Rule 497(c)
File No. 333-00227
June 30, 1998
THE HENNESSY FUNDS, INC.
The Courtyard Square
750 Grant Avenue
Suite 100
Novato, California 94945
STATEMENT OF ADDITIONAL INFORMATION
FOR THE
HENNESSY LEVERAGED DOGS FUND
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Prospectus for the Hennessy
Leveraged Dogs Fund dated June 30, 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.
The Hennessy Funds, Inc.
Hennessy Leveraged Dogs Fund
TABLE OF CONTENTS
Page No.
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . 3
DIRECTORS AND OFFICERS OF THE CORPORATION . . . . . . . . . . . . . . . 4
OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS . . . . . . . . . . 6
INVESTMENT ADVISER, ADMINISTRATOR, CUSTODIAN,
TRANSFER AGENT AND ACCOUNTING SERVICES AGENT . . . . . . . . . . . . . 6
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . 8
DISTRIBUTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . 8
SYSTEMATIC WITHDRAWAL PLAN . . . . . . . . . . . . . . . . . . . . . . 9
ALLOCATION OF PORTFOLIO BROKERAGE . . . . . . . . . . . . . . . . . . . 10
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
STOCKHOLDER MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . 11
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 13
INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . 13
INVESTMENT RESTRICTIONS
As set forth in the Prospectus dated June 30, 1998 of the
Hennessy Leveraged Dogs Fund (the "Fund") under the caption "INVESTMENT
STRATEGY", the investment objective of the Fund is to achieve total
return that in the long run will exceed that of the Dow Jones Industrial
Average ("DJIA"). 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 borrow money or issue senior securities
to the extent permitted by the Investment Company Act of 1940.
5. The Fund will not pledge or hypothecate its assets,
except to secure permitted borrowings.
6. The Fund will not act as an underwriter or distributor
of securities other than shares of the Fund (except to the
extent that the Fund may be deemed to be an underwriter within
the meaning of the Securities Act of 1933, as amended, in the
disposition of restricted securities).
7. The Fund will not make loans, including loans of
securities, except it may acquire debt securities from the
issuer or others which are publicly distributed or are of a type
normally acquired by institutional investors and enter into
repurchase agreements.
8. The Fund will not invest 25% or more of its total
assets at the time of purchase in securities of issuers whose
principal business activities are in the same industry.
9. The Fund will not make investments for the purpose of
exercising control or management of any company.
10. The Fund will not purchase or sell real estate or real
estate mortgage loans and will not make any investments in real
estate limited partnerships.
11. The Fund will not purchase or sell commodities or
commodity contracts.
12. The Fund will not purchase or sell any interest in any
oil, gas or other mineral exploration or development program,
including any oil, gas or mineral leases.
The Fund has adopted certain other investment restrictions which
are not fundamental policies and which may be changed by the 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 restrictions made by the Board of Directors will be
communicated to stockholders prior to their implementation.
INVESTMENT CONSIDERATIONS
The Dow Jones Industrial Average
The DJIA currently consists of the following 30 common stocks:
AlliedSignal Inc. Hewlett-Packard Co.
Aluminum Co. of America International Business Machines
(ALCOA) Corp. (IBM)
American Express Co. International Paper Co.
AT&T Corp. Johnson & Johnson
The Boeing Co. McDonald's Corp.
Caterpillar Inc. Merck & Co., Inc.
Chevron Corp. 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., Procter & Gamble Co. Inc.
Eastman Kodak Co. Sears, Roebuck & Co.
Exxon Corp. The Travelers Corp.
General Electric Co. Union Carbide Corp.
General Motors Corp. United Technologies Corp.
The Goodyear Tire & Rubber Co. 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. 2, L.P. or Edward J. Hennessy, Inc.,
the general partner to the investment adviser. Dow Jones & Company, Inc.
has not participated in any way in the creation of the Fund or in the
selection of stocks included in the Fund and has not approved any
information included herein related thereto.
The first DJIA, consisting of 12 stocks, was published in The
Wall Street Journal in 1896. The list grew to 20 stocks in 1916 and to 30
stocks on October 1, 1928. Dow Jones & Company, Inc. from time to time
changes the stocks comprising the DJIA, although such changes are
infrequent.
The Fund's investment strategy is unlikely to be affected by the
requirement that it not concentrate its investments since currently no
more than three companies in the DJIA are engaged primarily in any one
industry. Similarly the Fund's investment strategy is unlikely to be
materially affected by the requirement that it meet the diversification
requirements of the Internal Revenue Code since it will normally have 50%
of its assets invested in U.S. Treasury securities and the remainder of
its assets divided among at least ten stocks. However the Fund's
diversification requirement may preclude it from effecting a purchase
otherwise dictated by its investment strategy. Finally because of the
requirements of the Investment Company Act of 1940 (the "Act"), the Fund
will not invest more than 5% of its total assets in the common stock of
any issuer that derives more than 15% of its revenues from securities-
related activities. From time to time this requirement may preclude the
Fund from effecting a purchase otherwise dictated by its investment
strategy.
Portfolio Turnover
The Fund will generally hold securities for approximately one
year irrespective of investment performance. Securities may be sold after
being held less than one year to fund redemption requests. Consequently
the Fund's annual portfolio turnover rate may vary from year to year.
Notwithstanding the foregoing, the Fund's portfolio turnover rate will
generally not exceed 100%. High portfolio turnover in any year will
result in the payment by the Fund of above-average transaction costs and
could result in the payment by shareholders of above-average amounts of
taxes on realized investment gains. Distributions to shareholders 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, 50, 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.
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 $250 for each meeting of the Board of Directors
attended and, effective May 28, 1998, for the Hennessy Balanced 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. The
Corporation also may reimburse its 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, 1997:
<TABLE>
COMPENSATION TABLE
<CAPTION>
Total
Pension or Estimated Compensation
Aggregate Retirement Benefits Annual from Corporation
Compensation Accrued As Part of Benefits Upon Paid to
Name of Person from Corporation* Fund Expenses Retirement Directors*
<S> <C> <C> <C> <C>
Neil J. Hennessy $0 $0 $0 $0
Brian A. Hennessy 0 0 0 0
Robert T. Doyle 1,000 0 0 1,000
Rodger D. Offenbach 0 0 0 0
J. Dennis DeSousa 1,000 0 0 1,000
________________________
* During the fiscal year ended June 30, 1997, the Hennessy Balanced Fund
was the only series of the Corporation.
</TABLE>
OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
At June 30, 1998, the Adviser owned all of the outstanding
shares of the Fund. Shareholders with a controlling interest could affect
the outcome of proxy voting or the direction of management of the
Corporation.
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. 2, 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.
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 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.
The Advisory Agreement will remain in effect as long as its
continuance is specifically approved at least annually (i) by the Board of
Directors of the Corporation or by the vote of a majority (as defined in
the Act) of the outstanding shares of the Fund, and (ii) by the vote of a
majority of the directors of the Fund who are not parties to the Advisory
Agreement or interested persons of the Adviser, cast in person at a
meeting called for the purpose of voting on such approval. The Advisory
Agreement provides that it may be terminated at any time without the
payment of any penalty, by the Board of Directors of the Corporation or by
vote of the majority of the Fund's stockholders on sixty (60) days'
written notice to the Adviser, and by the Adviser on the same notice to
the Corporation, and that it shall be automatically terminated if it is
assigned.
The Advisory Agreement provides that the Adviser shall not be
liable to the Corporation or its stockholders for anything other than
willful misfeasance, bad faith, gross negligence or reckless disregard of
its obligations or duties. The Advisory Agreement also provides that the
Adviser and its officers, directors and employees may engage in other
businesses, devote time and attention to any other business whether of a
similar or dissimilar nature, and render services to others.
As set forth in the Fund's Prospectus under the caption "WHO
MANAGES THE FUND?", the administrator to the Corporation is Firstar Trust
Company, 615 East Michigan Street, Milwaukee, Wisconsin 53202 (the
"Administrator"). The Fund Administration Servicing Agreement entered
into between the Corporation and the Administrator relating to the Fund
(the "Administration Agreement") will remain in effect until terminated by
either party. The Administration Agreement may be terminated at any time,
without the payment of any penalty, by the Board of Directors of the
Corporation upon the giving of ninety (90) days' written notice to the
Administrator, or by the Administrator upon the giving of ninety (90)
days' written notice to the Corporation.
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 Agreement, except a loss
resulting from willful misfeasance, bad faith or negligence on the part of
the Administrator in the performance of its duties under the
Administration Agreement.
Firstar Trust Company also serves as custodian of the
Corporation's assets pursuant to a Custody Agreement. Under the Custody
Agreement, Firstar Trust Company has agreed to (i) maintain a separate
account in the name of the Fund, (ii) make receipts and disbursements of
money on behalf of the Fund, (iii) collect and receive all income and
other payments and distributions on account of the Fund's portfolio
investments, (iv) respond to correspondence from shareholders, security
brokers and others relating to its duties and (v) make periodic reports to
the Fund concerning the Fund's operations. Firstar Trust Company does not
exercise any supervisory function over the purchase and sale of
securities. Firstar Trust Company also serves as transfer agent and
dividend disbursing agent for the Fund under a Shareholder Servicing Agent
Agreement. As transfer and dividend disbursing agent, Firstar Trust
Company has agreed to (i) issue and redeem shares of the Fund, (ii) make
dividend and other distributions to shareholders of the Fund, (iii)
respond to correspondence by Fund shareholders and others relating to its
duties, (iv) maintain shareholder accounts, and (v) make periodic reports
to the Fund.
In addition the Corporation has entered into a Fund Accounting
Servicing Agreement with Firstar Trust Company pursuant to which Firstar
Trust Company has agreed to maintain the financial accounts and records of
the Fund and provide other accounting services to the Fund. For its
accounting services, Firstar Trust Company is entitled to receive from the
Fund 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.
DETERMINATION OF NET ASSET VALUE
As set forth in the Prospectus under the caption "HOW WE
DETERMINE THE FUND'S SHARE PRICE?", 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.
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. The
Adviser has entered into an agreement with Hennessy pursuant to which it
will reimburse Hennessy for expenses actually incurred by Hennessy in
distributing the Fund's shares. This 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 Fund's shares. 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.
SYSTEMATIC WITHDRAWAL PLAN
An investor who owns Fund shares worth at least $10,000 at the
current net asset value may, by completing an application which may be
obtained from the Fund or Firstar Trust Company, create a Systematic
Withdrawal Plan from which a fixed sum will be paid to the investor at
regular intervals. To establish the Systematic Withdrawal Plan, the
investor deposits Fund shares with the Corporation and appoints it as
agent to effect redemptions of Fund shares held in the account for the
purpose of making monthly or quarterly withdrawal payments of a fixed
amount to the investor out of the account. Fund shares deposited by the
investor in the account need not be endorsed or accompanied by a stock
power if registered in the same name as the account; otherwise, a properly
executed endorsement or stock power, obtained from any bank, broker-dealer
or the Corporation is required. The investor's signature should be
guaranteed by a bank, a member firm of a national stock exchange or other
eligible guarantor.
The minimum amount of a withdrawal payment is $100. These
payments will be made from the proceeds of periodic redemptions of shares
in the account at net asset value. Redemptions will be made in accordance
with the schedule (e.g., monthly, bimonthly [every other month], quarterly
or yearly, but in no event more than monthly) selected by the investor.
If a scheduled redemption day is a weekend day or a holiday, such
redemption will be made on the next preceding business day. Establishment
of a Systematic Withdrawal Plan constitutes an election by the investor to
reinvest in additional Fund shares, at net asset value, all income
dividends and capital gains distributions payable by the Fund on shares
held in such account, and shares so acquired will be added to such
account. The investor may deposit additional Fund shares in his account
at any time.
Withdrawal payments cannot be considered as yield or income on
the investor's investment, since portions of each payment will normally
consist of a return of capital. Depending on the size or the frequency of
the disbursements requested, and the fluctuation in the value of the
Fund's portfolio, redemptions for the purpose of making such disbursements
may reduce or even exhaust the investor's account.
The investor may vary the amount or frequency of withdrawal
payments, temporarily discontinue them, or change the designated payee or
payee's address, by notifying Firstar Trust Company in writing thirty (30)
days prior to the next payment.
ALLOCATION OF PORTFOLIO BROKERAGE
The Fund's securities trading and brokerage policies and
procedures are reviewed by and subject to the supervision of the
Corporation's Board of Directors. Decisions to buy and sell securities
for the Fund are made by the Adviser subject to review by the
Corporation's Board of Directors. In placing purchase and sale orders for
portfolio securities for the Fund, it is the policy of the Adviser to seek
the best execution of orders at the most favorable price in light of the
overall quality of brokerage and research services provided, as described
in this and the following paragraphs. Many of these transactions involve
payment of a brokerage commission by the Fund. In some cases,
transactions are with firms who act as principals of their own accounts.
In selecting brokers to effect portfolio transactions, the determination
of what is expected to result in best execution at the most favorable
price involves a number of largely judgmental considerations. Among these
are the Adviser's evaluation of the broker's efficiency in executing and
clearing transactions, block trading capability (including the broker's
willingness to position securities) and the broker's reputation, financial
strength and stability. The most favorable price to the Fund means the
best net price without regard to the mix between purchase or sale price
and commission, if any. Securities not listed on exchanges may be
purchased and sold directly with principal market makers who retain the
difference in their cost in the security and its selling price. In some
instances, the Adviser feels that better prices are available from non-
principal market makers who are paid commissions directly. Although the
Fund does not initially intend to market its shares through intermediary
broker-dealers, the Fund may place portfolio orders with broker-dealers
who recommend the purchase of Fund shares to clients (if the Adviser
believes the commissions and transaction quality are comparable to that
available from other brokers) and may allocate portfolio brokerage on that
basis.
The Adviser may allocate brokerage to Hennessy but only if the
Adviser reasonably believes the commission and transaction quality are
comparable to that available from other qualified brokers. Under the Act,
Hennessy is prohibited from dealing with the Fund as a principal in the
purchase and sale of securities. Hennessy, when acting as a broker for
the Fund in any of its portfolio transactions executed on a securities
exchange of which Hennessy is a member, will act in accordance with the
requirements of Section 11(a) of the Securities Exchange Act of 1934 and
the rules of such exchanges.
In allocating brokerage business for the Fund, the Adviser also
takes into consideration the research, analytical, statistical and other
information and services provided by the broker, such as general economic
reports and information, reports or analyses of particular companies or
industry groups, market timing and technical information, and the
availability of the brokerage firm's analysts for consultation. While the
Adviser believes these services have substantial value, they are
considered supplemental to the Adviser's own efforts in the performance of
its duties under the Advisory Agreement. Other clients of the Adviser may
indirectly benefit from the availability of these services to the Adviser,
and the Fund may indirectly benefit from services available to the Adviser
as a result of transactions for other clients. The Advisory Agreement
provides that the Adviser may cause the Fund to pay a broker which
provides brokerage and research services to the Adviser a commission for
effecting a securities transaction in excess of the amount another broker
would have charged for effecting the transaction, if the Adviser
determines in good faith that such amount of commission is reasonable in
relation to the value of brokerage and research services provided by the
executing broker viewed in terms of either the particular transaction or
the Adviser's overall responsibilities with respect to the Fund and the
other accounts as to which he exercises investment discretion.
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 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.
Upon the written request of the holders of shares entitled to
not less than ten percent (10%) of all the votes entitled to be cast at
such meeting, the Secretary of the Corporation shall promptly call a
special meeting of stockholders for the purpose of voting upon the
question of removal of any director. Whenever ten or more stockholders of
record who have been such for at least six months preceding the date of
application, and who hold in the aggregate either shares having a net
asset value of at least $25,000 or at least one percent (1%) of the total
outstanding shares, whichever is less, shall apply to the Corporation's
Secretary in writing, stating that they wish to communicate with other
stockholders with a view to obtaining signatures to a request for a
meeting as described above and accompanied by a form of communication and
request which they wish to transmit, the Secretary shall within five
business days after such application either: (1) afford to such
applicants access to a list of the names and addresses of all stockholders
as recorded on the books of the Corporation; or (2) inform such applicants
as to the approximate number of stockholders of record and the approximate
cost of mailing to them the proposed communication and form of request.
If the Secretary elects to follow the course specified in clause
(2) of the last sentence of the preceding paragraph, the Secretary, upon
the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall,
with reasonable promptness, mail such material to all stockholders of
record at their addresses as recorded on the books unless within five
business days after such tender the Secretary shall mail to such
applicants and file with the Securities and Exchange Commission, together
with a copy of the material to be mailed, a written statement signed by at
least a majority of the Board of Directors to the effect that in their
opinion either such material contains untrue statements of fact or omits
to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the
basis of such opinion.
After opportunity for hearing upon the objections specified in
the written statement so filed, the Securities and Exchange Commission
may, and if demanded by the Board of Directors or by such applicants
shall, enter an order either sustaining one or more of such objections or
refusing to sustain any of them. If the Securities and Exchange
Commission shall enter an order refusing to sustain any of such
objections, or if, after the entry of an order sustaining one or more of
such objections, the Securities and Exchange Commission shall find, after
notice and opportunity for hearing, that all objections so sustained have
been met, and shall enter an order so declaring, the Secretary shall mail
copies of such material to all stockholders with reasonable promptness
after the entry of such order and the renewal of such tender.
PERFORMANCE INFORMATION
Average annual total return measures both the net investment
income generated by, and the effect of any realized or unrealized
appreciation or depreciation of, the underlying investments in the Fund's
investment portfolio. The Fund's average annual total return figures are
computed in accordance with the standardized method prescribed by the
Securities and Exchange Commission by determining the average annual
compounded rates of return over the periods indicated, that would equate
the initial amount invested to the ending redeemable value, according to
the following formula:
n
P(1 + T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of
the period of a hypothetical $1,000
payment made at the beginning of such
period
This calculation (i) assumes all dividends and distributions are
reinvested at net asset value or the appropriate reinvestment dates as
described in the Prospectus, and (ii) deducts all recurring fees, such as
advisory fees, charged as expenses to all investor accounts.
Total return is the cumulative rate of investment growth which
assumes that income dividends and capital gains are reinvested. It is
determined by assuming a hypothetical investment at the net asset value at
the beginning of the period, adding in the reinvestment of all income
dividends and capital gains, calculating the ending value of the
investment at the net value as of the end of the specified time period,
subtracting the amount of the original investment, and dividing this
amount by the amount of the original investment. This calculated amount
is then expressed as a percentage by multiplying by 100.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, 777 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202 will serve as the independent accountants for the Fund.
As such KPMG Peat Marwick LLP will perform an audit of the Fund's
financial statements including consideration of the Fund's internal
control structure.
