51.6% and contributed 223 basis points to the Fund’s return. Revenue growth accelerated thanks to the company’s new Westlaw Edge legal research software, which combinesstate-of-the-art artificial intelligence with the industry’s most comprehensive collection of legal information. The company also announced the sale of Refinitiv, its financial-segment partnership with Blackstone, to the London Stock Exchange for $27 billion.

Cadence Design Systems, which provides tools for designing semiconductors, boosted the Fund’s return by 199 basis points as the stock’s total return was 59.5%. The company had an outstanding year, expanding its customer base and innovating to create new applications for its products in emerging technologies.

Motorola Solutions, the largest provider of mission-critical communications solutions, added 180 basis points to the Fund’s return, as its total return was 42.2%. The stock jumped to begin the year after the company provided an EPS target of $10 in 2021, which was 12% higher than investors’ expectations. The shares continued to move higher as the company’s

Portfolio characteristics and holdings are subject to change periodically.

Outlook and Strategy

What a difference 12 months makes! After posting a negative return in 2018 and ending the year with a vicious 20% drop, the S&P 500 generated a 31.49% return in 2019–its best year since 2013. This marks the sixth time in the past eight years that the market has generated a double-digit return. Three main factors contributed to the market’s banner year. Accommodative monetary policy bolstered stocks, as the Federal Reserve cut interest rates three times. Economic data also came in better than initially feared, as the unemployment rate remained solidly below 4%, consumer spending was robust and 2019 GDP is expected to grow 2.3%. Finally, despite back-and-forth negotiations throughout the year, the market rallied by 9.07% in the fourth quarter as the U.S. and China came together and announced that they will sign a Phase 1 trade deal in January.

According to Evercore ISI, the S&P 500 has now increased by 29% or more in seven years since 1950. After the prior six occasions, the S&P 500 rose again the following year. So, history suggests the market could rise again in 2020. While that sounds promising and the U.S. economy appears to be on stable footing, we’re concerned that expectations heading into the year are considerably higher than they’ve been in the past. In fact, at 18x forward earnings estimates, the market’s valuation is near its highest level in the past 15 years. Earnings growth was roughly flat in 2019, so it was higher valuations that lifted the market. We expect that earnings growth, rather than multiple expansion, will be the key driver for the market’s move in 2020. As a result, we’ve been focused on investing in high-quality businesses that should grow earnings at a strong clip.

Given the strong move in the market in 2019, our portfolio atyear-end has a somewhat defensive posture. We’re underweight highly cyclical sectors such as consumer discretionary and financials, while we’re overweight health care and real estate, which have historically been more defensive. Nevertheless, our portfolio consists of innovative industry leaders which, we feel should enable us to perform well if the market continues to increase.

Our focus for 2020 remains the same as it’s always been: invest in competitively advantaged, socially responsible businesses that are increasingly relevant and that trade at attractive prices. It’s been a profitable strategy for us in the past, and we expect it will remain so in the future.

Parnassus Core Equity Fund

* For this report, we will quote total return to the portfolio, which includes price change and dividends.

The average annual total return for the Parnassus Core Equity Fund – Institutional Shares from commencement (April 28, 2006) was 10.96%. Performance shown prior to the inception of the Institutional Shares reflects the performance of the Parnassus Core Equity Fund – Investor Shares and includes expenses that are not applicable to and are higher than those of the Institutional Shares. The performance of the Institutional Shares differs from that shown for the Investor Shares to the extent that the classes do not have the same expenses. Performance data quoted represent past performance and are no guarantee of future returns. Current performance may be lower or higher than the performance data quoted, and current performance information to the most recent month end is available on the Parnassus website (www.parnassus.com). Investment return and principal value will fluctuate, so an investor’s shares, when redeemed, may be worth more or less than their original principal cost. Returns shown in the table do not reflect the deduction of taxes a shareholder may pay on fund distributions or redemption of shares. The S&P 500 is an unmanaged index of common stocks, and it is not possible to invest directly in an index. Index figures do not take any expenses, fees or taxes into account, but mutual fund returns do.

Before investing, an investor should carefully consider the investment objectives, risks, charges and expenses of the Fund and should carefully read the prospectus or summary prospectus, which contain this and other information. The prospectus or summary prospectus can be obtained on the Parnassus website or by calling (800)999-3505.

re-evaluated our investment, we became concerned that more aggressive restructuring may be required to improve the company’s performance. We were also concerned that 3M’s environmental liabilities related to its historical production ofper- and poly-fluorinated substances (PFAS) could be significant.

The Fund had four stocks that rose at least 50% in 2019, each adding more than 190 basis points to the annual return. Microsoft, the leading business productivity software and cloud computing provider, was the biggest winner, with a gain of 57.6% and a 228 basis point boost to the Fund’s return. Microsoft’s stock moved higher as the company beat earnings expectations for the past three quarters by more than 10%. Even with high expectations and positive investor sentiment, the company continued to outperform by executing well across some of the largest, fastest-growing markets in enterprise software. Microsoft’s Commercial Cloud business, which includes Office 365 and Azure, exhibited strong growth. Microsoft Azure is gaining market share and technical validation, and the company remains in the early innings of capturing the cloud computing opportunity.

Our investments in leading electric design automation (“EDA”) companies Cadence Design Systems and Synopsys together contributed 395 basis points to the Fund’s return. Cadence added 200 basis points to the Fund’s return with a 59.5% gain, while Synopsys climbed 65.2% and contributed 195 basis points. These companies provide tools for designing semiconductors. Several broad-based factors are supporting EDA industry growth, including increased demand from traditional semiconductor companies and diversification into new markets. Demand for EDA companies’ software and hardware solutions is accelerating as their customers continue to design increasingly complex chips and devices.

Mastercard, the global payments network company, added 191 basis points to the Fund’s return with a 59.2% gain for the stock. Mastercard’s stock increased as the company beat earnings expectations in every quarter of 2019. Management also made strategic acquisitions and positioned the company to capture new payment flows. The stock should continue to do well over time as the company benefits from the transition from cash to cashless payments.

Portfolio characteristics and holdings are subject to change periodically.

Outlook and Strategy

The S&P 500 bull market will celebrate its 11th anniversary in 2020, making it the longest bull market since 1900. Low interest rates from the Federal Reserve and the emergence of a trade truce will likely keep investors upbeat about the market in the near-term. However, the recent rebound in global growth looks more cyclical than secular to us. We think high valuations combined with expected moderate revenue and earnings growth have caused elevated downside risk for stocks in 2020.

Nearly 80% of 2019’s equity performance was driven by multiple expansion, as profit growth was generally subdued. In fact, earnings growth remained elusive for the past three quarters, and this trend was even worse for small-andmid-cap companies. One of the key downside risks to earnings comes from margin pressures, with potential headwinds from renewed trade tariffs, rising input costs and bipartisan support for new regulations on U.S. tech companies, where profit margins are particularly high.

As a result, the Fund is more defensively positioned heading into 2020 than it was a year ago. While the Fund has significant exposure to the technology sector (approximately 20% of the portfolio), we are underweight relative to the S&P 500. Within the technology sector, the Fund has low exposure to hardware and semiconductors because they seem fully valued after significant gains in 2019. In contrast, the Fund is overweight software companies like Microsoft, Cadence and Synopsys, which have benefited from growth in cloud computing, analytics and chip design complexity.

and P&G. We believe these holdings offer an attractive combination of growth through innovation and stability due to dividends.

We are overweight the industrials and materials sectors with two major themes. First, we have significant investments in competitively advantaged, recurring revenue businesses like Waste Management, Verisk Analytics and Linde. Second, the Fund has positions in cyclical businesses like Federal Express and John Deere, which have low expectations and valuations entering 2020, but still maintain solid long-term business prospects.

Finally, the Fund is now overweight the communications services sector. Disney, which was a strong performer in 2019, is our largest investment in the sector. During the fourth quarter, we added Verizon and Comcast to the portfolio.

Verizon is the country’s largest wireless carrier, and has a leading brand due to its superior network. The company’s massive network represents a high barrier to entry, while its long-term relevancy appears solid due to growing mobile data consumption. Verizon’s valuation is attractive at 12x next year’s earnings. It also currently offers a compelling 4% dividend yield, which is supported by strong cash flows and a solid balance sheet.

Comcast is abest-in-class cable company that also owns media assets such as NBC, Sky and Universal

Parnassus Endeavor Fund

* For this report, we will quote total return to the portfolio, which includes price change and dividends.

The average annual total return for the Parnassus Endeavor Fund – Institutional Shares from commencement (April 30, 2015) was 11.88%. Performance shown prior to the inception of the Institutional Shares reflects the performance of the Parnassus Endeavor Fund – Investor Shares and includes expenses that are not applicable to and are higher than those of the Institutional Shares. The performance of the Institutional Shares differs from that shown for the Investor Shares to the extent that the classes do not have the same expenses. Performance data quoted represent past performance and are no guarantee of future returns. Current performance may be lower or higher than the performance data quoted. Current performance information to the most recent month end is available on the Parnassus website (www.parnassus.com). Investment return and principal value will fluctuate, so an investor’s shares, when redeemed, may be worth more or less than their original principal cost. Returns shown in the table do not reflect the deduction of taxes a shareholder may pay on fund distributions or redemption of shares. The S&P 500 is an unmanaged index of common stocks, and it is not possible to invest directly in an index. Index figures do not take any expenses, fees or taxes into account, but mutual fund returns do.

Before investing, an investor should carefully consider the investment objectives, risks, charges and expenses of the Fund and should carefully read the prospectus or summary prospectus, which contain this and other information. The prospectus or summary prospectus can be obtained on the Parnassus website or by calling (800)999-3505.

up during the year from our cost of $335 to $375 by the end of the year. What caused the loss was a sale of a lot of our shares at an average price of $315. The stock hit a low of $277 in September, and we became very discouraged about the prospects for the company. By the time it traded up to $315, we started selling, happy that it had gained quite bit from the low point of $277. As it turned out, we should have held on longer. Most of the time we have more patience with our stocks, and that’s why our long-term performance has been excellent. We’re taking the case of Regeneron as a cautionary tale and as a reminder not to act too quickly.

Regeneron is a biotechnology company that focuses on treatments for the eye, heart diseases, cancer and inflammation. Its blockbuster drug, Eyelea, faces pressure from a competing drug by Novartis, as well as a loss of patent exclusivity in 2023. The stock raced higher in the fourth quarter after a strong commercial launch and expanded indications for Dupixent, Regeneron’s drug for adolescent eczema.

Now let’s turn to the winners. The four best-performing stocks in the portfolio were all related to semiconductors. There’s a lot of irony in this situation, since sales declined and earnings dropped for the industry. Why would stocks with declining sales and earnings do so well? The answer is that the stock market is a discounting mechanism, so the present value of a stock is based on future expectations. In some ways, it’s like a chess game, where you have to be five moves ahead of your opponent. If I (Jerry) ever played Magnus Carlsen in a game of chess, he would undoubtedly have me check-mated in five moves. However, I think I could beat him in a stock-picking contest, because I know the industry and know how the stocks move related to their fundamentals.

Getting back to semiconductors, we believe the outlook for 2020 is pretty good – especially in the second half — according to industry participants. That drove the stocks higher in 2019. However, when we bought most of these stocks in late 2018, the outlook was not good. Firms had just had a good year, but expectations were for difficult times ahead. The stocks were selling at cyclical lows when we invested.

Our biggest winner was Applied Materials, a leading maker of equipment used to manufacture semiconductors. The stock contributed 524 basis points to the Fund’s return, as the stock rose from

Portfolio characteristics and holdings are subject to change periodically.

Next was Lam Research, a competitor to Applied, which added 518 basis points to the Fund’s return, as the stock rose from $136 to $292 for a 119.3% total return. Despite the weak market for memory chips, Lam grew its installed base of machines, suggesting that demand for equipment had bounced off the bottom. Strong demand for semiconductor equipment in China, and an expected upswing in the memory chips market helped Lam.

Micron Technology added 421 basis points to the Fund’s return, as its stock climbed from $31.73 to $53.78 for a total return of 69.5%. The company makes memory semiconductors used in PCs, smartphones and data servers. Despite more supply than demand for chips last year, the stock did well due to the recovering server market, stabilizing pricing for memory chips and the industry’s efforts to limit capacity. Management has indicated that 2020 should be an inflection point with high teens growth in sales, led by demand for enterprise uses and the cloud, as well as long-term data-center demand and IOT (Internet of Things) trends.

NVIDIA Corporation added 291 basis points to the Fund’s performance, as its stock rose from $134 to $235 for a total return of 77.0%. The company started the year down over 50% from its recent highs, after the cryptocurrency bubble burst and management was forced to lower their financial targets. As the year progressed, NVIDIA exceeded earnings expectations and the company introduced new products. We believe in NVIDIA’s widening moat as demand for artificial intelligence chips continues to accelerate.

2019 financial guidance failed to meet investors’ expectations, a reminder that Mattel’s turnaround remains a work in process. We sold our position in May, following the news that more than 30 sleeping infant fatalities had been linked to its Fisher Price Rock ‘n Play Sleepers. After engaging with the company, including the CEO, we found their explanation of Mattel’s product safety oversight to be inadequate to justify our continued investment.

Qualcomm, the leading manufacturer of mobile phone chips, contributed 141 basis points to the Fund’s return, as the stock soared from $56.91 to $88.23 for a total return of 60.7%. The stock saw its biggestone-day jump in nearly 20 years after Qualcomm reached an agreement with Apple to settle all litigation between the two companies worldwide. The years-long dispute centered around what royalties Apple should pay for the chip that powers the Apple iPhone. Ultimately, Apple paid Qualcomm for the chips it received, and further agreed to long-term license and supply contracts. Though Qualcomm’s victory was later tempered by antitrust rulings in the U.S. and EU, we applaud management’s commitment to R&D, and believe the stock has more upside in the years ahead.

Hanesbrands, a leading manufacturer of undergarments and athletic apparel, contributed 131 basis points to the Fund’s return, as its stock rose from $12.53 to $14.85 for a 23.0% total return. Stronger-than-expected performances in the company’s Champion brand and international businesses led management to raise its revenue guidance for fiscal year 2019. The company also used its cash flows to pay down debt to improve its capital structure.

Credit card—issuer American Express boosted the Fund’s return by 110 basis points, as the stock rose from $95.32 to $124.49 for a total return of 32.5%. The shares moved higher throughout the year, as the company delivered industry-leading revenue growth of 8%, while maintaining its strong balance sheet.

Charles Schwab contributed 104 basis points to the Fund’s return, as its stock rose from $41.53 to $47.56 for a total return of 16.4%. The return on our average cost, however, was significantly higher at 52.4%. How is this possible, you may ask? In October, Schwab shocked the market by eliminating trading fees, causing its stock to fall sharply to a low of $35.10 as investors fretted over the lost profits. We added to our

could be aone-time incident or it could escalate into something worse. If it’s the former, it wouldn’t have too much effect on the stock market. However, if it’s the latter, then there would definitely be an impact, and all bets are off.

Right now, it looks like there has been a truce in the trade war with China. There are still many unresolved issues between the two countries, but it appears that there will be negotiations to settle our differences.

Both of these international issues could have an effect on the economy, and of course, they could also have a big impact on the stock market and our investments in the Parnassus Endeavor Fund. The actual effect, though, is impossible to predict.

Because of this, all we can do is focus on individual companies and invest in good stocks when they are out

Parnassus Mid Cap Fund

* For this report, we will quote total return to the portfolio, which includes price change and dividends.

The average annual total return for the Parnassus Mid Cap Fund – Institutional Shares from commencement (April 30, 2015) was 10.72%. Performance shown prior to the inception of the Institutional Shares reflects the performance of the Parnassus Mid Cap Fund – Investor Shares and includes expenses that are not applicable to and are higher than those of the Institutional Shares. The performance of the Institutional Shares differs from that shown for the Investor Shares to the extent that the classes do not have the same expenses. Performance data quoted represent past performance and are no guarantee of future returns. Current performance may be lower or higher than the performance data quoted. Current performance information to the most recent month end is available on the Parnassus website (www.parnassus.com). Investment return and principal value will fluctuate, so an investor’s shares, when redeemed, may be worth more or less than their original principal cost. Returns shown in the table do not reflect the deduction of taxes a shareholder may pay on fund distributions or redemption of shares. The Russell Midcap Index is an unmanaged index of common stocks, and it is not possible to invest directly in an index. Index figures do not take any expenses, fees or taxes into account, but mutual fund returns do.Mid-cap companies can be more sensitive to changing economic conditions and have fewer financial resources thanlarge-cap companies.

Before investing, an investor should carefully consider the investment objectives, risks, charges and expenses of the Fund and should carefully read the prospectus or summary prospectus, which contain this and other information. The prospectus or summary prospectus can be obtained on the Parnassus website or by calling (800)999-3505. As described in the Fund’s current prospectus dated May 1, 2019, Parnassus Investments has contractually agreed to limit total operating expenses to 0.99% of net assets for the Parnassus Mid Cap Fund – Investor Shares and to 0.77% of net assets for the Parnassus Mid Cap Fund – Institutional Shares. This agreement will not be terminated prior to May 1, 2020, and may be continued indefinitely by the Adviser on ayear-to-year basis.

cost was negative 35.9%.* We sold our position in the third quarter after the company reported steep order declines for its oilfield equipment and significantly lower earnings guidance. As were-evaluated our thesis on the stock, we became concerned about declining relevancy of the company’s products as the global economy continues to decarbonize and shift toward renewable fuel sources and electric transportation. Following our exit of the stock, Parnassus adopted a firmwide fossil fuel free policy, which means that our funds will avoid investing in companies that derive significant revenues from the extraction, exploration, production or refining of fossil fuels.

Americold Realty Trust, one of the largest cold storage providers, subtracted 17 basis points from the Fund’s return as its total return was negative 6.5%. The company missed earnings estimates in the most recent quarter due to higher-than-expected employee health care costs and new developmentstart-up costs. We view the pullback as temporary and believe the company is uniquely positioned with its mission-critical cold storage assets and multi-year contracts. The company is also positioned as an industry consolidator and has a healthy acquisition pipeline. Coupled with management’s focus on operating efficiency, we believe this should drive durable revenue growth and margin expansion over the long term.

IDACORP, Inc., the largest electric utility in Idaho, subtracted four basis points from the Fund’s return, as its total return was negative 0.9%. Although the company reported stronger-than-expected earnings results, raised its full-year earnings guidance and upped its dividend payout ratio in the fourth quarter of 2019, investors soured on the utility sector, causing IDA’s earnings multiple to contract. Despite the sentiment change, we believe the company has attractive earnings prospects, as it benefits from a favorable regulatory environment, robust pipeline of renewable energy projects and positive demographic trends in Idaho.

Portfolio characteristics and holdings are subject to change periodically.

Shifting to our winners, our strongest performer was Motorola Solutions, the largest provider of mission-critical communications solutions. The stock added 185 basis points to the Fund’s return, as its total return was 42.2%. The stock jumped in early 2019 after the company provided an EPS target of $10 in 2021, which was 12% higher than investors’ expectations. The shares continued to move higher as the company’s quarterly financial results consistently beat expectations. Motorola’s dominant land mobile radio business is a ballast for its product portfolio, while its software, services and video offerings are growing rapidly as customers are attracted by Motorola’s integrated, cost-effective and innovative product offerings.

Leading medical device manufacturer Teleflex added 174 basis points to the Fund’s return, as its total return was 46.3%. The stock rose early in 2019, as the company saw stronger-than-expected demand for its leading,non-invasive UroLift solution for benign prostatic hyperplasia and its portfolio of minimally invasive products for coronary and peripheral vascular diseases. Sales momentum continued throughout the year, driven by the strength of recent acquisitions in the vascular and urology segments and robust international demand. Investors became more bullish on the stock after the company raised its revenue outlook in the third quarter to7.5-8.0% from its annual guidance of 6.0-7.0% at the beginning of the year. We remain excited about the company’s long-term prospects, as it benefits from increasing adoption of its urology and vascular products, additional margin expansion and strong free cash flow generation.

rise in stock prices during the past year was driven by multiple expansion rather than earnings growth. It’s difficult to predict whether this issue, as well as the concerns mentioned above, will result in a significant market correction, but we believe the market’s downside risk has increased. As a result, we remain focused on our strategy of owning a collection of high-quality businesses that we believe offer longer-term asymmetric risk-reward opportunities.

The Fund is defensively positioned heading into 2020. We are underweight relative to the Russell in the consumer discretionary, financials, materials and information technology sectors, which we feel are likely to underperform in a market correction.

We are overweight relative to the Russell in the consumer staples, health care and real estate sectors, which should prove to be resilient in a marketsell-off. We are overweight relative to the Russell in the generally cyclical industrials sector, but as discussed in the past, many of our positions in this area are less-cyclical business service-style companies. Positions such as Republic Services and Verisk Analytics serve as a portfolio ballast, because these companies provide mission-critical services that are supported by significant recurring revenue and long-term contracts. Our traditional industrial exposure is through Fortive, Xylem and Pentair, which have strong secular tailwinds, such as a decade-long replacement cycle for water technology and infrastructure. We believe this overall sector positioning may serve us well in any market condition, but especially in the event of a downturn.

We added only one new stock in the recent quarter. We initiated a position in Americold Realty Trust, one of the largest cold storage providers for food producers, distributors and retailers. The company is well-positioned to capture potential outsized market share gains with its mission-critical temperature-controlled storage facilities, as they are increasingly integrated into its customers’ supply chains. We were

Parnassus Fixed Income Fund

* For this report, we will quote total return to the portfolio, which includes price change and dividends.

The average annual total return for the Parnassus Fixed Income Fund – Institutional Shares from commencement (April 30, 2015) was 3.04%. Performance shown prior to the inception of the Institutional Shares reflects the performance of the Parnassus Fixed Income Fund – Investor Shares and includes expenses that are not applicable to and are higher than those of the Institutional Shares. The performance of the Institutional Shares differs from that shown for the Investor Shares to the extent that the classes do not have the same expenses. Performance data quoted represent past performance and are no guarantee of future returns. Current performance may be lower or higher than the performance data quoted. Current performance information to the most recent month end is available on the Parnassus website (www.parnassus.com). Investment return and principal value will fluctuate, so an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns shown in the table do not reflect the deduction of taxes a shareholder would pay in fund distributions or redemption of shares. The Bloomberg Barclays U.S. Aggregate Bond Index (formerly known as the Barclays U.S. Aggregate Bond Index) is an unmanaged index of bonds, and it is not possible to invest directly in an index. Index figures do not take any expenses, fees or taxes into account, but mutual fund returns do.

Before investing, an investor should carefully consider the investment objectives, risks, charges and expenses of the Fund and should carefully read the prospectus or summary prospectus, which contain this and other information. The prospectus or summary prospectus can be obtained on the Parnassus website or by calling (800) 999 3505. As described in the Fund’s current prospectus dated May 1, 2019, Parnassus Investments has contractually agreed to limit total operating expenses to 0.68% of net assets for the Parnassus Fixed Income Fund – Investor Shares and to 0.48% of net assets for the Parnassus Fixed Income Fund – Institutional Shares. This agreement will not be terminated prior to May 1, 2020, and may be continued indefinitely by the Adviser on ayear-to-year basis

categories. Securitized bonds in the Index returned 6.44%, far below corporate bonds at 14.48% and even with Treasuries at 6.83%.

The best-performing corporate securities for the year were also the highest-yielding. Our position in Sempra Energy’s mandatory convertible preferred shares gained a whopping 36.55% and added 46 basis points to the total return.* (One basis point is 1/100^th of one percent.) These shares, which pay a 6% coupon and are convertible before January 2021, benefitted from the overall fall in interest rates. As a reminder, preferred shares and mandatory convertible preferred issues are fixed-income instruments because of the fixed dividend payments. The shares also benefitted from company-specific factors, including good financial performance and more clarity about the financial risks from future California wildfires. However, we exited the position in September as our firm moved to a fossil fuel free stance.

Preferred shares issued by Public Storage returned 23.72% over the year and added 28 basis points to the total return. Like the shares issued by Sempra Energy, Public Storage’s 5.15% preferred stock issue benefitted from falling rates overall, making the high coupons offered by preferred stock more attractive.

Bonds issued by Aptiv were our top-performing traditional bond in the year. The company’s 4.25% issue maturing January 15, 2026 gained 15.14% and boosted the total return by 24 basis points. Aptiv supplies high-technology components to auto manufacturers, including infotainment systems, cameras and safety features like lane departure assistance. The company’s content per vehicle is increasing dramatically as consumers demand more technology inside vehicles as well as life-saving safety features. Aptiv is also at the forefront of autonomous driving and will continue to be a major beneficiary as the technology develops and is eventually adopted. Even though global auto production declined over the year, Aptiv saw strong sales growth from its highly relevant products. We are excited about the company’s future growth potential and ability to expand margins as sales grow.

Several Treasury bonds also ranked at the top of our attribution list, with healthy gains from falling yields. As a whole, our Treasury portfolio gained 7.90% versus the Index at 6.83%. Additionally, the Fund had a long-

Outlook and Strategy

In the fourth quarter of 2019, we added two new preferred stock positons. First, we initiated a position in Bank of America’s preferred stock series LL with a set dividend of 5%. The bank has the largest base of consumer deposits in the country, is investing $3 billion annually in new technologies and has consistent cash flow. We believe the preferred stock provides an excellent yield, especially relative to its credit rating ofBBB- from S&P. We also participated in the initial offering of Digital Realty’s series L preferred stock with a 5.20% dividend. Digital Realty owns and operates data centers, which are increasingly important as individuals, companies and even things like pumps create data at a hyperbolic rate. While preferred stocks can be more volatile than traditional bonds, we like their characteristics, as interest rates remain very low.

We began 2019 feeling cautious, but also positioned to take advantage of gains in the market. The end of 2018 was tumultuous and with so many uncertainties around trade and Brexit, and the year ahead felt unsure. We begin 2020 feeling cautious again. Some of the old worries remain, such as trade disputes and political disruptions, including Brexit and our upcoming presidential election. However, unlike last year, it’s euphoria in the market that gives us pause. Nearly all asset classes saw huge gains this year, but corporations in the S&P 500 saw almost no profit growth and GDP growth is expected to slow in 2020.

Bad economic news is generally good news for bonds, so if growth slows further than expected this year, our large, long-duration Treasury portfolio should do well. Our Treasury portfolio sits at50-60% of assets, versus 39.63% for the Index. Further, its duration of 7.24 years versus 6.40 years for the Index should allow it to outperform on falling yields.

Responsible Investment Notes

Fourth Quarter 2019

Parnassus continued its ESG progress in 2019, making significant strides in several areas, most notably extending our fund-level policy of fossil-fuel-free investing to a firmwide mandate. We also launched the Parnassus ESG Stewardship Report to share more information with our investors about our proxy voting record, company engagements and data on the Parnassus Funds.

Parnassus joined several ESG organizations in 2019 that are shaping the conversation in the drive to standardize ESG measurement and disclosure. Two of the most important of these organizations are the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-related Financial Disclosure (TCFD). SASB has developed financially material, industry-specific sustainability reporting standards to compare the ESG performance of companies relative to others in their industry. TCFD has released a set of voluntary, widely applicable climate disclosure recommendations that companies can use to incorporate climate-related risk assessments into financial reporting, including10-Ks.

Key Events of the Decade

While 2019 was a great year for the Parnassus Funds, I think it’s important to reflect on the past decade from an ESG perspective. Below are some of the more consequential events that directly or indirectly impacted the funds:

Reasons for Optimism

We are witnessing the rise of the socially conscious investor – and I strongly believe that the next decade in responsible investing will be better than the last. According to The Forum for Sustainable and Responsible Investment, assets managed by U.S. firms that give at least some consideration to ESG issues grew from $178 billion in 2005 to almost $12 trillion in 2018. Much of this growth occurred between 2014 and 2018, boosted by the Principles of Responsible Investing (PRI) signatory initiative. In order to be a PRI signatory, members must adopt and promote the organization’s six ESG principles. The signatory process also includes a mandatory questionnaire, which is a great way for new entrants to understand the different ways to apply ESG into an investment strategy.

I also believe that sustainability standards setters, such as SASB, will continue to make it easier for companies to adopt ESG metrics to track, report and improve their practices. Technology companies, such as Truvalue

Fund Expenses (unaudited)

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 recentsix-month period and held for the period of July 1, 2019 through December 31, 2019.

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

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Trustees of the Parnassus Funds and the Parnassus Income Funds

San Francisco, California

Opinion on the Financial Statements and Financial Highlights

We have audited the accompanying statements of assets and liabilities of the Parnassus Funds (comprised of Parnassus Fund, Parnassus Mid Cap Fund, and Parnassus Endeavor Fund) and the Parnassus Income Funds (comprised of Parnassus Core Equity Fund and Parnassus Fixed Income Fund) (collectively, the “Trusts”), including the portfolios of investments as of December 31, 2019, the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended for Parnassus Fund, Parnassus Mid Cap Fund, Parnassus Endeavor Fund, Parnassus Core Equity Fund, and Parnassus Fixed Income Fund, and the related notes.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the Trusts constituting the Parnassus Funds and the Parnassus Income Funds as of December 31, 2019, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended for Parnassus Fund, Parnassus Mid Cap Fund, Parnassus Endeavor Fund, Parnassus Core Equity Fund, and Parnassus Fixed Income Fund, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements and financial highlights are the responsibility of the Trusts’ management. Our responsibility is to express an opinion on these Trusts’ financial statements and financial highlights based on

our audits. We are a public accounting firm registered