-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JMq9K8Hp/LQamRQ+ctLUtdkPOSHAMKpSkPFMRUFk2v8vGtpd/BZn0Mqae4J0Dt9a vBWNqtQZv+WTtxbk1Zj57w== 0000898531-06-000009.txt : 20060109 0000898531-06-000009.hdr.sgml : 20060109 20060109153502 ACCESSION NUMBER: 0000898531-06-000009 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20051031 FILED AS OF DATE: 20060109 DATE AS OF CHANGE: 20060109 EFFECTIVENESS DATE: 20060109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HENNESSY FUNDS INC CENTRAL INDEX KEY: 0001005778 IRS NUMBER: 680377264 STATE OF INCORPORATION: MD FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-07493 FILM NUMBER: 06519166 BUSINESS ADDRESS: STREET 1: 7250 REDWOOD BOULEVARD STREET 2: SUITE 200 CITY: NOVATO STATE: CA ZIP: 94945 BUSINESS PHONE: 8009664354 MAIL ADDRESS: STREET 1: C/O U.S. BANCORP FUND SERVICES, LLC STREET 2: 615 E MICHIGAN ST MK-WI-LC-2 CITY: MILWAUKEE STATE: WI ZIP: 53202 N-CSR 1 thfi-ncsra.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811- 07493 ---------- THE HENNESSY FUNDS, INC. ------------------------ (Exact name of registrant as specified in charter) 7250 REDWOOD BLVD., SUITE 200 ----------------------------- NOVATO, CA 94945 ---------------- (Address of principal executive offices) (Zip code) NEIL J. HENNESSY ---------------- HENNESSY ADVISORS, INC. ----------------------- 7250 REDWOOD BLVD., SUITE 200 ----------------------------- NOVATO, CA 94945 ---------------- (Name and address of agent for service) 800-966-4354 ------------ Registrant's telephone number, including area code Date of fiscal year end: OCTOBER 31, 2005 ---------------- Date of reporting period: OCTOBER 31, 2005 ---------------- ITEM 1. REPORT TO STOCKHOLDERS. - ------------------------------ HENNESSY FUNDS ANNUAL REPORT OCTOBER 31, 2005 HENNESSY CORNERSTONE GROWTH FUND (HFCGX) HENNESSY FOCUS 30 FUND (HFTFX) HENNESSY CORNERSTONE VALUE FUND (HFCVX) HENNESSY TOTAL RETURN FUND (HDOGX) HENNESSY BALANCED FUND (HBFBX) (HENNESSY FUNDS LOGO) FORMULAS FOR SMART INVESTING CONTENTS Letter to shareholders 1 Change in value of $10,000 investment 6 Summary of investment portfolios Hennessy Cornerstone Growth Fund 11 Hennessy Focus 30 Fund 15 Hennessy Cornerstone Value Fund 18 Hennessy Total Return Fund 22 Hennessy Balanced Fund 25 Financial statements Statements of assets and liabilities 28 Statements of operations 30 Statements of changes in net assets 32 Financial highlights Hennessy Cornerstone Growth Fund 36 Hennessy Focus 30 Fund 38 Hennessy Cornerstone Value Fund 40 Hennessy Total Return Fund 42 Hennessy Balanced Fund 44 Statement of cash flows 46 Notes to the financial statements 47 Report of Independent Registered Public Accounting Firm 55 Trustees and Officers of the Funds 56 Expense example 62 Proxy voting policy 64 LETTER TO SHAREHOLDERS December 2005 DEAR HENNESSY FUNDS SHAREHOLDER: While interest rates and inflation have increased during the past year, the Federal Funds rate at 4% and core inflation at 2.1% are in no way cause for alarm, in my opinion. The current economic environment is far better than the era of high inflation we experienced in the late 1970's and early 1980's, yet the market bears look at the Fed's raising of interest rates and current economic indicators and predict doom and gloom. The bears say that the economy is not showing signs of growth and point to recent events, such as terrorism and the hurricanes in the Gulf, to instill a sense of fear among investors. However, these events were not able to take the market down. Instead, we have seen relatively good performance of the market over the twelve months ending October 31, 2005, with the S&P 500 Index returning almost 9%. I continue to be a market bull, seeing generally positive economic indicators across the board. Companies have become more lean, meaning that any increase in revenue and profits is falling to the bottom line. With increased earnings, companies are increasing capital expenditures, returning dividends to the shareholders or buying back stock, all of which benefit shareholders. In the coming year I see a good business environment, and I anticipate an increase in corporate earnings in the 10-15% range, which translates into strong market performance over time. For the twelve months ending October 31, 2005, the sector that significantly outperformed all others was energy. As oil approached $70 a barrel, energy companies posted record revenues, while those companies that rely on oil were hurt by rising material costs. Higher steel prices drove steel stocks higher, and homebuilders benefited in the past year from the continued demand for housing and low interest rates. Healthcare stocks were mixed, with some companies performing strongly, while others tumbled, including large pharmaceutical stocks. Automakers Ford and GM struggled with higher oil costs, higher medical costs for workers and slower demand for cars, particularly SUV's, both posting significant losses for the past twelve months. We are pleased with the performance of our funds over the past year. For the twelve-month period ending October 31, 2005, both the Hennessy Cornerstone Growth Fund and Hennessy Focus 30 Fund significantly outperformed their benchmark indices. For the period, the Hennessy Cornerstone Growth Fund returned 23.17%, versus the S&P 500 Index at 8.72% and the Russell 2000 Index at 12.08%. The Hennessy Focus 30 Fund returned 40.83%, versus the S&P 500 Index at 8.72% and the S&P 400 Midcap Index at 17.65%. For the first time in a number of years small cap stocks did not turn in the highest performance for the year ending October 31st. Instead, mid-cap stocks led the market. Over the past twelve months, the performance of both the Cornerstone Growth Fund and Focus 30 Fund was fueled by the rise in commodity prices, particularly oil and steel, as both Funds had a significant weighting in oil and basic material stocks. Three strong performers in both the Cornerstone Growth and Focus 30 portfolios for the twelve-month period ending October 31, 2005 were Valero, which returned 146%, Tesoro, which returned 102%, and Nucor, which returned 45%. Other strong performing stocks in the Focus 30 Fund were Peabody Energy, which returned 147% in the past twelve months, Consol Energy, which returned 74%, and homebuilder Pulte Homes, which returned 38%. Returns of the Cornerstone Growth Fund were further enhanced by strong performance in the housing and basic materials sectors, led by USG, which returned 164% in the past twelve months, Cleveland Cliffs, which returned 125%, and homebuilders Toll Brothers, which returned 59%, and Meritage, which returned 40%. The Cornerstone Growth Fund also held a number of healthcare stocks, which showed mixed results; twelve month performance for Aetna was 86% and for Sierra Health was 57%, while performance for Molina Health fell -44% and Centene was down -15% for the twelve months ending October 31, 2005. RETURNS AT A GLANCE (AS OF OCTOBER 31, 2005) One Year Five Year Since Annualized Annualized Inception Return Return (11/1/96) ---------- ---------- --------- HENNESSY CORNERSTONE GROWTH FUND (HFCGX) 23.17% 12.25% 16.20% Russell 2000 Index 12.08% 6.75% 8.80% S&P 500 Index 8.72% (1.74%) 7.84% One Year Five Year Since Annualized Annualized Inception Return Return (9/17/03) ---------- ---------- --------- HENNESSY FOCUS 30 FUND (HFTFX) 40.83% n/a 21.49% S&P 400 Mid-cap Index 17.65% n/a 15.86% S&P 500 Index 8.72% n/a 9.86% One Year Five Year Since Annualized Annualized Inception Return Return (11/1/96) ---------- ---------- --------- HENNESSY CORNERSTONE VALUE FUND (HFCVX) 5.69% 6.10% 6.79% Russell 1000 Index 10.47% (1.38%) 8.12% S&P 500 Index 8.72% (1.74%) 7.84% One Year Five Year Since Annualized Annualized Inception Return Return (7/29/98) ---------- ---------- --------- HENNESSY TOTAL RETURN FUND (HDOGX) 3.83% 3.28% 2.73% Dow Jones Industrial Average 6.45% 1.07% 4.18% S&P 500 Index 8.72% (1.74%) 2.52% One Year Five Year Since Annualized Annualized Inception Return Return (3/8/96) ---------- ---------- --------- HENNESSY BALANCED FUND (HBFBX) 1.13% 1.67% 4.28% Dow Jones Industrial Average 6.45% 1.07% 8.97% S&P 500 Index 8.72% (1.74%) 8.63% PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE; PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE OF THE FUND MAY BE LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH END MAY BE OBTAINED BY VISITING WWW.HENNESSYFUNDS.COM. THE FUNDS IMPOSE A 1.5% REDEMPTION FEE ON SHARES HELD FOR LESS THAN THREE MONTHS. Though rising commodity prices helped oil and basic material stocks, they significantly hurt manufacturers that rely on these materials. This underperformance in the manufacturing sector helps to explain the underperformance of the Hennessy Cornerstone Value Fund versus its benchmark indices. The Hennessy Cornerstone Value Fund returned 5.69% for the twelve months ending October 31, 2005, while the S&P 500 returned 8.72% and the Russell 1000 returned 10.47% for the same period. The Cornerstone Value Fund had strong performance from stocks Cemex (+85%), Altria Group (+62%), Marathon Oil (+62%) and Kerr-McGee (+46%). However the losses from automakers General Motors (-25%) and Ford (-34%), as well as pharmaceutical companies Pfizer (-23%) Eli Lilly (- 7%), Merck and Bristol Myers Squibb (each -5%), significantly hampered the returns of the Cornerstone Value Fund. Additionally, the underperformance of chemical stocks PPG Industries, which lost 3%, and DuPont, which was flat for the twelve-month period, further contributed to the underperformance of the Cornerstone Value Fund. The performance of both the Hennessy Total Return Fund and the Hennessy Balanced Fund was helped by Altria (+62%) and Exxon Mobil Corp., which gained 16% over the twelve-month period. With interest rates rising over the year, yields on the U.S. Treasury securities held in the portfolios had slight increases. However, General Motors' losses significantly hurt the performance of both funds as did the underperformance of Pfizer and Merck (-23% and -5% respectively), Verizon (-16%) and JP Morgan (-2%). The Hennessy Total Return Fund returned 3.83% and the Hennessy Balanced Fund returned 1.13% for the twelve months ending October 31, 2005, both of which underperformed the S&P 500 Index and the Dow Jones Industrial Average, which returned 8.72% and 6.45% respectively for the same period. At Hennessy Funds, we continue to adhere to our time-tested investment formulas, not allowing the headlines or market whims to distract us from our long-term goals. And, as always, our first concern is for our shareholders, and we manage our portfolios with your best interest in mind. Thank you for your continued confidence and investment. Should you have any questions or want to speak with us directly, please don't hesitate to call us at (800) 966-4354. Best regards, /s/Neil Hennessy Neil Hennessy President & Portfolio Manager Please see the following page for important disclosures. Past performance does not guarantee future results. SMALL AND MEDIUM-CAPITALIZATION COMPANIES TEND TO HAVE LIMITED LIQUIDITY AND GREATER PRICE VOLATILITY THAN LARGE-CAPITALIZATION COMPANIES. INVESTMENTS IN FOREIGN SECURITIES INVOLVE GREATER VOLATILITY AND POLITICAL, ECONOMIC AND CURRENCY RISK AND DIFFERENCES IN ACCOUNTING METHODS. THE HENNESSY TOTAL RETURN AND BALANCED FUNDS ARE NON-DIVERSIFIED, MEANING THEY MAY CONCENTRATE THEIR ASSETS IN FEWER INDIVIDUAL HOLDINGS THAN A DIVERSIFIED FUND, MAKING IT MORE EXPOSED TO INDIVIDUAL STOCK VOLATILITY THAN A DIVERSIFIED FUND. References to specific securities should not be considered a recommendation to buy or sell any security. Fund holdings are subject to change. Please refer to the Summary of Investment Portfolios within this annual report for additional portfolio information, including percentages of holdings. The S&P 500, Russell 2000, Russell 1000, S&P 400 Midcap and Dow Jones Industrial Average are unmanaged indices commonly used to measure the performance of U.S. stocks. The Dow Jones Industrial Average is an unmanaged index of common stocks comprised of major industrial companies and assumes reinvestment of dividends. The Russell 2000 Index is a recognized small-cap index of 2000 smallest securities of the Russell 3000 Index, which is comprised of the 3,000 largest U.S. securities as determined by total market capitalization. The Russell 1000 is an unmanaged Index that measures the performance of large-cap U.S. stocks. The S&P 400 Midcap Index is an unmanaged Index that measures the performance of mid-cap U.S. stocks. One cannot invest directly in an index. Opinions expressed are those of Neil Hennessy and are subject to change, are not guaranteed and should not be considered investment advice. 12/05 CHANGE IN VALUE OF $10,000 INVESTMENT HENNESSY CORNERSTONE GROWTH FUND Hennessy Cornerstone Date Growth Fund Russell 2000 Index S&P 500 Index ---- -------------------- ------------------ ------------- 11/1/96* $10,000.00 $10,000.00 $10,000.00 10/31/97 $13,424.00 $12,961.00 $13,211.00 10/31/98 $12,013.14 $11,426.42 $16,116.10 10/31/99 $15,265.09 $13,125.53 $20,253.10 10/31/2000 $21,653.54 $15,410.68 $21,486.52 10/31/2001 $19,628.93 $13,453.52 $16,136.37 10/31/2002 $22,002.07 $11,896.95 $13,698.17 10/31/2003 $30,398.06 $17,056.66 $16,547.39 10/31/2004 $31,337.36 $19,057.40 $18,106.15 10/31/2005 $38,598.22 $21,359.54 $19,685.01 * Inception date This chart assumes an initial gross investment of $10,000 made on November 1, 1996 (inception). Returns shown include the reinvestment of all dividends. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the fund may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.hennessyfunds.com. The funds impose a 1.5% redemption fee on shares held for less than three months. AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2005 Since Inception One Year Five Years 11/1/96 -------- ---------- --------------- Hennessy Cornerstone Growth Fund 23.17% 12.25% 16.20% Russell 2000 Index 12.08% 6.75% 8.80% S&P 500 Index 8.72% (1.74%) 7.84% RUSSELL 2000 INDEX - An unmanaged index which measures the performance of the 2,000 smallest companies in the Russell 3000 Index. The Russell 3000 Index is an unmanaged index which measures the performance of the 3,000 largest U.S. Companies, based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. S&P 500 INDEX - An unmanaged capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of the 500 stocks which represent all major industries. CHANGE IN VALUE OF $10,000 INVESTMENT HENNESSY FOCUS 30 FUND Date Hennessy Focus 30 Fund S&P 500 Index S&P Midcap 400 Index ---- ---------------------- ------------- -------------------- 9/17/2003* $10,000.00 $10,000.00 $10,000.00 9/30/2003 $9,554.00 $9,712.00 $9,725.00 10/31/2003 $10,445.39 $10,261.70 $10,460.21 4/30/2004 $10,568.64 $10,905.11 $11,185.10 10/31/2004 $10,729.29 $11,227.90 $11,614.61 4/30/2005 $12,573.65 $11,596.17 $12,274.32 10/31/2005 $15,111.01 $12,207.29 $13,665.00 * Inception date This chart assumes an initial gross investment of $10,000 made on September 17, 2003 (inception). Returns shown include the reinvestment of all dividends. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the fund may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.hennessyfunds.com. The funds impose a 1.5% redemption fee on shares held for less than three months. AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2005 Since Inception One Year 9/17/03* -------- --------------- Hennessy Focus 30 Fund 40.83% 21.49% S&P Midcap 400 Index 17.65% 15.86% S&P 500 Index 8.72% 9.86% * On September 17, 2003, the SYM Select Growth Fund merged into the Hennessy Focus 30 Fund. Due to the change in advisor and investment technique, performance is being quoted for the period after the merger. S&P MIDCAP 400 INDEX - An unmanaged capitalization-weighted index of 400 stocks designed to measure performance of mid-sized companies through changes in the aggregate market value of the 400 stocks which represent all major industries. S&P 500 INDEX - An unmanaged capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of the 500 stocks which represent all major industries. CHANGE IN VALUE OF $10,000 INVESTMENT HENNESSY CORNERSTONE VALUE FUND Hennessy Cornerstone Date Value Fund Russell 1000 Index S&P 500 Index ---- -------------------- ------------------ ------------- 11/1/96* $10,000.00 $10,000.00 $10,000.00 10/31/97 $10,970.00 $13,198.00 $13,211.00 10/31/98 $11,836.63 $15,799.33 $16,116.10 10/31/99 $13,138.66 $19,840.79 $20,253.10 10/31/2000 $13,434.28 $21,638.37 $21,486.52 10/31/2001 $13,876.27 $16,003.74 $16,136.37 10/31/2002 $12,673.19 $13,667.19 $13,698.17 10/31/2003 $15,182.49 $16,717.71 $16,547.39 10/31/2004 $17,086.37 $18,277.47 $18,106.15 10/31/2005 $18,058.59 $20,191.12 $19,685.01 * Inception date This chart assumes an initial gross investment of $10,000 made on November 1, 1996 (inception). Returns shown include the reinvestment of all dividends. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the fund may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.hennessyfunds.com. The funds impose a 1.5% redemption fee on shares held for less than three months. AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2005 Since Inception One Year Five Years 11/1/96 -------- ---------- --------------- Hennessy Cornerstone Value Fund 5.69% 6.10% 6.79% Russell 1000 Index 10.47% (1.38%) 8.12% S&P 500 Index 8.72% (1.74%) 7.84% RUSSELL 1000 INDEX - An unmanaged index which measures the performance of the 1,000 largest companies in the Russell 3000 Index. The Russell 3000 Index is an unmanaged index which measures the performance of the 3,000 largest U.S. Companies, based on total market capitalization, which represents approximately 98% of the U.S. investable equity market. S&P 500 INDEX - An unmanaged capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of the 500 stocks which represent all major industries. CHANGE IN VALUE OF $10,000 INVESTMENT HENNESSY TOTAL RETURN FUND Hennessy Total Dow Jones Date Return Fund Industrial Average S&P 500 Index ---- -------------- ------------------ ------------- 7/29/98* $10,000.00 $10,000.00 $10,000.00 10/31/98 $10,131.00 $9,686.00 $9,804.00 10/31/99 $10,438.00 $12,295.00 $12,321.00 10/31/2000 $10,347.00 $12,760.00 $13,071.00 10/31/2001 $10,110.00 $10,726.00 $9,816.00 10/31/2002 $9,489.00 $10,128.00 $8,333.00 10/31/2003 $11,180.00 $12,103.00 $10,066.00 10/31/2004 $11,709.00 $12,642.00 $11,015.00 10/31/2005 $12,158.00 $13,458.00 $11,975.00 * Inception date This chart assumes an initial gross investment of $10,000, made on July 29, 1998 (inception). Performance reflects fee waivers in effect. In the absence of fee waivers, total return would be reduced. Returns shown include the reinvestment of all dividend and other distributions. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the fund may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.hennessyfunds.com. The funds impose a 1.5% redemption fee on shares held for less than three months. AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2005 Since Inception One Year Five Years 7/29/98 -------- ---------- --------------- Hennessy Total Return Fund 3.83% 3.28% 2.73% Dow Jones Industrial Average 6.45% 1.07% 4.18% S&P 500 Index 8.72% (1.74%) 2.52% DOW JONES INDUSTRIAL AVERAGE - The Dow Jones Industrial Average is an unmanaged index of common stocks comprised of major industrial companies. S&P 500 INDEX - An unmanaged capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of the 500 stocks which represent all major industries. CHANGE IN VALUE OF $10,000 INVESTMENT HENNESSY BALANCED FUND Dow Jones Date Hennessy Balanced Fund Industrial Average S&P 500 Index ---- ---------------------- ------------------ ------------- 3/8/96* $10,000.00 $10,000.00 $10,000.00 6/30/96 $10,180.00 $10,405.00 $10,658.00 10/31/96 $10,680.00 $11,164.00 $11,290.00 10/31/97 $12,140.00 $14,028.00 $14,915.00 10/31/98 $13,162.00 $16,488.00 $18,195.00 10/31/99 $13,786.00 $20,929.00 $22,865.00 10/31/2000 $13,797.00 $21,721.00 $24,258.00 10/31/2001 $13,771.00 $18,258.00 $18,218.00 10/31/2002 $13,340.00 $17,239.00 $15,465.00 10/31/2003 $14,552.00 $20,601.00 $18,682.00 10/31/2004 $14,821.00 $21,520.00 $20,441.00 10/31/2005 $14,989.00 $22,908.00 $22,224.00 * Inception date This chart assumes an initial gross investment of $10,000, made on March 8, 1996 (inception). Returns shown include the reinvestment of all dividend and other distributions. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the fund may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.hennessyfunds.com. The funds impose a 1.5% redemption fee on shares held for less than three months. AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2005 Since Inception One Year Five Years 3/8/96 -------- ---------- --------------- Hennessy Balanced Fund 1.13% 1.67% 4.28% Dow Jones Industrial Average 6.45% 1.07% 8.97% S&P 500 Index 8.72% (1.74%) 8.63% DOW JONES INDUSTRIAL AVERAGE - The Dow Jones Industrial Average is an unmanaged index of common stocks comprised of major industrial companies. S&P 500 INDEX - An unmanaged capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of the 500 stocks which represent all major industries. SUMMARY OF INVESTMENT PORTFOLIOS The following summaries of investment portfolios are designed to help investors better understand each fund's principal holdings. Each summary is as of October 31, 2005. HENNESSY CORNERSTONE GROWTH FUND (% of Net Assets) Consumer Discretionary 24.83% Consumer Staples 1.66% Energy 7.74% Financials 2.46% Health Care 9.10% Industrials 20.08% Information Technology 1.59% Materials 27.57% Utilities 1.70% Short Term Obligations and Other 3.27% TOP TEN HOLDINGS % OF NET ASSETS ---------------- --------------- Valero Energy Corp. 4.24% Building Material Holding Corp. 4.06% McDermott International, Inc. 3.62% Tesoro Petroleum Corp. 3.50% Cleveland-Cliffs, Inc. 2.87% Consol Energy, Inc. 2.71% Ipsco, Inc. 2.71% USG Corp. 2.68% Aetna, Inc. 2.59% Sierra Health Services 2.49% COMMON STOCKS - 96.73% Number % of Net of Shares Value Assets --------- ----- -------- CONSUMER DISCRETIONARY - 24.83% The Black & Decker Corp. 221,700 $ 18,208,221 1.70% Blount International, Inc.(a) 1,124,300 17,831,398 1.66% Bluegreen Corp.(a) 987,700 14,983,409 1.40% Building Material Holding Corp. 511,500 43,482,615 4.06% Champion Enterprises, Inc.(a) 1,657,000 22,999,160 2.15% Genesco, Inc.(a) 628,900 23,143,520 2.16% Meritage Homes Corp.(a) 347,600 21,645,052 2.02% NVR, Inc.(a) 25,500 17,480,250 1.63% Quiksilver, Inc.(a) 1,314,900 15,160,797 1.41% Sears Holding Corp.(a) 197,900 23,797,475 2.22% Toll Brothers, Inc.(a) 570,900 21,071,919 1.97% WESCO International, Inc.(a) 660,800 26,266,800 2.45% -------------- ------- 266,070,616 24.83% CONSUMER STAPLES - 1.66% Bunge Ltd.(b) 343,500 17,841,390 1.66% ENERGY - 7.74% Tesoro Petroleum Corp. 614,700 37,588,905 3.50% Valero Energy Corp. 431,400 45,400,536 4.24% -------------- ------- 82,989,441 7.74% FINANCIALS - 2.46% Jones Lang LaSalle, Inc.(a) 523,500 26,321,580 2.46% HEALTH CARE - 9.10% Aetna, Inc. 314,000 27,807,840 2.59% Alliance Imaging, Inc.(a) 1,712,100 11,830,611 1.10% AMERIGROUP Corp.(a) 517,700 8,655,944 0.81% Centene Corp.(a) 690,800 13,919,620 1.30% Molina Healthcare, Inc.(a) 422,300 8,678,265 0.81% Sierra Health Services(a) 355,400 26,655,000 2.49% -------------- ------- 97,547,280 9.10% INDUSTRIALS - 20.08% The Brink's Co. 495,600 19,462,212 1.82% Greenbrier Cos., Inc. 578,600 15,940,430 1.49% Hexcel Corp.(a) 1,350,700 21,368,074 1.99% JB Hunt Transport Services, Inc. 873,400 16,952,694 1.58% Landstar System, Inc. 531,900 20,488,788 1.91% McDermott International, Inc.(a)(b) 1,066,700 38,753,211 3.62% Old Dominion Freight Line(a) 562,800 19,917,492 1.86% Toro Co. 481,500 17,579,565 1.64% USG Corp.(a) 486,400 28,755,968 2.68% Yellow Roadway Corp.(a) 351,600 15,980,220 1.49% -------------- ------- 215,198,654 20.08% INFORMATION TECHNOLOGY - 1.59% NCR Corp.(a) 565,800 17,098,476 1.59% MATERIALS - 27.57% AK Steel Holding Corp.(a) 1,353,500 9,460,965 0.88% Carpenter Technology 335,000 20,200,500 1.89% Chapparal Steel Co. (a) 314,000 7,843,720 0.73% Cleveland-Cliffs, Inc. 377,100 30,748,734 2.87% Commercial Metals Co. 774,700 24,627,713 2.30% Consol Energy, Inc. 477,100 29,055,390 2.71% Georgia Gulf Corp. 393,300 11,445,030 1.07% Ipsco, Inc.(b) 409,700 29,035,439 2.71% Lyondell Chemical Co. 677,200 18,148,960 1.69% Nova Chemicals Corp.(b) 414,100 14,828,921 1.38% Novamerican Steel, Inc.(a)(b) 344,350 13,281,580 1.24% Nucor Corp. 374,200 22,395,870 2.09% Oregon Steel Mills, Inc.(a) 965,300 24,508,967 2.29% Terra Industries, Inc.(a) 2,205,600 13,476,216 1.26% Texas Industries, Inc. 314,000 15,574,400 1.45% WR Grace & Co.(a) 1,439,000 10,821,280 1.01% -------------- ------- 295,453,685 27.57% UTILITIES - 1.70% Reliant Energy, Inc.(a) 1,434,800 18,221,960 1.70% -------------- ------- TOTAL COMMON STOCKS (Cost $902,734,964) 1,036,743,082 96.73% SHORT-TERM OBLIGATIONS - 4.70% Principal Amount --------- DISCOUNT NOTES - 3.50% Federal Home Loan Bank Discount Note, 2.6500%, due 11/01/2005 $37,499,000 37,499,000 -------------- TOTAL DISCOUNT NOTES (Cost $37,499,000) 37,499,000 3.50% VARIABLE RATE DEMAND NOTES# - 1.20% American Family Financial Services, Inc., 3.6428% 8,815,180 8,815,180 0.82% Wisconsin Corporate Central Credit Union, 3.7300% 4,051,884 4,051,884 0.38% -------------- ------- TOTAL VARIABLE RATE DEMAND NOTES (Cost $12,867,064) 12,867,064 1.20% -------------- ------- TOTAL SHORT-TERM OBLIGATIONS (Cost $50,366,064) 50,366,064 4.70% -------------- ------- TOTAL INVESTMENTS - 101.43% (Cost $953,101,028) 1,087,109,146 101.43% -------------- ------- Other Liabilities and Assets, Net - (1.43%) (15,329,994) (1.43%) NET ASSETS - 100% $1,071,779,152 100.00% -------------- ------- -------------- ------- (a) Non-income producing security (b) Foreign issued security # 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 October 31, 2005. See notes to the financial statements. HENNESSY FOCUS 30 FUND (% of Net Assets) Consumer Discretionary 15.52% Energy 11.88% Financials 3.49% Health Care 9.72% Industrials 37.25% Materials 12.74% Utilities 6.01% Short Term Obligations and Other 3.39% TOP TEN HOLDINGS % OF NET ASSETS ---------------- --------------- Express Scripts, Inc. 4.15% JLG Industries, Inc. 3.86% The Shaw Group Inc. 3.79% Skywest, Inc. 3.70% Lennox International, Inc. 3.56% CB Richard Ellis Group, Inc. 3.49% The Goodyear Tire & Rubber Co. 3.40% Flowserve Corp. 3.37% McDermott International, Inc. 3.34% Commercial Metals Co. 3.28% COMMON STOCKS - 96.61% Number % of Net of Shares Value Assets --------- ----- -------- CONSUMER DISCRETIONARY - 15.52% Building Material Holding Corp. 45,500 $ 3,867,955 3.09% Office Depot, Inc. (a) 142,500 3,923,025 3.13% The Goodyear Tire & Rubber Co.(a) 272,100 4,255,644 3.40% TRW Automotive Holdings Corp. (a) 148,400 4,014,220 3.20% William Lyon Homes, Inc.(a) 28,500 3,387,225 2.70% ------------ ------- 19,448,069 15.52% ENERGY - 11.88% Frontier Oil Corp. 94,900 3,499,912 2.80% Holly Corp. 65,900 3,795,840 3.03% Oil States International, Inc.(a) 122,400 4,051,440 3.23% Western Gas Resources, Inc. 81,700 3,537,610 2.82% ------------ ------- 14,884,802 11.88% FINANCIALS - 3.49% CB Richard Ellis Group, Inc. (a) 89,700 4,381,845 3.49% HEALTH CARE - 9.72% Express Scripts, Inc. (a) 69,000 5,203,290 4.15% Humana, Inc. (a) 85,600 3,799,784 3.03% WellCare Health Plans, Inc. (a) 100,800 3,175,200 2.54% ------------ ------- 12,178,274 9.72% INDUSTRIALS - 37.25% Flowserve Corp. (a) 120,500 4,217,500 3.37% JLG Industries, Inc. 126,100 4,837,196 3.86% Jacobs Engineering Group, Inc. (a) 63,200 4,029,000 3.21% Labor Ready, Inc. (a) 163,700 3,822,395 3.05% Lennox International, Inc. 159,800 4,456,822 3.56% McDermott International, Inc. (a)(b) 115,200 4,185,216 3.34% Quanta Services, Inc. (a) 332,100 3,815,829 3.04% The Shaw Group Inc. (a) 177,100 4,746,280 3.79% Skywest, Inc. 158,100 4,633,911 3.70% USG Corp. (a) 65,200 3,854,624 3.08% Walter Industries, Inc. 89,300 4,078,331 3.25% ------------ ------- 46,677,104 37.25% MATERIALS - 12.74% Allegheny Technologies, Inc. 138,000 3,961,980 3.16% Cleveland-Cliffs, Inc. 48,700 3,970,998 3.17% Commercial Metals Co. 129,400 4,113,626 3.28% Quanex Corp. 67,700 3,920,507 3.13% ------------ ------- 15,967,111 12.74% UTILITIES - 6.01% CMS Energy Corp. (a) 260,100 3,878,091 3.10% Sierra Pacific Resources(a) 281,900 3,650,605 2.91% ------------ ------- 7,528,696 6.01% ------------ ------- TOTAL COMMON STOCKS (Cost $125,414,661) 121,065,901 96.61% SHORT-TERM OBLIGATIONS - 4.64% Principal Amount --------- DISCOUNT NOTES - 4.54% Federal Home Loan Bank Discount Note, 2.6500%, due 11/01/2005 $5,696,000 5,696,000 ------------ TOTAL DISCOUNT NOTES (Cost $5,696,000) 5,696,000 4.54% VARIABLE RATE DEMAND NOTES# - 0.10% American Family Financial Services, Inc., 3.6428% 61,892 61,892 0.05% Wisconsin Corporate Central Credit Union, 3.7300% 62,546 62,546 0.05% ------------ ------- TOTAL VARIABLE RATE DEMAND NOTES (Cost $124,438) 124,438 0.10% ------------ ------- TOTAL SHORT-TERM OBLIGATIONS (Cost $5,820,438) 5,820,438 4.64% ------------ ------- TOTAL INVESTMENTS - 101.25% (Cost $131,235,099) 126,886,339 101.25% ------------ ------- Other Liabilities and Assets, Net - (1.25%) (1,571,503) (1.25%) NET ASSETS - 100% $125,314,836 100.00% ------------ ------- ------------ ------- (a) Non-income producing security (b) Foreign issued security # 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 October 31, 2005. See notes to the financial statements. HENNESSY CORNERSTONE VALUE FUND (% of Net Assets) Consumer Discretionary 2.63% Consumer Staples 13.56% Energy 13.11% Financials 33.52% Health Care 7.11% Industrials 3.97% Materials 11.71% Telecommunication Services 11.88% Short Term Obligations and Other 2.51% TOP TEN HOLDINGS % OF NET ASSETS ---------------- --------------- Marathon Oil Corp. 3.31% Cemex SA de CV - ADR 3.12% AON Corp. 2.99% Kerr-McGee Corp. 2.94% Altria Group, Inc. 2.51% Total SA - ADR 2.38% Telefonos de Mexico SA de CV - ADR 2.37% BP PLC - ADR 2.29% PNC Financial Services Group 2.23% ChevronTexaco Corp. 2.18% COMMON STOCKS - 97.43% Number % of Net of Shares Value Assets --------- ----- -------- CONSUMER DISCRETIONARY - 2.62% Ford Motor Co. 261,000 $ 2,171,520 1.18% General Motors Corp. 96,800 2,652,320 1.44% ------------ ------- 4,823,840 2.62% CONSUMER STAPLES - 13.56% Albertson's, Inc. 158,200 3,972,402 2.16% Altria Group, Inc. 61,500 4,615,575 2.51% ConAgra Foods, Inc. 134,600 3,132,142 1.71% General Mills, Inc. 77,000 3,716,020 2.02% HJ Heinz Co. 97,800 3,471,900 1.89% Kimberly-Clark Corp. 57,600 3,273,984 1.78% Sara Lee Corp. 153,100 2,732,835 1.49% ------------ ------- 24,914,858 13.56% ENERGY - 13.10% BP PLC - ADR(b) 63,300 4,203,120 2.29% ChevronTexaco Corp. 70,400 4,017,728 2.18% Kerr-McGee Corp. 63,500 5,400,040 2.94% Marathon Oil Corp. 101,000 6,076,160 3.31% Total SA - ADR(b) 34,700 4,372,894 2.38% ------------ ------- 24,069,942 13.10% FINANCIALS - 33.50% AON Corp. 162,500 5,500,625 2.99% Bank of America Corp. 81,600 3,569,184 1.94% BB&T Corp. 87,600 3,708,984 2.02% Citigroup, Inc. 79,700 3,648,666 1.99% Fannie Mae 53,100 2,523,312 1.37% HSBC Holdings PLC - ADR(b) 44,200 3,481,192 1.89% J.P. Morgan Chase & Co. 96,500 3,533,830 1.92% Lincoln National Corp. 78,400 3,967,824 2.16% Marsh & McLennan Companies, Inc. 118,600 3,457,190 1.88% National City Corp. 100,900 3,252,007 1.77% PNC Financial Services Group 67,500 4,097,925 2.23% Regions Financial Corp. 106,300 3,460,065 1.88% US Bancorp 125,800 3,721,164 2.03% Wachovia Corp. 68,600 3,465,672 1.89% Washington Mutual, Inc. 90,400 3,579,840 1.95% Wells Fargo & Co. 59,400 3,575,880 1.95% XL Capital Ltd.(b) 47,100 3,017,226 1.64% ------------ ------- 61,560,586 33.50% HEALTH CARE - 7.10% Bristol-Myers Squibb Co. 153,700 3,253,829 1.77% Eli Lilly & Co. 65,600 3,266,224 1.77% Merck & Co., Inc. 126,200 3,561,364 1.94% Pfizer, Inc. 136,800 2,974,032 1.62% ------------ ------- 13,055,449 7.10% INDUSTRIALS - 3.97% Pitney Bowes, Inc. 82,700 3,480,016 1.90% RR Donnelley & Sons Co. 108,800 3,810,176 2.07% ------------ ------- 7,290,192 3.97% MATERIALS - 11.70% Cemex SA de CV - ADR(b) 110,100 5,732,907 3.12% The Dow Chemical Co. 76,300 3,499,118 1.90% E.I. du Pont de Nemours & Co. 78,800 3,285,172 1.79% International Paper Co. 91,000 2,655,380 1.44% MeadWestvaco Corp. 113,900 2,986,458 1.63% PPG Industries, Inc. 55,700 3,340,329 1.82% ------------ ------- 21,499,364 11.70% TELECOMMUNICATION SERVICES - 11.88% Alltel Corp. 63,000 3,897,180 2.12% AT&T Corp. 196,600 3,888,748 2.12% BellSouth Corp. 130,000 3,382,600 1.84% SBC Communications, Inc. 144,000 3,434,400 1.87% Telefonica de Argentina SA(a)+^@ 25,800 258 0.00% Telefonos de Mexico SA de CV - ADR(b) 215,700 4,352,826 2.37% Verizon Communications, Inc. 91,100 2,870,561 1.56% ------------ ------- 21,826,573 11.88% ------------ ------- TOTAL COMMON STOCKS (Cost $175,427,562) 179,040,804 97.43% SHORT-TERM OBLIGATIONS - 2.43% Principal Amount --------- DISCOUNT NOTES - 2.36% Federal Home Loan Bank Discount Note, 2.6500%, due 11/01/2005 $4,343,000 4,343,000 ------------ TOTAL DISCOUNT NOTES (Cost $4,343,000) 4,343,000 2.36% VARIABLE RATE DEMAND NOTES# - 0.07% American Family Financial Services, Inc., 3.6428% 63,115 63,115 0.03% Wisconsin Corporate Central Credit Union, 3.7300% 63,983 63,983 0.04% ------------ ------- TOTAL VARIABLE RATE DEMAND NOTES (Cost $127,098) 127,098 0.07% ------------ ------- TOTAL SHORT-TERM OBLIGATIONS (Cost $4,470,098) 4,470,098 2.43% ------------ ------- TOTAL INVESTMENTS - 99.86% (Cost $179,897,660) 183,510,902 99.86% ------------ ------- Other Assets and Liabilities, Net - 0.14% 249,354 0.14% NET ASSETS - 100% $183,760,256 100.00% ------------ ------- ------------ ------- (a) Non-income producing security (b) Foreign issued security # 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 October 31, 2005. + All or a portion of this security is out on loan at October 31, 2005. ^ Security is fair valued. @ Security is collateralized by $135,800 in cash. ADR American Depository Receipts See notes to the financial statements. HENNESSY TOTAL RETURN FUND (% of Net Assets) Consumer Discretionary 6.17% Consumer Staples 14.27% Energy 2.76% Financials 15.61% Health Care 11.38% Industrials 2.88% Materials 7.34% Telecommunication Services 15.31% Short Term Obligations and Other 24.28% TOP TEN HOLDINGS % OF NET ASSETS ---------------- --------------- Altria Group, Inc. 9.23% J.P. Morgan Chase & Co. 7.90% SBC Communications, Inc. 7.87% Citigroup, Inc. 7.71% E.I. du Pont de Nemours and Co. 7.34% Merck & Co., Inc. 6.59% General Motors Corp. 6.17% Verizon Communications, Inc. 5.40% The Coca-Cola Co. 5.04% Pfizer, Inc. 4.79% COMMON STOCKS - 75.72% Number % of Net of Shares Value Assets --------- ----- -------- CONSUMER DISCRETIONARY - 6.17% General Motors Corp. 195,350 $ 5,352,590 6.17% CONSUMER STAPLES - 14.27% Altria Group, Inc. 106,625 8,002,206 9.23% The Coca-Cola Co. 102,275 4,375,324 5.04% ------------ ------- 12,377,530 14.27% ENERGY - 2.76% Exxon Mobil Corp. 42,600 2,391,564 2.76% FINANCIALS - 15.61% Citigroup, Inc. 146,125 6,689,602 7.71% J.P. Morgan Chase & Co. 187,025 6,848,856 7.90% ------------ ------- 13,538,458 15.61% HEALTH CARE - 11.38% Merck & Co., Inc. 202,500 5,714,550 6.59% Pfizer, Inc. 191,375 4,160,493 4.79% ------------ ------- 9,875,043 11.38% INDUSTRIALS - 2.88% General Electric Co. 73,600 2,495,776 2.88% MATERIALS - 7.34% E. I. du Pont de Nemours and Co. 152,650 6,363,979 7.34% TELECOMMUNICATION SERVICES - 15.31% AT&T Corp. 89,375 1,767,837 2.04% SBC Communications, Inc. 286,300 6,828,255 7.87% Verizon Communications, Inc. 148,825 4,689,476 5.40% ------------ ------- 13,285,568 15.31% ------------ ------- TOTAL COMMON STOCKS (Cost $72,012,941) 65,680,508 75.72% SHORT-TERM OBLIGATIONS - 58.31% Principal Amount --------- U.S. TREASURY BILLS* - 56.81% 3.0700%, 11/17/2005 $19,500,000 19,472,007 3.1200%, 12/15/2005 13,500,000 13,448,850 3.4300%, 01/19/2006 16,500,000 16,365,014 ------------ TOTAL U.S. TREASURY BILLS (Cost $49,292,318) 49,285,871 56.81% DISCOUNT NOTES - 1.42% Federal Home Loan Bank Discount Note, 2.6500%, due 11/01/2005 1,234,000 1,234,000 ------------ TOTAL DISCOUNT NOTES (Cost $1,234,000) 1,234,000 1.42% VARIABLE RATE DEMAND NOTES# - 0.08% American Family Financial Services, Inc., 3.6428% 34,736 34,736 0.04% Wisconsin Corporate Central Credit Union, 3.7300% 32,538 32,538 0.04% ------------ ------- TOTAL VARIABLE RATE DEMAND NOTES (Cost $67,274) 67,274 0.08% ------------ ------- TOTAL SHORT-TERM OBLIGATIONS (Cost $50,593,592) 50,587,145 58.31% ------------ ------- TOTAL INVESTMENTS - 134.03% (Cost $122,606,533) 116,267,653 134.03% ------------ ------- Other Liabilities and Assets, Net - (34.03%) (29,521,724) (34.03%) NET ASSETS - 100% $ 86,745,929 100.00% ------------ ------- ------------ ------- * Collateral or partial collateral for securities sold subject to repurchase. # Variable rate demand notes are considered short-term obligations and are payable on demand. Interest rates changed periodically on specified dates. The rates listed are as of October 31, 2005. See notes to the financial statements. HENNESSY BALANCED FUND (% of Net Assets) Consumer Discretionary 4.04% Consumer Staples 9.49% Financials 9.82% Health Care 7.69% Industrials 1.50% Materials 5.53% Telecommunication Services 9.57% Short Term Obligations and Other 52.36% TOP TEN HOLDINGS % OF NET ASSETS ---------------- --------------- Altria Group, Inc. 5.83% J.P. Morgan Chase & Co. 4.95% SBC Communications, Inc. 4.92% Citigroup, Inc. 4.87% E.I. du Pont de Nemours and Co. 4.81% Merck & Co., Inc. 4.35% General Motors Corp. 4.04% The Coca-Cola Co. 3.66% Verizon Communications, Inc. 3.63% Pfizer, Inc. 3.34% COMMON STOCKS - 47.64% Number % of Net of Shares Value Assets --------- ----- -------- CONSUMER DISCRETIONARY - 4.04% General Motors Corp. 28,400 $ 778,160 4.04% CONSUMER STAPLES - 9.49% Altria Group, Inc. 14,975 1,123,874 5.83% The Coca-Cola Co. 16,475 704,801 3.66% ----------- ------- 1,828,675 9.49% FINANCIALS - 9.82% Citigroup, Inc. 20,500 938,490 4.87% J.P. Morgan Chase & Co. 26,050 953,951 4.95% ----------- ------- 1,892,441 9.82% HEALTH CARE - 7.69% Merck & Co., Inc. 29,700 838,134 4.35% Pfizer, Inc. 29,600 643,504 3.34% ----------- ------- 1,481,638 7.69% INDUSTRIALS - 1.50% General Electric Co. 8,550 289,930 1.50% MATERIALS - 5.53% E.I. du Pont de Nemours & Co. 22,225 926,560 4.81% International Paper Co. 4,750 138,605 0.72% ----------- ------- 1,065,165 5.53% TELECOMMUNICATION SERVICES - 9.57% AT&T Corp. 9,925 196,316 1.02% SBC Communications, Inc. 39,775 948,634 4.92% Verizon Communications, Inc. 22,175 698,734 3.63% ----------- ------- 1,843,684 9.57% ----------- ------- TOTAL COMMON STOCKS (Cost $9,864,571) 9,179,693 47.64% SHORT-TERM OBLIGATIONS - 52.23% Principal Amount --------- U.S. TREASURY NOTES - 37.65% 1.8750%, 11/30/2005 $ 500,000 499,356 1.8750%, 1/31/2006 151,000 150,263 1.6250%, 2/28/2006 815,000 808,792 1.5000%, 3/31/2006 830,000 821,376 2.2500%, 4/30/2006 905,000 896,552 2.5000%, 5/31/2006 810,000 802,280 7.0000%, 7/15/2006 900,000 916,594 2.3750%, 8/15/2006 710,000 699,517 2.3750%, 8/31/2006 915,000 900,811 2.5000%, 9/30/2006 770,000 757,488 ----------- TOTAL U.S. TREASURY NOTES (Cost $7,289,670) 7,253,029 37.64% DISCOUNT NOTES - 13.88% Federal Home Loan Bank Discount Note, 2.6500%, due 11/01/2005 2,674,000 2,674,000 ----------- TOTAL DISCOUNT NOTES (Cost $2,674,000) 2,674,000 13.88% VARIABLE RATE DEMAND NOTES# - 0.70% American Family Financial Services, Inc., 3.6248% 68,021 68,021 0.35% Wisconsin Corporate Central Credit Union, 3.7300% 67,626 67,626 0.35% ----------- ------- TOTAL VARIABLE RATE DEMAND NOTES (Cost $135,647) 135,647 0.70% ----------- ------- TOTAL SHORT-TERM OBLIGATIONS (Cost $10,099,317) 10,062,676 52.23% ----------- ------- TOTAL INVESTMENTS - 99.87% (Cost $19,963,888) 19,242,369 99.87% ----------- ------- Other Assets and Liabilities, Net - 0.13% 24,817 0.13% NET ASSETS - 100% $19,267,186 100.00% ----------- ------- ----------- ------- # 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 October 31, 2005. See notes to the financial statements. FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES October 31, 2005 HENNESSY HENNESSY HENNESSY HENNESSY HENNESSY CORNERSTONE FOCUS 30 CORNERSTONE TOTAL RETURN BALANCED GROWTH FUND FUND VALUE FUND FUND FUND ----------- -------- ----------- ------------ -------- ASSETS: Investments, at value (cost $953,101,028, $131,235,099, $179,897,660, $122,606,533 and $19,963,888, respectively)(1) $1,087,109,146 $126,886,339 $183,510,902 $116,267,653 $19,242,369 Cash 153 -- 135,800 -- -- Dividends and interest receivable 237,929 21,952 567,390 173,703 68,471 Receivable for fund shares sold 2,683,770 777,542 9,859 1,600 940 Prepaid expenses and other assets 91,292 19,623 37,099 14,030 8,953 -------------- ------------ ------------ ------------ ----------- Total Assets 1,090,122,290 127,705,456 184,261,050 116,456,986 19,320,733 -------------- ------------ ------------ ------------ ----------- LIABILITIES: Collateral for securities loaned -- -- 135,800 -- -- Payable for fund shares redeemed 661,925 114,608 126,110 65,655 2,425 Payable to Adviser 669,271 75,225 114,698 43,902 9,766 Payable to Administrator 443,690 47,685 76,185 35,048 8,099 Payable to Distributor -- -- -- 18,292 4,069 Payable for securities purchased 16,333,298 2,113,909 -- -- -- Reverse repurchase agreement -- -- -- 29,370,000 -- Accrued expenses and other payables 234,954 39,193 48,001 178,160 29,188 -------------- ------------ ------------ ------------ ----------- Total Liabilities 18,343,138 2,390,620 500,794 29,711,057 53,547 -------------- ------------ ------------ ------------ ----------- NET ASSETS $1,071,779,152 $125,314,836 $183,760,256 $ 86,745,929 $19,267,186 -------------- ------------ ------------ ------------ ----------- -------------- ------------ ------------ ------------ ----------- NET ASSETS CONSIST OF: Capital stock $ 872,071,940 $111,895,616 $318,260,620 $186,338,716 $22,812,234 Accumulated undistributed net investment income -- -- 3,960,488 99,680 35,039 Accumulated undistributed net realized gain (loss) on investments 65,699,094 17,767,980 (142,074,094) (93,353,587) (2,858,568) Unrealized net appreciation (depreciation) on investments 134,008,118 (4,348,760) 3,613,242 (6,338,880) (721,519) -------------- ------------ ------------ ------------ ----------- Total Net Assets $1,071,779,152 $125,314,836 $183,760,256 $ 86,745,929 $19,267,186 -------------- ------------ ------------ ------------ ----------- -------------- ------------ ------------ ------------ ----------- Shares authorized ($.0001 par value) 25,000,000,000 25,000,000,000 25,000,000,000 100,000,000 100,000,000 Shares issued and outstanding 54,994,307 10,266,945 14,185,018 8,203,651 1,823,746 Net asset value, offering price and redemption price per share $ 19.49 $ 12.21 $ 12.95 $ 10.57 $ 10.56 -------------- ------------ ------------ ------------ ----------- -------------- ------------ ------------ ------------ -----------
(1) Market value of securities on loan $0, $0, $258, $0 and $0, respectively. See notes to the financial statements. FINANCIAL STATEMENTS STATEMENTS OF OPERATIONS Year ended October 31, 2005 HENNESSY HENNESSY HENNESSY HENNESSY HENNESSY CORNERSTONE FOCUS 30 CORNERSTONE TOTAL RETURN BALANCED GROWTH FUND FUND VALUE FUND FUND FUND ----------- -------- ----------- ------------ -------- INVESTMENT INCOME: Dividend income(1) $ 3,990,456 $ 461,970 $ 6,517,744 $2,679,555 $395,291 Interest income 519,085 98,537 62,680 1,326,286 254,377 Securities lending income 105,890 -- 3,768 -- -- ------------ ----------- ----------- ---------- -------- Total investment income 4,615,431 560,507 6,584,192 4,005,841 649,668 ------------ ----------- ----------- ---------- -------- EXPENSES: Investment advisory fees 7,442,342 649,902 1,437,761 551,998 127,053 Administration, fund accounting, custody and transfer agent fees 2,506,465 188,837 503,999 238,727 54,936 Distribution fees (See Note 5) -- -- -- 230,000 52,939 Service fees (See Note 5) 1,005,722 34,275 194,292 -- -- Federal and state registration fees 44,375 21,535 29,398 18,250 19,747 Audit fees 47,658 23,747 23,749 32,487 22,766 Legal fees 17,172 18,127 19,728 20,533 20,891 Reports to shareholders 153,391 5,931 24,606 21,027 5,395 Directors' fees and expenses 13,231 13,415 15,930 9,902 9,050 Sub-transfer agent expenses 1,068,100 40,301 73,086 -- -- Insurance expense 60,855 3,659 11,729 7,531 1,746 Interest expense (See Note 3 and Note 7) 55,526 365 2,894 969,272 -- Other 1,460 1,095 676 1,044 1,095 ------------ ----------- ----------- ---------- -------- Total expenses 12,416,297 1,001,189 2,337,848 2,100,771 315,618 ------------ ----------- ----------- ---------- -------- NET INVESTMENT INCOME (LOSS) $ (7,800,866) $ (440,682) $ 4,246,344 $1,905,070 $334,050 ------------ ----------- ----------- ---------- -------- REALIZED AND UNREALIZED GAINS (LOSSES): Net realized gain on investments $ 77,310,944 $25,808,876 $ 6,603,021 $3,114,966 $317,416 Change in unrealized appreciation (depreciation) on investments 124,490,118 (5,110,028) 146,030 (1,411,023) (404,330) ------------ ----------- ----------- ---------- -------- Net gain (loss) on investments 201,801,062 20,698,848 6,749,051 1,703,943 (86,914) ------------ ----------- ----------- ---------- -------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $194,000,196 $20,258,166 $10,995,395 $3,609,013 $247,136 ------------ ----------- ----------- ---------- -------- ------------ ----------- ----------- ---------- --------
(1) Net of foreign taxes withheld of $39,493, $0, $8,949, $0 and $0, respectively. See notes to the financial statements. FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS HENNESSY CORNERSTONE GROWTH FUND Year Ended Period Ended Year Ended October 31, October 31, September 30, 2005 2004(1) 2004 ---------- ------------ ------------- OPERATIONS: Net investment income (loss) $ (7,800,866) $ (798,823) $ (6,045,256) Net realized gain (loss) on securities 77,310,944 (519,598) 260,819,119 Change in unrealized appreciation (depreciation) on securities 124,490,118 15,254,630 (178,544,729) -------------- ------------ ------------ Net increase (decrease) in net assets resulting from operations 194,000,196 13,936,209 76,229,134 -------------- ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS: From net investment income -- -- -- From net realized gains (173,840,684) -- -- -------------- ------------ ------------ (173,840,684) -- -- -------------- ------------ ------------ CAPITAL SHARE TRANSACTIONS: Proceeds from shares subscribed 296,664,690 8,450,760 278,038,137 Proceeds from shares issued in connection with the Lindner Funds merger -- 15,352,072 Dividends reinvested 168,579,703 -- -- Redemption fees retained 153,093 4,497 171,968 Cost of shares redeemed (282,771,265) (19,434,245) (255,741,417) -------------- ------------ ------------ Net increase (decrease) in net assets derived from capital share transactions 182,626,221 (10,978,988) 37,820,760 -------------- ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS 202,785,733 2,957,221 114,049,894 NET ASSETS: Beginning of period 868,993,419 866,036,198 751,986,304 -------------- ------------ ------------ End of period $1,071,779,152 $868,993,419 $866,036,198 -------------- ------------ ------------ -------------- ------------ ------------ UNDISTRIBUTED NET INVESTMENT INCOME, END OF PERIOD $ -- $ -- $ -- -------------- ------------ ------------ CHANGES IN SHARES OUTSTANDING: Shares sold 15,629,397 437,895 14,598,984 Shares issued in connection to the acquisition of Lindner Funds -- -- 795,750 Shares issued to holders as reinvestment of dividends 9,772,736 -- -- Shares redeemed (15,238,651) (1,007,572) (13,629,312) -------------- ------------ ------------ Net increase (decrease) in shares outstanding 10,163,482 (569,677) 1,765,422 -------------- ------------ ------------ -------------- ------------ ------------
See notes to the financial statements. FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS HENNESSY FOCUS 30 FUND HENNESSY CORNERSTONE VALUE FUND Year Ended Period Ended Year Ended Year Ended Period Ended Year Ended October 31, October 31, September 30, October 31, October 31, September 30, 2005 2004(1) 2004 2005 2004(1) 2004 ----------- ------------ ------------- ----------- ------------ ------------- OPERATIONS: Net investment income (loss) $ (440,682) $ (57,161) $ (450,015) $ 4,246,344 $ 280,943 $ 3,216,832 Net realized gain (loss) on securities 25,808,876 -- 1,712,086 6,603,021 -- 976,738 Change in unrealized appreciation (depreciation) on securities (5,110,028) (625,572) 3,113,471 146,030 1,489,282 1,071,719 ------------ ----------- ----------- ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations 20,258,166 (682,733) 4,375,542 10,995,395 1,770,225 5,265,289 ------------ ----------- ----------- ------------ ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS: From net investment income -- -- -- (3,734,561) -- (421,282) From net realized gains -- -- -- -- -- -- ------------ ----------- ----------- ------------ ------------ ------------ -- -- -- (3,734,561) -- (421,282) ------------ ----------- ----------- ------------ ------------ ------------ CAPITAL SHARE TRANSACTIONS: Proceeds from shares subscribed 85,388,827 738,948 24,923,015 6,508,292 925,168 7,462,844 Proceeds from shares issued in connection with the Lindner Funds merger -- -- -- -- -- 179,367,979 Dividends reinvested -- -- -- 3,276,633 -- 407,298 Redemption fees retained 44,025 59 11,733 5,702 -- 4,089 Cost of shares redeemed (30,735,864) (790,514) (11,503,642) (28,936,915) (1,535,375) (17,914,176) ------------ ----------- ----------- ------------ ------------ ------------ Net increase (decrease) in net assets derived from capital share transactions 54,696,988 (51,507) 13,431,106 (19,146,288) (610,207) 169,328,034 ------------ ----------- ----------- ------------ ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS 74,955,154 (734,240) 17,806,648 (11,885,454) 1,160,018 174,172,041 NET ASSETS: Beginning of period 50,359,682 51,093,922 33,287,274 195,645,710 194,485,692 20,313,651 ------------ ----------- ----------- ------------ ------------ ------------ End of period $125,314,836 $50,359,682 $51,093,922 $183,760,256 $195,645,710 $194,485,692 ------------ ----------- ----------- ------------ ------------ ------------ ------------ ----------- ----------- ------------ ------------ ------------ UNDISTRIBUTED NET INVESTMENT INCOME, END OF PERIOD $ -- $ -- $ -- $ 3,960,488 $ 3,448,705 $ 3,167,762 ------------ ----------- ----------- ------------ ------------ ------------ CHANGES IN SHARES OUTSTANDING: Shares sold 7,324,736 84,638 2,846,070 496,714 74,555 624,832 Shares issued in connection to the acquisition of Lindner Funds -- -- -- -- -- 14,615,807 Shares issued to holders as reinvestment of dividends -- -- -- 251,468 -- 34,871 Shares redeemed (2,868,066) (91,797) (1,340,339) (2,240,984) (124,102) (1,480,254) ------------ ----------- ----------- ------------ ------------ ------------ Net increase (decrease) in shares outstanding 4,456,670 (7,159) 1,505,731 (1,492,802) (49,547) 13,795,256 ------------ ----------- ----------- ------------ ------------ ------------ ------------ ----------- ----------- ------------ ------------ ------------
(1) For the one month ended October 31, 2004. Effective October 31, 2004, the Fund changed its fiscal year end to October 31st from September 30th. See notes to the financial statements. FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS HENNESSY TOTAL RETURN FUND HENNESSY BALANCED FUND Year Ended Period Ended Year Ended Year Ended Period Ended Year Ended October 31, October 31, June 30, October 31, October 31, June 30, 2005 2004(1) 2005 2005 2004(1) 2004 ----------- ------------ ---------- ----------- ------------ ---------- OPERATIONS: Net investment income (loss) $ 1,905,070 $ 587,197 $ 600,144 $ 334,050 $ 85,156 $ 197,328 Net realized gain (loss) on securities 3,114,966 13,282 272,805 317,416 (86,296) 32,241 Change in unrealized appreciation (depreciation) on securities (1,411,023) (2,158,098) (3,087,326) (404,330) (441,020) 673,215 ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in net assets resulting from operations 3,609,013 (1,557,619) (2,214,377) 247,136 (442,160) 902,784 ----------- ----------- ----------- ----------- ----------- ----------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (1,946,484) (446,103) (600,144) (324,348) (59,819) (197,328) From net realized gains -- -- -- -- -- (93,788) Return of capital -- -- (109,324) -- -- (42,438) ----------- ----------- ----------- ----------- ----------- ----------- (1,946,484) (446,103) (709,468) (324,348) (59,819) (333,554) ----------- ----------- ----------- ----------- ----------- ----------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares subscribed 6,370,599 459,224 2,789,770 2,758,801 857,432 3,350,098 Proceeds from shares issued in connection with the Lindner Funds merger -- -- 96,447,508 -- -- 10,051,535 Dividends reinvested 1,814,414 415,778 657,552 313,753 57,564 323,188 Redemption fees retained 2,986 482 514 1,345 239 5,244 Cost of shares redeemed (15,003,385) (3,935,847) (6,030,399) (5,494,176) (2,041,113) (6,976,348) Shares issued in connection to the acquisition of Lindner Funds -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in net assets derived from capital share transactions (6,815,386) (3,060,363) 93,864,945 (2,420,277) (1,125,878) 6,753,717 ----------- ----------- ----------- ----------- ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS (5,152,857) (5,064,085) 90,941,100 (2,497,489) (1,627,857) 7,322,947 NET ASSETS: Beginning of period 91,898,786 96,962,871 6,021,771 21,764,675 23,392,532 16,069,585 ----------- ----------- ----------- ----------- ----------- ----------- End of period $86,745,929 $91,898,786 $96,962,871 $19,267,186 $21,764,675 $23,392,532 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- UNDISTRIBUTED NET INVESTMENT INCOME (LOSS), END OF PERIOD $ 99,680 $ 141,094 $ -- $ 35,039 $ 25,337 $ -- ----------- ----------- ----------- ----------- ----------- ----------- CHANGES IN SHARES OUTSTANDING: Shares sold 584,878 43,941 271,039 253,797 80,155 308,593 Shares issued in connection to the acquisition of Lindner Funds -- -- 8,736,232 -- -- 919,731 Shares issued to holders as reinvestment of dividends 168,615 39,448 61,715 29,331 5,355 30,224 Shares redeemed (1,385,192) (376,366) (564,409) (509,610) (190,755) (643,030) ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in shares outstanding (631,699) (292,977) 8,504,577 (226,482) (105,245) 615,518 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(1) For the four months ended October 31, 2004. Effective October 31, 2004, the Fund changed its fiscal year end to October 31st from June 30th. See notes to the financial statements. FINANCIAL HIGHLIGHTS HENNESSY CORNERSTONE GROWTH FUND Year Ended Period Ended Year Ended September 30, October 31, October 31, -------------------------------------- 2005 2004(1)(2) 2004 2003 2002 2001 ----------- -------------------- ---- ---- ---- ---- PER SHARE DATA: Net asset value, beginning of period $19.38 $19.08 $17.23 $13.55 $13.98 $19.48 ------ ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS: Net investment gain (loss)(3) (0.14) (0.02) (0.13) (0.07) (0.07) (0.09) Net realized and unrealized gains (losses) on securities 4.13 0.32 1.98 4.23 0.67 (1.91) ------ ------ ------ ------ ------ ------ Total from investment operations 3.99 0.30 1.85 4.16 0.60 (2.00) ------ ------ ------ ------ ------ ------ LESS DISTRIBUTIONS: Dividends from net investment income -- -- -- -- -- -- Dividends from net realized gains (3.88) -- -- (0.48) (1.03) (3.50) ------ ------ ------ ------ ------ ------ Total distributions (3.88) -- -- (0.48) (1.03) (3.50) ------ ------ ------ ------ ------ ------ Redemption fees retained(4) -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ Net asset value, end of period $19.49 $19.38 $19.08 $17.23 $13.55 $13.98 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ TOTAL RETURN 23.17% 1.57% 10.74% 31.67% 4.47% (10.95%) SUPPLEMENTAL DATA AND RATIOS: Net assets, end of period (millions) $1,071.8 $869.0 $866.0 $752.0 $342.4 $155.5 Ratio of expenses to average net assets 1.23% 1.25% 1.25% 1.27% 1.10% 1.11% Ratio of net investment income to average net assets (0.78%) (1.08%) (0.68%) (0.60%) (0.73%) (0.60%) Portfolio turnover rate 88.98% 0.00% 106.97% 74.80% 70.33% 103.33%
(1) For the one month ended October 31, 2004. Effective October 31, 2004, the Fund changed its fiscal year end to October 31st from September 30th. (2) All ratios for the period have been annualized, except portfolio turnover and total return. (3) Net investment loss per share is calculated using ending balances prior to consideration for adjustments for permanent book and tax differences. (4) Amount is less than $0.01. See notes to the financial statements. FINANCIAL HIGHLIGHTS HENNESSY FOCUS 30 FUND January 1, 2003 January 2, 2001* Year Ended Period Ended Year Ended through Year Ended through October 31, October 31, September 30, September 30, December 31, December 31, 2005 2004(2)(3) 2004 2003(1) 2002 2001 ----------- -------------------- ------------- ------------- ------------ ------------ PER SHARE DATA: Net asset value, beginning of period $ 8.67 $ 8.78 $ 7.72 $ 6.63 $ 9.27 $10.00 ------ ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (0.04) (0.01) (0.08) (0.03) (0.02) (0.02) Net realized and unrealized gains (losses) on investments 3.58 (0.10) 1.14 1.12 (2.62) (0.71) ------ ------ ------ ------ ------ ------ Total from investment operations 3.54 (0.11) 1.06 1.09 (2.64) (0.73) ------ ------ ------ ------ ------ ------ LESS DISTRIBUTIONS: Dividends from net investment income -- -- -- -- -- -- Dividends from net realized gains -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ Total distributions -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ Redemption fees retained(4) -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ Net asset value, end of period $12.21 $ 8.67 $ 8.78 $ 7.72 $ 6.63 $ 9.27 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ TOTAL RETURN 40.83% (1.25%) 13.73% 16.44% (28.48%) (7.30%) SUPPLEMENTAL DATA AND RATIOS: Net assets, end of period (millions) $125.3 $50.4 $51.1 $33.3 $28.5 $43.2 Ratio of net expenses to average net assets: Before expense reimbursement 1.35% 1.45% 1.41% 1.59% 1.54% 1.80% After expense reimbursement 1.35%(5) 1.45%(5) 1.41%(5) 1.49%(5) 1.50% 1.50% Ratio of net investment loss to average net assets: Before expense reimbursement (0.60%) (1.33%) (0.92%) (0.67%) (0.24%) (0.62%) After expense reimbursement (0.60%) (1.33%) (0.92%) (0.57%) (0.20%) (0.32%) Portfolio turnover rate 155.26% 0.00% 113.13% 356.77% 291.00% 210.00%
* Commencement of operations. (1) The financial highlights set forth herein include the historical financial highlights of the SYM Select Growth Fund. The assets of the SYM Select Growth Fund were acquired by the Hennessy Focus 30 Fund on September 17, 2003. At the time of the merger the Adviser also changed from SYM Financial Corporation to Hennessy Advisors, Inc. Effective September 30, 2003 the Fund changed it's fiscal year end to September from December. (2) For the one month ended October 31, 2004. Effective October 31, 2004, the Fund changed its fiscal year end to October 31st from September 30th. (3) All ratios for the period have been annualized, except portfolio turnover and total return. (4) Amount is less than $0.01. (5) On September 17, 2003 the Hennessy Focus 30 Fund instituted an expense cap of 1.45% of the average daily net assets of the Focus 30 Fund until such contractual limitation is terminated by the Board of Directors of the Hennessy Mutual Funds, Inc. See notes to the financial statements. FINANCIAL HIGHLIGHTS HENNESSY CORNERSTONE VALUE FUND Year Ended Period Ended Year Ended September 30, October 31, October 31, ------------------------------------------ 2005 2004(1)(2) 2004 2003 2002 2001 ----------- -------------------- ---- ---- ---- ---- PER SHARE DATA: Net asset value, beginning of period $12.48 $12.37 $10.51 $ 8.95 $10.91 $10.29 ------ ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.30 0.02 0.31(3) 0.21 0.25 0.24 Net realized and unrealized gains (losses) on investments 0.41 0.09 1.76 1.55 (1.95) 0.52 ------ ------ ------ ------ ------ ------ Total from investment operations 0.71 0.11 2.07 1.76 (1.70) 0.76 ------ ------ ------ ------ ------ ------ LESS DISTRIBUTIONS: Dividends from net investment income (0.24) -- (0.21) (0.20) (0.26) (0.14) Dividends from net realized gains -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ Total distributions (0.24) -- (0.21) (0.20) (0.26) (0.14) ------ ------ ------ ------ ------ ------ Redemption fees retained(4) -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ Net asset value, end of period $12.95 $12.48 $12.37 $10.51 $ 8.95 $10.91 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ TOTAL RETURN 5.69% 0.89% 19.83% 19.88% (16.05%) 7.38% SUPPLEMENTAL DATA AND RATIOS: Net assets, end of period (millions) $183.8 $195.6 $194.5 $20.3 $15.8 $20.4 Ratio of net expenses to average net assets 1.20% 1.18% 1.18% 1.51% 1.43% 1.74% Ratio of net investment income to average net assets 2.19% 1.70% 2.56% 2.10% 2.12% 2.12% Portfolio turnover rate 32.22% 0.00% 8.20% 57.29% 76.93% 78.01%
(1) For the one month ended October 31, 2004. Effective October 31, 2004, the Fund changed its fiscal year end to October 31st from September 30th. (2) All ratios for the period have been annualized, except portfolio turnover and total return. (3) Calculated using average shares outstanding during period. (4) Amount is less than $0.01. See notes to the financial statements. FINANCIAL HIGHLIGHTS HENNESSY TOTAL RETURN FUND Year Ended Period Ended Year Ended September 30, October 31, October 31, ------------------------------------------ 2005 2004(1)(2) 2004 2003 2002 2001 ----------- -------------------- ---- ---- ---- ---- PER SHARE DATA: Net asset value, beginning of period $10.40 $10.62 $9.65 $9.78 $10.49 $8.62 ------ ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.23 0.07 0.17(3) 0.12 0.11 0.24 Net realized and unrealized gains (losses) on securities 0.17 (0.24) 0.92 (0.13) (0.71) 1.87 ------ ------ ------ ------ ------ ------ Total from investment operations 0.40 (0.17) 1.09 (0.01) (0.60) 2.11 ------ ------ ------ ------ ------ ------ LESS DISTRIBUTIONS: Dividends from net investment income (0.23) (0.05) (0.10) (0.12) (0.11) (0.24) Dividends from realized capital gains -- -- -- -- -- -- Return of capital -- -- (0.02) -- -- -- ------ ------ ------ ------ ------ ------ Total distributions (0.23) (0.05) (0.12) (0.12) (0.11) (0.24) ------ ------ ------ ------ ------ ------ Redemption fees retained(4) -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ Net asset value, end of period $10.57 $10.40 $10.62 $9.65 $9.78 $10.49 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ TOTAL RETURN 3.83% (1.61%) 11.36% (0.04%) (5.73%) 24.66% SUPPLEMENTAL DATA AND RATIOS: Net assets, end of period (millions) $86.7 $91.9 $97.0 $6.0 $3.5 $3.1 Ratio of net expenses to average net assets, excluding interest expense: Before expense reimbursement 1.23% 1.20% 1.27% 2.12% 4.35% 4.54% After expense reimbursement 1.23%(5) 1.20%(5) 1.27%(5) 1.95%(6) 1.71%(6) 1.20%(6) Ratio of net expenses to average net assets, including interest expense: Before expense reimbursement 2.28% 1.78% 1.66% 2.50% 4.97% 6.06% After expense reimbursement 2.28% 1.78% 1.66% 2.33% 2.33% 2.72% Ratio of interest expense to average net assets 1.05% 0.58% 0.39% 0.38% 0.62% 1.52% Ratio of net investment income (loss) to average net assets: Before expense reimbursement 2.07% 1.85% 1.55% 1.25% (1.58%) (1.06%) After expense reimbursement 2.07% 1.85% 1.55% 1.42% 1.06% 2.28% Portfolio turnover rate 25.70% 0.30% 8.37% 17.60% 34.76% 48.80%
(1) For the four months ended October 31, 2004. Effective October 31, 2004, the Fund changed its fiscal year end to October 31st from June 30th. (2) All ratios for the period have been annualized, except portfolio turnover and total return. (3) Calculated using average shares outstanding during period. (4) Amount is less than $0.01. (5) On February 27, 2004, the Hennessy Total Return Fund instituted an expense cap of 1.35% of the average daily net assets, excluding interest expense. The expense cap expired on June 30, 2005. (6) The Hennessy Total Return Fund instituted an expense cap of 1.95% of the average daily net assets, excluding interest expense. See notes to the financial statements. FINANCIAL HIGHLIGHTS HENNESSY BALANCED FUND Year Ended Period Ended Year Ended September 30, October 31, October 31, ------------------------------------------ 2005 2004(1)(2) 2004 2003 2002 2001 ----------- -------------------- ---- ---- ---- ---- PER SHARE DATA: Net asset value, beginning of period $10.62 $10.85 $10.44 $10.62 $11.50 $10.37 ------ ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.18 0.04 0.11 0.14 0.15 0.27 Net realized and unrealized gains (losses) on securities (0.07) (0.24) 0.50 (0.12) (0.50) 1.25 ------ ------ ------ ------ ------ ------ Total from investment operations 0.11 (0.20) 0.61 0.02 (0.35) 1.52 ------ ------ ------ ------ ------ ------ LESS DISTRIBUTIONS: Dividends from net investment income (0.17) (0.03) (0.12) (0.14) (0.15) (0.27) Dividends from realized capital gains -- -- (0.06) (0.06) (0.38) (0.12) Return of capital -- -- (0.02) -- -- -- ------ ------ ------ ------ ------ ------ Total distributions (0.17) (0.03) (0.20) (0.20) (0.53) (0.39) ------ ------ ------ ------ ------ ------ Redemption fees retained(3) -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ Net asset value, end of period $10.56 $10.62 $10.85 $10.44 $10.62 $11.50 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ TOTAL RETURN 1.13% (1.86%) 5.81% 0.24% (3.12%) 14.85% SUPPLEMENTAL DATA AND RATIOS: Net assets, end of period (millions) $19.3 $21.8 $23.4 $16.1 $15.3 $15.2 Ratio of net expenses to average net assets 1.49% 1.41% 1.41% 1.50% 1.84% 1.87% Ratio of net investment income to average net assets 1.58% 1.12% 1.01% 1.40% 1.33% 2.39% Portfolio turnover rate 21.31% 8.55% 45.17% 21.79% 45.95% 46.91%
(1) For the four months ended October 31, 2004. Effective October 31, 2004, the Fund changed its fiscal year end to October 31st from June 30th. (2) All ratios for the period have been annualized, except portfolio turnover and total return. (3) Amount is less than $0.01. See notes to the financial statements. STATEMENT OF CASH FLOWS HENNESSY TOTAL RETURN FUND Year Ended October 31, 2005 CASH FLOWS FROM OPERATING ACTIVITIES: Net increase in net assets from operations $ 3,609,013 Adjustments to reconcile net increase in net assets from operations to net cash provided by operating activities: Purchase of investment securities (561,231,582) Proceeds on sale of securities 573,802,589 Increase in other receivables, net 137,819 Increase in other assets 337 Increase in accrued expenses and other payables 23,057 Net accretion of discount on securities (1,325,420) Net realized gain on investments (3,114,966) Unrealized appreciation on securities 1,411,023 ------------- Net cash used by operating activities $ 13,311,870 ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in reverse repurchase agreements $ (4,550,000) Proceeds on shares sold 6,370,599 Payment on shares repurchased (15,000,399) Cash dividends paid (132,070) ------------- Net cash provided by financing activities $ (13,311,870) ------------- Net increase (decrease) in cash -- CASH AT BEGINNING OF PERIOD -- ------------- CASH AT END OF PERIOD $ -- ------------- ------------- CASH PAID FOR INTEREST $ 886,089 ------------- ------------- See notes to the financial statements. NOTES TO THE FINANCIAL STATEMENTS October 31, 2005 1). ORGANIZATION The Hennessy Mutual Funds, Inc. was organized as a Maryland corporation on May 20, 1996 and consists of three separate series: Hennessy Cornerstone Growth Fund (the "Growth Fund"), and Hennessy Cornerstone Value Fund (the "Value Fund"), the Hennessy Focus 30 Fund (the "Focus 30 Fund"), formerly SYM Select Growth Fund. The Funds are open-end, diversified management investment companies registered under the Investment Company Act of 1940, as amended. The Growth Fund and Value Fund commenced operations on November 1, 1996. On September 17, 2003, the Focus 30 Fund acquired the assets, and assumed the liabilities, of the SYM Select Growth Fund, a former series of Advisors Series Trust. Hence, the Focus 30 Fund commenced operations on September 17, 2003. The Hennessy Funds, Inc. was organized as a Maryland corporation on January 11, 1996 and consists of two separate series: Hennessy Balanced Fund (the "Balanced Fund") and Hennessy Total Return Fund (the "Total Return Fund"). These two Funds together with the Growth Fund, Value Fund and Focus 30 Fund represent the Hennessy Funds (the "Funds"). The Balanced and Total Return Funds are open- end, non-diversified management investment companies registered under the Investment Company Act of 1940, as amended. The Balanced Fund and Total Return Fund commenced operations on March 8, 1996 and July 29, 1998, respectively. 2). SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of the financial statements. These policies are in conformity with U.S. generally accepted accounting principles ("GAAP"). 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. When a price for an underlying security is not readily available or if a significant event has occurred that indicates the closing price of a security no longer represents the true value of that security, fair value pricing procedures have been adopted by the Board of Directors of the Funds. Fair value pricing determinations are made in good faith in accordance with these procedures. There are numerous criteria that will be given consideration in determining a fair value of a security. Some of these criteria are: size of holding, trading volume of security and markets, value of other like securities and news events with direct bearing to security or market. Fair value pricing results in an estimated price that reasonably reflects the current market conditions in order to rate the portfolio holdings such that shareholder transactions receive a fair net asset value. b). Federal Income Taxes - Provision for federal income taxes or excise taxes has not been made since the Funds have elected to be taxed as "regulated investment companies" and intend to distribute substantially all taxable income to shareholders 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 the treatment of wash sales 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. Due to inherent differences in the recognition of income, expenses, and realized gains/losses under U.S. generally accepted accounting principles and federal income tax purposes, permanent differences between book and tax basis reporting for the 2005 fiscal year have been identified and appropriately reclassified on the Statement of Assets and Liabilities. For the year ended October 31, 2005, the Growth Fund had a $538,257 permanent book and tax basis difference relating to the Lindner acquisition which resulted in an increase in accumulated realized gain/loss and a decrease in paid in capital. In addition, the Growth Fund had a $7,800,866 permanent book and tax basis difference relating to the netting of the Fund's current year net operating loss against realized gains which resulted in an increase in accumulated net investment income and a decrease in accumulated realized gain/loss. The Focus 30 Fund had a $440,682 permanent book and tax basis difference relating to the Fund's net operating loss which resulted in an increase in accumulated net investment income and decrease in paid in capital. The Balanced Fund had a $297,003 permanent book and tax basis difference relating to the expiration of the Fund's prior year capital loss carry forward which resulted in an increase in accumulated realized gain/loss and a decrease in accumulated paid in capital. c). Income and Expenses - Dividend income is recognized on the ex-dividend date and interest income is recognized on an accrual basis. The Funds are 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 for the Growth, Focus 30 and Value Funds, if any, are declared and paid out annually, usually in November or December of each year. Dividends from net investment income for the Total Return and Balanced Funds are declared and paid on a calendar quarter basis. Distributions of net realized capital gains, if any, are declared and paid annually, usually in November or December of each year, for all of the Funds. e). Security Transactions - Investment and shareowner transactions are recorded on the trade date. The Funds determine the gain or loss realized from the investment transactions by comparing the original cost of the security lot sold with the net sale proceeds. Discounts and premiums on securities purchased are accreted/amortized over the life of the respective security. f). Use of Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts 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 those estimates. g). Share Valuation - The net asset value ("NAV") per share of each Fund is calculated by dividing the sum of the value of the securities held by each Fund, plus cash or other assets, minus all liabilities (including estimated accrued expenses) by the total number of shares outstanding for each Fund, rounded to the nearest cent. The Funds' shares will not be priced on the days on which the NYSE is closed for trading. The offering and redemption price per share for each Fund is equal to each Fund's net asset value per share. The Funds charge a 1.50% redemption fee on shares held less than three months. These fees are deducted from the redemption proceeds otherwise payable to the shareholder. The Funds will retain the fee charged as paid-in capital and such fees become part of that Fund's daily NAV calculation. h). Repurchase Agreements - Each Fund may enter into repurchase agreements with member banks or security dealers of the Federal Reserve whom the investment advisor deems creditworthy. The repurchase price generally equals the price paid by the Fund plus interest negotiated on the basis of current short- term rates. Securities pledged as collateral for repurchase agreements are held by the custodian bank until the respective agreements mature. Provisions of the repurchase agreements ensure that the market value of the collateral, including accrued interest thereon, is sufficient, in the event of default of the counterparty. If the counterparty defaults and the value of the collateral declines or if the counterparty enters an insolvency proceeding, realization of the collateral by the Fund may be delayed or limited. 3). REVERSE REPURCHASE AGREEMENTS The Total Return Fund has entered into reverse repurchase agreements with UBS PaineWebber, Inc., under which the Total Return Fund sells securities and agrees to repurchase them later at a mutually agreed upon price. For the year ended October 31, 2005, the average daily balance and average interest rate in effect for reverse repurchase agreements was $32,474,849 and 2.967%, respectively. At October 31, 2005, the interest rate in effect for the outstanding reverse repurchase agreement, scheduled to mature on November 17, 2005 ($11,570,000), December 15, 2005 ($8,010,000) and January 19, 2006 ($9,790,000) were 3.75%, 3.95% and 4.15% and represented 25.22% of the Total Return Fund's total assets. For the period ended October 31, 2004, the average daily balance and average interest rate in effect for reverse repurchase agreements was $33,962,914 and 1.58%, respectively. At October 31, 2004, the interest rate in effect for the outstanding reverse repurchase agreement, scheduled to mature on November 26, 2004 ($10,680,000), December 30, 2004 ($9,000,000) and January 27, 2005($14,240,000) were 1.80%, 1.93% and 2.10% and represented 26.89% of the Total Return Fund's total assets. 4). INVESTMENT TRANSACTIONS During the year ended October 31, 2005, purchases and sales of investment securities (excluding short-term investments) were as follows: Growth Focus 30 Value Total Return Balanced Fund Fund Fund Fund Fund ------ -------- ----- ------------ -------- Purchases $881,822,141 $159,958,761 $61,686,961 $17,626,291 $2,112,693 Sales $917,417,106 $108,888,705 $83,307,760 $22,685,796 $3,257,612 5). INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES Hennessy Advisors, Inc. (the "Manager") is the manager of the Funds. The Manager provides the Funds with investment management services under a Management Agreement. The Manager furnishes all investment advice, office space, facilities, and provides most of the personnel needed by the Funds. As compensation for its services, the Manager is entitled to a monthly fee from each Fund. The fee is based upon the average daily net assets of the Funds at the annual rate of: Growth Fund 0.74% Focus 30 Fund 0.74%* Value Fund 0.74% Total Return Fund 0.60% Balanced Fund 0.60% * On June 30, 2005, the Manager agreed to reduce the investment management fee for the Focus 30 Fund from 1.00% to 0.74% annually based on the average net assets of the fund. Each Fund is responsible for its own operating expenses. The Manager has agreed to reimburse the Total Return Fund to the extent necessary to ensure that the "Total Annual Fund Operating Expense, excluding Interest Expense" does not exceed 1.35%. This expense cap expired on June 30, 2005. The Manager has agreed to reimburse the Growth, Value and Balanced Funds to the extent necessary to ensure that the "Total Annual Operating Expense" does not exceed 1.50%, 1.25% and 1.50%, respectively. These expense caps expired on June 30, 2005. The Manager has also agreed to reimburse the Focus 30 Fund to the extent necessary to ensure that the "Total Annual Fund Operating Expense" does not exceed 1.45%. This expense cap will be in effect until such contractual limitation is terminated by the Board of Directors of Hennessy Mutual Funds, Inc. The Board of Directors has approved a Shareholder Servicing Plan which was instituted to compensate the Manager for the non-investment management services it provides the Growth, Focus 30 and Value Funds. The Plan provides for a monthly fee paid to the Manager at an annual rate of 0.10% of the average daily net assets of the Growth, Focus 30 and Value Funds. The Total Return and Balanced Funds have adopted a plan pursuant to Rule 12b-1 which authorizes payments in connection with the distribution of the Total Return and Balanced Fund shares at an annual rate not to exceed 0.25% of each Fund's 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. U.S. Bancorp Fund Services, LLC (the "Administrator") acts as the Funds' Administrator under an Administration Agreement. The Administrator prepares various federal and state regulatory filings, reports and returns for the Funds; prepares reports and materials to be supplied to the directors; monitors the activities of the Funds' custodian, transfer agent and accountants; coordinates the preparation and payment of the Funds' expenses and reviews the Funds' expense accruals. Fees paid to U.S. Bancorp Fund Services, LLC for the year ended October 31, 2005, were $2,506,465, $188,837, $503,999, $238,727 and $54,936 for Growth, Focus 30, Value, Total Return and Balanced Funds, respectively. The SYM Select Growth Fund was the predecessor fund of the Focus 30 Fund. The financial highlights reported for periods before September 17, 2003, represent the activity of the SYM Select Growth Fund. Quasar Distributors, LLC (the "Distributor") acts as the Funds' principal underwriter in a continuous public offering of the Funds' shares. The Distributor is an affiliated company of U.S. Bank, N.A. 6). SECURITIES LENDING The Growth and Value Funds have entered into a securities lending arrangement with the custodian. Under the terms of the agreement, the custodian is authorized to loan securities on behalf of the Funds to approved brokers against the receipt of cash collateral at least 102% of the value of the securities loaned. The cash collateral is invested by the custodian in a money market pooled account approved by the Adviser. Although risk is mitigated by the collateral, the Funds could experience a delay in recovering its securities and possible loss of income or value if the borrower fails to return them. The agreement provides that after predetermined rebates to the brokers, the income generated from lending transactions is allocated 60% to the Fund and 40% to the custodian. The Growth Fund discontinued securities lending in February 2005. As of October 31, 2005, the Value Fund had on loan a security valued at $258 and collateral of $135,800. Once the Adviser disposes of the current security on loan, the Value Fund will discontinue securities lending. 7). LINE OF CREDIT The Growth, Focus 30, and Value Funds have $20,000,000, $500,000 and $500,000 lines of credit, respectively, intended to provide short-term financing, if necessary, subject to certain restrictions, in connection with shareholder redemptions. The credit facility is with its custodian bank, U.S. Bank, N.A. During the year ended October 31, 2005, the Growth Fund had an outstanding average daily balance and a weighed average interest rate of $744,910 and 5.85%, respectively. The maximum amount outstanding for the Growth Fund during the period was $20,000,000. During the year ended October 31, 2005, the Focus 30 Fund had an outstanding average daily balance and a weighed average interest rate of $6,849 and 5.85%, respectively. The maximum amount outstanding for the Focus 30 Fund during the period was $500,000. During the year ended October 31, 2005, the Value Fund had an outstanding average daily balance and a weighed average interest rate of $39,392 and 5.85%, respectively. The maximum amount outstanding for the Value Fund during the period was $500,000. 8). FEDERAL TAX INFORMATION The following balances for the Funds are as of October 31, 2005: Hennessy Hennessy Hennessy Hennessy Hennessy Growth Focus 30 Value Total Return Balanced Fund Fund Fund Fund Fund -------- -------- -------- ------------ -------- Cost of investments (a) $953,101,028 $131,235,099 $ 179,934,285 $122,618,797 $20,003,524 ------------ ------------ ------------- ------------ ----------- Gross unrealized appreciation 237,873,726 4,055,339 18,578,181 2,886,658 627,265 Gross unrealized depreciation (103,865,608) (8,404,099) (15,001,564) (9,237,802) (1,388,420) ------------ ------------ ------------- ------------ ----------- Net unrealized appreciation (depreciation) $134,008,118 $ (4,348,760) $ 3,576,617 $ (6,351,144) $ (761,155) ------------ ------------ ------------- ------------ ----------- ------------ ------------ ------------- ------------ ----------- Undistributed ordinary income $ -- $ -- $ 3,960,488 $ 99,680 $ 35,039 Undistributed long-term capital gain 68,227,473 17,767,980 -- -- -- ------------ ------------ ------------- ------------ ----------- Total distributable earnings $ 68,227,473 $ 17,767,980 $ 3,960,488 $ 99,680 $ 35,039 ------------ ------------ ------------- ------------ ----------- ------------ ------------ ------------- ------------ ----------- Accumulated realized losses $ (2,528,379) $ -- $(142,037,469) $(93,341,323) $(2,818,932) ------------ ------------ ------------- ------------ ----------- Total accumulated realized and unrealized gains (losses) $199,707,212 $ 13,419,220 $(134,500,364) $(99,592,787) $(3,545,048) ------------ ------------ ------------- ------------ ----------- ------------ ------------ ------------- ------------ -----------
(a) Represents cost for federal income tax purposes and differs from the cost for financial reporting purposes primarily due to wash sale adjustments. At October 31, 2005, the Growth Fund had tax basis capital losses of $2,528,379, a portion of which are from the Lindner merger, which is limited by IRS regulations to offset future capital gains. Of such losses, $1,129,176 expire October 31, 2008, $1,216,644 expire October 31, 2009, and $182,559 expire October 31, 2010. Additionally, the Growth Fund had no post-October loss deferrals as of October 31, 2005. At October 31, 2005, the Focus 30 Fund had no tax basis capital losses which may be carried over to offset future capital gains. Additionally, the Focus 30 Fund had no post-October loss deferrals as of October 31, 2005. At October 31, 2005, the Value Fund had tax basis capital losses of $142,037,469, a portion of which are from the Lindner merger, which is limited by IRS regulations to offset future capital gains. Of such losses, $44,953,812 expire October 31 2006, $57,383,495 expire October 31, 2007, $11,505,303 expire October 31, 2008, $27,482,264 expire October 31, 2010 and $712,595 expire October 31, 2011. Additionally, the Value Fund had no post-October loss deferrals as of October 31, 2005. At October 31, 2005, the Total Return Fund had tax basis capital losses of $93,341,323, which may be carried over to offset future capital gains. Of such losses, $58,682,745 expire on October 31, 2008 and $34,658,578 expire October 31, 2009. Additionally, the Total Return Fund had no post-October loss deferrals as of October 31, 2005. At October 31, 2005, the Balanced Fund had tax basis capital losses of $2,818,932, a portion of which are from the Lindner merger, which is limited by IRS regulations to offset future capital gains. Of such losses, $610,892 expire on October 31, 2007, $1,023,300 expire October 31, 2008, $447,964 expire October 31, 2009, $447,964 expire October 31, 2010 and $288,812 expire October 31, 2012. Additionally, the Balanced Fund had no post-October loss deferrals as of October 31, 2005. The tax character of distributions paid during 2005 and 2004 for the Funds were as follows: GROWTH FUND Year Ended Period Ended Year Ended October 31, 2005 October 31, 2004(1) September 30, 2004 ---------------- ------------------------ ------------------ Distributions paid from: Ordinary income $ -- $-- $-- Long-term capital gain 173,840,684 -- -- ------------ -------- -------- $173,840,684 $-- $-- ------------ -------- -------- ------------ -------- --------
FOCUS 30 FUND Year Ended Period Ended Year Ended October 31, 2005 October 31, 2004(1) September 30, 2004 ---------------- ------------------------ ------------------ Distributions paid from: Ordinary income $-- $-- $-- Long-term capital gain -- -- -- ------------ -------- -------- $-- $-- $-- ------------ -------- -------- ------------ -------- --------
VALUE FUND Year Ended Period Ended Year Ended October 31, 2005 October 31, 2004(1) September 30, 2004 ---------------- ------------------------ ------------------ Distributions paid from: Ordinary income $3,734,561 $-- $421,282 Long-term capital gain -- -- -- ------------ -------- -------- $3,734,561 $-- $421,282 ------------ -------- -------- ------------ -------- --------
TOTAL RETURN FUND Year Ended Period Ended Year Ended October 31, 2005 October 31, 2004(2) June 30, 2004 ---------------- ------------------------ ------------------ Distributions paid from: Ordinary income $1,946,484 $446,103 $600,144 Long-term capital gain -- -- -- Return of capital -- -- 109,324 ------------ -------- -------- $1,946,484 $446,103 $709,468 ------------ -------- -------- ------------ -------- --------
BALANCED FUND Year Ended Period Ended Year Ended October 31, 2005 October 31, 2004(2) June 30, 2004 ---------------- ------------------------ ------------------ Distributions paid from: Ordinary income $324,348 $59,819 $197,328 Long-term capital gain -- -- 93,788 Return of capital -- -- 42,438 ------------ -------- -------- $324,348 $59,819 $333,554 ------------ -------- -------- ------------ -------- --------
(1) For the one month ended October 31, 2004. Effective October 31, 2004, the Fund changed its fiscal year end to October 31st from September 30th. (2) For the four months ended October 31, 2004. Effective October 31, 2004, the Fund changed its fiscal year end to October 31st from June 30th. 9). FEDERAL TAX DISTRIBUTION INFORMATION The Value, Total Return and Balanced Funds designate 100% of the dividends declared from net investment income during the year ended October 31, 2005, as qualified dividend income under the Jobs Growth and Tax Reconciliation Act of 2003. For the year ended October 31, 2005, 100% of the ordinary distributions paid by the Value, Total Return and Balanced Funds qualify for the dividends received deduction available to corporate shareholders. 10). MATTERS SUBMITTED TO A SHAREHOLDER VOTE (UNAUDITED) - A special meeting of shareholders of the Funds was held on September 9, 2005, to approve a new investment advisory agreement with Hennessy Advisors, Inc. and was approved by such Fund's voting shares: Fund For Against Abstain ---- --- ------- ------- Hennessy Cornerstone Growth Fund 47,796,710 472,785 538,450 Hennessy Cornerstone Value Fund 8,866,766 294,074 217,299 Hennessy Focus 30 Fund 6,169,359 113,370 33,897 Hennessy Total Return Fund 4,976,605 144,093 104,250 Hennessy Balanced Fund 1,317,554 11,278 11,034 11). SUBSEQUENT EVENTS On November 17, 2005, long-term capital gain distributions of $0.39919 and $1.61196 were declared for the Growth Fund and Focus 30 Fund, respectively and a short-term capital gain of $0.83227 was declared for the Growth Fund. The distributions were paid on November 17, 2005 to shareholders of record November 16, 2005. On December 14, 2005, the Total Return Fund received a securities litigation settlement in the amount of $1,180,693 from the Physicians Corporation of America. The settlement had approximately a $0.14 per share effect on the Fund's NAV. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Shareholders and Board of Directors The Hennessy Mutual Funds, Inc. and The Hennessy Funds, Inc.: We have audited the accompanying statements of assets and liabilities of The Hennessy Mutual Funds, Inc. (comprising, respectively, the Hennessy Cornerstone Growth Fund, the Hennessy Cornerstone Value Fund, and the Hennessy Focus 30 Fund) and The Hennessy Funds, Inc. (comprising, respectively, the Hennessy Balanced Fund and the Hennessy Total Return Fund), collectively referred to as the "Funds", including the schedules of investments, as of October 31, 2005, and the related statements of operations and cash flows for the year then ended, and the statements of changes in net assets for the year ended October 31, 2005, one-month period ended October 31, 2004, and year ended September 30, 2004, and the financial highlights for each of the periods presented (year ended October 31, 2005, one-month period ended October 31, 2004, year ended September 30, 2004 and the nine-month period ended September 30, 2003 for the Hennessy Focus 30 Fund). These financial statements and financial highlights are the responsibility of the Funds management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The accompanying financial highlights of the Hennessy Focus 30 Fund for the year ended December 31, 2002, and period January 2, 2001 through December 31, 2001, were audited by other auditors whose report thereon dated January 25, 2003, expressed an unqualified opinion on these statements. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2005, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Hennessy Cornerstone Growth Fund, the Hennessy Cornerstone Value, the Hennessy Focus 30 Fund, the Hennessy Balanced Fund, and the Hennessy Total Return Fund as of October 31, 2005, the results of their operations and cash flows for the year then ended, the changes in their net assets for the year ended October 31, 2005, one-month period ended October 31, 2004, and year ended September 30, 2004, and the financial highlights for each of the periods presented (year ended October 31, 2005, one-month period ended October 31, 2004, year ended September 30, 2004 and the nine-month period ended September 30, 2003 for the Hennessy Focus 30 Fund), in conformity with U.S. generally accepted accounting principles. /s/KPMG LLP Chicago, Illinois December 16, 2005 TRUSTEES AND OFFICERS OF THE FUNDS NUMBER OF PORTFOLIOS IN THE FUND OTHER POSITION(S) TERM OF OFFICE COMPLEX DIRECTORSHIPS HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY NAME, AGE AND ADDRESS THE COMPANIES TIME SERVED DURING PAST 5 YEARS DIRECTOR(1) DIRECTOR - --------------------- ------------- -------------- ----------------------- ---------------- ------------- "DISINTERESTED PERSONS" J. Dennis DeSousa Independent Indefinite, until Currently a real 6 None. Age: 68 Director successor elected estate investor. Address: c/o Hennessy Advisors, Inc. Served since 7250 Redwood Blvd. January 1996 Suite 200 Novato, CA 94945 Robert T. Doyle Independent Indefinite, until Currently the Sheriff of Marin 6 None. Age: 57 Director successor elected County, California (since 1996) Address: and has been employed in the Marin c/o Hennessy Advisors, Inc. Served since County Sheriff's Office in various 7250 Redwood Blvd. January 1996 capacities since 1969. Suite 200 Novato, CA 94945 Gerald P. Richardson Independent Indefinite, until Chief Executive Officer and owner 6 None. Age: 58 Director successor elected of ORBIS Payment Services since Address: January 2001. In 2000, Mr. c/o Hennessy Advisors, Inc. Served since Richardson was an independent 7250 Redwood Blvd. May 2004 consultant. Suite 200 Novato, CA 94945 "INTERESTED PERSONS" Neil J. Hennessy(2) Director Indefinite, until President, Chairman, CEO and 6 Director of Age: 49 and President successor elected Portfolio Manager of Hennessy Hennessy Address: Advisors, Inc., the Funds' Advisors, c/o Hennessy Advisors, Inc. Served since investment adviser, since 1989; Inc. 7250 Redwood Blvd. January 1996 President of The Hennessy Suite 200 Mutual Funds, Inc., The Hennessy Novato, CA 94945 Funds, Inc. since 1996 and Hennessy Funds Trust since 2005. Frank Ingarra, Jr.(2) Assistant 1 year term Assistant Portfolio Manager for Not applicable. Not Age: 33 Portfolio Hennessy Advisors, Inc., the Funds' applicable. Address: Manager and 3 years investment adviser, from March 2002 c/o Hennessy Advisors, Inc. Vice President to the present; from August 2000 7250 Redwood Blvd. through March 2002, Mr. Ingarra Suite 200 was the head trader for Hennessy Novato, CA 94945 Advisors, Inc.; from August 2002 to the present, Mr. Ingarra has been a Vice President of The Hennessy Mutual Funds, Inc. and The Hennessy Funds, Inc.; and from July 1999 through August 2000, Mr. Ingarra was the Vice President and head trader for O'Shaughnessy Capital Management. Harry F. Thomas(2) Chief 1 year term Chief Compliance Officer for Not applicable. Not Age: 58 Compliance Hennessy Advisors, Inc., the Funds' applicable. Address: Officer 1 year investment adviser, since 2004; c/o Hennessy Advisors, Inc. retired business executive from 2001 7250 Redwood Blvd. through 2004; director of The Hennessy Suite 200 Mutual Funds, Inc. and The Hennessy Novato, CA 94945 Funds, Inc. from 2000 to May 2004; and Managing Director of Emplifi, Inc., a consulting firm, from 1999 through 2001. Teresa M. Nilsen(2) Executive 1 year term Currently Executive Vice President, Not applicable. Director of Age: 39 Vice Chief Financial Officer and Hennessy Address: President 9 years Secretary of Hennessy Advisors, Advisors, c/o Hennessy Advisors, Inc. and Inc., the Funds' investment Inc. 7250 Redwood Blvd. Treasurer adviser; Ms. Nilsen has been the Suite 200 corporate secretary and a financial Novato, CA 94945 officer of Hennessy Advisors, Inc. since 1989; Ms. Nilsen has been an officer of The Hennessy Mutual Funds, Inc. and The Hennessy Funds, Inc. since 1996, and is currently Executive Vice President and Treasurer. Daniel B. Steadman(2) Executive 1 year term Executive Vice President of Not applicable. Director of Age: 49 Vice Hennessy Advisors, Inc., the Funds' Hennessy Address: President 6 years investment adviser, from 2000 to Advisors, c/o Hennessy Advisors, Inc. and the present; Vice President of Inc. 7250 Redwood Blvd. Secretary Westamerica Bank from 1995 through Suite 200 2000; Mr. Steadman has been Executive Novato, CA 94945 Vice President and Secretary of The Hennessy Mutual Funds, Inc. and The Hennessy Funds, Inc. since 2000. Tania A. Kelley Vice President 1 year term Has been employed by Hennessy Not applicable. None. Age: 40 of Marketing Advisors, Inc., the Funds' Address: 3 years Investment adviser, since October c/o Hennessy Advisors, Inc. 2003; Director of Sales and Marketing 7250 Redwood Blvd. for Comcast from 2002 through 2003; Suite 200 from 1999 to 2002, Ms. Kelley was Novato, CA 94945 Director of Sales and Marketing for AT&T. Ana Miner Vice President 1 year term Has been employed by Hennessy Not applicable. None. Age: 47 of Operations Advisors, Inc., the Funds' Address: 7 years investment adviser, since 1998; c/o Hennessy Advisors, Inc. from 1990 through 1998, Ms. Miner 7250 Redwood Blvd. was employed as an institutional Suite 200 sales assistant by Merrill Lynch Novato, CA 94945 Capital Markets. Brian Peery Vice President 1 year term Has been employed by Hennessy Not applicable. None. Age: 36 of Sales Advisors, Inc., the Funds' Address: 4 years investment adviser, since June c/o Hennessy Advisors, Inc. 2002; Vice President of Institutional 7250 Redwood Blvd. Sales and Senior Analyst with Brad Suite 200 Peery Inc. from June 2000 to June Novato, CA 94945 2002; from 1996 to 2002, Mr. Peery worked for Haywood Securities where he was a Vice President.
(1) There are six portfolios in the fund complex overseen by the Directors: (a) the Hennessy Cornerstone Growth Fund, Hennessy Focus 30 Fund and Hennessy Cornerstone Value Fund, series of The Hennessy Mutual Funds, Inc.; (b) the Hennessy Total Return Fund and Hennessy Balanced Fund, series of The Hennessy Funds, Inc.; and (c) the Hennessy Cornerstone Growth Fund, Series II, a series of Hennessy Funds Trust (collectively, the "Hennessy Funds"). (2) All officers of the companies and employees of the Manager are interested persons (as defined in the 1940 Act) of the Trust. EXPENSE EXAMPLE - October 31, 2005 (Unaudited) As a shareholder of the Funds, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; service fees; and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in each of the Funds and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The first set of lines of the table below provide information about actual account values and actual expenses. Although the Funds charge no sales loads or transaction fees, you will be assessed fees for outgoing wire transfers, returned checks and stop payment orders at prevailing rates charged by U.S. Bancorp Fund Services, LLC, the Funds' transfer agent. If you request that a redemption be made by wire transfer, currently a $15.00 fee is charged by the Funds' transfer agent. You will be charged a redemption fee equal to 1.50% of the net amount of the redemption if you redeem your shares less than three months after you purchase them. IRA accounts will be charged a $15.00 annual maintenance fee. The example below includes, but is not limited to, management fees, shareholder servicing fees, fund accounting, custody and transfer agent fees. However, the example below does not include portfolio trading commissions and related expenses, interest expense or dividends on short position taken by the Fund and other extraordinary expenses as determined under generally accepted accounting principles. You may use the information within these lines, together with the amount you invested, to estimate the expenses that you paid over the six-month period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second set of lines within the table below provide information about hypothetical account values and hypothetical expenses based on the Funds' actual expense ratios and an assumed rate of return of 5% per year before expenses, which is not the Funds' actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Funds and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. Beginning Ending Expenses Paid Account Account During Period(1) Value 5/1/05 Value 10/31/05 5/1/05 - 10/31/05 ------------ -------------- --------------------- ACTUAL Growth Fund $1,000.00 $1,139.10 $ 6.63 Focus 30 Fund $1,000.00 $1,201.80 $ 7.27 Value Fund $1,000.00 $1,034.30 $ 6.26 Total Return Fund $1,000.00 $ 989.40 $12.44 Balanced Fund $1,000.00 $ 990.20 $ 7.78 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) Growth Fund $1,000.00 $1,019.00 $ 6.26 Focus 30 Fund $1,000.00 $1,018.60 $ 6.67 Value Fund $1,000.00 $1,019.06 $ 6.21 Total Return Fund $1,000.00 $1,018.90 $12.58 Balanced Fund $1,000.00 $1,017.39 $ 7.88 (1) Expenses are equal to the Growth Fund's expense ratio of 1.23%, the Focus 30 Fund's expense ratio of 1.31%, the Value Fund's expense ratio of 1.22%, the Total Return Fund's expense ratio of 2.48%, and the Balanced Fund's expense ratio of 1.55%, multiplied by the average account value over the period, multiplied by the number of days in the most recent half-year/365 days (to reflect one-half year period). HOW TO OBTAIN A COPY OF THE FUNDS' PROXY VOTING POLICY AND PROXY VOTING RECORDS A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities is available without charge: (1) by calling 1-800-966-4354; (2) on the Hennessy Funds website at www.hennessyfunds.com; or (3) on the U.S. Securities and Exchange Commission's website at www.sec.gov. Hennessy Funds' proxy voting record is available on the SEC's website at www.sec.gov no later than August 31 for the prior 12 months ending June 30. QUARTERLY FILINGS ON FORM N-Q The Funds file their complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Funds' Form N-Q will be available on the SEC's website at www.sec.gov. The Funds' Form N-Q may be reviewed and copied at the SEC's Public Reference Room in Washington, DC and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Information included in the Funds' N-Q will also be available upon request by calling 1-800-966-4354. FOR INFORMATION, QUESTIONS OR ASSISTANCE, PLEASE CALL THE HENNESSY FUNDS 1-800-966-4354 OR 1-415-899-1555 INVESTMENT ADVISOR Hennessy Advisors, Inc. 7250 Redwood Blvd., Suite 200 Novato, California 94945 ADMINISTRATOR, TRANSFER AGENT, DIVIDEND PAYING AGENT & SHAREHOLDER SERVICING AGENT U.S. Bancorp Fund Services, LLC P.O. Box 701 Milwaukee, Wisconsin 53201-0701 CUSTODIAN U.S. Bank, N.A. 425 Walnut Street Cincinnati, Ohio 45202 DIRECTORS Neil J. Hennessy Robert T. Doyle J. Dennis DeSousa Gerald P. Richardson COUNSEL Foley & Lardner LLP 777 East Wisconsin Avenue Milwaukee, Wisconsin 53202-5306 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM KPMG LLP 303 East Wacker Drive Chicago, Illinois 60601 DISTRIBUTOR Quasar Distributors, LLC 615 East Michigan Street Milwaukee, Wisconsin 53202 (HENNESSY FUNDS LOGO) FORMULAS FOR SMART INVESTING WWW.HENNESSYFUNDS.COM This report has been prepared for shareholders and may be distributed to others only if preceded or accompanied by a current prospectus. ITEM 2. CODE OF ETHICS. - ----------------------- The registrant has adopted a code of ethics that applies to the registrant's principal executive officer and principal financial officer. The registrant has not made any amendments to its code of ethics during the period covered by this report. The registrant has not granted any waivers from any provisions of the code of ethics during the period covered by this report. A copy of the registrant's Code of Ethics is filed herewith. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. - ----------------------------------------- The registrant's board of directors has determined that it does not have an audit committee financial expert serving on its audit committee. At this time, the registrant believes that the experience provided by each member of the audit committee together offers the registrant adequate oversight for the registrant's level of financial complexity. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. - ----------------------------------------------- The registrant has engaged its principal accountant to perform audit services, audit-related services, tax services and other services during the past two fiscal years. "Audit services" refer to performing an audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years. "Audit-related services" refer to the assurance and related services by the principal accountant that are reasonably related to the performance of the audit. "Tax services" refer to professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning. The following table details the aggregate fees billed or expected to be billed for each of the last two fiscal years for audit fees, audit-related fees, tax fees and other fees by the principal accountant. FYE 10/31/2005 FYE 10/31/2004 --------------- ---------------- Audit Fees $27,500 $21,600 Audit-Related Fees Tax Fees 7,250 3,000 All Other Fees The audit committee has adopted pre-approval policies and procedures that require the audit committee to pre-approve all audit and non-audit services of the registrant, including services provided to any entity affiliated with the registrant. All of the principal accountant's hours spent on auditing the registrant's financial statements were attributed to work performed by full-time permanent employees of the principal accountant. (If more than 50 percent of the accountant's hours were spent to audit the registrant's financial statements for the most recent fiscal year, state how many hours were attributed to work performed by persons other than the principal accountant's full-time, permanent employees.) The following table indicates the non-audit fees billed or expected to be billed by the registrant's accountant for services to the registrant and to the registrant's investment adviser (and any other controlling entity, etc.--not sub-adviser) for the last two years. The audit committee of the board of trustees/directors has considered whether the provision of non-audit services that were rendered to the registrant's investment adviser is compatible with maintaining the principal accountant's independence and has concluded that the provision of such non-audit services by the accountant has not compromised the accountant's independence. Non-Audit Related Fees FYE 10/31/2005 FYE 10/31/2004 - ---------------------- --------------- --------------- Registrant Registrant's Investment Adviser ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. - ---------------------------------------------- Not applicable to open-end investment companies. ITEM 6. SCHEDULE OF INVESTMENTS. - -------------------------------- Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this Form. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END - ------------------------------------------------------------------------- MANAGEMENT INVESTMENT COMPANIES. - -------------------------------- Not applicable to open-end investment companies. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. - ------------------------------------------------------------------------- Not applicable to open-end investment companies. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT - --------------------------------------------------------------------------- COMPANY AND AFFILIATED PURCHASES. - --------------------------------- Not applicable to open-end investment companies. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. - ------------------------------------------------------------ Not Applicable. ITEM 11. CONTROLS AND PROCEDURES. - --------------------------------- (a) The Registrant's President/Chief Executive Officer and Treasurer/Chief Financial Officer have reviewed the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the "Act")) as of a date within 90 days of the filing of this report, as required by Rule 30a-3(b) under the Act and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934. Based on their review, such officers have concluded that the disclosure controls and procedures are effective in ensuring that information required to be disclosed in this report is appropriately recorded, processed, summarized and reported and made known to them by others within the Registrant and by the Registrant's service provider. (b) There were no significant changes in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting. ITEM 12. EXHIBITS. - ----------------- (a) (1) Any code of ethics or amendment thereto, that is subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy Item 2 requirements through filing an exhibit. Filed herewith. (2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith. (3) Any written solicitation to purchase securities under Rule 23c-1 under the Act sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. Not applicable to open-end investment companies. (b) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) The Hennessy Funds, Inc. ----------------------- By (Signature and Title)* /s/Neil J. Hennessy --------------------------- Neil J. Hennessy, President Date January 9, 2006 --------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title)* /s/Neil J. Hennessy --------------------------- Neil J. Hennessy, President Date January 9, 2006 --------------- By (Signature and Title)* /s/Theresa M. Nilsen --------------------------- Teresa M. Nilsen, Treasurer Date January 9, 2006 --------------- EX-99.CODE ETH 2 thfi_hmf-ex99codeeth.txt EX.99.CODE ETH THE HENNESSY FUNDS, INC., THE HENNESSY MUTUAL FUNDS, INC., THE HENNESSY FUNDS TRUST and HENNESSY ADVISORS, INC. CODE OF ETHICS Amended effective as of JULY 1, 2005 I. INTRODUCTION ------------ The Hennessy Funds, Inc., The Hennessy Mutual Funds, Inc., The Hennessy Funds Trust ("The Funds"), and Hennessy Advisors, Inc. ("Adviser") expect all of their directors, officers and employees to maintain high ethical standards of conduct and to comply with applicable laws and governmental regulations. II. DEFINITIONS ----------- A. "Access person" means any director, officer or advisory person of the Fund or of the Adviser. B. "Act" means the Investment Company Act of 1940, as amended. C. "Adviser" means Hennessy Advisors, Inc. ------------- D. "Advisory person" means: (i) any employee of the Fund or the Adviser or of any company in a control relationship to the Fund or Adviser, who, in connection with his or her regular functions or duties, makes, participates in, or obtains information regarding the purchase or sale of Covered Securities by the Fund, or whose functions relate to the making of any recommendations with respect to such purchases or sales; and (ii) any natural person in a control relationship to the Fund or Adviser who obtains information concerning recommendations made to the Fund with regard to the purchase or sale of Covered Securities by the Fund. E. A Covered Security is "being considered for purchase or sale" when a recommendation to purchase or sell the Covered Security has been made and communicated and, with respect to the person making the recommendation, when such person seriously considers making such a recommendation. F. "Beneficial ownership" shall be interpreted in the same manner as it would be under Rule 16a-1(a)(2) under the Securities Exchange Act of 1934 in determining whether a person is the beneficial owner of a security for purposes as such Act and the rules and regulations promulgated thereunder. G. "CCO" means Chief Compliance Officer per rule 38a-1 of the Investment Company Act and rule 206(4)-7 of the Investment Advisers Act both of 1940. H. "Conflict of Interest": for the purposes of this Code of Ethics, a "conflict of interest" will be deemed to be present when an individual's private interest interferes in anyway, or even appears to interfere, with the interests of The Funds as a whole. I. "Control" has the same meaning as that set forth in Section 2(a)(9) of the Act. J. "Covered Security" means a security as defined in Section 2(a)(36) of the Act, except that it does not include: (a) Direct obligations of the Government of the United States; (b) Bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements; and (c) Shares issued by open-end registered investment companies. K. "Disinterested director" means a director of the Fund who is not an "interested person" of the Fund within the meaning of Section 2(a)(19) of the Act and the rules and regulations promulgated thereunder. L. "The Funds" or "Fund" means The Hennessy Funds, Inc. or any series of The Hennessy Funds, Inc. and/or Hennessy Mutual Funds, Inc. or any series of Hennessy Mutual Funds, Inc. and/or The Hennessy Funds Trust or any series of the Hennessy Funds Trust. M. "Initial Public Offering" means an offering of securities registered under the Securities Act of 1933, the issuer of which, immediately before the registration, was not subject to the reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934. N. "Investment personnel" means: (i) any employee of the Fund or the Adviser or of any company in a control relationship to the Fund or Adviser who, in connection with his or her regular functions or duties, makes or participates in making recommendations regarding the purchase or sale of securities by the Fund; and (ii) any natural person who controls the Fund or Adviser and who obtains information concerning recommendations made to the Fund regarding the purchase or sale of securities by the Fund. O. A "Limited Offering" means an offering that is exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) or Section 4(6) thereof or pursuant to Rule 504, Rule 505 or Rule 506 thereunder. P. "Purchase or sale of a Covered Security" includes, among other things, the writing of an option to purchase or sell a Covered Security. Q. "Reportable Security" means shares of the Funds and Covered Securities. III. GENERAL STANDARDS ----------------- The Funds and the Adviser hold their directors, officers, and employees accountable for adhering to and advocating the following standards to the best of their knowledge and ability: A. Always act in an honest and ethical manner, including in connection with, and the handling and avoidance of, actual or apparent conflicts of interest between personal and professional relationships; B. Fully comply with all applicable laws, rules and regulations of federal, state and local governments (both United States and foreign) and other applicable regulatory agencies (collectively, the "Laws"); C. Proactively promote full, fair, accurate, timely and understandable disclosure in reports and documents that The Funds and Adviser file with, or submit to, the Securities and Exchange Commission (the "SEC") and in other public communications The Funds or Adviser make; and D. Proactively promote ethical and honest behavior with The Funds and the Adviser, including, without limitation, the prompt reporting of violations of, and being accountable for adherence to, this Code of Ethics. IV. SPECIFIC DUTIES AND RESPONSIBILITIES ------------------------------------ In adhering to and advocating the standards set forth above; each director, officer and employee shall fulfill the following duties and responsibilities to the best of their knowledge and ability: A. They shall handle all conflicts of interest between personal and professional relationships in an ethical and honest manner, and shall disclose in advance to the Chief Compliance Officer ("CCO") the relevant details of any transaction or relationship that reasonably could be expected to give rise to an actual or apparent conflict of interest between themselves and The Funds. The CCO shall, as appropriate, discuss such disclosures with The Funds' and/or the Adviser's board of directors which board shall thereafter take such action with respect to the conflict of interest as it shall deem appropriate. It is the general policy of The Funds and the Adviser that conflicts of interest should be avoided whenever practicable. B. They shall use their best efforts to ensure the timely and understandable disclosure of information that, in all material respects, is accurate, complete, objective and relevant in all reports and documents The Funds and/or the Adviser file with, or submits to, the SEC or in any other public communications that The Funds or the Adviser make. C. They shall use their best efforts to ensure their, The Funds', and the Adviser's compliance in all material respects with all applicable laws. D. They shall respect the confidentiality of information acquired in the course of their work and shall not disclose such information, except when they believe they are authorized or legally obliged to disclose the information. They may not use confidential information acquired in the course of their work for their personal advantage. E. They shall not take or direct or allow any other person to take or direct any action to fraudulently influence, coerce, manipulate or mislead The Funds' or the Adviser's independent auditing firm. F. They may not engage The Funds' or the Adviser's auditing firms to perform audit or non-audit services without the prior approval of The Funds' and/or the Adviser's board of directors, or The Funds' or Adviser's audit committee or designee's. G. The independent directors of Hennessy Advisors, Inc. shall not have access to, and shall not seek from any employee of the Adviser, any of the portfolio rebalancing information related to any of the mutual funds managed by Hennessy Advisors, Inc. until such time as the rebalancing of such funds has been entirely concluded except that certain limited access to such information may be granted with permission, in advance, from the Chief Compliance Officer. V. REPORTING VIOLATIONS -------------------- A. If any person believes that a director, officer or employee has violated this Code of Ethics; or if The Funds or the Adviser has or is about to violate a Law; or if a director, officer or employee believe that he or she is being asked to violate this Code of Ethics or any Law in the performance of his or her duties for The Funds or the Adviser: then the matter should be promptly reported to The Funds' and the Adviser's CCO and/or to the Audit Committee of the Adviser's board of directors. The CCO and/or the Audit Committee will take appropriate steps to maintain the confidentiality of the reporting person's identity, to the extend consistent with The Funds' and the Adviser's obligations to investigate and remedy the matter and, if appropriate, to report the matter to government officials. Persons may report violations of the Code of Ethics on an anonymous basis. No retribution will be taken against a person for reporting, in good faith, a violation or suspected violation of this Code of Ethics. VI. APPROVAL OF THE CODE OF ETHICS ------------------------------ A. The Board of Directors of The Funds, including a majority of the Disinterested directors, and the Board of Directors of the Adviser shall approve this Code of Ethics and any material changes thereto. Prior to approving this Code of Ethics and any material changes thereto, they must determine that this Code of Ethics contains provisions reasonably necessary to prevent access persons from violating Rule 17j-1(b) of the Act. B. No less frequently than annually, the CCO of The Funds and the CCO of the Adviser shall furnish a report to the Boards of Directors of the Funds and the Adviser: 1. Describing issues arising under the Code of Ethics since the last ----------------------------------------------------------------- report to the Board of Directors, including, but not limited to, ----------------------------------------------------------------- information about material violations of the Code of Ethics and ----------------------------------------------------------------- sanctions imposed in response to such material violations. Such ----------------------------------------------------------------- report shall also include a list of access persons under the Code ----------------------------------------------------------------- of Ethics. ---------- 2. Certifying that The Funds and Adviser have adopted such ----------------------------------------------------------------- procedures as are reasonably necessary to prevent access persons ----------------------------------------------------------------- from violating the Code of Ethics. ---------------------------------- C. This Code of Ethics, the approvals required by Sections VI.A. and VI.B.(2), and the reports required by Section VI.B. shall be maintained by the Fund's Administrator and by The Funds' and Adviser's CCO. The reports required by Section V shall be maintained by The Funds' CCO. D. This Code of Ethics may not be waived or amended except by the approval of both the board of directors of The Funds and the Audit Committee of the board of directors of the Adviser. VII. INTERPRETATION AND ENFORCEMENT ------------------------------ A. This is a combined Code of Ethics for both The Funds and the Adviser. The Audit Committee of the Adviser's board of directors is responsible for overseeing the interpretation and enforcement of this Code of Ethics in all matters related to Hennessy Advisor's Inc. The board of directors of The Funds is responsible for overseeing the interpretation and enforcement of this Code of Ethics in all matters related to The Hennessy Mutual Funds, Inc., The Hennessy Funds, Inc., and The Hennessy Funds Trust. In all matters related to The Funds, the Funds' board of directors shall over-ride the Audit Committee of and the board of directors of Hennessy Advisors, Inc. When either party considers any matter related to this Code of Ethics, it shall act in executive session. B. Each director, officer and employee will be held accountable for his or her adherence to this Code of Ethics by their respective boards of directors. Directors, officers and employees failing to adhere to this Code of Ethics will be subject to appropriate disciplinary action, ranging from warnings to possible termination or removal. VIII. EXEMPTED TRANSACTIONS --------------------- The prohibitions of Section IX of this Code of Ethics shall not apply to: (a) Purchases or sales effected in any account over which the access person has no direct or indirect influence or control. (b) Purchases or sales of Covered Securities which are not eligible for purchase or sale by any Fund; provided, however, that the prohibitions of Section IV.B of this Code of Ethics shall apply to such purchases and sales. (c) Purchases or sales which are non-volitional on the part of either the access person or the Fund. (d) Purchases which are part of an automatic dividend reinvestment plan. (e) Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to -------- the extent such rights were acquired from such issuer, and sales of such rights so acquired. (f) Purchases or sales of common stock of issuers in the Dow Jones Industrial Average provided that the number of shares purchased or sold of any one such issuer on any day does not exceed 5,000 shares and purchases or sales of common stock of issuers of publicly traded stocks not in the Dow Jones Industrial Average provided that the number of shares purchased or sold of any one such issuer on any day does not exceed 500 shares. (g) Purchases or sales which receive the prior approval of the Board of Directors of the Fund because they are only remotely potentially harmful to the Fund because they would be very unlikely to affect a highly institutional market, or because they clearly are not related economically to the securities to be purchased, sold or held by the Fund. IX. PROHIBITED PURCHASES AND SALES ------------------------------ A. Except in a transaction exempted by Section VII of this Code, no access person shall purchase or sell, directly or indirectly, any Covered Security in which he has, or by reason of such transaction acquires, any direct or indirect beneficial ownership and which to his actual knowledge at the time of such purchase or sale is being considered for purchase or sale by the Fund or is being purchased or sold by the Fund. B. Except in a transaction exempted by Section VII of this Code of Ethics, Investment Personnel (other than the Fund's CCO) must obtain approval from the Fund's CCO before directly or indirectly acquiring beneficial ownership in any securities in an Initial Public Offering or in a Limited Offering. The Fund's CCO must obtain approval from a majority of the Disinterested directors before directly or indirectly acquiring beneficial ownership in any securities in an Initial Public Offering or in a Limited Offering. Prior approval shall not be given if the Fund's CCO or the Disinterested directors, as applicable, believe(s) that the investment opportunity should be reserved for the Fund or is being offered to the individual by reason of his or her position with the Fund. C. Except in a transaction exempted by Section VII of this Code of Ethics, no access person shall purchase or sell, directly or indirectly, any security in which he has, or by reason of such transaction acquires, any direct or indirect beneficial ownership on a day during which the Fund has a pending "buy" or "sell" order in the same security until that order is executed or withdrawn. Notwithstanding the foregoing, Disinterested directors are not subject to this prohibition unless he or she knows or should have known at the time of such purchase or sale that the Fund has such a pending "buy" or "sell" order in the same security. D. Investment Personnel shall not receive any gift or other thing of more than de minimis value from any person or entity that does business with or on behalf of the Fund. The annual receipt of gifts from the same source valued at $100 or less shall be considered de minimis. Additionally, the receipt of an occasional dinner, a ticket to a sporting event or the theater, or comparable entertainment also shall be considered to be of de minimis value. E. Except for service which began prior to March 2, 1996, Investment Personnel shall not serve on the board of directors of publicly traded companies absent prior authorization of the Board of Directors of the Fund. The Board of Directors of the Fund may so authorize such board service only if it determines that such board service is consistent with the interests of the Fund and its shareholders. X. REPORTING AND COMPLIANCE PROCEDURES ----------------------------------- A. Except as provided in Section X.B. of this Code of Ethics, every access person shall report to the Fund the information described in Section X.C., Section V.D. and Section V.E. of this Code of Ethics. All reports shall be filed with the Fund's President or designee. B. Disinterested directors of the Fund and the Adviser need not make a report pursuant to Section X.C. and X.E. of this Code of Ethics and need only report a transaction in a Reportable Security pursuant to Section X.D. of this Code of Ethics if such Disinterested director, at the time of such transaction, knew or, in the ordinary course of fulfilling his official duties as a director of the Fund, should have known that, during the 15-day period immediately preceding the date of the transaction by the director, such Reportable Security was purchased or sold by the Fund or was being considered by the Fund or the Adviser for purchase or sale by the Fund. 1. An access person need not make a report with respect to ----------------------------------------------------------------- transactions effected for, and Reportable Securities held in, any ----------------------------------------------------------------- account over which the person has no direct or indirect influence ----------------------------------------------------------------- or control. ----------- 2. An access person need not make a quarterly transaction report ----------------------------------------------------------------- pursuant to Section X.D. of this Code of Ethics if the report ----------------------------------------------------------------- would duplicate information contained in broker trade ----------------------------------------------------------------- confirmations or account statements received by the Fund's ----------------------------------------------------------------- President or designee with respect to the access person in the ----------------------------------------------------------------- time period required by Section X.D., provided that all of the ----------------------------------------------------------------- information required by Section X.D. is contained in the broker ----------------------------------------------------------------- trade confirmations or account statements or in the records of ----------------------------------------------------------------- the Fund. All Investment Personnel shall direct their brokers to ----------------------------------------------------------------- supply to the Fund's President or designee, on a timely basis, ----------------------------------------------------------------- duplicate copies of confirmations of all personal securities ----------------------------------------------------------------- transactions and copies of all account statements for all ----------------------------------------------------------------- securities accounts. -------------------- C. Every access person shall, no later than ten (10) days after the person becomes an access person, file an initial holdings report containing the following information: 1. The title, number of shares and principal amount of each ----------------------------------------------------------------- Reportable Security in which the access person had any direct or ----------------------------------------------------------------- indirect beneficial ownership when the person becomes an access ----------------------------------------------------------------- person; 2. The name of any broker, dealer or bank with whom the access ----------------------------------------------------------------- person maintained an account in which any securities were held ----------------------------------------------------------------- for the direct or indirect benefit of the access person; and ------------------------------------------------------------ 3. The date that the report is submitted by the access person. ----------------------------------------------------------- D. Every access person shall, no later than ten (10) days after the end of a calendar quarter, file a quarterly transaction report containing the following information: 1. With respect to any transaction during the quarter in a ----------------------------------------------------------------- Reportable Security in which the access person had any direct or ----------------------------------------------------------------- indirect beneficial ownership: ------------------------------ (a) The date of the transaction, the title and the number of shares, and the principal amount of each security involved; (b) The nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition); (c) The price of the Reportable Security at which the transaction was effected; (d) The name of the broker, dealer or bank with or through whom the transaction was effected; and (e) The date that the report is submitted by the access person. 2. With respect to any account established by the access person in ----------------------------------------------------------------- which any securities were held during the quarter for the direct ----------------------------------------------------------------- or indirect benefit of the access person: ----------------------------------------- (a) The name of the broker, dealer or bank with whom the access person established the account; (b) The date the account was established; and (c) The date that the report is submitted by the access person. E. Every access person shall, no later than January 30 each year, file an annual holdings report containing the following information as of the preceding December 31: 1. The title, number of shares and principal amount of each ----------------------------------------------------------------- Reportable Security in which the access person had any direct or ----------------------------------------------------------------- indirect beneficial ownership; ------------------------------ 2. The name of any broker, dealer or bank with whom the access ----------------------------------------------------------------- person maintains an account in which any securities are held for ----------------------------------------------------------------- the direct or indirect benefit of the access person; and -------------------------------------------------------- 3. The date that the report is submitted by the access person. ----------------------------------------------------------- F. Any report filed pursuant to Section X.C., Section X.D. or Section X.E. of this Code of Ethics may contain a statement that the report shall not be construed as an admission by the person making such report that he has any direct or indirect beneficial ownership in the security to which the report relates. G. The Funds' and the Adviser's CCO or designee shall review all reports filed pursuant to Section X.C., Section X.D. or Section X.E. of this Code of Ethics. The Funds' CCO and the Adviser's CCO or designee shall identify all access persons who are required to file reports pursuant to this Section X of this Code of Ethics and must inform such access persons of their reporting obligation. H. Each year the CCO shall provide all directors, officers, employees and access persons with a copy of this Code of Ethics. Each year each of them shall certify to The Funds and to the Adviser that (i) they have read and understand this Code of Ethics and recognize that they are subject thereto, and (ii) they have complied with the requirements of this Code of Ethics and that they have disclosed or reported all personal securities transactions required to be disclosed or reported pursuant to the requirements of this Code of Ethics. I. Compliance with this Code of Ethics does not relieve access persons of their obligations under any other code of ethics. EX-99.CERT 3 thfi-ex99cert302.txt EX.99.CERT CERTIFICATIONS -------------- I, Neil J. Hennessy, certify that: 1. I have reviewed this report on Form N-CSR of The Hennessy Funds, Inc; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: January 9, 2006 /s/Neil J. Hennessy --------------- ---------------------------- Neil J. Hennessy President EX.99.CERT CERTIFICATIONS -------------- I, Teresa M. Nilsen, certify that: 1. I have reviewed this report on Form N-CSR of The Hennessy Funds, Inc; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: January 9, 2006 /s/Theresa M. Nilsen --------------- -------------------------- Teresa M. Nilsen Treasurer EX-99.906 CERT 4 thfi-ex99cert906.txt EX.99.906CERT CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT --------------------------------------------------------------- Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of The Hennessy Funds, Inc., does hereby certify, to such officer's knowledge, that the report on Form N-CSR of The Hennessy Funds, Inc. for the year ended October 31, 2005 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as applicable, and that the information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of The Hennessy Funds, Inc. for the stated period. /s/Neil J. Hennessy /s/Theresa M. Nilsen - ----------------------------------- ----------------------------------- Neil J. Hennessy Teresa M. Nilsen President, The Hennessy Funds, Inc. Treasurer, The Hennessy Funds, Inc. Dated: January 9, 2006 Dated: January 9, 2006 ---------------------------- ----------------------------- This statement accompanies this report on Form N-CSR pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed as filed by The Hennessy Funds, Inc. for purposes of the Securities Exchange Act of 1934. -----END PRIVACY-ENHANCED MESSAGE-----