THE HENNESSY
MUTUAL FUNDS, INC.
SUPPLEMENT DATED JUNE 30, 2000
PROSPECTUS
JANUARY 28, 2000
(HENNESSY MUTUAL FUNDS, INC. LOGO)
Hennessy
Mutual Funds
THE HENNESSY MUTUAL FUNDS, INC.
The Courtyard Square
750 Grant Avenue, Suite 100
Novato, California 94945
1 (415) 899-1555
1 (800) 966-4354
www.hennessy-funds.com
Hennessy Cornerstone Growth
Fund Symbol: HFCGX
Hennessy Cornerstone Value
Fund Symbol: HFCVX
Prospectus Supplement dated June 30, 2000
SUPPLEMENT DATED JUNE 30, 2000
TO THE
PROSPECTUS DATED JANUARY 28, 2000
HENNESSY CORNERSTONE GROWTH FUND
HENNESSY CORNERSTONE VALUE FUND
OF HENNESSY MUTUAL FUNDS, INC.
On June 30, 2000, the shareholders of O'Shaughnessy Cornerstone Growth Fund
and O'Shaughnessy Cornerstone Value Fund (collectively, the "Funds") approved a
new investment advisory agreement pursuant to which Edward J. Hennessy,
Incorporated became the new investment advisor of the Funds and elected a new
board of directors of O'Shaughnessy Funds, Inc. Following the shareholders
meeting the board of directors adopted an amendment to the articles of
incorporation of O'Shaughnessy Funds,Inc., changing its corporate name to
Hennessy Mutual Funds, Inc. and changing the name of the Funds to Hennessy
Cornerstone Growth Fund and Hennessy Cornerstone Value Fund.
The Funds' investment objectives and investment policies and strategies
remain unchanged.
HENNESSY CORNERSTONE GROWTH FUND
HENNESSY CORNERSTONE VALUE FUND
SERIES OF HENNESSY MUTUAL FUNDS, INC.
(FORMERLY KNOWN AS O'SHAUGHNESSY FUNDS, INC.)
The date of this Prospectus is January 28, 2000, as supplemented June 30, 2000.
www.hennessy-funds.com
Hennessy Cornerstone Growth Fund is a stock mutual fund that seeks long-term
growth of capital.
Hennessy Cornerstone Value Fund is a stock mutual fund that seeks total return,
consisting of capital appreciation and current income.
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION DOES NOT
APPROVE OR DISAPPROVE OF THESE SHARES OR DETERMINE IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
An Overview of the Funds 1
Performance 2
Fees and Expenses 3
Investment Objectives and Principal Investment Strategies 4
Principal Risks of Investing in the Funds 5
Management of the Funds 11
Shareholder Information 11
Pricing of Fund Shares 16
Dividends and Distributions 16
Tax Consequences 17
Financial Highlights 18
AN OVERVIEW OF THE FUNDS
WHAT ARE THE INVESTMENT GOALS OF THE FUNDS?
CORNERSTONE GROWTH FUND seeks long-term growth of capital.
CORNERSTONE VALUE FUND seeks total return, consisting of capital
appreciation and current income.
WHAT ARE THE MAIN INVESTMENT STRATEGIES OF THE FUNDS?
Each Fund seeks to achieve its investment goal through a process of Strategy
Indexing(R) which is pursued through the use of an investment strategy developed
by O'Shaughnessy Capital Management, Inc., which has been licensed to Edward J.
Hennessy Incorporated, the Funds' investment manager (the "Manager"). Each Fund
will invest substantially all of its assets in common stocks selected through
its strategy. Each Fund may invest in foreign securities, including American
Depositary Receipts ("ADRs").
Each Fund offers a disciplined approach to investing, based on a buy and
hold philosophy over the course of each year, which ignores market timing and
rejects active management. The Manager anticipates that the 50 stocks held in
each Fund's portfolio will remain the same through the course of a year, despite
any adverse developments concerning a company, an industry, the economy or the
stock market generally.
CORNERSTONE GROWTH FUND. In selecting stocks for this Fund, its managers use
the Cornerstone Growth Strategy(R). The Cornerstone Growth Strategy selects the
50 common stocks with the highest one-year price appreciation as of the date of
purchase from the O'Shaughnessy All Stocks UniverseTM that also meet certain
criteria that is explained in detail under "Investment Objectives and Principal
Investment Strategies."
CORNERSTONE VALUE FUND. In selecting stocks for this Fund, its managers use
the Cornerstone Value Strategy(R). The Cornerstone Value Strategy selects the 50
highest dividend-yielding common stocks from the O'Shaughnessy Market Leaders
UniverseTM that also meet certain criteria that is explained in detail under
"Investment Objectives and Principal Investment Strategies."
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUNDS?
The value of each Fund's investments, and therefore, the value of a Fund's
shares, may go up or down. If the value of a Fund's investments goes down, you
may lose money on your investment in the Fund. The following risks could affect
the value of your investment:
o The stock market goes down
o Interest rates rise which can result in a decline in the equity market
o Stocks in the Funds' portfolios may not increase their earnings at the
rate anticipated
o The Strategy Indexing(R) employed by the Funds could cause them to
underperform similar funds that do not use this discipline
o Securities of medium and small companies involve greater volatility than
investing in larger more established companies
o Adverse developments occur in foreign markets. Foreign investments
involve greater risk.
WHO MAY WANT TO INVEST IN THE FUNDS?
The Funds may be appropriate for investors who:
o Are pursuing a long-term goal such as retirement
o Are willing to accept higher short-term risk along with higher potential
for long-term growth of capital
o Want to add an equity investment to diversify their investment portfolio
o Believe that long-term investing, using a disciplined strategy, is most
likely to meet their investment goals
The Funds may not be appropriate for investors who:
o Need regular income or stability of principal
o Are pursuing a short-term goal
o Are not comfortable with a Fund's disciplined Strategy
PERFORMANCE
The following performance information indicates some of the risks of
investing in the Funds. The bar charts show how each Fund's total return has
varied from year to year. The tables show each Fund's average return over time
compared with broad-based market indices. This past performance will not
necessarily continue in the future.
CORNERSTONE GROWTH FUND
CALENDAR YEAR TOTAL RETURNS (%)
During the period shown in the bar chart, the Fund's highest quarterly
return was 32.04% for the quarter ended December 31, 1999 and the lowest
quarterly return was -28.53% for the quarter ended September 30, 1998.
1997 31.34%
1998 3.67%
1999 37.72%
SINCE INCEPTION
1 YEAR (11/1/96)
------ ---------------
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
Cornerstone Growth Fund 37.72% 22.24%
S&P 500 Index*<F1> 21.04% 28.15%
Russell 2000 Index **<F2> 21.26% 14.73%
Lipper Small Cap Growth Fund Index***<F3> 61.17% 21.68%
*<F1> The S&P 500 Index is an unmanaged capitalization-weighted index
generally representative of the market for the stocks of large U.S.
companies across the broad domestic economy.
**<F2> The Russell 2000 Index is a recognized small-cap index of the 2,000
smallest securities of the Russell 3000 Index, which is comprised of
the 3,000 largest U.S. securities as determined by total market
capitalization.
***<F3> The Lipper Small Cap Growth Index is comprised of funds that invest at
least 75% of their equity assets in companies with market
capitalizations of less than 250% of the dollar-weighted median market
capitalization of the S&P Small-Cap 600 Index. The S&P Small-Cap 600
Index is a market weighted index consisting of 600 domestic stocks
chosen for market size, liquidity, and industry group representation.
The funds in this Index have a similar investment objective as the
Cornerstone Growth Fund.
CORNERSTONE VALUE FUND
CALENDAR YEAR TOTAL RETURNS (%)
During the period shown in the bar chart, the Fund's highest quarterly
return was 11.87% for the quarter ended December 31, 1998 and the lowest
quarterly return was -10.04% for the quarter ended September 30, 1998.
1997 15.29%
1998 6.59%
1999 6.01%
SINCE INCEPTION
1 YEAR (11/1/96)
------ ---------------
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
Cornerstone Value Fund 6.01% 8.81%
S&P 500 Index*<F4> 21.04% 28.15%
Lipper Multi-Cap Value Fund Index**<F5> 5.94% 14.19%
*<F4> The S&P 500 Index is an unmanaged capitalization-weighted index
generally representative of the market for the stocks of large U.S.
companies across the broad domestic economy.
**<F5> The Lipper Multi-Cap Value Fund Index is comprised of funds that invest
in a variety of market capitalization ranges, without concentrating 75%
of their equity assets in any one capitalization range over an extended
period of time. The funds in this Index have a similar investment
objective as the Cornerstone Value Fund.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Funds.
CORNERSTONE CORNERSTONE
GROWTH FUND VALUE FUND
----------- -----------
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases None None
Maximum deferred sales charge (load) None None
Redemption fee (as a percentage of amount redeemed)*<F6> 1.50% 1.50%
Exchange Fee*<F6> 1.50% 1.50%
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fees 0.74% 0.74%
Distribution and Service (12b-1) Fees None None
Other Expenses 0.41% 0.64%
----- -----
Total Annual Fund Operating Expenses 1.15% 1.38%
----- -----
----- -----
*<F6> If you redeem or exchange shares you have owned for less than 90 days, a
1.50% fee will be deducted from the value of your exchange or from your
redemption proceeds. This fee is payable to the Fund.
EXAMPLE
This Example is intended to help you compare the cost of investing in shares
of the Funds with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Funds for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Funds' operating expenses remain the same. Although your actual costs may be
higher or lower, based on the assumptions, your costs would be:
CORNERSTONE CORNERSTONE
GROWTH FUND VALUE FUND
----------- -----------
One Year $ 117 $ 140
Three Years $ 365 $ 436
Five Years $ 632 $ 753
Ten Years $1,393 $1,652
INVESTMENT OBJECTIVES AND
PRINCIPAL INVESTMENT STRATEGIES
CORNERSTONE GROWTH FUND. The goal of the Cornerstone Growth Fund is to seek
long-term growth of capital. The Fund seeks to meet its goal by investing
substantially all of its assets in common stocks selected through the
"Cornerstone Growth Strategy."
WHAT IS THE CORNERSTONE GROWTH STRATEGY?
The Cornerstone Growth Strategy selects the 50 common stocks with the
highest one-year price appreciation as of the date of purchase from the
O'Shaughnessy All Stock UniverseTM that also meet the following criteria: (i)
annual earnings that are higher than the previous year; (ii) a price-to-sales
ratio below 1.5; (iii) positive relative strength over the past three and six
month periods; and (iv) historical trading volume sufficient to allow for the
Fund to purchase the required number of shares during the Re-Balance Period (as
defined below). A stock's price-to-sales ratio is computed by dividing the
market value of the stock by the issuer's most recent twelve months sales.
WHAT IS THE O'SHAUGHNESSY ALL STOCKS UNIVERSETM?
The O'Shaughnessy All Stocks UniverseTM consists of all the domestic and
foreign common stocks in the Standard & Poor's Compustat ("S&P Compustat")
database (the "COMPUSTAT(R) Database") with market capitalizations exceeding
$172 million. Currently the COMPUSTAT(R) Database consists of the stocks
(including ADRS) of 9,567 issuers, and the O'Shaughnessy All Stocks UniverseTM
consists of the stocks of 3,956 issuers.
CORNERSTONE VALUE FUND. The goal of the Cornerstone Value Fund is to seek
total return, consisting of capital appreciation and current income. The Fund
seeks to meet its goal by investing substantially all of its assets in common
stocks selected through the "Cornerstone Value Strategy."
WHAT IS THE CORNERSTONE VALUE STRATEGY?
The Cornerstone Value Strategy involves the selection of the 50 highest
dividend-yielding common stocks from the O'Shaughnessy Market Leaders UniverseTM
that have historical trading volume sufficient to allow for the Fund to purchase
the required number of shares during the Re-Balance Period.
WHAT IS THE O'SHAUGHNESSY MARKET LEADERS UNIVERSETM?
The O'Shaughnessy Market Leaders UniverseTM consists of those domestic and
foreign stocks in the COMPUSTAT(R) Database which are not power utility
companies and which have (i) market capitalizations exceeding the average of the
COMPUSTAT(R) Database; (ii) twelve month sales which are 50% greater than the
average for the COMPUSTAT(R) Database; (iii) a number of shares outstanding
which exceeds the average for the COMPUSTAT(R) Database; and (iv) cash flow
which exceeds the average for the COMPUSTAT(R) Database. Currently, the
O'Shaughnessy Market Leaders UniverseTM consists of the stocks of 279 issuers.
HOW DOES INVESTMENT THROUGH THE CORNERSTONE GROWTH STRATEGY AND THE CORNERSTONE
VALUE STRATEGY WORK?
When the Funds began operations, the Funds' then manager purchased 50 stocks
for each Fund as dictated by the respective Strategy, based on information at
that time. Each Fund's holdings of each stock in its portfolio were initially
weighted equally by dollar amount. Since then, the Funds' former manager
rebalanced the portfolio of each Fund annually based on information available
during the month preceding and three months after the calendar year-end of the
succeeding year (the "Re-Balance Period"), in accordance with the Fund's
respective Strategy. That is, during the Re-Balance Period of each year, stocks
meeting the Strategy's criteria on or about the immediately preceding year-end
are purchased for the Fund to the extent not then held, stocks which no longer
meet the criteria as of such date are sold, and the holdings of all stocks in
the Fund that continue to meet the criteria are appropriately increased or
decreased to result in equal weighting of all stocks in the portfolio.
When a Fund receives new cash flow from the sale of its shares over the
course of the year, such cash will first be used to the extent necessary to meet
redemptions. The balance of any such cash will be invested in the 50 stocks
selected for the Fund using the applicable Strategy as of the most recent
rebalancing of the Fund's portfolio, in proportion to the current weightings of
such stocks in the portfolio and without any intention to rebalance the
portfolio on an interim basis. Such purchases will generally be made on a weekly
basis, but may be on a more or less frequent basis in the discretion of the
Manager, depending on certain factors, including the size of the Fund and the
amount of cash to be invested. To the extent redemptions exceed new cash flow
into a Fund, the Fund will meet redemption requests by selling securities on a
pro rata basis, based on the current weightings of such securities in the
portfolio. Thus, interim purchases and sales of securities between annual Re-
Balance Periods will be based on current portfolio weightings and will be made
without regard to whether or not a particular security continues to meet the
Strategy's criteria.
Each Fund offers a disciplined approach to investing, based on a buy and
hold philosophy over the course of each year, which ignores market timing and
rejects active management. The Manager expects that the 50 stocks held in each
Fund's portfolio will remain the same throughout the course of a year, despite
any adverse developments concerning an issuer, an industry, the economy or the
stock market generally. However, if during the course of a year it is determined
that earnings or other information that form the basis for selecting a security
are false or incorrect, the Manager reserves the right to replace such a
security with another meeting the criteria of the respective Strategy. Also, due
to purchases and redemptions of Fund shares during the year, changes in the
market value of the stock positions in a Fund's portfolio and compliance with
federal tax laws, it is likely that stock positions will not be weighted equally
at all times during a year.
FOREIGN SECURITIES. The Funds may invest in securities of foreign issuers,
either through (i) direct purchase of securities of foreign issuers or (ii)
purchase of ADRs, which are dollar-denominated securities of foreign issuers
traded in the U.S. Such investments increase diversification of the respective
Fund's portfolio and may enhance return, but they also involve some special
risks which are described under "Principal Risks of Investing in the Funds"
below.
The Funds may invest in ADRs through both sponsored and unsponsored
arrangements. The issuers of unsponsored ADRs are not obligated to disclose
material information in the United States, and therefore, there may not be a
correlation between such information and the market value of the ADRs.
COMPUSTAT(R) DATABASE. Although S&P Compustat obtains information for
inclusion in or for use in the COMPUSTAT(R) Database from sources which S&P
Compustat considers reliable, S&P Compustat does not guarantee the accuracy or
completeness of the COMPUSTAT(R) Database. S&P Compustat makes no warranty,
express or implied, as to the results to be obtained by the Funds, or any other
persons or entity from the use of the COMPUSTAT Database. S&P Compustat makes no
express or implied warranties, and expressly disclaims all warranties of
merchantability or fitness for a particular purpose with respect to the
COMPUSTAT Database. "Standard & Poor's" and "S&P" are trademarks of The McGraw-
Hill Companies, Inc. The Funds are not sponsored, endorsed, sold or promoted by
S&P Compustat and S&P Compustat makes no representation regarding the
advisability of investing in the Funds.
PRINCIPAL RISKS OF INVESTING IN THE FUNDS
The principal risks of investing in the Funds that may adversely affect the
Funds' net asset value or total return are summarized above in "An Overview of
the Funds." These risks are discussed in more detail below.
STRATEGY INDEXING(R) RISK. The Strategy Indexing(R) utilized by each Fund
provides a disciplined approach to investing, based on a buy and hold philosophy
during the course of each year, which ignores market timing and rejects active
management. Each Fund will adhere to its respective Strategy (subject to
applicable federal tax requirements relating to mutual funds), despite any
adverse developments concerning an issuer, an industry, the economy or the stock
market generally. This could result in substantial losses to a Fund, if for
example, the stocks selected for a Fund's portfolio for a given year are
experiencing financial difficulty, or are out of favor in the market because of
weak performance, poor earnings forecast, negative publicity or general market
cycles.
There can be no assurance that the market factors that caused the stocks
held in a Fund's portfolio to meet a Strategy's investment criteria as of
rebalancing in any given year will continue during such year until the next
rebalancing, that any negative conditions adversely affecting a stock's price
will not develop and/or deteriorate during a given year, or that share prices of
a stock will not decline during a given year.
Each Fund's portfolio is rebalanced annually in accordance with its
respective Strategy. Rebalancing may result in elimination of better performing
assets from a Fund's portfolio and increases in investments in securities with
relatively lower total return.
MARKET RISK. This is the risk that the market value of a security may move
up and down, sometimes rapidly and unpredictably. These fluctuations may cause a
security to be worth less than the price originally paid for it, or less than it
was worth at an earlier time. Market risk may affect a single issuer, industry,
sector of the economy or the market as a whole.
SMALL AND MEDIUM SIZED COMPANIES RISK. Investing in securities of small and
medium sized companies may involve greater volatility than investing in larger
and more established companies because they can be subject to more abrupt or
erratic share price changes than larger, more established companies. Small
companies may have limited product lines, markets or financial resources and
their management may be dependent on a limited number of key individuals.
Securities of these companies may have limited market liquidity and their prices
may be more volatile.
FOREIGN SECURITIES RISK. The risk of investing in the securities of foreign
companies is greater than the risk of investing in domestic companies. Some of
these risks include: (1) unfavorable changes in currency exchange rates; (2)
economic and political instability; (3) less publicly available information; (4)
less strict auditing and financial reporting requirement; (5) less governmental
supervision and regulation of securities markets; (6) higher transactions costs;
(7) potential adverse effects of the euro conversion; (8) greater possibility of
not being able to sell securities on a timely basis; (9) nationalization and
exchange controls; (10) potentially lower liquidity and higher volatility; (11)
possible problems arising from regulatory practices that differ from U.S.
standards; (12) the imposition of withholding taxes on income from such
securities; and (13) confiscatory taxation.
WHAT IS THE HISTORICAL PERFORMANCE OF THE STRATEGIES?
The following graphs and tables compare the actual performance of the
Standard & Poor's 500 Composite Stock Price Index (the "S&P 500"), the
hypothetical performance of each of the Cornerstone Growth Strategy and
Cornerstone Value Strategy for the historical periods indicated and the actual
performance of the Cornerstone Growth Fund and Cornerstone Value Fund for 1997,
1998 and 1999. Returns for each Strategy are the returns on a hypothetical
portfolio of stocks which was rebalanced annually in accordance with such
Strategy for the historical periods indicated. The Strategies have been
developed and tested solely by the former manager of the Funds.
Actual performance of the Funds may differ from the quoted performance of
the Strategies for the following reasons: each Fund may not be fully invested at
all times; not all stocks in a Fund's portfolio may be weighted equally at all
times due to appreciation or depreciation in a stock's value; purchases and
sales of stocks for a Fund's portfolio are likely to occur between annual
rebalancings due to cash inflows and outflows (from purchases and redemptions of
Fund shares) during the year; in managing the Funds, the Manager may make
limited modifications to the Strategies as necessary to comply with federal tax
laws; and the returns of the Strategies do not reflect the advisory fees,
commission costs, expenses or taxes that are borne by the Funds.
Because the returns for the Strategies are hypothetical, they do not
represent actual trading or the impact that material economic and market factors
might have had on the Manager's decision-making under actual circumstances.
However, except as described above, the Manager can presently foresee no
circumstances that would cause deviation from the Strategies in managing the
Funds. All returns contained in the graphs and charts below reflect reinvestment
of dividends and other earnings.
CORNERSTONE GROWTH STRATEGY STOCKS:
Hypothetical Total Return on a $10,000 Investment+<F7>
Date Cornerstone Growth S&P 500
12/31/52 $10,000.00 $10,000.00
12/31/53 $10,040.00 $9,901.00
12/31/54 $15,732.68 $15,110.91
12/31/55 $20,515.41 $19,879.91
12/31/56 $24,208.19 $21,184.03
12/31/57 $19,874.92 $18,900.39
12/31/58 $30,368.88 $27,095.60
12/31/59 $37,687.78 $30,336.24
12/31/60 $42,436.44 $30,478.82
12/31/61 $64,121.47 $38,674.57
12/31/62 $53,092.58 $35,298.28
12/31/63 $64,135.83 $43,346.29
12/31/64 $83,376.58 $50,489.76
12/31/65 $120,145.65 $56,775.73
12/31/66 $120,025.51 $51,064.09
12/31/67 $220,006.75 $63,309.26
12/31/68 $331,110.16 $70,311.26
12/31/69 $238,068.21 $64,334.81
12/31/70 $231,878.43 $66,914.63
12/31/71 $306,311.41 $76,490.12
12/31/72 $366,654.76 $91,007.94
12/31/73 $265,824.70 $77,666.18
12/31/74 $188,469.71 $57,107.94
12/31/75 $259,334.33 $78,352.09
12/31/76 $343,617.98 $97,031.23
12/31/77 $434,333.13 $90,064.39
12/31/78 $600,682.72 $95,972.61
12/31/79 $833,146.93 $113,669.96
12/31/80 $1,355,530.05 $150,521.77
12/31/81 $1,233,532.35 $143,131.15
12/31/82 $1,691,172.84 $173,775.53
12/31/83 $2,244,186.36 $212,892.40
12/31/84 $2,199,302.64 $226,240.75
12/31/85 $3,134,006.26 $298,999.78
12/31/86 $3,688,725.36 $354,225.03
12/31/87 $3,489,534.19 $372,751.00
12/31/88 $4,525,925.85 $435,410.45
12/31/89 $5,603,096.20 $572,521.20
12/31/90 $5,418,194.03 $554,372.28
12/31/91 $8,203,145.76 $723,733.01
12/31/92 $10,294,947.92 $779,243.33
12/31/93 $13,414,317.13 $857,089.74
12/31/94 $12,703,358.33 $868,317.61
12/31/95 $15,015,369.54 $1,193,328.89
12/31/96 $19,748,214.01 $1,468,629.87
12/31/97 $25,937,304.28 $1,958,564.79
12/31/98 $26,889,203.34 $2,518,322.61
12/31/99 $37,031,810.83 $3,048,177.68
Cornerstone Growth Strategy Index vs. the S&P 500*<F8> (December 31, 1953-
December 31, 1999)
CORNERSTONE CORNERSTONE
GROWTH GROWTH
YEAR ENDING S&P 500 STRATEGY YEAR ENDING S&P 500 STRATEGY
----------- ------- ----------- ----------- ------- -----------
12/31/53 -0.99% 0.40% 12/31/77 -7.18% 26.40%
12/31/54 52.62% 56.70% 12/31/78 6.56% 38.30%
12/31/55 31.56% 30.40% 12/31/79 18.44% 38.70%
12/31/56 6.56% 18.00% 12/31/80 32.42% 62.70%
12/31/57 -10.78% -17.90% 12/31/81 -4.91% -9.00%
12/31/58 43.36% 52.80% 12/31/82 21.41% 37.10%
12/31/59 11.96% 24.10% 12/31/83 22.51% 32.70%
12/31/60 0.47% 12.60% 12/31/84 6.27% -2.00%
12/31/61 26.89% 51.10% 12/31/85 32.16% 42.50%
12/31/62 -8.73% -17.20% 12/31/86 18.47% 17.70%
12/31/63 22.80% 20.80% 12/31/87 5.23% -5.40%
12/31/64 16.48% 30.00% 12/31/88 16.81% 29.70%
12/31/65 12.45% 44.10% 12/31/89 31.49% 23.80%
12/31/66 -10.06% -0.10% 12/31/90 -3.17% -3.30%
12/31/67 23.98% 83.30% 12/31/91 30.55% 51.40%
12/31/68 11.06% 50.50% 12/31/92 7.67% 25.50%
12/31/69 -8.50% -28.10% 12/31/93 9.99% 30.30%
12/31/70 4.01% -2.60% 12/31/94 1.31% -5.30%
12/31/71 14.31% 32.10% 12/31/95 37.43% 18.20%
12/31/72 18.98% 19.70% 12/31/96 23.07% 31.52%
12/31/73 -14.66% -27.50% 12/31/97+<F7> 33.36% 31.34%
12/31/74 -26.47% -29.10% 12/31/98+<F7> 28.58% 3.67%
12/31/75 37.20% 37.60% 12/31/99+<F7> 21.04% 37.72%
12/31/76 23.84% 32.50%
+<F7> Returns for 1997, 1998 and 1999 are actual for the Cornerstone Growth
Fund, net of fees and expenses.
*<F8> This Chart and the Index Performance Statistics and Comparisons
represent past performance of the S&P 500 Index, an unmanaged index of
securities, and the Cornerstone Growth Strategy, but not the Cornerstone
Growth Fund, applied retroactively, and should not be considered
indicative of future results. The performance of the Strategy shown is a
hypothetical example of the performance of the Strategy found in the
backtest, using an initial $10,000 value, if the Strategy had been in
existence and employed from 1952 through 1996, together with the actual
return of the Cornerstone Growth Fund for 1997, 1998 and 1999.
Performance of the Strategy and the S&P 500 do not reflect advisory
fees, commissions, expenses or taxes that the Fund bears. The Strategy's
performance as well as that of the S&P 500 would be lower if such fees
and expenses were deducted. Read the prospectus carefully before
investing.
CORNERSTONE VALUE STRATEGY STOCKS:
Hypothetical Total Return on a $10,000 Investment+<F9>
Date Cornerstone Value S&P 500
12/31/51 $10,000.00 $10,000.00
12/31/52 $11,430.00 $11,837.00
12/31/53 $11,567.16 $11,719.81
12/31/54 $17,639.92 $17,886.78
12/31/55 $22,596.74 $23,531.85
12/31/56 $25,941.05 $25,075.54
12/31/57 $22,439.01 $22,372.39
12/31/58 $32,514.13 $32,073.06
12/31/59 $35,635.48 $35,909.00
12/31/60 $35,624.79 $36,077.77
12/31/61 $44,317.24 $45,779.09
12/31/62 $43,164.99 $41,782.57
12/31/63 $51,280.01 $51,309.00
12/31/64 $61,689.85 $59,764.72
12/31/65 $72,547.27 $67,205.43
12/31/66 $65,147.45 $60,444.56
12/31/67 $80,587.39 $74,939.17
12/31/68 $101,943.05 $83,227.44
12/31/69 $86,651.59 $76,153.11
12/31/70 $96,443.22 $79,206.85
12/31/71 $111,681.25 $90,541.35
12/31/72 $127,316.63 $107,726.10
12/31/73 $119,804.95 $91,933.45
12/31/74 $105,068.94 $67,598.67
12/31/75 $166,219.06 $92,745.37
12/31/76 $231,376.94 $114,855.87
12/31/77 $239,012.37 $106,609.22
12/31/78 $246,899.78 $113,602.78
12/31/79 $310,106.13 $134,551.14
12/31/80 $373,057.67 $178,172.62
12/31/81 $420,809.05 $169,424.34
12/31/82 $503,287.63 $205,698.09
12/31/83 $697,556.65 $252,000.73
12/31/84 $730,341.81 $267,801.18
12/31/85 $985,961.45 $353,926.04
12/31/86 $1,189,069.50 $419,296.17
12/31/87 $1,327,001.57 $441,225.36
12/31/88 $1,678,656.98 $515,395.35
12/31/89 $2,309,832.00 $677,693.34
12/31/90 $2,148,143.76 $656,210.46
12/31/91 $2,940,808.81 $856,682.76
12/31/92 $3,281,942.63 $922,390.33
12/31/93 $3,951,458.93 $1,014,537.12
12/31/94 $4,141,128.96 $1,027,827.56
12/31/95 $5,246,810.39 $1,412,543.41
12/31/96 $6,395,861.86 $1,738,417.17
12/31/97 $7,373,789.14 $2,318,353.14
12/31/98 $7,859,721.85 $2,980,938.47
12/31/99 $8,332,091.13 $3,608,127.93
Cornerstone Value Strategy Index vs. the S&P 500*<F10> (December 31, 1952-
December 31, 1999)
CORNERSTONE CORNERSTONE
VALUE VALUE
YEAR ENDING S&P 500 STRATEGY YEAR ENDING S&P 500 STRATEGY
----------- ------- ----------- ----------- ------- -----------
12/31/52 18.37% 14.30% 12/31/76 23.84% 39.20%
12/31/53 -0.99% 1.20% 12/31/77 -7.18% 3.30%
12/31/54 52.62% 52.50% 12/31/78 6.56% 3.30%
12/31/55 31.56% 28.10% 12/31/79 18.44% 25.60%
12/31/56 6.56% 14.80% 12/31/80 32.42% 20.30%
12/31/57 -10.78% -13.50% 12/31/81 -4.91% 12.80%
12/31/58 43.36% 44.90% 12/31/82 21.41% 19.60%
12/31/59 11.96% 9.60% 12/31/83 22.51% 38.60%
12/31/60 0.47% -0.03% 12/31/84 6.27% 4.70%
12/31/61 26.89% 24.40% 12/31/85 32.16% 35.00%
12/31/62 -8.73% -2.60% 12/31/86 18.47% 20.60%
12/31/63 22.80% 18.80% 12/31/87 5.23% 11.60%
12/31/64 16.48% 20.30% 12/31/88 16.81% 26.50%
12/31/65 12.45% 17.60% 12/31/89 31.49% 37.60%
12/31/66 -10.06% -10.20% 12/31/90 -3.17% -7.00%
12/31/67 23.98% 23.70% 12/31/91 30.55% 36.90%
12/31/68 11.06% 26.50% 12/31/92 7.67% 11.60%
12/31/69 -8.50% -15.00% 12/31/93 9.99% 20.40%
12/31/70 4.01% 11.30% 12/31/94 1.31% 4.80%
12/31/71 14.31% 15.80% 12/31/95 37.43% 26.70%
12/31/72 18.98% 14.00% 12/31/96 23.07% 21.90%
12/31/73 -14.66% -5.90% 12/31/97+<F9> 33.36% 15.29%
12/31/74 -26.47% -12.30% 12/31/98+<F9> 28.58% 6.59%
12/31/75 37.20% 58.20% 12/31/99+<F9> 21.04% 6.01%
+<F9> Returns for 1997, 1998 and 1999 are actual for the Cornerstone Value
Fund, net of fees and expenses.
*<F10> This Chart and the Index Performance Statistics and Comparisons
represent past performance of the S&P 500 Index, an unmanaged index of
securities, and the Cornerstone Value Strategy, but not the Cornerstone
Value Fund, applied retroactively, and should not be considered
indicative of future results. The performance of the Strategy shown is
a hypothetical example of the performance of the Strategy found in the
backtest, using an initial $10,000 value, if the Strategy had been in
existence and employed from 1952 through 1996, together with the actual
return of the Cornerstone Value Fund for 1997, 1998 and 1999.
Performance of the Strategy and the S&P 500 do not reflect advisory
fees, commissions, expenses or taxes that the Fund bears. The
Strategy's performance as well as that of the S&P 500 would be lower if
such fees and expenses were deducted. Read the prospectus carefully
before investing.
SUMMARY RESULTS FOR S&P 500 AND HYPOTHETICAL RESULTS
FOR CORNERSTONE GROWTH STRATEGY STOCKS,
DECEMBER 31, 1952-DECEMBER 31, 1999++<F13>
CORNERSTONE
S&P 500 GROWTH STRATEGY
------- ---------------
Arithmetic average return 14.21% 21.88%
Standard deviation of return 16.71% 25.04%
Annualized return 12.94% 19.10%
Maximum return in any year 52.62% 83.30%
Minimum return in any year -26.47% -29.10%
Sharpe risk-adjusted ratio*<F11> 79.64% 43.86%
3 year annualized return**<F12> 27.56% 23.31%
5 year annualized return**<F12> 28.55% 23.86%
10 year annualized return**<F12> 18.20% 20.79%
15 year annualized return**<F12> 18.93% 20.71%
20 year annualized return**<F12> 17.87% 20.89%
25 year annualized return**<F12> 17.24% 23.52%
30 year annualized return**<F12> 13.72% 18.32%
35 year annualized return**<F12> 12.43% 19.03%
40 year annualized return**<F12> 12.22% 18.80%
$10,000 becomes: $3,048,178 $37,031,811
Returns for 1997, 1998 and 1999 are actual for Cornerstone Growth Fund, net of
fees and expenses.
*<F11> The Sharpe risk-adjusted ratio (the "Sharpe ratio") takes a
portfolio's volatility, as measured by its standard deviation of
return, into account. The higher the Sharpe ratio, the better the
portfolio's risk-adjusted return. The Sharpe ratio is calculated by
subtracting the risk free Treasury bill return from the portfolio's
return and then dividing that number by the portfolio's overall
standard deviation of return.
**<F12> Quoted return is for the most recent period ended December 31, 1999.
++<F13> These Statistics and Comparisons represent past performance of the S&P
500, an unmanaged index of securities, and the Cornerstone Growth
Strategy, but not the Cornerstone Growth Fund, applied retroactively,
and should not be considered indicative of future results. The
performance of the Strategy shown is a hypothetical example of the
performance of the Strategy found in the backtest, using an initial
$10,000 value, if the Strategy had been in existence and employed from
1952 through 1996, together with the actual return of the Cornerstone
Growth Fund for 1997, 1998 and 1999. Performance of the Strategy and
the S&P 500 do not reflect advisory fees, commissions, expenses or
taxes that the Fund bears. The Strategy's performance as well as that
of the S&P 500 would be lower if such fees and expenses were deducted.
Read the prospectus carefully before investing.
SUMMARY RESULTS FOR S&P 500 AND HYPOTHETICAL RESULTS FOR
CORNERSTONE VALUE STRATEGY STOCKS,
DECEMBER 31, 1951-DECEMBER 31, 1999++<F16>
CORNERSTONE
S&P 500 VALUE STRATEGY
------- --------------
Arithmetic average return 14.30% 16.22%
Standard deviation of return 16.56% 16.54%
Annualized return 13.05% 15.04%
Maximum return in any year 52.62% 58.20%
Minimum return in any year -26.47% -15.00%
Sharpe risk-adjusted ratio*<F14> 99.38% 66.85%
3 year annualized return**<F15> 27.56% 9.22%
5 year annualized return**<F15> 28.55% 15.01%
10 year annualized return**<F15> 18.20% 13.69%
15 year annualized return**<F15> 18.93% 17.62%
20 year annualized return**<F15> 17.87% 17.89%
25 year annualized return**<F15> 17.24% 19.12%
30 year annualized return**<F15> 13.72% 16.44%
35 year annualized return**<F15> 12.43% 15.05%
40 year annualized return**<F15> 12.22% 14.61%
$10,000 becomes: $3,608,128 $8,332,091
Returns for 1997, 1998 and 1999 are actual for Cornerstone Value Fund, net of
fees and expenses.
*<F14> The Sharpe ratio takes a portfolio's volatility, as measured by its
standard deviation of return, into account. The higher the Sharpe
ratio, the better the portfolio's risk-adjusted return. The Sharpe
ratio is calculated by subtracting the risk free Treasury bill return
from the portfolio's return and then dividing that number by the
portfolio's overall standard deviation of return.
**<F15> Quoted return is for the most recent period ended December 31, 1999.
++<F16> These Statistics and Comparisons represent past performance of the S&P
500, an unmanaged index of securities, and the Cornerstone Value
Strategy, but not the Cornerstone Value Fund, applied retroactively,
and should not be considered indicative of future results. The
performance of the Strategy shown is a hypothetical example of the
performance of the Strategy found in the backtest, using an initial
$10,000 value, if the Strategy had been in existence and employed
from1952 through 1996, together with the actual return of the
Cornerstone Value Fund for 1997, 1998 and 1999. Performance of the
Strategy and the S&P 500 do not reflect advisory fees, commissions,
expenses or taxes that the Fund bears. The Strategy's performance as
well as that of the S&P 500 would be lower if such fees and expenses
were deducted. Read the prospectus carefully before investing.
MANAGEMENT OF THE FUNDS
WHO RUNS THE FUNDS?
One June 30, 2000, Edward J. Hennessy, Incorporated became the investment
manager of each Fund. The Funds were previously managed by Netfolio, Inc.
(formerly O'Shaughnessy Capital Management, Inc.) The Manager's address is The
Courtyard Square, 750 Grant Avenue, Suite 100, Novato, California 94945. The
Manager has been providing investment advisory services since 1989. The Manager
is the general partner of investment managers for two mutual funds: The Hennessy
Balanced Fund and The Hennessy Leveraged Dogs Fund. The Manager also furnishes
each Fund with office space and certain administrative services and provides
most personnel needed by the Funds. For its services, each Fund pays the Manager
a monthly management fee based upon its average daily net assets. For the fiscal
year ended September 30, 1999, the Funds' prior manager received advisory fees
of 0.74% of each of the Fund's average daily net assets.
Neil J. Hennessy will be primarily responsible for day-to-day management of
the portfolio of each Fund and for developing and executing each Funds'
investment program.
Prior to June 30, 2000 James P. O'Shaughnessy had the day-to-day
responsibility for managing the portfolio of each Fund and developing and
executing each Fund's investment program since the commencement of operations of
each Fund. For the past eleven years, Mr. O'Shaughnessy has served as Chairman
and CEO of the Funds' former manager. Mr. O'Shaughnessy is recognized as a
leading expert and pioneer in quantitative equity analysis. He is the author of
three financial books, Invest Like the Best, What Works on Wall Street and How
to Retire Rich.
FUND EXPENSES
Each Fund is responsible for its own operating expenses. At times, the
Manager may reduce its fees and/or pay expenses of either Fund in order to
reduce the Fund's aggregate annual operating expenses. Any reduction in advisory
fees or payment of expenses made by the Manager is subject to reimbursement by
the Fund if requested by the Manager in subsequent fiscal years. This
reimbursement may be requested by the Manager if the aggregate amount actually
paid by the Fund toward operating expenses for such fiscal year (taking into
account the reimbursement) does not exceed the applicable limitation on Fund
expenses. The Manager is permitted to be reimbursed for fee reductions and/or
expense payments made in the prior three fiscal years. Any such reimbursement
will be reviewed by the Directors. Each Fund must pay its current ordinary
operating expenses before the Manager is entitled to any reimbursement of fees
and/or expenses.
SHAREHOLDER INFORMATION
PURCHASE OF SHARES
The minimum initial investment in a Fund is $2,500 for regular accounts and
$250 for Individual Retirement Accounts. For corporate sponsored retirement
plans, there is no minimum initial investment. There is no minimum subsequent
investment requirement for any account. However, a $100 minimum exists for each
additional investment made through the Automatic Investment Plan. The Funds may
waive the minimum investment requirements from time to time.
You may purchase shares of the Funds by check or wire. All purchases by
check must be in U.S. dollars. Third party checks and cash will not be accepted.
A charge may be imposed if your check does not clear. The Funds are not required
to issue share certificates. The Funds reserve the right to reject any purchase
in whole or in part.
HOW DO I PURCHASE SHARES BY CHECK?
If you are making an initial investment in a Fund, simply complete the
appropriate Application and mail it with a check (made payable to "Hennessy
Cornerstone Value Fund" or "Hennessy Cornerstone Growth Fund") to:
Hennessy Mutual Funds, Inc.
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-070
If you wish to send your Application and check via an overnight delivery
service, delivery cannot be made to a post office box. In that case, you should
use the following address:
Hennessy Mutual Funds, Inc.
c/o Firstar Mutual Fund Services, LLC
615 E. Michigan Street,
Third Floor
Milwaukee, WI 53202
Subsequent investments must be accompanied by a letter indicating the
name(s) in which the account is registered and the account number or by the
remittance portion of the account statement and returned to one of the above
addresses.
HOW DO I PURCHASE SHARES BY WIRE?
If you are making an initial investment in a Fund, before you wire funds,
you should call the Fund at 1-800-261-6950 between 6:30 a.m. and 1:00 p.m.,
Pacific time, on a day when the New York Stock Exchange ("NYSE") is open for
trading to advise them that you are making an investment. You will then receive
your account number and an order confirmation number. Before or immediately
after your bank wires funds, a completed Application should be sent to the
Funds' transfer agent, Firstar Mutual Fund Services, LLC (the "Transfer Agent")
by U.S. mail or overnight courier to the addresses listed above. If you are
making a subsequent purchase, before you wire funds, you should be sure to
notify the Transfer Agent.
All wires should specify the name of the Fund, the name(s) in which the
account is registered, the shareholder's social security number or employer tax
identification number, the account number and the amount being wired. Please
indicate if this is an initial or subsequent investment. It is essential that
your bank include complete information about your account in all wire
instructions. Wire purchases are normally used only for large purchases (over
$5,000). Your bank may charge you a fee for sending a wire to the Funds.
Your bank should transmit immediately available funds by wire in your name
to:
Hennessy Mutual Funds Inc.
c/o Firstar Mutual Fund Services, LLC
ABA# 075000022
DDA# 11295137
CAN I PURCHASE SHARES THROUGH BROKER-DEALERS OTHER THAN THE DISTRIBUTOR?
You may buy, sell and exchange shares of the Funds through certain brokers
(and their agents) that have made arrangements with the Funds to sell their
shares. When you place your order with such a broker or its authorized agent,
your order is treated as if you had placed it directly with the Transfer Agent,
and you will pay or receive the next price calculated by the Funds. The broker
(or agent) holds your shares in an omnibus account in the broker's (or agent's)
name, and the broker (or agent) maintains your individual ownership records. The
Manager may pay the broker (or its agent) for maintaining these records as well
as providing other shareholder services. The broker (or its agent) may charge
you a fee for handling your order. The broker (or agent) is responsible for
processing your order correctly and promptly, keeping you advised regarding the
status of your individual account, confirming your transactions and ensuring
that you receive copies of the Funds' prospectus.
You may also buy, sell and exchange shares of the Funds through other
outside broker-dealers that have not made arrangements with the Funds to sell
their shares. Such broker-dealers may purchase shares of the Funds by telephone
if they have made arrangements in advance with the Funds. To place a telephone
order, such broker-dealer should call the Funds at 1-800-261-6950.
AUTOMATIC INVESTMENT PLAN
For your convenience, each Fund offers an Automatic Investment Plan. Under
this Plan, after your initial investment in a Fund, you authorize that Fund to
withdraw from your checking or savings account each month or quarter an amount
that you wish to invest, which must be at least $100. If you wish to enroll in
this Plan, complete the appropriate section in the Application. If you are an
existing shareholder, you may call the Fund at 1-800-261-6950 and request an
Automatic Investment Plan Application. Signed Applications should be received by
the Transfer Agent at least 15 business days prior to your initial transaction.
The Transfer Agent will charge you a $20 fee if the automatic investment cannot
be made due to insufficient funds, stop payment or for any other reason. The
Funds may terminate or modify this privilege at any time. You may terminate your
participation in the Plan at any time by notifying the Transfer Agent in
writing.
RETIREMENT PLANS
You may invest in the Funds under the following prototype retirement plans:
o "Education" Individual Retirement Account (IRA)
o "Traditional" Individual Retirement Account (IRA)
o "Roth" Individual Retirement Account (IRA)
o Simplified Employee Pension (SEP) for sole proprietors, partnerships and
corporations
o Profit-Sharing and Money Purchase Pension Plans for corporations and
their employees
HOW TO EXCHANGE SHARES
You may exchange shares of one Fund for shares of the other Fund any day the
Funds and the NYSE are open for business. You may also exchange shares of either
Fund for shares of the Firstar Money Market Fund, a money market mutual fund not
affiliated with Hennessy Mutual Funds Inc. or the Manager. The exchange
privilege does not constitute an offering or recommendation on the part of the
Funds or the Manager of an investment in the Firstar Money Market Fund. Prior to
making an exchange into the Firstar Money Market Fund, you should obtain and
carefully read that fund's prospectus which may be obtained by calling 1-800-
261-6950.
If you exchange into shares of the Firstar Money Market Fund you may
establish checkwriting privileges on that money market account. Contact the Fund
at 1-800-261-6950 for a checkwriting application and signature card.
HOW DO I EXCHANGE SHARES BY MAIL?
You may exchange your Fund shares by simply sending a written request to the
Transfer Agent. You should give the name of your Fund account, account number,
the number of Fund shares or the dollar value of Fund shares to be exchanged,
and the name of the other fund into which the exchange is being made. If you
have an existing account with the other fund, you should also give the name and
account number for that fund. The letter should be signed by all of the
shareholders whose names appear on the account registration.
HOW DO I EXCHANGE SHARES BY TELEPHONE?
If your account has telephone privileges, you may also exchange Fund shares
by calling the Fund at 1-800-261-6950 before the close of regular trading on the
NYSE, which presently is 1:00 p.m., Pacific time. If you are exchanging shares
by telephone, you will be subject to certain identification procedures which are
listed below under "How do I redeem shares by telephoneo". You will be charged a
$5.00 fee for exchanges of Fund shares by telephone. Telephone requests for
exchanges will not be accepted with respect to shares represented by
certificates. Each Fund may suspend temporarily the exchange privilege in
emergency situations or in cases where, in the judgment of the Fund,
continuation of the privilege would be detrimental to the Fund and its
shareholders. Such temporary suspension can be without prior notification to
shareholders.
The Funds reserve the right on notice to shareholders to limit the number of
exchanges you may make in any year to avoid excess Fund expenses. The Funds
reserve the right to reject any exchange order. The Funds may modify or
terminate the exchange privilege upon written notice to shareholders.
HOW TO SELL SHARES
You may sell (redeem) your Fund shares on any day the Funds and the NYSE are
open for business either directly to the Funds or through your investment
representative. Such redemptions will be priced and processed as of the close of
business on that day; requests received after that time will be processed as of
the close of business on the next business day.
HOW DO I SELL SHARES BY MAIL?
You may redeem your shares by sending a written request to the Transfer
Agent. The redemption request should include the following: (i) the name of the
account; (ii) the account number; (iii) the number of shares or the dollar value
of shares to be redeemed; (iv) duly endorsed share certificates, if issued; (v)
any signature guarantees that are required; and (vii) any additional documents
that might be required for redemptions by corporations, executors,
administrators, trustees, guardians or other similar shareholders. In addition,
please specify whether the redemptions proceeds are to be sent by mail or wire.
The letter should be signed by shareholders whose names appear on the account
registration. If you wish to have the proceeds wired, please give wire
instructions. Corporate and institutional investors and fiduciaries should
contact the Transfer Agent to ascertain what additional documentation is
required.
WHEN ARE SIGNATURE GUARANTEES REQUIRED?
To protect the Funds and their shareholders, except as noted in the
following paragraph, a signature guarantee is required for all written
redemption requests. Signature(s) on the redemption request must be guaranteed
by an "eligible guarantor institution." These include banks, broker-dealers,
credit unions and savings institutions. A broker-dealer guaranteeing signatures
must be a member of a clearing corporation or maintain net capital of at least
$100,000. Credit unions must be authorized to issue signature guarantees.
Signature guarantees will be accepted for any eligible guarantor institution
which participates in a signature guarantee program. A notary public is not an
acceptable guarantor.
The Funds will waive the signature guarantee required on redemption requests
that instruct that the proceeds be sent by mail if all of the following
conditions apply: (1) the redemption is for $10,000 or less; (ii) the redemption
check is payable to the shareholder(s) of record; (iii) the redemption check is
mailed to the shareholder(s) at the address of record; and (iv) no shares
represented by certificate are being redeemed. In addition, the Funds may waive
the signature guarantee for employees and affiliates of the Manager, the
Distributor (as defined below), the Administrator (as defined below), and family
members of the foregoing.
HOW DO I SELL SHARES BY TELEPHONE?
If you complete the "Shareholder Privileges" section of the Fund
Application, you may redeem all or some of your shares by calling the Fund at 1-
800-261-6950 before the close of regular trading on the NYSE, which presently is
1:00 p.m., Pacific time. Telephone redemptions will not be accepted with respect
to shares represented by certificates or for retirement accounts.
When you establish telephone privileges, you are authorizing the Funds and
the Transfer Agent to act upon the telephone instructions of the person or
persons you have designated in your Account Application. Redemption proceeds
will be transferred to the bank account you have designated on your Account
Application.
Before acting on instructions received by telephone, the Funds and the
Transfer Agent will use reasonable procedures to confirm that the telephone
instructions are genuine. These procedures may include recording the telephone
call and asking the caller for a form of personal identification. If the Funds
and the Transfer Agent follow these reasonable procedures, they will not be
liable for any loss, expense, or cost arising out of any telephone transaction
request that is reasonably believed to be genuine. This includes any fraudulent
or unauthorized request. The Funds may change, modify or terminate these
privileges at any time upon written notice to shareholders. The Funds may
suspend temporarily the redemption privilege in emergency situations or in cases
where, in the judgment of the Fund, continuation of the privilege would be
detrimental to the Fund and its shareholders. Such temporary suspension can be
without prior notification to shareholders.
You may request telephone redemption privileges after your account is opened
by writing to the Transfer Agent at one of the addresses set forth under "How Do
I Purchase Shares by Checko" above. Your written request for telephone
privileges must be signed by the registered owner(s) of the shares exactly as
the account is required and signature guaranteed, and include the name of the
account, the account number and the name of the Fund.
You may have difficulties in making a telephone redemption during periods of
abnormal market activity. If this occurs, you may make your redemption request
in writing.
WHEN WILL I RECEIVE MY REDEMPTION PROCEEDS?
Payment of your redemption proceeds will be made promptly, but not later
than seven days after the receipt of your written request in proper form as
discussed in this Prospectus. If you made your initial investment by wire,
payment of your redemption proceeds for those shares will not be made until one
business day after your completed Application is received by the Funds. If you
did not purchase your shares with a certified check or wire, the Funds may delay
payment of your redemption proceeds for up to 15 days from date of purchase or
until your check has cleared, whichever occurs first.
If you made your redemption request by telephone, the proceeds will be
mailed within one or two days. If you request, redemption proceeds will be wired
on the next business day to the bank account you have designated in your Fund
Application or written instructions. The minimum amount that may be wired is
$1,000. You will be charged a wire transfer fee of $12. This fee will be
deducted from your redemption proceeds and paid to the Transfer Agent to cover
costs associated with the transfer. In addition, your bank may charge a fee for
receiving wires.
Each Fund has the right to pay redemption proceeds to you in whole or in
part by a distribution of securities from the Fund's portfolio. It is not
expected that the Funds would do so except in unusual circumstances. If either
Fund pays your redemption proceeds by a distribution of securities, you could
incur brokerage or other charges in converting the securities to cash.
WHEN WILL I PAY A REDEMPTION FEE?
The Funds are intended for long-term investors. Short-term "market timers"
who engage in frequent purchases and redemptions can disrupt the Funds'
investment programs and create additional transaction costs that are borne by
all shareholders. For these reasons, each Fund will assess a 1.5% fee on
redemptions and exchanges of Fund shares purchased and held for less than 90
days. This fee will be paid to the Fund to help offset transactions costs. In
determining the 90-day holding period, the Funds will use the "first-in, first-
out" method. Under this method, the date of redemption or exchange will be
compared with the earliest purchase date of shares held in your account. If
those shares were held for less than 90 days, the fee will be assessed.
This fee does not apply to: (i) any shares purchased through reinvested
dividends or capital gains; or (ii) shares held in 401(k), 403(b), 457, Keogh,
profit sharing, SIMPLE IRA, SEP-IRA and money purchase pension retirement plan
accounts. In addition, this fee may not apply to shares held in broker omnibus
accounts.
CAN MY ACCOUNT BE INVOLUNTARILY REDEEMED?
The Funds may redeem the shares in your account if the value of your account
is less than $2,500 for three months or longer as a result of redemptions you
have made. This does not apply to retirement plan or Uniform Gifts or Transfers
to Minors Act accounts. You will be notified that the value of your account is
less than $2,500 before the Funds make an involuntary redemption. You will then
have 60 days in which to make an additional investment to bring the value of
your account to at least $2,500 before the Funds take any action.
SYSTEMATIC CASH WITHDRAWAL PROGRAM
As another convenience, you may redeem your Fund shares through the
Systematic Cash Withdrawal Program. If you elect this method of redemption, the
Fund will send you or a designated third party a check in a minimum amount of
$50. You may choose to receive a check each month or calendar quarter. Your Fund
account must have a value of at least $10,000 in order to participate in this
Program. This Program may be terminated at any time by the Funds. You may also
elect to terminate your participation in this Program at any time by writing to
the Transfer Agent.
A withdrawal under the Program involves a redemption of shares and may
result in a gain or loss for federal income tax purposes. In addition, if the
amount withdrawn exceeds the dividends credited to your account, the account
ultimately may be depleted.
PRICING OF FUND SHARES
The price of each Fund's shares is based on the Fund's net asset value. This
is calculated by dividing each Fund's assets, minus its liabilities, by the
number of shares outstanding. Each Fund's assets are the market value of
securities held in its portfolio, plus any cash and other assets. Each Fund's
liabilities are fees and expenses owed by the Fund. The number of Fund shares
outstanding is the amount of shares which have been issued to shareholders by
that Fund. The price you will pay to buy Fund shares or the amount you will
receive when you sell your Fund shares is based on the net asset value next
calculated after your order is received by the Transfer Agent with complete
information and meeting all the requirements discussed in this Prospectus.
The net asset value of each Fund's shares is determined as of the close of
regular trading on the NYSE. This is normally 1:00 p.m., Pacific time. Fund
shares will not be priced on days that the NYSE is closed for trading (including
certain U.S. holidays).
DIVIDENDS AND DISTRIBUTIONS
Each Fund will make distributions of dividends and capital gains, if any,
annually, usually on or about December 31 of each year.
All distributions will be reinvested in shares of the distributing Fund
unless you choose one of the following options: (1) receive dividends in cash
while reinvesting capital gain distributions in additional Fund shares; or (2)
receive all distributions in cash. If you wish to change your distribution
option, write to the Transfer Agent at one of the addresses forth under "How Do
I Purchase Shares by Checko" above in advance of the payment date of the
distribution.
TAX CONSEQUENCES
The Funds intend to make distributions of dividends and capital gains.
Dividends are taxable to you as ordinary income. The rate you pay on capital
gain distributions will depend on how long the Fund held the securities that
generated the gains, not on how long you owned your Fund shares. You will be
taxed in the same manner whether you receive your dividends and capital gain
distributions in cash or reinvest them in additional Fund shares. If you
exchange or sell your Fund shares, it is considered a taxable event for you.
Depending on the purchase price and the sale price of the shares you exchange or
sell, you may have a gain or a loss on the transaction. You are responsible for
any tax liabilities generated by your transaction.
FINANCIAL HIGHLIGHTS
These tables show each Fund's financial performance during the period of its
operations. Certain information reflects financial results for a single Fund
share. "Total return" shows how much your investment in a Fund would have
increased or decreased during each period, assuming you had reinvested all
dividends and distributions. Information for the fiscal year ended September 30,
1999 has been audited by PricewaterhouseCoopers, LLP, independent auditors.
Their report and the Funds' financial statements are included in the Annual
Reports which are available upon request. Information for earlier periods shown
was audited by other independent accountants.
<TABLE>
CORNERSTONE GROWTH FUND CORNERSTONE VALUE FUND
--------------------------------------------------- ----------------------------------------------------
YEAR ENDED NOVEMBER 1, 1996*<F17> YEAR ENDED NOVEMBER 1, 1996*<F17>
------------------------------ THROUGH ------------------------------ THROUGH
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1997 1999 1998 1997
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 9.57 $15.30 $10.00 $10.84 $11.50 $10.00
------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income (loss) (0.09) (0.07) (0.02) 0.33 0.21 0.15
Net realized and
Unrealized gain (loss)
on investments 2.88 (3.88) 5.32 1.49 (0.70) 1.37
------ ------ ------ ------ ------ ------
Total from investment
operations 2.79 (3.95) 5.30 1.82 (0.49) 1.52
------ ------ ------ ------ ------ ------
Less distributions:
From net
investment income -- -- -- (0.26) (0.17) (0.02)
From net realized gains -- (1.78) -- (0.50) -- --
------ ------ ------ ------ ------ ------
-- (1.78) -- (0.76) (0.17) (0.02)
------ ------ ------ ------ ------ ------
Net asset value,
end of period $12.36 $ 9.57 $15.30 $11.90 $10.84 $11.50
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
TOTAL RETURN 29.15% (27.63%) 53.05%**<F18> 17.12% (4.32%) 15.21%**<F18>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(millions) $120.8 $ 80.4 $ 91.3 $ 26.3 $ 21.9 $ 13.5**<F18>
Ratio of expenses to average
net assets:
Before expense
reimbursement 1.15% 1.16% 1.63%++<F19> 1.38% 1.45% 2.66%++<F19>
After expense
reimbursement 1.15% 1.16% 1.56%++<F19> 1.38% 1.45% 1.85%++<F19>
Ratio of net investment (loss)
income to average net assets:
Before expense
reimbursement (0.84%) (0.86%) (1.19%)++<F19> 2.58% 2.12% 1.93%++<F19>
After expense
reimbursement (0.84%) (0.86%) (1.12%)++<F19> 2.58% 2.12% 2.73%++<F19>
Portfolio turnover rate 125.19% 119.98% 15.52% 122.79% 51.56% 2.01%
</TABLE>
*<F17> Commencement of operations.
**<F18> Not Annualized.
++<F19> Annualized.
FUNDS
Hennessy Cornerstone Value Fund
Hennessy Cornerstone Growth Fund
The Courtyard Square
750 Grant Avenue, Suite 100
Novato, California 94945
INVESTMENT MANAGER
Edward J. Hennessy, Incorporated
The Courtyard Square
750 Grant Avenue, Suite 100
Novato, California 94945
ADMINISTRATOR
Investment Company Administration, LLC
4455 E. Camelback Road, Suite 261 E
Phoenix, AZ 85018
DISTRIBUTOR
First Fund Distributors, Inc.
4455 E. Camelback Road, Suite 261 E
Phoenix, AZ 85018
TRANSFER AGENT AND CUSTODIAN
Firstar Mutual Fund Services, LLC
615 E. Michigan Street
Milwaukee, WI 53202
AUDITORS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
LEGAL COUNSEL
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, WI 53202
CORNERSTONE GROWTH FUND
CORNERSTONE VALUE FUND
SERIES OF HENNESSY MUTUAL FUNDS, INC.
WWW.HENNESSY-FUNDS.COM
For investors who want more information about the Funds, the following
documents are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS: Additional information about the Funds'
investments is available in the Funds' annual and semi-annual reports to
shareholders. In the Funds' annual reports, you will find a discussion of market
conditions and investment strategies that significantly affected the Funds'
performance during their last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Funds and is incorporated by reference into this
Prospectus.
You can get free copies of reports and the SAI, request other information
and discuss your questions about the Funds by contacting the Funds at:
Hennessy Mutual Funds, Inc.
The Courtyard Square
750 Grant Avenue, Suite 100
Novato, California 94945
Telephone: 1-800-966-4354
You can review and copy information including the Funds' reports and SAI at
the Public Reference Room of the Securities and Exchange Commission in
Washington, D.C. You can obtain information on the operation of the Public
Reference Room by calling 1-202-942-8090. Reports and other information about
the Fund are also available:
o Free of charge from the Commission's EDGAR database on the Commission's
Internet website at http://www.sec.gov., or
o For a fee, by writing to the Public Reference Room of the Commission,
Washington, DC 20549-0102, or
o For a fee, by electronic request at the following e-mail address:
publicinfosec.gov. (The Fund's SEC Investment Company Act file number is
811-07695)
(The Fund's SEC Investment Company Act
file number is 811-07695)
To learn more about the Hennessy Mutual Funds (formerly known as the
O'Shaughnessy Funds) you may want to read the Hennessy Funds' Statement of
Additional Information (or "SAI") which contains additional information about
the Funds. The Hennessy Mutual 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 Mutual Funds' investments by
reading the Hennessy Mutual 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
Mutual Funds may also call the above number or write to the following address:
The Hennessy Mutual Funds, Inc.
The Courtyard Square
750 Grant Avenue
Suite 100
Novato, CA 94945
The general public can review and copy information about the Hennessy Mutual
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 Mutual 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 Mutual Funds' Investment Company Act File No.
811-07695, when seeking information about the Hennessy Mutual Funds from the
Securities and Exchange Commission.
