Securities Act Registration No. 333-00227
Investment Company Act Reg. No. 811-7493
__________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
__________________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [_]
Post-Effective Amendment No. 1 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 2 [X]
(Check appropriate box or boxes.)
______________________
THE HENNESSY FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
The Courtyard Square
750 Grant Avenue
Suite 100
Novato, CA 94945
(Address of Principal Executive Offices) (Zip Code)
(800) 966-4354
(Registrant's Telephone Number, including Area Code)
Copy to:
Neil J. Hennessy
The Hennessy Management Co., L.P.
The Courtyard Square Richard L. Teigen
750 Grant Avenue Foley & Lardner
Suite 100 777 East Wisconsin Avenue
Novato, CA 94945 Milwaukee, Wisconsin 53202
(Name and Address of Agent for Service)
Registrant has registered an indefinite number of shares of its common
stock, $0.0001 par value, under the Securities Act of 1933 and filed its
required Rule 24f-2 Notice for Registrant's fiscal year ended June 30,
1996 on August 29, 1996.
Approximate Date of Proposed Public Offering: As soon as practicable
after the Registration Statement becomes effective.
It is proposed that this filing become effective (check appropriate box):
[_] immediately upon filing pursuant to paragraph (b)
[X] on September 9, 1996 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[_] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
THE HENNESSY FUNDS, INC.
CROSS REFERENCE SHEET
(Pursuant to Rule 481 showing the location in the Prospectus and
the Statement of Additional Information of the responses to the Items of
Parts A and B of Form N-1A.)
Caption or Subheading in
Prospectus or Statement of
Item No. on Form N-1A Additional Information
PART A -INFORMATION REQUIRED IN PROSPECTUS
1. Cover Page Cover Page
2. Synopsis EXPENSES
3. Financial Highlights FINANCIAL HIGHLIGHTS;
PERFORMANCE INFORMATION
4. General Description of OUR INVESTMENT STRATEGY;
Registrant PAST PERFORMANCE; OUR
INVESTMENT RESTRICTIONS
5. Management of the Fund OUR MANAGEMENT; BROKERAGE
TRANSACTIONS; GENERAL
INFORMATION
5A. Management's Discussion of *
Fund Performance
6. Capital Stock and Other REPORTS; CAPITAL GAINS
Securities DISTRIBUTIONS AND TAXES;
GENERAL INFORMATION
7. Purchase of Securities Being HOW WE DETERMINE OUR SHARE
Offered PRICE; PURCHASING SHARES;
DIVIDEND REINVESTMENT;
RETIREMENT PLANS
8. Redemption or Repurchase EXCHANGING SHARES;
REDEMPTIONS
9. Legal Proceedings *
PART B - INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL
INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and *
History
13. Investment Objectives and Investment Restrictions;
Policies Investment Considerations
14. Management of the Fund Directors and Officers of
the Corporation
15. Control Persons and Ownership of Management and
Principal Holders of Principal Shareholders
Securities
16. Investment Advisory and Investment Adviser,
Other Services Administrator, Custodian,
Transfer Agent and Account
Services Agent; Independent
Auditors
17. Brokerage Allocation Allocation of Portfolio
Brokerage
18. Capital Stock and Other Included in Prospectus
Securities under "GENERAL INFORMATION"
19. Purchase, Redemption and Included in Prospectus
Pricing of Securities Being under "HOW WE DETERMINE OUR
Offered SHARE PRICE"; "PURCHASING
SHARES"; "EXCHANGING
SHARES"; "REDEMPTIONS";
Determination of Net Asset
Value; Distribution of
Shares; Systematic
Withdrawal Plan
20. Tax Status Taxes
21. Underwriters *
22. Calculations of Performance Performance Information
Data
23. Financial Statements Financial Statements
_______________________
* Answer negative or inapplicable
HENNESSY BALANCED FUND
THE HENNESSY FUNDS, INC.
PROSPECTUS
September 9, 1996
The Courtyard Square
750 Grant Ave., Suite 100
Novato, CA 94945
(415) 899-1555
1 (800) 966-4354
HENNESSY BALANCED FUND
THE HENNESSY FUNDS, INC.
The Courtyard Square
750 Grant Avenue
Suite 100
Novato, California 94945
Telephone: (800) 966-4354 (FUND INFORMATION)
(800) 261-6950 (ACCOUNT INFORMATION)
THE HENNESSY FUNDS, INC.
is an open end, non-diversified management investment company consisting of a
single portfolio, the Hennessy Balanced Fund ("We" or the "Fund"). Our
investment objective is capital appreciation and current income.
PROSPECTUS
September 9, 1996
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
This Prospectus sets forth concisely the information about the Fund that
prospective investors should know before investing. Please read this Prospectus
and retain it for future reference. Additional information about the Fund has
been filed with the Securities and Exchange Commission in the form of a
Statement of Additional Information, dated September 9, 1996, which is
incorporated by reference in the Prospectus. Copies of the Statement of
Additional Information will be provided without charge upon request to the Fund
at the above address or telephone number.
TABLE OF CONTENTS
PAGE NO.
1. EXPENSES 1
2. FINANCIAL HIGHLIGHTS 2
3. OUR INVESTMENT STRATEGY AND ASSOCIATED RISK FACTORS 2
4. OUR INVESTMENT RESTRICTIONS 4
5. REPORTS 4
6. OUR MANAGEMENT 5
7. HOW WE DETERMINE OUR SHARE PRICE 6
8. PURCHASING SHARES 7
9. EXCHANGING SHARES 8
10.REDEMPTIONS 9
11.DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES 11
12.DIVIDEND REINVESTMENT 11
13.RETIREMENT PLANS 12
14.BROKERAGE TRANSACTIONS 12
15.GENERAL INFORMATION 12
16.PERFORMANCE INFORMATION 13
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and the Statement
of Additional Information dated September 9, 1996, and, if given or made, such
information or representation may not be relied upon as having been authorized
by The Hennessy Funds, Inc. This Prospectus does not constitute an offer to
sell securities in any state or jurisdiction in which such offering may not
lawfully be made.
1. EXPENSES
The following information is provided in order to assist you in understanding
the various costs and expenses that, as an investor in the Fund, you will bear
directly or indirectly. It should not be considered to be a representation of
past or future expenses. Actual expenses may be greater or lesser than those
shown. "Annual Operating Expenses" are based on the estimated amount set forth
in the table. The example assumes a 5% annual rate of return pursuant to
requirements of the Securities and Exchange Commission. The hypothetical rate
of return is not intended to be representative of past or future performance of
the Fund.
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchases None
Maximum sales load imposed on reinvested dividends None
Deferred sales load None
Redemption fee None (1)<F1>
Exchange fee None (1)<F1>
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fees (after fee waivers) 0.60% (2)<F2>
12b-1 fees 0.25% (2)<F2>
Other expenses (after reimbursement) 1.05%
Total fund operating expenses (after reimbursement) 1.90% (2)<F2>
(1)<F1>A fee of $10.00 is charged for each wire redemption and a fee of $5.00
for each telephone exchange.
(2)<F2>Pursuant to the Fund's investment advisory agreement, the Fund's
investment adviser receives a management fee at the annual rate of 0.85% of the
Fund's average net assets. Pursuant to the Fund's Rule 12b-1 Plan, the Fund may
pay 12b-1 fees of up to 0.75% of the Fund's average net assets. The Adviser has
voluntarily agreed to waive its investment advisory fees to the extent
necessary to ensure that combined investment advisory fees and 12b-1 fees do
not exceed 0.85% of the Fund's average net assets. Additionally, the Fund will
limit 12b-1 fees paid during the fiscal year ended June 30, 1997, to 0.25% of
the Fund's average net assets. Absent such waivers, Management fees, 12b-1 fees
and total fund operating expenses for the Fund for the fiscal year ending June
30, 1997, would be 0.85%, 0.75% and 2.65%, respectively, of the Fund's average
net assets. After June 30, 1997 the voluntary waivers may be revoked at any
time without notice to shareholders.
EXAMPLE
1 YEAR 3 YEARS
------ -------
You would pay the following expenses on a
$1,000 investment, assuming (1) a 5% annual return
and (2) redemption at the end of each time period: $19 $60
2. FINANCIAL HIGHLIGHTS
The financial highlights for the Fund should be read in conjunction with the
financial statements and notes thereto included in the Annual Report to
Shareholders.
MARCH 8, 1996 (1)<F3>
THROUGH
JUNE 30, 1996
---------------
Per share data:
Net asset value, beginning of period $10.00
Income from investment operations:
Net investment income 0.06
Net realized and unrealized gains on securities 0.12
------
Total from investment operations 0.18
Net asset value, end of period $10.18
------
------
Total Return 1.80%(2)<F4>
Supplemental data and ratios:
Net assets, in thousands, end of period $6,866
Ratio of net expenses to average net assets 1.90%(3)<F5>(4)<F6>
Ratio of net investment income to average net assets 2.99%(3)<F5>(4)<F6>
Portfolio turnover rate --(5)<F7>
Average commission rate $0.0611(6)<F8>
(1)<F3>Commencement of operations.
(2)<F4>Not annualized.
(3)<F5>Annualized.
(4)<F6>Absent fee waivers, the ratio of expenses to average net assets would
have been 4.04% and the ratio of net investment income to average net
assets would have been 0.85%.
(5)<F7>During the period there were no sales of securities other than short-
term securities which are not factored into this calculation.
(6)<F8>Edward J. Hennessy, Inc. an affiliated broker, received commissions of
$2,934 for transactions related to the purchase of securities held by the
Fund.
3. OUR INVESTMENT STRATEGY AND ASSOCIATED RISK FACTORS
Our investment objective is capital appreciation and current income. We
utilize a conservative investment strategy which results in our continuously
investing approximately one-half of our portfolio in U.S. Treasury securities
having a remaining maturity of approximately 1 year and the other half of our
portfolio in the ten highest yielding common stocks in the Dow Jones Industrial
Average ("DJIA").*<F20> By utilizing this investment strategy, we seek to
achieve total returns that in the long run will be substantially similar to that
of the DJIA but with less risk and volatility. There can be no assurances that
the Fund will not underperform the DJIA or that its net asset value will not
decline.
*<F20>The Dow Jones Industrial Average is the property of Dow Jones & Company,
Inc. Dow Jones & Company, Inc. is not affiliated with the Fund, The Hennessy
Management Co., L.P., the Fund's investment adviser (the "Adviser"), or Edward
J. Hennessy, Inc., the general partner to the Adviser. Dow Jones & Company,
Inc. has not participated in any way in the creation of the Fund or in the
selection of stocks included in the Fund and has not approved any information
included herein relating thereto.
The information below illustrates the total return for the Fund compared to
that of the DJIA.
COMPARISON OF TOTAL RETURN (1)<F9>
YEAR ENDED DJIA FUND
JUNE 30, TOTAL RETURN TOTAL RETURN
--------- -----------------------
1996(2)<F10> 0.24% 1.80%
(1)<F9>Total return for the DJIA represents the sum of the following
components: (a) the percentage change in value of each common stock from
the first trading day on the New York Stock Exchange in a given year to the
last trading day in that year; and (b) the total dividends received in that
year on each common stock divided by the market value of the common stock
as of the first trading day in that year (without any dividend
reinvestment). Total return for the DJIA does not take into consideration
any brokerage commissions, expenses or taxes, and does not include
reinvestment of dividends. Total return for the Fund is the percentage
change in the net asset value of the Fund's shares assuming reinvestment of
dividends and reflecting all brokerage commissions and expenses paid by the
Fund.
(2)<F10>March 8, 1996 through June 30, 1996.
Around the first and fifteenth of each month, the Adviser will determine the
ten highest yielding common stocks in the DJIA. The Adviser will make this
determination by annualizing the last quarterly or semi-annual ordinary dividend
declared on each common stock included in the DJIA and dividing the result by
the market value of the common stock on the last business day preceding the date
of determination. All purchases of common stocks following such determination
until the next determination will be of the ten highest yielding common stocks
so determined. Unless we need to sell common stocks to fund redemption requests
as hereinafter discussed, we will hold for approximately one year any common
stocks purchased including common stocks that are no longer one of the ten
highest yielding common stocks in the DJIA.
When we purchase common stock, we will also purchase an approximately equal
amount of U.S. Treasury securities having a remaining maturity of approximately
one year. (U.S. Treasury securities are backed by the full faith and credit of
the U.S. Treasury. U.S. Treasury securities differ only in their interest
rates, maturities and dates of issuance. Treasury bills have maturities of one
year or less. Treasury notes have maturities of one to ten years and Treasury
bonds generally have maturities of greater than ten years at the date of
issuance.) Consequently approximately half of our portfolio will at all times
consist of U.S. Treasury securities. Because approximately half of our
portfolio will consist of short-term debt securities, it may not perform as well
in the long term as a portfolio of common stocks.
We rebalance our stock investments after they have been held for one year.
Any stock which is no longer one of the ten highest yielding common stocks will
be sold and replaced with stocks which are. Additionally a portion of the
stocks which remain in the portfolio may be sold such that after the rebalancing
is completed, the rebalanced portion of our portfolio will consist of
approximately 50% U.S. Treasury securities and approximately 50% of the ten
highest yielding common stocks in the DJIA (approximately 5% for each common
stock). We anticipate rebalancing at the beginning of every month with respect
to the portfolio securities purchased one year earlier. For example, a
rebalancing effected at the beginning of February will relate to portfolio
securities purchased in January of the preceding calendar year. Rebalancing our
common stock investments more frequently would increase transaction costs. Our
annual portfolio turnover rate will generally not exceed 100%.
In an effort to minimize transaction costs, we may accumulate funds and make
purchases in larger blocks to avoid odd lot transactions. We will invest such
accumulated funds in money market instruments such as U.S. Treasury securities
with a remaining maturity of one year or less, repurchase agreements, commercial
paper and other cash equivalents rated A-1 or A-2 by Standard & Poor's
Corporation ("S&P") or Prime-1 or Prime-2 by Moody's Investors Service, Inc.
("Moody's"), including commercial paper master notes (which are demand
instruments bearing interest at rates which are fixed to known lending rates and
automatically adjusted when such lending rates change) of issuers whose
commercial paper is rated A-1 or A-2 by S&P or Prime-1 or Prime-2 by Moody's.
We may also invest in securities issued by other investment companies that
invest in high quality, short-term debt securities (i.e., money market funds).
In addition to the advisory fees and other expenses we bear directly in
connection with our own operations, as a shareholder of another investment
company, we would bear our pro rata portion of the other investment company's
advisory fees and other expenses, and such fees and other expenses will be borne
indirectly by our shareholders.
When funding redemption requests, we will first utilize any accumulated funds
described above. If it is necessary for us to sell portfolio securities to meet
redemption requests, we will endeavor to obtain approximately one-half of the
necessary proceeds from the sale of U.S. Treasury securities and the remainder
from the sale of common stocks in proportion to their respective percentages of
our total portfolio of common stocks. Again we may vary the percentage of each
issue of common stock sold to avoid odd lot transactions thereby reducing total
transaction costs.
Our investment allocations may be affected by the fact that we must meet the
diversification requirements of the Internal Revenue Code and do not concentrate
our investments. See "Our Investment Restrictions." Additionally, we will not
invest more than 5% of our total assets in the common stock of any issuer that
derives more than 15% of its revenue from securities-related activities, which
limitation may affect our investment allocations.
4. OUR INVESTMENT RESTRICTIONS
We have adopted certain fundamental investment restrictions that may be
changed only with the approval of a majority of our outstanding shares including
the following restrictions:
(1) We will not purchase the securities of any issuer if the purchase would
cause more than 5% of the value of our total assets to be invested in
securities of such issuer (except securities of the U.S. government or any
agency or instrumentality thereof), or purchase more than 10% of the
outstanding voting securities of any one issuer, except that up to 50% of our
total assets may be invested without regard to these limitations. As such we
are classified as a non-diversified investment company under the Investment
Company Act of 1940. A non-diversified portfolio may be more volatile than a
diversified portfolio.
(2) We will not invest 25% or more of our total assets at the time of
purchase in securities of issuers whose principal business activities are in
the same industry.
A list of our policies and restrictions, both fundamental and nonfundamental,
is set forth in the Statement of Additional Information. In order to provide a
degree of flexibility, our investment objective, as well as other policies which
are not deemed fundamental, may be modified by our Board of Directors without
shareholder approval. Any change in our investment objective may result in our
having an investment objective different from the investment objective which a
shareholder considered appropriate at the time of investment in the Fund.
However we will not change our investment objective without sending written
notice to shareholders at least 30 days in advance of any such change.
5. REPORTS
As a shareholder of the Fund you will be provided at least semi-annually with
a report showing the Fund's portfolio and other information. Annually, after
the close of our June 30 fiscal year, you will be provided with an annual report
containing audited financial statements.
An individual account statement will be sent to you by Firstar Trust Company
after each purchase, including reinvestment of dividends or redemption of our
shares. You will also receive an annual statement after the end of the calendar
year listing all your transactions in our shares during the year and a quarterly
statement following the end of each calendar quarter listing year-to-date
transactions.
If you have questions about your account you may call Firstar Trust Company
at (800) 261-6950. If you have general questions about the Fund or want more
information, you may call us at (800) 966-4354 or write to us at THE HENNESSY
FUNDS, INC., The Courtyard Square, 750 Grant Avenue, Suite 100, Novato,
California 94945, Attention: Corporate Secretary.
6. OUR MANAGEMENT
As a Maryland corporation, our business and affairs are managed by our Board
of Directors. We have entered into an investment advisory agreement (the
"Agreement") with The Hennessy Management Co., L.P. (the "Adviser"), The
Courtyard Square, 750 Grant Avenue, Suite 100, Novato, California 94945, under
which the Adviser furnishes continuous investment advisory services and
management to us. The Adviser is a California limited partnership organized on
October 24, 1995 for the purpose of becoming our investment adviser. The
general partner of the Adviser is Edward J. Hennessy, Incorporated ("Hennessy").
Hennessy is a registered broker-dealer and investment adviser. Hennessy was
organized in 1989 and is controlled by Neil J. Hennessy, who is a director and
the President of Hennessy. Neither the Adviser nor Hennessy has prior
experience managing the investment portfolio of a registered investment company.
Hennessy, however, has served as a general partner of investment partnerships
which invest substantially all of their assets in the ten highest yielding
common stocks of the DJIA.
Neil J. Hennessy is primarily responsible for the day-to-day management of
our investment portfolio. He has held this responsibility since we commenced
operations. Mr. Hennessy also has served as our President and a member of our
Board of Directors since our organization. Mr. Hennessy has been President of
Hennessy since 1989.
The Adviser supervises and manages our investment portfolio and, subject to
such policies as our Board of Directors may determine, directs the purchase or
sale of investment securities in the day-to-day management of the Fund. Under
the Agreement, the Adviser, at its own expense and without separate
reimbursement from us (other than pursuant to our 12b-1 plan), furnishes office
space and all necessary office facilities, equipment and executive personnel for
managing the Fund and maintaining our organization; bears all of our sales and
promotional expenses, other than expenses incurred in complying with the laws
regulating the issue or sale of securities; and pays salaries and fees of all of
our officers and directors (except the fees paid to our disinterested directors
as such term is defined under the Investment Company Act of 1940). For the
foregoing, the Adviser receives a monthly fee at the annual rate of 0.85% of the
daily net assets of the Fund. The rate of the annual advisory fee is higher
than that paid by most mutual funds.
We have adopted a Rule 12b-1 Plan (the "Plan") which authorizes payments by
us in connection with the distribution of our shares at an annual rate, as
determined from time to time by our Board of Directors, of up to 0.75% (0.25% in
the fiscal year ending June 30, 1997) of the Fund's average daily net assets.
Payments made pursuant to the Plan may only be used to pay distribution expenses
actually incurred. Payments incurred in one plan year may be carried over into
future plan years. At June 30, 1996, unreimbursed distribution expenses of
$57,900 were carried over to future plan years. Such amount was 0.84% of the
Fund's net assets. Amounts paid under the Plan by us may be spent on any
activities or expenses primarily intended to result in the sale of our shares,
including but not limited to, advertising, compensation for sales and marketing
activities of financial institutions and others such as dealers and
distributors, shareholder account servicing, the printing and mailing of
prospectuses to other than current shareholders and the printing and mailing of
sales literature. The Plan permits us to employ a distributor of its shares, in
which event payments under the Plan will be made to the distributor and may be
spent by the distributor on any activities or expenses primarily intended to
result in the sale of our shares, including but not limited to, compensation to,
and expenses (including overhead and telephone expenses) of, employees of the
distributor who engage in or support distribution of our shares, printing of
prospectuses and reports for other than existing shareholders, advertising and
preparation and distribution of sales literature. Allocation of overhead (rent,
utilities, etc.) and salaries will be based on the percentage of utilization in,
and time devoted to, distribution activities. Initially all payments under the
Plan will be made to the Adviser who as indicated above directly bears all sales
and promotional expenses of the Fund, other than expenses incurred in complying
with laws regulating the issue or sale of securities. (We indirectly bear sales
and promotional expenses to the extent we make payments under the Plan.) THE
ADVISER HAS VOLUNTARILY AGREED TO WAIVE ITS INVESTMENT ADVISORY FEE TO THE
EXTENT NECESSARY TO ENSURE THAT COMBINED INVESTMENT ADVISORY FEES AND 12B-1 FEES
DO NOT EXCEED 0.85% OF THE FUND'S AVERAGE NET ASSETS. The Adviser has entered
into an agreement with Hennessy pursuant to which it will pay Hennessy an amount
equal to 0.50% of the net asset value of all our shares sold other than shares
sold pursuant to dividend reinvestments. This agreement provides that Hennessy
must repay any such fees with respect to shares redeemed within one month after
the date of the original purchase other than shares redeemed as a result of the
death or disability of the shareholder. Such payments to Hennessy are a
permitted expenditure under the Plan.
We will pay all of our expenses not assumed by the Adviser, including, but
not limited to, the costs of preparing and printing our registration statements
required under the Securities Act of 1933 and the Investment Company Act of 1940
and any amendments thereto, the expenses of registering our shares with the
Securities and Exchange Commission and in the various states, the printing and
distribution cost of prospectuses mailed to existing shareholders, the cost of
director and officer liability insurance, reports to shareholders, reports to
government authorities and proxy statements, interest charges, brokerage
commissions, and expenses incurred in connection with portfolio transactions.
We will also pay the fees of our directors who are not officers, salaries of
administrative and clerical personnel, association membership dues, auditing and
accounting services, fees and expenses of any custodian or trustees having
custody of our assets, expenses of calculating the net asset value and
repurchasing and redeeming shares, and charges and expenses of dividend
disbursing agents, registrars, and share transfer agents, including the cost of
keeping all necessary shareholder records and accounts and handling any problems
relating thereto.
We also have entered into an administration agreement (the "Administration
Agreement") with Firstar Trust Company (the "Administrator"), 615 East Michigan
Street, Milwaukee, Wisconsin 53202. Under the Administration Agreement, the
Administrator maintains the books, accounts and other documents required by the
Act, responds to shareholder inquiries, prepares our financial statements and
tax returns, prepares certain reports and filings with the Securities and
Exchange Commission and with state Blue Sky authorities, furnishes statistical
and research data, clerical, accounting and bookkeeping services and stationery
and office supplies, keeps and maintains our financial and accounting records
and generally assists in all aspects of our operations. The Administrator, at
its own expense and without reimbursement from us, furnishes office space and
all necessary office facilities, equipment and executive personnel for
performing the services required to be performed by it under the Administration
Agreement. For the foregoing, the Administrator receives from us a fee, paid
monthly, at an annual rate of .05% of the first $100,000,000 of our average net
assets, .04% of the next $400,000,000 of our average net assets, and .03% of our
net assets in excess of $500,000,000. Notwithstanding the foregoing, the
Administrator's minimum annual fee is $30,000.
Firstar Trust Company also provides custodial, transfer agency and accounting
services for us. Information regarding the fees payable by us to Firstar Trust
Company for these services is provided in the Statement of Additional
Information.
7. HOW WE DETERMINE OUR SHARE PRICE
Our net asset value (or "price") per share is determined by dividing the
total value of our investments and other assets less any liabilities, by the
number of our outstanding shares. The net asset value per share is determined
once daily on each day that the New York Stock Exchange is open, as of the close
of regular trading on the Exchange (normally 3:00 p.m. Central time). Purchase
orders for our shares accepted or shares tendered for redemption prior to the
close of regular trading on a day the New York Stock Exchange is open for
trading will be valued as of the close of trading, and purchase orders accepted
and shares tendered for redemption after that time will be valued as of the
close of regular trading on the next trading day.
Our common stock investments are valued at the last quoted sales price on the
day the valuation is made utilizing price information taken from the New York
Stock Exchange where the security is primarily traded. Securities which are not
traded on the valuation date are valued at the most recent bid prices. Debt
securities are valued at the latest bid prices furnished by independent pricing
services. Other assets are valued at fair value as determined in good faith by
the Adviser in accordance with procedures approved by the Board of Directors of
the Fund. Short-term instruments (those with remaining maturities of 60 days or
less) are valued at amortized cost, which approximates market value.
8. PURCHASING SHARES
BY MAIL. Please complete and sign the New Account Application form
accompanying this Prospectus and send it, together with your check or money
order ($1,000 minimum), made payable to Hennessy Balanced Fund, TO: THE HENNESSY
FUNDS, INC., c/o Firstar Trust Company, P. O. Box 701, Milwaukee, Wisconsin
53201-0701. Note: A different procedure is used for establishing Individual
Retirement Accounts. Please call Firstar Trust Company at (800) 261-6950 for
details. All purchases must be made in U.S. dollars and checks must be drawn on
U.S. banks. No cash will be accepted. Firstar Trust Company will charge a $20
fee against a shareholder's account for any check returned to it for
insufficient funds. The shareholder will also be responsible for any losses
suffered by us as a result.
BY OVERNIGHT OR EXPRESS MAIL. Please use the following address to insure
proper delivery: Firstar Trust Company, Mutual Fund Services, 3rd Floor, 615
East Michigan Street, Milwaukee, Wisconsin 53202.
BY WIRE. To establish a new account by wire please first call Firstar Trust
Company, (800) 261-6950, to advise it of the investment and the dollar amount.
This will ensure prompt and accurate handling of your investment. A completed
New Account Application form must also be sent to us at the address above
immediately after your investment is made so the necessary remaining information
can be recorded to your account. Your purchase request should be wired through
the Federal Reserve Bank as follows:
Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
ABA Number 075000022
For credit to Firstar Trust M.F.S.
Account Number 112-952-137
For further credit to Hennessy Balanced Fund
(Your account name and account number)
ADDITIONAL INVESTMENTS. You may add to your account at any time by
purchasing shares by mail (minimum $100) or by wire (minimum $100) according to
the aforementioned wiring instructions. You must notify Firstar Trust Company
at (800) 261-6950 prior to sending your wire. A remittance form which is
attached to your individual account statement should accompany any investments
made through the mail, when possible. All purchase requests must include your
account registration number in order to assure that your funds are credited
properly.
BY TELEPHONE. By using our telephone purchase option you may move money from
your bank account to your Fund account at your request. Only bank accounts held
at domestic financial institutions that are Automated Clearing House (ACH)
members may be used for telephone transactions. To have our shares purchased at
the net asset value determined as of the close of regular trading on a given
date, Firstar Trust Company must receive both your purchase order and payment by
Electronic Funds Transfer through the ACH System before the close of regular
trading on such date. Most transfers are completed within three business days.
You may not use telephone transactions for initial purchases of our shares. The
minimum amount that can be transferred by telephone is $100.
AUTOMATIC INVESTMENT. If you choose the Automatic Investment option, you may
move money from your bank account to your Fund account on the schedule (e.g.,
monthly, bimonthly (every other month), quarterly or yearly) you select and may
be in any amount subject to a $100 minimum. You may establish this option and
the telephone purchase option by completing the appropriate section of the New
Account Application. Please call Firstar Trust Company at (800) 261-6950 if you
have questions. Please wait three weeks before using the service.
You pay no sales commissions when you purchase our shares, so all of your
investment is used to purchase shares. All shares purchased will be credited to
your account and confirmed by a statement mailed to your address. We do not
issue stock certificates for shares purchased. Since certificates are not
issued, you are relieved of the responsibility for safekeeping of certificates
and the need to deliver them upon redemption. You may also invest in the Fund
by purchasing shares through a registered broker-dealer, who may charge you a
fee, either at the time of purchase or redemption. The fee, if charged, is
retained by the broker-dealer and not remitted to us or the Adviser. You will
not be charged a fee when you purchase our shares through Hennessy. We may
accept telephone orders from broker-dealers who we have previously approved. It
is the responsibility of the registered broker-dealer to promptly remit purchase
and redemption orders to Firstar Trust Company.
ALL APPLICATIONS ARE SUBJECT TO ACCEPTANCE BY US, AND ARE NOT BINDING UNTIL
SO ACCEPTED. WE RESERVE THE RIGHT TO REJECT APPLICATIONS IN WHOLE OR IN PART.
The minimum purchase amounts set forth above are subject to change at any time
and may be waived for purchases by retirement plans, or the Adviser's or
Hennessy's employees and their family members. You will be advised at least 30
days in advance of any increases in such minimum amounts and our prospectus will
be appropriately supplemented. Applications without Social Security or Tax
Identification numbers will not be accepted.
9. EXCHANGING SHARES
As a service to our shareholders, The Hennessy Funds, Inc., have established
a program whereby our shareholders can exchange their shares for shares of the
Portico Money Market Fund. This fund is a no-load money market fund managed by
Firstar, an affiliate of Firstar Trust Company. The Portico Funds are unrelated
to The Hennessy Funds, Inc.
You may exchange your shares in the Fund for shares of the Portico Money
Market Fund. This exchange privilege is a convenient
way to buy shares in a money market fund in order to respond to changes in your
goals or in market conditions. Before exchanging into the Portico Money Market
Fund, read the applicable prospectus. To obtain a prospectus for the Portico
Money Market Fund, call toll-free 1-800-261-6950. There is no charge for
exchange transactions which are requested by mail. Firstar Trust Company will
charge a fee for each exchange transaction that is executed over the phone.
This fee is currently $5.00. See "Other Information About Exchanging Shares"
below for information on the limits imposed on exchanges.
BY MAIL. To exchange your shares of the Fund into the Portico Money Market
Fund, complete and sign an application and mail it to:
Firstar Trust Company
P.O. Box 701
Milwaukee, WI 53201
You may also send the application via overnight courier to Firstar Trust
Company at 615 E. Michigan Street, Milwaukee, WI 53202.
BY TELEPHONE. If you have authorized telephone transaction privileges in
your application, you may also make exchanges by calling toll-free 1-800-261-
6950. Exchanges made over the phone may only be made by the
shareholder of record. Certain other limitations and conditions apply to all
telephone transactions.
OTHER INFORMATION ABOUT EXCHANGING SHARES. All accounts opened as a result
of using the exchange privilege must be registered in the same name and taxpayer
identification number as your existing account with the Fund. Because of the
time needed to transfer money between the Fund and the Portico Money Market
Fund, you may not exchange into and out of the same fund on the same or
successive days; there must be at least one day between exchange transactions.
You may exchange your shares of the Fund only for shares that have been
registered for sale in your state. Remember that each exchange represents the
sale of shares of one fund and the purchase of shares of another. Therefore,
you could realize a taxable gain or loss on the transaction. If your account is
subject to backup withholding, you may not open another account using the
exchange privilege. Because excessive trading can hurt the Fund's performance
and shareholders, the Fund reserves the right to temporarily or permanently
terminate the exchange privilege of any investor who makes excessive use of the
exchange privilege (more than five exchanges per calendar year). Your exchanges
may be restricted or refused by the Fund if it receives or anticipates receiving
simultaneous orders affecting significant portions of the Fund's assets. In
particular, a pattern of exchanges with a "market timing" strategy may be
disruptive to the Fund. The Fund reserves the right to terminate or modify the
exchange privilege upon at least 60 days' written notice to shareholders. A
signature guarantee is not required except in cases where shares are also
redeemed for cash at the same time. The restriction or termination of the
exchange privilege does not affect the rights of shareholders to redeem shares
as discussed below.
10. REDEMPTIONS
At any time during normal business hours you may request us to redeem your
shares in whole or in part. Written redemption requests must be directed to THE
HENNESSY FUNDS, INC., c/o Firstar Trust Company, P.O. Box 701, Milwaukee,
Wisconsin 53201-0701. If a redemption request is inadvertently sent to us at
our corporate address, it will be forwarded to Firstar Trust Company, but the
effective date of redemption will be delayed until the request is received by
Firstar Trust Company. Requests for redemption which are subject to any special
conditions or which specify an effective date other than as provided herein
cannot be honored.
A redemption request must be received in "Good Order" by Firstar Trust
Company for the request to be processed. "Good Order" means the request for
redemption must include:
Your letter of instruction specifying our name and either the number of
shares or the dollar amount of shares to be redeemed. The letter of
instruction must be signed by all registered shareholders exactly as the shares
are registered and must include your account registration number and the
additional requirements listed below that apply to the particular account.
TYPE OF REGISTRATION REQUIREMENTS
-------------------- ------------
Individual, Joint Tenants, Sole Redemption request signed by all
Proprietorship, Custodial person(s) required to sign for the
(Uniform Gift To Minors Act), account, exactly as it is registered.
General Partners
Corporations, Associations Redemption request and a
corporate resolution, signed by
person(s) required to sign for the
account, accompanied by signature
guarantee(s).
Trusts Redemption request signed by the
trustee(s), with a signature
guarantee. (If the Trustee's name
is not registered on the account, a
copy of the trust document certified
within the last 60 days is also
required).
Signature guarantees if proceeds of redemption are to be sent by wire
transfer, to a person other than the registered holder, to an address other
than the address of record, and if a redemption request includes a change of
address. Transfers of shares also require signature guarantees. Signature
guarantees may be obtained from any commercial bank or trust company in the
United States or a member of the New York Stock Exchange and some savings and
loan associations.
If you have an IRA, you must indicate on your redemption request whether or not
to withhold federal income tax. Redemption requests not indicating an election
to have federal tax withheld will be subject to withholding. If you are
uncertain of the redemption requirements, please contact, in advance, Firstar
Trust Company.
The redemption price is the next determined net asset value after Firstar
Trust Company receives a redemption request in "Good Order". The amount paid
will depend on the market value of the investments in our portfolio at the time
of determination of net asset value, and may be more or less than the cost of
the shares redeemed. Payment for shares redeemed will be mailed to you
typically within one or two days, but no later than the seventh day after
receipt by Firstar Trust Company of the redemption request in "Good Order"
unless we are requested to redeem shares for which we have not yet received good
payment (e.g. cash, bank money order or certified check on a U.S. bank.) In
such event we may delay the mailing of a redemption check until such time as we
have assured ourself that good payment for the purchase price of the shares has
been collected which may take up to 12 days or more. Wire transfers may be
arranged through Firstar Trust Company, which will assess a $10.00 wiring charge
against your account.
You may redeem our shares by telephone. To redeem shares by telephone, you
must check the appropriate box on the New Account Application (as we do not make
this feature available to shareholders automatically). Once this feature has
been requested, you may redeem shares by phoning Firstar Trust Company at (800)
261-6950 and giving the account name, account number and either the number of
shares or the dollar amount to be redeemed. For your protection, you may be
asked to give the social security number or tax identification number listed on
the account as further verification. Proceeds redeemed by telephone will be
mailed or wired only to your address or bank of record as shown on the records
of Firstar Trust Company. Telephone redemptions must be in amounts of $1,000 or
more. If the proceeds are sent by wire, a $10.00 wire fee will apply.
In order to arrange for telephone redemptions after a Fund account has been
opened or to change the bank, account or address designated to receive
redemption proceeds, you must send a written request to Firstar Trust Company.
The request must be signed by each registered holder of the account with the
signatures guaranteed by a commercial bank or trust company in the United
States, a member firm of the New York Stock Exchange or other eligible guarantor
institution. Further documentation may be requested from corporations,
executors, administrators, trustees and guardians.
We reserve the right to refuse a telephone redemption if we believe it is
advisable to do so. Procedures for redeeming our shares by telephone may be
modified or terminated by us at any time. Neither the Fund nor Firstar Trust
Company will be liable for following instructions for telephone redemption
transactions which they reasonably believe to be genuine, provided reasonable
procedures are used to confirm the genuineness of the telephone instructions,
but may be liable for unauthorized transactions if they fail to follow such
procedures. These procedures include requiring you to provide some form of
personal identification prior to acting upon your telephone instructions and
recording all telephone calls.
You should be aware that during periods of substantial economic or market
change, telephone or wire redemptions may be difficult to implement. If you are
unable to contact Firstar Trust Company by telephone, you may redeem shares by
delivering the redemption request to Firstar Trust Company by mail as described
above.
If you select our systematic withdrawal option, you may move money
automatically from your Fund account to your bank account according to the
schedule you select. The systematic withdrawal option may be in any amount
subject to a $100 minimum. To select the systematic withdrawal option you must
check the appropriate box on the New Account Application.
We reserve the right to redeem the shares held in any account if at the time
of any transfer or redemption of Fund shares in the account, the value of the
remaining shares in the account falls below $1,000. You will be notified in
writing that the value of your account is less than the minimum and allowed at
least 60 days to make an additional investment. The receipt of proceeds from
the redemption of shares held in an Individual Retirement Account ("IRA") will
constitute a taxable distribution of benefits from the IRA unless a qualifying
rollover contribution is made. Involuntary redemptions will not be made because
the value of shares in an account falls below $1,000 solely because of a decline
in our net asset value.
Your right to redeem our shares will be suspended and your right to payment
postponed for more than seven days for any period during which the New York
Stock Exchange is closed because of financial conditions or any other
extraordinary reason and may be suspended for any period during which (a)
trading on the New York Stock Exchange is restricted pursuant to rules and
regulations of the Securities and Exchange Commission, (b) the Securities and
Exchange Commission has by order permitted such suspension or (c) such
emergency, as defined by rules and regulations of the Securities and Exchange
Commission, exists as a result of which it is not reasonably practicable for the
Fund to dispose of its securities or fairly to determine the value of its net
assets.
11. DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
We intend to distribute quarterly in March, June, September and December any
net investment income and annually in December any net realized capital gains to
shareholders. Dividend and capital gains distributions may be automatically
reinvested or received in cash.
We intend to continue to qualify for taxation as a "regulated investment
company" under the Internal Revenue Code so that we will not be subject to
federal income tax to the extent our income is distributed to shareholders.
Dividends paid by us from net investment income and net short-term capital
gains, whether received in cash or reinvested in additional shares, will be
taxable to shareholders as ordinary income. Distributions paid by us from long-
term capital gains, whether received in cash or reinvested in additional shares,
are taxable as long-term capital gains, regardless of the length of time you
have owned our shares. Capital gains distributions are made when we realize net
capital gains on sales of portfolio securities during the year. We do not seek
to realize any particular amount of capital gains during a year; rather,
realized gains are a by-product of portfolio management activities.
Consequently, capital gains distributions may be expected to vary considerably
from year to year; there will be no capital gains distributions in years when we
realize net capital losses.
Note that if you accept capital gains distributions in cash, instead of
reinvesting them in additional shares, you are in effect reducing the capital at
work for you in the Fund. Also, keep in mind that if you purchase our shares
shortly before the record date for a dividend or capital gains distribution, a
portion of your investment will be returned to you as a taxable distribution,
regardless of whether you are reinvesting your distributions or receiving them
in cash.
We will notify you annually as to the tax status of dividend and capital
gains distributions paid by the Fund. A sale or redemption of our shares is a
taxable event and may result in a capital gain or loss. Dividend distributions,
capital gains distributions, and capital gains or losses from redemptions may be
subject to state and local taxes.
We are required to withhold 31% of taxable dividends, capital gains
distributions, and redemptions paid to shareholders who have not complied with
IRS taxpayer identification regulations. You may avoid this withholding
requirement by certifying on your New Account Application your proper Social
Security or Taxpayer Identification Number and by certifying that you are not
subject to backup withholding.
The tax discussion set forth above is included for general information
purposes only. Prospective investors should consult their own tax advisers
concerning the tax consequences of an investment in the Fund.
12. DIVIDEND REINVESTMENT
You may elect to have all income dividends and capital gains distributions
reinvested in our shares or paid in cash, or to have capital gains distributions
reinvested and income dividends paid in cash. Please refer to the New Account
Application form accompanying this Prospectus for further information. If you
do not specify an election, all dividends and capital gains distributions will
automatically be reinvested in full and fractional shares of the Fund calculated
to the nearest 1,000th of a share. Shares are purchased at the net asset value
in effect on the business day after the dividend record date and are credited to
your account on the dividend payment date. Cash dividends are also paid on such
date. You will be advised of the number of shares purchased and the price
following each reinvestment. An election to reinvest or receive dividends and
distributions in cash will apply to all our shares registered in your name,
including those previously purchased. See "DIVIDENDS, CAPITAL GAINS
DISTRIBUTIONS AND TAXES" for a discussion of certain tax consequences.
You may change an election at any time by notifying us in writing. If such a
notice is received between a dividend declaration date and payment date, it will
become effective on the day following the payment date. We may modify or
terminate our dividend reinvestment program at any time on thirty days' notice
to participants.
13. RETIREMENT PLANS
We offer the following retirement plans that may fit your needs and allow you
to shelter some of your income from taxes:
INDIVIDUAL RETIREMENT ACCOUNT ("IRA"). Individual shareholders may
establish their own tax-deferred IRA. Earnings on amounts held in the IRA are
not taxed until withdrawal.
SIMPLIFIED EMPLOYEE PENSION PLAN (SEP/IRA). The SEP/IRA is a pension
plan in which both the employer and the employee may contribute to an IRA. The
SEP/IRA is also available to self-employed individuals.
Contact us for complete information kits, including forms, concerning the
above plans, their benefits, provisions and fees. Consultation with a competent
financial and tax adviser regarding these plans is recommended.
14. BROKERAGE TRANSACTIONS
The Agreement authorizes the Adviser to select the brokers or dealers that
will execute the purchases and sales of our portfolio securities. In placing
purchase and sale orders for us, it is the policy of the Adviser to seek the
best execution of orders at the most favorable price in light of the overall
quality of brokerage and research services provided.
The Agreement permits the Adviser to cause us to pay a broker which provides
brokerage and research services to the Adviser a commission for effecting
securities transactions in excess of the amount another broker would have
charged for executing the transaction, provided the Adviser believes this to be
in our best interests. Although we do not initially intend to market our shares
through intermediary broker-dealers, we may place portfolio orders with broker-
dealers who recommend the purchase of our shares to clients if the Adviser
believes the commissions and transaction quality are comparable to that
available from other brokers and allocate portfolio brokerage on that basis. We
may place portfolio orders with Hennessy if the quality of the transaction and
the commissions are comparable to what they would be with other qualified
brokerage firms.
15. GENERAL INFORMATION
We are organized as a Maryland corporation. Our Articles of Incorporation
permit our Board of Directors to issue 500,000,000 shares of common stock, with
a $.0001 par value. Our Board of Directors has the power to designate one or
more classes ("series") of shares of common stock and to classify or reclassify
any unissued shares with respect to such series. Currently we are offering one
class of shares.
Our shares are fully paid and non-assessable; have no preference as to
conversion, exchange, dividends, retirement or other features; and have no
preemptive rights. Our shares have non-cumulative voting rights, meaning that
the holders of more than 50% of the shares voting for the election of Directors
can elect 100% of the Directors if they so choose.
Annual meetings of shareholders will not be held except as required by the
Investment Company Act of 1940 and other applicable law. An annual meeting will
be held to vote on the removal of a Director or Directors of the Fund if
requested in writing by the holders of not less than 10% of the outstanding
shares of the Fund.
All of our securities and cash are held by Firstar Trust Company, which also
serves as our transfer and dividend disbursing agent. KPMG Peat Marwick LLP
serves as our independent accountants and will audit our financial statements
annually. We are not involved in any litigation.
16. PERFORMANCE INFORMATION
We may provide from time to time in advertisements, reports to shareholders
and other communications with shareholders our average annual total return. An
average total return refers to the rate of return which, if applied to an
initial investment at the beginning of a stated period and compounded over the
period, would result in the redeemable value of the investment at the end of the
stated period assuming reinvestment of all dividends and distribution and
reflecting the effect of all recurring fees. When considering "average" total
return figures for periods longer than one year, you should note that our annual
total return for any one year in the period might have been greater or less than
the average for the entire period. We may use "aggregate" total return figures
for various periods, representing the cumulative change in value of an
investment in the Fund for a specific period (again reflecting changes in our
share price and assuming reinvestment of dividends and distributions).
We may also compare our performance to other mutual funds with similar
investment objectives and to the industry as a whole as reported by Lipper
Analytical Services, Inc., Morningstar OnDisc, Money, Forbes, Business Week and
Barron's magazines and The Wall Street Journal, (Lipper Analytical Services,
Inc. and Morningstar OnDisc are independent ranking services that rank mutual
funds based upon total return performance.) We may also compare our performance
to the DJIA, NASDAQ Composite Index, NASDAQ Industrials Index, Value Line
Composite Index, the Standard & Poor's 500 Stock Index, and the Consumer Price
Index.
Our performance quotations represent our past performance and should not be
considered as representative of future results. The investment return and
principal value of an investment in the Fund will fluctuate so that your shares,
when redeemed, may be worth more or less than their original cost.
INVESTMENT ADVISER
The Hennessy Management Co., L.P.
The Courtyard Square
750 Grant Avenue, Suite 100
Novato, CA 94945
ADMINISTRATOR, TRANSFER AGENT, DIVIDEND
PAYING AGENT, SHAREHOLDER
SERVICING AGENT &CUSTODIAN
Firstar Trust Company
P.O. Box 701
Milwaukee, WI 53201-0701
(800) 261-6950
DIRECTORS
Neil J. Hennessy
Brian A. Hennessy
Robert T. Doyle
Rodger D. Offenbach
J. Dennis DeSousa
COUNSEL
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, WI 53202-5367
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
777 East Wisconsin Avenue
Milwaukee, WI 53202
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION September 9, 1996
THE HENNESSY FUNDS, INC.
The Courtyard Square
750 Grant Avenue
Suite 100
Novato, California 94945
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Prospectus of The Hennessy Funds,
Inc. dated September 6, 1996. Requests for copies of the Prospectus
should be made by writing to The Hennessy Funds, Inc., The Courtyard
Square, 750 Grant Avenue, Suite 100, Novato, California 94945, Attention:
Corporate Secretary, or by calling 1-800-966-4354.
<PAGE>
The Hennessy Funds, Inc.
TABLE OF CONTENTS
Page No.
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . 3
DIRECTORS AND OFFICERS OF THE CORPORATION . . . . . . . . . . . . . . . 4
OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS . . . . . . . . . . 6
INVESTMENT ADVISER, ADMINISTRATOR, CUSTODIAN,
TRANSFER AGENT AND ACCOUNTING SERVICES AGENT . . . . . . . . . . . . . 6
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . 9
DISTRIBUTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . 9
SYSTEMATIC WITHDRAWAL PLAN . . . . . . . . . . . . . . . . . . . . . . 10
ALLOCATION OF PORTFOLIO BROKERAGE . . . . . . . . . . . . . . . . . . . 10
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
STOCKHOLDER MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . 12
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 13
INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . 14
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 15
INVESTMENT RESTRICTIONS
As set forth in the Prospectus dated September 9, 1996 of The
Hennessy Funds, Inc. (the "Corporation") under the caption "OUR INVESTMENT
STRATEGY", the investment objective of the Hennessy Balanced Fund (the
"Fund") is capital appreciation and current income. Consistent with this
investment objective, the Fund has adopted the following investment
restrictions which are matters of fundamental policy and cannot be changed
without approval of the holders of the lesser of: (i) 67% of the Fund's
shares present or represented at a stockholder's meeting at which the
holders of more than 50% of such shares are present or represented; or
(ii) more than 50% of the outstanding shares of the Fund.
1. The Fund will not purchase securities of any issuer if
the purchase would cause more than 5% of the value of the Fund's
total assets to be invested in securities of such issuer (except
securities of the U.S. government or any agency or
instrumentality thereof), or purchase more than 10% of the
outstanding voting securities of any one issuer, except that up
to 50% of the Fund's total assets may be invested without regard
to these limitations.
2. The Fund will not sell securities short.
3. The Fund will not purchase securities on margin
(except for such short term credits as are necessary for the
clearance of transactions) or write put or call options.
4. The Fund may not borrow money or issue senior
securities except for temporary bank borrowings (not exceeding
10% of the Fund's total assets) or for emergency or
extraordinary purposes. The Fund will not borrow money for the
purpose of investing in securities and the Fund will not
purchase any portfolio securities so long as any borrowed
amounts remain outstanding.
5. The Fund will not pledge or hypothecate its assets,
except to secure permitted borrowings.
6. The Fund will not act as an underwriter or distributor
of securities other than shares of the Fund (except to the
extent that the Fund may be deemed to be an underwriter within
the meaning of the Securities Act of 1933, as amended, in the
disposition of restricted securities).
7. The Fund will not make loans, including loans of
securities, except it may acquire debt securities from the
issuer or others which are publicly distributed or are of a type
normally acquired by institutional investors and enter into
repurchase agreements.
8. The Fund will not invest 25% or more of its total
assets at the time of purchase in securities of issuers whose
principal business activities are in the same industry.
9. The Fund will not make investments for the purpose of
exercising control or management of any company.
10. The Fund will not purchase or sell real estate or real
estate mortgage loans and will not make any investments in real
estate limited partnerships.
11. The Fund will not purchase or sell commodities or
commodity contracts.
12. The Fund will not purchase or sell any interest in any
oil, gas or other mineral exploration or development program,
including any oil, gas or mineral leases.
The Fund has adopted certain other investment restrictions which
are not fundamental policies and which may be changed by the Fund's Board
of Directors without stockholder approval. These additional restrictions
are as follows:
1. The Fund will not acquire or retain any security
issued by a company, an officer or director of which is an
officer or director of the Fund or an officer, director or other
affiliated person of the Fund's investment adviser.
2. The Fund will not invest in securities of any issuer
which has a record of less than three (3) years of continuous
operation, including the operation of any predecessor business
of a company which came into existence as a result of a merger,
consolidation, reorganization or purchase of substantially all
of the assets of such predecessor business.
3. The Fund will not purchase illiquid securities.
4. The Fund will not purchase the securities of other
investment companies except: (a) as part of a plan of merger,
consolidation or reorganization approved by the stockholders of
the Fund; or (b) securities of registered open-end investment
companies that invest exclusively in high quality, short-term
debt securities. No purchases described in (b) will be made if
as a result of such purchases (i) the Fund and its affiliated
persons would hold more than 3% of any class of securities,
including voting securities, of any registered investment
company; (ii) more than 5% of the Fund's net assets would be
invested in shares of any one registered investment company; and
(iii) more than 10% of the Fund's net assets would be invested
in shares of registered investment companies.
The aforementioned percentage restrictions on investment or
utilization of assets refer to the percentage at the time an investment is
made. If these restrictions are adhered to at the time an investment is
made, and such percentage subsequently changes as a result of changing
market values or some similar event, no violation of the Fund's
fundamental restrictions will be deemed to have occurred. Any changes in
the Fund's investment restrictions made by the Board of Directors will be
communicated to stockholders prior to their implementation.
INVESTMENT CONSIDERATIONS
The Dow Jones Industrial Average
The Dow Jones Industrial Average ("DJIA") currently consists of
the following 30 common stocks:
Allied-Signal, Inc. The Goodyear Tire & Rubber
Company
Aluminum Company of America International Business Machines
(ALCOA) Corporation (IBM)
American Express International Paper Company
AT&T Corporation McDonald's Corporation
Bethlehem Steel Corporation Merck & Co., Inc.
The Boeing Company Minnesota Mining &
Manufacturing Company (3M)
Caterpillar, Inc. J.P. Morgan & Co. Incorporated
Chevron Corporation Philip Morris Companies
The Coca-Cola Company The Procter & Gamble Company
The Walt Disney Company Sears, Roebuck & Co.
E.I du Pont De Nemours & Co. Texaco, Inc.
Eastman Kodak Company Union Carbide Corporation
Exxon Corporation United Technologies Corporation
General Electric Company Westinghouse Electric
Corporation
General Motors Corporation Woolworth Corporation
The DJIA is the property of Dow Jones & Company, Inc. Dow Jones &
Company, Inc. is not affiliated with the Fund, the Fund's investment
adviser, The Hennessy Management Co., L.P. or Edward J. Hennessy, Inc.,
the general partner to the investment adviser. Dow Jones & Company, Inc.
has not participated in any way in the creation of the Fund or in the
selection of stocks included in the Fund and has not approved any
information included herein related thereto.
The first DJIA, consisting of 12 stocks, was published in The
Wall Street Journal in 1896. The list grew to 20 stocks in 1916 and to 30
stocks on October 1, 1928. Dow Jones & Company, Inc. from time to time
changes the stocks comprising the DJIA, although such changes are
infrequent.
The Fund's investment strategy is unlikely to be affected by the
requirement that it not concentrate its investments since currently no
more than three companies in the DJIA are engaged primarily in any one
industry. Similarly the Fund's investment strategy is unlikely to be
materially affected by the requirement that it meet the diversification
requirements of the Internal Revenue Code since it will normally have 50%
of its assets invested in U.S. Treasury securities and the remainder of
its assets divided among at least ten stocks. However the Fund's
diversification requirement may preclude it from effecting a purchase
otherwise dictated by its investment strategy. Finally because of the
requirements of the Investment Company Act of 1940 (the "Act"), the Fund
will not invest more than 5% of its total assets in the common stock of
any issuer that derives more than 15% of its revenues from securities-
related activities. From time to time this requirement may preclude the
Fund from effecting a purchase otherwise dictated by its investment
strategy.
Portfolio Turnover
The Fund will generally hold securities for approximately one
year irrespective of investment performance. Securities may be sold after
being held less than one year to fund redemption requests. Consequently
the Fund's annual portfolio turnover rate may vary from year to year.
Notwithstanding the foregoing, the Fund's portfolio turnover rate will
generally not exceed 100%. High portfolio turnover in any year will
result in the payment by the Fund of above-average transaction costs and
could result in the payment by shareholders of above-average amounts of
taxes on realized investment gains.
DIRECTORS AND OFFICERS OF THE CORPORATION
The name, age, address, principal occupation(s) during the past
five years, and other information with respect to each of the directors
and officers of the Corporation are as follows:
*Neil J. Hennessy -- Director, President and Treasurer. Mr.
Hennessy, 40, has been President of Edward J. Hennessy, Incorporated
("Hennessy") since 1989. His address is The Courtyard Square, 750 Grant
Avenue, Suite 100, Novato, CA 94945.
*Brian A. Hennessy -- Director. Mr. Hennessy, 43, has been a
self-employed dentist for more than five years. His address is 912 Grand
Avenue, San Rafael, CA 94901.
Robert T. Doyle -- Director. Mr. Doyle, 49, is currently the
Sheriff of Marin County, California and has been employed in the Marin
County Sheriff's Office in various capacities since 1969. His address is
87 Washington Street, Novato, CA 94947.
*Rodger D. Offenbach -- Director. Mr. Offenbach, 45, has been
the owner of Rays Catering since 1974. His address is 919 Eastman Lane,
Petaluma, CA 94952.
J. Dennis DeSousa -- Director. Mr. DeSousa, 60, is a retired
vice president of the California State Automobile Association. He
currently is a private investor. His address is 682 Wilson Street,
Novato, CA 94947.
Teresa M. Nilsen -- Vice President and Secretary. Ms. Nilsen,
29, has been corporate secretary and financial officer of Hennessy since
1989. Her address is The Courtyard Square, 750 Grant Avenue, Suite 100,
Novato, CA 94945.
______________________
*Messrs. Neil Hennessy, Brian Hennessy and Offenbach are
interested persons of the Corporation (as defined in the Act). Messrs.
Neil Hennessy and Brian Hennessy are brothers.
The Corporation's standard method of compensating directors is
to pay each director who is not an interested person of the Corporation a
fee of $250 for each meeting of the Board of Directors attended. The
Corporation also may reimburse its directors for travel expenses incurred
in order to attend meetings of the Board of Directors.
The Corporation was incorporated on January 11, 1996 and its
first fiscal year ended June 30, 1996. The table below sets forth the
compensation anticipated to be paid by the Corporation to each of the
current directors of the Corporation during the fiscal year ending
June 30, 1997:
COMPENSATION TABLE
Pension or Total
Retirement Compensation
Benefits Estimated from
Aggregate Accrued As Annual Corporation
Compensation Part of Benefits and Fund
Name of from Fund Upon Complex Paid
Person Corporation Expenses Retirement to Directors
Neil J. Hennessy $0 $0 $ $0
Brian A. Hennessy 0 0 0 0
Robert T. Doyle 1,000 0 0 1,000
Rodger D.
Offenbach 0 0 0 0
J. Dennis DeSousa 1,000 0 0 1,000
OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
At August 31, 1996 the only persons owning of record, or known
to the Corporation to own beneficially, 5% or more of the outstanding
shares of the Fund are:
Name and Address of Shareholder Percentage Owned
Tile West Inc. Profit Sharing Plan 13.59%
P. O. Box 5848
Novato, CA 94948-5848
Jo Ann Johnson 6.40%
711 Oakville Road
Napa, CA 94558-9744
Frances E. Affleck 5.61%
4775 Wadsworth Court
Fremont, CA 94538-3351
Louis M. Angeja 5.18%
109 Shelley Drive
Mill Valley, CA 94941-1595
Including shares of the Fund owned by the Adviser, all officers
and directors of the Corporation own 1.30% of the outstanding shares of
the Fund.
INVESTMENT ADVISER, ADMINISTRATOR, CUSTODIAN,
TRANSFER AGENT AND ACCOUNTING SERVICES AGENT
As set forth in the Prospectus under the caption "MANAGEMENT OF
THE FUND," the investment adviser to the Fund is The Hennessy Management
Co., L.P., The Courtyard Square, 750 Grant Avenue, Suite 100, Novato,
California 94945 (the "Adviser"). Pursuant to the investment advisory
agreement entered into between the Corporation and the Adviser with
respect to the Fund (the "Advisory Agreement"), the Adviser furnishes
continuous investment advisory services to the Fund. The Adviser is
controlled by its general partner, Edward J. Hennessy, Incorporated, which
is in turn controlled by Neil J. Hennessy. Mr. Offenbach is a limited
partner of the Adviser. During the fiscal year ended June 30, 1996, the
Adviser waived all of the $11,212 investment advisory fees otherwise
payable by the Fund
The Adviser has undertaken to reimburse the Fund to the extent
that the aggregate annual operating expenses, including the investment
advisory fee and the administration fee but excluding interest, taxes,
brokerage commissions and other costs incurred in connection with the
purchase or sale of portfolio securities, and extraordinary items, exceed
that percentage of the average net assets of the Fund for such year, as
determined by valuations made as of the close of each business day of the
year, which is the most restrictive percentage provided by the state laws
of the various states in which the shares of the Fund are qualified for
sale or, if the states in which the shares of the Fund are qualified for
sale impose no such restrictions, 3%. As of the date of this Statement of
Additional Information, the percentage applicable to the Fund is 2-1/2% on
the first $30,000,000 of its average daily net assets, 2% on average daily
the next $70,000,000 of its average daily net assets and 1-1/2% on average
daily net assets in excess of $100,000,000. The Fund monitors its expense
ratio on a monthly basis. If the accrued amount of the expenses of the
Fund exceeds the expense limitation, the Fund creates an account
receivable from the Adviser for the amount of such excess. In such a
situation the monthly payment of the Adviser's fee will be reduced by the
amount of such excess (and if the amount of such excess in any month is
greater than the monthly payment of the Adviser's fee, the Adviser will
pay the Fund the amount of such difference), subject to adjustment month
by month during the balance of the Fund's fiscal year if accrued expenses
thereafter fall below this limit. Notwithstanding the most restrictive
applicable expense limitation of state securities commissions described
above, during the fiscal year ended June 30, 1996, the Adviser voluntarily
reimbursed the Fund for expenses in excess of 1.90% of the Fund's average
daily net assets. This reimbursement of $17,003 was in addition to the
advisory fees waived by the Adviser.
The Advisory Agreement will remain in effect as long as its
continuance is specifically approved at least annually (i) by the Board of
Directors of the Corporation or by the vote of a majority (as defined in
the Act) of the outstanding shares of the Fund, and (ii) by the vote of a
majority of the directors of the Fund who are not parties to the Advisory
Agreement or interested persons of the Adviser, cast in person at a
meeting called for the purpose of voting on such approval. The Advisory
Agreement provides that it may be terminated at any time without the
payment of any penalty, by the Board of Directors of the Corporation or by
vote of the majority of the Fund's stockholders on sixty (60) days'
written notice to the Adviser, and by the Adviser on the same notice to
the Corporation, and that it shall be automatically terminated if it is
assigned.
The Advisory Agreement provides that the Adviser shall not be
liable to the Corporation or its stockholders for anything other than
willful misfeasance, bad faith, gross negligence or reckless disregard of
its obligations or duties. The Advisory Agreement also provides that the
Adviser and its officers, directors and employees may engage in other
businesses, devote time and attention to any other business whether of a
similar or dissimilar nature, and render services to others.
As set forth in the Prospectus under the caption "WHO MANAGES
THE FUND?", the administrator to the Corporation is Firstar Trust Company,
615 East Michigan Street, Milwaukee, Wisconsin 53202 (the
"Administrator"). The Fund Administration Servicing Agreement entered
into between the Corporation and the Administrator relating to the Fund
(the "Administration Agreement") will remain in effect until terminated by
either party. The Administration Agreement may be terminated at any time,
without the payment of any penalty, by the Board of Directors of the
Corporation upon the giving of ninety (90) days' written notice to the
Administrator, or by the Administrator upon the giving of ninety (90)
days' written notice to the Corporation. During the fiscal year ended
June 30, 1996, the Fund incurred fees in the amount of $5,307 pursuant to
the Administration Agreement.
Under the Administration Agreement, the Administrator shall
exercise reasonable care and is not liable for any error or judgment or
mistake of law or for any loss suffered by the Corporation in connection
with the performance of the Administration Agreement, except a loss
resulting from willful misfeasance, bad faith or negligence on the part of
the Administrator in the performance of its duties under the
Administration Agreement.
Firstar Trust Company also serves as custodian of the
Corporation's assets pursuant to a Custody Agreement. Under the Custody
Agreement, Firstar Trust Company has agreed to (i) maintain a separate
account in the name of the Fund, (ii) make receipts and disbursements of
money on behalf of the Fund, (iii) collect and receive all income and
other payments and distributions on account of the Fund's portfolio
investments, (iv) respond to correspondence from shareholders, security
brokers and others relating to its duties and (v) make periodic reports to
the Fund concerning the Fund's operations. Firstar Trust Company does not
exercise any supervisory function over the purchase and sale of
securities. For its services as custodian, Firstar Trust Company is
entitled to receive a fee, payable monthly, based on the annual rate of
.02% of the net assets of the Fund (subject to a minimum annual $3000
fee). In addition, Firstar Trust Company, as custodian, is entitled to
certain charges for securities transactions and reimbursement for
expenses.
Firstar Trust Company also serves as transfer agent and dividend
disbursing agent for the Fund under a Shareholder Servicing Agent
Agreement. As transfer and dividend disbursing agent, Firstar Trust
Company has agreed to (i) issue and redeem shares of the Fund, (ii) make
dividend and other distributions to shareholders of the Fund, (iii)
respond to correspondence by Fund shareholders and others relating to its
duties, (iv) maintain shareholder accounts, and (v) make periodic reports
to the Fund. For its transfer agency and dividend disbursing services,
Firstar Trust Company is entitled to receive fees at the rate of $13 per
shareholder account (subject to a minimum annual fee of $21,000). Also,
Firstar Trust Company is entitled to certain other transaction charges and
reimbursement for expenses.
In addition the Corporation has entered into a Fund Accounting
Servicing Agreement with Firstar Trust Company pursuant to which Firstar
Trust Company has agreed to maintain the financial accounts and records of
the Fund and provide other accounting services to the Fund. For its
accounting services, Firstar Trust Company is entitled to receive fees,
payable monthly, based on the total annual rate of $22,000 for the first
$40 million in average net assets of the Fund, .01% on the next $200
million of average net assets, and .0005% on average net assets exceeding
$240 million. Firstar Trust Company is also entitled to certain out of
pocket expenses, including pricing expenses. During the fiscal year ended
June 30, 1996, the Fund incurred fees of $3,719 pursuant to the Fund
Accounting Servicing Agreement.
DETERMINATION OF NET ASSET VALUE
As set forth in the Prospectus under the caption "HOW IS THE
FUND'S SHARE PRICE DETERMINED?", the net asset value of the Fund will be
determined as of the close of regular trading (currently 4:00 p.m. Eastern
time) on each day the New York Stock Exchange is open for trading. The
New York Stock Exchange is open for trading Monday through Friday except
New Year's Day, Washington's Birthday, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Additionally, when any of the aforementioned holidays falls on a Saturday,
the New York Stock Exchange will not be open for trading on the preceding
Friday and when any such holiday falls on a Sunday, the New York Stock
Exchange will not be open for trading on the succeeding Monday, unless
unusual business conditions exist, such as the ending of a monthly or the
yearly accounting period. The New York Stock Exchange also may be closed
on national days of mourning.
DISTRIBUTION OF SHARES
The Fund has adopted a Service and Distribution Plan (the
"Plan") in anticipation that the Fund will benefit from the Plan through
increased sales of shares, thereby reducing the Fund's expense ratio and
providing an asset size that allows the Adviser greater flexibility in
management. The Plan may be terminated by the Fund at any time by a vote
of the directors of the Corporation who are not interested persons of the
Corporation and who have no direct or indirect financial interest in the
Plan or any agreement related thereto (the "Rule 12b-1 Directors") or by a
vote of a majority of the outstanding shares of the Fund. Messrs. Doyle
and DeSousa are currently the Rule 12b-1 Directors. Any change in the
Plan that would materially increase the distribution expenses of the Fund
provided for in the Plan requires approval of the stockholders of the Fund
and the Board of Directors, including the Rule 12b-1 Directors.
While the Plan is in effect, the selection and nomination of
directors who are not interested persons of the Corporation will be
committed to the discretion of the directors of the Corporation who are
not interested persons of the Corporation. The Board of Directors of the
Corporation must review the amount and purposes of expenditures pursuant
to the Plan quarterly as reported to it by a Distributor, if any, or
officers of the Corporation. The Plan will continue in effect for as long
as its continuance is specifically approved at least annually by the Board
of Directors, including the Rule 12b-1 Directors. Initially all payments
under the Plan will be made to the Adviser who directly bears all sales
and promotional expenses of the Fund, other than expenses incurred in
complying with laws regulating the issuance or sale of securities. During
the fiscal year ended June 30, 1996, the Fund incurred $9,891 of
distribution fees under the Plan, all of which is payable to the Adviser.
The Adviser has entered into an agreement with Hennessy pursuant to which
it will pay Hennessy an amount equal to 1% (0.5% effective July 1, 1996)
of the net asset value of all shares of the Fund sold other than through
dividend reinvestments. This agreement provides that Hennessy must repay
any such fees with respect to shares redeemed within one month after the
date of the original purchase other than shares redeemed as a result of
the death or disability of the shareholder. During the fiscal year ended
June 30, 1996, the Adviser paid Hennessy $67,791 pursuant to this
agreement.
SYSTEMATIC WITHDRAWAL PLAN
An investor who owns Fund shares worth at least $10,000 at the
current net asset value may, by completing an application which may be
obtained from the Fund or Firstar Trust Company, create a Systematic
Withdrawal Plan from which a fixed sum will be paid to the investor at
regular intervals. To establish the Systematic Withdrawal Plan, the
investor deposits Fund shares with the Corporation and appoints it as
agent to effect redemptions of Fund shares held in the account for the
purpose of making monthly or quarterly withdrawal payments of a fixed
amount to the investor out of the account. Fund shares deposited by the
investor in the account need not be endorsed or accompanied by a stock
power if registered in the same name as the account; otherwise, a properly
executed endorsement or stock power, obtained from any bank, broker-dealer
or the Corporation is required. The investor's signature should be
guaranteed by a bank, a member firm of a national stock exchange or other
eligible guarantor.
The minimum amount of a withdrawal payment is $100. These
payments will be made from the proceeds of periodic redemptions of shares
in the account at net asset value. Redemptions will be made in accordance
with the schedule (e.g., monthly, bimonthly [every other month], quarterly
or yearly, but in no event more than monthly) selected by the investor.
If a scheduled redemption day is a weekend day or a holiday, such
redemption will be made on the next preceding business day. Establishment
of a Systematic Withdrawal Plan constitutes an election by the investor to
reinvest in additional Fund shares, at net asset value, all income
dividends and capital gains distributions payable by the Fund on shares
held in such account, and shares so acquired will be added to such
account. The investor may deposit additional Fund shares in his account
at any time.
Withdrawal payments cannot be considered as yield or income on
the investor's investment, since portions of each payment will normally
consist of a return of capital. Depending on the size or the frequency of
the disbursements requested, and the fluctuation in the value of the
Fund's portfolio, redemptions for the purpose of making such disbursements
may reduce or even exhaust the investor's account.
The investor may vary the amount or frequency of withdrawal
payments, temporarily discontinue them, or change the designated payee or
payee's address, by notifying Firstar Trust Company in writing thirty (30)
days prior to the next payment.
ALLOCATION OF PORTFOLIO BROKERAGE
The Fund's securities trading and brokerage policies and
procedures are reviewed by and subject to the supervision of the
Corporation's Board of Directors. Decisions to buy and sell securities
for the Fund are made by the Adviser subject to review by the
Corporation's Board of Directors. In placing purchase and sale orders for
portfolio securities for the Fund, it is the policy of the Adviser to seek
the best execution of orders at the most favorable price in light of the
overall quality of brokerage and research services provided, as described
in this and the following paragraphs. Many of these transactions involve
payment of a brokerage commission by the Fund. In some cases,
transactions are with firms who act as principals of their own accounts.
In selecting brokers to effect portfolio transactions, the determination
of what is expected to result in best execution at the most favorable
price involves a number of largely judgmental considerations. Among these
are the Adviser's evaluation of the broker's efficiency in executing and
clearing transactions, block trading capability (including the broker's
willingness to position securities) and the broker's reputation, financial
strength and stability. The most favorable price to the Fund means the
best net price without regard to the mix between purchase or sale price
and commission, if any. Securities not listed on exchanges may be
purchased and sold directly with principal market makers who retain the
difference in their cost in the security and its selling price. In some
instances, the Adviser feels that better prices are available from non-
principal market makers who are paid commissions directly. Although the
Fund does not initially intend to market its shares through intermediary
broker-dealers, the Fund may place portfolio orders with broker-dealers
who recommend the purchase of Fund shares to clients (if the Adviser
believes the commissions and transaction quality are comparable to that
available from other brokers) and may allocate portfolio brokerage on that
basis.
The Adviser may allocate brokerage to Hennessy but only if the
Adviser reasonably believes the commission and transaction quality are
comparable to that available from other qualified brokers. Under the Act,
Hennessy is prohibited from dealing with the Fund as a principal in the
purchase and sale of securities. Hennessy, when acting as a broker for
the Fund in any of its portfolio transactions executed on a securities
exchange of which Hennessy is a member, will act in accordance with the
requirements of Section 11(a) of the Securities Exchange Act of 1934 and
the rules of such exchanges.
In allocating brokerage business for the Fund, the Adviser also
takes into consideration the research, analytical, statistical and other
information and services provided by the broker, such as general economic
reports and information, reports or analyses of particular companies or
industry groups, market timing and technical information, and the
availability of the brokerage firm's analysts for consultation. While the
Adviser believes these services have substantial value, they are
considered supplemental to the Adviser's own efforts in the performance of
its duties under the Advisory Agreement. Other clients of the Adviser may
indirectly benefit from the availability of these services to the Adviser,
and the Fund may indirectly benefit from services available to the Adviser
as a result of transactions for other clients. The Advisory Agreement
provides that the Adviser may cause the Fund to pay a broker which
provides brokerage and research services to the Adviser a commission for
effecting a securities transaction in excess of the amount another broker
would have charged for effecting the transaction, if the Adviser
determines in good faith that such amount of commission is reasonable in
relation to the value of brokerage and research services provided by the
executing broker viewed in terms of either the particular transaction or
the Adviser's overall responsibilities with respect to the Fund and the
other accounts as to which he exercises investment discretion.
All of the brokerage commissions paid by the Fund during the
fiscal year ended June 30, 1996 were paid to Hennessy. Commissions
totaled $2,934 on transactions involving securities having a total market
value of $3,253,886.
TAXES
As set forth in the Prospectus under the caption "TAXES," the
Fund will endeavor to qualify annually for and elect tax treatment
applicable to a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code").
Dividends from the Fund's earnings and profits, and
distributions of the Fund's net long-term realized capital gains, are
taxable to investors, whether received in cash or in additional shares of
the Fund. The 70% dividends-received deduction for corporations will
apply only to the proportionate share of the dividend attributable to
dividends received by the Fund from domestic corporations.
Redemption of shares will generally result in a capital gain or
loss for income tax purposes. Such capital gain or loss will be long term
or short term, depending upon the holding period. However, if a loss is
realized on shares held for six months or less, and the investor received
a capital gain distribution during that period, then such loss is treated
as a long-term capital loss to the extent of the capital gain distribution
received.
This section is not intended to be a full discussion of present
or proposed federal income tax laws and the effect of such laws on an
investor. Investors are urged to consult with their respective tax
advisers for a complete review of the tax ramifications of an investment
in the Fund.
STOCKHOLDER MEETINGS
The Maryland General Corporation Law permits registered
investment companies, such as the Corporation, to operate without an
annual meeting of stockholders under specified circumstances if an annual
meeting is not required by the Act. The Corporation has adopted the
appropriate provisions in its Bylaws and may, at its discretion, not hold
an annual meeting in any year in which the election of directors is not
required to be acted on by stockholders under the Act.
The Corporation's Bylaws also contain procedures for the removal
of directors by its stockholders. At any meeting of stockholders, duly
called and at which a quorum is present, the stockholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be
cast thereon, remove any director or directors from office and may elect a
successor or successors to fill any resulting vacancies for the unexpired
terms of removed directors.
Upon the written request of the holders of shares entitled to
not less than ten percent (10%) of all the votes entitled to be cast at
such meeting, the Secretary of the Corporation shall promptly call a
special meeting of stockholders for the purpose of voting upon the
question of removal of any director. Whenever ten or more stockholders of
record who have been such for at least six months preceding the date of
application, and who hold in the aggregate either shares having a net
asset value of at least $25,000 or at least one percent (1%) of the total
outstanding shares, whichever is less, shall apply to the Corporation's
Secretary in writing, stating that they wish to communicate with other
stockholders with a view to obtaining signatures to a request for a
meeting as described above and accompanied by a form of communication and
request which they wish to transmit, the Secretary shall within five
business days after such application either: (1) afford to such
applicants access to a list of the names and addresses of all stockholders
as recorded on the books of the Corporation; or (2) inform such applicants
as to the approximate number of stockholders of record and the approximate
cost of mailing to them the proposed communication and form of request.
If the Secretary elects to follow the course specified in clause
(2) of the last sentence of the preceding paragraph, the Secretary, upon
the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall,
with reasonable promptness, mail such material to all stockholders of
record at their addresses as recorded on the books unless within five
business days after such tender the Secretary shall mail to such
applicants and file with the Securities and Exchange Commission, together
with a copy of the material to be mailed, a written statement signed by at
least a majority of the Board of Directors to the effect that in their
opinion either such material contains untrue statements of fact or omits
to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the
basis of such opinion.
After opportunity for hearing upon the objections specified in
the written statement so filed, the Securities and Exchange Commission
may, and if demanded by the Board of Directors or by such applicants
shall, enter an order either sustaining one or more of such objections or
refusing to sustain any of them. If the Securities and Exchange
Commission shall enter an order refusing to sustain any of such
objections, or if, after the entry of an order sustaining one or more of
such objections, the Securities and Exchange Commission shall find, after
notice and opportunity for hearing, that all objections so sustained have
been met, and shall enter an order so declaring, the Secretary shall mail
copies of such material to all stockholders with reasonable promptness
after the entry of such order and the renewal of such tender.
PERFORMANCE INFORMATION
Average annual total return measures both the net investment
income generated by, and the effect of any realized or unrealized
appreciation or depreciation of, the underlying investments in the Fund's
investment portfolio. The Fund's average annual total return figures are
computed in accordance with the standardized method prescribed by the
Securities and Exchange Commission by determining the average annual
compounded rates of return over the periods indicated, that would equate
the initial amount invested to the ending redeemable value, according to
the following formula:
n
P(1 + T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of
the period of a hypothetical $1,000
payment made at the beginning of such
period
This calculation (i) assumes all dividends and distributions are
reinvested at net asset value or the appropriate reinvestment dates as
described in the Prospectus, and (ii) deducts all recurring fees, such as
advisory fees, charged as expenses to all investor accounts.
Total return is the cumulative rate of investment growth which
assumes that income dividends and capital gains are reinvested. It is
determined by assuming a hypothetical investment at the net asset value at
the beginning of the period, adding in the reinvestment of all income
dividends and capital gains, calculating the ending value of the
investment at the net value as of the end of the specified time period,
subtracting the amount of the original investment, and dividing this
amount by the amount of the original investment. This calculated amount
is then expressed as a percentage by multiplying by 100.
The Fund's total return for the period from the Fund's
commencement of operations (March 8, 1996) through June 30, 1996 was
1.80%. The foregoing performance results are based on historical earnings
and should not be considered as representative of the performance of the
Fund in the future. Such performance results also reflect reimbursements
made by the Adviser during the period from March 8, 1996 through June 30,
1996 to keep aggregate annual operating expenses at or below 1.90% of
daily net assets. An investment in the Fund will fluctuate in value and
at redemption its value may be more or less than the initial investment.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, 777 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202 has served as the independent accountants for the Fund
since the Fund's inception. As such KPMG Peat Marwick LLP performs an
audit of the Fund's financial statements including evaluation of the
Fund's internal control structure.
FINANCIAL STATEMENTS
The following audited financial statements are incorporated by
reference to the Annual Report dated June 30, 1996 of the Fund (File No.
811-7493) as filed with the Securities and Exchange Commission on August
28, 1996:
- Independent Auditors' Report
- Statement of Assets and Liabilities
- Statement of Operations
- Statement of Changes in Net Assets
- Financial Highlights
- Schedule of Investments
- Notes to the Financial Statements
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a.) Financial Statements (Financial Highlights included in Part A
and all incorporated by reference to the Annual Report dated
June 30, 1996 (File No. 811-7493) of The Hennessy Funds, Inc.
(as filed with the Securities and Exchange Commission on
August 28, 1996))
Independent Auditors' Report
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Schedule of Investments
Notes to the Financial Statements
(b.) Exhibits
(1) Registrant's Articles of Incorporation (Exhibit 1 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933)
(2) Registrant's Bylaws (Exhibit 2 to Registrant's
Registration Statement on Form N-1A is incorporated by
reference pursuant to Rule 411 under the Securities Act
of 1933)
(3) None
(4) None
(5) Investment Advisory Agreement with The Hennessy
Management Co., L.P. relating to the Hennessy Balanced
Fund (Exhibit 5 to Registrant's Registration Statement
on Form N-1A is incorporated by reference pursuant to
Rule 411 under the Securities Act of 1933)
(6) None
(7) None
(8) Custodian Agreement with Firstar Trust Company (Exhibit
8 to Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933)
(9.1) Fund Administration Servicing Agreement with Firstar
Trust Company relating to the Hennessy Balanced Fund
(Exhibit 9.1 to Registrant's Registration Statement on
Form N-1A is incorporated by reference pursuant to Rule
411 under the Securities Act of 1933)
(9.2) Transfer Agent Agreement with Firstar Trust Company
relating to Hennessy Balanced Fund (Exhibit 9.2 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933)
(9.3) Fund Accounting Servicing Agreement with Firstar Trust
Company (Exhibit 9.3 to Registrant's Registration
Statement on Form N-1A is incorporated by reference
pursuant to Rule 411 under the Securities Act of 1933)
(10) Opinion of Foley & Lardner, counsel for Registrant
(Exhibit 10 to Amendment No. 1 to Registrant's
Registration Statement on Form N-1A is incorporated by
reference pursuant to Rule 411 under the Securities Act
of 1933)
(11) Consent of KPMG Peat Marwick LLP
(12) None
(13) Subscription Agreement (Exhibit 13 to Registrant's
Registration Statement on Form N-1A is incorporated by
reference pursuant to Rule 411 under the Securities Act
of 1933)
(14) Individual Retirement Custodial Account (Exhibit 14 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933)
(15) Service and Distribution Plan (Exhibit 15 to Amendment
No. 1 to Registrant's Registration Statement on Form
N-1A is incorporated by reference pursuant to Rule 411
under the Securities Act of 1933)
(15.1) Agreement pursuant to Distribution Plan (Exhibit 15.1 to
Amendment No. 1 to Registrant's Registration Statement
on Form N-1A is incorporated by reference pursuant to
Rule 411 under the Securities Act of 1933)
(15.2) Distribution Agreement
(15.3) Amendment to Distribution Agreement
(16) Schedule for Computation of Performance Quotations
(17) Financial Data Schedule
(18) None.
Item 25. Persons Controlled by or under Common Control with Registrant
Registrant neither controls any person nor is under common
control with any other person.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of August 31, 1996
Class A Common Stock, $0.0001 272
par value (Hennessy Balanced
Fund)
Item 27. Indemnification
Pursuant to the authority of the Maryland General Corporation
Law, particularly Section 2-418 thereof, Registrant's Board of Directors
has adopted the following bylaw which is in full force and effect and has
not been modified or cancelled:
Article VII
GENERAL PROVISIONS
Section 7. Indemnification.
A. The Corporation shall indemnify all of its corporate
representatives against expenses, including attorneys fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by
them in connection with the defense of any action, suit or proceeding, or
threat or claim of such action, suit or proceeding, whether civil,
criminal, administrative, or legislative, no matter by whom brought, or in
any appeal in which they or any of them are made parties or a party by
reason of being or having been a corporate representative, if the
corporate representative acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation
and with respect to any criminal proceeding, if he had no reasonable cause
to believe his conduct was unlawful provided that the corporation shall
not indemnify corporate representatives in relation to matters as to which
any such corporate representative shall be adjudged in such action, suit
or proceeding to be liable for gross negligence, willful misfeasance, bad
faith, reckless disregard of the duties and obligations involved in the
conduct of his office, or when indemnification is otherwise not permitted
by the Maryland General Corporation Law.
B. In the absence of an adjudication which expressly absolves the
corporate representative, or in the event of a settlement, each corporate
representative shall be indemnified hereunder only if there has been a
reasonable determination based on a review of the facts that
indemnification of the corporate representative is proper because he has
met the applicable standard of conduct set forth in paragraph A. Such
determination shall be made: (i) by the board of directors, by a majority
vote of a quorum which consists of directors who were not parties to the
action, suit or proceeding, or if such a quorum cannot be obtained, then
by a majority vote of a committee of the board consisting solely of two or
more directors, not, at the time, parties to the action, suit or
proceeding and who were duly designated to act in the matter by the full
board in which the designated directors who are parties to the action,
suit or proceeding may participate; or (ii) by special legal counsel
selected by the board of directors or a committee of the board by vote as
set forth in (i) of this paragraph, or, if the requisite quorum of the
full board cannot be obtained therefor and the committee cannot be
established, by a majority vote of the full board in which directors who
are parties to the action, suit or proceeding may participate.
C. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall create a rebuttable presumption that the person was
guilty of willful misfeasance, bad faith, gross negligence or reckless
disregard to the duties and obligations involved in the conduct of his or
her office, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
D. Expenses, including attorneys' fees, incurred in the preparation
of and/or presentation of the defense of a civil or criminal action, suit
or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding as authorized in the manner
provided in Section 2-418(F) of the Maryland General Corporation Law upon
receipt of: (i) an undertaking by or on behalf of the corporate
representative to repay such amount unless it shall ultimately be
determined that he or she is entitled to be indemnified by the corporation
as authorized in this bylaw; and (ii) a written affirmation by the
corporate representative of the corporate representative's good faith
belief that the standard of conduct necessary for indemnification by the
corporation has been met.
E. The indemnification provided by this bylaw shall not be deemed
exclusive of any other rights to which those indemnified may be entitled
under these bylaws, any agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his or her official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person subject to the limitations imposed from
time to time by the Investment Company Act of 1940, as amended.
F. This corporation shall have power to purchase and maintain
insurance on behalf of any corporate representative against any liability
asserted against him or her and incurred by him or her in such capacity or
arising out of his or her status as such, whether or not the corporation
would have the power to indemnify him or her against such liability under
this bylaw provided that no insurance may be purchased or maintained to
protect any corporate representative against liability for gross
negligence, willful misfeasance, bad faith or reckless disregard of the
duties and obligations involved in the conduct of his or her office.
G. "Corporate Representative" means an individual who is or was a
director, officer, agent or employee of the corporation or who serves or
served another corporation, partnership, joint venture, trust or other
enterprise in one of these capacities at the request of the corporation
and who, by reason of his or her position, is, was, or is threatened to be
made, a party to a proceeding described herein.
Insofar as indemnification for and with respect to liabilities
arising under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of Registrant pursuant to the foregoing
provisions or otherwise, Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by Registrant of expenses incurred or paid by a
director, officer or controlling person or Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
Incorporated by reference to pages 4 through 7 of the Statement
of Additional Information pursuant to Rule 411 under the Securities Act of
1933.
Item 29. Principal Underwriters
Not Applicable.
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be
maintained by Registrant pursuant to Section 31(a) of the Investment
Company Act of 1940 and the rules promulgated thereunder are in the
physical possession of Registrant and Registrant's Administrator as
follows: the documents required to be maintained by paragraphs (5), (6),
(7), (10) and (11) of Rule 31a-1(b) will be maintained by the Registrant
at The Courtyard Square, 750 Grant Avenue, Suite 100, Novato, California
94945; and all other records will be maintained by the Registrant's
Administrator, Firstar Trust Company, 615 East Michigan Street, Milwaukee,
Wisconsin.
Item 31. Management Services
All management-related service contracts entered into by
Registrant are discussed in Parts A and B of this Registration Statement.
Item 32. Undertakings
Registrant undertakes, if requested to do so by holders of at
least 10% of Registrant's outstanding shares, to call a meeting of
shareholders for the purpose of voting upon the question of removal of a
director or directors and to assist in communication with other
shareholders as required by Section 16(c) of the Investment Company Act of
1940.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that it meets
all of the requirements for effectiveness of this Amended Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Novato and State of
California on the 29th day of August, 1996.
THE HENNESSY FUNDS, INC.
(Registrant)
By: /s/ Neil J. Hennessy
Neil J. Hennessy, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the date(s) indicated.
Name Title Date
/s/ Neil J. Hennessy President and Treasurer August 29, 1996
Neil J. Hennessy (Principal Executive,
Financial and Accounting
Officer) and a Director
/s/ Brian A. Hennessy Director August 29, 1996
Brian A. Hennessy
/s/ Robert T. Doyle Director August 29, 1996
Robert T. Doyle
/s/ Rodger D. Offenbach Director August 29, 1996
Rodger D. Offenbach
/s/ John D. DeSousa Director August 29, 1996
John D. DeSousa
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
(1) Registrant's Articles of
Incorporation*
(2) Registrant's Bylaws*
(3) None
(4) None
(5) Investment Advisory Agreement with
The Hennessy Management Co., L.P.
relating to Hennessy Balanced
Fund*
(6) None
(7) None
(8) Custodian Agreement with Firstar
Trust Company*
(9.1) Fund Administration Servicing
Agreement with Firstar Trust
Company relating to Hennessy
Balanced Fund*
(9.2) Transfer Agent Agreement with
Firstar Trust Company*
(9.3) Fund Accounting Servicing
Agreement with Firstar Trust
Company*
(10) Opinion of Foley & Lardner,
counsel for Registrant*
(11) Consent of KPMG Peat Marwick LLP
(12) None
(13) Subscription Agreement*
(14) Individual Retirement Custodial
Account*
(15) Service and Distribution Plan*
(15.1) Agreement pursuant to Distribution
Plan*
(15.2) Distribution Agreement
(15.3) Amendment to Distribution
Agreement
(16) Schedule for Computation of
Performance Quotations
(17) Financial Data Schedule
(18) None
__________________________________
* Incorporated by Reference.
CONSENT OF INDEPENDENT AUDITORS
The Shareholders and Board of Directors of
The Hennessy Funds, Inc.:
We consent to the use of our report incorporated herein by reference.
KPMG PEAT MARWICK LLP
Milwaukee, Wisconsin
September 6, 1996
EXHIBIT 15.2
DISTRIBUTION AGREEMENT
AGREEMENT made this 2nd day of March, 1996 between The Hennessy
Management Co., L.P., a California limited partnership (hereinafter called
the "Adviser"), and Edward J. Hennessy, Incorporated, a California
corporation (hereinafter called the "Distributor").
W I T N E S S E T H;
WHEREAS, the Adviser is registered as an investment adviser
under the Investment Advisers Act of 1940 and serves as investment adviser
to The Hennessy Funds, Inc. (the "Fund"), an open-end management
investment company under the Investment Company Act of 1940;
WHEREAS, the Adviser has been authorized by the Fund to retain a
distributor for the shares of the Fund's Common Stock (the "Shares")
pursuant to the Fund's Service and Distribution Plan (the "Plan") under
the Investment Company Act of 1940;
WHEREAS, the Distributor is a registered broker-dealer under
state and federal laws and regulations and is a member of the National
Association of Securities Dealers, Inc.; and
WHEREAS, the Adviser desires to retain the Distributor as the
distributor of the Shares.
NOW, THEREFORE, the Adviser and Distributor mutually agree and
promise as follows:
1. Appointment of Distributor.
The Adviser hereby appoints the Distributor as the distributor
of the Shares in jurisdictions wherein the Shares may legally be offered
for sale.
2. Acceptance; Services of Distributor.
The Distributor hereby accepts appointment as distributor for
the Shares and agrees that it will use its best efforts with reasonable
promptness to sell such part of the authorized Shares remaining unissued
as from time to time shall be effectively registered under the Securities
Act of 1933 at prices determined as hereinafter provided and on terms
hereinafter set forth.
3. Manner of Sale; Compliance with Securities Laws and
Regulations.
a. The Distributor shall sell Shares to prospective
purchasers in such manner, not inconsistent with the provisions hereof and
the then effective Registration Statement of the Fund under the Securities
Act of 1933 (and then current prospectus and statement of additional
information). The Distributor shall cause subscriptions for Shares to be
transmitted to the Fund's custodian in accordance with the Share Purchase
Application then in force for the purchase of Shares. All such Share
Purchase Applications are subject to acceptance or rejection by the Fund.
Shares are to be sold for cash, payable at the time the Share Purchase
Application and payment for such Shares are received by the Fund's
custodian.
b. The Adviser will furnish to the Distributor from time
to time such information with respect to the Fund and its Shares as the
Distributor may reasonably request for use in connection with the sale of
the Shares. The Distributor agrees that it will not use or distribute any
statements, other than those contained in the Fund's current prospectus
and statement of additional information, except such supplemental
literature or advertising as shall be lawful under federal and state
securities laws and regulations, and that shall have been approved by the
Fund.
c. In selling the Shares, the Distributor will in all
respects conform to the requirements of all state and federal laws, rules
and regulations and the Rules of Fair Practice of the National Association
of Securities Dealers, Inc., and will indemnify and hold harmless the Fund
and each person who has been, is or may hereafter be a director or officer
of the Fund from any damage or expense on account of any wrongful act by
the Distributor or any employee, representative or agent of the
Distributor. The term "expense" includes amounts paid in satisfaction of
judgments or in settlement.
4. Price of Shares.
All Shares offered for sale or sold by the Distributor shall be
sold at the net asset value per share as determined in the manner provided
in the Fund's Registration Statement and then current prospectus and
statement of additional information.
5. Registration of Shares and Distributor.
a. The Adviser agrees that the Fund will use its best
efforts to keep effectively registered under the Securities Act for sale
as herein contemplated the Shares.
b. The Adviser agrees that the Fund will execute any and
all documents and furnish any and all information which may be reasonably
necessary in connection with the qualification of the Shares for sale in
such states as the Distributor may reasonably request (it being understood
that the Fund shall not be required without its consent to comply with any
requirement which in the Fund's opinion is unduly burdensome).
c. Notwithstanding any other provision hereof, the
Distributor agrees that the Fund may terminate, suspend or withdraw the
offering of Shares whenever, in its sole discretion, it deems such action
to be desirable.
6. Expenses; Compensation of Distributor.
a. The Adviser agrees that the Fund will pay or cause to
be paid expenses (including the fees and disbursements of its own counsel)
of any registration of the Shares under the Securities Act of 1933,
expenses of qualifying or continuing the qualification of the Shares for
sale under the laws of such states as may be designated by the
Distributor under the conditions herein specified, and expenses incident
to the issuance of Shares, such as the cost of share certificates, issue
taxes and fees of the transfer agent. The Adviser will pay all other
expenses incident to the sale and distribution of the Shares issued or
sold hereunder, including, without limiting the generality of the
foregoing, all (a) expenses of printing and distributing or disseminating
any other literature, advertising and selling aids in connection with such
offering of the Shares for sale (except that such expenses shall not
include expenses incurred by the Fund in connection with the preparation,
printing and distribution of any report or other communication to holders
of Shares in their capacity as such) and (b) expenses of advertising in
connection with such offering.
b. The Adviser shall pay a fee equal to 1% of the net
asset value of all Shares sold other than Shares sold pursuant to the
reinvestment of dividends. The Distributor acknowledges that such
obligation is solely the obligation of the Adviser and not the obligation
of the Fund. If any Shares are redeemed within one month after the date
of original purchase, the Distributor shall repay to the Adviser the fee
earned with respect to the original sale of such Shares; provided,
however, that such fees shall not be required to be repaid in the event of
death or disability of the shareholder. In determining whether the
Distributor is required to repay fees with respect to a redemption of less
than all of a shareholder's Shares, Shares which have been held for one
month will be considered to have been redeemed first and then other Shares
in the order purchased.
7. Duration and Termination.
a. This Agreement shall become effective on March 2, 1996
and shall continue in effect until March 2, 1997, and shall continue
automatically for successive annual periods, provided such continuance is
specifically approved at least annually by (i) the Fund's Board of
Directors or (ii) the vote of a majority (as defined in the Investment
Company Act of 1940) of the Fund's outstanding Shares, provided that in
either event its continuance is also approved by a majority of the Fund's
directors who are not "interested persons" (as defined in said Act) of any
party to this Agreement, by vote cast in person at a meeting called for
the purpose of voting on such approval.
b. Notwithstanding whatever may be provided herein to the
contrary, this Agreement may be terminated at any time, without payment of
any penalty, by the Fund's Board of Directors, or by vote of the holders
of a majority (as defined in the Investment Company Act of 1940) of the
Fund's outstanding Shares, or by the Distributor, in each case, upon sixty
(60) days' written notice to the other party and shall terminate
automatically in the event of its assignment (as defined in said Act).
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on the day first above written.
THE HENNESSY MANAGEMENT CO., L.P.
By: Edward J. Hennessy, Incorporated
General Partner
By: _________________________________
President
EDWARD J. HENNESSY, INCORPORATED
By: __________________________________
President
EXHIBIT 15.3
September 6, 1996
The Hennessy Management Co., L.P.
The Courtyard Square
750 Grant Avenue, Suite 100
Novato, California 94945
Gentlemen:
This letter confirms our understanding that effective July 1,
1996 that the first sentence of Section 6.b. of our agreement dated March
2, 1996 shall be revised to read as follows:
"The Adviser shall pay a fee equal to 0.5% of the net asset
value of all Shares sold other than Shares sold pursuant to the
reinvestment of dividends."
Very truly yours,
EDWARD J. HENNESSY, INCORPORATED
By: ______________________________
President
Acknowledged September 6, 1996
THE HENNESSY MANAGEMENT CO., L.P.
By: Edward J. Hennessy, Incorporated
General Partner
By: ________________________________
President
HENNESSY BALANCED FUND
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
TOTAL RETURN
For the Period from March 8, 1996
(Commencement of Operations)
to June 30, 1996
Total Return = (Ending Redeemable Value/Initial Value) -1
Total Return = (1,018.00/1,000.00) -1
Total Return = 1.80%
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> HENNESSY BALANCED FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> MAR-08-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 6,788,609
<INVESTMENTS-AT-VALUE> 6,840,318
<RECEIVABLES> 7,583
<ASSETS-OTHER> 49,283
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,897,184
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 31,265
<TOTAL-LIABILITIES> 31,265
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,774,766
<SHARES-COMMON-STOCK> 674,440
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 39,461
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (84)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 51,709
<NET-ASSETS> 6,865,919
<DIVIDEND-INCOME> 21,471
<INTEREST-INCOME> 43,049
<OTHER-INCOME> 0
<EXPENSES-NET> 25,059
<NET-INVESTMENT-INCOME> 39,461
<REALIZED-GAINS-CURRENT> (84)
<APPREC-INCREASE-CURRENT> 51,709
<NET-CHANGE-FROM-OPS> 91,086
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 674,872
<NUMBER-OF-SHARES-REDEEMED> 432
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 6,765,919
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 11,212
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 53,274
<AVERAGE-NET-ASSETS> 5,290,885
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 0.12
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.18
<EXPENSE-RATIO> 1.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
