1) PARNASSUS DIGEST March 2015 Green Bonds The Green Bond market has grown exponentially since its inception in 2008, providing investors with vehicles that both offer a return on capital and support environmental causes. As the market has grown, the number of issuers and the types of Green Bonds available to investors has grown as well. In this issue of the Parnassus Digest, Portfolio Manager Samantha D. Palm discusses the evolution of Green Bonds. The first Green Bond was a $400 million 4-year bond issued by the World Bank in Sweden during the depths of the financial crisis in 2008.1 The World Bank, who continues to be the largest issuer within the asset category, defines the securities as “fixed income, liquid financial instruments that are used to raise funds dedicated to climate-mitigation, adaptation, and other environment-friendly projects.”2 Despite the global financial crisis gripping investors at the time of the first issuance, demand was strong – and that demand has grown steadily since. In 2014, global issuance totaled $35 billion, and estimates are for $100 billion of new issuance in 2015.3 This growth has been possible for two reasons: a host of new issuers adhering to the Green Bond Principles and the attractiveness of the financing instrument. The explosive growth of the Green Bond market in 2014 through to 2015 was made possible by the introduction of the Green Bond Principles. Ceres, an organization that serves as an advocate for sustainability leadership – of which Parnassus is a signatory – issued the Principles in early 2014. The Green Bond Principles state that “Green Bonds enable capital-raising and investment for new and existing projects with environmental benefits”. Perhaps most importantly, the Green Bond Principles outline a process by which Green Bond proceeds are designated for use.4 Some acceptable uses include energy efficiency, renewable energy projects and biodiversity conservation. The Principles have provided a framework for greater levels of corporate Green Bond issuance, including from companies like Bank of America and Toyota, as well as asset-backed Green Bonds. The explosive growth of the Green Bond market in 2014 through to 2015 was made possible by the introduction of the Green Bond Principles. The Parnassus Fixed Income Fund invests in two broad categories of Green Bonds: those issued by Supranational Organizations and those issued by corporations. The Fund first invested in Green Bonds in February of 2013, through an issuance made by the International Finance Corporation (IFC).5 The IFC, is a member organization of the World Bank and is “the largest global development institution focused on the private sector. IFC works closely with businesses in developing countries to help them succeed in ways that promote prosperity for all.” 6 The IFC has financial backing from 184 member countries, making it a supranational organization, and has fully paid-in capital with an AAA rating from S&P. 7 From my perspective, this makes the credit quality of the bonds exceptional because of the diversity of credit support. In some ways, the IFC bonds are more secure than the debt of any single country. As an example, Treasury bonds benefit from the exceptional credit rating of the United States, but are backed only by our nation’s ability to pay. The bond was issued to support climate-friendly projects in developing countries and focused on greenhouse gas reduction by financing the “rehabilitation of power plants and transmission facilities, [and] installing solar and wind power.” 8 I believe this bond is an excellent example of an investment that matches Parnassus Investments’ focus on environmental, social and governance attributes, as well as the guiding principles of the Fund: principal preservation and income generation. I believe this bond is an excellent example of an investment that matches Parnassus Investments’ focus on environmental, social and governance attributes, as well as the guiding principles of the Fund: principal preservation and income generation. Because of the bond’s robust credit metrics, it has been less volatile than a similarly-structured Treasury bond. During the “taper tantrum” of 2013, bonds declined in value on concerns that the Federal Reserve would remove monetary support from the economy. Between May 2nd and September 5th of that year, the similarly-structured 2 5/8% Treasury note due 4/30/2016 declined by 2.08%. However, the IFC bond maturing 5/16/2016 declined by only 1.46% over the same period.9 I consider this a win-win for our investors, as they earn a higher yield with less volatility, all while supporting climate-friendly projects. The IFC provides reports on the types of projects that it finances with Green Bond funds. Some projects include a loan to Ameriabank, an Armenian bank, whereby Ameriabank can then finance small, local hydro power plants. Proceeds were also used to facilitate the construction of on-campus housing and a larger campus at Ashesi University College, a liberal arts institution in Ghana.10 The second supranational bond owned by the Parnassus Fixed Income Fund is of a very similar structure, but instead issued by the European Bank for Reconstruction and Development (EBRD). The EBRD was formed as communism fell and capitalist regimes rose in Central and Eastern Europe. The purpose of the supranational organization was to support the building of infrastructure to enable organic economic growth and support entrepreneurism.11 While the bond’s total return has been slightly below that of supranational bonds overall, I believe it will ultimately complement the portfolio over the longer term. The final Green Bond owned by the Parnassus Fixed Income Fund is a Corporate Green Bond issued by Regency Centers. Regency Centers owns grocery-anchored retail centers across the country, with concentrations in the mid-Atlantic states, Florida, Texas and California. The company has become a leader in sustainable retail centers, achieving several major milestones over the last five years, including: partnering with the Department of Energy in 2010 on the Solid State Lighting Program, conserving one million gallons of water via Smart Irrigation retrofits in 

2) 2012, having 60% of all new developments achieve LEED Certification in 2013 and winning a Department of Energy LEEP award for class-leading LED lighting efficiency. 12 About the Author In May of 2014, Regency Centers issued a $250 million Green Bond to finance the development of new LEED-certified shopping centers as well as the retrofit of existing centers. Parnassus Investments was proud to be part of this offering and to support the company’s efforts. The bond has a 10-year maturity with a coupon of 3.75% and has performed in-line with its REIT peers.9 Regency Centers has many projects – new and retrofits – underway. One example is Brighten Park, a shopping center in Atlanta, Georgia. The anchor tenant is shifting from a clothing retailer to “The Fresh Market” grocery store and, as part of the rebranding of the center, the roofing, parking surface and lighting will be enhanced, all important factors in energy usage and storm-water management.13 Samantha D. Palm Portfolio Manager Samantha D. Palm is the Portfolio Manager of the Parnassus FixedIncome Fund. Prior to joining Parnassus Investments in 2013, she was a Vice President within Wells Fargo Securities’ fixed income group. Previously, Ms. Palm was at Robert W. Baird & Co. where she was an equity research analyst. Ms. Palm graduated with honors from the University of Wisconsin, Madison with a bachelor’s degree in agricultural and applied economics. It is exciting to see the Green Bond market expand, and I believe that the structure is a powerful investment tool. The credit metrics of green bonds have been on-par with their traditional peers and, in the case of Supranational bonds, can be a less volatile alternative to Treasury debt. With the rise of corporate Green Bonds, investors can directly invest in the climate-change mitigation efforts they wish to see. As a result, the Parnassus Fixed Income Fund is a proud supporter of Green Bonds. While the Fund’s holdings will continue to evolve according to the opportunities listed above, the focus and objective will always be principal preservation with risk-balanced income generation. Thank you for your trust and investment. Samantha D. Palm Portfolio Manager http://treasury.worldbank.org/cmd/htm/GreenBond.html http://www.worldbank.org/en/topic/climatechange/brief/green-bonds-climate-finance 3. http://cleantechnica.com/2014/10/23/green-bonds-expected-top-100-billion-2015/ 4. http://www.ceres.org/resources/reports/green-bond-principles-2014-voluntary-process-guidelines-for-issuing-green-bonds/view 5. http://ifcext.ifc.org/ifcext/pressroom/IFCPressRoom.nsf/0/F9E346765F24CB3085257B1200776829 6. http://www.ifc.org/wps/wcm/connect/CORP_EXT_Content/IFC_External_Corporate_Site/What+We+Do/ 7. http://www.ifc.org/wps/wcm/connect/corp_ext_content/ifc_external_corporate_site/about+ifc 8. http://ifcext.ifc.org/ifcext/pressroom/IFCPressRoom.nsf/0/F9E346765F24CB3085257B1200776829 9. Source of data is Bloomberg L.P. 10. http://www.ifc.org/wps/wcm/connect/8dff9180412777f1b343bbdf0d0e71af/Green+Project+Summary+Database+sept+2013.pdf?MOD=AJPERES 11. http://www.ebrd.com/who-we-are/history-of-the-ebrd.html 12. Regency Centers’ Presentation. 13. http://www.regencycenters.com/development/redevelopment.php#.VM-792h4r3Q 1. 2. As of December 31, 2014, Int’l Finance Corp. represented 2.59% of the Parnassus Fixed Income Fund as a percentage of total net assets. As of December 31, 2014, European Bank R&D represented 1.04% of the Parnassus Fixed Income Fund as a percentage of total net assets. As of December 31, 2014, Regency Centers L.P. represented 1.06% of the Parnassus Fixed Income Fund as a percentage of total net assets. The views expressed in this Parnassus Digest are subject to change at any time in response to changing circumstances in the markets and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or the Parnassus Funds. Any specific securities discussed may or may not be current or future holdings of the Funds. The Parnassus Funds are underwritten and distributed by Parnassus Funds Distributor, a subsidiary of Parnassus Investments and FINRA member. Before investing, an investor should carefully consider the investment objectives, risks, charges and expenses of the Funds and should carefully read the prospectus or summary prospectus, which contains this information. A prospectus or summary prospectus can be obtained on the website, www. parnassus.com, or by calling (800) 999-3505. Parnassus Investments l 1 Market Street, Suite 1600 l San Francisco, CA 94105 l (800) 999-3505 l www.parnassus.com