Certified Annual Shareholder Report for Management Investment Companies (n-csr)




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 (811-07168)



Hennessy Funds Trust
(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
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, 2012



Date of reporting period:   October 31, 2012


 
 
 
 

Item 1. Reports to Stockholders.
 

 
HENNESSY FUNDS

ANNUAL REPORT

OCTOBER 31, 2012



Hennessy Focus Fund
 
Hennessy Gas Utility Index Fund
 
Hennessy Small Cap Financial Fund
 
Hennessy Large Cap Financial Fund
 
Hennessy Technology Fund
 
Hennessy Equity and Income Fund
 
Hennessy Core Bond Fund

 
 


 
 
 
 

Contents
 
 
Letter to shareholders
1
Performance overview (unaudited)
 
Hennessy Focus Fund
3
Hennessy Gas Utility Index Fund
6
Hennessy Small Cap Financial Fund
8
Hennessy Large Cap Financial Fund
10
Hennessy Technology Fund
12
Hennessy Equity and Income Fund
14
Hennessy Core Bond Fund
18
Financial statements
 
Schedules of investments
 
Hennessy Focus Fund
22
Hennessy Gas Utility Index Fund
25
Hennessy Small Cap Financial Fund
28
Hennessy Large Cap Financial Fund
31
Hennessy Technology Fund
34
Hennessy Equity and Income Fund
37
Hennessy Core Bond Fund
43
Statements of assets and liabilities
48
Statements of operations
50
Statements of changes in net assets
52
Financial highlights
 
Hennessy Focus Fund
56
Hennessy Gas Utility Index Fund
58
Hennessy Small Cap Financial Fund
60
Hennessy Large Cap Financial Fund
62
Hennessy Technology Fund
64
Hennessy Equity and Income Fund
66
Hennessy Core Bond Fund
68
Notes to the financial statements
70
Report of Independent Registered Public Accounting Firm
80
Directors/Trustees and Officers of the Funds
81
Expense example
83
Proxy voting policy
85
Quarterly Filings on Form N-Q
85
Federal Tax Distribution Information
85
Householding
85
Board Approval of Investment Advisory Agreements
86
Privacy Policy
87






WWW.HENNESSYFUNDS.COM
 
 
 
 
December, 2012
 
Dear Hennessy Funds Shareholder:
 

The past year has been jam-packed with politics, continued economic uncertainty in the United States and around the world, and most recently, non-stop talk of the possible effects of the looming “Fiscal Cliff.”
 
Since the economic crisis of 2008, most Americans seem to have taken a “glass half empty” view and now seem to expect doom and gloom.  Talking about the decline of America has become a popular pastime around the world, and even Americans are jumping into the discussion. In fact, it feels like the United States has become an “underdog,” while China and other emerging nations are coined as the new world economic leaders.  But the reality is that the U.S. remains the world’s largest economy, and the stock market has continued to perform well.  Following the crisis in 2008, the Dow Jones Industrial Average was up 23% in 2009, up 14% in 2010, and up 8% in 2011. I believe, however, that many Americans, including individuals, business leaders, and political leaders, have remained resilient and continue to exhibit the stamina to work hard and the character to succeed.
 
I am not saying that our economy isn’t without issues.  But, I believe investors may be missing some key facts about our economy, and those facts transcend the rhetoric.  In last year’s shareholder letter, I told you that the major obstacle facing the U.S. economy and the stock market was clarity from our leaders in Washington on taxes, regulation and healthcare.  With the elections behind us, we have the clarity that President Obama will be our leader for another four years.  We know that the Democrats have the majority in the Senate and the Republicans have the majority in the House.  But where does that leave our economy, the financial markets and investors?
 
Post-Election Economy
 
The moment the last ballot was cast in November, the media began its talk of the “Fiscal Cliff.”  The dramatic use of the word “Cliff” is making everyone nervous.  I keep picturing the old Road Runner cartoons with the Coyote plummeting off a cliff and landing in a cloud of dust. It is my somewhat controversial opinion that we should drive right off the Fiscal Cliff and force our policy makers to get things “right” and not compromise for the sake of a compromise. I strongly believe that if we fall off the “Cliff,” in six months’ time our leaders would have to work together to create better policies, rather than trying to force quick fixes on these issues critical to our economy and our nation.
 
The election, the Fiscal Cliff and slow earnings growth may be eroding the confidence of our business leaders, who have cut costs and driven profits. However, companies here in the U.S. are still sitting on record amounts of cash.  Businesses require faith in their government to execute strategies that will put that capital to work and to hire in earnest.  Now that there is some clarity, it must, in my opinion, be coupled with actionable policy on taxes and regulation for corporate attitudes and behavior to shift.  Corporate America, and frankly most of America, is losing its tolerance with polarized and stagnant politics.
 
For better or worse, business leaders need to know what regulations they’ll have to comply with, what tax rates will be and what healthcare will cost.  The writing is on the wall for higher taxes, and the Healthcare Reform Law appears to be here to stay.  The current administration seems to feel that they have a “green light” to push the 200 regulations related to Dodd-Frank and the numerous policies outlined in the Healthcare Reform Law into practice in the next four years.  I know that innovative business leaders in this country will implement new strategies as they seek to remain profitable, because that’s what they do. Many of America’s business leaders have shown that they have the character to succeed in any political or economic climate.
 
Financial Markets
 
The stock market will be forced to wade through this murky economy as we continue to navigate the partisan political quagmire. Many companies comprising the Dow Jones Industrial Average Index or the S&P 500 have strong balance sheets, respectable fundamentals and reasonable returns.  When our fiscal year ended on October 31, 2012, the Dow Jones was going strong at 9.51% calendar year to date.  Of course, after the election, the market “rioted” in order to force some decisions on the Fiscal Cliff.  In fact, in the ten days after the election, we saw the Dow lose 4%.  But in the long term, I believe the strengths of the economy should filter through to the markets.  We are in the midst of a slow but steady recovery that won’t easily be derailed.  I am, therefore, expecting another year with slow to moderate growth. There are still plenty of great stocks to buy. We are seeing improvement in many sectors, including the housing industry, and we still see strength in lower-end retailers.
 
Investors
 
Investors are still uncertain about putting their cash to work in the stock market, and they continue to flock to fixed income products.  Like business leaders, I believe that investors feel the same frustration with partisanship in Washington, and they need more answers in order to believe in the economic recovery. The strength I have seen in many of the lower-end retailers tells me that investors and consumers are still looking for value for their dollar. Many industry statistics report
 

HENNESSY FUNDS                                                                                                           1-800-966-4354
 
1
 

that Americans have been paying down their debt and saving more, even with interest rates at all-time lows.  And, I believe, the average investor could be experiencing some long-awaited comfort in the slow return of the housing market in our country.
 

 
While fiscal 2012 proved another difficult year for the economy, at Hennessy Funds we remain focused on our proven investment strategies, and we will not compromise our long-standing commitment to manage our portfolios in the best interest of our shareholders.  As investors regain their confidence and return to investing based on facts and fundamentals, I believe we should return to steady, long-term market gains.
 
On October 26, 2012, Hennessy became the investment manager to the ten FBR Funds.  We want to welcome new shareholders to the Hennessy family of Funds. We are excited to now offer all of our shareholders an expanded line-up of products, including 16 domestic equity, sector and specialty, as well as more conservative balanced and fixed income mutual funds.
 
I personally would like to take a moment to reach out to the victims of Hurricane Sandy and Sandy Hook Elementary School.  No words can express the sorrow we feel for the families who lost loved ones.
 
Thank you for your continued confidence and investment in the Hennessy Funds.  If you have any questions or want to speak with us directly, please don’t hesitate to call us at (800) 966-4354.
 
Best regards,
 

 
Neil J. Hennessy
President and Chief Investment Officer
 
 
Past performance does not guarantee future results.
 
Mutual fund investing involves risk. Principal loss is possible. Small and medium-capitalization companies tend to have more limited liquidity and greater price volatility than large-capitalization companies. Investments in foreign securities may involve greater volatility and political, economic and currency risk and differences in accounting methods. A non-diversified fund, one that may concentrate its assets in fewer individual holdings than a diversified fund, is more exposed to individual stock volatility than a diversified fund. A fund that concentrates its investments within one or a small group of industries may be more volatile than a fund that invests in a broader range of industries. Real estate values (and the values of real estate-related securities) fluctuate with changes in general and local economic conditions and are particularly sensitive to economic downturns. IPO shares are subject to market risk and liquidity risk. The yields and principal values of debt securities will also fluctuate. Generally, values of debt securities change inversely with interest rates. Some Funds may invest a portion of its assets in lower rated, high-yielding bonds (commonly known as “junk bonds”). Mortgage- and asset-backed securities are subject to prepayment risk, which is the risk that the borrower will prepay some or all of the principal owed to the issuer.
 
Opinions expressed are those of Neil Hennessy and are subject to change, are not guaranteed and should not be considered investment advice.
 
The Dow Jones Industrial Average and S&P 500 are unmanaged indices of common stocks comprised of major companies and assumes reinvestment of dividends.  You cannot invest directly in an index.

WWW.HENNESSYFUNDS.COM
 
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Performance Overview (Unaudited)
 

The opinions expressed in the following commentaries reflect those of the Portfolio Managers as of the date written. Any such opinions are subject to change based on market or other conditions. These opinions may not be relied upon as investment advice. Investment decisions for the Hennessy Funds are based on several factors, and may not be relied upon as an indication of trading intent on behalf of any Hennessy Fund. Security positions can and do change.
 
Hennessy Focus Fund (formerly FBR Focus Fund)
Investor Class Shares (HFCSX)
 
AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2012
 
 
One Year
Five Year
Ten Year
Hennessy Focus Fund – Investor Class
16.17%
4.15%
13.28%
Russell 2000 Index
12.08%
1.19%
  9.58%
Russell Midcap Growth Index
  9.09%
1.55%
10.03%
 
Gross expense ratio: 1.39%.
 
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. Performance for periods prior to 10/26/12 is that of the FBR Focus Fund. The gross expense ratio presented is that from the most recent prospectus.
 
 
PERFORMANCE NARRATIVE
 
Portfolio Managers: Brian Macauley, CFA ® , David Rainey, CFA ® , and Ira Rothberg, CFA ® , of Broad Run Investment Management, LLC, sub-advisor.
 
Over the previous twelve months, how did the Fund perform and what factors contributed to this performance?
 
For the twelve-month period ended October 31, 2012, the Investor Class of the Hennessy Focus Fund returned 16.17% compared to 12.08% for the Russell 2000 Index, 9.09% for the Russell Midcap Growth Index and 7.71% for the Morningstar Mid Cap Growth Category.
 
The Fund’s favorable absolute and relative returns were a result of improved business prospects for its largest holdings, owing to a better overall economic outlook and company-specific developments. Major contributors to performance during the period included American Tower Corp., Bally Technologies, Inc. and News Corp.
 
•
American Tower completed its conversion to a REIT structure in early 2012, which improved its tax efficiency, and the business continued to benefit from growing U.S. and international demand for improved wireless voice and data service.
 
•
Bally Technologies continued to outpace its competitors with its strong gaming systems business, popular new product innovations and expansion into previously underpenetrated market segments.
 
•
News Corp. continued to benefit from strong pricing power in its cable and broadcast channels, international expansion in emerging television markets and an aggressive share repurchase program.
 
There were no negative contributors this year - each of the Fund’s 23 portfolio companies contributed positively to performance.
 
We invest with a long-term time horizon and encourage Fund shareholders to do the same. Despite the discussion of one-year results referenced above, we encourage fellow shareholders to evaluate the Fund’s performance over three-, five-, and ten-year periods.
 
Portfolio managers’ comments on the Fund and the related investment outlook.
 
It is our belief that the three characteristics that best predict a company’s ability to create value over a five- to ten-year time frame are a high quality business, a large growth opportunity and skilled management.
 
As we reflect on the Fund’s performance over the last year, we see several instances where management action created additional value for shareholders. Some examples include American Tower’s international expansion and REIT conversion, Aon PLC’s change in domicile to a lower tax jurisdiction, and White River Capital, Inc.’s large special dividend. But even more noteworthy is an event that occurred subsequent to the end of the Fund’s fiscal year end; Penn National Gaming, Inc.’s (PENN, 7.2% of total assets at 10/31/12) announcement of a corporate reorganization.
 
On November 15, 2012, PENN announced its intent to become the first gaming company to split its business into two separate publicly traded companies, a REIT focused on owning gaming properties, and a management company focused on operating and developing gaming properties. The stock rose more than 30% on this announcement. This novel transaction should provide significant tax savings and expanded appeal to income-oriented investors (with a corresponding higher valuation multiple). Other benefits include fewer regulatory license ownership restrictions and potential new avenues of growth for both of the entities. The transformation is expected to be completed in 12 to 18 months.

 
HENNESSY FUNDS                                                                                                           1-800-966-4354
 
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The Fund has been invested in PENN, alongside its remarkable CEO, Peter Carlino, for more than a decade. While the timing and details of this recent announcement were a surprise, it is no surprise to us that Peter has once again found a thoughtful and innovative way to create value for shareholders. Time after time, Peter has demonstrated this ability through savvy casino projects, share repurchases, acquisitions and corporate transactions. Peter’s record is not perfect, and there have been some disappointments along the way, but on balance he has been excellent. Across the public gaming companies, shareholder returns have been poor over the last decade, but PENN’s share price has compounded at more than an 18% per annum clip thanks to Peter’s leadership.
 
Occasionally, a great management team creates value through a large, high profile transaction like the recent PENN announcement, and sometimes it comes through more modest developments such as American Tower’s REIT conversion, Aon’s change in domicile, or White River’s special dividend. But most often the benefits of great management accrue incrementally and behind the scenes through better strategic positioning and more productive use of company cash flows. Over the course of one quarter or one year these small advantages have little discernible impact on stock price performance. However, over the course of five or ten years, the time horizon over which we invest, these small incremental advantages can accumulate into big differences in company and stock price performance.  Since inception, the Fund has had an average portfolio company holding period of approximately six years.
 
We find that many investors, because they have such short investment time horizon, do not place much emphasis on management quality. Other investors find assessing management so subjective that they don’t even try. This is welcome news to us because we believe this often allows us to invest with the best management team in an industry without having to pay a premium valuation to do so.
 
How do we identify the very best management teams? Well, the historical track record is one of the most obvious and best indicators of management capability. But we also look for three other indicators: 1) they have a strong economic incentive to create shareholder value because of a large share ownership and/or thoughtful compensation program; 2) they run the business to maximize long-term profits, even if this means sacrificing some short-term profitability; and 3) they are thoughtful and transparent about how they allocate the company’s cash flow across new projects, acquisitions, share repurchases and dividends. Peter Carlino of PENN measures up very well on these metrics, as do the CEOs and management teams of most of our portfolio companies.
 
Today, we think that the Fund is well positioned because we believe it contains a collection of high quality businesses with large growth opportunities, run by skilled management teams. These companies are trading at valuations that in our opinion should allow for a favorable rate of capital appreciation over the long term.
 
 
CHANGE IN VALUE OF $10,000 INVESTMENT
 

 

This chart assumes an initial gross investment of $10,000 made on October 31, 2002. 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.
 

WWW.HENNESSYFUNDS.COM
 
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Hennessy Focus Fund (formerly FBR Focus Fund)
Institutional Class Shares (HFCIX)
 
AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2012
 
     
Since Inception
 
One Year
Three Year
(05/30/08)
Hennessy Focus Fund – Institutional Class
16.51%
17.20%
7.61%
Russell 2000 Index
12.08%
14.82%
3.51%
Russell Midcap Growth Index
  9.09%
15.42%
2.61%
 
Gross expense ratio: 1.09%.
 
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. Performance for periods prior to 10/26/12 is that of the FBR Focus Fund. The gross expense ratio presented is that from the most recent prospectus.
 
 
CHANGE IN VALUE OF $250,000 INVESTMENT
 

 
*  Inception date

This chart assumes an initial gross investment of $250,000 (minimum investment) made on May 30, 2008 (inception date of share class). 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.
 
A non-diversified fund, one that may concentrate its assets in fewer holdings than a diversified fund, is more exposed to individual stock volatility than a diversified fund. The Fund invests in small and medium capitalized companies, which involves additional risks such as limited liquidity and greater volatility.
 
The Russell Midcap Growth and Russell 2000 are unmanaged indices commonly used to measure the performance of U.S. stocks. One cannot invest directly in an index.
 
References to specific securities should not be considered a recommendation to buy or sell any security. The Fund’s composition, holdings and sector allocations are shown as a percentage of the Fund’s total net assets and are subject to change. Please refer to the Schedule of Investments in this report.
 
Cash flow measures the cash generated by a business after paying all operating costs, interest expense and taxes.
 
Each Morningstar category average represents a universe of funds with similar investment objectives.  © 2012 Morningstar, Inc. All Rights Reserved. The information contained herein: 1) is proprietary to Morningstar; 2) may not be copied or distributed and 3) is not warranted to be accurate, complete or timely.  Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.  Past performance does not guarantee future results.

HENNESSY FUNDS                                                                                                           1-800-966-4354
 
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Hennessy Gas Utility Index Fund (formerly FBR Gas Utility Index Fund)
Investor Class Shares (GASFX)
 
AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2012
 
 
One Year
Five Year
Ten Year
Hennessy Gas Utility Index Fund – Investor Class
12.41%
6.09%
13.11%
S&P 500 Index
15.21%
0.36%
  6.91%
AGA Stock Index
11.45%
6.24%
13.28%
 
Gross expense ratio: 0.65%.
 
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. Performance for periods prior to 10/26/12 is that of the FBR Gas Utility Index Fund. The gross expense ratio presented is that from the most recent prospectus.
 
 
PERFORMANCE NARRATIVE
 
Portfolio Manager: Winsor H. Aylesworth
 
Over the previous twelve months, how did the Fund perform and what factors contributed to this performance?
 
For the twelve-month period ended October 31, 2012, the Hennessy Gas Utility Index Fund returned 12.41%. This compares to the S&P 500 Index, the American Gas Association (AGA) Stock Index and the Morningstar Utilities Category Average, which returned 15.21%, 11.45% and 10.87% for the same period, respectively. The Fund finished its fiscal year slightly outperforming its benchmark and other utility indices while underperforming the S&P 500 Index. The investment environment for this twelve-month period was one where investors assumed slightly more risk than in the previous year and more conservative investments such as bonds, REITs and utility stocks reverted to more normalized returns. Our natural gas distribution orientation continued to reward the investor as ample natural gas supplies continued to provide opportunities for growth in distribution.
 
When the Fund outperforms its AGA Stock Index benchmark, we like to reassure and warn investors that this is the exception and not the rule. As an index fund, it is managed to provide investors the benchmark return LESS expenses. The fact that the Fund exceeded the benchmark is not a result of stock selection or some exotic strategy. It is simply a result of “managing the process” and the movement of the market as one buys or sells investments. I would not expect this outperformance to continue and there could, in fact, be some times when the Fund will underperform more than it should due to the randomness of the process. But for the time being I, as a fellow investor, am thankful for the outperformance.
 
Two of the Fund’s best performers for the year were Cheniere Energy, Inc. (+40%) and The Williams Companies, Inc. (+47%). Cheniere’s business focuses on the liquid natural gas market. They are currently developing export facilities on the Gulf Coast in addition to their import facilities to take advantage of large discrepancies in worldwide natural gas prices. Williams Companies owns one of the largest collections of interstate gas pipelines in the U.S. They have been and should continue to be a beneficiary of the increased demand for this available, clean and relatively inexpensive fuel. One of the Fund’s worst performers was Excelon Corp. (-15%). This diversified utility has exposure to coal and nuclear fueled electric generation along with its gas distribution business. The Coal and Nuclear industries have not been beneficiaries of the natural gas revolution.
 
Portfolio manager comments on the Fund and the related investment outlook:
 
We believe the outlook for the future for the Fund’s companies appears positive as the nation enters its post-election period. With the U.S. emphasis on natural gas and the nation’s recognition that natural gas will be key to any energy policy going forward, the Fund should be positioned to take advantage of these trends. If wholesale prices stay at or near historic lows (below $5.00 per BTU), growth in demand should occur naturally with potentially positive impact on earnings and dividends. Political and weather issues can impact things on a short term basis, but the inevitable growth of the industry is more a matter of how fast versus not at all.
 
I look forward to the future and hope that as investors you do, too. As a fellow shareholder, I thank you for your support.
 

WWW.HENNESSYFUNDS.COM
 
6
 
 
CHANGE IN VALUE OF $10,000 INVESTMENT
 

 
This chart assumes an initial gross investment of $10,000 made on October 31, 2002. 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.
 
A non-diversified fund, one that may concentrate its assets in fewer holdings than a diversified fund, is more exposed to individual stock volatility than a diversified fund. Investments are focused in the natural gas distribution and transmission industry, which may be adversely affected by rising interest rates, weather, and the wholesale pricing of alternative fuels. Investments in foreign securities may involve greater volatility and political, economic and currency risk and differences in accounting methods.
 
The S&P 500 is an unmanaged index commonly used to measure the performance of U.S. stocks. The AGA Stock Index is a market capitalization weighted index, adjusted monthly, consisting of member companies of the AGA. One cannot invest directly in an index.
 
References to specific securities should not be considered a recommendation to buy or sell any security. The Fund’s composition, holdings and sector allocations are shown as a percentage of the Fund’s total net assets and are subject to change. Please refer to the Schedule of Investments in this report.
 
Each Morningstar category average represents a universe of funds with similar investment objectives.  © 2012 Morningstar, Inc. All Rights Reserved. The information contained herein: 1) is proprietary to Morningstar; 2) may not be copied or distributed and 3) is not warranted to be accurate, complete or timely.  Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.  Past performance is no guarantee of future results.
 

HENNESSY FUNDS                                                                                                           1-800-966-4354
 
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Hennessy Small Cap Financial Fund (formerly FBR Small Cap Financial Fund)
Investor Class Shares (HSFNX)
 
AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2012
 
 
One Year
Five Year
Ten Year
Hennessy Small Cap Financial Fund – Investor Class
20.65%
  4.57%
6.36%
Russell 2000 Index
12.08%
  1.19%
9.58%
NASDAQ Bank Index
20.45%
-6.40%
0.62%
 
Gross expense ratio: 1.56%.
 
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. Performance for periods prior to 10/26/12 is that of the FBR Small Cap Financial Fund. The gross expense ratio presented is that from the most recent prospectus.
 
 
PERFORMANCE NARRATIVE
 
Portfolio Manager: David H. Ellison
 
Over the previous twelve months, how did the Fund perform and what factors contributed to this performance?
 
For the twelve-month period ended October 31, 2012, the Investor Class of the Hennessy Small Cap Financial Fund returned 20.65%. This compares to the Russell 2000 Index, the NASDAQ Bank Index, and the Morningstar Financial Category Average, which returned 12.08%, 20.45% and 17.67% for the same period, respectively.
 
Favorable performance during the period was driven by companies seeing improved credit metrics. Earnings quality and quantity moved higher during the period and the stocks followed this trend. The slowly improving economy generally and the improved housing market specifically drove this favorable trend.
 
Portfolio manager comments on the Fund and the related investment outlook:
 
The Fund ended the twelve-month period fully invested and continues to be predominantly invested in small banks and thrifts across the U.S. The improved housing market has been the reason for recent outperformance relative to the market in general. We expect to see continued slow improvement in housing. This improvement should drive reduced loan losses and loan growth going forward. Companies in the Fund have plenty of capital to grow and liquidity to take advantage of the favorable trends in housing that we have seen and which we believe should continue.
 
There are, however, negative trends to watch.  In the short run, we are mindful of impacts from government fiscal policies (fiscal cliff, etc.). Other more specific negatives include the impact of persistently low rates on lending margins and the slow recovery in loan demand.
 
We remain constructive on the period ahead. We will, as always, be mindful of the downside risks and look to protect our shareholders as warranted.
 
 
CHANGE IN VALUE OF $10,000 INVESTMENT
 

This chart assumes an initial gross investment of $10,000 made on October 31, 2002. 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.
 

WWW.HENNESSYFUNDS.COM
 
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Hennessy Small Cap Financial Fund (formerly FBR Small Cap Financial Fund)
Institutional Class Shares (HISFX)
 
AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2012
 
     
Since Inception
 
One Year
Three Year
(05/30/08)
Hennessy Small Cap Financial Fund – Institutional Class
20.95%
  8.41%
  6.97%
Russell 2000 Index
12.08%
14.82%
  3.51%
NASDAQ Bank Index
20.45%
  8.07%
-4.25%
 
Gross expense ratio: 1.29%.
 
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. Performance for periods prior to 10/26/12 is that of the FBR Small Cap Financial Fund. The gross expense ratio presented is that from the most recent prospectus.
 
 
CHANGE IN VALUE OF $250,000 INVESTMENT
 

 
*  Inception date

 
This chart assumes an initial gross investment of $250,000 (minimum investment) made on May 30, 2008 (inception date of share class). 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.
 
A non-diversified fund, one that may concentrate its assets in fewer holdings than a diversified fund, is more exposed to individual stock volatility than a diversified fund. The Fund invests in smaller companies, which involves additional risks such as limited liquidity and greater volatility.  Investors are focused in the financial services industry which may be adversely affected by regulatory or other market conditions such as rising interest rates.
 
The NASDAQ Bank Index is a capitalization weighted index of domestic and foreign common stocks of banks that are traded on the NASDAQ National Market System. The Russell 2000 ® Index is an unmanaged total return index of the smallest 2000 companies in the Russell 3000 Index, as ranked by total market capitalization. One cannot invest directly in an index.
 
References to specific securities should not be considered a recommendation to buy or sell any security. The Fund’s composition, holdings and sector allocations are shown as a percentage of the Fund’s total net assets and are subject to change. Please refer to the Schedule of Investments in this report.
 
Each Morningstar category average represents a universe of funds with similar investment objectives.  © 2012 Morningstar, Inc. All Rights Reserved. The information contained herein: 1) is proprietary to Morningstar; 2) may not be copied or distributed and 3) is not warranted to be accurate, complete or timely.  Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.  Past performance does not guarantee future results.
 

HENNESSY FUNDS                                                                                                           1-800-966-4354
 
9
 

Hennessy Large Cap Financial Fund (formerly FBR Large Cap Financial Fund)
Investor Class Shares (HLFNX)
 
AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2012
 
 
One Year
Five Year
Ten Year
Hennessy Large Cap Financial Fund – Investor Class
18.89%
   -0.39%
 4.16%
S&P 500 Index
15.21%
    0.36%
 6.91%
KBW Bank Index
26.36%
 -11.58%
-1.48%
 
Gross expense ratio: 1.45%.
 
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. Performance for periods prior to 10/26/12 is that of the FBR Large Cap Financial Fund. The gross expense ratio presented is that from the most recent prospectus.
 
 
PERFORMANCE NARRATIVE
 
Portfolio Manager: David H. Ellison
 
Over the previous twelve months, how did the Fund perform and what factors contributed to this performance?
 
For the twelve-month period ended October 31, 2012, the Hennessy Large Cap Financial Fund returned 18.89%. This compares to the KBW Bank Index, the S&P 500 Index and the Morningstar Financial Category Average, which returned 26.36%, 15.21% and 17.67% for the same period, respectively.
 
Favorable performance during the period was driven by exposure to large commercial banks, credit card and brokerage companies. Exposure to insurance and specialty lenders detracted from performance during the period.
 
Continued improvement in housing demand, loan quality and commercial business activity drove revenue gains during the period. Continued declines in credit costs and operating expense cuts drove expense control during the period. The industry has been working to improve their balance sheets for over four years. This work is revealing itself in improved earnings quality, adequate loss reserves and capital stability. The ongoing improvement in industry fundamentals has translated into earnings growth, and the stocks followed this upward trend during the period.
 
Portfolio manager comments on the Fund and the related investment outlook:
 
The Fund ended the twelve-month period in a fully invested position. We expect to see continued improvement in core fundamentals which should limit downside risk in the stocks and offer upside potential as earnings quality and quantity improve.
 
There are, however, fundamental negatives to watch. The big one, in the short run, is the economic impact of government fiscal policies (fiscal cliff, etc.). Other more specific negatives include the impact of low rates on lending profitability and the slow recovery, thus far, in loan demand.
 
We remain constructive on the period ahead. We will, as always, be mindful of the downside risks and look to protect our shareholders as warranted.
 

WWW.HENNESSYFUNDS.COM
 
10
 
 
CHANGE IN VALUE OF $10,000 INVESTMENT
 

This chart assumes an initial gross investment of $10,000 made on October 31, 2002. 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.
 
A non-diversified fund, one that may concentrate its assets in fewer holdings that a diversified fund, is more exposed to individual stock volatility than a diversified fund. Investors are focused in the financial services industry which may be adversely affected by regulatory or other market conditions such as rising interest rates. The Fund invests in small and medium capitalized companies, which involves additional risks such as limited liquidity and greater volatility
 
The S&P 500 Index is an unmanaged index commonly used to measure the performance of U.S. stocks. The KBW Bank Index measures Bank stock performance. One cannot invest directly in an index.
 
References to specific securities should not be considered a recommendation to buy or sell any security. The Fund’s composition, holdings and sector allocations are shown as a percentage of the Fund’s total net assets and are subject to change. Please refer to the Schedule of Investments in this report.
 
Each Morningstar category average represents a universe of funds with similar investment objectives.  © 2012 Morningstar, Inc. All Rights Reserved. The information contained herein: 1) is proprietary to Morningstar; 2) may not be copied or distributed and 3) is not warranted to be accurate, complete or timely.  Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.  Past performance does not guarantee future results.

 
 

 

HENNESSY FUNDS                                                                                                           1-800-966-4354
 
11
 

Hennessy Technology Fund (formerly FBR Technology Fund)
Investor Class Shares (HTECX)
 
AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2012
 
 
One Year
Five Year
Ten Year
Hennessy Technology Fund – Investor Class
 -1.75%
-2.42%
7.74%
S&P 500 Index
15.21%
  0.36%
6.91%
NASDAQ Composite Index
12.32%
  1.86%
9.31%
 
Gross expense ratio: 2.94%.  Net expense ratio: 1.98%.  Hennessy Advisors, Inc. has agreed to maintain this expense limitation through February 28, 2015.
 
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. Performance for periods prior to 10/26/12 is that of the FBR Technology Fund. Investment performance reflects fee waivers in effect.  In the absence of such waivers, total return would be reduced. The gross and net expense ratios presented are from the most recent prospectus.
 
 
PERFORMANCE NARRATIVE
 
Portfolio Managers: David H. Ellison and Winsor H. Aylesworth
 
Over the previous twelve months, how did the Fund perform and what factors contributed to this performance?
 
For the twelve-month period ended October 31, 2012, the Investor Class of the Hennessy Technology Fund returned -1.75%. This compares to the S&P 500 Index, the NASDAQ Composite Index and the Morningstar Technology Category Average, which returned 15.21%, 12.32% and 2.73% for the same period, respectively.
 
The Fund’s relatively breakeven performance clearly underperformed against the S&P 500 and NASDAQ indices. It performed better against its peer group but still fell short of the group’s average. Certainly the Fund’s approach of sticking with low leveraged, low debt and less volatile technology issues continued to provide investors with non-exceptional returns as the market seemed to prefer issues with riskier profiles.
 
Several holdings were major contributors to performance. 3D Systems Corp. (+167%) and Cirrus Logic, Inc. (+145%) were two such holdings. 3D Systems is involved in simplifying 3D design, while Cirrus is a semi-conductor manufacturer that is benefiting from the growth of the ever popular cell phone device market. Intel Corp. (-8%) was a significant detractor of performance. One of the main reasons Intel had so much impact was that it was a top 10 holding of the Fund.
 
Portfolio managers’ comments on the Fund and the related investment outlook:
 
In our opinion, the outlook for technology stocks continues to be good. As the world struggles with all the issues that make press headlines, most of the solutions involve some form of technology. Add to that the desire of the consumer to own the newest, best, fastest tech “gadget”, which means that there should always be a market for good growing technology firms in one’s portfolio. Our consistent approach to investing in technology companies that combine conservative balance sheets with above average growth in revenues and profits has the potential to reward investors. We thank you for your support.
 
 
CHANGE IN VALUE OF $10,000 INVESTMENT
 

 
 
This chart assumes an initial gross investment of $10,000 made on October 31, 2002. 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.
 

WWW.HENNESSYFUNDS.COM
 
12
 

Hennessy Technology Fund (formerly FBR Technology Fund)
Institutional Class Shares (HTCIX)
 
AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2012
 
   
Since Inception
 
One Year
(03/12/10)
Hennessy Technology Fund – Institutional Class
 -1.47%
  0.97%
S&P 500 Index
15.21%
10.34%
NASDAQ Composite Index
12.32%
10.25%
 
Gross expense ratio: 2.56%.  Net expense ratio: 1.73%.  Hennessy Advisors, Inc. has agreed to maintain this expense limitation through February 28, 2015.
 
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. Performance for periods prior to 10/26/12 is that of the FBR Technology Fund. Investment performance reflects fee waivers in effect.  In the absence of such waivers, total return would be reduced. The gross and net expense ratios presented are from the most recent prospectus.
 
 
CHANGE IN VALUE OF $250,000 INVESTMENT
 

*  Inception date

This chart assumes an initial gross investment of $250,000 (minimum investment) made on March 12, 2010 (inception date of share class). 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.
 
A non-diversified fund, one that may concentrate its assets in fewer holdings than a diversified fund, is more exposed to individual stock volatility than a diversified fund. Investments are focused in the technology industry, which may be adversely affected by rapidly changing technology, availability of capital, R&D, government regulation and the relatively high risks of obsolescence caused by scientific and technological advances. Investments in foreign securities may involve greater volatility and political, economic and currency risk and differences in accounting methods. The Fund may invest in IPO’s which will fluctuate considerably due to the absence of a prior public market and may have a magnified impact on the Fund.  The Fund invests in small and medium capitalized companies, which involves additional risks such as limited liquidity and greater volatility.
 
NASDAQ Composite Index is a broad-based capitalization-weighted index of all the NASDAQ National Market and Small Cap stocks. The S&P 500 Index is an unmanaged index commonly used to measure the performance of U.S. stocks. One cannot invest directly in an index.
 
References to specific securities should not be considered a recommendation to buy or sell any security. The Fund’s composition, holdings and sector allocations are shown as a percentage of the Fund’s total net assets and are subject to change. Please refer to the Schedule of Investments in this report.
 
Each Morningstar category average represents a universe of funds with similar investment objectives.  © 2012 Morningstar, Inc. All Rights Reserved. The information contained herein: 1) is proprietary to Morningstar; 2) may not be copied or distributed and 3) is not warranted to be accurate, complete or timely.  Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.  Past performance does not guarantee future results.
 

HENNESSY FUNDS                                                                                                           1-800-966-4354
 
13
 

Hennessy Equity and Income Fund (formerly FBR Balanced Fund)
Investor Class Shares (HEIFX)
 
AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2012
 
 
One Year
Five Year
Ten Year
Hennessy Equity and Income Fund – Investor Class
  9.01%
3.85%
9.29%
S&P 500 Index
15.21%
0.36%
6.91%
Blended Balanced Index 1
10.85%
2.88%
6.37%
 
Gross expense ratio: 1.34%.
 
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. Performance for periods prior to 10/26/12 is that of the FBR Balanced Fund. Performance for periods prior to March 12, 2010 is that of the AFBA 5 Star Balanced Fund. The gross expense ratio presented is that from the most recent prospectus.
 
 
PERFORMANCE NARRATIVE
 
For the twelve-month period ended October 31, 2012, the Investor Class of the Hennessy Equity and Income Fund returned 9.01%. This compares to the S&P 500 Index, the Blended Balanced Index 1 and the Morningstar Moderate Allocation Category Average which returned 15.21%, 10.85% and 9.47% for the same period, respectively.
 
The London Company: Sub-Advisors of the Equity Portion of the Fund
 
Portfolio Managers: Stephen M. Goddard, CFA ® , Jonathan T. Moody, CFA ® , J. Brian Campbell, CFA ® , Mark DeVaul, CFA ® , CPA and Tom Megson. Mr. Goddard is the lead Portfolio Manager for the Fund.
 
What factors contributed to the performance of the equity portion of the Hennessy Equity and Income Fund?
 
The London Company’s goal is to provide top quartile risk adjusted returns over full market cycles. It has not been uncommon for the portfolio to lag somewhat when the market has made strong upward moves, like we have seen over the past year. The portfolio generally kept pace with the market until the last three months of the period, when higher beta and lower dividend paying stocks dominated the market’s performance. In our opinion, this should prove to be a short term phenomenon. We have found that the best way for us to provide value to our clients is through our efforts to protect our portfolio when the market experiences downside turbulence. Frequently, this has meant giving up some upside when the market was strong. However, experience has shown us that investing for the long term and focusing on, what in our opinion are, superior businesses with strong balance sheets run by shareholder oriented management teams has been the best approach as we seek to preserve and grow purchasing power over time.
 
Over the past year, both sector allocation and stock selection have been negative contributors to relative performance. The market sectors that performed well during the last year returned two to three times as much as the bottom performing sectors in many cases. The top performing sectors included the Telecommunications, Healthcare, and Consumer Discretionary sectors while the laggards included the Energy, Materials and Utilities sectors.
 
The top sector detractor for the portfolio was Information Technology, driven by stock selection. Notable detractors included Dell, Inc., Corning, Inc., Intel Corp. and Cisco Systems, Inc., which gave up a portion of last year’s gains. We believe the latter three companies are sound franchises currently selling at attractive values.
 
The largest sector contributor was from Materials, where strong stock selection more than offset sector allocation. NewMarket Corp., in particular, continues to perform well after a strong year last year. The company recently announced a special dividend.  Other notable contributors include Wells Fargo & Co., Visa, Inc., Wal-Mart Stores, Inc. and Verizon Communications, Inc.
 
Portfolio managers’ comments on the equity portion of the Fund and the related investment outlook:
 
As prudent managers of capital, we focus on fundamental facts and guard against speculation. While there are many headline concerns and fears, including the “fiscal cliff”, slowing GDP growth, European sovereign debt, and Middle East angst, they are already well known. It is the out-of-left-field events that usually catch the markets off guard. Positive attributes in the market include visible progress in housing and services, underleveraged corporate balance sheets, attractive valuations and healthy merger premiums. Should we experience dividend growth, stock buybacks, and premiums from acquisitions, this could result in equity returns leading other asset classes. Free cash flow yields of many stocks that we follow have been 10% and above. The spread to 10-year U.S. Treasuries, which recently yielded 1.7%, is breathtaking. Equity risk premiums have rarely been greater, due to the continuing outflow from stock funds to bond funds and the low allocation to U.S. equities by investors of all stripes.
 
1
The Blended Balanced Index consists of 60% common stocks represented by the S&P 500 Index and 40% bonds represented by the Barclays Capital Intermediate U.S. Government/Credit Index.
 

WWW.HENNESSYFUNDS.COM
 
14
 
 
Looking forward, it is our view that confidence, not credit, is what needs to increase. Confidence comes from having stable and transparent tax policy and regulatory rules. With policy certainty, corporations should part with their excess cash to hire and expand.  Equity returns should continue to outpace inflation and the returns of other mainstream, liquid asset classes given reasonable valuations and investor demand for income and, more importantly, growth in income. Payout ratios are at multi-decade lows and many companies have room to substantially boost their dividends. In fact, we have recently seen several companies pay a special dividend and we would not be surprised to see more of this as we approach the end of the year. Dividends continue to grow and should remain, we believe, key determinants of outperformance in a low interest rate world.
 
Financial Counselors, Inc.: Sub-Advisors of the Fixed Income Portion of the Fund
 
Portfolio Managers: Gary B. Cloud, CFA ® and Peter G. Greig, CFA ®
 
What factors contributed to the performance of the fixed income portion of the Hennessy Equity and Income Fund?
 
A pro-cyclical asset allocation in the Fund helped performance due to an overweight in corporate bonds and an underweight in U.S. Treasury securities. Higher yielding fixed income securities in the portfolio boosted the interest income component of total return, adding to performance. The duration, convexity and roll down component of total return had a neutral effect on Fund performance. The amortization and pay down effect had the largest negative impact on Fund performance.
 
Portfolio managers’ comments on the fixed income portion of the Fund and the related investment outlook.
 
The investment climate over the last twelve months was fairly tame as the numbing effect of Quantitative Easing leveled out many of the real economic and political uncertainties impacting markets. Federal Reserve (“Fed”) policy makers continued their aggressive monetary policy initiatives and extended the projected timeline for zero interest rates until the 2nd quarter of 2015. Ten-Year Treasury yields declined approximately .45% during the period and ended at 1.72%.
 
Many of the issues dogging financial markets over the last year remain unresolved. Peripheral and Core European sovereign debt dynamics continue to spin wildly for Greece, Spain and Italy. Investors are unclear whether the European Union will backstop countries who have already received a bailout and how the Outright Monetary Transaction program will be implemented and funded for Spain and possibly Italy. Politics, unfunded social safety nets and unsustainable debt dynamics continue to be significant market drivers on both sides of the Atlantic.
 
A status quo U.S. election cycle has left the political class in America staring at the same individuals across the bargaining table, discussing the same unresolved issues with neither side seemingly able to bridge their ideological differences. Clearly, the minority party is on the defensive and they will need to be part of an increase in the U.S. statutory debt limit, which must be approved during the first few months of 2013. A balanced agreement that raises revenues and begins to deal with long term entitlement spending issues would be positive for financial markets. A weak agreement that raises the debt ceiling, but doesn’t address long term spending issues, will likely lead to further downgrades to U.S. credit metrics.
 
All of these issues have a big impact on the Fund’s security holdings and portfolio positioning. The range of possible outcomes from the immense number of economic, political and geo-political variables is high. The 10-Year Treasury yield could find its way to 1.25% or lower under one set of circumstances and over 2.25% under another. Therefore, the portfolio has been structured to emphasize liquidity and quality in its holdings, which should allow for rapid repositioning as conditions change.
 
The Fed has committed to keeping the Fund’s rate low for a number of years, even with a recovering economy and a lower employment rate, which has yet to happen in any material way. Therefore, the Fund has invested in securities that we believe provide good income potential over Treasuries, and we expect to continue that positioning into 2013.
 
Corporations have remained liquid with large cash balances and have favorable access to low funding rates in the market.  Dividend pay-out ratios are low and EBITA (Earnings Before Interest, Taxes and Amortization) coverage ratios are high by historical measures. These factors have led the Fund to be overweight credit sensitive fixed income securities. We believe this sector should continue to provide solid return potential for investors.
 
One potential risk in the bond market in the next year or so is an unwelcome back-up in Treasury rates for reasons unrelated to inflation and stronger economic growth. An example would be investors’ concern about the level and trajectory of the U.S. federal debt dynamics. We will continue to monitor these events and be on alert for any material change in sentiment toward U.S. debt obligations.
 

HENNESSY FUNDS                                                                                                           1-800-966-4354
 
15
 
 
CHANGE IN VALUE OF $10,000 INVESTMENT
 

 
This chart assumes an initial gross investment of $10,000 made on October 31, 2002. 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.
 
 
Hennessy Equity and Income Fund (formerly FBR Balanced Fund)
Institutional Class Shares (HEIIX)
 
 
AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2012
 
 
One Year
Five Year
Ten Year
Hennessy Equity and Income Fund – Institutional Class
  9.23%
4.10%
9.55%
S&P 500 Index
15.21%
0.36%
6.91%
Blended Balanced Index 1
10.85%
2.88%
6.37%
 
Gross expense ratio: 1.06%.
 
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. Performance for periods prior to 10/26/12 is that of the FBR Balanced Fund. Performance for periods prior to March 12, 2010 is that of the AFBA 5 Star Balanced Fund. The gross expense ratio presented is that from the most recent prospectus.
 
 
CHANGE IN VALUE OF $250,000 INVESTMENT
 


 
This chart assumes an initial gross investment of $250,000 (minimum investment) made on October 31, 2002. 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.
 

WWW.HENNESSYFUNDS.COM
 
16
 
 
Investments in debt securities typically decrease in value when interest rates rise. The risk is greater for longer term debt securities. Investment by the Fund in lower-rated and non-rated securities presents a greater risk of loss to principal and interest than higher-rated securities. Investments in Asset-Backed and Mortgage-Backed securities include additional risks that investors should be aware of including credit risk, prepayment risk, possible illiquidity and default, as well as increased susceptibility to adverse economic developments. Investments in foreign securities may involve greater volatility and political, economic and currency risk and differences in accounting methods. The Fund may invest in IPO’s which will fluctuate considerably due to the absence of a prior public market and may have a magnified impact on the Fund.
 
References to specific securities should not be considered a recommendation to buy or sell any security. The Fund’s composition, holdings and sector allocations are shown as a percentage of the Fund’s total net assets and are subject to change. Please refer to the Schedule of Investments in this report.
 
Duration is a commonly used measure of the potential volatility of the price of a debt security, or the aggregate market value of a portfolio of debt securities, prior to maturity.  Securities with a longer duration generally have more volatile prices than securities of comparable quality with a shorter duration. Free cash flow is revenue less operating expenses including interest expense and maintenance capital spending.  It is the discretionary cash that a company has after all expenses and is available for purposes such as dividend payments, investing back into the business or share repurchases. Beta measures the sensitivity of rates of return on a fund to general market movements.
 
Each Morningstar category average represents a universe of funds with similar investment objectives.  © 2012 Morningstar, Inc. All Rights Reserved. The information contained herein: 1) is proprietary to Morningstar; 2) may not be copied or distributed and 3) is not warranted to be accurate, complete or timely.  Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.  Past performance does not guarantee future results.
 
1
The Blended Balanced Index consists of 60% common stocks represented by the S&P 500 Index and 40% bonds represented by the Barclays Capital Intermediate U.S. Government/Credit Index.  The S&P 500 is an unmanaged index commonly used to measure the performance of U.S. stocks. One cannot invest directly in an index.
 

 

 

HENNESSY FUNDS                                                                                                           1-800-966-4354
 
17
 

Hennessy Core Bond Fund (formerly FBR Core Bond Fund)
Investor Class Shares (HCBFX)
 
AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2012
 
 
One Year
Five Year
Ten Year
Hennessy Core Bond Fund – Investor Class
7.38%
6.10%
7.31%
Barclays Capital Intermediate U.S. Government/Credit Index
4.24%
5.59%
4.81%
 
Gross expense ratio: 2.02%.  Net expense ratio: 1.51%.  Hennessy Advisors, Inc. has agreed to maintain this expense limitation through February 28, 2015.
 
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. Performance for periods prior to 10/26/12 is that of the FBR Core Bond Fund. Performance for periods prior to March 12, 2010 is that of the AFBA 5 Star Total Return Bond Fund. Investment performance reflects fee waivers in effect.  In the absence of such waivers, total return would be reduced. The gross and net expense ratios presented are from the most recent prospectus.
 
 
PERFORMANCE NARRATIVE
 
Financial Counselors, Inc.: Sub-Advisor.  Portfolio Managers: Gary B. Cloud, CFA ® and Peter G. Greig, CFA ®
 
Over the previous twelve months, how did the Fund perform and what factors contributed to this performance?
 
For the twelve-month period ended October 31, 2012, the Investor Class of the Hennessy Core Bond Fund returned 7.38%. This compares to the Barclays Capital Intermediate U.S. Government/Credit Index and the Morningstar Intermediate Term Bond Category Average which returned 4.24% and 7.38% for the same period, respectively.
 
A pro-cyclical asset allocation in the Fund helped performance due to an overweight in corporate bonds and an underweight in U.S. Treasury securities. Higher yielding fixed income securities in the portfolio boosted the interest income component of total return, adding to performance. The duration, convexity and roll down component of total return had a neutral effect on Fund performance. The amortization and pay down effect had the largest negative impact on Fund performance.
 
Portfolio managers’ comments on the Fund and the related investment outlook:
 
The investment climate over the last twelve months was fairly tame as the numbing effect of Quantitative Easing leveled out many of the real economic and political uncertainties impacting markets. Federal Reserve (“Fed”) policy makers continued their aggressive monetary policy initiatives and extended the projected timeline for zero interest rates until the 2nd quarter of 2015. Ten-Year Treasury yields declined approximately .45% during the period and ended at 1.72%.
 
Many of the issues dogging financial markets over the last year remain unresolved. Peripheral and Core European sovereign debt dynamics continue to spin wildly for Greece, Spain and Italy. Investors are unclear whether the European Union will backstop countries who have already received a bailout and how the Outright Monetary Transaction program will be implemented and funded for Spain and possibly Italy. Politics, unfunded social safety nets and unsustainable debt dynamics continue to be significant market drivers on both sides of the Atlantic.
 
A status quo U.S. election cycle has left the political class in America staring at the same individuals across the bargaining table, discussing the same unresolved issues with neither side seemingly able to bridge their ideological differences. Clearly, the minority party is on the defensive, and they will need to be part of an increase in the U.S. statutory debt limit, which must be approved during the first few months of 2013. A balanced agreement that raises revenues and begins to deal with long term entitlement spending issues would be positive for financial markets. A weak agreement that raises the debt ceiling, but doesn’t address long term spending issues, will likely lead to further downgrades to U.S. credit metrics.
 
All of these issues have a big impact on the Fund’s security holdings and portfolio positioning. The range of possible outcomes from the immense number of economic, political and geo-political variables is high. The 10-Year Treasury yield could find its way to 1.25% or lower under one set of circumstances and over 2.25% under another.  Therefore, the portfolio has been structured to emphasize liquidity and quality in its holdings, which should allow for rapid repositioning as conditions change.
 
The Fed has committed to keeping the Fund’s rate low for a number of years, even with a recovering economy and a lower employment rate, which has yet to happen in any material way. Therefore, the Fund has invested in securities that we believe provide good income potential over Treasuries, and we expect to continue that positioning into 2013.
 
Corporations have remained liquid with large cash balances and have favorable access to low funding rates in the market. Dividend pay-out ratios are low and EBITA (Earnings Before Interest, Taxes and Amortization) coverage ratios are high by historical measures. These factors have led the Fund to be overweight credit sensitive fixed income securities. We believe this sector should continue to provide solid return potential for investors.
 
One potential risk in the bond market in the next year or so is an unwelcome back-up in Treasury rates for reasons unrelated to inflation and stronger economic growth. An example would be investors’ concern about the level and trajectory of the U.S. federal debt dynamics. We will continue to monitor these events and be on alert for any material change in sentiment toward U.S. debt obligations.
 

WWW.HENNESSYFUNDS.COM
 
18
 
 
CHANGE IN VALUE OF $10,000 INVESTMENT
 

 
 
This chart assumes an initial gross investment of $10,000 made on October 31, 2002. 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.
 
 
 

 
 

HENNESSY FUNDS                                                                                                           1-800-966-4354
 
19
 

Hennessy Core Bond Fund (formerly FBR Core Bond Fund)
Institutional Class Shares (HCBIX)
 
AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2012
 
 
One Year
Five Year
Ten Year
Hennessy Core Bond Fund – Institutional Class
7.63%
6.34%
7.58%
Barclays Capital Intermediate U.S. Government/Credit Index
4.24%
5.59%
4.81%
 
Gross expense ratio: 1.52%.  Net expense ratio: 1.26%.  Hennessy Advisors, Inc. has agreed to maintain this expense limitation through February 28, 2015.
 
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. Performance for periods prior to 10/26/12 is that of the FBR Core Bond Fund. Performance for periods prior to March 12, 2010 is that of the AFBA 5 Star Total Return Bond Fund. Investment performance reflects fee waivers in effect.  In the absence of such waivers, total return would be reduced. The gross and net expense ratios presented are from the most recent prospectus.
 
 
CHANGE IN VALUE OF $250,000 INVESTMENT
 

 
This chart assumes an initial gross investment of $250,000 (minimum investment) made on October 31, 2002. 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.
 
Investments in debt securities typically decrease in value when interest rates rise. The risk is greater for longer term debt securities. Investment by the Fund in lower-rated and non-rated securities presents a greater risk of loss to principal and interest than higher-rated securities. Investments in Asset-Backed and Mortgage-Backed securities include additional risks that investors should be aware of including credit risk, prepayment risk, possible illiquidity and default, as well as increased susceptibility to adverse economic developments. Investments in foreign securities may involve greater volatility and political, economic and currency risk and differences in accounting methods. The Fund may invest in IPO’s which will fluctuate considerably due to the absence of a prior public market and may have a magnified impact on the Fund.
 
The Barclays Capital Intermediate U.S. Government/Credit Total Return Index is an unmanaged index commonly used to measure the performance of U.S. bonds. One cannot invest directly in an index.
 
References to specific securities should not be considered a recommendation to buy or sell any security. The Fund’s composition, holdings and sector allocations are shown as a percentage of the Fund’s total net assets and are subject to change. Please refer to the Schedule of Investments in this report.
 
Duration is a commonly used measure of the potential volatility of the price of a debt security, or the aggregate market value of a portfolio of debt securities, prior to maturity.  Securities with a longer duration generally have more volatile prices than securities of comparable quality with a shorter duration.
 
Each Morningstar category average represents a universe of funds with similar investment objectives.  © 2012 Morningstar, Inc. All Rights Reserved. The information contained herein: 1) is proprietary to Morningstar; 2) may not be copied or distributed and 3) is not warranted to be accurate, complete or timely.  Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.  Past performance does not guarantee future results.
 

WWW.HENNESSYFUNDS.COM
 
20
 


 






 

 

 
(This Page Intentionally Left Blank.)
 

 

 










HENNESSY FUNDS                                                                                                           1-800-966-4354
 
21
 

Schedule of Investments
HENNESSY FOCUS FUND
(formerly FBR Focus Fund)
 
As of October 31, 2012
 
(% of Net Assets)
 


 

 

 
 
TOP TEN EQUITY HOLDINGS
% net assets
 
American Tower Corp.
9.92%
 
Markel Corp.
8.22%
 
O’Reilly Automotive, Inc.
7.97%
 
CarMax, Inc.
7.91%
 
Bally Technologies, Inc.
7.43%
 
Penn National Gaming, Inc.
7.18%
 
News Corp.
5.75%
 
Aon PLC
5.19%
 
Google, Inc.
4.98%
 
World Fuel Services Corp.
3.80%

 

 

 

 

 
Note:  For presentation purposes, the Fund has grouped some of the industry categories.  For purposes of categorizing securities for compliance with Section 8(b)(1) of the Investment Company Act of 1940, the Fund uses more specific industry classifications.
 

WWW.HENNESSYFUNDS.COM
 
22
 
 
 
 
COMMON STOCKS – 80.86%
   
Number of
         
% of
 
       
Shares
   
Value
   
Net Assets
 
 
Consumer Discretionary – 39.58%
                   
 
Bally Technologies, Inc. (a)
      1,169,000     $ 58,356,480       7.43 %
 
CarMax, Inc. (a)
      1,840,088       62,102,970       7.91 %
 
Dick’s Sporting Goods, Inc.
      30,000       1,500,000       0.19 %
 
Lamar Advertising Co., Class A (a)
      630,000       24,727,500       3.15 %
 
News Corp., Class A
      1,886,000       45,113,120       5.75 %
 
O’Reilly Automotive, Inc. (a)
      730,000       62,546,400       7.97 %
 
Penn National Gaming, Inc. (a)
      1,393,670       56,346,078       7.18 %
                  310,692,548       39.58 %
                             
 
Energy – 3.80%
                         
 
World Fuel Services Corp.
      859,150       29,812,505       3.80 %
                             
 
Financials – 20.67%
                         
 
Aon PLC
      755,000       40,732,250       5.19 %
 
Diamond Hill Investment Group, Inc.
      94,910       7,306,172       0.93 %
 
Markel Corp. (a)
      136,640       64,485,881       8.22 %
 
Marlin Business Services Corp.
      454,839       10,274,813       1.31 %
 
T. Rowe Price Group, Inc.
      125,000       8,117,500       1.03 %
 
The Charles Schwab Corp.
      2,017,000       27,390,860       3.49 %
 
White River Capital, Inc.
      173,137       3,917,225       0.50 %
                  162,224,701       20.67 %
                             
 
Health Care – 1.69%
                         
 
Henry Schein, Inc. (a)
      180,000       13,280,400       1.69 %
                             
 
Industrials – 10.14%
                         
 
American Woodmark Corp. (a)
      680,160       15,643,680       1.99 %
 
Encore Capital Group, Inc. (a)
      528,337       15,321,773       1.95 %
 
Roadrunner Transportation
                         
 
  Systems, Inc. (a)
      904,200       15,760,206       2.01 %
 
Simpson Manufacturing Company, Inc.
      850,000       25,891,000       3.30 %
 
UTi Worldwide, Inc.
      500,000       6,945,000       0.89 %
                  79,561,659       10.14 %
                             
 
Information Technology – 4.98%
                         
 
Google, Inc., Class A (a)
      57,500       39,086,775       4.98 %
                             
 
Total Common Stocks
                         
 
  (Cost $363,928,738)
              634,658,588       80.86 %
                             
 
REITS – 9.92%
                         
                             
 
Financials – 9.92%
                         
 
American Tower Corp., Class A
      1,034,000       77,849,860       9.92 %
                             
 
Total Reits (Cost $5,433,992)
              77,849,860       9.92 %
                             
 
SHORT-TERM INVESTMENTS – 9.33%
                         
 
Money Market Fund – 9.33%
                         
 
Federated Government Obligations
                         
 
  Fund – Class I, 0.01% (b)
      35,215,396       35,215,396       4.49 %
 
Fidelity Institutional Money Market
                         
 
  Government Portfolio – Class I,
                         
    0.01% (b)       38,000,000       38,000,000       4.84 %
                             
 
Total Money Market Fund
                         
 
  (Cost $73,215,396)
              73,215,396       9.33 %
                             
 
Total Short-Term Investments
                         
 
  (Cost $73,215,396)
              73,215,396       9.33 %
                             
 
Total Investments
                         
 
  (Cost $442,578,126) – 100.11%
              785,723,844       100.11 %
                             
 
Liabilities in Excess
                         
 
  of Other Assets – (0.11)%
              (838,651 )     (0.11 )%
 
TOTAL NET ASSETS – 100.00%
            $ 784,885,193       100.00 %

Percentages are stated as a percent of net assets.

(a) Non-income producing security.
(b) The rate listed is the fund’s 7-day yield as of October 31, 2012.


The accompanying notes are an integral part of these financial statements.

HENNESSY FUNDS                                                                                                           1-800-966-4354
 
23
 
 
Summary of Fair Value Exposure at October 31, 2012
 
The following is a summary of the inputs used to value the Fund’s net assets as of October 31, 2012 (See Note 4 in the accompanying notes to the financial statements):
 
Common Stock
 
Level 1
   
Level 2
   
Level 3
   
Total
 
Consumer Discretionary
  $ 310,692,548     $ —     $ —     $ 310,692,548  
Energy
    29,812,505       —       —       29,812,505  
Financials
    158,307,476       3,917,225       —       162,224,701  
Health Care
    13,280,400       —       —       13,280,400  
Industrials
    79,561,659       —       —       79,561,659  
Information Technology
    39,086,775       —       —       39,086,775  
Total Common Stock
  $ 630,741,363     $ 3,917,225     $ —     $ 634,658,588  
REITS
                               
Financials
  $ 77,849,860     $ —     $ —     $ 77,849,860  
Total REITS
  $ 77,849,860     $ —     $ —     $ 77,849,860  
Short-Term Investments
                               
Money Market Funds
  $ 73,215,396     $ —     $ —     $ 73,215,396  
Total Short-Term Investments
  $ 73,215,396     $ —     $ —     $ 73,215,396  
Total Investments in Securities
  $ 781,806,619     $ 3,917,225     $ —     $ 785,723,844  

Transfers between levels are recognized at the end of the reporting period. During the period ended October 31, 2012, the Fund recognized transfers between levels 1 and 2.
 
 
Level 2 Reconciliation Disclosure
 
The following amounts were transferred in/(out) of Level 2 assets:
 
      Total Common Stock
Transfers into Level 2
  $ 3,917,225  
Transfers out of Level 2
    —  
Net transfers in and/or (out) of Level 2
  $ 3,917,225  

 
The accompanying notes are an integral part of these financial statements.
 

WWW.HENNESSYFUNDS.COM
 
24
 
 
HENNESSY GAS UTILITY INDEX FUND
(formerly FBR Gas Utility Index Fund)
 
As of October 31, 2012
 
(% of Net Assets)
 


 

 

 
 
TOP TEN EQUITY HOLDINGS
% net assets
 
TransCanada Corp.
5.07%
 
Spectra Energy Corp.
5.00%
 
National Grid PLC
4.97%
 
The Williams Companies, Inc.
4.95%
 
Enbridge, Inc.
4.93%
 
Kinder Morgan, Inc.
4.92%
 
Energy Transfer Equity, LP
4.91%
 
ONEOK, Inc.
4.73%
 
Sempra Energy
4.71%
 
Dominion Resources, Inc.
4.49%

 

 

 


 
 

 

 
Note:  For presentation purposes, the Fund has grouped some of the industry categories.  For purposes of categorizing securities for compliance with Section 8(b)(1) of the Investment Company Act of 1940, the Fund uses more specific industry classifications.


HENNESSY FUNDS                                                                                                           1-800-966-4354
 
25
 
 
 
COMMON STOCKS – 99.19%
 
Number of
         
% of
 
     
Shares
   
Value
   
Net Assets
 
 
Energy – 33.24%
                 
 
Cheniere Energy, Inc. (a)
    1,031,133     $ 16,590,930       2.22 %
 
Enbridge, Inc.
    925,401       36,803,198       4.93 %
 
Energen Corp.
    94,129       4,391,118       0.59 %
 
Energy Transfer Equity, LP
    832,256       36,627,587       4.91 %
 
EQT Corp.
    80,410       4,875,258       0.65 %
 
Kinder Morgan, Inc.
    1,058,904       36,754,558       4.92 %
 
Spectra Energy Corp.
    1,293,997       37,357,693       5.00 %
 
The Williams Companies, Inc.
    1,056,092       36,952,659       4.95 %
 
TransCanada Corp.
    837,877       37,897,177       5.07 %
                248,250,178       33.24 %
                           
 
Financials – 0.48%
                       
 
Berkshire Hathaway, Inc., Class A (a)
    28       3,626,140       0.48 %
                           
 
Utilities – 65.47%
                       
 
AGL Resources, Inc.
    542,470       22,149,050       2.97 %
 
ALLETE, Inc.
    1,625       67,633       0.01 %
 
Alliant Energy Corp.
    55,492       2,480,492       0.33 %
 
Ameren Corp.
    87,890       2,889,823       0.39 %
 
Atmos Energy Corp.
    472,745       17,004,638       2.28 %
 
Avista Corp.
    67,099       1,705,657       0.23 %
 
Black Hills Corp.
    44,600       1,595,342       0.21 %
 
CenterPoint Energy, Inc.
    824,873       17,874,998       2.39 %
 
CH Energy Group, Inc.
    18,380       1,195,251       0.16 %
 
Chesapeake Utilities Corp.
    40,416       1,898,340       0.25 %
 
CMS Energy Corp.
    446,148       10,850,319       1.45 %
 
Consolidated Edison, Inc.
    266,970       16,119,649       2.16 %
 
Corning Natural Gas Corp.
    13,085       248,610       0.03 %
 
Delta Natural Gas Company, Inc.
    36,690       721,325       0.10 %
 
Dominion Resources, Inc.
    635,556       33,544,646       4.49 %
 
DTE Energy Co.
    184,715       11,470,802       1.54 %
 
Duke Energy Corp.
    81,837       5,375,873       0.72 %
 
Entergy Corp.
    7,650       555,237       0.07 %
 
Exelon Corp.
    261,581       9,359,368       1.25 %
 
Gas Natural, Inc.
    32,956       328,901       0.04 %
 
Integrys Energy Group, Inc.
    217,521       11,754,835       1.57 %
 
MDU Resources Group, Inc.
    354,285       7,698,613       1.03 %
 
MGE Energy, Inc.
    20,017       1,053,695       0.14 %
 
National Fuel Gas Co.
    284,398       14,987,775       2.01 %
 
National Grid PLC – ADR
    650,706       37,096,749       4.97 %
 
New Jersey Resources Corp.
    172,342       7,662,325       1.03 %
 
NiSource, Inc.
    987,943       25,162,908       3.37 %
 
Northeast Utilities
    115,375       4,534,238       0.61 %
 
Northwest Natural Gas Co.
    138,197       6,430,306       0.86 %
 
NV Energy, Inc.
    35,750       679,607       0.09 %
 
ONEOK, Inc.
    745,996       35,285,611       4.73 %
 
Pepco Holdings, Inc.
    42,704       848,528       0.11 %
 
PG&E Corp.
    587,109       24,963,875       3.34 %
 
Piedmont Natural Gas Company, Inc.
    408,276       13,011,756       1.74 %
 
PPL Corp.
    71,735       2,121,921       0.28 %
 
Public Service Enterprise Group, Inc.
    489,176       15,673,199       2.10 %
 
Questar Corp.
    770,015       15,585,104       2.09 %
 
RGC Resources, Inc.
    26,517       474,654       0.06 %
 
SCANA Corp.
    118,823       5,831,833       0.78 %
 
Sempra Energy
    504,255       35,171,786       4.71 %
 
South Jersey Industries, Inc.
    124,581       6,302,553       0.84 %
 
Southwest Gas Corp.
    247,701       10,767,562       1.44 %
 
TECO Energy, Inc.
    153,390       2,741,079       0.37 %
 
The Empire District Electric Co.
    16,500       358,215       0.05 %
 
The Laclede Group, Inc.
    107,349       4,470,012       0.60 %
 
UGI Corp.
    189,875       6,131,064       0.82 %
 
UIL Holdings Corp.
    115,204       4,166,929       0.56 %
 
Unitil Corp.
    39,075       1,039,004       0.14 %
 
UNS Energy Corp.
    13,980       596,107       0.08 %
 
Vectren Corp.
    170,916       5,053,986       0.68 %
 
WGL Holdings, Inc.
    252,332       10,035,244       1.35 %
 
Wisconsin Energy Corp.
    139,460       5,365,026       0.72 %
 
Xcel Energy, Inc.
    298,497       8,432,540       1.13 %
                488,924,593       65.47 %
 
Total Common Stocks
                       
 
  (Cost $542,831,237)
            740,800,911       99.19 %
                           
 
SHORT-TERM INVESTMENTS – 0.59%
                       
 
Money Market Fund – 0.59%
                       
 
Fidelity Institutional Money Market
                       
 
  Government Portfolio – Class I,
                       
 
  0.01% (b)
    4,388,486       4,388,486       0.59 %
                           
 
Total Money Market Fund
                       
 
  (Cost $4,388,486)
            4,388,486       0.59 %
                           
 
Total Short-Term Investments
                       
 
  (Cost $4,388,486)
            4,388,486       0.59 %
                           
 
Total Investments
                       
 
  (Cost $547,219,723) – 99.78%
            745,189,397       99.78 %
                           
 
Other Assets in
                       
 
  Excess of Liabilities – 0.22%
            1,631,035       0.22 %
 
TOTAL NET ASSETS – 100.00%
          $ 746,820,432       100.00 %

Percentages are stated as a percent of net assets.

(a) Non-income producing security.
(b) The rate listed is the fund’s 7-day yield as of October 31, 2012.
ADR – American Depositary Receipt


The accompanying notes are an integral part of these financial statements.

WWW.HENNESSYFUNDS.COM
 
26
 
 
Summary of Fair Value Exposure at October 31, 2012
 
The following is a summary of the inputs used to value the Fund’s net assets as of October 31, 2012 (See Note 4 in the accompanying notes to the financial statements):
 
Common Stock
 
Level 1
   
Level 2
   
Level 3
   
Total
 
Energy
  $ 248,250,178     $ —     $ —     $ 248,250,178  
Financials
    3,626,140       —       —       3,626,140  
Utilities
    488,675,983       248,610       —       488,924,593  
Total Common Stock
  $ 740,552,301     $ 248,610     $ —     $ 740,800,911  
Short-Term Investments
                               
Money Market Funds
  $ 4,388,486     $ —     $ —     $ 4,388,486  
Total Short-Term Investments
  $ 4,388,486     $ —     $ —     $ 4,388,486  
Total Investments in Securities
  $ 744,940,787     $ 248,610     $ —     $ 745,189,397  

Transfers between levels are recognized at the end of the reporting period. During the period ended October 31, 2012, the Fund recognized transfers between levels 1 and 2.
 
 
Level 2 Reconciliation Disclosure
 
The following amounts were transferred in/(out) of Level 2 assets:
 
      Total Common Stock
Transfers into Level 2
  $ 248,610  
Transfers out of Level 2
    —  
Net transfers in and/or (out) of Level 2
  $ 248,610  


The accompanying notes are an integral part of these financial statements.


HENNESSY FUNDS                                                                                                           1-800-966-4354
 
27
 
 
HENNESSY SMALL CAP FINANCIAL FUND
(formerly FBR Small Cap Financial Fund)
 
As of October 31, 2012
 
(% of Net Assets)
 

 

 
 

 
 
TOP TEN EQUITY HOLDINGS
% net assets
 
Banner Corp.
3.30%
 
KB Home
3.14%
 
Hingham Institution for Savings
3.04%
 
KKR Financial Holdings LLC
2.90%
 
Sterling Financial Corp.
2.87%
 
Flushing Financial Corp.
2.84%
 
BankUnited, Inc.
2.70%
 
Washington Federal, Inc.
2.50%
 
CapitalSource, Inc.
2.47%
 
Encore Capital Group, Inc.
2.47%

 

 

 

 
 

 

 

 
Note:  For presentation purposes, the Fund has grouped some of the industry categories.  For purposes of categorizing securities for compliance with Section 8(b)(1) of the Investment Company Act of 1940, the Fund uses more specific industry classifications.
 

WWW.HENNESSYFUNDS.COM
 
28
 
 
 
COMMON STOCKS – 91.36%
 
Number of
         
% of
 
     
Shares
   
Value
   
Net Assets
 
 
Consumer Discretionary – 3.14%
                 
 
KB Home
    415,000     $ 6,631,700       3.14 %
                           
 
Financials – 81.70%
                       
 
Associated Banc-Corp.
    150,000       1,933,500       0.91 %
 
Astoria Financial Corp.
    495,000       4,964,850       2.35 %
 
BancorpSouth, Inc.
    95,000       1,344,250       0.64 %
 
BankUnited, Inc.
    240,000       5,690,400       2.70 %
 
Banner Corp.
    240,000       6,957,600       3.30 %
 
BBCN Bancorp, Inc.
    180,000       2,147,400       1.02 %
 
Brookline Bancorp, Inc.
    370,000       3,137,600       1.49 %
 
CapitalSource, Inc.
    660,000       5,220,600       2.47 %
 
Capitol Federal Financial
    150,000       1,786,500       0.85 %
 
Central Pacific Financial Corp. (a)
    77,409       1,112,367       0.53 %
 
City National Corp.
    35,000       1,788,500       0.85 %
 
Fifth Third Bancorp
    85,000       1,235,050       0.58 %
 
First Commonwealth Financial Corp.
    180,000       1,179,000       0.56 %
 
First Connecticut Bancorp, Inc.
    250,067       3,423,417       1.62 %
 
First Horizon National Corp.
    500,000       4,655,000       2.21 %
 
First Niagara Financial Group, Inc.
    385,000       3,187,800       1.51 %
 
FirstMerit Corp.
    25,000       346,500       0.16 %
 
Flagstar Bancorp, Inc. (a)
    260,000       3,588,000       1.70 %
 
Flushing Financial Corp.
    385,000       5,986,750       2.84 %
 
Fulton Financial Corp.
    400,000       3,888,000       1.84 %
 
Green Dot Corp., Class A (a)
    100,000       1,019,000       0.48 %
 
Hingham Institution for Savings
    94,331       6,409,792       3.04 %
 
HomeStreet, Inc. (a)
    70,000       3,134,600       1.49 %
 
IBERIABANK Corp.
    20,000       995,800       0.47 %
 
Independent Bank Corp.
    120,000       3,541,200       1.68 %
 
Investors Bancorp, Inc.
    20,000       359,800       0.17 %
 
KeyCorp
    190,000       1,599,800       0.76 %
 
KKR Financial Holdings LLC
    600,000       6,126,000       2.90 %
 
MB Financial, Inc.
    75,000       1,519,500       0.72 %
 
MBIA, Inc. (a)
    470,000       4,653,000       2.21 %
 
MGIC Investment Corp. (a)
    1,200,000       2,064,000       0.98 %
 
National Penn Bancshares, Inc.
    100,000       893,000       0.42 %
 
Netspend Holdings, Inc. (a)
    450,000       4,819,500       2.28 %
 
NorthStar Realty Finance Corp.
    700,000       4,599,000       2.18 %
 
Northwest Bancshares, Inc.
    205,000       2,439,500       1.16 %
 
OceanFirst Financial Corp.
    260,000       3,624,400       1.72 %
 
Ocwen Financial Corp. (a)
    65,000       2,507,050       1.19 %
 
People’s United Financial, Inc.
    55,000       661,650       0.31 %
 
Popular, Inc. (a)
    255,000       4,929,150       2.34 %
 
PrivateBancorp, Inc.
    140,000       2,262,400       1.07 %
 
Provident Financial Services, Inc.
    100,000       1,500,000       0.71 %
 
RAIT Financial Trust
    520,000       2,901,600       1.37 %
 
Rockville Financial, Inc.
    300,000       3,987,000       1.89 %
 
Sterling Financial Corp.
    285,000       6,059,100       2.87 %
 
Susquehanna Bancshares, Inc.
    470,000       4,873,900       2.31 %
 
Synovus Financial Corp.
    1,000,000       2,450,000       1.16 %
 
TCF Financial Corp.
    400,000       4,576,000       2.17 %
 
Territorial Bancorp, Inc.
    150,000       3,390,000       1.61 %
 
TFS Financial Corp. (a)
    190,000       1,700,500       0.81 %
 
United Community Banks (a)
    219,164       1,906,727       0.90 %
 
United Financial Bancorp, Inc.
    210,013       3,227,900       1.53 %
 
Valley National Bancorp
    25,000       243,500       0.12 %
 
Washington Federal, Inc.
    315,000       5,285,700       2.50 %
 
Webster Financial Corp.
    20,000       440,000       0.21 %
 
Wintrust Financial Corp.
    90,000       3,325,500       1.58 %
 
WSFS Financial Corp.
    56,803       2,405,891       1.14 %
 
Zions Bancorp.
    110,000       2,361,700       1.12 %
                172,366,244       81.70 %
                           
 
Industrials – 5.49%
                       
 
Encore Capital Group, Inc. (a)
    180,000       5,220,000       2.47 %
 
PHH Corp. (a)
    160,000       3,329,600       1.58 %
 
Portfolio Recovery Associates, Inc. (a)
    29,000       3,034,850       1.44 %
                11,584,450       5.49 %
                           
 
Information Technology – 1.03%
                       
 
MoneyGram International, Inc. (a)
    140,000       2,175,600       1.03 %
                           
 
Total Common Stocks
                       
 
  (Cost $169,114,949)
            192,757,994       91.36 %
                           
 
MUTUAL FUNDS – 0.89%
                       
 
American Capital Ltd.
    160,000       1,886,400       0.89 %
                           
 
Total Mutual Funds (Cost $1,395,555)
            1,886,400       0.89 %
                           
 
SHORT-TERM INVESTMENTS – 7.84%
                       
 
Money Market Fund – 7.84%
                       
 
Federated Government Obligations
                       
 
  Fund – Class I, 0.01% (b)
    6,036,379       6,036,379       2.86 %
 
Fidelity Institutional Money Market
                       
 
  Government Portfolio – Class I,
                       
 
  0.01% (b)
    10,500,000       10,500,000       4.98 %
                           
 
Total Money Market Fund
                       
 
  (Cost $16,536,379)
            16,536,379       7.84 %
                           
 
Total Short-Term Investments
                       
 
  (Cost $16,536,379)
            16,536,379       7.84 %
                           
 
Total Investments
                       
 
  (Cost $187,046,883) – 100.09%
            211,180,773       100.09 %
                           
 
Liabilities in Excess of
                       
 
  Other Assets – (0.09)%
            (185,706 )     (0.09 )%
 
TOTAL NET ASSETS – 100.00%
          $ 210,995,067       100.00 %

Percentages are stated as a percent of net assets.

(a) Non-income producing security.
(b) The rate listed is the fund’s 7-day yield as of October 31, 2012.


The accompanying notes are an integral part of these financial statements.

 

HENNESSY FUNDS                                                                                                           1-800-966-4354
 
29
 
 
Summary of Fair Value Exposure at October 31, 2012
 
The following is a summary of the inputs used to value the Fund’s net assets as of October 31, 2012 (See Note 4 in the accompanying notes to the financial statements):
 
Common Stock
 
Level 1
   
Level 2
   
Level 3
   
Total
 
Consumer Discretionary
  $ 6,631,700     $ —     $ —     $ 6,631,700  
Financials
    172,366,244       —       —       172,366,244  
Industrials
    11,584,450       —       —       11,584,450  
Information Technology
    2,175,600       —       —       2,175,600  
Total Common Stock
  $ 192,757,994     $ —     $ —     $ 192,757,994  
Mutual Funds
                               
Mutual Funds
  $ 1,886,400     $ —     $ —     $ 1,886,400  
Total Mutual Funds
  $ 1,886,400     $ —     $ —     $ 1,886,400  
Short-Term Investments
                               
Money Market Funds
  $ 16,536,379     $ —     $ —     $ 16,536,379  
Total Short-Term Investments
  $ 16,536,379     $ —     $ —     $ 16,536,379  
Total Investments in Securities
  $ 211,180,773     $ —     $ —     $ 211,180,773  

Transfers between levels are recognized at the end of the reporting period. During the period ended October 31, 2012, the Fund recognized no transfers between levels.
 

 

 
The accompanying notes are an integral part of these financial statements.
 

WWW.HENNESSYFUNDS.COM
 
30
 
 
HENNESSY LARGE CAP FINANCIAL FUND
(formerly FBR Large Cap Financial Fund)
 
As of October 31, 2012
 
(% of Net Assets)
 
 

 

 
 

 
 
TOP TEN EQUITY HOLDINGS
% net assets
 
Citigroup, Inc.
5.20%
 
Bank of America Corp.
5.19%
 
JPMorgan Chase & Co.
5.16%
 
SunTrust Banks, Inc.
4.63%
 
Morgan Stanley
4.57%
 
Wells Fargo & Co.
4.43%
 
CIT Group, Inc.
4.37%
 
Capital One Financial Corp.
4.37%
 
KeyCorp
4.23%
 
Huntington Bancshares, Inc.
3.95%

 

 

 

 
 

 

 
Note:  For presentation purposes, the Fund has grouped some of the industry categories.  For purposes of categorizing securities for compliance with Section 8(b)(1) of the Investment Company Act of 1940, the Fund uses more specific industry classifications.


HENNESSY FUNDS                                                                                                           1-800-966-4354
 
31
 


 
COMMON STOCKS – 98.33%
   
Number of
         
% of
 
       
Shares
   
Value
   
Net Assets
 
 
Consumer Discretionary – 2.44%
                   
 
Lennar Corp.
      20,000     $ 749,400       1.16 %
 
Toll Brothers, Inc. (a)
      25,000       825,250       1.28 %
                  1,574,650       2.44 %
                             
 
Financials – 89.68%
                         
 
American Express Co.
      28,000       1,567,160       2.42 %
 
American International Group, Inc. (a)
      55,000       1,921,150       2.97 %
 
Ameriprise Financial, Inc.
      10,000       583,700       0.90 %
 
Bank of America Corp.
      360,000       3,355,200       5.19 %
 
BB&T Corp.
      20,000       579,000       0.90 %
 
Capital One Financial Corp.
      47,000       2,827,990       4.37 %
 
CIT Group, Inc. (a)
      76,000       2,828,720       4.37 %
 
Citigroup, Inc.
      90,000       3,365,100       5.20 %
 
Comerica, Inc.
      80,000       2,384,800       3.69 %
 
Discover Financial Services
      25,000       1,025,000       1.58 %
 
Fifth Third Bancorp
      172,000       2,499,160       3.87 %
 
Huntington Bancshares, Inc.
      400,000       2,556,000       3.95 %
 
JPMorgan Chase & Co.
      80,000       3,334,400       5.16 %
 
KeyCorp
      325,000       2,736,500       4.23 %
 
Lincoln National Corp.
      20,000       495,800       0.77 %
 
M&T Bank Corp.
      18,000       1,873,800       2.90 %
 
MetLife, Inc.
      25,000       887,250       1.37 %
 
Morgan Stanley
      170,000       2,954,600       4.57 %
 
New York Community Bancorp, Inc.
      25,000       346,500       0.54 %
 
Prudential Financial, Inc.
      10,000       570,500       0.88 %
 
Regions Financial Corp.
      350,000       2,282,000       3.53 %
 
SunTrust Banks, Inc.
      110,000       2,992,000       4.63 %
 
The Blackstone Group LP
      95,000       1,459,200       2.26 %
 
The Charles Schwab Corp.
      30,000       407,400       0.63 %
 
The Goldman Sachs Group, Inc.
      15,000       1,835,850       2.84 %
 
The PNC Financial Services Group, Inc.
      40,000       2,327,600       3.60 %
 
The Travelers Companies, Inc.
      10,000       709,400       1.10 %
 
U.S. Bancorp (b)
      65,000       2,158,650       3.34 %
 
Wells Fargo & Co.
      85,000       2,863,650       4.43 %
 
Zions Bancorp.
      105,000       2,254,350       3.49 %
                  57,982,430       89.68 %
                             
 
Information Technology – 6.21%
                         
 
Alliance Data Systems Corp. (a)
      4,000       572,200       0.88 %
 
MasterCard, Inc., Class A
      3,000       1,382,790       2.14 %
 
Total System Services, Inc.
      30,000       674,700       1.04 %
 
Visa, Inc., Class A
      10,000       1,387,600       2.15 %
                  4,017,290       6.21 %
 
Total Common Stocks
                         
 
  (Cost $55,975,454)
              63,574,370       98.33 %
                             
 
SHORT-TERM INVESTMENTS – 1.77%
                         
                             
 
Money Market Fund – 1.77%
                         
 
Fidelity Institutional Money Market
                         
 
  Government Portfolio – Class I,
                         
    0.01% (c)       1,146,076       1,146,076       1.77 %
                               
 
Total Money Market Fund
                         
 
  (Cost $1,146,076)
              1,146,076       1.77 %
                               
 
Total Short-Term Investments
                         
 
  (Cost $1,146,076)
              1,146,076       1.77 %
                               
 
Total Investments
                         
 
  (Cost $57,121,530) – 100.10%
              64,720,446       100.10 %
                               
 
Liabilities in Excess of
                         
 
  Other Assets – (0.10)%
              (64,555 )     (0.10 )%
 
TOTAL NET ASSETS – 100.00%
            $ 64,655,891       100.00 %

Percentages are stated as a percent of net assets.

(a)
Non-income producing security.
(b)
Investment in affiliated security.  Quasar Distributors, LLC, which serves as the Fund’s distributor, is a subsidiary of U.S. Bancorp.  Details of transactions with this affiliated company for the year ended October 31, 2012, are as follows:
Issuer
U.S. Bancorp
Beginning Cost
$1,753,019
Purchase Cost
$1,031,566
Sales Cost
$1,095,702
Ending Cost
$1,688,883
Dividend Income
$59,925
Shares
65,000
Market Value
$2,158,650
(c)
The rate listed is the fund’s 7-day yield as of October 31, 2012.


The accompanying notes are an integral part of these financial statements.

WWW.HENNESSYFUNDS.COM
 
32
 
 
Summary of Fair Value Exposure at October 31, 2012
 
The following is a summary of the inputs used to value the Fund’s net assets as of October 31, 2012 (See Note 4 in the accompanying notes to the financial statements):
 
Common Stock
 
Level 1
   
Level 2
   
Level 3
   
Total
 
Consumer Discretionary
  $ 1,574,650     $ —     $ —     $ 1,574,650  
Financials
    57,982,430       —       —       57,982,430  
Information Technology
    4,017,290       —       —       4,017,290  
Total Common Stock
  $ 63,574,370     $ —     $ —     $ 63,574,370  
Short-Term Investments
                               
Money Market Funds
  $ 1,146,076     $ —     $ —     $ 1,146,076  
Total Short-Term Investments
  $ 1,146,076     $ —     $ —     $ 1,146,076  
Total Investments in Securities
  $ 64,720,446     $ —     $ —     $ 64,720,446  

Transfers between levels are recognized at the end of the reporting period. During the period ended October 31, 2012, the Fund recognized no transfers between levels.
 
 
 

 

The accompanying notes are an integral part of these financial statements.

 

HENNESSY FUNDS                                                                                                           1-800-966-4354
 
33
 
 
HENNESSY TECHNOLOGY FUND
(formerly FBR Technology Fund)
 
As of October 31, 2012
 
(% of Net Assets)
 
 

 

 

 

 
 
TOP TEN EQUITY HOLDINGS
% net assets
 
Microsoft Corp.
4.40%
 
Visa, Inc.
4.32%
 
QUALCOMM, Inc.
4.31%
 
Amazon.com, Inc.
4.29%
 
Google, Inc.
4.21%
 
Oracle Corp.
4.20%
 
Intel Corp.
4.18%
 
priceline.com, Inc.
4.16%
 
eBay, Inc.
4.16%
 
Cisco Systems, Inc.
4.14%

 

 
 

 

 

 
Note:  For presentation purposes, the Fund has grouped some of the industry categories.  For purposes of categorizing securities for compliance with Section 8(b)(1) of the Investment Company Act of 1940, the Fund uses more specific industry classifications.


WWW.HENNESSYFUNDS.COM
 
34
 
 
 
COMMON STOCKS – 93.98%
 
Number of
         
% of
 
     
Shares
   
Value
   
Net Assets
 
 
Consumer Discretionary – 8.45%
                 
 
Amazon.com, Inc. (a)
    990     $ 230,492       4.29 %
 
priceline.com, Inc. (a)
    390       223,770       4.16 %
                454,262       8.45 %
                           
 
Health Care – 11.65%
                       
 
Alexion Pharmaceuticals, Inc. (a)
    1,765       159,521       2.97 %
 
athenahealth, Inc. (a)
    525       33,752       0.63 %
 
Catamaran Corp. (a)
    1,165       54,941       1.02 %
 
Cerner Corp. (a)
    1,555       118,475       2.21 %
 
HealthStream, Inc. (a)
    1,125       28,733       0.53 %
 
Intuitive Surgical, Inc. (a)
    362       196,284       3.65 %
 
Myriad Genetics, Inc. (a)
    1,305       34,152       0.64 %
                625,858       11.65 %
                           
 
Industrials – 1.51%
                       
 
Quanta Services, Inc. (a)
    2,000       51,860       0.96 %
 
Westport Innovations, Inc. (a)
    1,050       29,463       0.55 %
                81,323       1.51 %
                           
 
Information Technology – 72.37%
                       
 
3D Systems Corp. (a)
    735       31,973       0.60 %
 
Analog Devices, Inc.
    2,725       106,575       1.98 %
 
Apple, Inc.
    248       147,585       2.75 %
 
Applied Materials, Inc.
    11,310       119,886       2.23 %
 
Aruba Networks, Inc. (a)
    1,805       32,797       0.61 %
 
Automatic Data Processing, Inc.
    3,850       222,491       4.14 %
 
Cirrus Logic, Inc. (a)
    770       31,385       0.58 %
 
Cisco Systems, Inc.
    12,995       222,734       4.14 %
 
Cognizant Technology
                       
 
  Solutions Corp., Class A (a)
    2,727       181,755       3.38 %
 
CoStar Group, Inc. (a)
    365       30,258       0.56 %
 
Datawatch Corp. (a)
    1,710       29,874       0.56 %
 
eBay, Inc. (a)
    4,630       223,583       4.16 %
 
Equinix, Inc. (a)
    440       79,380       1.48 %
 
Fortinet, Inc. (a)
    1,640       31,767       0.59 %
 
Google, Inc., Class A (a)
    333       226,363       4.21 %
 
iGATE Corp. (a)
    2,075       33,304       0.62 %
 
Intel Corp.
    10,380       224,467       4.18 %
 
IPG Photonics Corp. (a)
    510       27,071       0.50 %
 
KLA-Tencor Corp.
    1,535       71,408       1.33 %
 
Liquidity Services, Inc. (a)
    765       31,541       0.59 %
 
LivePerson, Inc. (a)
    2,160       33,890       0.63 %
 
MICROS Systems, Inc. (a)
    685       31,092       0.58 %
 
Microsoft Corp.
    8,290       236,555       4.40 %
 
MIPS Technologies, Inc. (a)
    4,140       28,939       0.54 %
 
NetApp, Inc. (a)
    3,325       89,443       1.66 %
 
Netgear, Inc. (a)
    955       33,912       0.63 %
 
NeuStar, Inc. (a)
    810       29,638       0.55 %
 
Oracle Corp.
    7,270       225,733       4.20 %
 
PROS Holdings, Inc. (a)
    1,158       22,384       0.42 %
 
QUALCOMM, Inc.
    3,955       231,664       4.31 %
 
Red Hat, Inc. (a)
    1,775       87,277       1.62 %
 
RF Industries Ltd
    7,278       32,096       0.60 %
 
salesforce.com, Inc. (a)
    1,265       184,665       3.44 %
 
SolarWinds, Inc. (a)
    675       34,148       0.64 %
 
Sourcefire, Inc. (a)
    725       31,023       0.58 %
 
Syntel, Inc.
    564       33,620       0.63 %
 
Teradyne, Inc. (a)
    2,265       33,114       0.62 %
 
Ultratech, Inc. (a)
    1,150       35,547       0.66 %
 
Visa, Inc., Class A
    1,675       232,423       4.32 %
 
Western Digital Corp.
    2,300       78,729       1.46 %
 
WEX, Inc. (a)
    500       36,890       0.69 %
                3,888,979       72.37 %
 
Total Common Stocks
                       
 
  (Cost $4,960,725)
            5,050,422       93.98 %
                           
 
SHORT-TERM INVESTMENTS – 6.70%
                       
 
Money Market Fund – 6.70%
                       
 
Federated Government Obligations
                       
 
  Fund – Class I, 0.01% (b)
    90,194       90,194       1.68 %
 
Fidelity Institutional Money Market
                       
 
  Government Portfolio – Class I,
                       
 
  0.01% (b)
    270,000       270,000       5.02 %
                           
 
Total Money Market Fund
                       
 
  (Cost $360,194)
            360,194       6.70 %
                           
 
Total Short-Term Investments
                       
 
  (Cost $360,194)
            360,194       6.70 %
                           
 
Total Investments
                       
 
  (Cost $5,320,919) – 100.68%
            5,410,616       100.68 %
                           
 
Liabilities in Excess of
                       
 
  Other Assets – (0.68)%
            (36,572 )     (0.68 )%
 
TOTAL NET ASSETS – 100.00%
          $ 5,374,044       100.00 %

Percentages are stated as a percent of net assets.

(a) Non-income producing security.
(b) The rate listed is the fund’s 7-day yield as of October 31, 2012.


The accompanying notes are an integral part of these financial statements.


HENNESSY FUNDS                                                                                                           1-800-966-4354
 
35
 


Summary of Fair Value Exposure at October 31, 2012
 
The following is a summary of the inputs used to value the Fund’s net assets as of October 31, 2012 (See Note 4 in the accompanying notes to the financial statements):
 
Common Stock
 
Level 1
   
Level 2
   
Level 3
   
Total
 
Consumer Discretionary
  $ 454,262     $ —     $ —     $ 454,262  
Health Care
    625,858       —       —       625,858  
Industrials
    81,323       —       —       81,323  
Information Technology
    3,888,979       —       —       3,888,979  
Total Common Stock
  $ 5,050,422     $ —     $ —     $ 5,050,422  
Short-Term Investments
                               
Money Market Funds
  $ 360,194     $ —     $ —     $ 360,194  
Total Short-Term Investments
  $ 360,194     $ —     $ —     $ 360,194  
Total Investments in Securities
  $ 5,410,616     $ —     $ —     $ 5,410,616  

Transfers between levels are recognized at the end of the reporting period. During the period ended October 31, 2012, the Fund recognized no transfers between levels.
 

 
 

 
 
The accompanying notes are an integral part of these financial statements.
 

WWW.HENNESSYFUNDS.COM
 
36
 

HENNESSY EQUITY AND INCOME FUND
(formerly FBR Balanced Fund)
 
As of October 31, 2012
 
(% of Net Assets)
 
 

 

 
 

 

 
 
TOP TEN HOLDINGS
% net assets
 
U.S. Treasury Note, 4.125%, 5/15/2015
4.27%
 
U.S. Treasury Note, 2.250%, 5/31/2014
3.22%
 
NewMarket Corp.
3.05%
 
U.S. Treasury Bond, 3.125%, 2/15/2042
2.46%
 
Albemarle Corp.
2.20%
 
Bristol-Myers Squibb Co.
2.19%
 
Wells Fargo & Co.
2.16%
 
Dominion Resources, Inc.
2.16%
 
Verizon Communications, Inc.
2.13%
 
CarMax, Inc.
2.03%

 

 


 
 

 

 
Note:  For presentation purposes, the Fund has grouped some of the industry categories.  For purposes of categorizing securities for compliance with Section 8(b)(1) of the Investment Company Act of 1940, the Fund uses more specific industry classifications.
 

HENNESSY FUNDS                                                                                                           1-800-966-4354
 
37
 
 
 
COMMON STOCKS – 53.02%
 
Number of
         
% of
 
     
Shares
   
Value
   
Net Assets
 
 
Consumer Discretionary – 3.30%
                 
 
CarMax, Inc. (a)
    183,681     $ 6,199,234       2.03 %
 
Lowes Companies, Inc.
    120,173       3,891,201       1.27 %
                10,090,435       3.30 %
                           
 
Consumer Staples – 11.13%
                       
 
Altria Group, Inc.
    156,700       4,983,060       1.63 %
 
Brown-Forman Corp., Class B
    31,273       2,003,348       0.66 %
 
Energizer Holdings, Inc. (a)
    62,597       4,567,703       1.50 %
 
Lorillard, Inc.
    24,643       2,858,834       0.94 %
 
Philip Morris International, Inc.
    39,105       3,463,139       1.13 %
 
Reynolds American, Inc.
    97,076       4,042,245       1.32 %
 
The Coca-Cola Co.
    127,720       4,748,630       1.55 %
 
The Hershey Co.
    27,973       1,925,941       0.63 %
 
Wal-Mart Stores, Inc.
    72,073       5,406,916       1.77 %
                33,999,816       11.13 %
                           
 
Energy – 3.30%
                       
 
Chevron Corp.
    54,601       6,017,576       1.97 %
 
ConocoPhillips
    49,755       2,878,327       0.94 %
 
Phillips 66
    24,874       1,173,058       0.39 %
                10,068,961       3.30 %
                           
 
Financials – 7.64%
                       
 
Alexander & Baldwin, Inc. (a)
    85,703       2,479,388       0.81 %
 
Berkshire Hathaway, Inc., Class B (a)
    68,295       5,897,273       1.93 %
 
Eaton Vance Corp.
    205,410       5,780,237       1.89 %
 
PennantPark Investment Corp.
    19,000       209,000       0.07 %
 
Wells Fargo & Co.
    196,089       6,606,239       2.16 %
 
White Mountains Insurance Group Ltd.
    4,623       2,370,212       0.78 %
                23,342,349       7.64 %
                           
 
Health Care – 3.39%
                       
 
Bristol-Myers Squibb Co.
    201,058       6,685,178       2.19 %
 
Pfizer, Inc.
    146,948       3,654,597       1.20 %
                10,339,775       3.39 %
                           
 
Industrials – 1.31%
                       
 
ACCO Brands Corp. (a)
    61,446       444,869       0.15 %
 
FedEx Corp.
    37,579       3,456,892       1.13 %
 
Matson, Inc.
    3,913       83,152       0.03 %
                3,984,913       1.31 %
                           
 
Information Technology – 10.85%
                       
 
Cisco Systems, Inc.
    281,313       4,821,705       1.58 %
 
Corning, Inc.
    382,781       4,497,677       1.47 %
 
EMC Corp. (a)
    249,520       6,093,278       2.00 %
 
Intel Corp.
    232,224       5,021,844       1.64 %
 
International Business Machines Corp.
    20,165       3,922,698       1.28 %
 
Microsoft Corp.
    158,202       4,514,294       1.48 %
 
Visa, Inc., Class A
    30,733       4,264,511       1.40 %
                33,136,007       10.85 %
                           
 
Materials – 7.09%
                       
 
Albemarle Corp.
    121,772       6,710,855       2.20 %
 
MeadWestvaco Corp.
    188,821       5,606,096       1.84 %
 
NewMarket Corp.
    34,378       9,327,095       3.05 %
                21,644,046       7.09 %
                           
 
Telecommunication Services – 2.13%
                       
 
Verizon Communications, Inc.
    145,511       6,495,611       2.13 %
                           
 
Utilities – 2.88%
                       
 
Dominion Resources, Inc.
    125,149       6,605,364       2.16 %
 
Duke Energy Corp.
    33,546       2,203,637       0.72 %
                8,809,001       2.88 %
 
Total Common Stocks
                       
 
  (Cost $141,852,592)
            161,910,914       53.02 %
                           
 
PREFERRED STOCKS – 0.01%
                       
 
Financials – 0.01%
                       
 
Federal National Mortgage Association,
                       
 
  Perpetual, Series S, 8.250%, 12/31/2015
    10,600       18,020       0.01 %
                           
 
Total Preferred Stocks
                       
 
  (Cost $265,000)
            18,020       0.01 %
                           
 
REITS – 2.36%
                       
 
Financials – 2.36%
                       
 
Apollo Commercial Real
                       
 
  Estate Finance, Inc.
    7,000       118,370       0.04 %
 
Chimera Investment Corp.
    115,000       307,050       0.10 %
 
Hatteras Financial Corp.
    131,141       3,576,215       1.17 %
 
Starwood Property Trust, Inc.
    4,500       103,140       0.03 %
 
UDR, Inc.
    128,371       3,115,564       1.02 %
                           
 
Total Reits (Cost $7,057,220)
            7,220,339       2.36 %
                           
 
CORPORATE BONDS – 16.61%
                       
 
Consumer Discretionary – 0.57%
                       
 
Best Buy Company, Inc.
                       
 
  6.750%, 07/15/2013
    300,000       306,802       0.10 %
 
Comcast Corp.
                       
 
  4.950%, 06/15/2016
    600,000       682,928       0.22 %
 
Marriott International, Inc., Series J
                       
 
  5.625%, 02/15/2013
    150,000       151,916       0.05 %
 
Starbucks Corp.
                       
 
  6.250%, 08/15/2017
    300,000       367,475       0.12 %
 
The Home Depot, Inc.
                       
 
  5.400%, 03/01/2016
    200,000       230,528       0.08 %
                1,739,649       0.57 %
                           
 
Consumer Staples – 0.47%
                       
 
Anheuser-Busch InBev Worldwide, Inc.
                       
 
  7.750%, 01/15/2019
    150,000       203,758       0.07 %
 
CVS Caremark Corp.
                       
 
  4.750%, 05/18/2020
    400,000       471,966       0.16 %
 
Diageo Capital PLC
                       
 
  7.375%, 01/15/2014
    350,000       378,131       0.12 %


The accompanying notes are an integral part of these financial statements.
 

WWW.HENNESSYFUNDS.COM
 
38
 
 
 
CORPORATE BONDS
 
Number of
         
% of
 
     
Shares
   
Value
   
Net Assets
 
 
Consumer Staples (Continued)
                 
 
Wal-Mart Stores, Inc.
                 
 
  5.000%, 10/25/2040
    300,000     $ 368,863       0.12 %
                1,422,718       0.47 %
                           
 
Energy – 0.12%
                       
 
Devon Energy Corp.
                       
 
  5.625%, 01/15/2014
    200,000       212,190       0.07 %
 
Husky Energy, Inc.
                       
 
  5.900%, 06/15/2014
    150,000       162,018       0.05 %
                374,208       0.12 %
                           
 
Financials – 9.08%
                       
 
Aflac, Inc.
                       
 
  8.500%, 05/15/2019
    650,000       884,436       0.29 %
 
American Express Credit Corp.
                       
 
  2.750%, 09/15/2015
    650,000       685,684       0.22 %
 
American Express Credit Corp., Series C
                       
 
  7.300%, 08/20/2013
    60,000       63,238       0.02 %
 
American International Group, Inc.
                       
 
  4.250%, 09/15/2014
    270,000       286,060       0.09 %
 
  5.850%, 01/16/2018
    575,000       673,357       0.22 %
 
Associated Banc-Corp
                       
 
  5.125%, 03/28/2016
    700,000       768,149       0.25 %
 
Associates Corporation of North America
                       
 
  6.950%, 11/01/2018
    300,000       362,870       0.12 %
 
Bank of Montreal
                       
 
  2.500%, 01/11/2017
    400,000       421,486       0.14 %
 
Capital One Financial Corp.
                       
 
  4.750%, 07/15/2021
    1,000,000       1,149,437       0.38 %
 
Caterpillar Financial Services Corp.
                       
 
  4.900%, 08/15/2013
    325,000       336,496       0.11 %
 
Citigroup, Inc.
                       
 
  6.125%, 11/21/2017
    1,455,000       1,727,773       0.57 %
 
CME Group, Inc.
                       
 
  5.750%, 02/15/2014
    375,000       399,492       0.13 %
 
Credit Suisse USA, Inc.
                       
 
  5.125%, 08/15/2015
    575,000       638,219       0.21 %
 
Discover Financial Services
                       
 
  5.200%, 04/27/2022 (b)
    900,000       1,018,544       0.33 %
 
Fifth Third Bancorp
                       
 
  3.625%, 01/25/2016
    700,000       754,872       0.25 %
 
First Niagara Financial Group, Inc.
                       
 
  6.750%, 03/19/2020
    590,000       692,220       0.23 %
 
General Electric Capital Corp.
                       
 
  5.500%, 06/04/2014
    250,000       268,993       0.09 %
 
  5.625%, 05/01/2018
    1,050,000       1,248,732       0.41 %
 
HSBC Finance Corp.
                       
 
  2.375%, 02/13/2015
    1,000,000       1,034,814       0.34 %
 
  5.000%, 06/30/2015
    700,000       764,907       0.25 %
 
JPMorgan Chase & Co.
                       
 
  5.125%, 09/15/2014
    650,000       694,813       0.23 %
 
KeyCorp
                       
 
  3.750%, 08/13/2015
    400,000       430,853       0.14 %
 
  5.100%, 03/24/2021
    450,000       533,482       0.17 %
 
Lazard Group
                       
 
  6.850%, 06/15/2017
    320,000       363,226       0.12 %
 
Lincoln National Corp.
                       
 
  6.250%, 02/15/2020
    780,000       927,134       0.30 %
 
Manulife Financial Corp.
                       
 
  3.400%, 09/17/2015
    300,000       315,456       0.10 %
 
Merrill Lynch & Company, Inc.
                       
 
  6.875%, 04/25/2018 (c)
    455,000       550,002       0.18 %
 
Merrill Lynch & Company, Inc.,
                       
 
  Series MTNC, 0.800%, 01/15/2015 (c)
    250,000       244,861       0.08 %
 
MetLife, Inc., Series A
                       
 
  6.817%, 08/15/2018
    100,000       126,531       0.04 %
 
Morgan Stanley
                       
 
  4.750%, 04/01/2014
    250,000       259,442       0.08 %
 
  5.75%, 01/25/2021
    250,000       280,177       0.09 %
 
  6.625%, 04/01/2018
    250,000       291,106       0.10 %
 
Prudential Financial, Inc.
                       
 
  5.500%, 03/15/2016
    310,000       352,351       0.12 %
 
Prudential Financial, Inc., Series MTNB
                       
 
  5.100%, 09/20/2014
    285,000       307,147       0.10 %
 
Qwest Capital Funding, Inc.
                       
 
  6.500%, 11/15/2018
    700,000       805,429       0.26 %
 
Raymond James Financial, Inc.
                       
 
  5.625%, 04/01/2024
    700,000       778,816       0.26 %
 
St. Paul Travelers, Inc.
                       
 
  5.500%, 12/01/2015
    275,000       313,289       0.10 %
 
SunTrust Banks, Inc.
                       
 
  3.600%, 04/15/2016
    250,000       268,255       0.09 %
 
  5.250%, 11/05/2012
    375,000       375,024       0.12 %
 
  6.000%, 09/11/2017
    250,000       297,525       0.10 %
 
The Bear Stearns Companies, Inc.
                       
 
  6.400%, 10/02/2017
    1,350,000       1,628,462       0.53 %
 
The Goldman Sachs Group, Inc.
                       
 
  5.375%, 03/15/2020
    1,100,000       1,245,661       0.41 %
 
The Hartford Financial Services
                       
 
  Group, Inc., 5.375%, 03/15/2017
    300,000       341,000       0.11 %
 
The Royal Bank of Scotland PLC
                       
 
  4.375%, 03/16/2016
    400,000       435,655       0.14 %
 
Wachovia Corp.
                       
 
  5.250%, 08/01/2014
    300,000       322,136       0.11 %
 
Westpac Banking Corp.
                       
 
  4.200%, 02/27/2015
    500,000       537,352       0.18 %
 
  4.875%, 11/19/2019
    450,000       520,897       0.17 %
                27,725,861       9.08 %
                           
 
Health Care – 1.30%
                       
 
Agilent Technologies, Inc.
                       
 
  5.000%, 07/15/2020
    650,000       753,658       0.25 %
 
GlaxoSmithKline Capital, Inc.
                       
 
  1.500%, 05/08/2017
    500,000       511,885       0.17 %
 
  2.850%, 05/08/2022
    1,000,000       1,054,525       0.34 %
 
  4.850%, 05/15/2013
    325,000       332,687       0.11 %
 
Merck & Co., Inc.
                       
 
  6.000%, 09/15/2017
    850,000       1,049,332       0.34 %
 
UnitedHealth Group, Inc.
                       
 
  5.375%, 03/15/2016
    250,000       284,367       0.09 %
                3,986,454       1.30 %


The accompanying notes are an integral part of these financial statements.


HENNESSY FUNDS                                                                                                           1-800-966-4354
 
39
 
 
 
CORPORATE BONDS
 
Number of
         
% of
 
     
Shares
   
Value
   
Net Assets
 
 
Industrials – 0.58%
                 
 
FedEx Corp.
                 
 
  7.375%, 01/15/2014
    300,000     $ 323,547       0.11 %
 
John Deere Capital Corp.
                       
 
  1.850%, 09/15/2016
    1,000,000       1,036,491       0.34 %
 
Swiss RE Solutions
                       
 
  7.000%, 02/15/2026
    150,000       186,806       0.06 %
 
The Boeing Co.
                       
 
  5.000%, 03/15/2014
    220,000       233,225       0.07 %
                1,780,069       0.58 %
                           
 
Information Technology – 2.22%
                       
 
Altera Corp.
                       
 
  1.750%, 05/15/2017
    1,000,000       1,026,843       0.34 %
 
Applied Materials, Inc.
                       
 
  4.300%, 06/15/2021
    300,000       342,570       0.11 %
 
Corning, Inc.
                       
 
  6.850%, 03/01/2029
    275,000       345,130       0.11 %
 
Dell, Inc.
                       
 
  4.625%, 04/01/2021
    550,000       605,602       0.20 %
 
eBay, Inc.
                       
 
  3.250%, 10/15/2020
    250,000       272,914       0.09 %
 
Hewlett Packard Co.
                       
 
  2.650%, 06/01/2016
    250,000       250,506       0.08 %
 
  3.000%, 09/15/2016
    150,000       151,252       0.05 %
 
  6.000%, 09/15/2041
    250,000       246,970       0.08 %
 
Intel Corp.
                       
 
  3.300%, 10/01/2021
    250,000       274,867       0.09 %
 
Juniper Networks, Inc.
                       
 
  4.600%, 03/15/2021
    1,000,000       1,078,275       0.35 %
 
KLA-Tencor Corp.
                       
 
  6.900%, 05/01/2018
    650,000       784,351       0.26 %
 
Symantec Corp.
                       
 
  2.750%, 06/15/2017
    500,000       519,679       0.17 %
 
  3.950%, 06/15/2022
    500,000       520,628       0.17 %
 
  4.200%, 09/15/2020
    350,000       372,616       0.12 %
                6,792,203       2.22 %
                           
 
Materials – 1.41%
                       
 
Alcoa, Inc.
                       
 
  6.150%, 08/15/2020
    625,000       685,079       0.22 %
 
AngloGold Ashanti Holdings PLC
                       
 
  5.125%, 08/01/2022
    1,000,000       1,021,769       0.34 %
 
Barrick Gold Financeco LLC
                       
 
  6.125%, 09/15/2013
    350,000       366,836       0.12 %
 
BHP Billiton Finance USA Ltd.
                       
 
  6.750%, 11/01/2013
    250,000       265,884       0.09 %
 
El du Pont de Nemours & Co.
                       
 
  4.750%, 03/15/2015
    315,000       345,796       0.11 %
 
International Paper Co.
                       
 
  9.375%, 05/15/2019
    250,000       344,541       0.11 %
 
Rio Tinto Finance USA PLC
                       
 
  2.000%, 03/22/2017
    640,000       654,893       0.22 %
 
The Dow Chemical Co.
                       
 
  4.250%, 11/15/2020
    550,000       611,743       0.20 %
                4,296,541       1.41 %
                           
 
Telecommunication Services – 0.75%
                       
 
AT&T, Inc.
                       
 
  2.950%, 05/15/2016
    275,000       295,326       0.10 %
 
  3.000%, 02/15/2022
    250,000       266,242       0.09 %
 
  5.350%, 09/01/2040
    200,000       246,261       0.08 %
 
CenturyLink, Inc.
                       
 
  5.150%, 06/15/2017
    400,000       431,577       0.14 %
 
Deutsche Telekom International
                       
 
  Finance BV, 5.875%, 08/20/2013
    400,000       416,358       0.13 %
 
Verizon Communications, Inc.
                       
 
  8.750%, 11/01/2018
    450,000       628,671       0.21 %
                2,284,435       0.75 %
                           
 
Utilities – 0.11%
                       
 
Sempra Energy
                       
 
  6.500%, 06/01/2016
    275,000       325,919       0.11 %
                           
 
Total Corporate Bonds
                       
 
  (Cost $47,708,435)
            50,728,057       16.61 %
                           
 
MORTGAGE BACKED SECURITIES – 4.76%
                       
 
Federal Home Loan Mortgage Corp.
                       
 
  3.000%, 05/01/2042
    4,800,602       5,032,259       1.65 %
 
  3.000%, 09/01/2042
    2,995,149       3,139,683       1.03 %
 
  5.000%, 05/01/2020
    212,270       233,373       0.08 %
 
  5.500%, 04/01/2037
    410,186       458,488       0.15 %
 
Federal National Mortgage Association
                       
 
  3.500%, 01/01/2042
    1,237,561       1,319,697       0.43 %
 
  4.000%, 12/01/2041
    1,684,911       1,807,671       0.59 %
 
  4.000%, 10/01/2041
    1,745,535       1,872,712       0.61 %
 
  4.500%, 08/01/2020
    248,361       268,259       0.09 %
 
  6.000%, 10/01/2037
    353,001       392,473       0.13 %
                           
 
Total Mortgage Backed Securities
                       
 
  (Cost $14,171,252)
            14,524,615       4.76 %
                           
 
U.S. GOVERNMENT AGENCY ISSUE – 0.24%
                       
 
Federal Home Loan Banks
                       
 
  5.750%, 06/15/2037
    600,000       723,556       0.24 %
                           
 
Total U.S. Government
                       
 
  Agency Issues
                       
 
  (Cost $701,826)
            723,556       0.24 %
                           
 
U.S. TREASURY OBLIGATIONS – 18.50%
                       
 
U.S. Treasury Bond – 5.56%
                       
 
U.S. Treasury Bond
                       
 
  3.125%, 02/15/2042
    7,090,000       7,516,506       2.46 %
 
  5.000%, 05/15/2037
    3,360,000       4,799,024       1.57 %
 
  5.250%, 02/15/2029
    1,925,000       2,690,188       0.88 %
 
U.S. Treasury Inflation Indexed Bond
                       
 
  0.125%, 07/15/2022
    1,803,258       1,976,540       0.65 %
                16,982,258       5.56 %
                           
 
U.S. Treasury Note – 12.94%
                       
 
1.000%, 05/15/2014
    3,000,000       3,034,455       0.99 %
 
1.250%, 09/30/2015
    2,450,000       2,511,826       0.82 %
 
2.125%, 08/15/2021
    2,280,000       2,399,522       0.79 %
 

The accompanying notes are an integral part of these financial statements.


WWW.HENNESSYFUNDS.COM
 
40
 
 
 
U.S. TREASURY OBLIGATIONS
   
Number of
         
% of
 
       
Shares
   
Value
   
Net Assets
 
 
U.S. Treasury Note (Continued)
                   
 
2.250%, 05/31/2014
      9,550,000     $ 9,850,309       3.22 %
 
3.125%, 10/31/2016
      1,655,000       1,823,862       0.60 %
 
3.500%, 05/15/2020
      3,060,000       3,562,510       1.17 %
 
3.750%, 11/15/2018
      2,825,000       3,296,642       1.08 %
 
4.125%, 05/15/2015
      11,900,000       13,037,009       4.27 %
                  39,516,135       12.94 %
 
Total U.S. Treasury Obligations
                         
 
(Cost $56,156,707)
              56,498,393       18.50 %
                             
 
EXCHANGE TRADED FUNDS – 3.11%
                         
 
iShares iBoxx $High Yield
                         
 
Corporation Bond Fund
      39,800       3,686,674       1.21 %
 
iShares S&P U.S. Preferred
                         
 
Stock Index Fund
      49,500       1,982,475       0.65 %
 
Powershares ETF Trust II
                         
 
Senior Loan Portfolio
      17,500       434,700       0.14 %
 
SPDR Barclays Capital High Yield Bond
      84,500       3,407,885       1.11 %
                             
 
Total Exchange Traded Funds
                         
 
(Cost $9,440,996)
              9,511,734       3.11 %
                             
 
MUTUAL FUNDS – 0.12%
                         
 
Calamos Convertible Opportunities
                         
 
and Income Fund
      18,500       231,435       0.07 %
 
NGP Capital Resources Co.
      8,000       58,640       0.02 %
 
Wells Fargo Advantage Income
                         
 
Opportunities Fund
      8,000       83,440       0.03 %
                             
 
Total Mutual Funds (Cost $378,764)
              373,515       0.12 %
                             
 
SHORT-TERM INVESTMENTS – 0.68%
                         
 
Money Market Fund – 0.68%
                         
 
Fidelity Institutional Money Market
                         
 
  Government Portfolio – Class I,
                         
    0.01% (d)       2,086,102       2,086,102       0.68 %
                               
 
Total Money Market Fund
                         
 
  (Cost $2,086,102)
              2,086,102       0.68 %
                               
 
Total Short-Term Investments
                         
 
  (Cost $2,086,102)
              2,086,102       0.68 %
                               
 
Total Investments
                         
 
  (Cost $279,818,894) – 99.41%
              303,595,245       99.41 %
                               
 
Other Assets in Excess
                         
 
  of Liabilities – 0.59%
              1,809,970       0.59 %
 
TOTAL NET ASSETS – 100.00%
            $ 305,405,215       100.00 %

Percentages are stated as a percent of net assets.

(a)
Non-income producing security.
(b)
This security is a restricted security under Rule 144A of the Securities Act of 1933.  These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.  As of October 31, 2012, the total amount of 144A securities was $1,018,544 or 0.33% of total net assets.
(c)
Variable/floating rate security.
(d)
The rate listed is the fund’s 7-day yield as of October 31, 2012.


The accompanying notes are an integral part of these financial statements.


HENNESSY FUNDS                                                                                                           1-800-966-4354
 
41
 

Summary of Fair Value Exposure at October 31, 2012
 
The following is a summary of the inputs used to value the Fund’s net assets as of October 31, 2012 (See Note 4 in the accompanying notes to the financial statements):
 
 
Common Stock
 
Level 1
   
Level 2
   
Level 3
   
Total
 
 
Consumer Discretionary
  $ 10,090,435     $ —     $ —     $ 10,090,435  
 
Consumer Staples
    33,999,816       —       —       33,999,816  
 
Energy
    10,068,961       —       —       10,068,961  
 
Financials
    23,342,349       —       —       23,342,349  
 
Health Care
    10,339,775       —       —       10,339,775  
 
Industrials
    3,984,913       —       —       3,984,913  
 
Information Technology
    33,136,007       —       —       33,136,007  
 
Materials
    21,644,046       —       —       21,644,046  
 
Telecommunication Services
    6,495,611       —       —       6,495,611  
 
Utilities
    8,809,001       —       —       8,809,001  
 
Total Common Stock
  $ 161,910,914     $ —     $ —     $ 161,910,914  
                                   
 
Preferred Stock
  $ 18,020     $ —     $ —     $ 18,020  
                                   
 
REITS
                               
 
Financials
  $ 7,220,339     $ —     $ —     $ 7,220,339  
                                   
 
Corporate Bonds
                               
 
Consumer Discretionary
  $ —     $ 1,739,649     $ —     $ 1,739,649  
 
Consumer Staples
    —       1,422,718       —       1,422,718  
 
Energy
    —       374,208       —       374,208  
 
Financials
    —       27,725,861       —       27,725,861  
 
Health Care
    —       3,986,454       —       3,986,454  
 
Industrials
    —       1,780,069       —       1,780,069  
 
Information Technology
    —       6,792,203       —       6,792,203  
 
Materials
    —       4,296,541       —       4,296,541  
 
Telecommunication Services
    —       2,284,435       —       2,284,435  
 
Utilities
    —       325,919       —       325,919  
 
Total Corporate Bonds
  $ —     $ 50,728,057     $ —     $ 50,728,057  
                                   
 
Mortgage Backed Securities
  $ —     $ 14,524,615     $ —     $ 14,524,615  
                                   
 
U.S. Government Agency Issues
  $ —     $ 723,556     $ —     $ 723,556  
                                   
 
U.S. Treasury Obligations
                               
 
U.S. Treasury Bonds
  $ —     $ 16,982,258     $ —     $ 16,982,258  
 
U.S. Treasury Notes
    —       39,516,135       —       39,516,135  
 
Total U.S. Treasury Obligations
  $ —     $ 56,498,393     $ —     $ 56,498,393  
                                   
 
Exchange Traded Funds
  $ 9,511,734     $ —     $ —     $ 9,511,734  
                                   
 
Mutual Funds
  $ 373,515     $ —     $ —     $ 373,515  
                                   
 
Short-Term Investments
                               
 
Money Market Funds
  $ 2,086,102     $ —     $ —     $ 2,086,102  
 
Total Short-Term Investments
  $ 2,086,102     $ —     $ —     $ 2,086,102  
 
Total Investments in Securities
  $ 181,120,624     $ 122,474,621     $ —     $ 303,595,245  

Transfers between levels are recognized at the end of the reporting period. During the period ended October 31, 2012, the Fund recognized no transfers between levels.
 

 

 
The accompanying notes are an integral part of these financial statements.

WWW.HENNESSYFUNDS.COM
 
42
 
 
HENNESSY CORE BOND FUND
(formerly FBR Core Bond Fund)
 
As of October 31, 2012
 
(% of Net Assets)
 
 


 
 
 
 
 

 
 
TOP TEN HOLDINGS*
% net assets
 
U.S. Treasury Note, 4.125%, 05/15/2015
10.48%
 
U.S. Treasury Bond, 5.000%, 05/15/2037
5.46%
 
U.S. Treasury Bond, 3.125%, 02/15/2042
4.88%
 
U.S. Treasury Note, 3.500%, 05/15/2020
3.08%
 
iShares iBoxx $High Yield Corporation Bond Fund
2.79%
 
U.S. Treasury Note, 3.250%, 05/31/2016
2.66%
 
U.S. Treasury Note, 2.125%, 08/15/2021
2.08%
 
SPDR Barclays Capital High Yield Bond
2.08%
 
Federal National Mortgage Association 4.000%, 12/1/2041
1.84%
 
U.S. Treasury Inflation Index Bond
1.79%

 
*  Excludes short-term investments.


 
 

 

 
Note:  For presentation purposes, the Fund has grouped some of the industry categories.  For purposes of categorizing securities for compliance with Section 8(b)(1) of the Investment Company Act of 1940, the Fund uses more specific industry classifications.

 

HENNESSY FUNDS                                                                                                           1-800-966-4354
 
43
 
 
 
COMMON STOCKS – 0.48%
 
Number of
         
% of
 
     
Shares
   
Value
   
Net Assets
 
 
Financials – 0.48%
                 
 
PennantPark Investment Corp.
    16,000     $ 176,000       0.48 %
                           
 
Total Common Stocks
                       
 
  (Cost $176,399)
            176,000       0.48 %
                           
 
CONVERTIBLE PREFERRED STOCKS – 1.55%
                       
 
Financials – 1.55%
                       
 
Boston Private Capital Trust I
    13,350       572,381       1.55 %
                           
 
Total Convertible Preferred Stocks
                       
 
  (Cost $638,783)
            572,381       1.55 %
                           
 
PREFERRED STOCKS – 0.04%
                       
 
Financials – 0.04%
                       
 
Federal National Mortgage Association,
                       
 
  Perpetual Series S, 8.250%, 12/31/2015 (a)
    7,900       13,430       0.04 %
                           
 
Total Preferred Stocks
                       
 
  (Cost $197,500)
            13,430       0.04 %
                           
 
REITS – 1.29%
                       
 
Financials – 1.29%
                       
 
Apollo Commercial Real
                       
 
  Estate Finance, Inc.
    8,500       143,735       0.39 %
 
Chimera Investment Corp.
    72,500       193,575       0.53 %
 
Starwood Property Trust, Inc.
    6,000       137,520       0.37 %
                           
 
Total Reits (Cost $494,648)
            474,830       1.29 %
                           
 
CORPORATE BONDS – 44.42%
                       
 
Consumer Discretionary – 5.50%
                       
 
Best Buy Company, Inc.
                       
 
  7.000%, 07/15/2013
    275,000       281,235       0.76 %
 
Comcast Corp.
                       
 
  6.500%, 01/15/2017
    250,000       305,300       0.83 %
 
Royal Caribbean Cruises Ltd.
                       
 
  7.500%, 10/15/2027
    575,000       619,563       1.68 %
 
Starbucks Corp.
                       
 
  6.250%, 08/15/2017
    275,000       336,852       0.91 %
 
The Home Depot, Inc.
                       
 
  5.400%, 03/01/2016
    120,000       138,317       0.37 %
 
YUM! Brands, Inc.
                       
 
  5.300%, 09/15/2019
    300,000       349,749       0.95 %
                2,031,016       5.50 %
                           
 
Consumer Staples – 0.78%
                       
 
Altria Group, Inc.
                       
 
  9.250%, 08/06/2019
    84,000       118,698       0.32 %
 
Anheuser-Busch InBev Worldwide, Inc.
                       
 
  7.750%, 01/15/2019
    125,000       169,798       0.46 %
                288,496       0.78 %
                           
 
Energy – 0.87%
                       
 
Devon Energy Corp.
                       
 
  5.625%, 01/15/2014
    175,000       185,666       0.50 %
 
Husky Energy, Inc.
                       
 
  5.900%, 06/15/2014
    125,000       135,015       0.37 %
                320,681       0.87 %
                           
 
Financials – 27.40%
                       
 
Aflac, Inc.
                       
 
  8.500%, 05/15/2019
    250,000       340,168       0.92 %
 
American Express Credit Corp., Series C
                       
 
  5.125%, 08/25/2014
    275,000       296,999       0.80 %
 
  7.300%, 08/20/2013
    60,000       63,238       0.17 %
 
American International Group, Inc.
                       
 
  5.850%, 01/16/2018
    350,000       409,869       1.11 %
 
Associated Banc-Corp
                       
 
  5.125%, 03/28/2016
    250,000       274,339       0.74 %
 
Associates Corporation of North America
                       
 
  6.950%, 11/01/2018
    250,000       302,391       0.82 %
 
Capital One Financial Corp.
                       
 
  6.750%, 09/15/2017
    200,000       246,401       0.67 %
 
Citigroup, Inc.
                       
 
  6.125%, 11/21/2017
    250,000       296,868       0.80 %
 
CME Group, Inc.
                       
 
  5.750%, 02/15/2014
    300,000       319,594       0.87 %
 
Credit Suisse USA, Inc.
                       
 
  5.125%, 08/15/2015
    225,000       249,738       0.68 %
 
Discover Financial Services
                       
 
  5.200%, 04/27/2022 (b)
    350,000       396,101       1.07 %
 
Fifth Third Bancorp
                       
 
  6.250%, 05/01/2013
    250,000       257,009       0.70 %
 
General Electric Capital Corp.
                       
 
  5.625%, 05/01/2018
    375,000       445,976       1.21 %
 
JPMorgan Chase & Co.
                       
 
  6.300%, 04/23/2019
    250,000       308,734       0.84 %
 
KeyCorp
                       
 
  6.500%, 05/14/2013
    300,000       309,336       0.84 %
 
Lazard Group
                       
 
  6.850%, 06/15/2017
    300,000       340,525       0.92 %
 
Manulife Financial Corp.
                       
 
  3.400%, 09/17/2015
    300,000       315,456       0.85 %
 
Merrill Lynch & Company, Inc.
                       
 
  6.875%, 04/25/2018
    420,000       507,694       1.38 %
 
MetLife, Inc., Series A
                       
 
  6.817%, 08/15/2018
    275,000       347,960       0.94 %
 
Morgan Stanley
                       
 
  6.625%, 04/01/2018
    250,000       291,106       0.79 %
 
Prudential Financial, Inc.
                       
 
  5.500%, 03/15/2016
    288,000       327,346       0.89 %
 
Prudential Financial, Inc., Series MTNB
                       
 
  5.100%, 09/20/2014
    250,000       269,427       0.73 %
 
Simon Property Group, Inc.
                       
 
  6.125%, 05/30/2018
    350,000       430,081       1.16 %
 
SunTrust Banks, Inc.
                       
 
  5.250%, 11/05/2012
    215,000       215,013       0.58 %
 
  6.000%, 09/11/2017
    300,000       357,030       0.97 %
 
The Goldman Sachs Group, Inc.
                       
 
  5.375%, 03/15/2020
    500,000       566,209       1.53 %
 
The Hartford Financial
                       
 
  Services Group, Inc.
                       
 
  5.375%, 03/15/2017
    300,000       341,000       0.92 %
 
The Royal Bank of Scotland PLC
                       
 
  4.375%, 03/16/2016
    300,000       326,741       0.89 %


The accompanying notes are an integral part of these financial statements.
 

WWW.HENNESSYFUNDS.COM
 
44
 
 
 
CORPORATE BONDS
 
Number of
         
% of
 
     
Shares
   
Value
   
Net Assets
 
 
Financials (Continued)
                 
 
Qwest Capital Funding, Inc.
                 
 
  6.500%, 11/15/2018
    300,000     $ 345,184       0.94 %
 
Westpac Banking Corp.
                       
 
  4.200%, 02/27/2015
    250,000       268,676       0.73 %
 
  4.875%, 11/19/2019
    300,000       347,265       0.94 %
                10,113,474       27.40 %
                           
 
Health Care – 0.79%
                       
 
Agilent Technologies, Inc.
                       
 
  5.000%, 07/15/2020
    250,000       289,869       0.79 %
                           
 
Industrials – 1.88%
                       
 
American Railcar Industries, Inc.
                       
 
  7.500%, 03/01/2014
    31,000       31,465       0.09 %
 
FedEx Corp.
                       
 
  7.375%, 01/15/2014
    275,000       296,585       0.80 %
 
Swiss Re Solutions Holding Corp.
                       
 
  7.000%, 02/15/2026
    125,000       155,672       0.42 %
 
The Boeing Co.
                       
 
  5.000%, 03/15/2014
    200,000       212,022       0.57 %
                695,744       1.88 %
                           
 
Information Technology – 1.61%
                       
 
Hewlett Packard Co.
                       
 
  3.000%, 09/15/2016
    125,000       126,043       0.34 %
 
  6.000%, 09/15/2041
    100,000       98,788       0.27 %
 
KLA-Tencor Corp.
                       
 
  6.900%, 05/01/2018
    130,000       156,870       0.42 %
 
Symantec Corp.
                       
 
  4.200%, 09/15/2020
    200,000       212,924       0.58 %
                594,625       1.61 %
                           
 
Materials – 3.14%
                       
 
AngloGold Ashanti Holdings PLC
                       
 
  5.125%, 08/01/2022
    350,000       357,619       0.97 %
 
Barrick Gold Financeco LLC
                       
 
  6.125%, 09/15/2013
    300,000       314,431       0.85 %
 
El du Pont de Nemours & Co.
                       
 
  4.750%, 03/15/2015
    285,000       312,863       0.85 %
 
International Paper Co.
                       
 
  9.375%, 05/15/2019
    125,000       172,270       0.47 %
                1,157,183       3.14 %
                           
 
Telecommunication Services – 1.65%
                       
 
Deutsche Telekom
                       
 
  International Finance BV
                       
 
  5.875%, 08/20/2013
    275,000       286,246       0.78 %
 
Rogers Communications, Inc.
                       
 
  7.500%, 03/15/2015
    280,000       323,037       0.87 %
                609,283       1.65 %
                           
 
Utilities – 0.80%
                       
 
Sempra Energy
                       
 
  6.500%, 06/01/2016
    250,000       296,290       0.80 %
                           
 
Total Corporate Bonds
                       
 
  (Cost $14,750,107)
            16,396,661       44.42 %
                           
 
MORTGAGE BACKED  
                       
 
   SECURITIES – 8.33%
                       
 
U.S. Government Agency Issues – 8.33%
                       
 
Federal Home Loan Mortgage Corp.
                       
 
  5.500%, 04/01/2037
    468,784       523,986       1.42 %
 
Federal National Mortgage Association
                       
 
  3.000%, 08/01/2042
    547,493       574,876       1.56 %
 
  3.500%, 01/01/2042
    441,986       471,320       1.27 %
 
  4.000%, 12/01/2041
    631,842       677,877       1.84 %
 
  4.500%, 08/01/2020
    310,563       335,444       0.91 %
 
  6.000%, 10/01/2037
    441,251       490,591       1.33 %
                           
 
Total Mortgage Backed Securities
                       
 
  (Cost $2,902,843)
            3,074,094       8.33 %
                           
 
U.S. GOVERNMENT AGENCY ISSUE – 1.14%
                       
 
Financials – 1.14%
                       
 
Federal Home Loan Bank
                       
 
  5.750%, 06/15/2037
    350,000       422,074       1.14 %
                           
 
Total U.S. Government
                       
 
  Agency Issue
                       
 
  (Cost $409,398)
            422,074       1.14 %
                           
 
U.S. GOVERNMENT NOTES/BONDS – 32.98%
                       
 
U.S. Treasury Bonds – 13.64%
                       
 
U.S. Treasury Bond
                       
 
  3.125%, 02/15/2042
    1,700,000       1,802,265       4.88 %
 
  5.000%, 05/15/2037
    1,410,000       2,013,876       5.46 %
 
  5.250%, 02/15/2029
    400,000       559,000       1.51 %
 
U.S. Treasury Inflation Index Bond
                       
 
  0.125%, 07/15/2022
    601,086       658,847       1.79 %
                           
 
Total U.S. Treasury Bonds
                       
 
  (Cost $4,845,314)
            5,033,988       13.64 %
                           
 
U.S. Treasury Notes – 19.34%
                       
 
  2.125%, 08/15/2021
    730,000       768,268       2.08 %
 
  3.250%, 05/31/2016
    895,000       982,962       2.66 %
 
  3.500%, 05/15/2020
    975,000       1,135,114       3.08 %
 
  3.625%, 08/15/2019
    200,000       233,547       0.63 %
 
  3.875%, 05/15/2018
    130,000       151,541       0.41 %
 
  4.125%, 05/15/2015
    3,530,000       3,867,281       10.48 %
                           
 
Total U.S. Treasury Notes
                       
 
  (Cost $7,094,480)
            7,138,713       19.34 %
                           
 
Total U.S. Treasury Notes/Bonds
                       
 
  (Cost $11,939,794)
            12,172,701       32.98 %
                           
 
EXCHANGE TRADED FUNDS – 6.52%
                       
 
iShares iBoxx $High Yield
                       
 
  Corporation Bond Fund
    11,100       1,028,193       2.79 %
 
iShares S&P U.S. Preferred
                       
 
  Stock Index Fund
    15,250       610,762       1.65 %
 
SPDR Barclays Capital High Yield Bond
    19,000       766,270       2.08 %
                           
 
Total Exchange Traded Funds
                       
 
  (Cost $2,366,528)
            2,405,225       6.52 %


The accompanying notes are an integral part of these financial statements.


HENNESSY FUNDS                                                                                                           1-800-966-4354
 
45
 
 
 
MUTUAL FUNDS – 0.72%
   
Number of
         
% of
 
       
Shares
   
Value
   
Net Assets
 
 
Calamos Convertible Opportunities
                   
 
  and Income Fund
      10,500     $ 131,355       0.35 %
 
NGP Capital Resources Co.
      7,000       51,310       0.14 %
 
Wells Fargo Advantage
                         
 
Income Opportunities Fund
      8,000       83,440       0.23 %
                             
 
Total Mutual Funds (Cost $271,006)
              266,105       0.72 %
                             
 
SHORT-TERM INVESTMENTS – 1.75%
                         
 
Money Market Fund – 1.75%
                         
 
Fidelity Institutional Money Market
                         
 
  Government Portfolio – Class I,
                         
    0.01% (c)       646,320       646,320       1.75 %
                               
 
Total Money Market Fund
                         
 
  (Cost $646,320)
              646,320       1.75 %
                               
 
Total Short-Term Investments
                         
 
  (Cost $646,320)
              646,320       1.75 %
                               
 
Total Investments
                         
 
  (Cost $34,793,326) – 99.22%
              36,619,821       99.22 %
                               
 
Other Assets in Excess
                         
 
  of Liabilities – 0.78%
              289,081       0.78 %
 
TOTAL NET ASSETS – 100.00%
            $ 36,908,902       100.00 %

Percentages are stated as a percent of net assets.
 
(a)
Non-income producing security.
(b)
This security is a restricted security under Rule 144A of the Securities Act of 1933.  These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.  As of October 31, 2012, the total amount of 144A securities was $396,101 or 1.07% of total net assets.
(c)
The rate listed is the fund’s 7-day yield as of October 31, 2012.


The accompanying notes are an integral part of these financial statements.


WWW.HENNESSYFUNDS.COM
 
46
 
 
Summary of Fair Value Exposure at October 31, 2012
 
The following is a summary of the inputs used to value the Fund’s net assets as of October 31, 2012 (See Note 4 in the accompanying notes to the financial statements):
 
 
Common Stock
 
Level 1
   
Level 2
   
Level 3
   
Total
 
 
Financials
  $ 176,000     $ —     $ —     $ 176,000  
 
Total Common Stock
  $ 176,000     $ —     $ —     $ 176,000  
                                   
 
Convertible Preferred Stock
  $ —     $ 572,381     $ —     $ 572,381  
                                   
 
Preferred Stock
  $ 13,430     $ —     $ —     $ 13,430  
                                   
 
REITS
                               
 
Financials
  $ 474,830     $ —     $ —     $ 474,830  
                                   
 
Corporate Bonds
                               
 
Consumer Discretionary
  $ —     $ 2,031,016     $ —     $ 2,031,016  
 
Consumer Staples
    —       288,496       —       288,496  
 
Energy
    —       320,681       —       320,681  
 
Financials
    —       10,113,474       —       10,113,474  
 
Health Care
    —       289,869       —       289,869  
 
Industrials
    —       695,744       —       695,744  
 
Information Technology
    —       594,625       —       594,625  
 
Materials
    —       1,157,183       —       1,157,183  
 
Telecommunication Services
    —       609,283       —       609,283  
 
Utilities
    —       296,290       —       296,290  
 
Total Corporate Bonds
  $ —     $ 16,396,661     $ —     $ 16,396,661  
                                   
 
Mortgage Backed Securities
  $ —     $ 3,074,094     $ —     $ 3,074,094  
                                   
 
U.S. Government Agency Issues
  $ —     $ 422,074     $ —     $ 422,074  
                                   
 
U.S. Treasury Obligations
                               
 
U.S. Treasury Bonds
  $ —     $ 5,033,988     $ —     $ 5,033,988  
 
U.S. Treasury Notes
    —       7,138,713       —       7,138,713  
 
Total U.S. Treasury Obligations
  $ —     $ 12,172,701     $ —     $ 12,172,701  
                                   
 
Exchange Traded Funds
  $ 2,405,225     $ —     $ —     $ 2,405,225  
                                   
 
Mutual Funds
  $ 266,105     $ —     $ —     $ 266,105  
                                   
 
Short-Term Investments
                               
 
Money Market Funds
  $ 646,320     $ —     $ —     $ 646,320  
 
Total Short-Term Investments
  $ 646,320     $ —     $ —     $ 646,320  
 
Total Investments in Securities
  $ 3,981,910     $ 32,637,911     $ —     $ 36,619,821  

Transfers between levels are recognized at the end of the reporting period. During the period ended October 31, 2012, the Fund recognized transfers between levels 1 and 2.
 
Level 2 Reconciliation Disclosure
 
The following amounts were transferred in/(out) of Level 2 assets:
 
      Total Common Stock
Transfers into Level 2
  $ 572,381  
Transfers out of Level 2
    —  
Net transfers in and/or (out) of Level 2
  $ 572,381  

 

 
The accompanying notes are an integral part of these financial statements.
 

HENNESSY FUNDS                                                                                                           1-800-966-4354
 
47
 

Financial Statements
Statements of Assets and Liabilities as of October 31, 2012

         
HENNESSY
   
HENNESSY
 
   
HENNESSY
   
GAS UTILITY
   
SMALL CAP
 
   
FOCUS FUND
   
INDEX FUND
   
FINANCIAL FUND
 
ASSETS:
                 
Investments in unaffiliated securities, at value (cost $442,578,126, $547,219,723,
                 
  $187,046,883, $55,432,647, $5,320,919, $279,818,894 and $34,793,326, respectively)
  $ 785,723,844     $ 745,189,397     $ 211,180,773  
Investments in affiliated securities, at value (cost $0, $0,
                       
  $0, $1,688,883, $0, $0 and $0, respectively)
    —       —       —  
Cash
    —       1,393       43,200  
Dividends and interest receivable
    119,620       1,221,344       170,505  
Receivable for fund shares sold
    874,489       1,776,838       57,918  
Receivable for securities sold
    —       —       —  
Due from advisor
    —       —       —  
Prepaid expenses and other assets
    65,538       76,587       18,322  
Total Assets
    786,783,491       748,265,559       211,470,718  
                         
LIABILITIES:
                       
Payable for securities purchased
    —       661,420       —  
Payable for fund shares redeemed
    734,915       243,646       159,456  
Distribution payable
    —       —       —  
Payable to advisor
    594,508       248,508       153,494  
Payable to administrator
    93,848       24,851       23,832  
Distribution and service fee payable
    148,902       —       35,430  
Accrued accounting fees
    313       808       806  
Accrued custody fees
    6,190       4,970       1,520  
Accrued directors fees
    90       90       90  
Accrued expenses and other payables
    319,532       260,834       101,023  
Total Liabilities
    1,898,298       1,445,127       475,651  
NET ASSETS
  $ 784,885,193     $ 746,820,432     $ 210,995,067  
                         
NET ASSETS CONSIST OF:
                       
Capital stock
  $ 383,937,147     $ 548,299,308     $ 194,158,088  
Accumulated net investment income (loss)
    (5,555,872 )     452,765       715,079  
Accumulated net realized gain (loss) on investments
    63,358,200       103,930       (8,011,990 )
Unrealized net appreciation (depreciation) on investments
    343,145,718       197,964,429       24,133,890  
Total Net Assets
  $ 784,885,193     $ 746,820,432     $ 210,995,067  
                         
NET ASSETS
                       
Investor Class:
                       
Shares authorized ($.0001 par value)
 
Unlimited
   
Unlimited
   
Unlimited
 
Net assets applicable to outstanding Investor Class shares
    707,606,129       746,820,432       167,202,081  
Shares issued and outstanding
    13,665,453       32,401,084       8,556,424  
Net asset value, offering price and redemption price per share
  $ 51.78     $ 23.05     $ 19.54  
                         
Institutional Class:
                       
Shares authorized ($.0001 par value)
 
Unlimited
      N/A    
Unlimited
 
Net assets applicable to outstanding Institutional Class shares
    77,279,064       N/A       43,792,986  
Shares issued and outstanding
    1,480,757       N/A       3,549,265  
Net asset value, offering price and redemption price per share
  $ 52.19       N/A     $ 12.34  

 

 
The accompanying notes are an integral part of these financial statements.
 

WWW.HENNESSYFUNDS.COM
 
48
 
 

 

HENNESSY
   
HENNESSY
   
HENNESSY
   
HENNESSY
 
LARGE CAP
   
TECHNOLOGY
   
EQUITY AND
   
CORE BOND
 
FINANCIAL FUND
   
FUND
   
INCOME FUND
   
FUND
 
                     
                     
$ 62,561,796     $ 5,410,616     $ 303,595,245     $ 36,619,821  
                             
  2,158,650       —       —       —  
  23,400       —       28,726       —  
  32,609       466       1,467,803       377,070  
  14,297       8,995       254,017       138  
  —       —       459,684       —  
  —       3,183       —       —  
  13,668       2,420       53,560       22,347  
  64,804,420       5,425,680       305,859,035       37,019,376  
                             
                             
  —       —       —       —  
  20,646       7,742       132,989       107  
  —       —       —       44,772  
  50,217       —       139,264       13,075  
  7,887       839       28,792       4,107  
  13,949       997       42,598       762  
  478       870       4,121       2,516  
  510       60       1,720       260  
  90       90       90       90  
  54,752       41,038       104,246       44,785  
  148,529       51,636       453,820       110,474  
$ 64,655,891     $ 5,374,044     $ 305,405,215     $ 36,908,902  
                             
                             
$ 64,680,077     $ 7,693,908     $ 284,296,411     $ 34,345,436  
  50,837       (64,030 )     312,645       2,309  
  (7,673,939 )     (2,345,531 )     (2,980,192 )     734,662  
  7,598,916       89,697       23,776,351       1,826,495  
$ 64,655,891     $ 5,374,044     $ 305,405,215     $ 36,908,902  
                             
                             
                             
Unlimited
   
Unlimited
   
Unlimited
   
Unlimited
 
  64,655,891       4,441,496       196,915,311       3,569,561  
  4,566,545       416,427       14,103,277       357,974  
$ 14.16     $ 10.67     $ 13.96     $ 9.97  
                             
                             
  N/A    
Unlimited
   
Unlimited
   
Unlimited
 
  N/A       932,548       108,489,904       33,339,341  
  N/A       86,944       8,163,499       3,679,087  
  N/A     $ 10.73     $ 13.29     $ 9.06  

 


HENNESSY FUNDS                                                                                                           1-800-966-4354
 
49
 

Financial Statements
Statements of Operations as of October 31, 2012

         
HENNESSY
   
HENNESSY
 
   
HENNESSY
   
GAS UTILITY
   
SMALL CAP
 
   
FOCUS FUND
   
INDEX FUND
   
FINANCIAL FUND
 
INVESTMENT INCOME:
                 
Dividend income from unaffiliated securities (1)
  $ 4,454,002     $ 20,690,218     $ 3,666,139  
Dividend income from affiliated securities
    —       —       —  
Interest income
    7,813       818       847  
Total investment income
    4,461,815       20,691,036       3,666,986  
                         
EXPENSES:
                       
Investment advisory fees
    6,539,937       2,427,576       1,647,875  
Administration and accounting fees
    501,693       703,080       119,524  
Custodian fees
    36,280       31,581       8,126  
Transfer agent fees – Investor Class
    186,737       163,720       51,702  
Transfer agent fees – Institutional Class
    13,371       —       7,099  
Distribution and service fees (See Note 6)
    1,659,066       —       395,608  
Federal and state registration fees
    52,877       60,312       49,038  
Audit fees
    19,204       19,200       19,201  
Legal fees
    34,481       44,445       39,800  
Compliance expense
    32,239       33,458       13,550  
Insurance fees
    96,636       63,019       27,723  
Reports to shareholders Investor Class
    85,801       78,173       32,695  
Reports to shareholders Institutional Class
    3,891       —       2,003  
Directors’ fees and expenses
    16,187       16,186       16,182  
Sub-transfer agent expenses – Investor Class (See Note 6)
    739,160       545,625       145,366  
Sub-transfer agent expenses – Institutional Class (See Note 6)
    40,959       —       26,453  
Interest expense (See Note 7)
    —       132       62  
Other
    1,865       1,306       2,223  
Total expenses before reimbursement from advisor
    10,060,384       4,187,813       2,604,230  
Expense (reimbursement)/recoupment
    —       —       1,024  
Net expenses
    10,060,384       4,187,813       2,605,254  
NET INVESTMENT INCOME (LOSS)
  $ (5,598,569 )   $ 16,503,223     $ 1,061,732  
                         
REALIZED AND UNREALIZED GAINS (LOSSES):
                       
Net realized gain (loss) on:
                       
    Investments from unaffiliated securities
  $ 63,683,118     $ 15,896,840     $ 1,944,040  
    Investments from affiliated securities
    —       —       —  
Long-term capital gain distributions from regulated investment companies
    —       —       —  
Change in unrealized appreciation (depreciation) on investments
    49,854,427       38,631,748       30,826,479  
Net gain (loss) on investments
    113,537,545       54,528,588       32,770,519  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
  $ 107,938,976     $ 71,031,811     $ 33,832,251  














 


(1)   Net of foreign taxes withheld of $0, $303,444, $0, $0, $0, $0 and $0, respectively.


The accompanying notes are an integral part of these financial statements.


WWW.HENNESSYFUNDS.COM
 
50
 

 
 

HENNESSY
   
HENNESSY
   
HENNESSY
   
HENNESSY
 
LARGE CAP
   
TECHNOLOGY
   
EQUITY AND
   
CORE BOND
 
FINANCIAL FUND
   
FUND
   
INCOME FUND
   
FUND
 
                     
$ 952,396     $ 53,911     $ 3,632,536     $ 202,657  
  59,925       —       —       —  
  197       38       2,229,010       1,074,105  
  1,012,518       53,949       5,861,546       1,276,762  
                             
                             
  549,491       60,210       1,726,176       251,697  
  44,066       9,241       168,966       33,776  
  3,200       —       10,834       1,819  
  13,914       5,757       42,161       3,318  
  —       2,675       34,660       7,475  
  152,636       13,989       340,404       9,766  
  12,592       30,490       40,309       26,018  
  19,200       19,198       20,329       20,330  
  43,465       40,124       44,205       40,075  
  10,982       8,856       16,078       9,811  
  10,170       1,063       22,588       3,785  
  7,672       2,615       17,320       —  
  —       592       6,532       —  
  16,187       16,186       16,186       16,187  
  73,853       12,307       108,483       8,666  
  —       485       35,345       10,040  
  80       19       —       —  
  3,178       —       3,662       —  
  960,686       223,807       2,654,238       442,763  
  —       (96,067 )     (179,947 )     (102,642 )
  960,686       127,740       2,474,291       340,121  
$ 51,832     $ (73,791 )   $ 3,387,255     $ 936,641  
                             
                             
                             
$ (3,007,601 )   $ 105,389     $ 1,448,410     $ 730,827  
  137,738       —       —       —  
  —       —       3,301       2,641  
  13,073,690       (96,492 )     10,755,082       675,399  
  10,203,827       8,897       12,206,793       1,408,867  
$ 10,255,659     $ (64,894 )   $ 15,594,048     $ 2,345,508  








HENNESSY FUNDS                                                                                                           1-800-966-4354
 
51
 

Financial Statements
Statements of Changes in Net Assets

   
Hennessy Focus Fund
 
             
   
Year Ended
   
Year Ended
 
   
October 31, 2012
   
October 31, 2011
 
OPERATIONS:
           
Net investment income (loss)
  $ (5,598,569 )   $ (7,221,589 )
Net realized gain (loss) on securities
    63,683,118       69,789,480  
Long-term capital gain distributions from regulated investment companies
    —       —  
Change in unrealized appreciation (depreciation) on securities
    49,854,427       (10,251,836 )
Net increase (decrease) in net assets resulting from operations
    107,938,976       52,316,055  
                 
DISTRIBUTIONS TO SHAREHOLDERS FROM:
               
Net investment income – Investor Class
    —       —  
Net investment income – Institutional Class
    —       —  
Net realized gains – Investor Class
    (63,544,133 )     (24,307,241 )
Net realized gains – Institutional Class
    (5,298,059 )     (1,335,587 )
Total distributions
    (68,842,192 )     (25,642,828 )
                 
CAPITAL SHARE TRANSACTIONS:
               
Proceeds from shares subscribed – Investor Class
    179,555,653       116,123,991  
Proceeds from shares subscribed – Institutional Class
    31,219,319       28,327,587  
Dividends reinvested – Investor Class
    61,703,733       23,268,243  
Dividends reinvested – Institutional Class
    4,808,848       1,290,549  
Cost of shares redeemed – Investor Class
    (179,761,921 )     (224,457,709 )
Cost of shares redeemed – Institutional Class
    (12,079,868 )     (18,533,787 )
Net increase (decrease) in net assets derived from capital share transactions
    85,445,764       (73,981,126 )
TOTAL INCREASE (DECREASE) IN NET ASSETS
    124,542,548       (47,307,899 )
                 
NET ASSETS:
               
Beginning of year
    660,342,645       707,650,544  
End of year
  $ 784,885,193     $ 660,342,645  
Accumulated net investment income (loss), end of period
  $ (5,555,872 )   $ —  
                 
CHANGES IN SHARES OUTSTANDING:
               
Shares sold – Investor Class
    3,675,823       2,351,234  
Shares sold – Institutional Class
    640,920       909,520  
Shares issued to holders as reinvestment of dividends – Investor Class
    1,379,779       473,509  
Shares issued to holders as reinvestment of dividends – Institutional Class
    106,958       26,215  
Shares redeemed – Investor Class
    (3,665,085 )     (4,651,789 )
Shares redeemed – Institutional Class
    (246,768 )     (662,843 )
Net increase (decrease) in shares outstanding
    1,891,627       (1,554,154 )

 
 
 

 
The accompanying notes are an integral part of these financial statements.


WWW.HENNESSYFUNDS.COM
 
52
 

 
 

Hennessy Gas Utility Index Fund
   
Hennessy Small Cap Financial Fund
   
Hennessy Large Cap Financial Fund
 
                                 
Year Ended
   
Year Ended
   
Year Ended
   
Year Ended
   
Year Ended
   
Year Ended
 
October 31, 2012
   
October 31, 2011
   
October 31, 2012
   
October 31, 2011
   
October 31, 2012
   
October 31, 2011
 
                                 
$ 16,503,223     $ 8,042,465     $ 1,061,732     $ 2,102,026     $ 51,832     $ (210,507 )
  15,896,840       3,417,370       1,944,040       (5,543,171 )     (2,869,863 )     (2,300,974 )
  —       —       —       —       —       —  
  38,631,748       53,861,410       30,826,479       (17,139,877 )     13,073,690       (4,407,932 )
  71,031,811       65,321,245       33,832,251       (20,581,022 )     10,255,659       (6,919,413 )
                                             
                                             
  (16,153,180 )     (8,022,358 )     (2,581,343 )     (725,603 )     —       —  
  —       —       (600,281 )     (256,185 )     —       —  
  (3,837,545 )     (2,818,013 )     —       (1,605,904 )     —       —  
  —       —       —       (275,476 )     —       —  
  (19,990,725 )     (10,840,371 )     (3,181,624 )     (2,863,168 )     —       —  
                                             
                                             
  455,625,004       174,605,319       35,833,043       94,080,317       16,478,942       32,559,261  
  —       —       29,798,695       12,177,273       —       —  
  18,728,680       10,114,130       2,505,214       2,253,869       —       —  
  —       —       541,245       504,775       —       —  
  (212,356,106 )     (49,459,579 )     (52,499,033 )     (139,260,794 )     (17,762,354 )     (18,672,760 )
  —       —       (9,935,564 )     (13,968,745 )     —       —  
  261,997,578       135,259,870       6,243,600       (44,213,305 )     (1,283,412 )     13,886,501  
  313,038,664       189,740,744       36,894,227       (67,657,495 )     8,972,247       6,967,088  
                                             
                                             
  433,781,768       244,041,024       174,100,840       241,758,335       55,683,644       48,716,556  
$ 746,820,432     $ 433,781,768     $ 210,995,067     $ 174,100,840     $ 64,655,891     $ 55,683,644  
$ 452,765     $ 93,553     $ 715,079     $ 2,346,347     $ 50,837     $ —  
                                             
                                             
  20,822,498       8,918,950       2,027,671       4,827,202       1,270,324       2,347,452  
  —       —       2,516,251       950,220       —       —  
  855,456       396,830       151,831       116,283       —       —  
  —       —       52,043       40,309       —       —  
  (9,730,123 )     (2,550,055 )     (2,981,029 )     (7,556,513 )     (1,379,184 )     (1,455,102 )
  —       —       (904,613 )     (1,242,590 )     —       —  
  11,947,831       6,765,725       862,154       (2,865,089 )     (108,860 )     892,350  









HENNESSY FUNDS                                                                                                           1-800-966-4354
 
53
 

Financial Statements
Statements of Changes in Net Assets

   
Hennessy Technology Fund
 
             
   
Year Ended
   
Year Ended
 
   
October 31, 2012
   
October 31, 2011
 
OPERATIONS:
           
Net investment income (loss)
  $ (73,791 )   $ (131,860 )
Net realized gain (loss) on securities
    105,389       1,108,080  
Long-term capital gain distributions from regulated investment companies
    —       —  
Change in unrealized appreciation (depreciation) on securities
    (96,492 )     (909,888 )
Net increase (decrease) in net assets resulting from operations
    (64,894 )     66,332  
                 
DISTRIBUTIONS TO SHAREHOLDERS FROM:
               
Net investment income – Investor Class
    —       —  
Net investment income – Institutional Class
    —       —  
Net realized gains – Investor Class
    —       —  
Net realized gains – Institutional Class
    —       —  
Total distributions
    —       —  
                 
CAPITAL SHARE TRANSACTIONS:
               
Proceeds from shares subscribed – Investor Class
    1,102,171       933,790  
Proceeds from shares subscribed – Institutional Class
    117,282       141,716  
Dividends reinvested – Investor Class
    —       —  
Dividends reinvested – Institutional Class
    —       —  
Cost of shares redeemed – Investor Class
    (2,317,205 )     (3,427,601 )
Cost of shares redeemed – Institutional Class
    (318,228 )     (3,677,007 )
Net increase (decrease) in net assets derived from capital share transactions
    (1,415,980 )     (6,029,102 )
TOTAL INCREASE (DECREASE) IN NET ASSETS
    (1,480,874 )     (5,962,770 )
                 
NET ASSETS:
               
Beginning of year
    6,854,918       12,817,688  
End of year
  $ 5,374,044     $ 6,854,918  
Accumulated net investment income (loss), end of period
  $ (64,030 )   $ —  
                 
CHANGES IN SHARES OUTSTANDING:
               
Shares sold – Investor Class
    100,084       80,830  
Shares sold – Institutional Class
    10,510       12,475  
Shares issued to holders as reinvestment of dividends – Investor Class
    —       —  
Shares issued to holders as reinvestment of dividends – Institutional Class
    —       —  
Shares redeemed – Investor Class
    (208,443 )     (302,424 )
Shares redeemed – Institutional Class
    (29,733 )     (325,462 )
Net increase (decrease) in shares outstanding
    (127,582 )     (534,581 )

 
 
 

 
The accompanying notes are an integral part of these financial statements.


WWW.HENNESSYFUNDS.COM
 
54
 

 
 

Hennessy Equity and Income Fund
   
Hennessy Core Bond Fund
 
                     
Year Ended
   
Year Ended
   
Year Ended
   
Year Ended
 
October 31, 2012
   
October 31, 2011
   
October 31, 2012
   
October 31, 2011
 
                     
$ 3,387,255     $ 2,261,233     $ 936,641     $ 1,061,269  
  1,448,410       3,679,665       730,827       344,435  
  3,301       —       2,641       —  
  10,755,082       4,044,861       675,399       (741,372 )
  15,594,048       9,985,759       2,345,508       664,332  
                             
                             
  (1,939,551 )     (938,298 )     (79,978 )     (137,452 )
  (1,382,811 )     (1,201,869 )     (855,949 )     (925,575 )
  —       —       (35,520 )     (67,867 )
  —       —       (224,731 )     (403,399 )
  (3,322,362 )     (2,140,167 )     (1,196,178 )     (1,534,293 )
                             
                             
  186,044,450       21,892,863       750,864       1,121,100  
  58,487,290       11,344,367       9,744,071       207,173  
  1,782,862       799,608       100,421       171,157  
  787,199       582,146       276,637       201,570  
  (55,147,222 )     (11,356,943 )     (1,491,425 )     (1,567,151 )
  (10,854,505 )     (2,741,528 )     (915,194 )     (662,060 )
  181,100,074       20,520,513       8,465,374       (528,211 )
  193,371,760       28,366,105       9,614,704       (1,398,172 )
                             
                             
  112,033,455       83,667,350       27,294,198       28,692,370  
$ 305,405,215     $ 112,033,455     $ 36,908,902     $ 27,294,198  
$ 312,645     $ 223,082     $ 2,309     $ 8,277  
                             
                             
  13,582,962       1,737,714       77,850       117,394  
  4,455,425       945,356       1,098,239       23,618  
  129,222       64,232       10,455       18,179  
  60,174       49,108       31,173       23,287  
  (3,976,644 )     (913,207 )     (153,825 )     (164,856 )
  (818,985 )     (233,375 )     (102,473 )     (75,253 )
  13,432,154       1,649,828       961,419       (57,631 )





HENNESSY FUNDS                                                                                                           1-800-966-4354
 
55
 

Financial Highlights
Hennessy Focus Fund (formerly FBR Focus Fund)

For an Investor Class share outstanding throughout each year

   
Year Ended October 31,
 
    2012    
2011
   
2010
   
2009
   
2008
 
PER SHARE DATA:
                             
Net asset value, beginning of year
  $ 49.80     $ 47.57     $ 37.56     $ 37.40     $ 57.97  
                                         
Income from investment operations:
                                       
Net investment income (loss)
    (0.39 )     (0.50 ) (1)     (0.64 )     (0.42 )     (0.44 )
Net realized and unrealized gains (losses) on securities
    7.61       4.44       10.65       5.76       (19.51 )
Total from investment operations
    7.22       3.94       10.01       5.34       (19.95 )
                                         
Less Distributions:
                                       
Dividends from net investment income
    —       —       —       —       (0.12 )
Dividends from net realized gains
    (5.24 )     (1.72 )     —       (5.19 )     (0.51 )
Total distributions
    (5.24 )     (1.72 )     —       (5.19 )     (0.63 )
Paid-in capital from redemption fees
    0.00 (2)     0.01       0.00 (2)     0.01       0.01  
Net asset value, end of year
  $ 51.78     $ 49.80     $ 47.57     $ 37.56     $ 37.40  
                                         
TOTAL RETURN
    16.17 %     8.35 %     26.65 %     17.74 %     (34.73 )%
                                         
SUPPLEMENTAL DATA AND RATIOS:
                                       
Net assets, end of year (millions)
  $ 707.61     $ 611.34     $ 670.84     $ 759.77     $ 717.78  
Ratio of expenses to average net assets
    1.41 %     1.44 %     1.51 %     1.43 %     1.42 %
Ratio of net investment loss to average net assets
    (0.79 )%     (1.01 )%     (1.31 )%     (1.16 )%     (0.67 )%
Portfolio turnover rate (3)
    13 %     13 %     5 %     5 %     17 %





























(1)   Calculated based on average shares outstanding method.
(2)   Amount is less than $0.01.
(3)   Portfolio turnover is calculated on the basis of the Fund as a whole.


The accompanying notes are an integral part of these financial statements.

WWW.HENNESSYFUNDS.COM
 
56
 

Financial Highlights
Hennessy Focus Fund (formerly FBR Focus Fund)

For an Institutional Class share outstanding throughout each period*

                           
Period Ended
 
    Year Ended October 31,    
October 31,
 
   
2012
   
2011
   
2010
   
2009
   
2008 (1)
 
PER SHARE DATA:
                             
Net asset value, beginning of period
  $ 50.02     $ 47.64     $ 37.84     $ 130.93     $ 180.00  
                                         
Income from investment operations:
                                       
Net investment income (loss)
    (0.22 )     (0.37 ) (2)     (0.41 )     (0.25 )     (0.20 )
Net realized and unrealized gains (losses) on securities
    7.63       4.47       10.58       0.59       (49.05 )
Total from investment operations
    7.41       4.10       10.17       0.34       (49.25 )
                                         
Less Distributions:
                                       
Dividends from net investment income
    —       —       (0.37 )     —       —  
Dividends from net realized gains
    (5.24 )     (1.72 )     —       (93.45 )     —  
Total distributions
    (5.24 )     (1.72 )     (0.37 )     (93.45 )     —  
Paid-in capital from redemption fees
    0.00 (3)     0.00 (3)     0.00 (3)     0.02       0.18  
Net asset value, end of period
  $ 52.19     $ 50.02     $ 47.64     $ 37.84     $ 130.93  
                                         
TOTAL RETURN
    16.51 %     8.53 %     27.32 %     18.15 %     (27.30 )% (4)
                                         
SUPPLEMENTAL DATA AND RATIOS:
                                       
Net assets, end of period (millions)
  $ 77.28     $ 49.01     $ 36.81     $ 34.23     $ 16.83  
Ratio of expenses to average net assets
    1.12 %     1.15 %     1.26 %     1.15 %     1.05 % (5)
Ratio of net investment income (loss) to average net assets
    (0.52 )%     (0.76 )%     (1.06 )%     (0.88 )%     (0.70 )% (5)
Portfolio turnover rate (6)
    13 %     13 %     5 %     5 %     17 % (4)
























*
Per share amounts have been restated on a retroactive basis to reflect a 1:18 reverse stock split effective December 10, 2010.
(1)
Institutional Class shares commenced operations on May 30, 2008.
(2)
Calculated based on average shares outstanding method.
(3)
Amount is less than $0.01.
(4)
Not Annualized.
(5)
Annualized.
(6)
Portfolio turnover is calculated on the basis of the Fund as a whole.


The accompanying notes are an integral part of these financial statements.


HENNESSY FUNDS                                                                                                           1-800-966-4354
 
57
 

Financial Highlights
Hennessy Gas Utility Index Fund (formerly FBR Gas Utility Index Fund)

For an Investor Class share outstanding throughout each year

   
Year Ended October 31,
 
   
2012
   
2011
   
2010
   
2009
   
2008
 
PER SHARE DATA:
                             
Net asset value, beginning of year
  $ 21.21     $ 17.83     $ 15.13     $ 15.26     $ 23.14  
                                         
Income from investment operations:
                                       
Net investment income
    0.58       0.51 (1)     0.58       0.49       0.47  
Net realized and unrealized gains (losses) on securities
    1.99       3.59       2.72       0.60       (6.13 )
Total from investment operations
    2.57       4.10       3.30       1.09       (5.66 )
                                         
Less Distributions:
                                       
Dividends from net investment income
    (0.58 )     (0.51 )     (0.58 )     (0.49 )     (0.47 )
Dividends from realized capital gains
    (0.16 )     (0.21 )     (0.02 )     (0.74 )     (1.75 )
Total distributions
    (0.74 )     (0.72 )     (0.60 )     (1.23 )     (2.22 )
Paid-in capital from redemption fees
    0.01       0.00 (2)     0.00 (2)     0.01       0.00 (2)
Net asset value, end of year
  $ 23.05     $ 21.21     $ 17.83     $ 15.13     $ 15.26  
                                         
TOTAL RETURN
    12.41 %     23.54 %     22.25 %     8.18 %     (26.81 )%
                                         
SUPPLEMENTAL DATA AND RATIOS:
                                       
Net assets, end of year (millions)
  $ 746.82     $ 433.78     $ 244.04     $ 193.68     $ 198.57  
Ratio of expenses to average net assets:
                                       
Before expense reimbursement
    0.69 %     0.71 %     0.77 %     0.76 %     0.70 %
After expense reimbursement
    0.69 %     0.71 %     0.76 %     0.76 %     0.70 %
Ratio of net investment income to average net assets:
                                       
Before expense reimbursement
    2.72 %     2.68 %     3.50 %     3.51 %     2.39 %
After expense reimbursement
    2.72 %     2.68 %     3.51 %     3.51 %     2.39 %
Portfolio turnover rate
    16 %     17 %     16 %     26 %     27 %


























(1)   Calculated based on average shares outstanding method.
(2)   Amount is less than $0.01.


The accompanying notes are an integral part of these financial statements.
 

WWW.HENNESSYFUNDS.COM
 
58
 






 
 
 

 


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HENNESSY FUNDS                                                                                                           1-800-966-4354
 
59
 

Financial Highlights
Hennessy Small Cap Financial Fund (formerly FBR Small Cap Financial Fund)

For an Investor Class share outstanding throughout each year

   
Year Ended October 31,
 
   
2012
   
2011
   
2010
   
2009
   
2008
 
PER SHARE DATA:
                             
Net asset value, beginning of year
  $ 16.48     $ 18.11     $ 15.91     $ 15.22     $ 23.18  
                                         
Income from investment operations:
                                       
Net investment income (loss)
    0.11       0.21 (1)     0.08       0.06       0.24  
Net realized and unrealized gains (losses) on securities
    3.24       (1.66 )     2.17       0.81       (1.69 )
Total from investment operations
    3.35       (1.45 )     2.25       0.87       (1.45 )
                                         
Less Distributions:
                                       
Dividends from net investment income
    (0.29 )     (0.06 )     (0.07 )     (0.19 )     (0.28 )
Dividends from net realized gains
    —       (0.13 )     —       —       (6.24 )
Total distributions
    (0.29 )     (0.19 )     (0.07 )     (0.19 )     (6.52 )
Paid-in capital from redemption fees
    0.00 (2)     0.01       0.02       0.01       0.01  
Net asset value, end of year
  $ 19.54     $ 16.48     $ 18.11     $ 15.91     $ 15.22  
                                         
TOTAL RETURN
    20.65 %     (8.12 )%     14.27 %     5.89 %     (6.76 )%
                                         
SUPPLEMENTAL DATA AND RATIOS:
                                       
Net assets, end of year (millions)
  $ 167.20     $ 154.21     $ 216.75     $ 187.56     $ 181.80  
Ratio of expenses to average net assets:
                                       
Before expense reimbursement/recoupment
    1.45 %     1.52 %     1.51 %     1.51 %     1.49 %
After expense reimbursement/recoupment
    1.45 %     1.52 %     1.51 %     1.51 %     1.49 %
Ratio of net investment income to average net assets:
                                       
Before expense reimbursement/recoupment
    0.56 %     0.81 %     0.35 %     0.50 %     1.48 %
After expense reimbursement/recoupment
    0.56 %     0.81 %     0.35 %     0.50 %     1.48 %
Portfolio turnover rate (3)
    43 %     70 %     89 %     118 %     147 %

























(1)   Calculated based on average shares outstanding method.
(2)   Amount is less than $0.01.
(3)   Portfolio turnover is calculated on the basis of the Fund as a whole.


The accompanying notes are an integral part of these financial statements.

WWW.HENNESSYFUNDS.COM
 
60
 

Financial Highlights
Hennessy Small Cap Financial Fund (formerly FBR Small Cap Financial Fund)

For an Institutional Class share outstanding throughout each period

                           
Period Ended
 
    Year Ended October 31,    
October 31,
 
   
2012
   
2011
   
2010
   
2009
   
2008 (1)
 
PER SHARE DATA:
                             
Net asset value, beginning of period
  $ 10.55       11.70       10.34     $ 9.96       10.00  
                                         
Income from investment operations:
                                       
Net investment income
    0.16       0.19 (2)     0.09       0.19       0.02  
Net realized and unrealized gains (losses) on securities
    1.98       (1.09 )     1.40       0.40       (0.06 )
Total from investment operations
    2.14       (0.90 )     1.49       0.59       (0.04 )
                                         
Less Distributions:
                                       
Dividends from net investment income
    (0.35 )     (0.12 )     (0.13 )     (0.21 )     —  
Dividends from net realized gains
    —       (0.13 )     —       —       —  
Total distributions
    (0.35 )     (0.25 )     (0.13 )     (0.21 )     —  
Paid-in capital from redemption fees
    0.00 (3)     —       0.00 (3)     —       —  
Net asset value, end of period
  $ 12.34     $ 10.55     $ 11.70     $ 10.34     $ 9.96  
                                         
TOTAL RETURN
    20.95 %     (8.00 )%     14.52 %     6.14 %     (0.40 )% (4)
                                         
SUPPLEMENTAL DATA AND RATIOS:
                                       
Net assets, end of period (millions)
  $ 43.79     $ 19.89     $ 25.01     $ 10.64     $ 3.95  
Ratio of expenses to average net assets:
                                       
Before expense reimbursement
    1.25 %     1.34 %     1.23 %     1.56 %     1.31 % (5)
After expense reimbursement
    1.25 %     1.34 %     1.23 %     1.56 %     1.31 % (5)
Ratio of net investment income to average net assets:
                                       
Before expense reimbursement
    0.72 %     1.00 %     0.61 %     0.04 %     1.49 % (5)
After expense reimbursement
    0.72 %     1.00 %     0.61 %     0.04 %     1.49 % (5)
Portfolio turnover rate (6)
    43 %     70 %     89 %     118 %     147 % (4)





















(1)   Institutional Class shares commenced operations on May 30, 2008.
(2)   Calculated based on average shares outstanding method.
(3)   Amount is less than $0.01.
(4)   Not Annualized.
(5)   Annualized.
(6)   Portfolio turnover is calculated on the basis of the Fund as a whole.


The accompanying notes are an integral part of these financial statements.


HENNESSY FUNDS                                                                                                           1-800-966-4354
 
61
 

Financial Highlights
Hennessy Large Cap Financial Fund (formerly FBR Large Cap Financial Fund)

For an Investor Class share outstanding throughout each year

   
Year Ended October 31,
 
   
2012
   
2011
   
2010
   
2009
   
2008
 
PER SHARE DATA:
                             
Net asset value, beginning of year
  $ 11.91     $ 12.88     $ 12.61     $ 11.14     $ 18.71  
                                         
Income from investment operations:
                                       
Net investment income (loss)
    0.01       (0.04 ) (1)     (0.08 )     0.00 (2)     0.14  
Net realized and unrealized gains (losses) on investments
    2.24       (0.93 )     0.35       1.58       (3.86 )
Total from investment operations
    2.25       (0.97 )     0.27       1.58       (3.72 )
                                         
Less Distributions:
                                       
Dividends from net investment income
    —       —       —       (0.10 )     (0.18 )
Distribution in Excess of Net Investment Income
    —       —       —       (0.02 )     —  
Dividends from net realized gains
    —       —       —       —       (3.68 )
Total distributions
    —       —       —       (0.12 )     (3.86 )
Paid-in capital from redemption fees
    0.00 (2)     0.00 (2)     0.00 (2)     0.01       0.01  
Net asset value, end of year
  $ 14.16     $ 11.91     $ 12.88     $ 12.61     $ 11.14  
                                         
TOTAL RETURN
    18.89 %     (7.53 )%     2.14 %     14.52 %     (23.76 )%
                                         
SUPPLEMENTAL DATA AND RATIOS:
                                       
Net assets, end of year (millions)
  $ 64.66     $ 55.68     $ 48.72     $ 37.20     $ 24.27  
Ratio of expenses to average net assets:
                                       
Before expense reimbursement
    1.57 %     1.61 %     1.78 %     1.81 %     2.01 %
After expense reimbursement
    1.57 %     1.61 %     1.78 %     1.81 %     1.88 %
Ratio of net investment income/(loss) to average net assets:
                                       
Before expense reimbursement
    0.09 %     (0.34 )%     (0.73 )%     (0.08 )%     1.50 %
After expense reimbursement
    0.09 %     (0.34 )%     (0.73 )%     (0.08 )%     1.63 %
Portfolio turnover rate
    93 %     97 %     150 %     220 %     509 %

























(1)   Calculated based on average shares outstanding method.
(2)   Amount is less than $0.01.


The accompanying notes are an integral part of these financial statements.


WWW.HENNESSYFUNDS.COM
 
62
 





 
 
 

 



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HENNESSY FUNDS                                                                                                           1-800-966-4354
 
63
 

Financial Highlights
Hennessy Technology Fund (formerly FBR Technology Fund)

For an Investor Class share outstanding throughout each year

   
Year Ended October 31,
 
   
2012
   
2011
   
2010
   
2009
   
2008
 
PER SHARE DATA:
                             
Net asset value, beginning of year
  $ 10.86     $ 11.00     $ 9.05     $ 6.96     $ 13.34  
                                         
Income from investment operations:
                                       
Net investment income (loss)
    (0.15 )     (0.17 ) (1)     (0.14 )     (0.08 )     (0.12 )
Net realized and unrealized gains (losses) on investments
    (0.04 )     0.03       2.08       2.16       (5.03 )
Total from investment operations
    (0.19 )     (0.14 )     1.94       2.08       (5.15 )
                                         
Less Distributions:
                                       
Dividends from net investment income
    —       —       —       —       —  
Dividends from net realized gains
    —       —       —       —       (1.23 )
Total distributions
    —       —       —       —       (1.23 )
Paid-in capital from redemption fees
    0.00 (2)     0.00 (2)     0.01       0.01       0.00 (2)
Net asset value, end of year
  $ 10.67     $ 10.86     $ 11.00     $ 9.05     $ 6.96  
                                         
TOTAL RETURN
    (1.75 )%     (1.27 )%     21.55 %     30.03 %     (42.30 )%
                                         
SUPPLEMENTAL DATA AND RATIOS:
                                       
Net assets, end of year (millions)
  $ 4.44     $ 5.70     $ 8.21     $ 8.39     $ 7.69  
Ratio of expenses to average net assets:
                                       
Before expense reimbursement
    3.20 %     2.79 %     2.50 %     3.00 %     1.92 %
After expense reimbursement
    1.95 %     1.95 %     1.95 %     1.95 %     1.84 %
Ratio of net investment income/(loss) to average net assets:
                                       
Before expense reimbursement
    (2.39 )%     (2.38 )%     (1.64 )%     (2.10 )%     (0.68 )%
After expense reimbursement
    (1.14 )%     (1.54 )%     (1.10 )%     (1.05 )%     (0.60 )%
Portfolio turnover rate (3)
    138 %     141 %     353 %     211 %     175 %

























(1)   Calculated based on average shares outstanding method.
(2)   Amount is less than $0.01.
(3)   Portfolio turnover is calculated on the basis of the Fund as a whole.


The accompanying notes are an integral part of these financial statements.

WWW.HENNESSYFUNDS.COM
 
64
 

Financial Highlights
Hennessy Technology Fund (formerly FBR Technology Fund)

For an Institutional Class share outstanding throughout each period

   
For the Year Ended
   
Period Ended
 
    October 31,    
October 31,
 
   
2012
   
2011
   
2010 (1)
 
PER SHARE DATA:
                 
Net asset value, beginning of period
  $ 10.89     $ 11.00     $ 10.46  
                         
Income from investment operations:
                       
Net investment income (loss)
    (0.11 )     (0.14 ) (2)     (0.07 )
Net realized and unrealized gains (losses) on investments
    (0.05 )     0.03       0.61  
Total from investment operations
    (0.16 )     (0.11 )     0.54  
Paid-in capital from redemption fees
    0.00 (3)     0.00 (3)     0.00 (3)
Net asset value, end of period
  $ 10.73     $ 10.89     $ 11.00  
                         
TOTAL RETURN
    (1.47 )%     (1.00 )%     5.16 % (4)
                         
SUPPLEMENTAL DATA AND RATIOS:
                       
Net assets, end of period (millions)
  $ 0.93     $ 1.16     $ 4.61  
Ratio of expenses to average net assets:
                       
Before expense reimbursement
    4.11 %     3.45 %     2.34 % (5)
After expense reimbursement
    1.70 %     1.70 %     1.70 % (5)
Ratio of net investment income/(loss) to average net assets:
                       
Before expense reimbursement
    (3.31 )%     (2.99 )%     (1.41 )% (5)
After expense reimbursement
    (0.90 )%     (1.24 )%     (0.77 )% (5)
Portfolio turnover rate (6)
    138 %     141 %     353 % (4)

























(1)   Institutional Class shares commenced operations on March 12, 2010.
(2)   Calculated based on average shares outstanding method.
(3)   Amount is less than $0.01.
(4)   Not Annualized.
(5)   Annualized.
(6)   Portfolio turnover is calculated on the basis of the Fund as a whole.


The accompanying notes are an integral part of these financial statements.

 

HENNESSY FUNDS                                                                                                           1-800-966-4354
 
65
 

Financial Highlights
Hennessy Equity and Income Fund (formerly FBR Balanced Fund)

For an Investor Class share outstanding throughout each period

               
For the Period
                   
               
April 1,
                   
   
For the Year
   
2010 to
                   
    Ended October 31,    
October 31,
    Year Ended March 31,  
   
2012
   
2011
   
2010 (1)
   
2010
   
2009
   
2008
 
PER SHARE DATA:
                                   
Net asset value, beginning of period
  $ 12.99     $ 11.93     $ 11.52     $ 8.92     $ 12.27     $ 14.48  
                                                 
Income from investment operations:
                                               
Net investment income
    0.18       0.29 (2)     0.17 (2)     0.29 (2)     0.32 (2)     0.39 (2)
Net realized and unrealized gains (losses) on securities
    0.99       1.04       0.40       2.61       (3.23 )     0.34  
Total from investment operations
    1.17       1.33       0.57       2.90       (2.91 )     0.73  
                                                 
Less Distributions:
                                               
Dividends from net investment income
    (0.20 )     (0.27 )     (0.16 )     (0.30 )     (0.25 )     (0.37 )
Dividends from realized capital gains
    0.00       —       —       —       (0.17 )     (2.57 )
Return of capital
    —       —       —       —       (0.03 )     —  
Total distributions
    (0.20 )     (0.27 )     (0.16 )     (0.30 )     (0.45 )     (2.94 )
Paid-in capital from redemption fees
    0.00 (3)     0.00 (3)     0.00 (3)     0.00 (3)     0.01       —  
Net asset value, end of period
  $ 13.96     $ 12.99     $ 11.93     $ 11.52     $ 8.92     $ 12.27  
                                                 
TOTAL RETURN
    9.01 %     11.30 %     5.04 % (4)     32.76 %     (24.28 )%     4.45 %
                                                 
SUPPLEMENTAL DATA AND RATIOS:
                                               
Net assets, end of period (millions)
  $ 196.92     $ 56.75     $ 41.50     $ 46.81     $ 18.86     $ 21.70  
Ratio of expenses to average net assets:
                                               
Before expense reimbursement
    1.33 %     1.54 %     1.60 % (5)     1.69 %     1.84 %     1.66 %
After expense reimbursement
    1.24 %     1.24 %     1.24 % (5)     1.25 %     1.32 %     1.33 %
Ratio of net investment income to average net assets:
                                               
Before expense reimbursement
    1.37 %     2.03 %     2.21 % (5)     2.26 %     2.50 %     2.42 %
After expense reimbursement
    1.46 %     2.33 %     2.56 % (5)     2.70 %     3.03 %     2.75 %
Portfolio turnover rate (6)
    34 %     35 %     27 % (4)     26 %     32 %     110 %


















(1)   The Fund changed its fiscal year end from March 31 to October 31.
(2)   Calculated based on average shares outstanding method.
(3)   Amount is less than $0.01.
(4)   Not Annualized.
(5)   Annualized.
(6)   Portfolio turnover is calculated on the basis of the Fund as a whole.


The accompanying notes are an integral part of these financial statements.

WWW.HENNESSYFUNDS.COM
 
66
 

Financial Highlights
Hennessy Equity and Income Fund (formerly FBR Balanced Fund)

For an Institutional Class share outstanding throughout each period

               
For the Period
                   
               
April 1,
                   
   
For the Year
   
2010 to
                   
    Ended October 31,    
October 31,
    Year Ended March 31,  
   
2012
   
2011
   
2010 (1)
   
2010
   
2009
   
2008
 
PER SHARE DATA:
                                   
Net asset value, beginning of period
  $ 12.38     $ 11.38     $ 10.99     $ 8.52     $ 11.75     $ 13.98  
                                                 
Income from investment operations:
                                               
Net investment income (loss)
    0.22       0.32 (2)     0.18 (2)     0.30 (2)     0.33 (2)     0.42 (2)
Net realized and unrealized gains (losses) on investments
    0.92       0.99       0.38       2.50       (3.10 )     0.33  
Total from investment operations
    1.14       1.31       0.56       2.80       (2.77 )     0.75  
                                                 
Less Distributions:
                                               
Dividends from net investment income
    (0.23 )     (0.31 )     (0.17 )     (0.33 )     (0.26 )     (0.41 )
Dividends from net realized gains
    —       —       —       —       (0.17 )     (2.57 )
Return of capital
    —       —       —       —       (0.04 )     —  
Total distributions
    (0.23 )     (0.31 )     (0.17 )     (0.33 )     (0.47 )     (2.98 )
Paid-in capital from redemption fees
    0.00 (3)     0.00 (3)     0.00 (3)     0.00 (3)     0.01       —  
Net asset value, end of period
  $ 13.29     $ 12.38     $ 11.38     $ 10.99     $ 8.52     $ 11.75  
                                                 
TOTAL RETURN
    9.23 %     11.62 %     5.19 % (4)     33.10 %     (24.13 )%     4.75 %
                                                 
SUPPLEMENTAL DATA AND RATIOS:
                                               
Net assets, end of period (millions)
  $ 108.49     $ 55.28     $ 42.17     $ 39.40     $ 31.13     $ 41.21  
Ratio of expenses to average net assets:
                                               
Before expense reimbursement
    1.06 %     1.12 %     1.20 % (5)     1.43 %     1.58 %     1.41 %
After expense reimbursement
    0.99 %     0.99 %     0.99 % (5)     0.99 %     1.07 %     1.08 %
Ratio of net investment income to average net assets:
                                               
Before expense reimbursement
    1.68 %     2.56 %     2.60 % (5)     2.57 %     2.73 %     2.67 %
After expense reimbursement
    1.75 %     2.69 %     2.82 % (5)     3.01 %     3.24 %     3.00 %
Portfolio turnover rate (6)
    34 %     35 %     27 % (4)     26 %     32 %     110 %


















(1)   The Fund changed its fiscal year end from March 31 to October 31.
(2)   Calculated based on average shares outstanding method.
(3)   Amount is less than $0.01.
(4)   Not Annualized.
(5)   Annualized.
(6)   Portfolio turnover is calculated on the basis of the Fund as a whole.


The accompanying notes are an integral part of these financial statements.


HENNESSY FUNDS                                                                                                           1-800-966-4354
 
67
 

Financial Highlights
Hennessy Core Bond Fund (formerly FBR Core Bond Fund)

For an Investor Class share outstanding throughout each period

               
For the Period
                   
               
April 1,
                   
   
For the Year
   
2010 to
                   
    Ended October 31,    
October 31,
    Year Ended March 31,  
   
2012
   
2011
   
2010 (1)
   
2010
   
2009
   
2008
 
PER SHARE DATA:
                                   
Net asset value, beginning of period
  $ 9.56     $ 9.82     $ 9.39     $ 8.75     $ 9.16     $ 9.71  
                                                 
Income from investment operations:
                                               
Net investment income
    0.28       0.35 (2)     0.23 (2)     0.38 (2)     0.35 (2)     0.42 (2)
Net realized and unrealized gains (losses) on investments
    0.41       (0.14 )     0.42       0.69       (0.44 )     —  
Total from investment operations
    0.69       0.21       0.65       1.07       (0.09 )     0.42  
                                                 
Less Distributions:
                                               
Dividends from net investment income
    (0.20 )     (0.32 )     (0.22 )     (0.38 )     (0.32 )     (0.39 )
Dividends from net realized gains
    (0.08 )     (0.15 )     —       (0.05 )     —       (0.58 )
Total distributions
    (0.28 )     (0.47 )     (0.22 )     (0.43 )     (0.32 )     (0.97 )
Paid-in capital from redemption fees
    0.00 (3)     0.00 (3)     0.00 (3)     0.00 (3)     0.00 (3)     —  
Net asset value, end of period
  $ 9.97     $ 9.56     $ 9.82     $ 9.39     $ 8.75     $ 9.16  
                                                 
TOTAL RETURN
    7.38 %     2.35 %     6.98 % (4)     12.33 %     (0.93 )%     4.48 %
                                                 
SUPPLEMENTAL DATA AND RATIOS:
                                               
Net assets, end of period (millions)
  $ 3.57     $ 4.05     $ 4.45     $ 4.62     $ 2.06     $ 2.03  
Ratio of expenses to average net assets:
                                               
Before expense reimbursement
    2.12 %     2.38 %     2.10 % (5)     1.93 %     2.14 %     2.19 %
After expense reimbursement
    1.30 %     1.30 %     1.30 % (5)     1.31 %     1.33 %     1.33 %
Ratio of net investment income to average net assets:
                                               
Before expense reimbursement
    2.01 %     2.58 %     3.37 % (5)     3.49 %     3.21 %     3.53 %
After expense reimbursement
    2.83 %     3.66 %     4.17 % (5)     4.11 %     4.02 %     4.40 %
Portfolio turnover rate (6)
    75 %     57 %     46 % (4)     28 %     39 %     102 %



















(1)   The Fund changed its fiscal year end from March 31 to October 31.
(2)   Calculated based on average shares outstanding method.
(3)   Amount is less than $0.01.
(4)   Not Annualized.
(5)   Annualized.
(6)   Portfolio turnover is calculated on the basis of the Fund as a whole.


The accompanying notes are an integral part of these financial statements.

WWW.HENNESSYFUNDS.COM
 
68
 

Financial Highlights
Hennessy Core Bond Fund (formerly FBR Core Bond Fund)

For an Institutional Class share outstanding throughout each period

               
For the Period
                   
               
April 1,
                   
   
For the Year
   
2010 to
                   
    Ended October 31,    
October 31,
    Year Ended March 31,  
   
2012
   
2011
   
2010 (1)
   
2010
   
2009
   
2008
 
PER SHARE DATA:
                                   
Net asset value, beginning of period
  $ 8.77     $ 9.05     $ 8.67     $ 8.11     $ 8.52     $ 9.10  
                                                 
Income from investment operations:
                                               
Net investment income
    0.27       0.34 (2)     0.23 (2)     0.37 (2)     0.35 (2)     0.39 (2)
Net realized and unrealized gains (losses) on investments
    0.38       (0.12 )     0.38       0.64       (0.42 )     0.03  
Total from investment operations
    0.65       0.22       0.61       1.01       (0.07 )     0.42  
                                                 
Less Distributions:
                                               
Dividends from net investment income
    (0.28 )     (0.35 )     (0.23 )     (0.40 )     (0.34 )     (0.42 )
Dividends from net realized gains
    (0.08 )     (0.15 )     —       (0.05 )     —       (0.58 )
Total distributions
    (0.36 )     (0.50 )     (0.23 )     (0.45 )     (0.34 )     (1.00 )
Paid-in capital from redemption fees
    0.00 (3)     0.00 (3)     0.00 (3)     0.00 (3)     0.00 (3)     —  
Net asset value, end of period
  $ 9.06     $ 8.77     $ 9.05     $ 8.67     $ 8.11     $ 8.52  
                                                 
TOTAL RETURN
    7.63 %     2.62 %     7.15 % (4)     12.62 %     (0.74 )%     4.78 %
                                                 
SUPPLEMENTAL DATA AND RATIOS:
                                               
Net assets, end of period (millions)
  $ 33.34     $ 23.25     $ 24.25     $ 23.89     $ 22.05     $ 21.95  
Ratio of expenses to average net assets:
                                               
Before expense reimbursement
    1.31 %     1.43 %     1.47 % (5)     1.69 %     1.89 %     1.94 %
After expense reimbursement
    1.05 %     1.05 %     1.05 % (5)     1.06 %     1.08 %     1.08 %
Ratio of net investment income to average net assets:
                                               
Before expense reimbursement
    2.74 %     3.54 %     4.00 % (5)     3.74 %     3.46 %     3.60 %
After expense reimbursement
    3.00 %     3.92 %     4.41 % (5)     4.37 %     4.27 %     4.46 %
Portfolio turnover rate (6)
    75 %     57 %     46 % (4)     28 %     39 %     102 %



















(1)   The Fund changed its fiscal year end from March 31 to October 31.
(2)   Calculated based on average shares outstanding method.
(3)   Amount is less than $0.01.
(4)   Not Annualized.
(5)   Annualized.
(6)   Portfolio turnover is calculated on the basis of the Fund as a whole.


The accompanying notes are an integral part of these financial statements.


HENNESSY FUNDS                                                                                                           1-800-966-4354
 
69
 

Notes to the Financial Statements
October 31, 2012

 
1).  ORGANIZATION
 
The Hennessy Focus Fund (the “Focus Fund”), Hennessy Gas Utility Index Fund (the “Gas Fund”), Hennessy Small Cap Financial Fund (the “Small Cap Financial Fund”), Hennessy Large Cap Financial Fund (the “Large Cap Financial Fund”), Hennessy Technology Fund (the “Technology Fund”), Hennessy Equity and Income Fund (the “Equity and Income Fund”), and Hennessy Core Bond Fund (the “Core Bond Fund”) (each a “Fund” and collectively, the “Funds”), are each a series of the Hennessy Funds Trust (the “Trust”), which was organized as a Delaware Statutory Trust on September 17, 1992.  Each Fund is a successor to a series of The FBR Funds, a Delaware Statutory Trust, pursuant to a reorganization that took place after the close of business on October 26, 2012.  The Focus Fund, Gas Fund, Small Cap Financial Fund, Large Cap Financial Fund, Technology Fund, Equity and Income Fund and Core Bond Fund are the successors to the FBR Focus Fund, FBR Gas Utility Index Fund, FBR Small Cap Financial Fund, FBR Large Cap Financial Fund, FBR Technology Fund, FBR Balanced Fund and the FBR Core Bond Fund, respectively (each a “Predecessor Fund” and collectively, the “Predecessor Funds”).
 
Prior to October 26, 2012, each Fund had no investment operations.  As a result of the reorganization, holders of the Investor Class shares of the Predecessor Funds received Investor Class shares of the Funds (the Investor Class shares of each Fund is the successor to the accounting and performance information of the corresponding Predecessor Fund), and holders of the Institutional Class shares of the Predecessor Funds received Institutional Class shares of the Funds (the Institutional Class shares of each Fund is the successor to the accounting and performance information of the corresponding Predecessor Fund).  The Focus Fund, Gas Fund, Small Cap Financial Fund, Large Cap Financial Fund and Technology Fund are open-end, non-diversified management investment companies registered under the 1940 Act.  The Equity and Income Fund and Core Bond Fund are open-end, diversified management investment companies registered under the 1940 Act.  The investment objective of the Focus Fund, Small Cap Financial Fund, Large Cap Financial Fund, and Technology Fund is capital appreciation.  The investment objective of the Gas Fund is income and capital appreciation.  The investment objective of the Equity and Income Fund is long-term capital growth and current income.  The investment objective of the Core Bond Fund is current income with capital growth as a secondary objective.
 
The Focus Fund, Small Cap Financial Fund, Technology Fund, Equity and Income Fund and Core Bond Fund offer Investor and Institutional Class shares.  Each class of shares differs principally in its respective administration, 12b-1 distribution and service fees, and transfer agent expenses and sales charges, if any.  Each class has identical rights to earnings, assets and voting privileges, except for class-specific expenses and exclusive rights to vote on matters affecting only individual classes.  The Gas Fund and Large Cap Financial Fund offer only Investor Class shares.
 
 
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 – All investments in securities are recorded at their estimated fair value, as described in Note 4.
 
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 or loss 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 2012 fiscal year have been identified and appropriately reclassified on the Statement of Assets and Liabilities.
 
    Accumulated Net     Accumulated Net    
Paid In
 
  Investment Income/(Loss)     Realized Gain/(Loss)    
Capital
 
Focus Fund
  $ 42,697       $ (42,697 )     $ —  
Gas Fund
  $ 9,169       $ (9,169 )     $ —  
Small Cap Financial Fund
  $ 488,624       $ (488,624 )     $ —  
Large Cap Financial Fund
  $ (995 )     $ (5 )     $ 1,000  
Technology Fund
  $ 9,761       $ —       $ (9,761 )
Equity and Income Fund
  $ 24,670       $ (24,670 )     $ —  
Core Bond Fund
  $ (6,682 )     $ 6,681       $ 1  
 
 
The permanent differences primarily relate to net operating losses and capital loss carryovers lost due to expiration.
 
c).
Income and Expenses – Dividend income is recognized on the ex-dividend date or as soon as information is available to the Funds and interest income, which includes the amortization of premium and accretion of discount, is recognized on an accrual basis. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its respective net assets.
 
d).
Distributions to Shareholders – Dividends from net investment income for the Focus Fund, Small Cap Financial Fund, Large Cap Financial Fund and Technology Fund, if any, are declared and paid out annually, usually in November or December of each year. The Gas Fund and Equity and Income Fund declare and pay any such dividends quarterly. The Core Bond Fund declares and pays

WWW.HENNESSYFUNDS.COM
 
70
 
 
 
net investment income, if any, monthly. Distributions from net realized capital gains, if any, are declared and paid annually, usually in November or December of each year, for all of the Funds. Income and capital gain distributions are determined in accordance with U.S. federal income tax regulations.
 
e).
Security Transactions – Investment and shareholder 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 accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that may 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 amounts of income and expenses 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 New York Stock Exchange 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 charged a 1% redemption fee on shares redeemed or exchanged within 90 days of purchase through October 26, 2012. These fees were deducted from the redemption proceeds otherwise payable to the shareholder. The redemption fees were retained by each Fund and treated as additional paid-in capital and allocated to each respective class of shares (if applicable).  Such fees become part of that Fund’s daily NAV calculation.
 
h).
Foreign Currency – Values of investments denominated in foreign currencies are converted into U.S. dollars using the spot market rate of exchange at the time of valuation.  Purchases and sales of investments and income are translated into U.S. dollars using the spot market rate of exchange prevailing on the respective dates of such transactions.  The effect of changes in foreign exchange rates on realized and unrealized security gains and losses is reflected as a component of such gains or losses.  Foreign investments present additional risks due to currency fluctuations, economic and political factors, lower liquidity, government regulations, differences in accounting standards and other factors.
 
i).
Repurchase Agreements – The Funds 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.
 
j).
Accounting for Uncertainty in Income Taxes – The Funds have adopted accounting policies regarding recognition and measurement of tax positions taken or expected to be taken on a tax return.  The Funds have reviewed all open tax years and major jurisdictions and concluded that there is no impact on the Funds’ net assets and no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken on a tax return.  As of October 31, 2012, open Federal and state tax years for the Funds include the tax years ended October 31, 2009 through 2012.
 
k).
Derivatives – The Funds may invest in, or enter into, derivatives, such as options, futures contracts, options on futures contracts and swaps, for a variety of reasons, including to hedge certain risks, to provide a substitute for purchasing or selling particular securities or to increase potential income gain.  Derivatives may provide a cheaper, quicker or more specifically focused way for a Fund to invest than “traditional” securities would.  The main purpose of utilizing these derivative instruments is for hedging purposes.
 
 
The Funds have adopted the financial accounting reporting rules as required by the Derivatives and Hedging Topic of the FASB Accounting Standards Codification (“FASB ASC”). The Funds are required to include enhanced disclosure that enables investors to understand how and why an entity uses derivatives, how derivatives are accounted for, and how derivatives instruments affect an entity’s results of operations and financial position. During the year ended October 31, 2012, the Funds did not hold any derivative instruments.
 
l).
Events Subsequent to the Fiscal Period End – The Funds have adopted financial reporting rules regarding subsequent events which requires an entity to recognize in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet.  Management has evaluated the Funds’ related events and transactions that occurred subsequent to October 31, 2012, through the date of issuance of the Funds’ financial statements.  There were no events or transactions that occurred during this period that materially impacted the amounts or disclosures in the Fund’s financial statements.
 
m).
New Accounting Pronouncements – In April 2011, FASB issued ASU No. 2011-03 “Reconsideration of Effective Control for Repurchase Agreements”. ASU 2011-03 amends FASB ASC Topic 860, Transfers and Servicing, specifically the criteria required to determine whether a repurchase agreement (repo) and similar agreements should be accounted for as sales of financial assets or secured borrowings with commitments. ASU No. 2011-03 changes the assessment of effective control by focusing on the transferor’s contractual rights and obligations and removing the criterion to assess its ability to exercise those rights or honor those obligations. This could result in changes to the way entities account for certain transactions including repurchase agreements, mortgage dollar rolls and reverse repurchase agreements. The ASU will become effective on a prospective basis for new transfers and modifications to existing transactions as of the beginning of the first interim or annual period beginning on or after December 15, 2011. Management continues to evaluate the application of this pronouncement to the Funds, and is not in a position at this time to evaluate the significance of its impact, if any, on the Funds’ financial statements.
 

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In May 2011, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2011-04 “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements” in GAAP and the International Financial Reporting Standards (“IFRSs”).  ASU No. 2011-04 amends FASB ASC Topic 820, Fair Value Measurements and Disclosures, to establish common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and IFRSs.  ASU No. 2011-04 is effective for fiscal years beginning after December 15, 2011 and for interim periods within those fiscal years.  Management is currently evaluating the impact of these amendments and does not believe they will have a material impact on the Funds’ financial statements.
 
 
In December 2011, FASB issued ASU No. 2011-11 related to disclosures about offsetting assets and liabilities.  The amendments in this ASU require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position.  The ASU is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods.  The guidance requires retrospective applications for all comparative periods presented.  Management is currently evaluating the impact ASU 2011-11 will have on the financial statements disclosures.
 
 
3).  RISK FACTORS
 
Market Risks – Loss of money is a risk of investing in the Funds. The net asset value of the Funds can be expected to change daily and you may lose money. As with any mutual fund, there is no guarantee that the Funds’ performance will be positive over any period of time, either short-term or long-term. A Fund’s success depends largely on the Adviser’s ability to select favorable investments. Also, different types of investments shift in and out of favor depending on market and economic conditions. For example, at various times stocks will be more or less favorable than bonds and small-cap or mid-cap stocks will be more or less favorable than large-cap company stocks. Because of this, the Funds may perform better or worse than other types of funds depending on what is in “favor.”
 
Equity Investments – Because each of the Funds, with the exception of the Core Bond Fund, invests in equity securities, fluctuations in the stock market in general, as well as in the value of particular equity securities held by a Fund, can affect the Fund’s performance. The value of equity securities will fluctuate due to many factors, including the past and predicted earnings of the issuer, the quality of the issuer’s management, general market conditions, and forecasts for the issuer’s industry and the value of the issuer’s assets.
 
IPO Investments – The Technology, Equity and Income and Core Bond Funds invest in IPO shares which are subject to market risk and liquidity risk. The market value of IPO shares will fluctuate considerably due to facts such as the absence of a prior public market, unseasoned trading, the small number of shares available for trading and limited public information about the issuer. The purchase of IPO shares may involve high transaction costs. When a fund’s asset base is small, a significant portion of the fund’s performance could be attributable to investments in IPOs, because such investments would have a magnified impact on the fund.
 
Temporary Defensive Position – Each of the Funds may, from time to time, take temporary defensive positions in response to adverse market, economic, political or other conditions. To the extent the assets of a Fund are invested in temporary defensive positions, the Fund may not achieve its investment objective. For temporary defensive purposes, the Fund may invest in cash and/or short-term obligations.
 
Industry Concentration – Because of their narrow focus, the Large Cap Financial and the Small Cap Financial, the Technology and the Gas Funds are tied closely to and affected by the financial services, technology, and natural gas distribution and transmission industries, respectively. The value of the Funds may be subject to greater volatility than funds with portfolios that are less concentrated.
 
Investments in Derivatives – The Focus, Small Cap Financial, Large Cap Financial and Technology Funds may engage in derivative instruments such as options, futures and forward foreign currency exchange contracts. Derivative instruments are instruments that derive their value from a different underlying security, index or financial indicator. A Fund may use derivatives for either hedging or non-hedging purposes, or for both purposes, including for purposes of enhancing return. Investing for non-hedging purposes may be considered speculative and involve additional risks.
 
Foreign Investments – The Technology, Gas, Equity and Income and Core Bond Funds invest in foreign securities which presents unique investment risks. The value of securities denominated in or indexed to foreign currencies, and of dividends and interest from such securities, can change significantly when foreign currencies strengthen or weaken relative to the U.S. dollar. Many foreign countries lack uniform accounting and disclosure standards comparable to those applicable to U.S. companies, and it may be more difficult to obtain reliable information regarding an issuer’s financial condition and operations. The Fund may invest in both sponsored and unsponsored ADRs which are receipts issued by a U.S. bank or trust company evidencing ownership of an indirect interest in underlying securities issued by a foreign issuer. In a sponsored ADR arrangement, the non-U.S. issuer assumes the obligation to pay some or all of the depositary’s transaction fees. Under an unsponsored ADR arrangement, the non-U.S. issuer assumes no obligations and the depositary’s transaction fees are paid directly by the ADR holders. Because unsponsored ADR arrangements are organized independently and without the cooperation of the issuer of the underlying securities, available information concerning the non-U.S. issuer may not be as current as for sponsored ADRs and voting rights with respect to the deposited securities are not passed through.
 
Debt Investments – The Equity and Income and Core Bond Funds invest in debt securities. The yields and principal values of debt securities will also fluctuate. Generally, values of debt securities change inversely with interest rates. That is, as interest rates go up, the values of debt securities tend to go down and vice versa. Furthermore, these fluctuations tend to increase as a bond’s maturity increases such that a longer term bond will increase or decrease more for a given change in interest rates than a shorter term bond.
 
High Yield Investments – The Equity and Income and Core Bond Funds may invest a small portion of their assets in lower-rated, high-yielding bonds (commonly known as “junk bonds”). These bonds have a greater degree of default risk than higher-rated bonds. Default risk is the possibility that the issuer of a debt security will fail to make timely payments of principal or interest to the Funds.
 
Mortgage-Backed and Asset-Backed Securities Investments – The Equity and Income and Core Bond Funds may invest in mortgage and asset-backed securities that are subject to prepayment risk, which is the risk that the borrower will prepay some or all of the principal

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owed to the issuer. If prepayment occurs, the Funds may have to replace the security by investing the proceeds in a less attractive security. This may reduce a Fund’s share price and income distribution.
 
Mid-Cap and Small-Cap Investments – The Focus, Large Cap Financial, Small Cap Financial and Technology Funds invest in the securities of mid-cap and small-cap companies generally involves greater risk than investing in larger, more established companies. This greater risk is, in part, attributable to the fact that the securities of mid-cap and small-cap companies usually have more limited marketability. Because mid-cap and small-cap companies have fewer shares outstanding than larger companies, it also may be more difficult to buy or sell significant amounts of such shares without unfavorable impact on prevailing prices. Additionally, securities of mid-cap and small-cap companies are typically subject to greater changes in earnings and business prospects than are larger, more established companies and typically there is less publicly available information concerning mid-cap and small-cap companies than for larger, more established companies. Although investing in securities of mid-cap and small-cap companies offers potential above-average returns if the companies are successful, there is a risk that companies will not succeed and the prices of the companies’ shares could significantly decline in value.
 
Securities of mid-cap and small-cap companies, especially those whose business involves emerging products or concepts, may be more volatile due to their limited product lines, markets or financial resources and may lack management depth. Securities of mid-cap and small-cap companies also may be more volatile than larger companies or the market averages in general because of their general susceptibility to economic downturns, especially in the financial services group of industries where changes in interest rates and demand for financial services are so closely tied to the economy.
 
Non-Diversification – The Focus, Large Cap Financial, Small Cap Financial, Technology and Gas Funds are classified as “non-diversified” investment companies under the 1940 Act, which means each Fund may own larger positions in a smaller number of securities. A fund that is less diversified may be more susceptible to adverse economic, political, or regulatory developments affecting a single issuer than a fund that is more broadly diversified. However, each Fund intends to qualify for treatment as a regulated investment company under the Internal Revenue Code of 1986, as amended, which requires that, among other things, at the close of each quarter of each Fund’s taxable year, a Fund may not (1) with respect to 50% of its total assets, invest more than 5% of its total assets in the securities of any one issuer or own more than 10% of outstanding voting securities of any one issuer, or (2) invest more than 25% of the value of its total assets in securities of any one issuer. These limits do not apply to U.S. Government securities or securities of other registered investment companies.
 
Real Estate-Related Risk – Because the Small Cap Financial Fund focuses on financial services companies that may invest in real estate, the Fund is subject to the risks associated with ownership of real estate and with the real estate industry in general. Real estate values (and the values of real estate-related securities) fluctuate with changes in general and local economic conditions and are particularly sensitive to economic downturns. Real estate values are also affected by changes in interest rates and governmental actions such as tax and zoning changes.
 
Index Tracking – While the Gas Fund seeks to track the performance of the American Gas Association Index (“Index”) as closely as possible, the Fund’s return may not always be able to match or achieve a high correlation with the return of the Index due to such factors as the various expenses incurred by the Fund, such as management fees, transaction costs and other operating expenses which are not incurred by the Index. In addition, the Fund may not be fully invested at all times in the Index as a result of cash flows into the Fund or reserves of cash that are maintained in order to meet redemption requests and cover operating expenses.
 
 
4).  SECURITIES VALUATION
 
The Funds have adopted authoritative fair valuation accounting standards which establish an authoritative definition of fair value and set out a hierarchy for measuring fair value.  These standards require additional disclosures about the various inputs and valuation techniques used to develop the measurements of fair value and a discussion in changes in valuation techniques and related inputs during the period.  These inputs are summarized in the three broad levels listed below:
 
Level 1 –
Quoted unadjusted prices for identical instruments in active markets to which the Fund has access at the date of measurement.
   
Level 2 –
Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.  Level 2 inputs are those in markets for which there are few transactions, the prices are not current, the prices are fair value adjusted due to post market close subsequent events (foreign markets), little public information exists or instances where prices vary substantially over time or among brokered market makers.  These inputs may also include interest rates, prepayment speeds, credit risk curves, default rates and similar data.
   
Level 3 –
Model-derived valuations in which one or more significant inputs or significant value drivers are unobservable.  Unobservable inputs are those inputs that reflect the Funds’ own assumptions that market participant’s would use to price the asset or liability based on the best available information.
 
Following is a description of the valuation techniques applied to the Funds’ major categories of assets and liabilities measured at fair value on a recurring basis.
 
Equity Securities – Equity securities, including common stocks, preferred stocks, foreign issued common stocks, exchange traded funds, closed-end mutual funds and real estate investment trust, which are traded on a securities exchange for which a last-quoted sales price is readily available will be valued at the last sales price as reported by the primary exchange on which the securities are listed.  Securities listed on the NASDAQ National Market System (“NASDAQ”) will be valued at the NASDAQ Official Closing Price, which may differ from the last sales price reported.  Securities traded on a securities exchange for which a last-quoted sales price is not readily available will be valued at the mean between the bid and ask prices.  To the extent these securities are actively traded and valuation adjustments are not applied, they are categorized in Level 1 of the fair value hierarchy.
 

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Investment Companies – Investments in investment companies (e.g., mutual funds and exchange traded funds) are generally priced at the ending net asset value (NAV) provided by the service agent of the Funds and will be classified as Level 1 securities.
 
Debt Securities – Debt securities, such as corporate bonds, asset backed securities, mortgage backed securities, municipal bonds, U.S. Treasuries and U.S. government agency issues are valued at market on the basis of valuations furnished by an independent pricing service which utilizes both dealer-supplied valuations and formula-based techniques.  The pricing service may consider recently executed transactions in securities of the issuer or comparable issuers, market price quotations (where observable), bond spreads, and fundamental data relating to the issuer.  In addition, the model may incorporate market observable data such as reported sales of similar securities, broker quotes, yields, bids, offers, and reference data.  Certain securities are valued principally using dealer quotations.  These securities will generally be classified in level 2 of the fair value hierarchy.
 
Short-Term Securities – Short-term equity investments, including money market funds, are valued in the manner specified above.  Short-term debt investments are valued at amortized cost, if their original maturity was 60 days or less, or by amortizing the values as of the 61st day prior to maturity, if their original term to maturity exceeded 60 days.  Short-term securities are generally in Level 1 or Level 2 of the fair market hierarchy depending on the inputs used and market activity levels for specific securities.
 
The Board of Trustees of the Funds (the “Board”) has adopted fair value pricing procedures that are followed when a price for a 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 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: 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.  Depending on the relative significance of the valuation inputs, these securities may be classified in either Level 2 or Level 3 of the fair value hierarchy.
 
Fair valuing of foreign securities may be determined with the assistance of a pricing service using correlations between the movement of prices of such securities and indices of domestic securities and other appropriate indicators, such as closing market prices of relevant American Depositary Receipts or futures contracts.  The effect of using fair value pricing is that the Funds’ NAV will reflect the affected portfolio securities’ value as determined in the judgment of the Board or its designee instead of being determined by the market.  Using a fair value pricing methodology to price securities may result in a value that is different from a security’s most recent closing price and from the prices used by other investment companies to calculate their net asset values and are considered level 2 prices in the fair valuation hierarchy.  Because the Funds invest in foreign securities, the value of the Funds’ portfolio securities may change on days when you will not be able to purchase or redeem your shares.  Depending on the relative significance of the valuation inputs, these securities may be classified in either level 2 or level 3 of the fair value hierarchy.
 
The Board has delegated day-to-day valuation issues to a Valuation Committee which is comprised of one or more representatives from Hennessy Advisors, Inc., the Fund’s advisor.  The function of the Valuation Committee is to value securities where current and reliable market quotations are not readily available.  All actions taken by the Valuation Committee are reviewed and ratified by the Board.
 
The Funds have performed an analysis of all existing investments to determine the significance and character of all inputs to their fair value determination.  Various inputs are used in determining the value of each Fund’s investments.  The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.  Details related to the fair valuation hierarchy of the Funds’ securities as of October 31, 2012, are included with each Fund’s Schedule of Investments.
 
 
5).  INVESTMENT TRANSACTIONS
 
Purchases and sales of investment securities (excluding government and short-term investments) during the year ended October 31, 2012, were as follows:
 
               
Small Cap
   
Large Cap
 
   
Focus
   
Gas
   
Financial
   
Financial
 
   
Fund
   
Fund
   
Fund
   
Fund
 
Purchases
  $ 83,926,873     $ 383,778,993     $ 76,057,181     $ 54,261,498  
Sales
  $ 105,401,370     $ 94,134,968     $ 74,303,904     $ 54,263,790  
                               
           
Equity and
                 
   
Technology
   
Income
   
Core Bond
         
   
Fund
   
Fund
   
Fund
         
Purchases
  $ 8,666,862     $ 144,916,403     $ 7,353,476          
Sales
  $ 10,158,171     $ 18,061,058     $ 6,338,771          
 
Purchases and sales/maturities of long-term U.S. Government Securities for the Equity and Income Fund were $106,893,406 and $52,906,358, respectively, for the year ended October 31, 2012.  Purchases and sales/maturities of long-term U.S. Government Securities for the Core Bond Fund were $23,891,718 and $16,804,925, respectively, for the year ended October 31, 2012.  There were no purchases or sales/maturities of long-term U.S. Government Securities for the Focus Fund, Gas Fund, Small Cap Financial Fund, Large Cap Financial Fund, and Technology Fund for the year ended October 31, 2012.
 
 
6).  INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
 
Hennessy Advisors, Inc. (the “Advisor”) is the Advisor of the Funds. The Advisor provides the Funds with investment management services under a Management Agreement. The Advisor furnishes all investment advice, office space, facilities, and provides most of the
 

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personnel needed by the Funds. As compensation for its services, the Advisor 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:
 
 
 
Focus Fund
0.90%
 
 
Gas Fund
0.40%
 
 
Small Cap Financial Fund
0.90%
 
 
Large Cap Financial Fund
0.90%
 
 
Technology Fund
0.90%
 
 
Equity and Income Fund
0.80%
 
 
Core Bond Fund
0.80%
 
 
Advisor fees payable for the Funds as of October 31, 2012, were:
 
 
Focus Fund
$594,508
 
 
Gas Fund
$248,508
 
 
Small Cap Financial Fund
$153,494
 
 
Large Cap Financial Fund
$  50,217
 
 
Technology Fund
$         —
 
 
Equity and Income Fund
$139,264
 
 
Core Bond Fund
$  13,075
 
 
Prior to the close of business on October 26, 2012, FBR Fund Advisers, Inc. (“FBR”), acted as investment advisor to the Predecessor Funds.  FBR furnished all investment advice, office space, facilities, and provided most of the personnel needed by the Funds. As compensation for its services, the Advisor was entitled to a monthly fee from each Fund. The fee was based upon the average daily net assets of the Funds at the annual rate of:
 
 
Focus Fund
0.90%
 
 
Gas Fund
0.40%
 
 
Small Cap Financial Fund
0.90%
 
 
Large Cap Financial Fund
0.90%
 
 
Technology Fund
0.90%
 
 
Equity and Income Fund
0.80%
 
 
Core Bond Fund
0.80%
 
 
The Advisor has delegated the day to day management of the Focus Fund to a sub-advisor, Broad Run Investment Management, LLC (“Broad Run”).  The Advisor has delegated the day to day management of the Equity and Income Fund to Financial Counselors, Inc. (“FCI”) and The London Company (“London Co.”, “Broad Run”, and “FCI”, each a “Sub-Advisor”).  The Advisor has delegated the day to day management of the Core Bond Fund to FCI.  Broad Run became the Sub-Advisor effective at the close of business on October 26, 2012.  Both FCI and London Co. were Sub-Advisors during the entire year ended October 31, 2012.  The Advisor pays the Sub-Advisor fees for each of the Funds from its own assets and these fees are not an additional expense of the Funds.
 
The Advisor has contractually agreed to limit each class of shares of each Fund’s total operating expenses and to maintain these limitations with regard to each class of shares of each Fund through February 28, 2015. The following are the limits for the Funds, based on average daily net assets (excluding interest, taxes, brokerage commissions, dividend expenses, acquired fund fees and expenses, extraordinary legal expenses, or any other extraordinary expenses, and for the Equity and Income Fund and Core Bond Fund, also excluding 12b-1 fees):
 
 
Investor Class
Institutional Class
 
Focus Fund
1.95%
1.70%
 
Gas Fund
0.85%
N/A
 
Small Cap Financial Fund
1.95%
1.70%
 
Large Cap Financial Fund
1.95%
N/A
 
Technology Fund
1.95%
1.70%
 
Equity and Income Fund
  1.08%*
1.08%
 
Core Bond Fund
  1.05%*
1.05%
 
 
* 
Amount shown excludes the 12b-1 fee.  Including the 12b-1 fee, the amounts are 1.33% and 1.30% for the Equity and Income Fund and Core Bond Fund, respectively.
 
For a period of three years after the year in which the Advisor waives or reimburses expenses, the Advisor may seek reimbursement from the Funds to the extent that total annual Fund operating expenses are less than the expense limitation in effect at the time of the reimbursement.  The Advisor waived or reimbursed expenses of $770 and $759 for the Technology and Core Bond Funds, respectively, during the period October 27, 2012 through October 31, 2012.  As of October 31, 2012, cumulative expenses subject to potential recovery to the aforementioned conditions and year of expiration are as follows:
 
 
Amount
Year of Expiration
 
Technology Fund
$770
2015
 
Core Bond Fund
$759
2015
 
 
During the period November 1, 2011 through the close of business on October 26, 2012, FBR had contractually agreed to limit each class of shares of each Fund’s total operating expenses and to maintain the expense limitations listed above with regard to each class of shares of each Fund through February 28, 2015.
 
Prior to the close of business on October 26, 2012, with respect to the Equity and Income Fund, FBR had agreed to voluntarily limit fees and/or pay expenses in amounts necessary in order to limit the total annual operating expenses of the Equity and Income Fund, after
 

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any such fee waivers and/or expense reimbursements, to 0.99% (excluding 12b-1 fees, brokerage costs, interest, taxes, acquired fund fees and expenses, dividend expenses, and extraordinary expenses such as litigation and merger or reorganization costs and other expenses not incurred in the ordinary course of such Fund’s business). The fee reductions and expenses reimbursed are reflected as a reduction of total expenses in the Statement of Operations.
 
During the period November 1, 2011, through October 26, 2012, in connection with certain expense limitation arrangements between the Equity and Income Fund, Core Bond Fund and FBR, these Funds had agreed to pay FBR for certain amounts waived and/or reimbursed by the Armed Forces Benefit Association (“AFBA”) pursuant to an expense limitation agreement, as assigned, provided that such repayment does not cause the total fund operating expenses for a Fund to exceed certain specified limits and the repayment is made within three years after the year in which AFBA incurred the expense.
 
The Trust, on behalf of the Investor Class shares of each Fund, has adopted a Distribution Plan (the “Plan”) pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, each Fund, except the Gas Fund, pays Quasar Distributors, LLC (the “Distributor”) a fee at an annual rate of up to 0.25% of each Fund’s average daily net assets attributable to Investor Class shares. 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.  Quasar 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.
 
During the period November 1, 2011, through October 26, 2012, each Fund, except the Gas Fund, paid FBR Investment Services, Inc., (the “Former Distributor”) a fee at an annual rate of up to 0.25% of each Fund’s average daily net assets attributable to Investor Class shares. Fees paid to the Former Distributor under the Plan were payable without regard to actual expenses incurred.
 
U.S. Bancorp Fund Services, LLC (“USBFS” or the “Administrator”) acts as the Funds’ Administrator under an Administration Agreement. Administrative services under this agreement include custody, distribution, fund accounting, fund administration and transfer agent services.  In addition, 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.
 
Pursuant to the Administrative Services Agreement, during the period November 1, 2011, through October 26, 2012, FBR also provided administrative services to the Funds including oversight of service providers. FBR received 0.04% of average daily net assets of the Trust. FBR also provided the Funds with office space, facilities and business equipment and generally administered the Funds’ business affairs and provided the services of executive and clerical personnel for administering the affairs of the Funds. FBR compensated all personnel, Officers and Trustees of the Funds if such persons were employees of FBR. For the year ended October 31, 2012, USBFS earned $629,224 and FBR earned $732,653 in administration fees.
 
The Funds have entered into agreements with various brokers, dealers and financial intermediaries in connection with the sale of shares of the Funds.  The agreements provide for periodic payments by the Funds to the brokers, dealers and financial intermediaries for providing certain shareholder maintenance services (sub-transfer agent expenses).  These shareholder services include: the pre-processing and quality control of new accounts, shareholder correspondence, answering customer inquiries regarding account status and facilitating shareholder telephone transactions. Fees paid by the Funds to various brokers, dealers and financial intermediaries for the year ended October 31, 2012, were:
 
 
Focus Fund
$780,119
 
 
Gas Fund
$545,625
 
 
Small Cap Financial Fund
$171,819
 
 
Large Cap Financial Fund
$  73,853
 
 
Technology Fund
$  12,792
 
 
Equity and Income Fund
$143,828
 
 
Core Bond Fund
$  18,706
 
 
During the period November 1, 2011 through October 26, 2012, the Small Cap Financial Fund and the Large Cap Financial Fund paid $13,440 and $1,450, respectively, in brokerage commissions from portfolio transactions to FBR Capital Markets & Co. (“FBR & Co.”), an affiliate of FBR and the former distributor. No other Fund paid commissions to FBR & Co. during the year.
 
 
7).  LINE OF CREDIT
 
The Funds have a $70,000,000 line of credit, whereas each Fund may draw an amount up to 30% of its net assets, 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.  Borrowings under this arrangement bear interest at the bank’s prime rate. During the year ended October 31, 2012, the Gas Fund had an outstanding average daily balance and a weighted average interest rate of $3,992 and 3.25%, respectively. The maximum amount outstanding for the Gas Fund during the period was $1,461,000.  During the year ended October 31, 2012, the Large Cap Financial Fund had an outstanding average daily balance and a weighted average interest rate of $1,617 and 3.25%, respectively.  The maximum amount outstanding for the Large Cap Financial Fund during the period was $242,000.  During the year ended October 31, 2012, the Technology Fund had an outstanding average daily balance and a weighted average interest rate of $571 and 3.25%, respectively.  The maximum amount outstanding for the Technology Fund during the period was $209,000.  During the year ended October 31, 2012, the Focus Fund, Small Cap Financial Fund, Equity and Income Fund and Core Bond Fund had no line of credit activity.
 

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8).  FEDERAL TAX INFORMATION
 
As of October 31, 2012, the components of accumulated earnings (losses) for income tax purposes were as follows:
 
               
Small Cap
   
Large Cap
 
   
Focus
   
Gas
   
Financial
   
Financial
 
   
Fund
   
Fund
   
Fund
   
Fund
 
Cost of investments for tax purposes
  $ 442,578,126     $ 564,677,823     $ 191,400,745     $ 61,160,366  
Gross tax unrealized appreciation
    357,306,224       201,268,754       33,959,132       9,016,974  
Gross tax unrealized depreciation
    (14,160,506 )     (20,757,180 )     (14,179,104 )     (5,456,894 )
Net tax unrealized appreciation (depreciation)
  $ 343,145,718     $ 180,511,574     $ 19,780,028     $ 3,560,080  
Net unrealized gain/loss - foreign currency
    —       (5,245 )     —       —  
Undistributed ordinary income
  $ —     $ 3,186,762     $ 715,079     $ 50,837  
Undistributed long-term capital gains
    63,358,200       14,828,033       —       —  
Total distributable earnings
  $ 63,358,200     $ 18,014,795     $ 715,079     $ 50,837  
Other accumulated gains/(losses)
  $ (5,555,872 )   $ —     $ (3,658,128 )   $ (3,635,103 )
Total accumulated earnings/(losses)
  $ 400,948,046     $ 198,521,124     $ 16,836,979     $ (24,186 )
                                 
          Equity and                  
   
Technology
   
Income
   
Core Bond
         
   
Fund
   
Fund
   
Fund
         
Cost of investments for tax purposes
  $ 5,457,305     $ 279,885,717     $ 34,804,033          
Gross tax unrealized appreciation
    326,484       28,255,283       2,158,247          
Gross tax unrealized depreciation
    (373,173 )     (4,545,755 )     (342,459 )        
Net tax unrealized appreciation (depreciation)
  $ (46,689 )   $ 23,709,528     $ 1,815,788          
Undistributed ordinary income
  $ —     $ 312,645     $ 379,230          
Undistributed long-term capital gains
    —       —       368,448          
Total distributable earnings
  $ —     $ 312,645     $ 747,678          
Other accumulated gains/(losses)
  $ (2,273,175 )   $ (2,913,369 )   $ —          
Total accumulated earnings/(losses)
  $ (2,319,864 )   $ 21,108,804     $ 2,563,466          
 
The difference between book-basis and tax-basis unrealized appreciation is attributable primarily to capital loss carry overs, wash sales, and partnership adjustments.
 
At October 31, 2012, the Funds had capital loss carryforwards which expire as follows:
 
Small Cap Financial Fund
3,568,128
10/31/19
 
Large Cap Financial Fund
10,229
10/31/16
 
 
1,162,148
10/31/17
 
 
874,811
10/31/19
 
 
398,257
indefinite (ST)
 
 
1,189,658
indefinite (LT)
 
Technology Fund
237,174
10/31/16
 
 
1,908,045
10/31/17
 
 
60,544
indefinite (LT)
 
Equity and Income Fund
2,913,369
10/31/17
 
 
During the year ended October 31, 2012, the Small Cap Financial Fund and the Equity and Income Fund utilized $2,807,880 and $1,432,437 of capital loss carryforwards, respectively.
 
At October 31, 2012, the Focus Fund, Gas Fund, and Core Bond Fund had no tax basis capital losses to offset future capital gains.
 
Under recently enacted legislation, capital losses sustained in the year ended December 31, 2011 and in future taxable years will not expire and may be carried over by the Fund without limitation; however, they will retain the character of the original loss. Furthermore, any losses incurred during those taxable years will be required to be utilized prior to the losses incurred in the pre-enactment taxable years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Under pre-enactment law, capital losses could be carried forward for eight years, and carried forward as short-term capital losses, irrespective of the character of the original loss.
 
The tax character of distributions paid during 2012 and 2011 for the Funds were as follows:
 
     
Year Ended
   
Year Ended
   
 
Focus Fund
 
October 31, 2012
   
October 31, 2011
   
 
Ordinary Income
  $ —     $ —    
 
Long-term capital gain
    68,842,192       25,642,828    
      $ 68,842,192     $ 25,642,828    









HENNESSY FUNDS                                                                                                           1-800-966-4354
 
77
 


     
Year Ended
   
Year Ended
   
 
Gas Fund
 
October 31, 2012
   
October 31, 2011
   
 
Ordinary Income
  $ 18,087,340     $ 8,228,128    
 
Long-term capital gain
    1,903,385       2,612,243    
      $ 19,990,725     $ 10,840,371    
                 
     
Year Ended
   
Year Ended
   
 
Small Cap Financial Fund
 
October 31, 2012
   
October 31, 2011
   
 
Ordinary Income
  $ 3,181,624     $ 2,863,168    
 
Long-term capital gain
    —       —    
      $ 3,181,624     $ 2,863,168    
                 
     
Year Ended
   
Year Ended
   
 
Large Cap Financial Fund
 
October 31, 2012
   
October 31, 2011
   
 
Ordinary Income
  $ —     $ —    
 
Long-term capital gain
    —       —    
      $ —     $ —    
                 
     
Year Ended
   
Year Ended
   
 
Technology Fund
 
October 31, 2012
   
October 31, 2011
   
 
Ordinary Income
  $ —     $ —    
 
Long-term capital gain
    —       —    
      $ —     $ —    
                 
     
Year Ended
   
Year Ended
   
 
Equity and Income Fund
 
October 31, 2012
   
October 31, 2011
   
 
Ordinary Income
  $ 3,322,362     $ 2,140,167    
 
Long-term capital gain
    —       —    
      $ 3,322,362     $ 2,140,167    
                 
     
Year Ended
   
Year Ended
   
 
Core Bond Fund
 
October 31, 2012
   
October 31, 2011
   
 
Ordinary Income
  $ 1,054,980     $ 1,086,378    
 
Long-term capital gain
    141,198       447,915    
      $ 1,196,178     $ 1,534,293    
 
At October 31, 2012 the following funds deferred, on a tax basis, post-October losses of:
 
           
Post
 
      Late Year  
October
 
    Ordinary Loss Deferral  
Loss Deferral
 
 
Focus Fund
    (5,555,872 )     —  
 
Gas Fund
    —       —  
 
Small Cap Financial Fund
    —       —  
 
Large Cap Financial Fund
    —       —  
 
Technology Fund
    (64,030 )     —  
 
Equity and Income Fund
    —       —  
 
Core Bond Fund
    —       —  
 
9).  FUND REORGANIZATION
 
On October 25, 2012, the shareholders of the FBR Focus Fund, FBR Gas Utility Index Fund, FBR Small Cap Financial Fund, FBR Large Cap Financial Fund, FBR Technology Fund, FBR Balanced Fund and FBR Core Bond Fund approved the agreement and plan of reorganization providing for the transfer of assets and the assumption of liabilities of the FBR Focus Fund, FBR Gas Utility Index Fund, FBR Small Cap Financial Fund, FBR Large Cap Financial Fund, FBR Technology Fund, FBR Balanced Fund and FBR Core Bond Fund by each of the Hennessy Focus Fund, Hennessy Gas Utility Index Fund, Hennessy Small Cap Financial Fund, Hennessy Large Cap Financial Fund, Hennessy Technology Fund, Hennessy Equity and Income Fund and Hennessy Core Bond Fund, respectively.  Each of the FBR Funds was reorganized into a Hennessy Fund created to carry out the reorganizations, with each Hennessy Fund having the same investment objective and substantially similar principal investment strategies as its corresponding FBR Fund.  The reorganization was effective as of the close of business on October 26, 2012.  The following tables illustrate the specifics of each Fund’s reorganization:
 

WWW.HENNESSYFUNDS.COM
 
78
 
 
 
FBR Focus Fund
Shares issued to Shareholders
Hennessy Focus Fund
   
 
Net Assets
of FBR Focus Fund
Net Assets
Combined Net Assets
Tax Status of Transfer
 
$778,311,000 (1)
15,154,076
$0
$778,311,000
Non-taxable
 
(1)   Includes accumulated realized gains and unrealized appreciation in the amounts of $132,243,088 and $336,125,053 respectively.
 
 
FBR Gas Utility Index
Shares issued to Shareholders
Hennessy Gas Utility Index
   
 
Fund Net Assets
of FBR Gas Utility Index Fund
Fund Net Assets
Combined Net Assets
Tax Status of Transfer
 
$741,949,009 (2)
32,378,877
$0
$741,949,009
Non-taxable
 
(2)   Includes accumulated realized gains and unrealized appreciation in the amounts of $3,950,643 and $194,357,194 respectively.
 
 
FBR Small Cap Financial
Shares issued to Shareholders
Hennessy Small Cap
   
 
Fund Net Assets
of FBR Small Cap Financial Fund
Financial Fund Net Assets
Combined Net Assets
Tax Status of Transfer
 
$210,320,731 (3)
12,112,883
$0
$210,320,883
Non-taxable
 
(3)   Includes accumulated realized losses and unrealized appreciation in the amounts of ($7,187,955) and $22,624,133 respectively.
 
 
FBR Large Cap Financial
Shares issued to Shareholders
Hennessy Large Cap
   
 
Fund Net Assets
of FBR Large Cap Financial Fund
Financial Fund Net Assets
Combined Net Assets
Tax Status of Transfer
 
$64,199,213 (4)
4,567,064
$0
$64,199,213
Non-taxable
 
(4)   Includes accumulated realized losses and unrealized appreciation in the amounts of ($7,700,523) and $7,128,156 respectively.
 
 
FBR Technology
Shares issued to Shareholders
Hennessy Technology
   
 
Fund Net Assets
of FBR Technology Fund
Fund Net Assets
Combined Net Assets
Tax Status of Transfer
 
$5,413,138 (5)
504,081
$0
$5,413,138
Non-taxable
 
(5)   Includes accumulated realized losses and unrealized appreciation in the amounts of ($2,345,527) and $119,831 respectively.
 
 
FBR Balanced Fund
Shares issued to Shareholders
Hennessy Equity and
   
 
Net Assets
of FBR Balanced Fund
Income Fund Net Assets
Combined Net Assets
Tax Status of Transfer
 
$304,557,978 (6)
22,268,632
$0
$304,557,978
Non-taxable
 
(6)   Includes accumulated realized losses and unrealized appreciation in the amounts of ($2,836,830) and $22,782,279 respectively.
 
 
FBR Core Bond
Shares issued to Shareholders
Hennessy Core Bond
   
 
Fund Net Assets
of FBR Core Bond Fund
Fund Net Assets
Combined Net Assets
Tax Status of Transfer
 
$36,814,419 (7)
4,033,537
$0
$36,814,419
Non-taxable
 
(7)   Includes accumulated realized gains and unrealized appreciation in the amounts of $1,455,845 and $1,687,723 respectively.
 

 

 


 

 

HENNESSY FUNDS                                                                                                           1-800-966-4354
 
79
 

Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders
Hennessy Funds Trust
Novato, CA
 
We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of the Hennessy Focus Fund (formerly FBR Focus Fund), Hennessy Gas Utility Index Fund (formerly FBR Gas Utility Index Fund), Hennessy Small Cap Financial Fund (formerly FBR Small Cap Financial Fund), Hennessy Large Cap Financial Fund (formerly FBR Large Cap Financial Fund), Hennessy Technology Fund (formerly FBR Technology Fund), Hennessy Equity and Income Fund (formerly FBR Balanced Fund), and Hennessy Core Bond Fund (formerly FBR Core Bond Fund) (the “Funds”), each a series of Hennessy Funds Trust (successor to a series of The FBR Funds) as of October 31, 2012, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, except for the Hennessy Equity and Income Fund and the Hennessy Core Bond Fund  which includes the statements of operations for the year then ended and  statements of changes in net assets and financial highlights for each of the two years in the period then ended, and the financial highlights for the seven month period ended October 31, 2010 and the year ended March 31, 2010. With respect to the Hennessy Equity and Income Fund and Hennessy Core Bond Fund, the financial highlights for each of the two years in the period ended March 31, 2009 have been audited by other auditors, whose reports dated May 27, 2009 expressed unqualified opinions on such financial highlights. 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.
 
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement.  The Funds are not required to have, nor were we engaged to perform, an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion.  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, 2012, 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 Focus Fund, Hennessy Gas Utility Index Fund, Hennessy Small Cap Financial Fund, Hennessy Large Cap Financial Fund,  Hennessy Technology Fund, Hennessy Equity and Income Fund, and Hennessy Core Bond Fund, as of October 31, 2012, the results of their operations, the changes in their net assets, and the financial highlights for the periods referred to above in conformity with accounting principles generally accepted in the United States of America.
 
 
TAIT, WELLER & BAKER LLP
 
Philadelphia, Pennsylvania
December 27, 2012
 
 
 
 
 
 
 

WWW.HENNESSYFUNDS.COM
 
80
 

Directors/Trustees and Officers of the Funds (Unaudited)

The business and affairs of the Funds are managed under the direction of the Funds’ Board of Directors/Trustees.  Information pertaining to the Directors and Officers of the Funds is set forth below.  The Funds’ Statement of Additional Information includes additional information about the Funds’ Directors/Trustees and Officers and is available, without charge, upon request by calling 1-800-966-4354.

       
Number of
 
       
Portfolios
Other
       
in the Fund
Directorships
 
Position(s)
Term of Office
 
Complex
(During Past
 
Held with
and Length of
Principal Occupation(s)
Overseen
5 Years) Held
Name, Address, and Age
the Fund
Time Served
During Past 5 Years
by Trustee
by Trustee
Disinterested Trustees (as defined below)
       
J. Dennis DeSousa
Trustee
Indefinite, until
Mr. DeSousa is a real estate investor.
16
None.
Age: 76
 
successor elected
     
Address:
         
c/o Hennessy Advisors, Inc.
 
Served since January
     
7250 Redwood Blvd.
 
1996 HMFI and HFI;
     
Suite 200
 
since July 2005 HFT;
     
Novato, CA  94945
 
and since September
     
   
2009 HSFT
     
           
Robert T. Doyle
Trustee
Indefinite, until
Mr. Doyle has been the Sheriff of
16
None.
Age:  65
 
successor elected
Marin County, California since 1996.
   
Address:
         
c/o Hennessy Advisors, Inc.
 
Served since January
     
7250 Redwood Blvd.
 
1996 HMFI and HFI;
     
Suite 200
 
since July 2005 HFT;
     
Novato, CA  94945
 
and since September
     
   
2009 HSFT
     
           
Gerald P. Richardson
Trustee
Indefinite, until
Mr. Richardson is an independent
16
None.
Age:  67
 
successor elected
consultant in the securities industry.
   
Address:
         
c/o Hennessy Advisors, Inc.
 
Served since May 2004
     
7250 Redwood Blvd.
 
HMFI and HFI; since
     
Suite 200
 
July 2005 HFT; and
     
Novato, CA  94945
 
since September
     
   
2009 HSFT
     
           
“Interested Persons” (as defined in the 1940 Act)
       
Neil J. Hennessy (1)
Trustee,
Trustee:
Mr. Hennessy has been employed by
16
Director of Hennessy
Age:  56
President and
Indefinite, until
Hennessy Advisors, Inc., the Funds’
 
Advisors, Inc.
Address:
Chairman of
successor elected
investment advisor, since 1989.  He
   
c/o Hennessy Advisors, Inc.
the Board
 
currently serves as President, Chairman,
   
7250 Redwood Blvd.
 
Served since January
CEO, Portfolio Manager and CIO of
   
Suite 200
 
1996 HMFI and HFI;
Hennessy Advisors, Inc.
   
Novato, CA  94945
 
since July 2005 HFT;
     
   
and since September
     
   
2009 HSFT
     
           
   
Officer:
     
   
1 year term
     
           
   
Served since June 2008
     
   
HMFI, HFI and HFT; and
     
   
since September 2009 HSFT
     
           
Joe Fahy (1)
Vice President
1 year term
Mr. Fahy has been employed by
N/A
N/A
Age:  34
and Chief
 
Hennessy Advisors, Inc., the Funds’
   
Address:
Compliance
Since June 2010 HMFI,
investment advisor, since 2005.
   
c/o Hennessy Advisors, Inc.
Officer
HFI, HFT and HSFT
     
7250 Redwood Blvd.
         
Suite 200
         
Novato, CA  94945
         
(1)   All Officers of the Hennessy Funds and employees of the Manager are Interested Persons of the Fund.


HENNESSY FUNDS                                                                                                           1-800-966-4354
 
81
 
 
       
Number of
 
       
Portfolios
Other
       
in the Fund
Directorships
 
Position(s)
Term of Office
 
Complex
(During Past
 
Held with
and Length of
Principal Occupation(s)
Overseen
5 Years) Held
Name, Address, and Age
the Fund
Time Served
During Past 5 Years
by Trustee
by Trustee
Interested Persons
         
Teresa M. Nilsen (1)
Executive
1 year term
Ms. Nilsen has been employed by
N/A
N/A
Age:  46
Vice President
 
Hennessy Advisors, Inc., the Funds’
   
Address:
and Treasurer
Since January 1996
investment advisor, since 1989.  She
   
c/o Hennessy Advisors, Inc.
 
HMFI and HFI; since
currently serves as Executive Vice
   
7250 Redwood Blvd.
 
July 2005 HFT; and
President, Chief Operations Officer,
   
Suite 200
 
since September
Chief Financial Officer and Secretary
   
Novato, CA  94945
 
2009 HSFT
of Hennessy Advisors, Inc.
   
           
Daniel B. Steadman (1)
Executive
1 year term
Mr. Steadman has been employed by
N/A
N/A
Age:  56
Vice President
 
Hennessy Advisors, Inc., the Funds’
   
Address:
and Secretary
Since March 2000
investment advisor, since 2000.  He
   
c/o Hennessy Advisors, Inc.
 
HMFI and HFI; since
currently serves as Executive Vice
   
7250 Redwood Blvd.
 
July 2005 HFT; and
President and Chief Compliance Officer
   
Suite 200
 
since September
of Hennessy Advisors, Inc.
   
Novato, CA  94945
 
2009 HSFT
     
           
David Ellison (1)
Senior
1 year term
Mr. Ellison has served as Portfolio
N/A
N/A
Age: 54
Vice President
 
Manager of the Hennessy Large Cap
   
Address:
& Chief
Since October 2012
Financial Fund (formerly the FBR Large
   
100 Federal Street
Investment
 
Cap Financial Fund), the Hennessy
   
29th Floor
Officer
 
Small Cap Financial Fund (formerly the
   
Boston, MA 02110
   
FBR Small Cap Financial Fund), and the
   
     
Hennessy Technology Fund (formerly
   
     
the FBR Technology Fund) since inception.
   
           
     
Mr. Ellison previously served as Director,
   
     
CIO & President of FBR Advisers, Inc. from
   
     
December 1999 to October 2012.
   
           
Brian Peery (1)
Vice President
1 year term
Mr. Peery has been employed by
N/A
N/A
Age: 43
and
 
Hennessy Advisors, Inc., the Funds’
   
Address:
Co-Portfolio
As Vice President, since
investment advisor, since 2002.
   
c/o Hennessy Advisors, Inc.
Manager
March 2003 HMFI and
     
7250 Redwood Blvd.
 
HFI; since July 2005
     
Suite 200
 
HFT; and since
     
Novato, CA  94945
 
September 2009 HSFT
     
           
   
As Co-Portfolio Manager,
     
   
since February 2011
     
   
HMFI, HFI, HFT and HSFT
     
           
Winsor (Skip) Aylesworth (1)
Vice President &
1 year term
Mr. Aylesworth has been Portfolio
N/A
N/A
Age: 65
Portfolio Manager
 
Manager of the Hennessy Gas Utility
   
Address:
 
Since October 2012
Index Fund (formerly the FBR Gas Utility
   
100 Federal Street
   
Index Fund) since 1998 and Portfolio
   
29th Floor
   
Manager of the Hennessy Technology
   
Boston, MA 02110
   
Fund (formerly the FBR Technology
   
     
Fund) since inception.
   
           
     
Mr. Aylesworth previously served as
   
     
Executive Vice President of the FBR
   
     
Funds from 1999 to October 2012.
   
(1)   All Officers of the Hennessy Funds and employees of the Manager are Interested Persons of the Fund.

Key:
HMFI = Hennessy Mutual Funds, Inc.
HFI = Hennessy Funds, Inc.
HFT = Hennessy Funds Trust
HSFT = Hennessy SPARX Funds Trust­


WWW.HENNESSYFUNDS.COM
 
82
 

Expense Example (Unaudited)
October 31, 2012

 
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, 2012 through October 31, 2012.
 
 
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. 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, 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), 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.
 

 

 


 

 

 

HENNESSY FUNDS                                                                                                           1-800-966-4354
 
83
 
 
 
Beginning
Ending
Expenses Paid
 
Account Value
Account Value
During Period (1)
Investor Class
5/1/12
10/31/12
5/1/12 – 10/31/12
       
Actual
     
Focus Fund – Investor Class
$1,000.00
$1,016.70
$7.20
Gas Fund – Investor Class
$1,000.00
$1,046.80
$3.65
Small Cap Financial Fund – Investor Class
$1,000.00
$1,072.40
$7.61
Large Cap Financial Fund – Investor Class
$1,000.00
$1,017.20
$8.01
Technology Fund – Investor Class
$1,000.00
$   897.40
$9.30
Equity and Income Fund – Investor Class
$1,000.00
$1,008.30
$6.26
Core Bond Fund – Investor Class
$1,000.00
$1,038.50
$6.66
       
Hypothetical (5% return before expenses)
     
Focus Fund – Investor Class
$1,000.00
$1,018.00
$7.20
Gas Fund – Investor Class
$1,000.00
$1,021.57
$3.61
Small Cap Financial Fund – Investor Class
$1,000.00
$1,017.80
$7.41
Large Cap Financial Fund – Investor Class
$1,000.00
$1,017.19
$8.01
Technology Fund – Investor Class
$1,000.00
$1,015.33
$9.88
Equity and Income Fund – Investor Class
$1,000.00
$1,018.90
$6.29
Core Bond Fund – Investor Class
$1,000.00
$1,018.60
$6.60
 
(1)
Expenses are equal to the Focus Fund’s expense ratio of 1.42%, the Gas Utility Index Fund’s expense ratio of 0.71%, the Small Cap Financial Fund’s expense ratio of 1.46%, the Large Cap Financial Fund’s expense ratio of 1.58%, the Technology Fund’s expense ratio of 1.95%, the Equity and Income Fund’s expense ratio of 1.24%, and the Core Bond Fund’s expense ratio of 1.30% multiplied by the average account value over the period, multiplied by 184/366 days (to reflect one-half year period).
 
 
Beginning
Ending
Expenses Paid
 
Account Value
Account Value
During Period (2)
Institutional Class
5/1/12
10/31/12
5/1/12 – 10/31/12
       
Actual
     
Focus Fund – Institutional Class
$1,000.00
$1,018.30
$5.73
Small Cap Financial Fund – Institutional Class
$1,000.00
$1,074.00
$6.73
Technology Fund – Institutional Class
$1,000.00
$   897.20
$8.11
Equity and Income Fund – Institutional Class
$1,000.00
$1,009.80
$5.00
Core Bond Fund – Institutional Class
$1,000.00
$1,039.70
$5.38
       
Hypothetical (5% return before expenses)
     
Focus Fund – Institutional Class
$1,000.00
$1,019.46
$5.74
Small Cap Financial Fund – Institutional Class
$1,000.00
$1,018.65
$6.55
Technology Fund – Institutional Class
$1,000.00
$1,016.59
$8.62
Equity and Income Fund – Institutional Class
$1,000.00
$1,020.16
$5.03
Core Bond Fund – Institutional Class
$1,000.00
$1,019.86
$5.33
 
(2)
Expenses are equal to the Focus Fund’s expense ratio of 1.13%, the Small Cap Financial Fund’s expense ratio of 1.29%, the Technology Fund’s expense ratio of 1.70%, the Equity and Income Fund’s expense ratio of 0.99%, and the Core Bond Fund’s expense ratio of 1.05% multiplied by the average account value over the period, multiplied by 184/366 days (to reflect one-half year period).
 

 



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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.
 
 
Federal Tax Distribution Information (Unaudited)
 
For the fiscal year ended October 31, 2012, certain dividends paid by the Funds may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003.
 
The percentage of dividends declared from ordinary income designated as qualified dividend income was as follows:
 
 
Focus Fund
0.00%
 
 
Gas Fund
98.42%
 
 
Small Cap Financial Fund
100.00%
 
 
Large Cap Financial Fund
0.00%
 
 
Technology Fund
0.00%
 
 
Equity and Income Fund
80.59%
 
 
Core Bond Fund
16.15%
 
 
For corporate shareholders, the percent of ordinary income distributions qualifying for the corporate dividends received deduction for the fiscal year ended October 31, 2012, was as follows:
 
 
Focus Fund
0.00%
 
 
Gas Fund
94.00%
 
 
Small Cap Financial Fund
100.00%
 
 
Large Cap Financial Fund
0.00%
 
 
Technology Fund
0.00%
 
 
Equity and Income Fund
80.80%
 
 
Core Bond Fund
15.75%
 
 
The percentage of taxable ordinary income distributions that are designated as short-term capital gain distributions under Internal Revenue Section 871(k)(2)(C) for each Fund were as follows:
 
 
Focus Fund
0.00%
 
 
Gas Fund
11.00%
 
 
Small Cap Financial Fund
0.00%
 
 
Large Cap Financial Fund
0.00%
 
 
Technology Fund
0.00%
 
 
Equity and Income Fund
0.00%
 
 
Core Bond Fund
13.00%
 

 
Householding

To help keep the Funds’ costs as low as possible, we generally deliver a single copy of most financial reports and prospectuses to shareholders who share an address, even if the accounts are registered under different names. This process, known as “householding,” does not apply to account statements. You may, of course, request an individual copy of a prospectus or financial report at any time. If you would like to receive separate mailings, please call the Transfer Agent at 1-800-261-6950 or 1-414-765-4124 and we will begin individual delivery within 30 days of your request. If your account is held through a financial institution or other intermediary, please contact them directly to request individual delivery.


HENNESSY FUNDS                                                                                                           1-800-966-4354
 
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Board Approval of Investment Advisory Agreements (Unaudited)
 

On October 7, 2012, the Board of Directors/Trustees of Hennessy Funds Trust approved the new investment advisory agreement for the Hennessy Focus Fund, the Hennessy Large Cap Financial Fund, the Hennessy Small Cap Financial Fund, the Hennessy Technology Fund, the Hennessy Gas Utility Index Fund, the Hennessy Equity and Income Fund and the Hennessy Core Bond Fund, and the new sub-advisory agreements for the Hennessy Focus Fund, the Hennessy Equity and Income Fund and the Hennessy Core Bond Fund (each a “Fund” and collectively, “Hennessy Funds”). Each of these Funds was established to affect an agreement and plan of reorganization with, respectively, the FBR Focus Fund, the FBR Large Cap Financial Fund, the FBR Small Cap Financial Fund, the FBR Technology Fund, the FBR Gas Utility Index Fund, the FBR Balanced Fund, and the FBR Core Bond Fund. Each Fund has the same investment objective and substantially identical principal investment strategies as its corresponding FBR Fund.
 
In reaching a decision to engage Hennessy Advisors, Inc. as the Funds’ investment adviser, the Board, including all of the Trustees who are not “interested persons” of the Funds, considered (1) the nature, extent and quality of the services to be provided by Hennessy Advisors; (2) the compensation to be paid under the new investment advisory agreement, which is the same as the compensation under the investment advisory agreements for the FBR Funds, and the fairness of such compensation in light of the services to be provided; (3) the expense ratio of the Funds under the new investment advisory agreements, which is expected to be the same as under the investment advisory agreements for the FBR Funds, or slightly lower, and the willingness of Hennessy Advisors to maintain current expense caps in place for at least the two-year period following the closing of the reorganizations; (4) the qualifications of Hennessy Advisors’ personnel, portfolio management capabilities and investment methodologies; (5) Hennessy Advisors’ Code of Ethics and its operations, compliance program and policies with respect to trade allocation and brokerage practices; (6) the financial condition of Hennessy Advisors; (7) the appropriateness of the selection of Hennessy Advisors; (8) the extent to which economies of scale are relevant given the Funds’ current asset size and current asset growth potential; (9) the benefits that Fund shareholders will realize by being part of the Hennessy Funds family; (10) the terms of the proposed reorganizations, including the anticipated tax-free nature of the transactions for the FBR Funds and their shareholders; (11) financial arrangements relating to Hennessy Advisors’ acquisition of FBR Fund Advisers, Inc.; (12) Hennessy Advisors’ prior experience with mutual fund acquisitions and its experience with the use and oversight of sub-advisers in connection with the mutual funds that they manage; (13) the plans of Hennessy Advisors to maintain the current portfolio managers for the FBR Funds as portfolio managers of the corresponding Funds for at least the one-year period following the closing of the reorganizations; (14) the plans of Hennessy Advisors to maintain certain employees of FBR Fund Advisers as employees of Hennessy Advisors for at least the one-year period following the closing of the reorganizations; (15) the plans of Hennessy Advisors to continue to retain the compliance services firm that provides compliance services to the FBR Funds as a compliance consultant for at least the one-year period following the closing of the reorganizations; (16) the plans of the Hennessy Funds to retain each of the Trustees who are not interested persons of the FBR Funds to serve on an advisory board of the Hennessy Funds for a two-year period following the closing of the reorganizations; (17) that FBR Fund Advisers and Hennessy Advisors are bearing all of the costs of the reorganizations (other than fees and expenses related to any portfolio realignment), including proxy solicitation costs, and that the Funds will not incur any of the costs of carrying out and completing the reorganizations; (18) that the interests of shareholders of the FBR Funds will not be diluted as a result of the reorganizations; and (19) the nature, extent and quality of the non-advisory services to be provided by various service providers to the Hennessy Funds following the closing of the reorganizations, including the fund administration, fund accounting, shareholder servicing, distribution, transfer agency and custody services, which will not change as a result of the reorganizations as the FBR Funds and the Hennessy Funds use the same service providers for these services.
 
In reaching a decision to engage The London Company as sub-advisor for the Hennessy Equity and Income Fund, Financial Counselors, Inc. as sub-advisor to the Hennessy Equity and Income Fund and the Hennessy Core Bond Fund, and Broad Run Investment Management, LLC as sub-advisor for the Hennessy Focus Fund, the Board, including all of the Trustees who are not “interested persons” of the Funds, considered (1) the nature, extent and quality of the services to be provided by The London Company, Financial Counselors, Inc. and Broad Run Investment Management, LLC; (2) the compensation to be paid under the new sub-advisory agreements, which will be borne by Hennessy Advisors, and the fairness of such compensation in light of the services to be provided; (3) the expense ratio of the Funds under the new investment advisory agreements and sub-advisory agreements, which is expected to be the same as under the investment advisory agreements for the FBR Funds (and sub-advisory agreements), or slightly lower, and the willingness of Hennessy Advisors to maintain current expense caps in place for at least the two-year period following the closing of the reorganizations; (4) the qualifications of the personnel, portfolio management capabilities and investment methodologies of The London Company, Financial Counselors, Inc. and Broad Run Investment Management, LLC; (5) the operations, compliance program and policies with respect to trade allocation and brokerage practices of The London Company, Financial Counselors, Inc. and Broad Run Investment Management, LLC; (6) the financial condition of The London Company, Financial Counselors, Inc. and Broad Run Investment Management, LLC; (7) the appropriateness of the selection of The London Company, Financial Counselors, Inc. and Broad Run Investment Management, LLC; and (8) the extent to which economies of scale are relevant given the Funds’ current asset size and current asset growth potential.
 
Thus, based upon its review, the Board concluded that the new investment advisory agreement, with respect to each Fund, and each of the new sub-advisory agreements, with respect to the Hennessy Equity and Income Fund, the Hennessy Core Bond Fund and the Hennessy Focus Fund, is reasonable, fair and in the best interests of that Fund and the Fund’s shareholders, and the fees provided under these agreements are fair and reasonable.
 

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86
 

Privacy Policy
 

We collect the following non-public personal information about you:
 
•
information we receive from you on or in applications or other forms, correspondence, or conversations, including, but not limited to, your name, address, phone number, social security number, assets, income and date of birth;
 
 
and
 
•
information about your transactions with us, our affiliates, or others, including, but not limited to, your account number and balance, payment history, parties to transactions, cost basis information and other financial information.
 
We do not disclose any non-public personal information about our current or former shareholders to nonaffiliated third parties, except as permitted by law. For example, we are permitted by law to disclose all of the information we collect, as described above, to our Transfer Agent to process your transactions. Furthermore, we restrict access to your non-public personal information to those persons who require such information to provide products or services to you. We maintain physical, electronic and procedural safeguards that comply with federal standards to guard your non-public personal information.
 
In the event that you hold shares of the Fund through a financial intermediary, including, but not limited to, a broker-dealer, bank or trust company, the privacy policy of your financial intermediary would govern how your non-public personal information would be shared with nonaffiliated third parties.
 

 

HENNESSY FUNDS                                                                                                           1-800-966-4354
 
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(This Page Intentionally Left Blank.)
 

 

 

 

 

 

 





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88
 
 
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.
Custody Operations
1555 North River Center Dr., Suite 302
Milwaukee, Wisconsin 53212

DIRECTORS/TRUSTEES
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
Tait, Weller & Baker LLP
1818 Market Street, Suite 2400
Philadelphia, Pennsylvania 19103

DISTRIBUTOR
Quasar Distributors, LLC
615 East Michigan Street
Milwaukee, Wisconsin 53202
 
HENNESSY FUNDS INVESTING LOGO


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.

 
 
 
 

HENNESSY FUNDS

ANNUAL REPORT

OCTOBER 31, 2012




 
Hennessy Cornerstone Growth Fund
 
Hennessy Cornerstone Mid Cap 30 Fund
 
Hennessy Cornerstone Large Growth Fund
 
Hennessy Cornerstone Value Fund
 
Hennessy Large Value Fund
 
Hennessy Total Return Fund
 
Hennessy Balanced Fund
 
Hennessy Japan Fund
 
Hennessy Japan Small Cap Fund
 



 

 
 
 
 












(This Page Intentionally Left Blank.)
 













 
 
 
 
Contents
 
 
Letter to shareholders
2
Performance overview (unaudited)
 
Hennessy Cornerstone Growth Fund
4
Hennessy Cornerstone Mid Cap 30 Fund
6
Hennessy Cornerstone Large Growth Fund
8
Hennessy Cornerstone Value Fund
10
Hennessy Large Value Fund
12
Hennessy Total Return Fund
14
Hennessy Balanced Fund
15
Hennessy Japan Fund
16
Hennessy Japan Small Cap Fund
18
Financial statements
 
Schedules of investments
 
Hennessy Cornerstone Growth Fund
21
Hennessy Cornerstone Mid Cap 30 Fund
26
Hennessy Cornerstone Large Growth Fund
29
Hennessy Cornerstone Value Fund
33
Hennessy Large Value Fund
36
Hennessy Total Return Fund
39
Hennessy Balanced Fund
43
Hennessy Japan Fund
46
Hennessy Japan Small Cap Fund
49
Statements of assets and liabilities
52
Statements of operations
54
Statements of changes in net assets
56
Statement of cash flows – Hennessy Total Return Fund
61
Financial highlights
 
Hennessy Cornerstone Growth Fund
62
Hennessy Cornerstone Mid Cap 30 Fund
64
Hennessy Cornerstone Large Growth Fund
66
Hennessy Cornerstone Value Fund
68
Hennessy Large Value Fund
70
Hennessy Total Return Fund
72
Hennessy Balanced Fund
73
Hennessy Japan Fund
74
Hennessy Japan Small Cap Fund
76
Notes to the financial statements
77
Report of Independent Registered Public Accounting Firm
86
Directors/Trustees and Officers of the Funds
87
Expense example
89
Proxy voting policy
91
Quarterly Filings on Form N-Q
91
Federal Tax Distribution Information
91
Privacy Policy
92
 

HENNESSY FUNDS                                                                                                                1-800-966-4354
 
 
 

December, 2012
 
Dear Hennessy Funds Shareholder:
 

The past year has been jam-packed with politics, continued economic uncertainty in the United States and around the world, and most recently, non-stop talk of the possible effects of the looming “Fiscal Cliff.”
 
Since the economic crisis of 2008, most Americans seem to have taken a “glass half empty” view and now seem to expect doom and gloom.  Talking about the decline of America has become a popular pastime around the world, and even Americans are jumping into the discussion. In fact, it feels like the United States has become an “underdog,” while China and other emerging nations are coined as the new world economic leaders.  But the reality is that the U.S. remains the world’s largest economy, and the stock market has continued to perform well.  Following the crisis in 2008, the Dow Jones Industrial Average was up 23% in 2009, up 14% in 2010, and up 8% in 2011. I believe, however, that many Americans, including individuals, business leaders, and political leaders, have remained resilient and continue to exhibit the stamina to work hard and the character to succeed.
 
I am not saying that our economy isn’t without issues.  But, I believe investors may be missing some key facts about our economy, and those facts transcend the rhetoric.  In last year’s shareholder letter, I told you that the major obstacle facing the U.S. economy and the stock market was clarity from our leaders in Washington on taxes, regulation and healthcare.  With the elections behind us, we have the clarity that President Obama will be our leader for another four years.  We know that the Democrats have the majority in the Senate and the Republicans have the majority in the House.  But where does that leave our economy, the financial markets and investors?
 
Post-Election Economy
 
The moment the last ballot was cast in November, the media began its talk of the “Fiscal Cliff.”  The dramatic use of the word “Cliff” is making everyone nervous.  I keep picturing the old Road Runner cartoons with the Coyote plummeting off a cliff and landing in a cloud of dust. It is my somewhat controversial opinion that we should drive right off the Fiscal Cliff and force our policy makers to get things “right” and not compromise for the sake of a compromise. I strongly believe that if we fall off the “Cliff,” in six months’ time our leaders would have to work together to create better policies, rather than trying to force quick fixes on these issues critical to our economy and our nation.
 
The election, the Fiscal Cliff and slow earnings growth may be eroding the confidence of our business leaders, who have cut costs and driven profits. However, companies here in the U.S. are still sitting on record amounts of cash.  Businesses require faith in their government to execute strategies that will put that capital to work, and to hire in earnest.  Now that there is some clarity, it must, in my opinion, be coupled with actionable policy on taxes and regulation for corporate attitudes and behavior to shift.  Corporate America, and frankly most of America, is losing its tolerance with polarized and stagnant politics.
 
For better or worse, business leaders need to know what regulations they’ll have to comply with, what tax rates will be and what healthcare will cost.  The writing is on the wall for higher taxes, and the Healthcare Reform Law appears to be here to stay.  The current administration seems to feel that they have a “green light” to push the 200 regulations related to Dodd-Frank and the numerous policies outlined in the Healthcare Reform Law into practice in the next four years.  I know that innovative business leaders in this country will implement new strategies as they seek to remain profitable, because that’s what they do. Many of America’s business leaders have shown that they have the character to succeed in any political or economic climate.
 
Financial Markets
 
The stock market will be forced to wade through this murky economy as we continue to navigate the partisan political quagmire. Many companies comprising the Dow Jones Industrial Average Index or the S&P 500 have strong balance sheets, respectable fundamentals and reasonable returns.  When our fiscal year ended on October 31, 2012, the Dow Jones was going strong at 9.51% calendar year to date.  Of course, after the election, the market “rioted” in order to force some decisions on the Fiscal Cliff.  In fact, in the ten days after the election, we saw the Dow lose 4%.  But in the long term, I believe the strengths of the economy should filter through to the markets.  We are in the midst of a slow but steady recovery that won’t easily be derailed.  I am, therefore, expecting another year with slow to moderate growth. There are still plenty of great stocks to buy. We are seeing improvement in many sectors, including the housing industry, and we still see strength in lower-end retailers.
 
Investors
 
Investors are still uncertain about putting their cash to work in the stock market, and they continue to flock to fixed income products.  Like business leaders, I believe that investors feel the same frustration with partisanship in Washington, and they need more answers in order to believe in the economic recovery. The strength I have seen in many of the lower-end retailers tells me that investors and consumers are still looking for value for their dollar. Many industry statistics report
 

WWW.HENNESSYFUNDS.COM
 
2
 

that Americans have been paying down their debt and saving more, even with interest rates at all-time lows.  And, I believe, the average investor could be experiencing some long-awaited comfort in the slow return of the housing market in our country.
 
Japan Market
 
I remain very excited about the possibilities for growth in the Japanese market.  Japanese companies have been employing the same tactics as U.S. based companies:  they are saving money, paying dividends and making strategic acquisitions.  With the passing of the torch to a new Prime-minister (Shinzo Abe) it looks as though the final piece to the economic puzzle in Japan may be in place.  It appears that the Japanese Government is supporting the weakening of the Yen, and that companies in Japan are prepared to increase their exports.  While I remain hopeful that the U.S. Administration’s actions and policies will support business and encourage personal success, Japan’s governing body seems to truly want Japanese companies and citizens to prosper and is taking action.  In a surprise move, Shinzo Abe’s call for an inflation target of 2% and a Yen of around 90 (up from approximately 76) to the dollar could do two things. First, it could help to end the deflation that has hampered the country for years, and second, it can encourage Japanese business leaders to increased profits, which would in turn drive more revenues for the Japanese Government.  All told, I truly believe that companies in Japan are poised to take off, and in turn so should the Japanese markets. I am confident that Japan is on the brink of the financial comeback that many investors have been waiting for.
 

 
While fiscal 2012 proved another difficult year for the global economy, at Hennessy Funds we remain focused on our proven investment strategies, and we will not compromise our long-standing commitment to manage our portfolios in the best interest of our shareholders.  As investors regain their confidence and return to investing based on facts and fundamentals, I believe we should return to steady, long-term market gains.
 
In late October, Hennessy Funds added seven new funds to our family of funds. We are excited to now offer our shareholders an expanded line-up of products, including 16 traditional domestic equity, sector and specialty, as well as more conservative balanced and fixed income mutual funds.
 
I personally would like to take a moment to reach out to the victims of Hurricane Sandy and Sandy Hook Elementary School.  No words can express the sorrow we feel for the families who lost loved ones.
 
Thank you for your continued confidence and investment in the Hennessy Funds.  If you have any questions or want to speak with us directly, please don’t hesitate to call us at (800) 966-4354.
 
Best regards,
 

 
Neil J. Hennessy
President and Chief Investment Officer
 

Past performance does not guarantee future results.
 
Mutual fund investing involves risk. Principal loss is possible. Small and medium-capitalization companies tend to have more limited liquidity and greater price volatility than large-capitalization companies. Investments in foreign securities may involve greater volatility and political, economic and currency risk and differences in accounting methods. A non-diversified fund, one that may concentrate its assets in fewer individual holdings than a diversified fund, is more exposed to individual stock volatility than a diversified fund. A fund that concentrates its investments within one or a small group of industries may be more volatile than a fund that invests in a broader range of industries. Real estate values (and the values of real estate-related securities) fluctuate with changes in general and local economic conditions and are particularly sensitive to economic downturns. IPO shares are subject to market risk and liquidity risk. The yields and principal values of debt securities will also fluctuate. Generally, values of debt securities change inversely with interest rates. Some Funds may invest a portion of its assets in lower rated, high-yielding bonds (commonly known as “junk bonds”). Mortgage- and asset-backed securities are subject to prepayment risk, which is the risk that the borrower will prepay some or all of the principal owed to the issuer.
 
Opinions expressed are those of Neil Hennessy and are subject to change, are not guaranteed and should not be considered investment advice.
 
The Dow Jones Industrial Average and the S&P 500 Index are unmanaged indices of common stocks comprised of major companies and assume reinvestment of dividends.  You cannot invest directly in an index.

HENNESSY FUNDS                                                                                                                1-800-966-4354
 
3
 

Performance Overview (Unaudited)
 

The opinions expressed in the following commentaries reflect those of the Portfolio Managers as of the date written. Any such opinions are subject to change based on market or other conditions. These opinions may not be relied upon as investment advice. Investment decisions for the Hennessy Funds are based on several factors, and may not be relied upon as an indication of trading intent on behalf of any Hennessy Fund. Security positions can and do change.
 

Hennessy Cornerstone Growth Fund
Investor Class Shares (HFCGX)
 
AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2012
 
       
Since Inception
 
One Year
Five Years
Ten Years
(11/1/96)
Hennessy Cornerstone Growth Fund – Investor Class
24.17%
-6.06%
4.80%
8.11%
Russell 2000 Index
12.08%
 1.19%
9.58%
7.04%
S&P 500 Index
15.21%
 0.36%
6.91%
6.35%
 
Gross expense ratio: 1.33%.
 
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 gross expense ratio presented is that from the most recent prospectus.
 
 
PERFORMANCE NARRATIVE*
 
The Hennessy Cornerstone Growth Fund returned 24.17% for the twelve-month period ended October 31, 2012, significantly outperforming both the Russell 2000 Index, which returned 12.08%, and the S&P 500, which returned 15.21%, for the same period. The Fund’s outperformance versus the Russell 2000 Index was primarily due to stock selection within the Industrial, Consumer Discretionary and Materials sectors. This offset negative stock selection and sector allocation within Health Care and Financial stocks. United Rentals (up nearly 75%) was the biggest positive contributor within the Industrials sector. The equipment rental company posted very good revenue and earnings numbers throughout the year as rental rates are anticipated to show approximately 7% year over year increase. Overall, the best preforming stock in the portfolio during the 12-month period was American Vanguard (up approximately 190%) as a historically tight crop supply, high prices and strong farm incomes drove revenues and earnings for the agrichemical manufacturer. The consumer electronics company, VOXX International, was the poorest performing stock in the portfolio during the period (down approximately 4%). While year over year revenues were up, earnings remained roughly the same in the latter part of the year, contributing to the stock’s decline during the second half of the year.
 
The Hennessy Cornerstone Funds employ time-tested, purely quantitative stock selection formulas resulting in a highly-disciplined and repeatable investment process.
 
CHANGE IN VALUE OF $10,000 INVESTMENT
 

 
This chart assumes an initial gross investment of $10,000 made on October 31, 2002. Returns shown include the reinvestment of all dividends.
 
The table and the graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
 

WWW.HENNESSYFUNDS.COM
 
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Hennessy Cornerstone Growth Fund
Institutional Class Shares (HICGX)
 
AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2012
 
     
Since Inception
 
One Year
Three Years
(3/3/08)
Hennessy Cornerstone Growth Fund – Institutional Class
24.58%
12.37%
-1.35%
Russell 2000 Index
12.08%
14.82%
 5.41%
S&P 500 Index
15.21%
13.21%
 3.53%
 
Gross expense ratio: 1.09%.  Net expense ratio: 0.98%.  The expense ratio is contractually capped at 0.98% indefinitely.
 
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.  Investment performance reflects fee waivers in effect.  In the absence of such waivers, total return would be reduced.
 
The expense ratios presented are those from the most recent prospectus.
 
 
CHANGE IN VALUE OF $250,000 INVESTMENT

 
1   Inception date

This chart assumes an initial gross investment of $250,000 (minimum investment) made on March 3, 2008 (inception date of share class). Returns shown include the reinvestment of all dividends.
 
The table and the graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
 
The S&P 500 Index and Russell 2000 Index are unmanaged indices commonly used to measure the performance of U.S. Stocks. You cannot invest directly in an index. 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. References to specific securities should not be considered a recommendation to buy or sell any security. Fund holdings and sector allocations are subject to change. Please refer to the included Schedule of Investments.
 
*
On October 26, 2012 Hennessy purchased the assets of the FBR Funds. The FBR Small Cap Fund was reorganized into the Hennessy Cornerstone Growth Fund, which has a similar investment objective.  These holdings had very little impact on the overall performance of the Fund as those securities were held for only a few days prior to the close of the fiscal year-end.
 

HENNESSY FUNDS                                                                                                                1-800-966-4354
 
5
 
 
Hennessy Cornerstone Mid Cap 30 Fund (formerly Hennessy Focus 30 Fund)
Investor Class Shares (HFMDX)
 
AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2012
 
     
Since Inception
 
One Year
Five Years
(9/17/03)
Hennessy Cornerstone Mid Cap 30 Fund – Investor Class
15.72%
3.94%
9.92%
S&P Midcap 400 Index
12.11%
3.12%
8.56%
S&P 500 Index
15.21%
0.36%
5.69%
 
Gross expense ratio: 1.36%.
 
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 gross expense ratio presented is that from the most recent prospectus.
 
 
PERFORMANCE NARRATIVE*
 
The Hennessy Cornerstone Mid Cap 30 Fund returned 15.72% for the twelve-month period ended October 31, 2012, outperforming both the S&P Midcap 400 Index and the S&P 500 Index, which returned 12.11% and 15.21% respectively for the same period. The Fund was aided by stock selection within the Consumer Discretionary, Consumer Staples and Energy sectors, but performance was hampered by the relative weighting within the Financial and Health Care sectors, which were both underweight versus the benchmarks. Sunoco Logistics and Tesoro Corporation, both in the Energy sector, were our largest contributors to Fund performance, with the stocks up 55% and 45% respectively during the period. Tesoro’s turnaround was significant as the company was our largest negative contributor for the first half of the year, but a nearly $300 million contract with the Department of Defense and an improving market environment drove the stock higher during the latter portion of the year. Our worst performing stock during the period was Towers Watson, the human resource and financial consulting company, which was down 17% for the year after reporting disappointing fiscal fourth quarter numbers in August.
 
The Hennessy Cornerstone Funds employ time-tested, purely quantitative stock selection formulas resulting in a highly-disciplined and repeatable investment process.
 
 
CHANGE IN VALUE OF $10,000 INVESTMENT
 

 
1   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.
 
The table and the graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
 

WWW.HENNESSYFUNDS.COM
 
6
 

Hennessy Cornerstone Mid Cap 30 Fund (formerly Hennessy Focus 30 Fund)
Institutional Class Shares (HIMDX)
 
AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2012
 
     
Since Inception
 
One Year
Three Years
(3/3/08)
Hennessy Cornerstone Mid Cap 30 Fund – Institutional Class
16.15%
17.68%
5.50%
S&P Midcap 400 Index
12.11%
15.81%
6.37%
S&P 500 Index
15.21%
13. 21%
3.53%

Gross expense ratio: 1.14%.  Net expense ratio: 0.98%.  The expense ratio is contractually capped at 0.98% indefinitely.
 
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.  Investment performance reflects fee waivers in effect.  In the absence of such waivers, total return would be reduced.
 
The expense ratios presented are those from the most recent prospectus.
 
 
CHANGE IN VALUE OF $250,000 INVESTMENT
 
 
1   Inception date

This chart assumes an initial gross investment of $250,000 (minimum investment) made on March 3, 2008 (inception date of share class). Returns shown include the reinvestment of all dividends.
 
The table and the graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
 
The S&P 500 Index and S&P Midcap 400 Index are unmanaged indices commonly used to measure the performance of U.S. Stocks. You cannot invest directly in an index. Small and medium-capitalization companies tend to have limited liquidity and greater price volatility than large-capitalization companies. References to specific securities should not be considered a recommendation to buy or sell any security. Fund holdings and sector allocations are subject to change. Please refer to the included Schedule of Investments.
 
*
On October 26, 2012 Hennessy purchased the assets of the FBR Funds. The FBR Mid Cap Fund was reorganized into the Hennessy Cornerstone Mid Cap 30 Fund, which has a similar investment objective.  These holdings had very little impact on the overall performance of the Fund as those securities were held for only a few days prior to the close of the fiscal year-end.
 

HENNESSY FUNDS                                                                                                                1-800-966-4354
 
7
 

Hennessy Cornerstone Large Growth Fund
Investor Class Shares (HFLGX)
 
AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2012
 
     
Since Inception
 
One Year
Three Years
(3/20/09)
Hennessy Cornerstone Large Growth Fund – Investor Class
  9.14%
12.99%
21.70%
Russell 1000 Index
14.97%
13.48%
21.26%
S&P 500 Index
15.21%
13.21%
20.83%
 
Gross expense ratio: 1.26%.
 
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 gross expense ratio presented is that from the most recent prospectus.
 
 
PERFORMANCE NARRATIVE*
 
The Hennessy Cornerstone Large Growth Fund returned 9.14% for the twelve-month period ended October 31, 2012, underperforming both the Russell 1000 Index and the S&P 500 Index, which returned 14.97% and 15.21% respectively for the same period. The largest positive contribution to the Fund’s performance was stock selection in the Industrials sector and both allocation and stock selection in the Energy sector. Stock selection within the Materials and Information Technology sectors were negative contributors to overall performance, as was our relative underweighting in the Financial sector. The biggest drawdown on performance was from the investment in Apollo Group (down roughly 58%), the educational program provider perhaps best known for their University of Phoenix division. The stock had a difficult year as an improving labor market and heightened competition weighed on the company. The company’s most recent earnings announcement in October was saddled with further disappointment as net income dropped by roughly 60% as the company was hurt by higher costs and declining enrollment. The single largest contributor to Fund performance was Gap Inc. (up 92%), which started trending higher in February after announcing that earnings would be better than expected and that strategies the company was implementing to improve business performance were starting to pay off. Gap, Inc. continued to move higher throughout the year, posting impressive same store sales numbers and earnings through the summer and fall months.
 
The Hennessy Cornerstone Funds employ time-tested, purely quantitative stock selection formulas resulting in a highly-disciplined and repeatable investment process.
 
 
CHANGE IN VALUE OF $10,000 INVESTMENT
 

1   Inception date
 
This chart assumes an initial gross investment of $10,000 made on March 20, 2009 (inception). Returns shown include the reinvestment of all dividends.
 
The table and the graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
 

WWW.HENNESSYFUNDS.COM
 
8
 

Hennessy Cornerstone Large Growth Fund
Institutional Class Shares (HILGX)
 
AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2012
 
     
Since Inception
 
One Year
Three Years
(3/20/09)
Hennessy Cornerstone Large Growth Fund – Institutional Class
  9.43%
13.31%
22.05%
Russell 1000 Index
14.97%
13.48%
21.26%
S&P 500 Index
15.21%
13.21%
20.83%
 
Gross expense ratio: 1.14%.  Net expense ratio: 0.98%.  The expense ratio is contractually capped at 0.98% indefinitely.
 
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.  Investment performance reflects fee waivers in effect.  In the absence of such waivers, total return would be reduced.
 
The expense ratios presented are that from the most recent prospectus.
 
 
CHANGE IN VALUE OF $250,000 INVESTMENT
 

 
1   Inception date

This chart assumes an initial gross investment of $250,000 (minimum investment) made on March 20, 2009 (inception). Returns shown include the reinvestment of all dividends.
 
The table and the graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
 
The S&P 500 and Russell 1000 are unmanaged indices commonly used to measure the performance of U.S. stocks. One cannot invest directly in an index.   The Fund may invest in medium-capitalization companies, which tend to have limited liquidity and greater price volatility than large-capitalization companies. References to specific securities should not be considered a recommendation to buy or sell any security. Fund holdings and sector allocations are subject to change. Please refer to the included Schedule of Investments.
 
*
On October 26, 2012 Hennessy purchased the assets of the FBR Funds. The FBR Large Cap Fund was reorganized into the Hennessy Cornerstone Large Growth Fund, which has a similar investment objective.  These holdings had very little impact on the overall performance of the Fund as those securities were held for only a few days prior to the close of the fiscal year-end.
 

HENNESSY FUNDS                                                                                                                1-800-966-4354
 
9
 

Hennessy Cornerstone Value Fund
Investor Class Shares (HFCVX)
 
AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2012
 
       
Since Inception
 
One Year
Five Years
Ten Years
(11/1/96)
Hennessy Cornerstone Value Fund – Investor Class
12.79%
-0.46%
6.77%
5.73%
Russell 1000 Value Index
16.89%
-1.00%
7.34%
7.18%
S&P 500 Index
15.21%
 0.36%
6.91%
6.35%
 
Gross expense ratio: 1.31%.
 
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 gross expense ratio presented is that from the most recent prospectus.
 
 
PERFORMANCE NARRATIVE
 
The Hennessy Cornerstone Value Fund returned 12.79% for the twelve-month period ended October 31, 2012, underperforming its benchmark, the Russell 1000 Value Index, which returned 16.89%, and the S&P 500 Index, which returned 15.21% for the same period. The Fund’s performance was aided by both asset allocation and stock selection in the Information Technology sector, and the relative underweighting in the Utilities sector. The stronger performance within the Energy sector was offset by the underperformance within the Telecom Service sector. The Fund’s overall performance was hurt by positions in France Telecom and Spanish telecommunications provider, Telefonica (down 23% and 28% respectively), as concerns over European affairs continued to weaken the performance of those stocks. The Fund no longer holds positions in those stocks. The best performing holding in the Fund, and the largest single contributor to performance was Seagate Technologies (up 76%) which significantly raised 2012 revenue guidance, buoyed by disk drive shortages due to floods in Thailand. This disk shortage subsequently drove both disk drive prices and corporate earnings higher. The portfolio continues to hold the position in Seagate.
 
The Hennessy Cornerstone Funds employ time-tested, purely quantitative stock selection formulas resulting in a highly-disciplined and repeatable investment process.
 
 
CHANGE IN VALUE OF $10,000 INVESTMENT
 

 

This chart assumes an initial gross investment of $10,000 made on October 31, 2002. Returns shown include the reinvestment of all dividends.
 
The table and the graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
 

WWW.HENNESSYFUNDS.COM
 
10
 

Hennessy Cornerstone Value Fund
Institutional Class Shares (HICVX)
 
AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2012
 
     
Since Inception
 
One Year
Three Years
(3/3/08)
Hennessy Cornerstone Value Fund – Institutional Class
13.13%
13.00%
3.86%
Russell 1000 Value Index
16.89%
12.81%
2.02%
S&P 500 Index
15.21%
13.21%
3.53%
 
Gross expense ratio: 1.14%. Net expense ratio: 0.98%.  The expense ratio is contractually capped at 0.98% indefinitely.
 
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.  Investment performance reflects fee waivers in effect.  In the absence of such waivers, total return would be reduced.
 
The expense ratios presented are those from the most recent prospectus.
 
 
CHANGE IN VALUE OF $250,000 INVESTMENT
 

 
*  Inception date

This chart assumes an initial gross investment of $250,000 (minimum investment) made on March 3, 2008 (inception date of share class). Returns shown include the reinvestment of all dividends.
 
The table and the graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
 
The Russell 1000 Value Index and S&P 500 Index are unmanaged indices commonly used to measure the performance of U.S. Stocks. You cannot invest directly in an index. The Fund may invest in medium-capitalization companies which 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. References to specific securities should not be considered a recommendation to buy or sell any security. Fund holdings and sector allocations are subject to change. Please refer to the included Schedule of Investments.
 

HENNESSY FUNDS                                                                                                                1-800-966-4354
 
11
 

Hennessy Large Value Fund (formerly Hennessy Select Large Value Fund)
Investor Class Shares (HLVFX)
 
AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2012
 
       
Since Inception
 
One Year
Five Years
Ten Years
(9/30/84)
Hennessy Large Value Fund – Investor Class
16.07%
-1.85%
5.30%
  9.51%
Russell 1000 Value Index
16.89%
-1.00%
7.34%
10.88%
S&P 500 Index
15.21%
 0.36%
6.91%
10.55%
 
Gross expense ratio: 1.38%.
 
Performance data quoted represents past performance; past performance does not guarantee future results. The performance for periods prior to March 20, 2009 reflects the performance of the Tamarack Value Fund, the predecessor to the Hennessy Select Large Value Fund. 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 gross expense ratio presented is that from the most recent prospectus.
 
 
PERFORMANCE NARRATIVE
RBC GLOBAL ASSET MANAGEMENT (U.S.) INC., SUB-ADVISOR
 
The Hennessy Large Value Fund returned 16.07% for the twelve-month period ended October 31, 2012, slightly underperforming its benchmark, the Russell 1000 Value Index, which returned 16.89% for the same period, but outperforming the S&P 500 Index, which returned 15.21%.  The Fund’s strong absolute performance was the result of stock selection across a number of sectors, led by Consumer Discretionary, Utilities and Materials.  Conversely, stock selection in Health Care and Energy detracted from performance.  Sector allocation detracted modestly from performance as the Fund’s sector neutral mandate, by design, limits the impact of sector weighting decisions, with the Fund’s managers instead making bets at the industry level.
 
The largest contributor to the Fund’s performance for the period, by a significant margin, was the Consumer Discretionary sector. Exposure to the improving U.S. housing market was the primary driver of returns as home improvement retailer Home Depot (+76%) and homebuilder PulteGroup (+109%) both outperformed.  While we have taken some profits in each, we continue to believe in the continued progress of the housing market recovery and are actively looking for additional second derivative opportunities (i.e. Home Depot) as a means of investing in this theme.  Also contributing to the sector’s outperformance was the decision to hold companies geared to the more cost conscious consumer, such as retailers TJX Companies (+40%), Target (+25%), and Macy’s (+28%).  Media names Comcast Corporation (+63%) and CBS (+27%) were also significant contributors to the sector’s outperformance.  Comcast, a provider of cable, telephone, and high speed internet, saw a marked increase in subscriptions for their higher margin, high-speed broadband internet offering as well as improving results at the company’s television network, NBC. CBS benefitted from its position as the #1 rated network, best in class content, and revenue generating retransmission contracts with local affiliates.
 
While Utilities and Materials sectors (both at +11%) generally underperformed versus the broader index, the Fund, due to strong stock selection in both sectors, outperformed significantly within these sectors, returning +20% and +25% respectively.  Within Utilities, the Fund benefitted both from what it owned, NextEra (+20%), and from what it avoided, Exelon (-15%). The Fund’s outperformance in Materials was driven by one of the Fund’s top overall contributing stocks, Solutia Inc. (+70%), which was the beneficiary of a buyout from Eastman Chemical early in 2012.
 
The Health Care sector, which was significantly impacted by “Obamacare,” and the Energy sector, which sold off with declining oil prices, were the most impactful detractors from Fund performance.  Within Health Care, Humana (-24%) and Watson Pharmaceuticals (-11%) both sold off as neither company was able to meet increased expectations.  In Humana’s case, expectations for margin improvement went unrealized and the company subsequently missed estimates in both the first and second quarters of 2012, while expectations of a significant windfall for Watson from generic cholesterol drug Lipitor proved to be too lofty as the company failed to capture as much of the market as anticipated.  Both Humana and Watson have been eliminated from the portfolio.
 
Within the Energy sector, Occidental Petroleum (-13%) was the largest detractor from performance as the company’s production growth lagged and the firm has been unable to monetize its substantial oil reserves in California.  Oil States International (-12%), a services company with significant exposure to the Canadian Oil Sands and coal mining in Australia, was also a significant headwind for performance despite consistently beating estimates, as concerns about the strength of the companies two aforementioned primary markets weighed on the stock’s performance.  We continue to believe in the longer term prospects of both companies and maintain their positions in the Fund.
 

WWW.HENNESSYFUNDS.COM
 
12
 
 
CHANGE IN VALUE OF $10,000 INVESTMENT
 

 

This chart assumes an initial gross investment of $10,000 made on October 31, 2002. Returns shown include the reinvestment of all dividends.
 
The table and the graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
 

Hennessy Large Value Fund (formerly Hennessy Select Large Value Fund)
Institutional Class Shares (HLVIX)
 
AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2012
 
     
Since Inception
 
One Year
Three Years
(3/20/09)
Hennessy Large Value Fund – Institutional Class
16.58%
10.91%
17.85%
Russell 1000 Value Index
16.89%
12.81%
21.14%
S&P 500 Index
15.21%
13.21%
20.83%
 
Gross expense ratio: 1.21%.  Net expense ratio: 0.98%.  The expense ratio is contractually capped at 0.98% indefinitely.
 
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.  Investment performance reflects fee waivers in effect.  In the absence of such waivers, total return would be reduced.
 
The gross and net expense ratios presented are those from the most recent prospectus.
 
 
CHANGE IN VALUE OF $250,000 INVESTMENT
 

 
*  Inception date
 
This chart assumes an initial gross investment of $250,000 (minimum investment) made on March 20, 2009 (inception date of share class). Returns shown include the reinvestment of all dividends.
 
The table and the graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
 

HENNESSY FUNDS                                                                                                                1-800-966-4354
 
13
 
 
The S&P 500 and Russell 1000 Value are unmanaged indices commonly used to measure the performance of U.S. stocks. The Russell 1000 Value measures large-cap, value-oriented stocks. One cannot invest directly in an index.
 
The Fund may invest in medium-capitalization companies, which tend to have limited liquidity and greater price volatility than large-capitalization companies.
 
The Fund’s composition and sector weightings are shown as a percentage of the Fund’s total net assets. Portfolio composition and sector weightings are subject to change at any time and should not be considered a recommendation to buy or sell a particular security. Please refer to the Schedule of Investments within this Annual Report for additional portfolio information, including percentages of holdings.
 

Hennessy Total Return Fund
Investor Class Shares (HDOGX)
 
AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2012
 
       
Since Inception
 
One Year
Five Years
Ten Years
(7/29/98)
Hennessy Total Return Fund
11.78%
0.22%
5.89%
3.72%
Dow Jones Industrial Average
12.56%
1.60%
7.23%
5.11%
S&P 500 Index
15.21%
0.36%
6.91%
3.46%
 
Gross expense ratio: 1.34%.
 
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 gross expense ratio presented is that from the most recent prospectus.
 
PERFORMANCE NARRATIVE
 
The Hennessy Total Return Fund returned 11.78% for the twelve-month period ended October 31, 2012, underperforming the Dow Jones Industrial Average, which returned 12.56%, and the S&P 500 Index, which returned 15.21% for the same period. The Fund’s roughly 25% weighting in Treasury Bills hampered overall Fund performance as yields continue to flirt with historically low levels, at times essentially equaling zero. The Fund’s approximately 75% equity weighting was able to nearly capture the weighted return of the Dow Jones Industrial Average, with the Fund’s three largest holdings, AT&T, Verizon and Pfizer, all posting 20%+ returns during the period. Dividend yield is one of the primary criteria in the stock selection process for this Fund. With dividends taken into account, eight of the companies in our top ten holdings posted gains during the twelve-month period, with only Intel and DuPont posting negative returns.
 
The Hennessy Cornerstone Funds employ time-tested, purely quantitative stock selection formulas resulting in a highly-disciplined and repeatable investment process.
 
CHANGE IN VALUE OF $10,000 INVESTMENT
 

 
This chart assumes an initial gross investment of $10,000 made on October 31, 2002. Returns shown include the reinvestment of all dividend and other distributions.
 
The table and the graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
 
The Dow Jones Industrial Average and S&P 500 Index are unmanaged indices commonly used to measure the performance of U.S. Stocks. You cannot invest directly in an index. The Fund is non-diversified, meaning it concentrates its 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 included Schedule of Investments.
 

WWW.HENNESSYFUNDS.COM
 
14
 

Hennessy Balanced Fund
Investor Class Shares (HBFBX)
 
AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2012
 
       
Since Inception
 
One Year
Five Years
Ten Years
(3/8/96)
Hennessy Balanced Fund
  7.13%
0.98%
4.00%
4.17%
Dow Jones Industrial Average
12.56%
1.60%
7.23%
7.75%
S&P 500 Index
15.21%
0.36%
6.91%
6.85%
 
Gross expense ratio: 1.62%.
 
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 gross expense ratio presented is that from the most recent prospectus.
 
 
PERFORMANCE NARRATIVE
 
The Hennessy Balanced Fund returned 7.13% for the twelve-month period ended October 31, 2012, underperforming the Dow Jones Industrial Average, which returned 12.56%, and the S&P 500 Index, which returned 15.21% for the same period. The Fund’s relative underperformance to its benchmarks is due primarily to the continued low yields on Treasury Bills, which represent approximately 50% of the Fund’s holdings. While the portfolio may underperform the indices in periods where equities rise sharply, the strategy is geared to capture near market returns with a lower risk profile, since only half of the assets are invested in equities. Conversely, if equity markets were to fall sharply, we would expect the Fund to perform better than the indices. Ultimately, the overall goal of this portfolio is to capture upside performance while mitigating downside risk.
 
The Hennessy Cornerstone Funds employ time-tested, purely quantitative stock selection formulas resulting in a highly-disciplined and repeatable investment process.
 
 
CHANGE IN VALUE OF $10,000 INVESTMENT
 

 

This chart assumes an initial gross investment of $10,000, made on October 31, 2002. Returns shown include the reinvestment of all dividend and other distributions.
 
The table and the graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
 
The Dow Jones Industrial Average and S&P 500 Index are unmanaged indices commonly used to measure the performance of U.S. Stocks. You cannot invest directly in an index. The Fund is non-diversified, meaning it concentrates its 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 included Schedule of Investments.
 

HENNESSY FUNDS                                                                                                                1-800-966-4354
 
15
 

Hennessy Japan Fund (formerly Hennessy Select SPARX Japan Fund)
Investor Class Shares (HJPNX)
 
AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2012
 
     
Since Inception
 
One Year
Five Years
(10/31/03)
Hennessy Japan Fund – Investor Class
10.08%
-0.95%
6.06%
Russell/Nomura Total Market Index
-1.86%
-5.97%
1.65%
TOPIX
-3.10%
-6.13%
1.30%
 
Gross expense ratio: 1.87%.
 
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 gross expense ratio presented is that from the most recent prospectus.
 
 
PERFORMANCE NARRATIVE
SPARX ASSET MANAGEMENT CO., LTD., SUB-ADVISOR
 
The Hennessy Japan Fund returned 10.08% for the twelve-month period ended October 31, 2012, significantly outperforming both the Russell/Nomura Total Market Index and TOPIX, which lost -1.86% and -3.10% respectively, for the same period. The largest positive contributors to the Fund’s performance among the TOPIX 33 sub-industries were wholesalers, retailers and automakers. Conversely, machinery manufacturers, iron & steel makers, and nonferrous metal producers were among the worst performers.
 
Among the strongest performing stocks during the twelve-month period were Ryohin Keikaku Co., Ltd., the operator of the “MUJI”  brand chain of retail stores, Misumi Group Inc., a distributor of metal mold components and Shimano, Inc., the bicycle parts manufacturer with leading global market share.
 
Shares of Ryohin Keikaku  jumped 42% on the back of a series of upbeat broker reports, citing the company’s improved domestic gross margin and overseas profitability. Shares of Misumi appreciated 17% as the company’s resilient business model garnered investor interest amid uncertain global economic conditions. Shares of Shimano climbed 28% following the release of its favorable full-term earnings results for the year ended December 2011.
 
Conversely, Terumo Corp., the medical equipment manufacturer, Komatsu Ltd., one of the largest global manufacturers of construction machinery, and Daikin Industries, Ltd., the leading global manufacturer of commercial-use air conditioners, were among the major detractors to the Fund’s performance during the period. Shares of Terumo fell -16% after the company announced disappointing earnings guidance for the fiscal year ending in May 2012. Shares of Komatsu fell -15% due to concerns about its earnings outlook amid the European debt crisis and the economic slowdown in China.  Daikin fell -7% as its share price has been under pressure for much of the year due to mounting concerns over its businesses in China and Europe, the company’s two largest overseas markets.
 
 
CHANGE IN VALUE OF $10,000 INVESTMENT
 

 
*  Inception date

This chart assumes an initial gross investment of $10,000 made on October 31, 2003 (inception). Returns shown include the reinvestment of all dividends.
 
The table and the graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
 

WWW.HENNESSYFUNDS.COM
 
16
 

Hennessy Japan Fund (formerly Hennessy Select SPARX Japan Fund)
Institutional Class Shares (HJPIX)
 
AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2012
 
     
Since Inception
 
One Year
Five Years
(10/31/03)
Hennessy Japan Fund – Institutional Class
10.33%
-0.80%
6.22%
Russell/Nomura Total Market Index
-1.86%
-5.97%
1.65%
TOPIX
-3.10%
-6.13%
1.30%
 
Gross expense ratio: 1.65%.
 
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 gross expense ratio presented is that from the most recent prospectus.
 
 
CHANGE IN VALUE OF $250,000 INVESTMENT
 

 
*  Inception date

This chart assumes an initial gross investment of $250,000 (minimum investment) made on October 31, 2003 (inception). Returns shown include the reinvestment of all dividends.
 
The table and the graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
 
The Russell/Nomura Total Market Index contains the top 98% of all stocks listed on Japan’s stock exchange and registered on Japan’s OTC market, in terms of market capitalization. The Tokyo Stock Price Index (TOPIX) is a market capitalization-weighted index of all companies listed on the First Section of the Tokyo Stock Exchange. The Russell/Nomura Total Market and TOPIX indices are presented in U.S. Dollar terms and take into account reinvestment of dividends. One cannot invest directly in an index.
 
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 Fund’s composition and sector weightings are shown as a percentage of the Fund’s total net assets. Portfolio composition and sector weightings are subject to change at any time and should not be considered a recommendation to buy or sell a particular security. Please refer to the Schedule of Investments within this Annual Report for additional portfolio information, including percentages of holdings.
 

HENNESSY FUNDS                                                                                                                1-800-966-4354
 
17
 

Hennessy Japan Small Cap Fund (formerly Hennessy Select SPARX Japan Smaller Companies Fund)
Investor Class Shares (HJPSX)
 
AVERAGE ANNUAL TOTAL RETURN PERIODS ENDED OCTOBER 31, 2012
 
     
Since Inception
 
One Year
Five Years
(8/31/07)
Hennessy Japan Small Cap Fund – Investor Class
 4.91%
 0.34%
 2.16%
Russell/Nomura Small Cap Index
 0.79%
-1.18%
-0.63%
TOPIX
-3.10%
-6.13%
-5.61%
 
Gross expense ratio: 2.11%.
 
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 gross expense ratio presented is that from the most recent prospectus.
 
 
PERFORMANCE NARRATIVE
SPARX ASSET MANAGEMENT CO., LTD., SUB-ADVISOR
 
The Hennessy Japan Small Cap Fund returned 4.91% for the twelve-month period ended October 31, 2012, outperforming both the Russell/Nomura Japan Small Cap Index, which returned 0.79% and the TOPIX which lost -3.10%, for the same period.
 
The largest positive contributors to the Fund’s performance among the TOPIX 33 sub-industries were wholesalers, service industry firms and construction firms. Conversely, electronic appliance makers, insurers and machinery manufacturers were among the worst performers.
 
Among the strongest performing stocks during the twelve-month period were shares of SMS Co., Ltd., which operates a recruiting website for workers in the nursing and medical industry, UKC Holdings Corp., a trading firm dealing in Sony-made semiconductors and electronic parts and Nippon Carbide Industries Co., Inc., a chemical company. Shares of SMS surged 119% due to a newspaper article which featured the company as a future high-growth company.  Shares of UKC increased 96% after the firm revised upward its earnings forecast for the fiscal year ending in March 2013 on the back of favorable sales. Shares of Nippon Carbide increased 68% amid rising expectations that demand for its products will increase after being featured on television.
 
On the other hand, Nippon Chemi-Con Corporation, Japan’s largest manufacturer of aluminum electrolytic capacitors, Micronics Japan Co., Ltd., the leading manufacturer of semiconductor measuring devices, and Kyosan Electronics, one of largest signal manufacturers in Japan, were the biggest detractors to the Fund’s performance during the period. Shares of Nippon Chemi-Con declined -63% on concerns that a decrease in demand for electronics in its current fiscal year ending in March 2013 would negatively impact the company’s earnings. Shares of Micronics Japan fell -39% because of a rating downgrade by a number of securities companies due to worsening conditions in the dynamic random access memory (DRAM) market. Shares of Kyosan Electronics dropped -25% as we believe investors were concerned about the company’s earnings outlook for the fiscal year ending in March 2013 on the back of weak overseas demand.
 
 
CHANGE IN VALUE OF $10,000 INVESTMENT

 
*  Inception date

This chart assumes an initial gross investment of $10,000 made on August 31, 2007 (inception). Returns shown include the reinvestment of all dividends.
 
The table and the graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
 

WWW.HENNESSYFUNDS.COM
 
18
 
 
The Russell/Nomura Small Cap Index contains the bottom 15% of the Russell/Nomura Total Market Index, which contains the top 98% of all stocks listed on Japan’s stock exchange and registered on Japan’s OTC market, in terms of market capitalization. The Tokyo Stock Price Index (TOPIX) is a market capitalization-weighted index of all companies listed on the First Section of the Tokyo Stock Exchange. The Russell/Nomura Small Cap and TOPIX indices are presented in U.S. Dollar terms and take into account reinvestment of dividends. One cannot invest directly in an index.
 
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 Fund’s composition and sector weightings are shown as a percentage of the Fund’s total net assets. Portfolio composition and sector weightings are subject to change at any time and should not be considered a recommendation to buy or sell a particular security. Please refer to the Schedule of Investments within this Annual Report for additional portfolio information, including percentages of holdings.
 
 

 

HENNESSY FUNDS                                                                                                                1-800-966-4354
 
19
 











(This Page Intentionally Left Blank.)
 













WWW.HENNESSYFUNDS.COM
 
20
 

Schedule of Investments

HENNESSY CORNERSTONE GROWTH FUND
 
As of October 31, 2012
 
(% of Net Assets)
 

 
 

 
 
TOP TEN EQUITY HOLDINGS
% net assets
 
American Vanguard Corp.
3.60%
 
Cambrex Corp.
2.80%
 
Susser Holdings Corp.
2.33%
 
Lithia Motors, Inc.
2.25%
 
NewMarket Corp.
2.23%
 
Papa Johns International, Inc.
2.11%
 
DXP Enterprises, Inc.
2.09%
 
Pier 1 Imports, Inc.
2.08%
 
Metropolitan Health Networks, Inc.
2.08%
 
Leapfrog Enterprises, Inc.
2.04%

 

 
The holdings reflected include stocks that were previously held in the former FBR Small Cap Fund, which was reorganized into the Hennessy Cornerstone Growth Fund as of close of business on 10/26/12.  These positions will be held until the customary rebalance of the Hennessy Cornerstone Growth portfolio, generally in the winter.
 
Note:  For presentation purposes, the Fund has grouped some of the industry categories.  For purposes of categorizing securities for compliance with Section 8(b)(1) of the Investment Company Act of 1940, the Fund uses more specific industry classifications.
 

HENNESSY FUNDS                                                                                                                1-800-966-4354
 
21
 
 
 
COMMON STOCKS – 93.83%
 
Number of
         
% of
 
     
Shares
   
Value
   
Net Assets
 
 
Consumer Discretionary – 41.25%
                 
 
American Axle & Manufacturing
                 
 
  Holdings, Inc. (a)
    25,000     $ 271,750       0.09 %
 
Arctic Cat, Inc. (a)
    140,200       5,085,054       1.68 %
 
Asbury Automotive Group, Inc. (a)
    6,000       190,320       0.06 %
 
Ascena Retail Group, Inc. (a)
    16,000       316,800       0.11 %
 
Bally Technologies, Inc. (a)
    4,000       199,680       0.07 %
 
Caribou Coffee, Inc. (a)
    270,900       3,242,673       1.07 %
 
Chico’s FAS, Inc.
    13,000       241,800       0.08 %
 
Churchill Downs, Inc.
    84,096       5,493,992       1.82 %
 
Crocs, Inc. (a)
    6,000       75,600       0.03 %
 
Dollar General Corp. (a)
    112,585       5,473,883       1.81 %
 
Dominos Pizza, Inc.
    143,600       5,833,032       1.93 %
 
Express, Inc. (a)
    6,000       66,780       0.02 %
 
Foot Locker, Inc.
    178,400       5,976,400       1.97 %
 
Genesco, Inc. (a)
    78,800       4,515,240       1.49 %
 
Group 1 Automotive, Inc.
    85,300       5,289,453       1.75 %
 
KB Home
    4,000       63,920       0.02 %
 
La-Z-Boy, Inc.
    344,300       5,584,546       1.84 %
 
Leapfrog Enterprises, Inc. (a)
    699,100       6,180,044       2.04 %
 
Lithia Motors, Inc.
    199,300       6,816,060       2.25 %
 
Macy’s, Inc.
    133,100       5,067,117       1.67 %
 
Mens Wearhouse, Inc.
    128,150       4,202,038       1.39 %
 
Oxford Industries, Inc.
    96,850       5,373,238       1.78 %
 
Papa Johns International, Inc. (a)
    119,900       6,393,068       2.11 %
 
Penn National Gaming, Inc. (a)
    12,000       485,160       0.16 %
 
Pier 1 Imports, Inc.
    309,100       6,305,640       2.08 %
 
Pool Corp.
    137,009       5,770,819       1.91 %
 
Ross Stores, Inc.
    91,840       5,597,648       1.85 %
 
Sally Beauty Holdings, Inc. (a)
    229,400       5,523,952       1.82 %
 
Select Comfort Corp. (a)
    4,000       111,320       0.04 %
 
Standard Motor Products, Inc.
    209,600       3,936,288       1.30 %
 
Standard Pacific Corp. (a)
    15,000       103,500       0.03 %
 
Steven Madden Ltd. (a)
    7,500       321,900       0.11 %
 
Sturm Ruger & Co, Inc.
    4,000       188,920       0.06 %
 
The Buckle, Inc.
    5,600       252,952       0.08 %
 
The Children’s Place Retail Stores, Inc. (a)
    3,000       175,290       0.06 %
 
The Finish Line, Inc.
    10,000       208,050       0.07 %
 
TJX Companies, Inc.
    138,030       5,746,189       1.90 %
 
Tractor Supply Co.
    56,100       5,399,064       1.78 %
 
Vitamin Shoppe, Inc. (a)
    2,500       143,100       0.05 %
 
VOXX International Corp. (a)
    369,000       2,295,180       0.76 %
 
Wolverine World Wide, Inc.
    8,000       334,960       0.11 %
                124,852,420       41.25 %
                           
 
Consumer Staples – 7.93%
                       
 
CVS Caremark Corp.
    110,800       5,141,120       1.70 %
 
Elizabeth Arden, Inc. (a)
    120,500       5,685,190       1.88 %
 
Hain Celestial Group, Inc. (a)
    2,500       144,500       0.05 %
 
Susser Holdings Corp. (a)
    196,800       7,072,992       2.33 %
 
Whole Foods Market, Inc.
    62,950       5,963,253       1.97 %
                24,007,055       7.93 %
                           
 
Energy – 0.67%
                       
 
Atwood Oceanics, Inc. (a)
    10,012       478,574       0.16 %
 
Comstock Resources, Inc. (a)
    8,000       136,960       0.04 %
 
Energy XXI (Bermuda) Ltd.
    9,000       297,900       0.10 %
 
Kodiak Oil & Gas Corp. (a)
    38,000       351,120       0.11 %
 
Oasis Petroleum, Inc. (a)
    13,000       381,810       0.13 %
 
Rosetta Resources, Inc. (a)
    4,000       184,160       0.06 %
 
Superior Energy Services, Inc. (a)
    10,000       203,300       0.07 %
                2,033,824       0.67 %
                           
 
Financials – 2.19%
                       
 
Associated Banc-Corp.
    28,000       360,920       0.12 %
 
BankUnited, Inc.
    12,000       284,520       0.09 %
 
Berkshire Hills Bancorp, Inc.
    10,000       234,800       0.08 %
 
Brookline Bancorp, Inc.
    59,729       506,502       0.17 %
 
Capitol Federal Financial
    29,454       350,797       0.12 %
 
Chicopee Bancorp, Inc. (a)
    19,139       286,894       0.09 %
 
CNO Financial Group, Inc.
    23,000       220,340       0.07 %
 
First Horizon National Corp.
    32,253       300,275       0.10 %
 
Fulton Financial Corp.
    30,200       293,544       0.10 %
 
Horace Mann Educators Corp.
    24,000       461,040       0.15 %
 
Independent Bank Corp.
    11,000       324,610       0.11 %
 
Investors Title Co.
    3,407       223,499       0.07 %
 
Newport Bancorp, Inc. (a)
    6,000       100,230       0.03 %
 
Peoples Federal Bancshares, Inc.
    9,000       153,450       0.05 %
 
SI Financial Group, Inc.
    7,300       80,300       0.03 %
 
Susquehanna Bancshares, Inc.
    34,000       352,580       0.12 %
 
Tower Group, Inc.
    18,000       324,360       0.11 %
 
United Financial Bancorp, Inc.
    48,877       751,240       0.25 %
 
Waddell & Reed Financial, Inc.
    24,000       799,920       0.26 %
 
Washington Federal, Inc.
    13,400       224,852       0.07 %
                6,634,673       2.19 %
                           
 
Health Care – 10.01%
                       
 
Abiomed, Inc. (a)
    8,000       158,560       0.05 %
 
Allscripts Healthcare Solutions, Inc. (a)
    16,000       206,720       0.07 %
 
athenahealth, Inc. (a)
    2,000       128,580       0.04 %
 
Cambrex Corp. (a)
    702,200       8,482,576       2.80 %
 
Centene Corp. (a)
    107,800       4,094,244       1.35 %
 
Cepheid, Inc. (a)
    10,000       303,100       0.10 %
 
Genomic Health, Inc. (a)
    2,000       62,500       0.02 %
 
Greenway Medical Technologies, Inc. (a)
    8,000       132,720       0.04 %
 
Health Management Associates, Inc. (a)
    16,000       116,800       0.04 %
 
 
The accompanying notes are an integral part of these financial statements.


WWW.HENNESSYFUNDS.COM
 
22
 
 
 
COMMON STOCKS
 
Number of
         
% of
 
     
Shares
   
Value
   
Net Assets
 
 
Health Care (Continued)
                 
 
HMS Holdings Corp. (a)
    1,000     $ 23,090       0.01 %
 
Impax Laboratories, Inc. (a)
    15,000       318,750       0.11 %
 
Jazz Pharmaceuticals, Inc. (a)
    4,000       214,920       0.07 %
 
MAKO Surgical Corp. (a)
    1,000       15,150       0.01 %
 
MedAssets, Inc. (a)
    18,000       319,140       0.11 %
 
Medidata Solutions, Inc. (a)
    10,000       420,200       0.14 %
 
Metropolitan Health Networks, Inc. (a)
    574,614       6,280,531       2.08 %
 
Molina Healthcare, Inc. (a)
    150,800       3,780,556       1.25 %
 
Myriad Genetics, Inc. (a)
    9,000       235,530       0.08 %
 
NPS Pharmaceuticals, Inc. (a)
    6,000       55,440       0.02 %
 
Obagi Medical Products, Inc. (a)
    11,000       135,630       0.04 %
 
Orexigen Therapeutics, Inc. (a)
    12,000       63,960       0.02 %
 
Sarepta Therapeutics, Inc. (a)
    2,000       42,620       0.01 %
 
Seattle Genetics, Inc. (a)
    4,500       113,220       0.04 %
 
Sirona Dental Systems, Inc. (a)
    8,000       458,080       0.15 %
 
The Cooper Companies, Inc.
    2,000       191,960       0.06 %
 
VIVUS, Inc. (a)
    3,000       44,700       0.01 %
 
Wellcare Health Plans, Inc. (a)
    82,000       3,903,200       1.29 %
                30,302,477       10.01 %
                           
 
Industrials – 17.62%
                       
 
A.O. Smith Corp.
    10,000       607,700       0.20 %
 
Alaska Air Group, Inc. (a)
    6,000       229,440       0.08 %
 
American Woodmark Corp. (a)
    16,000       368,000       0.12 %
 
Atlas Air Worldwide Holdings, Inc. (a)
    5,000       274,950       0.09 %
 
Avis Budget Group, Inc. (a)
    28,000       462,840       0.15 %
 
Cintas Corp.
    125,300       5,238,793       1.73 %
 
DXP Enterprises Inc. (a)
    128,300       6,316,209       2.09 %
 
Dycom Industries, Inc. (a)
    205,600       2,927,744       0.97 %
 
Encore Capital Group, Inc. (a)
    12,000       348,000       0.11 %
 
Genesee & Wyoming, Inc., Class A (a)
    2,000       144,940       0.05 %
 
Innerworkings, Inc. (a)
    411,965       5,940,535       1.96 %
 
JetBlue Airways Corp. (a)
    50,000       264,500       0.09 %
 
Lennox International, Inc.
    6,000       300,300       0.10 %
 
Mueller Industries, Inc.
    98,050       4,294,590       1.42 %
 
Navigant Consulting, Inc. (a)
    348,500       3,620,915       1.20 %
 
Old Dominion Freight Line, Inc. (a)
    162,400       5,446,896       1.80 %
 
Primoris Services Corp.
    294,900       4,119,753       1.36 %
 
Roadrunner Transportation
                       
 
  Systems, Inc. (a)
    16,000       278,880       0.09 %
 
Sauer-Danfoss, Inc.
    7,000       280,420       0.09 %
 
Sun Hydraulics Corp.
    10,000       266,400       0.09 %
 
Terex Corp. (a)
    20,000       451,000       0.15 %
 
The Manitowoc Co, Inc.
    15,000       213,750       0.07 %
 
Trex Co, Inc. (a)
    8,000       279,520       0.09 %
 
Triumph Group, Inc.
    73,800       4,827,996       1.59 %
 
United Rentals, Inc. (a)
    126,339       5,136,944       1.70 %
 
US Airways Group, Inc. (a)
    18,000       219,240       0.07 %
 
USG Corp. (a)
    8,000       213,680       0.07 %
 
Werner Enterprises, Inc.
    11,250       260,550       0.09 %
                53,334,485       17.62 %
                           
 
Information Technology – 2.52%
                       
 
Aruba Networks, Inc. (a)
    6,500       118,105       0.04 %
 
Brocade Communications
                       
 
  Systems, Inc. (a)
    25,100       133,030       0.04 %
 
Cirrus Logic, Inc. (a)
    6,000       244,560       0.08 %
 
Comm Vault Systems, Inc. (a)
    3,000       187,410       0.06 %
 
Compuware Corp. (a)
    18,000       155,880       0.05 %
 
Fusion-io, Inc. (a)
    1,000       23,600       0.01 %
 
Guidewire Software, Inc. (a)
    2,000       61,280       0.02 %
 
Jack Henry & Associates, Inc.
    18,000       684,000       0.23 %
 
MKS Instrument, Inc.
    9,000       212,670       0.07 %
 
Nanometrics, Inc. (a)
    4,000       55,040       0.02 %
 
Netgear, Inc. (a)
    115,000       4,083,650       1.35 %
 
OmniVision Technologies, Inc. (a)
    2,000       28,600       0.01 %
 
Open Text Corp. (a)
    5,175       278,881       0.09 %
 
Qlik Technologies, Inc. (a)
    4,600       84,686       0.03 %
 
Radware Ltd. (a)
    6,000       196,800       0.06 %
 
Sourcefire, Inc. (a)
    7,000       299,530       0.10 %
 
Splunk, Inc. (a)
    2,000       56,100       0.02 %
 
The Ultimate Software Group, Inc. (a)
    1,800       182,448       0.06 %
 
TriQuint Semiconductor, Inc. (a)
    18,000       84,600       0.03 %
 
Wex, Inc. (a)
    6,000       442,680       0.15 %
                7,613,550       2.52 %
                           
 
Materials – 11.36%
                       
 
American Vanguard Corp.
    305,300       10,908,369       3.60 %
 
Cytec Inds, Inc.
    3,000       206,460       0.07 %
 
H.B. Fuller Co.
    161,600       4,912,640       1.62 %
 
Huntsman Corp.
    7,000       105,280       0.04 %
 
Innospec, Inc. (a)
    10,000       323,800       0.11 %
 
Kaiser Aluminum Corp.
    3,000       181,740       0.06 %
 
Kraton Performance Polymers, Inc. (a)
    7,000       152,740       0.05 %
 
Neenah Paper, Inc.
    192,205       4,978,109       1.64 %
 
NewMarket Corp.
    24,900       6,755,619       2.23 %
 
PolyOne Corp.
    14,000       265,020       0.09 %
 
W.R. Grace & Co. (a)
    87,150       5,591,544       1.85 %
                34,381,321       11.36 %
                           
 
Utilities – 0.28%
                       
 
ALLETE, Inc.
    10,400       432,848       0.14 %
 
Portland General Electric Co.
    15,400       421,960       0.14 %
                854,808       0.28 %
 
Total Common Stocks
                       
 
  (Cost $255,299,237)
            284,014,613       93.83 %


The accompanying notes are an integral part of these financial statements.


HENNESSY FUNDS                                                                                                                1-800-966-4354
 
23
 
 
 
RIGHTS – 0.00%
 
Number of
         
% of
 
     
Shares
   
Value
   
Net Assets
 
                     
 
Forest Laboratories, Inc. (a) (b)
    5,500     $ 5,225       0.00 %
                           
 
Total Rights
                       
 
  (Cost $0)
            5,225       0.00 %
                           
 
PARTNERSHIPS – 1.69%
                       
 
Energy – 1.69%
                       
 
Oneok Partners L.P.
    83,900       5,113,705       1.69 %
                           
 
Total Partnerships
                       
 
  (Cost $4,781,651)
            5,113,705       1.69 %
                           
 
REITS – 0.14%
                       
 
Potlatch Corp.
    4,000       153,920       0.05 %
 
Sunstone Hotel Investors, Inc. (a)
    28,000       276,640       0.09 %
                430,560       0.14 %
                           
 
Total Reits (Cost $421,475)
            430,560       0.14 %
                           
 
EXCHANGE TRADED FUNDS – 0.21%
                       
 
ishares Russell 2000 Index
    8,000       649,920       0.21 %
                           
 
Total Exchange Traded Funds
                       
 
  (Cost $677,334)
            649,920       0.21 %
                           
 
SHORT-TERM INVESTMENTS – 3.67%
                       
 
Money Market Fund – 3.67%
                       
 
Fidelity Government Portfolio –
                       
 
  Institutional Class, 0.01% (c)
    11,098,776       11,098,776       3.67 %
                           
 
Total Money Market Fund
                       
 
  (Cost $11,098,776)
            11,098,776       3.67 %
                           
 
Total Short-Term Investments
                       
 
  (Cost $11,098,776)
            11,098,776       3.67 %
                           
 
Total Investments
                       
 
  (Cost $272,278,473) – 99.54%
            301,312,799       99.54 %
                           
 
Other Assets in Excess
                       
 
  of Liabilities – 0.46%
            1,398,120       0.46 %
 
TOTAL NET ASSETS – 100.00%
          $ 302,710,919       100.00 %

Percentages are stated as a percent of net assets.

(a) Non-income producing security.
(b) Security is fair valued.
(c) The rate listed is the fund’s 7-day yield as of October 31, 2012.


Summary of Fair Value Exposure at October 31, 2012
 
The following is a summary of the inputs used to value the Fund’s net assets as of October 31, 2012 (See Note 3 in the accompanying notes to the financial statements):
 
 
Common Stock
 
Level 1
   
Level 2
   
Level 3
   
Total
 
 
Consumer Discretionary
  $ 124,852,420     $ —     $ —     $ 124,852,420  
 
Consumer Staples
    24,007,055       —       —       24,007,055  
 
Energy
    2,033,824       —       —       2,033,824  
 
Financials
    6,534,443       100,230       —       6,634,673  
 
Health Care
    30,302,477       —       —       30,302,477  
 
Industrials
    53,334,485       —       —       53,334,485  
 
Information Technology
    7,613,550       —       —       7,613,550  
 
Materials
    34,381,321       —       —       34,381,321  
 
Utilities
    854,808       —       —       854,808  
 
Total Common Stock
  $ 283,914,383     $ 100,230     $ —     $ 284,014,613  
 
Rights
  $ —     $ —     $ 5,225     $ 5,225  
 
Partnerships
                               
 
Energy
  $ 5,113,705     $ —     $ —     $ 5,113,705  
 
Total Partnerships
  $ 5,113,705     $ —     $ —     $ 5,113,705  
 
REITS
                               
 
Financials
  $ 430,560     $ —     $ —     $ 430,560  
 
Total REITS
  $ 430,560     $ —     $ —     $ 430,560  
 
Exchange Traded Funds
                               
 
ishares Russell 2000 Index
  $ 649,920     $ —     $ —     $ 649,920  
 
Total Exchange Traded Funds
  $ 649,920     $ —     $ —     $ 649,920  
 
Short-Term Investments
                               
 
Money Market Funds
  $ 11,098,776     $ —     $ —     $ 11,098,776  
 
Total Short-Term Investments
  $ 11,098,776     $ —     $ —     $ 11,098,776  
 
Total Investments in Securities
  $ 301,207,344     $ 100,230     $ 5,225     $ 301,312,799  

Transfers between levels are recognized at the end of the reporting period. During the period ended October 31, 2012, the Fund recognized no transfers between levels.


The accompanying notes are an integral part of these financial statements.
 

WWW.HENNESSYFUNDS.COM
 
24
 
 
Level 3 Reconciliation Disclosure
 
Following is a reconciliation of level 3 assets for which significant unobservable inputs were used to determine fair value.
 
     
Common Stock
 
 
Balance as of 10/31/11
  $ —  
 
Accrued discounts/premiums
    —  
 
Realized gain (loss)
    —  
 
Change in unrealized appreciation (depreciation)
    —  
 
Purchases*
    5,225  
 
(Sales)
    —  
 
Transfer in and/or out of Level 3
    —  
 
Balance as of 10/31/12
  $ 5,225  
           
 
Net in unrealized appreciation/depreciation during
       
 
  the year for level 3 investments held at October 31, 2012
  $ 5,225  

*  Acquired in merger.


The accompanying notes are an integral part of these financial statements.


HENNESSY FUNDS                                                                                                                1-800-966-4354
 
25
 
 
HENNESSY CORNERSTONE MID CAP 30 FUND
(formerly Hennessy Focus 30 Fund)
 
As of October 31, 2012
 
(% of Net Assets)
 
 


 
 
 
 
TOP TEN EQUITY HOLDINGS
% net assets
 
Sunoco Logistics Partners L.P.
3.93%
 
LKQ Corp.
3.85%
 
Tesoro Corp.
3.85%
 
HSN, Inc.
3.84%
 
Ross Stores, Inc.
3.68%
 
Petsmart, Inc.
3.66%
 
Sally Beauty Holdings, Inc.
3.48%
 
Dominos Pizza, Inc.
3.38%
 
Oneok Partners L.P.
3.31%
 
Triumph Group, Inc.
3.30%

 
 
 
The holdings reflected include stocks that were previously held in the former FBR Mid Cap Fund, which was reorganized into the Hennessy Focus 30 Fund (now known as the Hennessy Cornerstone Mid Cap 30 Fund) as of close of business on 10/26/12.  These positions were held until the customary rebalance of the Hennessy Cornerstone Mid Cap 30 portfolio, which took place subsequent to the fiscal year end in the fall of 2012.
 

Note:  For presentation purposes, the Fund has grouped some of the industry categories.  For purposes of categorizing securities for compliance with Section 8(b)(1) of the Investment Company Act of 1940, the Fund uses more specific industry classifications.
 

WWW.HENNESSYFUNDS.COM
 
26
 
 
 
COMMON STOCKS – 92.96%
 
Number of
         
% of
 
     
Shares
   
Value
   
Net Assets
 
 
Consumer Discretionary – 31.81%
                 
 
Abercrombie & Fitch Co., Class A
    2,815     $ 86,083       0.05 %
 
Bed Bath & Beyond, Inc. (a)
    3,900       224,952       0.12 %
 
Big Lots, Inc. (a)
    2,980       86,807       0.05 %
 
Dominos Pizza, Inc.
    155,800       6,328,596       3.38 %
 
Family Dollar Stores, Inc.
    83,900       5,534,044       2.95 %
 
Genesco, Inc. (a)
    85,400       4,893,420       2.61 %
 
Genuine Parts Co.
    90,100       5,638,458       3.01 %
 
HSN, Inc.
    138,300       7,194,366       3.84 %
 
LKQ Corp. (a)
    345,700       7,221,673       3.85 %
 
Magna International, Inc.
    10,930       485,401       0.26 %
 
Mattel, Inc.
    12,824       471,667       0.25 %
 
Petsmart, Inc.
    103,500       6,871,365       3.66 %
 
Ross Stores, Inc.
    113,300       6,905,635       3.68 %
 
Sally Beauty Holdings, Inc. (a)
    270,900       6,523,272       3.48 %
 
Tiffany & Co.
    8,735       552,227       0.29 %
 
Tupperware Brands Corp.
    1,650       97,515       0.05 %
 
V.F. Corp.
    2,229       348,794       0.19 %
 
Williams-Sonoma, Inc.
    3,700       171,051       0.09 %
                59,635,326       31.81 %
                           
 
Consumer Staples – 9.13%
                       
 
Bunge Ltd.
    3,022       214,652       0.11 %
 
Casey’s General Stores, Inc.
    103,900       5,356,045       2.86 %
 
Dr. Pepper Snapple Group, Inc.
    123,200       5,279,120       2.82 %
 
Monster Beverage Corp. (a)
    8,000       357,360       0.19 %
 
PriceSmart, Inc.
    68,400       5,676,516       3.03 %
 
Tyson Foods, Inc., Class A
    13,275       223,153       0.12 %
                17,106,846       9.13 %
                           
 
Energy – 6.86%
                       
 
Energen Corp.
    3,277       152,872       0.08 %
 
Ensco PLC – ADR
    2,335       135,010       0.07 %
 
Helmerich & Payne, Inc.
    2,640       126,192       0.07 %
 
Nabors Industries Ltd. (a)
    7,800       105,222       0.06 %
 
Newfield Exploration Co. (a)
    2,925       79,326       0.04 %
 
Pioneer Natural Resources Co.
    2,425       256,201       0.14 %
 
Plains Exploration & Production Co. (a)
    2,900       103,414       0.05 %
 
Rowan Companies, Inc. (a)
    3,750       118,913       0.06 %
 
Tesoro Corp.
    191,400       7,217,694       3.85 %
 
Tidewater, Inc.
    2,750       130,652       0.07 %
 
World Fuel Services Corp.
    127,900       4,438,130       2.37 %
                12,863,626       6.86 %
                           
 
Financials – 1.79%
                       
 
Comerica, Inc.
    6,375       190,039       0.10 %
 
Fifth Third Bancorp
    17,900       260,087       0.14 %
 
First Niagara Financial Group, Inc.
    10,800       89,424       0.05 %
 
KeyCorp
    26,950       226,919       0.12 %
 
M&T Bank Corp.
    2,546       265,039       0.14 %
 
New York Community Bancorp, Inc.
    11,785       163,340       0.09 %
 
People’s United Financial, Inc.
    10,250       123,307       0.07 %
 
Raymond James Financial, Inc.
    8,700       331,818       0.18 %
 
Regions Financial Corp.
    32,200       209,944       0.11 %
 
Reinsurance Group of America, Inc.
    4,500       238,140       0.13 %
 
SEI Investments Co.
    15,450       338,046       0.18 %
 
T. Rowe Price Group, Inc.
    6,821       442,956       0.23 %
 
W.R. Berkley Corp.
    6,800       264,452       0.14 %
 
Zions Bancorporation
    9,600       206,112       0.11 %
                3,349,623       1.79 %
                           
 
Health Care – 0.78%
                       
 
C.R. Bard, Inc.
    2,446       235,281       0.12 %
 
Covance, Inc. (a)
    2,600       126,646       0.07 %
 
Endo Pharmaceuticals Holdings, Inc. (a)
    9,050       259,373       0.14 %
 
Forest Laboratories, Inc. (a)
    6,438       217,025       0.12 %
 
Humana, Inc.
    1,400       103,978       0.05 %
 
Techne Corp.
    3,385       228,014       0.12 %
 
Varian Medical Systems, Inc. (a)
    4,444       296,681       0.16 %
                1,466,998       0.78 %
                           
 
Industrials – 12.51%
                       
 
Copart, Inc. (a)
    14,970       430,986       0.23 %
 
Kansas City Southern
    5,950       478,737       0.26 %
 
Kirby Corp. (a)
    3,700       212,676       0.11 %
 
MSC Industrial Direct
                       
 
  Company, Inc., Class A
    2,800       208,880       0.11 %
 
Mueller Industries, Inc.
    111,000       4,861,800       2.59 %
 
Pall Corp.
    7,195       452,997       0.24 %
 
Roper Industries, Inc.
    4,592       501,309       0.27 %
 
Spirit AeroSystems
                       
 
  Holdings, Inc., Class A (a)
    10,300       160,989       0.09 %
 
Teledyne Technologies, Inc. (a)
    90,600       5,801,118       3.09 %
 
Towers Watson & Co.
    77,332       4,153,502       2.22 %
 
Triumph Group, Inc.
    94,600       6,188,732       3.30 %
                23,451,726       12.51 %
                           
 
Information Technology – 3.60%
                       
 
Activision Blizzard, Inc.
    23,968       261,012       0.14 %
 
Check Point Software
                       
 
  Technologies Ltd. (a)
    8,403       374,186       0.20 %
 
Dolby Laboratories, Inc., Class A (a)
    2,825       89,242       0.05 %
 
FactSet Research Systems, Inc.
    3,797       343,818       0.18 %
 
FLIR Systems, Inc.
    4,575       88,892       0.05 %
 
Jabil Circuit, Inc.
    247,400       4,289,916       2.29 %
 
Microchip Technology, Inc.
    4,900       153,615       0.08 %
 
Paychex, Inc.
    9,575       310,517       0.16 %
 
SanDisk Corp. (a)
    3,400       141,984       0.07 %
 
Seagate Technology PLC
    6,700       183,044       0.10 %
 

The accompanying notes are an integral part of these financial statements.


HENNESSY FUNDS                                                                                                                1-800-966-4354
 
27
 
 
 
COMMON STOCKS
 
Number of
         
% of
 
     
Shares
   
Value
   
Net Assets
 
 
Information Technology (Continued)
                 
 
Siliconware Precision
                 
 
  Industries Co. Ltd. ADR – ADR
    30,900     $ 148,320       0.08 %
 
Western Digital Corp.
    4,900       167,727       0.09 %
 
Xilinx, Inc.
    6,200       203,112       0.11 %
                6,755,385       3.60 %
                           
 
Materials – 0.15%
                       
 
Sigma-Aldrich Corp.
    3,984       279,438       0.15 %
                           
 
Telecommunication Services – 0.11%
                       
 
Telephone & Data Systems, Inc.
    7,880       195,975       0.11 %
 
Utilities – 26.22%
                       
 
Alliant Energy Corp.
    119,100       5,323,770       2.84 %
 
Ameren Corp.
    7,300       240,024       0.13 %
 
Centerpoint Energy, Inc.
    233,800       5,066,446       2.70 %
 
CMS Energy Corp.
    235,900       5,737,088       3.06 %
 
New Jersey Resources Corp.
    107,700       4,788,342       2.55 %
 
NiSource, Inc.
    217,300       5,534,631       2.95 %
 
NRG Energy, Inc.
    12,500       269,500       0.14 %
 
Pinnacle West Capital Corp.
    106,700       5,651,899       3.02 %
 
Scana Corp.
    116,200       5,703,096       3.04 %
 
UIL Holdings Corp.
    146,400       5,295,288       2.83 %
 
Westar Energy, Inc.
    186,650       5,543,505       2.96 %
                49,153,589       26.22 %
 
Total Common Stocks
                       
 
  (Cost $150,891,239)
            174,258,532       92.96 %
                           
 
PARTNERSHIPS – 7.24%
                       
 
Energy – 7.24%
                       
 
Oneok Partners L.P.
    101,800       6,204,710       3.31 %
 
Sunoco Logistics Partners L.P.
    150,400       7,371,104       3.93 %
                13,575,814       7.24 %
                           
 
Total Partnerships (Cost $9,490,863)
            13,575,814       7.24 %
                           
 
SHORT-TERM INVESTMENTS – 1.20%
                       
 
Money Market Fund – 1.20%
                       
 
Fidelity Government Portfolio –
                       
 
  Institutional Class, 0.01% (b)
    2,256,267       2,256,267       1.20 %
                           
 
Total Money Market Fund
                       
 
  (Cost $2,256,267)
            2,256,267       1.20 %
                           
 
Total Short-Term Investments
                       
 
  (Cost $2,256,267)
            2,256,267       1.20 %
                           
 
Total Investments
                       
 
  (Cost $162,638,369) – 101.40%
            190,090,613       101.40 %
                           
 
Liabilities in Excess of
                       
 
  Other Assets – (1.40)%
            (2,618,963 )     (1.40 )%
 
TOTAL NET ASSETS – 100.00%
          $ 187,471,650       100.00 %

Percentages are stated as a percent of net assets.

(a) Non-income producing security.
(b) The rate listed is the fund’s 7-day yield as of October 31, 2012.
ADR – American Depositary Receipt

Summary of Fair Value Exposure at October 31, 2012
 
The following is a summary of the inputs used to value the Fund’s net assets as of October 31, 2012 (See Note 3 in the accompanying notes to the financial statements):
 
 
Common Stock
 
Level 1
   
Level 2
   
Level 3
   
Total
 
 
Consumer Discretionary
  $ 59,635,326     $ —     $ —     $ 59,635,326  
 
Consumer Staples
    17,106,846       —       —       17,106,846  
 
Energy
    12,863,626       —       —       12,863,626  
 
Financials
    3,349,623       —       —       3,349,623  
 
Health Care
    1,466,998       —       —       1,466,998  
 
Industrials
    23,451,726       —       —       23,451,726  
 
Information Technology
    6,755,385       —       —       6,755,385  
 
Materials
    279,438       —       —       279,438  
 
Telecommunication Services
    195,975       —       —       195,975  
 
Utilities
    49,153,589       —       —       49,153,589  
 
Total Common Stock
  $ 174,258,532     $ —     $ —     $ 174,258,532  
 
Partnerships
                               
 
Energy
  $ 13,575,814       —       —     $ 13,575,814  
 
Short-Term Investments
                               
 
Money Market Funds
  $ 2,256,267     $ —     $ —     $ 2,256,267  
 
Total Short-Term Investments
  $ 2,256,267     $ —     $ —     $ 2,256,267  
 
Total Investments in Securities
  $ 190,090,613     $ —     $ —     $ 190,090,613  

Transfers between levels are recognized at the end of the reporting period. During the period ended October 31, 2012, the Fund recognized no transfers between levels.


The accompanying notes are an integral part of these financial statements.


WWW.HENNESSYFUNDS.COM
 
28
 
 
HENNESSY CORNERSTONE LARGE GROWTH FUND
 
As of October 31, 2012
 
(% of Net Assets)
 


 
 
 
 
TOP TEN EQUITY HOLDINGS
% net assets
 
Gilead Sciences, Inc.
2.66%
 
Eli Lilly & Co.
2.33%
 
The Gap, Inc.
2.13%
 
TJX Companies, Inc.
2.12%
 
International Business Machines Corp.
2.09%
 
Microsoft Corp.
2.01%
 
Mattel, Inc.
1.90%
 
Wal-Mart Stores, Inc.
1.85%
 
Intel Corp.
1.79%
 
Kimberly Clark Corp.
1.69%

 

 
The holdings reflected include stocks that were previously held in he former FBR Large Cap Fund, which was reorganized into the Hennessy Cornerstone Large Growth Fund as of close of business on 10/26/12.  These positions will be held until the customary rebalance of the Hennessy Cornerstone Large Growth portfolio, generally in the winter.
 

Note:  For presentation purposes, the Fund has grouped some of the industry categories.  For purposes of categorizing securities for compliance with Section 8(b)(1) of the Investment Company Act of 1940, the Fund uses more specific industry classifications.
 

HENNESSY FUNDS                                                                                                                1-800-966-4354
 
29
 
 
 
COMMON STOCKS – 97.24%
 
Number of
         
% of
 
     
Shares
   
Value
   
Net Assets
 
 
Consumer Discretionary – 20.87%
                 
 
Advance Auto Parts, Inc.
    21,800     $ 1,546,492       1.41 %
 
Amazon.com, Inc. (a)
    1,000       232,820       0.21 %
 
AMC Networks, Inc. (a)
    10,625       496,400       0.45 %
 
Apollo Group, Inc. (a)
    35,800       718,864       0.65 %
 
Autoliv, Inc.
    19,400       1,117,440       1.02 %
 
Bed Bath & Beyond, Inc. (a)
    5,800       334,544       0.30 %
 
Best Buy Co., Inc.
    49,200       748,332       0.68 %
 
Cablevision Systems Corp.
    31,900       555,698       0.51 %
 
Coach, Inc.
    8,000       448,400       0.41 %
 
DIRECTV (a)
    30,200       1,543,522       1.41 %
 
Dish Network Corp.
    51,100       1,820,693       1.66 %
 
Genuine Parts Co.
    9,700       607,026       0.55 %
 
Guess?, Inc.
    9,400       232,932       0.21 %
 
Kohl’s Corp.
    11,700       623,376       0.57 %
 
Limited Brands, Inc.
    35,700       1,709,673       1.56 %
 
Mattel, Inc.
    56,600       2,081,748       1.90 %
 
Nordstrom, Inc.
    30,700       1,742,839       1.59 %
 
The Gap, Inc.
    65,500       2,339,660       2.13 %
 
Tiffany & Co.
    7,500       474,150       0.43 %
 
TJX Companies, Inc.
    56,000       2,331,280       2.12 %
 
TRW Automotive Holdings Corp. (a)
    25,900       1,204,609       1.10 %
                22,910,498       20.87 %
                           
 
Consumer Staples – 11.50%
                       
 
Campbell Soup Co.
    44,500       1,569,515       1.43 %
 
General Mills, Inc.
    38,600       1,547,088       1.41 %
 
Hormel Foods Corp.
    14,900       439,997       0.40 %
 
Kimberly Clark Corp.
    22,200       1,852,590       1.69 %
 
Pepsico, Inc.
    4,000       276,960       0.25 %
 
Procter & Gamble Co.
    7,800       540,072       0.49 %
 
Sysco Corp.
    48,100       1,494,467       1.36 %
 
The Coca-Cola Co.
    10,000       371,800       0.34 %
 
The Estee Lauder
                       
 
  Companies, Inc., Class A
    9,600       591,552       0.54 %
 
Unilever PLC ADR – ADR
    15,000       559,350       0.51 %
 
Walgreen Co.
    38,200       1,345,786       1.23 %
 
Wal-Mart Stores, Inc.
    27,100       2,033,042       1.85 %
                12,622,219       11.50 %
                           
 
Energy – 7.54%
                       
 
Apache Corp.
    4,202       347,716       0.32 %
 
Chevron Corp.
    14,600       1,609,066       1.47 %
 
Cimarex Energy Co.
    16,200       926,316       0.84 %
 
Devon Energy Corp.
    8,800       512,248       0.47 %
 
Diamond Offshore Drilling, Inc.
    21,400       1,481,736       1.35 %
 
Exxon Mobil Corp.
    18,500       1,686,645       1.53 %
 
Halliburton Co.
    11,000       355,190       0.32 %
 
Hess Corp.
    9,000       470,340       0.43 %
 
Murphy Oil Corp.
    8,200       492,000       0.45 %
 
Range Resources Corp.
    6,000       392,160       0.36 %
                8,273,417       7.54 %
                           
 
Financials – 6.41%
                       
 
Bank of America Corp.
    60,000       559,200       0.51 %
 
Capital One Financial Corp.
    5,000       300,850       0.28 %
 
Discover Financial Services
    12,000       492,000       0.45 %
 
Franklin Resources, Inc.
    3,575       456,885       0.42 %
 
J.P. Morgan Chase & Co.
    13,725       572,058       0.52 %
 
Prudential Financial, Inc.
    6,200       353,710       0.32 %
 
T. Rowe Price Group, Inc.
    9,000       584,460       0.53 %
 
The Chubb Corp.
    5,800       446,484       0.41 %
 
The PNC Financial Services Group, Inc.
    6,000       349,140       0.32 %
 
The Progressive Corp.
    70,000       1,561,000       1.42 %
 
Torchmark Corp.
    4,400       222,596       0.20 %
 
U.S. Bancorp (b)
    17,000       564,570       0.51 %
 
Wells Fargo & Co.
    17,000       572,730       0.52 %
                7,035,683       6.41 %
                           
 
Health Care – 16.47%
                       
 
Abbott Laboratories
    8,640       566,093       0.52 %
 
Aetna, Inc.
    35,000       1,529,500       1.39 %
 
Baxter International, Inc.
    8,475       530,789       0.48 %
 
C.R. Bard, Inc.
    2,970       285,685       0.26 %
 
Cerner Corp. (a)
    8,200       624,758       0.57 %
 
CIGNA Corp.
    31,400       1,601,400       1.46 %
 
Eli Lilly & Co.
    52,600       2,557,938       2.33 %
 
Forest Laboratories, Inc. (a)
    44,500       1,500,095       1.37 %
 
Gilead Sciences, Inc. (a)
    43,400       2,914,744       2.66 %
 
HCA Holdings, Inc.
    43,300       1,230,153       1.12 %
 
Humana, Inc.
    19,100       1,418,557       1.29 %
 
Merck & Co., Inc.
    11,400       520,182       0.47 %
 
Novartis AG – ADR
    8,700       526,002       0.48 %
 
Stryker Corp.
    10,700       562,820       0.51 %
 
UnitedHealth Group, Inc.
    29,900       1,674,400       1.53 %
 
Wellpoint, Inc.
    600       36,768       0.03 %
                18,079,884       16.47 %
                           
 
Industrials – 9.99%
                       
 
3M Co.
    9,600       840,960       0.77 %
 
Cummins, Inc.
    6,000       561,480       0.51 %
 
FedEx Corp.
    6,100       561,139       0.51 %
 
General Dynamics Corp.
    20,000       1,361,600       1.24 %
 
General Electric Co.
    37,600       791,856       0.72 %
 
Lockheed Martin Corp.
    18,900       1,770,363       1.61 %
 
Norfolk Southern Corp.
    8,600       527,610       0.48 %
 
Raytheon Co.
    30,300       1,713,768       1.56 %
 
The Boeing Co.
    18,900       1,331,316       1.21 %
 

The accompanying notes are an integral part of these financial statements.


WWW.HENNESSYFUNDS.COM
 
30
 
 
 
COMMON STOCKS
 
Number of
         
% of
 
     
Shares
   
Value
   
Net Assets
 
 
Industrials (Continued)
                 
 
The Timken Co.
    28,200     $ 1,113,618       1.02 %
 
Union Pacific Corp.
    3,200       393,696       0.36 %
                10,967,406       9.99 %
                           
 
Information Technology – 17.03%
                       
 
Apple, Inc.
    2,050       1,219,955       1.11 %
 
Applied Materials, Inc.
    116,700       1,237,020       1.13 %
 
Automatic Data Processing, Inc.
    7,000       404,530       0.37 %
 
Check Point Software
                       
 
  Technologies Ltd. (a)
    7,000       311,710       0.28 %
 
Cisco Systems, Inc.
    30,000       514,200       0.47 %
 
Citrix Systems, Inc. (a)
    3,600       222,516       0.20 %
 
Dell, Inc.
    89,500       826,085       0.75 %
 
Google, Inc., Class A (a)
    1,100       747,747       0.68 %
 
Harris Corp.
    30,600       1,400,868       1.28 %
 
Hewlett-Packard Co.
    36,500       505,525       0.46 %
 
Intel Corp.
    91,000       1,967,875       1.79 %
 
International Business Machines Corp.
    11,800       2,295,454       2.09 %
 
LAM Research Corp. (a)
    31,700       1,122,180       1.02 %
 
LinkedIn Corp., Class A (a)
    900       96,237       0.09 %
 
MICROS Systems, Inc. (a)
    7,000       317,730       0.29 %
 
Microsoft Corp.
    77,350       2,207,182       2.01 %
 
NetApp, Inc. (a)
    9,900       266,310       0.24 %
 
Oracle Corp.
    19,000       589,950       0.54 %
 
Paychex, Inc.
    12,000       389,160       0.35 %
 
Rackspace Hosting, Inc. (a)
    6,000       382,140       0.35 %
 
Salesforce.com, Inc. (a)
    1,800       262,764       0.24 %
 
Texas Instruments, Inc.
    42,900       1,205,061       1.10 %
 
Yahoo, Inc. (a)
    12,300       206,763       0.19 %
                18,698,962       17.03 %
                           
 
Materials – 5.42%
                       
 
Cliffs Natural Resources Inc.
    17,500       634,725       0.58 %
 
Eastman Chemical Co.
    28,200       1,670,568       1.52 %
 
EI Du Pont de Nemours & Co.
    6,000       267,120       0.24 %
 
Freeport-McMoRan Copper & Gold, Inc.
    41,000       1,594,080       1.45 %
 
Monsanto Co.
    3,000       258,210       0.24 %
 
Newmont Mining Corp.
    28,000       1,527,400       1.39 %
                5,952,103       5.42 %
                           
 
Telecommunication Services – 0.84%
                       
 
AT&T, Inc.
    15,000       518,850       0.47 %
 
Verizon Communications, Inc.
    9,000       401,760       0.37 %
                920,610       0.84 %
                           
 
Utilities – 1.17%
                       
 
Edison International
    4,800       225,312       0.20 %
 
Exelon Corp.
    14,000       500,920       0.46 %
 
PG&E Corp.
    8,500       361,420       0.33 %
 
Public Service Enterprise Group, Inc.
    6,100       195,444       0.18 %
                1,283,096       1.17 %
 
Total Common Stocks
                       
 
  (Cost $98,172,303)
            106,743,878       97.24 %
                           
 
SHORT-TERM INVESTMENTS – 2.77%
                       
 
Money Market Fund – 2.77%
                       
 
Fidelity Government Portfolio –
                       
 
  Institutional Class, 0.01% (c)
    3,045,421       3,045,421       2.77 %
                           
 
Total Money Market Fund
                       
 
  (Cost $3,045,421)
            3,045,421       2.77 %
                           
 
Total Short-Term Investments
                       
 
  (Cost $3,045,421)
            3,045,421       2.77 %
                           
 
Total Investments
                       
 
  (Cost $101,217,724) – 100.01%
            109,789,299       100.01 %
                           
 
Liabilities in Excess of
                       
 
  Other Assets – (0.01)%
            (14,113 )     (0.01 )%
 
TOTAL NET ASSETS – 100.00%
          $ 109,775,186       100.00 %

Percentages are stated as a percent of net assets.

(a)
Non-income producing security.
(b)
Investment in affiliated security.  Quasar Distributors, LLC, which serves as the Fund’s distributor, is a subsidiary of U.S. Bancorp.  The position is a result of the merger with the former FBR Large Cap Fund which occurred on October 26, 2012.  Details of transactions with this affiliated company for the year ended October 31, 2012, are as follows:
 
Issuer
U.S. Bancorp
 
Beginning Cost*
$420,211
 
Purchase Cost
$—
 
Sales Cost
$—
 
Ending Cost
$420,211
 
Dividend Income
$—
 
Shares
17,000
 
Market Value
$564,570
* 
Represents cost at October 26, 2012 acquisition.
(c)
The rate listed is the fund’s 7-day yield as of October 31, 2012.
ADR – American Depositary Receipt

 
The accompanying notes are an integral part of these financial statements.


HENNESSY FUNDS                                                                                                                1-800-966-4354
 
31
 
 
Summary of Fair Value Exposure at October 31, 2012
 
The following is a summary of the inputs used to value the Fund’s net assets as of October 31, 2012 (See Note 3 in the accompanying notes to the financial statements):
 
 
Common Stock
 
Level 1
   
Level 2
   
Level 3
   
Total
 
 
Consumer Discretionary
  $ 22,910,498     $ —     $ —     $ 22,910,498  
 
Consumer Staples
    12,622,219       —       —       12,622,219  
 
Energy
    8,273,417       —       —       8,273,417  
 
Financials
    7,035,683       —       —       7,035,683  
 
Health Care
    18,079,884       —       —       18,079,884  
 
Industrials
    10,967,406       —       —       10,967,406  
 
Information Technology
    18,698,962       —       —       18,698,962  
 
Materials
    5,952,103       —       —       5,952,103  
 
Telecommunication Services
    920,610       —       —       920,610  
 
Utilities
    1,283,096       —       —       1,283,096  
 
Total Common Stock
  $ 106,743,878     $ —     $ —     $ 106,743,878  
 
Short-Term Investments
                               
 
Money Market Funds
  $ 3,045,421     $ —     $ —     $ 3,045,421  
 
Total Short-Term Investments
  $ 3,045,421     $ —     $ —     $ 3,045,421  
 
Total Investments in Securities
  $ 109,789,299     $ —     $ —     $ 109,789,299  

Transfers between levels are recognized at the end of the reporting period. During the period ended October 31, 2012, the Fund recognized no transfers between levels.


The accompanying notes are an integral part of these financial statements.


WWW.HENNESSYFUNDS.COM
 
32
 

 
HENNESSY CORNERSTONE VALUE FUND
 
As of October 31, 2012
 
(% of Net Assets)
 
 

 
 

 
 
TOP TEN EQUITY HOLDINGS
% net assets
 
Seagate Technology PLC
2.55%
 
Encana Corp.
2.37%
 
Mattel, Inc.
2.36%
 
Carnival Corp.
2.29%
 
Sun Life Financial, Inc.
2.29%
 
HSBC Holdings PLC – ADR
2.27%
 
Eli Lilly & Co.
2.24%
 
Philip Morris International, Inc.
2.23%
 
Abbott Labs
2.18%
 
Merck & Co., Inc.
2.17%


 
 
Note:  For presentation purposes, the Fund has grouped some of the industry categories.  For purposes of categorizing securities for compliance with Section 8(b)(1) of the Investment Company Act of 1940, the Fund uses more specific industry classifications.
 

HENNESSY FUNDS                                                                                                                1-800-966-4354
 
33
 

 
COMMON STOCKS – 99.10%
 
Number of
         
% of
 
     
Shares
   
Value
   
Net Assets
 
 
Consumer Discretionary – 6.48%
                 
 
Carnival Corp.
    77,100     $ 2,920,548       2.29 %
 
Mattel, Inc.
    81,700       3,004,926       2.36 %
 
Thomson Reuters Corp.
    82,700       2,337,102       1.83 %
                8,262,576       6.48 %
                           
 
Consumer Staples – 23.44%
                       
 
Altria Group, Inc.
    81,300       2,585,340       2.03 %
 
Avon Products, Inc.
    132,000       2,044,680       1.60 %
 
Campbell Soup Co.
    73,500       2,592,345       2.03 %
 
ConAgra Foods, Inc.
    86,800       2,416,512       1.90 %
 
H.J. Heinz Co.
    44,000       2,530,440       1.98 %
 
Kellogg Co.
    46,000       2,406,720       1.89 %
 
Kimberly Clark Corp.
    31,800       2,653,710       2.08 %
 
Pepsico, Inc.
    36,300       2,513,412       1.97 %
 
Philip Morris International, Inc.
    32,100       2,842,776       2.23 %
 
Procter & Gamble Co.
    35,700       2,471,868       1.94 %
 
Reynolds American, Inc.
    57,100       2,377,644       1.87 %
 
Sysco Corp.
    78,900       2,451,423       1.92 %
                29,886,870       23.44 %
                           
 
Energy – 13.64%
                       
 
BP PLC – ADR
    52,800       2,264,592       1.78 %
 
Chevron Corp.
    22,000       2,424,620       1.90 %
 
ConocoPhillips
    32,100       1,856,985       1.46 %
 
Encana Corp.
    134,300       3,028,465       2.37 %
 
Phillips 66
    16,050       756,918       0.59 %
 
Royal Dutch Shell PLC – ADR
    33,500       2,294,080       1.80 %
 
Total SA – ADR
    45,600       2,298,240       1.80 %
 
Transocean Ltd.
    54,100       2,471,829       1.94 %
                17,395,729       13.64 %
                           
 
Financials – 6.45%
                       
 
Banco Santander SA – ADR
    323,400       2,412,564       1.89 %
 
HSBC Holdings PLC – ADR
    58,700       2,897,432       2.27 %
 
Sun Life Financial, Inc.
    117,600       2,916,480       2.29 %
                8,226,476       6.45 %
                           
 
Health Care – 14.32%
                       
 
Abbott Laboratories
    42,500       2,784,600       2.18 %
 
Bristol-Myers Squibb Co.
    69,800       2,320,850       1.82 %
 
Eli Lilly & Co.
    58,600       2,849,718       2.24 %
 
GlaxoSmithKline PLC – ADR
    51,700       2,321,330       1.82 %
 
Johnson & Johnson
    36,100       2,556,602       2.00 %
 
Merck & Co., Inc.
    60,600       2,765,178       2.17 %
 
Pfizer, Inc.
    107,200       2,666,064       2.09 %
                18,264,342       14.32 %
                           
 
Industrials – 13.84%
                       
 
Emerson Electric Co.
    47,300       2,290,739       1.80 %
 
General Electric Co.
    123,800       2,607,228       2.04 %
 
Lockheed Martin Corp.
    28,600       2,678,962       2.10 %
 
Northrop Grumman Corp.
    39,100       2,685,779       2.11 %
 
Raytheon Co.
    47,400       2,680,944       2.10 %
 
Republic Services, Inc.
    85,100       2,412,585       1.89 %
 
Waste Management, Inc.
    69,900       2,288,526       1.80 %
                17,644,763       13.84 %
                           
 
Information Technology – 4.12%
                       
 
Intel Corp.
    92,700       2,004,638       1.57 %
 
Seagate Technology PLC
    119,200       3,256,544       2.55 %
                5,261,182       4.12 %
                           
 
Materials – 8.78%
                       
 
Arcelormittal SA Luxembourg – ADR
    115,300       1,702,981       1.34 %
 
EI Du Pont de Nemours & Co.
    47,600       2,119,152       1.66 %
 
International Paper Co.
    73,400       2,629,922       2.06 %
 
Nucor Corp.
    55,200       2,215,176       1.74 %
 
Southern Copper Corp.
    66,300       2,526,030       1.98 %
                11,193,261       8.78 %
                           
 
Telecommunication Services – 8.03%
                       
 
AT&T, Inc.
    77,600       2,684,184       2.10 %
 
BCE, Inc.
    56,300       2,458,058       1.93 %
 
CenturyLink, Inc.
    62,800       2,410,264       1.89 %
 
Verizon Communications, Inc.
    60,300       2,691,792       2.11 %
                10,244,298       8.03 %
 
Total Common Stocks
                       
 
  (Cost $107,028,943)
            126,379,497       99.10 %
                           
 
SHORT-TERM INVESTMENTS – 1.00%
                       
 
Money Market Fund – 1.00%
                       
 
Fidelity Government Portfolio –
                       
 
  Institutional Class, 0.01% (a)
    1,273,206       1,273,206       1.00 %
                           
 
Total Money Market Fund
                       
 
  (Cost $1,273,206)
            1,273,206       1.00 %
                           
 
Total Short-Term Investments
                       
 
  (Cost $1,273,206)
            1,273,206       1.00 %
                           
 
Total Investments
                       
 
  (Cost $108,302,149) – 100.10%
            127,652,703       100.10 %
                           
 
Liabilities in Excess
                       
 
  of Other Assets – (0.10)%
            (131,398 )     (0.10 )%
 
TOTAL NET ASSETS – 100.00%
          $ 127,521,305       100.00 %

Percentages are stated as a percent of net assets.

(a) The rate listed is the fund’s 7-day yield as of October 31, 2012.
ADR – American Depositary Receipt

 
The accompanying notes are an integral part of these financial statements.
 

WWW.HENNESSYFUNDS.COM
 
34
 
 
Summary of Fair Value Exposure at October 31, 2012
 
The following is a summary of the inputs used to value the Fund’s net assets as of October 31, 2012 (See Note 3 in the accompanying notes to the financial statements):
 
 
Common Stock
 
Level 1
   
Level 2
   
Level 3
   
Total
 
 
Consumer Discretionary
  $ 8,262,576     $ —     $ —     $ 8,262,576  
 
Consumer Staples
    29,886,870       —       —       29,886,870  
 
Energy
    17,395,729       —       —       17,395,729  
 
Financials
    8,226,476       —       —       8,226,476  
 
Health Care
    18,264,342       —       —       18,264,342  
 
Industrials
    17,644,763       —       —       17,644,763  
 
Information Technology
    5,261,182       —       —       5,261,182  
 
Materials
    11,193,261       —       —       11,193,261  
 
Telecommunication Services
    10,244,298       —       —       10,244,298  
 
Total Common Stock
  $ 126,379,497     $ —     $ —     $ 126,379,497  
 
Short-Term Investments
                               
 
Money Market Funds
  $ 1,273,206     $ —     $ —     $ 1,273,206  
 
Total Short-Term Investments
  $ 1,273,206     $ —     $ —     $ 1,273,206  
 
Total Investments in Securities
  $ 127,652,703     $ —     $ —     $ 127,652,703  

Transfers between levels are recognized at the end of the reporting period. During the period ended October 31, 2012, the Fund recognized no transfers between levels.

 
Level 3 Reconciliation Disclosure
 
Following is a reconciliation of level 3 assets for which significant unobservable inputs were used to determine fair value.
 
     
Common Stock
 
 
Balance as of 10/31/11
  $ —  
 
Accrued discounts/premiums
    —  
 
Realized gain (loss)
    —  
 
Change in unrealized appreciation (depreciation)
    —  
 
Purchases
    —  
 
(Sales)
    — (1)
 
Transfer in and/or out of Level 3
    —  
 
Balance as of 10/31/12
  $ —  
           
 
Change in unrealized appreciation/depreciation during
       
 
  the year for level 3 investments held at October 31, 2012.
  $ —  
 
(1)   Telefonica de Argentina was fair valued at $0 and written off during the period and was no longer held as of October 31, 2012.
 

 
The accompanying notes are an integral part of these financial statements.
 

HENNESSY FUNDS                                                                                                                1-800-966-4354
 
35
 
 
HENNESSY LARGE VALUE FUND
(formerly Hennessy Select Large Value Fund)
 
As of October 31, 2012
 
(% of Net Assets)
 
 


 

 
 
 
TOP TEN EQUITY HOLDINGS
% net assets
 
Chevron Corp.
4.69%
 
Exxon Mobil Corp.
4.06%
 
Johnson & Johnson
3.64%
 
General Electric Co.
3.60%
 
Wells Fargo & Co.
2.77%
 
J.P. Morgan Chase & Co.
2.72%
 
Cisco Systems, Inc.
2.16%
 
Citigroup, Inc.
2.05%
 
Nextera Energy, Inc.
2.04%
 
Comcast Corp.
1.96%
 

 
 
Note:  For presentation purposes, the Fund has grouped some of the industry categories.  For purposes of categorizing securities for compliance with Section 8(b)(1) of the Investment Company Act of 1940, the Fund uses more specific industry classifications.
 

WWW.HENNESSYFUNDS.COM
 
36
 
 
 
COMMON STOCKS – 99.39%
 
Number of
         
% of
 
     
Shares
   
Value
   
Net Assets
 
 
Consumer Discretionary – 8.62%
                 
 
Abercrombie & Fitch Co., Class A
    19,645     $ 600,744       0.48 %
 
CBS Corp.
    40,330       1,306,692       1.05 %
 
Comcast Corp.
    65,290       2,449,028       1.96 %
 
Ford Motor Co.
    74,880       835,661       0.67 %
 
Macy’s, Inc.
    25,095       955,367       0.77 %
 
Pulte Homes, Inc. (a)
    38,575       668,890       0.52 %
 
Target Corp.
    30,470       1,942,462       1.55 %
 
The Home Depot, Inc.
    22,740       1,395,781       1.12 %
 
Time Warner, Inc.
    14,450       628,142       0.50 %
                10,782,767       8.62 %
                           
 
Consumer Staples – 4.93%
                       
 
Altria Group, Inc.
    19,550       621,690       0.50 %
 
Bunge Ltd.
    19,235       1,366,262       1.09 %
 
CVS Caremark Corp.
    33,535       1,556,024       1.24 %
 
Pepsico, Inc.
    9,160       634,238       0.51 %
 
Procter & Gamble Co.
    28,670       1,985,111       1.59 %
                6,163,325       4.93 %
                           
 
Energy – 16.31%
                       
 
Anadarko Petroleum Corp.
    14,085       969,189       0.77 %
 
Chevron Corp.
    53,215       5,864,825       4.69 %
 
ConocoPhillips
    20,115       1,163,653       0.93 %
 
Exxon Mobil Corp.
    55,690       5,077,257       4.06 %
 
Helmerich & Payne, Inc.
    31,660       1,513,348       1.21 %
 
Hess Corp.
    18,510       967,333       0.77 %
 
National Oilwell Varco, Inc.
    10,635       783,799       0.63 %
 
Occidental Petroleum Corp.
    24,685       1,949,128       1.56 %
 
Oil States International, Inc. (a)
    12,760       932,756       0.75 %
 
Valero Energy Corp.
    40,440       1,176,804       0.94 %
                20,398,092       16.31 %
                           
 
Financials – 24.64%
                       
 
Ace Ltd.
    23,980       1,886,027       1.51 %
 
Affiliated Managers Group, Inc. (a)
    6,215       786,198       0.63 %
 
Allstate Corp.
    40,740       1,628,785       1.30 %
 
American International Group, Inc. (a)
    31,800       1,110,774       0.89 %
 
Apartment Investment &
                       
 
  Management Co.
    44,250       1,181,032       0.94 %
 
Capital One Financial Corp.
    16,560       996,415       0.80 %
 
Citigroup, Inc.
    68,525       2,562,150       2.05 %
 
Invesco Ltd.
    64,665       1,572,653       1.26 %
 
J.P. Morgan Chase & Co.
    81,710       3,405,673       2.72 %
 
Lincoln National Corp.
    28,175       698,458       0.56 %
 
Morgan Stanley
    36,975       642,625       0.51 %
 
Peabody Energy Corp.
    11,385       317,641       0.25 %
 
Prudential Financial, Inc.
    16,670       951,023       0.76 %
 
Simon Property Group, Inc.
    14,018       2,133,680       1.71 %
 
State Street Corp.
    25,950       1,156,592       0.92 %
 
The Chubb Corp.
    16,315       1,255,929       1.00 %
 
The Goldman Sachs Group, Inc.
    8,330       1,019,509       0.82 %
 
The PNC Financial Services Group, Inc.
    37,295       2,170,196       1.73 %
 
Torchmark Corp.
    27,855       1,409,184       1.13 %
 
Wells Fargo & Co.
    102,990       3,469,733       2.77 %
 
Weyerhaeuser Co.
    17,105       473,637       0.38 %
                30,827,914       24.64 %
                           
 
Health Care – 11.40%
                       
 
HCA Holdings, Inc.
    36,045       1,024,038       0.82 %
 
Johnson & Johnson
    64,320       4,555,142       3.64 %
 
McKesson Corp.
    19,195       1,791,086       1.43 %
 
Medtronic, Inc.
    16,360       680,249       0.54 %
 
Merck & Co., Inc.
    40,287       1,838,296       1.47 %
 
Pfizer, Inc.
    82,900       2,061,723       1.65 %
 
UnitedHealth Group, Inc.
    41,320       2,313,920       1.85 %
                14,264,454       11.40 %
                           
 
Industrials – 8.91%
                       
 
Eaton Corp.
    3,450       162,909       0.13 %
 
FedEx Corp.
    5,465       502,725       0.40 %
 
General Electric Co.
    213,620       4,498,837       3.60 %
 
Honeywell International, Inc.
    27,890       1,707,984       1.37 %
 
KBR, Inc.
    36,480       1,016,333       0.81 %
 
Raytheon Co.
    16,740       946,814       0.76 %
 
The Boeing Co.
    15,365       1,082,311       0.87 %
 
Union Pacific Corp.
    9,855       1,212,461       0.97 %
                11,130,374       8.91 %
                           
 
Information Technology – 5.60%
                       
 
Cisco Systems, Inc.
    157,160       2,693,722       2.16 %
 
Ebay, Inc. (a)
    16,365       790,266       0.63 %
 
Hewlett-Packard Co.
    36,335       503,240       0.40 %
 
Intel Corp.
    52,575       1,136,934       0.91 %
 
MasterCard, Inc., Class A
    1,230       566,944       0.45 %
 
Texas Instruments, Inc.
    46,900       1,317,421       1.05 %
                7,008,527       5.60 %
                           
 
Manufacturing – 4.50%
                       
 
Apple, Inc.
    905       538,565       0.43 %
 
EMC Corp. (a)
    37,700       920,634       0.74 %
 
Ingredion, Inc.
    29,085       1,787,564       1.43 %
 
Kraft Foods Group, Inc.
    19,316       878,492       0.70 %
 
Micron Technology, Inc. (a)
    90,425       490,556       0.39 %
 
Mondelez Intl, Inc.
    38,405       1,019,269       0.81 %
                5,635,080       4.50 %
                           
 
Materials – 4.10%
                       
 
Eastman Chemical Co.
    24,895       1,474,780       1.18 %
 
FMC Corp.
    19,510       1,044,175       0.83 %
 
Freeport-McMoRan Copper & Gold, Inc.
    32,925       1,280,124       1.02 %
 

The accompanying notes are an integral part of these financial statements.


HENNESSY FUNDS                                                                                                                1-800-966-4354
 
37
 
 
 
COMMON STOCKS
 
Number of
         
% of
 
     
Shares
   
Value
   
Net Assets
 
 
Materials (Continued)
                 
 
PPG Industries, Inc.
    11,390     $ 1,333,541       1.07 %
                5,132,620       4.10 %
                           
 
Telecommunication Services – 3.40%
                       
 
AT&T, Inc.
    51,030       1,765,128       1.41 %
 
CenturyLink, Inc.
    36,707       1,408,815       1.13 %
 
Verizon Communications, Inc.
    24,080       1,074,931       0.86 %
                4,248,874       3.40 %
                           
 
Utilities – 6.98%
                       
 
Edison International
    41,660       1,955,521       1.56 %
 
Nextera Energy, Inc.
    36,370       2,548,082       2.04 %
 
Northeast Utilities
    59,270       2,329,311       1.86 %
 
Oge Energy Corp.
    33,035       1,902,155       1.52 %
                8,735,069       6.98 %
 
Total Common Stocks
                       
 
  (Cost $105,483,754)
            124,327,096       99.39 %
                           
 
SHORT-TERM INVESTMENTS – 0.93%
                       
 
Money Market Fund – 0.93%
                       
 
Fidelity Government Portfolio –
                       
 
  Institutional Class, 0.01% (b)
    1,164,771       1,164,771       0.93 %
                           
 
Total Money Market Fund
                       
 
  (Cost $1,164,771)
            1,164,771       0.93 %
                           
 
Total Short-Term Investments
                       
 
  (Cost $1,164,771)
            1,164,771       0.93 %
                           
 
Total Investments
                       
 
  (Cost $106,648,525) – 100.32%
            125,491,867       100.32 %
                           
 
Liabilities in Excess
                       
 
  of Other Assets – (0.32)%
            (401,422 )     (0.32 )%
 
TOTAL NET ASSETS – 100.00%
          $ 125,090,445       100.00 %

Percentages are stated as a percent of net assets.

(a) Non-income producing security.
(b) The rate listed is the fund’s 7-day yield as of October 31, 2012.

Summary of Fair Value Exposure at October 31, 2012
 
The following is a summary of the inputs used to value the Fund’s net assets as of October 31, 2012 (See Note 3 in the accompanying notes to the financial statements):
 
 
Common Stock
 
Level 1
   
Level 2
   
Level 3
   
Total
 
 
Consumer Discretionary
  $ 10,782,767     $ —     $ —     $ 10,782,767  
 
Consumer Staples
    6,163,325       —       —       6,163,325  
 
Energy
    20,398,092       —       —       20,398,092  
 
Financials
    30,827,914       —       —       30,827,914  
 
Health Care
    14,264,454       —       —       14,264,454  
 
Industrials
    11,130,374       —       —       11,130,374  
 
Information Technology
    7,008,527       —       —       7,008,527  
 
Manufacturing
    5,635,080       —       —       5,635,080  
 
Materials
    5,132,620       —       —       5,132,620  
 
Telecommunication Services
    4,248,874       —       —       4,248,874  
 
Utilities
    8,735,069       —       —       8,735,069  
 
Total Common Stock
  $ 124,327,096     $ —     $ —     $ 124,327,096  
 
Short-Term Investments
                               
 
Money Market Funds
  $ 1,164,771     $ —     $ —     $ 1,164,771  
 
Total Short-Term Investments
  $ 1,164,771     $ —     $ —     $ 1,164,771  
 
Total Investments in Securities
  $ 125,491,867     $ —     $ —     $ 125,491,867  

Transfers between levels are recognized at the end of the reporting period. During the period ended October 31, 2012, the Fund recognized no transfers between levels.


The accompanying notes are an integral part of these financial statements.


WWW.HENNESSYFUNDS.COM
 
38
 
 
HENNESSY TOTAL RETURN FUND
 
As of October 31, 2012
 
(% of Net Assets)
 
 

 

 
 
 
TOP TEN EQUITY HOLDINGS
% net assets
 
Pfizer, Inc.
7.02%
 
Merck & Co., Inc.
6.92%
 
Verizon Communications, Inc.
6.87%
 
AT&T, Inc.
6.68%
 
Johnson & Johnson
6.55%
 
Proctor & Gamble Co.
6.51%
 
EI Du Pont de Nemours & Co.
5.51%
 
Intel Corp.
5.00%
 
Chevron Corp.
4.44%
 
General Electric Co.
3.38%
 

 
 
Note:  For presentation purposes, the Fund has grouped some of the industry categories.  For purposes of categorizing securities for compliance with Section 8(b)(1) of the Investment Company Act of 1940, the Fund uses more specific industry classifications.
 

HENNESSY FUNDS                                                                                                                1-800-966-4354
 
39
 
 
 
COMMON STOCKS – 67.35%
 
Number of
         
% of
 
     
Shares
   
Value
   
Net Assets
 
 
Consumer Discretionary – 2.37%
                 
 
McDonald’s Corp.
    21,200     $ 1,840,160       2.37 %
                           
 
Consumer Staples – 6.51%
                       
 
Procter & Gamble Co.
    73,000       5,054,520       6.51 %
                           
 
Energy – 4.44%
                       
 
Chevron Corp.
    31,300       3,449,573       4.44 %
                           
 
Financials – 2.74%
                       
 
J.P. Morgan Chase & Co.
    51,100       2,129,848       2.74 %
                           
 
Health Care – 20.49%
                       
 
Johnson & Johnson
    71,800       5,084,876       6.55 %
 
Merck & Co., Inc.
    117,800       5,375,214       6.92 %
 
Pfizer, Inc.
    219,300       5,453,991       7.02 %
                15,914,081       20.49 %
                           
 
Industrials – 3.38%
                       
 
General Electric Co.
    124,700       2,626,182       3.38 %
                           
 
Information Technology – 5.00%
                       
 
Intel Corp.
    179,500       3,881,687       5.00 %
                           
 
Manufacturing – 3.36%
                       
 
Kraft Foods Group, Inc.
    20,900       950,532       1.22 %
 
Mondelez International, Inc.
    62,700       1,664,058       2.14 %
                2,614,590       3.36 %
                           
 
Materials – 5.51%
                       
 
EI Du Pont de Nemours & Co.
    96,100       4,278,372       5.51 %
                           
 
Telecommunication Services – 13.55%
                       
 
AT&T, Inc.
    149,900       5,185,041       6.68 %
 
Verizon Communications, Inc.
    119,500       5,334,480       6.87 %
                10,519,521       13.55 %
 
Total Common Stocks
                       
 
  (Cost $43,913,975)
            52,308,534       67.35 %
                           
 
SHORT-TERM INVESTMENTS – 69.74%
                       
 
Money Market Fund – 5.37%
                       
 
Federated Government Obligations
                       
 
  Fund – Class I, 0.02% (b)
    471,379       471,379       0.61 %
 
Fidelity Government Portfolio –
                       
 
  Institutional Class, 0.01% (b)
    3,700,000       3,700,000       4.76 %
                           
 
Total Money Market Fund
                       
 
  (Cost $4,171,379)
            4,171,379       5.37 %
                           
 
U.S. Treasury Bill* – 64.37%
                       
 
0.053%, 11/08/2012 (c)
    18,000,000       17,999,755       23.17 %
 
0.089%, 12/13/2012 (c)
    20,000,000       19,997,900       25.75 %
 
0.084%, 01/17/2013 (c)
    12,000,000       11,997,888       15.45 %
                           
 
Total U.S. Treasury Bill
                       
 
  (Cost $49,995,345)
            49,995,543       64.37 %
                           
 
Total Short-Term Investments
                       
 
  (Cost $54,166,724)
            54,166,922       69.74 %
                           
 
Total Investments
                       
 
  (Cost $98,080,699) – 137.09%
            106,475,456       137.09 %
                           
 
Liabilities in Excess of
                       
 
  Other Assets – (37.09)%
            (28,804,669 )     (37.09 )%
 
TOTAL NET ASSETS – 100.00%
          $ 77,670,787       100.00 %
 
 
Percentages are stated as a percent of net assets.

(a)
Non-income producing security.
(b)
The rate listed is the fund’s 7-day yield as of October 31, 2012.
(c)
The rate listed is discount rate at issue.
*
Collateral or partial collateral for securities sold subject to repurchase.

 

 
The accompanying notes are an integral part of these financial statements.
 

WWW.HENNESSYFUNDS.COM
 
40
 
 
Summary of Fair Value Exposure at October 31, 2012
 
The following is a summary of the inputs used to value the Fund’s net assets as of October 31, 2012 (See Note 3 in the accompanying notes to the financial statements):
 
 
Common Stock
 
Level 1
   
Level 2
   
Level 3
   
Total
 
 
Consumer Discretionary
  $ 1,840,160     $ —     $ —     $ 1,840,160  
 
Consumer Staples
    5,054,520       —       —       5,054,520  
 
Energy
    3,449,573       —       —       3,449,573  
 
Financials
    2,129,848       —       —       2,129,848  
 
Health Care
    15,914,081       —       —       15,914,081  
 
Industrials
    2,626,182       —       —       2,626,182  
 
Information Technology
    3,881,687       —       —       3,881,687  
 
Manufacturing
    2,614,590       —       —       2,614,590  
 
Materials
    4,278,372       —       —       4,278,372  
 
Telecommunication Services
    10,519,521       —       —       10,519,521  
 
Total Common Stock
  $ 52,308,534     $ —     $ —     $ 52,308,534  
 
Short-Term Investments
                               
 
Money Market Funds
  $ 4,171,379     $ —     $ —     $ 4,171,379  
 
U.S. Treasury Bills
    —       49,995,543       —       49,995,543  
 
Total Short-Term Investments
  $ 4,171,379     $ 49,995,543     $ —     $ 54,166,922  
 
Total Investments in Securities
  $ 56,479,913     $ 49,995,543     $ —     $ 106,475,456  

Transfers between levels are recognized at the end of the reporting period. During the period ended October 31, 2012, the Fund recognized no transfers between levels.
 
Reverse repurchase agreements are carried at face value, hence, are not included in the fair valuation hierarchy.  The face value of the reverse repurchase agreements at October 31, 2012, was $28,790,000.  Due to the short term nature of the reverse repurchase agreements, face value approximates fair value.  The face value plus interest due at maturity is equal to $28,808,500.

 
 
The accompanying notes are an integral part of these financial statements.
 

HENNESSY FUNDS                                                                                                                1-800-966-4354
 
41
 

Schedule of Reverse Repurchase Agreements
Hennessy Total Return Fund as of October 31, 2012

Face
         
Principal
Maturity
 
Maturity
 
Value
 
Counterparty
 
Rate 
Trade Date
Date
 
Amount
 
$ 10,800,000  
UBS Financial Services, Inc.
    0.28 %
8/24/12
11/8/12
  $ 10,806,384  
  10,794,000  
UBS Financial Services, Inc.
    0.27 %
9/21/12
12/13/12
    10,800,719  
  7,196,000  
UBS Financial Services, Inc.
    0.30 %
10/19/12
1/17/13
    7,201,397  
$ 28,790,000                   $ 28,808,500  

As of October 31, 2012, the fair value of securities held as collateral for reverse repurchase agreements was $49,995,543 as noted on the Schedule of Investments.
 

 

The accompanying notes are an integral part of these financial statements.


WWW.HENNESSYFUNDS.COM
 
42
 
 
HENNESSY BALANCED FUND
 
As of October 31, 2012
 
(% of Net Assets)
 

 


 
 
 
TOP TEN EQUITY HOLDINGS
% net assets
 
Johnson & Johnson
5.51%
 
Verizon Communications, Inc.
5.37%
 
Merck & Co., Inc.
5.33%
 
Proctor & Gamble Co.
5.28%
 
Pfizer, Inc.
5.25%
 
AT&T, Inc.
5.13%
 
EI Du Pont de Nemours & Co.
4.26%
 
General Electric Co.
4.22%
 
Intel Corp.
3.65%
 
Chevron Corp.
3.00%

 
 
 
Note:  For presentation purposes, the Fund has grouped some of the industry categories.  For purposes of categorizing securities for compliance with Section 8(b)(1) of the Investment Company Act of 1940, the Fund uses more specific industry classifications.
 

HENNESSY FUNDS                                                                                                                1-800-966-4354
 
43
 
 
 
COMMON STOCKS – 51.03%
 
Number of
         
% of
 
     
Shares
   
Value
   
Net Assets
 
 
Consumer Discretionary – 0.17%
                 
 
McDonald’s Corp.
    500     $ 43,400       0.17 %
                           
 
Consumer Staples – 5.28%
                       
 
Procter & Gamble Co.
    19,200       1,329,408       5.28 %
                           
 
Energy – 3.00%
                       
 
Chevron Corp.
    6,850       754,939       3.00 %
                           
 
Financials – 0.77%
                       
 
J.P. Morgan Chase & Co.
    4,650       193,812       0.77 %
                           
 
Health Care – 16.09%
                       
 
Johnson & Johnson
    19,600       1,388,072       5.51 %
 
Merck & Co., Inc.
    29,400       1,341,522       5.33 %
 
Pfizer, Inc.
    53,150       1,321,840       5.25 %
                4,051,434       16.09 %
                           
 
Industrials – 4.22%
                       
 
General Electric Co.
    50,450       1,062,477       4.22 %
                           
 
Information Technology – 3.65%
                       
 
Intel Corp.
    42,450       917,981       3.65 %
                           
 
Manufacturing – 3.09%
                       
 
Kraft Foods Group, Inc.
    6,216       282,704       1.12 %
 
Mondelez International, Inc.
    18,650       494,971       1.97 %
                777,675       3.09 %
                           
 
Materials – 4.26%
                       
 
EI Du Pont de Nemours & Co.
    24,100       1,072,932       4.26 %
                           
 
Telecommunication Services – 10.50%
                       
 
AT&T, Inc.
    37,300       1,290,207       5.13 %
 
Verizon Communications, Inc.
    30,300       1,352,592       5.37 %
                2,642,799       10.50 %
 
Total Common Stocks
                       
 
  (Cost $11,199,593)
            12,846,857       51.03 %
                           
                           
 
SHORT-TERM INVESTMENTS – 49.03%
                       
 
Money Market Funds – 2.56%
                       
 
Fidelity Government Portfolio –
                       
 
  Institutional Class, 0.01 (b)
    644,312       644,312       2.56 %
                           
 
Total Money Market Funds
                       
 
  (Cost $644,312)
            644,312       2.56 %
                           
 
U.S. Treasury Bills – 46.47%
                       
 
0.069%, 11/15/2012 (c)
    1,600,000       1,599,943       6.36 %
 
0.089%, 12/13/2012 (c)
    2,100,000       2,099,753       8.34 %
 
0.084%, 01/10/2013 (c)
    2,600,000       2,599,594       10.33 %
 
0.114%, 02/07/2013 (c)
    800,000       799,761       3.18 %
 
0.129%, 03/07/2013 (c)
    700,000       699,687       2.78 %
 
0.155%, 05/02/2013 (c)
    200,000       199,846       0.79 %
 
0.155%, 05/30/2013 (c)
    700,000       699,368       2.78 %
 
0.160%, 06/27/2013 (c)
    800,000       799,181       3.18 %
 
0.165%, 08/22/2013 (c)
    1,000,000       998,675       3.97 %
 
0.170%, 09/19/2013 (c)
    1,200,000       1,198,231       4.76 %
                           
 
Total U.S. Treasury Bills
                       
 
  (Cost $11,698,583)
            11,694,039       46.47 %
                           
 
Total Short-Term Investments
                       
 
  (Cost $12,342,895)
            12,338,351       49.03 %
                           
 
Total Investments
                       
 
  (Cost $23,542,488) – 100.06%
            25,185,208       100.06 %
                           
 
Liabilities in Excess of
                       
 
  Other Assets – (0.06)%
            (15,432 )     (0.06 )%
 
TOTAL NET ASSETS – 100.00%
          $ 25,169,776       100.00 %

 
Percentages are stated as a percent of net assets.

(a)
Non-income producing security.
(b)
The rate listed is the fund’s 7-day yield as of October 31, 2012.
(c)
The rate listed is discount rate at issue.
 
 

  The accompanying notes are an integral part of these financial statements.
 

WWW.HENNESSYFUNDS.COM
 
44
 
 
Summary of Fair Value Exposure at October 31, 2012
 
The following is a summary of the inputs used to value the Fund’s net assets as of October 31, 2012 (See Note 3 in the accompanying notes to the financial statements):
 
 
Common Stock
 
Level 1
   
Level 2
   
Level 3
   
Total
 
 
Consumer Discretionary
  $ 43,400     $ —     $ —     $ 43,400  
 
Consumer Staples
    1,329,408       —       —       1,329,408  
 
Energy
    754,939       —       —       754,939  
 
Financials
    193,812       —       —       193,812  
 
Health Care
    4,051,434       —       —       4,051,434  
 
Industrials
    1,062,477       —       —       1,062,477  
 
Information Technology
    917,981       —       —       917,981  
 
Manufacturing
    777,675       —       —       777,675  
 
Materials
    1,072,932       —       —       1,072,932  
 
Telecommunication Services
    2,642,799       —       —       2,642,799  
 
Total Common Stock
  $ 12,846,857     $ —     $ —     $ 12,846,857  
 
Short-Term Investments
                               
 
Money Market Funds
  $ 644,312     $ —     $ —     $ 644,312  
 
U.S. Treasury Bills
    —       11,694,039       —       11,694,039  
 
Total Short-Term Investments
  $ 644,312     $ 11,694,039     $ —     $ 12,338,351  
 
Total Investments in Securities
  $ 13,491,169     $ 11,694,039     $ —     $ 25,185,208  

Transfers between levels are recognized at the end of the reporting period. During the period ended October 31, 2012, the Fund recognized no transfers between levels.


 
The accompanying notes are an integral part of these financial statements.
 

HENNESSY FUNDS                                                                                                                1-800-966-4354
 
45
 
 
HENNESSY JAPAN FUND
(formerly Hennessy Select SPARX Japan Fund)
 
As of October 31, 2012
 
(% of Net Assets)
 
 



 

 
 
TOP TEN EQUITY HOLDINGS
% net assets
 
Ryohin Keikaku Co., Ltd.
8.40%
 
Keyence Corp.
7.55%
 
Misumi Group, Inc.
7.29%
 
Shimano, Inc.
6.82%
 
Rohto Pharmaceutical Co., Ltd.
6.14%
 
Sumitomo Corp.
5.90%
 
Asics Corp.
5.51%
 
Kao Corp.
5.00%
 
Mitsubishi Corp.
4.54%
 
Unicharm Corp.
4.17%

 
 
 
Note:  For presentation purposes, the Fund has grouped some of the industry categories.  For purposes of categorizing securities for compliance with Section 8(b)(1) of the Investment Company Act of 1940, the Fund uses more specific industry classifications.
 

WWW.HENNESSYFUNDS.COM
 
46
 
 
 
COMMON STOCKS – 89.55%
 
Number of
         
% of
 
     
Shares
   
Value
   
Net Assets
 
 
Consumer Discretionary – 22.43%
                 
 
Asics Corp.
    73,300     $ 1,064,195       5.51 %
 
Isuzu Motors, Ltd.
    62,000       327,746       1.70 %
 
Ryohin Keikaku Co., Ltd.
    24,500       1,623,513       8.40 %
 
Shimano, Inc.
    20,900       1,316,886       6.82 %
                4,332,340       22.43 %
                           
 
Consumer Staples – 12.06%
                       
 
Kao Corp.
    34,400       966,113       5.00 %
 
Pigeon Corp.
    12,100       557,785       2.89 %
 
Unicharm Corp.
    14,900       806,313       4.17 %
                2,330,211       12.06 %
                           
 
Financials – 4.68%
                       
 
Mizuho Financial Group
    256,900       402,261       2.08 %
 
Sumitomo Mitsui Financial Group, Inc.
    16,400       502,087       2.60 %
                904,348       4.68 %
                           
 
Health Care – 12.54%
                       
 
Mani, Inc.
    13,700       507,979       2.63 %
 
Rohto Pharmaceutical Co., Ltd.
    86,000       1,187,173       6.14 %
 
Terumo Corp.
    16,900       728,248       3.77 %
                2,423,400       12.54 %
                           
 
Industrials – 28.00%
                       
 
Daikin Industries
    21,200       586,366       3.04 %
 
Itochu Corp.
    56,500       565,496       2.93 %
 
Komatsu, Ltd.
    12,200       255,523       1.32 %
 
Marubeni Corp.
    89,000       576,387       2.98 %
 
Misumi Group, Inc.
    57,400       1,408,576       7.29 %
 
Mitsubishi Corp.
    49,100       876,456       4.54 %
 
Sumitomo Corp.
    83,600       1,139,381       5.90 %
                5,408,185       28.00 %
                           
 
Information Technology – 7.55%
                       
 
Keyence Corp.
    5,500       1,459,226       7.55 %
                           
 
Materials – 2.29%
                       
 
Fuji Seal International, Inc.
    20,800       442,941       2.29 %
                           
 
Total Common Stocks
                       
 
  (Cost $13,838,320)
            17,300,651       89.55 %
                           
 
SHORT-TERM INVESTMENTS – 10.10%
                       
 
Money Market Fund – 10.10%
                       
 
Federated Treasury Obligations
                       
 
  Fund, 0.01% (a)
    80,730       80,730       0.42 %
 
Federated Government
                       
 
  Obligations Fund – Class I, 0.02% (a)
    935,000       935,000       4.84 %
 
Fidelity Government Portfolio –
                       
 
  Institutional Class, 0.01% (a)
    935,000       935,000       4.84 %
                           
 
Total Money Market Funds
                       
 
  (Cost $1,950,730)
            1,950,730       10.10 %
                           
 
Total Investments
                       
 
  (Cost $15,789,050) – 99.65%
            19,251,381       99.65 %
                           
 
Other Assets in Excess
                       
 
  of Liabilities – 0.35%
            66,840       0.35 %
 
TOTAL NET ASSETS – 100.00%
          $ 19,318,221       100.00 %

Percentages are stated as a percent of net assets.

(a) The rate listed is the fund’s 7-day yield as of October 31, 2012.

 
The accompanying notes are an integral part of these financial statements.
 

HENNESSY FUNDS                                                                                                                1-800-966-4354
 
47
 
 
Summary of Fair Value Exposure at October 31, 2012
 
The following is a summary of the inputs used to value the Fund’s net assets as of October 31, 2012 (See Note 3 in the accompanying notes to the financial statements):
 
 
Common Stock
 
Level 1
   
Level 2
   
Level 3
   
Total
 
 
Consumer Discretionary
  $ 4,332,340     $ —     $ —     $ 4,332,340  
 
Consumer Staples
    2,330,211       —       —       2,330,211  
 
Financials
    904,348       —       —       904,348  
 
Health Care
    2,423,400       —       —       2,423,400  
 
Industrials
    5,408,185       —       —       5,408,185  
 
Information Technology
    1,459,226       —       —       1,459,226  
 
Materials
    442,941       —       —       442,941  
 
Total Common Stock
  $ 17,300,651     $ —     $ —     $ 17,300,651  
 
Short-Term Investments
                               
 
Money Market Funds
  $ 1,950,730     $ —     $ —     $ 1,950,730  
 
Total Short-Term Investments
  $ 1,950,730     $ —     $ —     $ 1,950,730  
 
Total Investments in Securities
  $ 19,251,381     $ —     $ —     $ 19,251,381  

Transfers between levels are recognized at the end of the reporting period. During the period ended October 31, 2012, the Fund recognized all transfers between Levels 2 and 1.
 
Transfers between Level 2 and Level 1 relate to the use of a fair valuation pricing service.  On days when the fair valuation pricing service is used, non-U.S. dollar denominated securities move from a Level 1 to a Level 2 classification.  Due to the use of the fair value pricing service as described in Note 3, 100% of the common stocks held at October 31, 2011 were classified as Level 2.  Such securities still held at October 31, 2012 were transferred to Level 1.  Other than transfers due to the use of the fair value pricing service, no transfers were recognized.

 
 
The accompanying notes are an integral part of these financial statements.
 

WWW.HENNESSYFUNDS.COM
 
48
 
 
HENNESSY JAPAN SMALL CAP FUND
(formerly Hennessy Select SPARX Japan Smaller Companies Fund)
 
As of October 31, 2012
 
(% of Net Assets)
 


 

 
 
TOP TEN EQUITY HOLDINGS
% net assets
 
Gulliver International Co., Ltd.
2.93%
 
Mirait Holdings Corp.
2.92%
 
Morita Holdings Corp.
2.80%
 
Shin Nippon Air Technologies Co., Ltd.
2.61%
 
Yushiro Chemical
2.55%
 
UKC Holdings Corp.
2.52%
 
Towa Corp.
2.42%
 
Konishi Co., Ltd.
2.35%
 
Iriso Electronics
2.34%
 
Nisshinbo Holdings
2.31%
 
 

 
Note:  For presentation purposes, the Fund has grouped some of the industry categories.  For purposes of categorizing securities for compliance with Section 8(b)(1) of the Investment Company Act of 1940, the Fund uses more specific industry classifications.
 

HENNESSY FUNDS                                                                                                                1-800-966-4354
 
49
 


 
COMMON STOCKS – 100.72%
 
Number of
         
% of
 
     
Shares
   
Value
   
Net Assets
 
 
Consumer Discretionary – 15.73%
                 
 
Accordia Golf Co., Ltd.
    151     $ 107,438       2.10 %
 
Ahresty Corp.
    18,300       72,898       1.43 %
 
Gulliver International Co., Ltd.
    3,910       149,631       2.93 %
 
Nippon Seiki Co., Ltd.
    11,000       105,687       2.07 %
 
Seiko Holdings
    37,000       97,332       1.91 %
 
Tohokushinsha Film Corp.
    12,100       84,880       1.66 %
 
Tomy Company Ltd
    13,700       75,511       1.48 %
 
Village Vanguard Co., Ltd.
    111       109,985       2.15 %
                803,362       15.73 %
                           
 
Consumer Staples – 1.02%
                       
 
Nippon Suisan
    23,700       51,954       1.02 %
                           
 
Financials – 2.09%
                       
 
Kenedix, Inc. (a)
    823       106,702       2.09 %
                           
 
Industrials – 40.43%
                       
 
Aichi Corp.
    24,800       98,790       1.94 %
 
Anest Iwata Corp.
    13,000       49,180       0.96 %
 
Asunaro Aoki Construction, Ltd.
    15,000       81,173       1.59 %
 
Fuji Machine Mfg
    6,000       84,855       1.66 %
 
Hanwa Co Ltd
    30,000       104,848       2.05 %
 
Japan Pulp & Paper
    17,000       50,683       0.99 %
 
Kito Corp.
    63       52,717       1.03 %
 
Kyosan Electric Manufacturing Co., Ltd.
    30,000       97,708       1.91 %
 
Mirait Holdings Corp.
    18,400       149,127       2.92 %
 
Morita Holdings Corp.
    17,000       142,891       2.80 %
 
NEC Capital Solutions Ltd.
    3,900       54,716       1.07 %
 
Nihon Trim Co., Ltd.
    2,550       69,061       1.35 %
 
Nippon Yusoki Co., Ltd.
    35,000       93,824       1.84 %
 
Nisshinbo Holdings
    18,000       117,700       2.31 %
 
Nittoku Eng Co.
    10,300       114,961       2.25 %
 
Prestige International, Inc.
    6,900       79,000       1.55 %
 
Sankyu, Inc.
    33,000       114,919       2.25 %
 
SBS Holdings, Inc.
    9,200       115,475       2.26 %
 
Shin Nippon Air Technologies Co., Ltd.
    24,300       133,021       2.61 %
 
Skymark Airlines (a)
    15,700       83,387       1.63 %
 
Tocalo Co Ltd
    5,200       75,495       1.48 %
 
Toshin Group Co., Ltd.
    3,800       101,248       1.98 %
                2,064,779       40.43 %
                           
 
Information Technology – 26.34%
                       
 
Asahi Net, Inc.
    11,000       53,326       1.04 %
 
D.A. Consortium, Inc.
    372       111,698       2.19 %
 
Elecom Co., Ltd.
    1,100       17,403       0.34 %
 
Iriso Electronics
    8,600       119,256       2.34 %
 
Macnica, Inc.
    3,100       61,006       1.19 %
 
Nihon Dempa Kogyo
    9,000       97,632       1.91 %
 
Nippon Chemi-con Corp. (a)
    67,000       97,357       1.91 %
 
Roland DG Corp.
    9,500       102,462       2.01 %
 
SIIX Corp.
    7,100       104,592       2.05 %
 
SMS Co., Ltd.
    30       66,366       1.30 %
 
SRA Holdings, Inc.
    7,100       77,377       1.52 %
 
Tamura Corp.
    47,000       103,031       2.02 %
 
Towa Corp.
    22,000       123,462       2.42 %
 
UKC Holdings Corp.
    6,900       128,700       2.52 %
 
UT Holdings Co., Ltd.
    150       80,797       1.58 %
                1,344,465       26.34 %
                           
 
Materials – 13.16%
                       
 
Fujikura Kasei Co., Ltd.
    25,200       106,381       2.08 %
 
Harima Chems Group
    12,500       57,466       1.13 %
 
Konishi Co., Ltd.
    8,000       119,754       2.35 %
 
Nippon Carbide Industries Co., Inc.
    29,000       71,928       1.41 %
 
Nippon Paper Group
    4,600       52,609       1.03 %
 
Okabe Co., Ltd.
    16,000       100,814       1.97 %
 
Ube Material Inds
    12,000       32,770       0.64 %
 
Yushiro Chemical
    13,600       130,327       2.55 %
                672,049       13.16 %
                           
 
Utilities – 1.95%
                       
 
Shizuokagas Co.
    14,000       99,612       1.95 %
                           
 
Total Common Stocks
                       
 
  (Cost $5,003,931)
            5,142,923       100.72 %
                           
 
SHORT-TERM INVESTMENTS – 1.66%
                       
 
Money Market Fund – 1.66%
                       
 
Fidelity Government Portfolio –
                       
 
  Institutional Class, 0.01% (b)
    84,955       84,955       1.66 %
                           
 
Total Money Market Fund
                       
 
  (Cost $84,955)
            84,955       1.66 %
                           
 
Total Short-Term Investments
                       
 
  (Cost $84,955)
            84,955       1.66 %
                           
 
Total Investments
                       
 
  (Cost $5,088,886) – 102.38%
            5,227,878       102.38 %
                           
 
Liabilities in Excess
                       
 
  of Other Assets – (2.38)%
            (121,356 )     (2.38 )%
 
TOTAL NET ASSETS – 100.00%
          $ 5,106,522       100.00 %

Percentages are stated as a percent of net assets.

(a)
Non-income producing security.
(b)
The rate listed is the fund’s 7-day yield as of October 31, 2012.

 
 
The accompanying notes are an integral part of these financial statements.
 

WWW.HENNESSYFUNDS.COM
 
50
 
 
Summary of Fair Value Exposure at October 31, 2012
 
The following is a summary of the inputs used to value the Fund’s net assets as of October 31, 2012 (See Note 3 in the accompanying notes to the financial statements):
 
 
Common Stock
 
Level 1
   
Level 2
   
Level 3
   
Total
 
 
Consumer Discretionary
  $ 803,362     $ —     $ —     $ 803,362  
 
Consumer Staples
    51,954       —       —       51,954  
 
Financials
    106,702       —       —       106,702  
 
Industrials
    2,064,779       —       —       2,064,779  
 
Information Technology
    1,344,465       —       —       1,344,465  
 
Materials
    672,049       —       —       672,049  
 
Utilities
    99,612       —       —       99,612  
 
Total Common Stock
  $ 5,142,923     $ —     $ —     $ 5,142,923  
 
Short-Term Investments
                               
 
Money Market Funds
  $ 84,955     $ —     $ —     $ 84,955  
 
Total Short-Term Investments
  $ 84,955     $ —     $ —     $ 84,955  
 
Total Investments in Securities
  $ 5,227,878     $ —     $ —     $ 5,227,878  

Transfers between levels are recognized at the end of the reporting period. During the period ended October 31, 2012, the Fund recognized all transfers between Levels 2 and 1.
 
Transfers between Level 2 and Level 1 relate to the use of a fair valuation pricing service.  On days when the fair valuation pricing service is used, non-U.S. dollar denominated securities move from a Level 1 to a Level 2 classification.  Due to the use of the fair value pricing service as described in Note 3, 100% of the common stocks held at October 31, 2011 were classified as Level 2.  Such securities still held at October 31, 2012 were transferred to Level 1.  Other than transfers due to the use of the fair value pricing service, no transfers were recognized.
 

 
The accompanying notes are an integral part of these financial statements.
 

HENNESSY FUNDS                                                                                                                1-800-966-4354
 
51
 

Financial Statements
Statements of Assets and Liabilities as of October 31, 2012

           
HENNESSY
   
HENNESSY
 
     
HENNESSY
   
CORNERSTONE
   
CORNERSTONE
 
     
CORNERSTONE
   
MID CAP 30
   
LARGE GROWTH
 
     
GROWTH FUND
   
FUND
   
FUND
 
ASSETS:
                   
Investments in unaffiliated securities, at value (cost $272,278,473, $162,638,369,
                   
  $ 100,797,513, $108,302,149, $106,648,525, $98,080,699, $23,542,488,                    
  $15,789,050 and $5,088,886, respectively)
    $ 301,312,799     $ 190,090,613     $ 109,224,729  
Investments in affiliated securities, at value (cost $0, $0,
                         
  $420,211, $0, $0, $0, $0, $0 and $0, respectively
      —       —       564,570  
Cash
      960       —       6,391  
Dividends and interest receivable
      31,990       265,093       224,443  
Receivable for fund shares sold
      2,163,544       139,040       4,323  
Receivable for securities sold
      —       7,618       —  
Prepaid expenses and other assets
      39,686       26,755       25,322  
Total Assets
      303,548,979       190,529,119       110,049,778  
                           
LIABILITIES:
                         
Payable for securities purchased
      —       —       —  
Payable for fund shares redeemed
      303,772       2,686,552       65,403  
Payable to Advisor
      180,177       122,844       64,209  
Payable to Administrator
      181,093       116,411       61,517  
Payable to Auditor
      37,828       40,189       38,909  
Accrued distribution fees
      5,355       1,250       1,623  
Accrued service fees
      21,786       13,866       6,537  
Reverse repurchase agreement
      —       —       —  
Accrued interest payable
      157       3,218       70  
Accrued directors fees
      3,094       3,144       3,105  
Accrued expenses and other payables
      104,798       69,995       33,219  
Total Liabilities
      838,060       3,057,469       274,592  
NET ASSETS
    $ 302,710,919     $ 187,471,650     $ 109,775,186  
                           
NET ASSETS CONSIST OF:
                         
Capital stock
    $ 520,774,583     $ 204,115,102     $ 104,023,299  
Accumulated net investment income (loss)
      (2,592,872 )     1,029,849       1,080,454  
Accumulated net realized gain (loss) on investments
      (244,505,118 )     (45,125,545 )     (3,900,142 )
Unrealized net appreciation on investments
      29,034,326       27,452,244       8,571,575  
Total Net Assets
    $ 302,710,919     $ 187,471,650     $ 109,775,186  
                           
NET ASSETS
                         
Investor Class:
                         
Shares authorized ($.0001 par value)
      25,000,000,000       25,000,000,000    
Unlimited
 
Net assets applicable to outstanding Investor Class shares
      265,600,452       145,846,928       75,832,638  
Shares issued and outstanding
      21,459,180       10,370,435       7,043,085  
Net asset value, offering price and redemption price per share
    $ 12.38     $ 14.06     $ 10.77  
                           
Institutional Class:
                         
Shares authorized ($.0001 par value)
      25,000,000,000       25,000,000,000    
Unlimited
 
Net assets applicable to outstanding Institutional Class shares
      37,110,467       41,624,722       33,942,548  
Shares issued and outstanding
      2,951,325       2,908,254       3,127,989  
Net asset value, offering price and redemption price per share
    $ 12.57     $ 14.31     $ 10.85  

 
The accompanying notes are an integral part of these financial statements.


WWW.HENNESSYFUNDS.COM
 
52
 

 
 
 
HENNESSY
   
HENNESSY
   
HENNESSY
   
HENNESSY
         
HENNESSY
 
CORNERSTONE
   
LARGE
   
TOTAL RETURN
   
BALANCED
   
HENNESSY
   
JAPAN SMALL
 
VALUE FUND
   
VALUE FUND
   
FUND
   
FUND
   
JAPAN FUND
   
CAP FUND
 
                                 
$ 127,652,703     $ 125,491,867     $ 106,475,456     $ 25,185,208     $ 19,251,381     $ 5,227,878  
                                             
  —       —       —       —       —       —  
  —       —       —       —       —       —  
  304,293       127,655       168,549       42,812       155,495       36,552  
  20,732       8,094       234,589       5,001       57,204       17,021  
  —       1,599,483       —       —       —       86,396  
  26,692       22,084       16,720       10,985       19,845       14,230  
  128,004,420       127,249,183       106,895,314       25,244,006       19,483,925       5,382,077  
                                             
                                             
  —       1,831,281       —       —       —       14,053  
  259,226       91,681       248,117       —       100,457       221,091  
  81,603       91,323       39,979       12,940       16,290       5,399  
  80,562       80,969       49,637       16,812       11,481       3,866  
  20,392       19,574       18,705       16,470       19,139       17,660  
  —       —       25,042       13,023       —       —  
  10,813       10,739       6,663       2,157       877       450  
  —       —       28,790,000       —       —       —  
  —       —       10,063       —       19       —  
  3,235       3,351       2,486       2,509       3,328       3,328  
  27,284       29,820       33,835       10,319       14,113       9,708  
  483,115       2,158,738       29,224,527       74,230       165,704       275,555  
$ 127,521,305     $ 125,090,445     $ 77,670,787     $ 25,169,776     $ 19,318,221     $ 5,106,522  
                                             
                                             
$ 149,994,707     $ 135,081,967     $ 76,377,331     $ 24,793,394     $ 49,296,211     $ 3,913,887  
  2,446,268       1,060,739       78,405       2,932       —       (57,735 )
  (44,270,224 )     (29,895,603 )     (7,179,706 )     (1,269,270 )     (33,436,445 )     1,112,310  
  19,350,554       18,843,342       8,394,757       1,642,720       3,458,455       138,060  
$ 127,521,305     $ 125,090,445     $ 77,670,787     $ 25,169,776     $ 19,318,221     $ 5,106,522  
                                             
                                             
                                             
  25,000,000,000    
Unlimited
      100,000,000       100,000,000    
Unlimited
   
Unlimited
 
  124,989,938       125,033,860       77,670,787       25,169,776       10,382,773       5,106,522  
  8,913,769       5,059,089       6,144,368       2,118,394       674,038       484,408  
$ 14.02     $ 24.71     $ 12.64     $ 11.88     $ 15.40     $ 10.54  
                                             
                                             
  25,000,000,000    
Unlimited
      N/A       N/A    
Unlimited
      N/A  
  2,531,367       56,585       N/A       N/A       8,935,448       N/A  
  180,337       2,279       N/A       N/A       572,688       N/A  
$ 14.04     $ 24.83       N/A       N/A     $ 15.60       N/A  

 

 
HENNESSY FUNDS                                                                                                                1-800-966-4354
 
53
 

Financial Statements
Statements of Operations For the Year Ended October 31, 2012

         
HENNESSY
   
HENNESSY
 
   
HENNESSY
   
CORNERSTONE
   
CORNERSTONE
 
   
CORNERSTONE
   
MID CAP 30
   
LARGE GROWTH
 
   
GROWTH FUND
   
FUND
   
FUND
 
INVESTMENT INCOME:
                 
Dividend income from unaffiliated securities (1)
  $ 1,465,565     $ 3,202,959     $ 2,062,487  
Dividend income from affiliated securities
    —       —       —  
Interest income
    3,469       908       226  
Total investment income
    1,469,034       3,203,867       2,062,713  
                         
EXPENSES:
                       
Investment advisory fees
    1,612,148       1,205,874       574,284  
Administration, fund accounting, custody and transfer agent fees
    555,538       415,538       197,895  
Distribution fees – Investor Class (See Note 6)
    —       —       —  
Service fees – Investor Class (See Note 6)
    214,761       139,469       76,989  
Federal and state registration fees
    31,975       38,642       35,094  
Audit fees
    27,011       25,353       23,206  
Legal fees
    5,521       5,521       5,020  
Compliance expense
    10,925       10,925       10,925  
Reports to shareholders
    61,166       42,617       16,319  
Directors’ fees and expenses
    15,553       15,453       15,029  
Sub-transfer agent expenses – Investor Class (See Note 6)
    342,871       240,406       19,637  
Sub-transfer agent expenses – Institutional Class (See Note 6)
    588       14,108       29  
Interest expense (See Notes 4 and 7)
    777       6,607       —  
Other
    22,830       16,396       10,473  
Total expenses before reimbursement from advisor
    2,901,664       2,176,909       984,900  
Administration expense waiver (See Note 6)
    (4,007 )     (42,487 )     (2,641 )
Net expenses
    2,897,657       2,134,422       982,259  
NET INVESTMENT INCOME (LOSS)
    (1,428,623 )     1,069,445       1,080,454  
                         
REALIZED AND UNREALIZED GAINS (LOSSES):
                       
Net realized gain (loss) on:
                       
    Investments from unaffiliated securities
    3,675,303       465,078       171,724  
    Investments from affiliated securities
    —       —       —  
Change in unrealized appreciation on investments
    43,342,497       21,872,356       5,528,323  
Net gain (loss) on investments
    47,017,800       22,337,434       5,700,047  
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
  $ 45,589,177     $ 23,406,879     $ 6,780,501  





 














(1)   Net of foreign taxes withheld of $0, $0, $0, $194,035, $2,092, $0, $0 $30,259 and $18,352 respectively.

The accompanying notes are an integral part of these financial statements.

WWW.HENNESSYFUNDS.COM
 
54
 
 
 
 
HENNESSY
   
HENNESSY
   
HENNESSY
   
HENNESSY
         
HENNESSY
 
CORNERSTONE
   
LARGE
   
TOTAL RETURN
   
BALANCED
   
HENNESSY
   
JAPAN SMALL
 
VALUE FUND
   
VALUE FUND
   
FUND
   
FUND
   
JAPAN FUND
   
CAP FUND
 
                                 
$ 4,848,327     $ 3,201,079     $ 1,968,445     $ 420,859     $ 401,971     $ 248,588  
  —       —       —       —       —       —  
  2,032       138       18,574       8,469       148       179  
  4,850,359       3,201,217       1,987,019       429,328       402,119       248,767  
                                             
                                             
  912,705       1,065,815       425,005       136,881       205,473       179,755  
  314,513       319,745       180,627       58,174       52,396       38,198  
  —       —       106,251       34,220       —       —  
  121,418       125,342       70,834       22,814       10,851       14,980  
  35,915       33,242       27,337       24,655       36,957       20,530  
  23,671       22,550       21,456       19,070       21,703       20,212  
  5,521       7,020       5,516       5,516       5,020       5,520  
  10,925       10,925       10,925       10,925       10,925       10,925  
  25,082       43,944       15,038       4,455       8,547       6,518  
  15,427       15,305       10,587       10,688       15,282       15,293  
  72,797       89,951       30,149       20,402       15,567       23,539  
  1,874       —       N/A       N/A       5,132       N/A  
  708       —       57,585       —       2,204       3,166  
  15,079       14,859       8,912       3,147       10,078       10,086  
  1,555,635       1,748,698       970,222       350,947       400,135       348,722  
  (4,229 )     (118 )     —       —       —       N/A  
  1,551,406       1,748,580       970,222       350,947       400,135       348,722  
  3,298,953       1,452,637       1,016,797       78,381       1,984       (99,955 )
                                             
                                             
                                             
  3,221,518       9,806,738       3,337,953       493,334       (816,325 )     2,043,302  
  —       —       —       —       —       —  
  8,250,584       7,541,982       3,331,681       918,830       2,653,253       (380,675 )
  11,472,102       17,348,720       6,669,634       1,412,164       1,836,928       1,662,627  
$ 14,771,055     $ 18,801,357     $ 7,686,431     $ 1,490,545     $ 1,838,912     $ 1,562,672  

 


HENNESSY FUNDS                                                                                                                1-800-966-4354
 
55
 

Financial Statements
Statements of Changes in Net Assets

   
Hennessy Cornerstone Growth Fund
 
             
   
Year Ended
   
Year Ended
 
   
October 31, 2012
   
October 31, 2011
 
OPERATIONS:
           
Net investment income (loss)
  $ (1,428,623 )   $ (1,513,994 )
Net realized gain on securities
    3,675,303       39,880,443  
Change in unrealized appreciation (depreciation) on securities
    43,342,497       (41,240,390 )
Net increase (decrease) in net assets resulting from operations
    45,589,177       (2,873,941 )
                 
DISTRIBUTIONS TO SHAREHOLDERS FROM:
               
Net investment income – Investor Class
    —       —  
Net investment income – Institutional Class
    —       —  
Net realized gains – Investor Class
    —       —  
Net realized gains – Institutional Class
    —       —  
Total distributions
    —       —  
                 
CAPITAL SHARE TRANSACTIONS:
               
Proceeds from shares issued in the Reorganization – Investor Class (See Note 9)
    —       25,825,466  
Proceeds from shares issued in the Reorganization – Institutional Class (See Note 9)
    34,071,809       339,345  
Proceeds from shares subscribed – Investor Class
    90,544,279       5,686,546  
Proceeds from shares subscribed – Institutional Class
    418,215       120,828  
Dividends reinvested – Investor Class
    —       —  
Dividends reinvested – Institutional Class
    —       —  
Cost of shares redeemed – Investor Class
    (54,063,454 )     (51,326,442 )
Cost of shares redeemed – Institutional Class
    (778,530 )     (1,075,812 )
Net increase (decrease) in net assets derived from capital share transactions
    70,192,319       (20,430,069 )
TOTAL INCREASE (DECREASE) IN NET ASSETS
    115,781,496       (23,304,010 )
                 
NET ASSETS:
               
Beginning of period
    186,929,423       210,233,433  
End of period
  $ 302,710,919     $ 186,929,423  
Accumulated net investment income (loss), end of period
  $ (2,592,872 )   $ 16,688  
                 
CHANGES IN SHARES OUTSTANDING:
               
Shares issued in connection with Acquisition – Investor Class (See Note 9)
    —       2,524,476  
Shares issued in connection with Acquisition – Institutional Class (See Note 9)
    2,732,499       32,783  
Shares sold – Investor Class
    7,702,040       536,989  
Shares sold – Institutional Class
    35,989       11,197  
Shares issued to holders as reinvestment of dividends – Investor Class
    —       —  
Shares issued to holders as reinvestment of dividends – Institutional Class
    —       —  
Shares redeemed – Investor Class
    (4,743,651 )     (4,705,581 )
Shares redeemed – Institutional Class
    (67,781 )     (94,611 )
Net increase (decrease) in shares outstanding
    5,659,096       (1,694,747 )


 
The accompanying notes are an integral part of these financial statements.

WWW.HENNESSYFUNDS.COM
 
56
 
 
 

Hennessy Cornerstone Mid Cap 30 Fund
   
Hennessy Cornerstone Large Growth Fund
   
Hennessy Cornerstone Value Fund
 
                                 
Year Ended
   
Year Ended
   
Year Ended
   
Year Ended
   
Year Ended
   
Year Ended
 
October 31, 2012
   
October 31, 2011
   
October 31, 2012
   
October 31, 2011
   
October 31, 2012
   
October 31, 2011
 
                                 
$ 1,069,445     $ (1,184,998 )   $ 1,080,454     $ 559,148     $ 3,298,953     $ 4,048,072  
  465,078       21,853,896       171,724       15,375,964       3,221,518       10,696,825  
  21,872,356       (10,298,635 )     5,528,323       (10,653,411 )   $ 8,250,584       (7,231,439 )
  23,406,879       10,370,263       6,780,501       5,281,701       14,771,055       7,513,458  
                                             
                                             
  —       —       (557,836 )     (626,839 )     (3,784,445 )     (4,238,610 )
  —       —       (1,312 )     (968 )     (49,840 )     (44,764 )
  —       —       (15,350,002 )     (109,149 )     —       —  
  —       —       (25,963 )     (99 )     —       —  
  —       —       (15,935,113 )     (737,055 )     (3,834,285 )     (4,283,374 )
                                             
                                             
  —       —       —       —       —       —  
  16,374,686       —       33,698,161       —       —       —  
  61,505,408       59,931,720       2,170,407       1,432,151       16,434,099       10,694,626  
  4,266,258       7,761,938       51,923       88,409       1,336,353       83,602  
  —       —       14,646,437       671,356       3,373,717       3,846,379  
  —       —       27,274       1,067       37,743       25,543  
  (81,736,037 )     (45,594,300 )     (9,670,991 )     (7,591,682 )     (21,987,512 )     (57,199,244 )
  (6,640,858 )     (6,751,235 )     (16,525 )     (21,081 )     (188,855 )     (323,943 )
  (6,230,543 )     15,348,123       40,906,686       (5,419,780 )     (994,455 )     (42,873,037 )
  17,176,336       25,718,386       31,752,074       (875,134 )     9,942,315       (39,642,953 )
                                             
                                             
  170,295,314       144,576,928       78,023,112       78,898,246       117,578,990       157,221,943  
$ 187,471,650     $ 170,295,314     $ 109,775,186     $ 78,023,112     $ 127,521,305     $ 117,578,990  
$ 1,029,849     $ —     $ 1,080,454     $ 559,148     $ 2,446,268     $ 3,329,807  
                                             
                                             
  —       —       —       —       —       —  
  1,154,875       —       3,110,613       —       —       —  
  4,595,496       4,688,679       204,448       113,003       1,221,855       847,873  
  312,388       598,584       4,836       7,307       100,889       6,843  
  —       —       1,455,027       55,671       264,813       312,206  
  —       —       2,689       88       2,967       2,077  
  (6,262,135 )     (3,673,362 )     (911,650 )     (610,123 )     (1,636,482 )     (4,539,225 )
  (512,726 )     (538,511 )     (1,399 )     (1,715 )     (14,382 )     (25,568 )
  (712,102 )     1,075,390       3,864,564       (435,769 )     (60,340 )     (3,395,794 )
 

 

HENNESSY FUNDS                                                                                                                1-800-966-4354
 
57
 

Financial Statements
Statements of Changes in Net Assets

   
Hennessy Large Value Fund
 
             
   
Year Ended
   
Year Ended
 
   
October 31, 2012
   
October 31, 2011
 
OPERATIONS:
           
Net investment income (loss)
  $ 1,452,637     $ 1,283,875  
Net realized gain (loss) on securities
    9,806,738       11,600,606  
Change in unrealized appreciation (depreciation) on securities
    7,541,982       (5,464,551 )
Net increase (decrease) in net assets resulting from operations
    18,801,357       7,419,930  
                 
DISTRIBUTIONS TO SHAREHOLDERS FROM:
               
Net investment income – Investor Class
    (1,007,288 )     (1,291,601 )
Net investment income – Institutional Class
    (471 )     (582 )
Net realized gains – Investor Class
    —       —  
Net realized gains – Institutional Class
    —       —  
Total distributions
    (1,007,759 )     (1,292,183 )
                 
CAPITAL SHARE TRANSACTIONS:
               
Proceeds from shares subscribed – Investor Class
    1,325,949       1,847,792  
Proceeds from shares subscribed – Institutional Class
    13,303       10,610  
Dividends reinvested – Investor Class
    961,881       1,235,299  
Dividends reinvested – Institutional Class
    471       528  
Cost of shares redeemed – Investor Class
    (19,010,445 )     (16,781,736 )
Cost of shares redeemed – Institutional Class
    (289 )     (12,669 )
Net increase (decrease) in net assets derived from capital share transactions
    (16,709,130 )     (13,700,176 )
TOTAL INCREASE (DECREASE) IN NET ASSETS
    1,084,468       (7,572,429 )
                 
NET ASSETS:
               
Beginning of period
    124,005,977       131,578,406  
End of period
  $ 125,090,445     $ 124,005,977  
Accumulated net investment income (loss), end of period
  $ 1,060,739     $ 634,102  
                 
CHANGES IN SHARES OUTSTANDING:
               
Shares sold – Investor Class
    56,881       84,224  
Shares sold – Institutional Class
    579       497  
Shares issued to holders as reinvestment of dividends – Investor Class
    43,942       56,743  
Shares issued to holders as reinvestment of dividends – Institutional Class
    21       24  
Shares redeemed – Investor Class
    (817,082 )     (759,938 )
Shares redeemed – Institutional Class
    (13 )     (615 )
Net increase (decrease) in shares outstanding
    (715,672 )     (619,065 )

















(1)   Certain prior year balances have been reclassified to match current year presentation.


The accompanying notes are an integral part of these financial statements.

WWW.HENNESSYFUNDS.COM
 
58
 
 
 

Hennessy Total Return Fund
   
Hennessy Balanced Fund
   
Hennessy Japan Fund
 
                                 
Year Ended
   
Year Ended
   
Year Ended
   
Year Ended
   
Year Ended
   
Year Ended
 
October 31, 2012
   
October 31, 2011
   
October 31, 2012
   
October 31, 2011
   
October 31, 2012
   
October 31, 2011
 
                                 
$ 1,016,797     $ 1,021,401     $ 78,381     $ 57,635     $ 1,984     $ (82,227 )
  3,337,953       3,288,471       493,334       498,835       (816,325 )     1,052,378  
  3,331,681       2,165,518       918,830       310,456       2,653,253       (4,618,650 )
  7,686,431       6,475,390       1,490,545       866,926       1,838,912       (3,648,499 )
                                             
                                             
  (1,013,041 )     (1,003,505 )     (81,724 )     (55,526 )     —       —  
  N/A       N/A       N/A       N/A       —       —  
  —       —       —       —       —       —  
  N/A       N/A       N/A       N/A       —       —  
  (1,013,041 )     (1,003,505 )     (81,724 )     (55,526 )     —       —  
                                             
                                             
  29,998,535       11,718,225       13,386,838       8,374,392       6,766,669       68,660,478  
  N/A       N/A       N/A       N/A       157,102       1,179,768  
  923,418       905,737       77,883       53,435       —       —  
  N/A       N/A       N/A       N/A       —       —  
  (24,056,017 )     (23,040,187 )     (7,726,009 )     (3,720,748 )     (12,101,974 )     (68,498,669 ) (1)
  N/A       N/A       N/A       N/A       (1,853,965 )     (16,765,426 )
  6,865,936       (10,416,225 )     5,738,712       4,707,079       (7,032,168 )     (15,423,849 )
  13,539,326       (4,944,340 )     7,147,533       5,518,479       (5,193,256 )     (19,072,348 )
                                             
                                             
  64,131,461       69,075,801       18,022,243       12,503,764       24,511,477       43,583,825  
$ 77,670,787     $ 64,131,461     $ 25,169,776     $ 18,022,243     $ 19,318,221     $ 24,511,477  
$ 78,405     $ 74,649     $ 2,932     $ 6,275     $ —     $ —  
                                             
                                             
  2,462,738       1,061,206       1,156,321       760,081       460,787       4,803,522  
  N/A       N/A       N/A       N/A       10,560       80,655  
  74,537       81,262       6,678       4,931       —       —  
  N/A       N/A       N/A       N/A       —       —  
  (1,983,914 )     (2,087,396 )     (663,666 )     (344,283 )     (845,443 )     (5,335,288 )
  N/A       N/A       N/A       N/A       (124,185 )     (1,256,328 )
  553,361       (944,928 )     499,333       420,729       (498,281 )     (1,707,439 )
 

 

HENNESSY FUNDS                                                                                                                1-800-966-4354
 
59
 

Financial Statements
Statements of Changes in Net Assets

   
Hennessy Japan Small Cap Fund
 
             
   
Year Ended
   
Year Ended
 
   
October 31, 2012
   
October 31, 2011
 
OPERATIONS:
           
Net investment income (loss)
  $ (99,955 )   $ 41,453  
Net realized gain (loss) on securities
    2,043,302       1,413,091  
Change in unrealized appreciation (depreciation) on securities
    (380,675 )     (331,017 )
Net increase (decrease) in net assets resulting from operations
    1,562,672       1,123,527  
                 
DISTRIBUTIONS TO SHAREHOLDERS FROM:
               
Net investment income – Investor Class
    (99,101 )     —  
Net investment income – Institutional Class
    N/A       N/A  
Net realized gains – Investor Class
    —       —  
Net realized gains – Institutional Class
    N/A       N/A  
Total distributions
    (99,101 )     —  
                 
CAPITAL SHARE TRANSACTIONS:
               
Proceeds from shares subscribed – Investor Class
    2,526,353       18,301,075  
Proceeds from shares subscribed – Institutional Class
    N/A       N/A  
Dividends reinvested – Investor Class
    95,320       —  
Dividends reinvested – Institutional Class
    N/A       N/A  
Cost of shares redeemed – Investor Class
    (23,061,781 )     (10,506,600 ) (1)
Cost of shares redeemed – Institutional Class
    N/A       N/A  
Net increase (decrease) in net assets derived from capital share transactions
    (20,440,108 )     7,794,475  
TOTAL INCREASE (DECREASE) IN NET ASSETS
    (18,976,537 )     8,918,002  
                 
NET ASSETS:
               
Beginning of period
    24,083,059       15,165,057  
End of period
  $ 5,106,522     $ 24,083,059  
Accumulated net investment income (loss), end of period
  $ (57,735 )   $ (190,480 )
                 
CHANGES IN SHARES OUTSTANDING:
               
Shares sold – Investor Class
    235,392       1,751,882  
Shares sold – Institutional Class
    N/A       N/A  
Shares issued to holders as reinvestment of dividends – Investor Class
    9,570       —  
Shares issued to holders as reinvestment of dividends – Institutional Class
    N/A       N/A  
Shares redeemed – Investor Class
    (2,148,260 )     (1,007,763 )
Shares redeemed – Institutional Class
    N/A       N/A  
Net increase (decrease) in shares outstanding
    (1,903,298 )     744,119  

















(1)   Certain prior year balances have been reclassified to match current year presentation.


The accompanying notes are an integral part of these financial statements.


WWW.HENNESSYFUNDS.COM
 
60
 

Statement of Cash Flows
Hennessy Total Return Fund For the Year Ended October 31, 2012

Cash Flows From Operating Activities:
     
       
Net increase in net assets from operations
  $ 7,686,431  
Adjustments to reconcile net increase in net assets from operations to net cash used in operating activities:
       
Purchase of investment securities
    (266,722,396 )
Proceeds on sale of securities
    248,951,662  
Decrease in other receivables, net
    750,048  
Increase in other assets
    (60 )
Increase in accrued expenses and other payables
    276,380  
Net accretion of discount on securities
    (18,326 )
Net realized gain on investments
    (3,337,953 )
Unrealized appreciation on securities
    (3,331,681 )
Net cash used in operating activities
    (15,745,895 )
         
Cash Flows From Financing Activities:
       
         
Increase in reverse repurchase agreements
    9,893,000  
Proceeds on shares sold
    29,998,535  
Payment on shares repurchased
    (24,056,017 )
Cash dividends paid, net of dividends reinvested
    (89,623 )
Net cash provided by financing activities
    15,745,895  
         
Cash at beginning of year
    —  
Cash at end of year
    —  
Net increase (decrease) in cash
  $ —  
         
Cash paid for interest
  $ 52,901  

 

 
The accompanying notes are an integral part of these financial statements.


HENNESSY FUNDS                                                                                                                1-800-966-4354
 
61
 

Financial Highlights
Hennessy Cornerstone Growth Fund

For an Investor Class share (formerly Original Class share) outstanding throughout each year

   
Year Ended October 31
 
   
2012
   
2011
   
2010
   
2009
   
2008
 
PER SHARE DATA:
                             
Net asset value, beginning of year
  $ 9.97     $ 10.28     $ 8.81     $ 8.80     $ 19.4  
                                         
Income from investment operations:
                                       
Net investment loss
    (0.07 )     (0.08 )     (0.10 )     (0.04 )     (0.05 )
Net realized and unrealized gains (losses) on securities
    2.48       (0.23 )     1.57       0.05       (8.32 )
Total from investment operations
    2.41       (0.31 )     1.47       0.01       (8.37 )
                                         
Less Distributions:
                                       
Dividends from net investment income
    —       —       —       —       —  
Dividends from net realized gains
    —       —       —       —       (2.24 )
Total distributions
    —       —       —       —       (2.24 )
Net asset value, end of period
  $ 12.38     $ 9.97     $ 10.28     $ 8.81     $ 8.80  
                                         
TOTAL RETURN
    24.17 %     (3.02 )%     16.69 %     0.11 %     (48.00 )%
                                         
SUPPLEMENTAL DATA AND RATIOS:
                                       
Net assets, end of period (millions)
  $ 265.60     $ 184.40     $ 207.11     $ 228.96     $ 312.50  
Ratio of expenses to average net assets
    1.34 %     1.33 %     1.34 %     1.36 %     1.25 %
Ratio of net investment loss to average net assets
    (0.66 )%     (0.78 )%     (0.89 )%     (0.42 )%     (0.29 )%
Portfolio turnover rate (1)
    90 %     106 %     103 %     108 %     103 %






























(1)   Portfolio turnover is calculated on the basis of the Fund as a whole.

 
The accompanying notes are an integral part of these financial statements.


WWW.HENNESSYFUNDS.COM
 
62
 

Financial Highlights
Hennessy Cornerstone Growth Fund

For an Institutional Class share outstanding throughout each period

                           
Period Ended
 
   
Year Ended October 31,
   
October 31,
 
   
2012
   
2011
   
2010
   
2009
   
2008 (1)
 
PER SHARE DATA:
                             
Net asset value, beginning of period
  $ 10.09     $ 10.37     $ 8.86     $ 8.82     $ 13.29  
                                         
Income from investment operations:
                                       
Net investment income (loss)
    (0.04 )     (0.05 )     (0.07 )     —       0.01  
Net realized and unrealized gains (losses) on securities
    2.52       (0.23 )     1.58       0.04       (4.48 )
Total from investment operations
    2.48       (0.28 )     1.51       0.04       (4.47 )
                                         
Less Distributions:
                                       
Dividends from net investment income
    —       —       —       —       —  
Dividends from net realized gains
    —       —       —       —       —  
Total distributions
    —       —       —       —       —  
Net asset value, end of period
  $ 12.57     $ 10.09     $ 10.37     $ 8.86     $ 8.82  
                                         
TOTAL RETURN
    24.58 %     (2.70 )%     17.04 %     0.45 %     (34.13 )% (2)
                                         
SUPPLEMENTAL DATA AND RATIOS:
                                       
Net assets, end of period (millions)
  $ 37.11     $ 2.53     $ 3.12     $ 4.68     $ 5.09  
Ratio of expenses to average net assets:
                                       
Before expense reimbursement
    1.11 %     1.09 %     1.09 %     1.11 %     1.12 % (3)
After expense reimbursement
    0.98 %     0.98 %     0.98 %     0.98 %     0.98 % (3)
Ratio of net investment income (loss) to average net assets:
                                       
Before expense reimbursement
    (0.38 )%     (0.55 )%     (0.64 )%     (0.17 )%     0.15 % (3)
After expense reimbursement
    (0.51 )%     (0.44 )%     (0.53 )%     (0.04 )%     0.29 % (3)
Portfolio turnover rate (4)
    90 %     106 %     103 %     108 %     103 % (2)






















(1)
Institutional Class shares commenced operations on March 3, 2008.
(2)
Not Annualized.
(3)
Annualized.
(4)
Portfolio turnover is calculated on the basis of the Fund as a whole.


The accompanying notes are an integral part of these financial statements.


HENNESSY FUNDS                                                                                                                1-800-966-4354
 
63
 

Financial Highlights
Hennessy Cornerstone Mid Cap 30 Fund (formerly the Hennessy Focus 30 Fund)

For an Investor Class share (formerly Original Class share) outstanding throughout each year

   
Year Ended October 31,
 
   
2012
   
2011
   
2010
   
2009
   
2008
 
PER SHARE DATA:
                             
Net asset value, beginning of year
  $ 12.15     $ 11.18     $ 8.73     $ 8.02     $ 13.67  
                                         
Income from investment operations:
                                       
Net investment income (loss)
    0.08       (0.09 )     (0.03 )     (0.02 )     (0.06 )
Net realized and unrealized gains (losses) on investments
    1.83       1.06       2.48       0.73       (3.57 )
Total from investment operations
    1.91       0.97       2.45       0.71       (3.63 )
                                         
Less Distributions:
                                       
Dividends from net investment income
    —       —       —       —       —  
Dividends from net realized gains
    —       —       —       —       (2.02 )
Total distributions
    —       —       —       —       (2.02 )
Net asset value, end of period
  $ 14.06     $ 12.15     $ 11.18     $ 8.73     $ 8.02  
                                         
TOTAL RETURN
    15.72 %     8.68 %     28.06 %     8.85 %     (30.81 )%
                                         
SUPPLEMENTAL DATA AND RATIOS:
                                       
Net assets, end of period (millions)
  $ 145.85     $ 146.23     $ 123.20     $ 128.36     $ 167.32  
Ratio of expenses to average net assets
    1.37 %     1.36 %     1.39 %     1.39 %     1.27 %
Ratio of net investment income (loss) to average net assets
    0.59 %     (0.79 )%     (0.26 )%     (0.20 )%     (0.62 )%
Portfolio turnover rate (1)
    25 %     107 %     87 %     90 %     123 %































(1)   Portfolio turnover is calculated on the basis of the Fund as a whole.


The accompanying notes are an integral part of these financial statements.


WWW.HENNESSYFUNDS.COM
 
64
 

Financial Highlights
Hennessy Cornerstone Mid Cap 30 Fund (formerly the Hennessy Focus 30 Fund)

For an Institutional Class share outstanding throughout each period

                           
Period Ended
 
   
Year Ended October 31,
   
October 31,
 
   
2012
   
2011
   
2010
   
2009
   
2008 (1)
 
PER SHARE DATA:
                             
Net asset value, beginning of period
  $ 12.32     $ 11.29     $ 8.78     $ 8.04     $ 11.15  
                                         
Income from investment operations:
                                       
Net investment income (loss)
    0.09       (0.05 )     0.02       0.02       (0.02 )
Net realized and unrealized gains (losses) on investments
    1.90       1.08       2.49       0.72       (3.09 )
Total from investment operations
    1.99       1.03       2.51       0.74       (3.11 )
                                         
Less Distributions:
                                       
Dividends from net investment income
    —       —       —       —       —  
Dividends from net realized gains
    —       —       —       —       —  
Total distributions
    —       —       —       —       —  
Net asset value, end of period
  $ 14.31     $ 12.32     $ 11.29     $ 8.78     $ 8.04  
                                         
TOTAL RETURN
    16.15 %     9.12 %     28.59 %     9.20 %     (27.89 )% (2)
                                         
SUPPLEMENTAL DATA AND RATIOS:
                                       
Net assets, end of period (millions)
  $ 41.62     $ 24.06     $ 21.38     $ 27.44     $ 26.78  
Ratio of expenses to average net assets:
                                       
Before expense reimbursement
    1.16 %     1.14 %     1.16 %     1.15 %     1.13 % (3)
After expense reimbursement
    0.98 %     0.98 %     0.98 %     0.98 %     0.98 % (3)
Ratio of net investment income (loss) to average net assets:
                                       
Before expense reimbursement
    0.90 %     (0.41 )%     (0.03 )%     0.04 %     (0.28 )% (3)
After expense reimbursement
    1.08 %     (0.57 )%     0.15 %     0.21 %     (0.13 )% (3)
Portfolio turnover rate (4)
    25 %     107 %     87 %     90 %     123 % (2)
























(1)    Institutional Class shares commenced operations on March 3, 2008.
(2)   Not Annualized.
(3)   Annualized.
(4)   Portfolio turnover is calculated on the basis of the Fund as a whole.


The accompanying notes are an integral part of these financial statements.


HENNESSY FUNDS                                                                                                                1-800-966-4354
 
65
 

Financial Highlights
Hennessy Cornerstone Large Growth Fund

For an Investor Class share (formerly Original Class share) outstanding throughout each period

                     
One Month
             
                     
Ended
   
Year Ended
 
   
Year Ended October 31,
   
October 31,
   
September 30,
 
   
2012
   
2011
   
2010
   
2009 (1)
   
2009 (2)
   
2008 (2)
 
PER SHARE DATA:
                                   
Net asset value, beginning of period
  $ 12.37     $ 11.70     $ 9.49     $ 9.60     $ 10.09     $ 12.61  
                                                 
Income from investment operations:
                                               
Net investment income (loss)
    0.13       0.09       0.09       — (3)     0.05       — (3)(4)
Net realized and unrealized gains (losses) on securities
    0.80       0.69       2.17       (0.11 )     (0.54 )     (2.52 )
Total from investment operations
    0.93       0.78       2.26       (0.11 )     (0.49 )     (2.52 )
                                                 
Less Distributions:
                                               
Dividends from net investment income
    (0.07 )     (0.09 )     (0.05 )     —       —       —  
Dividends from net realized gains
    (2.46 )     (0.02 )     —       —       —       —  
Total distributions
    (2.53 )     (0.11 )     (0.05 )     —       —       —  
Net asset value, end of period
  $ 10.77     $ 12.37     $ 11.70     $ 9.49     $ 9.60     $ 10.09  
                                                 
TOTAL RETURN
    9.14 %     6.70 %     23.88 %     (1.15 )% (5)     (4.86 )%     (19.98 )%
                                                 
SUPPLEMENTAL DATA AND RATIOS:
                                               
Net assets, end of period (millions)
  $ 75.83     $ 77.88     $ 78.83     $ 69.41     $ 70.61     $ 80.91  
Ratio of expenses to average net assets:
                                               
Before expense reimbursement/recoupment
    1.27 %     1.26 %     1.30 %     1.26 % (6)     1.40 %     1.16 %
After expense reimbursement/recoupment
    1.27 %     1.30 %     1.30 %     1.30 % (6)     1.17 %     0.98 %
Ratio of net investment income to average net assets:
                                               
Before expense reimbursement/recoupment
    1.35 %     0.72 %     0.84 %     (0.01 )% (6)     0.36 %     (0.19 )%
After expense reimbursement/recoupment
    1.35 %     0.68 %     0.84 %     (0.05 )% (6)     0.59 %     (0.01 )%
Portfolio turnover rate (7)
    0 %     70 %     83 %     0 % (5)     116 %     38 %














(1)
For the one month period ended October 31, 2009. Effective October 31, 2009, the Fund changed its fiscal year end to October 31st from September 30th.
(2)
The financial highlights set forth for periods prior to March 20, 2009 represent the historical financial highlights of the Tamarack Large Cap Growth Fund, Class S shares.  The assets of the Tamarack Large Cap Growth Fund were acquired by the Hennessy Cornerstone Large Growth Fund on March 20, 2009.  At the time RBC Global Asset Management (U.S.), Inc. (formerly known as Voyageur Asset Management Inc.) ceased to be investment advisor and Hennessy Advisors, Inc. became investment advisor.  The return of the Tamarack Large Cap Growth Fund, Class S shares during the period October 1, 2008 through March 20, 2009 was (33.30)%.  The return of the Hennessy Cornerstone Large Growth Fund, Original Class shares during the period March 20, 2009 through September 30, 2009 was 42.64%.
(3)
Amount is less than $0.01 or ($0.01) per share.
(4)
Per share net investment income (loss) has been calculated using the average daily shares method.
(5)
Not annualized.
(6)
Annualized.
(7)
Portfolio turnover is calculated on the basis of the Fund as a whole.


The accompanying notes are an integral part of these financial statements.


WWW.HENNESSYFUNDS.COM
 
66
 

Financial Highlights
Hennessy Cornerstone Large Growth Fund

For an Institutional Class share outstanding throughout each period

                     
One Month
   
Period
 
                     
Ended
   
Ended
 
   
Year Ended October 31,
   
October 31,
   
September 30,
 
   
2012
   
2011
   
2010
   
2009 (1)
   
2009 (2)
 
PER SHARE DATA:
                             
Net asset value, beginning of period
  $ 12.44     $ 11.76     $ 9.51     $ 9.61     $ 6.73  
                                         
Income from investment operations:
                                       
Net investment income
    0.07       0.08       0.10       — (3)     0.03  
Net realized and unrealized gains (losses) on securities
    0.89       0.74       2.20       (0.10 )     2.85  
Total from investment operations
    0.96       0.82       2.30       (0.10 )     2.88  
                                         
Less Distributions:
                                       
Dividends from net investment income
    (0.09 )     (0.12 )     (0.05 )     —       —  
Dividends from net realized gains
    (2.46 )     (0.02 )     —       —       —  
Total distributions
    (2.55 )     (0.14 )     (0.05 )     —       —  
Net asset value, end of period
  $ 10.85     $ 12.44     $ 11.76     $ 9.51     $ 9.61  
                                         
TOTAL RETURN
    9.43 %     6.99 %     24.26 %     (1.04 )% (4)     42.79 % (4)
                                         
SUPPLEMENTAL DATA AND RATIOS:
                                       
Net assets, end of period (millions)
  $ 33.94     $ 0.14     $ 0.07     $ 0.04     $ 0.04  
Ratio of expenses to average net assets:
                                       
Before expense reimbursement
    1.41 %     1.14 %     1.16 %     1.14 % (5)     16.51 % (5)
After expense reimbursement
    0.98 %     0.98 %     0.98 %     0.98 % (5)     0.98 % (5)
Ratio of net investment income to average net assets:
                                       
Before expense reimbursement
    6.44 %     0.81 %     0.90 %     0.12 % (5)     (14.54 )% (5)
After expense reimbursement
    6.87 %     0.97 %     1.08 %     0.28 % (5)     0.99 % (5)
Portfolio turnover rate (6)
    0 %     70 %     83 %     0 % (4)     116 % (4)





















(1)
For the one month period ended October 31, 2009. Effective October 31, 2009, the Fund changed its fiscal year end to October 31st from September 30th.
(2)
Institutional Class shares commenced operations on March 20, 2009.
(3)
Amount is less than $0.01 or ($0.01) per share.
(4)
Not annualized.
(5)
Annualized.
(6)
Portfolio turnover is calculated on the basis of the Fund as a whole.


The accompanying notes are an integral part of these financial statements.


HENNESSY FUNDS                                                                                                                1-800-966-4354
 
67
 

Financial Highlights
Hennessy Cornerstone Value Fund

For an Investor Class share (formerly Original Class share) outstanding throughout each year

   
Year Ended October 31,
 
   
2012
   
2011
   
2010
   
2009
   
2008
 
PER SHARE DATA:
                             
Net asset value, beginning of year
  $ 12.84     $ 12.53     $ 10.63     $ 9.05     $ 17.06  
                                         
Income from investment operations:
                                       
Net investment income
    0.37       0.45       0.29       0.24       0.55  
Net realized and unrealized gains (losses) on investments
    1.23       0.23       1.81       1.87       (8.15 )
Total from investment operations
    1.60       0.68       2.10       2.11       (7.60 )
                                         
Less Distributions:
                                       
Dividends from net investment income
    (0.42 )     (0.37 )     (0.20 )     (0.53 )     (0.41 )
Dividends from net realized gains
    —       —       —       —       —  
Total distributions
    (0.42 )     (0.37 )     (0.20 )     (0.53 )     (0.41 )
Net asset value, end of period
  $ 14.02     $ 12.84     $ 12.53     $ 10.63     $ 9.05  
                                         
TOTAL RETURN
    12.79 %     5.58 %     19.98 %     25.51 %     (45.50 )%
                                         
SUPPLEMENTAL DATA AND RATIOS:
                                       
Net assets, end of period (millions)
  $ 124.99     $ 116.41     $ 155.87     $ 145.91     $ 97.10  
Ratio of expenses to average net assets
    1.26 %     1.31 %     1.29 %     1.27 %     1.20 %
Ratio of net investment income to average net assets
    2.67 %     2.94 %     2.33 %     3.19 %     3.92 %
Portfolio turnover rate (1)
    47 %     40 %     91 %     59 %     53 %































(1)   Portfolio turnover is calculated on the basis of the Fund as a whole.


The accompanying notes are an integral part of these financial statements.


WWW.HENNESSYFUNDS.COM
 
68
 

Financial Highlights
Hennessy Cornerstone Value Fund

For an Institutional Class share outstanding throughout each period

                           
Period Ended
 
   
Year Ended October 31,
   
October 31,
 
   
2012
   
2011
   
2010
   
2009
   
2008 (1)
 
PER SHARE DATA:
                             
Net asset value, beginning of period
  $ 12.86     $ 12.54     $ 10.63     $ 9.06     $ 13.79  
                                         
Income from investment operations:
                                       
Net investment income
    0.45       0.36       0.30       0.30       0.34  
Net realized and unrealized gains (losses) on investments
    1.19       0.37       1.83       1.83       (5.07 )
Total from investment operations
    1.64       0.73       2.13       2.13       (4.73 )
                                         
Less Distributions:
                                       
Dividends from net investment income
    (0.46 )     (0.41 )     (0.22 )     (0.56 )     —  
Dividends from net realized gains
    —       —       —       —       —  
Total distributions
    (0.46 )     (0.41 )     (0.22 )     (0.56 )     —  
Net asset value, end of period
  $ 14.04     $ 12.86     $ 12.54     $ 10.63     $ 9.06  
                                         
TOTAL RETURN
    13.13 %     6.00 %     20.31 %     25.87 %     (34.30 )% (2)
                                         
SUPPLEMENTAL DATA AND RATIOS:
                                       
Net assets, end of period (millions)
  $ 2.53     $ 1.17     $ 1.35     $ 1.11     $ 0.87  
Ratio of expenses to average net assets:
                                       
Before expense reimbursement
    1.20 %     1.14 %     1.10 %     1.13 %     1.14 % (3)
After expense reimbursement
    0.98 %     0.98 %     0.98 %     0.98 %     0.98 % (3)
Ratio of net investment income to average net assets:
                                       
Before expense reimbursement
    2.72 %     3.04 %     2.52 %     3.33 %     4.94 % (3)
After expense reimbursement
    2.94 %     3.20 %     2.64 %     3.48 %     5.10 % (3)
Portfolio turnover rate (4)
    47 %     40 %     91 %     59 %     53 % (2)























(1)
Institutional Class shares commenced operations on March 3, 2008.
(2)
Not Annualized.
(3)
Annualized.
(4)
Portfolio turnover is calculated on the basis of the Fund as a whole.


The accompanying notes are an integral part of these financial statements.


HENNESSY FUNDS                                                                                                                1-800-966-4354
 
69
 

Financial Highlights
Hennessy Large Value Fund (formerly the Hennessy Select Large Value Fund)

For a Investor Class share (formerly Original Class share) outstanding throughout each period

                     
One Month
             
                     
Ended
   
Year Ended
 
   
Year Ended October 31,
   
October 31,
   
September 30,
 
   
2012
   
2011
   
2010
   
2009 (1)
   
2009 (2)
   
2008 (2)
 
PER SHARE DATA:
                                   
Net asset value, beginning of period
  $ 21.47     $ 20.57     $ 18.88     $ 19.49     $ 21.80     $ 43.12  
                                                 
Income from investment operations:
                                               
Net investment income
    0.28       0.22       0.14       0.01       0.31       0.42 (3)
Net realized and unrealized gains (losses) on securities
    3.14       0.89       1.78       (0.62 )     (2.21 )     (7.43 )
Total from investment operations
    3.42       1.11       1.92       (0.61 )     (1.90 )     (7.01 )
                                                 
Less Distributions:
                                               
Dividends from net investment income
    (0.18 )     (0.21 )     (0.23 )     —       (0.41 )     (0.78 )
Dividends from net realized gains
    —       —       —       —       —       (13.53 )
Total distributions
    (0.18 )     (0.21 )     (0.23 )     —       (0.41 )     (14.31 )
Net asset value, end of period
  $ 24.71     $ 21.47     $ 20.57     $ 18.88     $ 19.49     $ 21.80  
                                                 
TOTAL RETURN
    16.07 %     5.36 %     10.22 %     (3.13 )% (5)     (8.43 )%     (22.42 )%
                                                 
SUPPLEMENTAL DATA AND RATIOS:
                                               
Net assets, end of period (millions)
  $ 125.00     $ 123.97     $ 131.54     $ 132.77     $ 138.34     $ 174.23  
Ratio of expenses to average net assets:
                                               
Before expense reimbursement
    1.40 %     1.38 %     1.41 %     1.37 % (6)     1.42 %     1.22 %
After expense reimbursement
    1.40 %     1.38 %     1.38 %     1.30 % (6)     1.17 %     1.02 %
Ratio of net investment income to average net assets:
                                               
Before expense reimbursement
    1.16 %     0.97 %     0.64 %     0.28 % (6)     1.46 %     1.32 %
After expense reimbursement
    1.16 %     0.97 %     0.67 %     0.35 % (6)     1.71 %     1.52 %
Portfolio turnover rate (4)
    111 %     149 %     146 %     10 % (5)     142 %     162 %















(1)
For the one month ended October 31, 2009.  Effective October 31, 2009, the Fund changed its fiscal year end to October 31st from September 30th.
(2)
The financial highlights set forth for periods prior to March 20, 2009 represent the historical financial highlights of the Tamarack Value Fund, Class S shares.  The assets of the Tamarack Value Fund were acquired by the Hennessy Select Large Value Fund on March 20, 2009.  Prior to the reorganization, Tamarack Value Fund also offered Class A, Class C and R shares. At that time RBC Global Asset Management (U.S.), Inc., (formerly known as Voyageur Asset Management Inc.) ceased to be investment advisor and Hennessy Advisors, Inc. became investment advisor.  The return of the Tamarack Value Fund, Class S shares during the period October 1, 2008 through March 20, 2009 was (33.09)%.  The return of the Hennessy Select Large Value Fund, Original Class shares during the period March 20, 2009 through September 30, 2009 was 36.84%.
(3)
Per share net investment income (loss) has been calculated using the average daily shares method.
(4)
Portfolio turnover is calculated on the basis of the Fund as a whole.
(5)
Not annualized.
(6)
Annualized.


The accompanying notes are an integral part of these financial statements.


WWW.HENNESSYFUNDS.COM
 
70
 

Financial Highlights
Hennessy Large Value Fund (formerly the Hennessy Select Large Value Fund)

For an Institutional Class share outstanding throughout each period

                     
One Month
   
Period
 
                     
Ended
   
Ended
 
   
Year Ended October 31,
   
October 31,
   
September 30,
 
   
2012
   
2011
   
2010
   
2009 (1)
   
2009 (2)
 
PER SHARE DATA:
                             
Net asset value, beginning of period
  $ 21.56     $ 20.65     $ 18.92     $ 19.53     $ 14.25  
                                         
Income from investment operations:
                                       
Net investment income (loss)
    0.39       0.27       0.21       — (3)     0.08  
Net realized and unrealized gains (losses) on securities
    3.15       0.92       1.80       (0.61 )     5.20  
Total from investment operations
    3.54       1.19       2.01       (0.61 )     5.28  
                                         
Less Distributions:
                                       
Dividends from net investment income
    (0.27 )     (0.28 )     (0.28 )     —       —  
Dividends from net realized gains
    —       —       —       —       —  
Total distributions
    (0.27 )     (0.28 )     (0.28 )     —       —  
Net asset value, end of period
  $ 24.83     $ 21.56     $ 20.65     $ 18.92     $ 19.53  
                                         
TOTAL RETURN
    16.58 %     5.76 %     10.65 %     (3.12 )% (4)     37.05 % (4)
                                         
SUPPLEMENTAL DATA AND RATIOS:
                                       
Net assets, end of period (millions)
  $ 0.06     $ 0.04     $ 0.04     $ 0.03     $ 0.03  
Ratio of expenses to average net assets:
                                       
Before expense reimbursement
    1.22 %     1.21 %     1.22 %     1.20 % (5)     26.18 % (5)
After expense reimbursement
    0.98 %     0.98 %     0.98 %     0.98 % (5)     0.98 % (5)
Ratio of net investment income to average net assets:
                                       
Before expense reimbursement
    1.29 %     1.13 %     0.80 %     0.44 % (5)     (24.06 )% (5)
After expense reimbursement
    1.53 %     1.36 %     1.04 %     0.66 % (5)     1.14 % (5)
Portfolio turnover rate (6)
    111 %     149 %     146 %     10 % (4)     142 % (4)




















(1)
For the one month ended October 31, 2009.  Effective October 31, 2009, the Fund changed its fiscal year end to October 31st from September 30th.
(2)
Institutional Class shares commenced operations on March 20, 2009.
(3)
Amount is less than $0.01 or $(0.01).
(4)
Not annualized.
(5)
Annualized.
(6)
Portfolio turnover is calculated on the basis of the Fund as a whole.­


The accompanying notes are an integral part of these financial statements.


HENNESSY FUNDS                                                                                                                1-800-966-4354
 
71
 

Financial Highlights
Hennessy Total Return Fund

For an Investor Class share (formerly Original Class share) outstanding throughout each year

   
Year Ended October 31,
 
   
2012
   
2011
   
2010
   
2009
   
2008
 
PER SHARE DATA:
                             
Net asset value, beginning of year
  $ 11.47     $ 10.57     $ 9.10     $ 9.22     $ 13.73  
                                         
Income from investment operations:
                                       
Net investment income
    0.18       0.18       0.16       0.18       0.28  
Net realized and unrealized gains (losses) on securities
    1.17       0.89       1.48       (0.14 )     (4.49 )
Total from investment operations
    1.35       1.07       1.64       0.04       (4.21 )
                                         
Less Distributions:
                                       
Dividends from net investment income
    (0.18 )     (0.17 )     (0.17 )     (0.16 )     (0.30 )
Dividends from realized capital gains
    —       —       —       —       —  
Total distributions
    (0.18 )     (0.17 )     (0.17 )     (0.16 )     (0.30 )
Net asset value, end of period
  $ 12.64     $ 11.47     $ 10.57     $ 9.10     $ 9.22  
                                         
TOTAL RETURN
    11.78 %     10.22 %     18.09 %     0.69 %     (30.97 )%
                                         
SUPPLEMENTAL DATA AND RATIOS:
                                       
Net assets, end of period (millions)
  $ 77.67     $ 64.13     $ 69.08     $ 52.38     $ 58.22  
Gross ratio of expenses, including
  interest expense, to average net assets
    1.37 %     1.34 %     1.33 %     1.56 %     2.36 %
Ratio of interest expense to average net assets
    0.08 %     0.10 %     0.08 %     0.29 %     1.16 %
Net ratio of expenses, excluding
  interest expense, to average net assets
    1.29 %     1.24 %     1.25 %     1.27 %     1.20 %
Ratio of net investment income to average net assets
    1.44 %     1.56 %     1.62 %     2.12 %     2.43 %
Portfolio turnover rate
    22 %     21 %     41 %     41 %     16 %

 

















 

 
The accompanying notes are an integral part of these financial statements.



WWW.HENNESSYFUNDS.COM
 
72
 

Financial Highlights
Hennessy Balanced Fund

For an Investor Class share (formerly Original Class share) outstanding throughout each year

   
Year Ended October 31,
 
   
2012
   
2011
   
2010
   
2009
   
2008
 
PER SHARE DATA:
                             
Net asset value, beginning of year
  $ 11.13     $ 10.43     $ 9.48     $ 9.11     $ 12.51  
                                         
Income from investment operations:
                                       
Net investment income
    0.04       0.05       0.05       0.10       0.25  
Net realized and unrealized gains (losses) on securities
    0.75       0.70       0.95       0.38       (2.80 )
Total from investment operations
    0.79       0.75       1.00       0.48       (2.55 )
                                         
Less Distributions:
                                       
Dividends from net investment income
    (0.04 )     (0.05 )     (0.05 )     (0.11 )     (0.26 )
Dividends from realized capital gains
    —       —       —       —       (0.59 )
Total distributions
    (0.04 )     (0.05 )     (0.05 )     (0.11 )     (0.85 )
Net asset value, end of period
  $ 11.88     $ 11.13     $ 10.43     $ 9.48     $ 9.11  
                                         
TOTAL RETURN
    7.13 %     7.16 %     10.53 %     5.46 %     (21.55 )%
                                         
SUPPLEMENTAL DATA AND RATIOS:
                                       
Net assets, end of period (millions)
  $ 25.17     $ 18.02     $ 12.50     $ 11.47     $ 11.46  
Ratio of net expenses to average net assets
    1.54 %     1.61 %     1.65 %     1.73 %     1.56 %
Ratio of net investment income to average net assets
    0.34 %     0.42 %     0.45 %     1.17 %     2.31 %
Portfolio turnover rate
    17 %     39 %     57 %     46 %     13 %



















The accompanying notes are an integral part of these financial statements.


HENNESSY FUNDS                                                                                                                1-800-966-4354
 
73
 

Financial Highlights
Hennessy Japan Fund (formerly the Hennessy Select SPARX Japan Fund)

For an Investor Class share (formerly Original Class share) outstanding throughout each year

   
Year Ended October 31,
 
   
2012
   
2011
   
2010
   
2009 (1)
   
2008 (1)
 
PER SHARE DATA:
                             
Net asset value, beginning of year
  $ 13.99     $ 12.58     $ 11.38     $ 9.73     $ 16.24  
                                         
Income from investment operations:
                                       
Net investment income (loss)
    (0.02 )     (0.10 )     (0.04 )     0.02       0.05  
Net realized and unrealized gains (losses) on securities
    1.43       1.51       1.25       1.66       (6.56 )
Total from investment operations
    1.41       1.41       1.21       1.68       (6.51 )
                                         
Less Distributions:
                                       
Dividends from net investment income
    —       —       (0.01 )     (0.03 )     —  
Dividends from net realized gains
    —       —       —       —       —  
Return of capital
    —       —       (0.01 )     —       —  
Total distributions
    —       —       (0.02 )     (0.03 )     —  
Redemption fees retained
    —       —       0.01       — (2)     — (2)
Net asset value, end of period
  $ 15.40     $ 13.99     $ 12.58     $ 11.38     $ 9.73  
                                         
TOTAL RETURN
    10.08 %     11.21 %     11.04 %     17.36 %     (40.09 )%
                                         
SUPPLEMENTAL DATA AND RATIOS:
                                       
Net assets, end of period (millions)
  $ 10.38     $ 14.81     $ 20.01     $ 28.29     $ 15.86  
Ratio of expenses to average net assets:
                                       
Before expense reimbursement
    2.03 %     1.86 %     1.71 %     1.75 %     1.72 %
After expense reimbursement
    2.03 %     1.86 %     1.59 %     1.24 %     1.25 %
Ratio of net investment income (loss) to average net assets:
                                       
Before expense reimbursement
    (0.09 )%     (0.54 )%     (0.27 )%     (0.34 )%     (0.10 )%
After expense reimbursement
    (0.09 )%     (0.54 )%     (0.15 )%     0.17 %     0.37 %
Portfolio turnover rate (3)
    2 %     166 %     8 %     17 %     35 %





















(1)
The financial highlights set forth for periods prior to September 17, 2009 represent the historical financial highlights of the SPARX Japan Fund.  On September 17, 2009 Hennessy Advisors, Inc., became the investment advisor to the Fund and the Fund changed its name to Hennessy Select SPARX Japan Fund.
(2)
Amount is less than $0.01.
(3)
Portfolio turnover is calculated on the basis of the Fund as a whole.


The accompanying notes are an integral part of these financial statements.


WWW.HENNESSYFUNDS.COM
 
74
 

Financial Highlights
Hennessy Japan Fund (formerly the Hennessy Select SPARX Japan Fund)

For an Institutional Class share outstanding throughout each year

   
Year Ended October 31,
 
   
2012
   
2011
   
2010
   
2009 (1)
   
2008 (1)
 
PER SHARE DATA:
                             
Net asset value, beginning of period
  $ 14.14     $ 12.66     $ 11.44     $ 9.78     $ 16.33  
                                         
Income from investment operations:
                                       
Net investment income (loss)
    0.02       0.03       0.01       0.03       0.05  
Net realized and unrealized gains (losses) on securities
    1.44       1.45       1.23       1.66       (6.60 )
Total from investment operations
    1.46       1.48       1.24       1.69       (6.55 )
                                         
Less Distributions:
                                       
Dividends from net investment income
    —       —       (0.01 )     (0.03 )     —  
Dividends from net realized gains
    —       —       —       —       —  
Return of capital
    —       —       (0.01 )     —       —  
Total distributions
    —       —       (0.02 )     (0.03 )     —  
Redemption fees retained
    —       —       —       — (2)     — (2)
Net asset value, end of period
  $ 15.60     $ 14.14     $ 12.66     $ 11.44     $ 9.78  
                                         
TOTAL RETURN
    10.33 %     11.69 %     11.07 %     17.37 %     (40.11 )%
                                         
SUPPLEMENTAL DATA AND RATIOS:
                                       
Net assets, end of period (millions)
  $ 8.94     $ 9.70     $ 23.57     $ 25.55     $ 37.03  
Ratio of expenses to average net assets:
                                       
Before expense reimbursement
    1.85 %     1.64 %     1.45 %     1.75 %     1.72 %
After expense reimbursement
    1.85 %     1.64 %     1.40 %     1.24 %     1.25 %
Ratio of net investment income (loss) to average net assets:
                                       
Before expense reimbursement
    0.13 %     0.19 %     0.02 %     (0.34 )%     (0.10 )%
After expense reimbursement
    0.13 %     0.19 %     0.07 %     0.17 %     0.37 %
Portfolio turnover rate (3)
    2 %     166 %     8 %     17 %     35 %





















(1)
The financial highlights set forth for periods prior to September 17, 2009 represent the historical financial highlights of the SPARX Japan Fund.  On September 17, 2009 Hennessy Advisors, Inc., became the investment advisor to the Fund and the Fund changed its name to Hennessy Select SPARX Japan Fund.
(2)
Amount is less than $0.01 or $(0.01).
(3)
Portfolio turnover is calculated on the basis of the Fund as a whole.


The accompanying notes are an integral part of these financial statements.

HENNESSY FUNDS                                                                                                                1-800-966-4354
 
75
 

Financial Highlights
Hennessy Japan Small Cap Fund (formerly the Hennessy Select SPARX Japan Smaller Companies Fund)

For an Investor Class share (formerly Original Class share) outstanding throughout each year

   
Year Ended October 31,
 
   
2012
   
2011
   
2010
   
2009 (1)
   
2008 (1)
 
PER SHARE DATA:
                             
Net asset value, beginning of period
  $ 10.09     $ 9.23     $ 9.74     $ 6.87     $ 10.98  
                                         
Income from investment operations:
                                       
Net investment income (loss)
    (0.68 )     0.06       — (2)     0.07       0.02 (3)
Net realized and unrealized gains (losses) on securities
    1.17       0.80       (0.10 )     2.80       (4.08 )
Total from investment operations
    0.49       0.86       (0.10 )     2.87       (4.06 )
                                         
Less Distributions:
                                       
Dividends from net investment income
    (0.04 )     —       (0.42 )     —       (0.07 )
Dividends from net realized gains
    —       —       —       —       —  
Total distributions
    (0.04 )     —       (0.42 )     —       (0.07 )
Redemption fees retained
    —       —       0.01       — (2)     0.02  
Net asset value, end of period
  $ 10.54     $ 10.09     $ 9.23     $ 9.74     $ 6.87  
                                         
TOTAL RETURN
    4.91 %     9.32 %     (0.72 )%     41.78 %     (37.00 )%
                                         
SUPPLEMENTAL DATA AND RATIOS:
                                       
Net assets, end of period (millions)
  $ 5.11     $ 24.08     $ 15.17     $ 16.20     $ 11.74  
Ratio of expenses to average net assets:
                                       
Before expense reimbursement
    2.33 %     2.10 %     2.14 %     3.10 %     4.47 %
After expense reimbursement
    2.33 %     2.10 %     2.01 %     1.60 %     1.60 %
Ratio of net investment income (loss) to average net assets:
                                       
Before expense reimbursement
    (0.66 )%     0.17 %     (0.14 )%     (0.86 )%     (2.60 )%
After expense reimbursement
    (0.66 )%     0.17 %     (0.01 )%     0.64 %     0.26 %
Portfolio turnover rate
    49 %     61 %     100 %     138 %     55 %



















(1)
The financial highlights set forth for periods prior to September 17, 2009 represent the historical financial highlights of the SPARX Japan Smaller Companies Fund. On September 17, 2009 Hennessy Advisors, Inc., became the investment advisor to the Fund and the Fund changed its name to Hennessy Select SPARX Japan Smaller Companies Fund.
(2)
Amount is less than $0.01 or $(0.01).
(3)
Calculated based on average shares outstanding.


The accompanying notes are an integral part of these financial statements.


WWW.HENNESSYFUNDS.COM
 
76
 

Notes to the Financial Statements
October 31, 2012

 
1).  ORGANIZATION
 
The Hennessy Cornerstone Growth Fund (the “Growth Fund”), Hennessy Cornerstone Mid Cap 30 Fund (the “Mid Cap 30 Fund”, formerly known as the Hennessy Focus 30 Fund), and the Hennessy Cornerstone Value Fund (the “Value Fund”), are each series of Hennessy Mutual Funds, Inc., which was organized as a Maryland corporation on May 20, 1996.  These Funds are open-end, diversified management investment companies registered under the Investment Company Act of 1940, as amended (the “1940 Act”).  The investment objective of both the Growth Fund and Mid Cap 30 Fund is long-term growth of capital.  The investment objective of the Value Fund is total return, consisting of capital appreciation and current income.
 
The Hennessy Cornerstone Large Growth Fund (the “Large Growth Fund”) and Hennessy Large Value Fund (the “Large Value Fund”, formerly known as the Hennessy Select Large Value Fund), are each series of Hennessy Funds Trust (the “Trust”), which was organized as a Delaware Statutory Trust on September 17, 1992.  These Funds are open-end, diversified management investment companies registered under the 1940 Act.  The investment objective of the Large Growth Fund is long-term growth of capital.  The investment objective of the Large Value Fund is long-term growth of capital and current income.
 
The Hennessy Balanced Fund (the “Balanced Fund”), and Hennessy Total Return Fund (the “Total Return Fund”), are each series of Hennessy Funds, Inc., which was organized as a Maryland corporation on January 11, 1996.  The Balanced and Total Return Funds are open-end, non-diversified management investment companies registered under the 1940 Act.  The investment objective of the Balanced Fund is a combination of capital appreciation and current income.  The investment objective of the Total Return Fund is total return, consisting of capital appreciation and current income.
 
The Hennessy Japan Fund (the “Japan Fund”, formerly known as the Hennessy Select SPARX Japan Fund and the Hennessy Japan Small Cap Fund (the “Japan Small Cap Fund”, formerly known as the Hennessy Select SPARX Japan Smaller Companies Fund), are each series of Hennessy SPARX Funds Trust, which was organized as a Massachusetts business trust on July 24, 1995.  The Japan Fund and the Japan Small Cap Fund are open-end, diversified management investment companies registered under the 1940 Act.  Although these Funds will each be considered a “diversified” mutual fund, the Funds may employ a relatively focused investment strategy and may hold securities of fewer issuers than other diversified funds.  The investment objective of the Japan Fund and the Japan Small Cap Fund is long-term capital appreciation.
 
The Growth Fund, Mid Cap 30 Fund, Large Growth Fund, Value Fund, Large Value Fund, Total Return Fund, Balanced Fund, Japan Fund and Japan Small Cap Fund collectively represent the Hennessy Funds (the “Funds”).
 
The Growth Fund, Mid Cap 30 Fund, Large Growth Fund, Value Fund, Large Value Fund and Japan Fund offer Investor and Institutional Class shares.  Prior to October 26, 2012, the Investor Class shares were known as Original Class shares.  Each class of shares differs principally in its respective administration, shareholder servicing and transfer agent expenses and sales charges, if any.  Each class has identical rights to earnings, assets and voting privileges, except for class-specific expenses and exclusive rights to vote on matters affecting only individual classes.  The Total Return Fund, Balanced Fund and Japan Small Cap Fund offer only Investor Class shares.
 
 
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 – All investments in securities are recorded at their estimated fair value, as described in Note 3.
 
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 or loss 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 2012 fiscal year have been identified and appropriately reclassified on the Statement of Assets and Liabilities.
 
    Accumulated Net     Accumulated Net    
Paid In
 
    Investment Income/(Loss)     Realized Gain/(Loss)    
Capital
 
Growth Fund
  $ (1,180,937 )     $ 2,766,634       $ (1,585,697 )
Mid Cap 30 Fund
  $ (39,596 )     $ 1,567,459       $ (1,527,863 )
Large Growth Fund
  $ —       $ 4,678,538       $ (4,678,538 )
Value Fund
  $ (348,207 )     $ 306,487       $ 41,720  
Large Value Fund
  $ (18,241 )     $ 18,323       $ (82 )
Total Return Fund
  $ —       $ —       $ —  
Balanced Fund
  $ —       $ —       $ —  
Japan Fund
  $ (1,984 )     $ 4,767       $ (2,783 )
Japan Small Cap Fund
  $ 331,801       $ (233,429 )     $ (98,372 )
 
 
The permanent differences primarily relate to Net Operating Losses, 988 currency transactions, partnership sales adjustments, and PFIC sale adjustments.
 

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c).
Income and Expenses – Dividend income is recognized on the ex-dividend date or as soon as information is available to the Funds and interest income, which includes the amortization of premium and accretion of discount, is recognized on an accrual basis. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its respective net assets.
 
d).
Distributions to Shareholders – Dividends from net investment income for the Growth Fund, Mid Cap 30 Fund, Large Growth Fund, Value Fund, Large Value Fund, Japan Fund and Japan Small Cap Fund, 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 Fund and Balanced Fund 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 shareholder 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 New York Stock Exchange 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.
 
h).
Foreign Currency – Values of investments denominated in foreign currencies are converted into U.S. dollars using the spot market rate of exchange at the time of valuation.  Purchases and sales of investments and income are translated into U.S. dollars using the spot market rate of exchange prevailing on the respective dates of such transactions.  The effect of changes in foreign exchange rates on realized and unrealized security gains and losses is reflected as a component of such gains or losses.  Foreign investments present additional risks due to currency fluctuations, economic and political factors, lower liquidity, government regulations, differences in accounting standards and other factors.
 
i).
Forward Contracts – The Funds may enter into forward currency contracts to reduce their exposure to changes in foreign currency exchange rates on their foreign holdings and to lock in the U.S. dollar cost of firm purchase and sale commitments for securities denominated in foreign currencies.  A forward currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate.  The gain or loss arising from the difference between the U.S. dollar cost of the original contract and the value of the foreign currency in U.S. dollars upon closing of such contract is included in net realized gain or loss from foreign currency transactions.  During the year ended October 31, 2012, the Funds did not enter into any forward contracts.
 
j).
Repurchase Agreements – The Funds 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.
 
k).
Accounting for Uncertainty in Income Taxes – The Funds have adopted accounting policies regarding recognition and measurement of tax positions taken or expected to be taken on a tax return.  The Funds have reviewed all open tax years and major jurisdictions and concluded that there is no impact on the Funds’ net assets and no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken on a tax return.  As of October 31, 2012, open Federal and state tax years for the Funds include the tax years ended October 31, 2009 through 2012.
 
l).
Derivatives – The Funds may invest in, or enter into, derivatives, such as options, futures contracts, options on futures contracts and swaps, for a variety of reasons, including to hedge certain risks, to provide a substitute for purchasing or selling particular securities or to increase potential income gain.  Derivatives may provide a cheaper, quicker or more specifically focused way for a Fund to invest than “traditional” securities would.  The main purpose of utilizing these derivative instruments is for hedging purposes.
 
 
The Funds have adopted the financial accounting reporting rules as required by the Derivatives and Hedging Topic of the FASB Accounting Standards Codification (“FASB ASC”). The Funds are required to include enhanced disclosure that enables investors to understand how and why an entity uses derivatives, how derivatives are accounted for, and how derivatives instruments affect an entity’s results of operations and financial position. During the year ended October 31, 2012, the Funds did not hold any derivative instruments.
 
m).
Events Subsequent to the Fiscal Period End – The Funds have adopted financial reporting rules regarding subsequent events which requires an entity to recognize in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet.  Management has evaluated the Funds’ related events and transactions that occurred subsequent to October 31, 2012, through the date of issuance of the Funds’ financial statements.  There were no events or transactions that occurred during this period that materially impacted the amounts or disclosures in the Funds’ financial statements.
 

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n).
New Accounting Pronouncements – In December 2011, FASB issued ASU No. 2011-11 related to disclosures about offsetting assets and liabilities.  The amendments in this ASU require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position.  The ASU is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods.  The guidance requires retrospective applications for all comparative periods presented.  Management is currently evaluating the impact ASU 2011-11 will have on the financial statements disclosures.
 
 
3).  SECURITIES VALUATION
 
The Funds have adopted authoritative fair valuation accounting standards which establish an authoritative definition of fair value and set out a hierarchy for measuring fair value.  These standards require additional disclosures about the various inputs and valuation techniques used to develop the measurements of fair value and a discussion in changes in valuation techniques and related inputs during the period.  These inputs are summarized in the three broad levels listed below:
 
Level 1 –
Quoted unadjusted prices for identical instruments in active markets to which the Fund has access at the date of measurement.
   
Level 2 –
Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.  Level 2 inputs are those in markets for which there are few transactions, the prices are not current, the prices are fair value adjusted due to post market close subsequent events (foreign markets), little public information exists or instances where prices vary substantially over time or among brokered market makers.  These inputs may also include interest rates, prepayment speeds, credit risk curves, default rates and similar data.
   
Level 3 –
Model-derived valuations in which one or more significant inputs or significant value drivers are unobservable.  Unobservable inputs are those inputs that reflect the Funds’ own assumptions that market participant’s would use to price the asset or liability based on the best available information.
 
Following is a description of the valuation techniques applied to the Funds’ major categories of assets and liabilities measured at fair value on a recurring basis.
 
Equity Securities – Equity securities, including common stocks, preferred stocks, foreign issued common stocks, exchange traded funds, closed-end mutual funds and real estate investment trusts, which are traded on a securities exchange for which a last-quoted sales price is readily available will be valued at the last sales price as reported by the primary exchange on which the securities are listed.  Securities listed on the Nasdaq National Market System (“Nasdaq”) will be valued at the Nasdaq Official Closing Price, which may differ from the last sales price reported.  Securities traded on a securities exchange for which a last-quoted sales price is not readily available will be valued at the mean between the bid and ask prices.  To the extent these securities are actively traded and valuation adjustments are not applied, they are categorized in Level 1 of the fair value hierarchy.
 
Mutual Funds – Investments in mutual funds are generally priced at the ending net asset value (“NAV”) provided by the service agent of the Funds and will be classified as Level 1 securities.
 
Investment Companies – Investments in investment companies (e.g. mutual funds and exchange traded funds) are generally priced at the ending net asset value (NAV) provided by the service agent of the Funds and will be classified as Level 1 securities.
 
U.S. Government Securities – U.S. government securities are normally valued using a model that incorporates market observable data such as reported sales of similar securities, broker quotes, yields, bids, offers, and reference data.  Certain securities are valued principally using prices furnished by a pricing service.  U.S. government securities are generally categorized in Level 2 of the fair value hierarchy based on the inputs used and market activity levels for specific securities.
 
Short-Term Securities – Short-term equity investments, including money market funds, are valued in the manner specified above.  Short-term debt investments are valued at amortized cost, if their original maturity was 60 days or less, or by amortizing the values as of the 61st day prior to maturity, if their original term to maturity exceeded 60 days.  Short-term securities are generally in Level 1 or Level 2 of the fair market hierarchy depending on the inputs used and market activity levels for specific securities.
 
The Board of Directors/Trustees of the Funds (the “Board”) has adopted fair value pricing procedures that are followed when a price for a 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 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: 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.  Depending on the relative significance of the valuation inputs, these securities may be classified in either Level 2 or Level 3 of the fair value hierarchy.
 
Fair valuing of foreign securities may be determined with the assistance of a pricing service using correlations between the movement of prices of such securities and indices of domestic securities and other appropriate indicators, such as closing market prices of relevant American Depositary Receipts or futures contracts.  The effect of using fair value pricing is that the Funds’ NAV will reflect the affected portfolio securities’ value as determined in the judgment of the Board or its designee instead of being determined by the market.  Using a fair value pricing methodology to price securities may result in a value that is different from a security’s most recent closing price and from the prices used by other investment companies to calculate their net asset values and are considered Level 2 prices in the fair valuation hierarchy.  Because the Funds invest in foreign securities, the value of the Funds’ portfolio securities may change on days when you will not be able to purchase or redeem your shares.  Depending on the relative significance of the valuation inputs, these securities may be classified in either Level 2 or Level 3 of the fair value hierarchy.
 

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The Board has delegated day-to-day valuation issues to a Valuation Committee which is comprised of one or more representatives from Hennessy Advisors, Inc., the Fund’s advisor.  The function of the Valuation Committee is to value securities where current and reliable market quotations are not readily available.  All actions taken by the Valuation Committee are reviewed and ratified by the Board.
 
The Funds have performed an analysis of all existing investments to determine the significance and character of all inputs to their fair value determination.  Various inputs are used in determining the value of each Fund’s investments.  The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.  Details related to the fair valuation hierarchy of the Funds’ securities as of October 31, 2012, are included with each Fund’s Schedule of Investments.
 
 
4).  REVERSE REPURCHASE AGREEMENTS
 
The Total Return Fund may enter into reverse repurchase agreements with the same parties with whom it may enter into repurchase agreements.  Under a reverse repurchase agreement, the Fund sells securities and agrees to repurchase them at a mutually agreed upon date and price.  Reverse repurchase agreements are regarded as a form of secured borrowing by the Fund.  Securities sold under reverse repurchase agreements are reflected as a liability on the Statement of Assets and Liabilities.  Interest payments made are recorded as a component of interest expense on the Statement of Operations.
 
For the year ended October 31, 2012, the average daily balance and average interest rate in effect for reverse repurchase agreements were $22,131,044 and 0.26%, respectively. At October 31, 2012, the interest rate in effect for the outstanding reverse repurchase agreements, scheduled to mature on November 8, 2012, ($10,800,000),  December 13, 2012 ($10,794,000), and January 17, 2013 ($7,196,000), were 0.28%, 0.27% and 0.30%, respectively. Outstanding reverse repurchase agreements at October 31, 2012 were equal to 37.07% of the Total Return Fund’s net assets.
 
 
5).  INVESTMENT TRANSACTIONS
 
Purchases and sales of investment securities (excluding government and short-term investments) during the year ended October 31, 2012 were as follows:
 
 
Growth
Mid Cap 30
Large Growth
Value
Large Value
 
Fund
Fund
Fund
Fund
Fund
Purchases
$226,967,274
$39,499,217
$            —
$58,195,967
$136,908,387
Sales
$192,094,061
$53,398,542
$8,666,147
$56,321,280
$152,295,014
           
 
Total Return
Balanced
Japan
Japan Small Cap
 
 
Fund
Fund
Fund
Fund
 
Purchases
$11,487,835
$4,746,748
$   462,576
$  7,218,187
 
Sales
$12,611,127
$1,924,682
$6,340,937
$27,506,821
 
 
Purchases and sales/maturities of long-term U.S. Government Securities for the Balanced Fund were $1,699,110 and $700,000, respectively, for the year ended October 31, 2012.  There were no purchases or sales/maturities of long-term U.S. Government Securities for the Growth Fund, Mid Cap 30 Fund, Large Growth Fund, Value Fund, Large Value Fund, Total Return Fund, Japan Fund or Japan Small Cap Fund for the year ended October 31, 2012.
 
 
6).  INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
 
Hennessy Advisors, Inc. (the “Advisor”) is the Advisor of the Funds. The Advisor provides the Funds with investment management services under a Management Agreement. The Advisor furnishes all investment advice, office space, facilities, and provides most of the personnel needed by the Funds. As compensation for its services, the Advisor 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%
 
 
Mid Cap 30 Fund
0.74%
 
 
Large Growth Fund
0.74%
 
 
Value Fund
0.74%
 
 
Large Value Fund
0.85%
 
 
Total Return Fund
0.60%
 
 
Balanced Fund
0.60%
 
 
Japan Fund
1.00%
 
 
Japan Small Cap Fund
1.20%
 
 
Advisor fees payable for the Funds as of October 31, 2012, were:
 
 
Growth Fund
$180,177
 
 
Mid Cap 30 Fund
$122,844
 
 
Large Growth Fund
$64,209
 
 
Value Fund
$81,603
 
 
Large Value Fund
$91,323
 
 
Total Return Fund
$39,979
 
 
Balanced Fund
$12,940
 
 
Japan Fund
$16,290
 
 
Japan Small Cap Fund
$5,399
 
 

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The Advisor has delegated the day to day management of the Large Value Fund to a Sub-Advisor, RBC Global Asset Management (U.S.), Inc. (“RBC”). The Advisor has delegated the day to day management of the Japan and Japan Small Cap Funds to a Sub-Advisor, SPARX Asset Management Co. Ltd. (“SPARX”).  The Advisor pays the Sub-Advisor fees for each of the Funds from its own assets and these fees are not an additional expense of the Funds.
 
The Advisor has agreed to waive its fees and absorb expenses to the extent that the total annual operating expenses (excluding all Federal, state and local taxes, interest, brokerage commissions, acquired fund fees and expenses and other costs incurred in connection with the purchase and sale of securities and extraordinary items) do not exceed 0.98% of the Funds’ net assets for the Institutional Class shares in the Growth, Mid Cap 30, Large Growth, Value and Large Value Funds.  The expense limitation agreement for the Institutional Class shares can only be terminated by the Board.  For a period of three years after the year in which the Advisor waives or reimburses expenses, the Advisor may seek reimbursement from the Funds to the extent that total annual Fund operating expenses are less than the expense limitation in effect at the time of the reimbursement.  During the three years ended October 31, 2012, no Advisor fees were waived and therefore no expenses are subject to potential recovery.
 
The Large Value Fund, Japan Fund, and Japan Small Cap Fund each previously had operating expense limitation agreements which have since expired and/or have been terminated by the Board.  As of October 31, 2012, cumulative expenses subject to potential recovery to the aforementioned conditions and year of expiration are as follows:
 
 
Oct. 31, 2013
Oct. 31, 2014
Oct. 31, 2015
Total
Large Value Fund – Inv. Class
$38,444
$       —
$       —
$38,444
Japan Fund – Inv. Class
$37,425
$       —
$       —
$37,425
Japan Fund – Inst. Class
$12,915
$       —
$       —
$12,915
Japan Small Cap Fund – Inv. Class
$19,527
$       —
$       —
$19,527
 
The Board has approved a Shareholder Servicing Plan for the Investor Class shares of each of the Funds which was instituted to compensate the Advisor for the non-investment management services it provides to the Funds. The Plan provides for a monthly fee paid to the Advisor at an annual rate of 0.10% of the average daily net assets of the Funds.
 
Service fees payable for the Funds as of October 31, 2012 were:
 
 
Growth Fund
$21,786
 
 
Mid Cap 30 Fund
$13,866
 
 
Large Growth Fund
$6,537
 
 
Value Fund
$10,813
 
 
Large Value Fund
$10,739
 
 
Total Return Fund
$6,663
 
 
Balanced Fund
$2,157
 
 
Japan Fund
$877
 
 
Japan Small Cap Fund
$450
 
 
The Funds have entered into agreements with various brokers, dealers and financial intermediaries in connection with the sale of shares of the Funds.  The agreements provide for periodic payments by the Funds to the brokers, dealers and financial intermediaries for providing certain shareholder maintenance services (sub-transfer agent expenses).  These shareholder services include: the pre-processing and quality control of new accounts, shareholder correspondence, answering customer inquiries regarding account status and facilitating shareholder telephone transactions. Fees paid by the Funds to various brokers, dealers and financial intermediaries for the year ended October 31, 2012, were:
 
 
Growth Fund
$343,459
 
 
Mid Cap 30 Fund
$254,514
 
 
Large Growth Fund
$19,666
 
 
Value Fund
$74,671
 
 
Large Value Fund
$89,951
 
 
Total Return Fund
$30,149
 
 
Balanced Fund
$20,402
 
 
Japan Fund
$20,699
 
 
Japan Small Cap Fund
$23,539
 
 
The Total Return Fund and Balanced Fund 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 0.15% 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. Administrative services under this agreement include custody, distribution, fund accounting, fund administration and transfer agent services.  In addition, 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, 2012, were:

HENNESSY FUNDS                                                                                                                1-800-966-4354
 
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Growth Fund
$555,538
 
 
Mid Cap 30 Fund
$415,538
 
 
Large Growth Fund
$197,895
 
 
Value Fund
$314,513
 
 
Large Value Fund
$319,745
 
 
Total Return Fund
$180,627
 
 
Balanced Fund
$58,174
 
 
Japan Fund
$52,396
 
 
Japan Small Cap Fund
$38,198
 
 
The Administrator has voluntarily waived all or a portion of its administration fees allocated to the Institutional Class shares of the Growth Fund, Mid Cap 30 Fund, Large Growth, Value and Large Value Fund.  The administration fees voluntarily waived by the Administrator during the year ended October, 2012, were $4,007, $42,487, $2,641, $4,229 and $118, respectively.
 
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.
 
 
7).  LINE OF CREDIT
 
The Growth Fund, Mid Cap 30 Fund, Value Fund, Japan Fund and Japan Small Cap Fund have lines of credit of (i) $35,000,000, $25,000,000, $10,000,000, $3,000,000 and $3,000,000, respectively, or (ii) the lesser of 33.33% of each Fund’s net assets, 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.  Borrowings under this arrangement bear interest at the bank’s prime rate. During the year ended October 31, 2012, the Growth Fund had an outstanding average daily balance and a weighted average interest rate of $8,374 and 3.25%, respectively.  The maximum amount outstanding for the Growth Fund during the period was $1,583,000.  During the year ended October 31, 2012, the Mid Cap 30 Fund had an outstanding average daily balance and a weighted average interest rate of $168,847 and 3.25%, respectively. The maximum amount outstanding for the Mid Cap 30 Fund during the period was $10,039,000.  During the year ended October 31, 2012, the Value Fund had an outstanding average daily balance and a weighted average interest rate of $6,735 and 3.25%, respectively.  The maximum amount outstanding for the Value Fund during the period was $939,000.  During the year ended October 31, 2012, the Japan Fund had an outstanding average daily balance and a weighted average interest rate of $120 and 3.25%, respectively.  The maximum amount outstanding for the Japan Fund during the period was $44,000.  During the year ended October 31, 2012, the Japan Small Cap Fund had an outstanding average daily balance and a weighted average interest rate of $51,249 and 3.25%, respectively.  The maximum amount outstanding for the Japan Small Cap Fund during the period was $3,000,000.
 
 
8).  FEDERAL TAX INFORMATION
 
As of October 31, 2012, the components of accumulated earnings (losses) for income tax purposes were as follows:
 
   
Growth
   
Mid Cap 30
   
Large Growth
 
   
Fund
   
Fund
   
Fund
 
Cost of investments for tax purposes
  $ 272,787,207     $ 162,770,617     $ 101,226,194  
Gross tax unrealized appreciation
    44,200,587       30,575,395       18,829,340  
Gross tax unrealized depreciation
    (15,674,995 )     (3,255,399 )     (10,266,235 )
Net tax unrealized appreciation (depreciation)
  $ 28,525,592     $ 27,319,996     $ 8,563,105  
Undistributed ordinary income
  $ —     $ 1,029,849     $ 1,080,454  
Undistributed long-term capital gains
    —       —       169,340  
Total distributable earnings
  $ —     $ 1,029,849     $ 1,249,794  
Other accumulated gains/(loss)
  $ (246,589,256 )   $ (44,993,297 )   $ (4,061,012 )
Total accumulated earnings/(loss)
  $ (218,063,664 )   $ (16,643,452 )   $ 5,751,887  
                         
   
Value
   
Large Value
   
Total Return
 
   
Fund
   
Fund
   
Fund
 
Cost of investments for tax purposes
  $ 108,730,517     $ 107,067,386     $ 98,251,218  
Gross tax unrealized appreciation
    21,078,375       20,433,398       8,394,757  
Gross tax unrealized depreciation
    (2,156,189 )     (2,008,917 )     (170,519 )
Net tax unrealized appreciation (depreciation)
  $ 18,922,186     $ 18,424,481     $ 8,224,238  
Undistributed ordinary income
  $ 2,446,268     $ 1,060,739     $ 78,405  
Undistributed long-term capital gains
    —       —       —  
Total distributable earnings
  $ 2,446,268     $ 1,060,739     $ 78,405  
Other accumulated gains/(loss)
  $ (43,841,856 )   $ (29,476,742 )   $ (7,009,187 )
Total accumulated earnings/(loss)
  $ (22,473,402 )   $ (9,991,522 )   $ 1,293,456  
 

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82
 



   
Balanced
   
Japan
   
Japan Small Cap
 
   
Fund
   
Fund
   
Fund
 
Cost of investments for tax purposes
  $ 23,578,357     $ 15,823,302     $ 5,091,643  
Gross tax unrealized appreciation
    1,793,810       4,105,359       590,961  
Gross tax unrealized depreciation
    (186,959 )     (677,280 )     (454,726 )
Net tax unrealized appreciation (depreciation)
  $ 1,606,851     $ 3,428,079     $ 136,235  
Undistributed ordinary income
  $ 2,932     $ —     $ —  
Undistributed long-term capital gains
    —       —       1,115,067  
Total distributable earnings
  $ 2,932     $ —     $ 1,115,067  
Other accumulated gains/(loss)
  $ (1,233,401 )   $ (33,406,069 )   $ (58,667 )
Total accumulated earnings/(loss)
  $ 376,382     $ (29,977,990 )   $ 1,192,635  
 
The difference between book-basis and tax-basis unrealized appreciation is attributable primarily to capital loss carry overs, wash sales, and partnership adjustments.
 
At October 31, 2012, the Funds had capital loss carryforwards which expire as follows:
 
Growth Fund
$60,841,121
10/31/16
 
 
183,155,263
10/31/17
 
Mid Cap 30 Fund
3,858,159
10/31/16
 
 
41,135,138
10/31/17
 
Large Growth Fund
4,061,012
10/31/16
 
Value Fund
43,841,856
10/31/17
 
Large Value Fund
29,468,928
10/31/17
 
Total Return Fund
7,009,187
10/31/17
 
Balanced Fund
1,233,401
10/31/17
 
Japan Fund
4,786,618
10/31/15
 
 
6,231,544
10/31/16
 
 
15,450,664
10/31/17
 
 
6,121,138
10/31/18
 
 
373,080
Indefinite ST
 
 
439,149
Indefinite LT
 
 
At October 31, 2012, the Japan Small Cap Fund had no tax basis capital losses to offset future capital gains.
 
During the year ended October 31, 2012, the capital loss carry forwards utilized for each fund was as follows:
 
Growth Fund
5,439,299
 
Mid Cap 30 Fund
573,537
 
Large Growth Fund
2,352
 
Value Fund
2,872,985
 
Large Value Fund
9,750,615
 
Total Return Fund
3,320,669
 
Balanced Fund
502,700
 
Japan Fund
—
 
Japan Small Cap Fund
694,391
 
 
Under recently enacted legislation, capital losses sustained in the year ended December 31, 2011 and in future taxable years will not expire and may be carried over by the Fund without limitation; however, they will retain the character of the original loss. Furthermore, any losses incurred during those taxable years will be required to be utilized prior to the losses incurred in the pre-enactment taxable years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Under pre-enactment law, capital losses could be carried forward for eight years, and carried forward as short-term capital losses, irrespective of the character of the original loss.
 
At October 31, 2012 the following funds deferred, on a tax basis, post-October losses of:
 
    Post October Late Year    
Post October
   
    Ordinary Loss Deferral    
Loss Deferral
   
Growth Fund
  $ 2,592,872         —    
Mid Cap 30 Fund
    —         —    
Large Growth Fund
    —         —    
Value Fund
    —         —    
Large Value Fund
    —         —    
Total Return Fund
    —         —    
Balanced Fund
    —         —    
Japan Fund
    —         —    
Japan Small Cap Fund
    57,735         —    
 

HENNESSY FUNDS                                                                                                                1-800-966-4354
 
83
 

The tax character of distributions paid during 2012 and 2011 for the Funds were as follows:
 
   
Year Ended
   
Year Ended
   
Growth Fund
 
October 31, 2012
   
October 31, 2011
   
Ordinary Income
  $ —     $ —    
Long-term capital gain
    —       —    
    $ —     $ —    
               
   
Year Ended
   
Year Ended
   
Mid Cap 30 Fund
 
October 31, 2012
   
October 31, 2011
   
Ordinary Income
  $ —     $ —    
Long-term capital gain
    —       —    
    $ —     $ —    
               
   
Year Ended
   
Year Ended
   
Large Growth Fund
 
October 31, 2012
   
October 31, 2011
   
Ordinary Income
  $ 559,148     $ 627,807    
Long-term capital gain
    15,375,965       109,248    
    $ 15,935,113     $ 737,055    
               
   
Year Ended
   
Year Ended
   
Value Fund
 
October 31, 2012
   
October 31, 2011
   
Ordinary Income
  $ 3,834,285     $ 4,283,374    
Long-term capital gain
    —       —    
    $ 3,834,285     $ 4,283,374    
               
   
Year Ended
   
Year Ended
   
Large Value Fund
 
October 31, 2012
   
October 31, 2011
   
Ordinary Income
  $ 1,007,759     $ 1,292,183    
Long-term capital gain
    —       —    
    $ 1,007,759     $ 1,292,183    
               
   
Year Ended
   
Year Ended
   
Total Return Fund
 
October 31, 2012
   
October 31, 2011
   
Ordinary Income
  $ 1,013,041     $ 1,003,505    
Long-term capital gain
    —       —    
    $ 1,013,041     $ 1,003,505    
               
   
Year Ended
   
Year Ended
   
Balanced Fund
 
October 31, 2012
   
October 31, 2011
   
Ordinary Income
  $ 81,724     $ 55,526    
Long-term capital gain
    —       —    
    $ 81,724     $ 55,526    
               
   
Year Ended
   
Year Ended
   
Japan Fund
 
October 31, 2012
   
October 31, 2011
   
Ordinary Income
  $ —     $ —    
Long-term capital gain
    —       —    
    $ —     $ —    
               
   
Year Ended
   
Year Ended
   
Japan Small Cap Fund
 
October 31, 2012
   
October 31, 2011
   
Ordinary Income
  $ 99,101     $ —    
Long-term capital gain
    —       —    
    $ 99,101     $ —    

 
9).  FUND REORGANIZATIONS
 
On October 25, 2012, the shareholders of the FBR Large Cap Fund, FBR Mid Cap Fund and FBR Small Cap Fund approved the agreement and plan of reorganization providing for the transfer of assets and the assumption of liabilities of the FBR Large Cap Fund, FBR Mid Cap Fund and FBR Small Cap Fund by each of the Hennessy Cornerstone Large Growth Fund, the Hennessy Cornerstone Mid Cap 30 Fund, and the Hennessy Cornerstone Growth Fund, respectively.  The reorganization was effective as of the close of business on October 26, 2012.  The following tables illustrate the specifics of each Fund’s reorganization:
 
 
FBR Small Cap
Shares issued to Shareholders
Hennessy Cornerstone
   
 
Fund Net Assets
of FBR Small Cap Fund
Growth Fund Net Assets
Combined Net Assets
Tax Status of Transfer
 
$34,071,809 (1)
2,732,499
$265,131,165
$299,202,974
Non-taxable
 
(1)
Includes accumulated realized losses and unrealized appreciation in the amounts of ($5,680,576) and $1,928,859 respectively.
 

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84
 
 
 
FBR Mid Cap
Shares issued to Shareholders
Hennessy Cornerstone
   
 
Fund Net Assets
of FBR Mid Cap Fund
Mid Cap 30 Fund Net Assets
Combined Net Assets
Tax Status of Transfer
 
$16,374,686 (1)
1,154,875
$171,822,952
$188,197,638
Non-taxable
 
(1)
Includes accumulated realized losses and unrealized appreciation in the amounts of ($3,572,309) and $2,496,269 respectively.
 
 
FBR Large Cap
Shares issued to Shareholders
Hennessy Cornerstone
   
 
Fund Net Assets
of FBR Large Cap Fund
Large Growth Fund Net Assets
Combined Net Assets
Tax Status of Transfer
 
$33,698,161 (1)
3,110,613
$75,963,129
$109,661,290
Non-taxable
 
(1)
Includes accumulated realized losses and unrealized appreciation in the amounts of ($8,751,401) and $4,423,584 respectively.
 
Assuming the reorganization had been completed on November 1, 2011, the beginning of the annual reporting period of each of the respective Hennessy Funds, the pro forma results of operations (unaudited) for the year ended October 31, 2012, would have been as follows:
 
    Hennessy Cornerstone     Hennessy Cornerstone     Hennessy Cornerstone
    Growth Fund     Mid Cap 30 Fund     Large Growth Fund
Net investment income/(loss)
  $ (1,277,452 )     $ 1,183,817       $ 1,514,359  
Net realized gain/(loss) on investments
  $ 6,068,686       $ 415,390       $ 501,406  
Change in unrealized appreciation/depreciation on investments
  $ 46,095,075       $ 22,755,030       $ 7,914,251  
Net increase/(decrease) in net assets resulting from operations
  $ 50,886,309       $ 24,354,237       $ 9,930,016  
 
Because the combined investment portfolios have been managed as a single integrated portfolio since the reorganization was completed, it is not practicable to separate the amounts of revenue and earnings for the respective FBR Funds that have been included in each of the Hennessy Funds’ statement of operations since October 26, 2012.

HENNESSY FUNDS                                                                                                                1-800-966-4354
 
85
 

Report of Independent Registered Public Accounting Firm

The Shareholders and Board of Directors/Trustees of Hennessy Mutual Funds, Inc., Hennessy Funds, Inc.,
Hennessy Funds Trust, and Hennessy SPARX Funds Trust:
 
We have audited the accompanying statements of assets and liabilities of the Hennessy Cornerstone Growth Fund, Hennessy Cornerstone Mid Cap 30 Fund, Hennessy Cornerstone Large Growth Fund, Hennessy Cornerstone Value Fund, Hennessy Large Value Fund, Hennessy Total Return Fund, Hennessy Balanced Fund, Hennessy Japan Fund, and Hennessy Japan Small Cap Fund, including the schedules of investments, as of October 31, 2012, and the related statements of operations for the year then ended, statements of changes in net assets for the two-year period then ended, statement of cash flows for the year then ended for the Hennessy Total Return Fund, and the financial highlights for each of the periods presented in the five-year period then ended (each of the years in the three-year period ended October 31, 2012, month ended October 31, 2009, and year ended September 30, 2009 for Hennessy Cornerstone Large Growth Fund and Hennessy Large Value Fund, and each of the years in the four-year period ended October 31, 2012 for Hennessy Japan Fund and Hennessy Japan Small Cap Fund).  These financial statements and financial highlights are the responsibility of management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial highlights for the periods presented through September 30, 2008 of the Hennessy Cornerstone Large Growth Fund and Hennessy Large Value Fund were audited by other auditors whose report dated November 26, 2008 expressed an unqualified opinion on those financial highlights.  The financial highlights for the periods presented through October 31, 2008 of the Hennessy Japan Fund and Hennessy Japan Small Cap Fund were audited by other auditors whose report dated December 10, 2008 expressed an unqualified opinion on those financial highlights.
 
We conducted our audits in accordance with generally accepted auditing standards as established by the Auditing Standards Board (United States) and in accordance with the auditing 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 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, 2012, by correspondence with custodians or brokers, or by other appropriate auditing procedures.  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, Hennessy Cornerstone Mid Cap 30 Fund, Hennessy Cornerstone Large Growth Fund, Hennessy Cornerstone Value Fund, Hennessy Large Value Fund, Hennessy Total Return Fund, Hennessy Balanced Fund, Hennessy Japan Fund, and Hennessy Japan Small Cap as of October 31, 2012, and the results of their operations, changes in their net assets, cash flows of the Hennessy Total Return Fund, and the financial highlights for each of the periods described in the first paragraph above, in conformity with U.S. generally accepted accounting principles.
 

 
December 28, 2012
Milwaukee, WI
 
 
 
 
 
 

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86
 

Directors/Trustees and Officers of the Funds (Unaudited)

The business and affairs of the Funds are managed under the direction of the Funds’ Board of Directors/Trustees.  Information pertaining to the Directors and Officers of the Funds is set forth below.  The Funds’ Statement of Additional Information includes additional information about the Funds’ Directors/Trustees and Officers and is available, without charge, upon request by calling 1-800-966-4354.

       
Number of
 
       
Portfolios
Other
       
in the Fund
Directorships
 
Position(s)
Term of Office
 
Complex
(During Past
 
Held with
and Length of
Principal Occupation(s)
Overseen
5 Years) Held
Name, Address, and Age
the Fund
Time Served
During Past 5 Years
by Trustee
by Trustee
Disinterested Trustees (as defined below)
       
J. Dennis DeSousa
Trustee
Indefinite, until
Mr. DeSousa is a real estate investor.
16
None.
Age: 76
 
successor elected
     
Address:
         
c/o Hennessy Advisors, Inc.
 
Served since January
     
7250 Redwood Blvd.
 
1996 HMFI and HFI;
     
Suite 200
 
since July 2005 HFT;
     
Novato, CA  94945
 
and since September
     
   
2009 HSFT
     
           
Robert T. Doyle
Trustee
Indefinite, until
Mr. Doyle has been the Sheriff of
16
None.
Age:  65
 
successor elected
Marin County, California since 1996.
   
Address:
         
c/o Hennessy Advisors, Inc.
 
Served since January
     
7250 Redwood Blvd.
 
1996 HMFI and HFI;
     
Suite 200
 
since July 2005 HFT;
     
Novato, CA  94945
 
and since September
     
   
2009 HSFT
     
           
Gerald P. Richardson
Trustee
Indefinite, until
Mr. Richardson is an independent
16
None.
Age:  67
 
successor elected
consultant in the securities industry.
   
Address:
         
c/o Hennessy Advisors, Inc.
 
Served since May 2004
     
7250 Redwood Blvd.
 
HMFI and HFI; since
     
Suite 200
 
July 2005 HFT; and
     
Novato, CA  94945
 
since September
     
   
2009 HSFT
     
           
“Interested Persons” (as defined in the 1940 Act)
       
Neil J. Hennessy (1)
Trustee,
Trustee:
Mr. Hennessy has been employed by
16
Director of Hennessy
Age:  56
President and
Indefinite, until
Hennessy Advisors, Inc., the Funds’
 
Advisors, Inc.
Address:
Chairman of
successor elected
investment advisor, since 1989.  He
   
c/o Hennessy Advisors, Inc.
the Board
 
currently serves as President, Chairman,
   
7250 Redwood Blvd.
 
Served since January
CEO, Portfolio Manager and CIO of
   
Suite 200
 
1996 HMFI and HFI;
Hennessy Advisors, Inc.
   
Novato, CA  94945
 
since July 2005 HFT;
     
   
and since September
     
   
2009 HSFT
     
           
   
Officer:
     
   
1 year term
     
           
   
Served since June 2008
     
   
HMFI, HFI and HFT; and
     
   
since September 2009 HSFT
     
           
Joe Fahy (1)
Vice President
1 year term
Mr. Fahy has been employed by
N/A
N/A
Age:  34
and Chief
 
Hennessy Advisors, Inc., the Funds’
   
Address:
Compliance
Since June 2010 HMFI,
investment advisor, since 2005.
   
c/o Hennessy Advisors, Inc.
Officer
HFI, HFT and HSFT
     
7250 Redwood Blvd.
         
Suite 200
         
Novato, CA  94945
         
 
(1)   All Officers of the Hennessy Funds and employees of the Manager are Interested Persons of the Fund.


HENNESSY FUNDS                                                                                                                1-800-966-4354
 
87
 
 
       
Number of
 
       
Portfolios
Other
       
in the Fund
Directorships
 
Position(s)
Term of Office
 
Complex
(During Past
 
Held with
and Length of
Principal Occupation(s)
Overseen
5 Years) Held
Name, Address, and Age
the Fund
Time Served
During Past 5 Years
by Trustee
by Trustee
Interested Persons
         
Teresa M. Nilsen (1)
Executive
1 year term
Ms. Nilsen has been employed by
N/A
N/A
Age:  46
Vice President
 
Hennessy Advisors, Inc., the Funds’
   
Address:
and Treasurer
Since January 1996
investment advisor, since 1989.  She
   
c/o Hennessy Advisors, Inc.
 
HMFI and HFI; since
currently serves as Executive Vice
   
7250 Redwood Blvd.
 
July 2005 HFT; and
President, Chief Operations Officer,
   
Suite 200
 
since September
Chief Financial Officer and Secretary
   
Novato, CA  94945
 
2009 HSFT
of Hennessy Advisors, Inc.
   
           
Daniel B. Steadman (1)
Executive
1 year term
Mr. Steadman has been employed by
N/A
N/A
Age:  56
Vice President
 
Hennessy Advisors, Inc., the Funds’
   
Address:
and Secretary
Since March 2000
investment advisor, since 2000.  He
   
c/o Hennessy Advisors, Inc.
 
HMFI and HFI; since
currently serves as Executive Vice
   
7250 Redwood Blvd.
 
July 2005 HFT; and
President and Chief Compliance Officer
   
Suite 200
 
since September
of Hennessy Advisors, Inc.
   
Novato, CA  94945
 
2009 HSFT
     
           
David Ellison (1)
Senior
1 year term
Mr. Ellison has served as Portfolio
N/A
N/A
Age: 54
Vice President
 
Manager of the Hennessy Large Cap
   
Address:
& Chief
Since October 2012
Financial Fund (formerly the FBR Large
   
100 Federal Street
Investment
 
Cap Financial Fund), the Hennessy
   
29th Floor
Officer
 
Small Cap Financial Fund (formerly the
   
Boston, MA 02110
   
FBR Small Cap Financial Fund), and the
   
     
Hennessy Technology Fund (formerly
   
     
the FBR Technology Fund) since inception.
   
           
     
Mr. Ellison previously served as Director,
   
     
CIO & President of FBR Advisers, Inc. from
   
     
December 1999 to October 2012.
   
           
Brian Peery (1)
Vice President
1 year term
Mr. Peery has been employed by
N/A
N/A
Age: 43
and
 
Hennessy Advisors, Inc., the Funds’
   
Address:
Co-Portfolio
As Vice President, since
investment advisor, since 2002.
   
c/o Hennessy Advisors, Inc.
Manager
March 2003 HMFI and
     
7250 Redwood Blvd.
 
HFI; since July 2005
     
Suite 200
 
HFT; and since
     
Novato, CA  94945
 
September 2009 HSFT
     
           
   
As Co-Portfolio Manager,
     
   
since February 2011
     
   
HMFI, HFI, HFT and HSFT
     
           
Winsor (Skip) Aylesworth (1)
Vice President &
1 year term
Mr. Aylesworth has been Portfolio
N/A
N/A
Age: 65
Portfolio Manager
 
Manager of the Hennessy Gas Utility
   
Address:
 
Since October 2012
Index Fund (formerly the FBR Gas Utility
   
100 Federal Street
   
Index Fund) since 1998 and Portfolio
   
29th Floor
   
Manager of the Hennessy Technology
   
Boston, MA 02110
   
Fund (formerly the FBR Technology
   
     
Fund) since inception.
   
           
     
Mr. Aylesworth previously served as
   
     
Executive Vice President of the FBR
   
     
Funds from 1999 to October 2012.
   
 
(1)   All Officers of the Hennessy Funds and employees of the Manager are Interested Persons of the Fund.

Key:
HMFI = Hennessy Mutual Funds, Inc.
HFI = Hennessy Funds, Inc.
HFT = Hennessy Funds Trust
HSFT = Hennessy SPARX Funds Trust


WWW.HENNESSYFUNDS.COM
 
88
 

Expense Example (Unaudited)
October 31, 2012

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, 2012 through October 31, 2012.
 
 
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. 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, 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), 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.
 

 

HENNESSY FUNDS                                                                                                                1-800-966-4354
 
89
 
 
 
Beginning
Ending
Expenses Paid
 
Account Value
Account Value
During Period (1)
Investor Class
5/1/12
10/31/12
5/1/12 – 10/31/12
       
Actual
     
Growth Fund – Investor Class
$1,000.00
$1,047.40
$  6.84
Mid Cap 30 Fund – Investor Class
$1,000.00
$1,028.50
$  6.88
Large Growth Fund – Investor Class
$1,000.00
$986.30
$  6.34
Value Fund – Investor Class
$1,000.00
$1,036.20
$  6.40
Large Value Fund – Investor Class
$1,000.00
$1,026.60
$  7.13
Total Return Fund – Investor Class
$1,000.00
$1,028.60
$  6.78
Balanced Fund – Investor Class
$1,000.00
$1,016.90
$  8.16
Japan Fund – Investor Class
$1,000.00
$1,024.60
$10.64
Japan Small Cap Fund – Investor Class
$1,000.00
$   935.20
$12.99
       
Hypothetical (5% return before expenses)
     
Growth Fund – Investor Class
$1,000.00
$1,018.45
$6.75
Mid Cap 30 Fund – Investor Class
$1,000.00
$1,018.35
$6.85
Large Growth Fund – Investor Class
$1,000.00
$1,018.75
$6.44
Value Fund – Investor Class
$1,000.00
$1,018.85
$6.34
Large Value Fund – Investor Class
$1,000.00
$1,018.10
$7.10
Total Return Fund – Investor Class
$1,000.00
$1,018.45
$6.75
Balanced Fund – Investor Class
$1,000.00
$1,017.04
$8.16
Japan Fund – Investor Class
$1,000.00
$1,014.63
$10.58
Japan Small Cap Fund – Investor Class
$1,000.00
$1,011.71
$13.50
 
(1)
Expenses are equal to the Growth Fund’s expense ratio of 1.33%, the Mid Cap 30 Fund’s expense ratio of 1.35%, the Large Growth Fund’s expense ratio of 1.27%, the Value Fund’s expense ratio of 1.25%, the Large Value Fund’s expense ratio of 1.40%, the Total Return Fund’s expense ratio of 1.33%, the Balanced Fund’s expense ratio of 1.61%, the Japan Fund’s expense ratio of 2.09%, and the Japan Small Cap Fund’s expense ratio of 2.67% multiplied by the average account value over the period, multiplied by 184/366 days (to reflect one-half year period).
 
 
Beginning
Ending
Expenses Paid
 
Account Value
Account Value
During Period (2)
Institutional Class
5/1/12
10/31/12
5/1/12 – 10/31/12
       
Actual
     
Growth Fund – Institutional Class
$1,000.00
$1,048.40
$5.05
Mid Cap 30 Fund – Institutional Class
$1,000.00
$1,030.20
$5.00
Large Growth Fund – Institutional Class
$1,000.00
$   987.30
$4.90
Value Fund – Institutional Class
$1,000.00
$1,037.70
$5.02
Large Value Fund – Institutional Class
$1,000.00
$1,028.60
$5.00
Japan Fund – Institutional Class
$1,000.00
$1,025.60
$9.52
       
Hypothetical (5% return before expenses)
     
Growth Fund – Institutional Class
$1,000.00
$1,020.21
$4.98
Mid Cap 30 Fund – Institutional Class
$1,000.00
$1,020.21
$4.98
Large Growth Fund – Institutional Class
$1,000.00
$1,020.21
$4.98
Value Fund – Institutional Class
$1,000.00
$1,020.21
$4.98
Large Value Fund – Institutional Class
$1,000.00
$1,020.21
$4.98
Japan Fund – Institutional Class
$1,000.00
$1,015.74
$9.48
 
(2)
Expenses are equal to the Growth, Mid Cap 30, Large Growth, Value, and Large Value Fund’s expense ratio of 0.98%, and the Japan Fund’s expense ratio of 1.87%, multiplied by the average account value over the period, multiplied by 184/365 days (to reflect one-half year period).

 

WWW.HENNESSYFUNDS.COM
 
90
 

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.
 
 
Federal Tax Distribution Information (Unaudited)
 
For the fiscal year ended October 31, 2012, certain dividends paid by the Funds may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003.
 
The percentage of dividends declared from ordinary income designated as qualified dividend income was as follows:
 
Growth Fund
0.00%
 
Mid Cap 30 Fund
0.00%
 
Large Growth Fund
100.00%
 
Value Fund
100.00%
 
Large Value Fund
100.00%
 
Total Return Fund
100.00%
 
Balanced Fund
100.00%
 
Japan Fund
0.00%
 
Japan Small Cap Fund
100.00%
 
 
For corporate shareholders, the percent of ordinary income distributions qualifying for the corporate dividends received deduction for the fiscal year ended October 31, 2012 was as follows:
 
Growth Fund
0.00%
 
Mid Cap 30 Fund
0.00%
 
Large Growth Fund
100.00%
 
Value Fund
100.00%
 
Large Value Fund
100.00%
 
Total Return Fund
100.00%
 
Balanced Fund
100.00%
 
Japan Fund
0.00%
 
Japan Small Cap Fund
0.00%
 

 
Householding

To help keep the Funds’ costs as low as possible, we generally deliver a single copy of most financial reports and prospectuses to shareholders who share an address, even if the accounts are registered under different names. This process, known as “householding,” does not apply to account statements. You may, of course, request an individual copy of a prospectus or financial report at any time. If you would like to receive separate mailings, please call the Transfer Agent at 1-800-261-6950 or 1-414-765-4124 and we will begin individual delivery within 30 days of your request. If your account is held through a financial institution or other intermediary, please contact them directly to request individual delivery.


HENNESSY FUNDS                                                                                                                1-800-966-4354
 
91
 

Privacy Policy
 
 
We collect the following non-public personal information about you:
 
•
information we receive from you on or in applications or other forms, correspondence, or conversations, including, but not limited to, your name, address, phone number, social security number, assets, income and date of birth;
 
 
and
 
•
information about your transactions with us, our affiliates, or others, including, but not limited to, your account number and balance, payment history, parties to transactions, cost basis information and other financial information.
 
We do not disclose any non-public personal information about our current or former shareholders to nonaffiliated third parties, except as permitted by law. For example, we are permitted by law to disclose all of the information we collect, as described above, to our Transfer Agent to process your transactions. Furthermore, we restrict access to your non-public personal information to those persons who require such information to provide products or services to you. We maintain physical, electronic and procedural safeguards that comply with federal standards to guard your non-public personal information.
 
In the event that you hold shares of the Fund through a financial intermediary, including, but not limited to, a broker-dealer, bank or trust company, the privacy policy of your financial intermediary would govern how your non-public personal information would be shared with nonaffiliated third parties.
 


WWW.HENNESSYFUNDS.COM
 
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HENNESSY FUNDS                                                                                                                1-800-966-4354
 
93
 

 
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.
Custody Operations
1555 North River Center Dr., Suite 302
Milwaukee, Wisconsin 53212

DIRECTORS/TRUSTEES
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
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-5306

DISTRIBUTOR
Quasar Distributors, LLC
615 East Michigan Street
Milwaukee, Wisconsin 53202

 



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  10/31/2012
FYE  10/31/2011
Audit Fees
$144,800
$30,000
Audit-Related Fees
-
-
Tax Fees
$29,600
$7,000
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.

The percentage of fees billed by KPMG, LLP applicable to non-audit services pursuant to waiver of pre-approval requirement were as follows:

 
FYE  10/31/2012
FYE  10/31/2011
Audit-Related Fees
0%
0%
Tax Fees
0%
0%
All Other Fees
0%
0%
     

The percentage of fees billed by Tait, Weller & Baker, LLP applicable to non-audit services pursuant to waiver of pre-approval requirement were as follows:

 
FYE  10/31/2012
FYE  10/31/2011
Audit-Related Fees
0%
0%
Tax Fees
0%
0%
All Other Fees
0%
0%

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  10/31/2012
FYE  10/31/2011
Registrant
-
-
Registrant’s Investment Adviser
-
-

Item 5. Audit Committee of Listed Registrants.

Not applicable to registrants who are not listed issuers (as defined in Rule 10A-3 under the Securities Exchange Act of 1934).

Item 6. 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 Purchasers.

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 and Treasurer 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 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 the 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) A separate certification for each principal executive and principal financial officer 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)  
Certifications 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)   Hennessy Funds Trust

By (Signature and Title)*        /s/Neil J. Hennessy                                    
Neil J. Hennessy, President

Date     January 7, 2013                     



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 7, 2013

By (Signature and Title)*        /s/Teresa M. Nilsen                                           
Teresa M. Nilsen, Treasurer

Date     January 7, 2013