Rule 497(c)
File # 333-00227
(Hennessey Balanced Fund Logo)
PROSPECTUS
October 31, 1998
The Courtyard Square
750 Grant Ave., Suite 100
Novato, CA 94945
(415) 899-1555
1 (800) 966-4354
Email: [email protected]
Symbol: HBFBX
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)
Email: [email protected]
THE HENNESSY FUNDS, INC. (THE "COMPANY") is an open end, non-diversified
management investment company consisting of two separate portfolios. The
Hennessy Balanced Fund, which is described in this Prospectus, is referred to as
("We" or the "Fund"). Our investment objective is capital appreciation and
current income.
PROSPECTUS
October 31, 1998
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 October 31, 1998, 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. The Securities and Exchange
Commission maintains a web site (http://www.sec.gov) that contains the Statement
of Additional Information, material incorporated by reference, and other
information regarding registrants that file electronically with the Securities
and Exchange Commission.
TABLE OF CONTENTS
PAGE NO.
1. EXPENSES 1
2. FINANCIAL HIGHLIGHTS 2
3. INVESTMENT STRATEGY AND ASSOCIATED RISK FACTORS 2
4. HYPOTHETICAL PAST PERFORMANCE 5
5. INVESTMENT RESTRICTIONS 5
6. REPORTS 6
7. MANAGEMENT 6
8. HOW WE DETERMINE THE FUND'S SHARE PRICE 8
9. PURCHASING SHARES 8
10.EXCHANGING SHARES 10
11.REDEMPTIONS 11
12.DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES 13
13.DIVIDEND REINVESTMENT 14
14.RETIREMENT PLANS 14
15.BROKERAGE TRANSACTIONS 14
16.GENERAL INFORMATION 15
17.PERFORMANCE INFORMATION 16
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 October 31, 1998, 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 actual expenses for the
fiscal year ended June 30, 1998 but have been restated to reflect the reduced
investment advisory fee and 12b-1 fee rates in effect for the fiscal year ending
June 30, 1999 and thereafter. 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 0.60% (2)<F2>
12b-1 fees 0.25% (2)<F2>
Other expenses 0.79%
Total fund operating expenses 1.64% (2)<F2>
(1)<F1> A fee of $12.00 is charged for each wire redemption and a fee of
$5.00 for each telephone exchange.
(2)<F2> Prior to July 1, 1998 the Fund's investment adviser received a
management fee at the annual rate of 0.85% of the Fund's average net
assets whereas the current rate is 0.60% of the Fund's Average net
assets. Prior to July 1, 1998 the Fund's 12b-1 Plan permitted the
Fund to pay 12b-1 fees of up to 0.75% of the Fund's average net
assets whereas the maximum current rate is 0.25% of average net
assets. During the fiscal year ended June 30, 1998, the Fund limited
12b-1 fees to 0.25% of the Fund's average net assets and the Adviser
voluntarily waived its management fee to 0.60% of the Fund's average
net assets. Absent these fee waivers and limitations, Management
fees, 12b-1 fees, other expenses and total fund operating expenses
for the Fund for the fiscal year ending June 30, 1998 would have been
0.85%, 0.75% and 2.39%, respectively.
EXAMPLE
1 YEAR 3 YEARS 5 YEARS 10 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: $17 $52 $89 $194
2. FINANCIAL HIGHLIGHTS
The financial highlights for the Fund have been audited by KPMG Peat Marwick
LLP, independent certified public accountants. The financial highlights should
be read in conjunction with the financial statements and notes thereto included
in the Annual Report to Shareholders. Further information about the performance
of the Fund also is contained in the Fund's Annual Report to Shareholders,
copies of which may be obtained without charge upon request.
<TABLE>
MARCH 8, 1996(1)<F3>
YEAR ENDED YEAR ENDED THROUGH
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996
-------------- -------------- --------------
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period $11.67 $10.18 $10.00
Income from investment operations:
Net investment income 0.29 0.23 0.06
Net realized and unrealized gains on securities 0.73 1.55 0.12
------ ------ ------
Total from investment operations 1.02 1.78 0.18
Less Distributions:
Dividends from net investment income (0.29) (0.29) --
Dividends from realized capital gains (0.17) -- --
------ ------ ------
Total distributions (0.46) (0.29) --
------ ------ ------
Net asset value, end of period $12.23 $11.67 $10.18
------ ------ ------
------ ------ ------
TOTAL RETURN 8.80% 17.70% 1.80%(2)<F4>
SUPPLEMENTAL DATA AND RATIOS:
Net assets, in thousands, end of period $23,496 $17,639 $ 6,866
Ratio of net expenses to average net assets:
Before expense reimbursement 2.39% 2.48% 4.04%(3)<F5>
After expense reimbursement 1.64% 1.90% 1.90%(3)<F5>
Ratio of net investment income (loss) to average net assets:
Before expense reimbursement 1.69% 1.84% 0.85%(3)<F5>
After expense reimbursement 2.44% 2.41% 2.99%(3)<F5>
Portfolio turnover rate 23.24% 20.01% --(4)<F6>
</TABLE>
(1)<F3> Commencement of operations.
(2)<F4> Not annualized.
(3)<F5> Annualized.
(4)<F6> For the period March 8, 1996 through June 30, 1996, there were no
sales of securities other than short-term securities which are not
factored into this calculation.
3. 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")*<F7> in approximately equal dollar amounts. 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.
- ------------------------
*<F7> 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 and the Merrill Lynch One Year Treasury Bill Index.
COMPARISON OF TOTAL RETURN (1)<F8>
MERRILL LYNCH
YEAR ENDED DJIA FUND ONE YEAR TREASURY
JUNE 30, TOTAL RETURN TOTAL RETURN BILL INDEX
------------ -------------- --------------- ------------------
1996(2)<F9> 0.24% 1.80% 1.55%
1997 38.59% 17.70% 6.22%
1998 18.71% 8.80% 5.80%
(1)<F8> 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
Merrill Lynch One Year Treasury Bill Index is the change in the level
of the index during the measuring period. 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)<F9> March 8, 1996 through June 30, 1996.
Merrill Lynch
Hennessy Dow Jones One Year Treasury
Date Balanced Fund Industrial Average Bill Index
---- ------------- ----------------- -----------------
3/31/96 10,000 10,000 10,000
6/30/96 10,181 10,089 10,155
6/30/97 11,982 13,983 10,783
6/30/98 13,036 16,637 11,385
This chart assumes an initial investment of $10,000, made on March 8, 1996. Fund
performance reflects fee waivers made by the Adviser. In the absence of fee
waivers the Fund's total return would have been reduced. Investment return and
principal value will fluctuate, so that your shares, when redeemed, may be worth
more or less than their original cost.
Twice monthly, 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 in
approximately equal dollar amounts. 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, common
stocks that are no longer in the DJIA and common stocks received in
reorganizations of companies 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 in approximately equal dollar
amounts. We anticipate rebalancing twice monthly with respect to the portfolio
securities purchased one year earlier. 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 "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. HYPOTHETICAL PAST PERFORMANCE
The chart below illustrates the total return for each of the last twenty-five
years of the DJIA and for a hypothetical portfolio consisting 50% of one-year
Treasury bills and 50% of the ten highest yielding common stocks in the DJIA as
of the beginning of each year (the "Model Portfolio"). The Model Portfolio was
developed in a manner very similar to our investment strategy, but does not
reflect the effects of cash flows in and out of the portfolio, the deduction of
commissions and other expenses, and the reinvestment of dividends. The
performance of the Model Portfolio would have been lower if the fees and
expenses borne by the Fund had been deducted.
COMPARISON OF TOTAL RETURN(1)<F10>
<TABLE>
DJIA TOTAL MODEL PORTFOLIO DJIA TOTAL MODEL PORTFOLIO
YEAR RETURN TOTAL RETURN YEAR RETURN TOTAL RETURN
----- ---------- -------------- ----- ---------- --------------
<C> <C> <C> <C> <C> <C>
1973 -13.12% 4.64% 1986 26.91% 19.84%
1974 -23.14% 2.73% 1987 6.02% 6.01%
1975 44.40% 31.28% 1988 15.95% 14.99%
1976 22.72% 20.24% 1989 31.71% 17.75%
1977 -12.71% 2.75% 1990 -0.57% 0.10%
1978 2.69% 3.21% 1991 23.93% 23.05%
1979 10.52% 11.03% 1992 7.34% 5.71%
1980 21.41% 19.52% 1993 16.72% 15.44%
1981 -3.40% 9.39% 1994 4.95% 3.85%
1982 25.79% 19.43% 1995 36.48% 20.45%
1983 25.68% 23.66% 1996 28.57% 16.54%
1984 1.06% 8.82% 1997 24.78% 13.70%
1985 32.78% 19.34% ------- -------
Average 14.30% 13.34%
</TABLE>
(1)<F10> Total return 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; (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); and (c) the yield on one-year U.S. Treasury bills as of
the close of the first trading day in that year. Total return does
not take into consideration any commissions, expenses or taxes, and
does not include reinvestment of dividends.
The returns shown above are not guarantees of future performance and should
not be used as a predictor of returns to be expected in connection with an
investment in the Fund. As indicated above, the Model Portfolio has both
outperformed and underperformed the DJIA in the last twenty years. There is no
assurance that the investment returns of the Fund will exceed that of the DJIA.
See "Investment Strategy and Associated Risk Factors."
The performance information shown above was compiled by the Adviser from
statistical services, reports, or other sources believed by the Adviser to be
reliable. Such information has not been verified by any third party and is
unaudited.
While the foregoing information is relevant to an investor's decision to
invest in the Fund, investors should be aware that the Fund's performance will
not be identical to that of the Model Portfolio for a number of reasons
including the fact that we (a) will reinvest dividends; (b) have expenses; (c)
purchase and sell investments continuously; and (d) may not be able to be fully
invested or invest in the exact proportions of the Model Portfolio at all times.
5. 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.
6. 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 Mutual Fund
Services, LLC 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 Mutual Fund
Services, LLC 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.
7. MANAGEMENT
As a Maryland corporation, the Company's business and affairs are managed
under the direction and supervision of its Board of Directors. The Fund has
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"), The Courtyard Square, 750 Grant Avenue,
Suite 100, Novato, California 94945. 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, controlling shareholder and the President of
Hennessy. Mr. Hennessy is also a limited partner of the Adviser.
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 the Company's President and a
member of its Board of Directors since its organization. Mr. Hennessy has been
President of Hennessy since 1989. Mr. Hennessy is the portfolio manager of the
Hennessy Leveraged Dogs Fund, the other portfolio of the Company.
The Adviser supervises and manages our investment portfolio and, subject to
such policies as the Company's 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 the Company's 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 the Company's 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 0.60% of the daily net assets of the Fund.
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 the Company's Board of Directors, of up to 0.25%
of the Fund's average daily net assets. Payments made pursuant to the Plan may
only be used to pay distribution expenses actually incurred. 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 our 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 entered into an agreement
with Hennessy pursuant to which it will reimburse Hennessy for expenses
actually incurred by Hennessy in distributing shares of the Fund. 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 the Company's 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 Mutual Fund Services, LLC (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 Mutual Fund Services, LLC also provides transfer agency and
accounting services for us. Firstar Bank Milwaukee, N.A., an affiliate of
Firstar Mutual Fund Services, LLC, provides custodial services for us.
Information regarding the fees payable by us to Firstar Mutual Fund Services,
LLC for these services is provided in the Statement of Additional
Information.
8. HOW WE DETERMINE THE FUND'S 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 Company. Short-term instruments (those with remaining maturities of 60 days
or less) are valued at amortized cost, which approximates market value.
9. 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 Mutual Fund Services, LLC, P.O. Box 701, Milwaukee,
Wisconsin 53201-0701. Note: A different procedure is used for establishing
Individual Retirement Accounts. Please call Firstar Mutual Fund Services, LLC
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 Mutual
Fund Services, LLC 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 Mutual Fund Services, LLC, 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 Mutual
Fund Services, LLC, (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 Mutual Fund Services, LLC
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 Mutual Fund
Services, LLC 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 Mutual Fund Services, LLC 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 Mutual Fund Services, LLC 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 Mutual Fund Services, LLC.
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.
PURCHASES THROUGH PROCESSING INTERMEDIARIES. You may purchase our shares
through programs of services offered or administered by broker-dealers,
financial institutions or other service providers ("Processing Intermediaries")
that have entered into agreements with the Fund. Such Processing Intermediaries
become shareholders of record and may use procedures and impose restrictions in
addition to or different from those applicable to shareholders who invest
directly in the Fund. Certain services of the Fund may not be available or may
be modified under the programs provided by Processing Intermediaries. The Fund
may accept requests to purchase additional shares into an account in which the
Processing Intermediary is the shareholder of record only from the Processing
Intermediary.
The Fund may authorize one or more Processing Intermediaries (and other
Processing Intermediaries properly designated thereby) to accept purchase orders
on the Fund's behalf. In such event, the Fund will be deemed to have received a
purchase order when the Processing Intermediary accepts the customer order, and
the order will be priced at the Fund's net asset value next computed after it is
accepted by the Processing Intermediary.
Processing Intermediaries may charge fees or assess other charges for their
services. Any such fee or charge paid directly by shareholders is retained by
the Processing Intermediary and not remitted to us or the Adviser.
Additionally, the Adviser and/or the Fund may pay fees to Processing
Intermediaries to compensate them for the services they provide. Before
investing in this manner, read the program materials provided by the Processing
Intermediary together with the Prospectus. Shares of the Fund may be purchased
through Processing Intermediaries without regard to the Fund's minimum purchase
requirement.
Certain Processing Intermediaries that have entered into agreements with us
may enter purchase orders by telephone, with payment to follow the next business
day as specified in the agreement. We may effect such purchase orders at the
net asset value next determined after receipt of the telephone purchase order.
It is the responsibility of the Processing Intermediary to place the order with
the Fund on a timely basis. If we do not receive payment within the time period
specified in the agreement, the Processing Intermediary could be held liable for
any resulting fees or losses.
10. EXCHANGING SHARES
Shares of any Hennessy Fund may be exchanged at any time for shares of
another Hennessy Fund that is available for investment in your state. Each
exchange is subject to the minimum initial investment required for each Fund.
You may make additional exchanges for $1,000 or more. You may open a new
account or purchase additional shares by making an exchange from an existing
Hennessy Fund account. New accounts will have the same registration as the
existing accounts as well as the same privileges, unless otherwise specified.
To exchange by telephone, you must follow the instructions under "Purchasing
Shares -- By Telephone." You must obtain the prospectus for the appropriate
Hennessy Fund, and you are advised to read it carefully, before authorizing any
investment in shares of a Hennessy Fund.
In addition to the ability to exchange among Hennessy Funds, you may exchange
all or a portion of your shares for shares of the Firstar Money Market Fund
(formerly known as Portico Money Market Fund). This fund is a no-load money
market fund managed by Firstar Investment Research & Management Company, LLC, an
affiliate of Firstar Mutual Fund Services, LLC. The Firstar Funds are unrelated
to The Hennessy Funds, Inc. 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 Firstar Money Market Fund, read
the applicable prospectus. To obtain a prospectus for the Firstar Money Market
Fund, call toll-free 1-800-261-6950. There is no charge for exchange
transactions which are requested by mail. Firstar Mutual Fund Services, LLC
will charge a fee for each exchange transaction involving the Firstar Money
Market Fund 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 Hennessy Leveraged
Dogs Fund or the Firstar Money Market Fund, complete and sign an application and
mail it to:
Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201
You may also send the application via overnight courier to Firstar Mutual
Fund Services, LLC 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. See "Redemptions" for instructions on how to authorize telephone
transaction privileges. 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 Hennessy Leveraged Dogs
Fund or the Firstar 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.
11. 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 Mutual Fund Services, LLC, 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 Mutual Fund
Services, LLC, but the effective date of redemption will be delayed until the
request is received by Firstar Mutual Fund Services, LLC. 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 Mutual Fund
Services, LLC for the request to be processed. "Good Order" means the request
for redemption must include:
o Your letter of instruction specifying our name, your account number,
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).
o 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 Mutual Fund Services, LLC.
The redemption price is the next determined net asset value after Firstar
Mutual Fund Services, LLC 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 Mutual Fund Services, LLC 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 Mutual Fund Services, LLC, which will assess a
$12.00 wiring charge against your account.
You may redeem our shares by telephone. Effective November 1, 1997 the Fund
changed its procedures regarding the establishment of the privilege to exchange
and redeem shares by telephone. New Account Applications distributed after
November 1, 1997 provide that shareholders automatically authorize these
telephone privileges unless they check the box on the New Account Application to
waive these privileges. If you established your account prior to November 1,
1997 or establish an account after that date but use the original New Account
Application, you must check the appropriate box on the New Account Application
as prior to November 1, 1997 we did not make this feature available to
shareholders automatically. Once this feature has been established, you may
redeem shares by phoning Firstar Mutual Fund Services, LLC 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 Mutual
Fund Services, LLC. Telephone redemptions must be in amounts of $1,000 or more.
If the proceeds are sent by wire, a $12.00 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 Mutual Fund
Services, LLC. 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 Mutual
Fund Services, LLC 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 Mutual Fund Services, LLC by telephone, you may redeem
shares by delivering the redemption request to Firstar Mutual Fund Services, LLC
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") may
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.
If you purchased shares through programs of Processing Intermediaries that
have entered into agreements with the Fund, you may be required to redeem your
shares through such programs. Processing Intermediaries may become shareholders
of record and use procedures and impose restrictions in addition to or different
from those applicable to shares redeemed directly through the Fund. We may
accept redemption requests for an account in which the Processing Intermediary
is the shareholder of record only from the Processing Intermediary. We may
authorize one or more Processing Intermediaries to accept redemption requests on
the Fund's behalf. In such event, the Fund will be deemed to have received a
redemption request when the Processing Intermediary accepts the shareholder's
request, and the redemption price will be the Fund's net asset value next
computed after the shareholder's redemption request is accepted by the
Processing Intermediary.
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.
12. 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. The IRS Restructuring and Reform Act of 1998 provides
for a two-tiered tax rate structure for long-term capital gains dependent upon
the holding period of the underlying financial instrument or capital asset.
Capital gains distributions are made when the Fund realizes net capital gains on
sales of portfolio securities during the year. Capital gains distributions may
vary considerably from year to year.
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.
13. 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.
14. RETIREMENT PLANS
We offer the following retirement plans that may fit your needs and allow you
to shelter some of your income from taxes:
o INDIVIDUAL RETIREMENT ACCOUNT ("IRA").
o ROTH IRA
o SIMPLIFIED EMPLOYEE PENSION PLAN (SEP/IRA).
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.
15. 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.
16. GENERAL INFORMATION
The Company is organized as a Maryland corporation and was incorporated on
January 11, 1996. 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 the Company is offering two series of shares, each of
which is a separate Fund. As a shareholder, you will be entitled: (1) to one
vote per full share of Common Stock; (2) to such distributions as may be legally
declared by the Company's Board of Directors; and (3) upon liquidation, to share
in the assets available for distribution. There are no conversion or sinking
fund provisions applicable to the shares of either Fund, and shareholders have
no preemptive rights and may not cumulate their votes in the election of
directors. Consequently the holders of more than 50% of the Company's shares
voting for the election of directors can elect the entire Board of Directors,
and in such event, the holders of the remaining shares voting for the election
of directors will not be able to elect any person or persons to the Board of
Directors. As a general matter, shares are voted in the aggregate and not by
series, except where voting by series would be required by Maryland law or the
Investment Company Act of 1940 (e.g., approval of an investment advisory
agreement).
The shares of each Fund are redeemable and are transferable. All shares
issued and sold by the Company will be fully paid and nonassessable. Fractional
shares of each Fund entitle the holder to the same rights as whole shares of the
Fund.
The shares of each Fund have the same preferences, limitations and rights,
except that all consideration received from the sale of shares of each Fund,
together with all income, earnings, profits and proceeds thereof, belong to that
Fund and are charged with the liabilities in respect of that Fund and of that
Fund's share of the general liabilities of the Company in the proportion that
the total net assets of the Fund bears to the total net assets of both Funds.
The net asset value per share of each Fund is based on the assets belonging to
that Fund less the liabilities charged to that Fund, and dividends are paid on
shares of each Fund only out of lawfully available assets belonging to that
Fund. In the event of liquidation or dissolution of the Company, the
shareholders of each Fund will be entitled, out of the assets of the Company
available for distribution, to the assets belonging to such Fund.
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 Company 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 Bank Milwaukee, N.A.
Firstar Mutual Fund Services, LLC 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.
The Fund is aware of the "Year 2000" issue. The "Year 2000" issue stems from
the use of a two-digit format to define the year in certain date-sensitive
computer application systems rather than the use of a four-digit format. As a
result, date-sensitive software programs could recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in major systems or
process failures or the generation of erroneous data, which would lead to
disruptions in the Fund's business operations.
The Fund has no application systems of its own and is entirely dependent on
its service providers' systems and software. The Fund is working with its
service providers (including its investment adviser, administrator, transfer
agent and custodian) to identify and remedy any Year 2000 issues. However, the
Fund cannot guarantee that all Year 2000 issues will be identified and
remedied, and the failure to successfully identify and remedy all Year 2000
issues could result in an adverse impact on the Fund.
17. 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 distributions 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
Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
(800) 261-6950
CUSTODIAN
Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
Milwaukee, WI 53201-0701
(414) 765-4321
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
