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. 4 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 5 |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, 94945
CA
(Address of Principal Executive Offices) (Zip Code)
(800) 966-4354
(Registrant's Telephone Number, including Area Code)
Neil J. Hennessy Copy to:
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)
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 October 30, 1998 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 June 30, 1998 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.
Title of Securities being Registered - Common Stock
<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
Item No. on Form N-1A Prospectus or Statement of
Additional Information
PART A -INFORMATION REQUIRED IN PROSPECTUS
1. Cover Page Cover Page
2. Synopsis EXPENSES
3. Financial Highlights PERFORMANCE INFORMATION
4. General Description of
Registrant INVESTMENT STRATEGY AND ASSOCIATED RISK FACTORS;
HYPOTHETICAL PAST PERFORMANCE AND INVESTMENT
RESTRICTIONS
5. Management of the Fund MANAGEMENT; BROKERAGE TRANSACTIONS; GENERAL
INFORMATION
5A. Management's Discussion
of Fund Performance *
6. Capital Stock and Other
Securities REPORTS; DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS
AND TAXES; GENERAL INFORMATION
7. Purchase of Securities
Being Offered HOW WE DETERMINE THE FUND'S SHARE PRICE;
PURCHASING SHARES; DIVIDEND REINVESTMENT;
RETIREMENT PLANS
8. Redemption or Repurchase EXCHANGING SHARES; REDEMPTIONS
9. Legal Proceedings *
- --------------
*Answer negative or inaplicable
<PAGE>
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 Policies Investment Restrictions; Investment
Considerations
14. Management of the
Fund Directors and Officers of the Corporation
15. Control Persons and
Principal Holders of Ownership of Management and Principal
Securities Shareholders
16. Investment Advisory
and Other Services Investment Adviser, Administrator, Custodian,
Transfer Agent and Accounting Services Agent;
Independent Auditors
17. Brokerage Allocation Allocation of Portfolio Brokerage
18. Capital Stock and Other
Securities Included in Prospectus under "GENERAL
INFORMATION"
19. Purchase, Redemption Included in Prospectus under "HOW WE
and Pricing of DETERMINE THE FUND'S SHARE PRICE"; "PURCHASING
Securities Being Offered SHARES"; "EXCHANGING SHARES"; "REDEMPTIONS";
Determination of Net Asset Value; Distribution
20. Tax Status of Shares; Systematic Withdrawal Plan Taxes
21. Underwriters *
22. Calculations of
Performance Data Performance Information
23. Financial Statements Financial Statements
- -----------
*Answer negative or inapplicable
-ii-
<PAGE>
EXPLANATORY NOTE
This Post-Effective Amendment No. 4 (the "Amendment") to the
Registrant's Registration Statement on Form N-1A is being filed to bring the
financial statements and certain other information for the Hennessy Balanced
Fund (the "Balanced Fund") up to date. The Amendment incorporates by reference
in its entirety the Prospectus for the Hennessy Leveraged Dogs Fund, dated June
30, 1998, as filed with the Securities and Exchange Commission (the "SEC") on
July 22, 1998 pursuant to Rule 497(e) under the Securities Act of 1933, as
amended (the "1933 Act"), as if set forth here in full. The Hennessy Leveraged
Dogs Fund did not commence operations until July 1, 1998.
The Amendment incorporates by reference in its entirety the Statement
of Additional Information for the Hennessy Leveraged Dogs Fund, dated June 30,
1998, as filed with the SEC on July 2, 1998, pursuant to Rule 497(c) under the
1933 Act, as if set forth here in full.
-iii-
<PAGE>
(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 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.</R.
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
STATEMENT OF ADDITIONAL INFORMATION October 31, 1998
THE HENNESSY FUNDS, INC.
The Courtyard Square
750 Grant Avenue
Suite 100
Novato, California 94945
STATEMENT OF ADDITIONAL INFORMATION
FOR THE
HENNESSY BALANCED FUND
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Prospectus for the Hennessy Balanced
Fund, dated October 31, 1998. Requests for copies of the Prospectus for the Fund
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.
Hennessy Balanced Fund
TABLE OF CONTENTS
Page No.
INVESTMENT RESTRICTIONS ......................................................1
INVESTMENT CONSIDERATIONS ....................................................3
DIRECTORS AND OFFICERS OF THE CORPORATION ....................................4
OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS ...........................5
INVESTMENT ADVISER, ADMINISTRATOR, CUSTODIAN, TRANSFER AGENT AND
ACCOUNTING SERVICES AGENT ....................................................6
DETERMINATION OF NET ASSET VALUE .............................................8
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
(i)
<PAGE>
INVESTMENT RESTRICTIONS
As set forth in the Prospectus dated October 31, 1998 of the Hennessy
Balanced Fund (the "Fund") under the caption "INVESTMENT STRATEGY", the
investment objective of 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.
<PAGE>
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 Board of Directors of
The Hennessy Funds, Inc. (the "Corporation") 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
Corporation 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
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<PAGE>
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:
AlliedSignal Inc. The Goodyear Tire & Rubber Co.
Aluminum Co. of America
(ALCOA) Hewlett-Packard Co.
American Express Co. International Business Machines Corp. (IBM)
AT&T Corp. International Paper Co.
The Boeing Co. Johnson & Johnson
Caterpillar Inc. McDonald's Corp.
Chevron Corp. Merck & Co., Inc.
Citigroup Inc. Minnesota Mining & Manufacturing Co.(3M)
The Coca-Cola Company J.P. Morgan & Co., Inc.
The Walt Disney Company Philip Morris Cos.
E.I du Pont De Nemours
& Co., Inc. Procter & Gamble Co.
Eastman Kodak Co. Sears, Roebuck & Co.
Exxon Corp. Union Carbide Corp.
General Electric Co. United Technologies Corp.
General Motors Corp. Wal-Mart Stores, Inc.
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.
-3-
<PAGE>
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 stockholders
of above-average amounts of taxes on realized investment gains. Distributions to
stockholders of such investment gains, to the extent they consist of net
short-term capital gains, will be considered ordinary income for federal income
tax purposes.
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,
42, 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, 45, has been a
self-employed dentist for more than ten years. His address is 912 Grand Avenue,
San Rafael, CA 94901.
Robert T. Doyle -- Director. Mr. Doyle, 51, 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, 47, has been the
owner of Rays Catering since 1974. His address is 919 Eastman Lane, Petaluma, CA
94952.
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<PAGE>
J. Dennis DeSousa -- Director. Mr. DeSousa, 62, 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, 32, 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 directors
who are interested persons of the Corporation (as defined in the Act). Messrs.
Neil Hennessy and Brian Hennessy are brothers. Ms. Nilsen, as an officer of the
Corporation, is an interested person of the Corporation.
The Corporation's standard method of compensating directors is for the
Fund to pay each director who is not an interested person of the Corporation a
fee of $350 for each meeting of the Board of Directors attended (prior to
February 12, 1998, the fee was $250 for each such meeting attended). The Fund
also may reimburse directors for travel expenses incurred in order to attend
meetings of the Board of Directors.
The table below sets forth the compensation paid by the
Corporation to each of the current directors of the Corporation during the
fiscal year ended June 30, 1998:
<TABLE>
COMPENSATION TABLE
<CAPTION>
Total
Compensation
Estimated Annual from Corporation
Pension or Retirement Benefits Upon and Fund
Name of Aggregate Compensation Benefits Accrued As Retirement Complex Paid to
Person from Corporation* Part of Fund Expenses Directors*
<S> <C> <C> <C> <C>
Neil J. Hennessy $0 $0 $0 $0
Brian A. Hennessy 0 0 0 0
Robert T. Doyle 1,200 0 0 1,200
Rodger D. Offenbach 0 0 0 0
J. Dennis DeSousa 1,200 0 0 1,200
- ---------------
*During the fiscal year ended June 30, 1998, the Hennessy Balanced Fund was the only series of the Corporation.
</TABLE>
OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
At September 30, 1998, 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:
-5-
<PAGE>
Name and Address of Shareholder Percentage Owned
Tile West Inc. Profit Sharing Plan 6.46%
P. O. Box 5848
Novato, CA 94948-5848(1)
Charles Schwab & Co.* 14.43%
101 Montgomery Street
San Francisco, CA 94104
- -------------------
* All of the shares owned by Charles Schwab & Co. were owned of record only.
Including shares of the Fund owned by the Adviser, all officers and
directors of the Corporation own 0.86% of the outstanding shares of the Fund.
INVESTMENT ADVISER, ADMINISTRATOR, CUSTODIAN,
TRANSFER AGENT AND ACCOUNTING SERVICES AGENT
As set forth in the Fund's 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 and Mr. Hennessy are limited partners of the Adviser. During the
fiscal year ended June 30, 1998, the Adviser earned $181,174 of investment
advisory fees and waived $53,286 of such fees. During the fiscal year ended June
30, 1997, the Adviser earned $100,537 of investment advisory fees and waived
$68,330 of such fees. 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, no such percentage limitation was
applicable to the Fund. 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
-6-
<PAGE>
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. During the fiscal years ended June 30, 1997
and June 30, 1998, the Adviser waived investment advisory fees, as described
above, in amounts sufficient to cause the Fund's expenses not to exceed 1.90%
and 1.68%, respectively, of the Fund's average daily net assets.
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 Corporation 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 Fund's Prospectus under the caption "WHO MANAGES
THE FUND?", the administrator to the Corporation is Firstar Mutual Fund
Services, LLC, 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 years ended June 30, 1998, June 30, 1997 and June
30, 1996, the Fund incurred fees in the amount of $32,474, $31,299 and $5,307,
respectively, pursuant to the Administration Agreement.
Under the Administration Agreement, the Administrator shall exercise
reasonable care and is not liable for any error of judgment or mistake of law or
for any loss suffered by the Corporation in connection with the performance of
the Administration
-7-
<PAGE>
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 Bank Milwaukee, N.A. also serves as custodian of the
Corporation's assets pursuant to a Custody Agreement. Under the Custody
Agreement, Firstar Bank Milwaukee, N.A. 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 stockholders, security brokers and others relating to its
duties and (v) make periodic reports to the Fund concerning the Fund's
operations. Firstar Bank Milwaukee, N.A. does not exercise any supervisory
function over the purchase and sale of securities. Firstar Mutual Fund Services,
LLC 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 Mutual Fund Services, LLC has agreed to (i) issue and
redeem shares of the Fund, (ii) make dividend and other distributions to
stockholders of the Fund, (iii) respond to correspondence by Fund stockholders
and others relating to its duties, (iv) maintain stockholder accounts, and (v)
make periodic reports to the Fund.
In addition the Corporation has entered into a Fund Accounting
Servicing Agreement with Firstar Trust Company pursuant to which Firstar Mutual
Fund Services, LLC 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 Mutual Fund Services, LLC 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 years ended June 30, 1998, June 30, 1997 and June
30, 1996, the Fund incurred fees of $25,095, $24,192 and $3,719, respectively,
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, Martin Luther
King, Jr. Day, President's Day, 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.
-8-
<PAGE>
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, 1998, the Fund incurred $159,859 of
distribution fees under the Plan, of which $106,573 were waived by the Adviser.
During the fiscal year ended June 30, 1997, the Fund incurred $89,322 of
distribution fees under the Plan, of which $59,548 were waived by the Adviser.
The Adviser has entered into an agreement with Hennessy pursuant to which it
will pay Hennessy for expenses actually incurred by Hennessy in distributing the
Fund's shares (the "New Agreement"). The New Agreement further provides that the
Adviser will pay Hennessy an amount equal to $225 per hour, or such other rate
as the Adviser and Hennessy may agree from time to time, for services provided
by Neil J. Hennessy in his capacity as President of Hennessy related to the
distribution of the Funds' shares. Prior to May 28, 1998, the Adviser had an
agreement with Hennessy pursuant to which it paid Hennessy an amount equal to 1%
of the net asset value of all shares of the Fund sold other than through
dividend reinvestments (the "Former Agreement"). The Former Agreement required
Hennessy to 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 stockholder. During the fiscal years ended
June 30, 1998 and June 30, 1997, the Adviser paid Hennessy $69,836 and $101,527,
respectively, pursuant to the foregoing Agreements. Neil J. Hennessy, the
President and a director of the Corporation, is a limited partner of the Adviser
as well as President and controlling shareholder of Hennessy, the general
partner to the Adviser.
-9-
<PAGE>
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
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<PAGE>
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
years ended June 30, 1998, June 30, 1997 and June 30, 1996 were paid to
Hennessy. Commissions totaled $5,009 on transactions involving securities having
a total market value of $5,234,098 during the fiscal year ended June 30, 1998,
commissions totaled $5,573 on transactions
-11-
<PAGE>
involving securities having a total market value of $6,110,181 during the fiscal
year ended June 30, 1997 and commissions totaled $2,934 on transactions
involving securities having a total market value of $3,253,886 during the fiscal
year ended June 30, 1996.
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 net investment income, 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 dividends from
the Fund's net investment income, subject to proportionate reductions if the
aggregate dividends received by the Fund from domestic corporations in any year
are less than 100% of the distributions of net investment company taxable income
made by the Fund.
Redemption of shares will generally result in a capital gain or loss
for income tax purposes. The tax treatment of any such capital gain or loss
generally will be dependent upon the investor's holding period for the shares.
However, if a loss is realized on shares held for six months or less, and the
investor received a distribution of long-term capital gains 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.
-12-
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
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periods indicated, that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
P(1 + T)n = 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 asset 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 average annual compounded total returns for the one-year
period ended June 30, 1998 and for the period from the Fund's commencement of
operations (March 8, 1996) through June 30, 1998 were 8.80% and 12.14%,
respectively. 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 waivers and/or reimbursements
made by the Adviser during the period from March 8, 1996 through June 30, 1998
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 consideration of the Fund's internal control
structure.
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<PAGE>
FINANCIAL STATEMENTS
The following audited financial statements are incorporated by
reference to the Annual Report dated June 30, 1998 of the Fund (File No.
811-7493) as filed with the Securities and Exchange Commission on September 8,
1998:
* 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
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<PAGE>
PART C
OTHER INFORMATION
ITEM 24 Financial Statements and Exhibits
(a.) Financial Statements (all incorporated by reference
to the Annual Report dated June 30, 1998 (File No.
811-7493) of the Hennessy Balanced Fund (as filed
with the Securities and Exchange Commission on
September 8, 1998))
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
(1.1) Registrant's Articles of Incorporation(1).
(1.2) Articles Supplementary to Articles of Incorporation(3).
(2) Registrant's Bylaws(1).
(3) None
(4) None
(5.1) Investment Advisory Agreement with The Hennessy
Management Co., L.P. relating to the Hennessy
Balanced Fund.
(5.2) Investment Advisory Agreement with The Hennessy
Management Co. 2, L.P., relating to the Hennessy
Leveraged Dogs Fund(3).
(6) None
(7) None
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(8) Custodian Agreement with Firstar Trust Company(1).
(9.1) Fund Administration Servicing Agreement with Firstar
Trust Company(1).
(9.2) Transfer Agent Agreement with Firstar Trust Company(1).
(9.3) Fund Accounting Servicing Agreement with Firstar Trust
Company(1).
(10) Opinion of Foley & Lardner, counsel for Registrant.
(11) Consent of KPMG Peat Marwick LLP
(12) None
(13) Subscription Agreement(1).
(14) Individual Retirement Custodial Account(3).
(15) Service and Distribution Plan.
(15.1) Agreement pursuant to Distribution Plan relating to the
Hennessy Balanced Fund.
(15.2) Distribution Agreement relating to the Hennessy
Balanced Fund.
(15.3) Agreement pursuant to Distribution Plan relating
to Hennessy Leveraged Dogs Fund(3).
(15.4) Distribution Agreement relating to Hennessy Leveraged
Dogs Fund(3).
(16) Schedule for Computation of Performance Quotations(2).
(17) Financial Data Schedule.
(18) None.
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(1) Previously filed as an exhibit to the Registration Statement and
incorporated by reference thereto. The Registration Statement was filed
on January 16, 1996 and its accession number is 0000897069-96-000006.
S-2
<PAGE>
(2) Previously filed as an exhibit to Amendment No. 2 to the Registration
Statement and incorporated by reference thereto. Amendment No. 2 to the
Registration Statement was filed on October 28, 1997 and its accession
number is 0000897069-97-000421.
(3) Previously filed as an exhibit to Amendment No. 4 to the Registration
Statement and incorporated by reference thereto. Amendment No. 4 to
the Registration Statement was filed on April 16, 1998 and its accession
number is 0000897069-98-000230.
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 September 30, 1998
Class A Common Stock, $0.0001 par value (Hennessy 674
Balanced Fund)
Class B Common Stock, $0.0001 par value (Hennessy 20
Leveraged Dogs 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
S-3
<PAGE>
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.
(5) 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.
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<PAGE>
(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.
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<PAGE>
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 to provide its Annual Report to Shareholders
upon request without charge to each person to whom a prospectus is delivered.
S-6
<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 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 16th day
of September, 1998.
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 September 16, 1998
Neil J. Hennessy (Principal Executive,
Financial and Accounting
Officer) and a Director
/s/ Brian A. Hennessy Director September 16, 1998
Brian A. Hennessy
/s/ Robert T. Doyle Director September 16, 1998
Robert T. Doyle
/s/ Rodger D. Offenbach Director September 16, 1998
Rodger D. Offenbach
/s/ John D. DeSousa Director September 16, 1998
John D. DeSousa
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<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
(1.1) Registrant's Articles of Incorporation*
(1.2) Articles Supplementary*
(2) Registrant's Bylaws*
(3) None
(4) None
(5.1) Investment Advisory Agreement with The
Hennessy Management Co., L.P. relating to Hennessy
Balanced Fund
(5.2) Investment Advisory Agreement with the
Hennessy Management Co. II, L.P. relating to the
Hennessy Leveraged Dogs Fund*
(6) None
(7) None
(8) Custodian Agreement with Firstar Trust
Company*
(9.1) Fund Administration Servicing Agreement
with Firstar
Trust Company*
(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
relating to the
Hennessy Balanced Fund
(15.2) Distribution Agreement relating to the
Hennessy Balanced Fund
<PAGE>
Exhibit No. Exhibit Page No.
(15.3) Agreement pursuant to Distribution Plan
relating to Hennessy Leveraged Dogs Fund*
(15.4) Distribution Agreement relating to
Hennessy Leveraged Dogs Fund*
(16) Schedule for Computation of Performance
Quotations*
(17) Financial Data Schedule
(18) None
- ----------------------------------
* Incorporated by Reference.
Exhibit 5.1
INVESTMENT ADVISORY AGREEMENT
Agreement made this 1st day of July, 1998 between The Hennessy
Funds, Inc., a Maryland corporation (the "Company"), and The Hennessy Management
Co., L.P., a California limited partnership (the "Adviser").
W I T N E S S E T H:
WHEREAS, the Company is registered with the Securities and Exchange
Commission under the Investment Company Act of 1940 (the "Act") as an open-end
management investment company consisting of two series, the Hennessy Balanced
Fund and the Hennessy Leveraged Dogs Fund; and
WHEREAS, the Company desires to retain the Adviser, which is an
investment adviser registered under the Investment Advisers Act of 1940, as the
investment adviser for the Hennessy Balanced Fund (the "Fund")
NOW, THEREFORE, the Company and the Adviser do mutually promise and
agree as follows:
1. Employment. The Company hereby employs the Adviser to manage the
investment and reinvestment of the assets of the Fund for the period and on the
terms set forth in this Agreement. The Adviser hereby accepts such employment
for the compensation herein provided and agrees during such period to render the
services and to assume the obligations herein set forth.
2. Authority of the Adviser. The Adviser shall supervise and manage
the investment portfolio of the Fund, and, subject to such policies as the board
of directors of the Company may determine, direct the purchase and sale of
investment securities in the day to day management of the Fund. The Adviser
shall for all purposes herein be deemed to be an independent contractor and
shall, unless otherwise expressly provided or authorized, have no authority to
act for or represent the Company or the Fund in any way or otherwise be deemed
an agent of the Company or the Fund. However, one or more limited partners of
the Adviser or one or more shareholders, officers, directors or employees of the
general partner of the Adviser may serve as directors and/or officers of the
Company, but without compensation or reimbursement of expenses for such services
from the Company. Nothing herein contained shall be deemed to require the
Company to take any action contrary to its Limited Partnership Agreement or
Certificate of Limited Partnership, as either document may be amended, restated
or supplemented from time to time, or any applicable statute or regulation, or
to relieve or deprive the board of directors of the Company of its
responsibility for and control of the affairs of the Fund.
3. Expenses. The Adviser, at its own expense and without reimbursement
from the Company or the Fund, shall furnish office space, and all necessary
office facilities,
<PAGE>
equipment and executive personnel for managing the investments of the Fund. The
Adviser shall not be required to pay any expenses of the Fund except as provided
herein if the total expenses borne by the Fund, including the Adviser's fee and
the fees paid to the Fund's Administrator but excluding all federal, state and
local taxes, interest, brokerage commissions and extraordinary items, in any
year 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, which is
the most restrictive percentage provided by the state laws of the various states
in which the Fund's shares are qualified for sale or, if the states in which the
Fund's shares are qualified for sale impose no such restrictions, 3%. The
expenses of the Fund's operations borne by the Fund include by way of
illustration and not limitation, directors fees paid to those directors who are
not officers of the Company or interested persons of the Adviser, the costs of
preparing and printing registration statements required under the Securities Act
of 1933 and the Act (and amendments thereto), the expense of registering its
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 stock certificates (if any), director and officer
liability insurance, reports to shareholders, reports to government authorities
and proxy statements, interest charges, taxes, legal expenses, salaries of
administrative and clerical personnel, association membership dues, auditing and
accounting services, insurance premiums, brokerage and other expenses connected
with the execution of portfolio securities transactions, fees and expenses of
the custodian of the Fund's assets, expenses of calculating the net asset value
and repurchasing and redeeming shares, printing and mailing expenses, charges
and expenses of dividend disbursing agents, registrars and stock transfer agents
and the cost of keeping all necessary shareholder records and accounts.
The Company shall monitor the expense ratio of the Fund on a monthly
basis. If the accrued amount of the expenses of the Fund exceeds the expense
limitation established herein, the Company shall create an account receivable
from the Adviser in 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,
subject to adjustment month by month during the balance of the Company's fiscal
year if accrued expenses thereafter fall below the expense limitation.
4. Compensation of the Adviser. For the services to be rendered by the
Adviser hereunder, the Company, through and on behalf of the Fund, shall pay to
the Adviser an advisory fee, paid monthly, based on the average net assets of
the Fund, as determined by valuations made as of the close of each business day
of the month. The monthly advisory fee shall be 1/12 of 0.60% (0.60% per annum)
on the average daily net assets of the Fund. For any month in which this
Agreement is not in effect for the entire month, such fee shall be reduced
proportionately on the basis of the number of calendar days during which it is
in effect and the fee computed upon the average daily net assets of the business
days during which it is so in effect.
5. Ownership of Shares of the Fund. The Adviser shall not take an
ownership position in the Fund, and shall not permit any of its partners or any
of the shareholders, officers, directors or employees of its general partner to
take a long or short position in the shares of the Fund, except for the purchase
of shares of the Fund for investment
<PAGE>
purposes at the same price as that available to the public at the time of
purchase or in connection with the initial capitalization of the Fund.
6. Exclusivity. The services of the Adviser to the Fund hereunder are
not to be deemed exclusive and the Adviser shall be free to furnish similar
services to others as long as the services hereunder are not impaired thereby.
Although the Adviser has agreed to permit the Fund and the Company to use the
name "Hennessy", if they so desire, it is understood and agreed that the Adviser
reserves the right to use and to permit other persons, firms or corporations,
including investment companies, to use such name, and that the Fund and the
Company will not use such name if the Adviser ceases to be the Fund's sole
investment adviser. During the period that this Agreement is in effect, the
Adviser shall be the Fund's sole investment adviser.
7. Liability. In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties hereunder on the part
of the Adviser, the Adviser shall not be subject to liability to the Fund or to
any shareholder of the Fund for any act or omission in the course of, or
connected with, rendering services hereunder, or for any losses that may be
sustained in the purchase, holding or sale of any security.
8. Brokerage Commissions. The Adviser, subject to the control and
direction of the Company's Board of Directors, shall have authority and
discretion to select brokers and dealers to execute portfolio transactions for
the Fund and for the selection of the markets on or in which the transactions
will be executed. The Adviser may cause the Fund to pay a broker-dealer which
provides brokerage and research services, as such services are defined in
Section 28(e) of the Securities Exchange Act of 1934 (the "Exchange Act"), to
the Adviser a commission for effecting a securities transaction in excess of the
amount another broker-dealer would have charged for effecting such 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-dealer viewed in terms of either that particular
transaction or his overall responsibilities with respect to the accounts as to
which he exercises investment discretion (as defined in Section 3(a)(35) of the
Exchange Act). The Adviser shall provide such reports as the Company's Board of
Directors may reasonably request with respect to the Fund's total brokerage and
the manner in which that brokerage was allocated.
9. Code of Ethics. The Adviser has adopted a written code of ethics
complying with the requirements of Rule 17j-1 under the Act and has provided the
Company with a copy of the code of ethics and evidence of its adoption. Upon the
written request of the Company, the Adviser shall permit the Company to examine
any reports required to be made by the Adviser pursuant to Rule 17j-1(c)(1)
under the Act.
10. Amendments. This Agreement may be amended by the mutual consent of
the parties; provided, however, that in no event may it be amended without the
approval of the board of directors of the Company in the manner required by the
Act, and by the vote of the majority of the outstanding voting securities of the
Fund, as defined in the Act.
<PAGE>
11. Termination. This Agreement may be terminated at any time, without
the payment of any penalty, by the board of directors of the Company or by a
vote of the majority of the outstanding voting securities of the Fund, as
defined in the Act, upon giving sixty (60) days' written notice to the Adviser.
This Agreement may be terminated by the Adviser at any time upon the giving of
sixty (60) days' written notice to the Company. This Agreement shall terminate
automatically in the event of its assignment (as defined in Section 2(a)(4) of
the Act). Subject to prior termination as hereinbefore provided, this Agreement
shall continue in effect for an initial period beginning as of the date hereof
and ending June 30, 1999 and indefinitely thereafter, but only so long as the
continuance after such initial period is specifically approved annually by (i)
the board of directors of the Company or by the vote of the majority of the
outstanding voting securities of the Fund, as defined in the Act, and (ii) the
board of directors of the Company in the manner required by the Act, provided
that any such approval may be made effective not more than sixty (60) days
thereafter.
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
THE HENNESSY FUNDS, INC.
By:
President
EXHIBIT 10
CHICAGO FIRSTAR CENTER SACRAMENTO
DENVER 777 EAST WISCONSIN AVENUE SAN DIEGO
JACKSONVILLE MILWAUKEE, WISCONSIN 53202-5367 SAN FRANCISCO
LOS ANGELES TELEPHONE (414) 271-2400 TALLAHASSEE
MADISON FACSIMILE (414) 297-4900 TAMPA
MILWAUKEE WASHINGTON, D.C.
ORLANDO WEST PALM BEACH
October 29, 1998
The Hennessy Funds, Inc.
The Courtyard Square
750 Grant Avenue, Suite 100
Novato, CA 94945
Gentlemen:
We have acted as counsel for The Hennessy Funds, Inc. in connection
with the preparation of an amendment to your Registration Statement on Form N-1A
relating to the sale by you of an indefinite amount of The Hennessy Funds, Inc.
Common Stock (such Common Stock being hereinafter referred to as the "Stock") in
the manner set forth in the Amended Registration Statement to which reference is
made. In this connection we have examined: (a) the Amended Registration
Statement on Form N-1A; (b) your Articles of Incorporation and Bylaws, as
amended to date; (c) corporate proceedings relative to the authorization for
issuance of the Stock; and (d) such other proceedings, documents and records as
we have deemed necessary to enable us to render this opinion.
Based upon the foregoing, we are of the opinion that the shares of
Stock when sold as contemplated in the Amended Registration Statement will be
legally issued, fully paid and nonassessable
We hereby consent to the use of this opinion as an exhibit to the Form
N-1A Registration Statement. In giving this consent, we do not admit that we are
experts within the meaning of Section 11 of the Securities Act of 1933, as
amended, or within the category of persons whose consent is required by Section
7 of said Act.
Very truly yours,
Foley & Lardner
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
The Shareholders and Board of Directors
The Hennessy Funds, Inc.
We consent to the use of our report incorporated by reference and the reference
to our firm under the headings "Financial Highlights" and "General Information"
in the Prospectus and "Independent Auditors" in the Statement of Additional
Information.
KPMG Peat Marwick LLP
Milwaukee, Wisconsin
October 29, 1998
EXHIBIT 15
SERVICE AND DISTRIBUTION PLAN
OF
THE HENNESSY FUNDS, INC.
(as amended May 28, 1998)
WHEREAS, The Hennessy Funds, Inc. (the "Company") is registered with
the Securities and Exchange Commission under the Investment Company Act of 1940,
as amended (the "Act"); as an open-end management investment company consisting
of two series, the Hennessy Balanced Fund and the Hennessy Leveraged Dogs Fund
(individually a "Fund" and collectively the "Funds");
WHEREAS, the Company intends to act as a distributor of shares of its
Common Stock, $.0001 par value ("Common Stock"), as defined in Rule 12b-1 under
the Act, and desires to adopt a distribution plan pursuant to such Rule, and the
Board of Directors has determined that there is a reasonable likelihood that
adoption of this Service and Distribution Plan will benefit the Company and its
shareholders; and
WHEREAS, the Company may enter into agreements with dealers and other
financial service organizations to obtain various distribution-related and/or
shareholder services for the Funds, all as permitted and contemplated by Rule
12b-1 under the Act; it being under that to the extent any activity is one in
which a Fund may finance without a Rule 12b-1 plan, the Fund may also make
payments to finance such activity outside such a plan and not subject to its
limitations.
NOW, THEREFORE, the Company hereby adopts this Service and
Distribution Plan (the "Plan") in accordance with Rule 12b-1 under the Act on
the following terms and conditions:
1. Distribution and Service Fee. A Fund may charge a distribution
expense and service fee on an annualized basis of 0.25% of the Fund's average
daily net assets. Such fee shall be calculated and accrued daily and paid at
such intervals as the Board of Directors of the Company shall determine, subject
to any applicable restriction imposed by rules of the National Association of
Securities Dealers, Inc.
2. Permitted Expenditures. The amount set forth in paragraph 1 of this
Plan shall be paid for services or expenses primarily intended to result in the
sale of a Fund's shares. The Fund may pay all or a portion of this fee to any
securities dealer, financial institution or any other person (the "Shareholder
Organization(s)") who renders personal service to shareholders, assists in the
maintenance of shareholder accounts or who renders assistance in distributing or
promoting the sale of the Fund's shares pursuant to a written agreement approved
by the Board of Directors (the "Related Agreement"). To the extent such fee is
not paid to such persons, the Fund may use the fee to pay for its expenses of
distribution of its shares including, but not limited to, payment by the Fund of
the cost of preparing, printing and distributing Prospectuses and Statements of
Additional Information to prospective investors and of implementing and
operating the Plan as well as payment of capital or other expenses of associated
equipment, rent, salaries, bonuses, interest and other overhead costs.
<PAGE>
3. Effective Date of Plan. This Plan shall not take effect until (a)
it has been approved by a vote of at least a majority (as defined in the Act) of
the outstanding shares of Common Stock and (b) (together with any related
agreements) by votes of a majority of both (i) the Board of Directors of the
Company and (ii) those Directors of the Company who are not "interested persons"
of the Company (as defined in the Act) and have no direct or indirect financial
interest in the operation of this Plan or any agreements related to it (the
"Rule 12b-1 Directors"), cast in person at a meeting (or meetings) called for
the purpose of voting on this Plan and such related agreements.
4. Continuance. Unless otherwise terminated pursuant to paragraph 6
below, this Plan shall continue in effect for as long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in paragraph 3(b).
5. Reports. Any person authorized to direct the disposition of monies
paid or payable by the Funds pursuant to this Plan or any related agreement
shall provide to the Company's Board of Directors and the Board shall review, at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made.
6. Termination. This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Directors, or by a vote of a majority of the
outstanding shares of Common Stock.
7. Amendments. This Plan may not be amended to increase materially the
amount of payments provided for in paragraph 1 hereof unless such amendment is
approved in the manner provided for initial approval in paragraph 3 hereof. No
other amendment to the Plan may be made unless approved in the manner provided
for approval of this Plan in paragraph 3(b).
8. Selection of Directors. While this Plan is in effect, the selection
and nomination of Directors who are not interested persons (as defined in the
Act) of the Company shall be committed to the discretion of the Directors who
are not interested persons.
9. Records. The Company shall preserve copies of this Plan and any
related agreements and all reports made pursuant to paragraph 6 hereof, for a
period of not less than six years from the date of this Plan, or the agreements
or such report, as the case may be, the first two years in an easily accessible
place.
Exhibit 15.1
AGREEMENT
May 1, 1998
The Hennessy Management Co., L.P.
The Courtyard Square
750 Grant Avenue, Suite 100
Novato, CA 94945
Gentlemen:
This is to confirm that in consideration of the agreements hereinafter
contained, the undersigned, The Hennessy Funds, Inc., a Maryland corporation
(the "Company"), has agreed that you shall be, for the period of this Agreement,
a recipient of payments under the Company's Service and Distribution Plan (the
"Plan") under Rule 12b-1 under the Investment Company Act of 1940 with respect
to the Hennessy Balanced Fund (the "Fund"). This Agreement is subject to the
terms and conditions of the Plan, which is incorporated herein by reference.
1. Services to the Fund
1.1 You are hereby authorized to retain one or more distributors (the
"Distributors") for the shares of common stock of the Fund (the "Shares") in
accordance with the instructions of the Company's Board of Directors and the
Fund's registration statement and then current prospectus and statement of
additional information under the Securities Act of 1933, as amended. You shall
monitor the activities of the Distributors and report quarterly to the Board of
Directors as to the performance of the Distributors. Additionally you shall
provide the reports required by Paragraph 5 of the Plan.
1.1(a) You, at your own expense, shall finance appropriate activities
which you deem reasonable which are primarily intended to result in the sale of
Shares, including, but not limited to, advertising, compensation of the
Distributors, the printing and mailing of prospectuses to other than current
shareholders and the printing and mailing of sales literature.
1.1(b) All Shares offered for sale by the Distributors shall be
offered for sale to the public at a price per Share equal to their net asset
value (determined in the manner set forth in the Fund's Registration Statement
and then current prospectus and statement of additional information).
<PAGE>
1.1(c) You are authorized to reimburse Edward J. Hennessy,
Incorporated ("Hennessy") for expenses actually incurred by Hennessy in
distributing or promoting the sale of Shares. You are also authorized to pay
Hennessy an amount equal to $225 per hour, or such other rate as you and
Hennessy may agree from time to time, for services provided by Neil J. Hennessy
in his capacity as President of Hennessy related to the distribution of Shares.
The obligation to pay Hennessy shall be your obligation and not an obligation of
the Fund. You are also authorized to pay other Distributors such fees that you
negotiate with them in accordance with paragraph 1.1(a), all of such payments to
be your obligations and not the obligation of the Fund.
1.1(d) In exchange for such services, the Fund agrees to pay
you fees on an annualized basis of 0.75% (0.25%, effective July 1, 1998) of the
Fund's average daily net assets.
1.2 Your agreement with Distributors shall provide that it shall act
as distributor of the Shares in compliance with all state and federal laws,
rules and regulations and the Rules of Fair Practice of the National Association
of Securities Dealers, Inc.
1.3 Whenever in their judgment such action is warranted by market,
economic or political conditions, or by circumstances of any kind, the Fund's
officers may decline to accept any orders for, or make any sales of, any Shares
until such time as they deem it advisable to accept such orders and to make such
sales and the Fund shall advise you promptly of such determination.
1.4 The Fund agrees to pay all costs and expenses in connection with
the registration of the Shares under the Securities Act of 1933, as amended, and
to be responsible for all expenses in connection with maintaining facilities for
the issue and transfer of Shares and for supplying information, prices and other
data to be furnished by the Fund hereunder.
1.5 The Fund agrees to execute any and all documents and to furnish
any and all information and otherwise to take all actions which may be
reasonably necessary in the discretion of the Fund's officers in connection with
the qualification of Shares for sale in such states as you may designate to the
Fund and the Fund may approve, and the Fund agrees to pay all expenses which may
be incurred in connection with such qualification.
1.6 The Fund shall furnish you from time to time for use in connection
with the sale of Shares, such information with respect to the Fund and the
Shares as you may reasonably request. The Fund also shall furnish you upon
request with: (a) annual audited reports of the Fund's books and accounts made
by independent public accountants regularly retained by the Fund, (b)
semi-annual reports with respect to the Fund prepared by the Fund, and (c) from
time to time such additional information regarding the Fund's financial
condition as you may reasonably request. The Fund authorizes you to use any
prospectus, in the form furnished to you by the Fund from time to time, in
connection with the sale of Shares.
1.7 No Shares shall be offered and no orders for the purchase or sale
of Shares shall be accepted by the Fund if and so long as the effectiveness of
the registration
<PAGE>
statement then in effect or any necessary amendments thereto shall be suspended
under any of the provisions of the Securities Act of 1933, as amended, or if and
so long as current prospectuses as required by Section 10 of said Act, as
amended, are not on file with the Securities and Exchange Commission; provided,
however, that nothing contained in this paragraph 1.7 shall in any way restrict
or have an application to or bearing upon the Fund's obligation to redeem Shares
from any shareholder in accordance with the provisions of the Fund's prospectus
or the Company's Articles of Incorporation.
2. Term
2. This Agreement shall become effective as of the date hereof and,
unless sooner terminated, shall continue until May 1, 1999, and thereafter shall
continue automatically for successive annual periods, provided such continuance
is specifically approved at least annually by (i) the Company'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 also is approved by a majority of the Company'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. This Agreement is terminable without penalty, on not less than
60 days' notice, by the Company's Board of Directors, by vote of the holders of
a majority (as defined in said Act) of the Fund's outstanding Shares, or by you.
This Agreement will also terminate automatically in the event of its assignment
(as defined in said Act).
Very truly yours,
THE HENNESSY FUNDS, INC.
By: _________________________
President
Accepted:
THE HENNESSY MANAGEMENT CO., L.P.
By: Edward J. Hennessy, Incorporated,
General Partner
By: ____________________________
President
EXHIBIT 15.2
DISTRIBUTION AGREEMENT
AGREEMENT made this 1st day of May, 1998 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
Balanced Fund (the "Fund"), which is an investment portfolio of The Hennessy
Funds, Inc. (the "Company"), an open-end management investment company under the
Investment Company Act of 1940;
WHEREAS, the Adviser has been authorized by the Company to retain a
distributor for the shares of the Fund's Common Stock (the "Shares") pursuant to
the Company'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.
<PAGE>
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 Company 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).
<PAGE>
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. The Adviser will reimburse the Distributor for expenses actually
incurred by the Distributor in distributing or promoting the sale of Shares.
b. The Adviser shall pay to the Distributor an amount equal to
$225 per hour, or such other rate as the Adviser and the Distributor may agree
from time to time, for services provided by Neil J. Hennessy in his capacity as
President of the Distributor related to the distribution of Shares.
7. Duration and Termination.
a. This Agreement shall become effective on May 1, 1998 and shall
continue in effect until May 1, 1999, and shall continue automatically for
successive annual periods, provided such continuance is specifically approved at
least annually by (i) the Company'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 Company'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 Company'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
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The schedual contains summary financial information extracted
from the financial statements of Hennessy Funds, Inc. as of and
for the 12 month period ended June 30, 1998 and is qualified in
its entirity by reference to such financial statements.
</LEGEND>
<CIK> 0001005778
<NAME> The Hennessy Funds, Inc.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-1-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 21536258
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<RECEIVABLES> 44738
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<EXPENSE-RATIO> 1.64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
