THE HENNESSY
FUNDS, INC.
PROSPECTUS
OCTOBER 31, 1999
(HENNESSY FUNDS LOGO)
Hennessy Funds
THE HENNESSY FUNDS, INC.
The Courtyard Square
750 Grant Avenue, Suite 100
Novato, California 94945
(415) 899-1555
1 (800) 966-4354
Email: [email protected]
Hennessy Leveraged Dogs Fund Symbol: HDOGX
Hennessy Balanced Fund Symbol: HBFBX
HENNESSY FUNDS
PROSPECTUS
OCTOBER 31, 1999
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.
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.
TABLE OF CONTENTS
Questions Every Investor Should Ask
Before Investing in the Hennessy Funds 1
Fees and Expenses 3
Investment Objectives and Strategies 4
Management of the Funds 6
The Funds' Share Price 7
Purchasing Shares 8
Redeeming Shares 10
Exchanging Shares 12
Dividends, Distributions and Taxes 13
Financial Highlights 14
The Hennessy Funds, Inc.
The Courtyard Square
750 Grant Avenue
Suite 100
Novato, California 94945
(800) 966-4354 (Fund Information)
(800) 261-6950 (Account Information)
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")*<F1>
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:
o investing in the ten highest yielding stocks in the DJIA in approximately
equal dollar amounts
o 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
o 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 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:
*<F1> 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.
o MARKET RISK: The prices of the securities in which the Hennessy Funds
invest (e.g. AT&T Corp., Exxon Corp. and General Motors Corp. etc.) may
decline for a number of reasons including, a financial performance that
does not meet investor expectations, a shift of investor assets to stocks
in different sectors, or a general stock market decline.
o 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
because each security in which it invests will have greater impact on its
investment performance.
o 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 if the securities
purchased with borrowed money decline in value, the Leveraged Dogs Fund's
losses would be greater than if they had not used leverage. Also, the
Leveraged Dogs Fund will incur interest costs when it borrows money,
which costs may exceed the investment returns it earns on the securities
purchased with borrowed money.
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, 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)
1997 13.01%
1998 7.43%
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 3.70% (January 1, 1999
through the quarter ended September 30, 1999).
AVERAGE ANNUAL TOTAL RETURNS SINCE THE INCEPTION
(FOR THE PERIODS ENDING DATE OF THE FUND
DECEMBER 31, 1998) PAST YEAR (MARCH 8, 1996)
---------------------------- --------- ---------------
Hennessy Balanced Fund 7.43% 10.90%
S&P 500*<F2> 28.58% 27.38%
DJIA 17.75% 21.17%
Merrill Lynch One Year U.S.
Treasury Bill Index**<F3> 5.89% 5.81%
*<F2> The S&P 500 is the Standard & Poor's Composite Index of 500 Stocks, a
widely recognized unmanaged index of common stock prices.
**<F3> 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.
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.
<TABLE>
SHAREHOLDER FEES (fees paid directly from your investment)
HENNESSY BALANCED FUND HENNESSY LEVERAGED 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 (Load) No Deferred Sales Charge No Deferred Sales Charge
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends And Distributions No Sales Charge No Sales Charge
Redemption Fee None(1)<F4> None(1)<F4>
Exchange Fee None(2)<F5> None(2)<F5>
(1)<F4> Our transfer agent charges a fee of $12.00 for each wire redemption.
(2)<F5> Our transfer agent charges a fee of $5.00 for each telephone exchange.
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%*<F6>
Total Other Expenses 0.70% 4.67%*<F6>
Total Annual Fund Operating Expenses 1.55% 5.52%*<F6>
*<F6> 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%.
</TABLE>
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:
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. 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.
THE PRINCIPAL INVESTMENT STRATEGY
Twice monthly, our Funds' investment advisers 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 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. However,
neither of our Funds take temporary defensive positions. 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 reverse 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.
<TABLE>
COMPARISON OF TOTAL RETURN(1)<F7>
"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)<F7> 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.
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 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 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 national 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, as promptly as
practicable, 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
o All accounts $1,000
b. Existing accounts
o Dividend reinvestment No Minimum
o 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 1-800-261-6950 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:
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 three day 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:
o 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.
o Use procedures and impose restrictions that may be in addition to, or
different from, those applicable to investors purchasing shares directly
from the Funds.
o 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.
o 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.
o 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-
261-6950. The Hennessy Funds recommend that investors consult with a competent
financial and tax advisor regarding the IRAs before investing through them.
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 1-800-261-6950 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.
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 1-800-261-6950. 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.
REDEMPTION PRICE
The redemption price per share you receive for redemption requests is the
next determined net asset value after:
o Firstar Mutual Fund Services, LLC receives your written request in
proper form with all required information.
o Firstar Mutual Fund Services, LLC receives your authorized telephone
request with all required information.
o 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
o 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.
o 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.
o 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:
o The redemption may result in a taxable gain.
o 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.
o The Funds may delay the payment of redemption proceeds for up to seven
days in all cases.
o 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).
o 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.
o 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.
o 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.
o 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.
o 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.
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 1-800-261-6950 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 1-800-261-6950. 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 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.
<TABLE>
HENNESSY BALANCED FUND
FOR THE YEARS ENDED JUNE 30, 3/8/96(1)<F8>
---------------------------------- 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)<F9>
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)<F10>
After expense reimbursement 1.55% 1.64% 1.90% 1.90%(3)<F10>
Ratio of net investment income to average net assets:
Before expense reimbursement 2.28% 1.69% 1.84% 0.85%(3)<F10>
After expense reimbursement 2.28% 2.44% 2.41% 2.99%(3)<F10>
Portfolio turnover rate 28.92% 23.24% 20.1% --%(4)<F11>
</TABLE>
(1)<F8> Commencement of operations.
(2)<F9> Not annualized.
(3)<F10> Annualized.
(4)<F11> 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.
HENNESSY LEVERAGED DOGS FUND
7-29-98(1)<F12>
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)<F13>
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)<F14>(4)<F15>
After expense reimbursement 0.00%(3)<F14>(4)<F15>
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)<F14>
After expense reimbursement 3.45%(3)<F14>
Portfolio turnover rate --%(5)<F16>
(1)<F12> Commencement of operations.
(2)<F13> Not annualized.
(3)<F14> Annualized.
(4)<F15> 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)<F16> 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.
INVESTMENT ADVISERS
The Hennessy Management Co., L.P.
The Courtyard Square
750 Grant Avenue, Suite 100
Novato, CA 94945
The Hennessy Management Co. 2, L.P.
The Courtyard Square
750 Grant Avenue, Suite 100
Novato, CA 94945
ADMINISTRATOR, TRANSFER AGENT,
DIVIDEND PAYING AGENT & SHAREHOLDER SERVICING AGENT
Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
(800) 261-6950
CUSTODIAN
Firstar Bank Milwaukee, N.A.
P.O. Box 701
Milwaukee, WI 53201-0701
(800) 261-6950
DIRECTORS
Neil J. Hennessy
Brian A. Hennessy
Robert T. Doyle
Rodger D. Offenbach
J. Dennis DeSousa
COUNSEL
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, WI 53202-5367
INDEPENDENT AUDITORS
KPMG LLP
303 East Wacker Drive
Chicago, Illinois 60601
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.
