THE HENNESSY
FUNDS, INC.
SEMIANNUAL REPORT
DECEMBER 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
February 2000
Dear Shareholder:
The allure of becoming a millionaire has invaded every aspect of our culture.
Game shows, day trading, and lottery tickets have become everyday mantras of our
financial philosophy. Saving money and investing wisely are methods that have
become too old fashioned for modern day investors. However, we at Hennessy
Funds feel that buying into the latest wave of initial public offerings storming
the financial marketplace, many of which are companies with little revenues, no
earnings, no real prospect for profitability and unlikely to ever pay a
dividend, is inconsistent with reasonable long term investing. These companies
double and triple their market capitalization in their first day of trading, but
will eventually decline when investors tire of speculative trading. While the
companies you own through investing with us (please see pages 7 to 10) have
revenue streams in the billions, earnings in the billions, low price to earnings
ratios, and return their profits to their shareholders in the form of dividends.
Our current returns illustrate our dilemma - no one is buying our companies
right now. But we feel this trend will change and that our portfolios are
poised for the future when investors move from their current speculative trading
to more reasonable long term investing.
We are dedicated to maintaining our investment strategy to provide our
shareholders with value oriented high quality, and dividend paying investments,
which, over time will yield beneficial returns.
Thank you for continuing to put your trust and confidence in us. If you have
any questions, please do not hesitate to contact our offices at 1-800-966-4354.
Thank you again for making Hennessy Funds part of your investment portfolio.
Best wishes,
/s/ Neil J. Hennessy
Neil J. Hennessy
President & Portfolio Manager
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999 (UNAUDITED)
HENNESSY
HENNESSY LEVERAGED
BALANCED FUND DOGS FUND
------------- ---------
ASSETS:
Investments, at value (cost $21,974,970 and $22,444,046 $6,748,418
$6,899,770 respectively)
Receivable from Adviser -- 2,023
Receivable for investment securities sold 519,933 152,880
Income receivable 37,273 12,414
Receivable for fund shares sold 2,000 --
Organization costs, net of accumulated amortization 9,150 --
Other assets 15,928 15,721
----------- ----------
Total Assets 23,028,330 6,931,456
----------- ----------
LIABILITIES:
Payable to Adviser 16,687 --
Payable to Custodian 318,447 --
Payable for fund shares redeemed 8,094 --
Reverse repurchase agreement -- 1,527,875
Accrued expenses and other payables 32,291 36,348
----------- ----------
Total Liabilities 375,519 1,564,223
----------- ----------
NET ASSETS $22,652,811 $5,367,233
----------- ----------
----------- ----------
NET ASSETS CONSIST OF:
Capital stock $22,162,740 $5,511,677
Accumulated undistributed net
investment income (loss) (10,820) 384
Accumulated undistributed net realized
gains (losses) on investments 31,815 6,524
Unrealized net appreciation (depreciation)
<PAGE>
on investments 469,076 (151,352)
----------- ----------
Total Net Assets $22,652,811 $5,367,233
----------- ----------
----------- ----------
Shares authorized ($.0001 par value) 100,000,000 100,000,000
Shares issued and outstanding 2,031,066 547,573
Net asset value per share $ 11.15 $ 9.80
----------- ----------
----------- ----------
See notes to the financial statements.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED)
HENNESSY
HENNESSY LEVERAGED
BALANCED FUND DOGS FUND
------------- ---------
INVESTMENT INCOME:
Dividend income $ 160,824 $ 56,745
Interest income 296,102 70,667
----------- ---------
Total investment income 456,926 127,412
----------- ---------
EXPENSES:
Investment advisory fees 72,807 16,857
Administration fees 14,904 11,996
Shareholder servicing and accounting costs 24,656 17,580
Distribution fees 30,336 7,024
Custody fees 4,600 1,852
Federal and state registration fees 7,912 3,704
Professional fees 14,352 5,646
Reports to shareholders 4,416 756
Amortization of organization costs 3,908 --
Directors' fees and expenses 1,472 1,012
Other 2,024 1,864
----------- ---------
Total operating expenses before interest expense 181,387 68,291
Interest expense -- 41,087
Less, expense reimbursement -- (34,577)
----------- ---------
Net expenses 181,387 74,801
----------- ---------
NET INVESTMENT INCOME 275,539 52,611
----------- ---------
REALIZED AND UNREALIZED GAINS (LOSSES):
Net realized gains on investments 451,524 8,432
Change in unrealized appreciation or
depreciation on investments (1,958,729) (501,339)
----------- ---------
Net loss on investments (1,507,205) (492,907)
----------- ---------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $(1,231,666) $(440,296)
----------- ---------
----------- ---------
See notes to the financial statements.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
HENNESSY BALANCED FUND HENNESSY LEVERAGED DOGS FUND
------------------------------ ------------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
DECEMBER 31,1999 JUNE 30, 1999 DECEMBER 31,1999 JUNE 30, 1999*<F1>
---------------- ------------- ---------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 275,539 $ 526,620 $ 52,611 $ 85,797
Net realized gains (losses) on investments 451,524 1,109,164 8,432 (1,908)
Change in unrealized appreciation or
depreciation on investments (1,958,729) 477,903 (501,339) 349,987
----------- ----------- ---------- ----------
Net increase (decrease) in net assets
resulting from operations (1,231,666) 2,113,687 (440,296) 433,876
----------- ----------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (287,405) (528,138) (52,378) (85,646)
From net realized gains (1,308,316) (915,182) -- --
----------- ----------- ---------- ----------
(1,595,721) (1,443,320) (52,378) (85,646)
----------- ----------- ---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares subscribed 2,112,529 2,560,820 917,922 5,322,828
Shares issued to holders in
reinvestment of dividends 1,568,728 1,412,416 51,675 85,045
Cost of shares redeemed (2,242,231) (4,098,397) (532,110) (333,683)
----------- ----------- ---------- ----------
Net increase (decrease) in net assets
resulting from capital share transactions 1,439,026 (125,161) 437,487 5,074,190
----------- ----------- ---------- ----------
TOTAL INCREASE (DECREASE)
IN NET ASSETS (1,388,361) 545,206 (55,187) 5,422,420
NET ASSETS:
Beginning of period 24,041,172 23,495,966 5,422,420 0
----------- ----------- ---------- ----------
End of period (including undistributed
net investment income (loss) of $(10,820),
$1,046, $384 and $151, respectively) $22,652,811 $24,041,172 $5,367,233 $5,422,420
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
CHANGES IN SHARES OUTSTANDING:
Shares sold 169,537 209,769 87,757 530,459
Shares issued to holders as
reinvestment of dividends 138,110 118,867 5,163 8,348
Shares redeemed (189,950) (337,156) (52,147) (32,007)
----------- ----------- ---------- ----------
Net increase (decrease) 117,697 (8,520) 40,773 506,800
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
</TABLE>
*<F1> For the period July 29, 1998 (commencement of operations) through June
30, 1999.
See notes to the financial statements.
FINANCIAL HIGHLIGHTS
<TABLE>
HENNESSY BALANCED FUND
-------------------------------------------------------------------------------------
MARCH 8, 1996(1)<F2>
SIX MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, 1999 JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996
----------------- ------------- ------------- ------------- --------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period $12.56 $12.23 $11.67 $10.18 $10.00
Income from investment operations:
Net investment income 0.14 0.28 0.29 0.23 0.06
Net realized and unrealized gains
(losses) on securities (0.75) 0.83 0.73 1.55 0.12
------ ------ ------ ------ ------
Total from investment operations (0.61) 1.11 1.02 1.78 0.18
Less Distributions:
Dividends from net investment income (0.14) (0.28) (0.29) (0.29) --
Dividends from realized capital gains (0.66) (0.50) (0.17) -- --
------ ------ ------ ------ ------
Total distributions (0.80) (0.78) (0.46) (0.29) --
------ ------ ------ ------ ------
Net asset value, end of period $11.15 $12.56 $12.23 $11.67 $10.18
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL RETURN (4.88%)(2)<F3> 9.61% 8.80% 17.70% 1.80%(2)<F3>
SUPPLEMENTAL DATA AND RATIOS:
Net assets, in thousands,
end of period $22,653 $24,041 $23,496 $17,639 $6,866
Ratio of net expenses
to average net assets:
Before expense reimbursement 1.49%(3)<F4> 1.55% 2.39% 2.48% 4.04%(3)<F4>
After expense reimbursement 1.49%(3)<F4> 1.55% 1.64% 1.90% 1.90%(3)<F4>
Ratio of net investment income
to average net assets:
Before expense reimbursement 2.27%(3)<F4> 2.28% 1.69% 1.84% 0.85%(3)<F4>
After expense reimbursement 2.27%(3)<F4> 2.28% 2.44% 2.41% 2.99%(3)<F4>
Portfolio turnover rate 11.64% 28.92% 23.24% 20.01% --(4)<F5>
</TABLE>
(1)<F2> Commencement of operations.
(2)<F3> Not annualized.
(3)<F4> Annualized.
(4)<F5> 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.
See notes to the financial statements.
FINANCIAL HIGHLIGHTS
<TABLE>
HENNESSY LEVERAGED DOGS FUND
-------------------------------------------
JULY 29, 1998(1)<F6>
SIX MONTHS ENDED THROUGH
DECEMBER 31, 1999 JUNE 30, 1999
----------------- --------------
(UNAUDITED)
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period $10.70 $10.00
Income from investment operations:
Net investment income 0.10 0.31
Net realized and unrealized gains (losses) on securities (0.90) 0.70
------ ------
Total from investment operations (0.80) 1.01
Less Distributions:
Dividends from net investment income (0.10) (0.31)
Dividends from realized capital gains -- --
------ ------
Total distributions (0.10) (0.31)
------ ------
Net asset value, end of period $ 9.80 $10.70
------ ------
------ ------
TOTAL RETURN (7.54%)(2)<F7> 10.28%(2)<F7>
SUPPLEMENTAL DATA AND RATIOS:
Net assets, in thousands, end of period $5,367 $5,422
Ratio of net expenses to average net assets:
Before expense reimbursement 2.43%(3)<F8>(6)<F11> 4.35%(3)<F8>(4)<F9>
After expense reimbursement 1.20%(3)<F8>(6)<F11> --(3)<F8>(4)<F9>
Ratio of interest expense to average net assets 1.46%(3)<F8> 1.17%(3)<F8>
Ratio of net investment income to average net assets:
Before expense reimbursement 0.64%(3)<F8> (0.90%)(3)<F8>
After expense reimbursement 1.87%(3)<F8> 3.45%(3)<F8>
Portfolio turnover rate 1.94% --(5)<F10>
</TABLE>
(1)<F6> Commencement of operations.
(2)<F7> Not annualized.
(3)<F8> Annualized.
(4)<F9> For the period ended June 30, 1999, the ratio of operating expenses to
average net assets excludes interest expense. The ratio before and
after expense reimbursement, including interest expense, would be
5.52% and 1.17%, respectively.
(5)<F10> 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.
(6)<F11> For the period ended December 31, 1999, the ratio of operating
expenses to average net assets excludes interest expense. The ratio
before and after expense reimbursement, including interest expense,
would be 3.89% and 2.66%, respectively.
See notes to the financial statements.
HENNESSY BALANCED FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999 (UNAUDITED)
NUMBER
OF SHARES VALUE
- --------- -----
COMMON STOCKS -- 48.8%
AUTOMOBILES & TRUCKS -- 5.5%
4,508 Delphi Automotive Systems Corporation $ 71,001
16,000 General Motors Corporation 1,163,000
-----------
1,234,001
-----------
BANK & BANK HOLDING COMPANIES -- 5.3%
9,500 J.P. Morgan and Co. Incorporated 1,202,938
-----------
CAPITAL GOODS -- 3.8%
18,425 Caterpillar, Inc. 867,127
-----------
CHEMICALS -- 4.5%
15,375 E. I. du Pont de Nemours and Company 1,012,828
-----------
CONSUMER DURABLES -- 5.0%
17,100 Eastman Kodak Company 1,132,875
-----------
ENERGY -- 8.8%
12,575 Chevron Corporation 1,089,309
11,225 Exxon Mobil Corporation 904,314
-----------
1,993,623
-----------
FOOD, BEVERAGE & TOBACCO -- 3.4%
32,700 Philip Morris Companies, Inc. 758,231
-----------
MANUFACTURING -- 6.0%
13,975 Minnesota Mining and Manufacturing Company 1,367,803
-----------
PAPER & FOREST PRODUCTS -- 1.7%
6,875 International Paper Company 388,008
-----------
RETAIL -- 1.9%
14,425 Sears, Roebuck and Co. 439,061
-----------
RUBBER & TIRES -- 2.6%
21,000 Goodyear Tire & Rubber Company 591,937
-----------
TELECOMMUNICATIONS -- 0.3%
1,150 SBC Communications, Inc. 56,063
-----------
TOTAL COMMON STOCKS (Cost $10,540,762) 11,044,495
-----------
PRINCIPAL
AMOUNT
- --------
SHORT-TERM INVESTMENTS -- 50.3%
U.S. GOVERNMENT -- 50.3%
U.S. Treasury Bills:
$1,292,000 5.02%, 3/02/00 1,281,159
2,192,000 5.12%, 3/30/00 2,164,613
1,618,000 5.26%, 4/27/00 1,590,709
1,182,000 5.41%, 5/25/00 1,156,599
1,281,000 5.50%, 6/22/00 1,247,595
628,000 5.56%, 7/20/00 608,768
1,468,000 5.63%, 8/17/00 1,416,163
1,075,000 5.66%, 9/14/00 1,032,130
354,000 5.69%, 10/12/00 338,277
315,000 5.69%, 10/12/00 301,009
276,000 5.69%, 11/09/00 262,529
-----------
11,399,551
-----------
TOTAL SHORT-TERM INVESTMENTS (Cost $11,434,208) 11,399,551
-----------
TOTAL INVESTMENTS -- 99.1% (Cost $21,974,970) 22,444,046
-----------
Other Assets and Liabilities, Net -- 0.9% 208,765
-----------
NET ASSETS -- 100.0% $22,652,811
-----------
-----------
See notes to the financial statements.
HENNESSY LEVERAGED DOGS FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999 (UNAUDITED)
NUMBER
OF SHARES VALUE
- --------- -----
COMMON STOCKS -- 73.3%
AUTOMOBILES & TRUCKS -- 7.5%
2,464 Delphi Automotive Systems Corporation $ 38,808
5,025 General Motors Corporation 365,255
-----------
404,063
-----------
BANK & BANK HOLDING COMPANIES -- 8.5%
3,600 J.P. Morgan and Co. Incorporated 455,850
-----------
CAPITAL GOODS -- 7.1%
8,150 Caterpillar, Inc. 383,559
-----------
CHEMICALS -- 8.2%
6,700 E. I. du Pont de Nemours and Company 441,363
-----------
CONSUMER DURABLES -- 7.2%
5,850 Eastman Kodak Company 387,562
-----------
ENERGY -- 15.3%
4,450 Chevron Corporation 385,481
5,375 Exxon Mobil Corporation 433,023
-----------
818,504
-----------
FOOD, BEVERAGE & TOBACCO -- 4.3%
9,925 Philip Morris Companies, Inc. 230,136
-----------
MANUFACTURING -- 9.2%
5,025 Minnesota Mining and Manufacturing Company 491,822
-----------
PAPER & FOREST PRODUCTS -- 0.8%
800 International Paper Company 45,150
-----------
RETAIL -- 0.8%
1,350 Sears, Roebuck and Co. 41,091
-----------
RUBBER & TIRES -- 3.7%
6,975 Goodyear Tire & Rubber Company 196,608
-----------
TELECOMMUNICATIONS -- 0.7%
825 SBC Communications, Inc. 40,219
-----------
TOTAL COMMON STOCKS (Cost $4,087,279) 3,935,927
-----------
PRINCIPAL
AMOUNT
- ---------
SHORT-TERM INVESTMENTS -- 52.4%
U.S. GOVERNMENT -- 48.3%
U.S. Treasury Bills:
$2,600,000 4.98%, 1/27/00*<F12> 2,590,780
-----------
VARIABLE RATE DEMAND NOTES#<F13> -- 4.1%
131,060 Wisconsin Corporation Central Credit Union, 6.16% 131,060
226 Warner-Lambert Co., 6.04% 226
89,720 Pitney Bowes, 6.10% 89,720
705 General Mills, 6.10% 705
-----------
221,711
-----------
TOTAL SHORT-TERM INVESTMENTS (Cost $2,812,491) 2,812,491
-----------
TOTAL INVESTMENTS -- 125.7% (Cost $6,899,770) 6,748,418
-----------
Other Liabilities and Assets, Net -- (25.7%) (1,381,185)
-----------
NET ASSETS -- 100.0% $ 5,367,233
-----------
-----------
*<F12> Collateral or partial collateral for securities sold subject to
repurchase.
#<F13> Variable rate demand notes are considered short-term obligations and
are payable on demand. Interest rates change periodically on specified
dates. The rates listed are as of December 31, 1999.
See notes to the financial statements.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999 (UNAUDITED)
1). ORGANIZATION
The Hennessy Funds, Inc., organized as a Maryland corporation on January
11, 1996, consists of two separate portfolios: The Hennessy Funds, Inc. --
Hennessy Balanced Fund (the "Balanced Fund") and The Hennessy Funds, Inc. --
Hennessy Leveraged Dogs Fund (the "Leveraged Dogs Fund"). Both funds are open-
end, non-diversified companies registered under the Investment Company Act of
1940, as amended. The investment objectives and organization costs of The
Hennessy Funds, Inc. are set forth below.
The objectives of the Hennessy Balanced Fund are capital appreciation and
current income. The investment strategy involves investing approximately one
half of the portfolio's assets in one-year Treasury Bills and the other half in
the top ten dividend yielding stocks of the Dow Jones Industrial Average. Bi-
monthly, the Balanced Fund will determine the ten highest yielding common stocks
in the Dow Jones Industrial Average. All purchases of common stocks following
such determination, until the next determination, will be of the ten highest
yielding common stocks so determined. The Balanced Fund intends to hold any
common stock purchased for approximately one year, including common stocks that
are no longer one of the ten highest yielding common stocks in the Dow Jones
Industrial Average.
Between the date of organization and the commencement of investment
operations on March 8, 1996, the Balanced Fund had no operations other than
incurring organizational expenses. These costs aggregated $38,758 and are being
amortized over the period of benefit, but not to exceed sixty months from the
date the Balanced Fund commenced investment operations.
The Leveraged Dogs Fund's investment objective is to achieve total return
that in the long run will exceed that of the Dow Jones Industrial Average (the
"DJIA"). The investment strategy involves borrowing money for investment
purposes, and investing approximately one half of the portfolio's assets,
including proceeds from borrowing, in one-year Treasury Bills and the other half
in the top ten dividend yielding stocks of the DJIA. Bi-monthly, the Leveraged
Dogs Fund will determine the ten highest yielding common stocks in the DJIA.
All purchases of common stocks following such determination, until the next
determination, will be of the ten highest yielding common stocks so determined.
The Leveraged Dogs Fund intends to hold any common stock purchased for
approximately one year, including common stocks that are no longer one of the
ten highest yielding common stocks in the DJIA.
Between the date of organization and the commencement of investment
operations on July 29, 1998, the Leveraged Dogs Fund had no operations other
than incurring organizational expenses. These costs aggregated $31,954 and
were absorbed by Hennessy Management Co. 2, L.P. (the "Adviser"). The Leveraged
Dogs Fund will not be required to reimburse the Adviser for the organizational
expenses.
2). SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Funds in the preparation of their financial statements. These policies are
in conformity with generally accepted accounting principles.
a). Investment Valuation -- Securities which are traded on a national or
recognized stock exchange are valued at the last sale price on the securities
exchange on which such securities are primarily traded. Exchange-traded
securities for which there were no transactions that day and debt securities are
valued at the most recent bid prices. Instruments with a remaining maturity of
60 days or less are valued on an amortized cost basis.
b). Federal Income Taxes -- Provision for federal income taxes or excise taxes
has not been made since the Fund has elected to be taxed as a "regulated
investment company" and intends to distribute substantially all taxable income
to its shareowners and otherwise comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. Net investment
income and realized gains and losses for federal income tax purposes may differ
from that reported on the financial statements because of temporary book and tax
basis differences. Temporary differences are primarily the result of wash sales
treatment for tax reporting purposes. Distributions from net realized gains for
book purposes may include short-term capital gains which are included as
ordinary income to shareholders for tax purposes.
c). Income and Expenses -- Dividend income is recognized on the ex-dividend
date and interest income is recognized on an accrual basis. The Fund is charged
for those expenses that are directly attributable to the portfolio, such as
advisory, administration and certain shareowner service fees.
d). Distributions to Shareowners -- Dividends from net investment income are
declared and paid on a calendar quarter basis. Distributions of net realized
capital gains, if any, will be declared at least annually.
e). Security Transactions -- Investment and shareowner transactions are
recorded on the trade date. The Fund determines the gain or loss realized from
the investment transactions by comparing the original cost of the security lot
sold with the net sale proceeds.
f). Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported change in net assets during the
reporting period. Actual results could differ from from those estimates.
3). REVERSE REPURCHASE AGREEMENTS
The Leveraged Dogs Fund has entered into reverse repurchase agreements with
Paine Webber, Inc., under which the Leveraged Dogs Fund sells securities and
agrees to repurchase them at a mutually agreed upon price. For the period ended
December 31, 1999, the average daily balance and average interest rate in effect
for reverse repurchase agreements was $1,532,007 and 5.28%, respectively. At
December 31, 1999, the interest rate in effect for the outstanding reverse
repurchase agreement, scheduled to mature on January 27, 2000, is 5.45% and
represented 22.04% of the Leveraged Dogs Fund's total assets.
4). INVESTMENT TRANSACTIONS
During the periods ended December 31, 1999, purchases and sales of
investment securities (excluding short-term investments) were as follows:
HENNESSY HENNESSY
BALANCED LEVERAGED
FUND DOGS FUND
-------- ---------
Purchases $1,645,519 $432,537
Sales $1,351,733 $ 78,368
The following balances for the Funds are as of December 31, 1999:
HENNESSY HENNESSY
BALANCED LEVERAGED
FUND DOGS FUND
-------- ---------
Cost for federal
income tax purposes $21,980,060 $6,899,770
Net tax unrealized
appreciation
(depreciation) 463,986 (151,352)
Tax basis gross
unrealized
appreciation 1,733,047 308,843
Tax basis gross
unrealized
depreciation (1,269,061) (460,195)
5). INVESTMENT ADVISORY AND OTHER
AGREEMENTS
The Balanced Fund has entered into an investment advisory agreement with
The Hennessy Management Co., L.P. (the "Balanced Fund Adviser"). The Balanced
Fund Adviser is a California limited partnership organized on October 24, 1995,
for the purpose of becoming the Balanced Fund's investment adviser. The
Leveraged Dogs Fund has entered into an investment advisory agreement with The
Hennessy Management Co. 2, L.P. (the "Leveraged Dogs Fund Adviser"). The
Leveraged Dogs Adviser is a California limited partnership organized on February
2, 1998, for the purpose of becoming the Leveraged Dogs Fund's investment
adviser. The general partner of both Advisers is Edward J. Hennessy,
Incorporated ("Hennessy"). Hennessy is a registered broker-dealer and
investment adviser. Edward J. Hennessy received commissions of $3,546 and $538
for transactions related to the purchase and sales of securities held by the
Balanced Fund and Leveraged Dogs Fund, respectively, for the period ending
December 31, 1999. Hennessy was organized in 1989 and is controlled by Neil J.
Hennessy, who is a director and the president of Hennessy.
Pursuant to the Advisory Agreements, the Balanced Fund Adviser and
Leveraged Dogs Fund Adviser are entitled to receive a fee, calculated daily and
payable monthly, at an annual rate not to exceed 0.60% of each Funds' average
daily net assets.
The Funds have adopted a plan pursuant to Rule 12b-1 which authorizes
payments in connection with the distribution of Fund shares at an annual rate
not to exceed 0.25% of each Funds' average daily net assets. Amounts paid under
the Plan may be spent on any activities or expenses primarily intended to result
in the sale of shares, including but not limited to, advertising, compensation
for sales and marketing activities or financial institutions and others such as
dealers and distributors, shareholder account servicing, the printing and
mailing of prospectuses to other than current shareowners and the printing and
mailing of sales literature.
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%.
Firstar Bank, N.A. serves as custodian for the Funds. Firstar Mutual Fund
Services, LLC serves as transfer agent, dividend disbursing agent, administrator
and accounting services agent for the Funds.
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, 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
