Securities Act Registration No. 333-00227
Investment Company Act Reg. No. 811-7493
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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 5 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 6 [X]
(Check appropriate box or boxes.)
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THE HENNESSY FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
The Courtyard Square
750 Grant Avenue
Suite 100
Novato, CA 94945
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(Address of Principal Executive Offices) (Zip Code)
(800) 966-4354
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(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
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(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)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a) (1)
[X] on October 31, 1999 pursuant to paragraph (a) (1)
[ ] 75 days after filing pursuant to paragraph (a) (2)
[ ] on (date) pursuant to paragraph (a) (2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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P R O S P E C T U S
October 31, 1999
HENNESSY FUNDS
BALANCED FUND LEVERAGED DOGS FUND
Hennessy Funds were the first mutual funds to implement the "Dogs of the
Dow" investment strategy.
Please read this Prospectus and keep it for future reference. It contains
important information, including information on how the Hennessy Funds invest
and the services they offer to shareholders.
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
Questions Every Investor Should
Hennessy Funds, Inc. Ask Before Investing in the
The Courtyard Square Hennessy Funds
750 Grant Avenue Fees and Expenses.........................
Suite 100 Investment Objectives and Strategies......
Novato, California 94945 Management of the Funds...................
(800) 966-4354 (Fund Information) The Funds' Share Price ...................
(800) 261-6950 (Account Information) Purchasing Shares.........................
Redeeming Shares..........................
Exchanging Shares.........................
Dividends, Distributions and Taxes........
Financial Highlights......................
<PAGE>
QUESTIONS EVERY INVESTOR SHOULD ASK BEFORE
INVESTING IN THE HENNESSY FUNDS
1. What are the Hennessy Funds' Goals?
Hennessy Balanced Fund
The Balanced Fund seeks capital appreciation and current income.
Hennessy Leveraged Dogs Fund
The Leveraged Dogs Fund seeks a combination of capital appreciation
and current income (or "total return") that in the long run exceeds that of the
Dow Jones Industrial Average ("DJIA")*
2. What are the Hennessy Funds' Principal Investment Strategies?
Each of our Fund's investment strategies is derived from the so-called
"Dogs of the Dow" investment strategy. The "Dogs of the Dow" investment strategy
involves annually:
* investing in the ten highest yielding stocks in the DJIA in
approximately equal dollar amounts
* rebalancing the portfolio at the end of one year to the then
current 10 highest yielding stocks in the DJIA in approximately
equal dollar amounts
* rebalancing the portfolio in a similar manner at the end of the
next year and so on.
Investing professionals often consider stocks with a relatively high
dividend yield to be out of favor - hence the term "Dog."
Our Balanced Fund invests approximately one-half of its investment
portfolio in the "Dogs of the Dow" stocks and one-half in U.S. Treasury
securities with a remaining maturity of approximately one year. By utilizing
this investment strategy, we attempt to achieve total return that in the long
run will be substantially similar to that of the DJIA but with half the risk and
volatility.
Our Leveraged Dogs Fund also invests approximately one-half of its
investment portfolio in the "Dogs of the Dow" stocks and one-half in U.S.
Treasury securities with a
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* The Dow Jones Industrial Average is the property of Dow Jones & Company,
Inc. Dow Jones & Company, Inc. is not affiliated with the Hennessy Funds or
their investment advisers. Dow Jones & Company, Inc. has not participated in any
way in the creation of the Hennessy Funds or in the selection of stocks included
in the Hennessy Funds and has not approved any information included in this
Prospectus.
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remaining maturity of approximately one year. Unlike the Balanced Fund, the
Leveraged Dogs Fund borrows money and invests the proceeds approximately
one-half in "Dogs of the Dow" stocks and one-half in U.S. Treasury securities
with a remaining maturity of one year. By borrowing money and investing the
proceeds (or "leveraging"), the Leveraged Dogs Fund increases the percentage of
its investment return that is based on the returns of the "Dogs of the Dow"
stocks it holds (up to 75%) and decreases the percentage of its investment
return based on the U.S. Treasury securities it holds (to not less than 25%).
Historically mutual funds have not used the "Dogs of the Dow" investment
strategy because if they did they would not satisfy the tax diversification
requirements applicable to "regulated investment companies" under the Internal
Revenue Code. By investing approximately one-half of their total assets in U.S.
Treasury securities, our Funds are able to satisfy these tax diversification
requirements. The Leveraged Dogs Fund, by utilizing leverage, should be able to
achieve a total return more similar to that resulting from the "Dogs of the Dow"
investment strategy than if it did not.
3. What are the Principal Risks of Investing in the Hennessy Funds?
Although approximately one-half of each Fund's portfolio is invested in
U.S. Treasury securities with a remaining maturity of one year, investors in the
Hennessy Funds may lose money. There are risks associated with any investment,
including the types of securities in which the Funds invest. These risks
include:
* Market Risk: The prices of the securities in which the Hennessy Funds
invest (e.g. AT&T Corp., Chevron Corp. and General Motors Corp. etc.)
may decline for a number of reasons.
* Non-Diversification Risk: Each Fund is a non-diversified investment
company. As such it likely will invest in fewer securities than
diversified investment companies and its performance may be more
volatile.
* Leverage Risk: The Leveraged Dogs Fund may leverage its investments.
Purchasing securities with borrowed money, or leverage, is an
investment technique which increases investment risk.
Because of these risks the Hennessy Funds are a suitable investment only for
those investors who have long-term investment goals and who want an investment
restricted to high quality dividend paying common stocks, U.S.
Treasury securities and money market instruments.
4. How have the Hennessy Funds Performed?
The bar chart and table that follow provide some indication of the risks of
investing in the Hennessy Balanced Fund by showing changes in its performance
from year to year and how its average annual returns over various periods
compare to the performance of the Standard & Poor's Composite Index of 500
Stocks, the DJIA and the Merrill Lynch One Year Treasury Bill Index. (The
Leveraged Dogs Fund commenced operations on June 30,
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1998 and therefore does not yet have a complete calendar year of performance.)
Please remember that the Balanced Fund's past performance is not necessarily an
indication of its future performance. It may perform better or worse in the
future.
Hennessy Balanced Fund
(Total return per calendar year)
20% 13.01%
------
10% 7.43%
------
0%
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1997 1998
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Note:During the two year period shown on the bar chart, the Fund's highest total
return for a quarter was 6.08% (quarter ended June 30, 1997) and the lowest
total return for a quarter was -1.48% (quarter ended September 30, 1998).
The Fund's 1999 year to date total return is ____% (January 1, 1999 through
the quarter ended September 30, 1999).
Since the inception
Average Annual Total Returns date of the Fund
(for the periods ending December 31, 1998) Past Year (March 8, 1996)
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Hennessy Balanced Fund 7.43% 10.90%
S&P 500* 28.58% 27.38%
DJIA 18.13% 21.17%
Merrill Lynch One Year U.S. Treasury Bill Index** 5.89% 5.81%
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*The S&P 500 is the Standard & Poor's Composite Index of 500 Stocks, a widely
recognized unmanaged index of common stock prices.
** The Merrill Lynch One Year U.S. Treasury Bill Index is comprised of a single
issue purchased at the beginning of a month and held for the full month. At the
end of the month that issue is sold and rolled into a newly selected issue.
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FEES AND EXPENSES
The table below describes the fees and expenses that you may pay if you buy
and hold shares of the Hennessy Funds.
SHAREHOLDER FEES (fees paid directly from your investment)
<TABLE>
<CAPTION>
Hennessy Balanced Hennessy Leveraged
Fund Dogs Fund
---- ---------
<S> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)..............No.Sales Charge No Sales Charge
Maximum Deferred Sales Charge No Deferred Sales No Deferred Sale
(Load) Charge Charge
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
And Distributions..........................No.Sales Charge No Sales Charge
Redemption Fee...............................None (1) None (1)
Exchange Fee.................................None (2) None (2)
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(1) Our transfer agent charges a fee of $12.00 for each wire redemption.
(2) Our transfer agent charges a fee of $5.00 for each telephone exchange.
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fees................................0.60% 0.60%
Distribution and/or Service (12b-1) Fees.......0.25% 0.25%
Other Expenses
Interest Expense.............................0.00% 1.17%
All remaining Other Expenses.................0.70% 3.50%*
Total Other Expenses...........................0.70% 4.67%*
Total Annual Fund Operating Expenses...........1.55% 5.52%*
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*For the fiscal year ended June 30, 1999, the investment adviser to the
Leveraged Dogs Fund reimbursed all expenses of the Leveraged Dogs Fund, other
than interest expense. For the fiscal year ending June 30, 2000, the investment
adviser to the Leveraged Dogs Fund will reimburse the Leveraged Dogs Fund to the
extent necessary to insure that "Other Expenses" less "Interest Expense" do not
exceed 0.35% and "Total Annual Fund Operating Expenses" less "Interest Expense"
does not exceed 1.20%.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Hennessy Funds with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in a Fund for the time periods
indicated and then redeem all of your shares at the end of these periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:
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1 Year 3 Years 5 Years 10 Years
Hennessy Balanced Fund $158 $490 $846 $1,847
Hennessy Leveraged Dogs Fund $551 $1,644 $2,725 $5,379
INVESTMENT OBJECTIVES AND STRATEGIES
Investment Objectives
The Balanced Fund seeks capital appreciation and current income. The
Leveraged Dogs Fund seeks a combination of capital appreciation and current
income (or "total return") that in the long run exceeds that of the DJIA.
Neither of our Funds take temporary defensive positions. In order to provide a
degree of flexibility, each Fund may change its investment objective without
obtaining shareholder approval. Please remember that an investment objective is
not a guarantee. An investment in the Hennessy Funds might not appreciate and
investors could lose money.
The Principal Investment Strategy
Twice monthly, our Funds will determine the ten highest yielding common
stocks in the DJIA. They do this 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 our Funds need to sell common stocks to fund redemption
requests, they 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 our Funds purchase common stock, they 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 Funds' portfolios
will at all times consist of U.S. Treasury securities. Because approximately
half of our Funds' portfolios will consist of short-term U.S. Treasury
securities, they may not perform as well in the long term as a portfolio of
common stocks, but will have lower volatility.
Our Funds rebalance their stock investments after they have been held for
one year. They sell any stock which is no longer one of the ten highest yielding
common stocks
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and replace it with stocks which are. Additionally they may sell a portion of
the stocks which remain in the portfolio such that after they complete the
rebalancing, the rebalanced portion of our Funds' portfolios 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. Our Funds 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 Funds'
investment strategy does not involve high portfolio turnover.
In an effort to minimize transaction costs our Funds may accumulate funds
and make purchases in larger blocks to avoid odd lot transactions. Our Funds
invest funds they accumulate in money market instruments (such as U.S. Treasury
Bills, commercial paper, commercial paper master notes or repurchase agreements)
or money market mutual funds.
When funding redemption requests, our Funds will first utilize any
accumulated funds described above. If it is necessary for a Fund to sell
portfolio securities to meet redemption requests, it 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 its total portfolio of common stocks. Again a
Fund may vary the percentage of each issue of common stock sold to avoid odd lot
transactions thereby reducing total transaction costs.
The Leveraged Dogs Fund Variation on the Principal Investment Strategy
The Leveraged Dogs Fund follows the same investment strategy as the
Balanced Fund. However, it also will borrow up to approximately the maximum
permitted by the Investment Company Act of 1940, and invest the proceeds
approximately one-half in "Dogs of the Dow" stocks and one-half in U.S. Treasury
securities. The Investment Company Act of 1940 permits mutual funds to borrow up
to one-half of their net assets. The Leveraged Dogs Fund typically will borrow
money by entering into revenue repurchase agreements secured by its portfolio of
U.S. Treasury securities.
Hypothetical Past Performance
The chart below illustrates the total return for each of the last
twenty-five years of the DJIA, the "Dogs of the Dow" 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
Balanced Fund's 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 Balanced
Fund had been deducted.
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<TABLE>
<CAPTION>
COMPARISON OF TOTAL RETURN(1)
"Dogs of the Model "Dogs of the Model
DJIA Total Dow" Total Portfolio DJIA Total Dow" Total Portfolio
Year Return Return Total Return Year Return Return Total Return
---- ------ ------ ------------ ---- ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1974 -23.14% -1.30% 2.73% 1987 6.02% 6.10% 6.01%
1975 44.40% 55.90% 31.28% 1988 15.95% 22.90% 14.99%
1976 22.72% 34.80% 20.24% 1989 31.71% 26.50% 17.75%
1977 -12.71% 0.90% 2.75% 1990 -0.57% -7.60% 0.10%
1978 2.69% -0.10% 3.21% 1991 23.93% 39.30% 23.05%
1979 10.52% 12.40% 11.03% 1992 7.34% 7.90% 5.71%
1980 21.41% 27.20% 19.52% 1993 16.72% 27.30% 15.44%
1981 -3.40% 5.00% 9.39% 1994 4.95% 4.10% 3.85%
1982 25.79% 23.60% 19.43% 1995 36.48% 36.70% 20.45%
1983 25.68% 38.70% 23.66% 1996 28.57% 27.90% 16.54%
1984 1.06% 7.60% 8.82% 1997 24.78% 21.90% 13.70%
1985 32.78% 29.50% 19.34% 1998 17.75% 10.60% 8.04%
1986 26.91% 32.10% 19.84%
Average 15.54% 19.60% 13.47%
(1) 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 dividend 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.
</TABLE>
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 Balanced Fund. As indicated above, the Model Portfolio has
both outperformed and underperformed the DJIA in the last twenty-five years.
The performance information shown above was compiled by the Balanced Fund's
investment adviser from statistical services, reports, or other sources that it
believed to be reliable. This information has not been verified by any third
party and is unaudited.
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While the foregoing information is relevant to an investor's decision to
invest in the Balanced Fund, investors should be aware that the Balanced Fund's
performance will not be identical to that of the Model Portfolio for a number of
reasons including the fact that it (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.
The foregoing information is also relevant to an investor's decision to
invest in the Leveraged Dogs Fund. For example, if the Leveraged Dogs Fund has
$10 million in net assets, it is permitted under the Investment Company Act of
1940 to borrow $5 million. The Leveraged Dogs Fund intends initially to borrow
by entering into reverse repurchase agreements secured by its portfolio of U.S.
Treasury securities. After giving effect to the borrowing and investment of the
borrowed proceeds, the Leveraged Dogs Fund would have a portfolio consisting
approximately of $7.5 million in the 10 highest yielding stocks of the DJIA in
approximately equal dollar amounts and approximately $7.5 million in U.S.
Treasury securities. Approximately $5 million of the Fund's U.S. Treasury
securities would serve as collateral for its reverse repurchase agreement
obligations. If the interest earned on the Leveraged Dogs Fund's U.S. Treasury
securities were equal to the interest paid on its reverse repurchase agreements,
the Fund's investment return, before expenses, would be derived approximately
75% from its investments in the 10 highest yielding stocks in the DJIA and
approximately 25% from its investments in U.S. Treasury securities. The
Leveraged Dogs Fund, of course, recognizes that the interest it earns on its
U.S. Treasury securities will be less than the interest it pays when it borrows
by entering into reverse repurchase agreements. The Leveraged Dogs Fund refers
to the difference between the interest rate on the U.S. Treasury securities and
the interest rate on the reverse repurchase agreements to be its "cost of
funds." The Leveraged Dogs Fund's investment strategy will be successful only if
its investments in the stocks of the 10 highest yielding stocks of the DJIA
purchased with borrowed funds appreciate more than its cost of funds. The
Leveraged Dogs Fund cannot assure investors that this will happen. In fact, the
Leveraged Dogs Fund's investments in the 10 highest yielding stocks in the DJIA
may decline in value.
MANAGEMENT OF THE FUNDS
The Hennessy Management Co., L.P. manages the investments of the Balanced Fund
The Hennessy Management Co., L.P. (the "Balanced Fund Adviser") is the
investment adviser to the Balanced Fund. The Balanced Fund Adviser's address is:
The Courtyard Square
750 Grant Avenue
Suite 100
Novato, California 94945
As investment adviser, the Balanced Fund Adviser manages the investment
portfolio of the Balanced Fund. The Balanced Fund Adviser makes the decisions as
to which
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securities to buy and which securities to sell. During the last fiscal year, the
Balanced Fund paid the Balanced Fund Adviser an annual investment advisory fee
equal to 0.60% of the Balanced Fund's average net assets.
Neil J. Hennessy is primarily responsible for the day-to-day management of
the portfolio of the Balanced Fund and has been so since its inception. He is
the Balanced Fund's portfolio manager. Mr. Hennessy is the President,
controlling shareholder and a director of Edward J. Hennessy, Incorporated, a
registered broker-dealer and investment adviser, since its organization in 1989.
Edward J. Hennessy, Incorporated is the general partner of the Balanced Fund
Adviser.
The Hennessy Management Co. 2, L.P. manages the investments of the Leveraged
Dogs Fund
The Hennessy Management Co. 2, L.P. (the "Leveraged Dogs Fund Adviser") is
the investment adviser to the Leveraged Dogs Fund. The Leveraged Dogs Fund
Adviser's address is:
The Courtyard Square
750 Grant Avenue
Suite 100
Novato, California 94945
As investment adviser, the Leveraged Dogs Fund Adviser manages the
investment portfolio of the Leveraged Dogs Fund. The Leveraged Dogs Fund Adviser
makes the decisions as to which securities to buy and which securities to sell.
During the last fiscal year, the Leveraged Dogs Fund paid the Leveraged Dogs
Fund Adviser an annual investment advisory fee equal to 0.60% of the Leveraged
Dogs Fund's average net assets, all of which was waived by the Leveraged Dogs
Fund Adviser.
Neil J. Hennessy is primarily responsible for the day-to-day management of
the portfolio of the Leveraged Dogs Fund. Edward J. Hennessy, Incorporated is
also the general partner of the Leveraged Dogs Fund Adviser.
Year 2000
The Hennessy Funds are addressing 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 our Funds' business operations.
The Hennessy Funds have no application systems of their own and are
entirely dependent on their service providers' systems and software. Our Funds
are working with their service providers (including their investment advisers,
their administrator, transfer agent and
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custodian) to identify and remedy any Year 2000 issues. However, we 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 our Funds. The Year 2000 issue could also have a negative
impact on the companies in which our Funds invest, which could hurt our Funds'
investment returns.
Distribution Fees
Each of the Hennessy Funds has adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act. This Plan allows each of our Funds to
use up to 0.25% of its average daily net assets to pay sales, distribution and
other fees for the sale of its shares and for services provided to investors.
Because these fees are paid out of a Fund's assets, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
THE FUNDS' SHARE PRICE
The price at which investors purchase shares of each Fund and at which
shareholders redeem shares of each Fund is called its net asset value. Each Fund
calculates its net asset value as of the close of regular trading on the New
York Stock Exchange (normally 4:00 p.m. Eastern Time) on each day the New York
Stock Exchange is open for trading. The New York Stock Exchange is closed on
holidays and weekends. Each Fund calculates its net asset value based on the
market prices of the securities (other than money market instruments) it holds.
Each Fund values most money market instruments it holds at their amortized cost.
Each Fund will process purchase orders that it receives and accepts and
redemption orders that it receives prior to the close of regular trading on a
day that the New York Stock Exchange is open at the net asset value determined
later that day. It will process purchase orders that it receives and accepts and
redemption orders that it receives after the close of regular trading at the net
asset value determined at the close of regular trading on the next day the New
York Stock Exchange is open. If an investor sends a purchase order or redemption
request to the Funds' corporate address, instead of to its transfer agent, the
Funds will forward it to the transfer agent and the effective date of the
purchase order or redemption request will be delayed until the purchase order or
redemption request is received by the transfer agent.
PURCHASING SHARES
How to Purchase Shares from the Funds
1. Read this Prospectus carefully.
2. Determine how much you want to invest keeping in mind the following
minimums:
a. New accounts
* All accounts $1,000
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b. Existing accounts
* Dividend reinvestment No Minimum
* All other investments $ 100
3. Complete the New Account Application accompanying this Prospectus,
carefully following the instructions. For additional investments,
complete the remittance form attached to your individual account
statements. (The Funds have additional New Account Applications and
remittance forms if you need them.) If you have any questions, please
call 1-800-261-6950.
4. Make your check payable to the full name of the Hennessy Fund you
intend to purchase. All checks must be drawn on U.S. banks. The Funds
will not accept cash or third party checks. Firstar Mutual Fund
Services, LLC, the Funds' transfer agent, will charge a $25 fee
against a shareholder's account for any payment check returned for
insufficient funds. The shareholder will also be responsible for any
losses suffered by a Fund as a result.
5. Send the application and check to:
BY FIRST CLASS MAIL
The Hennessy Funds, Inc.
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
BY OVERNIGHT DELIVERY SERVICE
OR EXPRESS MAIL
The Hennessy Funds, Inc.
c/o Firstar Mutual Fund Services, LLC
3rd Floor
615 East Michigan Street
Milwaukee, WI 53202-5207
Please do not send letters by overnight delivery service or express mail to the
Post Office Box address.
If you wish to open an account by wire, please call 1-800-221-6950 prior to
wiring funds in order to obtain a confirmation number and to ensure prompt and
accurate handling of funds. You should wire Funds to:
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Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
Milwaukee, WI 53202
ABA #075000022
Credit:
Firstar Mutual Fund Services, LLC
Account #112-952-137
Further Credit:
(name of Fund to be purchased)
(shareholder registration)
(shareholder account number, if known)
You should then send a properly signed New Account Application marked
"FOLLOW-UP" to either of the addresses listed above. Please remember that
Firstar Bank Milwaukee, N.A. must receive your wired funds prior to the close of
regular trading on the New York Stock Exchange for you to receive same day
pricing. The Funds and Firstar Bank Milwaukee, N.A. are not responsible for the
consequences of delays resulting from the banking or Federal Reserve Wire
system, or from incomplete wiring instructions.
Purchasing Shares from Broker-dealers, Financial Institutions and Others
Some broker-dealers may sell shares of the Hennessy Funds. These
broker-dealers may charge investors a fee either at the time of purchase or
redemption. The fee, if charged, is retained by the broker-dealer and not
remitted to the Funds or their investment advisers. Some broker-dealers may
purchase and redeem shares on a T+3 settlement basis.
The Funds may enter into agreements with broker-dealers, financial
institutions or other service providers ("Servicing Agents") that may include
the Funds as investment alternatives in the programs they offer or administer.
Servicing agents may:
* Become shareholders of record of the Funds. This means all
requests to purchase additional shares and all redemption
requests must be sent through the Servicing Agent. This also
means that purchases made through Servicing Agents are not
subject to the Funds' minimum purchase requirements.
* Use procedures and impose restrictions that may be in addition
to, or different from, those applicable to investors purchasing
shares directly from the Funds.
13
<PAGE>
* Charge fees to their customers for the services they provide
them. Also, the Funds and/or their investment advisers may pay
fees to Servicing Agents to compensate them for the services they
provide their customers.
* Be allowed to purchase shares by telephone with payment to follow
the next day. If the telephone purchase is made prior to the
close of regular trading on the New York Stock Exchange, it will
receive same day pricing.
* Be authorized to accept purchase orders on behalf of the Funds.
This means that a Fund will process the purchase order at the net
asset value which is determined following the Servicing Agent's
acceptance of the customer's order.
If you decide to purchase shares through Servicing Agents, please carefully
review the program materials provided to you by the Servicing Agent. When you
purchase shares of the Funds through a Servicing Agent, it is the responsibility
of the Servicing Agent to place your order with the Funds on a timely basis. If
the Servicing Agent does not, or if it does not pay the purchase price to the
Funds within the period specified in its agreement with the Funds, it may be
held liable for any resulting fees or losses.
Other Information about Purchasing Shares of the Funds
The Funds may reject any purchase order for any reason. The Funds will not
accept initial purchase orders made by telephone unless they are from a
Servicing Agent which has an agreement with the Fund.
The Funds will not issue certificates evidencing shares purchased. Instead,
the Funds will send investors a written confirmation for all purchases of
shares.
The Funds offer an automatic investment plan allowing shareholders to make
purchases on a regular and convenient basis. The Funds also offer a telephone
purchase option permitting shareholders to make additional purchases by
telephone. The Funds also offer the following retirement plans:
o Traditional IRA
o Roth IRA
o SEP-IRA
Investors can obtain further information about the automatic investment
plan, the telephone purchase plan and the IRAs by calling the Funds at
1-800-221-6950. The Hennessy Funds recommend that investors consult with a
competent financial and tax advisor regarding the IRAs before investing through
them.
14
<PAGE>
REDEEMING SHARES
How to Redeem (Sell) Shares by Mail
1. Prepare a letter of instruction containing:
o the name of the Fund(s)
o account number(s)
o the amount of money or number of shares being redeemed
o the name(s) on the account
o daytime phone number
o additional information that the Funds may require for redemptions
by corporations, executors, administrators, trustees, guardians,
or others who hold shares in a fiduciary or representative
capacity. Please contact the Funds' transfer agent, Firstar
Mutual Fund Services, LLC, in advance, at 1-800-221-6950 if you
have any questions.
2. Sign the letter of instruction exactly as the shares are registered.
Joint ownership accounts must be signed by all owners.
3. Have 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 in the following situations:
o The redemption request includes a change of address
o The redemption proceeds are to be sent to a person other than the
person in whose name the shares are
registered
o The redemption proceeds are to be sent to an address other than
the address of record
A notarized signature is not an acceptable substitute for a signature
guarantee.
15
<PAGE>
4. Send the letter of instruction to:
BY FIRST CLASS MAIL
The Hennessy Funds, Inc.
c/o Firstar Mutual Fund Services, LLC
Shareholder Services Center
P. O. Box 701
Milwaukee, WI 53201-0701
BY OVERNIGHT DELIVERY SERVICE
OR EXPRESS MAIL
The Hennessy Funds, Inc.
c/o Firstar Mutual Fund Services, LLC
3rd Floor
615 East Michigan Street
Milwaukee, WI 53202-5207
Please do not send letters of instruction by overnight delivery service or
express mail to the Post Office Box address.
How to Redeem (Sell) Shares by Telephone
1. Instruct Firstar Mutual Fund Services, LLC that you want the option of
redeeming shares by telephone. This can be done by completing the New
Account Application. If you have already opened an account, you may
write to Firstar Mutual Fund Services, LLC requesting this option.
When you do so, please sign the request exactly as your account is
registered and have the signatures guaranteed. Shares held in
retirement plans cannot be redeemed by telephone.
2. Assemble the same information that you would include in the letter of
instruction for a written redemption request.
3. Call Firstar Mutual Fund Services, LLC at 1-800-221-6950. Please do
not call the Funds or the Adviser.
4. Telephone redemptions must be in amounts of $1,000 or more.
How to Redeem (Sell) Shares through Servicing Agents
If your shares are held by a Servicing Agent, you must redeem your shares
through the Servicing Agent. Contact the Servicing Agent for instructions on how
to do so.
16
<PAGE>
Redemption Price
The redemption price per share you receive for redemption requests is the
next determined net asset value after:
* Firstar Mutual Fund Services, LLC receives your written request in
proper form with all required information.
* Firstar Mutual Fund Services, LLC receives your authorized telephone
request with all required information.
* A Servicing Agent that has been authorized to accept
redemption requests on behalf of the Funds receives your
request in accordance with its procedures.
Payment of Redemption Proceeds
* For those shareholders who redeem shares by mail, Firstar Mutual Fund
Services, LLC will mail a check in the amount of the redemption
proceeds no later than the seventh day after it receives the
redemption request in proper form with all required information.
* For those shareholders who redeem by telephone, Firstar Mutual Fund
Services, LLC will either mail a check in the amount of the redemption
proceeds no later than the seventh day after it receives the
redemption request, or transfer the redemption proceeds to your
designated bank account if you have elected to receive redemption
proceeds by either Electronic Funds Transfer or wire. An Electronic
Funds Transfer generally takes up to 3 business days to reach the
shareholder's account whereas Firstar Mutual Fund Services, LLC
generally wires redemption proceeds on the business day following the
calculation of the redemption price. However, the Funds may direct
Firstar Mutual Fund Services, LLC to pay the proceeds of a telephone
redemption on a date no later than the seventh day after the
redemption request.
* For those shareholders who redeem shares through Servicing Agents, the
Servicing Agent will transmit the redemption proceeds in accordance
with its redemption procedures.
Other Redemption Considerations
When redeeming shares of the Funds, shareholders should consider the
following:
* The redemption may result in a taxable gain.
17
<PAGE>
* Shareholders who redeem shares held in an IRA must indicate on their
redemption request whether or not to withhold federal income taxes. If
not, these redemptions will be subject to federal income tax
withholding.
* The Funds may delay the payment of redemption proceeds for up to seven
days in all cases.
* If you purchased shares by check, the Funds may delay the payment of
redemption proceeds until they are reasonably satisfied the check has
cleared (which may take up to 15 days from the date of purchase).
* Firstar Mutual Fund Services, LLC will send the proceeds of telephone
redemptions to an address or account other than that shown on its
records only if the shareholder has sent in a written request with
signatures guaranteed.
* The Funds reserve the right to refuse a telephone redemption request
if they believe it is advisable to do so. The Funds and Firstar Mutual
Fund Services, LLC may modify or terminate their procedures for
telephone redemptions at any time. Neither the Funds nor Firstar
Mutual Fund Services, LLC will be liable for following instructions
for telephone redemption transactions that they reasonably believe to
be genuine, provided they use reasonable procedures to confirm the
genuineness of the telephone instructions. They may be liable for
unauthorized transactions if they fail to follow such procedures.
These procedures include requiring some form of personal
identification prior to acting upon the telephone instructions and
recording all telephone calls. During periods of substantial economic
or market change, you may find telephone redemptions difficult to
implement. If a shareholder cannot contact Firstar Mutual Fund
Services, LLC by telephone, he or she should make a redemption request
in writing in the manner described earlier.
* Firstar Mutual Fund Services, LLC currently charges a fee of $12 when
transferring redemption proceeds to your designated bank account by
wire but does not charge a fee when transferring redemption proceeds
by Electronic Funds Transfer.
* If your account balance falls below $1,000 because you redeem shares,
you will be given 60 days to make additional investments so that your
account balance is $1,000 or more. If you do not, the Funds may close
your account and mail the redemption proceeds to you.
* The Funds may pay redemption requests "in kind." This means that the
Funds may pay redemption requests entirely or partially with
securities rather than with cash.
18
<PAGE>
EXCHANGING SHARES
Shares of either Hennessy Fund may be exchanged for shares of the other
Hennessy Fund or Firstar Money Market Fund at their relative net asset values.
(An affiliate of Firstar Mutual Fund Services, LLC advises Firstar Money Market
Fund. Please call 1-800-221-6950 for a prospectus describing Firstar Money
Market Fund.) You may have a taxable gain or loss as a result of an exchange
because the Internal Revenue Code treats an exchange as a sale of shares.
How to Exchange Shares
1. Read this Prospectus carefully and, if applicable, the prospectus for
the Firstar Money Market Fund.
2. Determine the number of shares you want to exchange keeping in mind
that exchanges are subject to a $1,000 minimum.
3. Call Firstar Mutual Fund Services, LLC at 1-800-221-6950. You may also
make an exchange by writing to The Hennessy Funds, Inc. c/o Firstar
Mutual Fund Services, LLC, 3rd Floor, P. O. Box 701, Milwaukee,
Wisconsin 53201-0701. Firstar Mutual Fund Services, LLC charges a fee
of $5.00 for each telephone exchange. There is no charge for a written
exchange.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each of the Hennessy Funds distributes substantially all of its net
investment income quarterly and substantially all of its capital gains annually.
You have three distribution options:
o Automatic Reinvestment Option - Both dividend and capital gains
distributions will be reinvested in additional Fund shares.
o Cash Dividend Option - Your dividends will be paid in cash and your
capital gains distributions will be reinvested in additional Fund
shares.
o All Cash Option - Both dividend and capital gains distributions will
be paid in cash.
You may make this election on the New Account Application. You may change your
election by writing to Firstar Mutual Fund Services, LLC or by calling
1-800-261-6950.
Each Fund's distributions, whether received in cash or additional shares of
the Fund, may be subject to federal and state income tax. These distributions
may be taxed as
19
<PAGE>
ordinary income and capital gains (which may be taxed at different rates
depending on the length of time the Fund holds the assets generating the capital
gains).
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand a
Fund's financial performance for the period of its operations. Certain
information reflects financial results for a single Fund share. The total
returns in the tables represent the rate that an investor would have earned on
an investment in a Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by KPMG LLP, whose report,
along with the Funds' financial statements, are included in the Annual Report
which is available upon request.
20
<PAGE>
<TABLE>
Hennessy Balanced Fund
For the Years Ended June 30,
----------------------------
<CAPTION>
3/8/96(1)
through
1999 1998 1997 6/30/96
---- ---- ---- -------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period................................... $12.23 $11.67 $10.18 $10.00
Income from investment operations:
Net investment income....................... 0.28 0.29 0.23 0.06
Net realized and unrealized gain
on securities ............................. 0.83 0.73 1.55 0.12
Total from investment operations............ 1.11 1.02 1.78 0.18
Less distributions:
Dividends from net investment
income..................................... (0.28) (0.29) (0.29) --
Distributions from realized gains .......... (0.50) (0.17) -- --
Total distributions......................... (0.78) (0.46) (0.29) --
Net asset value, end of period ............. $12.56 $12.23 $11.67 $10.18
====== ====== ====== ======
Total investment return .................... 9.61% 8.80% 17.70% 1.80%(2)
Supplemental data and ratios:
Net assets, end of period (000s)............ $24,041 $23,496 $17,639 $6,866
Ratio of expenses to average net assets:
Before expense reimbursement.............. 1.55% 2.39% 2.48% 4.04%(3)
After expense reimbursement............... 1.55% 1.64% 1.90% 1.90%(3)
Ratio of net investment income to
average net assets:
Before expense reimbursement.............. 2.28% 1.69% 1.84% 0.85%(3)
After expense reimbursement............... 2.28% 2.44% 2.41% 2.99%(3)
Portfolio turnover rate .................... 28.92% 23.24% 20.1% -- %(4)
- ---------------
(1) Commencement of operations.
(2) Not annualized.
(3) Annualized.
(4) 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.
</TABLE>
21
<PAGE>
Hennessy Leveraged Dogs Fund
7-29-98(1)
through
6-30-99
---------
Net asset value, beginning
of period................................... $10.00
Income from investment operations:
Net investment income....................... 0.31
Net realized and unrealized gain
on securities ............................. 0.70
Total from investment operations............ 1.01
Less distributions:
Dividends from net investment
income..................................... (0.31)
Distributions from realized gains .......... ----
Total distributions......................... (0.31)
Net asset value, end of period ............. $10.70
Total investment return .................... 10.28%(2)
Supplemental data and ratios:
Net assets, end of period (000s)............ $5,422
Ratio of operating expenses to average
net assets:
Before expense reimbursement.............. 4.35%(3)(4)
After expense reimbursement............... 0.00%(3)(4)
Ratio of interest expense to average net
assets................................... 1.17%
Ratio of net investment
income (loss) to average net assets:
Before expense reimbursement.............. (0.90)%(3)
After expense reimbursement............... 3.45%(3)
Portfolio turnover rate .................... --%(5)
- -------------------
(1) Commencement of operations.
(2) Not annualized.
(3) Annualized.
(4) For the period July 29, 1998 through June 30, 1999, the ratio of operating
expenses to average net assets excludes interest expense. The ratios,
before and after expense reimbursement, including interest expense would be
5.52% and 1.17%, respectively.
(5) For the period July 29, 1998 through June 30, 1999, there were no sales of
securities other than short-term securities which are not factored into
this calculation.
22
<PAGE>
To learn more about the Hennessy Funds you may want to read the Hennessy
Funds' Statement of Additional Information (or "SAI") which contains additional
information about the Funds. The Hennessy Funds have incorporated by reference
the SAI into the Prospectus. This means that you should consider the contents of
the SAI to be part of the Prospectus.
You also may learn more about the Hennessy Funds' investments by reading
the Hennessy Funds' annual and semi-annual reports to shareholders. The annual
report includes a discussion of the market conditions and investment strategies
that significantly affected the performance of the Funds during their last
fiscal year.
The SAI and the annual and semi-annual reports are all available to
shareholders and prospective investors without charge, simply by calling
1-800-261-6950.
Prospective investors and shareholders who have questions about the
Hennessy Funds may also call the above number or write to the following address:
The Hennessy Funds, Inc.
The Courtyard Square
750 Grant Avenue
Suite 100
Novato, CA 94945
The general public can review and copy information about the Hennessy Funds
(including the SAI) at the Securities and Exchange Commission's Public Reference
Room in Washington, D.C. (Please call 1-800-SEC-0330 for information on the
operations of the Public Reference Room.) Reports and other information about
the Hennessy Funds are also available at the Securities and Exchange
Commission's Internet site at http://www.sec.gov and copies of this information
may be obtained, upon payment of a duplicating fee, by writing to:
Public Reference Section
Securities and Exchange Commission
Washington, D.C. 20549-6009
Please refer to the Hennessy Funds' Investment Company Act File No.
811-7493, when seeking information about the Hennessy Funds from the Securities
and Exchange Commission.
23
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION October 31, 1999
FOR THE
HENNESSY BALANCED FUND
HENNESSY LEVERAGED DOGS FUND
THE HENNESSY FUNDS, INC.
The Courtyard Square
750 Grant Avenue
Suite 100
Novato, California 94945
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus for The Hennessy Funds, Inc., dated
October 31, 1999. 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 following financial statements are incorporated by reference to the
Annual Report, dated June 30, 1999 of The Hennessy Funds, Inc. (File No.
811-7493) as filed with the Securities and Exchange Commission on August 30,
1999:
o Independent Auditors' Report
o Statements of Assets and Liabilities
o Statements of Operations
o Statements of Changes in Net Assets
o Financial Highlights
o Schedules of Investments
o Notes to the Financial Statements
<PAGE>
The Hennessy Funds, Inc.
TABLE OF CONTENTS
-----------------
Page No.
--------
GENERAL INFORMATION AND HISTORY...............................................1
INVESTMENT RESTRICTIONS.......................................................1
INVESTMENT CONSIDERATIONS.....................................................3
DIRECTORS AND OFFICERS OF THE CORPORATION.....................................6
OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS............................7
INVESTMENT ADVISERS, ADMINISTRATOR, CUSTODIAN, TRANSFER
AGENT AND ACCOUNTING SERVICES AGENT........................................8
DETERMINATION OF NET ASSET VALUE.............................................11
DISTRIBUTION OF SHARES.......................................................12
AUTOMATIC INVESTMENT PLAN AND TELEPHONE PURCHASES............................14
REDEMPTION OF SHARES.........................................................14
SYSTEMATIC WITHDRAWAL PLAN...................................................14
EXCHANGING SHARES............................................................15
ALLOCATION OF PORTFOLIO BROKERAGE............................................16
TAXES........................................................................17
SHAREHOLDER MEETINGS.........................................................18
PERFORMANCE INFORMATION......................................................19
INDEPENDENT AUDITORS.........................................................22
CAPITAL STRUCTURE............................................................22
DESCRIPTION OF SECURITIES RATINGS............................................23
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information and the Prospectus dated October 31, 1999 and, if given or made,
such information or representations may not be relied upon as having been
authorized by The Hennessy Funds, Inc.
This Statement of Additional Information does not constitute an offer to sell
securities.
(i)
<PAGE>
GENERAL INFORMATION AND HISTORY
The Hennessy Funds, Inc., a Maryland corporation incorporated on January
11, 1996 (the "Corporation"), is an open-end management investment company
consisting of two non-diversified portfolios, Hennessy Balanced Fund (the
"Balanced Fund") and Hennessy Leveraged Dogs Fund (the "Leveraged Dogs Fund")
(collectively, the "Funds"). The Corporation is registered under the Investment
Company Act of 1940 (the "Act").
INVESTMENT RESTRICTIONS
Each of the Funds 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 that Fund's shares present or represented
at a shareholder'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
that Fund.
1. Neither Fund will purchase securities of any issuer if the purchase
would cause more than 5% of the value of that 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 each Fund's total assets may be invested without regard to these
limitations.
2. Neither Fund will sell securities short.
3. Neither Fund will 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 Balanced Fund may not borrow money or issue senior securities
except for temporary bank borrowings (not exceeding 10% of the Balanced
Fund's total assets) or for emergency or extraordinary purposes. The
Balanced Fund will not borrow money for the purpose of investing in
securities and the Balanced Fund will not purchase any portfolio securities
so long as any borrowed amounts remain outstanding. The Leveraged Dogs Fund
may borrow money or issue senior securities to the extent permitted by the
Act.
5. Neither Fund will pledge or hypothecate its assets, except to
secure permitted borrowings.
6. Neither Fund will act as an underwriter or distributor of
securities other than of its shares (except to the extent that a 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. Neither Fund will make loans, including loans of securities, except
it may acquire debt securities from the issuer or others which are publicly
-1-
<PAGE>
distributed or are of a type normally acquired by institutional investors
and enter into repurchase agreements.
8. Neither Fund will 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. Neither Fund will make investments for the purpose of exercising
control or management of any company.
10. Neither Fund will purchase or sell real estate or real estate
mortgage loans and neither will make any investments in real estate limited
partnerships.
11. Neither Fund will purchase or sell commodities or commodity
contracts.
12. Neither Fund will purchase or sell any interest in any oil, gas or
other mineral exploration or development program, including any oil, gas or
mineral leases.
Each of the Funds has adopted certain other investment restrictions which
are not fundamental policies and which may be changed by the Corporation's Board
of Directors without shareholder approval. These additional restrictions are as
follows:
1. Neither Fund will 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 a Fund's
investment adviser.
2. Neither Fund will 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. Neither Fund will purchase illiquid securities.
4. Neither Fund will purchase the securities of other investment
companies except: (a) as part of a plan of merger, consolidation or
reorganization approved by the shareholders of that 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) that 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 that Fund's net assets would be invested in shares of any one registered
investment company; and (iii) more than 10% of that Fund's net assets would
be invested in shares of registered investment companies.
-2-
<PAGE>
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 a Fund's investment 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 shareholders 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 either Fund, either Fund's investment adviser, or Edward
J. Hennessy, Inc., the general partner to each Fund's investment adviser. Dow
Jones & Company, Inc. has not participated in any way in the creation of the
Funds or in the selection of stocks included in the Funds 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.
-3-
<PAGE>
Dow Jones & Company, Inc. from time to time changes the stocks comprising the
DJIA, although such changes are infrequent.
Each 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
each 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 each Fund 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 each Fund's diversification requirement may preclude it from
effecting a purchase otherwise dictated by its investment strategy. Finally
because of the requirements of the Act, each 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 a Fund from effecting a purchase otherwise dictated by
its investment strategy.
Money Market Instruments
Each of the Funds may invest in cash and money market instruments. The
Funds may do so when accumulating funds to make purchases of common stocks or
U.S. Treasury securities or to have assets available to pay expenses or satisfy
redemption requests. The money market instruments in which the Funds invest
include U.S. Treasury bills, commercial paper, commercial paper master notes,
repurchase agreements and shares of money market mutual funds.
The Funds may invest in commercial paper or commercial paper master notes
rated, at the time of purchase, A-1 or A-2 by Standard & Poor's Corporation or
Prime-1 or Prime-2 by Moody's Investors Service, Inc. Commercial paper master
notes are demand instruments without a fixed maturity bearing interest at rates
that are fixed to known lending rates and automatically adjusted when such
lending rates change.
The Funds may enter into repurchase agreements with banks that are Federal
Reserve Member banks and non-bank dealers of U.S. government securities which,
at the time of purchase, are on the Federal Reserve Bank of New York's list of
primary dealers with a capital base greater than $100 million. When entering
into repurchase agreements, a Fund will hold as collateral an amount of cash or
government securities at least equal to the market value of the securities that
are part of the repurchase agreement. A repurchase agreement involves the risk
that a seller may declare bankruptcy or default. In such event a Fund may
experience delays, increased costs and a possible loss.
The Funds may also invest in securities issued by other investment
companies that invest in high qualify, short-term debt securities (i.e., money
market funds). In addition to the advisory fees and other expenses the Funds
bear directly in connection with their own operations, as a shareholder of
another investment company, a Fund would bear its 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 that Fund's shareholders.
-4-
<PAGE>
Borrowing
The Leveraged Dogs Fund intends to borrow for investment purposes.
Borrowing for investment is known as leveraging. Leveraging investments, by
purchasing securities with borrowed money, is a speculative technique which
increases investment risk, but also increases investment opportunity. Since
approximately half of the Leveraged Dogs Fund's assets will fluctuate in value,
whereas the interest obligations on borrowings may be fixed, the net asset value
per share of the Leveraged Dogs Fund when it leverages its investments will
increase more when the Leveraged Dogs Fund's portfolio assets increase in value
and decrease more when the Leveraged Dogs Fund's portfolio assets decrease in
value than would otherwise be the case. Moreover, interest costs on borrowings
may fluctuate with changing market rates of interest and may partially offset or
exceed the returns on the borrowed funds. Under adverse conditions, the
Leveraged Dogs Fund might have to sell portfolio securities to meet interest or
principal payments at a time investment considerations would not favor such
sales. The Leveraged Dogs Fund intends to use leverage whenever it is able to
borrow on terms considered by its investment adviser to be reasonable.
As required by the Act, the Leveraged Dogs Fund must maintain continuous
asset coverage (total assets, including assets acquired with borrowed funds,
less liabilities exclusive of borrowings) of 300% of all amounts borrowed. If,
at any time, the value of the Leveraged Dogs Fund's assets should fail to meet
this 300% coverage test, the Leveraged Dogs Fund, within three days (not
including Sundays and holidays), will reduce the amount of the Leveraged Dogs
Fund's borrowings to the extent necessary to meet this 300% coverage.
Maintenance of this percentage limitation may result in the sale of portfolio
securities at a time when investment considerations otherwise indicate that it
would be disadvantageous to do so.
Both Funds are authorized to borrow from banks as temporary
measures for extraordinary or emergency purposes in amounts not in excess of 10%
of that Fund's total assets. These borrowings are not subject to the foregoing
300% asset coverage requirement.
The Leveraged Dogs Fund may enter into reverse repurchase agreements, which
are considered to be borrowings under the Act. Under a reverse repurchase
agreement, the Leveraged Dogs Fund sells portfolio securities and agrees to
repurchase them at an agreed-upon future date and price. At the time the
Leveraged Dogs Fund enters into a reverse repurchase agreement, it will place in
a segregated custodial account, U.S. government securities or other liquid
securities having a value equal to or greater than the repurchase price
(including accrued interest), and will subsequently monitor the account to
insure that such value is maintained. Reverse repurchase agreements involve the
risk that the market value of the securities sold by the Leveraged Dogs Fund may
decline below the price of the securities it is obligated to repurchase.
Portfolio Turnover
The Funds 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 each Fund's annual
portfolio turnover rate may vary from
-5-
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year to year. Notwithstanding the foregoing, each Fund's portfolio turnover rate
will generally not exceed 100%. High portfolio turnover in any year will result
in the payment by a Fund of above-average transaction costs (such as brokerage
commissions or mark-ups or mark-downs) 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
As a Maryland corporation, the business and affairs of the Corporation are
managed by its officers under the direction of its Board of Directors. 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, 43,
has been President of Edward J. Hennessy, Incorporated ("EJH") since 1989. His
address is The Courtyard Square, 750 Grant Avenue, Suite 100, Novato, CA 94945.
*Brian A. Hennessy -- Director. Mr. Hennessy, 46, 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, 52, 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, 48, has been the owner of
Rays Catering since 1974. His address is 919 Eastman Lane, Petaluma, CA 94952.
J. Dennis DeSousa -- Director. Mr. DeSousa, 63, 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, 33, has been
corporate secretary and financial officer of EJH 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 to pay each
director who is not an interested person of the Corporation a fee of $600 ($350
from the Balanced Fund and $250 from the Leveraged Dogs Fund) for each meeting
of the Board of
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<PAGE>
Directors attended. The Corporation 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, 1999:
<TABLE>
COMPENSATION TABLE
<CAPTION>
Total
Compensation
Estimated from Corporation
Pension or Retirement Annual and Fund
Name of Aggregate Compensation Benefits Accrued As Benefits Upon Complex Paid to
Person from Corporation* Part of 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 $2,150 0 0 $2,150
Rodger D. Offenbach 0 0 0 0
J. Dennis DeSousa $2,150 0 0 $2,150
</TABLE>
OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
At July 31, 1999, the only persons owning of record, or known to the
Corporation to own beneficially, 5% or more of the outstanding shares of the
Balanced Fund are:
Name and Address of Shareholder Percentage Owned
- ------------------------------- ----------------
Charles Schwab & Co.* 15.53%
101 Montgomery Street
San Francisco, CA 94104
Tile West Inc. Profit Sharing Plan 6.52%
10 Hamilton Drive
Novato, CA 94949-5603
- ------------------
* All of the shares owned by Charles Schwab & Co. were owned of record only.
Including shares of the Balanced Fund owned by its investment adviser, all
officers and directors of the Corporation own owned 0.88% of the outstanding
shares of the Balanced Fund.
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<PAGE>
At July 31, 1999, the only person owning of record, or known to the
Corporation to own beneficially, 5% or more of the outstanding shares of the
Leveraged Dogs Fund is:
Name and Address of Shareholder Percentage Owned
- ------------------------------- ----------------
Charles Schwab & Co.* 66.55%
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 Leveraged Dogs Fund owned by its investment
adviser, all officers and directors of the Corporation owned 4.89% of the
outstanding shares of the Leveraged Dogs Fund.
INVESTMENT ADVISERS, ADMINISTRATOR, CUSTODIAN,
TRANSFER AGENT AND ACCOUNTING SERVICES AGENT
The investment adviser to the Balanced Fund is The Hennessy Management Co.,
L.P., The Courtyard Square, 750 Grant Avenue, Suite 100, Novato, California
94945 (the "Balanced Fund Adviser"). The investment adviser to the Leveraged
Dogs Fund is The Hennessy Management Co. 2, L.P., The Courtyard Square, 750
Grant Avenue, Suite 100, Novato, California 94945 (the "Leveraged Dogs Fund
Adviser"). Each of the Balanced Fund Adviser and the Leveraged Dogs Fund Adviser
is controlled by its general partner, EJH, which is in turn controlled by Neil
J. Hennessy. Mr. Offenbach and Mr. Hennessy are limited partners of each of the
Balanced Fund Adviser and the Leveraged Dogs Fund Adviser.
Pursuant to separate investment advisory agreements (the "Advisory
Agreements") entered into between the Balanced Fund and the Balanced Fund
Adviser and the Leveraged Dogs Fund and the Leveraged Dogs Fund Adviser,
respectively, the investment adviser supervises and manages the applicable
Fund's investment portfolio and, subject to such policies as the Corporation's
Board of Directors may determine, directs the purchase or sale of investment
securities in the day-to-day management of that Fund. Under each of the Advisory
Agreements, the investment adviser, at its own expense and without separate
reimbursement from the Fund (other than pursuant to the Fund's 12b-1 plan),
furnishes office space and all necessary office facilities, equipment and
executive personnel for managing that Fund; and bears all of that Fund's sales
and promotional expenses, other than expenses incurred in complying with the
laws regulating the issue or sale of securities. For the foregoing, each
investment adviser receives a monthly fee at the annual rate of 0.60% of the
daily net assets of the applicable Fund. During the fiscal year ended June 30,
1999 the Balanced Fund Adviser earned $138,497 of investment advisory fees from
the Balanced Fund and did not waive any of such fees. During the fiscal year
ended June 30,1998, the Balanced Fund Adviser earned $181,174 of investment
advisory fees from the Balanced Fund and waived $53,286 of such fees. During the
fiscal year ended June 30, 1997, the Balanced Fund Adviser earned
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<PAGE>
$100,537 of investment advisory fees from the Balanced Fund and waived $68,330
of such fees. During the fiscal year ended June 30,1999 the Leveraged Dogs Fund
Adviser earned $14,902 of investment advisory fees from the Leveraged Dogs Fund
and waived all of such fees.
The Funds pay all of their expenses not assumed by the investment advisers,
including, but not limited to, the costs of preparing and printing the
registration statement required under the Securities Act of 1933 and the Act and
any amendments thereof, the expenses of registering their 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.
The Funds will also pay the fees of the Corporation's directors who are not
officers, salaries of administrative and clerical personnel, association
membership dues, legal fees, auditing and accounting services, fees and expenses
of any custodian or trustees having custody of the Funds' 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.
Each investment adviser has undertaken to reimburse the applicable 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 that 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 that Fund are qualified for sale or, if the states in
which the shares of that 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 either Fund. Each Fund monitors its
expense ratio on a monthly basis. If the accrued amount of the expenses of a
Fund exceeds the expense limitation, that Fund creates an account receivable
from its investment adviser for the amount of such excess. In such a situation
the monthly payment of the investment 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 investment adviser will pay
the applicable Fund the amount of such difference), subject to adjustment month
by month during the balance of that 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 years ended June 30, 1997 and 1998, the Balanced Fund Adviser
waived investment advisory fees, as described above, in amounts sufficient to
cause the Balanced Fund's expenses not to exceed 1.90% and 1.68%, respectively,
of the Balanced Fund's average daily net assets. Notwithstanding the most
restrictive applicable expense limitation of state securities commissions
described above, during the fiscal year ended June 30, 1999 the Leveraged Dogs
Fund Adviser waived investment advisory fees, as described above, and reimbursed
the Leveraged Dogs Fund
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<PAGE>
$108,103 so as to cause the Leveraged Dogs Fund's expenses (excluding interest,
taxes, brokerage commissions and other costs incurred in connection with the
purchase and sale of securities, and extraordinary items) not to exceed 0.00% of
the Leveraged Dogs Fund's average daily net assets.
Each 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 applicable 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 applicable investment adviser, cast in person at a
meeting called for the purpose of voting on such approval. Each 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 applicable Fund's shareholders on sixty (60) days' written
notice to the investment adviser, and by the investment adviser on the same
notice to the Corporation, and that it shall be automatically terminated if it
is assigned.
Each Advisory Agreement provides that the applicable investment adviser
shall not be liable to the Corporation or its shareholders for anything other
than willful misfeasance, bad faith, gross negligence or reckless disregard of
its obligations or duties. Each Advisory Agreement also provides that the
investment 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.
The administrator to the Corporation is Firstar Mutual Fund Services, LLC,
615 East Michigan Street, Milwaukee, Wisconsin 53202 (the "Administrator").
Pursuant to an administration agreement entered into between the Corporation and
the Administrator relating to each Fund (the "Administration Agreements"), the
Administrator maintains the books, accounts and other documents required by the
Act, responds to shareholder inquiries, prepares each Fund's 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 each Fund's
operations. The Administrator, at its own expense and without reimbursement from
the Funds, 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 each Fund a fee, paid monthly, at an annual rate of .05% of the
first $100,000,000 of such Fund's average net assets, .04% of the next
$400,000,000 of such Fund's average net assets, and .03% of such Fund's net
assets in excess of $500,000,000. Notwithstanding the foregoing, the
Administrator's minimum annual fee from the Balanced Fund is $30,000 and from
the Leveraged Dogs Fund, $20,000. 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
-10-
<PAGE>
ended June 30, 1999, June 30, 1998 and June 30, 1997, the Balanced Fund incurred
fees in the amount of $30,011, $32,474 and $31,299, respectively, pursuant to
the Administration Agreement. During the fiscal year ended June 30, 1999, the
Leveraged Dogs Fund incurred fees of $16,500 pursuant to the Administration
Agreement.
Under the Administration Agreement, the Administrator is required to
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 its
performance as administrator under 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 Bank Milwaukee, N.A., an affiliate of Firstar Mutual Fund Services,
LLC, 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 each Fund, (ii) make receipts
and disbursements of money on behalf of each Fund, (iii) collect and receive all
income and other payments and distributions on account of each Fund's portfolio
investments, (iv) respond to correspondence from shareholders, security brokers
and others relating to its duties, and (v) make periodic reports to each 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 each Fund under Shareholder Servicing Agent Agreements. As transfer
and dividend disbursing agent, Firstar Mutual Fund Services, LLC has agreed to
(i) issue and redeem shares of each Fund, (ii) make dividend and other
distributions to shareholders of each 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 Funds.
In addition the Corporation has entered into a Fund Accounting Servicing
Agreement with Firstar Mutual Fund Services, LLC pursuant to which Firstar
Mutual Fund Services, LLC has agreed to maintain the financial accounts and
records of each Fund and provide other accounting services to each 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 each Fund, .01% on the next $200 million of
average net assets, and .0005% on average net assets exceeding $240 million.
Firstar Mutual Fund Services, LLC is also entitled to certain out of pocket
expenses, including pricing expenses. During the fiscal years ended June 30,
1999, June 30, 1998 and June 30, 1997, the Balanced Fund incurred fees of
$24,014, $25,095 and $24,192, respectively, pursuant to the Fund Accounting
Servicing Agreement. During the fiscal year ended June 30, 1998 the Leveraged
Dogs Fund incurred fees of $18,423 pursuant to the Fund Accounting Servicing
Agreement.
DETERMINATION OF NET ASSET VALUE
The net asset value of each Fund is 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
-11-
<PAGE>
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.
Each Fund's net asset value per share is determined by dividing the total
value of its investments and other assets less any liabilities, by the number of
its outstanding shares. Each Fund's 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 applicable Fund's investment adviser in
accordance with procedures approved by the Board of Directors of the
Corporation. Short-term instruments (those with remaining maturities of 60 days
or less) are valued at amortized cost, which approximates market value.
DISTRIBUTION OF SHARES
The Corporation has adopted a Service and Distribution Plan (the "Plan") in
anticipation that the Funds will benefit from the Plan through increased sales
of their shares, thereby reducing each Fund's expense ratio and providing an
asset size that allows its investment adviser greater flexibility in management.
The Plan authorizes payments by the Funds in connection with the distribution of
their shares at an annual rate, as determined from time to time by the
Corporation's Board of Directors, of up to 0.25% of each 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 the
Funds may be spent on any activities or expenses primarily intended to result in
the sale of shares of the Funds, 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 the Funds to employ a
distributor of their 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 the Funds' 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, and time devoted to, distribution
activities.
-12-
<PAGE>
Initially all payments under the Plan will be made to the investment
advisers who directly bear all sales and promotional expenses of the Fund, other
than expenses incurred in complying with laws regulating the issuance or sale of
securities. (The Funds indirectly bear sales and promotional expenses to the
extent they make payments under the Plan.) During the fiscal year ended June
30,1999, the Balanced Fund incurred $57,707 of distribution fees under the Plan,
none of which was waived by the Balanced Fund Adviser. During the fiscal year
ended June 30, 1998, the Balanced Fund incurred $159,859 of distribution fees
under the Plan, of which $106,573 were waived by the Balanced Fund Adviser.
During the fiscal year ended June 30, 1997, the Balanced Fund incurred $89,322
of distribution fees under the Plan, of which $59,548 were waived by the
Balanced Fund Adviser. During the fiscal year ended June 30, 1999 the Leveraged
Dogs Fund incurred $6,209 of distribution fees under the Plan, all of which were
waived by the Leveraged Dogs Fund Adviser.
Each investment adviser has entered into an agreement with EJH pursuant to
which it will pay EJH for expenses actually incurred by EJH in distributing that
Fund's shares (the "EJH Agreement"). The EJH Agreement further provides that the
applicable investment adviser will pay EJH an amount equal to $225 per hour, or
such other rate as the applicable investment adviser and EJH may agree from time
to time, for services provided by Neil J. Hennessy in his capacity as President
of EJH related to the distribution of that Funds' shares. (Prior to May 28,
1998, the Balanced Fund Adviser had an agreement with EJH pursuant to which it
paid EJH an amount equal to 1% of the net asset value of all shares of the
Balanced Fund sold other than through dividend reinvestments (the "Former EJH
Agreement"). The Former EJH Agreement required EJH 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 shareholder. During the fiscal years ended June 30, 1999, 1998 and 1997, the
Balanced Fund Adviser paid EJH $94,420, $69,836 and $101,527, respectively,
pursuant to the foregoing Agreements. During the fiscal year ended June 30,
1999, the Leveraged Dogs Fund Adviser paid EJH $152,407 pursuant to the EJH
Agreement. Neil J. Hennessy, the President and a director of the Corporation, is
a limited partner of each investment adviser as well as President and
controlling shareholder of EJH, the general partner to each investment adviser.
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 shareholders 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.
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<PAGE>
AUTOMATIC INVESTMENT PLAN AND TELEPHONE PURCHASES
Each Fund offers an automatic investment option pursuant to which money
will be moved from a shareholder's bank account to the shareholder's Fund
account on the schedule (e.g., monthly, bimonthly (every other month), quarterly
or yearly) the shareholder selects. The minimum transaction amount is $100.
Each Fund offers a telephone purchase option pursuant to which money will
be moved from the shareholder's bank account to the shareholder's Fund account
upon request. Only bank accounts held at domestic financial institutions that
are Automated Clearing House (ACH) members can be used for telephone
transactions. To have Fund 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 the 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 3 business days. The minimum amount
that can be transferred by telephone is $100.
REDEMPTION OF SHARES
A shareholder's right to redeem shares of the Funds will be suspended and
the shareholder's 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 practical
for the Funds to dispose of its securities or fairly to determine the value of
its net assets.
SYSTEMATIC WITHDRAWAL PLAN
An investor who owns shares of either Fund worth at least $10,000 at the
current net asset value may, by completing an application which may be obtained
from that Fund or Firstar Mutual Fund Services, LLC, 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.
-14-
<PAGE>
Redemptions will be made in accordance with the schedule (e.g., monthly,
bimonthly [every other month], quarterly or yearly, but in no event more
frequently 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 Mutual Fund Services, LLC in writing thirty (30) days prior
to the next payment.
EXCHANGING SHARES
Investors may exchange shares of either Fund having a value of $1,000 or
more for shares of the Firstar Money Market Fund at their net asset value and at
a later date exchange such shares and shares purchased with reinvested dividends
for shares of the Funds at net asset value. Investors who are interested in
exercising the exchange privilege should first contact the Funds to obtain
instructions and any necessary forms. The exchange privilege does not in any way
constitute an offering of, or recommendation on the part of the Funds or their
investment advisers of, an investment in Firstar Money Market Fund. Any investor
who considers making such an investment through the exchange privilege should
obtain and review the prospectus of the Firstar Money Market Fund before
exercising the exchange privilege.
Because of the time needed to transfer money between the Funds or a Fund
and the Firstar Money Market Fund, investors may not exchange into or out of the
same fund on the same or successive days. There must be at least one day between
exchange transactions. Investors may exchange shares only for shares that have
been registered in their state.
The exchange privilege will not be available if (i) the proceeds from a
redemption of shares are paid directly to the investor or at his or her
discretion to any persons other than the Funds or (ii) the proceeds from
redemption of the shares of the Firstar Money Market Fund are not immediately
reinvested in shares of the Funds through a subsequent exercise of the exchange
privilege. Because excessive trading can hurt a Fund's performance and
shareholders, each 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). Exchanges may
be restricted or refused by a 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
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<PAGE>
disruptive to a Fund. The exchange privilege may be terminated by the Funds upon
at least 60 days prior notice to investors.
ALLOCATION OF PORTFOLIO BROKERAGE
Each 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 Balanced Fund are made
by the Balanced Fund Adviser and for the Leveraged Dogs Fund by the Leveraged
Dogs Fund Adviser in each case subject to review by the Corporation's Board of
Directors. In placing purchase and sale orders for portfolio securities for the
Funds, it is the policy of the investment advisers 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 a 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 investment 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 a 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 (i.e. "markups" when the market maker sells a
security and "markdowns" when the market maker buys a security). In some
instances, the investment adviser may believe that better prices are available
from non-principal market makers who are paid commissions directly. Although the
Funds do not initially intend to market their shares through intermediary
broker-dealers, the Funds may place portfolio orders with broker-dealers who
recommend the purchase of Fund shares to clients (if the investment adviser
believes the commissions and transaction quality are comparable to that
available from other brokers) and may allocate portfolio brokerage on that
basis.
The investment adviser may allocate brokerage to EJH but only if the
investment adviser reasonably believes the commission and transaction quality
are comparable to that available from other qualified brokers. Under the Act,
EJH is prohibited from dealing with a Fund as a principal in the purchase and
sale of securities. EJH, when acting as a broker for a Fund in any of its
portfolio transactions executed on a securities exchange of which EJH 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 Funds, the investment advisers
also take 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 investment advisers
believe these services have substantial value, they are considered supplemental
to their own
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<PAGE>
efforts in the performance of their duties under the Advisory Agreements. Other
clients of the investment advisers may indirectly benefit from the availability
of these services to the investment advisers, and the Funds may indirectly
benefit from services available to the investment adviser as a result of
transactions for other clients. The Advisory Agreements provide that the
investment advisers may cause a Fund to pay a broker which provides brokerage
and research services to the investment adviser a commission for effecting a
securities transaction in excess of the amount another broker would have charged
for effecting the transaction, if the investment 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 investment 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 Balanced Fund during the
fiscal years ended June 30, 1999, June 30, 1998 and June 30, 1997 were paid to
EJH. Commissions totaled $6,815 on transactions involving securities having a
total market value of $6,685,463 during the fiscal year ended June 30, 1999,
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, and
commissions totaled $5,573 on transactions involving securities having a total
market value of $6,110,181 during the fiscal year ended June 30, 1997. All of
the brokerage commissions paid by the Leveraged Dogs Fund during the fiscal year
ended June 30, 1999 were paid to EJH. Commissions totaled $3,451 on transactions
involving securities having a total market value of $3,724,679 during the fiscal
year ended June 30, 1999.
TAXES
Each 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. Each Fund has so qualified in each of its fiscal years. If a Fund
fails to qualify as a regulated investment company under Subchapter M in any
fiscal year, it will be treated as a corporation for federal income tax
purposes. As such, the Fund would be required to pay income taxes on its net
investment income and net realized capital gains, if any, at the rates generally
applicable to corporations. Shareholders of a Fund that did not qualify as a
regulated investment company under Subchapter M would not be liable for income
tax on the Fund's net investment income or net realized capital gains in their
individual capacities. Distributions to shareholders, whether from the Fund's
net investment income or net realized capital gains, would be treated as taxable
dividends to the extent of accumulated earnings and profits of the Fund.
Each Fund intends to distribute substantially all of its net investment
income and net capital gains each fiscal year. 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
-17-
<PAGE>
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.
Each Fund may be required to withhold Federal income tax at a rate of 31%
("backup withholding") from dividend payments and redemption proceeds if a
shareholder fails to furnish such Fund with his social security number or other
tax identification number and certify under penalty of perjury that such number
is correct and that he is not subject to backup withholding due to the
underreporting of income. The certification form is included as part of the new
account application and should be completed when the account is opened.
This section is not intended to be a complete 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 Funds.
SHAREHOLDER MEETINGS
The Maryland General Corporation Law permits registered investment
companies, such as the Corporation, to operate without an annual meeting of
shareholders 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 shareholders under the
Act.
The Corporation's Bylaws also contain procedures for the removal of
directors by its shareholders. At any meeting of shareholders, duly called and
at which a quorum is present, the shareholders 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
shareholders for the purpose of voting upon the question of removal of any
director. Whenever ten or more shareholders 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 shareholders with a view to obtaining signatures to a request for a
meeting as described above and accompanied by
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<PAGE>
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 shareholders
as recorded on the books of the Corporation; or (2) inform such applicants as to
the approximate number of shareholders 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 shareholders 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 shareholders with reasonable promptness after the entry
of such order and the renewal of such tender.
PERFORMANCE INFORMATION
Each of the Funds may provide from time to time in advertisements, reports
to shareholders and other communications with shareholders their average annual
total returns. 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.
With respect to "average" total return figures for periods longer than one year,
a Fund's annual total return for any one year in the period might have been
greater or less than the average for the entire period. The Funds may use
"aggregate" total return figures for various periods, representing the
cumulative change in value of an investment in a Fund for a specific period
(again reflecting changes in our share price and assuming reinvestment of
dividends and distributions).
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
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<PAGE>
investments in a Fund's investment portfolio. Each 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:
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
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 Balanced Fund's average annual total returns for the one-year period
ended June 30, 1999 and for the period from the Fund's commencement of
operations (March 8, 1996) through June 30, 1999 were 9.61% and 11.37%,
respectively. The Leveraged Dogs Fund's total return from the Fund's
commencement of operations (July 29, 1998) through June 30, 1999 (its period of
operations) was 10.28%.
The information below illustrates the total return for each of the Funds
compared to that of the DJIA and the Merrill Lynch One Year U.S. Treasury Bill
Index.
<TABLE>
COMPARISON OF TOTAL RETURN(1)
<CAPTION>
Year Ended DJIA Total Balanced Fund Leveraged Dogs Fund Merrill Lynch One Year
June 30, Return Total Return Total Return U.S. Treasury Bill Index
- ---------- ------ ------------ ------------ ------------------------
<S> <C> <C> <C> <C>
1997 38.59% 17.70% N/A 6.22%
1998 18.71% 8.80% N/A 5.80%
1999 24.66% 9.61% N/A(2) 5.12%
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- -------------------
(1) 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 U.S. Treasury Bill Index
is the change in the level of the index during the measuring period.
(2) The Leveraged Dogs Fund commenced operations on July 29, 1998.
</TABLE>
The charts below assume an initial investment of $10,000 on March 8, 1996
in the Balanced Fund and July 29, 1998 in the Leveraged Dogs Fund.
Merrill Lynch One
Hennessy Dow Jones Year U.S.
Date Balanced Fund Industrial Average Treasury 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
6/30/99 14,290 20,418 11,963
Hennessy Merrill Lynch One
Leveraged Dogs Dow Jones Year U.S.
Date Fund Industrial Average Treasury Bill Index
---- ---- ------------------ -------------------
6/30/99 $11,028 $12,485 $10,476
The foregoing performance results are based on historical earnings and
should not be considered as representative of the performance of the Funds in
the future. Such performance results also reflect waivers and/or reimbursements
made by the Balanced Fund Adviser and the Leveraged Dogs Fund Adviser described
in "Investment Advisers, Administrator, Custodian, Transfer Agent and Accounting
Services Agent." An investment in the Funds will fluctuate in value and at
redemption their value may be more or less than the initial investment.
Each of the Funds may also compare their 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 retur
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<PAGE>
performance.) The Funds may also compare their performance to the DJIA, NASDAQ,
Composite Index,, NASDAQ Industrials Index, Value Line Composite Index, the
Standard & Poor's 500 Stock Index, the Merrill Lynch One Year U.S. Treasury Bill
Index and the Consumer Price Index.
INDEPENDENT AUDITORS
KPMG LLP, 303 East Wacker Drive, Chicago, Illinois 60601 has served as the
independent accountants for the Funds since each Fund's inception. As such KPMG
LLP performs an audit of each Fund's financial statements including
consideration of each Fund's internal control structure.
CAPITAL STRUCTURE
The Corporation's authorized capital consists of 500,000,000 shares of
Common Stock. 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 Corporation is
offering two series of shares, the Balanced Fund and the Leveraged Dogs Fund.
One hundred million shares of Common Stock have been allocated to each of the
Balanced Fund and the Leveraged Dogs Fund. Shareholders are entitled: (i) to one
vote per full share of Common Stock; (ii) to such distributions as may be
legally declared by the Corporation's Board of Directors; and (iii) 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
Corporation'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 Act (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 Corporation 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 Corporation 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 Corporation, the
shareholders of each Fund will be entitled, out of the assets of the Corporation
available for distribution, to the assets belonging to such Fund.
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<PAGE>
DESCRIPTION OF SECURITIES RATINGS
Each of the Funds may invest in commercial paper and commercial paper
master notes rated A-1 or A-2 by Standard & Poor's Corporation ("Standard &
Poor's") or Prime-1 or Prime-2 by Moody's Investors Service, Inc. ("Moody's").
Standard & Poor's Commercial Paper Ratings. A Standard & Poor's commercial
paper rating is a current assessment of the likelihood of timely payment of debt
considered short-term in the relevant market. Ratings are graded into several
categories, ranging from A-1 for the highest quality obligations to D for the
lowest. These categories are as follows:
A-1. the highest category indicates that the degree of safety regarding
timely payment is strong. Those issuers determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2. Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issuers designated "A-1".
A-3. Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying a higher designation.
Moody's Short-Term Debt Ratings. Moody's short-term debt ratings are
opinions of the ability of issuers to repay punctually senior debt obligations
which have an original maturity not exceeding one year. Obligations relying upon
support mechanisms such as letters-of-credit and bonds of indemnity are excluded
unless explicitly rated.
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated issuers:
Prime-1. Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
o Leading market positions in well-established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
o Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
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<PAGE>
o Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2. Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3. Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
-24-
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits
(a) Registrant's Articles of Incorporation as supplemented.
(b) Registrant's Bylaws (1).
(c) None
(d)(1) Investment Advisory Agreement with The Hennessy Management Co., L.P.
relating to the Hennessy Balanced Fund (3).
(d)(2) Investment Advisory Agreement with The Hennessy Management Co., 2,
L.P. relating to the Hennessy Leveraged Dogs Fund (2).
(e) None
(f) None
(g) Custodian Agreement with Firstar Trust Company (predecessor to Firstar
Bank Milwaukee, N.A.) (1).
(h)(i) Fund Administration Servicing Agreement with Firstar Trust Company
(predecessor to Firstar Mutual Fund Services, LLC) (1).
(h)(ii) Transfer Agent Agreement with Firstar Trust Company (predecessor to
Firstar Mutual Fund Services, LLC) (1).
(h)(iii) Fund Accounting Servicing Agreement with Firstar Trust Company
(predecessor to Firstar Mutual Fund Services, LLC) (1).
(i) Opinion of Foley & Lardner, counsel for Registrant.
(j) Consent of KPMG LLP
(k) None
(l) Subscription Agreement (1).
(m)(i) Service and Distribution Plan (3).
(m)(ii) Agreement pursuant to Distribution Plan relating to the Hennessy
Balanced Fund. (3)
(m)(iii) Distribution Agreement relating to the Hennessy Balanced Fund. (3)
S-1
<PAGE>
(m)(iv) Agreement pursuant to Distribution Plan relating to Hennessy
Leveraged Dogs Fund (2).
(m)(v) Distribution Agreement relating to Hennessy Leveraged Dogs Fund (2).
(n) None
- ---------------
(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.
(2) 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.
(3) Previously filed as an exhibit to Amendment No. 5 to the Registration
Statement and incorporated by reference thereto. Amendment No. 5 to the
Registration Statement was filed on October 30, 1998 and its accession
number is 0000897069-98-000523.
Item 24. Persons Controlled by or under Common Control with Registrant
Registrant neither controls any person nor is under common control with any
other person.
Item 25. 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.
B. 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
S-2
<PAGE>
criminal proceeding, if he had no reasonable cause to believe his conduct was
unlawful provided that the corporation shall not indemnify corporate
representatives in relation to matters as to which any such corporate
representative shall be adjudged in such action, suit or proceeding to be liable
for gross negligence, willful misfeasance, bad faith, reckless disregard of the
duties and obligations involved in the conduct of his office, or when
indemnification is otherwise not permitted by the Maryland General Corporation
Law.
C. 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.
D. 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.
E. 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.
F. 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
S-3
<PAGE>
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.
G. 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.
H. "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 26. Business and Other Connections of Investment Adviser
Incorporated by reference to pages 6 through 11 of the Statement of
Additional Information pursuant to Rule 411 under the Securities Act of 1933.
Item 27. Principal Underwriters
Not Applicable.
Item 28. 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
S-4
<PAGE>
maintained by the Registrant's Administrator, Firstar Mutual Fund Services, LLC,
615 East Michigan Street, Milwaukee, Wisconsin.
Item 29. Management Services
All management-related service contracts entered into by Registrant are
discussed in Parts A and B of this Registration Statement.
Item 30. Undertakings
Registrant undertakes to provide its Annual Report to Shareholders upon
request without charge to each person to whom a prospectus is delivered.
S-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant 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 25th day of
August, 1999.
THE HENNESSY FUNDS, INC.
(Registrant)
By:/s/ Neil J. Hennessy
------------------------------------
Neil J. Hennessy, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date(s) indicated.
Name Title Date
---- ----- ----
/s/ Neil J. Hennessy President and Treasurer August 25, 1999
- ----------------------------- (Principal Executive,
Neil J. Hennessy Financial and Accounting
Officer) and a Director
/s/ Brian A. Hennessy Director August 25, 1999
- -----------------------------
Brian A. Hennessy
Robert T. Doyle Director August __, 1999
- -----------------------------
/s/ Rodger D. Offenbach Director August 25, 1999
- -----------------------------
Rodger D. Offenbach
/s/ J. Dennis DeSousa Director August 25, 1999
- -----------------------------
J. Dennis DeSousa
S-6
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
----------- -------
(a) Registrant's Articles of Incorporation, as supplemented
(b) Registrant's Bylaws*
(c) None
(d)(1) Investment Advisory Agreement with The Hennessy Management
Co., L.P. relating to Hennessy Balanced Fund*
(d)(2) Investment Advisory Agreement with the Hennessy Management
Co. 2, L.P. relating to the Hennessy Leveraged Dogs Fund*
(e) None
(f) None
(g) Custodian Agreement with Firstar Trust Company (predecessor
to Firstar Bank Milwaukee, N.A.)*
(h)(i) Fund Administration Servicing Agreement with Firstar Trust
Company (predecessor to Firstar Mutual Fund Services, LLC)*
(h)(ii) Transfer Agent Agreement with Firstar Trust Company
(predecessor to Firstar Mutual Fund Services, LLC)*
(h)(iii) Fund Accounting Servicing Agreement with Firstar Trust
Company (predecessor to Firstar Mutual Fund Services, LLC)*
(i) Opinion of Foley & Lardner, counsel for Registrant
(j) Consent of KPMG LLP
(k) None
(l) Subscription Agreement*
(m)(i) Service and Distribution Plan*
(m)(ii) Agreement pursuant to Distribution Plan relating to the
Hennessy Balanced Fund*
(m)(iii) Distribution Agreement relating to the Hennessy Balanced
Fund*
(m)(iv) Agreement pursuant to Distribution Plan relating to Hennessy
Leveraged
Dogs Fund*
<PAGE>
Exhibit No. Exhibit
----------- -------
(m)(v) Distribution Agreement relating to Hennessy Leveraged Dogs
Fund*
(n) None
----------------------------------
* Incorporated by Reference.
-2-
ARTICLES OF INCORPORATION
OF
THE HENNESSY FUNDS, INC.
(as supplemented)
The undersigned sole incorporator, being at least eighteen years of age,
hereby adopts the following Articles of Incorporation for the purpose of forming
a Maryland corporation under the general laws of the State of Maryland:
ARTICLE I
The name of the corporation (hereinafter called "Corporation") is:
THE HENNESSY FUNDS, INC.
ARTICLE II
The period of existence shall be perpetual.
ARTICLE III
The purposes for which the Corporation is formed are to engage in any
lawful business for which corporations may be organized under the Maryland
General Corporation Law.
ARTICLE IV
A. The aggregate number of shares of capital stock which the Corporation
shall have authority to issue is Five Hundred Million (500,000,000) shares, all
with a par value of One Hundredth of a Cent ($0.0001) per share, to be known and
designated as "Common Stock." The aggregate par value of the authorized shares
of the Corporation is Fifty Thousand Dollars ($50,000). The Board of Directors
of the Corporation may increase or decrease the aggregate number of authorized
shares of Common Stock pursuant to Section 2-105 of the Maryland General
Corporation Law or any successor provision thereto. The Board of Directors of
the Corporation may classify or reclassify any unissued shares of Common Stock
and may designate or redesignate the name of any class of outstanding Common
Stock. The Board of Directors may fix the number of shares of Common Stock in
any such class and, except as specifically set forth in these Articles of
Incorporation, may set or change the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms or conditions of redemption of any class of unissued shares of Common
Stock. A total of One Hundred Million (100,000,000) shares of Common Stock shall
initially be classified as "Class A Common Stock" (the "Hennessy Balanced Fund"
or such other name designated by the Corporation's Board of Directors). A total
of One Hundred Million (100,000,000) shares of Common Stock shall be classified
as "Class B Common
<PAGE>
Stock" (the "Hennessy Leveraged Dogs Fund") or such other name designated by the
Corporation's Board of Directors).
B. Notwithstanding the authority granted to the Board of Directors of the
Corporation with respect to the designation, classification and reclassification
of the unissued shares of Common Stock of the Corporation, each class of Common
Stock shall have the following preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms or
conditions of redemption:
1. Each holder of shares of Common Stock of the Corporation,
irrespective of the class, shall be entitled to one (1) vote for each full
share (and a fractional vote for each fractional share) then standing in
his or her name on the books of the Corporation; provided, however, that
shares of any class of Common Stock owned, other than in a fiduciary
capacity, by the Corporation or by another corporation in which the
Corporation owns shares entitled to cast a majority of all the votes
entitled to be cast by all shares outstanding and entitled to vote of such
corporation, shall not be voted at any meeting of stockholders. On any
matter submitted to a vote of stockholders all shares of the Corporation's
Common Stock then issued and outstanding and entitled to vote, irrespective
of the class, shall be voted in the aggregate and not by class, except
that: (a) when otherwise expressly provided by the Maryland General
Corporation Law, the Investment Company Act of 1940 and the regulations
thereunder, or other applicable law, shares shall be voted by individual
class; and (b) when the matter to be acted upon does not affect any
interest of a particular class of the Corporation's Common Stock, then only
shares of the affected class shall be entitled to vote thereon. At all
elections of directors of the Corporation, each stockholder shall be
entitled to vote the shares owned of record by him for as many persons as
there are directors to be elected, but shall not be entitled to exercise
any right of cumulative voting.
2. All consideration received by the Corporation for the issue or sale
of shares of any class of the Corporation's Common Stock, together with all
assets in which such consideration is invested and reinvested, income,
earnings, profits and proceeds thereof, including any proceeds derived from
the sale, exchange or liquidation thereof, and any such funds or payments
derived from any reinvestment of such proceeds in whatever form the same
may be, shall irrevocably belong to the class of the Corporation's Common
Stock with respect to which such assets, payments or funds were received by
the Corporation for all purposes, subject only to the rights of creditors,
and shall be so handled upon the books of account of the Corporation. Such
consideration, assets, income, earnings, profits and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation
thereof, and any assets derived from any reinvestment of such proceeds in
whatever form, are herein referred to as "assets belonging to" such class.
Any assets, income, earnings, profits and proceeds thereof, funds or
payments which are not readily attributable to any
-2-
<PAGE>
particular class of the Corporation's Common Stock shall be allocable among
any one or more of the classes of the Corporation's Common Stock in such
manner and on such basis as the Board of Directors, in its sole discretion,
shall deem fair and equitable. The power to make such allocations may be
delegated by the Board of Directors from time to time to one or more of the
officers of the Corporation.
3. The assets belonging to any class of the Corporation's Common Stock
shall be charged with the liabilities in respect of such class of the
Corporation's Common Stock, and shall also be charged with the share of the
general liabilities of the Corporation allocated to such class determined
as hereinafter provided. The determination of the Board of Directors shall
be conclusive as to: (a) the amount of such liabilities, including the
amount of accrued expenses and reserves; (b) any allocation of the same to
a given class; and (c) whether the same are allocable to one or more
classes. The liabilities so allocated to a class are herein referred to as
"liabilities belonging to" such class. Any liabilities which are not
readily attributable to any particular class of the Corporation's Common
Stock shall be allocable among any one or more of the classes of the
Corporation's Common Stock in such manner and on such basis as the Board of
Directors, in its sole discretion, shall deem fair and equitable. The power
to make such allocations may be delegated by the Board of Directors from
time to time to one or more of the officers of the Corporation.
4. Shares of a class of the Corporation's Common Stock shall be
entitled to such dividends and distributions, in stock or in cash or both,
as may be declared from time to time by the Board of Directors, acting in
its sole discretion, with respect to such class; provided, however, that
dividends and distributions on shares of a class of the Corporation's
Common Stock shall be paid only out of the lawfully available "assets
belonging to" such class as such phrase is defined in this Article IV.
5. In the event of the liquidation or dissolution of the Corporation,
stockholders of a class of the Corporation's Common Stock shall be entitled
to receive, as a class, out of the assets of the Corporation available for
distribution to stockholders, but other than general assets not belonging
to any particular class, the assets belonging to such class, and the assets
so distributable to the holders of any class of the Corporation's Common
Stock shall be distributed among such holders in proportion to the number
of shares of such class of the Corporation's Common Stock held by them and
recorded on the books of the Corporation. In the event that there are any
general assets not belonging to any particular class of the Corporation's
Common Stock and available for distribution, such distribution shall be
made to the holders of all classes of the Corporation's Common Stock in
proportion to the net asset values of the respective classes of the
Corporation's Common Stock determined as set forth in the Bylaws of the
Corporation.
-3-
<PAGE>
6. Each share of each class of Common Stock of the Corporation now or
hereafter issued shall be subject to redemption by the stockholders of the
Corporation and, subject to the suspension of such right of redemption as
provided in the Bylaws, each holder of shares of any class of Common Stock
of the Corporation, upon request to the Corporation accompanied by
surrender of the appropriate stock certificate or certificates, if any, in
proper form for transfer and after complying with any other redemption
procedures established by the Board of Directors, shall be entitled to
require the Corporation to redeem all or any part of the shares of such
class of Common Stock standing in the name of such holder on the books of
the Corporation at the net asset value of such shares. In the event that no
certificates have been issued to the holder, the Board of Directors may
require the submission of a stock power with an appropriate signature
guarantee. All shares of any class of its Common Stock redeemed by the
Corporation shall be deemed to be cancelled and restored to the status of
authorized but unissued shares. The method of computing the net asset value
of shares of each class of Common Stock of the Corporation for purposes of
the issuance and sale, or redemption, thereof, as well as the time as of
which such net asset value shall be computed, shall be as set forth in the
Bylaws. Payment of the net asset value of each share of each class of
Common Stock of the Corporation surrendered to it for redemption shall be
made by the Corporation within seven (7) days after surrender of such stock
to the Corporation for such purpose, or within such other reasonable period
as may be determined from time to time by the Board of Directors. The Board
of Directors of the Corporation may, upon reasonable notice to the
stockholders of the Corporation, impose a fee for the privilege of
redeeming shares, such fee to be not in excess of one percent (1.0%) of the
proceeds of any such redemption. The Board shall have discretionary
authority to rescind the imposition of any such fee and to reimpose the
redemption fee from time to time upon reasonable notice. Any fee so imposed
shall be uniform as to all stockholders to the extent required by the
Investment Company Act of 1940.
7. If, at any time when a request for transfer or redemption of the
shares of any class of Common Stock is received by the Corporation or its
agent, the value (computed as set forth in the Bylaws) of the shares of
such class in a stockholder's account is less than One Thousand Dollars
($1000.00), after giving effect to such transfer or redemption, the
Corporation may cause the remaining shares of such class in such
stockholder's account to be redeemed in accordance with such procedures as
the Board of Directors shall adopt.
8. Each holder of shares of the Corporation's Common Stock,
irrespective of the class, may, upon request to the Corporation accompanied
by surrender of the appropriate stock certificate or certificates, if any,
in proper form for transfer and after complying with any other conversion
procedures established by the Board of Directors, convert such shares into
shares of any other class of the Corporation's Common Stock on the basis of
their relative net
-4-
<PAGE>
asset values (determined in accordance with the Bylaws of the Corporation)
less a conversion charge or discount determined by the Board of Directors.
Any fee so imposed shall be uniform as to all stockholders to the extent
required by the Investment Company Act of 1940.
9. No holder of shares of any class of Common Stock of the Corporation
shall, as such holder, have any right to purchase or subscribe for any
shares of any class of the Common Stock of the Corporation which it may
issue or sell (whether out of the number of shares authorized by these
Articles of Incorporation, or out of any shares of any class of Common
Stock of the Corporation acquired by it after the issue thereof, or
otherwise) other than such right, if any, as the Board of Directors, in its
discretion, may determine.
ARTICLE V
The number of directors constituting the Board of Directors shall initially
be five (5), and the names of the initial directors are Neil J. Hennessy, Robert
T. Doyle, Rodger D. Offenbach, Brian A. Hennessy and John D. DeSousa.
Thereafter, the number of directors shall be such number as is fixed from time
to time by the Bylaws.
ARTICLE VI
The Corporation reserves the right to enter into, from time to time,
investment advisory and administration agreements providing for the management
and supervision of the investments of the Corporation, the furnishing of advice
to the Corporation with respect to the desirability of investing in, purchasing
or selling securities or other property and the furnishing of clerical and
administrative services to the Corporation. Such agreements shall contain such
other terms, provisions and conditions as the Board of Directors of the
Corporation may deem advisable and as are permitted by the Investment Company
Act of 1940.
The Corporation may designate custodians, transfer agents, registrars
and/or disbursing agents for the stock and assets of the Corporation and employ
and fix the powers, rights, duties, responsibilities and compensation of each
such custodian, transfer agent, registrar and/or disbursing agent.
ARTICLE VII
The following provisions define, limit and regulate the powers of the
Corporation, the Board of Directors and the stockholders:
A. The Corporation may issue and sell shares of any class of its own Common
Stock in such amounts and on such terms and conditions, for such purposes and
for such amount or kind of consideration now or hereafter permitted by the laws
of the State of Maryland, the Bylaws and these Articles of Incorporation, as its
Board of Directors may determine; provided, however, that the consideration per
share to be received by the Corporation upon the sale of any shares of any class
of its Common Stock shall not be less than
-5-
<PAGE>
the net asset value per share of such class of Common Stock outstanding at the
time as of which the computation of said net asset value shall be made.
B. The Board of Directors may, in its sole and absolute discretion, reject
in whole or in part orders for the purchase of shares of any class of Common
Stock and may, in addition, require such orders to be in such minimum amounts as
it shall determine.
C. The holders of any fractional shares of any class Common Stock shall be
entitled to the payment of dividends on such fractional shares, to receive the
net asset value thereof upon redemption, to share in the assets of the
Corporation upon liquidation and to exercise voting rights with respect thereto.
D. The Board of Directors shall have full power in accordance with good
accounting practice: (a) to determine what receipts of the Corporation shall
constitute income available for payment of dividends and what receipts shall
constitute principal and to make such allocation of any particular receipt
between principal and income as it may deem proper; and (b) from time to time,
in its discretion (i) to determine whether any and all expenses and other
outlays paid or incurred (including any and all taxes, assessments or
governmental charges which the Corporation may be required to pay or hold under
any present or future law of the United States of America or of any other taxing
authority therein) shall be charged to or paid from principal or income or both,
and (ii) to apportion any and all of said expenses and outlays, including taxes,
between principal and income.
E. The Board of Directors shall have the power to determine from time to
time whether and to what extent and at what time and places and under what
conditions and regulations the books, accounts and documents of the Corporation
or any of them, shall be open to the inspection of stockholders, except as
otherwise provided by applicable law; and except as so provided, no stockholder
shall have any right to inspect any book, account or document of the Corporation
unless authorized to do so by resolution of the Board of Directors.
ARTICLE VIII
The address of the principal office of the Corporation in Maryland is c/o
The Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202.
ARTICLE IX
The address of the initial registered office is c/o The Corporation Trust
Incorporated, 32 South Street, Baltimore, Maryland 21202.
ARTICLE X
The name of the initial registered agent at such address is The Corporation
Trust Incorporated, a Maryland corporation.
-6-
<PAGE>
ARTICLE XI
The name and address of the sole incorporator is:
Name Address
---- -------
Richard L. Teigen c/o Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, WI 53202
-7-
FOLEY & LARDNER
Attorneys At Law
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
WRITER'S DIRECT LINE
EMAIL ADDRESS CLIENT/MATTER NUMBER
082961/0101
August 31, 1999
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,
/s/ FOLEY & LARDNER
FOLEY & LARDNER
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
of Hennessy Funds, Inc.
We consent to the use of our report incorporated by reference in the Statement
of Additional Information and to the reference to our Firm under the headings
"Financial Highlights" in the Prospectus and "Independent Auditors" in the
Statement of Additional Information.
KPMG LLP
Chicago, Illinois
August 26, 1999
