Source: Bloomberg L.P.
We will say it again, after showing a chart like the one above: Past results are not predictive of the future. Instead, we look at where we are right now – in the economy, in the market, in the business cycle – to reflect on where we have come from and where we may be going. U.S. GDP is strong and growing, interest rates remain low, and earnings growth and profitability remain robust. We believe stocks are trading at reasonable valuations when viewed as a whole, with the S&P 500® Index at 21.0x estimated earnings for 2022. Furthermore, we believe corporate balance sheets are healthy, with high levels of excess cash, which could support growth, increases in dividends, more share buybacks, and future acquisitions. Uncertainty and volatility can manifest at any time in the stock market, and the current market is no different. Investors have questions about inflation, worldwide supply chain issues, and what could drive the next boost in earnings. While these concerns are warranted, we continue to believe that overall the positives outweigh the negatives, and here at Hennessy we continue to see opportunity in the market and in our Funds.
Overall, we are pleased with the performance of our mutual funds during the fiscal year. On an absolute basis, each of our 16 Funds achieved total returns greater than 10% and seven outperformed their primary benchmark. Ten of our 11 domestic equity-only Funds outperformed the S&P 500® Index and posted total returns of 45% or higher. Our four best-performing funds were concentrated in the Energy and Financials sectors. While some of our Funds certainly benefited from being in the “right” sector at the “right” time, we also believe this was a favorable period for our investment style of high-conviction investing and concentrated portfolio construction.
Thank you for your interest and for investing with us. We remain committed to managing our portfolios for long-term performance, ever mindful of downside risk. With so many investment options available to you, we are grateful for the trust you put in us and for your continued interest in our family of Funds. If you have any questions or would like to speak with us, please don’t hesitate to call us directly at (800) 966-4354.
Mutual fund investing involves risk. Principal loss is possible.
Opinions expressed are those of Ryan C. Kelley and are subject to change, are not guaranteed, and should not be considered investment advice.
This graph illustrates the performance of an initial investment of $10,000 made in the Fund 10 years ago and assumes the reinvestment of dividends and capital gains.
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. The performance table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 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 50/50 Blended DJIA/Treasury Index consists of 50% common stocks represented by the Dow Jones Industrial Average and 50% short-duration Treasury securities represented by the ICE BofAML 1-Year U.S. Treasury Note Index, which comprises U.S. Treasury securities maturing in approximately one year. The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange or The Nasdaq Stock Market LLC. One cannot invest directly in an index. These indices are used for comparative purposes in accordance with Securities and Exchange Commission regulations.
The expense ratio presented is from the most recent prospectus. The expense ratio for the current reporting period is available in the Financial Highlights section of this report.
Portfolio Managers Neil J. Hennessy, Ryan C. Kelley, CFA, and L. Joshua Wein, CAIA
For the one-year period ended October 31, 2021, the Hennessy Balanced Fund returned 14.62%, underperforming both the 50/50 Blended DJIA/Treasury Index (the Fund’s
primary benchmark) and the Dow Jones Industrial Average, which returned 17.83% and 37.73%, respectively, for the same period.
The Fund underperformed its primary benchmark predominantly as a result of stock selection in the Communication Services and Industrials sectors, with investments in Verizon Communications, Inc. and 3M Company detracting the most from relative performance. In addition, relative fund performance was negatively affected by not owning certain companies in the Financials sector that contributed strongly to the benchmark’s performance, namely The Goldman Sachs Group, Inc. Investments that contributed most to Fund performance included a financial, an energy, and a consumer staples company, namely JPMorgan Chase & Company, Chevron Corporation, and Walgreens Boots Alliance, Inc.
The Fund owns the companies mentioned except Goldman Sachs and JPMorgan.
The Fund invests approximately 50% of its assets in the “Dogs of the Dow,” the 10 highest dividend-yielding Dow stocks, and 50% of its assets in U.S. Treasuries. As a result of this “blended” strategy, we expect the Fund to underperform equities in periods when equity markets rise and outperform in periods when equity markets fall. The Fund is designed to allow its investors to gain exposure to the equity market while maintaining a significant percentage of its investment in fixed income securities. We believe the Fund is well positioned for the more conservative investor because the equity portion of the portfolio is invested in what we deem to be high-quality companies, each of which pays a quarterly dividend, while the balance of the Fund is invested in lower-risk, short-duration U.S. Treasuries.
After a tumultuous 2020 and a strong 2021, we believe that the outlook for U.S. stocks remains positive. After a sharp contraction in economic activity as a result of the COVID-19 pandemic, the U.S. economy is growing steadily and demonstrating incredible resilience. We are benefiting from increased employment, rapid wage gains, and robust economic activity. Corporate earnings are on the rise, interest rates remain low, and Federal Reserve policies continue to accommodate a strong economy.
If the market experiences a correction, we would expect our more defensive holdings to perform well relative to the market. The relatively short duration of the 50% weighting of U.S. Treasuries in the portfolio (all less than one year) may allow us the ability to roll into higher-yielding Treasuries in the event interest-rates rise.
Opinions expressed are those of the Portfolio Managers as of the date written and are subject to change, are not guaranteed, and should not be considered investment advice or an indication of trading intent.
The Fund is non-diversified, meaning it may concentrate its assets in fewer individual holdings than a diversified fund, making it more exposed to individual stock volatility than a diversified fund. The Fund’s formula-based strategy may cause the Fund to buy or sell securities at times when it may not be advantageous. Please see the Fund’s prospectus for a more complete discussion of these and other risks.
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 Schedule of Investments included in this report for additional portfolio information.
Earnings growth is not a measure of the Fund’s future performance.
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, as amended, the Fund uses more specific industry classifications.
The accompanying notes are an integral part of these financial statements.
Percentages are stated as a percent of net assets.
The following is a summary of the inputs used to value the Fund’s net assets as of October 31, 2021 (see Note 3 in the accompanying Notes to the Financial Statements):
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The Hennessy Balanced Fund (the “Fund”) is a series of Hennessy Funds Trust (the “Trust”), which was organized as a Delaware statutory trust on September 17, 1992. The Fund is an open-end management investment company registered under the Investment Company Act of 1940, as amended. The investment objective of the Fund is a combination of capital appreciation and current income. The Fund is a non-diversified fund and offers Investor Class shares.
As an investment company, the Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 “Financial Services—Investment Companies.”
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of the financial statements. These policies conform to U.S. generally accepted accounting principles (“GAAP”).
The Fund follows its valuation policies and procedures in determining its net asset value and, in preparing these financial statements, the fair value accounting standards that 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 of changes in valuation techniques and related inputs during the period. These inputs are summarized in the three broad levels listed below:
The following is a description of the valuation techniques applied to the Fund’s major categories of assets and liabilities on a recurring basis:
The Board of Trustees of the Fund (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 considered in determining a fair value of a security, such as the trading volume of a security and markets, the values of other similar securities, and news events with direct bearing on a security or markets. Fair value pricing results in an estimated price for a security that reflects the amount the Fund might reasonably expect to receive in a current sale. 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 matters to the Valuation and Liquidity Committee comprising representatives from Hennessy Advisors, Inc., the Fund’s investment advisor (the “Advisor”). The function of the Valuation and Liquidity Committee, among other things, is to value securities where current and reliable market quotations are not readily available. All actions taken by the Valuation and Liquidity Committee are reviewed by the Board.
The Fund has performed an analysis of all existing investments to determine the significance and character of all inputs to their fair value determinations. Various inputs are used to determine the value of the 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 value hierarchy of the Fund’s securities as of October 31, 2021, are included in the Schedule of Investments.
Purchases and sales of investment securities (excluding government and short-term investments) for the Fund during fiscal year 2021 were $2,002,249 and $2,594,038, respectively.
There were no purchases or sales/maturities of long-term U.S. government securities for the Fund during fiscal year 2021.
The Advisor provides the Fund with investment advisory services under an Investment Advisory Agreement. The Advisor furnishes all investment advice, office space, and facilities and most of the personnel needed by the Fund. As compensation for its services, the Advisor is entitled to a monthly fee from the Fund. The fee is based on the average daily net assets of the Fund at an annual rate of 0.60%. The net investment advisory fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
The Board has approved a Shareholder Servicing Agreement for the Fund, which compensates the Advisor for the non-investment advisory services it provides to the Fund. The Shareholder Servicing Agreement provides for a monthly fee paid to the Advisor at an annual rate of 0.10% of the average daily net assets of the Fund. The shareholder service fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
The Fund has adopted a plan pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended, that authorizes payments in connection with the distribution of Fund shares at an annual rate of up to 0.25% of the Fund’s average daily net assets. Even though the authorized rate is up to 0.25%, the Fund is currently only using up to 0.15% of its average daily net assets for such purpose. 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, shareholder account servicing, printing and mailing of prospectuses to other than current shareholders, printing and mailing of sales literature, and compensation for sales and marketing activities or to financial institutions and others, such as dealers and distributors. The distribution fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
The Fund has entered into agreements with various brokers, dealers, and financial intermediaries in connection with the sale of Fund shares. The agreements provide for periodic payments of sub-transfer agent expenses by the Fund to the brokers, dealers, and financial intermediaries for providing certain shareholder maintenance services. 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. The sub-transfer agent fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
U.S. Bancorp Fund Services, LLC, d/b/a U.S. Bank Global Fund Services (“Fund Services”) provides the Fund with administrative, accounting, and transfer agent services. As administrator, Fund Services is responsible for activities such as (i) preparing various federal and state regulatory filings, reports, and returns for the Fund, (ii) preparing reports and materials to be supplied to the Board, (iii) monitoring the activities of the Fund’s custodian, transfer agent, and accountants, and (iv) coordinating the preparation and payment of the Fund’s expenses and reviewing the Fund’s expense accruals. U.S. Bank N.A., an affiliate of Fund Services, serves as the Fund’s custodian. The servicing agreements between the Trust, Fund Services, and U.S. Bank N.A. contain a fee schedule that is inclusive of administrative, accounting, custody, and transfer agent fees. The administrative, accounting, custody, and transfer agent fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
Quasar Distributors, LLC (“Quasar”), a wholly owned broker-dealer subsidiary of Foreside Financial Group, LLC (“Foreside”), acts as the Fund’s principal underwriter in a continuous public offering of Fund shares. Effective September 30, 2021, Genstar Capital, a private equity firm specializing in financial and related business service companies, acquired a majority interest in Foreside. The Board approved a new Distribution Agreement to enable Quasar to continue serving as the Fund’s distributor following the change in control of Foreside.
The officers of the Fund are affiliated with the Advisor. With the exception of the Chief Compliance Officer and the Senior Compliance Officer, such officers receive no compensation from the Fund for serving in their respective roles. The Fund, along with the other funds in the Hennessy Funds family (collectively, the “Hennessy Funds”), makes reimbursement payments on an equal basis to the Advisor for a portion of the salary and benefits associated with the office of the Chief Compliance Officer and for all of the salary and benefits associated with the office of the Senior Compliance Officer. The compliance fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
Under the Hennessy Funds’ organizational documents, their officers and trustees are indemnified by the Hennessy Funds against certain liabilities arising out of the performance of their duties to the Hennessy Funds. Additionally, in the normal course of business, the Hennessy Funds enter into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. Currently, the Fund expects the risk of loss to be remote.
The Fund has an uncommitted line of credit with the other Hennessy Funds in the amount of the lesser of (i) $100,000,000 or (ii) 33.33% of each Hennessy Fund’s net assets, or 30% for the Hennessy Gas Utility Fund and 10% for the Fund. The line of credit is intended to provide any necessary short-term financing in connection with shareholder redemptions, subject to certain restrictions. The credit facility is with the Hennessy Funds’ custodian bank, U.S. Bank N.A. Borrowings under this arrangement bear interest at the bank’s prime rate and are secured by all of the Fund’s assets (as to its own borrowings only). During fiscal year 2021, the Fund had an outstanding average daily balance and a weighted average interest rate of $868 and 3.25%, respectively. The interest expensed by the Fund during fiscal year 2021 is included in the Statement of Operations. The maximum amount outstanding for the Fund during fiscal year 2021 was $53,000. As of October 31, 2021, the Fund did not have any borrowings outstanding under the line of credit.
As of October 31, 2021, the components of accumulated earnings (losses) for income tax purposes were as follows:
The difference between book-basis unrealized appreciation/depreciation and tax-basis unrealized appreciation/depreciation (as shown above) is attributable primarily to wash sales.
As of October 31, 2021, the Fund had no tax-basis capital losses to offset future capital gains. During fiscal year 2021, the capital losses utilized by the Fund were $27,785.
Capital losses sustained in or after fiscal year 2012 can be carried forward indefinitely, but any such loss retains the character of the original loss and must be utilized prior to any loss incurred before fiscal year 2012. As a result of this ordering rule, capital loss carryforwards incurred prior to fiscal year 2012 may be more likely to expire unused. Capital losses sustained prior to fiscal year 2012 can be carried forward for eight years and can be carried forward as short-term capital losses regardless of the character of the original loss.
As of October 31, 2021, the Fund did not defer, on a tax basis, any late-year ordinary losses. Late-year ordinary losses are net ordinary losses incurred after December 31, 2020, but within the taxable year, that are deemed to arise on the first day of the Fund’s next taxable year.
During fiscal years 2021 and 2020, the tax character of distributions paid by the Fund was as follows:
Management has evaluated the Fund’s related events and transactions that occurred subsequent to October 31, 2021, through the date of issuance of the Fund’s financial statements. Other than as disclosed below, management has determined that there were no subsequent events requiring recognition or disclosure in the financial statements.
On December 7, 2021, capital gains were declared and paid to shareholders of record on December 6, 2021, as follows:
We have audited the accompanying statement of assets and liabilities of the Hennessy Balanced Fund (the “Fund”), a series of Hennessy Funds Trust, including the schedule of investments, as of October 31, 2021, the related statement 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, the financial highlights for each of the five years in the period then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of October 31, 2021, the results of its operations for the year then ended, the changes in its 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 in conformity with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We have served as the auditor of one or more of the funds in the Trust since 2002.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of October 31, 2021 by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
The business and affairs of the Funds are managed under the direction of the Board of Trustees of the Trust, and the Board of Trustees elects the officers of the Trust. From time to time, the Board of Trustees also has appointed advisers to the Board of Trustees (“Advisers”) with the intention of having qualified individuals serve in an advisory capacity to garner experience in the mutual fund and asset management industry and be considered as potential Trustees in the future. There are currently two Advisers, Brian Alexander and Doug Franklin. As Advisers, Mr. Alexander and Mr. Franklin attend meetings of the Board of Trustees and act as non-voting participants. Information pertaining to the Trustees, Advisers, and the officers of the Trust is set forth below. The Trustees and officers serve until their successors are duly elected and qualified or until their earlier death, resignation, or removal. Each Trustee oversees all 16 Hennessy Funds. Unless otherwise indicated, the address of all persons listed below is 7250 Redwood Boulevard, Suite 200, Novato, CA 94945. The Fund’s Statement of Additional Information includes more information about the persons listed below and is available without charge by calling 1-800-966-4354 or by visiting www.hennessyfunds.com.
As a shareholder of the Fund, you incur 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 the Fund 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, 2021, through October 31, 2021.
The first line of the table below provides information about actual account values and actual expenses. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the 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 “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. Although the Fund charges 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. Bank Global Fund Services, the Fund’s transfer agent. If you request that a redemption be made by wire transfer, the Fund’s transfer agent charges a $15 fee. IRAs are charged a $15 annual maintenance fee (up to $30 maximum per shareholder for shareholders with multiple IRAs). The example below includes, but is not limited to, management, shareholder servicing, accounting, custody, and transfer agent fees. However, the example below does not include portfolio trading commissions and related expenses.
The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s 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 Fund 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. Therefore, the second line is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds.
A description of the policies and procedures the Fund uses 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/proxy-voting/voting-policy, or (3) on the U.S. Securities and Exchange Commission’s (the “SEC”) website at www.sec.gov. The Fund’s proxy voting record is available without charge on both the Hennessy Funds’ website at www.hennessyfunds.com/proxy-voting/voting-record and the SEC’s website at www.sec.gov no later than August 31 for the prior 12 months ending June 30.
The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov or on request by calling 1-800-966-4354.
For fiscal year 2021, certain dividends paid by the Fund may be subject to a maximum tax rate of 23.8%, 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 100.00%.
For corporate shareholders, the percent of ordinary income distributions that qualified for the corporate dividends received deduction for fiscal year 2021 was 100.00%.
The percentage of taxable ordinary income distributions that were designated as short-term capital gain distributions under Section 871(k)(2)(C) of the Internal Revenue Code of 1986, as amended, for the Fund was 28.96%.
To help keep the Fund’s costs as low as possible, we generally deliver a single copy of shareholder reports, proxy statements, and prospectuses to shareholders who share an address and have the same last name. This process does not apply to account statements. You may request an individual copy of a shareholder document at any time. If you would like to receive separate mailings of shareholder documents, please call U.S. Bank Global Fund Services at 1-800-261-6950 or 1-414-765-4124, and individual delivery will begin within 30 days of your request. If your account is held through a financial institution or other intermediary, please contact such intermediary directly to request individual delivery.
As permitted by SEC regulations, the Fund’s shareholder reports are made available on a website, and unless you sign up for eDelivery or elect to receive paper copies as detailed below, you will be notified by mail each time a report is posted and provided with a website link to access the report.
The Fund also offers shareholders the option to receive all notices, account statements, prospectuses, tax forms, and shareholder reports online. To sign up for eDelivery or change your delivery preference, please visit www.hennessyfunds.com/account.
To elect to receive paper copies of all future reports free of charge, please call U.S. Bank Global Fund Services at 1-800-261-6950 or 1-414-765-4124.
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In accordance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), we have adopted and implemented a liquidity risk management program (the “Liquidity Program”). The purpose of the Liquidity Program is to assess and manage the Fund’s liquidity risk, which is the risk that the Fund would not be able to meet requests to redeem Fund shares without significant dilution of the remaining shareholders’ interests in the Fund. The Board of Trustees of the Fund (the “Board”) designated a committee comprising representatives of Hennessy Advisors, Inc., the investment adviser to the Fund, as the administrator of the Liquidity Program (the “Program Administrator”).
The Program Administrator provided a written report regarding the Liquidity Program to the Board in advance of its meeting on June 2, 2021. The report covered the period from June 1, 2020, through May 31, 2021. The report addressed the operation of the Liquidity Program, assessed the adequacy and effectiveness of its implementation, and described any material changes to the Liquidity Program during the review period. The Trust’s chief compliance officer presented the report to the Board at the meeting and provided additional information regarding the Liquidity Program. The Board reviewed the Liquidity Program and considered, among other items, the following:
We collect this information directly from you, indirectly in the course of providing services to you, directly and indirectly from your activity on our website, from broker dealers, marketing agencies, and other third parties that interact with us in connection with the services we perform and products we offer, and from anonymized and aggregated consumer information.
We use this information to fulfill the reason you provided the information to us, to provide you with other relevant products that you request from us, to provide you with information about products that may interest you, to improve our website or present our website’s contents to you, and as otherwise described to you when collecting your personal information.
We do not disclose any personal information to unaffiliated third parties, except as permitted by law. We may disclose your personal information to our affiliates, vendors, and service providers for a business purpose. 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. When disclosing your personal information to third parties, we enter into a contract with each third party describing the purpose of such disclosure and requiring that such personal information be kept confidential and not used for any purpose except to perform the services contracted or respond to regulatory or law enforcement requests.
Furthermore, we restrict access to your personal information to those persons who require such information to provide products or services to you. As a result, we do not provide a means for opting out of our limited sharing of your information. We maintain physical, electronic, and procedural safeguards that comply with federal standards to guard your personal information.
If you hold shares of the Funds through a financial intermediary, including, but not limited to, a broker-dealer, bank, or trust company, the privacy policy of your financial intermediary governs how your personal information is shared with unaffiliated third parties.
The California Consumer Privacy Act of 2018 (the “CCPA”) provides you, as a California resident, with certain additional rights relating to your personal information.
Under the CCPA, you have the right to request that we disclose to you the categories of personal information we have collected about you over the past 12 months, the categories of sources of such information, our business purpose for collecting the information, the categories of third parties, if any, with whom we shared the information, and the specific information we have collected about you. You also have the right to request that we delete any of your personal information, and, unless an exception applies, we will delete such information upon receiving and confirming your request. To make a request, call us at 1-800-966-4354, email us at privacy@hennessyfunds.com, or go to www.hennessyfunds.com/contact. We will not discriminate against you for exercising your rights under the CCPA. Further, we will not collect additional categories of your personal information or use the personal information we collected for materially different, unrelated, or incompatible purposes without providing you notice.
Hennessy Advisors, Inc.
U.S. Bancorp Fund Services, LLC
d/b/a U.S. Bank Global Fund Services
P.O. Box 701
U.S. Bank N.A.
Neil J. Hennessy
Robert T. Doyle
J. Dennis DeSousa
Gerald P. Richardson
others only if preceded or accompanied by a current prospectus.
ANNUAL REPORT
OCTOBER 31, 2021
HENNESSY BP ENERGY TRANSITION FUND
Investor Class HNRGX
Institutional Class HNRIX
www.hennessyfunds.com | 1-800-966-4354
(This Page Intentionally Left Blank.)
Contents
| Letter to Shareholders | 2 |
| Performance Overview | 4 |
| Financial Statements | |
| Schedule of Investments | 8 |
| Statement of Assets and Liabilities | 12 |
| Statement of Operations | 13 |
| Statements of Changes in Net Assets | 15 |
| Financial Highlights | 16 |
| Notes to the Financial Statements | 20 |
| Report of Independent Registered Public Accounting Firm | 28 |
| Trustees and Officers of the Fund | 29 |
| Expense Example | 32 |
| Proxy Voting Policy and Proxy Voting Records | 34 |
| Availability of Quarterly Portfolio Schedule | 34 |
| Important Notice Regarding Delivery of Shareholder Documents | 34 |
| Electronic Delivery | 34 |
| Liquidity Risk Management Program | 35 |
| Privacy Policy | 35 |
| HENNESSY FUNDS | 1-800-966-4354 | |
December 2021
Dear Hennessy Funds Shareholder:
What a year this has been. While it doesn’t feel that we are out of the “pandemic” phase of the coronavirus crisis, we look forward to a day when we will eventually see fewer cases and potentially less severe variants. We feel extremely grateful to the many healthcare workers who have continued to work tirelessly during the recent surge. As we move through the next year, we hope that new U.S. cases will decline and that many other parts of the world will see improvements as well.
What a year this has been! As measured by the total return of the S&P 500® Index, as of October 31, 2021, the market was up 24.04% calendar year to date. This comes in the wake of a tumultuous 2020 in which the market plunged in the beginning of the pandemic and recovered dramatically to end the year up 18.40%. Interestingly, 18% appears to be a repeating number in the past dozen years. From the low point of the Financial Crisis (March 9, 2009) to the high point reached just prior to the COVID-19 pandemic (February 12, 2020), the S&P 500® Index was up 18.27% per year. We are well aware that past results are not predictive of the future, and we find ourselves naturally skeptical of such strong returns. But, as shown in the chart below, we find that the most common annual total returns of the market over the past 102 years range between 20% and 30% with the second most common being between 10% and 20%:
Source: Bloomberg L.P.
We will say it again, after showing a chart like the one above: Past results are not predictive of the future. Instead, we look at where we are right now – in the economy, in the market, in the business cycle – to reflect on where we have come from and where we may be going. U.S. GDP is strong and growing, interest rates remain low, and earnings growth and profitability remain robust. We believe stocks are trading at reasonable valuations when viewed as a whole, with the S&P 500® Index at 21.0x estimated earnings for 2022. Furthermore, we believe corporate balance sheets are healthy, with high levels of excess cash, which could support growth, increases in dividends, more share buybacks, and future acquisitions. Uncertainty and volatility can manifest at any time in the stock market, and the current market is no different. Investors have questions about inflation, worldwide supply chain issues, and what could drive the next boost in earnings. While these concerns are warranted, we continue to believe that overall the positives outweigh the negatives, and here at Hennessy we continue to see opportunity in the market and in our Funds.
What a (fiscal) year this has been!!! For our fiscal year ended October 31, 2021, the S&P 500® Index rose 42.91% on a total return basis, setting a new all-time high on the final day of the period. Except for a short 21-trading-day period that began on September 2 during which the market fell 5.13% only to rebound to new highs just 13 trading days later, the market has been on a continuous march higher. We saw a dramatic shift in market leadership as many of the sectors that underperformed during our last fiscal year soared in fiscal year 2021. Small-caps beat mid-caps, which in turn beat large-caps. The Energy and Financials sectors skyrocketed during the 12-month period, as reflected by the S&P 500® Energy Sector’s total return of 111.29% and the Russell 1000® Index Financials’ total return of 70.87%. Both of these sectors were among the worst performing in our fiscal year 2020, so a bounce back in our fiscal year 2021, while not a foregone conclusion, was a distinct possibility.
Overall, we are pleased with the performance of our mutual funds during the fiscal year. On an absolute basis, each of our 16 Funds achieved total returns greater than 10% and seven outperformed their primary benchmark. Ten of our 11 domestic equity-only Funds outperformed the S&P 500® Index and posted total returns of 45% or higher. Our four best-performing funds were concentrated in the Energy and Financials sectors. While some of our Funds certainly benefited from being in the “right” sector at the “right” time, we also believe this was a favorable period for our investment style of high-conviction investing and concentrated portfolio construction.
What will the coming year bring? As mentioned in our last shareholder letter (June 2021), we understand that even the greatest bull markets experience corrections along the way, and the last time the S&P 500® Index dropped over 10% was in February/March of 2020. Whether or not a correction occurs sooner or later, we believe the market as a whole has more room to run. We see many factors that could drive the market higher from here: strong GDP growth and increasing corporate earnings, a potentially lower-for-longer interest rate environment, accommodative fiscal and monetary policies, a healthy and robust financial system, low unemployment and solid wage growth, and strong corporate balance sheets with plenty of cash.
Thank you for your interest and for investing with us. We remain committed to managing our portfolios for long-term performance, ever mindful of downside risk. With so many investment options available to you, we are grateful for the trust you put in us and for your continued interest in our family of Funds. If you have any questions or would like to speak with us, please don’t hesitate to call us directly at (800) 966-4354.
Best regards,
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| Ryan C. Kelley |
| Chief Investment Officer |
Past performance does not guarantee future results. To obtain current standardized performance for the Hennessy Funds, visit https://www.hennessyfunds.com/funds/price-performance.
Mutual fund investing involves risk. Principal loss is possible.
Opinions expressed are those of Ryan C. Kelley and are subject to change, are not guaranteed, and should not be considered investment advice.
The Dow Jones Industrial Average and S&P 500® Index are commonly used to measure the performance of U.S. stocks. The S&P 500® Energy Index comprises those companies included in the S&P 500® Index that are classified in the Energy sector. The Russell 1000® Index Financials is a subset of the Russel 1000® Index that measures the performance of securities classified in the Financials sector of the large-capitalization U.S. equity market. The indices are used herein for comparative purposes in accordance with SEC regulations. One cannot invest directly in an index. All returns are shown on a total return basis.
| HENNESSY FUNDS | 1-800-966-4354 | |
Performance Overview (Unaudited)
CHANGE IN VALUE OF $10,000 INVESTMENT
This graph illustrates the performance of an initial investment of $10,000 made in the Fund on its inception date and assumes the reinvestment of dividends and capital gains.
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED OCTOBER 31, 2021
| | | One | Five | Since Inception |
| | | Year
| Years
| (12/31/13)
|
| | Hennessy BP Energy Transition Fund – | | | |
| | Investor Class (HNRGX) | 109.50% | 0.08% | -0.78% |
| | Hennessy BP Energy Transition Fund – | | | |
| | Institutional Class (HNRIX) | 110.17% | 0.36% | -0.53% |
| | S&P 500® Energy Index | 111.29% | 0.98% | -1.61% |
| | S&P 500® Index | 42.91% | 18.93% | 14.57% |
Expense ratios: 2.59% (Investor Class); 2.01% (Institutional Class)
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. The performance table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 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 including or prior to October 26, 2018, is that of the BP Capital TwinLine Energy Fund.
The S&P 500® Energy Index comprises those companies included in the S&P 500® that are classified in the Energy sector. The S&P 500® Index is a capitalization-weighted index that is designed to represent the broad domestic economy through changes in the aggregate market value of 500 stocks across all major industries. One cannot invest directly in an index. These indices are used for comparative purposes in accordance with Securities and Exchange Commission regulations.
Standard & Poor’s Financial Services is the source and owner of the S&P® and S&P 500® trademarks.
The expense ratios presented are from the most recent prospectus. The expense ratios for the current reporting period are available in the Financial Highlights section of this report.
PERFORMANCE NARRATIVE
Portfolio Managers Ben Cook, CFA, and Kevin Gallagher, CFA
BP Capital Fund Advisors, LLC (sub-advisor)
Performance:
For the one-year period ended October 31, 2021, the Investor Class of the Hennessy BP Energy Transition Fund returned 109.50%, underperforming the S&P 500® Energy Index (the Fund’s primary benchmark), which returned 111.29% for the same period, but outperforming the S&P 500® Index, which returned 42.91% for the same period.
The Fund’s strong performance was primarily due to its overweight position in traditional hydrocarbon energy equities. Additionally, Fund performance benefited from holding companies in the end user category, namely materials, which performed well as improving prospects for global economic recovery provided support to economically sensitive sectors. The Fund’s holdings in renewable energy-oriented companies detracted from relative performance during the period, as operating issues in key supply chain markets presented headwinds for many companies to achieve operating and financial targets.
Portfolio Strategy:
The Fund seeks to invest in companies across the energy value chain, including both hydrocarbons and renewable energy sources. This investible universe includes crude oil and natural gas exploration and production companies, oilfield service providers, midstream companies, refiners, and energy end users. The renewable energy value chain comprises materials producers, machinery and equipment manufacturers, service providers, and utilities. We believe the inclusion of energy end users, such as industrials and transportation companies, differentiates the Fund from traditional energy funds that do not include such companies. We believe including such companies in the investment universe enables the Fund to benefit from a broader range of energy-related themes and provides greater flexibility to adjust sub-sector weightings based on our investment outlook. The Fund typically owns 25 to 40 securities and historically has had little overlap with the top holdings of commonly used energy and commodity equity benchmarks.
Investment Commentary:
Energy market conditions improved dramatically at the beginning of the one-year period as certainty afforded by the U.S. Presidential election outcome and promising results from Pfizer’s COVID-19 vaccine trial, These events signaled an encouraging outlook for rising energy demand on the expectation for accommodative fiscal stimulus as well the gradual easing of pandemic related economic headwinds. At the same time, coordinated restraint by OPEC+ member countries and spending discipline by U.S. shale producers kept crude oil supplies limited, which caused global inventories of crude oil to fall to pre-pandemic levels by summer’s end. Storm disruption during the month of August added further support to crude oil price gains during the period, as damage to offshore Gulf of Mexico facilities hampered the restart of both crude oil and natural gas production. The price of NYMEX WTI crude oil more than doubled over the period, finishing at $83.28 per barrel (bbl).
Natural gas markets also strengthened considerably on tightening global supplies following an historic bout of cold weather in the southcentral U.S. during February and an extended period of cooler than normal winter temperatures in western Europe that ultimately left inventories of natural gas in both markets well below historical seasonal norms. By early fall, natural gas pricing in both southeast Asia and northwestern Europe spiked to multi-year highs as storage operators raced to secure liquefied natural gas (“LNG”) cargos required to refill regional storage facilities ahead of the upcoming winter
| HENNESSY FUNDS | 1-800-966-4354 | |
heating season. In the United States, a key source of global LNG supply, natural gas prices remained firm through period-end reflecting healthy market demand for LNG export cargo as well as the volume necessary for domestic storage fill ahead of the coming winter. During the period, NYMEX Henry Hub natural gas prices rose considerably from a range of $2.50 to $3.00 per thousand cubic feet (mcf) to over $5.00 per mcf at the end of October 2021.
Relative energy equity performance during the period generally tracked the directional influence of commodity prices, but also reflected a comparative investor preference for companies in hydrocarbon-oriented energy businesses. Companies engaged in the production, transportation, refining, and export of hydrocarbons of all sorts enjoyed meaningful outperformance relative to renewables-oriented peers.
Following President Biden’s election victory in November 2020, investor enthusiasm for renewable-energy-oriented equities pushed valuations across the sector to very high levels into year end. In contrast, hydrocarbon-oriented equity valuations reflected little potential associated with a rebounding economy and newly embraced shareholder friendly management practices that, in our opinion, offered meaningful upside. Accordingly, we pivoted renewable energy equity exposure toward hydrocarbon-oriented equities by adding U.S. exploration and production companies and oil field service providers. By period end, portfolio exposure to hydrocarbon-oriented equities remained high relative to historical levels.
We have been encouraged by the U.S. energy industry’s resiliency during the COVID-19 pandemic-related contraction. Hydrocarbon-oriented companies have reduced capital spending and emphasized cost efficiency in order to preserve financial flexibility. Across the sector, corporate behavior continues to reflect an alignment with shareholders that is increasingly shifting the rewards of surplus free cash flow away from growth reinvestment and back to investors in the form of accelerated debt repayment, dividend hikes, and share repurchases. Though the need for hydrocarbon supply growth will eventually return, we are optimistic that the industry will continue to operate in the interest of investors, emphasizing capital efficiency, productivity improvement, and continued prudent focus on shareholder return.
As the world pursues greenhouse gas emission reduction targets, we believe policy, technology, and consumer and investor preference will continue to drive change in the world’s primary fuel mix. In this environment, we believe that wind, solar, hydrogen, and other renewable technologies will expand at the expense of more carbon intensive fuels, namely coal and heavy fuel oil. Despite this, we expect critical impediments in the form of policy gaps, reliability issues, and simple cost disadvantages will continue to hamper the pace of the transition toward renewables, and we see these drivers prolonging the dependence upon hydrocarbons. As a consequence, we envision a landscape that reflects the coexistence and need of both hydrocarbons and renewables, which should provide investment opportunity for investors for decades to come.
_______________
Opinions expressed are those of the Portfolio Managers as of the date written and are subject to change, are not guaranteed, and should not be considered investment advice or an indication of trading intent.
The Fund’s triple digit performance was attributable to unusually favorable market conditions resulting from the COVID-19 pandemic and to supply declines. Such conditions may not continue to exist and the Fund’s performance may not be repeated in the future.
The Fund invests in small-capitalization and medium-capitalization companies, which involves additional risks such as limited liquidity and greater volatility. Funds that concentrate in a single sector may be subject to a higher degree of risk. Energy-related companies are subject to specific risks, including fluctuations in commodity prices and consumer demand, substantial government regulation, and depletion of reserves. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. Use of derivatives can increase the volatility of the Fund.
MLPs and MLP investments have unique characteristics. The Fund does not receive the same tax benefits as a direct investment in an MLP.
The prices of MLP units may fluctuate abruptly and trading volume may be low, making it difficult for the Fund to sell its units at a favorable price. MLP general partners have the power to take actions that adversely affect the interests of unit holders. Most MLPs do not pay U.S. federal income tax at the partnership level, but an adverse change in tax laws could result in MLPs being treated as corporations for federal income tax purposes, which could reduce or eliminate distributions paid by MLPs to the Fund. If the Fund’s MLP investments exceed 25% of its assets, the Fund may not qualify for treatment as a regulated investment company under the Internal Revenue Code. The Fund would be taxed as an ordinary corporation, which could substantially reduce the Fund’s net assets and its distributions to shareholders. Please see the Fund’s prospectus for a more complete discussion of these and other risks.
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 Schedule of Investments included in this report for additional portfolio information.
Free cash flow is a measure of financial performance calculated as operating cash flow minus capital expenditures.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
Schedule of Investments as of October 31, 2021 |
HENNESSY BP ENERGY TRANSITION FUND
(% of Total Assets)
| TOP TEN HOLDINGS (EXCLUDING MONEY MARKET FUNDS) | % TOTAL ASSETS |
| Diamondback Energy, Inc. | 4.98% |
| EOG Resources, Inc. | 4.90% |
| PDC Energy, Inc. | 4.88% |
| Plains All American Pipeline LP | 4.86% |
| Cheniere Energy, Inc. | 4.48% |
| Exxon Mobil Corp. | 4.44% |
| Suncor Energy, Inc. | 4.33% |
| Chevron Corp. | 4.19% |
| ConocoPhillips | 4.16% |
| Pioneer Natural Resources Co. | 4.16% |
Note: The Fund concentrates its investments in the Energy industry. For presentation purposes, the Fund uses custom categories.
| COMMON STOCKS – 88.13% | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Downstream – 6.69% | | | | | | | | | |
| Marathon Petroleum Corp. | | | 6,900 | | | $ | 454,917 | | | | 2.80 | % |
| Valero Energy Corp. | | | 8,170 | | | | 631,786 | | | | 3.89 | % |
| | | | | | | | 1,086,703 | | | | 6.69 | % |
| | | | | | | | | | | | | |
| Exploration & Production – 42.62% | | | | | | | | | | | | |
| Antero Resources Corp. (a) | | | 32,000 | | | | 635,840 | | | | 3.91 | % |
| Comstock Resources, Inc. (a) | | | 39,640 | | | | 391,247 | | | | 2.41 | % |
| ConocoPhillips | | | 9,145 | | | | 681,211 | | | | 4.19 | % |
| Coterra Energy, Inc. | | | 26,510 | | | | 565,193 | | | | 3.48 | % |
| Diamondback Energy, Inc. | | | 7,620 | | | | 816,788 | | | | 5.03 | % |
| EOG Resources, Inc. | | | 8,680 | | | | 802,553 | | | | 4.94 | % |
| EQT Corp. (a) | | | 24,500 | | | | 487,795 | | | | 3.00 | % |
| Magnolia Oil & Gas Corp. | | | 17,000 | | | | 354,960 | | | | 2.18 | % |
| PDC Energy, Inc. | | | 15,290 | | | | 799,820 | | | | 4.92 | % |
| Pioneer Natural Resources Co. | | | 3,650 | | | | 682,477 | | | | 4.20 | % |
| Suncor Energy, Inc. (b) | | | 26,960 | | | | 709,048 | | | | 4.36 | % |
| | | | | | | | 6,926,932 | | | | 42.62 | % |
| | | | | | | | | | | | | |
| Integrated – 8.71% | | | | | | | | | | | | |
| Chevron Corp. | | | 6,000 | | | | 686,940 | | | | 4.23 | % |
| Exxon Mobil Corp. | | | 11,300 | | | | 728,511 | | | | 4.48 | % |
| | | | | | | | 1,415,451 | | | | 8.71 | % |
| | | | | | | | | | | | | |
| Midstream – 4.52% | | | | | | | | | | | | |
| Cheniere Energy, Inc. (a) | | | 7,100 | | | | 734,140 | | | | 4.52 | % |
| | | | | | | | | | | | | |
| Oil Services – 15.93% | | | | | | | | | | | | |
| Halliburton Co. | | | 20,250 | | | | 506,047 | | | | 3.11 | % |
| Newpark Resources, Inc. (a) | | | 125,950 | | | | 428,230 | | | | 2.63 | % |
| Schlumberger Ltd. (b) | | | 17,810 | | | | 574,550 | | | | 3.54 | % |
| Select Energy Services, Inc. (a) | | | 52,660 | | | | 316,487 | | | | 1.95 | % |
| Solaris Oilfield Infrastructure, Inc. | | | 37,320 | | | | 283,259 | | | | 1.74 | % |
| TechnipFMC PLC (a)(b) | | | 65,240 | | | | 480,819 | | | | 2.96 | % |
| | | | | | | | 2,589,392 | | | | 15.93 | % |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
| COMMON STOCKS | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Utility – 9.66% | | | | | | | | | |
| Freeport-McMoRan, Inc. | | | 14,820 | | | $ | 559,011 | | | | 3.44 | % |
| NextEra Energy, Inc. | | | 5,970 | | | | 509,420 | | | | 3.14 | % |
| OGE Energy Corp. | | | 14,700 | | | | 500,829 | | | | 3.08 | % |
| | | | | | | | 1,569,260 | | | | 9.66 | % |
| | | | | | | | | | | | | |
| Total Common Stocks | | | | | | | | | | | | |
| (Cost $11,629,182) | | | | | | | 14,321,878 | | | | 88.13 | % |
| | | | | | | | | | | | | |
| PARTNERSHIPS & TRUSTS – 8.92% | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Midstream – 8.92% | | | | | | | | | | | | |
| Enterprise Products Partners LP | | | 8,729 | | | | 197,974 | | | | 1.22 | % |
| MPLX LP | | | 15,104 | | | | 454,932 | | | | 2.80 | % |
| Plains All American Pipeline LP | | | 78,710 | | | | 796,545 | | | | 4.90 | % |
| | | | | | | | | | | | | |
| Total Partnerships & Trusts | | | | | | | | | | | | |
| (Cost $1,681,920) | | | | | | | 1,449,451 | | | | 8.92 | % |
| | | | | | | | | | | | | |
| SHORT-TERM INVESTMENTS – 3.51% | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Money Market Funds – 3.51% | | | | | | | | | | | | |
| First American Government Obligations Fund, | | | | | | | | | | | | |
| Institutional Class, 0.03% (c) | | | 570,411 | | | | 570,411 | | | | 3.51 | % |
| | | | | | | | | | | | | |
| Total Short-Term Investments | | | | | | | | | | | | |
| (Cost $570,411) | | | | | | | 570,411 | | | | 3.51 | % |
| | | | | | | | | | | | | |
| Total Investments | | | | | | | | | | | | |
| (Cost $13,881,513) – 100.56% | | | | | | | 16,341,740 | | | | 100.56 | % |
| Liabilities in Excess of Other Assets – (0.56)% | | | | | | | (90,966 | ) | | | (0.56 | )% |
| | | | | | | | | | | | | |
TOTAL NET ASSETS – 100.00% | | | | | | $ | 16,250,774 | | | | 100.00 | % |
Percentages are stated as a percent of net assets.
| (a) | Non-income-producing security. |
| (b) | U.S.-traded security of a foreign corporation. |
| (c) | The rate listed is the fund’s seven-day yield as of October 31, 2021. |
The accompanying notes are an integral part of these financial statements.
Summary of Fair Value Exposure as of October 31, 2021
The following is a summary of the inputs used to value the Fund’s net assets as of October 31, 2021 (see Note 3 in the accompanying Notes to the Financial Statements):
| Common Stocks | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Downstream | | $ | 1,086,703 | | | $ | — | | | $ | — | | | $ | 1,086,703 | |
| Exploration & Production | | | 6,926,932 | | | | — | | | | — | | | | 6,926,932 | |
| Integrated | | | 1,415,451 | | | | — | | | | — | | | | 1,415,451 | |
| Midstream | | | 734,140 | | | | — | | | | — | | | | 734,140 | |
| Oil Services | | | 2,589,392 | | | | — | | | | — | | | | 2,589,392 | |
| Utility | | | 1,569,260 | | | | — | | | | — | | | | 1,569,260 | |
| Total Common Stocks | | $ | 14,321,878 | | | $ | — | | | $ | — | | | $ | 14,321,878 | |
| Partnerships & Trusts | | | | | | | | | | | | | | | | |
| Midstream | | $ | 1,449,451 | | | $ | — | | | $ | — | | | $ | 1,449,451 | |
| Total Partnerships & Trusts | | $ | 1,449,451 | | | $ | — | | | $ | — | | | $ | 1,449,451 | |
| Short-Term Investments | | | | | | | | | | | | | | | | |
| Money Market Funds | | $ | 570,411 | | | $ | — | | | $ | — | | | $ | 570,411 | |
| Total Short-Term Investments | | $ | 570,411 | | | $ | — | | | $ | — | | | $ | 570,411 | |
| Total Investments | | $ | 16,341,740 | | | $ | — | | | $ | — | | | $ | 16,341,740 | |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
Statement of Assets and Liabilities as of October 31, 2021 |
| ASSETS: | | | |
| Investments in securities, at value (cost $13,881,513) | | $ | 16,341,740 | |
| Dividends and interest receivable | | | 5,327 | |
| Receivable for fund shares sold | | | 16,425 | |
| Return of capital receivable | | | 18,096 | |
| Prepaid expenses and other assets | | | 8,363 | |
| Total assets | | | 16,389,951 | |
| | | | | |
| LIABILITIES: | | | | |
| Payable for fund shares redeemed | | | 81,355 | |
| Payable to advisor | | | 16,461 | |
| Payable to auditor | | | 23,108 | |
| Accrued distribution fees | | | 1,557 | |
| Accrued service fees | | | 545 | |
| Accrued trustees fees | | | 6,596 | |
| Accrued expenses and other payables | | | 9,555 | |
| Total liabilities | | | 139,177 | |
| NET ASSETS | | $ | 16,250,774 | |
| | | | | |
| NET ASSETS CONSISTS OF: | | | | |
| Capital stock | | $ | 54,597,413 | |
| Accumulated deficit | | | (38,346,639 | ) |
| Total net assets | | $ | 16,250,774 | |
| | | | | |
| NET ASSETS: | | | | |
| Investor Class | | | | |
| Shares authorized (no par value) | | Unlimited | |
| Net assets applicable to outstanding shares | | $ | 6,802,285 | |
| Shares issued and outstanding | | | 371,536 | |
| Net asset value, offering price, and redemption price per share | | $ | 18.31 | |
| | | | | |
| Institutional Class | | | | |
| Shares authorized (no par value) | | Unlimited | |
| Net assets applicable to outstanding shares | | $ | 9,448,489 | |
| Shares issued and outstanding | | | 508,093 | |
| Net asset value, offering price, and redemption price per share | | $ | 18.60 | |
The accompanying notes are an integral part of these financial statements.
| STATEMENT OF ASSETS AND LIABILITIES/STATEMENT OF OPERATIONS |
Financial Statements
Statement of Operations for the year ended October 31, 2021 |
| INVESTMENT INCOME: | | | |
| Distributions received from master limited partnerships | | $ | 107,506 | |
| Return of capital on distributions received | | | (107,506 | ) |
Dividend income from common stock(1) | | | 320,838 | |
| Interest income | | | 42 | |
| Total investment income | | | 320,880 | |
| | | | | |
| EXPENSES: | | | | |
| Investment advisory fees (See Note 5) | | | 135,718 | |
| Federal and state registration fees | | | 30,632 | |
| Compliance expense (See Note 5) | | | 27,445 | |
| Administration, accounting, custody, and transfer agent fees (See Note 5) | | | 24,086 | |
| Audit fees | | | 23,108 | |
| Trustees’ fees and expenses | | | 18,463 | |
| Sub-transfer agent expenses – Investor Class (See Note 5) | | | 8,551 | |
| Sub-transfer agent expenses – Institutional Class (See Note 5) | | | 5,423 | |
| Reports to shareholders | | | 7,999 | |
| Distribution fees – Investor Class (See Note 5) | | | 7,146 | |
| Service fees – Investor Class (See Note 5) | | | 4,764 | |
| Interest expense (See Note 7) | | | 1,193 | |
| Legal fees | | | 192 | |
| Other expenses | | | 5,163 | |
| Total expenses before waivers | | | 299,883 | |
| Service provider expense waiver (See Note 5) | | | (24,086 | ) |
| Net expenses | | | 275,797 | |
| NET INVESTMENT INCOME | | $ | 45,083 | |
| | | | | |
| REALIZED AND UNREALIZED GAINS (LOSSES): | | | | |
| Net realized gain on investments | | $ | 1,234,155 | |
| Net change in unrealized appreciation/depreciation on investments | | | 5,107,361 | |
| Net gain on investments | | | 6,341,516 | |
| NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | | $ | 6,386,599 | |
(1) | Net of foreign taxes withheld and issuance fees of $1,955. |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
(This Page Intentionally Left Blank.)
| STATEMENTS OF CHANGES IN NET ASSETS |
Financial Statements
| Statements of Changes in Net Assets |
| | | Year Ended | | | Year Ended | |
| | | October 31, 2021 | | | October 31, 2020 | |
| OPERATIONS: | | | | | | |
| Net investment income | | $ | 45,083 | | | $ | 195,908 | |
| Net realized gain (loss) on investments | | | 1,234,155 | | | | (19,552,986 | ) |
| Net change in unrealized | | | | | | | | |
| appreciation/depreciation on investments | | | 5,107,361 | | | | 3,844,502 | |
| Net increase (decrease) in net | | | | | | | | |
| assets resulting from operations | | | 6,386,599 | | | | (15,512,576 | ) |
| | | | | | | | | |
| DISTRIBUTIONS TO SHAREHOLDERS: | | | | | | | | |
| Distributable earnings – Institutional Class | | | — | | | | (79,003 | ) |
| Total distributions | | | — | | | | (79,003 | ) |
| | | | | | | | | |
| CAPITAL SHARE TRANSACTIONS: | | | | | | | | |
| Proceeds from shares subscribed – Investor Class | | | 7,710,426 | | | | 2,364,355 | |
| Proceeds from shares subscribed – Institutional Class | | | 5,598,042 | | | | 2,010,096 | |
| Dividends reinvested – Institutional Class | | | — | | | | 77,299 | |
| Cost of shares redeemed – Investor Class | | | (6,158,757 | ) | | | (4,505,031 | ) |
| Cost of shares redeemed – Institutional Class | | | (3,599,017 | ) | | | (29,242,373 | ) |
| Net increase (decrease) in net assets | | | | | | | | |
| derived from capital share transactions | | | 3,550,694 | | | | (29,295,654 | ) |
| TOTAL INCREASE (DECREASE) IN NET ASSETS | | | 9,937,293 | | | | (44,887,233 | ) |
| | | | | | | | | |
| NET ASSETS: | | | | | | | | |
| Beginning of year | | | 6,313,481 | | | | 51,200,714 | |
| End of year | | $ | 16,250,774 | | | $ | 6,313,481 | |
| | | | | | | | | |
| CHANGES IN SHARES OUTSTANDING: | | | | | | | | |
| Shares sold – Investor Class | | | 521,054 | | | | 265,356 | |
| Shares sold – Institutional Class | | | 329,240 | | | | 207,448 | |
| Shares issued to holders as reinvestment | | | | | | | | |
| of dividends – Institutional Class | | | — | | | | 5,019 | |
| Shares redeemed – Investor Class | | | (435,171 | ) | | | (464,633 | ) |
| Shares redeemed – Institutional Class | | | (252,362 | ) | | | (2,892,945 | ) |
| Net increase (decrease) in shares outstanding | | | 162,761 | | | | (2,879,755 | ) |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
For an Investor Class share outstanding throughout each period
PER SHARE DATA:
Net asset value, beginning of period
Income from investment operations:
Net investment income (loss)(2)
Net realized and unrealized gains (losses) on investments
Total from investment operations
Net asset value, end of period
TOTAL RETURN
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (millions)
Ratio of expenses to average net assets:
Before expense reimbursement
After expense reimbursement
Ratio of net investment income (loss) to average net assets:
Before expense reimbursement
After expense reimbursement
Portfolio turnover rate(7)
(1) | The period ended October 31, 2018, consists of 11 months due to the Fund’s fiscal year end change from November 30 to October 31, effective October 26, 2018. |
(2) | Calculated using the average shares outstanding method. |
(3) | Not annualized. |
(4) | Annualized. |
(5) | The Fund had an expense limitation agreement in place through October 25, 2020. |
(6) | Certain service provider expenses were voluntarily waived during the fiscal year. |
(7) | Calculated on the basis of the Fund as a whole. |
The accompanying notes are an integral part of these financial statements.
| FINANCIAL HIGHLIGHTS — INVESTOR CLASS |
| Year Ended October 31, | | | Period Ended | | | Year Ended November 30, | |
| | | October 31, | | | |
| 2021 | | | 2020 | | | 2019 | | | 2018(1) | | | 2017 | | | 2016 | |
| | | | | | | | | | | | | | | | | |
| $ | 8.74 | | | $ | 14.08 | | | $ | 18.32 | | | $ | 19.47 | | | $ | 20.54 | | | $ | 16.41 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | 0.06 | | | | 0.04 | | | | (0.07 | ) | | | (0.20 | ) | | | (0.23 | ) | | | (0.15 | ) |
| | 9.51 | | | | (5.38 | ) | | | (4.17 | ) | | | (0.95 | ) | | | (0.84 | ) | | | 4.28 | |
| | 9.57 | | | | (5.34 | ) | | | (4.24 | ) | | | (1.15 | ) | | | (1.07 | ) | | | 4.13 | |
| $ | 18.31 | | | $ | 8.74 | | | $ | 14.08 | | | $ | 18.32 | | | $ | 19.47 | | | $ | 20.54 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | 109.50 | % | | | -37.93 | % | | | -23.14 | % | | | -5.91 | %(3) | | | -5.21 | % | | | 25.17 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| $ | 6.80 | | | $ | 2.50 | | | $ | 6.83 | | | $ | 18.16 | | | $ | 22.66 | | | $ | 19.64 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2.96 | % | | | 2.59 | % | | | 1.97 | % | | | 1.82 | %(4) | | | 1.87 | % | | | 1.89 | % |
| | 2.74 | %(6) | | | 2.03 | %(5)(6) | | | 1.97 | % | | | 1.82 | %(4) | | | 1.87 | % | | | 1.89 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| | 0.16 | % | | | (0.18 | )% | | | (0.46 | )% | | | (1.05 | )%(4) | | | (1.21 | )% | | | (0.92 | )% |
| | 0.38 | % | | | 0.38 | % | | | (0.46 | )% | | | (1.05 | )%(4) | | | (1.21 | )% | | | (0.92 | )% |
| | 74 | % | | | 73 | % | | | 87 | % | | | 72 | %(3) | | | 84 | % | | | 83 | % |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
For an Institutional Class share outstanding throughout each period
PER SHARE DATA:
Net asset value, beginning of period
Income from investment operations:
Net investment income (loss)(2)
Net realized and unrealized gains (losses) on investments
Total from investment operations
Less distributions:
Dividends from net investment income
Total distributions
Net asset value, end of period
TOTAL RETURN
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (millions)
Ratio of expenses to average net assets:
Before expense reimbursement
After expense reimbursement
Ratio of net investment income (loss) to average net assets:
Before expense reimbursement
After expense reimbursement
Portfolio turnover rate(7)
(1) | The period ended October 31, 2018, consists of 11 months due to the Fund’s fiscal year end change from November 30 to October 31, effective October 26, 2018. |
(2) | Calculated using the average shares outstanding method. |
(3) | Not annualized. |
(4) | Annualized. |
(5) | The Fund had an expense limitation agreement in place through October 25, 2020. |
(6) | Certain service provider expenses were voluntarily waived during the fiscal year. |
(7) | Calculated on the basis of the Fund as a whole. |
The accompanying notes are an integral part of these financial statements.
| FINANCIAL HIGHLIGHTS — INSTITUTIONAL CLASS |
| Year Ended October 31, | | | Period Ended | | | Year Ended November 30, | |
| | | October 31, | | | |
| 2021 | | | 2020 | | | 2019 | | | 2018(1) | | | 2017 | | | 2016 | |
| | | | | | | | | | | | | | | | | |
| $ | 8.85 | | | $ | 14.26 | | | $ | 18.50 | | | $ | 19.61 | | | $ | 20.64 | | | $ | 16.46 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | 0.07 | | | | 0.12 | | | | (0.02 | ) | | | (0.15 | ) | | | (0.19 | ) | | | (0.11 | ) |
| | 9.68 | | | | (5.50 | ) | | | (4.22 | ) | | | (0.96 | ) | | | (0.84 | ) | | | 4.32 | |
| | 9.75 | | | | (5.38 | ) | | | (4.24 | ) | | | (1.11 | ) | | | (1.03 | ) | | | 4.21 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | — | | | | (0.03 | ) | | | — | | | | — | | | | — | | | | (0.03 | ) |
| | — | | | | (0.03 | ) | | | — | | | | — | | | | — | | | | (0.03 | ) |
| $ | 18.60 | | | $ | 8.85 | | | $ | 14.26 | | | $ | 18.50 | | | $ | 19.61 | | | $ | 20.64 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | 110.17 | % | | | -37.80 | % | | | -22.92 | % | | | -5.66 | %(3) | | | -4.99 | % | | | 25.61 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| $ | 9.45 | | | $ | 3.82 | | | $ | 44.37 | | | $ | 78.81 | | | $ | 122.45 | | | $ | 126.92 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2.61 | % | | | 2.01 | % | | | 1.66 | % | | | 1.57 | %(4) | | | 1.62 | % | | | 1.60 | % |
| | 2.39 | %(6) | | | 1.77 | %(5)(6) | | | 1.66 | % | | | 1.57 | %(4) | | | 1.62 | % | | | 1.60 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| | 0.22 | % | | | 0.79 | % | | | (0.12 | )% | | | (0.79 | )%(4) | | | (0.98 | )% | | | (0.65 | )% |
| | 0.44 | % | | | 1.03 | % | | | (0.12 | )% | | | (0.79 | )%(4) | | | (0.98 | )% | | | (0.65 | )% |
| | 74 | % | | | 73 | % | | | 87 | % | | | 72 | %(3) | | | 84 | % | | | 83 | % |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
Notes to the Financial Statements October 31, 2021 |
1). ORGANIZATION
The Hennessy BP Energy Transition Fund (the “Fund”) is a series of Hennessy Funds Trust (the “Trust”), which was organized as a Delaware statutory trust on September 17, 1992. The Fund is an open-end management investment company registered under the Investment Company Act of 1940, as amended. The investment objective of the Fund is to seek total return. The Fund is a diversified fund.
The Fund offers Investor Class and Institutional Class shares. Each class of shares differs principally in its respective 12b-1 distribution and service, shareholder servicing, and sub-transfer agent expenses. There are no sales charges. 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 one class.
As an investment company, the Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 “Financial Services—Investment Companies.”
2). SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of the financial statements. These policies conform to U.S. generally accepted accounting principles (“GAAP”).
| a). | Securities Valuation – All investments in securities are valued in accordance with the Fund’s valuation policies and procedures, as described in Note 3. |
| | |
| b). | Federal Income Taxes – The Fund has elected to be taxed as a regulated investment company and intends to distribute substantially all of its taxable income to its shareholders and otherwise comply with the provisions of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. As a result, the Fund has made no provision for federal income taxes or excise taxes. Net investment income/loss and realized gains/losses for federal income tax purposes may differ from those reported in the financial statements because of temporary book-basis and tax-basis differences. Temporary differences are primarily the result of the treatment of wash sales for tax reporting purposes and investments in companies organized as partnerships for tax purposes. The Fund recognizes interest and penalties related to income tax benefits, if any, in the Statement of Operations as an income tax expense. 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. The Fund may utilize equalization accounting for tax purposes and designate earnings and profits, including net realized gains distributed to shareholders on redemption of shares, as part of the dividends paid deduction for income tax purposes. |
| | |
| | Due to inherent differences in the recognition of income, expenses, and realized gains/losses under GAAP and federal income tax regulations, permanent differences between book and tax basis for reporting are identified and appropriately reclassified in the Statement of Assets and Liabilities, as needed. The adjustments for fiscal year 2021 are as follows: |
| | Total | | |
| | Distributable | | |
| | Earnings
| Capital Stock | |
| | $229 | $(229) | |
| NOTES TO THE FINANCIAL STATEMENTS |
| c). | Accounting for Uncertainty in Income Taxes – The Fund has accounting policies regarding recognition and measurement of tax positions taken or expected to be taken on a tax return. The tax returns of the Fund for the prior three fiscal years are open for examination. The Fund has reviewed all open tax years in major tax jurisdictions and concluded that there is no impact on the Fund’s 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. The Fund’s major tax jurisdictions are U.S. federal and Delaware. |
| | |
| d). | Income and Expenses – Dividend income is recognized on the ex-dividend date or as soon as information is available to the Fund. Interest income, which includes the amortization of premium and accretion of discount, is recognized on an accrual basis. Market discounts, original issue discounts, and market premiums on debt securities are accreted or amortized to interest income over the life of a security with a corresponding increase or decrease, as applicable, in the cost basis of such security using the yield-to-maturity method or, where applicable, the first call date of the security. Other non-cash dividends are recognized as investment income at the fair value of the property received. The Fund is charged for those expenses that are directly attributable to its portfolio, such as advisory, administration, and certain shareholder service fees. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains/losses on investments are allocated to each class of shares based on such class’s net assets. Distributions received from the Fund’s investments in master limited partnerships (“MLPs”) generally consist of ordinary income, capital gains, and return of capital. The Fund records investment income on the ex-date of the distributions. For financial statement purposes, the Fund uses return of capital and income estimates to allocate the dividend income received. Such estimates are based on historical information available from the MLPs and other industry sources. These estimates may subsequently be revised based on information received from the MLPs after their tax reporting periods are concluded, as the actual character of these distributions is not known until after the fiscal year end of the Fund. |
| | |
| e). | Distributions to Shareholders – Dividends from net investment income for the Fund, if any, are declared and paid annually, usually in December. Distributions of net realized capital gains, if any, are declared and paid annually, usually in December. |
| | |
| f). | Security Transactions – Investment and shareholder transactions are recorded on the trade date. The Fund determines the realized gain/loss from an investment transaction by comparing the original cost of the security lot sold with the net sale proceeds. Discounts and premiums on securities purchased are accreted or amortized, respectively, over the life of each such security. |
| | |
| g). | Use of Estimates – Preparing financial statements in accordance 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, as well as the reported change in net assets during the reporting period. Actual results could differ from those estimates. |
| | |
| h). | Share Valuation – The net asset value (“NAV”) per share of the Fund is calculated by dividing (i) the total value of the securities held by the Fund, plus cash and other assets, minus all liabilities (including estimated accrued expenses) by (ii) the total number of Fund shares outstanding, rounded to the nearest $0.01. Fund shares are not priced on days the New York Stock Exchange is closed for trading. The offering and redemption price per share for the Fund is equal to the Fund’s NAV per share. |
| HENNESSY FUNDS | 1-800-966-4354 | |
| i). | Partnership Accounting Policy – To the extent the Fund receives distributions from underlying partnerships in which it invests, the Fund records its pro rata share of income/loss and capital gains/losses and accordingly adjusts the cost basis of the underlying partnerships for return of capital. |
| | |
| j). | Recent Accounting Pronouncements and Regulatory Updates – In October 2020, the Securities and Exchange Commission (“SEC”) adopted new regulations governing the use of derivatives by registered investment companies (“Rule 18f-4”). Rule 18f-4 imposes limits on the amount of derivatives a fund can enter into, eliminates the asset segregation framework currently used by funds to comply with Section 18 of the 1940 Act, and requires funds whose use of derivatives is greater than a limited specified amount to establish and maintain a comprehensive derivatives risk management program and appoint a derivatives risk manager. Funds are required to comply with Rule 18f-4 by August 19, 2022. The impact, if any, that Rule 18f-4 will have on the availability, liquidity, and performance of derivatives is unclear. Management is currently evaluating the potential impact of Rule 18f-4 on the Fund. When fully implemented, Rule 18f-4 may require changes in how the Fund uses derivatives, adversely affect the Fund’s performance, and increase costs related to the Fund’s use of derivatives. |
| | |
| | In December 2020, the SEC adopted a new rule providing a framework for fund valuation practices (“Rule 2a-5”). Rule 2a-5 establishes requirements for determining fair value in good faith for purposes of the 1940 Act. Rule 2a-5 permits fund boards to designate certain parties to perform fair value determinations, subject to board oversight and certain other conditions. Rule 2a-5 also defines when market quotations are “readily available” for purposes of the 1940 Act and the threshold for determining whether a fund must fair value a security. In connection with Rule 2a-5, the SEC also adopted related recordkeeping requirements and is rescinding previously issued guidance, including with respect to the role of a board in determining fair value and the accounting and auditing of fund investments. Funds must comply with the rules by September 8, 2022. Management is currently assessing the potential impact of the new rules on the Fund’s financial statements. |
3). SECURITIES VALUATION
The Fund follows its valuation policies and procedures in determining its net asset value and, in preparing these financial statements, the fair value accounting standards that 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 of changes in valuation techniques and related inputs during the period. These inputs are summarized in the three broad levels listed below:
| | Level 1 – | Unadjusted, quoted prices in active markets for identical instruments that the Fund has the ability to access at the date of measurement. |
| | | |
| | Level 2 – | Other significant observable inputs (including, but not limited to, quoted prices in active markets for similar instruments, quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets, such as interest rates, prepayment speeds, credit risk curves, default rates, and similar data). |
| | | |
| | Level 3 – | Significant unobservable inputs (including the Fund’s own assumptions about what market participants would use to price the asset or liability based on the best available information) when observable inputs are unavailable. |
| NOTES TO THE FINANCIAL STATEMENTS |
The following is a description of the valuation techniques applied to the Fund’s major categories of assets and liabilities on a recurring basis:
| | Equity Securities – Equity securities, including common stocks, preferred stocks, foreign-issued common stocks, exchange-traded funds, closed-end mutual funds, partnerships, rights, MLPs, and real estate investment trusts, that are traded on a securities exchange for which a last-quoted sales price is readily available generally are valued at the last sales price as reported by the primary exchange on which the securities are listed. Securities listed on The NASDAQ Stock Market (“NASDAQ”) generally are 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 generally are 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 classified in Level 1 of the fair value hierarchy. Securities traded on foreign exchanges generally are not valued at the same time the Fund calculates its NAV because most foreign markets close well before such time. The earlier close of most foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim. In certain circumstances, it may be determined that a foreign security needs to be fair valued because it appears that the value of the security might have been materially affected by events occurring after the close of the market in which the security is principally traded, but before the time the Fund calculates its NAV, such as by a development that affects an entire market or region (e.g., a weather-related event) or a potentially global development (e.g., a terrorist attack that may be expected to have an effect on investor expectations worldwide). |
| | |
| | Registered Investment Companies – Investments in open-end registered investment companies, commonly referred to as mutual funds, generally are priced at the ending NAV provided by the applicable mutual fund’s service agent and are classified in Level 1 of the fair value hierarchy. |
| | |
| | Debt Securities – Debt securities, including corporate bonds, asset-backed securities, mortgage-backed securities, municipal bonds, U.S. Treasuries, and U.S. government agency issues, are generally valued at market on the basis of valuations furnished by an independent pricing service that 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 observable market data, such as reported sales of similar securities, broker quotes, yields, bids, offers, and reference data. Certain securities are valued primarily using dealer quotations. These securities are generally 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 for equity securities. Short-term debt investments with an original term to maturity of 60 days or less are valued at amortized cost, which approximates fair market value. If the original term to maturity of a short-term debt investment exceeds 60 days, then the values as of the 61st day prior to maturity are amortized. Amortized cost is not used if its use would be inappropriate due to credit or other impairments of the issuer, in which case the security’s fair value would be determined as described below. Short-term securities are generally classified in Level 1 or Level 2 of the fair value hierarchy depending on the inputs used and market activity levels for specific securities. |
| HENNESSY FUNDS | 1-800-966-4354 | |
The Board of Trustees of the Fund (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 considered in determining a fair value of a security, such as the trading volume of a security and markets, the values of other similar securities, and news events with direct bearing on a security or markets. Fair value pricing results in an estimated price for a security that reflects the amount the Fund might reasonably expect to receive in a current sale. 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 fair value 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. Using fair value pricing means that the Fund’s NAV reflects the affected portfolio securities’ values as determined by the Board or its designee, pursuant to the fair value pricing procedures adopted by the Board, instead of being determined by the market. Using a fair value pricing methodology to price a foreign security may result in a value that is different from such foreign security’s most recent closing price and from the value used by other investment companies to calculate their NAVs. Such securities are generally classified in Level 2 of the fair value hierarchy. Because the Fund may invest in foreign securities, the value of the Fund’s portfolio securities may change on days when a shareholder is unable to purchase or redeem Fund shares.
The Board has delegated day-to-day valuation matters to the Valuation and Liquidity Committee comprising representatives from Hennessy Advisors, Inc., the Fund’s investment advisor (the “Advisor”). The function of the Valuation and Liquidity Committee, among other things, is to value securities where current and reliable market quotations are not readily available. All actions taken by the Valuation and Liquidity Committee are reviewed by the Board.
The Fund has performed an analysis of all existing investments to determine the significance and character of all inputs to their fair value determinations. Various inputs are used to determine the value of the 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 value hierarchy of the Fund’s securities as of October 31, 2021, are included in the Schedule of Investments.
4). INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding government and short-term investments) for the Fund during fiscal year 2021 were $10,971,013 and $7,744,563, respectively.
There were no purchases or sales/maturities of long-term U.S. government securities for the Fund during fiscal year 2021.
5). INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Advisor provides the Fund with investment advisory services under an Investment Advisory Agreement. The Advisor oversees the provision of investment advice and furnishes office space, facilities, and most of the personnel needed by the Fund. As compensation for its services, the Advisor is entitled to a monthly fee from the Fund. The fee is based on the average daily net assets of the Fund at an annual rate of 1.25 %. The net investment advisory fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
| NOTES TO THE FINANCIAL STATEMENTS |
The Advisor has delegated the day-to-day management of the Fund to a sub-advisor, BP Capital Fund Advisors, LLC. The Advisor pays the sub-advisory fees from its own assets, and these fees are not an additional expense of the Fund. During fiscal year 2021, the Advisor (not the Fund) paid a sub-advisory fee at the rate of 0.40% of the daily net assets of the Fund.
From October 26, 2018, through October 25, 2020, the Advisor contractually agreed to limit total annual operating expenses to 2.00% of the Fund’s net assets for Investor Class shares and 1.75% of the Fund’s net assets for Institutional Class shares (in each case, excluding all federal, state, and local taxes, interest, brokerage commissions, dividend and interest expenses on short sales, extraordinary items, and acquired fund fees and expenses and other costs incurred in connection with the purchase and sale of securities).
For three years following the date on which expenses were waived or incurred, the Advisor may recoup waived or reimbursed expenses from the Fund if total operating expenses, including such recoupment, does not exceed the expense limitation in effect (i) at the time the Advisor waived or reimbursed such expenses and (ii) at the time the Advisor recoups such expenses. As of October 31, 2021, expenses subject to potential recovery were $22,749 for Investor Class shares and $38,580 for Institutional Class shares, both of which expire in fiscal year 2023. The Advisor did not recoup expenses from the Fund during fiscal year 2021.
The Board has approved a Shareholder Servicing Agreement for Investor Class shares of the Fund, which compensates the Advisor for the non-investment advisory services it provides to the Fund. The Shareholder Servicing Agreement provides for a monthly fee paid to the Advisor at an annual rate of 0.10% of the average daily net assets of the Fund attributable to Investor Class shares. The shareholder service fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
The Fund has adopted a plan pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended, that authorizes payments in connection with the distribution of Fund shares at an annual rate of up to 0.25% of the Fund’s average daily net assets attributable to Investor Class shares. Even though the authorized rate is up to 0.25%, the Fund is currently only using up to 0.15% of its average daily net assets attributable to Investor Class shares for such purpose. 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, shareholder account servicing, printing and mailing of prospectuses to other than current shareholders, printing and mailing of sales literature, and compensation for sales and marketing activities or to financial institutions and others, such as dealers and distributors. The distribution fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
The Fund has entered into agreements with various brokers, dealers, and financial intermediaries in connection with the sale of Fund shares. The agreements provide for periodic payments of sub-transfer agent expenses by the Fund to the brokers, dealers, and financial intermediaries for providing certain shareholder maintenance services. 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. The sub-transfer agent fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
U.S. Bancorp Fund Services, LLC, d/b/a U.S. Bank Global Fund Services (“Fund Services”) provides the Fund with administrative, accounting, and transfer agent services. As administrator, Fund Services is responsible for activities such as (i) preparing various federal and state regulatory filings, reports, and returns for the Fund, (ii) preparing
| HENNESSY FUNDS | 1-800-966-4354 | |
reports and materials to be supplied to the Board, (iii) monitoring the activities of the Fund’s custodian, transfer agent, and accountants, and (iv) coordinating the preparation and payment of the Fund’s expenses and reviewing the Fund’s expense accruals. U.S. Bank N.A., an affiliate of Fund Services, serves as the Fund’s custodian. The servicing agreements between the Trust, Fund Services, and U.S. Bank N.A. contain a fee schedule that is inclusive of administrative, accounting, custody, and transfer agent fees. The administrative, accounting, custody, and transfer agent fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations. Fund Services has voluntarily waived all or a portion of its fees for the Fund. The fees voluntarily waived by Fund Services during fiscal year 2021 are included in the Statement of Operations.
Quasar Distributors, LLC (“Quasar”), a wholly owned broker-dealer subsidiary of Foreside Financial Group, LLC (“Foreside”), acts as the Fund’s principal underwriter in a continuous public offering of Fund shares. Effective September 30, 2021, Genstar Capital, a private equity firm specializing in financial and related business service companies, acquired a majority interest in Foreside. The Board approved a new Distribution Agreement to enable Quasar to continue serving as the Fund’s distributor following the change in control of Foreside.
The officers of the Fund are affiliated with the Advisor. With the exception of the Chief Compliance Officer and the Senior Compliance Officer, such officers receive no compensation from the Fund for serving in their respective roles. The Fund, along with the other funds in the Hennessy Funds family (collectively, the “Hennessy Funds”), makes reimbursement payments on an equal basis to the Advisor for a portion of the salary and benefits associated with the office of the Chief Compliance Officer and for all of the salary and benefits associated with the office of the Senior Compliance Officer. The compliance fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
6). GUARANTEES AND INDEMNIFICATIONS
Under the Hennessy Funds’ organizational documents, their officers and trustees are indemnified by the Hennessy Funds against certain liabilities arising out of the performance of their duties to the Hennessy Funds. Additionally, in the normal course of business, the Hennessy Funds enter into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. Currently, the Fund expects the risk of loss to be remote.
7). LINE OF CREDIT
The Fund has an uncommitted line of credit with the other Hennessy Funds in the amount of the lesser of (i) $100,000,000 or (ii) 33.33% of each Hennessy Fund’s net assets, or 30% for the Hennessy Gas Utility Fund and 10% for the Hennessy Balanced Fund. The line of credit is intended to provide any necessary short-term financing in connection with shareholder redemptions, subject to certain restrictions. The credit facility is with the Hennessy Funds’ custodian bank, U.S. Bank N.A. Borrowings under this arrangement bear interest at the bank’s prime rate and are secured by all of the Fund’s assets (as to its own borrowings only). During fiscal year 2021, the Fund had an outstanding average daily balance and a weighted average interest rate of $36,214 and 3.25%, respectively. The interest expensed by the Fund during fiscal year 2021 is included in the Statement of Operations. The maximum amount outstanding for the Fund during fiscal year 2021 was $632,000. As of October 31, 2021, the Fund did not have any borrowings outstanding under the line of credit.
| NOTES TO THE FINANCIAL STATEMENTS |
8). FEDERAL TAX INFORMATION
As of October 31, 2021, the components of accumulated earnings (losses) for income tax purposes were as follows:
| | | Investments | |
| Cost of investments for tax purposes | | $ | 14,993,677 | |
| Gross tax unrealized appreciation | | $ | 3,082,255 | |
| Gross tax unrealized depreciation | | | (1,734,192 | ) |
| Net tax unrealized appreciation/(depreciation) | | $ | 1,348,063 | |
| Undistributed ordinary income | | $ | 1,939,323 | |
| Undistributed long-term capital gains | | | — | |
| Total distributable earnings | | $ | 1,939,323 | |
| Other accumulated gain/(loss) | | $ | (41,634,025 | ) |
| Total accumulated gain/(loss) | | $ | (38,346,639 | ) |
The difference between book-basis unrealized appreciation/depreciation and tax-basis unrealized appreciation/depreciation (as shown above) is attributable primarily to wash sales and partnership adjustments.
As of October 31, 2021, the Fund had $22,971,925 in unlimited long-term and $18,662,100 in unlimited short-term capital loss carryforwards.
Capital losses sustained in or after fiscal year 2012 can be carried forward indefinitely, but any such loss retains the character of the original loss and must be utilized prior to any loss incurred before fiscal year 2012. As a result of this ordering rule, capital loss carryforwards incurred prior to fiscal year 2012 may be more likely to expire unused. Capital losses sustained prior to fiscal year 2012 can be carried forward for eight years and can be carried forward as short-term capital losses regardless of the character of the original loss.
As of October 31, 2021, the Fund did not defer, on a tax basis, any late-year ordinary losses. Late-year ordinary losses are net ordinary losses incurred after December 31, 2020, but within the taxable year, that are deemed to arise on the first day of the Fund’s next taxable year.
During fiscal years 2021 and 2020, the tax character of distributions paid by the Fund was as follows:
| | | | Year Ended | | | Year Ended | |
| | | | October 31, 2021 | | | October 31, 2020 | |
| | Ordinary income(1) | | $ | — | | | $ | 79,003 | |
| | Long-term capital gains | | | — | | | | — | |
| | Total distributions | | $ | — | | | $ | 79,003 | |
| | (1) Ordinary income includes short-term capital gains. |
9). EVENTS SUBSEQUENT TO YEAR END
Management has evaluated the Fund’s related events and transactions that occurred subsequent to October 31, 2021, through the date of issuance of the Fund’s financial statements. Management has determined that there were no subsequent events requiring recognition or disclosure in the financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Report of Independent Registered Public
Accounting Firm
To the Board of Trustees of Hennessy Funds Trust
and the shareholders of the Hennessy BP Energy Transition Fund
Novato, CA
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of the Hennessy BP Energy Transition Fund (the “Fund”), a series of Hennessy Funds Trust, including the schedule of investments, as of October 31, 2021, the related statement 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, the financial highlights for each of the three years in the period then ended, for the eleven months ended October 31, 2018, and each of the two years in the period ended November 30, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of October 31, 2021, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, for the eleven months ended October 31, 2018, and each of the two years in the period ended November 30, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We have served as the auditor of one or more of the funds in the Trust since 2002.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of October 31, 2021, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
| |  |
| | TAIT, WELLER & BAKER LLP |
Philadelphia, Pennsylvania
December 22, 2021
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM/TRUSTEES AND OFFICERS |
Trustees and Officers of the Fund (Unaudited)
The business and affairs of the Funds are managed under the direction of the Board of Trustees of the Trust, and the Board of Trustees elects the officers of the Trust. From time to time, the Board of Trustees also has appointed advisers to the Board of Trustees (“Advisers”) with the intention of having qualified individuals serve in an advisory capacity to garner experience in the mutual fund and asset management industry and be considered as potential Trustees in the future. There are currently two Advisers, Brian Alexander and Doug Franklin. As Advisers, Mr. Alexander and Mr. Franklin attend meetings of the Board of Trustees and act as non-voting participants. Information pertaining to the Trustees, Advisers, and the officers of the Trust is set forth below. The Trustees and officers serve until their successors are duly elected and qualified or until their earlier death, resignation, or removal. Each Trustee oversees all 16 Hennessy Funds. Unless otherwise indicated, the address of all persons listed below is 7250 Redwood Boulevard, Suite 200, Novato, CA 94945. The Fund’s Statement of Additional Information includes more information about the persons listed below and is available without charge by calling 1-800-966-4354 or by visiting www.hennessyfunds.com.
| | | | Other |
| | | | Directorships |
| | | | Held Outside |
| Name, Age, | | | of Fund |
| and Position Held | Start Date | Principal Occupation(s) | Complex During |
with the Trust
| of Service | During Past Five Years | Past Five Years
|
| | | | |
| Disinterested Trustees and Advisers | | | |
| | | | |
| J. Dennis DeSousa | January 1996 | Mr. DeSousa is a real estate investor. | None. |
| 85 | | | |
| Trustee | | | |
| | | | |
| Robert T. Doyle | January 1996 | Mr. Doyle has been the Sheriff of | None. |
| 74 | | Marin County, California since 1996. | |
| Trustee | | | |
| | | | |
| Claire Garvie | December 2015 | Ms. Garvie is a founder of Kiosk and | None. |
| 47 | as an Adviser | has served as its Chief Operating | |
| Trustee | to the Board | Officer since 2004. Kiosk is a full- | |
| | and | service marketing agency with | |
| | December 2021 | offices in the San Francisco Bay Area, | |
| | as a Trustee | Toronto, and Liverpool, UK. | |
| | | | |
| Gerald P. Richardson | May 2004 | Mr. Richardson is an independent | None. |
| 76 | | consultant in the securities industry. | |
| Trustee | | | |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | | | Other |
| | | | Directorships |
| | | | Held Outside |
| Name, Age, | | | of Fund |
| and Position Held | Start Date | Principal Occupation(s) | Complex During |
with the Trust
| of Service | During Past Five Years | Past Five Years
|
| | | | |
| Brian Alexander | March 2015 | Mr. Alexander has worked for the | None. |
| 40 | | Sutter Health organization since | |
| Adviser to the Board | | 2011 in various positions. He has | |
| | | served as the Chief Executive Officer | |
| | | of the Sutter Roseville Medical | |
| | | Center since 2018. From 2016 through | |
| | | 2018, he served as the Vice President | |
| | | of Strategy for the Sutter Health Valley | |
| | | Area, which includes 11 hospitals, | |
| | | 13 ambulatory surgery centers, | |
| | | 16,000 employees, and 1,900 physicians. | |
| | | From 2013 through 2016, Mr. Alexander | |
| | | served as Sutter Novato Community | |
| | | Hospital’s Chief Administrative Officer. | |
| | | | |
| Doug Franklin | March 2016 | Mr. Franklin is a retired insurance | None. |
| 57 | | industry executive. From 1987 | |
| Adviser to the Board | | through 2015, he was employed | |
| | | by the Allianz-Fireman’s Fund | |
| | | Insurance Company in various | |
| | | positions, including as its Chief | |
| | | Actuary and Chief Risk Officer. | |
| | | | |
Interested Trustee(1) | | | |
| | | | |
| Neil J. Hennessy | January 1996 as | Mr. Hennessy has been employed | Hennessy |
| 65 | a Trustee and | by Hennessy Advisors, Inc. since | Advisors, Inc. |
| Chairman of the Board, | June 2008 as | 1989 and currently serves as its | |
| Chief Market Strategist, | an officer | Chairman and Chief Executive Officer. | |
| Portfolio Manager, | | | |
| and President | | | |
| Name, Age, | | |
| and Position Held | Start Date | Principal Occupation(s) |
with the Trust
| of Service | During Past Five Years |
| | | |
| Officers | | |
| | | |
| Teresa M. Nilsen | January 1996 | Ms. Nilsen has been employed by Hennessy Advisors, Inc. |
| 55 | | since 1989 and currently serves as its President and Chief |
| Executive Vice President | | Operating Officer. |
| and Treasurer | | |
| | | |
| Daniel B. Steadman | March 2000 | Mr. Steadman has been employed by Hennessy Advisors, Inc. |
| 65 | | since 2000 and currently serves as its Executive Vice President. |
| Executive Vice President | | |
| and Secretary | | |
| | | |
| Brian Carlson | December 2013 | Mr. Carlson has been employed by Hennessy Advisors, Inc. |
| 49 | | since December 2013 and currently serves as its Chief |
| Senior Vice President | | Compliance Officer and Senior Vice President. |
| and Head of Distribution | | |
| TRUSTEES AND OFFICERS OF THE FUND |
| Name, Age, | | |
| and Position Held | Start Date | Principal Occupation(s) |
with the Trust
| of Service | During Past Five Years |
| | | |
Jennifer Cheskiewicz(2) | June 2013 | Ms. Cheskiewicz has been employed by Hennessy Advisors, Inc. |
| 44 | | as its General Counsel since June 2013. |
| Senior Vice President and | | |
| Chief Compliance Officer | | |
| | | |
David Ellison(3) | October 2012 | Mr. Ellison has been employed by Hennessy Advisors, Inc. since |
| 63 | | October 2012. He has served as a Portfolio Manager of the |
| Senior Vice President | | Hennessy Large Cap Financial Fund and the Hennessy Small |
| and Portfolio Manager | | Cap Financial Fund since their inception. Mr. Ellison also served |
| | | as a Portfolio Manager of the Hennessy Technology Fund from |
| | | its inception until February 2017. Mr. Ellison served as Director, |
| | | CIO, and President of FBR Fund Advisers, Inc. from December |
| | | 1999 to October 2012. |
| | | |
Ryan Kelley(4) | March 2013 | Mr. Kelley has been employed by Hennessy Advisors, Inc. since |
| 49 | | October 2012. He has served as Chief Investment Officer of the |
| Chief Investment Officer, | | Hennessy Funds since March 2021 and has served as a Portfolio |
| Senior Vice President, | | Manager of the Hennessy Gas Utility Fund, the Hennessy Large |
| and Portfolio Manager | | Cap Financial Fund, and the Hennessy Small Cap Financial Fund |
| | | since October 2014. Mr. Kelley served as Co-Portfolio Manager |
| | | of these same funds from March 2013 through September |
| | | 2014 and as a Portfolio Analyst for the Hennessy Funds from |
| | | October 2012 through February 2013. He has also served as a |
| | | Portfolio Manager of the Hennessy Cornerstone Growth Fund, |
| | | the Hennessy Cornerstone Mid Cap 30 Fund, the Hennessy |
| | | Cornerstone Large Growth Fund, and the Hennessy |
| | | Cornerstone Value Fund since February 2017 and as a Portfolio |
| | | Manager of the Hennessy Total Return Fund, the Hennessy |
| | | Balanced Fund, and the Hennessy Technology Fund since May |
| | | 2018. He served as Co-Portfolio Manager of the Hennessy |
| | | Technology Fund from February 2017 until May 2018. Mr. Kelley |
| | | served as Portfolio Manager of FBR Fund Advisers, Inc. from |
| | | January 2008 to October 2012. |
| | | |
L. Joshua Wein(4) | September 2018 | Mr. Wein has been employed by Hennessy Advisors, Inc. since |
| 48 | | 2018. He has served as Co-Portfolio Manager of the Hennessy |
| Vice President and | | Cornerstone Growth Fund, the Hennessy Cornerstone |
| Co-Portfolio Manager | | Mid Cap 30 Fund, the Hennessy Cornerstone Large Growth |
| | | Fund, the Hennessy Cornerstone Value Fund, Hennessy Total |
| | | Return Fund, the Hennessy Balanced Fund, the Hennessy Gas |
| | | Utility Fund, and the Hennessy Technology Fund since February |
| | | 2019. He served as a Senior Analyst of these same funds from |
| | | September 2018 through February 2019. Mr. Wein served as |
| | | Director of Alternative Investments and Co-Portfolio Manager |
| | | at Sterling Capital Management from 2008 to 2018. |
_______________
(1) | Mr. Hennessy is considered an “interested person,” as defined in the Investment Company Act of 1940, as amended, because he is an officer of the Trust. |
(2) | The address of this officer is 4800 Bee Caves Road, Suite 100, Austin, TX 78746. |
(3) | The address of this officer is 101 Federal Street, Suite 1615B, Boston, MA 02110. |
(4) | The address of this officer is 1340 Environ Way, Chapel Hill, NC 27517. |
| HENNESSY FUNDS | 1-800-966-4354 | |
Expense Example (Unaudited)
October 31, 2021
As a shareholder of the Fund, you incur 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 the Fund 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, 2021, through October 31, 2021.
Actual Expenses
In the table below, the first line under each of the “Investor Class” and “Institutional Class” headings provides information about actual account values and actual expenses for each share class. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the 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 “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. Although the Fund charges 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. Bank Global Fund Services, the Fund’s transfer agent. If you request that a redemption be made by wire transfer, the Fund’s transfer agent charges a $15 fee. IRAs are charged a $15 annual maintenance fee (up to $30 maximum per shareholder for shareholders with multiple IRAs). The examples below include, but are not limited to, management, shareholder servicing, accounting, custody, and transfer agent fees. However, the examples below do not include portfolio trading commissions and related expenses.
Hypothetical Example for Comparison Purposes
In the table below, the second line under each of the “Investor Class” and “Institutional Class” headings provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio for each share class and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return for such share class. 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 Fund and other funds. To do so, compare these 5% hypothetical examples 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. Therefore, the second lines under “Investor Class” and “Institutional Class” are useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds.
| | | | Expenses Paid |
| | Beginning | Ending | During Period(1) |
| | Account Value | Account Value | May 1, 2021 – |
| | May 1, 2021
| October 31, 2021 | October 31, 2021 |
| Investor Class | | | |
| Actual | $1,000.00 | $1,228.90 | $14.49 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,012.20 | $13.09 |
| | | | |
| Institutional Class | | | |
| Actual | $1,000.00 | $1,231.80 | $12.71 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,013.81 | $11.47 |
(1) | Expenses are equal to the Fund’s annualized expense ratio of 2.58% for Investor Class shares or 2.26% for Institutional Class shares, as applicable, multiplied by the average account value over the period, multiplied by 184/365 days (to reflect the half-year period). |
| HENNESSY FUNDS | 1-800-966-4354 | |
How to Obtain a Copy of the Fund’s Proxy
Voting Policy and Proxy Voting Records
A description of the policies and procedures the Fund uses 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/proxy-voting/voting-policy, or (3) on the U.S. Securities and Exchange Commission’s (the “SEC”) website at www.sec.gov. The Fund’s proxy voting record is available without charge on both the Hennessy Funds’ website at www.hennessyfunds.com/proxy-voting/voting-record and the SEC’s website at www.sec.gov no later than August 31 for the prior 12 months ending June 30.
Availability of Quarterly Portfolio Schedule
The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov or on request by calling 1-800-966-4354.
Important Notice Regarding Delivery
of Shareholder Documents
To help keep the Fund’s costs as low as possible, we generally deliver a single copy of shareholder reports, proxy statements, and prospectuses to shareholders who share an address and have the same last name. This process does not apply to account statements. You may request an individual copy of a shareholder document at any time. If you would like to receive separate mailings of shareholder documents, please call U.S. Bank Global Fund Services at 1-800-261-6950 or 1-414-765-4124, and individual delivery will begin within 30 days of your request. If your account is held through a financial institution or other intermediary, please contact such intermediary directly to request individual delivery.
Electronic Delivery
As permitted by SEC regulations, the Fund’s shareholder reports are made available on a website, and unless you sign up for eDelivery or elect to receive paper copies as detailed below, you will be notified by mail each time a report is posted and provided with a website link to access the report.
The Fund also offers shareholders the option to receive all notices, account statements, prospectuses, tax forms, and shareholder reports online. To sign up for eDelivery or change your delivery preference, please visit www.hennessyfunds.com/account.
To elect to receive paper copies of all future reports free of charge, please call U.S. Bank Global Fund Services at 1-800-261-6950 or 1-414-765-4124.
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| PROXY VOTING — PRIVACY POLICY |
Liquidity Risk Management Program
In accordance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), we have adopted and implemented a liquidity risk management program (the “Liquidity Program”). The purpose of the Liquidity Program is to assess and manage the Fund’s liquidity risk, which is the risk that the Fund would not be able to meet requests to redeem Fund shares without significant dilution of the remaining shareholders’ interests in the Fund. The Board of Trustees of the Fund (the “Board”) designated a committee comprising representatives of Hennessy Advisors, Inc., the investment adviser to the Fund, as the administrator of the Liquidity Program (the “Program Administrator”).
The Program Administrator provided a written report regarding the Liquidity Program to the Board in advance of its meeting on June 2, 2021. The report covered the period from June 1, 2020, through May 31, 2021. The report addressed the operation of the Liquidity Program, assessed the adequacy and effectiveness of its implementation, and described any material changes to the Liquidity Program during the review period. The Trust’s chief compliance officer presented the report to the Board at the meeting and provided additional information regarding the Liquidity Program. The Board reviewed the Liquidity Program and considered, among other items, the following:
| | 1. | The Program Administrator reviewed daily historical net redemption activity during the review period and during prior periods with higher-than-average redemption activity and concluded that the Fund has historically been able to meet requests to redeem Fund shares without significant dilution to the Fund’s remaining shareholders, and the Program Administrator expects the Fund to be able to continue to do so in the future during both normal and reasonably foreseeable stressed conditions. |
| | | |
| | 2. | The Fund holds assets that are highly liquid investments and is therefore not required to establish a highly liquid investment minimum for the Fund or adopt policies and procedures for responding to a highly liquid investment minimum shortfall. |
| | | |
| | 3. | The Program Administrator did not make any material changes to the Liquidity Program during the review period and did not recommend any changes to the Liquidity Program. The Program Administrator did make adjustments to the model inputs used to determine the liquidity classification of each security held by the Fund. |
| | | |
| | 4. | The Program Administrator concluded that the Liquidity Program was reasonably designed to assess and manage the Fund’s liquidity risk, complies with the requirements of the Liquidity Rule, and was operating as intended during the review period. |
Privacy Policy
We collect the following personal information about you:
| | 1. | Information we receive from you 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; |
| | | |
| | 2. | Information about your transactions with us, our affiliates, or others, including, but not limited to, your account number and balance, payments history, parties to transactions, cost basis information, and other financial information; and |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | 3. | Other personal information we collect from various sources, even if you have not entered into a prior transaction with us, including the following: |
| | • | Name, alias, address, unique personal identifier, online identifier, IP address, email address, telephone number, account name, and other similar identifiers; |
| | | |
| | • | Age and marital status; |
| | | |
| | • | Commercial information, including records of products purchased; |
| | | |
| | • | Browsing history, search history, and information on interaction with our website; |
| | | |
| | • | Geolocation data; |
| | | |
| | • | Employment and employment history, educational history, financial information, and purchasing and consuming histories or tendencies; and |
| | | |
| | • | Inferences drawn from the above-listed information to create a profile about your preferences, characteristics, predispositions, and behavior. |
We collect this information directly from you, indirectly in the course of providing services to you, directly and indirectly from your activity on our website, from broker dealers, marketing agencies, and other third parties that interact with us in connection with the services we perform and products we offer, and from anonymized and aggregated consumer information.
We use this information to fulfill the reason you provided the information to us, to provide you with other relevant products that you request from us, to provide you with information about products that may interest you, to improve our website or present our website’s contents to you, and as otherwise described to you when collecting your personal information.
We do not disclose any personal information to unaffiliated third parties, except as permitted by law. We may disclose your personal information to our affiliates, vendors, and service providers for a business purpose. 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. When disclosing your personal information to third parties, we enter into a contract with each third party describing the purpose of such disclosure and requiring that such personal information be kept confidential and not used for any purpose except to perform the services contracted or respond to regulatory or law enforcement requests.
Furthermore, we restrict access to your personal information to those persons who require such information to provide products or services to you. As a result, we do not provide a means for opting out of our limited sharing of your information. We maintain physical, electronic, and procedural safeguards that comply with federal standards to guard your personal information.
If you hold shares of the Funds through a financial intermediary, including, but not limited to, a broker-dealer, bank, or trust company, the privacy policy of your financial intermediary governs how your personal information is shared with unaffiliated third parties.
Supplemental Privacy Notice for Residents of California
The California Consumer Privacy Act of 2018 (the “CCPA”) provides you, as a California resident, with certain additional rights relating to your personal information.
Under the CCPA, you have the right to request that we disclose to you the categories of personal information we have collected about you over the past 12 months, the categories of sources of such information, our business purpose for collecting the information, the categories of third parties, if any, with whom we shared the information, and the specific information we have collected about you. You also have the right to request that we delete any of your personal information, and, unless an exception applies, we will delete such information upon receiving and confirming your request. To make a request, call us at 1-800-966-4354, email us at privacy@hennessyfunds.com, or go to www.hennessyfunds.com/contact. We will not discriminate against you for exercising your rights under the CCPA. Further, we will not collect additional categories of your personal information or use the personal information we collected for materially different, unrelated, or incompatible purposes without providing you notice.
| HENNESSY FUNDS | 1-800-966-4354 | |
For information, questions, or assistance, please call
The Hennessy Funds
1-800-966-4354 or 1-415-899-1555
INVESTMENT ADVISOR
Hennessy Advisors, Inc.
7250 Redwood Boulevard, Suite 200
Novato, California 94945
ADMINISTRATOR,
TRANSFER AGENT,
DIVIDEND PAYING AGENT, &
SHAREHOLDER SERVICING AGENT
U.S. Bancorp Fund Services, LLC
d/b/a U.S. Bank Global Fund Services
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
CUSTODIAN
U.S. Bank N.A.
Custody Operations
1555 North River Center Drive, Suite 302
Milwaukee, Wisconsin 53212
TRUSTEES
Neil J. Hennessy
Robert T. Doyle
J. Dennis DeSousa
Claire Garvie
Gerald P. Richardson
COUNSEL
Foley & Lardner LLP
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-5306
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Tait, Weller & Baker LLP
Two Liberty Place
50 South 16th Street, Suite 2900
Philadelphia, Pennsylvania 19102-2529
DISTRIBUTOR
Quasar Distributors, LLC
111 East Kilbourn Avenue, Suite 2200
Milwaukee, Wisconsin 53202
www.hennessyfunds.com | 1-800-966-4354
This report has been prepared for shareholders and may be distributed to
others only if preceded or accompanied by a current prospectus.
ANNUAL REPORT
OCTOBER 31, 2021
HENNESSY BP MIDSTREAM FUND
Investor Class HMSFX
Institutional Class HMSIX
www.hennessyfunds.com | 1-800-966-4354
(This Page Intentionally Left Blank.)
Contents
| Letter to Shareholders | 2 |
| Performance Overview | 4 |
| Financial Statements | |
| Schedule of Investments | 8 |
| Statement of Assets and Liabilities | 11 |
| Statement of Operations | 12 |
| Statements of Changes in Net Assets | 13 |
| Financial Highlights | 14 |
| Notes to the Financial Statements | 18 |
| Report of Independent Registered Public Accounting Firm | 28 |
| Trustees and Officers of the Fund | 29 |
| Expense Example | 32 |
| Proxy Voting Policy and Proxy Voting Records | 34 |
| Availability of Quarterly Portfolio Schedule | 34 |
| Federal Tax Distribution Information | 34 |
| Important Notice Regarding Delivery of Shareholder Documents | 34 |
| Electronic Delivery | 34 |
| Liquidity Risk Management Program | 35 |
| Privacy Policy | 35 |
| HENNESSY FUNDS | 1-800-966-4354 | |
December 2021
Dear Hennessy Funds Shareholder:
What a year this has been. While it doesn’t feel that we are out of the “pandemic” phase of the coronavirus crisis, we look forward to a day when we will eventually see fewer cases and potentially less severe variants. We feel extremely grateful to the many healthcare workers who have continued to work tirelessly during the recent surge. As we move through the next year, we hope that new U.S. cases will decline and that many other parts of the world will see improvements as well.
What a year this has been! As measured by the total return of the S&P 500® Index, as of October 31, 2021, the market was up 24.04% calendar year to date. This comes in the wake of a tumultuous 2020 in which the market plunged in the beginning of the pandemic and recovered dramatically to end the year up 18.40%. Interestingly, 18% appears to be a repeating number in the past dozen years. From the low point of the Financial Crisis (March 9, 2009) to the high point reached just prior to the COVID-19 pandemic (February 12, 2020), the S&P 500® Index was up 18.27% per year. We are well aware that past results are not predictive of the future, and we find ourselves naturally skeptical of such strong returns. But, as shown in the chart below, we find that the most common annual total returns of the market over the past 102 years range between 20% and 30% with the second most common being between 10% and 20%:
Source: Bloomberg L.P.
We will say it again, after showing a chart like the one above: Past results are not predictive of the future. Instead, we look at where we are right now – in the economy, in the market, in the business cycle – to reflect on where we have come from and where we may be going. U.S. GDP is strong and growing, interest rates remain low, and earnings growth and profitability remain robust. We believe stocks are trading at reasonable valuations when viewed as a whole, with the S&P 500® Index at 21.0x estimated earnings for 2022. Furthermore, we believe corporate balance sheets are healthy, with high levels of excess cash, which could support growth, increases in dividends, more share buybacks, and future acquisitions. Uncertainty and volatility can manifest at any time in the stock market, and the current market is no different. Investors have questions about inflation, worldwide supply chain issues, and what could drive the next boost in earnings. While these concerns are warranted, we continue to believe that overall the positives outweigh the negatives, and here at Hennessy we continue to see opportunity in the market and in our Funds.
What a (fiscal) year this has been!!! For our fiscal year ended October 31, 2021, the S&P 500® Index rose 42.91% on a total return basis, setting a new all-time high on the final day of the period. Except for a short 21-trading-day period that began on September 2 during which the market fell 5.13% only to rebound to new highs just 13 trading days later, the market has been on a continuous march higher. We saw a dramatic shift in market leadership as many of the sectors that underperformed during our last fiscal year soared in fiscal year 2021. Small-caps beat mid-caps, which in turn beat large-caps. The Energy and Financials sectors skyrocketed during the 12-month period, as reflected by the S&P 500® Energy Sector’s total return of 111.29% and the Russell 1000® Index Financials’ total return of 70.87%. Both of these sectors were among the worst performing in our fiscal year 2020, so a bounce back in our fiscal year 2021, while not a foregone conclusion, was a distinct possibility.
Overall, we are pleased with the performance of our mutual funds during the fiscal year. On an absolute basis, each of our 16 Funds achieved total returns greater than 10% and seven outperformed their primary benchmark. Ten of our 11 domestic equity-only Funds outperformed the S&P 500® Index and posted total returns of 45% or higher. Our four best-performing funds were concentrated in the Energy and Financials sectors. While some of our Funds certainly benefited from being in the “right” sector at the “right” time, we also believe this was a favorable period for our investment style of high-conviction investing and concentrated portfolio construction.
What will the coming year bring? As mentioned in our last shareholder letter (June 2021), we understand that even the greatest bull markets experience corrections along the way, and the last time the S&P 500® Index dropped over 10% was in February/March of 2020. Whether or not a correction occurs sooner or later, we believe the market as a whole has more room to run. We see many factors that could drive the market higher from here: strong GDP growth and increasing corporate earnings, a potentially lower-for-longer interest rate environment, accommodative fiscal and monetary policies, a healthy and robust financial system, low unemployment and solid wage growth, and strong corporate balance sheets with plenty of cash.
Thank you for your interest and for investing with us. We remain committed to managing our portfolios for long-term performance, ever mindful of downside risk. With so many investment options available to you, we are grateful for the trust you put in us and for your continued interest in our family of Funds. If you have any questions or would like to speak with us, please don’t hesitate to call us directly at (800) 966-4354.
Best regards,
| |
| |
| |
| |
|
| Ryan C. Kelley |
| Chief Investment Officer |
Past performance does not guarantee future results. To obtain current standardized performance for the Hennessy Funds, visit https://www.hennessyfunds.com/funds/price-performance.
Mutual fund investing involves risk. Principal loss is possible.
Opinions expressed are those of Ryan C. Kelley and are subject to change, are not guaranteed, and should not be considered investment advice.
The Dow Jones Industrial Average and S&P 500® Index are commonly used to measure the performance of U.S. stocks. The S&P 500® Energy Index comprises those companies included in the S&P 500® Index that are classified in the Energy sector. The Russell 1000® Index Financials is a subset of the Russel 1000® Index that measures the performance of securities classified in the Financials sector of the large-capitalization U.S. equity market. The indices are used herein for comparative purposes in accordance with SEC regulations. One cannot invest directly in an index. All returns are shown on a total return basis.
| HENNESSY FUNDS | 1-800-966-4354 | |
Performance Overview (Unaudited)
CHANGE IN VALUE OF $10,000 INVESTMENT
This graph illustrates the performance of an initial investment of $10,000 made in the Fund on its inception date and assumes the reinvestment of dividends.
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED OCTOBER 31, 2021
| | | One | Five | Since Inception |
| | | Year
| Years
| (12/31/13)
|
| | Hennessy BP Midstream Fund – | | | |
| | Investor Class (HMSFX) | 78.41% | -2.61% | -2.74% |
| | Hennessy BP Midstream Fund – | | | |
| | Institutional Class (HMSIX) | 78.57% | -2.39% | -2.50% |
| | Alerian US Midstream Energy Index | 89.98% | 3.64% | 0.90% |
| | S&P 500® Index | 42.91% | 18.93% | 14.57% |
| Expense ratios: | Gross 2.12%, Net 1.78%(1) (Investor Class); |
| | Gross 1.79%, Net 1.53%(1) (Institutional Class) |
(1) | The Fund’s investment advisor has contractually agreed to limit expenses until February 28, 2022. |
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. The performance table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 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 including or prior to October 26, 2018, is that of the BP Capital TwinLine MLP Fund.
The Alerian US Midstream Energy Index comprises companies that earn a majority of their cash flows from midstream activities involving energy commodities. The S&P 500® Index is a capitalization-weighted index that is designed to represent the broad domestic economy through changes in the aggregate market value of 500 stocks across all major industries. One cannot invest directly in an index. These indices are used for comparative purposes in accordance with Securities and Exchange Commission regulations.
Standard & Poor’s Financial Services is the source and owner of the S&P® and S&P 500® trademarks.
The Alerian US Midstream Energy Index is a servicemark of GKD Index Partners, LLC d/b/a Alerian (“Alerian”), and its use is granted under a license from Alerian. Alerian makes no express or implied warranties, representations, or promises regarding the originality, merchantability, suitability, or fitness for a particular purpose or use with respect to the Alerian indices. No party may rely on, and Alerian does not accept any liability for any errors, omissions, interruptions, or defects in, the Alerian indices or underlying data. In no event shall Alerian have any liability for any direct, indirect, special, incidental, punitive, consequential, or other damages (including lost profits), even if notified of the possibility of such damages.
The expense ratios presented are from the most recent prospectus. The expense ratios for the current reporting period are available in the Financial Highlights section of this report.
PERFORMANCE NARRATIVE
Portfolio Managers Ben Cook, CFA, and Kevin Gallagher, CFA
BP Capital Fund Advisors, LLC (sub-advisor)
Performance:
For the one-year period ended October 31, 2021, the Investor Class of the Hennessy BP Midstream Fund returned 78.41%, underperforming the Alerian US Midstream Energy Index (the Fund’s primary benchmark), which returned 89.98%, but outperforming the S&P 500® Index, which returned 42.91% for the same period.
While the onset of the COVID-19 pandemic resulted in economic and market shock during much of the one-year period ended October 31, 2020, a strong reversal ensued in late calendar year 2020 resulting in large part from the announcement and initial deployment of effective vaccinations and treatments for the disease. This reversal positively affected energy supply and demand fundamentals and led to strong absolute and relative performance of traditional hydrocarbon-based energy equities, including midstream equities held by the Fund. With demand for energy increasing during the one-year period ending October 31, 2021, the increases in upstream sector activity and corresponding increases in domestic crude/liquids and natural gas production volumes, along with increasing commodity prices, drove significantly improved operating company financial results for many midstream businesses.
In stark contrast to the prior period and despite ongoing market uncertainties, including those related to the COVID-19 Delta variant, “risk” investments outperformed “safety” investments for midstream equities during the one-year period ended October 31, 2021. Accordingly, the only traditional subsector of midstream equities to outperform the Fund’s primary benchmark was the natural gas gathering and processing (“G&P”) subsector. This subsector generally comprises “supply-push,” commodity-sensitive, less-diversified businesses with, in certain recent historical cases, elevated financial leverage. During the period, the Fund had increasing exposure to this subsector, and top contributors to Fund performance have G&P businesses. Nevertheless, we often consider G&P assets to be greater risk given their dependence on drilling activity, which tends to track upstream capital spending, which in turn is influenced by commodity price direction and increasingly by investor preferences related to capital allocation. Midstream equities that underperformed during this period included Diversified Midstream, which we continue to consider generally attractive based on discounted valuations. These
| HENNESSY FUNDS | 1-800-966-4354 | |
companies tend to have large, diversified businesses with integrated value chains, contracted fee-based cash flows with strong counterparties, exposure to better positioned assets and basins/markets, and strong balance sheets. In addition to Diversified Midstream, the Fund has held, and continues to hold, natural-gas-focused midstream companies, particularly those in better-positioned dry gas basins like the Marcellus shale and Haynesville shale. While this subsector also underperformed in the “risk-on” market environment, the Fund had exposure to this subsector as a result of the favorable natural gas demand/commodity price environment and attractive characteristics of these companies, including long-term “take-or-pay” contracts, healthy financial metrics, and expected energy-transition-related opportunities. Finally, of note is Cheniere Energy, Inc. is a top member of and materially outperformed the Alerian US Midstream Energy Index, the Fund did not hold this stock due to the absence of a dividend during the period. This company’s absence from Fund holdings was a key driver of benchmark variance.
Portfolio Strategy:
The Fund generally seeks to build a concentrated portfolio of midstream energy companies with the following characteristics: (i) large and strategically protected integrated businesses, linking economic basins to strong demand centers; (ii) contracted and visible cash flows with strong counterparties such as utilities or power consumers; and (iii) strong balance sheets. However, given the current strong macroeconomic conditions, as well as favorable commodity prices and midstream energy company fundamentals, we expect that the Fund’s portfolio will continue to include “quality beta” companies, including those with direct commodity sensitivity. We believe our industry experience and intensive, fundamental, “boots-on-the-ground” research process allows us to uncover potential equity mispricings that can meaningfully drive performance.
Investment Commentary:
Barring an economic or political-related shock, we remain optimistic about the investment return potential for midstream equities for many reasons, including favorable energy supply/demand and commodity price trends in the midst of a strong and continuing global economic recovery. We expect crude/liquids and natural gas throughput to generally improve in the coming period at a moderate pace, depending on large public producers’ willingness to maintain capital discipline. As such, with greatly reduced capital expenditures and underutilized midstream assets in some areas, we also expect benefits related to operating leverage. While equities have improved from the market lows in 2020, yields remain well-supported and attractive in a very low-rate environment, and valuations generally remain discounted. One of the most important current investment themes is that many midstream companies are generating positive and increasing free cash flow after paying dividends and will be in position to further pay down debt, increase distributions or dividends, and/or buy back stock. Inflation also remains topical for the investment community, but energy commodities and equities should be net beneficiaries of this trend. Further, many midstream energy companies are focused on the growing and long-dated opportunity set related to the theme of energy transition. In total, we believe these and other drivers should continue to benefit energy fundamentals and equities.
_______________
Opinions expressed are those of the Portfolio Managers as of the date written and are subject to change, are not guaranteed, and should not be considered investment advice or an indication of trading intent.
The Fund is non-diversified, meaning it may concentrate its assets in fewer individual holdings than a diversified fund, making it more exposed to individual stock volatility than a diversified fund. The Fund invests in small-capitalization and medium-capitalization companies, which
involves additional risks such as limited liquidity and greater volatility. Funds that concentrate in a single sector may be subject to a higher degree of risk. Energy-related companies are subject to specific risks, including fluctuations in commodity prices and consumer demand, substantial government regulation, and depletion of reserves. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. Use of derivatives can increase the volatility of the Fund.
MLPs and MLP investments have unique characteristics. The Fund does not receive the same tax benefits as a direct investment in an MLP.
The prices of MLP units may fluctuate abruptly and trading volume may be low, making it difficult for the Fund to sell its units at a favorable price. MLP general partners have the power to take actions that adversely affect the interests of unit holders. Most MLPs do not pay U.S. federal income tax at the partnership level, but an adverse change in tax laws could result in MLPs being treated as corporations for federal income tax purposes, which could reduce or eliminate distributions paid by MLPs to the Fund. The Fund is treated as a regular corporation, or “C” corporation, for U.S. federal income tax purposes, and therefore, is subject to U.S. federal income tax on its taxable income at the graduated rates applicable to corporations (currently a maximum rate of 21%), as well as state and local income taxes. The Fund will not benefit from current favorable federal income tax rates on long-term capital gains, and Fund income and losses will not be passed on to shareholders. The Fund accrues deferred income taxes for future tax liabilities associated with the portion of MLP distributions considered to be a tax-deferred return of capital and for any net operating gains as well as capital appreciation of its investments. This deferred tax liability is reflected in the daily net asset value of the Fund and as a result the Fund’s after-tax performance could differ significantly from the underlying assets even if the pre-tax performance is closely tracked. Please see the Fund’s prospectus for a more complete discussion of these and other risks.
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 Schedule of Investments included in this report for additional portfolio information.
Free cash flow is a measure of financial performance calculated as operating cash flow minus capital expenditures.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
Schedule of Investments as of October 31, 2021 |
HENNESSY BP MIDSTREAM FUND
(% of Total Assets)
| TOP TEN HOLDINGS (EXCLUDING MONEY MARKET FUNDS) | % TOTAL ASSETS |
| MPLX LP | 12.05% |
| Energy Transfer LP | 11.82% |
| Enterprise Products Partners LP | 8.82% |
| ONEOK, Inc. | 8.53% |
| The Williams Companies, Inc. | 8.33% |
| Kinder Morgan, Inc. | 8.00% |
| Plains All American Pipeline LP | 7.72% |
| Targa Resources Corp. | 6.89% |
| Western Midstream Partners LP | 4.96% |
| DCP Midstream LP | 3.92% |
Note: The Fund concentrates its investments in the Energy industry. For presentation purposes, the Fund uses custom categories.
| COMMON STOCKS – 42.07% | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Crude Oil & Refined Products – 3.10% | | | | | | | | | |
| Enbridge, Inc. (a) | | | 27,500 | | | $ | 1,151,150 | | | | 3.10 | % |
| | | | | | | | | | | | | |
| Gathering & Processing – 10.92% | | | | | | | | | | | | |
| Antero Midstream Corp. | | | 70,000 | | | | 744,800 | | | | 2.00 | % |
| EnLink Midstream LLC | | | 95,000 | | | | 745,750 | | | | 2.01 | % |
| Targa Resources Corp. | | | 47,000 | | | | 2,569,490 | | | | 6.91 | % |
| | | | | | | | 4,060,040 | | | | 10.92 | % |
| | | | | | | | | | | | | |
| Natural Gas/NGL Transportation – 28.05% | | | | | | | | | | | | |
| DT Midstream, Inc. | | | 24,000 | | | | 1,151,040 | | | | 3.10 | % |
| Kinder Morgan, Inc. | | | 178,090 | | | | 2,983,007 | | | | 8.03 | % |
| ONEOK, Inc. | | | 50,026 | | | | 3,182,654 | | | | 8.56 | % |
| The Williams Companies, Inc. | | | 110,652 | | | | 3,108,215 | | | | 8.36 | % |
| | | | | | | | 10,424,916 | | | | 28.05 | % |
| | | | | | | | | | | | | |
| Total Common Stocks | | | | | | | | | | | | |
| (Cost $10,207,144) | | | | | | | 15,636,106 | | | | 42.07 | % |
| | | | | | | | | | | | | |
| PARTNERSHIPS & TRUSTS – 55.65% | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Crude Oil & Refined Products – 26.03% | | | | | | | | | | | | |
| Genesis Energy LP | | | 90,000 | | | | 981,000 | | | | 2.64 | % |
| Magellan Midstream Partners LP | | | 26,900 | | | | 1,318,100 | | | | 3.55 | % |
| MPLX LP | | | 149,249 | | | | 4,495,380 | | | | 12.09 | % |
| Plains All American Pipeline LP | | | 284,526 | | | | 2,879,403 | | | | 7.75 | % |
| | | | | | | | 9,673,883 | | | | 26.03 | % |
| | | | | | | | | | | | | |
| Gathering & Processing – 4.97% | | | | | | | | | | | | |
| Western Midstream Partners LP | | | 87,000 | | | | 1,848,750 | | | | 4.97 | % |
| | | | | | | | | | | | | |
| Natural Gas/NGL Transportation – 24.65% | | | | | | | | | | | | |
| DCP Midstream LP | | | 47,000 | | | | 1,461,700 | | | | 3.93 | % |
| Energy Transfer LP | | | 463,700 | | | | 4,409,787 | | | | 11.87 | % |
| Enterprise Products Partners LP | | | 145,100 | | | | 3,290,868 | | | | 8.85 | % |
| | | | | | | | 9,162,355 | | | | 24.65 | % |
| | | | | | | | | | | | | |
| Total Partnerships & Trusts | | | | | | | | | | | | |
| (Cost $15,629,521) | | | | | | | 20,684,988 | | | | 55.65 | % |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
| SHORT-TERM INVESTMENTS – 1.69% | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Money Market Funds – 1.69% | | | | | | | | | |
| First American Government Obligations Fund, | | | | | | | | | |
| Institutional Class, 0.03% (b) | | | 627,647 | | | $ | 627,647 | | | | 1.69 | % |
| | | | | | | | | | | | | |
| Total Short-Term Investments | | | | | | | | | | | | |
| (Cost $627,647) | | | | | | | 627,647 | | | | 1.69 | % |
| | | | | | | | | | | | | |
| Total Investments | | | | | | | | | | | | |
| (Cost $26,464,312) – 99.41% | | | | | | | 36,948,741 | | | | 99.41 | % |
| Other Assets in Excess of Liabilities – 0.59% | | | | | | | 218,372 | | | | 0.59 | % |
| | | | | | | | | | | | | |
TOTAL NET ASSETS – 100.00% | | | | | | $ | 37,167,113 | | | | 100.00 | % |
Percentages are stated as a percent of net assets.
| (a) | U.S.-traded security of a foreign corporation. |
| (b) | The rate listed is the fund’s seven-day yield as of October 31, 2021. |
Summary of Fair Value Exposure as of October 31, 2021
The following is a summary of the inputs used to value the Fund’s net assets as of October 31, 2021 (see Note 3 in the accompanying Notes to the Financial Statements):
| Common Stocks | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Crude Oil & Refined Products | | $ | 1,151,150 | | | $ | — | | | $ | — | | | $ | 1,151,150 | |
| Gathering & Processing | | | 4,060,040 | | | | — | | | | — | | | | 4,060,040 | |
| Natural Gas/NGL Transportation | | | 10,424,916 | | | | — | | | | — | | | | 10,424,916 | |
| Total Common Stocks | | $ | 15,636,106 | | | $ | — | | | $ | — | | | $ | 15,636,106 | |
| Partnerships & Trusts | | | | | | | | | | | | | | | | |
| Crude Oil & Refined Products | | $ | 9,673,883 | | | $ | — | | | $ | — | | | $ | 9,673,883 | |
| Gathering & Processing | | | 1,848,750 | | | | — | | | | — | | | | 1,848,750 | |
| Natural Gas/NGL Transportation | | | 9,162,355 | | | | — | | | | — | | | | 9,162,355 | |
| Total Partnerships & Trusts | | $ | 20,684,988 | | | $ | — | | | $ | — | | | $ | 20,684,988 | |
| Short-Term Investments | | | | | | | | | | | | | | | | |
| Money Market Funds | | $ | 627,647 | | | $ | — | | | $ | — | | | $ | 627,647 | |
| Total Short-Term Investments | | $ | 627,647 | | | $ | — | | | $ | — | | | $ | 627,647 | |
| Total Investments | | $ | 36,948,741 | | | $ | — | | | $ | — | | | $ | 36,948,741 | |
The accompanying notes are an integral part of these financial statements.
| SCHEDULE OF INVESTMENTS/STATEMENT OF ASSETS AND LIABILITIES |
Financial Statements
Statement of Assets and Liabilities as of October 31, 2021 |
| ASSETS: | | | |
| Investments in securities, at value (cost $26,464,312) | | $ | 36,948,741 | |
| Dividends and interest receivable | | | 16,719 | |
| Receivable for fund shares sold | | | 44,875 | |
| Return of capital receivable | | | 283,946 | |
| Deferred income tax | | | — | |
| Prepaid expenses and other assets | | | 8,237 | |
| Total assets | | | 37,302,518 | |
| | | | | |
| LIABILITIES: | | | | |
| Payable for fund shares redeemed | | | 35,906 | |
| Payable to advisor | | | 37,630 | |
| Payable to auditor | | | 41,007 | |
| Accrued distribution fees | | | 1,544 | |
| Accrued service fees | | | 592 | |
| Accrued interest payable | | | 11 | |
| Accrued trustees fees | | | 6,599 | |
| Accrued expenses and other payables | | | 12,116 | |
| Total liabilities | | | 135,405 | |
| NET ASSETS | | $ | 37,167,113 | |
| | | | | |
| NET ASSETS CONSISTS OF: | | | | |
| Capital stock | | $ | 52,348,705 | |
| Accumulated deficit | | | (15,181,592 | ) |
| Total net assets | | $ | 37,167,113 | |
| | | | | |
| NET ASSETS: | | | | |
| Investor Class | | | | |
| Shares authorized (no par value) | | Unlimited | |
| Net assets applicable to outstanding shares | | $ | 6,720,058 | |
| Shares issued and outstanding | | | 775,917 | |
| Net asset value, offering price, and redemption price per share | | $ | 8.66 | |
| | | | | |
| Institutional Class | | | | |
| Shares authorized (no par value) | | Unlimited | |
| Net assets applicable to outstanding shares | | $ | 30,447,055 | |
| Shares issued and outstanding | | | 3,419,605 | |
| Net asset value, offering price, and redemption price per share | | $ | 8.90 | |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
Statement of Operations for the year ended October 31, 2021 |
| INVESTMENT INCOME: | | | |
| Distributions received from master limited partnerships | | $ | 1,575,250 | |
| Return of capital on distributions received | | | (1,575,250 | ) |
Dividend income(1) | | | 277,629 | |
| Interest income | | | 158 | |
| Total investment income | | | 277,787 | |
| | | | | |
| EXPENSES: | | | | |
| Investment advisory fees (See Note 5) | | | 361,154 | |
| Administration, accounting, custody, and transfer agent fees (See Note 5) | | | 48,071 | |
| Audit fees | | | 41,013 | |
| Sub-transfer agent expenses – Investor Class (See Note 5) | | | 12,612 | |
| Sub-transfer agent expenses – Institutional Class (See Note 5) | | | 24,156 | |
| Compliance expense (See Note 5) | | | 27,457 | |
| Federal and state registration fees | | | 25,990 | |
| Trustees’ fees and expenses | | | 18,593 | |
| Distribution fees – Investor Class (See Note 5) | | | 8,858 | |
| Reports to shareholders | | | 6,599 | |
| Service fees – Investor Class (See Note 5) | | | 5,905 | |
| Income tax expense | | | 1,520 | |
| Legal fees | | | 344 | |
| Interest expense (See Note 7) | | | 18 | |
| Other expenses | | | 10,633 | |
| Total expenses before waivers and reimbursements | | | 592,923 | |
| Service provider expense waiver (See Note 5) | | | (48,071 | ) |
| Expense reimbursement by advisor – Investor Class (See Note 5) | | | (12,376 | ) |
| Expense reimbursement by advisor – Institutional Class (See Note 5) | | | (23,693 | ) |
| Net expenses | | | 508,783 | |
| NET INVESTMENT LOSS | | $ | (230,996 | ) |
| | | | | |
| REALIZED AND UNREALIZED GAINS (LOSSES): | | | | |
| Net realized gain on investments | | $ | 357,263 | |
| Net change in unrealized appreciation/depreciation on investments | | | 17,111,950 | |
| Income tax expense | | | — | |
| Net gain on investments | | | 17,469,213 | |
| NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | | $ | 17,238,217 | |
(1) | Net of foreign taxes withheld of $14,622. |
The accompanying notes are an integral part of these financial statements.
| STATEMENT OF OPERATIONS/STATEMENTS OF CHANGES IN NET ASSETS |
Financial Statements
| Statements of Changes in Net Assets |
| | | Year Ended | | | Year Ended | |
| | | October 31, 2021 | | | October 31, 2020 | |
| OPERATIONS: | | | | | | |
| Net investment loss | | $ | (230,996 | ) | | $ | (398,916 | ) |
| Net realized gain (loss) on investments | | | 357,263 | | | | (7,697,287 | ) |
| Net change in unrealized | | | | | | | | |
| appreciation/deprecation on investments | | | 17,111,950 | | | | (5,793,719 | ) |
| Net increase (decrease) in net | | | | | | | | |
| assets resulting from operations | | | 17,238,217 | | | | (13,889,922 | ) |
| | | | | | | | | |
| DISTRIBUTIONS TO SHAREHOLDERS FROM: | | | | | | | | |
| Return of capital – Investor Class | | | (756,323 | ) | | | (901,142 | ) |
| Return of capital – Institutional Class | | | (3,420,217 | ) | | | (3,075,804 | ) |
| Total distributions | | | (4,176,540 | ) | | | (3,976,946 | ) |
| | | | | | | | | |
| CAPITAL SHARE TRANSACTIONS: | | | | | | | | |
| Proceeds from shares subscribed – Investor Class | | | 2,502,132 | | | | 1,902,264 | |
| Proceeds from shares subscribed – Institutional Class | | | 3,761,293 | | | | 9,560,813 | |
| Dividends reinvested – Investor Class | | | 677,429 | | | | 876,530 | |
| Dividends reinvested – Institutional Class | | | 3,185,818 | | | | 2,999,051 | |
| Cost of shares redeemed – Investor Class | | | (2,532,516 | ) | | | (3,867,332 | ) |
| Cost of shares redeemed – Institutional Class | | | (5,635,003 | ) | | | (12,434,812 | ) |
| Net increase (decrease) in net assets derived | | | | | | | | |
| from capital share transactions | | | 1,959,153 | | | | (963,486 | ) |
| TOTAL INCREASE (DECREASE) IN NET ASSETS | | | 15,020,830 | | | | (18,830,354 | ) |
| | | | | | | | | |
| NET ASSETS: | | | | | | | | |
| Beginning of year | | | 22,146,283 | | | | 40,976,637 | |
| End of year | | $ | 37,167,113 | | | $ | 22,146,283 | |
| | | | | | | | | |
| CHANGES IN SHARES OUTSTANDING: | | | | | | | | |
| Shares sold – Investor Class | | | 321,069 | | | | 312,671 | |
| Shares sold – Institutional Class | | | 490,595 | | | | 1,568,094 | |
| Shares issued to holders as reinvestment | | | | | | | | |
| of dividends – Investor Class | | | 89,396 | | | | 112,216 | |
| Shares issued to holders as reinvestment | | | | | | | | |
| of dividends – Institutional Class | | | 410,703 | | | | 380,829 | |
| Shares redeemed – Investor Class | | | (320,846 | ) | | | (582,063 | ) |
| Shares redeemed – Institutional Class | | | (711,400 | ) | | | (1,585,605 | ) |
| Net increase in shares outstanding | | | 279,517 | | | | 206,142 | |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
For an Investor Class share outstanding throughout each period
PER SHARE DATA:
Net asset value, beginning of period
Income from investment operations:
Net investment loss(2)(3)
Net realized and unrealized gains (losses) on investments
Total from investment operations
Less distributions:
Dividends from return of capital
Total distributions
Net asset value, end of period
TOTAL RETURN
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (millions)
Ratio of expenses to average net assets:
Before expense reimbursement
After expense reimbursement
Ratio of net investment loss to average net assets:
Before expense reimbursement(3)
After expense reimbursement(3)
Portfolio turnover rate(7)
(1) | The period ended October 31, 2018, consists of 11 months due to the Fund’s fiscal year end change from November 30 to October 31, effective October 26, 2018. |
(2) | Calculated using the average shares outstanding method. |
(3) | Includes current and deferred tax benefit/expense from net investment income/loss only. |
(4) | Not annualized. |
(5) | Annualized. |
(6) | Certain service provider expenses were voluntarily waived during the fiscal year. |
(7) | Calculated on the basis of the Fund as a whole. |
The accompanying notes are an integral part of these financial statements.
| FINANCIAL HIGHLIGHTS — INVESTOR CLASS |
| Year Ended October 31, | | | Period Ended | | | Year Ended November 30, | |
| | | October 31, | | | |
| 2021 | | | 2020 | | | 2019 | | | 2018(1) | | | 2017 | | | 2016 | |
| | | | | | | | | | | | | | | | | |
| $ | 5.55 | | | $ | 10.90 | | | $ | 12.66 | | | $ | 14.51 | | | $ | 16.54 | | | $ | 15.45 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | (0.07 | ) | | | (0.10 | ) | | | (0.10 | ) | | | (0.16 | ) | | | (0.22 | ) | | | (0.17 | ) |
| | 4.21 | | | | (4.22 | ) | | | (0.63 | ) | | | (0.66 | ) | | | (0.78 | ) | | | 2.29 | |
| | 4.14 | | | | (4.32 | ) | | | (0.73 | ) | | | (0.82 | ) | | | (1.00 | ) | | | 2.12 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | (1.03 | ) | | | (1.03 | ) | | | (1.03 | ) | | | (1.03 | ) | | | (1.03 | ) | | | (1.03 | ) |
| | (1.03 | ) | | | (1.03 | ) | | | (1.03 | ) | | | (1.03 | ) | | | (1.03 | ) | | | (1.03 | ) |
| $ | 8.66 | | | $ | 5.55 | | | $ | 10.90 | | | $ | 12.66 | | | $ | 14.51 | | | $ | 16.54 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | 78.41 | % | | | -42.13 | % | | | -6.28 | % | | | -6.15 | %(4) | | | -6.49 | % | | | 14.78 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| $ | 6.72 | | | $ | 3.81 | | | $ | 9.20 | | | $ | 20.07 | | | $ | 16.86 | | | $ | 13.43 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2.11 | % | | | 2.12 | % | | | 1.89 | % | | | 1.86 | %(5) | | | 1.91 | % | | | 2.21 | % |
| | 1.76 | %(6) | | | 1.76 | %(6) | | | 1.76 | % | | | 1.78 | %(5) | | | 1.77 | % | | | 1.74 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| | (1.26 | )% | | | (1.63 | )% | | | (0.92 | )% | | | (1.34 | )%(5) | | | (1.50 | )% | | | (1.60 | )% |
| | (0.91 | )% | | | (1.27 | )% | | | (0.79 | )% | | | (1.26 | )%(5) | | | (1.36 | )% | | | (1.13 | )% |
| | 40 | % | | | 53 | % | | | 41 | % | | | 64 | %(4) | | | 63 | % | | | 139 | % |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
For an Institutional Class share outstanding throughout each period
PER SHARE DATA:
Net asset value, beginning of period
Income from investment operations:
Net investment loss(2)(3)
Net realized and unrealized gains (losses) on investments
Total from investment operations
Less distributions:
Dividends from return of capital
Total distributions
Net asset value, end of period
TOTAL RETURN
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (millions)
Ratio of expenses to average net assets:
Before expense reimbursement
After expense reimbursement
Ratio of net investment loss to average net assets:
Before expense reimbursement(3)
After expense reimbursement(3)
Portfolio turnover rate(7)
(1) | The period ended October 31, 2018, consists of 11 months due to the Fund’s fiscal year end change from November 30 to October 31, effective October 26, 2018. |
(2) | Calculated using the average shares outstanding method. |
(3) | Includes current and deferred tax benefit/expense from net investment income/loss only. |
(4) | Not annualized. |
(5) | Annualized. |
(6) | Certain service provider expenses were voluntarily waived during the fiscal year. |
(7) | Calculated on the basis of the Fund as a whole. |
The accompanying notes are an integral part of these financial statements.
| FINANCIAL HIGHLIGHTS — INSTITUTIONAL CLASS |
| Year Ended October 31, | | | Period Ended | | | Year Ended November 30, | |
| | | October 31, | | | |
| 2021 | | | 2020 | | | 2019 | | | 2018(1) | | | 2017 | | | 2016 | |
| | | | | | | | | | | | | | | | | |
| $ | 5.68 | | | $ | 11.09 | | | $ | 12.83 | | | $ | 14.66 | | | $ | 16.66 | | | $ | 15.53 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | (0.05 | ) | | | (0.10 | ) | | | (0.09 | ) | | | (0.14 | ) | | | (0.18 | ) | | | (0.12 | ) |
| | 4.30 | | | | (4.28 | ) | | | (0.62 | ) | | | (0.66 | ) | | | (0.79 | ) | | | 2.28 | |
| | 4.25 | | | | (4.38 | ) | | | (0.71 | ) | | | (0.80 | ) | | | (0.97 | ) | | | 2.16 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | (1.03 | ) | | | (1.03 | ) | | | (1.03 | ) | | | (1.03 | ) | | | (1.03 | ) | | | (1.03 | ) |
| | (1.03 | ) | | | (1.03 | ) | | | (1.03 | ) | | | (1.03 | ) | | | (1.03 | ) | | | (1.03 | ) |
| $ | 8.90 | | | $ | 5.68 | | | $ | 11.09 | | | $ | 12.83 | | | $ | 14.66 | | | $ | 16.66 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | 78.57 | % | | | -41.93 | % | | | -6.10 | % | | | -5.94 | %(4) | | | -6.25 | % | | | 14.97 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| $ | 30.45 | | | $ | 18.33 | | | $ | 31.78 | | | $ | 61.92 | | | $ | 82.59 | | | $ | 33.22 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | 1.74 | % | | | 1.79 | % | | | 1.56 | % | | | 1.58 | %(5) | | | 1.66 | % | | | 1.95 | % |
| | 1.51 | %(6) | | | 1.51 | %(6) | | | 1.51 | % | | | 1.52 | %(5) | | | 1.52 | % | | | 1.48 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| | (0.89 | )% | | | (1.55 | )% | | | (0.76 | )% | | | (1.15 | )%(5) | | | (1.28 | )% | | | (1.28 | )% |
| | (0.66 | )% | | | (1.27 | )% | | | (0.71 | )% | | | (1.09 | )%(5) | | | (1.14 | )% | | | (0.81 | )% |
| | 40 | % | | | 53 | % | | | 41 | % | | | 64 | %(4) | | | 63 | % | | | 139 | % |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
Notes to the Financial Statements October 31, 2021 |
1). ORGANIZATION
The Hennessy BP Midstream Fund (the “Fund”) is a series of Hennessy Funds Trust (the “Trust”), which was organized as a Delaware statutory trust on September 17, 1992. The Fund is an open-end management investment company registered under the Investment Company Act of 1940, as amended. The investment objective of the Fund is to seek capital appreciation through distribution growth along with current income. The Fund is treated as a regular corporation, or “C” corporation, for U.S. federal income tax purposes. Because the Fund is treated as a “C” corporation, it is not taxed as a regulated investment company under Subchapter M of the Code and is not required to comply with the diversification requirements applicable to regulated investment companies. The Fund is a non-diversified fund.
The Fund offers Investor Class and Institutional Class shares. Each class of shares differs principally in its respective 12b-1 distribution and service, shareholder servicing, and sub-transfer agent expenses. There are no sales charges. 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 one class.
As an investment company, the Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 “Financial Services—Investment Companies.”
2). SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of the financial statements. These policies conform to U.S. generally accepted accounting principles (“GAAP”).
| a). | Securities Valuation – All investments in securities are valued in accordance with the Fund’s valuation policies and procedures, as described in Note 3. |
| | |
| b). | Federal Income Taxes – The Fund is taxed as a corporation and is obligated to pay U.S. federal and state income tax on its taxable income. Currently, the maximum marginal regular federal income tax rate for a corporation is 21%. The Fund invests a substantial portion of its assets in master limited partnerships (“MLPs”), which are treated as partnerships for federal income tax purposes. As a limited partner in MLPs, the Fund reports its allocable share of each MLP’s taxable income in computing its own taxable income. |
| | |
| | The Fund includes any tax expense or benefit in the Statement of Operations based on the component of income or gains/losses to which such expense or benefit relates. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the carrying amount of assets and liabilities for income tax purposes. The Fund recognizes a valuation allowance if, based on the weight of available evidence, it is more likely than not that the Fund will not realize some portion or all of the deferred income tax assets. As of October 31, 2021, the Fund has placed a full valuation allowance on its deferred tax assets. |
| | |
| c). | Accounting for Uncertainty in Income Taxes – The Fund has accounting policies regarding recognition and measurement of tax positions taken or expected to be taken on a tax return. The tax returns of the Fund for the prior three fiscal years are |
| NOTES TO THE FINANCIAL STATEMENTS |
| | open for examination. The Fund has reviewed all open tax years in major tax jurisdictions and concluded that there is no impact on the Fund’s 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. The Fund files U.S. federal income tax returns and various state income tax returns. |
| | |
| d). | Income and Expenses – Dividend income is recognized on the ex-dividend date or as soon as information is available to the Fund. Interest income, which includes the amortization of premium and accretion of discount, is recognized on an accrual basis. Market discounts, original issue discounts, and market premiums on debt securities are accreted or amortized to interest income over the life of a security with a corresponding increase or decrease, as applicable, in the cost basis of such security using the yield-to-maturity method or, where applicable, the first call date of the security. Other non-cash dividends are recognized as investment income at the fair value of the property received. The Fund is charged for those expenses that are directly attributable to its portfolio, such as advisory, administration, and certain shareholder service fees. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains/losses on investments are allocated to each class of shares based on such class’s net assets. Distributions received from the Fund’s investments in MLPs generally consist of ordinary income, capital gains, and return of capital. The Fund records investment income on the ex-date of the distributions. For financial statement purposes, the Fund uses return of capital and income estimates to allocate the dividend income received. Such estimates are based on historical information available from the MLPs and other industry sources. These estimates may subsequently be revised based on information received from the MLPs after their tax reporting periods are concluded, as the actual character of these distributions is not known until after the fiscal year end of the Fund. |
| | |
| e). | Distributions to Shareholders – The Fund typically makes cash distributions to its shareholders quarterly at the beginning of the months of March, June, September, and December. Due to the tax treatment of the Fund’s allocations and distributions from MLPs, a significant portion of the Fund’s distributions to shareholders typically is treated as return of capital to shareholders for U.S. federal income tax purposes (i.e., as distributions in excess of the Fund’s current and accumulated earnings and profits as described below). However, no assurance can be given in this regard; just as the Fund’s corporate income tax liability can fluctuate materially from year to year, the extent to which the Fund is able to make return-of-capital distributions also can vary materially from year to year depending on a number of different factors, including the composition of the Fund’s portfolio, the level of allocations of net income and other tax items for the Fund from its underlying MLP investments, the length of time the Fund has owned the MLP equity securities in its portfolio, and the extent to which the Fund disposes of MLP equity securities during a particular year, including to meet Fund shareholder redemption requests as necessary. |
| | |
| | In general, a distribution constitutes a return of capital to a shareholder rather than a dividend to the extent such distribution exceeds the Fund’s current and accumulated earnings and profits. The portion of any distribution treated as a return of capital constitutes a tax-free return of capital to the extent of a shareholder’s cost basis in Fund shares and thereafter generally is taxable to the shareholder as a capital gain. A return-of-capital distribution also reduces the shareholder’s cost basis in Fund shares (but not below zero). A lower cost basis means that a shareholder recognizes more gain or less loss when the shareholder eventually sells Fund shares, which increases the shareholder’s tax liability. |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | The Fund attempts to maintain a stable distribution rate and therefore may distribute more or less than the actual amount of cash it receives from its investments in a particular period. Any undistributed cash would be available to supplement future distributions, and until distributed would increase the Fund’s net asset value (“NAV”). Correspondingly, such amounts, once distributed, decrease the Fund’s NAV. In addition, the Fund may opt not to make distributions in quarters in which the Fund believes that a distribution could cause adverse tax consequences to shareholders, including when the Fund believes that a distribution may not constitute a tax-free return of capital as described above. |
| | |
| f). | Security Transactions – Investment and shareholder transactions are recorded on the trade date. The Fund determines the realized gain/loss from an investment transaction by comparing the original cost of the security lot sold with the net sale proceeds. Discounts and premiums on securities purchased are accreted or amortized, respectively, over the life of each such security. |
| | |
| g). | Use of Estimates – Preparing financial statements in accordance 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, as well as the reported change in net assets during the reporting period. Actual results could differ from those estimates. |
| | |
| h). | Share Valuation – The NAV per share of the Fund is calculated by dividing (i) the total value of the securities held by the Fund, plus cash and other assets, minus all liabilities (including estimated accrued expenses) by (ii) the total number of Fund shares outstanding, rounded to the nearest $0.01. Fund shares are not priced on days the New York Stock Exchange is closed for trading. The offering and redemption price per share for the Fund is equal to the Fund’s NAV per share. |
| | |
| i). | Partnership Accounting Policy – To the extent the Fund receives distributions from underlying partnerships in which it invests, the Fund records its pro rata share of income/loss and capital gains/losses and accordingly adjusts the cost basis of the underlying partnerships for return of capital. |
| | |
| j). | Recent Accounting Pronouncements and Regulatory Updates – In October 2020, the Securities and Exchange Commission (“SEC”) adopted new regulations governing the use of derivatives by registered investment companies (“Rule 18f-4”). Rule 18f-4 imposes limits on the amount of derivatives a fund can enter into, eliminates the asset segregation framework currently used by funds to comply with Section 18 of the 1940 Act, and requires funds whose use of derivatives is greater than a limited specified amount to establish and maintain a comprehensive derivatives risk management program and appoint a derivatives risk manager. Funds are required to comply with Rule 18f-4 by August 19, 2022. The impact, if any, that Rule 18f-4 will have on the availability, liquidity, and performance of derivatives is unclear. Management is currently evaluating the potential impact of Rule 18f-4 on the Fund. When fully implemented, Rule 18f-4 may require changes in how the Fund uses derivatives, adversely affect the Fund’s performance, and increase costs related to the Fund’s use of derivatives. |
| | |
| | In December 2020, the SEC adopted a new rule providing a framework for fund valuation practices (“Rule 2a-5”). Rule 2a-5 establishes requirements for determining fair value in good faith for purposes of the 1940 Act. Rule 2a-5 permits fund boards to designate certain parties to perform fair value determinations, subject to board oversight and certain other conditions. Rule 2a-5 also defines when market quotations are “readily available” for purposes of the 1940 Act and the threshold for |
| NOTES TO THE FINANCIAL STATEMENTS |
| | determining whether a fund must fair value a security. In connection with Rule 2a-5, the SEC also adopted related recordkeeping requirements and is rescinding previously issued guidance, including with respect to the role of a board in determining fair value and the accounting and auditing of fund investments. Funds must comply with the rules by September 8, 2022. Management is currently assessing the potential impact of the new rules on the Fund’s financial statements. |
3). SECURITIES VALUATION
The Fund follows its valuation policies and procedures in determining its net asset value and, in preparing these financial statements, the fair value accounting standards that 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 of changes in valuation techniques and related inputs during the period. These inputs are summarized in the three broad levels listed below:
| | Level 1 – | Unadjusted, quoted prices in active markets for identical instruments that the Fund has the ability to access at the date of measurement. |
| | | |
| | Level 2 – | Other significant observable inputs (including, but not limited to, quoted prices in active markets for similar instruments, quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets, such as interest rates, prepayment speeds, credit risk curves, default rates, and similar data). |
| | | |
| | Level 3 – | Significant unobservable inputs (including the Fund’s own assumptions about what market participants would use to price the asset or liability based on the best available information) when observable inputs are unavailable. |
The following is a description of the valuation techniques applied to the Fund’s major categories of assets and liabilities on a recurring basis:
| | Equity Securities – Equity securities, including common stocks, preferred stocks, foreign-issued common stocks, exchange-traded funds, closed-end mutual funds, partnerships, rights, MLPs, and real estate investment trusts, that are traded on a securities exchange for which a last-quoted sales price is readily available generally are valued at the last sales price as reported by the primary exchange on which the securities are listed. Securities listed on The NASDAQ Stock Market (“NASDAQ”) generally are 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 generally are 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 classified in Level 1 of the fair value hierarchy. Securities traded on foreign exchanges generally are not valued at the same time the Fund calculates its NAV because most foreign markets close well before such time. The earlier close of most foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim. In certain circumstances, it may be determined that a foreign security needs to be fair valued because it appears that the value of the security might have been materially affected by events occurring after the close of the market in which the security is principally traded, but before the time the Fund calculates its NAV, such as by a development that affects an entire market or region (e.g., a weather-related event) or a potentially global development (e.g., a terrorist attack that may be expected to have an effect on investor expectations worldwide). |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | Registered Investment Companies – Investments in open-end registered investment companies, commonly referred to as mutual funds, generally are priced at the ending NAV provided by the applicable mutual fund’s service agent and are classified in Level 1 of the fair value hierarchy. |
| | |
| | Debt Securities – Debt securities, including corporate bonds, asset-backed securities, mortgage-backed securities, municipal bonds, U.S. Treasuries, and U.S. government agency issues, are generally valued at market on the basis of valuations furnished by an independent pricing service that 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 observable market data, such as reported sales of similar securities, broker quotes, yields, bids, offers, and reference data. Certain securities are valued primarily using dealer quotations. These securities are generally 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 for equity securities. Short-term debt investments with an original term to maturity of 60 days or less are valued at amortized cost, which approximates fair market value. If the original term to maturity of a short-term debt investment exceeds 60 days, then the values as of the 61st day prior to maturity are amortized. Amortized cost is not used if its use would be inappropriate due to credit or other impairments of the issuer, in which case the security’s fair value would be determined as described below. Short-term securities are generally classified in Level 1 or Level 2 of the fair value hierarchy depending on the inputs used and market activity levels for specific securities. |
The Board of Trustees of the Fund (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 considered in determining a fair value of a security, such as the trading volume of a security and markets, the values of other similar securities, and news events with direct bearing on a security or markets. Fair value pricing results in an estimated price for a security that reflects the amount the Fund might reasonably expect to receive in a current sale. 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 fair value 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. Using fair value pricing means that the Fund’s NAV reflects the affected portfolio securities’ values as determined by the Board or its designee, pursuant to the fair value pricing procedures adopted by the Board, instead of being determined by the market. Using a fair value pricing methodology to price a foreign security may result in a value that is different from such foreign security’s most recent closing price and from the value used by other investment companies to calculate their NAVs. Such securities are generally classified in Level 2 of the fair value hierarchy. Because the Fund may invest in foreign securities, the value of the Fund’s portfolio securities may change on days when a shareholder is unable to purchase or redeem Fund shares.
| NOTES TO THE FINANCIAL STATEMENTS |
The Board has delegated day-to-day valuation matters to the Valuation and Liquidity Committee comprising representatives from Hennessy Advisors, Inc., the Fund’s investment advisor (the “Advisor”). The function of the Valuation and Liquidity Committee, among other things, is to value securities where current and reliable market quotations are not readily available. All actions taken by the Valuation and Liquidity Committee are reviewed by the Board.
The Fund has performed an analysis of all existing investments to determine the significance and character of all inputs to their fair value determinations. Various inputs are used to determine the value of the 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 value hierarchy of the Fund’s securities as of October 31, 2021, are included in the Schedule of Investments.
4). INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding government and short-term investments) for the Fund during fiscal year 2021 were $12,566,765 and $13,226,685, respectively.
There were no purchases or sales/maturities of long-term U.S. government securities for the Fund during fiscal year 2021.
5). INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Advisor provides the Fund with investment advisory services under an Investment Advisory Agreement. The Advisor oversees the provision of investment advice and furnishes office space, facilities, and most of the personnel needed by the Fund. As compensation for its services, the Advisor is entitled to a monthly fee from the Fund. The fee is based on the average daily net assets of the Fund at an annual rate of 1.10%. The net investment advisory fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
The Advisor has delegated the day-to-day management of the Fund to a sub-advisor, BP Capital Fund Advisors, LLC. The Advisor pays the sub-advisory fees from its own assets, and these fees are not an additional expense of the Fund. During fiscal year 2021, the Advisor (not the Fund) paid a sub-advisory fee at the rate of 0.40% of the daily net assets of the Fund.
The Advisor has contractually agreed to limit total annual operating expenses to 1.75% of the Fund’s net assets for Investor Class shares and 1.50% of the Fund’s net assets for Institutional Class shares (in each case, excluding all federal, state, and local taxes, interest, brokerage commissions, dividend and interest expenses on short sales, extraordinary items, and acquired fund fees and expenses and other costs incurred in connection with the purchase and sale of securities) through February 28, 2022.
For three years following the date on which expenses were waived or incurred, the Advisor may recoup waived or reimbursed expenses from the Fund if total operating expenses, including such recoupment, does not exceed the expense limitation in effect (i) at the time the Advisor waived or reimbursed such expenses and (ii) at the time the Advisor recoups such expenses. As of October 31, 2021, expenses subject to potential recovery for Investor Class and Institutional Class shares and the fiscal years in which they expire were as follows:
| | | Fiscal Year | Fiscal Year | Fiscal Year | |
| | | 2022
| 2023
| 2024
| Total
|
| | Investor Class | $22,275 | $22,658 | $12,376 | $ 57,309 |
| | Institutional Class | $19,981 | $60,422 | $26,693 | $107,096 |
| HENNESSY FUNDS | 1-800-966-4354 | |
The amount of the expense reimbursement by the Advisor for Institutional Class shares set forth in the Statement of Operations is net of $3,000 that the Advisor recouped from the Fund during fiscal year 2021.
The Board has approved a Shareholder Servicing Agreement for Investor Class shares of the Fund, which compensates the Advisor for the non-investment advisory services it provides to the Fund. The Shareholder Servicing Agreement provides for a monthly fee paid to the Advisor at an annual rate of 0.10% of the average daily net assets of the Fund attributable to Investor Class shares. The shareholder service fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
The Fund has adopted a plan pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended, that authorizes payments in connection with the distribution of Fund shares at an annual rate of up to 0.25% of the Fund’s average daily net assets attributable to Investor Class shares. Even though the authorized rate is up to 0.25%, the Fund is currently only using up to 0.15% of its average daily net assets attributable to Investor Class shares for such purpose. 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, shareholder account servicing, printing and mailing of prospectuses to other than current shareholders, printing and mailing of sales literature, and compensation for sales and marketing activities or to financial institutions and others, such as dealers and distributors. The distribution fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
The Fund has entered into agreements with various brokers, dealers, and financial intermediaries in connection with the sale of Fund shares. The agreements provide for periodic payments of sub-transfer agent expenses by the Fund to the brokers, dealers, and financial intermediaries for providing certain shareholder maintenance services. 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. The sub-transfer agent fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
U.S. Bancorp Fund Services, LLC, d/b/a U.S. Bank Global Fund Services (“Fund Services”) provides the Fund with administrative, accounting, and transfer agent services. As administrator, Fund Services is responsible for activities such as (i) preparing various federal and state regulatory filings, reports, and returns for the Fund, (ii) preparing reports and materials to be supplied to the Board, (iii) monitoring the activities of the Fund’s custodian, transfer agent, and accountants, and (iv) coordinating the preparation and payment of the Fund’s expenses and reviewing the Fund’s expense accruals. U.S. Bank N.A., an affiliate of Fund Services, serves as the Fund’s custodian. The servicing agreements between the Trust, Fund Services, and U.S. Bank N.A. contain a fee schedule that is inclusive of administrative, accounting, custody, and transfer agent fees. The administrative, accounting, custody, and transfer agent fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations. Fund Services has voluntarily waived all or a portion of its fees for the Fund. The fees voluntarily waived by Fund Services during fiscal year 2021 are included in the Statement of Operations.
Quasar Distributors, LLC (“Quasar”), a wholly owned broker-dealer subsidiary of Foreside Financial Group, LLC (“Foreside”), acts as the Fund’s principal underwriter in a continuous public offering of Fund shares. Effective September 30, 2021, Genstar Capital, a private equity firm specializing in financial and related business service companies, acquired a majority interest in Foreside. The Board approved a new Distribution Agreement to enable Quasar to continue serving as the Fund’s distributor following the change in control of Foreside.
| NOTES TO THE FINANCIAL STATEMENTS |
The officers of the Fund are affiliated with the Advisor. With the exception of the Chief Compliance Officer and the Senior Compliance Officer, such officers receive no compensation from the Fund for serving in their respective roles. The Fund, along with the other funds in the Hennessy Funds family (collectively, the “Hennessy Funds”), makes reimbursement payments on an equal basis to the Advisor for a portion of the salary and benefits associated with the office of the Chief Compliance Officer and for all of the salary and benefits associated with the office of the Senior Compliance Officer. The compliance fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
6). GUARANTEES AND INDEMNIFICATIONS
Under the Hennessy Funds’ organizational documents, their officers and trustees are indemnified by the Hennessy Funds against certain liabilities arising out of the performance of their duties to the Hennessy Funds. Additionally, in the normal course of business, the Hennessy Funds enter into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. Currently, the Fund expects the risk of loss to be remote.
7). LINE OF CREDIT
The Fund has an uncommitted line of credit with the other Hennessy Funds in the amount of the lesser of (i) $100,000,000 or (ii) 33.33% of each Hennessy Fund’s net assets, or 30% for the Hennessy Gas Utility Fund and 10% for the Hennessy Balanced Fund. The line of credit is intended to provide any necessary short-term financing in connection with shareholder redemptions, subject to certain restrictions. The credit facility is with the Hennessy Funds’ custodian bank, U.S. Bank N.A. Borrowings under this arrangement bear interest at the bank’s prime rate and are secured by all of the Fund’s assets (as to its own borrowings only). During fiscal year 2021, the Fund had an outstanding average daily balance and a weighted average interest rate of $559 and 3.25%, respectively. The interest expensed by the Fund during fiscal year 2021 is included in the Statement of Operations. The maximum amount outstanding for the Fund during fiscal year 2021 was $117,000. As of October 31, 2021, the Fund did not have any borrowings outstanding under the line of credit.
8). FEDERAL TAX INFORMATION
As of October 31, 2021, the components of accumulated earnings (losses) for income tax purposes were as follows:
| | | | Investments | |
| | Cost of investments for tax purposes | | $ | 23,165,795 | |
| | Gross tax unrealized appreciation | | $ | 13,845,441 | |
| | Gross tax unrealized depreciation | | | (62,495 | ) |
| | Net tax unrealized appreciation/(depreciation) | | $ | 13,782,946 | |
| | | | | | |
| | As of October 31, 2021, deferred tax assets consisted of the following: | | | | |
| | | | | | |
| | Deferred tax assets (liabilities): | | | | |
| | Net operating losses | | $ | 653,315 | |
| | Capital loss | | | 4,983,402 | |
| | Unrealized (gain) loss on investments | | | (1,903,038 | ) |
| | Total deferred tax assets, net | | | 3,733,679 | |
| | Valuation allowance | | | (3,733,679 | ) |
| | Net | | $ | — | |
| HENNESSY FUNDS | 1-800-966-4354 | |
For fiscal year 2021, the Fund had an effective tax rate of 0% and a federal statutory rate of 21%, with the difference resulting from a change in the valuation allowance of the deferred tax assets.
Deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Fund has evaluated the available evidence supporting the realization of its gross deferred tax assets, including the amount and timing of future taxable income, and has determined that, based on net losses to date, it may not utilize all of its deferred tax assets in the future. As of October 31, 2021, the Fund established a valuation allowance in the amount of $3,733,679 against its deferred tax assets.
The Fund may carry forward any net capital loss five years to offset any future realized capital gains. The Fund may carry forward indefinitely any net operating loss arising in a tax year ending after December 31, 2017. As of October 31, 2021, the Fund had $21,961,713 in capital loss carryforwards that expire as follows:
| | Amount
| Expiration | |
| | $5,811,427 | 10/31/2023 | |
| | 8,971,423 | 10/31/2024 | |
| | 7,178,863 | 10/31/2025 | |
As of October 31, 2021, the Fund had $2,909,272 in net operating loss carryforwards that expire as follows:
| | Amount
| Expiration | |
| | $ 360,753 | 11/30/2037 | |
| | 2,548,519 | Indefinite | |
Total income taxes have been computed by applying the federal statutory income tax rate of 21% plus a blended state income tax rate. The Fund applied this effective rate to net investment income and realized and unrealized gains on investments before taxes in computing its total income taxes.
| | Tax expense (benefit) at statutory rates | | $ | 3,620,026 | |
| | State income tax expense, net of federal benefit | | | 278,358 | |
| | Tax expense (benefit) on permanent items(1) | | | (18,889 | ) |
| | Tax expense (benefit) on expired carryforwards | | | — | |
| | Tax expense (benefit) due to change in effective state rates | | | — | |
| | Total current tax expense (benefit) | | | — | |
| | Change in valuation allowance | | | (3,879,495 | ) |
| | Total tax expense | | $ | — | |
| | | | | | |
| | (1) Permanent items consist of dividends-received deductions. | | | | |
The Fund recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. Management has analyzed the Fund’s tax positions in all open tax years and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on U.S. federal tax returns and state tax returns filed or expected to be filed. No income tax returns are currently under examination. Generally, the tax returns of the Fund for the prior three fiscal years are open for examination. Due to the nature of the Fund’s investments, the Fund may be required to file income tax returns in several states. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially.
| NOTES TO THE FINANCIAL STATEMENTS |
During fiscal years 2021 and 2020, the tax character of distributions paid by the Fund was as follows:
| | | | Year Ended | | | Year Ended | |
| | | | October 31, 2021 | | | October 31, 2020 | |
| | Ordinary income(1) | | $ | — | | | $ | — | |
| | Long-term capital gains | | | — | | | | — | |
| | Return of capital | | | 4,176,540 | | | | 3,976,946 | |
| | Total distributions | | $ | 4,176,540 | | | $ | 3,976,946 | |
| | | | | | | | | | |
| | (1) Ordinary income includes short-term capital gains. | | | | | | | | |
9). EVENTS SUBSEQUENT TO YEAR END
Management has evaluated the Fund’s related events and transactions that occurred subsequent to October 31, 2021, through the date of issuance of the Fund’s financial statements. Other than as disclosed below, management has determined that there were no subsequent events requiring recognition or disclosure in the financial statements.
On December 1, 2021, distributions were declared and paid to shareholders of record on November 30, 2021, as follows:
| | | Return of Capital |
| | Investor Class | $0.2575 |
| | Institutional Class | $0.2575 |
| HENNESSY FUNDS | 1-800-966-4354 | |
Report of Independent Registered Public
Accounting Firm
To the Board of Trustees of Hennessy Funds Trust
and the shareholders of the Hennessy BP Midstream Fund
Novato, CA
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of the Hennessy BP Midstream Fund (the “Fund”), a series of Hennessy Funds Trust, including the schedule of investments, as of October 31, 2021, the related statement 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, financial highlights for each of the three years in the period then ended, for the eleven months ended October 31, 2018, and each of the two years in the period ended November 30, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of October 31, 2021, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, for the eleven months ended October 31, 2018, and each of the two years in the period ended November 30, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We have served as the auditor of one or more of the funds in the Trust since 2002.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of October 31, 2021, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
| | |
| | TAIT, WELLER & BAKER LLP |
Philadelphia, Pennsylvania
December 22, 2021
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM/TRUSTEES AND OFFICERS |
Trustees and Officers of the Fund (Unaudited)
The business and affairs of the Funds are managed under the direction of the Board of Trustees of the Trust, and the Board of Trustees elects the officers of the Trust. From time to time, the Board of Trustees also has appointed advisers to the Board of Trustees (“Advisers”) with the intention of having qualified individuals serve in an advisory capacity to garner experience in the mutual fund and asset management industry and be considered as potential Trustees in the future. There are currently two Advisers, Brian Alexander and Doug Franklin. As Advisers, Mr. Alexander and Mr. Franklin attend meetings of the Board of Trustees and act as non-voting participants. Information pertaining to the Trustees, Advisers, and the officers of the Trust is set forth below. The Trustees and officers serve until their successors are duly elected and qualified or until their earlier death, resignation, or removal. Each Trustee oversees all 16 Hennessy Funds. Unless otherwise indicated, the address of all persons listed below is 7250 Redwood Boulevard, Suite 200, Novato, CA 94945. The Fund’s Statement of Additional Information includes more information about the persons listed below and is available without charge by calling 1-800-966-4354 or by visiting www.hennessyfunds.com.
| | | | Other |
| | | | Directorships |
| | | | Held Outside |
| Name, Age, | | | of Fund |
| and Position Held | Start Date | Principal Occupation(s) | Complex During |
with the Trust
| of Service | During Past Five Years | Past Five Years
|
| | | | |
| Disinterested Trustees and Advisers | | | |
| | | | |
| J. Dennis DeSousa | January 1996 | Mr. DeSousa is a real estate investor. | None. |
| 85 | | | |
| Trustee | | | |
| | | | |
| Robert T. Doyle | January 1996 | Mr. Doyle has been the Sheriff of | None. |
| 74 | | Marin County, California since 1996. | |
| Trustee | | | |
| | | | |
| Claire Garvie | December 2015 | Ms. Garvie is a founder of Kiosk and | None. |
| 47 | as an Adviser | has served as its Chief Operating | |
| Trustee | to the Board | Officer since 2004. Kiosk is a full- | |
| | and | service marketing agency with | |
| | December 2021 | offices in the San Francisco Bay Area, | |
| | as a Trustee | Toronto, and Liverpool, UK. | |
| | | | |
| Gerald P. Richardson | May 2004 | Mr. Richardson is an independent | None. |
| 76 | | consultant in the securities industry. | |
| Trustee | | | |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | | | Other |
| | | | Directorships |
| | | | Held Outside |
| Name, Age, | | | of Fund |
| and Position Held | Start Date | Principal Occupation(s) | Complex During |
with the Trust
| of Service | During Past Five Years | Past Five Years
|
| | | | |
| Brian Alexander | March 2015 | Mr. Alexander has worked for the | None. |
| 40 | | Sutter Health organization since | |
| Adviser to the Board | | 2011 in various positions. He has | |
| | | served as the Chief Executive Officer | |
| | | of the Sutter Roseville Medical | |
| | | Center since 2018. From 2016 through | |
| | | 2018, he served as the Vice President | |
| | | of Strategy for the Sutter Health Valley | |
| | | Area, which includes 11 hospitals, | |
| | | 13 ambulatory surgery centers, | |
| | | 16,000 employees, and 1,900 physicians. | |
| | | From 2013 through 2016, Mr. Alexander | |
| | | served as Sutter Novato Community | |
| | | Hospital’s Chief Administrative Officer. | |
| | | | |
| Doug Franklin | March 2016 | Mr. Franklin is a retired insurance | None. |
| 57 | | industry executive. From 1987 | |
| Adviser to the Board | | through 2015, he was employed | |
| | | by the Allianz-Fireman’s Fund | |
| | | Insurance Company in various | |
| | | positions, including as its Chief | |
| | | Actuary and Chief Risk Officer. | |
| | | | |
Interested Trustee(1) | | | |
| | | | |
| Neil J. Hennessy | January 1996 as | Mr. Hennessy has been employed | Hennessy |
| 65 | a Trustee and | by Hennessy Advisors, Inc. since | Advisors, Inc. |
| Chairman of the Board, | June 2008 as | 1989 and currently serves as its | |
| Chief Market Strategist, | an officer | Chairman and Chief Executive Officer. | |
| Portfolio Manager, | | | |
| and President | | | |
| Name, Age, | | |
| and Position Held | Start Date | Principal Occupation(s) |
with the Trust
| of Service | During Past Five Years |
| | | |
| Officers | | |
| | | |
| Teresa M. Nilsen | January 1996 | Ms. Nilsen has been employed by Hennessy Advisors, Inc. |
| 55 | | since 1989 and currently serves as its President and Chief |
| Executive Vice President | | Operating Officer. |
| and Treasurer | | |
| | | |
| Daniel B. Steadman | March 2000 | Mr. Steadman has been employed by Hennessy Advisors, Inc. |
| 65 | | since 2000 and currently serves as its Executive Vice President. |
| Executive Vice President | | |
| and Secretary | | |
| | | |
| Brian Carlson | December 2013 | Mr. Carlson has been employed by Hennessy Advisors, Inc. |
| 49 | | since December 2013 and currently serves as its Chief |
| Senior Vice President | | Compliance Officer and Senior Vice President. |
| and Head of Distribution | | |
| TRUSTEES AND OFFICERS OF THE FUND |
| Name, Age, | | |
| and Position Held | Start Date | Principal Occupation(s) |
with the Trust
| of Service | During Past Five Years |
| | | |
Jennifer Cheskiewicz(2) | June 2013 | Ms. Cheskiewicz has been employed by Hennessy Advisors, Inc. |
| 44 | | as its General Counsel since June 2013. |
| Senior Vice President and | | |
| Chief Compliance Officer | | |
| | | |
David Ellison(3) | October 2012 | Mr. Ellison has been employed by Hennessy Advisors, Inc. since |
| 63 | | October 2012. He has served as a Portfolio Manager of the |
| Senior Vice President | | Hennessy Large Cap Financial Fund and the Hennessy Small |
| and Portfolio Manager | | Cap Financial Fund since their inception. Mr. Ellison also served |
| | | as a Portfolio Manager of the Hennessy Technology Fund from |
| | | its inception until February 2017. Mr. Ellison served as Director, |
| | | CIO, and President of FBR Fund Advisers, Inc. from December |
| | | 1999 to October 2012. |
| | | |
Ryan Kelley(4) | March 2013 | Mr. Kelley has been employed by Hennessy Advisors, Inc. since |
| 49 | | October 2012. He has served as Chief Investment Officer of the |
| Chief Investment Officer, | | Hennessy Funds since March 2021 and has served as a Portfolio |
| Senior Vice President, | | Manager of the Hennessy Gas Utility Fund, the Hennessy Large |
| and Portfolio Manager | | Cap Financial Fund, and the Hennessy Small Cap Financial Fund |
| | | since October 2014. Mr. Kelley served as Co-Portfolio Manager |
| | | of these same funds from March 2013 through September |
| | | 2014 and as a Portfolio Analyst for the Hennessy Funds from |
| | | October 2012 through February 2013. He has also served as a |
| | | Portfolio Manager of the Hennessy Cornerstone Growth Fund, |
| | | the Hennessy Cornerstone Mid Cap 30 Fund, the Hennessy |
| | | Cornerstone Large Growth Fund, and the Hennessy |
| | | Cornerstone Value Fund since February 2017 and as a Portfolio |
| | | Manager of the Hennessy Total Return Fund, the Hennessy |
| | | Balanced Fund, and the Hennessy Technology Fund since May |
| | | 2018. He served as Co-Portfolio Manager of the Hennessy |
| | | Technology Fund from February 2017 until May 2018. Mr. Kelley |
| | | served as Portfolio Manager of FBR Fund Advisers, Inc. from |
| | | January 2008 to October 2012. |
| | | |
L. Joshua Wein(4) | September 2018 | Mr. Wein has been employed by Hennessy Advisors, Inc. since |
| 48 | | 2018. He has served as Co-Portfolio Manager of the Hennessy |
| Vice President and | | Cornerstone Growth Fund, the Hennessy Cornerstone |
| Co-Portfolio Manager | | Mid Cap 30 Fund, the Hennessy Cornerstone Large Growth |
| | | Fund, the Hennessy Cornerstone Value Fund, Hennessy Total |
| | | Return Fund, the Hennessy Balanced Fund, the Hennessy Gas |
| | | Utility Fund, and the Hennessy Technology Fund since February |
| | | 2019. He served as a Senior Analyst of these same funds from |
| | | September 2018 through February 2019. Mr. Wein served as |
| | | Director of Alternative Investments and Co-Portfolio Manager |
| | | at Sterling Capital Management from 2008 to 2018. |
_______________
(1) | Mr. Hennessy is considered an “interested person,” as defined in the Investment Company Act of 1940, as amended, because he is an officer of the Trust. |
(2) | The address of this officer is 4800 Bee Caves Road, Suite 100, Austin, TX 78746. |
(3) | The address of this officer is 101 Federal Street, Suite 1615B, Boston, MA 02110. |
(4) | The address of this officer is 1340 Environ Way, Chapel Hill, NC 27517. |
| HENNESSY FUNDS | 1-800-966-4354 | |
Expense Example (Unaudited)
October 31, 2021
As a shareholder of the Fund, you incur 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 the Fund 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, 2021, through October 31, 2021.
Actual Expenses
In the table below, the first line under each of the “Investor Class” and “Institutional Class” headings provides information about actual account values and actual expenses for each share class. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the 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 “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. Although the Fund charges 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. Bank Global Fund Services, the Fund’s transfer agent. If you request that a redemption be made by wire transfer, the Fund’s transfer agent charges a $15 fee. IRAs are charged a $15 annual maintenance fee (up to $30 maximum per shareholder for shareholders with multiple IRAs). The examples below include, but are not limited to, management, shareholder servicing, accounting, custody, and transfer agent fees. However, the examples below do not include portfolio trading commissions and related expenses.
Hypothetical Example for Comparison Purposes
In the table below, the second line under each of the “Investor Class” and “Institutional Class” headings provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio for each share class and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return for such share class. 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 Fund and other funds. To do so, compare these 5% hypothetical examples 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. Therefore, the second lines under “Investor Class” and “Institutional Class” are useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds.
| | | | Expenses Paid |
| | Beginning | Ending | During Period(1) |
| | Account Value | Account Value | May 1, 2021 – |
| | May 1, 2021
| October 31, 2021 | October 31, 2021 |
| Investor Class | | | |
| Actual | $1,000.00 | $1,149.60 | $9.48 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,016.38 | $8.89 |
| | | | |
| Institutional Class | | | |
| Actual | $1,000.00 | $1,150.80 | $8.13 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,017.64 | $7.63 |
(1) | Expenses are equal to the Fund’s annualized expense ratio of 1.75% for Investor Class shares or 1.50% for Institutional Class shares, as applicable, multiplied by the average account value over the period, multiplied by 184/365 days (to reflect the half-year period). |
| HENNESSY FUNDS | 1-800-966-4354 | |
How to Obtain a Copy of the Fund’s Proxy
Voting Policy and Proxy Voting Records
A description of the policies and procedures the Fund uses 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/proxy-voting/voting-policy, or (3) on the U.S. Securities and Exchange Commission’s (the “SEC”) website at www.sec.gov. The Fund’s proxy voting record is available without charge on both the Hennessy Funds’ website at www.hennessyfunds.com/proxy-voting/voting-record and the SEC’s website at www.sec.gov no later than August 31 for the prior 12 months ending June 30.
Availability of Quarterly Portfolio Schedule
The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov or on request by calling 1-800-966-4354.
Federal Tax Distribution Information (Unaudited)
For fiscal year 2021, certain dividends paid by the Fund may be subject to a maximum tax rate of 23.8%, 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 0.00%.
For corporate shareholders, the percent of ordinary income distributions that qualified for the corporate dividends received deduction for fiscal year 2021 was 0.00%.
The percentage of taxable ordinary income distributions that were designated as short-term capital gain distributions under Section 871(k)(2)(C) of the Internal Revenue Code of 1986, as amended, for the Fund was 0.00%.
Important Notice Regarding Delivery
of Shareholder Documents
To help keep the Fund’s costs as low as possible, we generally deliver a single copy of shareholder reports, proxy statements, and prospectuses to shareholders who share an address and have the same last name. This process does not apply to account statements. You may request an individual copy of a shareholder document at any time. If you would like to receive separate mailings of shareholder documents, please call U.S. Bank Global Fund Services at 1-800-261-6950 or 1-414-765-4124, and individual delivery will begin within 30 days of your request. If your account is held through a financial institution or other intermediary, please contact such intermediary directly to request individual delivery.
Electronic Delivery
As permitted by SEC regulations, the Fund’s shareholder reports are made available on a website, and unless you sign up for eDelivery or elect to receive paper copies as detailed below, you will be notified by mail each time a report is posted and provided with a website link to access the report.
The Fund also offers shareholders the option to receive all notices, account statements, prospectuses, tax forms, and shareholder reports online. To sign up for eDelivery or change your delivery preference, please visit www.hennessyfunds.com/account.
To elect to receive paper copies of all future reports free of charge, please call U.S. Bank Global Fund Services at 1-800-261-6950 or 1-414-765-4124.
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| PROXY VOTING — PRIVACY POLICY |
Liquidity Risk Management Program
In accordance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), we have adopted and implemented a liquidity risk management program (the “Liquidity Program”). The purpose of the Liquidity Program is to assess and manage the Fund’s liquidity risk, which is the risk that the Fund would not be able to meet requests to redeem Fund shares without significant dilution of the remaining shareholders’ interests in the Fund. The Board of Trustees of the Fund (the “Board”) designated a committee comprising representatives of Hennessy Advisors, Inc., the investment adviser to the Fund, as the administrator of the Liquidity Program (the “Program Administrator”).
The Program Administrator provided a written report regarding the Liquidity Program to the Board in advance of its meeting on June 2, 2021. The report covered the period from June 1, 2020, through May 31, 2021. The report addressed the operation of the Liquidity Program, assessed the adequacy and effectiveness of its implementation, and described any material changes to the Liquidity Program during the review period. The Trust’s chief compliance officer presented the report to the Board at the meeting and provided additional information regarding the Liquidity Program. The Board reviewed the Liquidity Program and considered, among other items, the following:
| | 1. | The Program Administrator reviewed daily historical net redemption activity during the review period and during prior periods with higher-than-average redemption activity and concluded that the Fund has historically been able to meet requests to redeem Fund shares without significant dilution to the Fund’s remaining shareholders, and the Program Administrator expects the Fund to be able to continue to do so in the future during both normal and reasonably foreseeable stressed conditions. |
| | | |
| | 2. | The Fund holds assets that are highly liquid investments and is therefore not required to establish a highly liquid investment minimum for the Fund or adopt policies and procedures for responding to a highly liquid investment minimum shortfall. |
| | | |
| | 3. | The Program Administrator did not make any material changes to the Liquidity Program during the review period and did not recommend any changes to the Liquidity Program. The Program Administrator did make adjustments to the model inputs used to determine the liquidity classification of each security held by the Fund. |
| | | |
| | 4. | The Program Administrator concluded that the Liquidity Program was reasonably designed to assess and manage the Fund’s liquidity risk, complies with the requirements of the Liquidity Rule, and was operating as intended during the review period. |
Privacy Policy
We collect the following personal information about you:
| | 1. | Information we receive from you 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; |
| | | |
| | 2. | Information about your transactions with us, our affiliates, or others, including, but not limited to, your account number and balance, payments history, parties to transactions, cost basis information, and other financial information; and |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | 3. | Other personal information we collect from various sources, even if you have not entered into a prior transaction with us, including the following: |
| | • | Name, alias, address, unique personal identifier, online identifier, IP address, email address, telephone number, account name, and other similar identifiers; |
| | | |
| | • | Age and marital status; |
| | | |
| | • | Commercial information, including records of products purchased; |
| | | |
| | • | Browsing history, search history, and information on interaction with our website; |
| | | |
| | • | Geolocation data; |
| | | |
| | • | Employment and employment history, educational history, financial information, and purchasing and consuming histories or tendencies; and |
| | | |
| | • | Inferences drawn from the above-listed information to create a profile about your preferences, characteristics, predispositions, and behavior. |
We collect this information directly from you, indirectly in the course of providing services to you, directly and indirectly from your activity on our website, from broker dealers, marketing agencies, and other third parties that interact with us in connection with the services we perform and products we offer, and from anonymized and aggregated consumer information.
We use this information to fulfill the reason you provided the information to us, to provide you with other relevant products that you request from us, to provide you with information about products that may interest you, to improve our website or present our website’s contents to you, and as otherwise described to you when collecting your personal information.
We do not disclose any personal information to unaffiliated third parties, except as permitted by law. We may disclose your personal information to our affiliates, vendors, and service providers for a business purpose. 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. When disclosing your personal information to third parties, we enter into a contract with each third party describing the purpose of such disclosure and requiring that such personal information be kept confidential and not used for any purpose except to perform the services contracted or respond to regulatory or law enforcement requests.
Furthermore, we restrict access to your personal information to those persons who require such information to provide products or services to you. As a result, we do not provide a means for opting out of our limited sharing of your information. We maintain physical, electronic, and procedural safeguards that comply with federal standards to guard your personal information.
If you hold shares of the Funds through a financial intermediary, including, but not limited to, a broker-dealer, bank, or trust company, the privacy policy of your financial intermediary governs how your personal information is shared with unaffiliated third parties.
Supplemental Privacy Notice for Residents of California
The California Consumer Privacy Act of 2018 (the “CCPA”) provides you, as a California resident, with certain additional rights relating to your personal information.
Under the CCPA, you have the right to request that we disclose to you the categories of personal information we have collected about you over the past 12 months, the categories of sources of such information, our business purpose for collecting the information, the categories of third parties, if any, with whom we shared the information, and the specific information we have collected about you. You also have the right to request that we delete any of your personal information, and, unless an exception applies, we will delete such information upon receiving and confirming your request. To make a request, call us at 1-800-966-4354, email us at privacy@hennessyfunds.com, or go to www.hennessyfunds.com/contact. We will not discriminate against you for exercising your rights under the CCPA. Further, we will not collect additional categories of your personal information or use the personal information we collected for materially different, unrelated, or incompatible purposes without providing you notice.
| HENNESSY FUNDS | 1-800-966-4354 | |
For information, questions, or assistance, please call
The Hennessy Funds
1-800-966-4354 or 1-415-899-1555
INVESTMENT ADVISOR
Hennessy Advisors, Inc.
7250 Redwood Boulevard, Suite 200
Novato, California 94945
ADMINISTRATOR,
TRANSFER AGENT,
DIVIDEND PAYING AGENT, &
SHAREHOLDER SERVICING AGENT
U.S. Bancorp Fund Services, LLC
d/b/a U.S. Bank Global Fund Services
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
CUSTODIAN
U.S. Bank N.A.
Custody Operations
1555 North River Center Drive, Suite 302
Milwaukee, Wisconsin 53212
TRUSTEES
Neil J. Hennessy
Robert T. Doyle
J. Dennis DeSousa
Claire Garvie
Gerald P. Richardson
COUNSEL
Foley & Lardner LLP
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-5306
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Tait, Weller & Baker LLP
Two Liberty Place
50 South 16th Street, Suite 2900
Philadelphia, Pennsylvania 19102-2529
DISTRIBUTOR
Quasar Distributors, LLC
111 East Kilbourn Avenue, Suite 2200
Milwaukee, Wisconsin 53202
www.hennessyfunds.com | 1-800-966-4354
This report has been prepared for shareholders and may be distributed to
others only if preceded or accompanied by a current prospectus.
ANNUAL REPORT
OCTOBER 31, 2021
HENNESSY GAS UTILITY FUND
Investor Class GASFX
Institutional Class HGASX
www.hennessyfunds.com | 1-800-966-4354
(This Page Intentionally Left Blank.)
Contents
| Letter to Shareholders | 2 |
| Performance Overview | 4 |
| Financial Statements | |
| Schedule of Investments | 7 |
| Statement of Assets and Liabilities | 11 |
| Statement of Operations | 12 |
| Statements of Changes in Net Assets | 13 |
| Financial Highlights | 14 |
| Notes to the Financial Statements | 18 |
| Report of Independent Registered Public Accounting Firm | 26 |
| Trustees and Officers of the Fund | 27 |
| Expense Example | 30 |
| Proxy Voting Policy and Proxy Voting Records | 32 |
| Availability of Quarterly Portfolio Schedule | 32 |
| Federal Tax Distribution Information | 32 |
| Important Notice Regarding Delivery of Shareholder Documents | 32 |
| Electronic Delivery | 32 |
| Liquidity Risk Management Program | 33 |
| Privacy Policy | 33 |
| HENNESSY FUNDS | 1-800-966-4354 | |
December 2021
Dear Hennessy Funds Shareholder:
What a year this has been. While it doesn’t feel that we are out of the “pandemic” phase of the coronavirus crisis, we look forward to a day when we will eventually see fewer cases and potentially less severe variants. We feel extremely grateful to the many healthcare workers who have continued to work tirelessly during the recent surge. As we move through the next year, we hope that new U.S. cases will decline and that many other parts of the world will see improvements as well.
What a year this has been! As measured by the total return of the S&P 500® Index, as of October 31, 2021, the market was up 24.04% calendar year to date. This comes in the wake of a tumultuous 2020 in which the market plunged in the beginning of the pandemic and recovered dramatically to end the year up 18.40%. Interestingly, 18% appears to be a repeating number in the past dozen years. From the low point of the Financial Crisis (March 9, 2009) to the high point reached just prior to the COVID-19 pandemic (February 12, 2020), the S&P 500® Index was up 18.27% per year. We are well aware that past results are not predictive of the future, and we find ourselves naturally skeptical of such strong returns. But, as shown in the chart below, we find that the most common annual total returns of the market over the past 102 years range between 20% and 30% with the second most common being between 10% and 20%:
Source: Bloomberg L.P.
We will say it again, after showing a chart like the one above: Past results are not predictive of the future. Instead, we look at where we are right now – in the economy, in the market, in the business cycle – to reflect on where we have come from and where we may be going. U.S. GDP is strong and growing, interest rates remain low, and earnings growth and profitability remain robust. We believe stocks are trading at reasonable valuations when viewed as a whole, with the S&P 500® Index at 21.0x estimated earnings for 2022. Furthermore, we believe corporate balance sheets are healthy, with high levels of excess cash, which could support growth, increases in dividends, more share buybacks, and future acquisitions. Uncertainty and volatility can manifest at any time in the stock market, and the current market is no different. Investors have questions about inflation, worldwide supply chain issues, and what could drive the next boost in earnings. While these concerns are warranted, we continue to believe that overall the positives outweigh the negatives, and here at Hennessy we continue to see opportunity in the market and in our Funds.
What a (fiscal) year this has been!!! For our fiscal year ended October 31, 2021, the S&P 500® Index rose 42.91% on a total return basis, setting a new all-time high on the final day of the period. Except for a short 21-trading-day period that began on September 2 during which the market fell 5.13% only to rebound to new highs just 13 trading days later, the market has been on a continuous march higher. We saw a dramatic shift in market leadership as many of the sectors that underperformed during our last fiscal year soared in fiscal year 2021. Small-caps beat mid-caps, which in turn beat large-caps. The Energy and Financials sectors skyrocketed during the 12-month period, as reflected by the S&P 500® Energy Sector’s total return of 111.29% and the Russell 1000® Index Financials’ total return of 70.87%. Both of these sectors were among the worst performing in our fiscal year 2020, so a bounce back in our fiscal year 2021, while not a foregone conclusion, was a distinct possibility.
Overall, we are pleased with the performance of our mutual funds during the fiscal year. On an absolute basis, each of our 16 Funds achieved total returns greater than 10% and seven outperformed their primary benchmark. Ten of our 11 domestic equity-only Funds outperformed the S&P 500® Index and posted total returns of 45% or higher. Our four best-performing funds were concentrated in the Energy and Financials sectors. While some of our Funds certainly benefited from being in the “right” sector at the “right” time, we also believe this was a favorable period for our investment style of high-conviction investing and concentrated portfolio construction.
What will the coming year bring? As mentioned in our last shareholder letter (June 2021), we understand that even the greatest bull markets experience corrections along the way, and the last time the S&P 500® Index dropped over 10% was in February/March of 2020. Whether or not a correction occurs sooner or later, we believe the market as a whole has more room to run. We see many factors that could drive the market higher from here: strong GDP growth and increasing corporate earnings, a potentially lower-for-longer interest rate environment, accommodative fiscal and monetary policies, a healthy and robust financial system, low unemployment and solid wage growth, and strong corporate balance sheets with plenty of cash.
Thank you for your interest and for investing with us. We remain committed to managing our portfolios for long-term performance, ever mindful of downside risk. With so many investment options available to you, we are grateful for the trust you put in us and for your continued interest in our family of Funds. If you have any questions or would like to speak with us, please don’t hesitate to call us directly at (800) 966-4354.
Best regards,
| |
| |
| |
| |
|
| Ryan C. Kelley |
| Chief Investment Officer |
Past performance does not guarantee future results. To obtain current standardized performance for the Hennessy Funds, visit https://www.hennessyfunds.com/funds/price-performance.
Mutual fund investing involves risk. Principal loss is possible.
Opinions expressed are those of Ryan C. Kelley and are subject to change, are not guaranteed, and should not be considered investment advice.
The Dow Jones Industrial Average and S&P 500® Index are commonly used to measure the performance of U.S. stocks. The S&P 500® Energy Index comprises those companies included in the S&P 500® Index that are classified in the Energy sector. The Russell 1000® Index Financials is a subset of the Russel 1000® Index that measures the performance of securities classified in the Financials sector of the large-capitalization U.S. equity market. The indices are used herein for comparative purposes in accordance with SEC regulations. One cannot invest directly in an index. All returns are shown on a total return basis.
| HENNESSY FUNDS | 1-800-966-4354 | |
Performance Overview (Unaudited)
CHANGE IN VALUE OF $10,000 INVESTMENT
This graph illustrates the performance of an initial investment of $10,000 made in the Fund 10 years ago and assumes the reinvestment of dividends and capital gains.
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED OCTOBER 31, 2021
| | | One | Five | Ten |
| | | Year
| Years
| Years
|
| | Hennessy Gas Utility Fund – | | | |
| | Investor Class (GASFX) | 19.91% | 5.34% | 8.22% |
| | Hennessy Gas Utility Fund – | | | |
| | Institutional Class (HGASX)(1) | 20.29% | 5.66% | 8.38% |
| | AGA Stock Index | 21.13% | 6.59% | 9.24% |
| | S&P 500® Index | 42.91% | 18.93% | 16.21% |
Expense ratios: 1.02% (Investor Class); 0.70% (Institutional Class)
(1) | The inception date of Institutional Class shares is March 1, 2017. Performance shown prior to the inception of Institutional Class shares reflects the performance of Investor Class shares and includes expenses that are not applicable to, and are higher than, those of Institutional Class shares. |
Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The performance table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 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 including or prior to October 26, 2012, is that of the FBR Gas Utility Index Fund.
The AGA Stock Index is a capitalization-weighted index that consists of members of the American Gas Association whose securities are traded on a U.S. Stock Exchange. The S&P 500® Index is a capitalization-weighted index that is designed to represent the broad domestic economy through changes in the aggregate market value of 500 stocks across all major industries. One cannot invest directly in an index. These indices are used for comparative purposes in accordance with Securities and Exchange Commission regulations.
Standard & Poor’s Financial Services is the source and owner of the S&P® and S&P 500® trademarks.
The expense ratios presented are from the most recent prospectus. The expense ratios for the current reporting period are available in the Financial Highlights section of this report.
PERFORMANCE NARRATIVE
Portfolio Managers Ryan C. Kelley, CFA, and L. Joshua Wein, CAIA
Performance:
For the one-year period ended October 31, 2021, the Investor Class of the Hennessy Gas Utility Fund returned 19.91%, underperforming both the AGA Stock Index (the Fund’s primary benchmark) and the S&P 500® Index, which returned 21.13% and 42.91%, respectively, for the same period.
The Fund slightly underperformed its primary benchmark due to Fund expenses, the timing of cash flows, trading costs, and the impact of holding cash. The Fund underperformed the broader domestic equity market, as represented by the S&P 500® Index, in part due to a continued investor preference for higher- growth companies as well as those most impacted by the rapid recovery in the economy at the expense of yield-oriented stocks such as those in the Utilities sector. A recent rise in interest rates coupled with the prospect of Federal Reserve interest rate hikes in 2022 has proven to be a challenge for the sector. Among the holdings that contributed the most to Fund performance were liquefied natural gas exporter Cheniere Energy, Inc. and pipeline operators Enbridge, Inc. and Kinder Morgan, Inc. Among the holdings that detracted the most from performance over the period were multi-utility WEC Energy Group, Inc., electric utility Xcel Energy, Inc. and multi-utility Dominion Energy, Inc.
The Fund continues to hold all the companies mentioned.
Portfolio Strategy:
The Fund’s objective is to maintain a high correlation with its primary benchmark, the AGA Stock Index. The Fund seeks to achieve this goal by owning all of the companies in the AGA Stock Index in substantially the same proportion as their weightings in the AGA Stock Index. The Fund seeks total returns by investing in natural gas distribution companies with the potential for both income and long-term capital appreciation.
The investment thesis of the Fund is that competitive pricing, abundant domestic supply, and new sources and uses of natural gas should lead to long-term, steady growth in demand that should drive growth in natural gas distribution. In turn, this should drive long-term growth in earnings of the companies held by the Fund. In addition, we believe that natural gas’s position as the cleanest of the fossil fuels should lead to additional increased demand, particularly from the electricity generation industry.
Investment Commentary:
We believe the strategy of the Fund remains compelling. The production of natural gas in the United States, in particular from shale producers, continues to grow steadily. Demand for natural gas from domestic sources, especially the power industry, also continues to trend upwards, despite softness due to the COVID-19 pandemic. In addition, exports of natural gas via pipelines to Mexico and in the form of liquid natural gas to the rest of the world remains a key demand component.
_______________
Opinions expressed are those of the Portfolio Manager as of the date written and are subject to change, are not guaranteed, and should not be considered investment advice or an indication of trading intent.
| HENNESSY FUNDS | 1-800-966-4354 | |
Investments in foreign securities may involve political, economic, and currency risks, greater volatility, and differences in accounting methods. Investments are focused in the natural gas distribution and transmission industry; sector funds may be subject to a higher degree of market risk. Please see the Fund’s prospectus for a more complete discussion of these and other risks.
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 Schedule of Investments included in this report for additional portfolio information.
| PERFORMANCE OVERVIEW/SCHEDULE OF INVESTMENTS |
Financial Statements
Schedule of Investments as of October 31, 2021 |
HENNESSY GAS UTILITY FUND
(% of Net Assets)
| TOP TEN HOLDINGS (EXCLUDING MONEY MARKET FUNDS) | % NET ASSETS |
| Cheniere Energy, Inc. | 5.08% |
| Enbridge, Inc. | 5.08% |
| Berkshire Hathaway, Inc., Class A | 5.07% |
| Atmos Energy Corp. | 5.05% |
| Dominion Energy, Inc. | 5.05% |
| WEC Energy Group, Inc. | 4.94% |
| Sempra Energy | 4.89% |
| Kinder Morgan, Inc. | 4.85% |
| The Southern Co. | 4.82% |
| National Grid PLC – ADR | 4.32% |
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, as amended, the Fund uses more specific industry classifications.
The Global Industry Classification Standard (GICS®) was developed by and is the exclusive property and a service mark of MSCI, Inc. and Standard & Poor’s Financial Services LLC. It has been licensed for use by the Hennessy Funds.
| HENNESSY FUNDS | 1-800-966-4354 | |
| COMMON STOCKS – 98.96% | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Energy – 15.69% | | | | | | | | | |
| Cheniere Energy, Inc. (a) | | | 255,417 | | | $ | 26,410,118 | | | | 5.08 | % |
| Enbridge, Inc. (b) | | | 631,765 | | | | 26,445,683 | | | | 5.08 | % |
| Kinder Morgan, Inc. | | | 1,507,101 | | | | 25,243,941 | | | | 4.85 | % |
| Tellurian, Inc. (a) | | | 908,690 | | | | 3,562,065 | | | | 0.68 | % |
| | | | | | | | 81,661,807 | | | | 15.69 | % |
| | | | | | | | | | | | | |
| Financials – 5.07% | | | | | | | | | | | | |
| Berkshire Hathaway, Inc., Class A (a) | | | 61 | | | | 26,407,022 | | | | 5.07 | % |
| | | | | | | | | | | | | |
| Utilities – 78.20% | | | | | | | | | | | | |
| Algonquin Power & Utilities Corp. (b) | | | 170,764 | | | | 2,464,125 | | | | 0.47 | % |
| ALLETE, Inc. | | | 525 | | | | 32,309 | | | | 0.01 | % |
| Ameren Corp. | | | 62,840 | | | | 5,296,784 | | | | 1.02 | % |
| Atmos Energy Corp. | | | 285,286 | | | | 26,280,546 | | | | 5.05 | % |
| Avangrid, Inc. | | | 131,000 | | | | 6,903,700 | | | | 1.33 | % |
| Avista Corp. | | | 34,972 | | | | 1,392,235 | | | | 0.27 | % |
| Black Hills Corp. | | | 85,247 | | | | 5,658,696 | | | | 1.09 | % |
| Centerpoint Energy, Inc. | | | 661,628 | | | | 17,228,793 | | | | 3.31 | % |
| Chesapeake Utilities Corp. | | | 30,958 | | | | 4,057,665 | | | | 0.78 | % |
| CMS Energy Corp. | | | 228,098 | | | | 13,765,714 | | | | 2.65 | % |
| Consolidated Edison, Inc. | | | 192,536 | | | | 14,517,214 | | | | 2.79 | % |
| Corning Natural Gas Holding Corp. | | | 5,399 | | | | 131,682 | | | | 0.02 | % |
| Dominion Energy, Inc. | | | 346,077 | | | | 26,277,627 | | | | 5.05 | % |
| DTE Energy Co. | | | 77,504 | | | | 8,785,078 | | | | 1.69 | % |
| Duke Energy Corp. | | | 162,487 | | | | 16,575,299 | | | | 3.18 | % |
| Entergy Corp. | | | 4,960 | | | | 510,979 | | | | 0.10 | % |
| Essential Utilities, Inc. | | | 238,300 | | | | 11,216,781 | | | | 2.16 | % |
| Eversource Energy | | | 82,675 | | | | 7,019,108 | | | | 1.35 | % |
| Exelon Corp. | | | 149,031 | | | | 7,926,959 | | | | 1.52 | % |
| Fortis, Inc. (b) | | | 186,876 | | | | 8,317,851 | | | | 1.60 | % |
| MDU Resources Group, Inc. | | | 191,207 | | | | 5,875,791 | | | | 1.13 | % |
| MGE Energy, Inc. | | | 15,129 | | | | 1,148,140 | | | | 0.22 | % |
| National Fuel Gas Co. | | | 131,924 | | | | 7,576,395 | | | | 1.46 | % |
| National Grid PLC – ADR (b) | | | 350,444 | | | | 22,456,452 | | | | 4.32 | % |
| New Jersey Resources Corp. | | | 180,934 | | | | 6,841,115 | | | | 1.31 | % |
| NiSource, Inc. | | | 592,581 | | | | 14,618,973 | | | | 2.81 | % |
The accompanying notes are an integral part of these financial statements.
| COMMON STOCKS | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Utilities (Continued) | | | | | | | | | |
| Northwest Natural Holding Co. | | | 72,703 | | | $ | 3,278,178 | | | | 0.63 | % |
| NorthWestern Corp. | | | 34,698 | | | | 1,972,928 | | | | 0.38 | % |
| ONE Gas, Inc. | | | 133,375 | | | | 8,976,138 | | | | 1.72 | % |
| PG&E Corp. (a) | | | 1,591,649 | | | | 18,463,128 | | | | 3.55 | % |
| PPL Corp. | | | 85,719 | | | | 2,468,707 | | | | 0.47 | % |
| Public Service Enterprise Group, Inc. | | | 234,190 | | | | 14,941,322 | | | | 2.87 | % |
| RGC Resources, Inc. | | | 22,254 | | | | 492,259 | | | | 0.09 | % |
| Sempra Energy | | | 199,240 | | | | 25,429,001 | | | | 4.89 | % |
| South Jersey Industries, Inc. | | | 251,771 | | | | 5,730,308 | | | | 1.10 | % |
| Southwest Gas Holdings, Inc. | | | 121,217 | | | | 8,394,277 | | | | 1.61 | % |
| Spire, Inc. | | | 91,991 | | | | 5,773,355 | | | | 1.11 | % |
| The Southern Co. | | | 402,200 | | | | 25,065,104 | | | | 4.82 | % |
| UGI Corp. | | | 138,152 | | | | 5,997,178 | | | | 1.15 | % |
| Unitil Corp. | | | 23,598 | | | | 985,217 | | | | 0.19 | % |
| WEC Energy Group, Inc. | | | 285,440 | | | | 25,706,726 | | | | 4.94 | % |
| Xcel Energy, Inc. | | | 160,399 | | | | 10,360,171 | | | | 1.99 | % |
| | | | | | | | 406,910,008 | | | | 78.20 | % |
| | | | | | | | | | | | | |
| Total Common Stocks | | | | | | | | | | | | |
| (Cost $263,122,249) | | | | | | | 514,978,837 | | | | 98.96 | % |
| | | | | | | | | | | | | |
| PARTNERSHIPS – 0.61% | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Energy – 0.61% | | | | | | | | | | | | |
| Plains GP Holdings LP, Class A | | | 291,255 | | | | 3,174,679 | | | | 0.61 | % |
| | | | | | | | | | | | | |
| Total Partnerships | | | | | | | | | | | | |
| (Cost $4,756,186) | | | | | | | 3,174,679 | | | | 0.61 | % |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
| SHORT-TERM INVESTMENTS – 0.42% | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Money Market Funds – 0.42% | | | | | | | | | |
| First American Government Obligations Fund, | | | | | | | | | |
| Institutional Class, 0.03% (c) | | | 2,169,988 | | | $ | 2,169,988 | | | | 0.42 | % |
| | | | | | | | | | | | | |
| Total Short-Term Investments | | | | | | | | | | | | |
| (Cost $2,169,988) | | | | | | | 2,169,988 | | | | 0.42 | % |
| | | | | | | | | | | | | |
| Total Investments | | | | | | | | | | | | |
| (Cost $270,048,423) – 99.99% | | | | | | | 520,323,504 | | | | 99.99 | % |
| Other Assets in Excess of Liabilities – 0.01% | | | | | | | 51,618 | | | | 0.01 | % |
| | | | | | | | | | | | | |
TOTAL NET ASSETS – 100.00% | | | | | | $ | 520,375,122 | | | | 100.00 | % |
Percentages are stated as a percent of net assets.
ADR – American Depositary Receipt
PLC – Public Limited Company
| (a) | Non-income-producing security. |
| (b) | U.S.-traded security of a foreign corporation. |
| (c) | The rate listed is the fund’s seven-day yield as of October 31, 2021. |
Summary of Fair Value Exposure as of October 31, 2021
The following is a summary of the inputs used to value the Fund’s net assets as of October 31, 2021 (see Note 3 in the accompanying Notes to the Financial Statements):
| Common Stocks | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Energy | | $ | 81,661,807 | | | $ | — | | | $ | — | | | $ | 81,661,807 | |
| Financials | | | 26,407,022 | | | | — | | | | — | | | | 26,407,022 | |
| Utilities | | | 406,778,326 | | | | 131,682 | | | | — | | | | 406,910,008 | |
| Total Common Stocks | | $ | 514,847,155 | | | $ | 131,682 | | | $ | — | | | $ | 514,978,837 | |
| Partnerships | | | | | | | | | | | | | | | | |
| Energy | | $ | 3,174,679 | | | $ | — | | | $ | — | | | $ | 3,174,679 | |
| Total Partnerships | | $ | 3,174,679 | | | $ | — | | | $ | — | | | $ | 3,174,679 | |
| Short-Term Investments | | | | | | | | | | | | | | | | |
| Money Market Funds | | $ | 2,169,988 | | | $ | — | | | $ | — | | | $ | 2,169,988 | |
| Total Short-Term Investments | | $ | 2,169,988 | | | $ | — | | | $ | — | | | $ | 2,169,988 | |
| Total Investments | | $ | 520,191,822 | | | $ | 131,682 | | | $ | — | | | $ | 520,323,504 | |
The accompanying notes are an integral part of these financial statements.
| SCHEDULE OF INVESTMENTS/STATEMENT OF ASSETS AND LIABILITIES |
Financial Statements
Statement of Assets and Liabilities as of October 31, 2021 |
| ASSETS: | | | |
| Investments in securities, at value (cost $270,048,423) | | $ | 520,323,504 | |
| Dividends and interest receivable | | | 169,665 | |
| Receivable for fund shares sold | | | 145,451 | |
| Return of capital receivable | | | 459,343 | |
| Prepaid expenses and other assets | | | 35,729 | |
| Total assets | | | 521,133,692 | |
| | | | | |
| LIABILITIES: | | | | |
| Payable for fund shares redeemed | | | 182,878 | |
| Payable to advisor | | | 176,543 | |
| Payable to administrator | | | 147,069 | |
| Payable to auditor | | | 22,556 | |
| Accrued distribution fees | | | 92,715 | |
| Accrued service fees | | | 38,767 | |
| Accrued trustees fees | | | 6,605 | |
| Accrued expenses and other payables | | | 91,437 | |
| Total liabilities | | | 758,570 | |
| NET ASSETS | | $ | 520,375,122 | |
| | | | | |
| NET ASSETS CONSISTS OF: | | | | |
| Capital stock | | $ | 262,552,864 | |
| Total distributable earnings | | | 257,822,258 | |
| Total net assets | | $ | 520,375,122 | |
| | | | | |
| NET ASSETS: | | | | |
| Investor Class | | | | |
| Shares authorized (no par value) | | Unlimited | |
| Net assets applicable to outstanding shares | | $ | 457,312,854 | |
| Shares issued and outstanding | | | 17,530,835 | |
| Net asset value, offering price, and redemption price per share | | $ | 26.09 | |
| | | | | |
| Institutional Class | | | | |
| Shares authorized (no par value) | | Unlimited | |
| Net assets applicable to outstanding shares | | $ | 63,062,268 | |
| Shares issued and outstanding | | | 2,424,377 | |
| Net asset value, offering price, and redemption price per share | | $ | 26.01 | |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
Statement of Operations for the year ended October 31, 2021 |
| INVESTMENT INCOME: | | | |
Dividend income(1) | | $ | 16,407,393 | |
| Interest income | | | 945 | |
| Total investment income | | | 16,408,338 | |
| | | | | |
| EXPENSES: | | | | |
| Investment advisory fees (See Note 5) | | | 2,144,490 | |
| Sub-transfer agent expenses – Investor Class (See Note 5) | | | 758,503 | |
| Sub-transfer agent expenses – Institutional Class (See Note 5) | | | 56,139 | |
| Distribution fees – Investor Class (See Note 5) | | | 712,549 | |
| Administration, accounting, custody, and transfer agent fees (See Note 5) | | | 596,226 | |
| Service fees – Investor Class (See Note 5) | | | 475,033 | |
| Federal and state registration fees | | | 41,219 | |
| Reports to shareholders | | | 34,038 | |
| Compliance expense (See Note 5) | | | 27,464 | |
| Audit fees | | | 22,556 | |
| Trustees’ fees and expenses | | | 21,770 | |
| Legal fees | | | 8,886 | |
| Interest expense (See Note 7) | | | 4,378 | |
| Other expenses | | | 279,755 | |
| Total expenses | | | 5,183,006 | |
| NET INVESTMENT INCOME | | $ | 11,225,332 | |
| | | | | |
| REALIZED AND UNREALIZED GAINS (LOSSES): | | | | |
| Net realized gain on investments | | $ | 69,474,485 | |
| Net change in unrealized appreciation/depreciation on investments | | | 17,334,029 | |
| Net gain on investments | | | 86,808,514 | |
| NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | | $ | 98,033,846 | |
(1) | Net of foreign taxes withheld and issuance fees of $444,688. |
The accompanying notes are an integral part of these financial statements.
| STATEMENT OF OPERATIONS/STATEMENTS OF CHANGES IN NET ASSETS |
Financial Statements
| Statements of Changes in Net Assets |
| | | Year Ended | | | Year Ended | |
| | | October 31, 2021 | | | October 31, 2020 | |
| OPERATIONS: | | | | | | |
| Net investment income | | $ | 11,225,332 | | | $ | 15,702,984 | |
| Net realized gain on investments | | | 69,474,485 | | | | 54,725,195 | |
| Net change in unrealized | | | | | | | | |
| appreciation/depreciation on investments | | | 17,334,029 | | | | (171,354,296 | ) |
| Net increase (decrease) in net | | | | | | | | |
| assets resulting from operations | | | 98,033,846 | | | | (100,926,117 | ) |
| | | | | | | | | |
| DISTRIBUTIONS TO SHAREHOLDERS: | | | | | | | | |
| Distributable earnings – Investor Class | | | (48,578,658 | ) | | | (49,160,002 | ) |
| Distributable earnings – Institutional Class | | | (6,556,181 | ) | | | (7,345,698 | ) |
| Total distributions | | | (55,134,839 | ) | | | (56,505,700 | ) |
| | | | | | | | | |
| CAPITAL SHARE TRANSACTIONS: | | | | | | | | |
| Proceeds from shares subscribed – Investor Class | | | 10,282,767 | | | | 14,476,846 | |
| Proceeds from shares subscribed – Institutional Class | | | 16,158,873 | | | | 14,135,940 | |
| Dividends reinvested – Investor Class | | | 46,063,257 | | | | 46,815,183 | |
| Dividends reinvested – Institutional Class | | | 5,933,451 | | | | 6,501,998 | |
| Cost of shares redeemed – Investor Class | | | (121,059,136 | ) | | | (204,352,983 | ) |
| Cost of shares redeemed – Institutional Class | | | (29,927,336 | ) | | | (41,410,617 | ) |
| Net decrease in net assets derived | | | | | | | | |
| from capital share transactions | | | (72,548,124 | ) | | | (163,833,633 | ) |
| TOTAL DECREASE IN NET ASSETS | | | (29,649,117 | ) | | | (321,265,450 | ) |
| | | | | | | | | |
| NET ASSETS: | | | | | | | | |
| Beginning of year | | | 550,024,239 | | | | 871,289,689 | |
| End of year | | $ | 520,375,122 | | | $ | 550,024,239 | |
| | | | | | | | | |
| CHANGES IN SHARES OUTSTANDING: | | | | | | | | |
| Shares sold – Investor Class | | | 412,697 | | | | 561,691 | |
| Shares sold – Institutional Class | | | 624,642 | | | | 539,370 | |
| Shares issued to holders as reinvestment | | | | | | | | |
| of dividends – Investor Class | | | 1,920,697 | | | | 1,761,437 | |
| Shares issued to holders as reinvestment | | | | | | | | |
| of dividends – Institutional Class | | | 247,846 | | | | 245,860 | |
| Shares redeemed – Investor Class | | | (4,884,070 | ) | | | (8,021,029 | ) |
| Shares redeemed – Institutional Class | | | (1,215,733 | ) | | | (1,643,216 | ) |
| Net decrease in shares outstanding | | | (2,893,921 | ) | | | (6,555,887 | ) |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
For an Investor Class share outstanding throughout each year
PER SHARE DATA:
Net asset value, beginning of year
Income from investment operations:
Net investment income
Net realized and unrealized gains (losses) on investments
Total from investment operations
Less distributions:
Dividends from net investment income
Dividends from net realized gains
Total distributions
Net asset value, end of year
TOTAL RETURN
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of year (millions)
Ratio of expenses to average net assets
Ratio of net investment income to average net assets
Portfolio turnover rate(2)
(1) | Calculated using the average shares outstanding method. |
(2) | Calculated on the basis of the Fund as a whole. |
The accompanying notes are an integral part of these financial statements.
| FINANCIAL HIGHLIGHTS — INVESTOR CLASS |
| Year Ended October 31, | |
| 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | | | | | | |
| $ | 24.08 | | | $ | 29.64 | | | $ | 28.68 | | | $ | 30.35 | | | $ | 28.57 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 0.52 | (1) | | | 0.58 | (1) | | | 0.56 | (1) | | | 0.65 | | | | 0.70 | |
| | 4.00 | | | | (4.14 | ) | | | 3.50 | | | | (1.52 | ) | | | 2.20 | |
| | 4.52 | | | | (3.56 | ) | | | 4.06 | | | | (0.87 | ) | | | 2.90 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | (0.57 | ) | | | (0.56 | ) | | | (0.62 | ) | | | (0.64 | ) | | | (0.72 | ) |
| | (1.94 | ) | | | (1.44 | ) | | | (2.48 | ) | | | (0.16 | ) | | | (0.40 | ) |
| | (2.51 | ) | | | (2.00 | ) | | | (3.10 | ) | | | (0.80 | ) | | | (1.12 | ) |
| $ | 26.09 | | | $ | 24.08 | | | $ | 29.64 | | | $ | 28.68 | | | $ | 30.35 | |
| | | | | | | | | | | | | | | | | | | |
| | 19.91 | % | | | -12.49 | % | | | 15.28 | % | | | -2.86 | % | | | 10.39 | % |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| $ | 457.31 | | | $ | 483.56 | | | $ | 764.10 | | | $ | 825.18 | | | $ | 1,306.70 | |
| | 1.00 | % | | | 1.02 | % | | | 1.00 | % | | | 1.01 | % | | | 1.01 | % |
| | 2.06 | % | | | 2.24 | % | | | 1.98 | % | | | 2.18 | % | | | 2.34 | % |
| | 15 | % | | | 16 | % | | | 12 | % | | | 14 | % | | | 18 | % |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
For an Institutional Class share outstanding throughout each period
PER SHARE DATA:
Net asset value, beginning of period
Income from investment operations:
Net investment income
Net realized and unrealized gains (losses) on investments
Total from investment operations
Less distributions:
Dividends from net investment income
Dividends from net realized gains
Total distributions
Net asset value, end of period
TOTAL RETURN
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (millions)
Ratio of expenses to average net assets
Ratio of net investment income to average net assets
Portfolio turnover rate(6)
(1) | Institutional Class shares commenced operations on March 1, 2017. |
(2) | Calculated using the average shares outstanding method. |
(3) | Actual return from inception date of March 1, 2017, to the year end of October 31, 2017. |
(4) | Not annualized. |
(5) | Annualized. |
(6) | Calculated on the basis of the Fund as a whole. |
The accompanying notes are an integral part of these financial statements.
| FINANCIAL HIGHLIGHTS — INSTITUTIONAL CLASS |
| Year Ended October 31, | | | Period Ended | |
| | | October 31, | |
| 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017(1) | |
| | | | | | | | | | | | | | |
| $ | 24.01 | | | $ | 29.56 | | | $ | 28.65 | | | $ | 30.32 | | | $ | 29.68 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 0.59 | (2) | | | 0.66 | (2) | | | 0.64 | (2) | | | 0.71 | | | | 0.62 | |
| | 3.99 | | | | (4.13 | ) | | | 3.50 | | | | (1.47 | ) | | | 0.72 | |
| | 4.58 | | | | (3.47 | ) | | | 4.14 | | | | (0.76 | ) | | | 1.34 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | (0.65 | ) | | | (0.64 | ) | | | (0.73 | ) | | | (0.75 | ) | | | (0.70 | ) |
| | (1.93 | ) | | | (1.44 | ) | | | (2.50 | ) | | | (0.16 | ) | | | — | |
| | (2.58 | ) | | | (2.08 | ) | | | (3.23 | ) | | | (0.91 | ) | | | (0.70 | ) |
| $ | 26.01 | | | $ | 24.01 | | | $ | 29.56 | | | $ | 28.65 | | | $ | 30.32 | |
| | | | | | | | | | | | | | | | | | | |
| | 20.29 | % | | | -12.22 | % | | | 15.63 | % | | | -2.51 | % | | | 4.56 | %(3)(4) |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| $ | 63.06 | | | $ | 66.46 | | | $ | 107.18 | | | $ | 107.75 | | | $ | 84.62 | |
| | 0.69 | % | | | 0.70 | % | | | 0.69 | % | | | 0.65 | % | | | 0.64 | %(5) |
| | 2.35 | % | | | 2.57 | % | | | 2.25 | % | | | 2.47 | % | | | 1.23 | %(5) |
| | 15 | % | | | 16 | % | | | 12 | % | | | 14 | % | | | 18 | %(4) |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
Notes to the Financial Statements October 31, 2021 |
1). ORGANIZATION
The Hennessy Gas Utility Fund (the “Fund”) is a series of Hennessy Funds Trust (the “Trust”), which was organized as a Delaware statutory trust on September 17, 1992. The Fund is an open-end management investment company registered under the Investment Company Act of 1940, as amended. The investment objective of the Fund is income and capital appreciation. The Fund is a diversified fund.
The Fund offers Investor Class and Institutional Class shares. Each class of shares differs principally in its respective 12b-1 distribution and service, shareholder servicing, and sub-transfer agent expenses. There are no sales charges. 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 one class.
As an investment company, the Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 “Financial Services—Investment Companies.”
2). SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of the financial statements. These policies conform to U.S. generally accepted accounting principles (“GAAP”).
| a). | Securities Valuation – All investments in securities are valued in accordance with the Fund’s valuation policies and procedures, as described in Note 3. |
| | |
| b). | Federal Income Taxes – The Fund has elected to be taxed as a regulated investment company and intends to distribute substantially all of its taxable income to its shareholders and otherwise comply with the provisions of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. As a result, the Fund has made no provision for federal income taxes or excise taxes. Net investment income/loss and realized gains/losses for federal income tax purposes may differ from those reported in the financial statements because of temporary book-basis and tax-basis differences. Temporary differences are primarily the result of the treatment of wash sales for tax reporting purposes. The Fund recognizes interest and penalties related to income tax benefits, if any, in the Statement of Operations as an income tax expense. 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. The Fund may utilize equalization accounting for tax purposes and designate earnings and profits, including net realized gains distributed to shareholders on redemption of shares, as part of the dividends paid deduction for income tax purposes. |
| | |
| | Due to inherent differences in the recognition of income, expenses, and realized gains/losses under GAAP and federal income tax regulations, permanent differences between book and tax basis for reporting are identified and appropriately reclassified in the Statement of Assets and Liabilities, as needed. The adjustments for fiscal year 2021 are as follows: |
| | Total | | |
| | Distributable | | |
| | Earnings
| Capital Stock | |
| | $(7,891,773) | $7,891,773 | |
| NOTES TO THE FINANCIAL STATEMENTS |
| c). | Accounting for Uncertainty in Income Taxes – The Fund has accounting policies regarding recognition and measurement of tax positions taken or expected to be taken on a tax return. The tax returns of the Fund for the prior three fiscal years are open for examination. The Fund has reviewed all open tax years in major tax jurisdictions and concluded that there is no impact on the Fund’s 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. The Fund’s major tax jurisdictions are U.S. federal and Delaware. |
| | |
| d). | Income and Expenses – Dividend income is recognized on the ex-dividend date or as soon as information is available to the Fund. Interest income, which includes the amortization of premium and accretion of discount, is recognized on an accrual basis. Market discounts, original issue discounts, and market premiums on debt securities are accreted or amortized to interest income over the life of a security with a corresponding increase or decrease, as applicable, in the cost basis of such security using the yield-to-maturity method or, where applicable, the first call date of the security. Other non-cash dividends are recognized as investment income at the fair value of the property received. The Fund is charged for those expenses that are directly attributable to its portfolio, such as advisory, administration, and certain shareholder service fees. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains/losses on investments are allocated to each class of shares based on such class’s net assets. |
| | |
| e). | Distributions to Shareholders – Dividends from net investment income for the Fund, if any, are declared and paid at the end of each calendar quarter. Distributions of net realized capital gains, if any, are declared and paid annually, usually in December. |
| | |
| f). | Security Transactions – Investment and shareholder transactions are recorded on the trade date. The Fund determines the realized gain/loss from an investment transaction by comparing the original cost of the security lot sold with the net sale proceeds. Discounts and premiums on securities purchased are accreted or amortized, respectively, over the life of each such security. |
| | |
| g). | Use of Estimates – Preparing financial statements in accordance 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, as well as the reported change in net assets during the reporting period. Actual results could differ from those estimates. |
| | |
| h). | Share Valuation – The net asset value (“NAV”) per share of the Fund is calculated by dividing (i) the total value of the securities held by the Fund, plus cash and other assets, minus all liabilities (including estimated accrued expenses) by (ii) the total number of Fund shares outstanding, rounded to the nearest $0.01. Fund shares are not priced on days the New York Stock Exchange is closed for trading. The offering and redemption price per share for the Fund is equal to the Fund’s NAV per share. |
| | |
| i). | Recent Accounting Pronouncements and Regulatory Updates – In October 2020, the Securities and Exchange Commission (“SEC”) adopted new regulations governing the use of derivatives by registered investment companies (“Rule 18f-4”). Rule 18f-4 imposes limits on the amount of derivatives a fund can enter into, eliminates the asset segregation framework currently used by funds to comply with Section 18 of the 1940 Act, and requires funds whose use of derivatives is greater than a limited specified amount to establish and maintain a comprehensive derivatives risk management program and appoint a derivatives risk manager. Funds are required to comply with Rule 18f-4 by August 19, 2022. The impact, if any, that Rule 18f-4 will |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | have on the availability, liquidity, and performance of derivatives is unclear. Management is currently evaluating the potential impact of Rule 18f-4 on the Fund. When fully implemented, Rule 18f-4 may require changes in how the Fund uses derivatives, adversely affect the Fund’s performance, and increase costs related to the Fund’s use of derivatives. |
| | |
| | In December 2020, the SEC adopted a new rule providing a framework for fund valuation practices (“Rule 2a-5”). Rule 2a-5 establishes requirements for determining fair value in good faith for purposes of the 1940 Act. Rule 2a-5 permits fund boards to designate certain parties to perform fair value determinations, subject to board oversight and certain other conditions. Rule 2a-5 also defines when market quotations are “readily available” for purposes of the 1940 Act and the threshold for determining whether a fund must fair value a security. In connection with Rule 2a-5, the SEC also adopted related recordkeeping requirements and is rescinding previously issued guidance, including with respect to the role of a board in determining fair value and the accounting and auditing of fund investments. Funds must comply with the rules by September 8, 2022. Management is currently assessing the potential impact of the new rules on the Fund’s financial statements. |
3). SECURITIES VALUATION
The Fund follows its valuation policies and procedures in determining its net asset value and, in preparing these financial statements, the fair value accounting standards that 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 of changes in valuation techniques and related inputs during the period. These inputs are summarized in the three broad levels listed below:
| | Level 1 – | Unadjusted, quoted prices in active markets for identical instruments that the Fund has the ability to access at the date of measurement. |
| | | |
| | Level 2 – | Other significant observable inputs (including, but not limited to, quoted prices in active markets for similar instruments, quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets, such as interest rates, prepayment speeds, credit risk curves, default rates, and similar data). |
| | | |
| | Level 3 – | Significant unobservable inputs (including the Fund’s own assumptions about what market participants would use to price the asset or liability based on the best available information) when observable inputs are unavailable. |
The following is a description of the valuation techniques applied to the Fund’s major categories of assets and liabilities on a recurring basis:
| | Equity Securities – Equity securities, including common stocks, preferred stocks, foreign-issued common stocks, exchange-traded funds, closed-end mutual funds, partnerships, rights, and real estate investment trusts, that are traded on a securities exchange for which a last-quoted sales price is readily available generally are valued at the last sales price as reported by the primary exchange on which the securities are listed. Securities listed on The NASDAQ Stock Market (“NASDAQ”) generally are 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 generally are valued at the mean between the bid |
| NOTES TO THE FINANCIAL STATEMENTS |
| | and ask prices. To the extent these securities are actively traded and valuation adjustments are not applied, they are classified in Level 1 of the fair value hierarchy. Securities traded on foreign exchanges generally are not valued at the same time the Fund calculates its NAV because most foreign markets close well before such time. The earlier close of most foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim. In certain circumstances, it may be determined that a foreign security needs to be fair valued because it appears that the value of the security might have been materially affected by events occurring after the close of the market in which the security is principally traded, but before the time the Fund calculates its NAV, such as by a development that affects an entire market or region (e.g., a weather-related event) or a potentially global development (e.g., a terrorist attack that may be expected to have an effect on investor expectations worldwide). |
| | |
| | Registered Investment Companies – Investments in open-end registered investment companies, commonly referred to as mutual funds, generally are priced at the ending NAV provided by the applicable mutual fund’s service agent and are classified in Level 1 of the fair value hierarchy. |
| | |
| | Debt Securities – Debt securities, including corporate bonds, asset-backed securities, mortgage-backed securities, municipal bonds, U.S. Treasuries, and U.S. government agency issues, are generally valued at market on the basis of valuations furnished by an independent pricing service that 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 observable market data, such as reported sales of similar securities, broker quotes, yields, bids, offers, and reference data. Certain securities are valued primarily using dealer quotations. These securities are generally 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 for equity securities. Short-term debt investments with an original term to maturity of 60 days or less are valued at amortized cost, which approximates fair market value. If the original term to maturity of a short-term debt investment exceeds 60 days, then the values as of the 61st day prior to maturity are amortized. Amortized cost is not used if its use would be inappropriate due to credit or other impairments of the issuer, in which case the security’s fair value would be determined as described below. Short-term securities are generally classified in Level 1 or Level 2 of the fair value hierarchy depending on the inputs used and market activity levels for specific securities. |
The Board of Trustees of the Fund (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 considered in determining a fair value of a security, such as the trading volume of a security and markets, the values of other similar securities, and news events with direct bearing on a security or markets. Fair value pricing results in an estimated price for a security that reflects the amount the Fund might reasonably expect to receive in a current sale. 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.
| HENNESSY FUNDS | 1-800-966-4354 | |
The fair value 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. Using fair value pricing means that the Fund’s NAV reflects the affected portfolio securities’ values as determined by the Board or its designee, pursuant to the fair value pricing procedures adopted by the Board, instead of being determined by the market. Using a fair value pricing methodology to price a foreign security may result in a value that is different from such foreign security’s most recent closing price and from the value used by other investment companies to calculate their NAVs. Such securities are generally classified in Level 2 of the fair value hierarchy. Because the Fund may invest in foreign securities, the value of the Fund’s portfolio securities may change on days when a shareholder is unable to purchase or redeem Fund shares.
The Board has delegated day-to-day valuation matters to the Valuation and Liquidity Committee comprising representatives from Hennessy Advisors, Inc., the Fund’s investment advisor (the “Advisor”). The function of the Valuation and Liquidity Committee, among other things, is to value securities where current and reliable market quotations are not readily available. All actions taken by the Valuation and Liquidity Committee are reviewed by the Board.
The Fund has performed an analysis of all existing investments to determine the significance and character of all inputs to their fair value determinations. Various inputs are used to determine the value of the 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 value hierarchy of the Fund’s securities as of October 31, 2021, are included in the Schedule of Investments.
4). INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding government and short-term investments) for the Fund during fiscal year 2021 were $80,312,904 and $193,860,417, respectively.
There were no purchases or sales/maturities of long-term U.S. government securities for the Fund during fiscal year 2021.
5). INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Advisor provides the Fund with investment advisory services under an Investment Advisory Agreement. The Advisor furnishes all investment advice, office space, and facilities and most of the personnel needed by the Fund. As compensation for its services, the Advisor is entitled to a monthly fee from the Fund. The fee is based on the average daily net assets of the Fund at an annual rate of 0.40%. The net investment advisory fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
The Board has approved a Shareholder Servicing Agreement for Investor Class shares of the Fund, which compensates the Advisor for the non-investment advisory services it provides to the Fund. The Shareholder Servicing Agreement provides for a monthly fee paid to the Advisor at an annual rate of 0.10% of the average daily net assets of the Fund attributable to Investor Class shares. The shareholder service fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
The Fund has adopted a plan pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended, that authorizes payments in connection with the distribution of Fund shares at an annual rate of up to 0.25% of the Fund’s average daily net assets attributable to Investor Class shares. Even though the authorized rate is up to
| NOTES TO THE FINANCIAL STATEMENTS |
0.25%, the Fund is currently only using up to 0.15% of its average daily net assets attributable to Investor Class shares for such purpose. 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, shareholder account servicing, printing and mailing of prospectuses to other than current shareholders, printing and mailing of sales literature, and compensation for sales and marketing activities or to financial institutions and others, such as dealers and distributors. The distribution fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
The Fund has entered into agreements with various brokers, dealers, and financial intermediaries in connection with the sale of Fund shares. The agreements provide for periodic payments of sub-transfer agent expenses by the Fund to the brokers, dealers, and financial intermediaries for providing certain shareholder maintenance services. 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. The sub-transfer agent fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
The Fund has entered into an Administrative Services Agreement among the Fund, the Advisor, and the American Gas Association (“AGA”), pursuant to which the AGA provides administrative services to the Fund, including overseeing the calculation of the AGA Stock Index. ScottMadden, Inc. performs the actual computations required to produce the AGA Stock Index and receives a fee for such calculations pursuant to a contractual arrangement with AGA. AGA does not furnish other securities advice to the Fund or the Advisor or make recommendations regarding the purchase or sale of securities by the Fund. Under the terms of the Administrative Services Agreement, which has been approved by the Board, AGA provides the Fund with current information regarding the common stock composition of the AGA Stock Index at least monthly. In addition, on request, AGA provides the Fund and the Advisor with information on the natural gas industry. The Fund pays AGA a fee at an annual rate of 0.04% of the average daily net assets of the Fund.
U.S. Bancorp Fund Services, LLC, d/b/a U.S. Bank Global Fund Services (“Fund Services”) provides the Fund with administrative, accounting, and transfer agent services. As administrator, Fund Services is responsible for activities such as (i) preparing various federal and state regulatory filings, reports, and returns for the Fund, (ii) preparing reports and materials to be supplied to the Board, (iii) monitoring the activities of the Fund’s custodian, transfer agent, and accountants, and (iv) coordinating the preparation and payment of the Fund’s expenses and reviewing the Fund’s expense accruals. U.S. Bank N.A., an affiliate of Fund Services, serves as the Fund’s custodian. The servicing agreements between the Trust, Fund Services, and U.S. Bank N.A. contain a fee schedule that is inclusive of administrative, accounting, custody, and transfer agent fees. The administrative, accounting, custody, and transfer agent fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
Quasar Distributors, LLC (“Quasar”), a wholly owned broker-dealer subsidiary of Foreside Financial Group, LLC (“Foreside”), acts as the Fund’s principal underwriter in a continuous public offering of Fund shares. Effective September 30, 2021, Genstar Capital, a private equity firm specializing in financial and related business service companies, acquired a majority interest in Foreside. The Board approved a new Distribution Agreement to enable Quasar to continue serving as the Fund’s distributor following the change in control of Foreside.
| HENNESSY FUNDS | 1-800-966-4354 | |
The officers of the Fund are affiliated with the Advisor. With the exception of the Chief Compliance Officer and the Senior Compliance Officer, such officers receive no compensation from the Fund for serving in their respective roles. The Fund, along with the other funds in the Hennessy Funds family (collectively, the “Hennessy Funds”), makes reimbursement payments on an equal basis to the Advisor for a portion of the salary and benefits associated with the office of the Chief Compliance Officer and for all of the salary and benefits associated with the office of the Senior Compliance Officer. The compliance fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
6). GUARANTEES AND INDEMNIFICATIONS
Under the Hennessy Funds’ organizational documents, their officers and trustees are indemnified by the Hennessy Funds against certain liabilities arising out of the performance of their duties to the Hennessy Funds. Additionally, in the normal course of business, the Hennessy Funds enter into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. Currently, the Fund expects the risk of loss to be remote.
7). LINE OF CREDIT
The Fund has an uncommitted line of credit with the other Hennessy Funds in the amount of the lesser of (i) $100,000,000 or (ii) 33.33% of each Hennessy Fund’s net assets, or 30% for the Fund and 10% for the Hennessy Balanced Fund. The line of credit is intended to provide any necessary short-term financing in connection with shareholder redemptions, subject to certain restrictions. The credit facility is with the Hennessy Funds’ custodian bank, U.S. Bank N.A. Borrowings under this arrangement bear interest at the bank’s prime rate and are secured by all of the Fund’s assets (as to its own borrowings only). During fiscal year 2021, the Fund had an outstanding average daily balance and a weighted average interest rate of $132,852 and 3.25%, respectively. The interest expensed by the Fund during fiscal year 2021 is included in the Statement of Operations. The maximum amount outstanding for the Fund during fiscal year 2021 was $2,833,000. As of October 31, 2021, the Fund did not have any borrowings outstanding under the line of credit.
8). FEDERAL TAX INFORMATION
As of October 31, 2021, the components of accumulated earnings (losses) for income tax purposes were as follows:
| | | | Investments | |
| | Cost of investments for tax purposes | | $ | 304,865,782 | |
| | Gross tax unrealized appreciation | | $ | 256,658,348 | |
| | Gross tax unrealized depreciation | | | (41,200,626 | ) |
| | Net tax unrealized appreciation/(depreciation) | | $ | 215,457,722 | |
| | Undistributed ordinary income | | $ | — | |
| | Undistributed long-term capital gains | | | 42,364,536 | |
| | Total distributable earnings | | $ | 42,364,536 | |
| | Other accumulated gain/(loss) | | $ | — | |
| | Total accumulated gain/(loss) | | $ | 257,822,258 | |
The difference between book-basis unrealized appreciation/depreciation and tax-basis unrealized appreciation/depreciation (as shown above) is attributable primarily to wash sales.
| NOTES TO THE FINANCIAL STATEMENTS |
As of October 31, 2021, the Fund had no tax-basis capital losses to offset future capital gains.
As of October 31, 2021, the Fund did not defer, on a tax basis, any late-year ordinary losses. Late-year ordinary losses are net ordinary losses incurred after December 31, 2020, but within the taxable year, that are deemed to arise on the first day of the Fund’s next taxable year.
During fiscal years 2021 and 2020, the tax character of distributions paid by the Fund was as follows:
| | | | Year Ended | | | Year Ended | |
| | | | October 31, 2021 | | | October 31, 2020 | |
| | Ordinary income(1) | | $ | 12,094,090 | | | $ | 14,868,613 | |
| | Long-term capital gains | | | 43,040,749 | | | | 41,637,087 | |
| | Total distributions | | $ | 55,134,839 | | | $ | 56,505,700 | |
| | (1) Ordinary income includes short-term capital gains. |
9). EVENTS SUBSEQUENT TO YEAR END
Management has evaluated the Fund’s related events and transactions that occurred subsequent to October 31, 2021, through the date of issuance of the Fund’s financial statements. Other than as disclosed below, management has determined that there were no subsequent events requiring recognition or disclosure in the financial statements.
On December 7, 2021, capital gains were declared and paid to shareholders of record on December 6, 2021, as follows:
| | | Long-term |
| | Investor Class | $2.15667 |
| | Institutional Class | $2.15128 |
| HENNESSY FUNDS | 1-800-966-4354 | |
Report of Independent Registered Public
Accounting Firm
To the Board of Trustees of Hennessy Funds Trust
and the shareholders of the Hennessy Gas Utility Fund
Novato, CA
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of the Hennessy Gas Utility Fund (the “Fund”), a series of Hennessy Funds Trust, including the schedule of investments, as of October 31, 2021, the related statement 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, the financial highlights for each of the five years in the period then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of October 31, 2021, the results of its operations for the year then ended, the changes in its 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 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We have served as the auditor of one or more of the funds in the Trust since 2002.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of October 31, 2021 by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
| | |
| | TAIT, WELLER & BAKER LLP |
Philadelphia, Pennsylvania
December 22, 2021
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM/TRUSTEES AND OFFICERS |
Trustees and Officers of the Fund (Unaudited)
The business and affairs of the Funds are managed under the direction of the Board of Trustees of the Trust, and the Board of Trustees elects the officers of the Trust. From time to time, the Board of Trustees also has appointed advisers to the Board of Trustees (“Advisers”) with the intention of having qualified individuals serve in an advisory capacity to garner experience in the mutual fund and asset management industry and be considered as potential Trustees in the future. There are currently two Advisers, Brian Alexander and Doug Franklin. As Advisers, Mr. Alexander and Mr. Franklin attend meetings of the Board of Trustees and act as non-voting participants. Information pertaining to the Trustees, Advisers, and the officers of the Trust is set forth below. The Trustees and officers serve until their successors are duly elected and qualified or until their earlier death, resignation, or removal. Each Trustee oversees all 16 Hennessy Funds. Unless otherwise indicated, the address of all persons listed below is 7250 Redwood Boulevard, Suite 200, Novato, CA 94945. The Fund’s Statement of Additional Information includes more information about the persons listed below and is available without charge by calling 1-800-966-4354 or by visiting www.hennessyfunds.com.
| | | | Other |
| | | | Directorships |
| | | | Held Outside |
| Name, Age, | | | of Fund |
| and Position Held | Start Date | Principal Occupation(s) | Complex During |
with the Trust
| of Service | During Past Five Years | Past Five Years
|
| | | | |
| Disinterested Trustees and Advisers | | | |
| | | | |
| J. Dennis DeSousa | January 1996 | Mr. DeSousa is a real estate investor. | None. |
| 85 | | | |
| Trustee | | | |
| | | | |
| Robert T. Doyle | January 1996 | Mr. Doyle has been the Sheriff of | None. |
| 74 | | Marin County, California since 1996. | |
| Trustee | | | |
| | | | |
| Claire Garvie | December 2015 | Ms. Garvie is a founder of Kiosk and | None. |
| 47 | as an Adviser | has served as its Chief Operating | |
| Trustee | to the Board | Officer since 2004. Kiosk is a full- | |
| | and | service marketing agency with | |
| | December 2021 | offices in the San Francisco Bay Area, | |
| | as a Trustee | Toronto, and Liverpool, UK. | |
| | | | |
| Gerald P. Richardson | May 2004 | Mr. Richardson is an independent | None. |
| 76 | | consultant in the securities industry. | |
| Trustee | | | |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | | | Other |
| | | | Directorships |
| | | | Held Outside |
| Name, Age, | | | of Fund |
| and Position Held | Start Date | Principal Occupation(s) | Complex During |
with the Trust
| of Service | During Past Five Years | Past Five Years
|
| | | | |
| Brian Alexander | March 2015 | Mr. Alexander has worked for the | None. |
| 40 | | Sutter Health organization since | |
| Adviser to the Board | | 2011 in various positions. He has | |
| | | served as the Chief Executive Officer | |
| | | of the Sutter Roseville Medical | |
| | | Center since 2018. From 2016 through | |
| | | 2018, he served as the Vice President | |
| | | of Strategy for the Sutter Health Valley | |
| | | Area, which includes 11 hospitals, | |
| | | 13 ambulatory surgery centers, | |
| | | 16,000 employees, and 1,900 physicians. | |
| | | From 2013 through 2016, Mr. Alexander | |
| | | served as Sutter Novato Community | |
| | | Hospital’s Chief Administrative Officer. | |
| | | | |
| Doug Franklin | March 2016 | Mr. Franklin is a retired insurance | None. |
| 57 | | industry executive. From 1987 | |
| Adviser to the Board | | through 2015, he was employed | |
| | | by the Allianz-Fireman’s Fund | |
| | | Insurance Company in various | |
| | | positions, including as its Chief | |
| | | Actuary and Chief Risk Officer. | |
| | | | |
Interested Trustee(1) | | | |
| | | | |
| Neil J. Hennessy | January 1996 as | Mr. Hennessy has been employed | Hennessy |
| 65 | a Trustee and | by Hennessy Advisors, Inc. since | Advisors, Inc. |
| Chairman of the Board, | June 2008 as | 1989 and currently serves as its | |
| Chief Market Strategist, | an officer | Chairman and Chief Executive Officer. | |
| Portfolio Manager, | | | |
| and President | | | |
| Name, Age, | | |
| and Position Held | Start Date | Principal Occupation(s) |
with the Trust
| of Service | During Past Five Years |
| | | |
| Officers | | |
| | | |
| Teresa M. Nilsen | January 1996 | Ms. Nilsen has been employed by Hennessy Advisors, Inc. |
| 55 | | since 1989 and currently serves as its President and Chief |
| Executive Vice President | | Operating Officer. |
| and Treasurer | | |
| | | |
| Daniel B. Steadman | March 2000 | Mr. Steadman has been employed by Hennessy Advisors, Inc. |
| 65 | | since 2000 and currently serves as its Executive Vice President. |
| Executive Vice President | | |
| and Secretary | | |
| | | |
| Brian Carlson | December 2013 | Mr. Carlson has been employed by Hennessy Advisors, Inc. |
| 49 | | since December 2013 and currently serves as its Chief |
| Senior Vice President | | Compliance Officer and Senior Vice President. |
| and Head of Distribution | | |
| TRUSTEES AND OFFICERS OF THE FUND |
| Name, Age, | | |
| and Position Held | Start Date | Principal Occupation(s) |
with the Trust
| of Service | During Past Five Years |
| | | |
Jennifer Cheskiewicz(2) | June 2013 | Ms. Cheskiewicz has been employed by Hennessy Advisors, Inc. |
| 44 | | as its General Counsel since June 2013. |
| Senior Vice President and | | |
| Chief Compliance Officer | | |
| | | |
David Ellison(3) | October 2012 | Mr. Ellison has been employed by Hennessy Advisors, Inc. since |
| 63 | | October 2012. He has served as a Portfolio Manager of the |
| Senior Vice President | | Hennessy Large Cap Financial Fund and the Hennessy Small |
| and Portfolio Manager | | Cap Financial Fund since their inception. Mr. Ellison also served |
| | | as a Portfolio Manager of the Hennessy Technology Fund from |
| | | its inception until February 2017. Mr. Ellison served as Director, |
| | | CIO, and President of FBR Fund Advisers, Inc. from December |
| | | 1999 to October 2012. |
| | | |
Ryan Kelley(4) | March 2013 | Mr. Kelley has been employed by Hennessy Advisors, Inc. since |
| 49 | | October 2012. He has served as Chief Investment Officer of the |
| Chief Investment Officer, | | Hennessy Funds since March 2021 and has served as a Portfolio |
| Senior Vice President, | | Manager of the Hennessy Gas Utility Fund, the Hennessy Large |
| and Portfolio Manager | | Cap Financial Fund, and the Hennessy Small Cap Financial Fund |
| | | since October 2014. Mr. Kelley served as Co-Portfolio Manager |
| | | of these same funds from March 2013 through September |
| | | 2014 and as a Portfolio Analyst for the Hennessy Funds from |
| | | October 2012 through February 2013. He has also served as a |
| | | Portfolio Manager of the Hennessy Cornerstone Growth Fund, |
| | | the Hennessy Cornerstone Mid Cap 30 Fund, the Hennessy |
| | | Cornerstone Large Growth Fund, and the Hennessy |
| | | Cornerstone Value Fund since February 2017 and as a Portfolio |
| | | Manager of the Hennessy Total Return Fund, the Hennessy |
| | | Balanced Fund, and the Hennessy Technology Fund since May |
| | | 2018. He served as Co-Portfolio Manager of the Hennessy |
| | | Technology Fund from February 2017 until May 2018. Mr. Kelley |
| | | served as Portfolio Manager of FBR Fund Advisers, Inc. from |
| | | January 2008 to October 2012. |
| | | |
L. Joshua Wein(4) | September 2018 | Mr. Wein has been employed by Hennessy Advisors, Inc. since |
| 48 | | 2018. He has served as Co-Portfolio Manager of the Hennessy |
| Vice President and | | Cornerstone Growth Fund, the Hennessy Cornerstone |
| Co-Portfolio Manager | | Mid Cap 30 Fund, the Hennessy Cornerstone Large Growth |
| | | Fund, the Hennessy Cornerstone Value Fund, Hennessy Total |
| | | Return Fund, the Hennessy Balanced Fund, the Hennessy Gas |
| | | Utility Fund, and the Hennessy Technology Fund since February |
| | | 2019. He served as a Senior Analyst of these same funds from |
| | | September 2018 through February 2019. Mr. Wein served as |
| | | Director of Alternative Investments and Co-Portfolio Manager |
| | | at Sterling Capital Management from 2008 to 2018. |
_______________
(1) | Mr. Hennessy is considered an “interested person,” as defined in the Investment Company Act of 1940, as amended, because he is an officer of the Trust. |
(2) | The address of this officer is 4800 Bee Caves Road, Suite 100, Austin, TX 78746. |
(3) | The address of this officer is 101 Federal Street, Suite 1615B, Boston, MA 02110. |
(4) | The address of this officer is 1340 Environ Way, Chapel Hill, NC 27517. |
| HENNESSY FUNDS | 1-800-966-4354 | |
Expense Example (Unaudited)
October 31, 2021
As a shareholder of the Fund, you incur 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 the Fund 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, 2021, through October 31, 2021.
Actual Expenses
In the table below, the first line under each of the “Investor Class” and “Institutional Class” headings provides information about actual account values and actual expenses for each share class. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the 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 “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. Although the Fund charges 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. Bank Global Fund Services, the Fund’s transfer agent. If you request that a redemption be made by wire transfer, the Fund’s transfer agent charges a $15 fee. IRAs are charged a $15 annual maintenance fee (up to $30 maximum per shareholder for shareholders with multiple IRAs). The examples below include, but are not limited to, management, shareholder servicing, accounting, custody, and transfer agent fees. However, the examples below do not include portfolio trading commissions and related expenses.
Hypothetical Example for Comparison Purposes
In the table below, the second line under each of the “Investor Class” and “Institutional Class” headings provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio for each share class and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return for such share class. 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 Fund and other funds. To do so, compare these 5% hypothetical examples 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. Therefore, the second lines under “Investor Class” and “Institutional Class” are useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds.
| | | | Expenses Paid |
| | Beginning | Ending | During Period(1) |
| | Account Value | Account Value | May 1, 2021 – |
| | May 1, 2021
| October 31, 2021 | October 31, 2021 |
| Investor Class | | | |
| Actual | $1,000.00 | $1,008.30 | $5.01 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,020.21 | $5.04 |
| | | | |
| Institutional Class | | | |
| Actual | $1,000.00 | $1,009.50 | $3.39 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,021.83 | $3.41 |
(1) | Expenses are equal to the Fund’s annualized expense ratio of 0.99% for Investor Class shares or 0.67% for Institutional Class shares, as applicable, multiplied by the average account value over the period, multiplied by 184/365 days (to reflect the half-year period). |
| HENNESSY FUNDS | 1-800-966-4354 | |
How to Obtain a Copy of the Fund’s Proxy
Voting Policy and Proxy Voting Records
A description of the policies and procedures the Fund uses 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/proxy-voting/voting-policy, or (3) on the U.S. Securities and Exchange Commission’s (the “SEC”) website at www.sec.gov. The Fund’s proxy voting record is available without charge on both the Hennessy Funds’ website at www.hennessyfunds.com/proxy-voting/voting-record and the SEC’s website at www.sec.gov no later than August 31 for the prior 12 months ending June 30.
Availability of Quarterly Portfolio Schedule
The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov or on request by calling 1-800-966-4354.
Federal Tax Distribution Information (Unaudited)
For fiscal year 2021, certain dividends paid by the Fund may be subject to a maximum tax rate of 23.8%, 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 100.00%.
For corporate shareholders, the percent of ordinary income distributions that qualified for the corporate dividends received deduction for fiscal year 2021 was 100.00%.
The percentage of taxable ordinary income distributions that were designated as short-term capital gain distributions under Section 871(k)(2)(C) of the Internal Revenue Code of 1986, as amended, for the Fund was 0.00%.
Important Notice Regarding Delivery
of Shareholder Documents
To help keep the Fund’s costs as low as possible, we generally deliver a single copy of shareholder reports, proxy statements, and prospectuses to shareholders who share an address and have the same last name. This process does not apply to account statements. You may request an individual copy of a shareholder document at any time. If you would like to receive separate mailings of shareholder documents, please call U.S. Bank Global Fund Services at 1-800-261-6950 or 1-414-765-4124, and individual delivery will begin within 30 days of your request. If your account is held through a financial institution or other intermediary, please contact such intermediary directly to request individual delivery.
Electronic Delivery
As permitted by SEC regulations, the Fund’s shareholder reports are made available on a website, and unless you sign up for eDelivery or elect to receive paper copies as detailed below, you will be notified by mail each time a report is posted and provided with a website link to access the report.
The Fund also offers shareholders the option to receive all notices, account statements, prospectuses, tax forms, and shareholder reports online. To sign up for eDelivery or change your delivery preference, please visit www.hennessyfunds.com/account.
To elect to receive paper copies of all future reports free of charge, please call U.S. Bank Global Fund Services at 1-800-261-6950 or 1-414-765-4124.
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| PROXY VOTING — PRIVACY POLICY |
Liquidity Risk Management Program
In accordance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), we have adopted and implemented a liquidity risk management program (the “Liquidity Program”). The purpose of the Liquidity Program is to assess and manage the Fund’s liquidity risk, which is the risk that the Fund would not be able to meet requests to redeem Fund shares without significant dilution of the remaining shareholders’ interests in the Fund. The Board of Trustees of the Fund (the “Board”) designated a committee comprising representatives of Hennessy Advisors, Inc., the investment adviser to the Fund, as the administrator of the Liquidity Program (the “Program Administrator”).
The Program Administrator provided a written report regarding the Liquidity Program to the Board in advance of its meeting on June 2, 2021. The report covered the period from June 1, 2020, through May 31, 2021. The report addressed the operation of the Liquidity Program, assessed the adequacy and effectiveness of its implementation, and described any material changes to the Liquidity Program during the review period. The Trust’s chief compliance officer presented the report to the Board at the meeting and provided additional information regarding the Liquidity Program. The Board reviewed the Liquidity Program and considered, among other items, the following:
| | 1. | The Program Administrator reviewed daily historical net redemption activity during the review period and during prior periods with higher-than-average redemption activity and concluded that the Fund has historically been able to meet requests to redeem Fund shares without significant dilution to the Fund’s remaining shareholders, and the Program Administrator expects the Fund to be able to continue to do so in the future during both normal and reasonably foreseeable stressed conditions. |
| | | |
| | 2. | The Fund holds assets that are highly liquid investments and is therefore not required to establish a highly liquid investment minimum for the Fund or adopt policies and procedures for responding to a highly liquid investment minimum shortfall. |
| | | |
| | 3. | The Program Administrator did not make any material changes to the Liquidity Program during the review period and did not recommend any changes to the Liquidity Program or the model inputs used to determine the liquidity classification of each security held by the Fund. |
| | | |
| | 4. | The Program Administrator concluded that the Liquidity Program was reasonably designed to assess and manage the Fund’s liquidity risk, complies with the requirements of the Liquidity Rule, and was operating as intended during the review period. |
Privacy Policy
We collect the following personal information about you:
| | 1. | Information we receive from you 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; |
| | | |
| | 2. | Information about your transactions with us, our affiliates, or others, including, but not limited to, your account number and balance, payments history, parties to transactions, cost basis information, and other financial information; and |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | 3. | Other personal information we collect from various sources, even if you have not entered into a prior transaction with us, including the following: |
| | • | Name, alias, address, unique personal identifier, online identifier, IP address, email address, telephone number, account name, and other similar identifiers; |
| | | |
| | • | Age and marital status; |
| | | |
| | • | Commercial information, including records of products purchased; |
| | | |
| | • | Browsing history, search history, and information on interaction with our website; |
| | | |
| | • | Geolocation data; |
| | | |
| | • | Employment and employment history, educational history, financial information, and purchasing and consuming histories or tendencies; and |
| | | |
| | • | Inferences drawn from the above-listed information to create a profile about your preferences, characteristics, predispositions, and behavior. |
We collect this information directly from you, indirectly in the course of providing services to you, directly and indirectly from your activity on our website, from broker dealers, marketing agencies, and other third parties that interact with us in connection with the services we perform and products we offer, and from anonymized and aggregated consumer information.
We use this information to fulfill the reason you provided the information to us, to provide you with other relevant products that you request from us, to provide you with information about products that may interest you, to improve our website or present our website’s contents to you, and as otherwise described to you when collecting your personal information.
We do not disclose any personal information to unaffiliated third parties, except as permitted by law. We may disclose your personal information to our affiliates, vendors, and service providers for a business purpose. 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. When disclosing your personal information to third parties, we enter into a contract with each third party describing the purpose of such disclosure and requiring that such personal information be kept confidential and not used for any purpose except to perform the services contracted or respond to regulatory or law enforcement requests.
Furthermore, we restrict access to your personal information to those persons who require such information to provide products or services to you. As a result, we do not provide a means for opting out of our limited sharing of your information. We maintain physical, electronic, and procedural safeguards that comply with federal standards to guard your personal information.
If you hold shares of the Funds through a financial intermediary, including, but not limited to, a broker-dealer, bank, or trust company, the privacy policy of your financial intermediary governs how your personal information is shared with unaffiliated third parties.
Supplemental Privacy Notice for Residents of California
The California Consumer Privacy Act of 2018 (the “CCPA”) provides you, as a California resident, with certain additional rights relating to your personal information.
Under the CCPA, you have the right to request that we disclose to you the categories of personal information we have collected about you over the past 12 months, the categories of sources of such information, our business purpose for collecting the information, the categories of third parties, if any, with whom we shared the information, and the specific information we have collected about you. You also have the right to request that we delete any of your personal information, and, unless an exception applies, we will delete such information upon receiving and confirming your request. To make a request, call us at 1-800-966-4354, email us at privacy@hennessyfunds.com, or go to www.hennessyfunds.com/contact. We will not discriminate against you for exercising your rights under the CCPA. Further, we will not collect additional categories of your personal information or use the personal information we collected for materially different, unrelated, or incompatible purposes without providing you notice.
| HENNESSY FUNDS | 1-800-966-4354 | |
(This Page Intentionally Left Blank.)
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 Boulevard, Suite 200
Novato, California 94945
ADMINISTRATOR,
TRANSFER AGENT,
DIVIDEND PAYING AGENT, &
SHAREHOLDER SERVICING AGENT
U.S. Bancorp Fund Services, LLC
d/b/a U.S. Bank Global Fund Services
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
CUSTODIAN
U.S. Bank N.A.
Custody Operations
1555 North River Center Drive, Suite 302
Milwaukee, Wisconsin 53212
TRUSTEES
Neil J. Hennessy
Robert T. Doyle
J. Dennis DeSousa
Claire Garvie
Gerald P. Richardson
COUNSEL
Foley & Lardner LLP
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-5306
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Tait, Weller & Baker LLP
Two Liberty Place
50 South 16th Street, Suite 2900
Philadelphia, Pennsylvania 19102-2529
DISTRIBUTOR
Quasar Distributors, LLC
111 East Kilbourn Avenue, Suite 2200
Milwaukee, Wisconsin 53202
www.hennessyfunds.com | 1-800-966-4354
This report has been prepared for shareholders and may be distributed to
others only if preceded or accompanied by a current prospectus.
ANNUAL REPORT
OCTOBER 31, 2021
HENNESSY JAPAN FUND
Investor Class HJPNX
Institutional Class HJPIX
www.hennessyfunds.com | 1-800-966-4354
(This Page Intentionally Left Blank.)
Contents
| Letter to Shareholders | 2 |
| Performance Overview | 4 |
| Financial Statements | |
| Schedule of Investments | 7 |
| Statement of Assets and Liabilities | 11 |
| Statement of Operations | 12 |
| Statements of Changes in Net Assets | 13 |
| Financial Highlights | 14 |
| Notes to the Financial Statements | 18 |
| Report of Independent Registered Public Accounting Firm | 26 |
| Trustees and Officers of the Fund | 27 |
| Expense Example | 30 |
| Proxy Voting Policy and Proxy Voting Records | 32 |
| Availability of Quarterly Portfolio Schedule | 32 |
| Federal Tax Distribution Information | 32 |
| Important Notice Regarding Delivery of Shareholder Documents | 32 |
| Electronic Delivery | 33 |
| Liquidity Risk Management Program | 33 |
| Privacy Policy | 34 |
| HENNESSY FUNDS | 1-800-966-4354 | |
November 2021
Dear Hennessy Funds Shareholder:
The Japanese stock market gained 18.62% as measured by the Tokyo Stock Price Index (TOPIX) over the 12-month period ended October 31, 2021 (in U.S. dollar terms).
While progress in vaccine administration and the broader global economic recovery supported the Japanese stock market throughout the period, concerns about rising interest rates in line with global inflation and waves of COVID-19 infections weighed down the market. Overall, small-cap and mid-cap stocks underperformed large-cap stocks, with large-cap stocks continuing to drive market performance partly due to the slower recovery of domestic demand in Japan compared to other countries.
Inflation has been a buzzword since the start of 2021. In our April 2021 shareholder letter, we commented that it was hard to imagine inflation taking hold in our domestic economy at that point in time. However, over the past several months, various supply issues have been compounding like never before, including supply chain disruptions, semiconductor shortages, energy and commodity price increases, labor inflation triggered by worker shortages, sharply increased employee safety costs to protect against COVID-19, and wage pressure due to workers’ strikes. Of these factors, wage pressure is a particularly concerning trend. If history is any guide, once inflation starts to accelerate, real wages erode, giving rise to worker protests in the hope of higher pay. These costs, in turn, get passed on to the prices of final products and services, further curbing real wage growth. Workers are left dissatisfied and demand additional pay increases, continuing the vicious cycle.
We also believe that the ongoing trend towards Environmental, Social, and Governance investing along with various environmental protection initiatives on a global scale adds to long-term inflationary pressure, as these activities inevitably increase the costs of doing business. At the same time as companies are becoming increasingly concerned about the environment and human rights, supply constraints are occurring, raising material prices and electricity and gas prices. Consequently, even as prices rise, market mechanisms struggle to encourage suppliers to increase their capacity, which could mean that the supply shortage may persist for some time.
While we do not make investment decisions based solely on economic forecasts, price trends significantly impact corporate fundamentals. As a result, we remain mindful of long-term inflation scenarios when conducting our research. For example, we look to invest in companies that we believe are capable of adequately coping with changing conditions and to avoid investing in companies where we believe a sharp rise in prices might lead to significant deterioration in business performance. Specifically, we focus on whether a company has a high profit margin, whether a rise in procurement prices will immediately lead to a loss, and whether the company can pass on a rise in procurement prices to sales prices through its strength in price negotiations.
With the vaccination progress so far, the number of people testing positive for COVID-19 has plummeted, leading to the lifting of the state of emergency and fueling expectations for future economic recovery in Japan. The end of the Japanese House of Representatives election, which previously was a source of uncertainty, and the Liberal Democratic Party (LDP) maintaining a stable majority have brought a sense of stability back to the stock market. We believe that the market will continue to perform well
through the end of calendar year 2021. On the one hand, risks include concerns about a failing Chinese economy, the continued rise in oil and other commodity prices, and rising overseas interest rates. On the other hand, the high savings rate over the past two years suggests that there is much room for recovery, especially in domestic consumption. We remain optimistic about the long-term prospects for Japan and its stock market.
Thank you for your continued confidence and investment in the Hennessy Funds.
Sincerely,
 |  |
| Tadahiro Fujimura | Masakazu Takeda |
| Portfolio Manager, | Portfolio Manager, |
| Hennessy Japan Small Cap Fund; | Hennessy Japan Fund; |
| Chief Investment Officer | Fund Manager |
| SPARX Asset Management Co., Ltd. | SPARX Asset Management Co., Ltd. |
SPARX Asset Management Co., Ltd., located in Tokyo, Japan, is the sub-advisor to the Hennessy Japan Fund and the Hennessy Japan Small Cap Fund.
Past performance does not guarantee future results.
Mutual fund investing involves risk. Principal loss is possible.
Opinions expressed are those of Tadahiro Fujimura and Masakazu Takeda and are subject to change, are not guaranteed, and should not be considered investment advice.
The Tokyo Stock Price Index (TOPIX) is a capitalization-weighted index of all of the companies listed on the First Section of the Tokyo Stock Exchange. The index is used herein for comparative purposes in accordance with SEC regulations. One cannot invest directly in an index.
| HENNESSY FUNDS | 1-800-966-4354 | |
Performance Overview (Unaudited)
CHANGE IN VALUE OF $10,000 INVESTMENT
This graph illustrates the performance of an initial investment of $10,000 made in the Fund 10 years ago and assumes the reinvestment of dividends and capital gains.
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED OCTOBER 31, 2021
| | | One | Five | Ten |
| | | Year
| Years
| Years
|
| | Hennessy Japan Fund – | | | |
| | Investor Class (HJPNX) | 11.66% | 11.47% | 13.10% |
| | Hennessy Japan Fund – | | | |
| | Institutional Class (HJPIX) | 12.11% | 11.93% | 13.47% |
| | Russell/Nomura Total MarketTM Index | 19.16% | 8.43% | 8.57% |
| | Tokyo Stock Price Index (TOPIX) | 18.62% | 8.18% | 8.32% |
Expense ratios: 1.43% (Investor Class); 1.04% (Institutional Class)
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. The performance table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 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 Russell/Nomura Total Market™ Index contains the top 98% of all stocks listed on Japan’s stock exchanges and registered on Japan’s over-the-counter market based on market capitalization. The Tokyo Stock Price Index (TOPIX) is a capitalization-weighted index of all of the companies listed on the First Section of the Tokyo Stock Exchange. One cannot invest directly in an index. These indices are used for comparative purposes in accordance with Securities and Exchange Commission regulations.
Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes or Russell ratings or underlying data and no party may rely on any Russell Indexes or Russell ratings or underlying data contained in this communication. No further distribution of Russell data is permitted without Russell’s express written consent. Russell does not promote, sponsor, or endorse the content of this communication.
The expense ratios presented are from the most recent prospectus. The expense ratios for the current reporting period are available in the Financial Highlights section of this report.
PERFORMANCE NARRATIVE
Portfolio Managers Masakazu Takeda, CFA and CMA*, and Yu Shimizu, CMA*
SPARX Asset Management Co., Ltd. (sub-advisor)
Performance:
For the one-year period ended October 31, 2021, the Investor Class of the Hennessy Japan Fund returned 11.66%, underperforming both the Russell/Nomura Total Market™ Index (the Fund’s primary benchmark) and the Tokyo Stock Price Index (TOPIX), which returned 19.16% and 18.62%, respectively, for the same period in U.S. dollar terms.
Among positive contributors to the Fund’s performance during the period were (i) Recruit Holdings Co., Ltd., Japan’s unique print and online media giant specializing in classified ads and providing human resources services, (ii) Sony Group Corporation, a diversified consumer and professional electronics, gaming, entertainment, and financial services conglomerate, and (iii) Keyence Corporation, the supplier of factory-automation-related sensors. Recruit was hit hard amid the COVID-19 pandemic, as most of its businesses are economically sensitive, but the company saw a dramatic rebound on the back of a strong labor market. Sony, which makes PlayStation game consoles, has suffered from a chip shortage because of the supply chain effects of the pandemic, but other business lines such as games, movies, and streaming music were beneficiaries. Keyence experienced a boom in business thanks to strong demand for factory automation sensors worldwide.
The main detractors from the Fund’s performance included Anicom Holdings, Inc., Japan’s leading pet insurance company, Kao Corporation, Japan’s largest manufacturer of home care and personal care goods, and SoftBank Group Corporation, the telecom, internet, and investment conglomerate. Anicom’s shares declined due to profit taking, as the company’s business was among the beneficiaries of the pandemic. Kao suffered from a decline in business due to the pandemic as well as fiercer competition from Asian rivals. SoftBank Group marginally detracted from Fund performance due to excessive volatility in its investment portfolio and headline risks related to the company.
The Fund continues to hold all the companies mentioned.
Portfolio Strategy:
The Fund seeks long-term capital appreciation by investing in equity securities of Japanese companies regardless of market capitalization. We screen for companies that we believe have strong businesses and management and are trading at an attractive price. Through in-depth and rigorous analysis and on-site research, we identify stocks with a potential “value gap.” The portfolio is limited to our best ideas and maintains a concentrated number of holdings.
Investment Commentary:
Our portfolio approach is to construct a concentrated portfolio of what we believe are great global companies based in Japan, and we hold these companies for the long term to capture the potential capital compounding effect. Seeking out great companies means looking not just for businesses with sustainably high returns on invested capital, but also for those that can grow consistently regardless of macroeconomic conditions. We think of such businesses as “safe and sound.” In our portfolio, you will find consumer stocks that
| HENNESSY FUNDS | 1-800-966-4354 | |
we consider defensive, economically-sensitive but high-quality industrials, and recession-resistant healthcare and internet stocks, as well as companies with diversified business portfolios. We aim to blend these types of businesses to pursue our goal of a portfolio that we believe can perform better than average in both strong and weak markets. This strategy serves as our first line of defense against downside risk to the Fund’s performance in both absolute and relative terms.
Despite our selective stock selection, our portfolio can be impacted by unexpected macroeconomic events. For example, a health crisis like the COVID-19 pandemic hits not just economically-sensitive companies but also more defensive consumer businesses because consumers curtail their spending even for small-ticket essentials. When this happens, we turn to another line of defense to attempt to limit the downside risk of the portfolio: the ability of our portfolio companies to overcome external headwinds. Our experience managing portfolios during prior economic challenges is helpful to us in managing through the current environment. Revisiting how businesses fared during and after the 2008 financial crisis, the Asian Currency Crisis of the late 1990s, or the 2001 dot-com bubble crash are very helpful exercises because they gives us insight into how businesses will likely perform in the future when another crisis emerges. Through this, we find comfort in maintaining the existing holdings even when the stock price is under pressure for a prolonged period.
______________
* Chartered Member of the Security Analysts Association of Japan
Opinions expressed are those of the Portfolio Managers as of the date written and are subject to change, are not guaranteed, and should not be considered investment advice or an indication of trading intent.
The Fund invests in small-capitalization and medium-capitalization companies, which may have more limited liquidity and greater price volatility than large-capitalization companies. The Fund invests in the stocks of companies operating in Japan; single-country funds may be subject to a higher degree of risk. The Fund may experience higher fees due to investments in pooled investment vehicles (including ETFs). Please see the Fund’s prospectus for a more complete discussion of these and other risks.
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 Schedule of Investments included in this report for additional portfolio information.
| PERFORMANCE OVERVIEW/SCHEDULE OF INVESTMENTS |
Financial Statements
Schedule of Investments as of October 31, 2021 |
HENNESSY JAPAN FUND
(% of Net Assets)
| TOP TEN HOLDINGS (EXCLUDING MONEY MARKET FUNDS) | % NET ASSETS |
| Recruit Holdings Co., Ltd. | 7.29% |
| Sony Group Corp. | 7.06% |
| Keyence Corp. | 6.27% |
| MISUMI Group, Inc. | 5.51% |
| Terumo Corp. | 5.31% |
| Daikin Industries, Ltd. | 5.13% |
| Mercari, Inc. | 5.05% |
| Nidec Corp. | 5.04% |
| Shimano, Inc. | 4.90% |
| Hitachi Ltd. | 4.67% |
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, as amended, the Fund uses more specific industry classifications.
The Global Industry Classification Standard (GICS®) was developed by and is the exclusive property and a service mark of MSCI, Inc. and Standard & Poor’s Financial Services LLC. It has been licensed for use by the Hennessy Funds.
| HENNESSY FUNDS | 1-800-966-4354 | |
| COMMON STOCKS – 96.63% | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Communication Services – 7.10% | | | | | | | | | |
| SoftBank Group Corp. | | | 630,600 | | | $ | 34,139,047 | | | | 4.20 | % |
| Z Holdings Corp. | | | 3,801,600 | | | | 23,600,413 | | | | 2.90 | % |
| | | | | | | | 57,739,460 | | | | 7.10 | % |
| | | | | | | | | | | | | |
| Consumer Discretionary – 24.60% | | | | | | | | | | | | |
| Asics Corp. | | | 426,100 | | | | 10,619,022 | | | | 1.31 | % |
| Fast Retailing Co., Ltd. | | | 41,700 | | | | 27,681,199 | | | | 3.40 | % |
| Mercari, Inc. (a) | | | 759,400 | | | | 41,090,697 | | | | 5.05 | % |
| Nitori Holdings Co., Ltd. | | | 127,600 | | | | 23,441,461 | | | | 2.88 | % |
| Shimano, Inc. | | | 142,900 | | | | 39,871,046 | | | | 4.90 | % |
| Sony Group Corp. | | | 496,100 | | | | 57,446,583 | | | | 7.06 | % |
| | | | | | | | 200,150,008 | | | | 24.60 | % |
| | | | | | | | | | | | | |
| Consumer Staples – 10.41% | | | | | | | | | | | | |
| Ariake Japan Co., Ltd. | | | 166,400 | | | | 10,833,968 | | | | 1.33 | % |
| Kao Corp. | | | 338,500 | | | | 19,148,291 | | | | 2.35 | % |
| Rohto Pharmaceutical Co., Ltd. | | | 906,400 | | | | 27,693,871 | | | | 3.41 | % |
| Unicharm Corp. | | | 666,800 | | | | 26,967,269 | | | | 3.32 | % |
| | | | | | | | 84,643,399 | | | | 10.41 | % |
| | | | | | | | | | | | | |
| Financials – 1.41% | | | | | | | | | | | | |
| Anicom Holdings, Inc. | | | 1,471,500 | | | | 11,472,556 | | | | 1.41 | % |
| | | | | | | | | | | | | |
| Health Care – 8.00% | | | | | | | | | | | | |
| Asahi Intecc Co., Ltd. | | | 139,600 | | | | 3,679,767 | | | | 0.45 | % |
| Olympus Corp. | | | 715,500 | | | | 15,499,909 | | | | 1.91 | % |
| PeptiDream, Inc. (a) | | | 110,500 | | | | 2,671,028 | | | | 0.33 | % |
| Terumo Corp. | | | 979,600 | | | | 43,215,846 | | | | 5.31 | % |
| | | | | | | | 65,066,550 | | | | 8.00 | % |
| | | | | | | | | | | | | |
| Industrials – 35.98% | | | | | | | | | | | | |
| Daikin Industries, Ltd. | | | 190,700 | | | | 41,766,129 | | | | 5.13 | % |
| Hitachi Ltd. | | | 659,100 | | | | 37,980,349 | | | | 4.67 | % |
| Kubota Corp. | | | 1,416,200 | | | | 30,169,328 | | | | 3.71 | % |
| MISUMI Group, Inc. | | | 1,072,000 | | | | 44,835,074 | | | | 5.51 | % |
| Mitsubishi Corp. | | | 1,184,900 | | | | 37,677,421 | | | | 4.63 | % |
| Nidec Corp. | | | 370,400 | | | | 41,024,700 | | | | 5.04 | % |
| Recruit Holdings Co., Ltd. | | | 891,300 | | | | 59,288,401 | | | | 7.29 | % |
| | | | | | | | 292,741,402 | | | | 35.98 | % |
The accompanying notes are an integral part of these financial statements.
| COMMON STOCKS | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Information Technology – 9.13% | | | | | | | | | |
| Keyence Corp. | | | 84,500 | | | $ | 51,005,450 | | | | 6.27 | % |
| Murata Manufacturing Co., Ltd. | | | 314,100 | | | | 23,299,494 | | | | 2.86 | % |
| | | | | | | | 74,304,944 | | | | 9.13 | % |
| | | | | | | | | | | | | |
| Total Common Stocks | | | | | | | | | | | | |
| (Cost $476,831,050) | | | | | | | 786,118,319 | | | | 96.63 | % |
| | | | | | | | | | | | | |
| SHORT-TERM INVESTMENTS – 2.97% | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Money Market Funds – 2.97% | | | | | | | | | | | | |
| First American Government Obligations Fund, | | | | | | | | | | | | |
| Institutional Class, 0.03% (b) | | | 24,197,282 | | | | 24,197,282 | | | | 2.97 | % |
| | | | | | | | | | | | | |
| Total Short-Term Investments | | | | | | | | | | | | |
| (Cost $24,197,282) | | | | | | | 24,197,282 | | | | 2.97 | % |
| | | | | | | | | | | | | |
| Total Investments | | | | | | | | | | | | |
| (Cost $501,028,332) – 99.60% | | | | | | | 810,315,601 | | | | 99.60 | % |
| Other Assets in Excess of Liabilities – 0.40% | | | | | | | 3,268,911 | | | | 0.40 | % |
| | | | | | | | | | | | | |
TOTAL NET ASSETS – 100.00% | | | | | | $ | 813,584,512 | | | | 100.00 | % |
Percentages are stated as a percent of net assets.
| (a) | Non-income-producing security. |
| (b) | The rate listed is the fund’s seven-day yield as of October 31, 2021. |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Summary of Fair Value Exposure as of October 31, 2021
The following is a summary of the inputs used to value the Fund’s net assets as of October 31, 2021 (see Note 3 in the accompanying Notes to the Financial Statements):
| Common Stocks | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Communication Services | | $ | — | | | $ | 57,739,460 | | | $ | — | | | $ | 57,739,460 | |
| Consumer Discretionary | | | — | | | | 200,150,008 | | | | — | | | | 200,150,008 | |
| Consumer Staples | | | — | | | | 84,643,399 | | | | — | | | | 84,643,399 | |
| Financials | | | — | | | | 11,472,556 | | | | — | | | | 11,472,556 | |
| Health Care | | | — | | | | 65,066,550 | | | | — | | | | 65,066,550 | |
| Industrials | | | — | | | | 292,741,402 | | | | — | | | | 292,741,402 | |
| Information Technology | | | — | | | | 74,304,944 | | | | — | | | | 74,304,944 | |
| Total Common Stocks | | $ | — | | | $ | 786,118,319 | | | $ | — | | | $ | 786,118,319 | |
| Short-Term Investments | | | | | | | | | | | | | | | | |
| Money Market Funds | | $ | 24,197,282 | | | $ | — | | | $ | — | | | $ | 24,197,282 | |
| Total Short-Term Investments | | $ | 24,197,282 | | | $ | — | | | $ | — | | | $ | 24,197,282 | |
| Total Investments | | $ | 24,197,282 | | | $ | 786,118,319 | | | $ | — | | | $ | 810,315,601 | |
The accompanying notes are an integral part of these financial statements.
| SCHEDULE OF INVESTMENTS/STATEMENT OF ASSETS AND LIABILITIES |
Financial Statements
Statement of Assets and Liabilities as of October 31, 2021 |
| ASSETS: | | | |
| Investments in securities, at value (cost $501,028,332) | | $ | 810,315,601 | |
| Dividends and interest receivable | | | 2,757,358 | |
| Receivable for fund shares sold | | | 641,728 | |
| Receivable for securities sold | | | 1,012,500 | |
| Prepaid expenses and other assets | | | 62,636 | |
| Total assets | | | 814,789,823 | |
| | | | | |
| LIABILITIES: | | | | |
| Payable for fund shares redeemed | | | 257,996 | |
| Payable to advisor | | | 554,490 | |
| Payable to administrator | | | 232,121 | |
| Payable to auditor | | | 22,551 | |
| Accrued distribution fees | | | 9,809 | |
| Accrued service fees | | | 7,541 | |
| Accrued trustees fees | | | 6,604 | |
| Accrued expenses and other payables | | | 114,199 | |
| Total liabilities | | | 1,205,311 | |
| NET ASSETS | | $ | 813,584,512 | |
| | | | | |
| NET ASSETS CONSISTS OF: | | | | |
| Capital stock | | $ | 513,189,734 | |
| Total distributable earnings | | | 300,394,778 | |
| Total net assets | | $ | 813,584,512 | |
| | | | | |
| NET ASSETS: | | | | |
| Investor Class | | | | |
| Shares authorized (no par value) | | Unlimited | |
| Net assets applicable to outstanding shares | | $ | 86,112,733 | |
| Shares issued and outstanding | | | 1,802,401 | |
| Net asset value, offering price, and redemption price per share | | $ | 47.78 | |
| | | | | |
| Institutional Class | | | | |
| Shares authorized (no par value) | | Unlimited | |
| Net assets applicable to outstanding shares | | $ | 727,471,779 | |
| Shares issued and outstanding | | | 14,683,687 | |
| Net asset value, offering price, and redemption price per share | | $ | 49.54 | |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
Statement of Operations for the year ended October 31, 2021 |
| INVESTMENT INCOME: | | | |
Dividend income(1) | | $ | 8,188,142 | |
| Interest income | | | 5,760 | |
| Total investment income | | | 8,193,902 | |
| | | | | |
| EXPENSES: | | | | |
| Investment advisory fees (See Note 5) | | | 6,809,086 | |
| Sub-transfer agent expenses – Investor Class (See Note 5) | | | 319,334 | |
| Sub-transfer agent expenses – Institutional Class (See Note 5) | | | 629,689 | |
| Administration, accounting, custody, and transfer agent fees (See Note 5) | | | 942,421 | |
| Distribution fees – Investor Class (See Note 5) | | | 205,713 | |
| Service fees – Investor Class (See Note 5) | | | 137,142 | |
| Federal and state registration fees | | | 86,523 | |
| Reports to shareholders | | | 37,344 | |
| Compliance expense (See Note 5) | | | 27,448 | |
| Trustees’ fees and expenses | | | 24,198 | |
| Audit fees | | | 22,551 | |
| Legal fees | | | 15,809 | |
| Interest expense (See Note 7) | | | 9,048 | |
| Other expenses | | | 76,793 | |
| Total expenses | | | 9,343,099 | |
| NET INVESTMENT LOSS | | $ | (1,149,197 | ) |
| | | | | |
| REALIZED AND UNREALIZED GAINS (LOSSES): | | | | |
| Net realized gain on investments | | $ | 19,086,546 | |
| Net change in unrealized appreciation/depreciation on investments | | | 68,905,761 | |
| Net gain on investments | | | 87,992,307 | |
| NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | | $ | 86,843,110 | |
(1) | Net of foreign taxes withheld of $909,789. |
The accompanying notes are an integral part of these financial statements.
| STATEMENT OF OPERATIONS/STATEMENTS OF CHANGES IN NET ASSETS |
Financial Statements
| Statements of Changes in Net Assets |
| | | Year Ended | | | Year Ended | |
| | | October 31, 2021 | | | October 31, 2020 | |
| OPERATIONS: | | | | | | |
| Net investment loss | | $ | (1,149,197 | ) | | $ | (48,348 | ) |
| Net realized gain (loss) on investments | | | 19,086,546 | | | | (26,459,008 | ) |
| Net change in unrealized | | | | | | | | |
| appreciation/depreciation on investments | | | 68,905,761 | | | | 106,104,850 | |
| Net increase in net assets resulting from operations | | | 86,843,110 | | | | 79,597,494 | |
| | | | | | | | | |
| DISTRIBUTIONS TO SHAREHOLDERS: | | | | | | | | |
| Distributable earnings – Investor Class | | | — | | | | (117,483 | ) |
| Distributable earnings – Institutional Class | | | (48,044 | ) | | | (3,035,473 | ) |
| Total distributions | | | (48,044 | ) | | | (3,152,956 | ) |
| | | | | | | | | |
| CAPITAL SHARE TRANSACTIONS: | | | | | | | | |
| Proceeds from shares subscribed – Investor Class | | | 61,092,843 | | | | 83,467,464 | |
| Proceeds from shares subscribed – Institutional Class | | | 227,381,324 | | | | 203,244,073 | |
| Dividends reinvested – Investor Class | | | — | | | | 113,374 | |
| Dividends reinvested – Institutional Class | | | 47,024 | | | | 2,957,410 | |
| Cost of shares redeemed – Investor Class | | | (129,927,285 | ) | | | (37,788,252 | ) |
| Cost of shares redeemed – Institutional Class | | | (182,214,241 | ) | | | (276,664,005 | ) |
| Net decrease in net assets derived | | | | | | | | |
| from capital share transactions | | | (23,620,335 | ) | | | (24,669,936 | ) |
| TOTAL INCREASE IN NET ASSETS | | | 63,174,731 | | | | 51,774,602 | |
| | | | | | | | | |
| NET ASSETS: | | | | | | | | |
| Beginning of year | | | 750,409,781 | | | | 698,635,179 | |
| End of year | | $ | 813,584,512 | | | $ | 750,409,781 | |
| | | | | | | | | |
| CHANGES IN SHARES OUTSTANDING: | | | | | | | | |
| Shares sold – Investor Class | | | 1,302,489 | | | | 2,016,527 | |
| Shares sold – Institutional Class | | | 4,688,665 | | | | 5,338,605 | |
| Shares issued to holders as reinvestment | | | | | | | | |
| of dividends – Investor Class | | | — | | | | 2,962 | |
| Shares issued to holders as reinvestment | | | | | | | | |
| of dividends – Institutional Class | | | 944 | | | | 75,037 | |
| Shares redeemed – Investor Class | | | (2,825,915 | ) | | | (1,040,377 | ) |
| Shares redeemed – Institutional Class | | | (3,765,795 | ) | | | (7,587,792 | ) |
| Net decrease in shares outstanding | | | (599,612 | ) | | | (1,195,038 | ) |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
For an Investor Class share outstanding throughout each year
PER SHARE DATA:
Net asset value, beginning of year
Income from investment operations:
Net investment income (loss)
Net realized and unrealized gains on investments
Total from investment operations
Less distributions:
Dividends from net investment income
Dividends from net realized gains
Total distributions
Net asset value, end of year
TOTAL RETURN
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of year (millions)
Ratio of expenses to average net assets
Ratio of net investment income (loss) to average net assets
Portfolio turnover rate(3)
(1) | Calculated using the average shares outstanding method. |
(2) | Amount is between $(0.005) and $0.005. |
(3) | Calculated on the basis of the Fund as a whole. |
The accompanying notes are an integral part of these financial statements.
| FINANCIAL HIGHLIGHTS — INVESTOR CLASS |
| Year Ended October 31, | |
| 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | | | | | | |
| $ | 42.79 | | | $ | 37.17 | | | $ | 33.63 | | | $ | 32.75 | | | $ | 27.81 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | (0.23 | )(1) | | | (0.14 | )(1) | | | 0.05 | (1) | | | (0.00 | )(2) | | | (0.03 | ) |
| | 5.22 | | | | 5.81 | | | | 3.50 | | | | 0.89 | | | | 4.97 | |
| | 4.99 | | | | 5.67 | | | | 3.55 | | | | 0.89 | | | | 4.94 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | — | | | | (0.02 | ) | | | (0.01 | ) | | | (0.01 | ) | | | — | |
| | — | | | | (0.03 | ) | | | — | | | | — | | | | — | |
| | — | | | | (0.05 | ) | | | (0.01 | ) | | | (0.01 | ) | | | — | |
| $ | 47.78 | | | $ | 42.79 | | | $ | 37.17 | | | $ | 33.63 | | | $ | 32.75 | |
| | | | | | | | | | | | | | | | | | | |
| | 11.66 | % | | | 15.27 | % | | | 10.60 | % | | | 2.70 | % | | | 17.76 | % |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| $ | 86.11 | | | $ | 142.30 | | | $ | 87.22 | | | $ | 103.33 | | | $ | 84.44 | |
| | 1.43 | % | | | 1.43 | % | | | 1.43 | % | | | 1.43 | % | | | 1.46 | % |
| | (0.49 | )% | | | (0.37 | )% | | | 0.14 | % | | | (0.02 | )% | | | (0.15 | )% |
| | 16 | % | | | 23 | % | | | 9 | % | | | 1 | % | | | 0 | % |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
For an Institutional Class share outstanding throughout each year
PER SHARE DATA:
Net asset value, beginning of year
Income from investment operations:
Net investment income (loss)
Net realized and unrealized gains on investments
Total from investment operations
Less distributions:
Dividends from net investment income
Dividends from net realized gains
Total distributions
Net asset value, end of year
TOTAL RETURN
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of year (millions)
Ratio of expenses to average net assets
Ratio of net investment income (loss) to average net assets
Portfolio turnover rate(3)
(1) | Calculated using the average shares outstanding method. |
(2) | Amount is between $(0.005) and $0.005. |
(3) | Calculated on the basis of the Fund as a whole. |
The accompanying notes are an integral part of these financial statements.
| FINANCIAL HIGHLIGHTS — INSTITUTIONAL CLASS |
| Year Ended October 31, | |
| 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | | | | | | |
| $ | 44.19 | | | $ | 38.37 | | | $ | 34.67 | | | $ | 33.64 | | | $ | 28.45 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | (0.03 | )(1) | | | 0.02 | (1) | | | 0.21 | (1) | | | 0.15 | | | | 0.03 | |
| | 5.38 | | | | 5.99 | | | | 3.60 | | | | 0.91 | | | | 5.16 | |
| | 5.35 | | | | 6.01 | | | | 3.81 | | | | 1.06 | | | | 5.19 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | (0.00 | )(2) | | | (0.16 | ) | | | (0.11 | ) | | | (0.03 | ) | | | — | |
| | — | | | | (0.03 | ) | | | — | | | | — | | | | — | |
| | (0.00 | )(2) | | | (0.19 | ) | | | (0.11 | ) | | | (0.03 | ) | | | — | |
| $ | 49.54 | | | $ | 44.19 | | | $ | 38.37 | | | $ | 34.67 | | | $ | 33.64 | |
| | | | | | | | | | | | | | | | | | | |
| | 12.11 | % | | | 15.72 | % | | | 11.02 | % | | | 3.14 | % | | | 18.24 | % |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| $ | 727.47 | | | $ | 608.11 | | | $ | 611.41 | | | $ | 399.76 | | | $ | 177.42 | |
| | 1.04 | % | | | 1.04 | % | | | 1.03 | % | | | 1.01 | % | | | 1.05 | % |
| | (0.07 | )% | | | 0.04 | % | | | 0.59 | % | | | 0.49 | % | | | 0.30 | % |
| | 16 | % | | | 23 | % | | | 9 | % | | | 1 | % | | | 0 | % |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
Notes to the Financial Statements October 31, 2021 |
1). ORGANIZATION
The Hennessy Japan Fund (the “Fund”) is a series of Hennessy Funds Trust (the “Trust”), which was organized as a Delaware statutory trust on September 17, 1992. The Fund is an open-end management investment company registered under the Investment Company Act of 1940, as amended. The investment objective of the Fund is long-term capital appreciation. The Fund is a diversified fund, but employs a relatively concentrated investment strategy and may hold securities of fewer issuers than other diversified funds.
The Fund offers Investor Class and Institutional Class shares. Each class of shares differs principally in its respective 12b-1 distribution and service, shareholder servicing, and sub-transfer agent expenses. There are no sales charges. 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 one class.
As an investment company, the Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 “Financial Services—Investment Companies.”
2). SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of the financial statements. These policies conform to U.S. generally accepted accounting principles (“GAAP”).
| a). | Securities Valuation – All investments in securities are valued in accordance with the Fund’s valuation policies and procedures, as described in Note 3. |
| | |
| b). | Federal Income Taxes – The Fund has elected to be taxed as a regulated investment company and intends to distribute substantially all of its taxable income to its shareholders and otherwise comply with the provisions of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. As a result, the Fund has made no provision for federal income taxes or excise taxes. Net investment income/loss and realized gains/losses for federal income tax purposes may differ from those reported in the financial statements because of temporary book-basis and tax-basis differences. Temporary differences are primarily the result of the treatment of wash sales for tax reporting purposes. The Fund recognizes interest and penalties related to income tax benefits, if any, in the Statement of Operations as an income tax expense. 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. The Fund may utilize equalization accounting for tax purposes and designate earnings and profits, including net realized gains distributed to shareholders on redemption of shares, as part of the dividends paid deduction for income tax purposes. |
| | |
| | Due to inherent differences in the recognition of income, expenses, and realized gains/losses under GAAP and federal income tax regulations, permanent differences between book and tax basis for reporting are identified and appropriately reclassified in the Statement of Assets and Liabilities, as needed. As of October 31, 2021, no such reclassifications were required for fiscal year 2021. |
| NOTES TO THE FINANCIAL STATEMENTS |
| c). | Accounting for Uncertainty in Income Taxes – The Fund has accounting policies regarding recognition and measurement of tax positions taken or expected to be taken on a tax return. The tax returns of the Fund for the prior three fiscal years are open for examination. The Fund has reviewed all open tax years in major tax jurisdictions and concluded that there is no impact on the Fund’s 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. The Fund’s major tax jurisdictions are U.S. federal and Delaware. |
| | |
| d). | Income and Expenses – Dividend income is recognized on the ex-dividend date or as soon as information is available to the Fund. Interest income, which includes the amortization of premium and accretion of discount, is recognized on an accrual basis. Market discounts, original issue discounts, and market premiums on debt securities are accreted or amortized to interest income over the life of a security with a corresponding increase or decrease, as applicable, in the cost basis of such security using the yield-to-maturity method or, where applicable, the first call date of the security. Other non-cash dividends are recognized as investment income at the fair value of the property received. The Fund is charged for those expenses that are directly attributable to its portfolio, such as advisory, administration, and certain shareholder service fees. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains/losses on investments are allocated to each class of shares based on such class’s net assets. |
| | |
| e). | Distributions to Shareholders – Dividends from net investment income for the Fund, if any, are declared and paid annually, usually in December. Distributions of net realized capital gains, if any, are declared and paid annually, usually in December. |
| | |
| f). | Security Transactions – Investment and shareholder transactions are recorded on the trade date. The Fund determines the realized gain/loss from an investment transaction by comparing the original cost of the security lot sold with the net sale proceeds. Discounts and premiums on securities purchased are accreted or amortized, respectively, over the life of each such security. |
| | |
| g). | Use of Estimates – Preparing financial statements in accordance 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, as well as the reported change in net assets during the reporting period. Actual results could differ from those estimates. |
| | |
| h). | Share Valuation – The net asset value (“NAV”) per share of the Fund is calculated by dividing (i) the total value of the securities held by the Fund, plus cash and other assets, minus all liabilities (including estimated accrued expenses) by (ii) the total number of Fund shares outstanding, rounded to the nearest $0.01. Fund shares are not priced on days the New York Stock Exchange is closed for trading. The offering and redemption price per share for the Fund is equal to the Fund’s NAV per share. |
| | |
| i). | Foreign Currency – Values of investments denominated in foreign currencies are converted into U.S. dollars using the spot market exchange rate at the time of valuation. Purchases and sales of investments and income are translated into U.S. dollars using the spot market exchange rate prevailing on the respective dates of such transactions. The Fund does not isolate the portion of the results of operations resulting from fluctuations in foreign exchange rates on investments from fluctuations resulting from changes in the market prices of securities held. Such fluctuations are included with the net realized and unrealized gain/loss on investments. Foreign investments present additional risks due to currency |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | fluctuations, economic and political factors, lower liquidity, government regulations, differences in accounting standards, and other factors. |
| | |
| j). | REIT Equity Securities – Distributions received from real estate investment trusts (“REITs”) may be classified as dividends, capital gains, or return of capital. Investments in REITs may require the Fund to accrue and distribute income not yet received. To generate sufficient cash to make any required distributions, the Fund may be required to sell securities in its portfolio (including when it is not advantageous to do so) that it otherwise would have continued to hold. At other times, investments in a REIT may result in the Fund’s receipt of cash in excess of the REIT’s earnings. If the Fund distributes these amounts, these distributions could constitute a return of capital to Fund shareholders for U.S. federal income tax purposes. Dividends received by the Fund from a REIT generally do not constitute qualified dividend income and do not qualify for the dividends-received deduction. |
| | |
| k). | Recent Accounting Pronouncements and Regulatory Updates – In October 2020, the Securities and Exchange Commission (“SEC”) adopted new regulations governing the use of derivatives by registered investment companies (“Rule 18f-4”). Rule 18f-4 imposes limits on the amount of derivatives a fund can enter into, eliminates the asset segregation framework currently used by funds to comply with Section 18 of the 1940 Act, and requires funds whose use of derivatives is greater than a limited specified amount to establish and maintain a comprehensive derivatives risk management program and appoint a derivatives risk manager. Funds are required to comply with Rule 18f-4 by August 19, 2022. The impact, if any, that Rule 18f-4 will have on the availability, liquidity, and performance of derivatives is unclear. Management is currently evaluating the potential impact of Rule 18f-4 on the Fund. When fully implemented, Rule 18f-4 may require changes in how the Fund uses derivatives, adversely affect the Fund’s performance, and increase costs related to the Fund’s use of derivatives. |
| | |
| | In December 2020, the SEC adopted a new rule providing a framework for fund valuation practices (“Rule 2a-5”). Rule 2a-5 establishes requirements for determining fair value in good faith for purposes of the 1940 Act. Rule 2a-5 permits fund boards to designate certain parties to perform fair value determinations, subject to board oversight and certain other conditions. Rule 2a-5 also defines when market quotations are “readily available” for purposes of the 1940 Act and the threshold for determining whether a fund must fair value a security. In connection with Rule 2a-5, the SEC also adopted related recordkeeping requirements and is rescinding previously issued guidance, including with respect to the role of a board in determining fair value and the accounting and auditing of fund investments. Funds must comply with the rules by September 8, 2022. Management is currently assessing the potential impact of the new rules on the Fund’s financial statements. |
3). SECURITIES VALUATION
The Fund follows its valuation policies and procedures in determining its net asset value and, in preparing these financial statements, the fair value accounting standards that 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 of changes in valuation techniques and related inputs during the period. These inputs are summarized in the three broad levels listed below:
| | Level 1 – | Unadjusted, quoted prices in active markets for identical instruments that the Fund has the ability to access at the date of measurement. |
| NOTES TO THE FINANCIAL STATEMENTS |
| | Level 2 – | Other significant observable inputs (including, but not limited to, quoted prices in active markets for similar instruments, quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets, such as interest rates, prepayment speeds, credit risk curves, default rates, and similar data). |
| | | |
| | Level 3 – | Significant unobservable inputs (including the Fund’s own assumptions about what market participants would use to price the asset or liability based on the best available information) when observable inputs are unavailable. |
The following is a description of the valuation techniques applied to the Fund’s major categories of assets and liabilities on a recurring basis:
| | Equity Securities – Equity securities, including common stocks, preferred stocks, foreign-issued common stocks, exchange-traded funds, closed-end mutual funds, partnerships, rights, and real estate investment trusts, that are traded on a securities exchange for which a last-quoted sales price is readily available generally are valued at the last sales price as reported by the primary exchange on which the securities are listed. Securities listed on The NASDAQ Stock Market (“NASDAQ”) generally are 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 generally are 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 classified in Level 1 of the fair value hierarchy. Securities traded on foreign exchanges generally are not valued at the same time the Fund calculates its NAV because most foreign markets close well before such time. The earlier close of most foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim. In certain circumstances, it may be determined that a foreign security needs to be fair valued because it appears that the value of the security might have been materially affected by events occurring after the close of the market in which the security is principally traded, but before the time the Fund calculates its NAV, such as by a development that affects an entire market or region (e.g., a weather-related event) or a potentially global development (e.g., a terrorist attack that may be expected to have an effect on investor expectations worldwide). |
| | |
| | Registered Investment Companies – Investments in open-end registered investment companies, commonly referred to as mutual funds, generally are priced at the ending NAV provided by the applicable mutual fund’s service agent and are classified in Level 1 of the fair value hierarchy. |
| | |
| | Debt Securities – Debt securities, including corporate bonds, asset-backed securities, mortgage-backed securities, municipal bonds, U.S. Treasuries, and U.S. government agency issues, are generally valued at market on the basis of valuations furnished by an independent pricing service that 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 observable market data, such as reported sales of similar securities, broker quotes, yields, bids, offers, and reference data. Certain securities are valued primarily using dealer quotations. These securities are generally classified in Level 2 of the fair value hierarchy. |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | Short-Term Securities – Short-term equity investments, including money market funds, are valued in the manner specified above for equity securities. Short-term debt investments with an original term to maturity of 60 days or less are valued at amortized cost, which approximates fair market value. If the original term to maturity of a short-term debt investment exceeds 60 days, then the values as of the 61st day prior to maturity are amortized. Amortized cost is not used if its use would be inappropriate due to credit or other impairments of the issuer, in which case the security’s fair value would be determined as described below. Short-term securities are generally classified in Level 1 or Level 2 of the fair value hierarchy depending on the inputs used and market activity levels for specific securities. |
The Board of Trustees of the Fund (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 considered in determining a fair value of a security, such as the trading volume of a security and markets, the values of other similar securities, and news events with direct bearing on a security or markets. Fair value pricing results in an estimated price for a security that reflects the amount the Fund might reasonably expect to receive in a current sale. 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 fair value 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. Using fair value pricing means that the Fund’s NAV reflects the affected portfolio securities’ values as determined by the Board or its designee, pursuant to the fair value pricing procedures adopted by the Board, instead of being determined by the market. Using a fair value pricing methodology to price a foreign security may result in a value that is different from such foreign security’s most recent closing price and from the value used by other investment companies to calculate their NAVs. Such securities are generally classified in Level 2 of the fair value hierarchy. Because the Fund invests in foreign securities, the value of the Fund’s portfolio securities may change on days when a shareholder is unable to purchase or redeem Fund shares.
The Board has delegated day-to-day valuation matters to the Valuation and Liquidity Committee comprising representatives from Hennessy Advisors, Inc., the Fund’s investment advisor (the “Advisor”). The function of the Valuation and Liquidity Committee, among other things, is to value securities where current and reliable market quotations are not readily available. All actions taken by the Valuation and Liquidity Committee are reviewed by the Board.
The Fund has performed an analysis of all existing investments to determine the significance and character of all inputs to their fair value determinations. Various inputs are used to determine the value of the 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 value hierarchy of the Fund’s securities as of October 31, 2021, are included in the Schedule of Investments.
4). INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding government and short-term investments) for the Fund during fiscal year 2021 were $127,767,752 and $163,746,213, respectively.
| NOTES TO THE FINANCIAL STATEMENTS |
There were no purchases or sales/maturities of long-term U.S. government securities for the Fund during fiscal year 2021.
5). INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Advisor provides the Fund with investment advisory services under an Investment Advisory Agreement. The Advisor oversees the provision of investment advice and furnishes office space, facilities, and most of the personnel needed by the Fund. As compensation for its services, the Advisor is entitled to a monthly fee from the Fund. The fee is based on the average daily net assets of the Fund at an annual rate of 0.80%. The net investment advisory fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
The Advisor has delegated the day-to-day management of the Fund to a sub-advisor, SPARX Asset Management Co., Ltd. The Advisor pays the sub-advisory fees from its own assets, and these fees are not an additional expense of the Fund. During fiscal year 2021, the Advisor (not the Fund) paid a sub-advisory fee at the average rate of 0.37% of the daily net assets of the Fund. Pursuant to the sub-advisory agreement, the Advisor pays sub-advisory fees at the rate of 0.35% of the first $500 million of daily net assets, 0.40% of daily net assets between $500 million and $1 billion, and 0.42% of daily net assets over $1 billion.
The Board has approved a Shareholder Servicing Agreement for Investor Class shares of the Fund, which compensates the Advisor for the non-investment advisory services it provides to the Fund. The Shareholder Servicing Agreement provides for a monthly fee paid to the Advisor at an annual rate of 0.10% of the average daily net assets of the Fund attributable to Investor Class shares. The shareholder service fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
The Fund has adopted a plan pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended, that authorizes payments in connection with the distribution of Fund shares at an annual rate of up to 0.25% of the Fund’s average daily net assets attributable to Investor Class shares. Even though the authorized rate is up to 0.25%, the Fund is currently only using up to 0.15% of its average daily net assets attributable to Investor Class shares for such purpose. 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, shareholder account servicing, printing and mailing of prospectuses to other than current shareholders, printing and mailing of sales literature, and compensation for sales and marketing activities or to financial institutions and others, such as dealers and distributors. The distribution fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
The Fund has entered into agreements with various brokers, dealers, and financial intermediaries in connection with the sale of Fund shares. The agreements provide for periodic payments of sub-transfer agent expenses by the Fund to the brokers, dealers, and financial intermediaries for providing certain shareholder maintenance services. 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. The sub-transfer agent fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
U.S. Bancorp Fund Services, LLC, d/b/a U.S. Bank Global Fund Services (“Fund Services”) provides the Fund with administrative, accounting, and transfer agent services. As administrator, Fund Services is responsible for activities such as (i) preparing various federal and state regulatory filings, reports, and returns for the Fund, (ii) preparing reports and materials to be supplied to the Board, (iii) monitoring the activities of the
| HENNESSY FUNDS | 1-800-966-4354 | |
Fund’s custodian, transfer agent, and accountants, and (iv) coordinating the preparation and payment of the Fund’s expenses and reviewing the Fund’s expense accruals. U.S. Bank N.A., an affiliate of Fund Services, serves as the Fund’s custodian. The servicing agreements between the Trust, Fund Services, and U.S. Bank N.A. contain a fee schedule that is inclusive of administrative, accounting, custody, and transfer agent fees. The administrative, accounting, custody, and transfer agent fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
Quasar Distributors, LLC (“Quasar”), a wholly owned broker-dealer subsidiary of Foreside Financial Group, LLC (“Foreside”), acts as the Fund’s principal underwriter in a continuous public offering of Fund shares. Effective September 30, 2021, Genstar Capital, a private equity firm specializing in financial and related business service companies, acquired a majority interest in Foreside. The Board approved a new Distribution Agreement to enable Quasar to continue serving as the Fund’s distributor following the change in control of Foreside.
The officers of the Fund are affiliated with the Advisor. With the exception of the Chief Compliance Officer and the Senior Compliance Officer, such officers receive no compensation from the Fund for serving in their respective roles. The Fund, along with the other funds in the Hennessy Funds family (collectively, the “Hennessy Funds”), makes reimbursement payments on an equal basis to the Advisor for a portion of the salary and benefits associated with the office of the Chief Compliance Officer and for all of the salary and benefits associated with the office of the Senior Compliance Officer. The compliance fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
6). GUARANTEES AND INDEMNIFICATIONS
Under the Hennessy Funds’ organizational documents, their officers and trustees are indemnified by the Hennessy Funds against certain liabilities arising out of the performance of their duties to the Hennessy Funds. Additionally, in the normal course of business, the Hennessy Funds enter into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. Currently, the Fund expects the risk of loss to be remote.
7). LINE OF CREDIT
The Fund has an uncommitted line of credit with the other Hennessy Funds in the amount of the lesser of (i) $100,000,000 or (ii) 33.33% of each Hennessy Fund’s net assets, or 30% for the Hennessy Gas Utility Fund and 10% for the Hennessy Balanced Fund. The line of credit is intended to provide any necessary short-term financing in connection with shareholder redemptions, subject to certain restrictions. The credit facility is with the Hennessy Funds’ custodian bank, U.S. Bank N.A. Borrowings under this arrangement bear interest at the bank’s prime rate and are secured by all of the Fund’s assets (as to its own borrowings only). During fiscal year 2021, the Fund had an outstanding average daily balance and a weighted average interest rate of $274,575 and 3.25%, respectively. The interest expensed by the Fund during fiscal year 2021 is included in the Statement of Operations. The maximum amount outstanding for the Fund during fiscal year 2021 was $23,213,000. As of October 31, 2021, the Fund did not have any borrowings outstanding under the line of credit.
| NOTES TO THE FINANCIAL STATEMENTS |
8). FEDERAL TAX INFORMATION
As of October 31, 2021, the components of accumulated earnings (losses) for income tax purposes were as follows:
| | | Investments | |
| Cost of investments for tax purposes | | $ | 514,098,328 | |
| Gross tax unrealized appreciation | | $ | 319,634,787 | |
| Gross tax unrealized depreciation | | | (23,480,253 | ) |
| Net tax unrealized appreciation/(depreciation) | | $ | 296,154,534 | |
| Undistributed ordinary income | | $ | 11,762,697 | |
| Undistributed long-term capital gains | | | — | |
| Total distributable earnings | | $ | 11,762,697 | |
| Other accumulated gain/(loss) | | $ | (7,522,453 | ) |
| Total accumulated gain/(loss) | | $ | 300,394,778 | |
The difference between book-basis unrealized appreciation/depreciation and tax-basis unrealized appreciation/depreciation (as shown above) is attributable primarily to wash sales and investments in passive foreign investment companies.
As of October 31, 2021, the Fund had $7,522,453 in unlimited short-term capital loss carryforwards. During fiscal year 2021, the capital losses utilized by the Fund were $18,252,798.
Capital losses sustained in or after fiscal year 2012 can be carried forward indefinitely, but any such loss retains the character of the original loss and must be utilized prior to any loss incurred before fiscal year 2012. As a result of this ordering rule, capital loss carryforwards incurred prior to fiscal year 2012 may be more likely to expire unused. Capital losses sustained prior to fiscal year 2012 can be carried forward for eight years and can be carried forward as short-term capital losses regardless of the character of the original loss.
As of October 31, 2021, the Fund did not defer, on a tax basis, any late-year ordinary losses. Late-year ordinary losses are net ordinary losses incurred after December 31, 2020, but within the taxable year, that are deemed to arise on the first day of the Fund’s next taxable year.
During fiscal years 2021 and 2020, the tax character of distributions paid by the Fund was as follows:
| | | | Year Ended | | | Year Ended | |
| | | | October 31, 2021 | | | October 31, 2020 | |
| | Ordinary income(1) | | $ | 48,044 | | | $ | 2,630,335 | |
| | Long-term capital gains | | | — | | | | 522,621 | |
| | Total distributions | | $ | 48,044 | | | $ | 3,152,956 | |
| | (1) Ordinary income includes short-term capital gains. |
9). EVENTS SUBSEQUENT TO YEAR END
Management has evaluated the Fund’s related events and transactions that occurred subsequent to October 31, 2021, through the date of issuance of the Fund’s financial statements. Management has determined that there were no subsequent events requiring recognition or disclosure in the financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Report of Independent Registered Public
Accounting Firm
To the Board of Trustees of Hennessy Funds Trust
and the shareholders of the Hennessy Japan Fund
Novato, CA
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of the Hennessy Japan Fund (the “Fund”), a series of Hennessy Funds Trust, including the schedule of investments, as of October 31, 2021, the related statement 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, the financial highlights for each of the five years in the period then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of October 31, 2021, the results of its operations for the year then ended, the changes in its 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 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We have served as the auditor of one or more of the funds in the Trust since 2002.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of October 31, 2021 by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
| | |
| | TAIT, WELLER & BAKER LLP |
Philadelphia, Pennsylvania
December 22, 2021
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM/TRUSTEES AND OFFICERS |
Trustees and Officers of the Fund (Unaudited)
The business and affairs of the Funds are managed under the direction of the Board of Trustees of the Trust, and the Board of Trustees elects the officers of the Trust. From time to time, the Board of Trustees also has appointed advisers to the Board of Trustees (“Advisers”) with the intention of having qualified individuals serve in an advisory capacity to garner experience in the mutual fund and asset management industry and be considered as potential Trustees in the future. There are currently two Advisers, Brian Alexander and Doug Franklin. As Advisers, Mr. Alexander and Mr. Franklin attend meetings of the Board of Trustees and act as non-voting participants. Information pertaining to the Trustees, Advisers, and the officers of the Trust is set forth below. The Trustees and officers serve until their successors are duly elected and qualified or until their earlier death, resignation, or removal. Each Trustee oversees all 16 Hennessy Funds. Unless otherwise indicated, the address of all persons listed below is 7250 Redwood Boulevard, Suite 200, Novato, CA 94945. The Fund’s Statement of Additional Information includes more information about the persons listed below and is available without charge by calling 1-800-966-4354 or by visiting www.hennessyfunds.com.
| | | | Other |
| | | | Directorships |
| | | | Held Outside |
| Name, Age, | | | of Fund |
| and Position Held | Start Date | Principal Occupation(s) | Complex During |
with the Trust
| of Service | During Past Five Years | Past Five Years
|
| | | | |
| Disinterested Trustees and Advisers | | | |
| | | | |
| J. Dennis DeSousa | January 1996 | Mr. DeSousa is a real estate investor. | None. |
| 85 | | | |
| Trustee | | | |
| | | | |
| Robert T. Doyle | January 1996 | Mr. Doyle has been the Sheriff of | None. |
| 74 | | Marin County, California since 1996. | |
| Trustee | | | |
| | | | |
| Claire Garvie | December 2015 | Ms. Garvie is a founder of Kiosk and | None. |
| 47 | as an Adviser | has served as its Chief Operating | |
| Trustee | to the Board | Officer since 2004. Kiosk is a full- | |
| | and | service marketing agency with | |
| | December 2021 | offices in the San Francisco Bay Area, | |
| | as a Trustee | Toronto, and Liverpool, UK. | |
| | | | |
| Gerald P. Richardson | May 2004 | Mr. Richardson is an independent | None. |
| 76 | | consultant in the securities industry. | |
| Trustee | | | |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | | | Other |
| | | | Directorships |
| | | | Held Outside |
| Name, Age, | | | of Fund |
| and Position Held | Start Date | Principal Occupation(s) | Complex During |
with the Trust
| of Service | During Past Five Years | Past Five Years
|
| | | | |
| Brian Alexander | March 2015 | Mr. Alexander has worked for the | None. |
| 40 | | Sutter Health organization since | |
| Adviser to the Board | | 2011 in various positions. He has | |
| | | served as the Chief Executive Officer | |
| | | of the Sutter Roseville Medical | |
| | | Center since 2018. From 2016 through | |
| | | 2018, he served as the Vice President | |
| | | of Strategy for the Sutter Health Valley | |
| | | Area, which includes 11 hospitals, | |
| | | 13 ambulatory surgery centers, | |
| | | 16,000 employees, and 1,900 physicians. | |
| | | From 2013 through 2016, Mr. Alexander | |
| | | served as Sutter Novato Community | |
| | | Hospital’s Chief Administrative Officer. | |
| | | | |
| Doug Franklin | March 2016 | Mr. Franklin is a retired insurance | None. |
| 57 | | industry executive. From 1987 | |
| Adviser to the Board | | through 2015, he was employed | |
| | | by the Allianz-Fireman’s Fund | |
| | | Insurance Company in various | |
| | | positions, including as its Chief | |
| | | Actuary and Chief Risk Officer. | |
| | | | |
Interested Trustee(1) | | | |
| | | | |
| Neil J. Hennessy | January 1996 as | Mr. Hennessy has been employed | Hennessy |
| 65 | a Trustee and | by Hennessy Advisors, Inc. since | Advisors, Inc. |
| Chairman of the Board, | June 2008 as | 1989 and currently serves as its | |
| Chief Market Strategist, | an officer | Chairman and Chief Executive Officer. | |
| Portfolio Manager, | | | |
| and President | | | |
| Name, Age, | | |
| and Position Held | Start Date | Principal Occupation(s) |
with the Trust
| of Service | During Past Five Years |
| | | |
| Officers | | |
| | | |
| Teresa M. Nilsen | January 1996 | Ms. Nilsen has been employed by Hennessy Advisors, Inc. |
| 55 | | since 1989 and currently serves as its President and Chief |
| Executive Vice President | | Operating Officer. |
| and Treasurer | | |
| | | |
| Daniel B. Steadman | March 2000 | Mr. Steadman has been employed by Hennessy Advisors, Inc. |
| 65 | | since 2000 and currently serves as its Executive Vice President. |
| Executive Vice President | | |
| and Secretary | | |
| | | |
| Brian Carlson | December 2013 | Mr. Carlson has been employed by Hennessy Advisors, Inc. |
| 49 | | since December 2013 and currently serves as its Chief |
| Senior Vice President | | Compliance Officer and Senior Vice President. |
| and Head of Distribution | | |
| TRUSTEES AND OFFICERS OF THE FUND |
| Name, Age, | | |
| and Position Held | Start Date | Principal Occupation(s) |
with the Trust
| of Service | During Past Five Years |
| | | |
Jennifer Cheskiewicz(2) | June 2013 | Ms. Cheskiewicz has been employed by Hennessy Advisors, Inc. |
| 44 | | as its General Counsel since June 2013. |
| Senior Vice President and | | |
| Chief Compliance Officer | | |
| | | |
David Ellison(3) | October 2012 | Mr. Ellison has been employed by Hennessy Advisors, Inc. since |
| 63 | | October 2012. He has served as a Portfolio Manager of the |
| Senior Vice President | | Hennessy Large Cap Financial Fund and the Hennessy Small |
| and Portfolio Manager | | Cap Financial Fund since their inception. Mr. Ellison also served |
| | | as a Portfolio Manager of the Hennessy Technology Fund from |
| | | its inception until February 2017. Mr. Ellison served as Director, |
| | | CIO, and President of FBR Fund Advisers, Inc. from December |
| | | 1999 to October 2012. |
| | | |
Ryan Kelley(4) | March 2013 | Mr. Kelley has been employed by Hennessy Advisors, Inc. since |
| 49 | | October 2012. He has served as Chief Investment Officer of the |
| Chief Investment Officer, | | Hennessy Funds since March 2021 and has served as a Portfolio |
| Senior Vice President, | | Manager of the Hennessy Gas Utility Fund, the Hennessy Large |
| and Portfolio Manager | | Cap Financial Fund, and the Hennessy Small Cap Financial Fund |
| | | since October 2014. Mr. Kelley served as Co-Portfolio Manager |
| | | of these same funds from March 2013 through September |
| | | 2014 and as a Portfolio Analyst for the Hennessy Funds from |
| | | October 2012 through February 2013. He has also served as a |
| | | Portfolio Manager of the Hennessy Cornerstone Growth Fund, |
| | | the Hennessy Cornerstone Mid Cap 30 Fund, the Hennessy |
| | | Cornerstone Large Growth Fund, and the Hennessy |
| | | Cornerstone Value Fund since February 2017 and as a Portfolio |
| | | Manager of the Hennessy Total Return Fund, the Hennessy |
| | | Balanced Fund, and the Hennessy Technology Fund since May |
| | | 2018. He served as Co-Portfolio Manager of the Hennessy |
| | | Technology Fund from February 2017 until May 2018. Mr. Kelley |
| | | served as Portfolio Manager of FBR Fund Advisers, Inc. from |
| | | January 2008 to October 2012. |
| | | |
L. Joshua Wein(4) | September 2018 | Mr. Wein has been employed by Hennessy Advisors, Inc. since |
| 48 | | 2018. He has served as Co-Portfolio Manager of the Hennessy |
| Vice President and | | Cornerstone Growth Fund, the Hennessy Cornerstone |
| Co-Portfolio Manager | | Mid Cap 30 Fund, the Hennessy Cornerstone Large Growth |
| | | Fund, the Hennessy Cornerstone Value Fund, Hennessy Total |
| | | Return Fund, the Hennessy Balanced Fund, the Hennessy Gas |
| | | Utility Fund, and the Hennessy Technology Fund since February |
| | | 2019. He served as a Senior Analyst of these same funds from |
| | | September 2018 through February 2019. Mr. Wein served as |
| | | Director of Alternative Investments and Co-Portfolio Manager |
| | | at Sterling Capital Management from 2008 to 2018. |
_______________
(1) | Mr. Hennessy is considered an “interested person,” as defined in the Investment Company Act of 1940, as amended, because he is an officer of the Trust. |
(2) | The address of this officer is 4800 Bee Caves Road, Suite 100, Austin, TX 78746. |
(3) | The address of this officer is 101 Federal Street, Suite 1615B, Boston, MA 02110. |
(4) | The address of this officer is 1340 Environ Way, Chapel Hill, NC 27517. |
| HENNESSY FUNDS | 1-800-966-4354 | |
Expense Example (Unaudited)
October 31, 2021
As a shareholder of the Fund, you incur 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 the Fund 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, 2021, through October 31, 2021.
Actual Expenses
In the table below, the first line under each of the “Investor Class” and “Institutional Class” headings provides information about actual account values and actual expenses for each share class. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the 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 “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. Although the Fund charges 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. Bank Global Fund Services, the Fund’s transfer agent. If you request that a redemption be made by wire transfer, the Fund’s transfer agent charges a $15 fee. IRAs are charged a $15 annual maintenance fee (up to $30 maximum per shareholder for shareholders with multiple IRAs). The examples below include, but are not limited to, management, shareholder servicing, accounting, custody, and transfer agent fees. However, the examples below do not include portfolio trading commissions and related expenses.
Hypothetical Example for Comparison Purposes
In the table below, the second line under each of the “Investor Class” and “Institutional Class” headings provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio for each share class and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return for such share class. 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 Fund and other funds. To do so, compare these 5% hypothetical examples 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. Therefore, the second lines under “Investor Class” and “Institutional Class” are useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds.
| | | | Expenses Paid |
| | Beginning | Ending | During Period(1) |
| | Account Value | Account Value | May 1, 2021 – |
| | May 1, 2021
| October 31, 2021 | October 31, 2021 |
| Investor Class | | | |
| Actual | $1,000.00 | $1,061.30 | $7.48 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,017.95 | $7.32 |
| | | | |
| Institutional Class | | | |
| Actual | $1,000.00 | $1,063.50 | $5.41 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,019.96 | $5.30 |
(1) | Expenses are equal to the Fund’s annualized expense ratio of 1.44% for Investor Class shares or 1.04% for Institutional Class shares, as applicable, multiplied by the average account value over the period, multiplied by 184/365 days (to reflect the half-year period). |
| HENNESSY FUNDS | 1-800-966-4354 | |
How to Obtain a Copy of the Fund’s Proxy
Voting Policy and Proxy Voting Records
A description of the policies and procedures the Fund uses 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/proxy-voting/voting-policy, or (3) on the U.S. Securities and Exchange Commission’s (the “SEC”) website at www.sec.gov. The Fund’s proxy voting record is available without charge on both the Hennessy Funds’ website at www.hennessyfunds.com/proxy-voting/voting-record and the SEC’s website at www.sec.gov no later than August 31 for the prior 12 months ending June 30.
Availability of Quarterly Portfolio Schedule
The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov or on request by calling 1-800-966-4354.
Federal Tax Distribution Information (Unaudited)
For fiscal year 2021, certain dividends paid by the Fund may be subject to a maximum tax rate of 23.8%, 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 69.62%.
For corporate shareholders, the percent of ordinary income distributions that qualified for the corporate dividends received deduction for fiscal year 2021 was 0.00%.
The percentage of taxable ordinary income distributions that were designated as short-term capital gain distributions under Section 871(k)(2)(C) of the Internal Revenue Code of 1986, as amended, for the Fund was 0.00%.
For the year ended October 31, 2021, the Fund earned foreign-source income and paid foreign taxes as noted below, which it intends to pass through to its shareholders pursuant to Section 853 of the Internal Revenue Code.
| | | Gross Foreign Income | Foreign Tax Paid |
| | Japan | $9,097,931 | $909,789 |
Important Notice Regarding Delivery of
Shareholder Documents
To help keep the Fund’s costs as low as possible, we generally deliver a single copy of shareholder reports, proxy statements, and prospectuses to shareholders who share an address and have the same last name. This process does not apply to account statements. You may request an individual copy of a shareholder document at any time. If you would like to receive separate mailings of shareholder documents, please call U.S. Bank Global Fund Services at 1-800-261-6950 or 1-414-765-4124, and individual delivery will begin within 30 days of your request. If your account is held through a financial institution or other intermediary, please contact such intermediary directly to request individual delivery.
| PROXY VOTING — LIQUIDITY RISK MANAGEMENT PROGRAM |
Electronic Delivery
As permitted by SEC regulations, the Fund’s shareholder reports are made available on a website, and unless you sign up for eDelivery or elect to receive paper copies as detailed below, you will be notified by mail each time a report is posted and provided with a website link to access the report.
The Fund also offers shareholders the option to receive all notices, account statements, prospectuses, tax forms, and shareholder reports online. To sign up for eDelivery or change your delivery preference, please visit www.hennessyfunds.com/account.
To elect to receive paper copies of all future reports free of charge, please call U.S. Bank Global Fund Services at 1-800-261-6950 or 1-414-765-4124.
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Liquidity Risk Management Program
In accordance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), we have adopted and implemented a liquidity risk management program (the “Liquidity Program”). The purpose of the Liquidity Program is to assess and manage the Fund’s liquidity risk, which is the risk that the Fund would not be able to meet requests to redeem Fund shares without significant dilution of the remaining shareholders’ interests in the Fund. The Board of Trustees of the Fund (the “Board”) designated a committee comprising representatives of Hennessy Advisors, Inc., the investment adviser to the Fund, as the administrator of the Liquidity Program (the “Program Administrator”).
The Program Administrator provided a written report regarding the Liquidity Program to the Board in advance of its meeting on June 2, 2021. The report covered the period from June 1, 2020, through May 31, 2021. The report addressed the operation of the Liquidity Program, assessed the adequacy and effectiveness of its implementation, and described any material changes to the Liquidity Program during the review period. The Trust’s chief compliance officer presented the report to the Board at the meeting and provided additional information regarding the Liquidity Program. The Board reviewed the Liquidity Program and considered, among other items, the following:
| | 1. | The Program Administrator reviewed daily historical net redemption activity during the review period and during prior periods with higher-than-average redemption activity and concluded that the Fund has historically been able to meet requests to redeem Fund shares without significant dilution to the Fund’s remaining shareholders, and the Program Administrator expects the Fund to be able to continue to do so in the future during both normal and reasonably foreseeable stressed conditions. |
| | | |
| | 2. | The Fund holds assets that are highly liquid investments and is therefore not required to establish a highly liquid investment minimum for the Fund or adopt policies and procedures for responding to a highly liquid investment minimum shortfall. |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | 3. | The Program Administrator did not make any material changes to the Liquidity Program during the review period and did not recommend any changes to the Liquidity Program or the model inputs used to determine the liquidity classification of each security held by the Fund. |
| | | |
| | 4. | The Program Administrator concluded that the Liquidity Program was reasonably designed to assess and manage the Fund’s liquidity risk, complies with the requirements of the Liquidity Rule, and was operating as intended during the review period. |
Privacy Policy
We collect the following personal information about you:
| | 1. | Information we receive from you 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; |
| | | |
| | 2. | Information about your transactions with us, our affiliates, or others, including, but not limited to, your account number and balance, payments history, parties to transactions, cost basis information, and other financial information; and |
| | | |
| | 3. | Other personal information we collect from various sources, even if you have not entered into a prior transaction with us, including the following: |
| | • | Name, alias, address, unique personal identifier, online identifier, IP address, email address, telephone number, account name, and other similar identifiers; |
| | | |
| | • | Age and marital status; |
| | | |
| | • | Commercial information, including records of products purchased; |
| | | |
| | • | Browsing history, search history, and information on interaction with our website; |
| | | |
| | • | Geolocation data; |
| | | |
| | • | Employment and employment history, educational history, financial information, and purchasing and consuming histories or tendencies; and |
| | | |
| | • | Inferences drawn from the above-listed information to create a profile about your preferences, characteristics, predispositions, and behavior. |
We collect this information directly from you, indirectly in the course of providing services to you, directly and indirectly from your activity on our website, from broker dealers, marketing agencies, and other third parties that interact with us in connection with the services we perform and products we offer, and from anonymized and aggregated consumer information.
We use this information to fulfill the reason you provided the information to us, to provide you with other relevant products that you request from us, to provide you with information about products that may interest you, to improve our website or present our website’s contents to you, and as otherwise described to you when collecting your personal information.
We do not disclose any personal information to unaffiliated third parties, except as permitted by law. We may disclose your personal information to our affiliates, vendors, and service providers for a business purpose. 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. When disclosing your personal information to third parties,
| LIQUIDITY RISK MANAGEMENT PROGRAM — PRIVACY POLICY |
we enter into a contract with each third party describing the purpose of such disclosure and requiring that such personal information be kept confidential and not used for any purpose except to perform the services contracted or respond to regulatory or law enforcement requests.
Furthermore, we restrict access to your personal information to those persons who require such information to provide products or services to you. As a result, we do not provide a means for opting out of our limited sharing of your information. We maintain physical, electronic, and procedural safeguards that comply with federal standards to guard your personal information.
If you hold shares of the Funds through a financial intermediary, including, but not limited to, a broker-dealer, bank, or trust company, the privacy policy of your financial intermediary governs how your personal information is shared with unaffiliated third parties.
Supplemental Privacy Notice for Residents of California
The California Consumer Privacy Act of 2018 (the “CCPA”) provides you, as a California resident, with certain additional rights relating to your personal information.
Under the CCPA, you have the right to request that we disclose to you the categories of personal information we have collected about you over the past 12 months, the categories of sources of such information, our business purpose for collecting the information, the categories of third parties, if any, with whom we shared the information, and the specific information we have collected about you. You also have the right to request that we delete any of your personal information, and, unless an exception applies, we will delete such information upon receiving and confirming your request. To make a request, call us at 1-800-966-4354, email us at privacy@hennessyfunds.com, or go to www.hennessyfunds.com/contact. We will not discriminate against you for exercising your rights under the CCPA. Further, we will not collect additional categories of your personal information or use the personal information we collected for materially different, unrelated, or incompatible purposes without providing you notice.
| HENNESSY FUNDS | 1-800-966-4354 | |
(This Page Intentionally Left Blank.)
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 Boulevard, Suite 200
Novato, California 94945
ADMINISTRATOR,
TRANSFER AGENT,
DIVIDEND PAYING AGENT, &
SHAREHOLDER SERVICING AGENT
U.S. Bancorp Fund Services, LLC
d/b/a U.S. Bank Global Fund Services
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
CUSTODIAN
U.S. Bank N.A.
Custody Operations
1555 North River Center Drive, Suite 302
Milwaukee, Wisconsin 53212
TRUSTEES
Neil J. Hennessy
Robert T. Doyle
J. Dennis DeSousa
Claire Garvie
Gerald P. Richardson
COUNSEL
Foley & Lardner LLP
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-5306
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Tait, Weller & Baker LLP
Two Liberty Place
50 South 16th Street, Suite 2900
Philadelphia, Pennsylvania 19102-2529
DISTRIBUTOR
Quasar Distributors, LLC
111 East Kilbourn Avenue, Suite 2200
Milwaukee, Wisconsin 53202
www.hennessyfunds.com | 1-800-966-4354
This report has been prepared for shareholders and may be distributed to
others only if preceded or accompanied by a current prospectus.
ANNUAL REPORT
OCTOBER 31, 2021
HENNESSY JAPAN SMALL CAP FUND
Investor Class HJPSX
Institutional Class HJSIX
www.hennessyfunds.com | 1-800-966-4354
(This Page Intentionally Left Blank.)
Contents
| Letter to Shareholders | 2 |
| Performance Overview | 4 |
| Financial Statements | |
| Schedule of Investments | 7 |
| Statement of Assets and Liabilities | 12 |
| Statement of Operations | 13 |
| Statements of Changes in Net Assets | 15 |
| Financial Highlights | 16 |
| Notes to the Financial Statements | 20 |
| Report of Independent Registered Public Accounting Firm | 28 |
| Trustees and Officers of the Fund | 29 |
| Expense Example | 32 |
| Proxy Voting Policy and Proxy Voting Records | 34 |
| Availability of Quarterly Portfolio Schedule | 34 |
| Federal Tax Distribution Information | 34 |
| Important Notice Regarding Delivery of Shareholder Documents | 34 |
| Electronic Delivery | 35 |
| Liquidity Risk Management Program | 35 |
| Privacy Policy | 36 |
| HENNESSY FUNDS | 1-800-966-4354 | |
November 2021
Dear Hennessy Funds Shareholder:
The Japanese stock market gained 18.62% as measured by the Tokyo Stock Price Index (TOPIX) over the 12-month period ended October 31, 2021 (in U.S. dollar terms).
While progress in vaccine administration and the broader global economic recovery supported the Japanese stock market throughout the period, concerns about rising interest rates in line with global inflation and waves of COVID-19 infections weighed down the market. Overall, small-cap and mid-cap stocks underperformed large-cap stocks, with large-cap stocks continuing to drive market performance partly due to the slower recovery of domestic demand in Japan compared to other countries.
Inflation has been a buzzword since the start of 2021. In our April 2021 shareholder letter, we commented that it was hard to imagine inflation taking hold in our domestic economy at that point in time. However, over the past several months, various supply issues have been compounding like never before, including supply chain disruptions, semiconductor shortages, energy and commodity price increases, labor inflation triggered by worker shortages, sharply increased employee safety costs to protect against COVID-19, and wage pressure due to workers’ strikes. Of these factors, wage pressure is a particularly concerning trend. If history is any guide, once inflation starts to accelerate, real wages erode, giving rise to worker protests in the hope of higher pay. These costs, in turn, get passed on to the prices of final products and services, further curbing real wage growth. Workers are left dissatisfied and demand additional pay increases, continuing the vicious cycle.
We also believe that the ongoing trend towards Environmental, Social, and Governance investing along with various environmental protection initiatives on a global scale adds to long-term inflationary pressure, as these activities inevitably increase the costs of doing business. At the same time as companies are becoming increasingly concerned about the environment and human rights, supply constraints are occurring, raising material prices and electricity and gas prices. Consequently, even as prices rise, market mechanisms struggle to encourage suppliers to increase their capacity, which could mean that the supply shortage may persist for some time.
While we do not make investment decisions based solely on economic forecasts, price trends significantly impact corporate fundamentals. As a result, we remain mindful of long-term inflation scenarios when conducting our research. For example, we look to invest in companies that we believe are capable of adequately coping with changing conditions and to avoid investing in companies where we believe a sharp rise in prices might lead to significant deterioration in business performance. Specifically, we focus on whether a company has a high profit margin, whether a rise in procurement prices will immediately lead to a loss, and whether the company can pass on a rise in procurement prices to sales prices through its strength in price negotiations.
With the vaccination progress so far, the number of people testing positive for COVID-19 has plummeted, leading to the lifting of the state of emergency and fueling expectations for future economic recovery in Japan. The end of the Japanese House of Representatives election, which previously was a source of uncertainty, and the Liberal Democratic Party (LDP) maintaining a stable majority have brought a sense of stability back to the stock market. We believe that the market will continue to perform well
through the end of calendar year 2021. On the one hand, risks include concerns about a failing Chinese economy, the continued rise in oil and other commodity prices, and rising overseas interest rates. On the other hand, the high savings rate over the past two years suggests that there is much room for recovery, especially in domestic consumption. We remain optimistic about the long-term prospects for Japan and its stock market.
Thank you for your continued confidence and investment in the Hennessy Funds.
Sincerely,
| |
| Tadahiro Fujimura | Masakazu Takeda |
| Portfolio Manager, | Portfolio Manager, |
| Hennessy Japan Small Cap Fund; | Hennessy Japan Fund; |
| Chief Investment Officer | Fund Manager |
| SPARX Asset Management Co., Ltd. | SPARX Asset Management Co., Ltd. |
SPARX Asset Management Co., Ltd., located in Tokyo, Japan, is the sub-advisor to the Hennessy Japan Fund and the Hennessy Japan Small Cap Fund.
Past performance does not guarantee future results.
Mutual fund investing involves risk. Principal loss is possible.
Opinions expressed are those of Tadahiro Fujimura and Masakazu Takeda and are subject to change, are not guaranteed, and should not be considered investment advice.
The Tokyo Stock Price Index (TOPIX) is a capitalization-weighted index of all of the companies listed on the First Section of the Tokyo Stock Exchange. The index is used herein for comparative purposes in accordance with SEC regulations. One cannot invest directly in an index.
| HENNESSY FUNDS | 1-800-966-4354 | |
Performance Overview (Unaudited)
CHANGE IN VALUE OF $10,000 INVESTMENT
This graph illustrates the performance of an initial investment of $10,000 made in the Fund 10 years ago and assumes the reinvestment of dividends and capital gains.
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED OCTOBER 31, 2021
| | | One | Five | Ten |
| | | Year
| Years
| Years
|
| | Hennessy Japan Small Cap Fund – | | | |
| | Investor Class (HJPSX) | 15.46% | 11.89% | 13.64% |
| | Hennessy Japan Small Cap Fund – | | | |
| | Institutional Class (HJSIX)(1) | 15.90% | 12.32% | 13.90% |
| | Russell/Nomura Small CapTM Index | 11.80% | 6.37% | 8.69% |
| | Tokyo Stock Price Index (TOPIX) | 18.62% | 8.18% | 8.32% |
Expense ratios: 1.55% (Investor Class); 1.13% (Institutional Class)
(1) | The inception date of Institutional Class shares is June 15, 2015. Performance shown prior to the inception of Institutional Class shares reflects the performance of Investor Class shares and includes expenses that are not applicable to, and are higher than, those of Institutional Class shares. |
Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The performance table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 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 Russell/Nomura Small Cap™ Index contains the bottom 15% of the Russell/Nomura Total Market™ Index based on market capitalization. The Tokyo Stock Price Index (TOPIX) is a capitalization- weighted index of all of the companies listed on the First Section of the Tokyo Stock Exchange. One cannot invest directly in an index. These indices are used for comparative purposes in accordance with Securities and Exchange Commission regulations.
Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes or Russell ratings or underlying data and no party may rely on any
Russell Indexes or Russell ratings or underlying data contained in this communication. No further distribution of Russell data is permitted without Russell’s express written consent. Russell does not promote, sponsor, or endorse the content of this communication.
The expense ratios presented are from the most recent prospectus. The expense ratios for the current reporting period are available in the Financial Highlights section of this report.
PERFORMANCE NARRATIVE
Portfolio Managers Tadahiro Fujimura, CFA and CMA*, and Takenari Okumura, CMA*
SPARX Asset Management Co., Ltd. (sub-advisor)
Performance:
For the one-year period ended October 31, 2021, the Investor Class of the Hennessy Japan Small Cap Fund returned 15.46%, outperforming the Russell/Nomura Small Cap™ Index (the Fund’s primary benchmark), which returned 11.80%, but underperforming the Tokyo Stock Price Index (TOPIX), which returned 18.62%, for the same period in U.S. dollar terms.
While progress in vaccine administration and economic recovery supported the Japanese stock market throughout the one-year period ended October 31, 2021, concerns about rising interest rates in line with global inflation and waves of COVID-19 infections also weighed down the overall market. The market rallied in September based on the expectation of favorable governmental policy following Prime Minister Suga’s resignation. Small-cap and mid-cap stocks underperformed large-cap stocks, as large-cap stocks continued to be dragged down due to slower recovery of domestic demand in Japan compared to other countries.
In terms of individual stocks, the share price of Benefit One, Inc., an employee benefits outsourcing contractor, rose due to additional revenue from vaccinations and other services, driving robust performance and increased growth expectations from new services. Automotive parts manufacturer Musashi Seimitsu Industry Co., Ltd. saw its share price rise due to expectations for future growth in the electric vehicle parts business. Additionally, recycler and biomass power plant operator Takeei Corporation (predecessor in interest to TRE Holdings Corp.) also saw its share price rise based on market expectations of synergistic effects from the firm’s merger with a competitor.
One of the stocks that detracted most from Fund performance was personal computer and smartphone accessory seller Elecom Co., Ltd. The company’s share price dropped due to concerns about its ability to build on the significant growth it experienced under last year’s telecommuting boom. Internet-based life insurance provider Lifenet Insurance Company also saw its share price decline in response to profit taking following significant gains due to robust internet sales amid the COVID-19 pandemic. Housing loan service provider Aruhi Corporation performed poorly in reaction to slowing growth expectations.
The Fund continues to hold all the companies mentioned.
Portfolio Strategy and Investment Commentary:
Concerns about rising interest rates, which had been on an uptick, have calmed as tapering efforts have come into play. Inflationary pressures hitting a peak has also had a positive impact on the market. Nevertheless, the slow economic recovery from COVID-19 in China and the United States has added new fuel to stoke market fears. Meanwhile, domestic demand in Japan is on track to recover after suffering from new waves of COVID-19 infections and delays in construction due to hosting the Olympics. However, Japan’s room
| HENNESSY FUNDS | 1-800-966-4354 | |
for recovery appears higher than that of other countries. Under these circumstances, the Japanese stock market could very well undergo a partial correction toward the end of the calendar year, triggered by the establishment of a new administration, and due to sentiments that the market is undervalued and offers more stability compared to other countries. We believe that many small-cap and mid-cap domestic-demand stocks and cyclicals are undervalued and have plenty of room for share price increases.
_______________
* Chartered Member of the Security Analysts Association of Japan
Opinions expressed are those of the Portfolio Managers as of the date written and are subject to change, are not guaranteed, and should not be considered investment advice or an indication of trading intent.
The Fund invests in small-capitalization and medium-capitalization companies, which may have more limited liquidity and greater price volatility than large-capitalization companies. The Fund invests in the stocks of companies operating in Japan; single-country funds may be subject to a higher degree of risk. The Fund may experience higher fees due to investments in pooled investment vehicles (including ETFs). Please see the Fund’s prospectus for a more complete discussion of these and other risks.
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 Schedule of Investments included in this report for additional portfolio information.
| PERFORMANCE OVERVIEW/SCHEDULE OF INVESTMENTS |
Financial Statements
Schedule of Investments as of October 31, 2021 |
HENNESSY JAPAN SMALL CAP FUND
(% of Net Assets)
| TOP TEN HOLDINGS (EXCLUDING MONEY MARKET FUNDS) | % NET ASSETS |
| TRE Holdings Corp. | 2.58% |
| Benefit One, Inc. | 2.27% |
| SBS Holdings, Inc. | 2.14% |
| Nippon Koei Co., Ltd. | 2.11% |
| MIRAIT Holdings Corp. | 2.09% |
| Saizeriya Co., Ltd. | 2.08% |
| Digital Garage, Inc. | 2.06% |
| Nishimoto Co., Ltd. | 2.05% |
| Iwatani Corp. | 2.00% |
| Hito Communications Holdings, Inc. | 1.99% |
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, as amended, the Fund uses more specific industry classifications.
The Global Industry Classification Standard (GICS®) was developed by and is the exclusive property and a service mark of MSCI, Inc. and Standard & Poor’s Financial Services LLC. It has been licensed for use by the Hennessy Funds.
| HENNESSY FUNDS | 1-800-966-4354 | |
| COMMON STOCKS – 93.45% | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Communication Services – 1.46% | | | | | | | | | |
| Septeni Holdings Co., Ltd. | | | 390,200 | | | $ | 1,646,823 | | | | 1.46 | % |
| | | | | | | | | | | | | |
| Consumer Discretionary – 11.03% | | | | | | | | | | | | |
| Benesse Holdings, Inc. | | | 70,000 | | | | 1,601,473 | | | | 1.42 | % |
| Matsuoka Corp. | | | 57,900 | | | | 695,296 | | | | 0.62 | % |
| Musashi Seimitsu Industry Co., Ltd. | | | 112,700 | | | | 2,121,139 | | | | 1.88 | % |
| NGK Spark Plug Co., Ltd. | | | 98,500 | | | | 1,573,538 | | | | 1.40 | % |
| Nojima Corp. | | | 52,300 | | | | 1,146,993 | | | | 1.02 | % |
| Sac’s Bar Holdings, Inc. | | | 165,700 | | | | 801,805 | | | | 0.71 | % |
| Saizeriya Co., Ltd. | | | 87,000 | | | | 2,348,444 | | | | 2.08 | % |
| Seiren Co., Ltd. | | | 106,400 | | | | 2,147,396 | | | | 1.90 | % |
| | | | | | | | 12,436,084 | | | | 11.03 | % |
| | | | | | | | | | | | | |
| Consumer Staples – 4.16% | | | | | | | | | | | | |
| Cosmos Pharmaceutical Corp. | | | 10,200 | | | | 1,558,735 | | | | 1.38 | % |
| Nishimoto Co., Ltd. | | | 61,700 | | | | 2,304,415 | | | | 2.05 | % |
| Yoshimura Food Holdings KK (a) | | | 118,900 | | | | 822,530 | | | | 0.73 | % |
| | | | | | | | 4,685,680 | | | | 4.16 | % |
| | | | | | | | | | | | | |
| Energy – 2.00% | | | | | | | | | | | | |
| Iwatani Corp. | | | 38,100 | | | | 2,250,393 | | | | 2.00 | % |
| | | | | | | | | | | | | |
| Financials – 4.09% | | | | | | | | | | | | |
| AEON Financial Service Co., Ltd. | | | 110,500 | | | | 1,403,917 | | | | 1.25 | % |
| Aruhi Corp. | | | 60,600 | | | | 702,575 | | | | 0.62 | % |
| Lifenet Insurance Co. (a) | | | 82,200 | | | | 818,845 | | | | 0.73 | % |
| Musashino Bank Ltd. | | | 107,000 | | | | 1,680,733 | | | | 1.49 | % |
| | | | | | | | 4,606,070 | | | | 4.09 | % |
| | | | | | | | | | | | | |
| Health Care – 3.89% | | | | | | | | | | | | |
| Nihon Kohden Corp. | | | 69,700 | | | | 2,217,803 | | | | 1.97 | % |
| Ship Healthcare Holdings, Inc. | | | 82,500 | | | | 2,166,975 | | | | 1.92 | % |
| | | | | | | | 4,384,778 | | | | 3.89 | % |
| | | | | | | | | | | | | |
| Industrials – 36.02% | | | | | | | | | | | | |
| Benefit One, Inc. | | | 50,800 | | | | 2,563,702 | | | | 2.27 | % |
| Creek & River Co., Ltd. | | | 117,100 | | | | 2,022,318 | | | | 1.79 | % |
| Daihen Corp. | | | 40,900 | | | | 1,707,224 | | | | 1.52 | % |
| Fugi Corp. | | | 70,700 | | | | 1,649,153 | | | | 1.46 | % |
| Glory Ltd. | | | 52,400 | | | | 1,127,924 | | | | 1.00 | % |
The accompanying notes are an integral part of these financial statements.
| COMMON STOCKS | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Industrials (Continued) | | | | | | | | | |
| Hanwa Co., Ltd. | | | 74,200 | | | $ | 2,228,860 | | | | 1.98 | % |
| Hito Communications Holdings, Inc. | | | 116,000 | | | | 2,241,773 | | | | 1.99 | % |
| Kawada Technologies, Inc. | | | 15,000 | | | | 518,623 | | | | 0.46 | % |
| Kito Corp. | | | 131,700 | | | | 1,824,979 | | | | 1.62 | % |
| METAWATER Co., Ltd. | | | 1,100 | | | | 18,613 | | | | 0.02 | % |
| MIRAIT Holdings Corp. | | | 122,700 | | | | 2,359,856 | | | | 2.09 | % |
| Mitsubishi Logisnext Co., Ltd. | | | 200,900 | | | | 1,847,539 | | | | 1.64 | % |
| Nichiha Corp. | | | 52,700 | | | | 1,514,954 | | | | 1.34 | % |
| Nihon Flush Co., Ltd. | | | 59,900 | | | | 568,398 | | | | 0.50 | % |
| Nippon Koei Co., Ltd. | | | 78,200 | | | | 2,375,077 | | | | 2.11 | % |
| Sato Holdings Corp. | | | 96,600 | | | | 2,226,601 | | | | 1.98 | % |
| SBS Holdings, Inc. | | | 67,900 | | | | 2,415,773 | | | | 2.14 | % |
| Senko Group Holdings Co., Ltd. | | | 211,200 | | | | 1,878,547 | | | | 1.67 | % |
| Tadano Ltd. | | | 100,000 | | | | 1,092,007 | | | | 0.97 | % |
| Tanseisha Co., Ltd. | | | 203,900 | | | | 1,672,087 | | | | 1.48 | % |
| Tocalo Co., Ltd. | | | 150,700 | | | | 1,848,011 | | | | 1.64 | % |
| TRE Holdings Corp. (a) | | | 184,900 | | | | 2,907,136 | | | | 2.58 | % |
| Tsubakimoto Chain Co. | | | 32,400 | | | | 957,334 | | | | 0.85 | % |
| Ushio, Inc. | | | 58,000 | | | | 1,037,643 | | | | 0.92 | % |
| | | | | | | | 40,604,132 | | | | 36.02 | % |
| | | | | | | | | | | | | |
| Information Technology – 18.86% | | | | | | | | | | | | |
| Bell System24 Holdings, Inc. | | | 94,000 | | | | 1,207,669 | | | | 1.07 | % |
| Digital Garage, Inc. | | | 49,600 | | | | 2,317,015 | | | | 2.06 | % |
| Elecom Co., Ltd. | | | 108,900 | | | | 1,665,689 | | | | 1.48 | % |
| Macnica Fuji Electronics Holdings, Inc. | | | 77,200 | | | | 1,814,947 | | | | 1.61 | % |
| Mimaki Engineering Co., Ltd. | | | 271,500 | | | | 2,220,428 | | | | 1.97 | % |
| Nihon Unisys Ltd. | | | 70,800 | | | | 1,989,252 | | | | 1.76 | % |
| Nippon Signal Company, Ltd. | | | 155,000 | | | | 1,340,355 | | | | 1.19 | % |
| Poletowin Pitcrew Holdings, Inc. | | | 140,300 | | | | 1,265,044 | | | | 1.12 | % |
| SIIX Corp. | | | 128,500 | | | | 1,423,516 | | | | 1.26 | % |
| Towa Corp. | | | 82,800 | | | | 1,803,397 | | | | 1.60 | % |
| Transcosmos, Inc. | | | 71,100 | | | | 2,143,816 | | | | 1.90 | % |
| Yamaichi Electronics Co., Ltd. | | | 135,000 | | | | 2,072,641 | | | | 1.84 | % |
| | | | | | | | 21,263,769 | | | | 18.86 | % |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
| COMMON STOCKS | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Materials – 7.89% | | | | | | | | | |
| Asia Pile Holdings Corp. | | | 400,700 | | | $ | 1,630,524 | | | | 1.44 | % |
| Kyoei Steel Ltd. | | | 133,200 | | | | 1,643,545 | | | | 1.46 | % |
| Rengo Co., Ltd. | | | 224,100 | | | | 1,699,379 | | | | 1.51 | % |
| Sanyo Chemical Industries Ltd. | | | 45,000 | | | | 2,228,164 | | | | 1.98 | % |
| Tokyo Ohka Kogyo Co., Ltd. | | | 26,700 | | | | 1,697,437 | | | | 1.50 | % |
| | | | | | | | 8,899,049 | | | | 7.89 | % |
| | | | | | | | | | | | | |
| Real Estate – 2.88% | | | | | | | | | | | | |
| Star Mica Holdings Co., Ltd. | | | 144,100 | | | | 1,907,299 | | | | 1.69 | % |
| Tosei Corp. | | | 138,700 | | | | 1,333,294 | | | | 1.19 | % |
| | | | | | | | 3,240,593 | | | | 2.88 | % |
| | | | | | | | | | | | | |
| Utilities – 1.17% | | | | | | | | | | | | |
| EF-ON, Inc. | | | 179,900 | | | | 1,316,670 | | | | 1.17 | % |
| | | | | | | | | | | | | |
| Total Common Stocks | | | | | | | | | | | | |
| (Cost $87,615,398) | | | | | | | 105,334,041 | | | | 93.45 | % |
| | | | | | | | | | | | | |
| SHORT-TERM INVESTMENTS – 9.29% | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Money Market Funds – 9.29% | | | | | | | | | | | | |
| First American Government Obligations Fund, | | | | | | | | | | | | |
| Institutional Class, 0.03% (b) | | | 5,586,000 | | | | 5,586,000 | | | | 4.95 | % |
| First American Treasury Obligations Fund, | | | | | | | | | | | | |
| Institutional Class, 0.01% (b) | | | 4,890,808 | | | | 4,890,808 | | | | 4.34 | % |
| | | | | | | | 10,476,808 | | | | 9.29 | % |
| | | | | | | | | | | | | |
| Total Short-Term Investments | | | | | | | | | | | | |
| (Cost $10,476,808) | | | | | | | 10,476,808 | | | | 9.29 | % |
| | | | | | | | | | | | | |
| Total Investments | | | | | | | | | | | | |
| (Cost $98,092,206) – 102.74% | | | | | | | 115,810,849 | | | | 102.74 | % |
| Liabilities in Excess of Other Assets – (2.74)% | | | | | | | (3,083,709 | ) | | | (2.74 | )% |
| | | | | | | | | | | | | |
TOTAL NET ASSETS – 100.00% | | | | | | $ | 112,727,140 | | | | 100.00 | % |
Percentages are stated as a percent of net assets.
| (a) | Non-income-producing security. |
| (b) | The rate listed is the fund’s seven-day yield as of October 31, 2021. |
The accompanying notes are an integral part of these financial statements.
Summary of Fair Value Exposure as of October 31, 2021
The following is a summary of the inputs used to value the Fund’s net assets as of October 31, 2021 (see Note 3 in the accompanying Notes to the Financial Statements):
| Common Stocks | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Communication Services | | $ | — | | | $ | 1,646,823 | | | $ | — | | | $ | 1,646,823 | |
| Consumer Discretionary | | | — | | | | 12,436,084 | | | | — | | | | 12,436,084 | |
| Consumer Staples | | | — | | | | 4,685,680 | | | | — | | | | 4,685,680 | |
| Energy | | | — | | | | 2,250,393 | | | | — | | | | 2,250,393 | |
| Financials | | | — | | | | 4,606,070 | | | | — | | | | 4,606,070 | |
| Health Care | | | — | | | | 4,384,778 | | | | — | | | | 4,384,778 | |
| Industrials | | | 2,907,136 | | | | 37,696,996 | | | | — | | | | 40,604,132 | |
| Information Technology | | | — | | | | 21,263,769 | | | | — | | | | 21,263,769 | |
| Materials | | | — | | | | 8,899,049 | | | | — | | | | 8,899,049 | |
| Real Estate | | | — | | | | 3,240,593 | | | | — | | | | 3,240,593 | |
| Utilities | | | — | | | | 1,316,670 | | | | — | | | | 1,316,670 | |
| Total Common Stocks | | $ | 2,907,136 | | | $ | 102,426,905 | | | $ | — | | | $ | 105,334,041 | |
| Short-Term Investments | | | | | | | | | | | | | | | | |
| Money Market Funds | | $ | 10,476,808 | | | $ | — | | | $ | — | | | $ | 10,476,808 | |
| Total Short-Term Investments | | $ | 10,476,808 | | | $ | — | | | $ | — | | | $ | 10,476,808 | |
| Total Investments | | $ | 13,383,944 | | | $ | 102,426,905 | | | $ | — | | | $ | 115,810,849 | |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
Statement of Assets and Liabilities as of October 31, 2021 |
| ASSETS: | | | |
| Investments in securities, at value (cost $98,092,206) | | $ | 115,810,849 | |
| Dividends and interest receivable | | | 635,534 | |
| Receivable for fund shares sold | | | 1,020,763 | |
| Receivable for securities sold | | | 346,149 | |
| Prepaid expenses and other assets | | | 2,005 | |
| Total assets | | | 117,815,300 | |
| | | | | |
| LIABILITIES: | | | | |
| Payable for securities purchased | | | 4,884,542 | |
| Payable for fund shares redeemed | | | 36,215 | |
| Payable to advisor | | | 73,182 | |
| Payable to administrator | | | 31,919 | |
| Payable to auditor | | | 22,556 | |
| Accrued distribution fees | | | 10,426 | |
| Accrued service fees | | | 3,915 | |
| Accrued trustees fees | | | 6,593 | |
| Accrued expenses and other payables | | | 18,812 | |
| Total liabilities | | | 5,088,160 | |
| NET ASSETS | | $ | 112,727,140 | |
| | | | | |
| NET ASSETS CONSISTS OF: | | | | |
| Capital stock | | $ | 94,337,513 | |
| Total distributable earnings | | | 18,389,627 | |
| Total net assets | | $ | 112,727,140 | |
| | | | | |
| NET ASSETS: | | | | |
| Investor Class | | | | |
| Shares authorized (no par value) | | Unlimited | |
| Net assets applicable to outstanding shares | | $ | 46,145,878 | |
| Shares issued and outstanding | | | 2,547,196 | |
| Net asset value, offering price, and redemption price per share | | $ | 18.12 | |
| | | | | |
| Institutional Class | | | | |
| Shares authorized (no par value) | | Unlimited | |
| Net assets applicable to outstanding shares | | $ | 66,581,262 | |
| Shares issued and outstanding | | | 3,710,895 | |
| Net asset value, offering price, and redemption price per share | | $ | 17.94 | |
The accompanying notes are an integral part of these financial statements.
| STATEMENT OF ASSETS AND LIABILITIES/STATEMENT OF OPERATIONS |
Financial Statements
Statement of Operations for the year ended October 31, 2021 |
| INVESTMENT INCOME: | | | |
Dividend income(1) | | $ | 1,707,157 | |
| Interest income | | | 1,692 | |
| Total investment income | | | 1,708,849 | |
| | | | | |
| EXPENSES: | | | | |
| Investment advisory fees (See Note 5) | | | 792,514 | |
| Sub-transfer agent expenses – Investor Class (See Note 5) | | | 113,419 | |
| Sub-transfer agent expenses – Institutional Class (See Note 5) | | | 39,512 | |
| Administration, accounting, custody, and transfer agent fees (See Note 5) | | | 119,757 | |
| Distribution fees – Investor Class (See Note 5) | | | 74,773 | |
| Service fees – Investor Class (See Note 5) | | | 49,849 | |
| Federal and state registration fees | | | 29,498 | |
| Compliance expense (See Note 5) | | | 27,448 | |
| Audit fees | | | 22,556 | |
| Trustees’ fees and expenses | | | 19,012 | |
| Reports to shareholders | | | 12,824 | |
| Legal fees | | | 1,624 | |
| Other expenses | | | 13,375 | |
| Total expenses | | | 1,316,161 | |
| NET INVESTMENT INCOME | | $ | 392,688 | |
| | | | | |
| REALIZED AND UNREALIZED GAINS (LOSSES): | | | | |
| Net realized gain on investments | | $ | 1,288,362 | |
| Net change in unrealized appreciation/depreciation on investments | | | 10,917,876 | |
| Net gain on investments | | | 12,206,238 | |
| NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | | $ | 12,598,926 | |
(1) | Net of foreign taxes withheld of $189,684. |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
(This Page Intentionally Left Blank.)
| STATEMENTS OF CHANGES IN NET ASSETS |
Financial Statements
| Statements of Changes in Net Assets |
| | | Year Ended | | | Year Ended | |
| | | October 31, 2021 | | | October 31, 2020 | |
| OPERATIONS: | | | | | | |
| Net investment income | | $ | 392,688 | | | $ | 250,103 | |
| Net realized gain on investments | | | 1,288,362 | | | | 4,449,101 | |
| Net change in unrealized | | | | | | | | |
| appreciation/depreciation on investments | | | 10,917,876 | | | | (6,227,200 | ) |
| Net increase (decrease) in net | | | | | | | | |
| assets resulting from operations | | | 12,598,926 | | �� | | (1,527,996 | ) |
| | | | | | | | | |
| DISTRIBUTIONS TO SHAREHOLDERS: | | | | | | | | |
| Distributable earnings – Investor Class | | | (121,856 | ) | | | (876,351 | ) |
| Distributable earnings – Institutional Class | | | (260,753 | ) | | | (1,083,137 | ) |
| Total distributions | | | (382,609 | ) | | | (1,959,488 | ) |
| | | | | | | | | |
| CAPITAL SHARE TRANSACTIONS: | | | | | | | | |
| Proceeds from shares subscribed – Investor Class | | | 10,823,523 | | | | 10,928,761 | |
| Proceeds from shares subscribed – Institutional Class | | | 45,926,109 | | | | 17,157,226 | |
| Dividends reinvested – Investor Class | | | 116,988 | | | | 843,742 | |
| Dividends reinvested – Institutional Class | | | 246,865 | | | | 990,566 | |
| Cost of shares redeemed – Investor Class | | | (18,166,242 | ) | | | (30,850,983 | ) |
| Cost of shares redeemed – Institutional Class | | | (19,434,438 | ) | | | (44,670,336 | ) |
| Net increase (decrease) in net assets | | | | | | | | |
| derived from capital share transactions | | | 19,512,805 | | | | (45,601,024 | ) |
| TOTAL INCREASE (DECREASE) IN NET ASSETS | | | 31,729,122 | | | | (49,088,508 | ) |
| | | | | | | | | |
| NET ASSETS: | | | | | | | | |
| Beginning of year | | | 80,998,018 | | | | 130,086,526 | |
| End of year | | $ | 112,727,140 | | | $ | 80,998,018 | |
| | | | | | | | | |
| CHANGES IN SHARES OUTSTANDING: | | | | | | | | |
| Shares sold – Investor Class | | | 607,997 | | | | 740,416 | |
| Shares sold – Institutional Class | | | 2,575,700 | | | | 1,237,542 | |
| Shares issued to holders as reinvestment | | | | | | | | |
| of dividends – Investor Class | | | 6,496 | | | | 52,999 | |
| Shares issued to holders as reinvestment | | | | | | | | |
| of dividends – Institutional Class | | | 13,885 | | | | 63,013 | |
| Shares redeemed – Investor Class | | | (1,018,588 | ) | | | (2,138,457 | ) |
| Shares redeemed – Institutional Class | | | (1,098,633 | ) | | | (3,253,564 | ) |
| Net increase (decrease) in shares outstanding | | | 1,086,857 | | | | (3,298,051 | ) |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
For an Investor Class share outstanding throughout each year
PER SHARE DATA:
Net asset value, beginning of year
Income from investment operations:
Net investment income
Net realized and unrealized gains on investments
Total from investment operations
Less distributions:
Dividends from net investment income
Dividends from net realized gains
Total distributions
Net asset value, end of year
TOTAL RETURN
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of year (millions)
Ratio of expenses to average net assets
Ratio of net investment income to average net assets
Portfolio turnover rate(2)
(1) | Calculated using the average shares outstanding method. |
(2) | Calculated on the basis of the Fund as a whole. |
The accompanying notes are an integral part of these financial statements.
| FINANCIAL HIGHLIGHTS — INVESTOR CLASS |
| Year Ended October 31, | |
| 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | | | | | | |
| $ | 15.73 | | | $ | 15.43 | | | $ | 14.99 | | | $ | 14.92 | | | $ | 11.29 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 0.03 | (1) | | | 0.01 | (1) | | | 0.03 | (1) | | | 0.05 | | | | 0.08 | |
| | 2.40 | | | | 0.50 | | | | 0.88 | | | | 0.35 | | | | 3.77 | |
| | 2.43 | | | | 0.51 | | | | 0.91 | | | | 0.40 | | | | 3.85 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | (0.04 | ) | | | (0.21 | ) | | | — | | | | (0.05 | ) | | | (0.12 | ) |
| | — | | | | — | | | | (0.47 | ) | | | (0.28 | ) | | | (0.10 | ) |
| | (0.04 | ) | | | (0.21 | ) | | | (0.47 | ) | | | (0.33 | ) | | | (0.22 | ) |
| $ | 18.12 | | | $ | 15.73 | | | $ | 15.43 | | | $ | 14.99 | | | $ | 14.92 | |
| | | | | | | | | | | | | | | | | | | |
| | 15.46 | % | | | 3.27 | % | | | 6.30 | % | | | 2.64 | % | | | 34.82 | % |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| $ | 46.15 | | | $ | 46.41 | | | $ | 66.30 | | | $ | 100.93 | | | $ | 69.86 | |
| | 1.53 | % | | | 1.55 | % | | | 1.52 | % | | | 1.46 | % | | | 1.60 | % |
| | 0.16 | % | | | 0.09 | % | | | 0.23 | % | | | 0.21 | % | | | 0.26 | % |
| | 24 | % | | | 17 | % | | | 21 | % | | | 35 | % | | | 41 | % |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
For an Institutional Class share outstanding throughout each year
PER SHARE DATA:
Net asset value, beginning of year
Income from investment operations:
Net investment income
Net realized and unrealized gains on investments
Total from investment operations
Less distributions:
Dividends from net investment income
Dividends from net realized gains
Total distributions
Net asset value, end of year
TOTAL RETURN
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of year (millions)
Ratio of expenses to average net assets
Ratio of net investment income to average net assets
Portfolio turnover rate(2)
(1) | Calculated using the average shares outstanding method. |
(2) | Calculated on the basis of the Fund as a whole. |
The accompanying notes are an integral part of these financial statements.
| FINANCIAL HIGHLIGHTS — INSTITUTIONAL CLASS |
| Year Ended October 31, | |
| 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | | | | | | |
| $ | 15.58 | | | $ | 15.28 | | | $ | 14.83 | | | $ | 14.72 | | | $ | 11.33 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 0.11 | (1) | | | 0.07 | (1) | | | 0.09 | (1) | | | 0.11 | | | | 0.05 | |
| | 2.37 | | | | 0.50 | | | | 0.86 | | | | 0.36 | | | | 3.78 | |
| | 2.48 | | | | 0.57 | | | | 0.95 | | | | 0.47 | | | | 3.83 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | (0.12 | ) | | | (0.27 | ) | | | (0.04 | ) | | | (0.08 | ) | | | (0.10 | ) |
| | — | | | | — | | | | (0.46 | ) | | | (0.28 | ) | | | (0.34 | ) |
| | (0.12 | ) | | | (0.27 | ) | | | (0.50 | ) | | | (0.36 | ) | | | (0.44 | ) |
| $ | 17.94 | | | $ | 15.58 | | | $ | 15.28 | | | $ | 14.83 | | | $ | 14.72 | |
| | | | | | | | | | | | | | | | | | | |
| | 15.90 | % | | | 3.69 | % | | | 6.73 | % | | | 3.12 | % | | | 35.17 | % |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| $ | 66.58 | | | $ | 34.58 | | | $ | 63.78 | | | $ | 98.42 | | | $ | 28.71 | |
| | 1.13 | % | | | 1.13 | % | | | 1.12 | % | | | 1.04 | % | | | 1.19 | % |
| | 0.63 | % | | | 0.45 | % | | | 0.61 | % | | | 0.77 | % | | | 0.80 | % |
| | 24 | % | | | 17 | % | | | 21 | % | | | 35 | % | | | 41 | % |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
Notes to the Financial Statements October 31, 2021 |
1). ORGANIZATION
The Hennessy Japan Small Cap Fund (the “Fund”) is a series of Hennessy Funds Trust (the “Trust”), which was organized as a Delaware statutory trust on September 17, 1992. The Fund is an open-end management investment company registered under the Investment Company Act of 1940, as amended. The investment objective of the Fund is long-term capital appreciation. The Fund is a diversified fund.
The Fund offers Investor Class and Institutional Class shares. Each class of shares differs principally in its respective 12b-1 distribution and service, shareholder servicing, and sub-transfer agent expenses. There are no sales charges. 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 one class.
As an investment company, the Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 “Financial Services—Investment Companies.”
2). SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of the financial statements. These policies conform to U.S. generally accepted accounting principles (“GAAP”).
| a). | Securities Valuation – All investments in securities are valued in accordance with the Fund’s valuation policies and procedures, as described in Note 3. |
| | |
| b). | Federal Income Taxes – The Fund has elected to be taxed as a regulated investment company and intends to distribute substantially all of its taxable income to its shareholders and otherwise comply with the provisions of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. As a result, the Fund has made no provision for federal income taxes or excise taxes. Net investment income/loss and realized gains/losses for federal income tax purposes may differ from those reported in the financial statements because of temporary book-basis and tax-basis differences. Temporary differences are primarily the result of the treatment of wash sales for tax reporting purposes. The Fund recognizes interest and penalties related to income tax benefits, if any, in the Statement of Operations as an income tax expense. 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. The Fund may utilize equalization accounting for tax purposes and designate earnings and profits, including net realized gains distributed to shareholders on redemption of shares, as part of the dividends paid deduction for income tax purposes. |
| | |
| | Due to inherent differences in the recognition of income, expenses, and realized gains/losses under GAAP and federal income tax regulations, permanent differences between book and tax basis for reporting are identified and appropriately reclassified in the Statement of Assets and Liabilities, as needed. The adjustments for fiscal year 2021 are as follows: |
| | Total | | |
| | Distributable | | |
| | Earnings
| Capital Stock | |
| | $(32,865) | $32,865 | |
| NOTES TO THE FINANCIAL STATEMENTS |
| c). | Accounting for Uncertainty in Income Taxes – The Fund has accounting policies regarding recognition and measurement of tax positions taken or expected to be taken on a tax return. The tax returns of the Fund for the prior three fiscal years are open for examination. The Fund has reviewed all open tax years in major tax jurisdictions and concluded that there is no impact on the Fund’s 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. The Fund’s major tax jurisdictions are U.S. federal and Delaware. |
| | |
| d). | Income and Expenses – Dividend income is recognized on the ex-dividend date or as soon as information is available to the Fund. Interest income, which includes the amortization of premium and accretion of discount, is recognized on an accrual basis. Market discounts, original issue discounts, and market premiums on debt securities are accreted or amortized to interest income over the life of a security with a corresponding increase or decrease, as applicable, in the cost basis of such security using the yield-to-maturity method or, where applicable, the first call date of the security. Other non-cash dividends are recognized as investment income at the fair value of the property received. The Fund is charged for those expenses that are directly attributable to its portfolio, such as advisory, administration, and certain shareholder service fees. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains/losses on investments are allocated to each class of shares based on such class’s net assets. |
| | |
| e). | Distributions to Shareholders – Dividends from net investment income for the Fund, if any, are declared and paid annually, usually in December. Distributions of net realized capital gains, if any, are declared and paid annually, usually in December. |
| | |
| f). | Security Transactions – Investment and shareholder transactions are recorded on the trade date. The Fund determines the realized gain/loss from an investment transaction by comparing the original cost of the security lot sold with the net sale proceeds. Discounts and premiums on securities purchased are accreted or amortized, respectively, over the life of each such security. |
| | |
| g). | Use of Estimates – Preparing financial statements in accordance 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, as well as the reported change in net assets during the reporting period. Actual results could differ from those estimates. |
| | |
| h). | Share Valuation – The net asset value (“NAV”) per share of the Fund is calculated by dividing (i) the total value of the securities held by the Fund, plus cash and other assets, minus all liabilities (including estimated accrued expenses) by (ii) the total number of Fund shares outstanding, rounded to the nearest $0.01. Fund shares are not priced on days the New York Stock Exchange is closed for trading. The offering and redemption price per share for the Fund is equal to the Fund’s NAV per share. |
| | |
| i). | Foreign Currency – Values of investments denominated in foreign currencies are converted into U.S. dollars using the spot market exchange rate at the time of valuation. Purchases and sales of investments and income are translated into U.S. dollars using the spot market exchange rate prevailing on the respective dates of such transactions. The Fund does not isolate the portion of the results of operations resulting from fluctuations in foreign exchange rates on investments from fluctuations resulting from changes in the market prices of securities held. Such fluctuations are included with the net realized and unrealized gain/loss on investments. Foreign investments present additional risks due to currency |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | fluctuations, economic and political factors, lower liquidity, government regulations, differences in accounting standards, and other factors. |
| | |
| j). | REIT Equity Securities – Distributions received from real estate investment trusts (“REITs”) may be classified as dividends, capital gains, or return of capital. Investments in REITs may require the Fund to accrue and distribute income not yet received. To generate sufficient cash to make any required distributions, the Fund may be required to sell securities in its portfolio (including when it is not advantageous to do so) that it otherwise would have continued to hold. At other times, investments in a REIT may result in the Fund’s receipt of cash in excess of the REIT’s earnings. If the Fund distributes these amounts, these distributions could constitute a return of capital to Fund shareholders for U.S. federal income tax purposes. Dividends received by the Fund from a REIT generally do not constitute qualified dividend income and do not qualify for the dividends-received deduction. |
| | |
| k). | Recent Accounting Pronouncements and Regulatory Updates – In October 2020, the Securities and Exchange Commission (“SEC”) adopted new regulations governing the use of derivatives by registered investment companies (“Rule 18f-4”). Rule 18f-4 imposes limits on the amount of derivatives a fund can enter into, eliminates the asset segregation framework currently used by funds to comply with Section 18 of the 1940 Act, and requires funds whose use of derivatives is greater than a limited specified amount to establish and maintain a comprehensive derivatives risk management program and appoint a derivatives risk manager. Funds are required to comply with Rule 18f-4 by August 19, 2022. The impact, if any, that Rule 18f-4 will have on the availability, liquidity, and performance of derivatives is unclear. Management is currently evaluating the potential impact of Rule 18f-4 on the Fund. When fully implemented, Rule 18f-4 may require changes in how the Fund uses derivatives, adversely affect the Fund’s performance, and increase costs related to the Fund’s use of derivatives. |
| | |
| | In December 2020, the SEC adopted a new rule providing a framework for fund valuation practices (“Rule 2a-5”). Rule 2a-5 establishes requirements for determining fair value in good faith for purposes of the 1940 Act. Rule 2a-5 permits fund boards to designate certain parties to perform fair value determinations, subject to board oversight and certain other conditions. Rule 2a-5 also defines when market quotations are “readily available” for purposes of the 1940 Act and the threshold for determining whether a fund must fair value a security. In connection with Rule 2a-5, the SEC also adopted related recordkeeping requirements and is rescinding previously issued guidance, including with respect to the role of a board in determining fair value and the accounting and auditing of fund investments. Funds must comply with the rules by September 8, 2022. Management is currently assessing the potential impact of the new rules on the Fund’s financial statements. |
3). SECURITIES VALUATION
The Fund follows its valuation policies and procedures in determining its net asset value and, in preparing these financial statements, the fair value accounting standards that 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 of changes in valuation techniques and related inputs during the period. These inputs are summarized in the three broad levels listed below:
| | Level 1 – | Unadjusted, quoted prices in active markets for identical instruments that the Fund has the ability to access at the date of measurement. |
| NOTES TO THE FINANCIAL STATEMENTS |
| | Level 2 – | Other significant observable inputs (including, but not limited to, quoted prices in active markets for similar instruments, quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets, such as interest rates, prepayment speeds, credit risk curves, default rates, and similar data). |
| | | |
| | Level 3 – | Significant unobservable inputs (including the Fund’s own assumptions about what market participants would use to price the asset or liability based on the best available information) when observable inputs are unavailable. |
The following is a description of the valuation techniques applied to the Fund’s major categories of assets and liabilities on a recurring basis:
| | Equity Securities – Equity securities, including common stocks, preferred stocks, foreign-issued common stocks, exchange-traded funds, closed-end mutual funds, partnerships, rights, and real estate investment trusts, that are traded on a securities exchange for which a last-quoted sales price is readily available generally are valued at the last sales price as reported by the primary exchange on which the securities are listed. Securities listed on The NASDAQ Stock Market (“NASDAQ”) generally are 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 generally are 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 classified in Level 1 of the fair value hierarchy. Securities traded on foreign exchanges generally are not valued at the same time the Fund calculates its NAV because most foreign markets close well before such time. The earlier close of most foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim. In certain circumstances, it may be determined that a foreign security needs to be fair valued because it appears that the value of the security might have been materially affected by events occurring after the close of the market in which the security is principally traded, but before the time the Fund calculates its NAV, such as by a development that affects an entire market or region (e.g., a weather-related event) or a potentially global development (e.g., a terrorist attack that may be expected to have an effect on investor expectations worldwide). |
| | |
| | Registered Investment Companies – Investments in open-end registered investment companies, commonly referred to as mutual funds, generally are priced at the ending NAV provided by the applicable mutual fund’s service agent and are classified in Level 1 of the fair value hierarchy. |
| | |
| | Debt Securities – Debt securities, including corporate bonds, asset-backed securities, mortgage-backed securities, municipal bonds, U.S. Treasuries, and U.S. government agency issues, are generally valued at market on the basis of valuations furnished by an independent pricing service that 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 observable market data, such as reported sales of similar securities, broker quotes, yields, bids, offers, and reference data. Certain securities are valued primarily using dealer quotations. These securities are generally classified in Level 2 of the fair value hierarchy. |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | Short-Term Securities – Short-term equity investments, including money market funds, are valued in the manner specified above for equity securities. Short-term debt investments with an original term to maturity of 60 days or less are valued at amortized cost, which approximates fair market value. If the original term to maturity of a short-term debt investment exceeds 60 days, then the values as of the 61st day prior to maturity are amortized. Amortized cost is not used if its use would be inappropriate due to credit or other impairments of the issuer, in which case the security’s fair value would be determined as described below. Short-term securities are generally classified in Level 1 or Level 2 of the fair value hierarchy depending on the inputs used and market activity levels for specific securities. |
The Board of Trustees of the Fund (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 considered in determining a fair value of a security, such as the trading volume of a security and markets, the values of other similar securities, and news events with direct bearing on a security or markets. Fair value pricing results in an estimated price for a security that reflects the amount the Fund might reasonably expect to receive in a current sale. 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 fair value 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. Using fair value pricing means that the Fund’s NAV reflects the affected portfolio securities’ values as determined by the Board or its designee, pursuant to the fair value pricing procedures adopted by the Board, instead of being determined by the market. Using a fair value pricing methodology to price a foreign security may result in a value that is different from such foreign security’s most recent closing price and from the value used by other investment companies to calculate their NAVs. Such securities are generally classified in Level 2 of the fair value hierarchy. Because the Fund invests in foreign securities, the value of the Fund’s portfolio securities may change on days when a shareholder is unable to purchase or redeem Fund shares.
The Board has delegated day-to-day valuation matters to the Valuation and Liquidity Committee comprising representatives from Hennessy Advisors, Inc., the Fund’s investment advisor (the “Advisor”). The function of the Valuation and Liquidity Committee, among other things, is to value securities where current and reliable market quotations are not readily available. All actions taken by the Valuation and Liquidity Committee are reviewed by the Board.
The Fund has performed an analysis of all existing investments to determine the significance and character of all inputs to their fair value determinations. Various inputs are used to determine the value of the 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 value hierarchy of the Fund’s securities as of October 31, 2021, are included in the Schedule of Investments.
4). INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding government and short-term investments) for the Fund during fiscal year 2021 were $35,461,189 and $21,652,979, respectively.
| NOTES TO THE FINANCIAL STATEMENTS |
There were no purchases or sales/maturities of long-term U.S. government securities for the Fund during fiscal year 2021.
5). INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Advisor provides the Fund with investment advisory services under an Investment Advisory Agreement. The Advisor oversees the provision of investment advice and furnishes office space, facilities, and most of the personnel needed by the Fund. As compensation for its services, the Advisor is entitled to a monthly fee from the Fund. The fee is based on the average daily net assets of the Fund at an annual rate of 0.80%. The net investment advisory fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
The Advisor has delegated the day-to-day management of the Fund to a sub-advisor, SPARX Asset Management Co., Ltd. The Advisor pays the sub-advisory fees from its own assets, and these fees are not an additional expense of the Fund. During fiscal year 2021, the Advisor (not the Fund) paid a sub-advisory fee at the average rate of 0.35% of the daily net assets of the Fund. Pursuant to the sub-advisory agreement, the Advisor pays sub-advisory fees at the rate of 0.35% of the first $500 million of daily net assets, 0.40% of daily net assets between $500 million and $1 billion, and 0.42% of daily net assets over $1 billion.
The Board has approved a Shareholder Servicing Agreement for Investor Class shares of the Fund, which compensates the Advisor for the non-investment advisory services it provides to the Fund. The Shareholder Servicing Agreement provides for a monthly fee paid to the Advisor at an annual rate of 0.10% of the average daily net assets of the Fund attributable to Investor Class shares. The shareholder service fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
The Fund has adopted a plan pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended, that authorizes payments in connection with the distribution of Fund shares at an annual rate of up to 0.25% of the Fund’s average daily net assets attributable to Investor Class shares. Even though the authorized rate is up to 0.25%, the Fund is currently only using up to 0.15% of its average daily net assets attributable to Investor Class shares for such purpose. 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, shareholder account servicing, printing and mailing of prospectuses to other than current shareholders, printing and mailing of sales literature, and compensation for sales and marketing activities or to financial institutions and others, such as dealers and distributors. The distribution fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
The Fund has entered into agreements with various brokers, dealers, and financial intermediaries in connection with the sale of Fund shares. The agreements provide for periodic payments of sub-transfer agent expenses by the Fund to the brokers, dealers, and financial intermediaries for providing certain shareholder maintenance services. 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. The sub-transfer agent fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
U.S. Bancorp Fund Services, LLC, d/b/a U.S. Bank Global Fund Services (“Fund Services”) provides the Fund with administrative, accounting, and transfer agent services. As administrator, Fund Services is responsible for activities such as (i) preparing various federal and state regulatory filings, reports, and returns for the Fund, (ii) preparing reports and materials to be supplied to the Board, (iii) monitoring the activities of the
| HENNESSY FUNDS | 1-800-966-4354 | |
Fund’s custodian, transfer agent, and accountants, and (iv) coordinating the preparation and payment of the Fund’s expenses and reviewing the Fund’s expense accruals. U.S. Bank N.A., an affiliate of Fund Services, serves as the Fund’s custodian. The servicing agreements between the Trust, Fund Services, and U.S. Bank N.A. contain a fee schedule that is inclusive of administrative, accounting, custody, and transfer agent fees. The administrative, accounting, custody, and transfer agent fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
Quasar Distributors, LLC (“Quasar”), a wholly owned broker-dealer subsidiary of Foreside Financial Group, LLC (“Foreside”), acts as the Fund’s principal underwriter in a continuous public offering of Fund shares. Effective September 30, 2021, Genstar Capital, a private equity firm specializing in financial and related business service companies, acquired a majority interest in Foreside. The Board approved a new Distribution Agreement to enable Quasar to continue serving as the Fund’s distributor following the change in control of Foreside.
The officers of the Fund are affiliated with the Advisor. With the exception of the Chief Compliance Officer and the Senior Compliance Officer, such officers receive no compensation from the Fund for serving in their respective roles. The Fund, along with the other funds in the Hennessy Funds family (collectively, the “Hennessy Funds”), makes reimbursement payments on an equal basis to the Advisor for a portion of the salary and benefits associated with the office of the Chief Compliance Officer and for all of the salary and benefits associated with the office of the Senior Compliance Officer. The compliance fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
6). GUARANTEES AND INDEMNIFICATIONS
Under the Hennessy Funds’ organizational documents, their officers and trustees are indemnified by the Hennessy Funds against certain liabilities arising out of the performance of their duties to the Hennessy Funds. Additionally, in the normal course of business, the Hennessy Funds enter into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. Currently, the Fund expects the risk of loss to be remote.
7). LINE OF CREDIT
The Fund has an uncommitted line of credit with the other Hennessy Funds in the amount of the lesser of (i) $100,000,000 or (ii) 33.33% of each Hennessy Fund’s net assets, or 30% for the Hennessy Gas Utility Fund and 10% for the Hennessy Balanced Fund. The line of credit is intended to provide any necessary short-term financing in connection with shareholder redemptions, subject to certain restrictions. The credit facility is with the Hennessy Funds’ custodian bank, U.S. Bank N.A. Borrowings under this arrangement bear interest at the bank’s prime rate and are secured by all of the Fund’s assets (as to its own borrowings only). During fiscal year 2021, the Fund did not have any borrowings outstanding under the line of credit.
| NOTES TO THE FINANCIAL STATEMENTS |
8). FEDERAL TAX INFORMATION
As of October 31, 2021, the components of accumulated earnings (losses) for income tax purposes were as follows:
| | | Investments | |
| Cost of investments for tax purposes | | $ | 98,174,058 | |
| Gross tax unrealized appreciation | | $ | 23,765,642 | |
| Gross tax unrealized depreciation | | | (6,151,489 | ) |
| Net tax unrealized appreciation/(depreciation) | | $ | 17,614,153 | |
| Undistributed ordinary income | | $ | 327,681 | |
| Undistributed long-term capital gains | | | 447,793 | |
| Total distributable earnings | | $ | 775,474 | |
| Other accumulated gain/(loss) | | $ | — | |
| Total accumulated gain/(loss) | | $ | 18,389,627 | |
The difference between book-basis unrealized appreciation/depreciation and tax-basis unrealized appreciation/depreciation (as shown above) is attributable primarily to wash sales.
As of October 31, 2021, the Fund had no tax-basis capital losses to offset future capital gains. During fiscal year 2021, the capital losses utilized by the Fund were $871,567.
Capital losses sustained in or after fiscal year 2012 can be carried forward indefinitely, but any such loss retains the character of the original loss and must be utilized prior to any loss incurred before fiscal year 2012. As a result of this ordering rule, capital loss carryforwards incurred prior to fiscal year 2012 may be more likely to expire unused. Capital losses sustained prior to fiscal year 2012 can be carried forward for eight years and can be carried forward as short-term capital losses regardless of the character of the original loss.
As of October 31, 2021, the Fund did not defer, on a tax basis, any late-year ordinary losses. Late-year ordinary losses are net ordinary losses incurred after December 31, 2020, but within the taxable year, that are deemed to arise on the first day of the Fund’s next taxable year.
During fiscal years 2021 and 2020, the tax character of distributions paid by the Fund was as follows:
| | | | Year Ended | | | Year Ended | |
| | | | October 31, 2021 | | | October 31, 2020 | |
| | Ordinary income(1) | | $ | 382,609 | | | $ | 1,959,488 | |
| | Long-term capital gains | | | — | | | | — | |
| | Total distributions | | $ | 382,609 | | | $ | 1,959,488 | |
| | (1) Ordinary income includes short-term capital gains. |
9). EVENTS SUBSEQUENT TO YEAR END
Management has evaluated the Fund’s related events and transactions that occurred subsequent to October 31, 2021, through the date of issuance of the Fund’s financial statements. Other than as disclosed below, management has determined that there were no subsequent events requiring recognition or disclosure in the financial statements.
On December 7, 2021, capital gains were declared and paid to shareholders of record on December 6, 2021, as follows:
| | | Long-term |
| | Investor Class | 0.07094 |
| | Institutional Class | 0.07028 |
| HENNESSY FUNDS | 1-800-966-4354 | |
Report of Independent Registered Public
Accounting Firm
To the Board of Trustees of Hennessy Funds Trust
and the shareholders of the Hennessy Japan Small Cap Fund
Novato, CA
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of the Hennessy Japan Small Cap Fund (the “Fund”), a series of Hennessy Funds Trust, including the schedule of investments, as of October 31, 2021, the related statement 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, the financial highlights for each of the five years in the period then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of October 31, 2021, the results of its operations for the year then ended, the changes in its 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 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We have served as the auditor of one or more of the funds in the Trust since 2002.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of October 31, 2021 by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
| | |
| | TAIT, WELLER & BAKER LLP |
Philadelphia, Pennsylvania
December 22, 2021
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM/TRUSTEES AND OFFICERS |
Trustees and Officers of the Fund (Unaudited)
The business and affairs of the Funds are managed under the direction of the Board of Trustees of the Trust, and the Board of Trustees elects the officers of the Trust. From time to time, the Board of Trustees also has appointed advisers to the Board of Trustees (“Advisers”) with the intention of having qualified individuals serve in an advisory capacity to garner experience in the mutual fund and asset management industry and be considered as potential Trustees in the future. There are currently two Advisers, Brian Alexander and Doug Franklin. As Advisers, Mr. Alexander and Mr. Franklin attend meetings of the Board of Trustees and act as non-voting participants. Information pertaining to the Trustees, Advisers, and the officers of the Trust is set forth below. The Trustees and officers serve until their successors are duly elected and qualified or until their earlier death, resignation, or removal. Each Trustee oversees all 16 Hennessy Funds. Unless otherwise indicated, the address of all persons listed below is 7250 Redwood Boulevard, Suite 200, Novato, CA 94945. The Fund’s Statement of Additional Information includes more information about the persons listed below and is available without charge by calling 1-800-966-4354 or by visiting www.hennessyfunds.com.
| | | | Other |
| | | | Directorships |
| | | | Held Outside |
| Name, Age, | | | of Fund |
| and Position Held | Start Date | Principal Occupation(s) | Complex During |
with the Trust
| of Service | During Past Five Years | Past Five Years
|
| | | | |
| Disinterested Trustees and Advisers | | | |
| | | | |
| J. Dennis DeSousa | January 1996 | Mr. DeSousa is a real estate investor. | None. |
| 85 | | | |
| Trustee | | | |
| | | | |
| Robert T. Doyle | January 1996 | Mr. Doyle has been the Sheriff of | None. |
| 74 | | Marin County, California since 1996. | |
| Trustee | | | |
| | | | |
| Claire Garvie | December 2015 | Ms. Garvie is a founder of Kiosk and | None. |
| 47 | as an Adviser | has served as its Chief Operating | |
| Trustee | to the Board | Officer since 2004. Kiosk is a full- | |
| | and | service marketing agency with | |
| | December 2021 | offices in the San Francisco Bay Area, | |
| | as a Trustee | Toronto, and Liverpool, UK. | |
| | | | |
| Gerald P. Richardson | May 2004 | Mr. Richardson is an independent | None. |
| 76 | | consultant in the securities industry. | |
| Trustee | | | |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | | | Other |
| | | | Directorships |
| | | | Held Outside |
| Name, Age, | | | of Fund |
| and Position Held | Start Date | Principal Occupation(s) | Complex During |
with the Trust
| of Service | During Past Five Years | Past Five Years
|
| | | | |
| Brian Alexander | March 2015 | Mr. Alexander has worked for the | None. |
| 40 | | Sutter Health organization since | |
| Adviser to the Board | | 2011 in various positions. He has | |
| | | served as the Chief Executive Officer | |
| | | of the Sutter Roseville Medical | |
| | | Center since 2018. From 2016 through | |
| | | 2018, he served as the Vice President | |
| | | of Strategy for the Sutter Health Valley | |
| | | Area, which includes 11 hospitals, | |
| | | 13 ambulatory surgery centers, | |
| | | 16,000 employees, and 1,900 physicians. | |
| | | From 2013 through 2016, Mr. Alexander | |
| | | served as Sutter Novato Community | |
| | | Hospital’s Chief Administrative Officer. | |
| | | | |
| Doug Franklin | March 2016 | Mr. Franklin is a retired insurance | None. |
| 57 | | industry executive. From 1987 | |
| Adviser to the Board | | through 2015, he was employed | |
| | | by the Allianz-Fireman’s Fund | |
| | | Insurance Company in various | |
| | | positions, including as its Chief | |
| | | Actuary and Chief Risk Officer. | |
| | | | |
Interested Trustee(1) | | | |
| | | | |
| Neil J. Hennessy | January 1996 as | Mr. Hennessy has been employed | Hennessy |
| 65 | a Trustee and | by Hennessy Advisors, Inc. since | Advisors, Inc. |
| Chairman of the Board, | June 2008 as | 1989 and currently serves as its | |
| Chief Market Strategist, | an officer | Chairman and Chief Executive Officer. | |
| Portfolio Manager, | | | |
| and President | | | |
| Name, Age, | | |
| and Position Held | Start Date | Principal Occupation(s) |
with the Trust
| of Service | During Past Five Years |
| | | |
| Officers | | |
| | | |
| Teresa M. Nilsen | January 1996 | Ms. Nilsen has been employed by Hennessy Advisors, Inc. |
| 55 | | since 1989 and currently serves as its President and Chief |
| Executive Vice President | | Operating Officer. |
| and Treasurer | | |
| | | |
| Daniel B. Steadman | March 2000 | Mr. Steadman has been employed by Hennessy Advisors, Inc. |
| 65 | | since 2000 and currently serves as its Executive Vice President. |
| Executive Vice President | | |
| and Secretary | | |
| | | |
| Brian Carlson | December 2013 | Mr. Carlson has been employed by Hennessy Advisors, Inc. |
| 49 | | since December 2013 and currently serves as its Chief |
| Senior Vice President | | Compliance Officer and Senior Vice President. |
| and Head of Distribution | | |
| TRUSTEES AND OFFICERS OF THE FUND |
| Name, Age, | | |
| and Position Held | Start Date | Principal Occupation(s) |
with the Trust
| of Service | During Past Five Years |
| | | |
Jennifer Cheskiewicz(2) | June 2013 | Ms. Cheskiewicz has been employed by Hennessy Advisors, Inc. |
| 44 | | as its General Counsel since June 2013. |
| Senior Vice President and | | |
| Chief Compliance Officer | | |
| | | |
David Ellison(3) | October 2012 | Mr. Ellison has been employed by Hennessy Advisors, Inc. since |
| 63 | | October 2012. He has served as a Portfolio Manager of the |
| Senior Vice President | | Hennessy Large Cap Financial Fund and the Hennessy Small |
| and Portfolio Manager | | Cap Financial Fund since their inception. Mr. Ellison also served |
| | | as a Portfolio Manager of the Hennessy Technology Fund from |
| | | its inception until February 2017. Mr. Ellison served as Director, |
| | | CIO, and President of FBR Fund Advisers, Inc. from December |
| | | 1999 to October 2012. |
| | | |
Ryan Kelley(4) | March 2013 | Mr. Kelley has been employed by Hennessy Advisors, Inc. since |
| 49 | | October 2012. He has served as Chief Investment Officer of the |
| Chief Investment Officer, | | Hennessy Funds since March 2021 and has served as a Portfolio |
| Senior Vice President, | | Manager of the Hennessy Gas Utility Fund, the Hennessy Large |
| and Portfolio Manager | | Cap Financial Fund, and the Hennessy Small Cap Financial Fund |
| | | since October 2014. Mr. Kelley served as Co-Portfolio Manager |
| | | of these same funds from March 2013 through September |
| | | 2014 and as a Portfolio Analyst for the Hennessy Funds from |
| | | October 2012 through February 2013. He has also served as a |
| | | Portfolio Manager of the Hennessy Cornerstone Growth Fund, |
| | | the Hennessy Cornerstone Mid Cap 30 Fund, the Hennessy |
| | | Cornerstone Large Growth Fund, and the Hennessy |
| | | Cornerstone Value Fund since February 2017 and as a Portfolio |
| | | Manager of the Hennessy Total Return Fund, the Hennessy |
| | | Balanced Fund, and the Hennessy Technology Fund since May |
| | | 2018. He served as Co-Portfolio Manager of the Hennessy |
| | | Technology Fund from February 2017 until May 2018. Mr. Kelley |
| | | served as Portfolio Manager of FBR Fund Advisers, Inc. from |
| | | January 2008 to October 2012. |
| | | |
L. Joshua Wein(4) | September 2018 | Mr. Wein has been employed by Hennessy Advisors, Inc. since |
| 48 | | 2018. He has served as Co-Portfolio Manager of the Hennessy |
| Vice President and | | Cornerstone Growth Fund, the Hennessy Cornerstone |
| Co-Portfolio Manager | | Mid Cap 30 Fund, the Hennessy Cornerstone Large Growth |
| | | Fund, the Hennessy Cornerstone Value Fund, Hennessy Total |
| | | Return Fund, the Hennessy Balanced Fund, the Hennessy Gas |
| | | Utility Fund, and the Hennessy Technology Fund since February |
| | | 2019. He served as a Senior Analyst of these same funds from |
| | | September 2018 through February 2019. Mr. Wein served as |
| | | Director of Alternative Investments and Co-Portfolio Manager |
| | | at Sterling Capital Management from 2008 to 2018. |
_______________
(1) | Mr. Hennessy is considered an “interested person,” as defined in the Investment Company Act of 1940, as amended, because he is an officer of the Trust. |
(2) | The address of this officer is 4800 Bee Caves Road, Suite 100, Austin, TX 78746. |
(3) | The address of this officer is 101 Federal Street, Suite 1615B, Boston, MA 02110. |
(4) | The address of this officer is 1340 Environ Way, Chapel Hill, NC 27517. |
| HENNESSY FUNDS | 1-800-966-4354 | |
Expense Example (Unaudited)
October 31, 2021
As a shareholder of the Fund, you incur 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 the Fund 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, 2021, through October 31, 2021.
Actual Expenses
In the table below, the first line under each of the “Investor Class” and “Institutional Class” headings provides information about actual account values and actual expenses for each share class. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the 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 “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. Although the Fund charges 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. Bank Global Fund Services, the Fund’s transfer agent. If you request that a redemption be made by wire transfer, the Fund’s transfer agent charges a $15 fee. IRAs are charged a $15 annual maintenance fee (up to $30 maximum per shareholder for shareholders with multiple IRAs). The examples below include, but are not limited to, management, shareholder servicing, accounting, custody, and transfer agent fees. However, the examples below do not include portfolio trading commissions and related expenses.
Hypothetical Example for Comparison Purposes
In the table below, the second line under each of the “Investor Class” and “Institutional Class” headings provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio for each share class and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return for such share class. 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 Fund and other funds. To do so, compare these 5% hypothetical examples 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. Therefore, the second lines under “Investor Class” and “Institutional Class” are useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds.
| | | | Expenses Paid |
| | Beginning | Ending | During Period(1) |
| | Account Value | Account Value | May 1, 2021 – |
| | May 1, 2021
| October 31, 2021 | October 31, 2021 |
| Investor Class | | | |
| Actual | $1,000.00 | $1,023.70 | $7.75 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,017.54 | $7.73 |
| | | | |
| Institutional Class | | | |
| Actual | $1,000.00 | $1,025.70 | $5.72 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,019.56 | $5.70 |
(1) | Expenses are equal to the Fund’s annualized expense ratio of 1.52% for Investor Class shares or 1.12% for Institutional Class shares, as applicable, multiplied by the average account value over the period, multiplied by 184/365 days (to reflect the half-year period). |
| HENNESSY FUNDS | 1-800-966-4354 | |
How to Obtain a Copy of the Fund’s Proxy
Voting Policy and Proxy Voting Records
A description of the policies and procedures the Fund uses 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/proxy-voting/voting-policy, or (3) on the U.S. Securities and Exchange Commission’s (the “SEC”) website at www.sec.gov. The Fund’s proxy voting record is available without charge on both the Hennessy Funds’ website at www.hennessyfunds.com/proxy-voting/voting-record and the SEC’s website at www.sec.gov no later than August 31 for the prior 12 months ending June 30.
Availability of Quarterly Portfolio Schedule
The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov or on request by calling 1-800-966-4354.
Federal Tax Distribution Information (Unaudited)
For fiscal year 2021, certain dividends paid by the Fund may be subject to a maximum tax rate of 23.8%, 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 100.00%.
For corporate shareholders, the percent of ordinary income distributions that qualified for the corporate dividends received deduction for fiscal year 2021 was 0.00%.
The percentage of taxable ordinary income distributions that were designated as short-term capital gain distributions under Section 871(k)(2)(C) of the Internal Revenue Code of 1986, as amended, for the Fund was 0.00%.
For the year ended October 31, 2021, the Fund earned foreign-source income and paid foreign taxes as noted below, which it intends to pass through to its shareholders pursuant to Section 853 of the Internal Revenue Code.
| | | Gross Foreign Income | Foreign Tax Paid |
| | Japan | $1,896,845 | $189,684 |
Important Notice Regarding Delivery of
Shareholder Documents
To help keep the Fund’s costs as low as possible, we generally deliver a single copy of shareholder reports, proxy statements, and prospectuses to shareholders who share an address and have the same last name. This process does not apply to account statements. You may request an individual copy of a shareholder document at any time. If you would like to receive separate mailings of shareholder documents, please call U.S. Bank Global Fund Services at 1-800-261-6950 or 1-414-765-4124, and individual delivery will begin within 30 days of your request. If your account is held through a financial institution or other intermediary, please contact such intermediary directly to request individual delivery.
| PROXY VOTING — LIQUIDITY RISK MANAGEMENT PROGRAM |
Electronic Delivery
As permitted by SEC regulations, the Fund’s shareholder reports are made available on a website, and unless you sign up for eDelivery or elect to receive paper copies as detailed below, you will be notified by mail each time a report is posted and provided with a website link to access the report.
The Fund also offers shareholders the option to receive all notices, account statements, prospectuses, tax forms, and shareholder reports online. To sign up for eDelivery or change your delivery preference, please visit www.hennessyfunds.com/account.
To elect to receive paper copies of all future reports free of charge, please call U.S. Bank Global Fund Services at 1-800-261-6950 or 1-414-765-4124.
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Liquidity Risk Management Program
In accordance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), we have adopted and implemented a liquidity risk management program (the “Liquidity Program”). The purpose of the Liquidity Program is to assess and manage the Fund’s liquidity risk, which is the risk that the Fund would not be able to meet requests to redeem Fund shares without significant dilution of the remaining shareholders’ interests in the Fund. The Board of Trustees of the Fund (the “Board”) designated a committee comprising representatives of Hennessy Advisors, Inc., the investment adviser to the Fund, as the administrator of the Liquidity Program (the “Program Administrator”).
The Program Administrator provided a written report regarding the Liquidity Program to the Board in advance of its meeting on June 2, 2021. The report covered the period from June 1, 2020, through May 31, 2021. The report addressed the operation of the Liquidity Program, assessed the adequacy and effectiveness of its implementation, and described any material changes to the Liquidity Program during the review period. The Trust’s chief compliance officer presented the report to the Board at the meeting and provided additional information regarding the Liquidity Program. The Board reviewed the Liquidity Program and considered, among other items, the following:
| | 1. | The Program Administrator reviewed daily historical net redemption activity during the review period and during prior periods with higher-than-average redemption activity and concluded that the Fund has historically been able to meet requests to redeem Fund shares without significant dilution to the Fund’s remaining shareholders, and the Program Administrator expects the Fund to be able to continue to do so in the future during both normal and reasonably foreseeable stressed conditions. |
| | | |
| | 2. | The Fund holds assets that are highly liquid investments and is therefore not required to establish a highly liquid investment minimum for the Fund or adopt policies and procedures for responding to a highly liquid investment minimum shortfall. |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | 3. | The Program Administrator did not make any material changes to the Liquidity Program during the review period and did not recommend any changes to the Liquidity Program or the model inputs used to determine the liquidity classification of each security held by the Fund. |
| | | |
| | 4. | The Program Administrator concluded that the Liquidity Program was reasonably designed to assess and manage the Fund’s liquidity risk, complies with the requirements of the Liquidity Rule, and was operating as intended during the review period. |
Privacy Policy
We collect the following personal information about you:
| | 1. | Information we receive from you 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; |
| | | |
| | 2. | Information about your transactions with us, our affiliates, or others, including, but not limited to, your account number and balance, payments history, parties to transactions, cost basis information, and other financial information; and |
| | | |
| | 3. | Other personal information we collect from various sources, even if you have not entered into a prior transaction with us, including the following: |
| | • | Name, alias, address, unique personal identifier, online identifier, IP address, email address, telephone number, account name, and other similar identifiers; |
| | | |
| | • | Age and marital status; |
| | | |
| | • | Commercial information, including records of products purchased; |
| | | |
| | • | Browsing history, search history, and information on interaction with our website; |
| | | |
| | • | Geolocation data; |
| | | |
| | • | Employment and employment history, educational history, financial information, and purchasing and consuming histories or tendencies; and |
| | | |
| | • | Inferences drawn from the above-listed information to create a profile about your preferences, characteristics, predispositions, and behavior. |
We collect this information directly from you, indirectly in the course of providing services to you, directly and indirectly from your activity on our website, from broker dealers, marketing agencies, and other third parties that interact with us in connection with the services we perform and products we offer, and from anonymized and aggregated consumer information.
We use this information to fulfill the reason you provided the information to us, to provide you with other relevant products that you request from us, to provide you with information about products that may interest you, to improve our website or present our website’s contents to you, and as otherwise described to you when collecting your personal information.
We do not disclose any personal information to unaffiliated third parties, except as permitted by law. We may disclose your personal information to our affiliates, vendors, and service providers for a business purpose. 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. When disclosing your personal information to third parties,
| LIQUIDITY RISK MANAGEMENT PROGRAM — PRIVACY POLICY |
we enter into a contract with each third party describing the purpose of such disclosure and requiring that such personal information be kept confidential and not used for any purpose except to perform the services contracted or respond to regulatory or law enforcement requests.
Furthermore, we restrict access to your personal information to those persons who require such information to provide products or services to you. As a result, we do not provide a means for opting out of our limited sharing of your information. We maintain physical, electronic, and procedural safeguards that comply with federal standards to guard your personal information.
If you hold shares of the Funds through a financial intermediary, including, but not limited to, a broker-dealer, bank, or trust company, the privacy policy of your financial intermediary governs how your personal information is shared with unaffiliated third parties.
Supplemental Privacy Notice for Residents of California
The California Consumer Privacy Act of 2018 (the “CCPA”) provides you, as a California resident, with certain additional rights relating to your personal information.
Under the CCPA, you have the right to request that we disclose to you the categories of personal information we have collected about you over the past 12 months, the categories of sources of such information, our business purpose for collecting the information, the categories of third parties, if any, with whom we shared the information, and the specific information we have collected about you. You also have the right to request that we delete any of your personal information, and, unless an exception applies, we will delete such information upon receiving and confirming your request. To make a request, call us at 1-800-966-4354, email us at privacy@hennessyfunds.com, or go to www.hennessyfunds.com/contact. We will not discriminate against you for exercising your rights under the CCPA. Further, we will not collect additional categories of your personal information or use the personal information we collected for materially different, unrelated, or incompatible purposes without providing you notice.
| HENNESSY FUNDS | 1-800-966-4354 | |
For information, questions, or assistance, please call
The Hennessy Funds
1-800-966-4354 or 1-415-899-1555
INVESTMENT ADVISOR
Hennessy Advisors, Inc.
7250 Redwood Boulevard, Suite 200
Novato, California 94945
ADMINISTRATOR,
TRANSFER AGENT,
DIVIDEND PAYING AGENT, &
SHAREHOLDER SERVICING AGENT
U.S. Bancorp Fund Services, LLC
d/b/a U.S. Bank Global Fund Services
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
CUSTODIAN
U.S. Bank N.A.
Custody Operations
1555 North River Center Drive, Suite 302
Milwaukee, Wisconsin 53212
TRUSTEES
Neil J. Hennessy
Robert T. Doyle
J. Dennis DeSousa
Claire Garvie
Gerald P. Richardson
COUNSEL
Foley & Lardner LLP
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-5306
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Tait, Weller & Baker LLP
Two Liberty Place
50 South 16th Street, Suite 2900
Philadelphia, Pennsylvania 19102-2529
DISTRIBUTOR
Quasar Distributors, LLC
111 East Kilbourn Avenue, Suite 2200
Milwaukee, Wisconsin 53202
www.hennessyfunds.com | 1-800-966-4354
This report has been prepared for shareholders and may be distributed to
others only if preceded or accompanied by a current prospectus.
ANNUAL REPORT
OCTOBER 31, 2021
HENNESSY LARGE CAP FINANCIAL FUND
Investor Class HLFNX
Institutional Class HILFX
www.hennessyfunds.com | 1-800-966-4354
(This Page Intentionally Left Blank.)
Contents
| Letter to Shareholders | 2 |
| Performance Overview | 4 |
| Financial Statements | |
| Schedule of Investments | 7 |
| Statement of Assets and Liabilities | 10 |
| Statement of Operations | 11 |
| Statements of Changes in Net Assets | 13 |
| Financial Highlights | 14 |
| Notes to the Financial Statements | 18 |
| Report of Independent Registered Public Accounting Firm | 26 |
| Trustees and Officers of the Fund | 27 |
| Expense Example | 30 |
| Proxy Voting Policy and Proxy Voting Records | 32 |
| Availability of Quarterly Portfolio Schedule | 32 |
| Important Notice Regarding Delivery of Shareholder Documents | 32 |
| Electronic Delivery | 32 |
| Liquidity Risk Management Program | 33 |
| Privacy Policy | 33 |
| HENNESSY FUNDS | 1-800-966-4354 | |
December 2021
Dear Hennessy Funds Shareholder:
What a year this has been. While it doesn’t feel that we are out of the “pandemic” phase of the coronavirus crisis, we look forward to a day when we will eventually see fewer cases and potentially less severe variants. We feel extremely grateful to the many healthcare workers who have continued to work tirelessly during the recent surge. As we move through the next year, we hope that new U.S. cases will decline and that many other parts of the world will see improvements as well.
What a year this has been! As measured by the total return of the S&P 500® Index, as of October 31, 2021, the market was up 24.04% calendar year to date. This comes in the wake of a tumultuous 2020 in which the market plunged in the beginning of the pandemic and recovered dramatically to end the year up 18.40%. Interestingly, 18% appears to be a repeating number in the past dozen years. From the low point of the Financial Crisis (March 9, 2009) to the high point reached just prior to the COVID-19 pandemic (February 12, 2020), the S&P 500® Index was up 18.27% per year. We are well aware that past results are not predictive of the future, and we find ourselves naturally skeptical of such strong returns. But, as shown in the chart below, we find that the most common annual total returns of the market over the past 102 years range between 20% and 30% with the second most common being between 10% and 20%:
Source: Bloomberg L.P.
We will say it again, after showing a chart like the one above: Past results are not predictive of the future. Instead, we look at where we are right now – in the economy, in the market, in the business cycle – to reflect on where we have come from and where we may be going. U.S. GDP is strong and growing, interest rates remain low, and earnings growth and profitability remain robust. We believe stocks are trading at reasonable valuations when viewed as a whole, with the S&P 500® Index at 21.0x estimated earnings for 2022. Furthermore, we believe corporate balance sheets are healthy, with high levels of excess cash, which could support growth, increases in dividends, more share buybacks, and future acquisitions. Uncertainty and volatility can manifest at any time in the stock market, and the current market is no different. Investors have questions about inflation, worldwide supply chain issues, and what could drive the next boost in earnings. While these concerns are warranted, we continue to believe that overall the positives outweigh the negatives, and here at Hennessy we continue to see opportunity in the market and in our Funds.
What a (fiscal) year this has been!!! For our fiscal year ended October 31, 2021, the S&P 500® Index rose 42.91% on a total return basis, setting a new all-time high on the final day of the period. Except for a short 21-trading-day period that began on September 2 during which the market fell 5.13% only to rebound to new highs just 13 trading days later, the market has been on a continuous march higher. We saw a dramatic shift in market leadership as many of the sectors that underperformed during our last fiscal year soared in fiscal year 2021. Small-caps beat mid-caps, which in turn beat large-caps. The Energy and Financials sectors skyrocketed during the 12-month period, as reflected by the S&P 500® Energy Sector’s total return of 111.29% and the Russell 1000® Index Financials’ total return of 70.87%. Both of these sectors were among the worst performing in our fiscal year 2020, so a bounce back in our fiscal year 2021, while not a foregone conclusion, was a distinct possibility.
Overall, we are pleased with the performance of our mutual funds during the fiscal year. On an absolute basis, each of our 16 Funds achieved total returns greater than 10% and seven outperformed their primary benchmark. Ten of our 11 domestic equity-only Funds outperformed the S&P 500® Index and posted total returns of 45% or higher. Our four best-performing funds were concentrated in the Energy and Financials sectors. While some of our Funds certainly benefited from being in the “right” sector at the “right” time, we also believe this was a favorable period for our investment style of high-conviction investing and concentrated portfolio construction.
What will the coming year bring? As mentioned in our last shareholder letter (June 2021), we understand that even the greatest bull markets experience corrections along the way, and the last time the S&P 500® Index dropped over 10% was in February/March of 2020. Whether or not a correction occurs sooner or later, we believe the market as a whole has more room to run. We see many factors that could drive the market higher from here: strong GDP growth and increasing corporate earnings, a potentially lower-for-longer interest rate environment, accommodative fiscal and monetary policies, a healthy and robust financial system, low unemployment and solid wage growth, and strong corporate balance sheets with plenty of cash.
Thank you for your interest and for investing with us. We remain committed to managing our portfolios for long-term performance, ever mindful of downside risk. With so many investment options available to you, we are grateful for the trust you put in us and for your continued interest in our family of Funds. If you have any questions or would like to speak with us, please don’t hesitate to call us directly at (800) 966-4354.
Best regards,
| |
| |
| |
| |
|
| Ryan C. Kelley |
| Chief Investment Officer |
Past performance does not guarantee future results. To obtain current standardized performance for the Hennessy Funds, visit https://www.hennessyfunds.com/funds/price-performance.
Mutual fund investing involves risk. Principal loss is possible.
Opinions expressed are those of Ryan C. Kelley and are subject to change, are not guaranteed, and should not be considered investment advice.
The Dow Jones Industrial Average and S&P 500® Index are commonly used to measure the performance of U.S. stocks. The S&P 500® Energy Index comprises those companies included in the S&P 500® Index that are classified in the Energy sector. The Russell 1000® Index Financials is a subset of the Russel 1000® Index that measures the performance of securities classified in the Financials sector of the large-capitalization U.S. equity market. The indices are used herein for comparative purposes in accordance with SEC regulations. One cannot invest directly in an index. All returns are shown on a total return basis.
| HENNESSY FUNDS | 1-800-966-4354 | |
Performance Overview (Unaudited)
CHANGE IN VALUE OF $10,000 INVESTMENT
This graph illustrates the performance of an initial investment of $10,000 made in the Fund 10 years ago and assumes the reinvestment of dividends and capital gains.
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED OCTOBER 31, 2021
| | | One | Five | Ten |
| | | Year
| Years
| Years
|
| | Hennessy Large Cap Financial Fund – | | | |
| | Investor Class (HLFNX) | 58.17% | 18.71% | 14.99% |
| | Hennessy Large Cap Financial Fund – | | | |
| | Institutional Class (HILFX)(1) | 58.78% | 19.13% | 15.26% |
| | Russell 1000® Index Financials | 70.87% | 20.01% | 17.51% |
| | Russell 1000® Index | 43.51% | 19.16% | 16.30% |
Expense ratios: 1.75% (Investor Class); 1.45% (Institutional Class)
(1) | The inception date of Institutional Class shares is June 15, 2015. Performance shown prior to the inception of Institutional Class shares reflects the performance of Investor Class shares and includes expenses that are not applicable to, and are higher than, those of Institutional Class shares. |
Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The performance table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 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 including or prior to October 26, 2012, is that of the FBR Large Cap Financial Fund.
The Russell 1000® Index Financials is a subset of the Russell 1000® Index that measures the performance of the securities classified in the Financials sector of the large- cap U.S. equity market. The Russell 1000® Index comprises the 1,000 largest companies in the Russell 3000® Index based on market capitalization. One cannot invest directly in an index. These indices are used for comparative purposes in accordance with Securities and Exchange Commission regulations.
Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in
the Russell Indexes or Russell ratings or underlying data and no party may rely on any Russell Indexes or Russell ratings or underlying data contained in this communication. No further distribution of Russell data is permitted without Russell’s express written consent. Russell does not promote, sponsor, or endorse the content of this communication.
The expense ratios presented are from the most recent prospectus. The expense ratios for the current reporting period are available in the Financial Highlights section of this report.
PERFORMANCE NARRATIVE
Portfolio Managers David H. Ellison and Ryan C. Kelley, CFA
Performance:
For the one-year period ended October 31, 2021, the Investor Class of the Hennessy Large Cap Financial Fund returned 58.17%, underperforming the Russell 1000® Index Financials (the Fund’s primary benchmark), which returned 70.87%, but outperforming the Russell 1000® Index, which returned 43.51%, for the same period.
In a year when large-cap banks drove the overall Financials sector significantly higher, the Fund’s underperformance relative to its primary benchmark predominantly stemmed from its overweight allocation to financial technology companies, specifically those in the software and services industry. Top positive contributors included Blackstone, Inc., Wells Fargo & Company, and The Goldman Sachs Group, Inc. Among the biggest detractors from Fund performance during the period were Paysafe, Ltd., Alibaba Group Holding Limited, and Ally Financial, Inc.
The Fund continues to hold the companies mentioned except Paysafe and Alibaba Group.
Portfolio Strategy:
Historically, the Fund has been invested primarily in large-cap banks and, to a lesser degree, insurance, real estate, and asset managers. However, we have increased our exposure to electronic payment companies and other financial technology companies over the last few years. We believe that growth in the electronic payment industry will continue as the use of mobile payment methods continues to proliferate.
In general, we seek companies that we believe have high-quality management teams, less complex business models, and the prospect of sustainable earnings growth over time. We also try to identify companies that we expect will do better relative to peers in the current environment, which is characterized by low interest rates, competitive loan markets, evolving electronic payment platforms, growing attention to costs, and business model repositioning. We are less interested in focusing solely on traditional banks that appear to promise an increase in profitability when interest rates rise, loan demand increases, or product pricing becomes more favorable. We believe the timing of these macro industry dynamics is difficult to predict and believe greater opportunity in the short-term and medium-term exists elsewhere in financially related large-cap companies.
Investment Commentary:
Given compelling relative valuations compared to the broader stock market, we believe that attractive long-term opportunities exist within large-cap financial companies despite a somewhat challenging business environment characterized by low interest rates, slow-to no-loan growth, and compressed margins. Despite the Fund benefiting significantly from our positions in traditional large-cap banks this year, we continue to favor those companies with more diverse business models that are less dependent solely on interest
| HENNESSY FUNDS | 1-800-966-4354 | |
rates. The macroeconomic environment in the United States has improved after a tumultuous 2020, but we believe that there are still many potential challenges in the months to come related to economic growth, loan demand, and the direction of interest rates. However, we are encouraged that banks have amassed sufficient levels of reserves and capital in anticipation of any potential loan charge-offs, and we believe that the current uptick in bank mergers will continue and could benefit certain regional banks looking to grow via acquisitions.
The Fund remains overweight in fee-based electronic service providers and other financial technology companies. We believe these companies will continue to grow their revenues and earnings, driven in part by the global shift towards cashless forms of payment.
_______________
Opinions expressed are those of the Portfolio Managers as of the date written and are subject to change, are not guaranteed, and should not be considered investment advice or an indication of trading intent.
The Fund is non-diversified, meaning it may concentrate its assets in fewer individual holdings than a diversified fund, making it more exposed to individual stock volatility than a diversified fund. Investments are focused in the financial services industry; sector funds may be subject to a higher degree of market risk. The Fund invests in medium-sized companies, which may have limited liquidity and greater volatility compared to larger companies. Please see the Fund’s prospectus for a more complete discussion of these and other risks.
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 Schedule of Investments included in this report for additional portfolio information.
Earnings growth is not a measure of the Fund’s future performance.
| PERFORMANCE OVERVIEW/SCHEDULE OF INVESTMENTS |
Financial Statements
Schedule of Investments as of October 31, 2021 |
HENNESSY LARGE CAP FINANCIAL FUND
(% of Net Assets)
| TOP TEN HOLDINGS (EXCLUDING MONEY MARKET FUNDS) | % NET ASSETS |
| Bank of America Corp. | 5.48% |
| The Goldman Sachs Group, Inc. | 5.15% |
| Blackstone, Inc. | 5.13% |
| Wells Fargo & Co. | 4.94% |
| Morgan Stanley | 4.89% |
| BlackRock, Inc. | 4.75% |
| SoFi Technologies, Inc. | 4.67% |
| JPMorgan Chase & Co. | 4.52% |
| Moody’s Corp. | 4.52% |
| Apple, Inc. | 4.50% |
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, as amended, the Fund uses more specific industry classifications.
The Global Industry Classification Standard (GICS®) was developed by and is the exclusive property and a service mark of MSCI, Inc. and Standard & Poor’s Financial Services LLC. It has been licensed for use by the Hennessy Funds.
| HENNESSY FUNDS | 1-800-966-4354 | |
| COMMON STOCKS – 98.49% | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Financials – 69.64% | | | | | | | | | |
| Ally Financial, Inc. | | | 60,000 | | | $ | 2,864,400 | | | | 4.01 | % |
| Bank of America Corp. | | | 82,000 | | | | 3,917,960 | | | | 5.48 | % |
| BlackRock, Inc. | | | 3,600 | | | | 3,396,456 | | | | 4.75 | % |
| Blackstone, Inc. | | | 26,500 | | | | 3,668,130 | | | | 5.13 | % |
| Capital One Financial Corp. | | | 21,000 | | | | 3,171,630 | | | | 4.44 | % |
| Citigroup, Inc. | | | 45,500 | | | | 3,146,780 | | | | 4.40 | % |
| Huntington Bancshares, Inc. | | | 187,000 | | | | 2,943,380 | | | | 4.12 | % |
| JPMorgan Chase & Co. | | | 19,000 | | | | 3,227,910 | | | | 4.52 | % |
| KeyCorp | | | 130,000 | | | | 3,025,100 | | | | 4.23 | % |
| Moody’s Corp. | | | 8,000 | | | | 3,233,200 | | | | 4.52 | % |
| Morgan Stanley | | | 34,000 | | | | 3,494,520 | | | | 4.89 | % |
| Signature Bank | | | 5,000 | | | | 1,489,100 | | | | 2.08 | % |
| State Street Corp. | | | 19,000 | | | | 1,872,450 | | | | 2.62 | % |
| The Goldman Sachs Group, Inc. | | | 8,900 | | | | 3,678,815 | | | | 5.15 | % |
| Tradeweb Markets, Inc. | | | 35,000 | | | | 3,118,500 | | | | 4.36 | % |
| Wells Fargo & Co. | | | 69,000 | | | | 3,530,040 | | | | 4.94 | % |
| | | | | | | | 49,778,371 | | | | 69.64 | % |
| | | | | | | | | | | | | |
| Information Technology – 28.85% | | | | | | | | | | | | |
| Adyen NV – ADR (a)(b) | | | 97,000 | | | | 2,945,890 | | | | 4.12 | % |
| Apple, Inc. | | | 21,500 | | | | 3,220,700 | | | | 4.50 | % |
| Mastercard, Inc., Class A | | | 9,500 | | | | 3,187,440 | | | | 4.46 | % |
| PayPal Holdings, Inc. (a) | | | 11,700 | | | | 2,721,303 | | | | 3.81 | % |
| SoFi Technologies, Inc. (a) | | | 166,000 | | | | 3,334,940 | | | | 4.67 | % |
| Square, Inc., Class A (a) | | | 8,500 | | | | 2,163,250 | | | | 3.03 | % |
| Visa, Inc., Class A | | | 14,400 | | | | 3,049,488 | | | | 4.26 | % |
| | | | | | | | 20,623,011 | | | | 28.85 | % |
| | | | | | | | | | | | | |
| Total Common Stocks | | | | | | | | | | | | |
| (Cost $41,473,378) | | | | | | | 70,401,382 | | | | 98.49 | % |
The accompanying notes are an integral part of these financial statements.
| SHORT-TERM INVESTMENTS – 1.70% | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Money Market Funds – 1.70% | | | | | | | | | |
| First American Government Obligations Fund, | | | | | | | | | |
| Institutional Class, 0.03% (c) | | | 1,215,572 | | | $ | 1,215,572 | | | | 1.70 | % |
| | | | | | | | | | | | | |
| Total Short-Term Investments | | | | | | | | | | | | |
| (Cost $1,215,572) | | | | | | | 1,215,572 | | | | 1.70 | % |
| | | | | | | | | | | | | |
| Total Investments | | | | | | | | | | | | |
| (Cost $42,688,950) – 100.19% | | | | | | | 71,616,954 | | | | 100.19 | % |
| Liabilities in Excess of Other Assets – (0.19)% | | | | | | | (133,024 | ) | | | (0.19 | )% |
| | | | | | | | | | | | | |
TOTAL NET ASSETS – 100.00% | | | | | | $ | 71,483,930 | | | | 100.00 | % |
Percentages are stated as a percent of net assets.
ADR – American Depositary Receipt
NV – Naamloze Vennootschap is a Dutch term for publicly traded companies.
| (a) | Non-income-producing security. |
| (b) | U.S.-traded security of a foreign corporation. |
| (c) | The rate listed is the fund’s seven-day yield as of October 31, 2021. |
Summary of Fair Value Exposure as of October 31, 2021
The following is a summary of the inputs used to value the Fund’s net assets as of October 31, 2021 (see Note 3 in the accompanying Notes to the Financial Statements):
| Common Stocks | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Financials | | $ | 49,778,371 | | | $ | — | | | $ | — | | | $ | 49,778,371 | |
| Information Technology | | | 20,623,011 | | | | — | | | | — | | | | 20,623,011 | |
| Total Common Stocks | | $ | 70,401,382 | | | $ | — | | | $ | — | | | $ | 70,401,382 | |
| Short-Term Investments | | | | | | | | | | | | | | | | |
| Money Market Funds | | $ | 1,215,572 | | | $ | — | | | $ | — | | | $ | 1,215,572 | |
| Total Short-Term Investments | | $ | 1,215,572 | | | $ | — | | | $ | — | | | $ | 1,215,572 | |
| Total Investments | | $ | 71,616,954 | | | $ | — | | | $ | — | | | $ | 71,616,954 | |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
Statement of Assets and Liabilities as of October 31, 2021 |
| ASSETS: | | | |
| Investments in securities, at value (cost $42,688,950) | | $ | 71,616,954 | |
| Dividends and interest receivable | | | 103,753 | |
| Receivable for fund shares sold | | | 146,119 | |
| Return of capital receivable | | | 12,709 | |
| Prepaid expenses and other assets | | | 16,603 | |
| Total assets | | | 71,896,138 | |
| | | | | |
| LIABILITIES: | | | | |
| Payable for securities purchased | | | 176,179 | |
| Payable for fund shares redeemed | | | 104,375 | |
| Payable to advisor | | | 53,594 | |
| Payable to administrator | | | 21,304 | |
| Payable to auditor | | | 22,556 | |
| Accrued distribution fees | | | 5,238 | |
| Accrued service fees | | | 3,070 | |
| Accrued trustees fees | | | 6,604 | |
| Accrued expenses and other payables | | | 19,288 | |
| Total liabilities | | | 412,208 | |
| NET ASSETS | | $ | 71,483,930 | |
| | | | | |
| NET ASSETS CONSISTS OF: | | | | |
| Capital stock | | $ | 40,323,813 | |
| Total distributable earnings | | | 31,160,117 | |
| Total net assets | | $ | 71,483,930 | |
| | | | | |
| NET ASSETS: | | | | |
| Investor Class | | | | |
| Shares authorized (no par value) | | Unlimited | |
| Net assets applicable to outstanding shares | | $ | 36,423,628 | |
| Shares issued and outstanding | | | 1,031,172 | |
| Net asset value, offering price, and redemption price per share | | $ | 35.32 | |
| | | | | |
| Institutional Class | | | | |
| Shares authorized (no par value) | | Unlimited | |
| Net assets applicable to outstanding shares | | $ | 35,060,302 | |
| Shares issued and outstanding | | | 984,023 | |
| Net asset value, offering price, and redemption price per share | | $ | 35.63 | |
The accompanying notes are an integral part of these financial statements.
| STATEMENT OF ASSETS AND LIABILITIES/STATEMENT OF OPERATIONS |
Financial Statements
Statement of Operations for the year ended October 31, 2021 |
| INVESTMENT INCOME: | | | |
| Dividend income | | $ | 763,575 | |
| Interest income | | | 367 | |
| Total investment income | | | 763,942 | |
| | | | | |
| EXPENSES: | | | | |
| Investment advisory fees (See Note 5) | | | 568,729 | |
| Sub-transfer agent expenses – Investor Class (See Note 5) | | | 64,620 | |
| Sub-transfer agent expenses – Institutional Class (See Note 5) | | | 24,956 | |
| Administration, accounting, custody, and transfer agent fees (See Note 5) | | | 80,947 | |
| Distribution fees – Investor Class (See Note 5) | | | 50,106 | |
| Federal and state registration fees | | | 37,144 | |
| Service fees – Investor Class (See Note 5) | | | 33,404 | |
| Compliance expense (See Note 5) | | | 27,448 | |
| Audit fees | | | 22,556 | |
| Trustees’ fees and expenses | | | 18,811 | |
| Reports to shareholders | | | 10,509 | |
| Interest expense (See Note 7) | | | 3,290 | |
| Legal fees | | | 1,140 | |
| Other expenses | | | 11,249 | |
| Total expenses | | | 954,909 | |
| NET INVESTMENT LOSS | | $ | (190,967 | ) |
| | | | | |
| REALIZED AND UNREALIZED GAINS (LOSSES): | | | | |
| Net realized gain on investments | | $ | 4,934,331 | |
| Net change in unrealized appreciation/deprecation on investments | | | 21,198,437 | |
| Net gain on investments | | | 26,132,768 | |
| NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | | $ | 25,941,801 | |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
(This Page Intentionally Left Blank.)
| STATEMENTS OF CHANGES IN NET ASSETS |
Financial Statements
| Statements of Changes in Net Assets |
| | | Year Ended | | | Year Ended | |
| | | October 31, 2021 | | | October 31, 2020 | |
| OPERATIONS: | | | | | | |
| Net investment loss | | $ | (190,967 | ) | | $ | (32,857 | ) |
| Net realized gain on investments | | | 4,934,331 | | | | 885,211 | |
| Net change in unrealized | | | | | | | | |
| appreciation/depreciation on investments | | | 21,198,437 | | | | (1,457,375 | ) |
| Net increase (decrease) in net | | | | | | | | |
| assets resulting from operations | | | 25,941,801 | | | | (605,021 | ) |
| | | | | | | | | |
| CAPITAL SHARE TRANSACTIONS: | | | | | | | | |
| Proceeds from shares subscribed – Investor Class | | | 10,760,638 | | | | 5,673,827 | |
| Proceeds from shares subscribed – Institutional Class | | | 24,725,649 | | | | 11,305,560 | |
| Cost of shares redeemed – Investor Class | | | (10,552,763 | ) | | | (6,851,490 | ) |
| Cost of shares redeemed – Institutional Class | | | (23,051,103 | ) | | | (11,461,893 | ) |
| Net increase (decrease) in net assets | | | | | | | | |
| derived from capital share transactions | | | 1,882,421 | | | | (1,333,996 | ) |
| TOTAL INCREASE (DECREASE) IN NET ASSETS | | | 27,824,222 | | | | (1,939,017 | ) |
| | | | | | | | | |
| NET ASSETS: | | | | | | | | |
| Beginning of year | | | 43,659,708 | | | | 45,598,725 | |
| End of year | | $ | 71,483,930 | | | $ | 43,659,708 | |
| | | | | | | | | |
| CHANGES IN SHARES OUTSTANDING: | | | | | | | | |
| Shares sold – Investor Class | | | 356,674 | | | | 276,712 | |
| Shares sold – Institutional Class | | | 786,529 | | | | 544,138 | |
| Shares redeemed – Investor Class | | | (333,681 | ) | | | (312,507 | ) |
| Shares redeemed – Institutional Class | | | (744,960 | ) | | | (570,423 | ) |
| Net increase (decrease) in shares outstanding | | | 64,562 | | | | (62,080 | ) |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
For an Investor Class share outstanding throughout each year
PER SHARE DATA:
Net asset value, beginning of year
Income from investment operations:
Net investment loss
Net realized and unrealized gains (losses) on investments
Total from investment operations
Less distributions:
Dividends from net investment income
Dividends from net realized gains
Total distributions
Net asset value, end of year
TOTAL RETURN
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of year (millions)
Ratio of expenses to average net assets
Ratio of net investment loss to average net assets
Portfolio turnover rate(2)
(1) | Calculated using the average shares outstanding method. |
(2) | Calculated on the basis of the Fund as a whole. |
The accompanying notes are an integral part of these financial statements.
| FINANCIAL HIGHLIGHTS — INVESTOR CLASS |
| Year Ended October 31, | |
| 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | | | | | | |
| $ | 22.33 | | | $ | 22.63 | | | $ | 21.43 | | | $ | 22.02 | | | $ | 16.23 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | (0.15 | )(1) | | | (0.05 | )(1) | | | (0.05 | )(1) | | | (0.07 | ) | | | (0.08 | ) |
| | 13.14 | | | | (0.25 | ) | | | 1.84 | | | | 0.48 | | | | 5.97 | |
| | 12.99 | | | | (0.30 | ) | | | 1.79 | | | | 0.41 | | | | 5.89 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | — | | | | — | | | | — | | | | — | | | | (0.10 | ) |
| | — | | | | — | | | | (0.59 | ) | | | (1.00 | ) | | | — | |
| | — | | | | — | | | | (0.59 | ) | | | (1.00 | ) | | | (0.10 | ) |
| $ | 35.32 | | | $ | 22.33 | | | $ | 22.63 | | | $ | 21.43 | | | $ | 22.02 | |
| | | | | | | | | | | | | | | | | | | |
| | 58.17 | % | | | -1.33 | % | | | 8.75 | % | | | 1.82 | % | | | 36.41 | % |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| $ | 36.42 | | | $ | 22.51 | | | $ | 23.63 | | | $ | 40.99 | | | $ | 26.33 | |
| | 1.68 | % | | | 1.75 | % | | | 1.82 | % | | | 1.69 | % | | | 1.81 | % |
| | (0.47 | )% | | | (0.21 | )% | | | (0.23 | )% | | | (0.44 | )% | | | (0.41 | )% |
| | 62 | % | | | 88 | % | | | 83 | % | | | 64 | % | | | 76 | % |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
For an Institutional Class share outstanding throughout each year
PER SHARE DATA:
Net asset value, beginning of year
Income from investment operations:
Net investment income (loss)
Net realized and unrealized gains (losses) on investments
Total from investment operations
Less distributions:
Dividends from net investment income
Dividends from net realized gains
Total distributions
Net asset value, end of year
TOTAL RETURN
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of year (millions)
Ratio of expenses to average net assets
Ratio of net investment income (loss) to average net assets
Portfolio turnover rate(2)
(1) | Calculated using the average shares outstanding method. |
(2) | Calculated on the basis of the Fund as a whole. |
The accompanying notes are an integral part of these financial statements.
| FINANCIAL HIGHLIGHTS — INSTITUTIONAL CLASS |
| Year Ended October 31, | |
| 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | | | | | | |
| $ | 22.44 | | | $ | 22.68 | | | $ | 21.39 | | | $ | 21.91 | | | $ | 16.26 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | (0.03 | )(1) | | | 0.02 | (1) | | | 0.01 | (1) | | | 0.03 | | | | 0.18 | |
| | 13.22 | | | | (0.26 | ) | | | 1.87 | | | | 0.45 | | | | 5.78 | |
| | 13.19 | | | | (0.24 | ) | | | 1.88 | | | | 0.48 | | | | 5.96 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | — | | | | — | | | | — | | | | — | | | | (0.31 | ) |
| | — | | | | — | | | | (0.59 | ) | | | (1.00 | ) | | | — | |
| | — | | | | — | | | | (0.59 | ) | | | (1.00 | ) | | | (0.31 | ) |
| $ | 35.63 | | | $ | 22.44 | | | $ | 22.68 | | | $ | 21.39 | | | $ | 21.91 | |
| | | | | | | | | | | | | | | | | | | |
| | 58.78 | % | | | -1.06 | % | | | 9.16 | % | | | 2.16 | % | | | 36.92 | % |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| $ | 35.06 | | | $ | 21.15 | | | $ | 21.97 | | | $ | 8.85 | | | $ | 5.83 | |
| | 1.32 | % | | | 1.45 | % | | | 1.43 | % | | | 1.34 | % | | | 1.50 | % |
| | (0.11 | )% | | | 0.08 | % | | | 0.05 | % | | | (0.07 | )% | | | (0.17 | )% |
| | 62 | % | | | 88 | % | | | 83 | % | | | 64 | % | | | 76 | % |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
Notes to the Financial Statements October 31, 2021 |
1). ORGANIZATION
The Hennessy Large Cap Financial Fund (the “Fund”) is a series of Hennessy Funds Trust (the “Trust”), which was organized as a Delaware statutory trust on September 17, 1992. The Fund is an open-end management investment company registered under the Investment Company Act of 1940, as amended. The investment objective of the Fund is capital appreciation. The Fund is a non-diversified fund.
The Fund offers Investor Class and Institutional Class shares. Each class of shares differs principally in its respective 12b-1 distribution and service, shareholder servicing, and sub-transfer agent expenses. There are no sales charges. 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 one class.
As an investment company, the Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 “Financial Services—Investment Companies.”
2). SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of the financial statements. These policies conform to U.S. generally accepted accounting principles (“GAAP”).
| a). | Securities Valuation – All investments in securities are valued in accordance with the Fund’s valuation policies and procedures, as described in Note 3. |
| | |
| b). | Federal Income Taxes – The Fund has elected to be taxed as a regulated investment company and intends to distribute substantially all of its taxable income to its shareholders and otherwise comply with the provisions of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. As a result, the Fund has made no provision for federal income taxes or excise taxes. Net investment income/loss and realized gains/losses for federal income tax purposes may differ from those reported in the financial statements because of temporary book-basis and tax-basis differences. Temporary differences are primarily the result of the treatment of wash sales for tax reporting purposes. The Fund recognizes interest and penalties related to income tax benefits, if any, in the Statement of Operations as an income tax expense. 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. The Fund may utilize equalization accounting for tax purposes and designate earnings and profits, including net realized gains distributed to shareholders on redemption of shares, as part of the dividends paid deduction for income tax purposes. |
| | |
| | Due to inherent differences in the recognition of income, expenses, and realized gains/losses under GAAP and federal income tax regulations, permanent differences between book and tax basis for reporting are identified and appropriately reclassified in the Statement of Assets and Liabilities, as needed. The adjustments for fiscal year 2021 are as follows: |
| | Total | | |
| | Distributable | | |
| | Earnings
| Capital Stock | |
| | $(419,094) | $419,094 | |
| NOTES TO THE FINANCIAL STATEMENTS |
| c). | Accounting for Uncertainty in Income Taxes – The Fund has accounting policies regarding recognition and measurement of tax positions taken or expected to be taken on a tax return. The tax returns of the Fund for the prior three fiscal years are open for examination. The Fund has reviewed all open tax years in major tax jurisdictions and concluded that there is no impact on the Fund’s 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. The Fund’s major tax jurisdictions are U.S. federal and Delaware. |
| | |
| d). | Income and Expenses – Dividend income is recognized on the ex-dividend date or as soon as information is available to the Fund. Interest income, which includes the amortization of premium and accretion of discount, is recognized on an accrual basis. Market discounts, original issue discounts, and market premiums on debt securities are accreted or amortized to interest income over the life of a security with a corresponding increase or decrease, as applicable, in the cost basis of such security using the yield-to-maturity method or, where applicable, the first call date of the security. Other non-cash dividends are recognized as investment income at the fair value of the property received. The Fund is charged for those expenses that are directly attributable to its portfolio, such as advisory, administration, and certain shareholder service fees. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains/losses on investments are allocated to each class of shares based on such class’s net assets. |
| | |
| e). | Distributions to Shareholders – Dividends from net investment income for the Fund, if any, are declared and paid annually, usually in December. Distributions of net realized capital gains, if any, are declared and paid annually, usually in December. |
| | |
| f). | Security Transactions – Investment and shareholder transactions are recorded on the trade date. The Fund determines the realized gain/loss from an investment transaction by comparing the original cost of the security lot sold with the net sale proceeds. Discounts and premiums on securities purchased are accreted or amortized, respectively, over the life of each such security. |
| | |
| g). | Use of Estimates – Preparing financial statements in accordance 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, as well as the reported change in net assets during the reporting period. Actual results could differ from those estimates. |
| | |
| h). | Share Valuation – The net asset value (“NAV”) per share of the Fund is calculated by dividing (i) the total value of the securities held by the Fund, plus cash and other assets, minus all liabilities (including estimated accrued expenses) by (ii) the total number of Fund shares outstanding, rounded to the nearest $0.01. Fund shares are not priced on days the New York Stock Exchange is closed for trading. The offering and redemption price per share for the Fund is equal to the Fund’s NAV per share. |
| | |
| i). | Recent Accounting Pronouncements and Regulatory Updates – In October 2020, the Securities and Exchange Commission (“SEC”) adopted new regulations governing the use of derivatives by registered investment companies (“Rule 18f-4”). Rule 18f-4 imposes limits on the amount of derivatives a fund can enter into, eliminates the asset segregation framework currently used by funds to comply with Section 18 of the 1940 Act, and requires funds whose use of derivatives is greater than a limited specified amount to establish and maintain a comprehensive derivatives risk management program and appoint a derivatives risk manager. Funds are required to comply with Rule 18f-4 by August 19, 2022. The impact, if any, that Rule 18f-4 will |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | have on the availability, liquidity, and performance of derivatives is unclear. Management is currently evaluating the potential impact of Rule 18f-4 on the Fund. When fully implemented, Rule 18f-4 may require changes in how the Fund uses derivatives, adversely affect the Fund’s performance, and increase costs related to the Fund’s use of derivatives. |
| | |
| | In December 2020, the SEC adopted a new rule providing a framework for fund valuation practices (“Rule 2a-5”). Rule 2a-5 establishes requirements for determining fair value in good faith for purposes of the 1940 Act. Rule 2a-5 permits fund boards to designate certain parties to perform fair value determinations, subject to board oversight and certain other conditions. Rule 2a-5 also defines when market quotations are “readily available” for purposes of the 1940 Act and the threshold for determining whether a fund must fair value a security. In connection with Rule 2a-5, the SEC also adopted related recordkeeping requirements and is rescinding previously issued guidance, including with respect to the role of a board in determining fair value and the accounting and auditing of fund investments. Funds must comply with the rules by September 8, 2022. Management is currently assessing the potential impact of the new rules on the Fund’s financial statements. |
3). SECURITIES VALUATION
The Fund follows its valuation policies and procedures in determining its net asset value and, in preparing these financial statements, the fair value accounting standards that 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 of changes in valuation techniques and related inputs during the period. These inputs are summarized in the three broad levels listed below:
| | Level 1 – | Unadjusted, quoted prices in active markets for identical instruments that the Fund has the ability to access at the date of measurement. |
| | | |
| | Level 2 – | Other significant observable inputs (including, but not limited to, quoted prices in active markets for similar instruments, quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets, such as interest rates, prepayment speeds, credit risk curves, default rates, and similar data). |
| | | |
| | Level 3 – | Significant unobservable inputs (including the Fund’s own assumptions about what market participants would use to price the asset or liability based on the best available information) when observable inputs are unavailable. |
The following is a description of the valuation techniques applied to the Fund’s major categories of assets and liabilities on a recurring basis:
| | Equity Securities – Equity securities, including common stocks, preferred stocks, foreign-issued common stocks, exchange-traded funds, closed-end mutual funds, partnerships, rights, and real estate investment trusts, that are traded on a securities exchange for which a last-quoted sales price is readily available generally are valued at the last sales price as reported by the primary exchange on which the securities are listed. Securities listed on The NASDAQ Stock Market (“NASDAQ”) generally are 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 generally are valued at the mean between the bid |
| NOTES TO THE FINANCIAL STATEMENTS |
| | and ask prices. To the extent these securities are actively traded and valuation adjustments are not applied, they are classified in Level 1 of the fair value hierarchy. Securities traded on foreign exchanges generally are not valued at the same time the Fund calculates its NAV because most foreign markets close well before such time. The earlier close of most foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim. In certain circumstances, it may be determined that a foreign security needs to be fair valued because it appears that the value of the security might have been materially affected by events occurring after the close of the market in which the security is principally traded, but before the time the Fund calculates its NAV, such as by a development that affects an entire market or region (e.g., a weather-related event) or a potentially global development (e.g., a terrorist attack that may be expected to have an effect on investor expectations worldwide). |
| | |
| | Registered Investment Companies – Investments in open-end registered investment companies, commonly referred to as mutual funds, generally are priced at the ending NAV provided by the applicable mutual fund’s service agent and are classified in Level 1 of the fair value hierarchy. |
| | |
| | Debt Securities – Debt securities, including corporate bonds, asset-backed securities, mortgage-backed securities, municipal bonds, U.S. Treasuries, and U.S. government agency issues, are generally valued at market on the basis of valuations furnished by an independent pricing service that 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 observable market data, such as reported sales of similar securities, broker quotes, yields, bids, offers, and reference data. Certain securities are valued primarily using dealer quotations. These securities are generally 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 for equity securities. Short-term debt investments with an original term to maturity of 60 days or less are valued at amortized cost, which approximates fair market value. If the original term to maturity of a short-term debt investment exceeds 60 days, then the values as of the 61st day prior to maturity are amortized. Amortized cost is not used if its use would be inappropriate due to credit or other impairments of the issuer, in which case the security’s fair value would be determined as described below. Short-term securities are generally classified in Level 1 or Level 2 of the fair value hierarchy depending on the inputs used and market activity levels for specific securities. |
The Board of Trustees of the Fund (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 considered in determining a fair value of a security, such as the trading volume of a security and markets, the values of other similar securities, and news events with direct bearing on a security or markets. Fair value pricing results in an estimated price for a security that reflects the amount the Fund might reasonably expect to receive in a current sale. 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.
| HENNESSY FUNDS | 1-800-966-4354 | |
The fair value 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. Using fair value pricing means that the Fund’s NAV reflects the affected portfolio securities’ values as determined by the Board or its designee, pursuant to the fair value pricing procedures adopted by the Board, instead of being determined by the market. Using a fair value pricing methodology to price a foreign security may result in a value that is different from such foreign security’s most recent closing price and from the value used by other investment companies to calculate their NAVs. Such securities are generally classified in Level 2 of the fair value hierarchy. Because the Fund may invest in foreign securities, the value of the Fund’s portfolio securities may change on days when a shareholder is unable to purchase or redeem Fund shares.
The Board has delegated day-to-day valuation matters to the Valuation and Liquidity Committee comprising representatives from Hennessy Advisors, Inc., the Fund’s investment advisor (the “Advisor”). The function of the Valuation and Liquidity Committee, among other things, is to value securities where current and reliable market quotations are not readily available. All actions taken by the Valuation and Liquidity Committee are reviewed by the Board.
The Fund has performed an analysis of all existing investments to determine the significance and character of all inputs to their fair value determinations. Various inputs are used to determine the value of the 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 value hierarchy of the Fund’s securities as of October 31, 2021, are included in the Schedule of Investments.
4). INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding government and short-term investments) for the Fund during fiscal year 2021 were $39,953,019 and $38,111,130, respectively.
There were no purchases or sales/maturities of long-term U.S. government securities for the Fund during fiscal year 2021.
5). INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Advisor provides the Fund with investment advisory services under an Investment Advisory Agreement. The Advisor furnishes all investment advice, office space, and facilities and most of the personnel needed by the Fund. As compensation for its services, the Advisor is entitled to a monthly fee from the Fund. The fee is based on the average daily net assets of the Fund at an annual rate of 0.90%. The net investment advisory fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
The Board has approved a Shareholder Servicing Agreement for Investor Class shares of the Fund, which compensates the Advisor for the non-investment advisory services it provides to the Fund. The Shareholder Servicing Agreement provides for a monthly fee paid to the Advisor at an annual rate of 0.10% of the average daily net assets of the Fund attributable to Investor Class shares. The shareholder service fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
The Fund has adopted a plan pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended, that authorizes payments in connection with the distribution of Fund shares at an annual rate of up to 0.25% of the Fund’s average daily net assets attributable to Investor Class shares. Even though the authorized rate is up to
| NOTES TO THE FINANCIAL STATEMENTS |
0.25%, the Fund is currently only using up to 0.15% of its average daily net assets attributable to Investor Class shares for such purpose. 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, shareholder account servicing, printing and mailing of prospectuses to other than current shareholders, printing and mailing of sales literature, and compensation for sales and marketing activities or to financial institutions and others, such as dealers and distributors. The distribution fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
The Fund has entered into agreements with various brokers, dealers, and financial intermediaries in connection with the sale of Fund shares. The agreements provide for periodic payments of sub-transfer agent expenses by the Fund to the brokers, dealers, and financial intermediaries for providing certain shareholder maintenance services. 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. The sub-transfer agent fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
��
U.S. Bancorp Fund Services, LLC, d/b/a U.S. Bank Global Fund Services (“Fund Services”) provides the Fund with administrative, accounting, and transfer agent services. As administrator, Fund Services is responsible for activities such as (i) preparing various federal and state regulatory filings, reports, and returns for the Fund, (ii) preparing reports and materials to be supplied to the Board, (iii) monitoring the activities of the Fund’s custodian, transfer agent, and accountants, and (iv) coordinating the preparation and payment of the Fund’s expenses and reviewing the Fund’s expense accruals. U.S. Bank N.A., an affiliate of Fund Services, serves as the Fund’s custodian. The servicing agreements between the Trust, Fund Services, and U.S. Bank N.A. contain a fee schedule that is inclusive of administrative, accounting, custody, and transfer agent fees. The administrative, accounting, custody, and transfer agent fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
Quasar Distributors, LLC (“Quasar”), a wholly owned broker-dealer subsidiary of Foreside Financial Group, LLC (“Foreside”), acts as the Fund’s principal underwriter in a continuous public offering of Fund shares. Effective September 30, 2021, Genstar Capital, a private equity firm specializing in financial and related business service companies, acquired a majority interest in Foreside. The Board approved a new Distribution Agreement to enable Quasar to continue serving as the Fund’s distributor following the change in control of Foreside.
The officers of the Fund are affiliated with the Advisor. With the exception of the Chief Compliance Officer and the Senior Compliance Officer, such officers receive no compensation from the Fund for serving in their respective roles. The Fund, along with the other funds in the Hennessy Funds family (collectively, the “Hennessy Funds”), makes reimbursement payments on an equal basis to the Advisor for a portion of the salary and benefits associated with the office of the Chief Compliance Officer and for all of the salary and benefits associated with the office of the Senior Compliance Officer. The compliance fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
6). GUARANTEES AND INDEMNIFICATIONS
Under the Hennessy Funds’ organizational documents, their officers and trustees are indemnified by the Hennessy Funds against certain liabilities arising out of the performance of their duties to the Hennessy Funds. Additionally, in the normal course of business, the Hennessy Funds enter into contracts with service providers that contain
| HENNESSY FUNDS | 1-800-966-4354 | |
general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. Currently, the Fund expects the risk of loss to be remote.
7). LINE OF CREDIT
The Fund has an uncommitted line of credit with the other Hennessy Funds in the amount of the lesser of (i) $100,000,000 or (ii) 33.33% of each Hennessy Fund’s net assets, or 30% for the Hennessy Gas Utility Fund and 10% for the Hennessy Balanced Fund. The line of credit is intended to provide any necessary short-term financing in connection with shareholder redemptions, subject to certain restrictions. The credit facility is with the Hennessy Funds’ custodian bank, U.S. Bank N.A. Borrowings under this arrangement bear interest at the bank’s prime rate and are secured by all of the Fund’s assets (as to its own borrowings only). During fiscal year 2021, the Fund had an outstanding average daily balance and a weighted average interest rate of $99,847 and 3.25%, respectively. The interest expensed by the Fund during fiscal year 2021 is included in the Statement of Operations. The maximum amount outstanding for the Fund during fiscal year 2021 was $14,784,000. As of October 31, 2021, the Fund did not have any borrowings outstanding under the line of credit.
8). FEDERAL TAX INFORMATION
As of October 31, 2021, the components of accumulated earnings (losses) for income tax purposes were as follows:
| | | Investments | |
| Cost of investments for tax purposes | | $ | 43,654,396 | |
| Gross tax unrealized appreciation | | $ | 29,210,202 | |
| Gross tax unrealized depreciation | | | (1,247,644 | ) |
| Net tax unrealized appreciation/(depreciation) | | $ | 27,962,558 | |
| Undistributed ordinary income | | $ | — | |
| Undistributed long-term capital gains | | | 3,485,637 | |
| Total distributable earnings | | $ | 3,485,637 | |
| Other accumulated gain/(loss) | | $ | (288,078 | ) |
| Total accumulated gain/(loss) | | $ | 31,160,117 | |
The difference between book-basis unrealized appreciation/depreciation and tax-basis unrealized appreciation/depreciation (as shown above) is attributable primarily to wash sales.
As of October 31, 2021, the Fund had no tax-basis capital losses to offset future capital gains. During fiscal year 2021, the capital losses utilized by the Fund were $914,697.
Capital losses sustained in or after fiscal year 2012 can be carried forward indefinitely, but any such loss retains the character of the original loss and must be utilized prior to any loss incurred before fiscal year 2012. As a result of this ordering rule, capital loss carryforwards incurred prior to fiscal year 2012 may be more likely to expire unused. Capital losses sustained prior to fiscal year 2012 can be carried forward for eight years and can be carried forward as short-term capital losses regardless of the character of the original loss.
As of October 31, 2021, the Fund deferred, on a tax basis, a late-year ordinary loss of $288,078. Late-year ordinary losses are net ordinary losses incurred after December 31, 2020, but within the taxable year, that are deemed to arise on the first day of the Fund’s next taxable year.
During fiscal years 2021 and 2020, the Fund did not pay any distributions.
| NOTES TO THE FINANCIAL STATEMENTS |
9). LIBOR TRANSITION
The Fund invests in financial instruments with payment obligations, financing terms, hedging strategies, or investment values based on, among other floating rates, the London Interbank Offered Rate (“LIBOR”). Determined by the ICE Benchmark Administration, LIBOR is an average interest rate that banks charge one another for the use of short- term money. In 2017, the United Kingdom’s Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced plans to phase out the use of LIBOR by the end of 2021. The FCA and ICE Benchmark Administrator have since announced that most LIBOR settings will no longer be published after December 31, 2021, and a majority of U.S. dollar LIBOR settings will cease publication after June 30, 2023. The U.S. Federal Reserve has begun publishing the Secured Overnight Financing Rate (SOFR), which is intended to replace the U.S. dollar LIBOR. Other regulators and industry groups around the world have announced or begun publishing proposed alternative reference rates for other currencies, but global consensus is lacking, and the process for amending many existing contracts or instruments to transition away from LIBOR remains unclear. Uncertainty related to the liquidity impact of the change in reference rates and how to appropriately adjust these rates at the time of transition may lead to increased volatility and illiquidity in markets tied to LIBOR, reduce the value of LIBOR-related instruments, and reduce the effectiveness of hedging strategies, which could adversely affect the Fund’s performance. Moreover, the risks associated with this discontinuation and transition could be exacerbated if the work necessary to effect an orderly transition to an alternative reference rate is not completed in a timely manner. Accordingly, it is difficult to predict the full impact of the transition away from LIBOR on the Fund until new reference rates and fallbacks for both legacy and new instruments and contracts are commercially accepted and market practices become settled.
10). EVENTS SUBSEQUENT TO YEAR END
Management has evaluated the Fund’s related events and transactions that occurred subsequent to October 31, 2021, through the date of issuance of the Fund’s financial statements. Other than as disclosed below, management has determined that there were no subsequent events requiring recognition or disclosure in the financial statements.
On December 7, 2021, capital gains were declared and paid to shareholders of record on December 6, 2021, as follows:
| | | Long-term |
| | Investor Class | $1.65118 |
| | Institutional Class | $1.66621 |
| HENNESSY FUNDS | 1-800-966-4354 | |
Report of Independent Registered Public
Accounting Firm
To the Board of Trustees of Hennessy Funds Trust
and the shareholders of the Hennessy Large Cap Financial Fund
Novato, CA
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of the Hennessy Large Cap Financial Fund (the “Fund”), a series of Hennessy Funds Trust, including the schedule of investments, as of October 31, 2021, the related statement 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, financial highlights for each of the five years in the period then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of October 31, 2021, the results of its operations for the year then ended, the changes in its 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, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We have served as the auditor of one or more of the funds in the Trust since 2002.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of October 31, 2021 by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
| | |
| | TAIT, WELLER & BAKER LLP |
Philadelphia, Pennsylvania
December 22, 2021
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM/TRUSTEES AND OFFICERS |
Trustees and Officers of the Fund (Unaudited)
The business and affairs of the Funds are managed under the direction of the Board of Trustees of the Trust, and the Board of Trustees elects the officers of the Trust. From time to time, the Board of Trustees also has appointed advisers to the Board of Trustees (“Advisers”) with the intention of having qualified individuals serve in an advisory capacity to garner experience in the mutual fund and asset management industry and be considered as potential Trustees in the future. There are currently two Advisers, Brian Alexander and Doug Franklin. As Advisers, Mr. Alexander and Mr. Franklin attend meetings of the Board of Trustees and act as non-voting participants. Information pertaining to the Trustees, Advisers, and the officers of the Trust is set forth below. The Trustees and officers serve until their successors are duly elected and qualified or until their earlier death, resignation, or removal. Each Trustee oversees all 16 Hennessy Funds. Unless otherwise indicated, the address of all persons listed below is 7250 Redwood Boulevard, Suite 200, Novato, CA 94945. The Fund’s Statement of Additional Information includes more information about the persons listed below and is available without charge by calling 1-800-966-4354 or by visiting www.hennessyfunds.com.
| | | | Other |
| | | | Directorships |
| | | | Held Outside |
| Name, Age, | | | of Fund |
| and Position Held | Start Date | Principal Occupation(s) | Complex During |
with the Trust
| of Service | During Past Five Years | Past Five Years
|
| | | | |
| Disinterested Trustees and Advisers | | | |
| | | | |
| J. Dennis DeSousa | January 1996 | Mr. DeSousa is a real estate investor. | None. |
| 85 | | | |
| Trustee | | | |
| | | | |
| Robert T. Doyle | January 1996 | Mr. Doyle has been the Sheriff of | None. |
| 74 | | Marin County, California since 1996. | |
| Trustee | | | |
| | | | |
| Claire Garvie | December 2015 | Ms. Garvie is a founder of Kiosk and | None. |
| 47 | as an Adviser | has served as its Chief Operating | |
| Trustee | to the Board | Officer since 2004. Kiosk is a full- | |
| | and | service marketing agency with | |
| | December 2021 | offices in the San Francisco Bay Area, | |
| | as a Trustee | Toronto, and Liverpool, UK. | |
| | | | |
| Gerald P. Richardson | May 2004 | Mr. Richardson is an independent | None. |
| 76 | | consultant in the securities industry. | |
| Trustee | | | |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | | | Other |
| | | | Directorships |
| | | | Held Outside |
| Name, Age, | | | of Fund |
| and Position Held | Start Date | Principal Occupation(s) | Complex During |
with the Trust
| of Service | During Past Five Years | Past Five Years
|
| | | | |
| Brian Alexander | March 2015 | Mr. Alexander has worked for the | None. |
| 40 | | Sutter Health organization since | |
| Adviser to the Board | | 2011 in various positions. He has | |
| | | served as the Chief Executive Officer | |
| | | of the Sutter Roseville Medical | |
| | | Center since 2018. From 2016 through | |
| | | 2018, he served as the Vice President | |
| | | of Strategy for the Sutter Health Valley | |
| | | Area, which includes 11 hospitals, | |
| | | 13 ambulatory surgery centers, | |
| | | 16,000 employees, and 1,900 physicians. | |
| | | From 2013 through 2016, Mr. Alexander | |
| | | served as Sutter Novato Community | |
| | | Hospital’s Chief Administrative Officer. | |
| | | | |
| Doug Franklin | March 2016 | Mr. Franklin is a retired insurance | None. |
| 57 | | industry executive. From 1987 | |
| Adviser to the Board | | through 2015, he was employed | |
| | | by the Allianz-Fireman’s Fund | |
| | | Insurance Company in various | |
| | | positions, including as its Chief | |
| | | Actuary and Chief Risk Officer. | |
| | | | |
Interested Trustee(1) | | | |
| | | | |
| Neil J. Hennessy | January 1996 as | Mr. Hennessy has been employed | Hennessy |
| 65 | a Trustee and | by Hennessy Advisors, Inc. since | Advisors, Inc. |
| Chairman of the Board, | June 2008 as | 1989 and currently serves as its | |
| Chief Market Strategist, | an officer | Chairman and Chief Executive Officer. | |
| Portfolio Manager, | | | |
| and President | | | |
| Name, Age, | | |
| and Position Held | Start Date | Principal Occupation(s) |
with the Trust
| of Service | During Past Five Years |
| | | |
| Officers | | |
| | | |
| Teresa M. Nilsen | January 1996 | Ms. Nilsen has been employed by Hennessy Advisors, Inc. |
| 55 | | since 1989 and currently serves as its President and Chief |
| Executive Vice President | | Operating Officer. |
| and Treasurer | | |
| | | |
| Daniel B. Steadman | March 2000 | Mr. Steadman has been employed by Hennessy Advisors, Inc. |
| 65 | | since 2000 and currently serves as its Executive Vice President. |
| Executive Vice President | | |
| and Secretary | | |
| | | |
| Brian Carlson | December 2013 | Mr. Carlson has been employed by Hennessy Advisors, Inc. |
| 49 | | since December 2013 and currently serves as its Chief |
| Senior Vice President | | Compliance Officer and Senior Vice President. |
| and Head of Distribution | | |
| TRUSTEES AND OFFICERS OF THE FUND |
| Name, Age, | | |
| and Position Held | Start Date | Principal Occupation(s) |
with the Trust
| of Service | During Past Five Years |
| | | |
Jennifer Cheskiewicz(2) | June 2013 | Ms. Cheskiewicz has been employed by Hennessy Advisors, Inc. |
| 44 | | as its General Counsel since June 2013. |
| Senior Vice President and | | |
| Chief Compliance Officer | | |
| | | |
David Ellison(3) | October 2012 | Mr. Ellison has been employed by Hennessy Advisors, Inc. since |
| 63 | | October 2012. He has served as a Portfolio Manager of the |
| Senior Vice President | | Hennessy Large Cap Financial Fund and the Hennessy Small |
| and Portfolio Manager | | Cap Financial Fund since their inception. Mr. Ellison also served |
| | | as a Portfolio Manager of the Hennessy Technology Fund from |
| | | its inception until February 2017. Mr. Ellison served as Director, |
| | | CIO, and President of FBR Fund Advisers, Inc. from December |
| | | 1999 to October 2012. |
| | | |
Ryan Kelley(4) | March 2013 | Mr. Kelley has been employed by Hennessy Advisors, Inc. since |
| 49 | | October 2012. He has served as Chief Investment Officer of the |
| Chief Investment Officer, | | Hennessy Funds since March 2021 and has served as a Portfolio |
| Senior Vice President, | | Manager of the Hennessy Gas Utility Fund, the Hennessy Large |
| and Portfolio Manager | | Cap Financial Fund, and the Hennessy Small Cap Financial Fund |
| | | since October 2014. Mr. Kelley served as Co-Portfolio Manager |
| | | of these same funds from March 2013 through September |
| | | 2014 and as a Portfolio Analyst for the Hennessy Funds from |
| | | October 2012 through February 2013. He has also served as a |
| | | Portfolio Manager of the Hennessy Cornerstone Growth Fund, |
| | | the Hennessy Cornerstone Mid Cap 30 Fund, the Hennessy |
| | | Cornerstone Large Growth Fund, and the Hennessy |
| | | Cornerstone Value Fund since February 2017 and as a Portfolio |
| | | Manager of the Hennessy Total Return Fund, the Hennessy |
| | | Balanced Fund, and the Hennessy Technology Fund since May |
| | | 2018. He served as Co-Portfolio Manager of the Hennessy |
| | | Technology Fund from February 2017 until May 2018. Mr. Kelley |
| | | served as Portfolio Manager of FBR Fund Advisers, Inc. from |
| | | January 2008 to October 2012. |
| | | |
L. Joshua Wein(4) | September 2018 | Mr. Wein has been employed by Hennessy Advisors, Inc. since |
| 48 | | 2018. He has served as Co-Portfolio Manager of the Hennessy |
| Vice President and | | Cornerstone Growth Fund, the Hennessy Cornerstone |
| Co-Portfolio Manager | | Mid Cap 30 Fund, the Hennessy Cornerstone Large Growth |
| | | Fund, the Hennessy Cornerstone Value Fund, Hennessy Total |
| | | Return Fund, the Hennessy Balanced Fund, the Hennessy Gas |
| | | Utility Fund, and the Hennessy Technology Fund since February |
| | | 2019. He served as a Senior Analyst of these same funds from |
| | | September 2018 through February 2019. Mr. Wein served as |
| | | Director of Alternative Investments and Co-Portfolio Manager |
| | | at Sterling Capital Management from 2008 to 2018. |
_______________
(1) | Mr. Hennessy is considered an “interested person,” as defined in the Investment Company Act of 1940, as amended, because he is an officer of the Trust. |
(2) | The address of this officer is 4800 Bee Caves Road, Suite 100, Austin, TX 78746. |
(3) | The address of this officer is 101 Federal Street, Suite 1615B, Boston, MA 02110. |
(4) | The address of this officer is 1340 Environ Way, Chapel Hill, NC 27517. |
| HENNESSY FUNDS | 1-800-966-4354 | |
Expense Example (Unaudited)
October 31, 2021
As a shareholder of the Fund, you incur 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 the Fund 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, 2021, through October 31, 2021.
Actual Expenses
In the table below, the first line under each of the “Investor Class” and “Institutional Class” headings provides information about actual account values and actual expenses for each share class. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the 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 “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. Although the Fund charges 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. Bank Global Fund Services, the Fund’s transfer agent. If you request that a redemption be made by wire transfer, the Fund’s transfer agent charges a $15 fee. IRAs are charged a $15 annual maintenance fee (up to $30 maximum per shareholder for shareholders with multiple IRAs). The examples below include, but are not limited to, management, shareholder servicing, accounting, custody, and transfer agent fees. However, the examples below do not include portfolio trading commissions and related expenses.
Hypothetical Example for Comparison Purposes
In the table below, the second line under each of the “Investor Class” and “Institutional Class” headings provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio for each share class and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return for such share class. 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 Fund and other funds. To do so, compare these 5% hypothetical examples 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. Therefore, the second lines under “Investor Class” and “Institutional Class” are useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds.
| | | | Expenses Paid |
| | Beginning | Ending | During Period(1) |
| | Account Value | Account Value | May 1, 2021 – |
| | May 1, 2021
| October 31, 2021 | October 31, 2021 |
| Investor Class | | | |
| Actual | $1,000.00 | $1,077.20 | $8.74 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,016.79 | $8.49 |
| | | | |
| Institutional Class | | | |
| Actual | $1,000.00 | $1,079.00 | $7.13 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,018.35 | $6.92 |
(1) | Expenses are equal to the Fund’s annualized expense ratio of 1.67% for Investor Class shares or 1.36% for Institutional Class shares, as applicable, multiplied by the average account value over the period, multiplied by 184/365 days (to reflect the half-year period). |
| HENNESSY FUNDS | 1-800-966-4354 | |
How to Obtain a Copy of the Fund’s Proxy
Voting Policy and Proxy Voting Records
A description of the policies and procedures the Fund uses 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/proxy-voting/voting-policy, or (3) on the U.S. Securities and Exchange Commission’s (the “SEC”) website at www.sec.gov. The Fund’s proxy voting record is available without charge on both the Hennessy Funds’ website at www.hennessyfunds.com/proxy-voting/voting-record and the SEC’s website at www.sec.gov no later than August 31 for the prior 12 months ending June 30.
Availability of Quarterly Portfolio Schedule
The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov or on request by calling 1-800-966-4354.
Important Notice Regarding Delivery
of Shareholder Documents
To help keep the Fund’s costs as low as possible, we generally deliver a single copy of shareholder reports, proxy statements, and prospectuses to shareholders who share an address and have the same last name. This process does not apply to account statements. You may request an individual copy of a shareholder document at any time. If you would like to receive separate mailings of shareholder documents, please call U.S. Bank Global Fund Services at 1-800-261-6950 or 1-414-765-4124, and individual delivery will begin within 30 days of your request. If your account is held through a financial institution or other intermediary, please contact such intermediary directly to request individual delivery.
Electronic Delivery
As permitted by SEC regulations, the Fund’s shareholder reports are made available on a website, and unless you sign up for eDelivery or elect to receive paper copies as detailed below, you will be notified by mail each time a report is posted and provided with a website link to access the report.
The Fund also offers shareholders the option to receive all notices, account statements, prospectuses, tax forms, and shareholder reports online. To sign up for eDelivery or change your delivery preference, please visit www.hennessyfunds.com/account.
To elect to receive paper copies of all future reports free of charge, please call U.S. Bank Global Fund Services at 1-800-261-6950 or 1-414-765-4124.
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| PROXY VOTING — PRIVACY POLICY |
Liquidity Risk Management Program
In accordance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), we have adopted and implemented a liquidity risk management program (the “Liquidity Program”). The purpose of the Liquidity Program is to assess and manage the Fund’s liquidity risk, which is the risk that the Fund would not be able to meet requests to redeem Fund shares without significant dilution of the remaining shareholders’ interests in the Fund. The Board of Trustees of the Fund (the “Board”) designated a committee comprising representatives of Hennessy Advisors, Inc., the investment adviser to the Fund, as the administrator of the Liquidity Program (the “Program Administrator”).
The Program Administrator provided a written report regarding the Liquidity Program to the Board in advance of its meeting on June 2, 2021. The report covered the period from June 1, 2020, through May 31, 2021. The report addressed the operation of the Liquidity Program, assessed the adequacy and effectiveness of its implementation, and described any material changes to the Liquidity Program during the review period. The Trust’s chief compliance officer presented the report to the Board at the meeting and provided additional information regarding the Liquidity Program. The Board reviewed the Liquidity Program and considered, among other items, the following:
| | 1. | The Program Administrator reviewed daily historical net redemption activity during the review period and during prior periods with higher-than-average redemption activity and concluded that the Fund has historically been able to meet requests to redeem Fund shares without significant dilution to the Fund’s remaining shareholders, and the Program Administrator expects the Fund to be able to continue to do so in the future during both normal and reasonably foreseeable stressed conditions. |
| | | |
| | 2. | The Fund holds assets that are highly liquid investments and is therefore not required to establish a highly liquid investment minimum for the Fund or adopt policies and procedures for responding to a highly liquid investment minimum shortfall. |
| | | |
| | 3. | The Program Administrator did not make any material changes to the Liquidity Program during the review period and did not recommend any changes to the Liquidity Program. The Program Administrator did make adjustments to the model inputs used to determine the liquidity classification of each security held by the Fund. |
| | | |
| | 4. | The Program Administrator concluded that the Liquidity Program was reasonably designed to assess and manage the Fund’s liquidity risk, complies with the requirements of the Liquidity Rule, and was operating as intended during the review period. |
Privacy Policy
We collect the following personal information about you:
| | 1. | Information we receive from you 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; |
| | | |
| | 2. | Information about your transactions with us, our affiliates, or others, including, but not limited to, your account number and balance, payments history, parties to transactions, cost basis information, and other financial information; and |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | 3. | Other personal information we collect from various sources, even if you have not entered into a prior transaction with us, including the following: |
| | • | Name, alias, address, unique personal identifier, online identifier, IP address, email address, telephone number, account name, and other similar identifiers; |
| | | |
| | • | Age and marital status; |
| | | |
| | • | Commercial information, including records of products purchased; |
| | | |
| | • | Browsing history, search history, and information on interaction with our website; |
| | | |
| | • | Geolocation data; |
| | | |
| | • | Employment and employment history, educational history, financial information, and purchasing and consuming histories or tendencies; and |
| | | |
| | • | Inferences drawn from the above-listed information to create a profile about your preferences, characteristics, predispositions, and behavior. |
We collect this information directly from you, indirectly in the course of providing services to you, directly and indirectly from your activity on our website, from broker dealers, marketing agencies, and other third parties that interact with us in connection with the services we perform and products we offer, and from anonymized and aggregated consumer information.
We use this information to fulfill the reason you provided the information to us, to provide you with other relevant products that you request from us, to provide you with information about products that may interest you, to improve our website or present our website’s contents to you, and as otherwise described to you when collecting your personal information.
We do not disclose any personal information to unaffiliated third parties, except as permitted by law. We may disclose your personal information to our affiliates, vendors, and service providers for a business purpose. 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. When disclosing your personal information to third parties, we enter into a contract with each third party describing the purpose of such disclosure and requiring that such personal information be kept confidential and not used for any purpose except to perform the services contracted or respond to regulatory or law enforcement requests.
Furthermore, we restrict access to your personal information to those persons who require such information to provide products or services to you. As a result, we do not provide a means for opting out of our limited sharing of your information. We maintain physical, electronic, and procedural safeguards that comply with federal standards to guard your personal information.
If you hold shares of the Funds through a financial intermediary, including, but not limited to, a broker-dealer, bank, or trust company, the privacy policy of your financial intermediary governs how your personal information is shared with unaffiliated third parties.
Supplemental Privacy Notice for Residents of California
The California Consumer Privacy Act of 2018 (the “CCPA”) provides you, as a California resident, with certain additional rights relating to your personal information.
Under the CCPA, you have the right to request that we disclose to you the categories of personal information we have collected about you over the past 12 months, the categories of sources of such information, our business purpose for collecting the information, the categories of third parties, if any, with whom we shared the information, and the specific information we have collected about you. You also have the right to request that we delete any of your personal information, and, unless an exception applies, we will delete such information upon receiving and confirming your request. To make a request, call us at 1-800-966-4354, email us at privacy@hennessyfunds.com, or go to www.hennessyfunds.com/contact. We will not discriminate against you for exercising your rights under the CCPA. Further, we will not collect additional categories of your personal information or use the personal information we collected for materially different, unrelated, or incompatible purposes without providing you notice.
| HENNESSY FUNDS | 1-800-966-4354 | |
(This Page Intentionally Left Blank.)
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 Boulevard, Suite 200
Novato, California 94945
ADMINISTRATOR,
TRANSFER AGENT,
DIVIDEND PAYING AGENT, &
SHAREHOLDER SERVICING AGENT
U.S. Bancorp Fund Services, LLC
d/b/a U.S. Bank Global Fund Services
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
CUSTODIAN
U.S. Bank N.A.
Custody Operations
1555 North River Center Drive, Suite 302
Milwaukee, Wisconsin 53212
TRUSTEES
Neil J. Hennessy
Robert T. Doyle
J. Dennis DeSousa
Claire Garvie
Gerald P. Richardson
COUNSEL
Foley & Lardner LLP
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-5306
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Tait, Weller & Baker LLP
Two Liberty Place
50 South 16th Street, Suite 2900
Philadelphia, Pennsylvania 19102-2529
DISTRIBUTOR
Quasar Distributors, LLC
111 East Kilbourn Avenue, Suite 2200
Milwaukee, Wisconsin 53202
www.hennessyfunds.com | 1-800-966-4354
This report has been prepared for shareholders and may be distributed to
others only if preceded or accompanied by a current prospectus.
ANNUAL REPORT
OCTOBER 31, 2021
HENNESSY SMALL CAP FINANCIAL FUND
Investor Class HSFNX
Institutional Class HISFX
www.hennessyfunds.com | 1-800-966-4354
(This Page Intentionally Left Blank.)
Contents
| Letter to Shareholders | 2 |
| Performance Overview | 4 |
| Financial Statements | |
| Schedule of Investments | 7 |
| Statement of Assets and Liabilities | 10 |
| Statement of Operations | 11 |
| Statements of Changes in Net Assets | 13 |
| Financial Highlights | 14 |
| Notes to the Financial Statements | 18 |
| Report of Independent Registered Public Accounting Firm | 26 |
| Trustees and Officers of the Fund | 27 |
| Expense Example | 30 |
| Proxy Voting Policy and Proxy Voting Records | 32 |
| Availability of Quarterly Portfolio Schedule | 32 |
| Federal Tax Distribution Information | 32 |
| Important Notice Regarding Delivery of Shareholder Documents | 32 |
| Electronic Delivery | 32 |
| Liquidity Risk Management Program | 33 |
| Privacy Policy | 33 |
| HENNESSY FUNDS | 1-800-966-4354 | |
December 2021
Dear Hennessy Funds Shareholder:
What a year this has been. While it doesn’t feel that we are out of the “pandemic” phase of the coronavirus crisis, we look forward to a day when we will eventually see fewer cases and potentially less severe variants. We feel extremely grateful to the many healthcare workers who have continued to work tirelessly during the recent surge. As we move through the next year, we hope that new U.S. cases will decline and that many other parts of the world will see improvements as well.
What a year this has been! As measured by the total return of the S&P 500® Index, as of October 31, 2021, the market was up 24.04% calendar year to date. This comes in the wake of a tumultuous 2020 in which the market plunged in the beginning of the pandemic and recovered dramatically to end the year up 18.40%. Interestingly, 18% appears to be a repeating number in the past dozen years. From the low point of the Financial Crisis (March 9, 2009) to the high point reached just prior to the COVID-19 pandemic (February 12, 2020), the S&P 500® Index was up 18.27% per year. We are well aware that past results are not predictive of the future, and we find ourselves naturally skeptical of such strong returns. But, as shown in the chart below, we find that the most common annual total returns of the market over the past 102 years range between 20% and 30% with the second most common being between 10% and 20%:
Source: Bloomberg L.P.
We will say it again, after showing a chart like the one above: Past results are not predictive of the future. Instead, we look at where we are right now – in the economy, in the market, in the business cycle – to reflect on where we have come from and where we may be going. U.S. GDP is strong and growing, interest rates remain low, and earnings growth and profitability remain robust. We believe stocks are trading at reasonable valuations when viewed as a whole, with the S&P 500® Index at 21.0x estimated earnings for 2022. Furthermore, we believe corporate balance sheets are healthy, with high levels of excess cash, which could support growth, increases in dividends, more share buybacks, and future acquisitions. Uncertainty and volatility can manifest at any time in the stock market, and the current market is no different. Investors have questions about inflation, worldwide supply chain issues, and what could drive the next boost in earnings. While these concerns are warranted, we continue to believe that overall the positives outweigh the negatives, and here at Hennessy we continue to see opportunity in the market and in our Funds.
What a (fiscal) year this has been!!! For our fiscal year ended October 31, 2021, the S&P 500® Index rose 42.91% on a total return basis, setting a new all-time high on the final day of the period. Except for a short 21-trading-day period that began on September 2 during which the market fell 5.13% only to rebound to new highs just 13 trading days later, the market has been on a continuous march higher. We saw a dramatic shift in market leadership as many of the sectors that underperformed during our last fiscal year soared in fiscal year 2021. Small-caps beat mid-caps, which in turn beat large-caps. The Energy and Financials sectors skyrocketed during the 12-month period, as reflected by the S&P 500® Energy Sector’s total return of 111.29% and the Russell 1000® Index Financials’ total return of 70.87%. Both of these sectors were among the worst performing in our fiscal year 2020, so a bounce back in our fiscal year 2021, while not a foregone conclusion, was a distinct possibility.
Overall, we are pleased with the performance of our mutual funds during the fiscal year. On an absolute basis, each of our 16 Funds achieved total returns greater than 10% and seven outperformed their primary benchmark. Ten of our 11 domestic equity-only Funds outperformed the S&P 500® Index and posted total returns of 45% or higher. Our four best-performing funds were concentrated in the Energy and Financials sectors. While some of our Funds certainly benefited from being in the “right” sector at the “right” time, we also believe this was a favorable period for our investment style of high-conviction investing and concentrated portfolio construction.
What will the coming year bring? As mentioned in our last shareholder letter (June 2021), we understand that even the greatest bull markets experience corrections along the way, and the last time the S&P 500® Index dropped over 10% was in February/March of 2020. Whether or not a correction occurs sooner or later, we believe the market as a whole has more room to run. We see many factors that could drive the market higher from here: strong GDP growth and increasing corporate earnings, a potentially lower-for-longer interest rate environment, accommodative fiscal and monetary policies, a healthy and robust financial system, low unemployment and solid wage growth, and strong corporate balance sheets with plenty of cash.
Thank you for your interest and for investing with us. We remain committed to managing our portfolios for long-term performance, ever mindful of downside risk. With so many investment options available to you, we are grateful for the trust you put in us and for your continued interest in our family of Funds. If you have any questions or would like to speak with us, please don’t hesitate to call us directly at (800) 966-4354.
Best regards,
| |
| |
| |
| |
|
| Ryan C. Kelley |
| Chief Investment Officer |
Past performance does not guarantee future results. To obtain current standardized performance for the Hennessy Funds, visit https://www.hennessyfunds.com/funds/price-performance.
Mutual fund investing involves risk. Principal loss is possible.
Opinions expressed are those of Ryan C. Kelley and are subject to change, are not guaranteed, and should not be considered investment advice.
The Dow Jones Industrial Average and S&P 500® Index are commonly used to measure the performance of U.S. stocks. The S&P 500® Energy Index comprises those companies included in the S&P 500® Index that are classified in the Energy sector. The Russell 1000® Index Financials is a subset of the Russel 1000® Index that measures the performance of securities classified in the Financials sector of the large-capitalization U.S. equity market. The indices are used herein for comparative purposes in accordance with SEC regulations. One cannot invest directly in an index. All returns are shown on a total return basis.
| HENNESSY FUNDS | 1-800-966-4354 | |
Performance Overview (Unaudited)
CHANGE IN VALUE OF $10,000 INVESTMENT
This graph illustrates the performance of an initial investment of $10,000 made in the Fund 10 years ago and assumes the reinvestment of dividends and capital gains.
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED OCTOBER 31, 2021
| | | One | Five | Ten |
| | | Year
| Years
| Years
|
| | Hennessy Small Cap Financial Fund – | | | |
| | Investor Class (HSFNX) | 82.20% | 12.84% | 13.49% |
| | Hennessy Small Cap Financial Fund – | | | |
| | Institutional Class (HISFX) | 82.88% | 13.26% | 13.89% |
| | Russell 2000® Index Financials | 60.29% | 12.18% | 13.37% |
| | Russell 2000® Index | 50.80% | 15.52% | 13.50% |
Expense ratios: 1.66% (Investor Class); 1.30% (Institutional Class)
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. The performance table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 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 including or prior to October 26, 2012, is that of the FBR Small Cap Financial Fund.
The Russell 2000® Index Financials is a subset of the Russell 2000® Index that measures the performance of the securities classified in the Financials sector of the small-cap U.S. equity market. The Russell 2000® Index comprises the smallest 2,000 companies in the Russell 3000® Index based on market capitalization, representing approximately 8% of the Russell 3000® Index in terms of total market capitalization. One cannot invest directly in an index. These indices are used for comparative purposes in accordance with Securities and Exchange Commission regulations.
Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes or Russell ratings or underlying data and no party may rely on any Russell Indexes or Russell ratings or underlying data contained in this communication. No
further distribution of Russell data is permitted without Russell’s express written consent. Russell does not promote, sponsor, or endorse the content of this communication.
The expense ratios presented are from the most recent prospectus. The expense ratios for the current reporting period are available in the Financial Highlights section of this report.
PERFORMANCE NARRATIVE
Portfolio Managers David H. Ellison and Ryan C. Kelley, CFA
Performance:
For the one-year period ended October 31, 2021, the Investor Class of the Hennessy Small Cap Financial Fund returned 82.20%, outperforming both the Russell 2000® Index Financials (the Fund’s primary benchmark) and the Russell 2000® Index, which returned 60.29% and 50.80%, respectively, for the same period.
The Fund’s outperformance relative to its primary benchmark resulted predominantly from favorable stock selection within small and regional banks. Top contributors to Fund performance included PacWest Bancorp, ConnectOne Bancorp, Inc., and Hancock Whitney Corporation. Conversely, the largest detractors from performance were PCSB Financial Corporation, Silvergate Capital Corporation, and Northeast Community Bancorp, Inc. In general, small-cap financials performed exceptionally well in 2021, both on an absolute basis and when compared to the broader stock market.
The Fund continues to hold the companies mentioned except PCSB Financial.
Portfolio Strategy:
Generally, the Fund tilts its investments more heavily toward regional banks, thrifts, and, at times, mortgage finance companies. Within these preferred sub-industries, we seek companies that we believe have high-quality management teams, uncomplicated business models, strong balance sheets, and sustainable earnings growth opportunities. Moreover, we identify companies that we expect will do better than peers in challenging environments, which are characterized by low interest rates, slow loan growth, and potential for increased loan charge-offs. We are less interested in focusing solely on companies that appear to promise an increase in profitability when interest rates rise, loan demand increases, or product pricing becomes more favorable. We believe these industry dynamics are difficult to predict, and we prefer to focus on companies that are working to remain competitive in the long term.
Investment Commentary:
Following this past year of strong price appreciation, we continue to believe that attractive long-term opportunities exist within our investable universe of small-cap financials, despite a somewhat challenging environment. Challenges include low interest rates, slow-to-no loan growth, and compressed margins. However, we are encouraged that the industry has not experienced significant asset quality problems due to the COVID-19 pandemic and that the industry as a whole continues to have high levels of reserves and capital. This year we have seen a significant increase in merger activity, a trend we believe should continue to drive performance in the Fund. Finally, we continue to believe that valuations are attractive, given that banks are trading at a steep discount to the broader market, despite the significant outperformance in the past year.
_______________
Opinions expressed are those of the Portfolio Managers as of the date written and are subject to change, are not guaranteed, and should not be considered investment advice or an indication of trading intent.
| HENNESSY FUNDS | 1-800-966-4354 | |
The Fund is non-diversified, meaning it may concentrate its assets in fewer individual holdings than a diversified fund, making it more exposed to individual stock volatility than a diversified fund. Investments are focused in the financial services industry; sector funds may be subject to a higher degree of market risk. The Fund invests in smaller companies, which may have more limited liquidity and greater volatility compared to larger companies. Please see the Fund’s prospectus for a more complete discussion of these and other risks.
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 Schedule of Investments included in this report for additional portfolio information.
Earnings growth is not a measure of the Fund’s future performance.
| PERFORMANCE OVERVIEW/SCHEDULE OF INVESTMENTS |
Financial Statements
Schedule of Investments as of October 31, 2021 |
HENNESSY SMALL CAP FINANCIAL FUND
(% of Net Assets)
| TOP TEN HOLDINGS (EXCLUDING MONEY MARKET FUNDS) | % NET ASSETS |
| ConnectOne Bancorp, Inc. | 4.70% |
| Hingham Institution for Savings | 4.68% |
| Flushing Financial Corp. | 4.47% |
| Banner Corp. | 4.30% |
| Lakeland Bancorp, Inc. | 4.28% |
| WSFS Financial Corp. | 4.27% |
| HomeTrust Bancshares, Inc. | 4.24% |
| First Midwest Bancorp, Inc. | 4.19% |
| Texas Capital Bancshares, Inc. | 4.05% |
| First BanCorp. | 4.04% |
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, as amended, the Fund uses more specific industry classifications.
The Global Industry Classification Standard (GICS®) was developed by and is the exclusive property and a service mark of MSCI, Inc. and Standard & Poor’s Financial Services LLC. It has been licensed for use by the Hennessy Funds.
| HENNESSY FUNDS | 1-800-966-4354 | |
| COMMON STOCKS – 97.07% | | Number | | | % of | | | | |
| | | of Shares | | | Value | | | Net Assets | |
| Financials – 93.35% | | | | | | | | | |
| Associated Banc-Corp. | | | 200,000 | | | $ | 4,456,000 | | | | 2.59 | % |
| BankUnited, Inc. | | | 75,000 | | | | 3,042,000 | | | | 1.77 | % |
| Banner Corp. | | | 128,000 | | | | 7,393,280 | | | | 4.30 | % |
| Berkshire Hills Bancorp, Inc. | | | 121,000 | | | | 3,285,150 | | | | 1.91 | % |
| Cadence Bank | | | 154,000 | | | | 4,469,080 | | | | 2.60 | % |
| CIT Group, Inc. | | | 126,000 | | | | 6,240,780 | | | | 3.63 | % |
| ConnectOne Bancorp, Inc. | | | 240,000 | | | | 8,095,200 | | | | 4.70 | % |
| Eastern Bankshares, Inc. | | | 175,000 | | | | 3,634,750 | | | | 2.11 | % |
| First BanCorp. (a) | | | 510,000 | | | | 6,961,500 | | | | 4.04 | % |
| First Midwest Bancorp, Inc. | | | 375,000 | | | | 7,218,750 | | | | 4.19 | % |
| Flushing Financial Corp. | | | 320,000 | | | | 7,686,400 | | | | 4.47 | % |
| Hancock Whitney Corp. | | | 140,000 | | | | 6,927,200 | | | | 4.02 | % |
| HarborOne Bancorp, Inc. | | | 175,000 | | | | 2,514,750 | | | | 1.46 | % |
| Hingham Institution for Savings | | | 22,300 | | | | 8,055,652 | | | | 4.68 | % |
| HomeTrust Bancshares, Inc. | | | 240,000 | | | | 7,296,000 | | | | 4.24 | % |
| Independent Bank Corp. | | | 57,500 | | | | 4,858,750 | | | | 2.82 | % |
| Investors Bancorp, Inc. | | | 148,000 | | | | 2,264,400 | | | | 1.32 | % |
| Kearny Financial Corp. of Maryland | | | 400,000 | | | | 5,368,000 | | | | 3.12 | % |
| Lakeland Bancorp, Inc. | | | 410,000 | | | | 7,371,800 | | | | 4.28 | % |
| Meridian Bancorp, Inc. | | | 158,000 | | | | 3,665,600 | | | | 2.13 | % |
| New York Community Bancorp, Inc. | | | 425,000 | | | | 5,282,750 | | | | 3.07 | % |
| Northeast Community Bancorp, Inc. | | | 95,000 | | | | 1,041,200 | | | | 0.61 | % |
| Pacific Premier Bancorp, Inc. | | | 57,500 | | | | 2,414,425 | | | | 1.40 | % |
| PacWest Bancorp | | | 112,000 | | | | 5,316,640 | | | | 3.09 | % |
| Shore Bancshares, Inc. | | | 95,000 | | | | 1,755,600 | | | | 1.02 | % |
| Silvergate Capital Corp. (b) | | | 20,000 | | | | 3,132,400 | | | | 1.82 | % |
| Sterling Bancorp | | | 103,000 | | | | 2,621,350 | | | | 1.52 | % |
| Synovus Financial Corp. | | | 90,000 | | | | 4,193,100 | | | | 2.44 | % |
| Texas Capital Bancshares, Inc. (b) | | | 115,000 | | | | 6,969,000 | | | | 4.05 | % |
| Webster Financial Corp. | | | 30,000 | | | | 1,678,800 | | | | 0.98 | % |
| Western New England Bancorp, Inc. | | | 195,000 | | | | 1,897,350 | | | | 1.10 | % |
| Wintrust Financial Corp. | | | 70,000 | | | | 6,195,000 | | | | 3.60 | % |
| WSFS Financial Corp. | | | 142,000 | | | | 7,357,020 | | | | 4.27 | % |
| | | | | | | | 160,659,677 | | | | 93.35 | % |
The accompanying notes are an integral part of these financial statements.
| COMMON STOCKS | | Number | | |
| | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Information Technology – 3.72% | | | | | | | | | |
| Alliance Data Systems Corp. | | | 75,000 | | | $ | 6,393,750 | | | | 3.72 | % |
| | | | | | | | | | | | | |
| Total Common Stocks | | | | | | | | | | | | |
| (Cost $116,473,036) | | | | | | | 167,053,427 | | | | 97.07 | % |
| | | | | | | | | | | | | |
| SHORT-TERM INVESTMENTS – 4.43% | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Money Market Funds – 4.43% | | | | | | | | | | | | |
| First American Government Obligations Fund, | | | | | | | | | | | | |
| Institutional Class, 0.03% (c) | | | 7,627,764 | | | | 7,627,764 | | | | 4.43 | % |
| | | | | | | | | | | | | |
| Total Short-Term Investments | | | | | | | | | | | | |
| (Cost $7,627,764) | | | | | | | 7,627,764 | | | | 4.43 | % |
| | | | | | | | | | | | | |
| Total Investments | | | | | | | | | | | | |
| (Cost $124,100,800) – 101.50% | | | | | | | 174,681,191 | | | | 101.50 | % |
| Liabilities in Excess of Other Assets – (1.50)% | | | | | | | (2,573,808 | ) | | | (1.50 | )% |
| | | | | | | | | | | | | |
TOTAL NET ASSETS – 100.00% | | | | | | $ | 172,107,383 | | | | 100.00 | % |
Percentages are stated as a percent of net assets.
| (a) | U.S.-traded security of a foreign corporation. |
| (b) | Non-income-producing security. |
| (c) | The rate listed is the fund’s seven-day yield as of October 31, 2021. |
Summary of Fair Value Exposure as of October 31, 2021
The following is a summary of the inputs used to value the Fund’s net assets as of October 31, 2021 (see Note 3 in the accompanying Notes to the Financial Statements):
| Common Stocks | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Financials | | $ | 160,659,677 | | | $ | — | | | $ | — | | | $ | 160,659,677 | |
| Information Technology | | | 6,393,750 | | | | — | | | | — | | | | 6,393,750 | |
| Total Common Stocks | | $ | 167,053,427 | | | $ | — | | | $ | — | | | $ | 167,053,427 | |
| Short-Term Investments | | | | | | | | | | | | | | | | |
| Money Market Funds | | $ | 7,627,764 | | | $ | — | | | $ | — | | | $ | 7,627,764 | |
| Total Short-Term Investments | | $ | 7,627,764 | | | $ | — | | | $ | — | | | $ | 7,627,764 | |
| Total Investments | | $ | 174,681,191 | | | $ | — | | | $ | — | | | $ | 174,681,191 | |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
Statement of Assets and Liabilities as of October 31, 2021 |
| ASSETS: | | | |
| Investments in securities, at value (cost $124,100,800) | | $ | 174,681,191 | |
| Dividends and interest receivable | | | 85,193 | |
| Receivable for fund shares sold | | | 273,080 | |
| Prepaid expenses and other assets | | | 27,465 | |
| Total assets | | | 175,066,929 | |
| | | | | |
| LIABILITIES: | | | | |
| Payable for securities purchased | | | 2,630,875 | |
| Payable for fund shares redeemed | | | 60,200 | |
| Payable to advisor | | | 124,135 | |
| Payable to administrator | | | 44,348 | |
| Payable to auditor | | | 22,556 | |
| Accrued distribution fees | | | 20,402 | |
| Accrued service fees | | | 11,638 | |
| Accrued trustees fees | | | 6,601 | |
| Accrued expenses and other payables | | | 38,791 | |
| Total liabilities | | | 2,959,546 | |
| NET ASSETS | | $ | 172,107,383 | |
| | | | | |
| NET ASSETS CONSISTS OF: | | | | |
| Capital stock | | $ | 122,637,694 | |
| Total distributable earnings | | | 49,469,689 | |
| Total net assets | | $ | 172,107,383 | |
| | | | | |
| NET ASSETS: | | | | |
| Investor Class | | | | |
| Shares authorized (no par value) | | Unlimited | |
| Net assets applicable to outstanding shares | | $ | 140,026,141 | |
| Shares issued and outstanding | | | 4,442,634 | |
| Net asset value, offering price, and redemption price per share | | $ | 31.52 | |
| | | | | |
| Institutional Class | | | | |
| Shares authorized (no par value) | | Unlimited | |
| Net assets applicable to outstanding shares | | $ | 32,081,242 | |
| Shares issued and outstanding | | | 1,727,333 | |
| Net asset value, offering price, and redemption price per share | | $ | 18.57 | |
The accompanying notes are an integral part of these financial statements.
| STATEMENT OF ASSETS AND LIABILITIES/STATEMENT OF OPERATIONS |
Financial Statements
Statement of Operations for the year ended October 31, 2021 |
| INVESTMENT INCOME: | | | |
Dividend income(1) | | $ | 3,178,534 | |
| Interest income | | | 775 | |
| Total investment income | | | 3,179,309 | |
| | | | | |
| EXPENSES: | | | | |
| Investment advisory fees (See Note 5) | | | 1,150,465 | |
| Sub-transfer agent expenses – Investor Class (See Note 5) | | | 219,938 | |
| Sub-transfer agent expenses – Institutional Class (See Note 5) | | | 13,860 | |
| Distribution fees – Investor Class (See Note 5) | | | 161,462 | |
| Administration, accounting, custody, and transfer agent fees (See Note 5) | | | 151,103 | |
| Service fees – Investor Class (See Note 5) | | | 107,642 | |
| Federal and state registration fees | | | 35,497 | |
| Compliance expense (See Note 5) | | | 27,448 | |
| Audit fees | | | 22,556 | |
| Trustees’ fees and expenses | | | 18,996 | |
| Reports to shareholders | | | 13,131 | |
| Legal fees | | | 1,959 | |
| Interest expense (See Note 7) | | | 414 | |
| Other expenses | | | 17,208 | |
| Total expenses | | | 1,941,679 | |
| NET INVESTMENT INCOME | | $ | 1,237,630 | |
| | | | | |
| REALIZED AND UNREALIZED GAINS (LOSSES): | | | | |
| Net realized gain on investments | | $ | 7,181,600 | |
| Net change in unrealized appreciation/depreciation on investments | | | 46,273,638 | |
| Net gain on investments | | | 53,455,238 | |
| NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | | $ | 54,692,868 | |
(1) | Net of foreign taxes withheld of $12,155. |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
(This Page Intentionally Left Blank.)
| STATEMENTS OF CHANGES IN NET ASSETS |
Financial Statements
| Statements of Changes in Net Assets |
| | | Year Ended | | | Year Ended | |
| | | October 31, 2021 | | | October 31, 2020 | |
| OPERATIONS: | | | | | | |
| Net investment income | | $ | 1,237,630 | | | $ | 774,849 | |
| Net realized gain (loss) on investments | | | 7,181,600 | | | | (8,317,125 | ) |
| Net change in unrealized | | | | | | | | |
| appreciation/depreciation on investments | | | 46,273,638 | | | | (9,544,740 | ) |
| Net increase (decrease) in net | | | | | | | | |
| assets resulting from operations | | | 54,692,868 | | | | (17,087,016 | ) |
| | | | | | | | | |
| DISTRIBUTIONS TO SHAREHOLDERS: | | | | | | | | |
| Distributable earnings – Investor Class | | | (640,077 | ) | | | (3,014,018 | ) |
| Distributable earnings – Institutional Class | | | (266,480 | ) | | | (963,722 | ) |
| Total distributions | | | (906,557 | ) | | | (3,977,740 | ) |
| | | | | | | | | |
| CAPITAL SHARE TRANSACTIONS: | | | | | | | | |
| Proceeds from shares subscribed – Investor Class | | | 89,150,331 | | | | 1,461,277 | |
| Proceeds from shares subscribed – Institutional Class | | | 23,725,263 | | | | 4,656,510 | |
| Dividends reinvested – Investor Class | | | 621,958 | | | | 2,952,871 | |
| Dividends reinvested – Institutional Class | | | 237,659 | | | | 935,074 | |
| Cost of shares redeemed – Investor Class | | | (49,466,414 | ) | | | (21,427,965 | ) |
| Cost of shares redeemed – Institutional Class | | | (11,517,594 | ) | | | (12,043,139 | ) |
| Net increase (decrease) in net assets | | | | | | | | |
| derived from capital share transactions | | | 52,751,203 | | | | (23,465,372 | ) |
| TOTAL INCREASE (DECREASE) IN NET ASSETS | | | 106,537,514 | | | | (44,530,128 | ) |
| | | | | | | | | |
| NET ASSETS: | | | | | | | | |
| Beginning of year | | | 65,569,869 | | | | 110,099,997 | |
| End of year | | $ | 172,107,383 | | | $ | 65,569,869 | |
| | | | | | | | | |
| CHANGES IN SHARES OUTSTANDING: | | | | | | | | |
| Shares sold – Investor Class | | | 3,020,767 | | | | 90,621 | |
| Shares sold – Institutional Class | | | 1,373,793 | | | | 483,086 | |
| Shares issued to holders as reinvestment | | | | | | | | |
| of dividends – Investor Class | | | 28,361 | | | | 136,924 | |
| Shares issued to holders as reinvestment | | | | | | | | |
| of dividends – Institutional Class | | | 18,452 | | | | 72,426 | |
| Shares redeemed – Investor Class | | | (1,754,093 | ) | | | (1,216,466 | ) |
| Shares redeemed – Institutional Class | | | (688,529 | ) | | | (1,136,528 | ) |
| Net increase (decrease) in shares outstanding | | | 1,998,751 | | | | (1,569,937 | ) |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
For an Investor Class share outstanding throughout each year
PER SHARE DATA:
Net asset value, beginning of year
Income from investment operations:
Net investment income (loss)
Net realized and unrealized gains (losses) on investments
Total from investment operations
Less distributions:
Dividends from net investment income
Dividends from net realized gains
Total distributions
Net asset value, end of year
TOTAL RETURN
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of year (millions)
Ratio of expenses to average net assets
Ratio of net investment income (loss) to average net assets
Portfolio turnover rate(3)
(1) | Calculated using the average shares outstanding method. |
(2) | Amount is between $(0.005) and $0.005. |
(3) | Calculated on the basis of the Fund as a whole. |
The accompanying notes are an integral part of these financial statements.
| FINANCIAL HIGHLIGHTS — INVESTOR CLASS |
| Year Ended October 31, | |
| 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | | | | | | |
| $ | 17.46 | | | $ | 21.60 | | | $ | 21.96 | | | $ | 26.02 | | | $ | 23.48 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 0.25 | (1) | | | 0.16 | (1) | | | 0.10 | (1) | | | 0.03 | | | | (0.04 | ) |
| | 14.01 | | | | (3.55 | ) | | | 0.93 | | | | (2.12 | ) | | | 5.83 | |
| | 14.26 | | | | (3.39 | ) | | | 1.03 | | | | (2.09 | ) | | | 5.79 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | (0.20 | ) | | | (0.09 | ) | | | (0.07 | ) | | | 0.00 | (2) | | | (0.06 | ) |
| | — | | | | (0.66 | ) | | | (1.32 | ) | | | (1.97 | ) | | | (3.19 | ) |
| | (0.20 | ) | | | (0.75 | ) | | | (1.39 | ) | | | (1.97 | ) | | | (3.25 | ) |
| $ | 31.52 | | | $ | 17.46 | | | $ | 21.60 | | | $ | 21.96 | | | $ | 26.02 | |
| | | | | | | | | | | | | | | | | | | |
| | 82.20 | % | | | -16.37 | % | | | 5.27 | % | | | -8.79 | % | | | 25.03 | % |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| $ | 140.03 | | | $ | 54.96 | | | $ | 89.36 | | | $ | 122.00 | | | $ | 174.01 | |
| | 1.58 | % | | | 1.65 | % | | | 1.58 | % | | | 1.54 | % | | | 1.52 | % |
| | 0.90 | % | | | 0.96 | % | | | 0.47 | % | | | 0.11 | % | | | (0.06 | )% |
| | 28 | % | | | 75 | % | | | 46 | % | | | 28 | % | | | 46 | % |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
For an Institutional Class share outstanding throughout each year
PER SHARE DATA:
Net asset value, beginning of year
Income from investment operations:
Net investment income
Net realized and unrealized gains (losses) on investments
Total from investment operations
Less distributions:
Dividends from net investment income
Dividends from net realized gains
Total distributions
Net asset value, end of year
TOTAL RETURN
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of year (millions)
Ratio of expenses to average net assets
Ratio of net investment income to average net assets
Portfolio turnover rate(2)
(1) | Calculated using the average shares outstanding method. |
(2) | Calculated on the basis of the Fund as a whole. |
The accompanying notes are an integral part of these financial statements.
| FINANCIAL HIGHLIGHTS — INSTITUTIONAL CLASS |
| Year Ended October 31, | |
| 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | | | | | | |
| $ | 10.37 | | | $ | 12.92 | | | $ | 13.28 | | | $ | 15.69 | | | $ | 14.23 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 0.21 | (1) | | | 0.13 | (1) | | | 0.10 | (1) | | | 0.07 | | | | 0.02 | |
| | 8.26 | | | | (2.10 | ) | | | 0.54 | | | | (1.27 | ) | | | 3.56 | |
| | 8.47 | | | | (1.97 | ) | | | 0.64 | | | | (1.20 | ) | | | 3.58 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | (0.27 | ) | | | (0.19 | ) | | | (0.18 | ) | | | (0.02 | ) | | | (0.17 | ) |
| | — | | | | (0.39 | ) | | | (0.82 | ) | | | (1.19 | ) | | | (1.95 | ) |
| | (0.27 | ) | | | (0.58 | ) | | | (1.00 | ) | | | (1.21 | ) | | | (2.12 | ) |
| $ | 18.57 | | | $ | 10.37 | | | $ | 12.92 | | | $ | 13.28 | | | $ | 15.69 | |
| | | | | | | | | | | | | | | | | | | |
| | 82.88 | % | | | -16.05 | % | | | 5.57 | % | | | -8.42 | % | | | 25.56 | % |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| $ | 32.08 | | | $ | 10.61 | | | $ | 20.74 | | | $ | 35.66 | | | $ | 37.92 | |
| | 1.20 | % | | | 1.29 | % | | | 1.23 | % | | | 1.15 | % | | | 1.15 | % |
| | 1.31 | % | | | 1.27 | % | | | 0.84 | % | | | 0.51 | % | | | 0.30 | % |
| | 28 | % | | | 75 | % | | | 46 | % | | | 28 | % | | | 46 | % |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
Notes to the Financial Statements October 31, 2021 |
1). ORGANIZATION
The Hennessy Small Cap Financial Fund (the “Fund”) is a series of Hennessy Funds Trust (the “Trust”), which was organized as a Delaware statutory trust on September 17, 1992. The Fund is an open-end management investment company registered under the Investment Company Act of 1940, as amended. The investment objective of the Fund is capital appreciation. The Fund is a non-diversified fund.
The Fund offers Investor Class and Institutional Class shares. Each class of shares differs principally in its respective 12b-1 distribution and service, shareholder servicing, and sub-transfer agent expenses. There are no sales charges. 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 one class.
As an investment company, the Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 “Financial Services—Investment Companies.”
2). SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of the financial statements. These policies conform to U.S. generally accepted accounting principles (“GAAP”).
| a). | Securities Valuation – All investments in securities are valued in accordance with the Fund’s valuation policies and procedures, as described in Note 3. |
| | |
| b). | Federal Income Taxes – The Fund has elected to be taxed as a regulated investment company and intends to distribute substantially all of its taxable income to its shareholders and otherwise comply with the provisions of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. As a result, the Fund has made no provision for federal income taxes or excise taxes. Net investment income/loss and realized gains/losses for federal income tax purposes may differ from those reported in the financial statements because of temporary book-basis and tax-basis differences. Temporary differences are primarily the result of the treatment of wash sales for tax reporting purposes. The Fund recognizes interest and penalties related to income tax benefits, if any, in the Statement of Operations as an income tax expense. 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. The Fund may utilize equalization accounting for tax purposes and designate earnings and profits, including net realized gains distributed to shareholders on redemption of shares, as part of the dividends paid deduction for income tax purposes. |
| | |
| | Due to inherent differences in the recognition of income, expenses, and realized gains/losses under GAAP and federal income tax regulations, permanent differences between book and tax basis for reporting are identified and appropriately reclassified in the Statement of Assets and Liabilities, as needed. The adjustments for fiscal year 2021 are as follows: |
| | Total | | |
| | Distributable | | |
| | Earnings
| Capital Stock | |
| | $(12,940) | $12,940 | |
| NOTES TO THE FINANCIAL STATEMENTS |
| c). | Accounting for Uncertainty in Income Taxes – The Fund has accounting policies regarding recognition and measurement of tax positions taken or expected to be taken on a tax return. The tax returns of the Fund for the prior three fiscal years are open for examination. The Fund has reviewed all open tax years in major tax jurisdictions and concluded that there is no impact on the Fund’s 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. The Fund’s major tax jurisdictions are U.S. federal and Delaware. |
| | |
| d). | Income and Expenses – Dividend income is recognized on the ex-dividend date or as soon as information is available to the Fund. Interest income, which includes the amortization of premium and accretion of discount, is recognized on an accrual basis. Market discounts, original issue discounts, and market premiums on debt securities are accreted or amortized to interest income over the life of a security with a corresponding increase or decrease, as applicable, in the cost basis of such security using the yield-to-maturity method or, where applicable, the first call date of the security. Other non-cash dividends are recognized as investment income at the fair value of the property received. The Fund is charged for those expenses that are directly attributable to its portfolio, such as advisory, administration, and certain shareholder service fees. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains/losses on investments are allocated to each class of shares based on such class’s net assets. |
| | |
| e). | Distributions to Shareholders – Dividends from net investment income for the Fund, if any, are declared and paid annually, usually in December. Distributions of net realized capital gains, if any, are declared and paid annually, usually in December. |
| | |
| f). | Security Transactions – Investment and shareholder transactions are recorded on the trade date. The Fund determines the realized gain/loss from an investment transaction by comparing the original cost of the security lot sold with the net sale proceeds. Discounts and premiums on securities purchased are accreted or amortized, respectively, over the life of each such security. |
| | |
| g). | Use of Estimates – Preparing financial statements in accordance 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, as well as the reported change in net assets during the reporting period. Actual results could differ from those estimates. |
| | |
| h). | Share Valuation – The net asset value (“NAV”) per share of the Fund is calculated by dividing (i) the total value of the securities held by the Fund, plus cash and other assets, minus all liabilities (including estimated accrued expenses) by (ii) the total number of Fund shares outstanding, rounded to the nearest $0.01. Fund shares are not priced on days the New York Stock Exchange is closed for trading. The offering and redemption price per share for the Fund is equal to the Fund’s NAV per share. |
| | |
| i). | Recent Accounting Pronouncements and Regulatory Updates – In October 2020, the Securities and Exchange Commission (“SEC”) adopted new regulations governing the use of derivatives by registered investment companies (“Rule 18f-4”). Rule 18f-4 imposes limits on the amount of derivatives a fund can enter into, eliminates the asset segregation framework currently used by funds to comply with Section 18 of the 1940 Act, and requires funds whose use of derivatives is greater than a limited specified amount to establish and maintain a comprehensive derivatives risk management program and appoint a derivatives risk manager. Funds are required to comply with Rule 18f-4 by August 19, 2022. The impact, if any, that Rule 18f-4 will |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | have on the availability, liquidity, and performance of derivatives is unclear. Management is currently evaluating the potential impact of Rule 18f-4 on the Fund. When fully implemented, Rule 18f-4 may require changes in how the Fund uses derivatives, adversely affect the Fund’s performance, and increase costs related to the Fund’s use of derivatives. |
| | |
| | In December 2020, the SEC adopted a new rule providing a framework for fund valuation practices (“Rule 2a-5”). Rule 2a-5 establishes requirements for determining fair value in good faith for purposes of the 1940 Act. Rule 2a-5 permits fund boards to designate certain parties to perform fair value determinations, subject to board oversight and certain other conditions. Rule 2a-5 also defines when market quotations are “readily available” for purposes of the 1940 Act and the threshold for determining whether a fund must fair value a security. In connection with Rule 2a-5, the SEC also adopted related recordkeeping requirements and is rescinding previously issued guidance, including with respect to the role of a board in determining fair value and the accounting and auditing of fund investments. Funds must comply with the rules by September 8, 2022. Management is currently assessing the potential impact of the new rules on the Fund’s financial statements. |
3). SECURITIES VALUATION
The Fund follows its valuation policies and procedures in determining its net asset value and, in preparing these financial statements, the fair value accounting standards that 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 of changes in valuation techniques and related inputs during the period. These inputs are summarized in the three broad levels listed below:
| | Level 1 – | Unadjusted, quoted prices in active markets for identical instruments that the Fund has the ability to access at the date of measurement. |
| | | |
| | Level 2 – | Other significant observable inputs (including, but not limited to, quoted prices in active markets for similar instruments, quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets, such as interest rates, prepayment speeds, credit risk curves, default rates, and similar data). |
| | | |
| | Level 3 – | Significant unobservable inputs (including the Fund’s own assumptions about what market participants would use to price the asset or liability based on the best available information) when observable inputs are unavailable. |
The following is a description of the valuation techniques applied to the Fund’s major categories of assets and liabilities on a recurring basis:
| | Equity Securities – Equity securities, including common stocks, preferred stocks, foreign-issued common stocks, exchange-traded funds, closed-end mutual funds, partnerships, rights, and real estate investment trusts, that are traded on a securities exchange for which a last-quoted sales price is readily available generally are valued at the last sales price as reported by the primary exchange on which the securities are listed. Securities listed on The NASDAQ Stock Market (“NASDAQ”) generally are 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 generally are valued at the mean between the bid |
| NOTES TO THE FINANCIAL STATEMENTS |
| | and ask prices. To the extent these securities are actively traded and valuation adjustments are not applied, they are classified in Level 1 of the fair value hierarchy. Securities traded on foreign exchanges generally are not valued at the same time the Fund calculates its NAV because most foreign markets close well before such time. The earlier close of most foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim. In certain circumstances, it may be determined that a foreign security needs to be fair valued because it appears that the value of the security might have been materially affected by events occurring after the close of the market in which the security is principally traded, but before the time the Fund calculates its NAV, such as by a development that affects an entire market or region (e.g., a weather-related event) or a potentially global development (e.g., a terrorist attack that may be expected to have an effect on investor expectations worldwide). |
| | |
| | Registered Investment Companies – Investments in open-end registered investment companies, commonly referred to as mutual funds, generally are priced at the ending NAV provided by the applicable mutual fund’s service agent and are classified in Level 1 of the fair value hierarchy. |
| | |
| | Debt Securities – Debt securities, including corporate bonds, asset-backed securities, mortgage-backed securities, municipal bonds, U.S. Treasuries, and U.S. government agency issues, are generally valued at market on the basis of valuations furnished by an independent pricing service that 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 observable market data, such as reported sales of similar securities, broker quotes, yields, bids, offers, and reference data. Certain securities are valued primarily using dealer quotations. These securities are generally 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 for equity securities. Short-term debt investments with an original term to maturity of 60 days or less are valued at amortized cost, which approximates fair market value. If the original term to maturity of a short-term debt investment exceeds 60 days, then the values as of the 61st day prior to maturity are amortized. Amortized cost is not used if its use would be inappropriate due to credit or other impairments of the issuer, in which case the security’s fair value would be determined as described below. Short-term securities are generally classified in Level 1 or Level 2 of the fair value hierarchy depending on the inputs used and market activity levels for specific securities. |
The Board of Trustees of the Fund (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 considered in determining a fair value of a security, such as the trading volume of a security and markets, the values of other similar securities, and news events with direct bearing on a security or markets. Fair value pricing results in an estimated price for a security that reflects the amount the Fund might reasonably expect to receive in a current sale. 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.
| HENNESSY FUNDS | 1-800-966-4354 | |
The fair value 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. Using fair value pricing means that the Fund’s NAV reflects the affected portfolio securities’ values as determined by the Board or its designee, pursuant to the fair value pricing procedures adopted by the Board, instead of being determined by the market. Using a fair value pricing methodology to price a foreign security may result in a value that is different from such foreign security’s most recent closing price and from the value used by other investment companies to calculate their NAVs. Such securities are generally classified in Level 2 of the fair value hierarchy. Because the Fund may invest in foreign securities, the value of the Fund’s portfolio securities may change on days when a shareholder is unable to purchase or redeem Fund shares.
The Board has delegated day-to-day valuation matters to the Valuation and Liquidity Committee comprising representatives from Hennessy Advisors, Inc., the Fund’s investment advisor (the “Advisor”). The function of the Valuation and Liquidity Committee, among other things, is to value securities where current and reliable market quotations are not readily available. All actions taken by the Valuation and Liquidity Committee are reviewed by the Board.
The Fund has performed an analysis of all existing investments to determine the significance and character of all inputs to their fair value determinations. Various inputs are used to determine the value of the 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 value hierarchy of the Fund’s securities as of October 31, 2021, are included in the Schedule of Investments.
4). INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding government and short-term investments) for the Fund during fiscal year 2021 were $83,305,079 and $34,599,028, respectively.
There were no purchases or sales/maturities of long-term U.S. government securities for the Fund during fiscal year 2021.
5). INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Advisor provides the Fund with investment advisory services under an Investment Advisory Agreement. The Advisor furnishes all investment advice, office space, and facilities and most of the personnel needed by the Fund. As compensation for its services, the Advisor is entitled to a monthly fee from the Fund. The fee is based on the average daily net assets of the Fund at an annual rate of 0.90%. The net investment advisory fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
The Board has approved a Shareholder Servicing Agreement for Investor Class shares of the Fund, which compensates the Advisor for the non-investment advisory services it provides to the Fund. The Shareholder Servicing Agreement provides for a monthly fee paid to the Advisor at an annual rate of 0.10% of the average daily net assets of the Fund attributable to Investor Class shares. The shareholder service fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
The Fund has adopted a plan pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended, that authorizes payments in connection with the distribution of Fund shares at an annual rate of up to 0.25% of the Fund’s average daily net assets attributable to Investor Class shares. Even though the authorized rate is up to
| NOTES TO THE FINANCIAL STATEMENTS |
0.25%, the Fund is currently only using up to 0.15% of its average daily net assets attributable to Investor Class shares for such purpose. 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, shareholder account servicing, printing and mailing of prospectuses to other than current shareholders, printing and mailing of sales literature, and compensation for sales and marketing activities or to financial institutions and others, such as dealers and distributors. The distribution fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
The Fund has entered into agreements with various brokers, dealers, and financial intermediaries in connection with the sale of Fund shares. The agreements provide for periodic payments of sub-transfer agent expenses by the Fund to the brokers, dealers, and financial intermediaries for providing certain shareholder maintenance services. 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. The sub-transfer agent fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
U.S. Bancorp Fund Services, LLC, d/b/a U.S. Bank Global Fund Services (“Fund Services”) provides the Fund with administrative, accounting, and transfer agent services. As administrator, Fund Services is responsible for activities such as (i) preparing various federal and state regulatory filings, reports, and returns for the Fund, (ii) preparing reports and materials to be supplied to the Board, (iii) monitoring the activities of the Fund’s custodian, transfer agent, and accountants, and (iv) coordinating the preparation and payment of the Fund’s expenses and reviewing the Fund’s expense accruals. U.S. Bank N.A., an affiliate of Fund Services, serves as the Fund’s custodian. The servicing agreements between the Trust, Fund Services, and U.S. Bank N.A. contain a fee schedule that is inclusive of administrative, accounting, custody, and transfer agent fees. The administrative, accounting, custody, and transfer agent fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
Quasar Distributors, LLC (“Quasar”), a wholly owned broker-dealer subsidiary of Foreside Financial Group, LLC (“Foreside”), acts as the Fund’s principal underwriter in a continuous public offering of Fund shares. Effective September 30, 2021, Genstar Capital, a private equity firm specializing in financial and related business service companies, acquired a majority interest in Foreside. The Board approved a new Distribution Agreement to enable Quasar to continue serving as the Fund’s distributor following the change in control of Foreside.
The officers of the Fund are affiliated with the Advisor. With the exception of the Chief Compliance Officer and the Senior Compliance Officer, such officers receive no compensation from the Fund for serving in their respective roles. The Fund, along with the other funds in the Hennessy Funds family (collectively, the “Hennessy Funds”), makes reimbursement payments on an equal basis to the Advisor for a portion of the salary and benefits associated with the office of the Chief Compliance Officer and for all of the salary and benefits associated with the office of the Senior Compliance Officer. The compliance fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
6). GUARANTEES AND INDEMNIFICATIONS
Under the Hennessy Funds’ organizational documents, their officers and trustees are indemnified by the Hennessy Funds against certain liabilities arising out of the performance of their duties to the Hennessy Funds. Additionally, in the normal course of business, the Hennessy Funds enter into contracts with service providers that contain
| HENNESSY FUNDS | 1-800-966-4354 | |
general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. Currently, the Fund expects the risk of loss to be remote.
7). LINE OF CREDIT
The Fund has an uncommitted line of credit with the other Hennessy Funds in the amount of the lesser of (i) $100,000,000 or (ii) 33.33% of each Hennessy Fund’s net assets, or 30% for the Hennessy Gas Utility Fund and 10% for the Hennessy Balanced Fund. The line of credit is intended to provide any necessary short-term financing in connection with shareholder redemptions, subject to certain restrictions. The credit facility is with the Hennessy Funds’ custodian bank, U.S. Bank N.A. Borrowings under this arrangement bear interest at the bank’s prime rate and are secured by all of the Fund’s assets (as to its own borrowings only). During fiscal year 2021, the Fund had an outstanding average daily balance and a weighted average interest rate of $12,562 and 3.25%, respectively. The interest expensed by the Fund during fiscal year 2021 is included in the Statement of Operations. The maximum amount outstanding for the Fund during fiscal year 2021 was $1,399,000. As of October 31, 2021, the Fund did not have any borrowings outstanding under the line of credit.
8). FEDERAL TAX INFORMATION
As of October 31, 2021, the components of accumulated earnings (losses) for income tax purposes were as follows:
| | | Investments | |
| Cost of investments for tax purposes | | $ | 126,270,823 | |
| Gross tax unrealized appreciation | | $ | 51,915,639 | |
| Gross tax unrealized depreciation | | | (3,505,271 | ) |
| Net tax unrealized appreciation/(depreciation) | | $ | 48,410,368 | |
| Undistributed ordinary income | | $ | 573,969 | |
| Undistributed long-term capital gains | | | 485,352 | |
| Total distributable earnings | | $ | 1,059,321 | |
| Other accumulated gain/(loss) | | $ | — | |
| Total accumulated gain/(loss) | | $ | 49,469,689 | |
The difference between book-basis unrealized appreciation/depreciation and tax-basis unrealized appreciation/depreciation (as shown above) is attributable primarily to wash sales.
As of October 31, 2021, the Fund had no tax-basis capital losses to offset future capital gains. During fiscal year 2021, the capital losses utilized by the fund were $6,639,295.
Capital losses sustained in or after fiscal year 2012 can be carried forward indefinitely, but any such loss retains the character of the original loss and must be utilized prior to any loss incurred before fiscal year 2012. As a result of this ordering rule, capital loss carryforwards incurred prior to fiscal year 2012 may be more likely to expire unused. Capital losses sustained prior to fiscal year 2012 can be carried forward for eight years and can be carried forward as short-term capital losses regardless of the character of the original loss.
As of October 31, 2021, the Fund did not defer, on a tax basis, any late-year ordinary losses. Late-year ordinary losses are net ordinary losses incurred after December 31, 2020, but within the taxable year, that are deemed to arise on the first day of the Fund’s next taxable year.
| NOTES TO THE FINANCIAL STATEMENTS |
During fiscal years 2021 and 2020, the tax character of distributions paid by the Fund was as follows:
| | | | Year Ended | | | Year Ended | |
| | | | October 31, 2021 | | | October 31, 2020 | |
| | Ordinary income(1) | | $ | 906,557 | | | $ | 698,496 | |
| | Long-term capital gains | | | — | | | | 3,279,244 | |
| | Total distributions | | $ | 906,557 | | | $ | 3,977,740 | |
| | (1) Ordinary income includes short-term capital gains. |
9). LIBOR TRANSITION
The Fund invests in financial instruments with payment obligations, financing terms, hedging strategies, or investment values based on, among other floating rates, the London Interbank Offered Rate (“LIBOR”). Determined by the ICE Benchmark Administration, LIBOR is an average interest rate that banks charge one another for the use of short-term money. In 2017, the United Kingdom’s Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced plans to phase out the use of LIBOR by the end of 2021. The FCA and ICE Benchmark Administrator have since announced that most LIBOR settings will no longer be published after December 31, 2021, and a majority of U.S. dollar LIBOR settings will cease publication after June 30, 2023. The U.S. Federal Reserve has begun publishing the Secured Overnight Financing Rate (SOFR), which is intended to replace the U.S. dollar LIBOR. Other regulators and industry groups around the world have announced or begun publishing proposed alternative reference rates for other currencies, but global consensus is lacking, and the process for amending many existing contracts or instruments to transition away from LIBOR remains unclear. Uncertainty related to the liquidity impact of the change in reference rates and how to appropriately adjust these rates at the time of transition may lead to increased volatility and illiquidity in markets tied to LIBOR, reduce the value of LIBOR-related instruments, and reduce the effectiveness of hedging strategies, which could adversely affect the Fund’s performance. Moreover, the risks associated with this discontinuation and transition could be exacerbated if the work necessary to effect an orderly transition to an alternative reference rate is not completed in a timely manner. Accordingly, it is difficult to predict the full impact of the transition away from LIBOR on the Fund until new reference rates and fallbacks for both legacy and new instruments and contracts are commercially accepted and market practices become settled.
10). EVENTS SUBSEQUENT TO YEAR END
Management has evaluated the Fund’s related events and transactions that occurred subsequent to October 31, 2021, through the date of issuance of the Fund’s financial statements. Other than as disclosed below, management has determined that there were no subsequent events requiring recognition or disclosure in the financial statements.
On December 7, 2021, capital gains were declared and paid to shareholders of record on December 6, 2021, as follows:
| | | Long-term |
| | Investor Class | $0.09117 |
| | Institutional Class | $0.05374 |
| HENNESSY FUNDS | 1-800-966-4354 | |
Report of Independent Registered Public
Accounting Firm
To the Board of Trustees of Hennessy Funds Trust
and the shareholders of the Hennessy Small Cap Financial Fund
Novato, CA
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of the Hennessy Small Cap Financial Fund (the “Fund”), a series of Hennessy Funds Trust, including the schedule of investments, as of October 31, 2021, the related statement 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, financial highlights for each of the five years in the period then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of October 31, 2021, the results of its operations for the year then ended, the changes in its 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, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We have served as the auditor of one or more of the funds in the Trust since 2002.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of October 31, 2021 by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
| | |
| | TAIT, WELLER & BAKER LLP |
Philadelphia, Pennsylvania
December 22, 2021
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM/TRUSTEES AND OFFICERS |
Trustees and Officers of the Fund (Unaudited)
The business and affairs of the Funds are managed under the direction of the Board of Trustees of the Trust, and the Board of Trustees elects the officers of the Trust. From time to time, the Board of Trustees also has appointed advisers to the Board of Trustees (“Advisers”) with the intention of having qualified individuals serve in an advisory capacity to garner experience in the mutual fund and asset management industry and be considered as potential Trustees in the future. There are currently two Advisers, Brian Alexander and Doug Franklin. As Advisers, Mr. Alexander and Mr. Franklin attend meetings of the Board of Trustees and act as non-voting participants. Information pertaining to the Trustees, Advisers, and the officers of the Trust is set forth below. The Trustees and officers serve until their successors are duly elected and qualified or until their earlier death, resignation, or removal. Each Trustee oversees all 16 Hennessy Funds. Unless otherwise indicated, the address of all persons listed below is 7250 Redwood Boulevard, Suite 200, Novato, CA 94945. The Fund’s Statement of Additional Information includes more information about the persons listed below and is available without charge by calling 1-800-966-4354 or by visiting www.hennessyfunds.com.
| | | | Other |
| | | | Directorships |
| | | | Held Outside |
| Name, Age, | | | of Fund |
| and Position Held | Start Date | Principal Occupation(s) | Complex During |
with the Trust
| of Service | During Past Five Years | Past Five Years
|
| | | | |
| Disinterested Trustees and Advisers | | | |
| | | | |
| J. Dennis DeSousa | January 1996 | Mr. DeSousa is a real estate investor. | None. |
| 85 | | | |
| Trustee | | | |
| | | | |
| Robert T. Doyle | January 1996 | Mr. Doyle has been the Sheriff of | None. |
| 74 | | Marin County, California since 1996. | |
| Trustee | | | |
| | | | |
| Claire Garvie | December 2015 | Ms. Garvie is a founder of Kiosk and | None. |
| 47 | as an Adviser | has served as its Chief Operating | |
| Trustee | to the Board | Officer since 2004. Kiosk is a full- | |
| | and | service marketing agency with | |
| | December 2021 | offices in the San Francisco Bay Area, | |
| | as a Trustee | Toronto, and Liverpool, UK. | |
| | | | |
| Gerald P. Richardson | May 2004 | Mr. Richardson is an independent | None. |
| 76 | | consultant in the securities industry. | |
| Trustee | | | |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | | | Other |
| | | | Directorships |
| | | | Held Outside |
| Name, Age, | | | of Fund |
| and Position Held | Start Date | Principal Occupation(s) | Complex During |
with the Trust
| of Service | During Past Five Years | Past Five Years
|
| | | | |
| Brian Alexander | March 2015 | Mr. Alexander has worked for the | None. |
| 40 | | Sutter Health organization since | |
| Adviser to the Board | | 2011 in various positions. He has | |
| | | served as the Chief Executive Officer | |
| | | of the Sutter Roseville Medical | |
| | | Center since 2018. From 2016 through | |
| | | 2018, he served as the Vice President | |
| | | of Strategy for the Sutter Health Valley | |
| | | Area, which includes 11 hospitals, | |
| | | 13 ambulatory surgery centers, | |
| | | 16,000 employees, and 1,900 physicians. | |
| | | From 2013 through 2016, Mr. Alexander | |
| | | served as Sutter Novato Community | |
| | | Hospital’s Chief Administrative Officer. | |
| | | | |
| Doug Franklin | March 2016 | Mr. Franklin is a retired insurance | None. |
| 57 | | industry executive. From 1987 | |
| Adviser to the Board | | through 2015, he was employed | |
| | | by the Allianz-Fireman’s Fund | |
| | | Insurance Company in various | |
| | | positions, including as its Chief | |
| | | Actuary and Chief Risk Officer. | |
| | | | |
Interested Trustee(1) | | | |
| | | | |
| Neil J. Hennessy | January 1996 as | Mr. Hennessy has been employed | Hennessy |
| 65 | a Trustee and | by Hennessy Advisors, Inc. since | Advisors, Inc. |
| Chairman of the Board, | June 2008 as | 1989 and currently serves as its | |
| Chief Market Strategist, | an officer | Chairman and Chief Executive Officer. | |
| Portfolio Manager, | | | |
| and President | | | |
| Name, Age, | | |
| and Position Held | Start Date | Principal Occupation(s) |
with the Trust
| of Service | During Past Five Years |
| | | |
| Officers | | |
| | | |
| Teresa M. Nilsen | January 1996 | Ms. Nilsen has been employed by Hennessy Advisors, Inc. |
| 55 | | since 1989 and currently serves as its President and Chief |
| Executive Vice President | | Operating Officer. |
| and Treasurer | | |
| | | |
| Daniel B. Steadman | March 2000 | Mr. Steadman has been employed by Hennessy Advisors, Inc. |
| 65 | | since 2000 and currently serves as its Executive Vice President. |
| Executive Vice President | | |
| and Secretary | | |
| | | |
| Brian Carlson | December 2013 | Mr. Carlson has been employed by Hennessy Advisors, Inc. |
| 49 | | since December 2013 and currently serves as its Chief |
| Senior Vice President | | Compliance Officer and Senior Vice President. |
| and Head of Distribution | | |
| TRUSTEES AND OFFICERS OF THE FUND |
| Name, Age, | | |
| and Position Held | Start Date | Principal Occupation(s) |
with the Trust
| of Service | During Past Five Years |
| | | |
Jennifer Cheskiewicz(2) | June 2013 | Ms. Cheskiewicz has been employed by Hennessy Advisors, Inc. |
| 44 | | as its General Counsel since June 2013. |
| Senior Vice President and | | |
| Chief Compliance Officer | | |
| | | |
David Ellison(3) | October 2012 | Mr. Ellison has been employed by Hennessy Advisors, Inc. since |
| 63 | | October 2012. He has served as a Portfolio Manager of the |
| Senior Vice President | | Hennessy Large Cap Financial Fund and the Hennessy Small |
| and Portfolio Manager | | Cap Financial Fund since their inception. Mr. Ellison also served |
| | | as a Portfolio Manager of the Hennessy Technology Fund from |
| | | its inception until February 2017. Mr. Ellison served as Director, |
| | | CIO, and President of FBR Fund Advisers, Inc. from December |
| | | 1999 to October 2012. |
| | | |
Ryan Kelley(4) | March 2013 | Mr. Kelley has been employed by Hennessy Advisors, Inc. since |
| 49 | | October 2012. He has served as Chief Investment Officer of the |
| Chief Investment Officer, | | Hennessy Funds since March 2021 and has served as a Portfolio |
| Senior Vice President, | | Manager of the Hennessy Gas Utility Fund, the Hennessy Large |
| and Portfolio Manager | | Cap Financial Fund, and the Hennessy Small Cap Financial Fund |
| | | since October 2014. Mr. Kelley served as Co-Portfolio Manager |
| | | of these same funds from March 2013 through September |
| | | 2014 and as a Portfolio Analyst for the Hennessy Funds from |
| | | October 2012 through February 2013. He has also served as a |
| | | Portfolio Manager of the Hennessy Cornerstone Growth Fund, |
| | | the Hennessy Cornerstone Mid Cap 30 Fund, the Hennessy |
| | | Cornerstone Large Growth Fund, and the Hennessy |
| | | Cornerstone Value Fund since February 2017 and as a Portfolio |
| | | Manager of the Hennessy Total Return Fund, the Hennessy |
| | | Balanced Fund, and the Hennessy Technology Fund since May |
| | | 2018. He served as Co-Portfolio Manager of the Hennessy |
| | | Technology Fund from February 2017 until May 2018. Mr. Kelley |
| | | served as Portfolio Manager of FBR Fund Advisers, Inc. from |
| | | January 2008 to October 2012. |
| | | |
L. Joshua Wein(4) | September 2018 | Mr. Wein has been employed by Hennessy Advisors, Inc. since |
| 48 | | 2018. He has served as Co-Portfolio Manager of the Hennessy |
| Vice President and | | Cornerstone Growth Fund, the Hennessy Cornerstone |
| Co-Portfolio Manager | | Mid Cap 30 Fund, the Hennessy Cornerstone Large Growth |
| | | Fund, the Hennessy Cornerstone Value Fund, Hennessy Total |
| | | Return Fund, the Hennessy Balanced Fund, the Hennessy Gas |
| | | Utility Fund, and the Hennessy Technology Fund since February |
| | | 2019. He served as a Senior Analyst of these same funds from |
| | | September 2018 through February 2019. Mr. Wein served as |
| | | Director of Alternative Investments and Co-Portfolio Manager |
| | | at Sterling Capital Management from 2008 to 2018. |
_______________
(1) | Mr. Hennessy is considered an “interested person,” as defined in the Investment Company Act of 1940, as amended, because he is an officer of the Trust. |
(2) | The address of this officer is 4800 Bee Caves Road, Suite 100, Austin, TX 78746. |
(3) | The address of this officer is 101 Federal Street, Suite 1615B, Boston, MA 02110. |
(4) | The address of this officer is 1340 Environ Way, Chapel Hill, NC 27517. |
| HENNESSY FUNDS | 1-800-966-4354 | |
Expense Example (Unaudited)
October 31, 2021
As a shareholder of the Fund, you incur 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 the Fund 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, 2021, through October 31, 2021.
Actual Expenses
In the table below, the first line under each of the “Investor Class” and “Institutional Class” headings provides information about actual account values and actual expenses for each share class. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the 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 “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. Although the Fund charges 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. Bank Global Fund Services, the Fund’s transfer agent. If you request that a redemption be made by wire transfer, the Fund’s transfer agent charges a $15 fee. IRAs are charged a $15 annual maintenance fee (up to $30 maximum per shareholder for shareholders with multiple IRAs). The examples below include, but are not limited to, management, shareholder servicing, accounting, custody, and transfer agent fees. However, the examples below do not include portfolio trading commissions and related expenses.
Hypothetical Example for Comparison Purposes
In the table below, the second line under each of the “Investor Class” and “Institutional Class” headings provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio for each share class and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return for such share class. 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 Fund and other funds. To do so, compare these 5% hypothetical examples 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. Therefore, the second lines under “Investor Class” and “Institutional Class” are useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds.
| | | | Expenses Paid |
| | Beginning | Ending | During Period(1) |
| | Account Value | Account Value | May 1, 2021 – |
| | May 1, 2021
| October 31, 2021 | October 31, 2021 |
| Investor Class | | | |
| Actual | $1,000.00 | $1,038.60 | $8.12 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,017.24 | $8.03 |
| | | | |
| Institutional Class | | | |
| Actual | $1,000.00 | $1,040.30 | $6.17 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,019.16 | $6.11 |
(1) | Expenses are equal to the Fund’s annualized expense ratio of 1.58% for Investor Class shares or 1.20% for Institutional Class shares, as applicable, multiplied by the average account value over the period, multiplied by 184/365 days (to reflect the half-year period). |
| HENNESSY FUNDS | 1-800-966-4354 | |
How to Obtain a Copy of the Fund’s Proxy
Voting Policy and Proxy Voting Records
A description of the policies and procedures the Fund uses 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/proxy-voting/voting-policy, or (3) on the U.S. Securities and Exchange Commission’s (the “SEC”) website at www.sec.gov. The Fund’s proxy voting record is available without charge on both the Hennessy Funds’ website at www.hennessyfunds.com/proxy-voting/voting-record and the SEC’s website at www.sec.gov no later than August 31 for the prior 12 months ending June 30.
Availability of Quarterly Portfolio Schedule
The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov or on request by calling 1-800-966-4354.
Federal Tax Distribution Information (Unaudited)
For fiscal year 2021, certain dividends paid by the Fund may be subject to a maximum tax rate of 23.8%, 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 100.00%.
For corporate shareholders, the percent of ordinary income distributions that qualified for the corporate dividends received deduction for fiscal year 2021 was 100.00%.
The percentage of taxable ordinary income distributions that were designated as short-term capital gain distributions under Section 871(k)(2)(C) of the Internal Revenue Code of 1986, as amended, for the Fund was 0.00%.
Important Notice Regarding Delivery
of Shareholder Documents
To help keep the Fund’s costs as low as possible, we generally deliver a single copy of shareholder reports, proxy statements, and prospectuses to shareholders who share an address and have the same last name. This process does not apply to account statements. You may request an individual copy of a shareholder document at any time. If you would like to receive separate mailings of shareholder documents, please call U.S. Bank Global Fund Services at 1-800-261-6950 or 1-414-765-4124, and individual delivery will begin within 30 days of your request. If your account is held through a financial institution or other intermediary, please contact such intermediary directly to request individual delivery.
Electronic Delivery
As permitted by SEC regulations, the Fund’s shareholder reports are made available on a website, and unless you sign up for eDelivery or elect to receive paper copies as detailed below, you will be notified by mail each time a report is posted and provided with a website link to access the report.
The Fund also offers shareholders the option to receive all notices, account statements, prospectuses, tax forms, and shareholder reports online. To sign up for eDelivery or change your delivery preference, please visit www.hennessyfunds.com/account.
To elect to receive paper copies of all future reports free of charge, please call U.S. Bank Global Fund Services at 1-800-261-6950 or 1-414-765-4124.
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| PROXY VOTING — PRIVACY POLICY |
Liquidity Risk Management Program
In accordance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), we have adopted and implemented a liquidity risk management program (the “Liquidity Program”). The purpose of the Liquidity Program is to assess and manage the Fund’s liquidity risk, which is the risk that the Fund would not be able to meet requests to redeem Fund shares without significant dilution of the remaining shareholders’ interests in the Fund. The Board of Trustees of the Fund (the “Board”) designated a committee comprising representatives of Hennessy Advisors, Inc., the investment adviser to the Fund, as the administrator of the Liquidity Program (the “Program Administrator”).
The Program Administrator provided a written report regarding the Liquidity Program to the Board in advance of its meeting on June 2, 2021. The report covered the period from June 1, 2020, through May 31, 2021. The report addressed the operation of the Liquidity Program, assessed the adequacy and effectiveness of its implementation, and described any material changes to the Liquidity Program during the review period. The Trust’s chief compliance officer presented the report to the Board at the meeting and provided additional information regarding the Liquidity Program. The Board reviewed the Liquidity Program and considered, among other items, the following:
| | 1. | The Program Administrator reviewed daily historical net redemption activity during the review period and during prior periods with higher-than-average redemption activity and concluded that the Fund has historically been able to meet requests to redeem Fund shares without significant dilution to the Fund’s remaining shareholders, and the Program Administrator expects the Fund to be able to continue to do so in the future during both normal and reasonably foreseeable stressed conditions. |
| | | |
| | 2. | The Fund holds assets that are highly liquid investments and is therefore not required to establish a highly liquid investment minimum for the Fund or adopt policies and procedures for responding to a highly liquid investment minimum shortfall. |
| | | |
| | 3. | The Program Administrator did not make any material changes to the Liquidity Program during the review period and did not recommend any changes to the Liquidity Program. The Program Administrator did make adjustments to the model inputs used to determine the liquidity classification of each security held by the Fund. |
| | | |
| | 4. | The Program Administrator concluded that the Liquidity Program was reasonably designed to assess and manage the Fund’s liquidity risk, complies with the requirements of the Liquidity Rule, and was operating as intended during the review period. |
Privacy Policy
We collect the following personal information about you:
| | 1. | Information we receive from you 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; |
| | | |
| | 2. | Information about your transactions with us, our affiliates, or others, including, but not limited to, your account number and balance, payments history, parties to transactions, cost basis information, and other financial information; and |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | 3. | Other personal information we collect from various sources, even if you have not entered into a prior transaction with us, including the following: |
| | • | Name, alias, address, unique personal identifier, online identifier, IP address, email address, telephone number, account name, and other similar identifiers; |
| | | |
| | • | Age and marital status; |
| | | |
| | • | Commercial information, including records of products purchased; |
| | | |
| | • | Browsing history, search history, and information on interaction with our website; |
| | | |
| | • | Geolocation data; |
| | | |
| | • | Employment and employment history, educational history, financial information, and purchasing and consuming histories or tendencies; and |
| | | |
| | • | Inferences drawn from the above-listed information to create a profile about your preferences, characteristics, predispositions, and behavior. |
We collect this information directly from you, indirectly in the course of providing services to you, directly and indirectly from your activity on our website, from broker dealers, marketing agencies, and other third parties that interact with us in connection with the services we perform and products we offer, and from anonymized and aggregated consumer information.
We use this information to fulfill the reason you provided the information to us, to provide you with other relevant products that you request from us, to provide you with information about products that may interest you, to improve our website or present our website’s contents to you, and as otherwise described to you when collecting your personal information.
We do not disclose any personal information to unaffiliated third parties, except as permitted by law. We may disclose your personal information to our affiliates, vendors, and service providers for a business purpose. 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. When disclosing your personal information to third parties, we enter into a contract with each third party describing the purpose of such disclosure and requiring that such personal information be kept confidential and not used for any purpose except to perform the services contracted or respond to regulatory or law enforcement requests.
Furthermore, we restrict access to your personal information to those persons who require such information to provide products or services to you. As a result, we do not provide a means for opting out of our limited sharing of your information. We maintain physical, electronic, and procedural safeguards that comply with federal standards to guard your personal information.
If you hold shares of the Funds through a financial intermediary, including, but not limited to, a broker-dealer, bank, or trust company, the privacy policy of your financial intermediary governs how your personal information is shared with unaffiliated third parties.
Supplemental Privacy Notice for Residents of California
The California Consumer Privacy Act of 2018 (the “CCPA”) provides you, as a California resident, with certain additional rights relating to your personal information.
Under the CCPA, you have the right to request that we disclose to you the categories of personal information we have collected about you over the past 12 months, the categories of sources of such information, our business purpose for collecting the information, the categories of third parties, if any, with whom we shared the information, and the specific information we have collected about you. You also have the right to request that we delete any of your personal information, and, unless an exception applies, we will delete such information upon receiving and confirming your request. To make a request, call us at 1-800-966-4354, email us at privacy@hennessyfunds.com, or go to www.hennessyfunds.com/contact. We will not discriminate against you for exercising your rights under the CCPA. Further, we will not collect additional categories of your personal information or use the personal information we collected for materially different, unrelated, or incompatible purposes without providing you notice.
| HENNESSY FUNDS | 1-800-966-4354 | |
(This Page Intentionally Left Blank.)
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 Boulevard, Suite 200
Novato, California 94945
ADMINISTRATOR,
TRANSFER AGENT,
DIVIDEND PAYING AGENT, &
SHAREHOLDER SERVICING AGENT
U.S. Bancorp Fund Services, LLC
d/b/a U.S. Bank Global Fund Services
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
CUSTODIAN
U.S. Bank N.A.
Custody Operations
1555 North River Center Drive, Suite 302
Milwaukee, Wisconsin 53212
TRUSTEES
Neil J. Hennessy
Robert T. Doyle
J. Dennis DeSousa
Claire Garvie
Gerald P. Richardson
COUNSEL
Foley & Lardner LLP
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-5306
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Tait, Weller & Baker LLP
Two Liberty Place
50 South 16th Street, Suite 2900
Philadelphia, Pennsylvania 19102-2529
DISTRIBUTOR
Quasar Distributors, LLC
111 East Kilbourn Avenue, Suite 2200
Milwaukee, Wisconsin 53202
www.hennessyfunds.com | 1-800-966-4354
This report has been prepared for shareholders and may be distributed to
others only if preceded or accompanied by a current prospectus.
ANNUAL REPORT
HENNESSY TECHNOLOGY FUND
Investor Class HTECX
Institutional Class HTCIX
www.hennessyfunds.com | 1-800-966-4354
(This Page Intentionally Left Blank.)
Contents
| Letter to Shareholders | 2 |
| Performance Overview | 4 |
| Financial Statements | |
| Schedule of Investments | 7 |
| Statement of Assets and Liabilities | 11 |
| Statement of Operations | 12 |
| Statements of Changes in Net Assets | 13 |
| Financial Highlights | 14 |
| Notes to the Financial Statements | 18 |
| Report of Independent Registered Public Accounting Firm | 26 |
| Trustees and Officers of the Fund | 27 |
| Expense Example | 30 |
| Proxy Voting Policy and Proxy Voting Records | 32 |
| Availability of Quarterly Portfolio Schedule | 32 |
| Federal Tax Distribution Information | 32 |
| Important Notice Regarding Delivery of Shareholder Documents | 32 |
| Electronic Delivery | 32 |
| Liquidity Risk Management Program | 33 |
| Privacy Policy | 33 |
| HENNESSY FUNDS | 1-800-966-4354 | |
December 2021
Dear Hennessy Funds Shareholder:
What a year this has been. While it doesn’t feel that we are out of the “pandemic” phase of the coronavirus crisis, we look forward to a day when we will eventually see fewer cases and potentially less severe variants. We feel extremely grateful to the many healthcare workers who have continued to work tirelessly during the recent surge. As we move through the next year, we hope that new U.S. cases will decline and that many other parts of the world will see improvements as well.
What a year this has been! As measured by the total return of the S&P 500® Index, as of October 31, 2021, the market was up 24.04% calendar year to date. This comes in the wake of a tumultuous 2020 in which the market plunged in the beginning of the pandemic and recovered dramatically to end the year up 18.40%. Interestingly, 18% appears to be a repeating number in the past dozen years. From the low point of the Financial Crisis (March 9, 2009) to the high point reached just prior to the COVID-19 pandemic (February 12, 2020), the S&P 500® Index was up 18.27% per year. We are well aware that past results are not predictive of the future, and we find ourselves naturally skeptical of such strong returns. But, as shown in the chart below, we find that the most common annual total returns of the market over the past 102 years range between 20% and 30% with the second most common being between 10% and 20%:
Source: Bloomberg L.P.
We will say it again, after showing a chart like the one above: Past results are not predictive of the future. Instead, we look at where we are right now – in the economy, in the market, in the business cycle – to reflect on where we have come from and where we may be going. U.S. GDP is strong and growing, interest rates remain low, and earnings growth and profitability remain robust. We believe stocks are trading at reasonable valuations when viewed as a whole, with the S&P 500® Index at 21.0x estimated earnings for 2022. Furthermore, we believe corporate balance sheets are healthy, with high levels of excess cash, which could support growth, increases in dividends, more share buybacks, and future acquisitions. Uncertainty and volatility can manifest at any time in the stock market, and the current market is no different. Investors have questions about inflation, worldwide supply chain issues, and what could drive the next boost in earnings. While these concerns are warranted, we continue to believe that overall the positives outweigh the negatives, and here at Hennessy we continue to see opportunity in the market and in our Funds.
What a (fiscal) year this has been!!! For our fiscal year ended October 31, 2021, the S&P 500® Index rose 42.91% on a total return basis, setting a new all-time high on the final day of the period. Except for a short 21-trading-day period that began on September 2 during which the market fell 5.13% only to rebound to new highs just 13 trading days later, the market has been on a continuous march higher. We saw a dramatic shift in market leadership as many of the sectors that underperformed during our last fiscal year soared in fiscal year 2021. Small-caps beat mid-caps, which in turn beat large-caps. The Energy and Financials sectors skyrocketed during the 12-month period, as reflected by the S&P 500® Energy Sector’s total return of 111.29% and the Russell 1000® Index Financials’ total return of 70.87%. Both of these sectors were among the worst performing in our fiscal year 2020, so a bounce back in our fiscal year 2021, while not a foregone conclusion, was a distinct possibility.
Overall, we are pleased with the performance of our mutual funds during the fiscal year. On an absolute basis, each of our 16 Funds achieved total returns greater than 10% and seven outperformed their primary benchmark. Ten of our 11 domestic equity-only Funds outperformed the S&P 500® Index and posted total returns of 45% or higher. Our four best-performing funds were concentrated in the Energy and Financials sectors. While some of our Funds certainly benefited from being in the “right” sector at the “right” time, we also believe this was a favorable period for our investment style of high-conviction investing and concentrated portfolio construction.
What will the coming year bring? As mentioned in our last shareholder letter (June 2021), we understand that even the greatest bull markets experience corrections along the way, and the last time the S&P 500® Index dropped over 10% was in February/March of 2020. Whether or not a correction occurs sooner or later, we believe the market as a whole has more room to run. We see many factors that could drive the market higher from here: strong GDP growth and increasing corporate earnings, a potentially lower-for-longer interest rate environment, accommodative fiscal and monetary policies, a healthy and robust financial system, low unemployment and solid wage growth, and strong corporate balance sheets with plenty of cash.
Thank you for your interest and for investing with us. We remain committed to managing our portfolios for long-term performance, ever mindful of downside risk. With so many investment options available to you, we are grateful for the trust you put in us and for your continued interest in our family of Funds. If you have any questions or would like to speak with us, please don’t hesitate to call us directly at (800) 966-4354.
Best regards,
| |
| |
| |
| |
|
| Ryan C. Kelley |
| Chief Investment Officer |
Past performance does not guarantee future results. To obtain current standardized performance for the Hennessy Funds, visit https://www.hennessyfunds.com/funds/price-performance.
Mutual fund investing involves risk. Principal loss is possible.
Opinions expressed are those of Ryan C. Kelley and are subject to change, are not guaranteed, and should not be considered investment advice.
The Dow Jones Industrial Average and S&P 500® Index are commonly used to measure the performance of U.S. stocks. The S&P 500® Energy Index comprises those companies included in the S&P 500® Index that are classified in the Energy sector. The Russell 1000® Index Financials is a subset of the Russel 1000® Index that measures the performance of securities classified in the Financials sector of the large-capitalization U.S. equity market. The indices are used herein for comparative purposes in accordance with SEC regulations. One cannot invest directly in an index. All returns are shown on a total return basis.
| HENNESSY FUNDS | 1-800-966-4354 | |
Performance Overview (Unaudited)
CHANGE IN VALUE OF $10,000 INVESTMENT
This graph illustrates the performance of an initial investment of $10,000 made in the Fund 10 years ago and assumes the reinvestment of dividends and capital gains.
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED OCTOBER 31, 2021
| | | One | Five | Ten |
| | | Year
| Years
| Years
|
| | Hennessy Technology Fund – | | | |
| | Investor Class (HTECX) | 45.11% | 19.51% | 13.51% |
| | Hennessy Technology Fund – | | | |
| | Institutional Class (HTCIX) | 45.49% | 19.81% | 13.83% |
| | NASDAQ Composite Index | 42.99% | 25.69% | 20.53% |
| | S&P 500® Index | 42.91% | 18.93% | 16.21% |
| Expense ratios: | Gross 3.45%, Net 1.23%(1) (Investor Class); |
| Gross 3.08%, Net 0.98%(1) (Institutional Class) |
(1) | The Fund’s investment advisor has contractually agreed to limit expenses until February 28, 2022. |
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. The performance table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 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 including or prior to October 26, 2012, is that of the FBR Technology Fund.
The NASDAQ Composite Index is a broad-based capitalization-weighted index of all common stocks listed on The NASDAQ Stock Market LLC. The S&P 500® Index is a capitalization-weighted index that is designed to represent the broad domestic economy through changes in the aggregate market value of 500 stocks across all major industries. One cannot invest directly in an index. These indices are used for comparative purposes in accordance with Securities and Exchange Commission regulations.
Standard & Poor’s Financial Services is the source and owner of the S&P® and S&P 500® trademarks.
The expense ratios presented are from the most recent prospectus. The expense ratios for the current reporting period are available in the Financial Highlights section of this report.
PERFORMANCE NARRATIVE
Portfolio Managers Ryan C. Kelley, CFA, and L. Joshua Wein, CAIA
Performance:
For the one-year period ended October 31, 2021, the Investor Class of the Hennessy Technology Fund returned 45.11%, outperforming both the Nasdaq Composite Index (the Fund’s primary benchmark) and the S&P 500® Index, which returned 42.99% and 42.91%, respectively, for the same period.
The Fund’s outperformance relative to its primary benchmark resulted predominantly from stock selection within the Information Technology sector. Among the holdings that contributed the most to Fund performance were Fortinet, Inc., a leading network security provider, Digital Turbine, Inc., a mobile services platform provider, and NeoPhotonics Corporation, a semiconductor company. Among the holdings that detracted the most from Fund performance were QIWI, plc, a payment processor, ON24, Inc., a cloud-based virtual communications provider, and Zoom Video Communications, Inc., a worldwide web-based meeting platform provider.
The Fund continues to hold the companies mentioned except Digital Turbine and NeoPhotonics.
Portfolio Strategy:
The Fund utilizes a formula-based investment strategy designed to identify technology-related stocks that (1) exhibit strong cash flows and profits, (2) demonstrate the ability to sustain profitability, (3) have historically delivered returns in excess of their cost of capital, (4) have attractive balance sheet risk profiles, and (5) trade at attractive relative valuations.
Investment Commentary:
After a tumultuous 2020 and a strong 2021, we believe that the outlook for U.S. stocks remains positive. After a sharp contraction in economic activity as a result of the COVID-19 pandemic, the U.S. economy is growing steadily and demonstrating incredible resilience. We are benefiting from increased employment, rapid wage gains, and robust economic activity. Corporate earnings are on the rise, interest rates remain low, and Federal Reserve policies continue to accommodate a strong economy.
We believe that the outlook for technology-related stocks is also positive. Earnings growth for technology companies, as measured by the technology-heavy Nasdaq Composite Index, has been outpacing earnings growth for the market as a whole by a significant margin, which has led to premium valuations versus the broader market. We believe that many technology stocks still represent value in the context of the broader stock market, given investors’ continued preference for growth-oriented companies as well as high earnings per share growth rates.
_______________
Opinions expressed are those of the Portfolio Manager as of the date written and are subject to change, are not guaranteed, and should not be considered investment advice or an indication of trading intent.
Investments are focused in the Technology sector as well as the following sub-industries: Internet & Direct Marketing Retail, Interactive Home Entertainment, and Interactive Media Services. Sector funds may be subject to a higher degree of market risk. Investments in foreign securities may involve political, economic, and currency risks, greater volatility, and differences in accounting methods. The Fund invests in small-sized and medium-sized companies, which may have more limited liquidity and greater volatility compared to larger companies. Please see the Fund’s prospectus for a more complete discussion of these and other risks.
| HENNESSY FUNDS | 1-800-966-4354 | |
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 Schedule of Investments included in this report for additional portfolio information.
Earnings growth is not a measure of the Fund’s future performance.
| PERFORMANCE OVERVIEW/SCHEDULE OF INVESTMENTS |
Financial Statements
Schedule of Investments as of October 31, 2021 |
HENNESSY TECHNOLOGY FUND
(% of Net Assets)
| TOP TEN HOLDINGS (EXCLUDING MONEY MARKET FUNDS) | % NET ASSETS |
| Aspen Technology, Inc. | 1.98% |
| Etsy, Inc. | 1.94% |
| Hello Group, Inc. – ADR | 1.89% |
| Advanced Micro Devices, Inc. | 1.87% |
| Atlassian Corp. PLC | 1.87% |
| Microsoft Corp. | 1.86% |
| Fortinet, Inc. | 1.81% |
| Autodesk, Inc. | 1.80% |
| Accenture PLC, Class A | 1.78% |
| KLA-Tencor Corp. | 1.77% |
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, as amended, the Fund uses more specific industry classifications.
The Global Industry Classification Standard (GICS®) was developed by and is the exclusive property and a service mark of MSCI, Inc. and Standard & Poor’s Financial Services LLC. It has been licensed for use by the Hennessy Funds.
| HENNESSY FUNDS | 1-800-966-4354 | |
| COMMON STOCKS – 96.88% | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Communication Services – 6.43% | | | | | | | | | |
| Autohome, Inc. – ADR (b) | | | 2,804 | | | $ | 110,337 | | | | 1.36 | % |
| Hello Group, Inc. – ADR (b) | | | 12,376 | | | | 154,081 | | | | 1.89 | % |
| HUYA, Inc. – ADR (a)(b) | | | 16,645 | | | | 136,822 | | | | 1.68 | % |
| SciPlay Corp. (a) | | | 6,024 | | | | 121,745 | | | | 1.50 | % |
| | | | | | | | 522,985 | | | | 6.43 | % |
| | | | | | | | | | | | | |
| Consumer Discretionary – 6.81% | | | | | | | | | | | | |
| Etsy, Inc. (a) | | | 630 | | | | 157,935 | | | | 1.94 | % |
| Qurate Retail Group, Inc. | | | 12,023 | | | | 125,520 | | | | 1.55 | % |
| Shutterstock, Inc. | | | 1,123 | | | | 136,051 | | | | 1.67 | % |
| Vipshop Holdings Ltd. – ADR (a)(b) | | | 12,025 | | | | 134,199 | | | | 1.65 | % |
| | | | | | | | 553,705 | | | | 6.81 | % |
| | | | | | | | | | | | | |
| Information Technology – 83.64% | | | | | | | | | | | | |
| Accenture PLC, Class A (b) | | | 404 | | | | 144,951 | | | | 1.78 | % |
| Advanced Micro Devices, Inc. (a) | | | 1,262 | | | | 151,730 | | | | 1.87 | % |
| Apple, Inc. | | | 897 | | | | 134,371 | | | | 1.65 | % |
| Applied Materials, Inc. | | | 1,012 | | | | 138,290 | | | | 1.70 | % |
| Arrow Electronics, Inc. (a) | | | 1,092 | | | | 126,399 | | | | 1.56 | % |
| ASE Technology Holding Co. Ltd. – ADR (b) | | | 16,895 | | | | 120,292 | | | | 1.48 | % |
| ASML Holding NV – ADR (b) | | | 176 | | | | 143,067 | | | | 1.76 | % |
| Aspen Technology, Inc. (a) | | | 1,025 | | | | 160,607 | | | | 1.98 | % |
| Atlassian Corp. PLC (a)(b) | | | 331 | | | | 151,641 | | | | 1.87 | % |
| Autodesk, Inc. (a) | | | 460 | | | | 146,101 | | | | 1.80 | % |
| Bentley Systems, Inc. | | | 2,092 | | | | 123,742 | | | | 1.52 | % |
| Cambium Networks Corp. (a)(b) | | | 3,481 | | | | 98,234 | | | | 1.21 | % |
| CDW Corp. | | | 686 | | | | 128,042 | | | | 1.58 | % |
| Citrix Systems, Inc. | | | 1,179 | | | | 111,687 | | | | 1.37 | % |
| Conduent, Inc. (a) | | | 18,839 | | | | 127,163 | | | | 1.56 | % |
| Daktronics, Inc. (a) | | | 23,008 | | | | 127,694 | | | | 1.57 | % |
| Dell Technologies, Inc. (a) | | | 1,189 | | | | 130,778 | | | | 1.61 | % |
| Fair Isaac Corp. (a) | | | 316 | | | | 125,831 | | | | 1.55 | % |
| Flex Ltd. (a)(b) | | | 6,984 | | | | 118,030 | | | | 1.45 | % |
| Fortinet, Inc. (a) | | | 437 | | | | 146,981 | | | | 1.81 | % |
| Gartner, Inc. (a) | | | 412 | | | | 136,747 | | | | 1.68 | % |
| Hewlett Packard Enterprise Co. | | | 8,453 | | | | 123,836 | | | | 1.52 | % |
The accompanying notes are an integral part of these financial statements.
| COMMON STOCKS | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Information Technology (Continued) | | | | | | | | | |
| Intel Corp. | | | 2,341 | | | $ | 114,709 | | | | 1.41 | % |
| Jabil, Inc. | | | 2,130 | | | | 127,715 | | | | 1.57 | % |
| Kimball Electronics, Inc. (a) | | | 4,793 | | | | 137,799 | | | | 1.70 | % |
| KLA-Tencor Corp. | | | 385 | | | | 143,513 | | | | 1.77 | % |
| Lam Research Corp. | | | 229 | | | | 129,058 | | | | 1.59 | % |
| Mastercard, Inc., Class A | | | 364 | | | | 122,129 | | | | 1.50 | % |
| Microsoft Corp. | | | 456 | | | | 151,219 | | | | 1.86 | % |
| NetApp, Inc. | | | 1,398 | | | | 124,841 | | | | 1.54 | % |
| Nokia Corp. – ADR (a)(b) | | | 22,230 | | | | 126,266 | | | | 1.55 | % |
| ON24, Inc. (a) | | | 6,560 | | | | 125,493 | | | | 1.54 | % |
| Oracle Corp. | | | 1,407 | | | | 134,988 | | | | 1.66 | % |
| Palo Alto Networks, Inc. (a) | | | 268 | | | | 136,436 | | | | 1.68 | % |
| Paymentus Holdings, Inc. (a) | | | 5,365 | | | | 137,344 | | | | 1.69 | % |
| QIWI PLC – ADR (b) | | | 14,850 | | | | 129,938 | | | | 1.60 | % |
| QUALCOMM, Inc. | | | 995 | | | | 132,375 | | | | 1.63 | % |
| Sanmina Corp. (a) | | | 3,226 | | | | 121,782 | | | | 1.50 | % |
| Seagate Technology Holdings PLC (b) | | | 1,482 | | | | 132,002 | | | | 1.62 | % |
| ServiceNow, Inc. (a) | | | 203 | | | | 141,645 | | | | 1.74 | % |
| SYNNEX Corp. | | | 1,191 | | | | 125,055 | | | | 1.54 | % |
| Taiwan Semiconductor Manufacturing Co. Ltd. – ADR (b) | | | 1,142 | | | | 129,845 | | | | 1.60 | % |
| Telefonaktiebolaget LM Ericsson – ADR (b) | | | 11,427 | | | | 124,211 | | | | 1.53 | % |
| Teradata Corp. (a) | | | 2,229 | | | | 126,072 | | | | 1.55 | % |
| Texas Instruments, Inc. | | | 661 | | | | 123,924 | | | | 1.53 | % |
| The Western Union Co. | | | 6,152 | | | | 112,089 | | | | 1.38 | % |
| Tower Semiconductor Ltd. (a)(b) | | | 4,370 | | | | 139,272 | | | | 1.71 | % |
| TTM Technologies, Inc. (a) | | | 9,930 | | | | 131,473 | | | | 1.62 | % |
| Turtle Beach Corp. (a) | | | 4,563 | | | | 131,232 | | | | 1.62 | % |
| Vontier Corp. | | | 3,774 | | | | 127,674 | | | | 1.57 | % |
| Xerox Holdings Corp. | | | 5,991 | | | | 106,640 | | | | 1.31 | % |
| Zoom Video Communications, Inc. (a) | | | 489 | | | | 134,304 | | | | 1.65 | % |
| | | | | | | | 6,797,257 | | | | 83.64 | % |
| | | | | | | | | | | | | |
| Total Common Stocks | | | | | | | | | | | | |
| (Cost $6,822,774) | | | | | | | 7,873,947 | | | | 96.88 | % |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
| SHORT-TERM INVESTMENTS – 3.40% | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Money Market Funds – 3.40% | | | | | | | | | |
| First American Government Obligations Fund, | | | | | | | | | |
| Institutional Class, 0.03% (c) | | | 276,197 | | | $ | 276,197 | | | | 3.40 | % |
| | | | | | | | | | | | | |
| Total Short-Term Investments | | | | | | | | | | | | |
| (Cost $276,197) | | | | | | | 276,197 | | | | 3.40 | % |
| | | | | | | | | | | | | |
| Total Investments | | | | | | | | | | | | |
| (Cost $7,098,971) – 100.28% | | | | | | | 8,150,144 | | | | 100.28 | % |
| Liabilities in Excess of Other Assets – (0.28)% | | | | | | | (23,086 | ) | | | (0.28 | )% |
| | | | | | | | | | | | | |
TOTAL NET ASSETS – 100.00% | | | | | | $ | 8,127,058 | | | | 100.00 | % |
Percentages are stated as a percent of net assets.
ADR – American Depositary Receipt
NV – Naamloze Vennootschap is a Dutch term for publicly traded companies.
PLC – Public Limited Company
| (a) | Non-income-producing security. |
| (b) | U.S.-traded security of a foreign corporation. |
| (c) | The rate listed is the fund’s seven-day yield as of October 31, 2021. |
Summary of Fair Value Exposure as of October 31, 2021
The following is a summary of the inputs used to value the Fund’s net assets as of October 31, 2021 (see Note 3 in the accompanying Notes to the Financial Statements):
| Common Stocks | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Communication Services | | $ | 522,985 | | | $ | — | | | $ | — | | | $ | 522,985 | |
| Consumer Discretionary | | | 553,705 | | | | — | | | | — | | | | 553,705 | |
| Information Technology | | | 6,797,257 | | | | — | | | | — | | | | 6,797,257 | |
| Total Common Stocks | | $ | 7,873,947 | | | $ | — | | | $ | — | | | $ | 7,873,947 | |
| Short-Term Investments | | | | | | | | | | | | | | | | |
| Money Market Funds | | $ | 276,197 | | | $ | — | | | $ | — | | | $ | 276,197 | |
| Total Short-Term Investments | | $ | 276,197 | | | $ | — | | | $ | — | | | $ | 276,197 | |
| Total Investments | | $ | 8,150,144 | | | $ | — | | | $ | — | | | $ | 8,150,144 | |
The accompanying notes are an integral part of these financial statements.
| SCHEDULE OF INVESTMENTS/STATEMENT OF ASSETS AND LIABILITIES |
Financial Statements
Statement of Assets and Liabilities as of October 31, 2021 |
| ASSETS: | | | |
| Investments in securities, at value (cost $7,098,971) | | $ | 8,150,144 | |
| Dividends and interest receivable | | | 3,293 | |
| Prepaid expenses and other assets | | | 14,949 | |
| Due from advisor | | | 384 | |
| Total assets | | | 8,168,770 | |
| | | | | |
| LIABILITIES: | | | | |
| Payable for fund shares redeemed | | | 4,051 | |
| Payable to auditor | | | 22,554 | |
| Accrued distribution fees | | | 1,221 | |
| Accrued service fees | | | 510 | |
| Accrued trustees fees | | | 6,602 | |
| Accrued expenses and other payables | | | 6,774 | |
| Total liabilities | | | 41,712 | |
| NET ASSETS | | $ | 8,127,058 | |
| | | | | |
| NET ASSETS CONSISTS OF: | | | | |
| Capital stock | | $ | 5,095,688 | |
| Total distributable earnings | | | 3,031,370 | |
| Total net assets | | $ | 8,127,058 | |
| | | | | |
| NET ASSETS: | | | | |
| Investor Class | | | | |
| Shares authorized (no par value) | | Unlimited | |
| Net assets applicable to outstanding shares | | $ | 6,063,393 | |
| Shares issued and outstanding | | | 225,474 | |
| Net asset value, offering price, and redemption price per share | | $ | 26.89 | |
| | | | | |
| Institutional Class | | | | |
| Shares authorized (no par value) | | Unlimited | |
| Net assets applicable to outstanding shares | | $ | 2,063,665 | |
| Shares issued and outstanding | | | 74,646 | |
| Net asset value, offering price, and redemption price per share | | $ | 27.65 | |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
Statement of Operations for the year ended October 31, 2021 |
| INVESTMENT INCOME: | | | |
Dividend income(1) | | $ | 90,405 | |
| Interest income | | | 66 | |
| Total investment income | | | 90,471 | |
| | | | | |
| EXPENSES: | | | | |
| Investment advisory fees (See Note 5) | | | 58,160 | |
| Federal and state registration fees | | | 29,028 | |
| Compliance expense (See Note 5) | | | 27,452 | |
| Audit fees | | | 22,554 | |
| Administration, accounting, custody, and transfer agent fees (See Note 5) | | | 20,834 | |
| Trustees’ fees and expenses | | | 18,460 | |
| Sub-transfer agent expenses – Investor Class (See Note 5) | | | 8,534 | |
| Sub-transfer agent expenses – Institutional Class (See Note 5) | | | 1,089 | |
| Distribution fees – Investor Class (See Note 5) | | | 8,804 | |
| Reports to shareholders | | | 6,736 | |
| Service fees – Investor Class (See Note 5) | | | 5,869 | |
| Legal fees | | | 140 | |
| Other expenses | | | 4,624 | |
| Total expenses before waivers and reimbursements | | | 212,284 | |
| Service provider expense waiver (See Note 5) | | | (20,834 | ) |
| Expense reimbursement by advisor – Investor Class (See Note 5) | | | (75,956 | ) |
| Expense reimbursement by advisor – Institutional Class (See Note 5) | | | (23,799 | ) |
| Net expenses | | | 91,695 | |
| NET INVESTMENT LOSS | | $ | (1,224 | ) |
| | | | | |
| REALIZED AND UNREALIZED GAINS (LOSSES): | | | | |
| Net realized gain on investments | | $ | 2,211,486 | |
| Net change in unrealized appreciation/depreciation on investments | | | 358,442 | |
| Net gain on investments | | | 2,569,928 | |
| NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | | $ | 2,568,704 | |
(1) | Net of foreign taxes withheld and issuance fees of $3,071. |
The accompanying notes are an integral part of these financial statements.
| STATEMENT OF OPERATIONS/STATEMENTS OF CHANGES IN NET ASSETS |
Financial Statements
| Statements of Changes in Net Assets |
| | | Year Ended | | | Year Ended | |
| | | October 31, 2021 | | | October 31, 2020 | |
| OPERATIONS: | | | | | | |
| Net investment income (loss) | | $ | (1,224 | ) | | $ | 9,137 | |
| Net realized gain on investments | | | 2,211,486 | | | | 677,479 | |
| Net change in unrealized | | | | | | | | |
| appreciation/depreciation on investments | | | 358,442 | | | | (84,382 | ) |
| Net increase in net assets resulting from operations | | | 2,568,704 | | | | 602,234 | |
| | | | | | | | | |
| DISTRIBUTIONS TO SHAREHOLDERS: | | | | | | | | |
| Distributable earnings – Investor Class | | | (493,580 | ) | | | (108,418 | ) |
| Distributable earnings – Institutional Class | | | (175,930 | ) | | | (37,553 | ) |
| Total distributions | | | (669,510 | ) | | | (145,971 | ) |
| | | | | | | | | |
| CAPITAL SHARE TRANSACTIONS: | | | | | | | | |
| Proceeds from shares subscribed – Investor Class | | | 917,272 | | | | 731,750 | |
| Proceeds from shares subscribed – Institutional Class | | | 57,969 | | | | 67,473 | |
| Dividends reinvested – Investor Class | | | 482,162 | | | | 106,748 | |
| Dividends reinvested – Institutional Class | | | 175,930 | | | | 37,105 | |
| Cost of shares redeemed – Investor Class | | | (1,006,346 | ) | | | (811,778 | ) |
| Cost of shares redeemed – Institutional Class | | | (125,590 | ) | | | (92,300 | ) |
| Net increase in net assets derived | | | | | | | | |
| from capital share transactions | | | 501,397 | | | | 38,998 | |
| TOTAL INCREASE IN NET ASSETS | | | 2,400,591 | | | | 495,261 | |
| | | | | | | | | |
| NET ASSETS: | | | | | | | | |
| Beginning of year | | | 5,726,467 | | | | 5,231,206 | |
| End of year | | $ | 8,127,058 | | | $ | 5,726,467 | |
| | | | | | | | | |
| CHANGES IN SHARES OUTSTANDING: | | | | | | | | |
| Shares sold – Investor Class | | | 35,433 | | | | 39,530 | |
| Shares sold – Institutional Class | | | 2,256 | | | | 3,356 | |
| Shares issued to holders as reinvestment | | | | | | | | |
| of dividends – Investor Class | | | 21,237 | | | | 5,574 | |
| Shares issued to holders as reinvestment | | | | | | | | |
| of dividends – Institutional Class | | | 7,528 | | | | 1,887 | |
| Shares redeemed – Investor Class | | | (38,822 | ) | | | (43,369 | ) |
| Shares redeemed – Institutional Class | | | (4,863 | ) | | | (4,535 | ) |
| Net increase in shares outstanding | | | 22,769 | | | | 2,443 | |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
For an Investor Class share outstanding throughout each year
PER SHARE DATA:
Net asset value, beginning of year
Income from investment operations:
Net investment income (loss)
Net realized and unrealized gains on investments
Total from investment operations
Less distributions:
Dividends from net investment income
Dividends from net realized gains
Total distributions
Net asset value, end of year
TOTAL RETURN
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of year (millions)
Ratio of expenses to average net assets:
Before expense reimbursement
After expense reimbursement
Ratio of net investment income (loss) to average net assets:
Before expense reimbursement
After expense reimbursement
Portfolio turnover rate(4)
(1) | Calculated using the average shares outstanding method. |
(2) | The Fund’s current expense limitation agreement, which became effective on February 28, 2017, was in effect for eight months of the year ended October 31, 2017. |
(3) | Certain service provider expenses were voluntarily waived during the fiscal year. |
(4) | Calculated on the basis of the Fund as a whole. |
The accompanying notes are an integral part of these financial statements.
| FINANCIAL HIGHLIGHTS — INVESTOR CLASS |
| Year Ended October 31, | |
| 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | | | | | | |
| $ | 20.50 | | | $ | 18.90 | | | $ | 18.04 | | | $ | 18.46 | | | $ | 15.82 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | (0.02 | )(1) | | | 0.02 | (1) | | | (0.03 | )(1) | | | (0.05 | ) | | | (0.23 | ) |
| | 8.82 | | | | 2.10 | | | | 3.15 | | | | 1.26 | | | | 2.87 | |
| | 8.80 | | | | 2.12 | | | | 3.12 | | | | 1.21 | | | | 2.64 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | (0.04 | ) | | | — | | | | — | | | | — | | | | — | |
| | (2.37 | ) | | | (0.52 | ) | | | (2.26 | ) | | | (1.63 | ) | | | — | |
| | (2.41 | ) | | | (0.52 | ) | | | (2.26 | ) | | | (1.63 | ) | | | — | |
| $ | 26.89 | | | $ | 20.50 | | | $ | 18.90 | | | $ | 18.04 | | | $ | 18.46 | |
| | | | | | | | | | | | | | | | | | | |
| | 45.11 | % | | | 11.42 | % | | | 20.47 | % | | | 7.25 | % | | | 16.69 | % |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| $ | 6.06 | | | $ | 4.26 | | | $ | 3.89 | | | $ | 3.31 | | | $ | 3.20 | |
| | | | | | | | | | | | | | | | | | | |
| | 2.79 | % | | | 3.45 | % | | | 3.84 | % | | | 3.70 | % | | | 4.16 | % |
| | 1.23 | %(3) | | | 1.23 | %(3) | | | 1.23 | % | | | 1.23 | % | | | 2.15 | %(2) |
| | | | | | | | | | | | | | | | | | | |
| | (1.64 | )% | | | (2.12 | )% | | | (2.80 | )% | | | (2.83 | )% | | | (3.16 | )% |
| | (0.08 | )% | | | 0.10 | % | | | (0.19 | )% | | | (0.36 | )% | | | (1.15 | )%(2) |
| | 200 | % | | | 192 | % | | | 185 | % | | | 225 | % | | | 267 | % |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
For an Institutional Class share outstanding throughout each year
PER SHARE DATA:
Net asset value, beginning of year
Income from investment operations:
Net investment income (loss)
Net realized and unrealized gains on investments
Total from investment operations
Less distributions:
Dividends from net investment income
Dividends from net realized gains
Total distributions
Net asset value, end of year
TOTAL RETURN
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of year (millions)
Ratio of expenses to average net assets:
Before expense reimbursement
After expense reimbursement
Ratio of net investment income (loss) to average net assets:
Before expense reimbursement
After expense reimbursement
Portfolio turnover rate(4)
(1) | Calculated using the average shares outstanding method. |
(2) | The Fund’s current expense limitation agreement, which became effective on February 28, 2017, was in effect for eight months of the year ended October 31, 2017. |
(3) | Certain service provider expenses were voluntarily waived during the fiscal year. |
(4) | Calculated on the basis of the Fund as a whole. |
The accompanying notes are an integral part of these financial statements.
| FINANCIAL HIGHLIGHTS — INSTITUTIONAL CLASS |
| Year Ended October 31, | |
| 2021 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | | | | | | |
| $ | 21.08 | | | $ | 19.40 | | | $ | 18.47 | | | $ | 18.85 | | | $ | 16.11 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 0.05 | (1) | | | 0.07 | (1) | | | 0.01 | (1) | | | 0.01 | | | | (0.12 | ) |
| | 9.06 | | | | 2.15 | | | | 3.23 | | | | 1.28 | | | | 2.86 | |
| | 9.11 | | | | 2.22 | | | | 3.24 | | | | 1.29 | | | | 2.74 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | (0.11 | ) | | | (0.01 | ) | | | — | | | | — | | | | — | |
| | (2.43 | ) | | | (0.53 | ) | | | (2.31 | ) | | | (1.67 | ) | | | — | |
| | (2.54 | ) | | | (0.54 | ) | | | (2.31 | ) | | | (1.67 | ) | | | — | |
| $ | 27.65 | | | $ | 21.08 | | | $ | 19.40 | | | $ | 18.47 | | | $ | 18.85 | |
| | | | | | | | | | | | | | | | | | | |
| | 45.49 | % | | | 11.67 | % | | | 20.77 | % | | | 7.54 | % | | | 17.01 | % |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| $ | 2.06 | | | $ | 1.47 | | | $ | 1.34 | | | $ | 1.09 | | | $ | 1.22 | |
| | | | | | | | | | | | | | | | | | | |
| | 2.44 | % | | | 3.08 | % | | | 3.47 | % | | | 3.27 | % | | | 3.74 | % |
| | 0.98 | %(3) | | | 0.98 | %(3) | | | 0.98 | % | | | 0.98 | % | | | 1.77 | %(2) |
| | | | | | | | | | | | | | | | | | | |
| | (1.29 | )% | | | (1.74 | )% | | | (2.43 | )% | | | (2.41 | )% | | | (2.74 | )% |
| | 0.17 | % | | | 0.36 | % | | | 0.06 | % | | | (0.12 | )% | | | (0.77 | )%(2) |
| | 200 | % | | | 192 | % | | | 185 | % | | | 225 | % | | | 267 | % |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
Notes to the Financial Statements October 31, 2021 |
1). ORGANIZATION
The Hennessy Technology Fund (the “Fund”) is a series of Hennessy Funds Trust (the “Trust”), which was organized as a Delaware statutory trust on September 17, 1992. The Fund is an open-end management investment company registered under the Investment Company Act of 1940, as amended. The investment objective of the Fund is long-term capital appreciation. The Fund is a diversified fund.
The Fund offers Investor Class and Institutional Class shares. Each class of shares differs principally in its respective 12b-1 distribution and service, shareholder servicing, and sub-transfer agent expenses. There are no sales charges. 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 one class.
As an investment company, the Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 “Financial Services—Investment Companies.”
2). SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of the financial statements. These policies conform to U.S. generally accepted accounting principles (“GAAP”).
| a). | Securities Valuation – All investments in securities are valued in accordance with the Fund’s valuation policies and procedures, as described in Note 3. |
| | |
| b). | Federal Income Taxes – The Fund has elected to be taxed as a regulated investment company and intends to distribute substantially all of its taxable income to its shareholders and otherwise comply with the provisions of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. As a result, the Fund has made no provision for federal income taxes or excise taxes. Net investment income/loss and realized gains/losses for federal income tax purposes may differ from those reported in the financial statements because of temporary book-basis and tax-basis differences. Temporary differences are primarily the result of the treatment of wash sales for tax reporting purposes. The Fund recognizes interest and penalties related to income tax benefits, if any, in the Statement of Operations as an income tax expense. 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. The Fund may utilize equalization accounting for tax purposes and designate earnings and profits, including net realized gains distributed to shareholders on redemption of shares, as part of the dividends paid deduction for income tax purposes. |
| | |
| | Due to inherent differences in the recognition of income, expenses, and realized gains/losses under GAAP and federal income tax regulations, permanent differences between book and tax basis for reporting are identified and appropriately reclassified in the Statement of Assets and Liabilities, as needed. The adjustments for fiscal year 2021 are as follows: |
| | Total | | |
| | Distributable | | |
| | Earnings
| Capital Stock | |
| | $(168,501) | $168,501 | |
| NOTES TO THE FINANCIAL STATEMENTS |
| c). | Accounting for Uncertainty in Income Taxes – The Fund has accounting policies regarding recognition and measurement of tax positions taken or expected to be taken on a tax return. The tax returns of the Fund for the prior three fiscal years are open for examination. The Fund has reviewed all open tax years in major tax jurisdictions and concluded that there is no impact on the Fund’s 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. The Fund’s major tax jurisdictions are U.S. federal and Delaware. |
| | |
| d). | Income and Expenses – Dividend income is recognized on the ex-dividend date or as soon as information is available to the Fund. Interest income, which includes the amortization of premium and accretion of discount, is recognized on an accrual basis. Market discounts, original issue discounts, and market premiums on debt securities are accreted or amortized to interest income over the life of a security with a corresponding increase or decrease, as applicable, in the cost basis of such security using the yield-to-maturity method or, where applicable, the first call date of the security. Other non-cash dividends are recognized as investment income at the fair value of the property received. The Fund is charged for those expenses that are directly attributable to its portfolio, such as advisory, administration, and certain shareholder service fees. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains/losses on investments are allocated to each class of shares based on such class’s net assets. |
| | |
| e). | Distributions to Shareholders – Dividends from net investment income for the Fund, if any, are declared and paid annually, usually in December. Distributions of net realized capital gains, if any, are declared and paid annually, usually in December. |
| | |
| f). | Security Transactions – Investment and shareholder transactions are recorded on the trade date. The Fund determines the realized gain/loss from an investment transaction by comparing the original cost of the security lot sold with the net sale proceeds. Discounts and premiums on securities purchased are accreted or amortized, respectively, over the life of each such security. |
| | |
| g). | Use of Estimates – Preparing financial statements in accordance 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, as well as the reported change in net assets during the reporting period. Actual results could differ from those estimates. |
| | |
| h). | Share Valuation – The net asset value (“NAV”) per share of the Fund is calculated by dividing (i) the total value of the securities held by the Fund, plus cash and other assets, minus all liabilities (including estimated accrued expenses) by (ii) the total number of Fund shares outstanding, rounded to the nearest $0.01. Fund shares are not priced on days the New York Stock Exchange is closed for trading. The offering and redemption price per share for the Fund is equal to the Fund’s NAV per share. |
| | |
| i). | Recent Accounting Pronouncements and Regulatory Updates – In October 2020, the Securities and Exchange Commission (“SEC”) adopted new regulations governing the use of derivatives by registered investment companies (“Rule 18f-4”). Rule 18f-4 imposes limits on the amount of derivatives a fund can enter into, eliminates the asset segregation framework currently used by funds to comply with Section 18 of the 1940 Act, and requires funds whose use of derivatives is greater than a limited specified amount to establish and maintain a comprehensive derivatives risk management program and appoint a derivatives risk manager. Funds are required to comply with Rule 18f-4 by August 19, 2022. The impact, if any, that Rule 18f-4 will |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | have on the availability, liquidity, and performance of derivatives is unclear. Management is currently evaluating the potential impact of Rule 18f-4 on the Fund. When fully implemented, Rule 18f-4 may require changes in how the Fund uses derivatives, adversely affect the Fund’s performance, and increase costs related to the Fund’s use of derivatives. |
| | |
| | In December 2020, the SEC adopted a new rule providing a framework for fund valuation practices (“Rule 2a-5”). Rule 2a-5 establishes requirements for determining fair value in good faith for purposes of the 1940 Act. Rule 2a-5 permits fund boards to designate certain parties to perform fair value determinations, subject to board oversight and certain other conditions. Rule 2a-5 also defines when market quotations are “readily available” for purposes of the 1940 Act and the threshold for determining whether a fund must fair value a security. In connection with Rule 2a-5, the SEC also adopted related recordkeeping requirements and is rescinding previously issued guidance, including with respect to the role of a board in determining fair value and the accounting and auditing of fund investments. Funds must comply with the rules by September 8, 2022. Management is currently assessing the potential impact of the new rules on the Fund’s financial statements. |
3). SECURITIES VALUATION
The Fund follows its valuation policies and procedures in determining its net asset value and, in preparing these financial statements, the fair value accounting standards that 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 of changes in valuation techniques and related inputs during the period. These inputs are summarized in the three broad levels listed below:
| | Level 1 – | Unadjusted, quoted prices in active markets for identical instruments that the Fund has the ability to access at the date of measurement. |
| | | |
| | Level 2 – | Other significant observable inputs (including, but not limited to, quoted prices in active markets for similar instruments, quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets, such as interest rates, prepayment speeds, credit risk curves, default rates, and similar data). |
| | | |
| | Level 3 – | Significant unobservable inputs (including the Fund’s own assumptions about what market participants would use to price the asset or liability based on the best available information) when observable inputs are unavailable. |
The following is a description of the valuation techniques applied to the Fund’s major categories of assets and liabilities on a recurring basis:
| | Equity Securities – Equity securities, including common stocks, preferred stocks, foreign-issued common stocks, exchange-traded funds, closed-end mutual funds, partnerships, rights, and real estate investment trusts, that are traded on a securities exchange for which a last-quoted sales price is readily available generally are valued at the last sales price as reported by the primary exchange on which the securities are listed. Securities listed on The NASDAQ Stock Market (“NASDAQ”) generally are 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 generally are valued at the mean between the bid |
| NOTES TO THE FINANCIAL STATEMENTS |
| | and ask prices. To the extent these securities are actively traded and valuation adjustments are not applied, they are classified in Level 1 of the fair value hierarchy. Securities traded on foreign exchanges generally are not valued at the same time the Fund calculates its NAV because most foreign markets close well before such time. The earlier close of most foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim. In certain circumstances, it may be determined that a foreign security needs to be fair valued because it appears that the value of the security might have been materially affected by events occurring after the close of the market in which the security is principally traded, but before the time the Fund calculates its NAV, such as by a development that affects an entire market or region (e.g., a weather-related event) or a potentially global development (e.g., a terrorist attack that may be expected to have an effect on investor expectations worldwide). |
| | |
| | Registered Investment Companies – Investments in open-end registered investment companies, commonly referred to as mutual funds, generally are priced at the ending NAV provided by the applicable mutual fund’s service agent and are classified in Level 1 of the fair value hierarchy. |
| | |
| | Debt Securities – Debt securities, including corporate bonds, asset-backed securities, mortgage-backed securities, municipal bonds, U.S. Treasuries, and U.S. government agency issues, are generally valued at market on the basis of valuations furnished by an independent pricing service that 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 observable market data, such as reported sales of similar securities, broker quotes, yields, bids, offers, and reference data. Certain securities are valued primarily using dealer quotations. These securities are generally 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 for equity securities. Short-term debt investments with an original term to maturity of 60 days or less are valued at amortized cost, which approximates fair market value. If the original term to maturity of a short-term debt investment exceeds 60 days, then the values as of the 61st day prior to maturity are amortized. Amortized cost is not used if its use would be inappropriate due to credit or other impairments of the issuer, in which case the security’s fair value would be determined as described below. Short-term securities are generally classified in Level 1 or Level 2 of the fair value hierarchy depending on the inputs used and market activity levels for specific securities. |
The Board of Trustees of the Fund (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 considered in determining a fair value of a security, such as the trading volume of a security and markets, the values of other similar securities, and news events with direct bearing on a security or markets. Fair value pricing results in an estimated price for a security that reflects the amount the Fund might reasonably expect to receive in a current sale. 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.
| HENNESSY FUNDS | 1-800-966-4354 | |
The fair value 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. Using fair value pricing means that the Fund’s NAV reflects the affected portfolio securities’ values as determined by the Board or its designee, pursuant to the fair value pricing procedures adopted by the Board, instead of being determined by the market. Using a fair value pricing methodology to price a foreign security may result in a value that is different from such foreign security’s most recent closing price and from the value used by other investment companies to calculate their NAVs. Such securities are generally classified in Level 2 of the fair value hierarchy. Because the Fund may invest in foreign securities, the value of the Fund’s portfolio securities may change on days when a shareholder is unable to purchase or redeem Fund shares.
The Board has delegated day-to-day valuation matters to the Valuation and Liquidity Committee comprising representatives from Hennessy Advisors, Inc., the Fund’s investment advisor (the “Advisor”). The function of the Valuation and Liquidity Committee, among other things, is to value securities where current and reliable market quotations are not readily available. All actions taken by the Valuation and Liquidity Committee are reviewed by the Board.
The Fund has performed an analysis of all existing investments to determine the significance and character of all inputs to their fair value determinations. Various inputs are used to determine the value of the 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 value hierarchy of the Fund’s securities as of October 31, 2021, are included in the Schedule of Investments.
4). INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding government and short-term investments) for the Fund during fiscal year 2021 were $15,038,079 and $15,236,562, respectively.
There were no purchases or sales/maturities of long-term U.S. government securities for the Fund during fiscal year 2021.
5). INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Advisor provides the Fund with investment advisory services under an Investment Advisory Agreement. The Advisor furnishes all investment advice, office space, and facilities and most of the personnel needed by the Fund. As compensation for its services, the Advisor is entitled to a monthly fee from the Fund. The fee is based on the average daily net assets of the Fund at an annual rate of 0.74%. The net investment advisory fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
The Advisor has contractually agreed to limit total annual operating expenses to 0.98% of the Fund’s net assets for both Investor Class shares and Institutional Class shares (excluding all federal, state and local taxes, interest, brokerage commissions, 12b-1 fees, shareholder servicing fees payable to the Advisor, extraordinary items, and acquired fund fees and expenses and other costs incurred in connection with the purchase and sale of securities) through February 28, 2022.
For three years following the date on which expenses were waived or incurred, the Advisor may recoup waived or reimbursed expenses from the Fund if total operating expenses, including such recoupment, does not exceed the expense limitation in effect (i) at the time the Advisor waived or reimbursed such expenses and (ii) at the time the
| NOTES TO THE FINANCIAL STATEMENTS |
Advisor recoups such expenses. As of October 31, 2021, expenses subject to potential recovery for Investor Class and Institutional Class shares and the fiscal years in which they expire were as follows:
| | | Fiscal Year | Fiscal Year | Fiscal Year | |
| | | 2022
| 2023
| 2024
| Total
|
| | Investor Class | $92,255 | $86,892 | $75,956 | $255,103 |
| | Institutional Class | $29,447 | $27,643 | $23,799 | $ 80,889 |
The Advisor did not recoup expenses from the Fund during fiscal year 2021.
The Board has approved a Shareholder Servicing Agreement for Investor Class shares of the Fund, which compensates the Advisor for the non-investment advisory services it provides to the Fund. The Shareholder Servicing Agreement provides for a monthly fee paid to the Advisor at an annual rate of 0.10% of the average daily net assets of the Fund attributable to Investor Class shares. The shareholder service fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
The Fund has adopted a plan pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended, that authorizes payments in connection with the distribution of Fund shares at an annual rate of up to 0.25% of the Fund’s average daily net assets attributable to Investor Class shares. Even though the authorized rate is up to 0.25%, the Fund is currently only using up to 0.15% of its average daily net assets attributable to Investor Class shares for such purpose. 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, shareholder account servicing, printing and mailing of prospectuses to other than current shareholders, printing and mailing of sales literature, and compensation for sales and marketing activities or to financial institutions and others, such as dealers and distributors. The distribution fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
The Fund has entered into agreements with various brokers, dealers, and financial intermediaries in connection with the sale of Fund shares. The agreements provide for periodic payments of sub-transfer agent expenses by the Fund to the brokers, dealers, and financial intermediaries for providing certain shareholder maintenance services. 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. The sub-transfer agent fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
U.S. Bancorp Fund Services, LLC, d/b/a U.S. Bank Global Fund Services (“Fund Services”) provides the Fund with administrative, accounting, and transfer agent services. As administrator, Fund Services is responsible for activities such as (i) preparing various federal and state regulatory filings, reports, and returns for the Fund, (ii) preparing reports and materials to be supplied to the Board, (iii) monitoring the activities of the Fund’s custodian, transfer agent, and accountants, and (iv) coordinating the preparation and payment of the Fund’s expenses and reviewing the Fund’s expense accruals. U.S. Bank N.A., an affiliate of Fund Services, serves as the Fund’s custodian. The servicing agreements between the Trust, Fund Services, and U.S. Bank N.A. contain a fee schedule that is inclusive of administrative, accounting, custody, and transfer agent fees. The administrative, accounting, custody, and transfer agent fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations. Fund Services has voluntarily waived all or a portion of its fees for the Fund. The fees voluntarily waived by Fund Services during fiscal year 2021 are included in the Statement of Operations.
| HENNESSY FUNDS | 1-800-966-4354 | |
Quasar Distributors, LLC (“Quasar”), a wholly owned broker-dealer subsidiary of Foreside Financial Group, LLC (“Foreside”), acts as the Fund’s principal underwriter in a continuous public offering of Fund shares. Effective September 30, 2021, Genstar Capital, a private equity firm specializing in financial and related business service companies, acquired a majority interest in Foreside. The Board approved a new Distribution Agreement to enable Quasar to continue serving as the Fund’s distributor following the change in control of Foreside.
The officers of the Fund are affiliated with the Advisor. With the exception of the Chief Compliance Officer and the Senior Compliance Officer, such officers receive no compensation from the Fund for serving in their respective roles. The Fund, along with the other funds in the Hennessy Funds family (collectively, the “Hennessy Funds”), makes reimbursement payments on an equal basis to the Advisor for a portion of the salary and benefits associated with the office of the Chief Compliance Officer and for all of the salary and benefits associated with the office of the Senior Compliance Officer. The compliance fees expensed by the Fund during fiscal year 2021 are included in the Statement of Operations.
6). GUARANTEES AND INDEMNIFICATIONS
Under the Hennessy Funds’ organizational documents, their officers and trustees are indemnified by the Hennessy Funds against certain liabilities arising out of the performance of their duties to the Hennessy Funds. Additionally, in the normal course of business, the Hennessy Funds enter into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. Currently, the Fund expects the risk of loss to be remote.
7). LINE OF CREDIT
The Fund has an uncommitted line of credit with the other Hennessy Funds in the amount of the lesser of (i) $100,000,000 or (ii) 33.33% of each Hennessy Fund’s net assets, or 30% for the Hennessy Gas Utility Fund and 10% for the Hennessy Balanced Fund. The line of credit is intended to provide any necessary short-term financing in connection with shareholder redemptions, subject to certain restrictions. The credit facility is with the Hennessy Funds’ custodian bank, U.S. Bank N.A. Borrowings under this arrangement bear interest at the bank’s prime rate and are secured by all of the Fund’s assets (as to its own borrowings only). During fiscal year 2021, the Fund did not have any borrowings outstanding under the line of credit.
8). FEDERAL TAX INFORMATION
As of October 31, 2021, the components of accumulated earnings (losses) for income tax purposes were as follows:
| | | Investments | |
| Cost of investments for tax purposes | | $ | 7,125,370 | |
| Gross tax unrealized appreciation | | $ | 1,538,881 | |
| Gross tax unrealized depreciation | | | (514,095 | ) |
| Net tax unrealized appreciation/(depreciation) | | $ | 1,024,786 | |
| Undistributed ordinary income | | $ | 1,178,003 | |
| Undistributed long-term capital gains | | | 828,581 | |
| Total distributable earnings | | $ | 2,006,584 | |
| Other accumulated gain/(loss) | | $ | — | |
| Total accumulated gain/(loss) | | $ | 3,031,370 | |
| NOTES TO THE FINANCIAL STATEMENTS |
The difference between book-basis unrealized appreciation/depreciation and tax-basis unrealized appreciation/depreciation (as shown above) is attributable primarily to wash sales.
As of October 31, 2021, the Fund had no tax-basis capital losses to offset future capital gains.
As of October 31, 2021, the Fund did not defer, on a tax basis, any late-year ordinary losses. Late-year ordinary losses are net ordinary losses incurred after December 31, 2020, but within the taxable year, that are deemed to arise on the first day of the Fund’s next taxable year.
During fiscal years 2021 and 2020, the tax character of distributions paid by the Fund was as follows:
| | | | Year Ended | | | Year Ended | |
| | | | October 31, 2021 | | | October 31, 2020 | |
| | Ordinary income(1) | | $ | 239,745 | | | $ | 61,675 | |
| | Long-term capital gains | | | 429,765 | | | | 84,296 | |
| | Total distributions | | $ | 669,510 | | | $ | 145,971 | |
| | (1) Ordinary income includes short-term capital gains. |
9). EVENTS SUBSEQUENT TO YEAR END
Management has evaluated the Fund’s related events and transactions that occurred subsequent to October 31, 2021, through the date of issuance of the Fund’s financial statements. Other than as disclosed below, management has determined that there were no subsequent events requiring recognition or disclosure in the financial statements.
On December 7, 2021 capital gains were declared and paid to shareholders of record on December 6, 2021, as follows:
| | | Long-term | Short-term |
| | Investor Class | $2.76132 | $3.94213 |
| | Institutional Class | $2.83948 | $4.05369 |
| HENNESSY FUNDS | 1-800-966-4354 | |
Report of Independent Registered Public
Accounting Firm
To the Board of Trustees of Hennessy Funds Trust
and the shareholders of the Hennessy Technology Fund
Novato, CA
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of the Hennessy Technology Fund (the “Fund”), a series of Hennessy Funds Trust, including the schedule of investments, as of October 31, 2021, the related statement 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, financial highlights for each of the five years in the period then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of October 31, 2021, the results of its operations for the year then ended, the changes in its 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, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We have served as the auditor of one or more of the funds in the Trust since 2002.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of October 31, 2021 by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
| | |
| | TAIT, WELLER & BAKER LLP |
Philadelphia, Pennsylvania
December 22, 2021
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM/TRUSTEES AND OFFICERS |
Trustees and Officers of the Fund (Unaudited)
The business and affairs of the Funds are managed under the direction of the Board of Trustees of the Trust, and the Board of Trustees elects the officers of the Trust. From time to time, the Board of Trustees also has appointed advisers to the Board of Trustees (“Advisers”) with the intention of having qualified individuals serve in an advisory capacity to garner experience in the mutual fund and asset management industry and be considered as potential Trustees in the future. There are currently two Advisers, Brian Alexander and Doug Franklin. As Advisers, Mr. Alexander and Mr. Franklin attend meetings of the Board of Trustees and act as non-voting participants. Information pertaining to the Trustees, Advisers, and the officers of the Trust is set forth below. The Trustees and officers serve until their successors are duly elected and qualified or until their earlier death, resignation, or removal. Each Trustee oversees all 16 Hennessy Funds. Unless otherwise indicated, the address of all persons listed below is 7250 Redwood Boulevard, Suite 200, Novato, CA 94945. The Fund’s Statement of Additional Information includes more information about the persons listed below and is available without charge by calling 1-800-966-4354 or by visiting www.hennessyfunds.com.
| | | | Other |
| | | | Directorships |
| | | | Held Outside |
| Name, Age, | | | of Fund |
| and Position Held | Start Date | Principal Occupation(s) | Complex During |
with the Trust
| of Service | During Past Five Years | Past Five Years
|
| | | | |
| Disinterested Trustees and Advisers | | | |
| | | | |
| J. Dennis DeSousa | January 1996 | Mr. DeSousa is a real estate investor. | None. |
| 85 | | | |
| Trustee | | | |
| | | | |
| Robert T. Doyle | January 1996 | Mr. Doyle has been the Sheriff of | None. |
| 74 | | Marin County, California since 1996. | |
| Trustee | | | |
| | | | |
| Claire Garvie | December 2015 | Ms. Garvie is a founder of Kiosk and | None. |
| 47 | as an Adviser | has served as its Chief Operating | |
| Trustee | to the Board | Officer since 2004. Kiosk is a full- | |
| | and | service marketing agency with | |
| | December 2021 | offices in the San Francisco Bay Area, | |
| | as a Trustee | Toronto, and Liverpool, UK. | |
| | | | |
| Gerald P. Richardson | May 2004 | Mr. Richardson is an independent | None. |
| 76 | | consultant in the securities industry. | |
| Trustee | | | |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | | | Other |
| | | | Directorships |
| | | | Held Outside |
| Name, Age, | | | of Fund |
| and Position Held | Start Date | Principal Occupation(s) | Complex During |
with the Trust
| of Service | During Past Five Years | Past Five Years
|
| | | | |
| Brian Alexander | March 2015 | Mr. Alexander has worked for the | None. |
| 40 | | Sutter Health organization since | |
| Adviser to the Board | | 2011 in various positions. He has | |
| | | served as the Chief Executive Officer | |
| | | of the Sutter Roseville Medical | |
| | | Center since 2018. From 2016 through | |
| | | 2018, he served as the Vice President | |
| | | of Strategy for the Sutter Health Valley | |
| | | Area, which includes 11 hospitals, | |
| | | 13 ambulatory surgery centers, | |
| | | 16,000 employees, and 1,900 physicians. | |
| | | From 2013 through 2016, Mr. Alexander | |
| | | served as Sutter Novato Community | |
| | | Hospital’s Chief Administrative Officer. | |
| | | | |
| Doug Franklin | March 2016 | Mr. Franklin is a retired insurance | None. |
| 57 | | industry executive. From 1987 | |
| Adviser to the Board | | through 2015, he was employed | |
| | | by the Allianz-Fireman’s Fund | |
| | | Insurance Company in various | |
| | | positions, including as its Chief | |
| | | Actuary and Chief Risk Officer. | |
| | | | |
Interested Trustee(1) | | | |
| | | | |
| Neil J. Hennessy | January 1996 as | Mr. Hennessy has been employed | Hennessy |
| 65 | a Trustee and | by Hennessy Advisors, Inc. since | Advisors, Inc. |
| Chairman of the Board, | June 2008 as | 1989 and currently serves as its | |
| Chief Market Strategist, | an officer | Chairman and Chief Executive Officer. | |
| Portfolio Manager, | | | |
| and President | | | |
| Name, Age, | | |
| and Position Held | Start Date | Principal Occupation(s) |
with the Trust
| of Service | During Past Five Years |
| | | |
| Officers | | |
| | | |
| Teresa M. Nilsen | January 1996 | Ms. Nilsen has been employed by Hennessy Advisors, Inc. |
| 55 | | since 1989 and currently serves as its President and Chief |
| Executive Vice President | | Operating Officer. |
| and Treasurer | | |
| | | |
| Daniel B. Steadman | March 2000 | Mr. Steadman has been employed by Hennessy Advisors, Inc. |
| 65 | | since 2000 and currently serves as its Executive Vice President. |
| Executive Vice President | | |
| and Secretary | | |
| | | |
| Brian Carlson | December 2013 | Mr. Carlson has been employed by Hennessy Advisors, Inc. |
| 49 | | since December 2013 and currently serves as its Chief |
| Senior Vice President | | Compliance Officer and Senior Vice President. |
| and Head of Distribution | | |
| TRUSTEES AND OFFICERS OF THE FUND |
| Name, Age, | | |
| and Position Held | Start Date | Principal Occupation(s) |
with the Trust
| of Service | During Past Five Years |
| | | |
Jennifer Cheskiewicz(2) | June 2013 | Ms. Cheskiewicz has been employed by Hennessy Advisors, Inc. |
| 44 | | as its General Counsel since June 2013. |
| Senior Vice President and | | |
| Chief Compliance Officer | | |
| | | |
David Ellison(3) | October 2012 | Mr. Ellison has been employed by Hennessy Advisors, Inc. since |
| 63 | | October 2012. He has served as a Portfolio Manager of the |
| Senior Vice President | | Hennessy Large Cap Financial Fund and the Hennessy Small |
| and Portfolio Manager | | Cap Financial Fund since their inception. Mr. Ellison also served |
| | | as a Portfolio Manager of the Hennessy Technology Fund from |
| | | its inception until February 2017. Mr. Ellison served as Director, |
| | | CIO, and President of FBR Fund Advisers, Inc. from December |
| | | 1999 to October 2012. |
| | | |
Ryan Kelley(4) | March 2013 | Mr. Kelley has been employed by Hennessy Advisors, Inc. since |
| 49 | | October 2012. He has served as Chief Investment Officer of the |
| Chief Investment Officer, | | Hennessy Funds since March 2021 and has served as a Portfolio |
| Senior Vice President, | | Manager of the Hennessy Gas Utility Fund, the Hennessy Large |
| and Portfolio Manager | | Cap Financial Fund, and the Hennessy Small Cap Financial Fund |
| | | since October 2014. Mr. Kelley served as Co-Portfolio Manager |
| | | of these same funds from March 2013 through September |
| | | 2014 and as a Portfolio Analyst for the Hennessy Funds from |
| | | October 2012 through February 2013. He has also served as a |
| | | Portfolio Manager of the Hennessy Cornerstone Growth Fund, |
| | | the Hennessy Cornerstone Mid Cap 30 Fund, the Hennessy |
| | | Cornerstone Large Growth Fund, and the Hennessy |
| | | Cornerstone Value Fund since February 2017 and as a Portfolio |
| | | Manager of the Hennessy Total Return Fund, the Hennessy |
| | | Balanced Fund, and the Hennessy Technology Fund since May |
| | | 2018. He served as Co-Portfolio Manager of the Hennessy |
| | | Technology Fund from February 2017 until May 2018. Mr. Kelley |
| | | served as Portfolio Manager of FBR Fund Advisers, Inc. from |
| | | January 2008 to October 2012. |
| | | |
L. Joshua Wein(4) | September 2018 | Mr. Wein has been employed by Hennessy Advisors, Inc. since |
| 48 | | 2018. He has served as Co-Portfolio Manager of the Hennessy |
| Vice President and | | Cornerstone Growth Fund, the Hennessy Cornerstone |
| Co-Portfolio Manager | | Mid Cap 30 Fund, the Hennessy Cornerstone Large Growth |
| | | Fund, the Hennessy Cornerstone Value Fund, Hennessy Total |
| | | Return Fund, the Hennessy Balanced Fund, the Hennessy Gas |
| | | Utility Fund, and the Hennessy Technology Fund since February |
| | | 2019. He served as a Senior Analyst of these same funds from |
| | | September 2018 through February 2019. Mr. Wein served as |
| | | Director of Alternative Investments and Co-Portfolio Manager |
| | | at Sterling Capital Management from 2008 to 2018. |
_______________
(1) | Mr. Hennessy is considered an “interested person,” as defined in the Investment Company Act of 1940, as amended, because he is an officer of the Trust. |
(2) | The address of this officer is 4800 Bee Caves Road, Suite 100, Austin, TX 78746. |
(3) | The address of this officer is 101 Federal Street, Suite 1615B, Boston, MA 02110. |
(4) | The address of this officer is 1340 Environ Way, Chapel Hill, NC 27517. |
| HENNESSY FUNDS | 1-800-966-4354 | |
Expense Example (Unaudited)
October 31, 2021
As a shareholder of the Fund, you incur 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 the Fund 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, 2021, through October 31, 2021.
Actual Expenses
In the table below, the first line under each of the “Investor Class” and “Institutional Class” headings provides information about actual account values and actual expenses for each share class. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the 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 “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. Although the Fund charges 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. Bank Global Fund Services, the Fund’s transfer agent. If you request that a redemption be made by wire transfer, the Fund’s transfer agent charges a $15 fee. IRAs are charged a $15 annual maintenance fee (up to $30 maximum per shareholder for shareholders with multiple IRAs). The examples below include, but are not limited to, management, shareholder servicing, accounting, custody, and transfer agent fees. However, the examples below do not include portfolio trading commissions and related expenses.
Hypothetical Example for Comparison Purposes
In the table below, the second line under each of the “Investor Class” and “Institutional Class” headings provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio for each share class and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return for such share class. 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 Fund and other funds. To do so, compare these 5% hypothetical examples 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. Therefore, the second lines under “Investor Class” and “Institutional Class” are useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds.
| | | | Expenses Paid |
| | Beginning | Ending | During Period(1) |
| | Account Value | Account Value | May 1, 2021 – |
| | May 1, 2021
| October 31, 2021 | October 31, 2021 |
| Investor Class | | | |
| Actual | $1,000.00 | $1,022.00 | $6.27 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,019.00 | $6.26 |
| | | | |
| Institutional Class | | | |
| Actual | $1,000.00 | $1,023.70 | $5.00 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,020.27 | $4.99 |
(1) | Expenses are equal to the Fund’s annualized expense ratio of 1.23% for Investor Class shares or 0.98% for Institutional Class shares, as applicable, multiplied by the average account value over the period, multiplied by 184/365 days (to reflect the half-year period). |
| HENNESSY FUNDS | 1-800-966-4354 | |
How to Obtain a Copy of the Fund’s Proxy
Voting Policy and Proxy Voting Records
A description of the policies and procedures the Fund uses 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/proxy-voting/voting-policy, or (3) on the U.S. Securities and Exchange Commission’s (the “SEC”) website at www.sec.gov. The Fund’s proxy voting record is available without charge on both the Hennessy Funds’ website at www.hennessyfunds.com/proxy-voting/voting-record and the SEC’s website at www.sec.gov no later than August 31 for the prior 12 months ending June 30.
Availability of Quarterly Portfolio Schedule
The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov or on request by calling 1-800-966-4354.
Federal Tax Distribution Information (Unaudited)
For fiscal year 2021, certain dividends paid by the Fund may be subject to a maximum tax rate of 23.8%, 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 28.32%.
For corporate shareholders, the percent of ordinary income distributions that qualified for the corporate dividends received deduction for fiscal year 2021 was 25.39%.
The percentage of taxable ordinary income distributions that were designated as short-term capital gain distributions under Section 871(k)(2)(C) of the Internal Revenue Code of 1986, as amended, for the Fund was 92.49%.
Important Notice Regarding Delivery
of Shareholder Documents
To help keep the Fund’s costs as low as possible, we generally deliver a single copy of shareholder reports, proxy statements, and prospectuses to shareholders who share an address and have the same last name. This process does not apply to account statements. You may request an individual copy of a shareholder document at any time. If you would like to receive separate mailings of shareholder documents, please call U.S. Bank Global Fund Services at 1-800-261-6950 or 1-414-765-4124, and individual delivery will begin within 30 days of your request. If your account is held through a financial institution or other intermediary, please contact such intermediary directly to request individual delivery.
Electronic Delivery
As permitted by SEC regulations, the Fund’s shareholder reports are made available on a website, and unless you sign up for eDelivery or elect to receive paper copies as detailed below, you will be notified by mail each time a report is posted and provided with a website link to access the report.
The Fund also offers shareholders the option to receive all notices, account statements, prospectuses, tax forms, and shareholder reports online. To sign up for eDelivery or change your delivery preference, please visit www.hennessyfunds.com/account.
To elect to receive paper copies of all future reports free of charge, please call U.S. Bank Global Fund Services at 1-800-261-6950 or 1-414-765-4124.
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| PROXY VOTING — PRIVACY POLICY |
Liquidity Risk Management Program
In accordance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), we have adopted and implemented a liquidity risk management program (the “Liquidity Program”). The purpose of the Liquidity Program is to assess and manage the Fund’s liquidity risk, which is the risk that the Fund would not be able to meet requests to redeem Fund shares without significant dilution of the remaining shareholders’ interests in the Fund. The Board of Trustees of the Fund (the “Board”) designated a committee comprising representatives of Hennessy Advisors, Inc., the investment adviser to the Fund, as the administrator of the Liquidity Program (the “Program Administrator”).
The Program Administrator provided a written report regarding the Liquidity Program to the Board in advance of its meeting on June 2, 2021. The report covered the period from June 1, 2020, through May 31, 2021. The report addressed the operation of the Liquidity Program, assessed the adequacy and effectiveness of its implementation, and described any material changes to the Liquidity Program during the review period. The Trust’s chief compliance officer presented the report to the Board at the meeting and provided additional information regarding the Liquidity Program. The Board reviewed the Liquidity Program and considered, among other items, the following:
| | 1. | The Program Administrator reviewed daily historical net redemption activity during the review period and during prior periods with higher-than-average redemption activity and concluded that the Fund has historically been able to meet requests to redeem Fund shares without significant dilution to the Fund’s remaining shareholders, and the Program Administrator expects the Fund to be able to continue to do so in the future during both normal and reasonably foreseeable stressed conditions. |
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| | 2. | The Fund holds assets that are highly liquid investments and is therefore not required to establish a highly liquid investment minimum for the Fund or adopt policies and procedures for responding to a highly liquid investment minimum shortfall. |
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| | 3. | The Program Administrator did not make any material changes to the Liquidity Program during the review period and did not recommend any changes to the Liquidity Program or the model inputs used to determine the liquidity classification of each security held by the Fund. |
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| | 4. | The Program Administrator concluded that the Liquidity Program was reasonably designed to assess and manage the Fund’s liquidity risk, complies with the requirements of the Liquidity Rule, and was operating as intended during the review period. |
Privacy Policy
We collect the following personal information about you:
| | 1. | Information we receive from you 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; |
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| | 2. | Information about your transactions with us, our affiliates, or others, including, but not limited to, your account number and balance, payments history, parties to transactions, cost basis information, and other financial information; and |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | 3. | Other personal information we collect from various sources, even if you have not entered into a prior transaction with us, including the following: |
| | • | Name, alias, address, unique personal identifier, online identifier, IP address, email address, telephone number, account name, and other similar identifiers; |
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| | • | Age and marital status; |
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| | • | Commercial information, including records of products purchased; |
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| | • | Browsing history, search history, and information on interaction with our website; |
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| | • | Geolocation data; |
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| | • | Employment and employment history, educational history, financial information, and purchasing and consuming histories or tendencies; and |
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| | • | Inferences drawn from the above-listed information to create a profile about your preferences, characteristics, predispositions, and behavior. |
We collect this information directly from you, indirectly in the course of providing services to you, directly and indirectly from your activity on our website, from broker dealers, marketing agencies, and other third parties that interact with us in connection with the services we perform and products we offer, and from anonymized and aggregated consumer information.
We use this information to fulfill the reason you provided the information to us, to provide you with other relevant products that you request from us, to provide you with information about products that may interest you, to improve our website or present our website’s contents to you, and as otherwise described to you when collecting your personal information.
We do not disclose any personal information to unaffiliated third parties, except as permitted by law. We may disclose your personal information to our affiliates, vendors, and service providers for a business purpose. 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. When disclosing your personal information to third parties, we enter into a contract with each third party describing the purpose of such disclosure and requiring that such personal information be kept confidential and not used for any purpose except to perform the services contracted or respond to regulatory or law enforcement requests.
Furthermore, we restrict access to your personal information to those persons who require such information to provide products or services to you. As a result, we do not provide a means for opting out of our limited sharing of your information. We maintain physical, electronic, and procedural safeguards that comply with federal standards to guard your personal information.
If you hold shares of the Funds through a financial intermediary, including, but not limited to, a broker-dealer, bank, or trust company, the privacy policy of your financial intermediary governs how your personal information is shared with unaffiliated third parties.
Supplemental Privacy Notice for Residents of California
The California Consumer Privacy Act of 2018 (the “CCPA”) provides you, as a California resident, with certain additional rights relating to your personal information.
Under the CCPA, you have the right to request that we disclose to you the categories of personal information we have collected about you over the past 12 months, the categories of sources of such information, our business purpose for collecting the information, the categories of third parties, if any, with whom we shared the information, and the specific information we have collected about you. You also have the right to request that we delete any of your personal information, and, unless an exception applies, we will delete such information upon receiving and confirming your request. To make a request, call us at 1-800-966-4354, email us at privacy@hennessyfunds.com, or go to www.hennessyfunds.com/contact. We will not discriminate against you for exercising your rights under the CCPA. Further, we will not collect additional categories of your personal information or use the personal information we collected for materially different, unrelated, or incompatible purposes without providing you notice.
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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 Boulevard, Suite 200
Novato, California 94945
ADMINISTRATOR,
TRANSFER AGENT,
DIVIDEND PAYING AGENT, &
SHAREHOLDER SERVICING AGENT
U.S. Bancorp Fund Services, LLC
d/b/a U.S. Bank Global Fund Services
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
CUSTODIAN
U.S. Bank N.A.
Custody Operations
1555 North River Center Drive, Suite 302
Milwaukee, Wisconsin 53212
TRUSTEES
Neil J. Hennessy
Robert T. Doyle
J. Dennis DeSousa
Claire Garvie
Gerald P. Richardson
COUNSEL
Foley & Lardner LLP
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-5306
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Tait, Weller & Baker LLP
Two Liberty Place
50 South 16th Street, Suite 2900
Philadelphia, Pennsylvania 19102-2529
DISTRIBUTOR
Quasar Distributors, LLC
111 East Kilbourn Avenue, Suite 2200
Milwaukee, Wisconsin 53202
www.hennessyfunds.com | 1-800-966-4354
This report has been prepared for shareholders and may be distributed to
others only if preceded or accompanied by a current prospectus.
