overall capitulation and improving fundamentals that could bring buyers back into the market and reverse any bearish trends. Investors need to see improving company earnings, retreating inflationary trends, a measured pace of interest rate increases globally that does not cause significant economic contraction, hope for a more peaceful and orderly world economic system unconstrained by supply bottlenecks and other hindrances to global trade, and, most importantly, a subsidence of the deleterious effects of the coronavirus pandemic. While that may seem like a “tall order,” we believe that patient investing, focusing on value, quality, and downside risk mitigation, works well over the longer term.
Past performance does not guarantee future results.
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.
Please refer to the Performance Overview section for more detailed performance information.
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 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.
Note: The Fund concentrates its investments in the Energy industry. For presentation purposes, the Fund uses custom categories.
The accompanying notes are an integral part of these financial statements.
Percentages are stated as a percent of net assets.
The accompanying notes are an integral part of these financial statements.
The following is a summary of the inputs used to value the Fund’s net assets as of April 30, 2022 (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 accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The Hennessy 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.”
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 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 April 30, 2022, are included in the Schedule of Investments.
Purchases and sales of investment securities (excluding government and short-term investments) for the Fund during the six months ended April 30, 2022, were 3,949,026 and $3,031,834, respectively.
There were no purchases or sales/maturities of long-term U.S. government securities for the Fund during the six months ended April 30, 2022.
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 1.25 %. The net investment advisory fees expensed by the Fund during the six months ended April 30, 2022, are included in the Statement of Operations.
Prior to January 31, 2022, the Advisor delegated the day-to-day management of the Fund to a sub-advisor. Effective January 31, 2022, the sub-advisory agreement between BP Capital Fund Advisors, LLC and the Advisor was terminated. The Advisor paid the sub-advisory fees from its own assets, and these fees were not an additional expense of the Fund. From November 1, 2021, through January 31, 2022, 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 April 30, 2022, 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 the six months ended April 30, 2022.
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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, are included in the Statement of Operations.
Quasar Distributors, LLC (“Quasar”), a wholly owned broker-dealer subsidiary of Foreside Financial Group, LLC, acts as the Fund’s principal underwriter in a continuous public offering of Fund shares.
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 the six months ended April 30, 2022, 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 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 the six months ended April 30, 2022, the Fund had an outstanding average daily balance and a weighted average interest rate of $14,812 and 3.50%, respectively. The interest expensed by the Fund during the six months ended April 30, 2022, is included in the Statement of Operations. The maximum amount outstanding for the Fund during the period was $529,000. As of April 30, 2022, the Fund had a loan payable of $168,000.
As of October 31, 2021, the Fund’s most recent fiscal year end, 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 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 year 2022 (year to date) and fiscal year 2021, 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 April 30, 2022, 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.
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 November 1, 2021, through April 30, 2022.
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.
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.
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 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 its 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 800-966-4354.
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 800-261-6950 or 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 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 electronically. 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 800-261-6950 or 414-765-4124.
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At its meeting on March 11, 2022, the Board of Trustees of the Fund (the “Board,” and the members thereof, the “Trustees”) unanimously approved the continuation of the investment advisory agreement of the Fund with Hennessy Advisors, Inc. (the “Advisor”). As part of the process, the Trustees reviewed their fiduciary duties and the relevant factors for them to consider with respect to approving the advisory agreement. In addition, the Trustees who are not deemed “interested persons” (as defined by the Investment Company Act of 1940, as amended) of the Fund (the “Independent Trustees”) met in executive session to discuss the approval of the advisory agreement. As part of their discussion, the Independent Trustees confirmed their understanding of the need to have asked about, and received answers to, any matters that they believed are relevant to determining whether to approve the continuation of the advisory agreement.
In advance of the meeting, the Advisor sent detailed information to the Trustees to assist them in their evaluation of the advisory agreement. This information included, but was not limited to, the following:
The Trustees reviewed and discussed all of the information provided by the Advisor. Following this review, and further discussion with the Advisor, the Trustees concluded that the information provided before and at the meeting addressed all of the relevant matters that they wanted to consider in assessing the performance of the Funds and the performance of the Advisor under the advisory agreement, and that said information provided them with a fulsome understanding of the advisory agreement and the services provided by the Advisor.
All of the factors discussed were considered as a whole by the Trustees, as well as by the Independent Trustees meeting in executive session. The Trustees viewed the relevant factors in their totality, with no single factor being the principal or determinative factor in the Trustees’ determination of whether to approve the continuation of the advisory agreement. The Trustees recognized that the management and fee arrangements for the Fund are the result of years of review and discussion between the Independent Trustees and the Advisor, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on
their consideration of these same arrangements and information received during the course of the year and in prior years.
Prior to approving the continuation of the advisory agreement, the Trustees, including the Independent Trustees in executive session, considered, among other items:
The material considerations and determinations of the Trustees, including the Independent Trustees, were as follows:
After reviewing the materials and information provided at the meeting, as well as other information regularly provided at the Board’s quarterly meetings throughout the year regarding the quality of services provided by the Advisor, the performance of the Fund, expense information, brokerage commissions information, the adequacy and efficacy of the Advisor’s written policies and procedures, other regulatory compliance issues, trading information and related matters, and other factors that the Trustees deemed relevant, the Trustees, including the Independent Trustees, approved the continuation of the advisory agreement.
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
J. Dennis DeSousa
Robert T. Doyle
Gerald P. Richardson
others only if preceded or accompanied by a current prospectus.
SEMI-ANNUAL REPORT
APRIL 30, 2022
HENNESSY 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 | 5 |
| Statement of Assets and Liabilities | 8 |
| Statement of Operations | 9 |
| Statements of Changes in Net Assets | 11 |
| Financial Highlights | 12 |
| Notes to the Financial Statements | 16 |
| Expense Example | 26 |
| Proxy Voting Policy and Proxy Voting Records | 28 |
| Availability of Quarterly Portfolio Schedule | 28 |
| Federal Tax Distribution Information | 28 |
| Important Notice Regarding Delivery of Shareholder Documents | 28 |
| Electronic Delivery | 28 |
| Board Approval of Investment Advisory Agreement | 29 |
| HENNESSY FUNDS | 1-800-966-4354 | |
May 2022
Dear Hennessy Funds Shareholder:
We’d like to start our semi-annual letter with a pause. At the end of 2021, we looked forward to a new year – a potentially calmer year – having come through almost two full years of the coronavirus pandemic. As people, we were aware our lives had changed, but we hoped for a better 2022; as investors, we were aware that the economy was strong and employment was robust, yet challenges loomed, including inflation, supply chain disruptions, and tightening monetary policy; as employees, students, and family members, we recognized much was different, but we sought a return to what’s familiar. What we didn’t know was that a world leader who controls one of the largest militaries on the planet was about to start one of the worst atrocities in Europe since World War II. Our thoughts are with the Ukrainian people, and our hope is for this unjustified, senseless human tragedy to end quickly.
The equity market started 2022 on a high note, with the S&P 500® Index hitting an all-time high on the first trading day of the year. This turned out to be the last hurrah for a market that saw a continuous march higher in 2021, having hit 70 new all-time highs, with a new all-time high being recorded on average every three and a half days. Concerns in the market then coalesced and overpowered bullish sentiment, and the market has spiraled lower throughout 2022. Factors that drove the market lower include: tightening monetary policy as the Federal Reserve has begun raising rates and has announced plans for shrinking its $8.5 trillion asset portfolio; inflation, higher energy costs, and their effects on the domestic and global economies; continued supply chain disruptions; investors’ indiscriminate liquidation of broad-based ETFs and index funds and the detrimental effect on equities; and the near-term and long-term global implications of the Russian invasion of Ukraine.
While markets are adjusting, many positive conditions remain intact. Corporate balance sheets and profits remain strong, GDP growth remains positive, the consumer continues to show resilience in the face of rising prices, cash is abundant both at the corporate and household levels, unemployment is exceptionally low, and our financial system remains healthy. Markets are also experiencing a change in leadership, as value stocks have been outperforming growth stocks, and traditionally defensive sectors such as Utilities and Consumer Staples have been outperforming the broader market. Finally, the Energy sector has soared in 2022, as companies reap the benefits of dramatically higher oil and natural gas prices, and shareholders are rewarded with significantly higher dividends, aggressive buybacks, and higher stock prices after many years of underperformance for the sector.
With history as our guide, we are hopeful that eventually the market may bottom and head higher again. Since the financial crisis of 2008, we have experienced many corrections and many recoveries to new highs. The Dow Jones Industrial Average has dropped over 10% eight times, including the current drop, for a median decline of 14.00%, and on average, it took 45 trading days to drop from peak to trough and 127 trading days to return to the previous peak. Since the current drop has taken longer to go from peak to its recent trough, it may take some time for a recovery in prices to truly take hold.
On a positive note, valuations have come in, and many stocks have become more attractive, especially for longer-term investors. We note, however, that the concept of “historically cheap stocks” does not, on its own, move the market higher. Rather, it is
overall capitulation and improving fundamentals that could bring buyers back into the market and reverse any bearish trends. Investors need to see improving company earnings, retreating inflationary trends, a measured pace of interest rate increases globally that does not cause significant economic contraction, hope for a more peaceful and orderly world economic system unconstrained by supply bottlenecks and other hindrances to global trade, and, most importantly, a subsidence of the deleterious effects of the coronavirus pandemic. While that may seem like a “tall order,” we believe that patient investing, focusing on value, quality, and downside risk mitigation, works well over the longer term.
During this tumultuous period, performance of the majority of the Hennessy Funds has been relatively strong when compared to the overall market as well as to our benchmarks. During the six months ended April 30, 2022, the Dow Jones Industrial Average, the S&P 500® Index, and the NASDAQ Composite Index dropped 7.05%, 9.65%, and 20.15%, respectively, on a total return basis. During this period when these three major indices saw significant declines, we were pleased that seven of our 16 Funds posted positive total returns, 10 of our 14 domestic Funds outperformed the S&P 500® Index, and over half of our active funds outperformed their primary benchmarks.
We thank you, our shareholders, for your continued interest in our family of Funds. We are grateful for the trust you put in us, and we will continue to strive to manage our portfolios for long-term performance, ever mindful of downside risk. While volatility and uncertainty may impact the markets in the short-term, we encourage investors to stay the course, maintain a diversified portfolio, and keep a long-term perspective. If you have any questions or would like to speak with us, please don’t hesitate to call us directly at (800) 966-4354. In closing, we would also like to thank all of the healthcare and frontline workers that have worked – and still work – tirelessly throughout the coronavirus pandemic.
Best regards,
| |
| |
| |
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| Ryan C. Kelley, CFA |
| Chief Investment Officer, |
| Senior Vice President, and Portfolio Manager |
Past performance does not guarantee future results.
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 NASDAQ Composite Index comprises all common stocks listed on The NASDAQ Stock Market and is commonly used to measure the performance of technology-related stocks. 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.
Please refer to the Performance Overview section for more detailed performance information.
| HENNESSY FUNDS | 1-800-966-4354 | |
Performance Overview (Unaudited)
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED APRIL 30, 2022
| | Six | One | Five | Since Inception |
| | Months(1) | Year | Years | (12/31/13) |
| Hennessy Midstream Fund – | | | | |
| Investor Class (HMSFX) | 14.52% | 31.65% | -1.45% | -0.98% |
| Hennessy Midstream Fund – | | | | |
| Institutional Class (HMSIX) | 14.69% | 31.99% | -1.22% | -0.73% |
| Alerian US Midstream Energy Index | 16.51% | 37.51% | 5.06% | 2.72% |
S&P 500® Index | -9.65% | 0.21% | 13.66% | 12.27% |
| Expense ratios: | Gross 2.11%, Net 1.76%(2) (Investor Class); |
| Gross 1.74%, Net 1.51%(2) (Institutional Class) |
(1) | Periods of less than one year are not annualized. |
(2) | The Fund’s investment advisor has contractually agreed to limit expenses until February 28, 2023. |
_______________
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 OVERVIEW/SCHEDULE OF INVESTMENTS |
Financial Statements
Schedule of Investments as of April 30, 2022 (Unaudited) |
HENNESSY MIDSTREAM FUND
(% of Total Assets)
| TOP TEN HOLDINGS (EXCLUDING MONEY MARKET FUNDS) | % TOTAL ASSETS |
| Energy Transfer LP | 14.05% |
| Enterprise Products Partners LP | 10.85% |
| MPLX LP | 10.23% |
| Targa Resources Corp. | 8.86% |
| The Williams Companies, Inc. | 8.04% |
| Plains All American Pipeline LP | 7.72% |
| ONEOK, Inc. | 7.18% |
| Kinder Morgan, Inc. | 6.54% |
| DCP Midstream LP | 5.07% |
| Western Midstream Partners LP | 4.46% |
Note: The Fund concentrates its investments in the Energy industry. For presentation purposes, the Fund uses custom categories.
| HENNESSY FUNDS | 1-800-966-4354 | |
| COMMON STOCKS – 39.48% | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Crude Oil & Refined Products – 1.99% | | | | | | | | | |
| Enbridge, Inc. (a) | | | 21,500 | | | $ | 938,260 | | | | 1.99 | % |
| | | | | | | | | | | | | |
| Gathering & Processing – 13.58% | | | | | | | | | | | | |
| Antero Midstream Corp. | | | 89,000 | | | | 914,030 | | | | 1.94 | % |
| EnLink Midstream LLC | | | 132,000 | | | | 1,302,840 | | | | 2.76 | % |
| Targa Resources Corp. | | | 57,000 | | | | 4,184,370 | | | | 8.88 | % |
| | | | | | | | 6,401,240 | | | | 13.58 | % |
| | | | | | | | | | | | | |
| Natural Gas/NGL Transportation – 23.91% | | | | | | | | | | | | |
| DT Midstream, Inc. | | | 18,500 | | | | 994,375 | | | | 2.11 | % |
| Kinder Morgan, Inc. | | | 170,090 | | | | 3,087,133 | | | | 6.55 | % |
| ONEOK, Inc. | | | 53,526 | | | | 3,389,802 | | | | 7.20 | % |
| The Williams Companies, Inc. | | | 110,652 | | | | 3,794,257 | | | | 8.05 | % |
| | | | | | | | 11,265,567 | | | | 23.91 | % |
| | | | | | | | | | | | | |
| Total Common Stocks | | | | | | | | | | | | |
| (Cost $10,727,032) | | | | | | | 18,605,067 | | | | 39.48 | % |
| | | | | | | | | | | | | |
| PARTNERSHIPS & TRUSTS – 56.43% | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Crude Oil & Refined Products – 21.95% | | | | | | | | | | | | |
| Genesis Energy LP | | | 65,000 | | | | 713,700 | | | | 1.51 | % |
| Magellan Midstream Partners LP | | | 23,900 | | | | 1,157,955 | | | | 2.46 | % |
| MPLX LP | | | 149,249 | | | | 4,829,698 | | | | 10.25 | % |
| Plains All American Pipeline LP | | | 351,526 | | | | 3,641,809 | | | | 7.73 | % |
| | | | | | | | 10,343,162 | | | | 21.95 | % |
| | | | | | | | | | | | | |
| Gathering & Processing – 4.46% | | | | | | | | | | | | |
| Western Midstream Partners LP | | | 87,000 | | | | 2,104,530 | | | | 4.46 | % |
| | | | | | | | | | | | | |
| Natural Gas/NGL Transportation – 30.02% | | | | | | | | | | | | |
| DCP Midstream LP | | | 70,000 | | | | 2,394,000 | | | | 5.08 | % |
| Energy Transfer LP | | | 598,700 | | | | 6,633,596 | | | | 14.08 | % |
| Enterprise Products Partners LP | | | 197,600 | | | | 5,119,816 | | | | 10.86 | % |
| | | | | | | | 14,147,412 | | | | 30.02 | % |
| | | | | | | | | | | | | |
| Total Partnerships & Trusts | | | | | | | | | | | | |
| (Cost $18,223,291) | | | | | | | 26,595,104 | | | | 56.43 | % |
The accompanying notes are an integral part of these financial statements.
| SHORT-TERM INVESTMENTS – 3.24% | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Money Market Funds – 3.24% | | | | | | | | | |
| First American Government Obligations Fund, | | | | | | | | | |
| Institutional Class, 0.22% (b) | | | 1,526,087 | | | $ | 1,526,087 | | | | 3.24 | % |
| | | | | | | | | | | | | |
| Total Short-Term Investments | | | | | | | | | | | | |
| (Cost $1,526,087) | | | | | | | 1,526,087 | | | | 3.24 | % |
| | | | | | | | | | | | | |
| Total Investments | | | | | | | | | | | | |
| (Cost $30,476,410) – 99.15% | | | | | | | 46,726,258 | | | | 99.15 | % |
| Other Assets in Excess of Liabilities – 0.85% | | | | | | | 401,845 | | | | 0.85 | % |
| | | | | | | | | | | | | |
TOTAL NET ASSETS – 100.00% | | | | | | $ | 47,128,103 | | | | 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 April 30, 2022. |
Summary of Fair Value Exposure as of April 30, 2022
The following is a summary of the inputs used to value the Fund’s net assets as of April 30, 2022 (see Note 3 in the accompanying Notes to the Financial Statements):
| Common Stocks | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Crude Oil & Refined Products | | $ | 938,260 | | | $ | — | | | $ | — | | | $ | 938,260 | |
| Gathering & Processing | | | 6,401,240 | | | | — | | | | — | | | | 6,401,240 | |
| Natural Gas/NGL Transportation | | | 11,265,567 | | | | — | | | | — | | | | 11,265,567 | |
| Total Common Stocks | | $ | 18,605,067 | | | $ | — | | | $ | — | | | $ | 18,605,067 | |
| Partnerships & Trusts | | | | | | | | | | | | | | | | |
| Crude Oil & Refined Products | | $ | 10,343,162 | | | $ | — | | | $ | — | | | $ | 10,343,162 | |
| Gathering & Processing | | | 2,104,530 | | | | — | | | | — | | | | 2,104,530 | |
| Natural Gas/NGL Transportation | | | 14,147,412 | | | | — | | | | — | | | | 14,147,412 | |
| Total Partnerships & Trusts | | $ | 26,595,104 | | | $ | — | | | $ | — | | | $ | 26,595,104 | |
| Short-Term Investments | | | | | | | | | | | | | | | | |
| Money Market Funds | | $ | 1,526,087 | | | $ | — | | | $ | — | | | $ | 1,526,087 | |
| Total Short-Term Investments | | $ | 1,526,087 | | | $ | — | | | $ | — | | | $ | 1,526,087 | |
| Total Investments | | $ | 46,726,258 | | | $ | — | | | $ | — | | | $ | 46,726,258 | |
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 April 30, 2022 (Unaudited) |
| ASSETS: | | | |
| Investments in securities, at value (cost $30,476,410) | | $ | 46,726,258 | |
| Dividends and interest receivable | | | 48,412 | |
| Receivable for fund shares sold | | | 28,000 | |
| Return of capital receivable | | | 377,635 | |
| Deferred income tax | | | — | |
| Prepaid expenses and other assets | | | 22,885 | |
| Total assets | | | 47,203,190 | |
| | | | | |
| LIABILITIES: | | | | |
| Payable to advisor | | | 43,797 | |
| Payable to auditor | | | 20,372 | |
| Accrued distribution fees | | | 1,542 | |
| Accrued service fees | | | 795 | |
| Accrued trustees fees | | | 6,320 | |
| Accrued expenses and other payables | | | 2,261 | |
| Total liabilities | | | 75,087 | |
| NET ASSETS | | $ | 47,128,103 | |
| | | | | |
| NET ASSETS CONSISTS OF: | | | | |
| Capital stock | | $ | 56,502,426 | |
| Accumulated deficit | | | (9,374,323 | ) |
| Total net assets | | $ | 47,128,103 | |
| | | | | |
| NET ASSETS: | | | | |
| Investor Class | | | | |
| Shares authorized (no par value) | | Unlimited | |
| Net assets applicable to outstanding shares | | $ | 9,455,568 | |
| Shares issued and outstanding | | | 1,013,464 | |
| Net asset value, offering price, and redemption price per share | | $ | 9.33 | |
| | | | | |
| Institutional Class | | | | |
| Shares authorized (no par value) | | Unlimited | |
| Net assets applicable to outstanding shares | | $ | 37,672,535 | |
| Shares issued and outstanding | | | 3,915,955 | |
| Net asset value, offering price, and redemption price per share | | $ | 9.62 | |
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 six months ended April 30, 2022 (Unaudited) |
| INVESTMENT INCOME: | | | |
| Distributions received from master limited partnerships | | $ | 988,833 | |
| Return of capital on distributions received | | | (988,833 | ) |
Dividend income(1) | | | 254,462 | |
| Interest income | | | 470 | |
| Total investment income | | | 254,932 | |
| | | | | |
| EXPENSES: | | | | |
| Investment advisory fees (See Note 5) | | | 224,775 | |
| Administration, accounting, custody, and transfer agent fees (See Note 5) | | | 28,940 | |
| Audit fees | | | 20,365 | |
| Sub-transfer agent expenses – Investor Class (See Note 5) | | | 6,617 | |
| Sub-transfer agent expenses – Institutional Class (See Note 5) | | | 10,313 | |
| Federal and state registration fees | | | 15,654 | |
| Compliance expense (See Note 5) | | | 15,156 | |
| Trustees’ fees and expenses | | | 8,487 | |
| Distribution fees – Investor Class (See Note 5) | | | 5,809 | |
| Reports to shareholders | | | 5,714 | |
| Service fees – Investor Class (See Note 5) | | | 3,872 | |
| Income tax expense | | | 900 | |
| Legal fees | | | 548 | |
| Other expenses | | | 5,797 | |
| Total expenses before waivers and reimbursements | | | 352,947 | |
| Service provider expense waiver (See Note 5) | | | (28,940 | ) |
| Expense reimbursement by advisor – Investor Class (See Note 5) | | | (4,805 | ) |
| Expense reimbursement by advisor – Institutional Class (See Note 5) | | | (2,111 | ) |
| Net expenses | | | 317,091 | |
| NET INVESTMENT LOSS | | $ | (62,159 | ) |
| | | | | |
| REALIZED AND UNREALIZED GAINS (LOSSES): | | | | |
| Net realized gain on investments | | $ | 104,009 | |
| Net change in unrealized appreciation/depreciation on investments | | | 5,765,419 | |
| Income tax expense | | | — | |
| Net gain on investments | | | 5,869,428 | |
| NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | | $ | 5,807,269 | |
(1) | Net of foreign taxes withheld of $4,913. |
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 |
| | | Six Months Ended | | | | |
| | | April 30, 2022 | | | Year Ended | |
| | | (Unaudited) | | | October 31, 2021 | |
| OPERATIONS: | | | | | | |
| Net investment loss | | $ | (62,159 | ) | | $ | (230,996 | ) |
| Net realized gain on investments | | | 104,009 | | | | 357,263 | |
| Net change in unrealized | | | | | | | | |
| appreciation/deprecation on investments | | | 5,765,419 | | | | 17,111,950 | |
| Net increase in net assets resulting from operations | | | 5,807,269 | | | | 17,238,217 | |
| | | | | | | | | |
| DISTRIBUTIONS TO SHAREHOLDERS FROM: | | | | | | | | |
| Return of capital – Investor Class | | | (442,182 | ) | | | (756,323 | ) |
| Return of capital – Institutional Class | | | (1,841,310 | ) | | | (3,420,217 | ) |
| Total distributions | | | (2,283,492 | ) | | | (4,176,540 | ) |
| | | | | | | | | |
| CAPITAL SHARE TRANSACTIONS: | | | | | | | | |
| Proceeds from shares subscribed – Investor Class | | | 2,454,841 | | | | 2,502,132 | |
| Proceeds from shares subscribed – Institutional Class | | | 5,069,747 | | | | 3,761,293 | |
| Dividends reinvested – Investor Class | | | 372,557 | | | | 677,429 | |
| Dividends reinvested – Institutional Class | | | 1,721,319 | | | | 3,185,818 | |
| Cost of shares redeemed – Investor Class | | | (724,800 | ) | | | (2,532,516 | ) |
| Cost of shares redeemed – Institutional Class | | | (2,456,451 | ) | | | (5,635,003 | ) |
| Net increase in net assets derived | | | | | | | | |
| from capital share transactions | | | 6,437,213 | | | | 1,959,153 | |
| TOTAL INCREASE IN NET ASSETS | | | 9,960,990 | | | | 15,020,830 | |
| | | | | | | | | |
| NET ASSETS: | | | | | | | | |
| Beginning of period | | | 37,167,113 | | | | 22,146,283 | |
| End of period | | $ | 47,128,103 | | | $ | 37,167,113 | |
| | | | | | | | | |
| CHANGES IN SHARES OUTSTANDING: | | | | | | | | |
| Shares sold – Investor Class | | | 274,006 | | | | 321,069 | |
| Shares sold – Institutional Class | | | 570,412 | | | | 490,595 | |
| Shares issued to holders as reinvestment | | | | | | | | |
| of dividends – Investor Class | | | 44,513 | | | | 89,396 | |
| Shares issued to holders as reinvestment | | | | | | | | |
| of dividends – Institutional Class | | | 200,654 | | | | 410,703 | |
| Shares redeemed – Investor Class | | | (80,972 | ) | | | (320,846 | ) |
| Shares redeemed – Institutional Class | | | (274,716 | ) | | | (711,400 | ) |
| Net increase in shares outstanding | | | 733,897 | | | | 279,517 | |
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
| | | Six Months Ended | |
| | | April 30, 2022 | |
| | | (Unaudited) | |
| PER SHARE DATA: | | | |
| Net asset value, beginning of period | | $ | 8.66 | |
| | | | | |
| Income from investment operations: | | | | |
Net investment loss(2)(3) | | | (0.02 | ) |
| Net realized and unrealized gains (losses) on investments | | | 1.21 | |
| Total from investment operations | | | 1.19 | |
| | | | | |
| Less distributions: | | | | |
| Dividends from return of capital | | | (0.52 | ) |
| Total distributions | | | (0.52 | ) |
| Net asset value, end of period | | $ | 9.33 | |
| | | | | |
| TOTAL RETURN | | | 14.52 | %(4) |
| | | | | |
| SUPPLEMENTAL DATA AND RATIOS: | | | | |
| Net assets, end of period (millions) | | $ | 9.46 | |
| Ratio of expenses to average net assets: | | | | |
| Before expense reimbursement | | | 2.02 | %(5) |
| After expense reimbursement | | | 1.75 | %(5)(6) |
| Ratio of net investment loss to average net assets: | | | | |
Before expense reimbursement(3) | | | (0.74 | )%(5) |
After expense reimbursement(3) | | | (0.47 | )%(5) |
Portfolio turnover rate(7) | | | 6 | %(4) |
(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 period. |
(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
| | | Six Months Ended | |
| | | April 30, 2022 | |
| | | (Unaudited) | |
| PER SHARE DATA: | | | |
| Net asset value, beginning of period | | $ | 8.90 | |
| | | | | |
| Income from investment operations: | | | | |
Net investment loss(2)(3) | | | (0.01 | ) |
| Net realized and unrealized gains (losses) on investments | | | 1.25 | |
| Total from investment operations | | | 1.24 | |
| | | | | |
| Less distributions: | | | | |
| Dividends from return of capital | | | (0.52 | ) |
| Total distributions | | | (0.52 | ) |
| Net asset value, end of period | | $ | 9.62 | |
| | | | | |
| TOTAL RETURN | | | 14.69 | %(4) |
| | | | | |
| SUPPLEMENTAL DATA AND RATIOS: | | | | |
| Net assets, end of period (millions) | | $ | 37.67 | |
| Ratio of expenses to average net assets: | | | | |
| Before expense reimbursement | | | 1.66 | %(5) |
| After expense reimbursement | | | 1.50 | %(5)(6) |
| Ratio of net investment loss to average net assets: | | | | |
Before expense reimbursement(3) | | | (0.42 | )%(5) |
After expense reimbursement(3) | | | (0.26 | )%(5) |
Portfolio turnover rate(7) | | | 6 | %(4) |
(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 period. |
(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 April 30, 2022 (Unaudited) |
1). ORGANIZATION
The Hennessy 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 April 30, 2022, 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 April 30, 2022, 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 the six months ended April 30, 2022, were $6,431,254 and $2,246,822, respectively.
There were no purchases or sales/maturities of long-term U.S. government securities for the Fund during the six months ended April 30, 2022.
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 1.10%. The net investment advisory fees expensed by the Fund during the six months ended April 30, 2022, are included in the Statement of Operations.
Prior to January 31, 2022, the Advisor delegated the day-to-day management of the Fund to a sub-advisor. Effective January 31, 2022, the sub-advisory agreement between BP Capital Fund Advisors, LLC and the Advisor was terminated. The Advisor paid the sub-advisory fees from its own assets, and these fees were not an additional expense of the Fund. From November 1, 2021, through January 31, 2022, 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, 2023.
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 April 30, 2022, 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 | Fiscal Year | |
| | | 2022
| 2023
| 2024
| 2025
| Total
|
| | Investor Class | $10,704 | $22,658 | $12,376 | $4,805 | $ 50,543 |
| | Institutional Class | $15,321 | $60,422 | $26,693 | $2,654 | $105,090 |
| 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 $543 that the Advisor recouped from the Fund during the six months ended April 30, 2022.
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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, are included in the Statement of Operations.
Quasar Distributors, LLC (“Quasar”), a wholly owned broker-dealer subsidiary of Foreside Financial Group, LLC, acts as the Fund’s principal underwriter in a continuous public offering of Fund shares.
| 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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, the Fund did not have any borrowings outstanding under the line of credit.
8). FEDERAL TAX INFORMATION
As of April 30, 2022, the components of accumulated earnings (losses) for income tax purposes were as follows:
| | | Investments | |
| Cost of investments for tax purposes | | $ | 25,744,103 | |
| Gross tax unrealized appreciation | | $ | 20,982,155 | |
| Gross tax unrealized depreciation | | | — | |
| Net tax unrealized appreciation/(depreciation) | | $ | 20,982,155 | |
As of April 30, 2022, deferred tax assets consisted of the following:
| Deferred tax assets (liabilities): | | | |
| Net operating losses | | $ | 905,000 | |
| Capital loss | | | 5,027,828 | |
| Unrealized (gain) loss on investments | | | (3,490,998 | ) |
| Total deferred tax assets, net | | | 2,441,830 | |
| Valuation allowance | | | (2,441,830 | ) |
| Net | | $ | — | |
For the six months ended April 30, 2022, 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.
| HENNESSY FUNDS | 1-800-966-4354 | |
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 April 30, 2022, the Fund established a valuation allowance in the amount of $2,441,830 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, 2018. As of April 30, 2022, the Fund had $22,232,587 in capital loss carryforwards that expire as follows:
| | Amount | | Expiration | |
| | $ | 6,082,301 | | 10/31/2023 | |
| | | 8,971,423 | | 10/31/2024 | |
| | | 7,178,863 | | 10/31/2025 | |
As of April 30, 2022, the Fund had $4,098,530 in net operating loss carryforwards that expire as follows:
| | Amount | | Expiration | |
| | $ | 360,753 | | 11/30/2037 | |
| | | 3,737,777 | | 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 | | $ | 1,219,526 | |
| | State income tax expense, net of federal benefit | | | 85,501 | |
| | Tax expense (benefit) on permanent items(1) | | | (13,179 | ) |
| | 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 | | | (1,291,848 | ) |
| | 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 year 2022 (year to date) and fiscal year 2021, the tax character of distributions paid by the Fund was as follows:
| | | | Six Months Ended | | | Year Ended | |
| | | | April 30, 2022 | | | October 31, 2021 | |
| | Ordinary income(1) | | $ | — | | | $ | — | |
| | Long-term capital gains | | | — | | | | — | |
| | Return of capital | | | 2,283,492 | | | | 4,176,540 | |
| | Total distributions | | $ | 2,283,492 | | | $ | 4,176,540 | |
| | (1) Ordinary income includes short-term capital gains. |
9). EVENTS SUBSEQUENT TO PERIOD END
Management has evaluated the Fund’s related events and transactions that occurred subsequent to April 30, 2022, 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 June 1, 2022, distributions were declared and paid to shareholders of record on May 31, 2022, as follows:
| | | Return of Capital |
| | Investor Class | $0.2575 |
| | Institutional Class | $0.2575 |
| HENNESSY FUNDS | 1-800-966-4354 | |
Expense Example (Unaudited)
April 30, 2022
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 November 1, 2021, through April 30, 2022.
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.
| | Beginning | Ending | |
| | Account Value | Account Value | Expenses Paid |
| | November 1, 2021 | April 30, 2022 | During Period(1) |
| Investor Class | | | |
| Actual | $1,000.00 | $1,145.20 | $9.31 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,016.12 | $8.75 |
| | | | |
| Institutional Class | | | |
| Actual | $1,000.00 | $1,146.90 | $7.98 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,017.36 | $7.50 |
(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 181/365 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 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 its 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 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 800-261-6950 or 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 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 electronically. 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 800-261-6950 or 414-765-4124.
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| PROXY VOTING — BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENT |
Board Approval of Investment Advisory
Agreement
At its meeting on March 11, 2022, the Board of Trustees of the Fund (the “Board,” and the members thereof, the “Trustees”) unanimously approved the continuation of the investment advisory agreement of the Fund with Hennessy Advisors, Inc. (the “Advisor”). As part of the process, the Trustees reviewed their fiduciary duties and the relevant factors for them to consider with respect to approving the advisory agreement. In addition, the Trustees who are not deemed “interested persons” (as defined by the Investment Company Act of 1940, as amended) of the Fund (the “Independent Trustees”) met in executive session to discuss the approval of the advisory agreement. As part of their discussion, the Independent Trustees confirmed their understanding of the need to have asked about, and received answers to, any matters that they believed are relevant to determining whether to approve the continuation of the advisory agreement.
In advance of the meeting, the Advisor sent detailed information to the Trustees to assist them in their evaluation of the advisory agreement. This information included, but was not limited to, the following:
| | (1) | A memorandum from outside legal counsel that described the fiduciary duties of the Board with respect to approving the continuation of the advisory agreement and the relevant factors for consideration; |
| | | |
| | (2) | A memorandum from the Advisor that listed the factors relevant to the Board’s approval of the continuation of the advisory agreement and also referenced the documents that had been provided to help the Board assess each such factor; |
| | | |
| | (3) | The Advisor’s financial statements from its most recent Form 10-K and Form 10-Q; |
| | | |
| | (4) | A summary of the advisory agreement; |
| | | |
| | (5) | A recent Fund fact sheet, which included, among other things, Fund performance over various periods; |
| | | |
| | (6) | A description of the range of services provided by the Advisor; |
| | | |
| | (7) | A peer expense comparison of the net expense ratio and investment advisory fee of the Fund; and |
| | | |
| | (8) | A memorandum from the Advisor regarding economies of scale. |
The Trustees reviewed and discussed all of the information provided by the Advisor. Following this review, and further discussion with the Advisor, the Trustees concluded that the information provided before and at the meeting addressed all of the relevant matters that they wanted to consider in assessing the performance of the Funds and the performance of the Advisor under the advisory agreement, and that said information provided them with a fulsome understanding of the advisory agreement and the services provided by the Advisor.
All of the factors discussed were considered as a whole by the Trustees, as well as by the Independent Trustees meeting in executive session. The Trustees viewed the relevant factors in their totality, with no single factor being the principal or determinative factor in the Trustees’ determination of whether to approve the continuation of the advisory agreement. The Trustees recognized that the management and fee arrangements for the Fund are the result of years of review and discussion between the Independent Trustees and the Advisor, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on
| HENNESSY FUNDS | 1-800-966-4354 | |
their consideration of these same arrangements and information received during the course of the year and in prior years.
Prior to approving the continuation of the advisory agreement, the Trustees, including the Independent Trustees in executive session, considered, among other items:
| | (1) | The nature and quality of the advisory services provided by the Advisor; |
| | | |
| | (2) | A comparison of the fees and expenses of the Fund to other similar funds; |
| | | |
| | (3) | Whether economies of scale are recognized by the Fund; |
| | | |
| | (4) | The costs and profitability of the Fund to the Advisor; |
| | | |
| | (5) | The performance of the Fund; and |
| | | |
| | (6) | Any benefits to the Advisor from serving as an investment advisor to the Fund (other than the advisory fee). |
The material considerations and determinations of the Trustees, including the Independent Trustees, were as follows:
| | (1) | The Trustees considered the services identified below that are provided by the Advisor. Based on this review and an assessment of the Advisor’s performance, the Trustees concluded that the Advisor provides high-quality services to the Fund, and they noted that their overall confidence in the Advisor was high. The Trustees also concluded that they were satisfied with the nature, extent, and quality of the advisory services provided to the Fund by the Advisor and that the nature and extent of the services provided by the Advisor were appropriate to assure that the Fund’s operations are conducted in compliance with applicable laws, rules, and regulations. |
| | | (a) | The Advisor acts as the portfolio manager for the Fund. In this capacity, the Advisor does the following: |
| | | | (i) | manages the composition of the Fund’s portfolio, including the purchase, retention, and disposition of portfolio securities in accordance with the Fund’s investment objectives, policies, and restrictions; |
| | | | | |
| | | | (ii) | seeks best execution for the Fund’s portfolio; |
| | | | | |
| | | | (iii) | manages the use of soft dollars for the Fund; and |
| | | | | |
| | | | (iv) | manages proxy voting for the Fund. |
| | | (b) | The Advisor performs a daily reconciliation of portfolio positions and cash for the Fund. |
| | | | |
| | | (c) | The Advisor monitors the liquidity of each Fund. |
| | | | |
| | | (d) | The Advisor monitors the Fund’s compliance with its investment objectives and restrictions and federal securities laws. |
| | | | |
| | | (e) | The Advisor maintains a compliance program (including a code of ethics), conducts ongoing reviews of the compliance programs of the Fund’s service providers (including their codes of ethics, as appropriate), conducts on-site visits to the Fund’s service providers, as feasible, monitors incidents of abusive trading practices, reviews Fund expense accruals, payments, and fixed expense ratios, evaluates insurance providers for fidelity bond, D&O/E&O insurance, and cybersecurity insurance coverage, manages regulatory examination compliance and responses, conducts employee compliance training, reviews reports provided by service providers, and maintains books and records. |
| BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENT |
| | | (f) | The Advisor oversees service providers that provide accounting, administration, distribution, transfer agency, custodial, sales, marketing, public relations, audit, information technology, and legal services to the Fund. |
| | | | |
| | | (g) | The Advisor maintains in-house marketing and distribution departments on behalf of the Fund. |
| | | | |
| | | (h) | The Advisor prepares or directs the preparation of all regulatory filings for the Fund, including writing and annually updating the Fund’s prospectus and related documents. |
| | | | |
| | | (i) | For each annual report of the Fund, the Advisor prepares a written summary of the Fund’s performance during the most recent 12-month period. |
| | | | |
| | | (j) | The Advisor oversees distribution of the Fund through third-party broker/dealers and independent financial institutions such as Charles Schwab, Inc., Fidelity, TD Ameritrade, and Pershing. The Advisor participates in “no transaction fee” (“NTF”) programs with these companies on behalf of the Fund, which allow customers to purchase the Fund through third-party distribution channels without paying a transaction fee. The Advisor compensates, in part, a number of these third-party providers of NTF programs out of its own revenues. |
| | | | |
| | | (k) | The Advisor pays the incentive compensation of the Fund’s compliance officers and employs other staff, such as legal, marketing, national accounts, distribution, sales, administrative, and trading oversight personnel, as well as management executives. |
| | | | |
| | | (l) | The Advisor provides a quarterly compliance certification to the Board. |
| | | | |
| | | (m) | The Advisor prepares or reviews all Board materials, presents to and leads discussions with the Board, prepares or reviews all meeting minutes, and arranges for Board training and education. |
| | (2) | The Trustees compared the performance of the Fund to benchmark indices over various periods and noted that the Trustees review and discuss reports comparing the investment performance of the Fund to various indices at each quarterly Board meeting. Based on such information, the Trustees determined that the Advisor manages the Fund in a manner materially consistent with its stated investment objective and style. The Trustees concluded that the performance of the Fund over various periods warranted the continuation of the advisory agreement. |
| | | |
| | (3) | The Trustees reviewed the advisory fees and overall expense ratios of the Fund compared to other funds similar in asset size and investment objective to the Fund using data from Morningstar. As part of the discussion with management, the Trustees ensured that they understood and were comfortable with the criteria used to determine the mutual funds included in the Morningstar categories for purposes of the materials considered at the meeting. The Trustees determined that the advisory fee and overall expense ratio of the Fund falls within a reasonable range of the advisory fees and overall expense ratios of other comparable funds and concluded that they are reasonable and warranted continuation of the advisory agreement. |
| | | |
| | (4) | The Trustees also considered whether the Advisor was realizing economies of scale that should be shared with the Fund’s shareholders. The Trustees noted that the majority of expenses incurred to manage the Fund are variable |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | | asset-based fees, so the Advisor does not realize material economies of scale relating to these expenses as the assets of the Fund increase. For example, third-party platform fees increase as the Fund’s assets grow. |
| | | |
| | (5) | The Trustees considered the profitability of the Advisor, including the impact of mutual fund platform fees on the Advisor’s profitability, and also considered the resources and revenues that the Advisor has put into managing and distributing the Fund. The Trustees then concluded that the profits of the Advisor are reasonable and not excessive when compared to profitability guidelines set forth in relevant court cases. |
| | | |
| | (6) | The Trustees considered the high level of professionalism and knowledge of the Advisor’s employees and concluded that this was beneficial to the Fund and its shareholders. |
| | | |
| | (7) | The Trustees considered any benefits to the Advisor from serving as an advisor to the Fund (other than the advisory fee). The Trustees noted that the Advisor may derive ancillary benefits from, by way of example, its association with the Fund in the form of proprietary and third-party research products and services received from broker-dealers that execute portfolio trades for the Fund. The Trustees determined that any such products and services have been used for legitimate purposes relating to the Fund by providing assistance in the investment decision-making process. The Trustees concluded that any additional benefits realized by the Advisor from its relationship with the Fund were reasonable, which was based on, among other things, the Trustees’ finding that the research, analytical, statistical, and other information and services provided by brokers are merely supplemental to the Advisor’s own efforts in the performance of its duties under the advisory agreement. |
After reviewing the materials and information provided at the meeting, as well as other information regularly provided at the Board’s quarterly meetings throughout the year regarding the quality of services provided by the Advisor, the performance of the Fund, expense information, brokerage commissions information, the adequacy and efficacy of the Advisor’s written policies and procedures, other regulatory compliance issues, trading information and related matters, and other factors that the Trustees deemed relevant, the Trustees, including the Independent Trustees, approved the continuation of the advisory agreement.
| BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENT |
(This Page Intentionally Left Blank.)
For information, questions, or assistance, please call
The Hennessy Funds
800-966-4354 or 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
J. Dennis DeSousa
Robert T. Doyle
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 1250
Milwaukee, Wisconsin 53202
www.hennessyfunds.com | 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.
SEMI-ANNUAL REPORT
APRIL 30, 2022
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 | 5 |
| Statement of Assets and Liabilities | 9 |
| Statement of Operations | 10 |
| Statements of Changes in Net Assets | 11 |
| Financial Highlights | 12 |
| Notes to the Financial Statements | 16 |
| Expense Example | 24 |
| Proxy Voting Policy and Proxy Voting Records | 26 |
| Availability of Quarterly Portfolio Schedule | 26 |
| Federal Tax Distribution Information | 26 |
| Important Notice Regarding Delivery of Shareholder Documents | 26 |
| Electronic Delivery | 26 |
| Board Approval of Investment Advisory Agreement | 27 |
| HENNESSY FUNDS | 1-800-966-4354 | |
May 2022
Dear Hennessy Funds Shareholder:
We’d like to start our semi-annual letter with a pause. At the end of 2021, we looked forward to a new year – a potentially calmer year – having come through almost two full years of the coronavirus pandemic. As people, we were aware our lives had changed, but we hoped for a better 2022; as investors, we were aware that the economy was strong and employment was robust, yet challenges loomed, including inflation, supply chain disruptions, and tightening monetary policy; as employees, students, and family members, we recognized much was different, but we sought a return to what’s familiar. What we didn’t know was that a world leader who controls one of the largest militaries on the planet was about to start one of the worst atrocities in Europe since World War II. Our thoughts are with the Ukrainian people, and our hope is for this unjustified, senseless human tragedy to end quickly.
The equity market started 2022 on a high note, with the S&P 500® Index hitting an all-time high on the first trading day of the year. This turned out to be the last hurrah for a market that saw a continuous march higher in 2021, having hit 70 new all-time highs, with a new all-time high being recorded on average every three and a half days. Concerns in the market then coalesced and overpowered bullish sentiment, and the market has spiraled lower throughout 2022. Factors that drove the market lower include: tightening monetary policy as the Federal Reserve has begun raising rates and has announced plans for shrinking its $8.5 trillion asset portfolio; inflation, higher energy costs, and their effects on the domestic and global economies; continued supply chain disruptions; investors’ indiscriminate liquidation of broad-based ETFs and index funds and the detrimental effect on equities; and the near-term and long-term global implications of the Russian invasion of Ukraine.
While markets are adjusting, many positive conditions remain intact. Corporate balance sheets and profits remain strong, GDP growth remains positive, the consumer continues to show resilience in the face of rising prices, cash is abundant both at the corporate and household levels, unemployment is exceptionally low, and our financial system remains healthy. Markets are also experiencing a change in leadership, as value stocks have been outperforming growth stocks, and traditionally defensive sectors such as Utilities and Consumer Staples have been outperforming the broader market. Finally, the Energy sector has soared in 2022, as companies reap the benefits of dramatically higher oil and natural gas prices, and shareholders are rewarded with significantly higher dividends, aggressive buybacks, and higher stock prices after many years of underperformance for the sector.
With history as our guide, we are hopeful that eventually the market may bottom and head higher again. Since the financial crisis of 2008, we have experienced many corrections and many recoveries to new highs. The Dow Jones Industrial Average has dropped over 10% eight times, including the current drop, for a median decline of 14.00%, and on average, it took 45 trading days to drop from peak to trough and 127 trading days to return to the previous peak. Since the current drop has taken longer to go from peak to its recent trough, it may take some time for a recovery in prices to truly take hold.
On a positive note, valuations have come in, and many stocks have become more attractive, especially for longer-term investors. We note, however, that the concept of “historically cheap stocks” does not, on its own, move the market higher. Rather, it is
overall capitulation and improving fundamentals that could bring buyers back into the market and reverse any bearish trends. Investors need to see improving company earnings, retreating inflationary trends, a measured pace of interest rate increases globally that does not cause significant economic contraction, hope for a more peaceful and orderly world economic system unconstrained by supply bottlenecks and other hindrances to global trade, and, most importantly, a subsidence of the deleterious effects of the coronavirus pandemic. While that may seem like a “tall order,” we believe that patient investing, focusing on value, quality, and downside risk mitigation, works well over the longer term.
During this tumultuous period, performance of the majority of the Hennessy Funds has been relatively strong when compared to the overall market as well as to our benchmarks. During the six months ended April 30, 2022, the Dow Jones Industrial Average, the S&P 500® Index, and the NASDAQ Composite Index dropped 7.05%, 9.65%, and 20.15%, respectively, on a total return basis. During this period when these three major indices saw significant declines, we were pleased that seven of our 16 Funds posted positive total returns, 10 of our 14 domestic Funds outperformed the S&P 500® Index, and over half of our active funds outperformed their primary benchmarks.
We thank you, our shareholders, for your continued interest in our family of Funds. We are grateful for the trust you put in us, and we will continue to strive to manage our portfolios for long-term performance, ever mindful of downside risk. While volatility and uncertainty may impact the markets in the short-term, we encourage investors to stay the course, maintain a diversified portfolio, and keep a long-term perspective. If you have any questions or would like to speak with us, please don’t hesitate to call us directly at (800) 966-4354. In closing, we would also like to thank all of the healthcare and frontline workers that have worked – and still work – tirelessly throughout the coronavirus pandemic.
Best regards,
| |
| |
| |
|
| Ryan C. Kelley, CFA |
| Chief Investment Officer, |
| Senior Vice President, and Portfolio Manager |
Past performance does not guarantee future results.
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 NASDAQ Composite Index comprises all common stocks listed on The NASDAQ Stock Market and is commonly used to measure the performance of technology-related stocks. 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.
Please refer to the Performance Overview section for more detailed performance information.
| HENNESSY FUNDS | 1-800-966-4354 | |
Performance Overview (Unaudited)
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED APRIL 30, 2022
| | Six | One | Five | Ten |
| | Months(1) | Year | Years | Years |
| Hennessy Gas Utility Fund – | | | | |
| Investor Class (GASFX) | 16.61% | 17.57% | 7.21% | 9.12% |
| Hennessy Gas Utility Fund – | | | | |
Institutional Class (HGASX)(2) | 16.78% | 17.89% | 7.56% | 9.30% |
| AGA Stock Index | 17.25% | 18.57% | 8.48% | 10.25% |
S&P 500® Index | -9.65% | 0.21% | 13.66% | 13.67% |
Expense ratios: 1.00% (Investor Class); 0.69% (Institutional Class)
(1) | Periods of less than one year are not annualized. |
(2) | 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 OVERVIEW/SCHEDULE OF INVESTMENTS |
Financial Statements
Schedule of Investments as of April 30, 2022 (Unaudited) |
HENNESSY GAS UTILITY FUND
(% of Net Assets)
| TOP TEN HOLDINGS (EXCLUDING MONEY MARKET FUNDS) | % NET ASSETS |
| EQT Corp. | 5.21% |
| The Southern Co. | 4.97% |
| Sempra Energy | 4.91% |
| Cheniere Energy, Inc. | 4.90% |
| Kinder Morgan, Inc. | 4.83% |
| Enbridge, Inc. | 4.82% |
| Atmos Energy Corp. | 4.78% |
| Dominion Resources, Inc. | 4.78% |
| Berkshire Hathaway, Inc., Class A | 4.72% |
| ONEOK, Inc. | 4.34% |
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 – 98.36% | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Energy – 24.81% | | | | | | | | | |
| Cheniere Energy, Inc. | | | 214,617 | | | $ | 29,147,135 | | | | 4.90 | % |
| Enbridge, Inc. (b) | | �� | 656,765 | | | | 28,661,225 | | | | 4.82 | % |
| EQT Corp. | | | 780,600 | | | | 31,028,850 | | | | 5.21 | % |
| Kinder Morgan, Inc. | | | 1,585,101 | | | | 28,769,583 | | | | 4.83 | % |
| ONEOK, Inc. | | | 407,300 | | | | 25,794,309 | | | | 4.34 | % |
| Tellurian, Inc. (a) | | | 846,690 | | | | 4,216,516 | | | | 0.71 | % |
| | | | | | | | 147,617,618 | | | | 24.81 | % |
| | | | | | | | | | | | | |
| Financials – 4.72% | | | | | | | | | | | | |
| Berkshire Hathaway, Inc., Class A (a) | | | 58 | | | | 28,091,720 | | | | 4.72 | % |
| | | | | | | | | | | | | |
| Industrials – 0.69% | | | | | | | | | | | | |
| MDU Resources Group, Inc. | | | 159,407 | | | | 4,106,324 | | | | 0.69 | % |
| | | | | | | | | | | | | |
| Utilities – 68.14% | | | | | | | | | | | | |
| Algonquin Power & Utilities Corp. (b) | | | 156,864 | | | | 2,266,685 | | | | 0.38 | % |
| ALLETE, Inc. | | | 425 | | | | 25,220 | | | | 0.00 | % |
| Alliant Energy Corp. | | | 41,800 | | | | 2,458,258 | | | | 0.41 | % |
| Ameren Corp. | | | 52,040 | | | | 4,834,516 | | | | 0.81 | % |
| Atmos Energy Corp. | | | 250,986 | | | | 28,461,812 | | | | 4.78 | % |
| Avangrid, Inc. | | | 110,100 | | | | 4,882,935 | | | | 0.82 | % |
| Avista Corp. | | | 30,972 | | | | 1,256,534 | | | | 0.21 | % |
| Black Hills Corp. | | | 71,847 | | | | 5,262,074 | | | | 0.88 | % |
| Centerpoint Energy, Inc. | | | 590,728 | | | | 18,082,184 | | | | 3.04 | % |
| Chesapeake Utilities Corp. | | | 25,758 | | | | 3,224,129 | | | | 0.54 | % |
| CMS Energy Corp. | | | 193,398 | | | | 13,284,509 | | | | 2.23 | % |
| Consolidated Edison, Inc. | | | 163,436 | | | | 15,157,055 | | | | 2.55 | % |
| Corning Natural Gas Holding Corp. | | | 4,699 | | | | 113,716 | | | | 0.02 | % |
| Dominion Resources, Inc. | | | 348,477 | | | | 28,449,662 | | | | 4.78 | % |
| DTE Energy Co. | | | 65,204 | | | | 8,544,332 | | | | 1.44 | % |
| Duke Energy Corp. | | | 137,587 | | | | 15,156,584 | | | | 2.55 | % |
| Entergy Corp. | | | 4,260 | | | | 506,301 | | | | 0.09 | % |
| Essential Utilities, Inc. | | | 205,400 | | | | 9,193,704 | | | | 1.55 | % |
| Eversource Energy | | | 68,875 | | | | 6,019,675 | | | | 1.01 | % |
| Exelon Corp. | | | 187,531 | | | | 8,772,700 | | | | 1.47 | % |
| Fortis, Inc. (b) | | | 159,776 | | | | 7,773,102 | | | | 1.31 | % |
The accompanying notes are an integral part of these financial statements.
| COMMON STOCKS | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Utilities (Continued) | | | | | | | | | |
| MGE Energy, Inc. | | | 13,129 | | | $ | 1,022,355 | | | | 0.17 | % |
| National Fuel Gas Co. | | | 112,224 | | | | 7,870,269 | | | | 1.32 | % |
| National Grid PLC – ADR (b) | | | 294,544 | | | | 21,843,383 | | | | 3.67 | % |
| New Jersey Resources Corp. | | | 152,834 | | | | 6,596,315 | | | | 1.11 | % |
| NiSource, Inc. | | | 519,081 | | | | 15,115,639 | | | | 2.54 | % |
| Northwest Natural Holding Co. | | | 67,203 | | | | 3,214,320 | | | | 0.54 | % |
| NorthWestern Corp. | | | 30,898 | | | | 1,751,608 | | | | 0.29 | % |
| ONE Gas, Inc. | | | 112,575 | | | | 9,497,953 | | | | 1.60 | % |
| PG&E Corp. (a) | | | 1,332,649 | | | | 16,858,010 | | | | 2.83 | % |
| PPL Corp. | | | 69,919 | | | | 1,979,407 | | | | 0.33 | % |
| Public Service Enterprise Group, Inc. | | | 197,190 | | | | 13,736,255 | | | | 2.31 | % |
| RGC Resources, Inc. | | | 20,254 | | | | 421,283 | | | | 0.07 | % |
| Sempra Energy | | | 180,940 | | | | 29,196,478 | | | | 4.91 | % |
| South Jersey Industries, Inc. | | | 218,071 | | | | 7,455,847 | | | | 1.25 | % |
| Southwest Gas Holdings, Inc. | | | 115,117 | | | | 10,142,959 | | | | 1.70 | % |
| Spire, Inc. | | | 78,091 | | | | 5,681,120 | | | | 0.96 | % |
| The Southern Co. | | | 402,700 | | | | 29,554,153 | | | | 4.97 | % |
| UGI Corp. | | | 117,652 | | | | 4,035,464 | | | | 0.68 | % |
| Unitil Corp. | | | 19,998 | | | | 1,019,898 | | | | 0.17 | % |
| WEC Energy Group, Inc. | | | 247,240 | | | | 24,736,362 | | | | 4.16 | % |
| Xcel Energy, Inc. | | | 137,499 | | | | 10,073,177 | | | | 1.69 | % |
| | | | | | | | 405,527,942 | | | | 68.14 | % |
| | | | | | | | | | | | | |
| Total Common Stocks | | | | | | | | | | | | |
| (Cost $284,700,570) | | | | | | | 585,343,604 | | | | 98.36 | % |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
| SHORT-TERM INVESTMENTS – 1.51% | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Money Market Funds – 1.51% | | | | | | | | | |
| First American Government Obligations Fund, | | | | | | | | | |
| Institutional Class, 0.22% (c) | | | 8,958,358 | | | $ | 8,958,358 | | | | 1.51 | % |
| | | | | | | | | | | | | |
| Total Short-Term Investments | | | | | | | | | | | | |
| (Cost $8,958,358) | | | | | | | 8,958,358 | | | | 1.51 | % |
| | | | | | | | | | | | | |
| Total Investments | | | | | | | | | | | | |
| (Cost $293,658,928) – 99.87% | | | | | | | 594,301,962 | | | | 99.87 | % |
| Other Assets in Excess of Liabilities – 0.13% | | | | | | | 757,853 | | | | 0.13 | % |
| | | | | | | | | | | | | |
TOTAL NET ASSETS – 100.00% | | | | | | $ | 595,059,815 | | | | 100.00 | % |
Percentages are stated as a percent of net assets.
ADR – American Depository 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 April 30, 2022. |
Summary of Fair Value Exposure as of April 30, 2022
The following is a summary of the inputs used to value the Fund’s net assets as of April 30, 2022 (see Note 3 in the accompanying Notes to the Financial Statements):
| Common Stocks | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Energy | | $ | 147,617,618 | | | $ | — | | | $ | — | | | $ | 147,617,618 | |
| Financials | | | 28,091,720 | | | | — | | | | — | | | | 28,091,720 | |
| Industrials | | | 4,106,324 | | | | — | | | | — | | | | 4,106,324 | |
| Utilities | | | 405,527,942 | | | | — | | | | — | | | | 405,527,942 | |
| Total Common Stocks | | $ | 585,343,604 | | | $ | — | | | $ | — | | | $ | 585,343,604 | |
| Short-Term Investments | | | | | | | | | | | | | | | | |
| Money Market Funds | | $ | 8,958,358 | | | $ | — | | | $ | — | | | $ | 8,958,358 | |
| Total Short-Term Investments | | $ | 8,958,358 | | | $ | — | | | $ | — | | | $ | 8,958,358 | |
| Total Investments | | $ | 594,301,962 | | | $ | — | | | $ | — | | | $ | 594,301,962 | |
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 April 30, 2022 (Unaudited) |
| ASSETS: | | | |
| Investments in securities, at value (cost $293,658,928) | | $ | 594,301,962 | |
| Dividends and interest receivable | | | 568,916 | |
| Receivable for fund shares sold | | | 487,754 | |
| Return of capital receivable | | | 429,387 | |
| Prepaid expenses and other assets | | | 34,954 | |
| Total assets | | | 595,822,973 | |
| | | | | |
| LIABILITIES: | | | | |
| Payable for fund shares redeemed | | | 215,547 | |
| Payable to advisor | | | 203,062 | |
| Payable to administrator | | | 105,635 | |
| Payable to auditor | | | 11,228 | |
| Accrued distribution fees | | | 94,784 | |
| Accrued service fees | | | 43,189 | |
| Accrued trustees fees | | | 3,052 | |
| Accrued expenses and other payables | | | 86,661 | |
| Total liabilities | | | 763,158 | |
| NET ASSETS | | $ | 595,059,815 | |
| | | | | |
| NET ASSETS CONSISTS OF: | | | | |
| Capital stock | | $ | 302,125,417 | |
| Total distributable earnings | | | 292,934,398 | |
| Total net assets | | $ | 595,059,815 | |
| | | | | |
| NET ASSETS: | | | | |
| Investor Class | | | | |
| Shares authorized (no par value) | | Unlimited | |
| Net assets applicable to outstanding shares | | $ | 504,732,758 | |
| Shares issued and outstanding | | | 18,216,532 | |
| Net asset value, offering price, and redemption price per share | | $ | 27.71 | |
| | | | | |
| Institutional Class | | | | |
| Shares authorized (no par value) | | Unlimited | |
| Net assets applicable to outstanding shares | | $ | 90,327,057 | |
| Shares issued and outstanding | | | 3,268,637 | |
| Net asset value, offering price, and redemption price per share | | $ | 27.63 | |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
Statement of Operations for the six months ended April 30, 2022 (Unaudited) |
| INVESTMENT INCOME: | | | |
Dividend income(1) | | $ | 7,864,995 | |
| Interest income | | | 2,226 | |
| Total investment income | | | 7,867,221 | |
| | | | | |
| EXPENSES: | | | | |
| Investment advisory fees (See Note 5) | | | 1,079,601 | |
| Sub-transfer agent expenses – Investor Class (See Note 5) | | | 372,368 | |
| Sub-transfer agent expenses – Institutional Class (See Note 5) | | | 31,443 | |
| Distribution fees – Investor Class (See Note 5) | | | 353,211 | |
| Administration, accounting, custody, and transfer agent fees (See Note 5) | | | 298,539 | |
| Service fees – Investor Class (See Note 5) | | | 235,474 | |
| Federal and state registration fees | | | 20,247 | |
| Reports to shareholders | | | 19,171 | |
| Compliance expense (See Note 5) | | | 15,156 | |
| Trustees’ fees and expenses | | | 13,185 | |
| Audit fees | | | 11,222 | |
| Legal fees | | | 3,678 | |
| Interest expense (See Note 7) | | | 2,214 | |
| Other expenses | | | 135,766 | |
| Total expenses | | | 2,591,275 | |
| NET INVESTMENT INCOME | | $ | 5,275,946 | |
| | | | | |
| REALIZED AND UNREALIZED GAINS (LOSSES): | | | | |
| Net realized gain on investments | | $ | 27,026,120 | |
| Net change in unrealized appreciation/depreciation on investments | | | 50,367,953 | |
| Net gain on investments | | | 77,394,073 | |
| NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | | $ | 82,670,019 | |
(1) | Net of foreign taxes withheld and issuance fees of $156,813. |
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 |
| | | Six Months Ended | | | | |
| | | April 30, 2022 | | | Year Ended | |
| | | (Unaudited) | | | October 31, 2021 | |
| OPERATIONS: | | | | | | |
| Net investment income | | $ | 5,275,946 | | | $ | 11,225,332 | |
| Net realized gain on investments | | | 27,026,120 | | | | 69,474,485 | |
| Net change in unrealized | | | | | | | | |
| appreciation/depreciation on investments | | | 50,367,953 | | | | 17,334,029 | |
| Net increase in net assets resulting from operations | | | 82,670,019 | | | | 98,033,846 | |
| | | | | | | | | |
| DISTRIBUTIONS TO SHAREHOLDERS: | | | | | | | | |
| Distributable earnings – Investor Class | | | (41,660,325 | ) | | | (48,578,658 | ) |
| Distributable earnings – Institutional Class | | | (5,897,554 | ) | | | (6,556,181 | ) |
| Total distributions | | | (47,557,879 | ) | | | (55,134,839 | ) |
| | | | | | | | | |
| CAPITAL SHARE TRANSACTIONS: | | | | | | | | |
| Proceeds from shares subscribed – Investor Class | | | 17,025,816 | | | | 10,282,767 | |
| Proceeds from shares subscribed – Institutional Class | | | 31,976,016 | | | | 16,158,873 | |
| Dividends reinvested – Investor Class | | | 39,351,915 | | | | 46,063,257 | |
| Dividends reinvested – Institutional Class | | | 5,560,226 | | | | 5,933,451 | |
| Cost of shares redeemed – Investor Class | | | (39,524,706 | ) | | | (121,059,136 | ) |
| Cost of shares redeemed – Institutional Class | | | (14,816,714 | ) | | | (29,927,336 | ) |
| Net increase (decrease) in net assets derived | | | | | | | | |
| from capital share transactions | | | 39,572,553 | | | | (72,548,124 | ) |
| TOTAL INCREASE (DECREASE) IN NET ASSETS | | | 74,684,693 | | | | (29,649,117 | ) |
| | | | | | | | | |
| NET ASSETS: | | | | | | | | |
| Beginning of period | | | 520,375,122 | | | | 550,024,239 | |
| End of period | | $ | 595,059,815 | | | $ | 520,375,122 | |
| | | | | | | | | |
| CHANGES IN SHARES OUTSTANDING: | | | | | | | | |
| Shares sold – Investor Class | | | 613,798 | | | | 412,697 | |
| Shares sold – Institutional Class | | | 1,186,943 | | | | 624,642 | |
| Shares issued to holders as reinvestment | | | | | | | | |
| of dividends – Investor Class | | | 1,592,198 | | | | 1,920,697 | |
| Shares issued to holders as reinvestment | | | | | | | | |
| of dividends – Institutional Class | | | 224,694 | | | | 247,846 | |
| Shares redeemed – Investor Class | | | (1,520,299 | ) | | | (4,884,070 | ) |
| Shares redeemed – Institutional Class | | | (567,377 | ) | | | (1,215,733 | ) |
| Net increase (decrease) in shares outstanding | | | 1,529,957 | | | | (2,893,921 | ) |
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
| | | Six Months Ended | |
| | | April 30, 2022 | |
| | | (Unaudited) | |
| PER SHARE DATA: | | | |
| Net asset value, beginning of period | | $ | 26.09 | |
| | | | | |
| Income from investment operations: | | | | |
| Net investment income | | | 0.25 | (1) |
| Net realized and unrealized gains (losses) on investments | | | 3.76 | |
| Total from investment operations | | | 4.01 | |
| | | | | |
| Less distributions: | | | | |
| Dividends from net investment income | | | (0.24 | ) |
| Dividends from net realized gains | | | (2.15 | ) |
| Total distributions | | | (2.39 | ) |
| Net asset value, end of period | | $ | 27.71 | |
| | | | | |
| TOTAL RETURN | | | 16.61 | %(2) |
| | | | | |
| SUPPLEMENTAL DATA AND RATIOS: | | | | |
| Net assets, end of period (millions) | | $ | 504.73 | |
| Ratio of expenses to average net assets | | | 1.00 | %(3) |
| Ratio of net investment income to average net assets | | | 1.93 | %(3) |
Portfolio turnover rate(4) | | | 16 | %(2) |
(1) | Calculated using the average shares outstanding method. |
(2) | Not annualized. |
(3) | Annualized. |
(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 | |
| | | | | | | | | | | | | | |
| $ | 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
| | | Six Months Ended | |
| | | April 30, 2022 | |
| | | (Unaudited) | |
| PER SHARE DATA: | | | |
| Net asset value, beginning of period | | $ | 26.01 | |
| | | | | |
| Income from investment operations: | | | | |
| Net investment income | | | 0.28 | (2) |
| Net realized and unrealized gains (losses) on investments | | | 3.77 | |
| Total from investment operations | | | 4.05 | |
| | | | | |
| Less distributions: | | | | |
| Dividends from net investment income | | | (0.28 | ) |
| Dividends from net realized gains | | | (2.15 | ) |
| Total distributions | | | (2.43 | ) |
| Net asset value, end of period | | $ | 27.63 | |
| | | | | |
| TOTAL RETURN | | | 16.78 | %(4) |
| | | | | |
| SUPPLEMENTAL DATA AND RATIOS: | | | | |
| Net assets, end of period (millions) | | $ | 90.33 | |
| Ratio of expenses to average net assets | | | 0.68 | %(5) |
| Ratio of net investment income to average net assets | | | 2.13 | %(5) |
Portfolio turnover rate(6) | | | 16 | %(4) |
(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 |
| | | Period Ended | |
| Year Ended October 31, | | | 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 April 30, 2022 (Unaudited) |
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. |
| | |
| 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. |
| NOTES TO THE FINANCIAL STATEMENTS |
| 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 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). | 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 |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | 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. |
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”) |
| NOTES TO THE FINANCIAL STATEMENTS |
| | 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. |
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
| HENNESSY FUNDS | 1-800-966-4354 | |
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 April 30, 2022, 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 the six months ended April 30, 2022, were $88,093,500 and $97,570,846, respectively.
There were no purchases or sales/maturities of long-term U.S. government securities for the Fund during the six months ended April 30, 2022.
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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, are included in the Statement of Operations.
| NOTES TO THE FINANCIAL STATEMENTS |
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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, are included in the Statement of Operations.
Quasar Distributors, LLC (“Quasar”), a wholly owned broker-dealer subsidiary of Foreside Financial Group, LLC, acts as the Fund’s principal underwriter in a continuous public offering of Fund shares.
| 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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, the Fund had an outstanding average daily balance and a weighted average interest rate of $135,508 and 3.25%, respectively. The interest expensed by the Fund during the six months ended April 30, 2022, is included in the Statement of Operations. The maximum amount outstanding for the Fund during the period was $1,953,000. As of April 30, 2022, the Fund did not have any borrowings outstanding under the line of credit.
8). FEDERAL TAX INFORMATION
As of October 31, 2021, the Fund’s most recent fiscal year end, 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 year 2022 (year to date) and fiscal year 2021, the tax character of distributions paid by the Fund was as follows:
| | | | Six Months Ended | | | Year Ended | |
| | | | April 30, 2022 | | | October 31, 2021 | |
| | Ordinary income(1) | | $ | 5,193,201 | | | $ | 12,094,090 | |
| | Long-term capital gains | | | 42,364,678 | | | | 43,040,749 | |
| | Total distributions | | $ | 47,557,879 | | | $ | 55,134,839 | |
| | (1) Ordinary income includes short-term capital gains. |
9). EVENTS SUBSEQUENT TO PERIOD END
Management has evaluated the Fund’s related events and transactions that occurred subsequent to April 30, 2022, 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 | |
Expense Example (Unaudited)
April 30, 2022
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 November 1, 2021, through April 30, 2022.
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.
| | Beginning | Ending | |
| | Account Value | Account Value | Expenses Paid |
| | November 1, 2021 | April 30, 2022 | During Period(1) |
| Investor Class | | | |
| Actual | $1,000.00 | $1,166.10 | $5.37 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,019.84 | $5.01 |
| | | | |
| Institutional Class | | | |
| Actual | $1,000.00 | $1,167.80 | $3.65 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,021.42 | $3.41 |
(1) | Expenses are equal to the Fund’s annualized expense ratio of 1.00% for Investor Class shares or 0.68% for Institutional Class shares, as applicable, multiplied by the average account value over the period, multiplied by 181/365 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 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 its 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 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 800-261-6950 or 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 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 electronically. 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 800-261-6950 or 414-765-4124.
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| PROXY VOTING — BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENT |
Board Approval of Investment Advisory
Agreement
At its meeting on March 11, 2022, the Board of Trustees of the Fund (the “Board,” and the members thereof, the “Trustees”) unanimously approved the continuation of the investment advisory agreement of the Fund with Hennessy Advisors, Inc. (the “Advisor”). As part of the process, the Trustees reviewed their fiduciary duties and the relevant factors for them to consider with respect to approving the advisory agreement. In addition, the Trustees who are not deemed “interested persons” (as defined by the Investment Company Act of 1940, as amended) of the Fund (the “Independent Trustees”) met in executive session to discuss the approval of the advisory agreement. As part of their discussion, the Independent Trustees confirmed their understanding of the need to have asked about, and received answers to, any matters that they believed are relevant to determining whether to approve the continuation of the advisory agreement.
In advance of the meeting, the Advisor sent detailed information to the Trustees to assist them in their evaluation of the advisory agreement. This information included, but was not limited to, the following:
| | (1) | A memorandum from outside legal counsel that described the fiduciary duties of the Board with respect to approving the continuation of the advisory agreement and the relevant factors for consideration; |
| | | |
| | (2) | A memorandum from the Advisor that listed the factors relevant to the Board’s approval of the continuation of the advisory agreement and also referenced the documents that had been provided to help the Board assess each such factor; |
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| | (3) | The Advisor’s financial statements from its most recent Form 10-K and Form 10-Q; |
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| | (4) | A summary of the advisory agreement; |
| | | |
| | (5) | A recent Fund fact sheet, which included, among other things, Fund performance over various periods; |
| | | |
| | (6) | A description of the range of services provided by the Advisor; |
| | | |
| | (7) | A peer expense comparison of the net expense ratio and investment advisory fee of the Fund; and |
| | | |
| | (8) | A memorandum from the Advisor regarding economies of scale. |
The Trustees reviewed and discussed all of the information provided by the Advisor. Following this review, and further discussion with the Advisor, the Trustees concluded that the information provided before and at the meeting addressed all of the relevant matters that they wanted to consider in assessing the performance of the Funds and the performance of the Advisor under the advisory agreement, and that said information provided them with a fulsome understanding of the advisory agreement and the services provided by the Advisor.
All of the factors discussed were considered as a whole by the Trustees, as well as by the Independent Trustees meeting in executive session. The Trustees viewed the relevant factors in their totality, with no single factor being the principal or determinative factor in the Trustees’ determination of whether to approve the continuation of the advisory agreement. The Trustees recognized that the management and fee arrangements for the Fund are the result of years of review and discussion between the Independent Trustees and the Advisor, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on
| HENNESSY FUNDS | 1-800-966-4354 | |
their consideration of these same arrangements and information received during the course of the year and in prior years.
Prior to approving the continuation of the advisory agreement, the Trustees, including the Independent Trustees in executive session, considered, among other items:
| | (1) | The nature and quality of the advisory services provided by the Advisor; |
| | | |
| | (2) | A comparison of the fees and expenses of the Fund to other similar funds; |
| | | |
| | (3) | Whether economies of scale are recognized by the Fund; |
| | | |
| | (4) | The costs and profitability of the Fund to the Advisor; |
| | | |
| | (5) | The performance of the Fund; and |
| | | |
| | (6) | Any benefits to the Advisor from serving as an investment advisor to the Fund (other than the advisory fee). |
The material considerations and determinations of the Trustees, including the Independent Trustees, were as follows:
| | (1) | The Trustees considered the services identified below that are provided by the Advisor. Based on this review and an assessment of the Advisor’s performance, the Trustees concluded that the Advisor provides high-quality services to the Fund, and they noted that their overall confidence in the Advisor was high. The Trustees also concluded that they were satisfied with the nature, extent, and quality of the advisory services provided to the Fund by the Advisor and that the nature and extent of the services provided by the Advisor were appropriate to assure that the Fund’s operations are conducted in compliance with applicable laws, rules, and regulations. |
| | | (a) | The Advisor acts as the portfolio manager for the Fund. In this capacity, the Advisor does the following: |
| | | | (i) | manages the composition of the Fund’s portfolio, including the purchase, retention, and disposition of portfolio securities in accordance with the Fund’s investment objectives, policies, and restrictions; |
| | | | | |
| | | | (ii) | seeks best execution for the Fund’s portfolio; |
| | | | | |
| | | | (iii) | manages the use of soft dollars for the Fund; and |
| | | | | |
| | | | (iv) | manages proxy voting for the Fund. |
| | | (b) | The Advisor performs a daily reconciliation of portfolio positions and cash for the Fund. |
| | | | |
| | | (c) | The Advisor monitors the liquidity of each Fund. |
| | | | |
| | | (d) | The Advisor monitors the Fund’s compliance with its investment objectives and restrictions and federal securities laws. |
| | | | |
| | | (e) | The Advisor maintains a compliance program (including a code of ethics), conducts ongoing reviews of the compliance programs of the Fund’s service providers (including their codes of ethics, as appropriate), conducts on-site visits to the Fund’s service providers, as feasible, monitors incidents of abusive trading practices, reviews Fund expense accruals, payments, and fixed expense ratios, evaluates insurance providers for fidelity bond, D&O/E&O insurance, and cybersecurity insurance coverage, manages regulatory examination compliance and responses, conducts employee compliance training, reviews reports provided by service providers, and maintains books and records. |
| BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENT |
| | | (f) | The Advisor oversees service providers that provide accounting, administration, distribution, transfer agency, custodial, sales, marketing, public relations, audit, information technology, and legal services to the Fund. |
| | | | |
| | | (g) | The Advisor maintains in-house marketing and distribution departments on behalf of the Fund. |
| | | | |
| | | (h) | The Advisor prepares or directs the preparation of all regulatory filings for the Fund, including writing and annually updating the Fund’s prospectus and related documents. |
| | | | |
| | | (i) | For each annual report of the Fund, the Advisor prepares a written summary of the Fund’s performance during the most recent 12-month period. |
| | | | |
| | | (j) | The Advisor oversees distribution of the Fund through third-party broker/dealers and independent financial institutions such as Charles Schwab, Inc., Fidelity, TD Ameritrade, and Pershing. The Advisor participates in “no transaction fee” (“NTF”) programs with these companies on behalf of the Fund, which allow customers to purchase the Fund through third-party distribution channels without paying a transaction fee. The Advisor compensates, in part, a number of these third-party providers of NTF programs out of its own revenues. |
| | | | |
| | | (k) | The Advisor pays the incentive compensation of the Fund’s compliance officers and employs other staff, such as legal, marketing, national accounts, distribution, sales, administrative, and trading oversight personnel, as well as management executives. |
| | | | |
| | | (l) | The Advisor provides a quarterly compliance certification to the Board. |
| | | | |
| | | (m) | The Advisor prepares or reviews all Board materials, presents to and leads discussions with the Board, prepares or reviews all meeting minutes, and arranges for Board training and education. |
| | (2) | The Trustees compared the performance of the Fund to benchmark indices over various periods and noted that the Trustees review and discuss reports comparing the investment performance of the Fund to various indices at each quarterly Board meeting. Based on such information, the Trustees determined that the Advisor manages the Fund in a manner materially consistent with its stated investment objective and style. The Trustees concluded that the performance of the Fund over various periods warranted the continuation of the advisory agreement. |
| | | |
| | (3) | The Trustees reviewed the advisory fees and overall expense ratios of the Fund compared to other funds similar in asset size and investment objective to the Fund using data from Morningstar. As part of the discussion with management, the Trustees ensured that they understood and were comfortable with the criteria used to determine the mutual funds included in the Morningstar categories for purposes of the materials considered at the meeting. The Trustees determined that the advisory fee and overall expense ratio of the Fund falls within a reasonable range of the advisory fees and overall expense ratios of other comparable funds and concluded that they are reasonable and warranted continuation of the advisory agreement. |
| | | |
| | (4) | The Trustees also considered whether the Advisor was realizing economies of scale that should be shared with the Fund’s shareholders. The Trustees noted that the majority of expenses incurred to manage the Fund are variable |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | | asset-based fees, so the Advisor does not realize material economies of scale relating to these expenses as the assets of the Fund increase. For example, third-party platform fees increase as the Fund’s assets grow. |
| | | |
| | (5) | The Trustees considered the profitability of the Advisor, including the impact of mutual fund platform fees on the Advisor’s profitability, and also considered the resources and revenues that the Advisor has put into managing and distributing the Fund. The Trustees then concluded that the profits of the Advisor are reasonable and not excessive when compared to profitability guidelines set forth in relevant court cases. |
| | | |
| | (6) | The Trustees considered the high level of professionalism and knowledge of the Advisor’s employees and concluded that this was beneficial to the Fund and its shareholders. |
| | | |
| | (7) | The Trustees considered any benefits to the Advisor from serving as an advisor to the Fund (other than the advisory fee). The Trustees noted that the Advisor may derive ancillary benefits from, by way of example, its association with the Fund in the form of proprietary and third-party research products and services received from broker-dealers that execute portfolio trades for the Fund. The Trustees determined that any such products and services have been used for legitimate purposes relating to the Fund by providing assistance in the investment decision-making process. The Trustees concluded that any additional benefits realized by the Advisor from its relationship with the Fund were reasonable, which was based on, among other things, the Trustees’ finding that the research, analytical, statistical, and other information and services provided by brokers are merely supplemental to the Advisor’s own efforts in the performance of its duties under the advisory agreement. |
After reviewing the materials and information provided at the meeting, as well as other information regularly provided at the Board’s quarterly meetings throughout the year regarding the quality of services provided by the Advisor, the performance of the Fund, expense information, brokerage commissions information, the adequacy and efficacy of the Advisor’s written policies and procedures, other regulatory compliance issues, trading information and related matters, and other factors that the Trustees deemed relevant, the Trustees, including the Independent Trustees, approved the continuation of the advisory agreement.
| BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENT |
(This Page Intentionally Left Blank.)
For information, questions, or assistance, please call
The Hennessy Funds
800-966-4354 or 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
J. Dennis DeSousa
Robert T. Doyle
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 1250
Milwaukee, Wisconsin 53202
www.hennessyfunds.com | 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.
SEMI-ANNUAL REPORT
APRIL 30, 2022
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 | 5 |
| Statement of Assets and Liabilities | 9 |
| Statement of Operations | 10 |
| Statements of Changes in Net Assets | 11 |
| Financial Highlights | 12 |
| Notes to the Financial Statements | 16 |
| Expense Example | 24 |
| Proxy Voting Policy and Proxy Voting Records | 26 |
| Availability of Quarterly Portfolio Schedule | 26 |
| Federal Tax Distribution Information | 26 |
| Important Notice Regarding Delivery of Shareholder Documents | 26 |
| Electronic Delivery | 27 |
| Board Approval of Investment Advisory Agreements | 28 |
| HENNESSY FUNDS | 1-800-966-4354 | |
May 2022
Dear Hennessy Funds Shareholder:
The Japanese stock market lost -16.29% in U.S. dollar terms as measured by the Tokyo Stock Price Index (TOPIX) over the six months ended April 30, 2022.
The Japanese stock market declined mainly within the manufacturing sector, including high-tech stocks with high-growth expectations. This decline was due to uncertainty over the armed conflict in Ukraine and a sharp rise in long-term U.S. interest rates as the Federal Reserve’s aggressive monetary tightening stance became clear. Since mid-March, the Japanese yen weakened against the U.S. dollar, fueling a phase of solid performance mainly in export-related stocks. However, the prolonged lockdown in Chinese cities and other factors caused concern, limiting the upward momentum.
We are again witnessing a growth-to-value rotation on the back of rising bond yields around the world. Value stocks marched higher despite their lack of growth appeal. In theory, higher interest rates should result in price corrections of all equities regardless of whether they are long-duration stocks (growth names) or short-duration stocks (value names). But in reality, it is completely reasonable that some stocks get re-rated, perhaps driven by mean-reversion effects. After many years of anemic growth, the P/E ratios of these companies were depressed, so for their valuation levels to moderately recover is not surprising. So far, we have seen this take place with Japanese banks’ P/B ratios rising to 0.5x from 0.3x recently. For Toyota Motor Corporation, the largest index constituent, its P/E ratio has climbed to 11x from 9x.
The depreciation of the Japanese yen should be a major plus for companies with global operations. One thing to note here is that many of these companies are not marginal exporters who can only thrive under a weak domestic currency; to the contrary, they are market leaders in their respective fields with competitive profit margins and strong pricing power so the currency tailwind is purely an added bonus for their fundamentals.
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.
Fund holdings and sector allocations are subject to change. A non-diversified fund, which may concentrate its assets in fewer individual holdings than a diversified fund, is more exposed to individual stock volatility than a diversified fund. A fund that concentrates its investments within one country, one sector, or a small group of industries, such as Japan, may be subject to a higher degree of market risk.
P/E, or price-to-earnings ratio, is a valuation measure calculated by dividing a company’s market price per share by its earnings per share. P/B, or price-to-book ration, is a valuation measure calculated by dividing a company’s market price per share by its book value per share.
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.
Please refer to the Schedule of Investments included in this report for additional portfolio information.
| HENNESSY FUNDS | 1-800-966-4354 | |
Performance Overview (Unaudited)
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED APRIL 30, 2022
| | Six | One | Five | Ten |
| | Months(1) | Year | Years | Years |
| Hennessy Japan Fund – | | | | |
| Investor Class (HJPNX) | -30.55% | -26.29% | 3.19% | 8.27% |
| Hennessy Japan Fund – | | | | |
| Institutional Class (HJPIX) | -30.39% | -25.97% | 3.61% | 8.63% |
Russell/Nomura Total MarketTM Index | -16.61% | -15.06% | 3.58% | 6.22% |
| Tokyo Stock Price Index (TOPIX) | -16.29% | -14.60% | 3.42% | 6.07% |
Expense ratios: 1.43% (Investor Class); 1.04% (Institutional Class)
(1) | Periods of less than one year are not annualized. |
_______________
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 OVERVIEW/SCHEDULE OF INVESTMENTS |
Financial Statements
Schedule of Investments as of April 30, 2022 (Unaudited) |
HENNESSY JAPAN FUND
(% of Net Assets)
| TOP TEN HOLDINGS (EXCLUDING MONEY MARKET FUNDS) | % NET ASSETS |
| Sony Group Corp. | 9.01% |
| Mitsubishi Corp. | 8.37% |
| Recruit Holdings Co., Ltd. | 6.81% |
| Hitachi Ltd. | 6.71% |
| Keyence Corp. | 6.10% |
| Terumo Corp. | 4.73% |
| Daikin Industries, Ltd. | 4.66% |
| Nidec Corp. | 4.60% |
| MISUMI Group, Inc. | 4.11% |
| Shimano, Inc. | 3.85% |
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 – 93.76% | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Communication Services – 4.45% | | | | | | | | | |
| SoftBank Group Corp. | | | 243,400 | | | $ | 10,011,101 | | | | 2.15 | % |
| Z Holdings Corp. | | | 2,725,300 | | | | 10,699,088 | | | | 2.30 | % |
| | | | | | | | 20,710,189 | | | | 4.45 | % |
| | | | | | | | | | | | | |
| Consumer Discretionary – 22.05% | | | | | | | | | | | | |
| Asics Corp. | | | 306,000 | | | | 4,827,688 | | | | 1.04 | % |
| Fast Retailing Co., Ltd. | | | 30,500 | | | | 14,042,389 | | | | 3.02 | % |
| Mercari, Inc. (a) | | | 880,900 | | | | 14,435,652 | | | | 3.10 | % |
| Nitori Holdings Co., Ltd. | | | 91,800 | | | | 9,444,325 | | | | 2.03 | % |
| Shimano, Inc. | | | 101,300 | | | | 17,948,785 | | | | 3.85 | % |
| Sony Group Corp. | | | 486,000 | | | | 41,942,327 | | | | 9.01 | % |
| | | | | | | | 102,641,166 | | | | 22.05 | % |
| | | | | | | | | | | | | |
| Consumer Staples – 9.99% | | | | | | | | | | | | |
| Ariake Japan Co., Ltd. | | | 119,900 | | | | 4,810,549 | | | | 1.03 | % |
| Kao Corp. | | | 243,200 | | | | 9,747,085 | | | | 2.09 | % |
| Rohto Pharmaceutical Co., Ltd. | | | 640,800 | | | | 17,112,288 | | | | 3.68 | % |
| Unicharm Corp. | | | 426,000 | | | | 14,821,393 | | | | 3.19 | % |
| | | | | | | | 46,491,315 | | | | 9.99 | % |
| | | | | | | | | | | | | |
| Financials – 0.99% | | | | | | | | | | | | |
| Anicom Holdings, Inc. | | | 981,200 | | | | 4,628,431 | | | | 0.99 | % |
| | | | | | | | | | | | | |
| Health Care – 7.37% | | | | | | | | | | | | |
| Asahi Intecc Co., Ltd. | | | 100,600 | | | | 1,943,988 | | | | 0.42 | % |
| Olympus Corp. | | | 513,200 | | | | 9,032,898 | | | | 1.94 | % |
| PeptiDream, Inc. (a) | | | 79,700 | | | | 1,285,471 | | | | 0.28 | % |
| Terumo Corp. | | | 739,700 | | | | 22,017,280 | | | | 4.73 | % |
| | | | | | | | 34,279,637 | | | | 7.37 | % |
| | | | | | | | | | | | | |
| Industrials – 38.99% | | | | | | | | | | | | |
| Daikin Industries, Ltd. | | | 141,900 | | | | 21,684,832 | | | | 4.66 | % |
| Hitachi Ltd. | | | 659,100 | | | | 31,258,785 | | | | 6.71 | % |
| Kubota Corp. | | | 1,023,100 | | | | 17,381,109 | | | | 3.73 | % |
| MISUMI Group, Inc. | | | 762,700 | | | | 19,124,187 | | | | 4.11 | % |
| Mitsubishi Corp. | | | 1,160,900 | | | | 38,977,824 | | | | 8.37 | % |
| Nidec Corp. | | | 330,900 | | | | 21,392,391 | | | | 4.60 | % |
| Recruit Holdings Co., Ltd. | | | 873,200 | | | | 31,681,105 | | | | 6.81 | % |
| | | | | | | | 181,500,233 | | | | 38.99 | % |
The accompanying notes are an integral part of these financial statements.
| COMMON STOCKS | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Information Technology – 9.92% | | | | | | | | | |
| Keyence Corp. | | | 70,600 | | | $ | 28,381,500 | | | | 6.10 | % |
| Murata Manufacturing Co., Ltd. | | | 298,400 | | | | 17,786,877 | | | | 3.82 | % |
| | | | | | | | 46,168,377 | | | | 9.92 | % |
| | | | | | | | | | | | | |
| Total Common Stocks | | | | | | | | | | | | |
| (Cost $369,345,202) | | | | | | | 436,419,348 | | | | 93.76 | % |
| | | | | | | | | | | | | |
| SHORT-TERM INVESTMENTS – 5.72% | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Money Market Funds – 5.72% | | | | | | | | | | | | |
| First American Government Obligations Fund, | | | | | | | | | | | | |
| Institutional Class, 0.22% (b) | | | 23,263,000 | | | | 23,263,000 | | | | 5.00 | % |
| First American Treasury Obligations Fund, | | | | | | | | | | | | |
| Institutional Class, 0.29% (b) | | | 3,375,819 | | | | 3,375,819 | | | | 0.72 | % |
| | | | | | | | | | | | | |
| Total Short-Term Investments | | | | | | | | | | | | |
| (Cost $26,638,819) | | | | | | | 26,638,819 | | | | 5.72 | % |
| | | | | | | | | | | | | |
| Total Investments | | | | | | | | | | | | |
| (Cost $395,984,021) – 99.48% | | | | | | | 463,058,167 | | | | 99.48 | % |
| Other Assets in Excess of Liabilities – 0.52% | | | | | | | 2,421,760 | | | | 0.52 | % |
| | | | | | | | | | | | | |
TOTAL NET ASSETS – 100.00% | | | | | | $ | 465,479,927 | | | | 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 April 30, 2022. |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Summary of Fair Value Exposure as of April 30, 2022
The following is a summary of the inputs used to value the Fund’s net assets as of April 30, 2022 (see Note 3 in the accompanying Notes to the Financial Statements):
| Common Stocks | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Communication Services | | $ | — | | | $ | 20,710,189 | | | $ | — | | | $ | 20,710,189 | |
| Consumer Discretionary | | | — | | | | 102,641,166 | | | | — | | | | 102,641,166 | |
| Consumer Staples | | | — | | | | 46,491,315 | | | | — | | | | 46,491,315 | |
| Financials | | | — | | | | 4,628,431 | | | | — | | | | 4,628,431 | |
| Health Care | | | — | | | | 34,279,637 | | | | — | | | | 34,279,637 | |
| Industrials | | | — | | | | 181,500,233 | | | | — | | | | 181,500,233 | |
| Information Technology | | | — | | | | 46,168,377 | | | | — | | | | 46,168,377 | |
| Total Common Stocks | | $ | — | | | $ | 436,419,348 | | | $ | — | | | $ | 436,419,348 | |
| Short-Term Investments | | | | | | | | | | | | | | | | |
| Money Market Funds | | $ | 26,638,819 | | | $ | — | | | $ | — | | | $ | 26,638,819 | |
| Total Short-Term Investments | | $ | 26,638,819 | | | $ | — | | | $ | — | | | $ | 26,638,819 | |
| Total Investments | | $ | 26,638,819 | | | $ | 436,419,348 | | | $ | — | | | $ | 463,058,167 | |
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 April 30, 2022 (Unaudited) |
| ASSETS: | | | |
| Investments in securities, at value (cost $395,984,021) | | $ | 463,058,167 | |
| Dividends and interest receivable | | | 2,230,673 | |
| Receivable for fund shares sold | | | 1,571,228 | |
| Receivable for securities sold | | | 1,306,501 | |
| Prepaid expenses and other assets | | | 27,954 | |
| Total assets | | | 468,194,523 | |
| | | | | |
| LIABILITIES: | | | | |
| Payable for fund shares redeemed | | | 2,223,454 | |
| Payable to advisor | | | 338,787 | |
| Payable to administrator | | | 100,870 | |
| Payable to auditor | | | 10,710 | |
| Accrued distribution fees | | | 10,758 | |
| Accrued service fees | | | 5,395 | |
| Accrued trustees fees | | | 1,876 | |
| Accrued expenses and other payables | | | 22,746 | |
| Total liabilities | | | 2,714,596 | |
| NET ASSETS | | $ | 465,479,927 | |
| | | | | |
| NET ASSETS CONSISTS OF: | | | | |
| Capital stock | | $ | 414,881,161 | |
| Total distributable earnings | | | 50,598,766 | |
| Total net assets | | $ | 465,479,927 | |
| | | | | |
| NET ASSETS: | | | | |
| Investor Class | | | | |
| Shares authorized (no par value) | | Unlimited | |
| Net assets applicable to outstanding shares | | $ | 60,622,970 | |
| Shares issued and outstanding | | | 1,842,996 | |
| Net asset value, offering price, and redemption price per share | | $ | 32.89 | |
| | | | | |
| Institutional Class | | | | |
| Shares authorized (no par value) | | Unlimited | |
| Net assets applicable to outstanding shares | | $ | 404,856,957 | |
| Shares issued and outstanding | | | 11,921,561 | |
| Net asset value, offering price, and redemption price per share | | $ | 33.96 | |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
Financial Statements
Statement of Operations for the six months ended April 30, 2022 (Unaudited) |
| INVESTMENT INCOME: | | | |
Dividend income(1) | | $ | 3,084,696 | |
| Interest income | | | 5,758 | |
| Total investment income | | | 3,090,454 | |
| | | | | |
| EXPENSES: | | | | |
| Investment advisory fees (See Note 5) | | | 2,809,492 | |
| Administration, accounting, custody, and transfer agent fees (See Note 5) | | | 386,262 | |
| Sub-transfer agent expenses – Investor Class (See Note 5) | | | 88,920 | |
| Sub-transfer agent expenses – Institutional Class (See Note 5) | | | 212,526 | |
| Distribution fees – Investor Class (See Note 5) | | | 56,444 | |
| Service fees – Investor Class (See Note 5) | | | 37,629 | |
| Federal and state registration fees | | | 35,191 | |
| Reports to shareholders | | | 18,804 | |
| Trustees’ fees and expenses | | | 16,224 | |
| Compliance expense (See Note 5) | | | 15,156 | |
| Interest expense (See Note 7) | | | 12,555 | |
| Audit fees | | | 10,709 | |
| Legal fees | | | 6,104 | |
| Other expenses | | | 46,519 | |
| Total expenses | | | 3,752,535 | |
| NET INVESTMENT LOSS | | $ | (662,081 | ) |
| | | | | |
| REALIZED AND UNREALIZED GAINS (LOSSES): | | | | |
| Net realized gain on investments | | $ | 4,923,376 | |
| Net change in unrealized appreciation/depreciation on investments | | | (242,294,611 | ) |
| Net loss on investments | | | (237,371,235 | ) |
| NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS | | $ | (238,033,316 | ) |
(1) | Net of foreign taxes withheld of $342,728. |
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 |
| | | Six Months Ended | | | | |
| | | April 30, 2022 | | | Year Ended | |
| | | (Unaudited) | | | October 31, 2021 | |
| OPERATIONS: | | | | | | |
| Net investment loss | | $ | (662,081 | ) | | $ | (1,149,197 | ) |
| Net realized gain on investments | | | 4,923,376 | | | | 19,086,546 | |
| Net change in unrealized | | | | | | | | |
| appreciation/depreciation on investments | | | (242,294,611 | ) | | | 68,905,761 | |
| Net increase (decrease) in net | | | | | | | | |
| assets resulting from operations | | | (238,033,316 | ) | | | 86,843,110 | |
| | | | | | | | | |
| DISTRIBUTIONS TO SHAREHOLDERS: | | | | | | | | |
| Distributable earnings – Investor Class | | | (747,296 | ) | | | — | |
| Distributable earnings – Institutional Class | | | (11,015,400 | ) | | | (48,044 | ) |
| Total distributions | | | (11,762,696 | ) | | | (48,044 | ) |
| | | | | | | | | |
| CAPITAL SHARE TRANSACTIONS: | | | | | | | | |
| Proceeds from shares subscribed – Investor Class | | | 13,339,003 | | | | 61,092,843 | |
| Proceeds from shares subscribed – Institutional Class | | | 117,831,572 | | | | 227,381,324 | |
| Dividends reinvested – Investor Class | | | 703,285 | | | | — | |
| Dividends reinvested – Institutional Class | | | 10,598,718 | | | | 47,024 | |
| Cost of shares redeemed – Investor Class | | | (12,390,794 | ) | | | (129,927,285 | ) |
| Cost of shares redeemed – Institutional Class | | | (228,390,357 | ) | | | (182,214,241 | ) |
| Net decrease in net assets derived | | | | | | | | |
| from capital share transactions | | | (98,308,573 | ) | | | (23,620,335 | ) |
| TOTAL INCREASE (DECREASE) IN NET ASSETS | | | (348,104,585 | ) | | | 63,174,731 | |
| | | | | | | | | |
| NET ASSETS: | | | | | | | | |
| Beginning of period | | | 813,584,512 | | | | 750,409,781 | |
| End of period | | $ | 465,479,927 | | | $ | 813,584,512 | |
| | | | | | | | | |
| CHANGES IN SHARES OUTSTANDING: | | | | | | | | |
| Shares sold – Investor Class | | | 333,180 | | | | 1,302,489 | |
| Shares sold – Institutional Class | | | 2,744,578 | | | | 4,688,665 | |
| Shares issued to holders as reinvestment | | | | | | | | |
| of dividends – Investor Class | | | 15,157 | | | | — | |
| Shares issued to holders as reinvestment | | | | | | | | |
| of dividends – Institutional Class | | | 221,545 | | | | 944 | |
| Shares redeemed – Investor Class | | | (307,742 | ) | | | (2,825,915 | ) |
| Shares redeemed – Institutional Class | | | (5,728,249 | ) | | | (3,765,795 | ) |
| Net decrease in shares outstanding | | | (2,721,531 | ) | | | (599,612 | ) |
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
| | | Six Months Ended | |
| | | April 30, 2022 | |
| | | (Unaudited) | |
| PER SHARE DATA: | | | |
| Net asset value, beginning of period | | $ | 47.78 | |
| | | | | |
| Income from investment operations: | | | | |
| Net investment income (loss) | | | (0.11 | )(1) |
| Net realized and unrealized gains (losses) on investments | | | (14.37 | ) |
| Total from investment operations | | | (14.48 | ) |
| | | | | |
| Less distributions: | | | | |
| Dividends from net investment income | | | (0.41 | ) |
| Dividends from net realized gains | | | — | |
| Total distributions | | | (0.41 | ) |
| Net asset value, end of period | | $ | 32.89 | |
| | | | | |
| TOTAL RETURN | | | -30.55 | %(3) |
| | | | | |
| SUPPLEMENTAL DATA AND RATIOS: | | | | |
| Net assets, end of period (millions) | | $ | 60.62 | |
| Ratio of expenses to average net assets | | | 1.44 | %(4) |
| Ratio of net investment income (loss) to average net assets | | | (0.52 | )%(4) |
Portfolio turnover rate(5) | | | 2 | %(3) |
(1) | Calculated using the average shares outstanding method. |
(2) | Amount is between $(0.005) and $0.005. |
(3) | Not annualized. |
(4) | Annualized. |
(5) | 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 period
| | | Six Months Ended | |
| | | April 30, 2022 | |
| | | (Unaudited) | |
| PER SHARE DATA: | | | |
| Net asset value, beginning of period | | $ | 49.54 | |
| | | | | |
| Income from investment operations: | | | | |
| Net investment income (loss) | | | (0.03 | )(1) |
| Net realized and unrealized gains (losses) on investments | | | (14.81 | ) |
| Total from investment operations | | | (14.84 | ) |
| | | | | |
| Less distributions: | | | | |
| Dividends from net investment income | | | (0.74 | ) |
| Dividends from net realized gains | | | — | |
| Total distributions | | | (0.74 | ) |
| Net asset value, end of period | | $ | 33.96 | |
| | | | | |
| TOTAL RETURN | | | -30.39 | %(3) |
| | | | | |
| SUPPLEMENTAL DATA AND RATIOS: | | | | |
| Net assets, end of period (millions) | | $ | 404.86 | |
| Ratio of expenses to average net assets | | | 1.02 | %(4) |
| Ratio of net investment income (loss) to average net assets | | | (0.15 | )%(4) |
Portfolio turnover rate(5) | | | 2 | %(3) |
(1) | Calculated using the average shares outstanding method. |
(2) | Amount is between $(0.005) and $0.005. |
(3) | Not annualized. |
(4) | Annualized. |
(5) | 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 April 30, 2022 (Unaudited) |
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. |
| | |
| 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 |
| NOTES TO THE FINANCIAL STATEMENTS |
| | 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 fluctuations, economic and political factors, lower liquidity, government regulations, differences in accounting standards, and other factors. |
| | |
| 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 |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | 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. |
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 |
| NOTES TO THE FINANCIAL STATEMENTS |
| | 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. |
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
| HENNESSY FUNDS | 1-800-966-4354 | |
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 April 30, 2022, 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 the six months ended April 30, 2022, were $13,678,526 and $126,166,231, respectively.
There were no purchases or sales/maturities of long-term U.S. government securities for the Fund during the six months ended April 30, 2022.
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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, the Advisor (not the Fund) paid a sub-advisory fee at the average rate of 0.36% of the daily net assets of the Fund. Pursuant to the sub-advisory agreement,
| NOTES TO THE FINANCIAL STATEMENTS |
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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, are included in the Statement of Operations.
Quasar Distributors, LLC (“Quasar”), a wholly owned broker-dealer subsidiary of Foreside Financial Group, LLC, acts as the Fund’s principal underwriter in a continuous public offering of Fund shares.
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”),
| HENNESSY FUNDS | 1-800-966-4354 | |
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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, the Fund had an outstanding average daily balance and a weighted average interest rate of $719,696 and 3.47%, respectively. The interest expensed by the Fund during the six months ended April 30, 2022, is included in the Statement of Operations. The maximum amount outstanding for the Fund during the period was $23,879,000. As of April 30, 2022, the Fund did not have any borrowings outstanding under the line of credit.
8). FEDERAL TAX INFORMATION
As of October 31, 2021, the Fund’s most recent fiscal year end, 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.
| NOTES TO THE FINANCIAL STATEMENTS |
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 year 2022 (year to date) and fiscal year 2021, the tax character of distributions paid by the Fund was as follows:
| | | | Six Months Ended | | | Year Ended | |
| | | | April 30, 2022 | | | October 31, 2021 | |
| | Ordinary income(1) | | $ | 11,762,696 | | | $ | 48,044 | |
| | Long-term capital gains | | | — | | | | — | |
| | Total distributions | | $ | 11,762,696 | | | $ | 48,044 | |
| | (1) Ordinary income includes short-term capital gains. |
9). EVENTS SUBSEQUENT TO PERIOD END
Management has evaluated the Fund’s related events and transactions that occurred subsequent to April 30, 2022, 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 | |
Expense Example (Unaudited)
April 30, 2022
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 November 1, 2021, through April 30, 2022.
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.
| | Beginning | Ending | |
| | Account Value | Account Value | Expenses Paid |
| | November 1, 2021 | April 30, 2022 | During Period(1) |
| Investor Class | | | |
| Actual | $1,000.00 | $ 694.50 | $6.05 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,017.65 | $7.20 |
| | | | |
| Institutional Class | | | |
| Actual | $1,000.00 | $ 696.10 | $4.29 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,019.74 | $5.11 |
(1) | Expenses are equal to the Fund’s annualized expense ratio of 1.44% for Investor Class shares or 1.02% for Institutional Class shares, as applicable, multiplied by the average account value over the period, multiplied by 181/365 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 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 its 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 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.
| | Country | 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 800-261-6950 or 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 — ELECTRONIC 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 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 electronically. 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 800-261-6950 or 414-765-4124.
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| HENNESSY FUNDS | 1-800-966-4354 | |
Board Approval of Investment Advisory
Agreements
At its meeting on March 11, 2022, the Board of Trustees of the Fund (the “Board,” and the members thereof, the “Trustees”) unanimously approved the continuation of the investment advisory agreement of the Fund with Hennessy Advisors, Inc. (the “Advisor”) and the sub-advisory agreement for the Fund between the Advisor and SPARX Asset Management Co., Ltd. (the “Sub-Advisor”). As part of the process, the Trustees reviewed their fiduciary duties and the relevant factors for them to consider with respect to approving the advisory and sub-advisory agreements. In addition, the Trustees who are not deemed “interested persons” (as defined by the Investment Company Act of 1940, as amended) of the Fund (the “Independent Trustees”) met in executive session to discuss the approval of the advisory and sub-advisory agreements. As part of their discussion, the Independent Trustees confirmed their understanding of the need to have asked about, and received answers to, any matters that they believed are relevant to determining whether to approve the continuation of the advisory and sub-advisory agreements.
In advance of the meeting, the Advisor sent detailed information to the Trustees to assist them in their evaluation of the advisory and sub-advisory agreements. This information included, but was not limited to, the following:
| | (1) | A memorandum from outside legal counsel that described the fiduciary duties of the Board with respect to approving the continuation of the advisory and sub-advisory agreements and the relevant factors for consideration; |
| | | |
| | (2) | A memorandum from the Advisor that listed the factors relevant to the Board’s approval of the continuation of the advisory and sub-advisory agreements and also referenced the documents that had been provided to help the Board assess each such factor; |
| | | |
| | (3) | The Advisor’s financial statements from its most recent Form 10-K and Form 10-Q; |
| | | |
| | (4) | Summaries of the advisory and sub-advisory agreements; |
| | | |
| | (5) | A recent Fund fact sheet, which included, among other things, Fund performance over various periods; |
| | | |
| | (6) | A description of the range of services provided by the Advisor and the Sub-Advisor and the distinction between the Advisor-provided services and the Sub-Advisor-provided services; |
| | | |
| | (7) | A peer expense comparison of the net expense ratio and investment advisory fee of the Fund; |
| | | |
| | (8) | A memorandum from the Advisor regarding economies of scale; |
| | | |
| | (9) | A completed questionnaire from the Sub-Advisor; |
| | | |
| | (10) | A summary of the Sub-Advisor’s responses to the questionnaire, as well as relevant information from the Sub-Advisor’s Form ADVs Parts 1 and 2 and the certifications submitted by the Sub-Advisor each quarter; |
| | | |
| | (11) | Financial information of the Sub-Advisor and its parent company; and |
| | | |
| | (12) | The Sub-Advisor’s Code of Ethics. |
The Trustees reviewed and discussed all of the information provided by the Advisor and the Sub-Advisor. Following this review, and further discussion with the Advisor, the Trustees concluded that the information provided before and at the meeting addressed all
| BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENTS |
of the relevant matters that they wanted to consider in assessing the performance of the Funds and the performance of the Advisor and the Sub-Advisor under the advisory and sub-advisory agreements, and that said information provided them with a fulsome understanding of the advisory and sub-advisory agreements and the services provided by the Advisor and the Sub-Advisor.
All of the factors discussed were considered as a whole by the Trustees, as well as by the Independent Trustees meeting in executive session. The Trustees viewed the relevant factors in their totality, with no single factor being the principal or determinative factor in the Trustees’ determination of whether to approve the continuation of the advisory and sub-advisory agreements. The Trustees recognized that the management and fee arrangements for the Fund are the result of years of review and discussion between the Independent Trustees and the Advisor, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements and information received during the course of the year and in prior years.
Prior to approving the continuation of the advisory and sub-advisory agreements, the Trustees, including the Independent Trustees in executive session, considered, among other items:
| | (1) | The nature and quality of the advisory services provided by the Advisor and the Sub-Advisor; |
| | | |
| | (2) | A comparison of the fees and expenses of the Fund to other similar funds; |
| | | |
| | (3) | Whether economies of scale are recognized by the Fund; |
| | | |
| | (4) | The costs and profitability of the Fund to the Advisor and the Sub-Advisor; |
| | | |
| | (5) | The performance of the Fund; and |
| | | |
| | (6) | Any benefits to the Advisor and the Sub-Advisor from serving as an investment advisor to the Fund (other than the advisory and sub-advisory fees). |
The material considerations and determinations of the Trustees, including the Independent Trustees, were as follows:
| | (1) | The Trustees considered the services identified below that are provided by the Advisor. Based on this review and an assessment of the Advisor’s performance, the Trustees concluded that the Advisor provides high-quality services to the Fund, and they noted that their overall confidence in the Advisor was high. The Trustees also concluded that they were satisfied with the nature, extent, and quality of the advisory services provided to the Fund by the Advisor and that the nature and extent of the services provided by the Advisor were appropriate to assure that the Fund’s operations are conducted in compliance with applicable laws, rules, and regulations. |
| | | (a) | The Advisor oversees the Sub-Advisor for the Fund, and the Sub-Advisor acts as the portfolio manager for the Fund by providing portfolio management services. |
| | | | |
| | | (b) | The Advisor performs a daily reconciliation of portfolio positions and cash for the Fund. |
| | | | |
| | | (c) | The Advisor monitors the liquidity of each Fund. |
| | | | |
| | | (d) | The Advisor monitors the Fund’s compliance with its investment objectives and restrictions and federal securities laws. |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | | (e) | The Advisor maintains a compliance program (including a code of ethics), conducts ongoing reviews of the compliance programs of the Sub-Advisor and the Fund’s other service providers (including their codes of ethics, as appropriate), conducts on-site visits to the Sub-Advisor and the Fund’s other service providers, as feasible, monitors incidents of abusive trading practices, reviews Fund expense accruals, payments, and fixed expense ratios, evaluates insurance providers for fidelity bond, D&O/E&O insurance, and cybersecurity insurance coverage, manages regulatory examination compliance and responses, conducts employee compliance training, reviews reports provided by service providers, and maintains books and records. |
| | | | |
| | | (f) | The Advisor oversees the selection and continued employment of the Sub-Advisor, reviews the Fund’s investment performance, and monitors the Sub-Advisor’s adherence to the Fund’s investment objectives, policies, and restrictions. |
| | | | |
| | | (g) | The Advisor oversees service providers that provide accounting, administration, distribution, transfer agency, custodial, sales, marketing, public relations, audit, information technology, and legal services to the Fund. |
| | | | |
| | | (h) | The Advisor maintains in-house marketing and distribution departments on behalf of the Fund. |
| | | | |
| | | (i) | The Advisor prepares or directs the preparation of all regulatory filings for the Fund, including writing and annually updating the Fund’s prospectus and related documents. |
| | | | |
| | | (j) | For each annual report of the Fund, the Advisor reviews the written summary prepared by the Sub-Advisor of the Fund’s performance during the most recent 12-month period. |
| | | | |
| | | (k) | The Advisor oversees distribution of the Fund through third-party broker/dealers and independent financial institutions such as Charles Schwab, Inc., Fidelity, TD Ameritrade, and Pershing. The Advisor participates in “no transaction fee” (“NTF”) programs with these companies on behalf of the Fund, which allow customers to purchase the Fund through third-party distribution channels without paying a transaction fee. The Advisor compensates, in part, a number of these third-party providers of NTF programs out of its own revenues. |
| | | | |
| | | (l) | The Advisor pays the incentive compensation of the Fund’s compliance officers and employs other staff, such as legal, marketing, national accounts, distribution, sales, administrative, and trading oversight personnel, as well as management executives. |
| | | | |
| | | (m) | The Advisor provides a quarterly compliance certification to the Board. |
| | | | |
| | | (n) | The Advisor prepares or reviews all Board materials, presents to and leads discussions with the Board, prepares or reviews all meeting minutes, and arranges for Board training and education. |
| | (2) | The Trustees considered the services identified below that are provided by the Sub-Advisor. Based on this review and an assessment of the Sub-Advisor’s performance, the Trustees concluded that the Sub-Advisor provides high-quality services to the Fund. The Trustees also concluded that they were satisfied with |
| BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENTS |
| | | the nature, extent, and quality of the advisory services provided to the Fund by the Sub-Advisor and that the nature and extent of the services provided by the Sub-Advisor were appropriate to assure that the Fund’s portfolio aligns properly with its investment objective and principal investment strategies. |
| | | (a) | The Sub-Advisor acts as the portfolio manager for the Fund. In this capacity, the Sub-Advisor does the following: |
| | | | (i) | manages the composition of the Fund’s portfolio, including the purchase, retention, and disposition of portfolio securities in accordance with the Fund’s investment objectives, policies, and restrictions; |
| | | | | |
| | | | (ii) | seeks best execution for the Fund’s portfolio; and |
| | | | | |
| | | | (iii) | manages proxy voting for the Fund. |
| | | (b) | The Sub-Advisor ensures that its compliance program includes policies and procedures relevant to the Fund and the Sub-Advisor’s duties as a portfolio manager to the Fund. |
| | | | |
| | | (c) | For each annual report of the Fund, the Sub-Advisor prepares a written summary of the Fund’s performance during the most recent 12-month period. |
| | | | |
| | | (d) | The Sub-Advisor provides a quarterly compliance certification to the Board regarding trading and allocation practices, supervisory matters, the Sub-Advisor’s compliance program (including its code of ethics), compliance with the Fund’s policies, and general firm updates. |
| | (3) | Trustees considered the distinction between the services performed by the Advisor and the Sub-Advisor. The Trustees noted that the management of the Fund, including the oversight of the Sub-Advisor, involves more comprehensive and substantive duties than the duties of the Sub-Advisor. Specifically, the Trustees considered the lists of Advisor services previously identified and concluded that the services performed by the Advisor for the Fund require a higher level of service and oversight than the services performed by the Sub-Advisor. Based on this determination, the Trustees concluded that the differential in advisory fees between the Advisor and the Sub-Advisor is reasonable. |
| | | |
| | (4) | The Trustees compared the performance of the Fund to benchmark indices over various periods and noted that the Trustees review and discuss reports comparing the investment performance of the Fund to various indices at each quarterly Board meeting. Based on such information, the Trustees determined that the Advisor and the Sub-Advisor manage the Fund in a manner materially consistent with its stated investment objective and style. The Trustees concluded that the performance of the Fund over various periods warranted the continuation of the advisory and sub-advisory agreements. |
| | | |
| | (5) | The Trustees reviewed the advisory fees and overall expense ratios of the Fund compared to other funds similar in asset size and investment objective to the Fund using data from Morningstar. As part of the discussion with management, the Trustees ensured that they understood and were comfortable with the criteria used to determine the mutual funds included in the Morningstar categories for purposes of the materials considered at the meeting. The Trustees determined that the advisory fee and overall expense ratio of the Fund falls within a reasonable range of the advisory fees and overall expense ratios of other comparable funds and concluded that they are reasonable and warranted continuation of the advisory and sub-advisory agreements. |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | (6) | The Trustees also considered whether the Advisor was realizing economies of scale that should be shared with the Fund’s shareholders. The Trustees noted that the majority of expenses incurred to manage the Fund are variable asset-based fees, so the Advisor does not realize material economies of scale relating to these expenses as the assets of the Fund increase. For example, third-party platform fees and sub-advisory fees increase as the Fund’s assets grow. |
| | | |
| | (7) | The Trustees considered the profitability of the Advisor and the Sub-Advisor, including the impact of mutual fund platform fees on the Advisor’s profitability, and also considered the resources and revenues that the Advisor has put into managing and distributing the Fund. The Trustees then concluded that the profits of the Advisor and the Sub-Advisor are reasonable and not excessive when compared to profitability guidelines set forth in relevant court cases. |
| | | |
| | (8) | The Trustees considered the high level of professionalism and knowledge of the Advisor’s employees and concluded that this was beneficial to the Fund and its shareholders. |
| | | |
| | (9) | The Trustees considered any benefits to the Advisor and the Sub-Advisor from serving as an advisor to the Fund (other than the advisory and sub-advisory fees). The Trustees noted that the Advisor and the Sub-Advisor may derive ancillary benefits from, by way of example, their association with the Fund in the form of proprietary and third-party research products and services received from broker-dealers that execute portfolio trades for the Fund. The Trustees determined that any such products and services have been used for legitimate purposes relating to the Fund by providing assistance in the investment decision-making process. The Trustees concluded that any additional benefits realized by the Advisor and the Sub-Advisor from their relationship with the Fund were reasonable, which was based on, among other things, the Trustees’ findings that (i) the research, analytical, statistical, and other information and services provided by brokers are merely supplemental to the Advisor’s and the Sub-Advisor’s own efforts in the performance of their duties under the advisory and sub-advisory agreements and (ii) although the Sub-Advisor could derive benefits from the conversion of Fund shareholders into separate account clients, the Fund also could benefit from potential institutional shareholders who might choose to invest in the Fund. |
After reviewing the materials and information provided at the meeting, as well as other information regularly provided at the Board’s quarterly meetings throughout the year regarding the quality of services provided by the Advisor and the Sub-Advisor, the performance of the Fund, expense information, brokerage commissions information, the adequacy and efficacy of the Advisor’s and the Sub-Advisor’s written policies and procedures, other regulatory compliance issues, trading information and related matters, and other factors that the Trustees deemed relevant, the Trustees, including the Independent Trustees, approved the continuation of the advisory and sub-advisory agreements.
| BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENTS |
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For information, questions, or assistance, please call
The Hennessy Funds
800-966-4354 or 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
J. Dennis DeSousa
Robert T. Doyle
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 1250
Milwaukee, Wisconsin 53202
www.hennessyfunds.com | 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.
SEMI-ANNUAL REPORT
APRIL 30, 2022
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 | 5 |
| 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 |
| Expense Example | 26 |
| Proxy Voting Policy and Proxy Voting Records | 28 |
| Availability of Quarterly Portfolio Schedule | 28 |
| Federal Tax Distribution Information | 28 |
| Important Notice Regarding Delivery of Shareholder Documents | 28 |
| Electronic Delivery | 29 |
| Board Approval of Investment Advisory Agreements | 29 |
| HENNESSY FUNDS | 1-800-966-4354 | |
May 2022
Dear Hennessy Funds Shareholder:
The Japanese stock market lost -16.29% in U.S. dollar terms as measured by the Tokyo Stock Price Index (TOPIX) over the six months ended April 30, 2022.
The Japanese stock market declined mainly within the manufacturing sector, including high-tech stocks with high-growth expectations. This decline was due to uncertainty over the armed conflict in Ukraine and a sharp rise in long-term U.S. interest rates as the Federal Reserve’s aggressive monetary tightening stance became clear. Since mid-March, the Japanese yen weakened against the U.S. dollar, fueling a phase of solid performance mainly in export-related stocks. However, the prolonged lockdown in Chinese cities and other factors caused concern, limiting the upward momentum.
We are again witnessing a growth-to-value rotation on the back of rising bond yields around the world. Value stocks marched higher despite their lack of growth appeal. In theory, higher interest rates should result in price corrections of all equities regardless of whether they are long-duration stocks (growth names) or short-duration stocks (value names). But in reality, it is completely reasonable that some stocks get re-rated, perhaps driven by mean-reversion effects. After many years of anemic growth, the P/E ratios of these companies were depressed, so for their valuation levels to moderately recover is not surprising. So far, we have seen this take place with Japanese banks’ P/B ratios rising to 0.5x from 0.3x recently. For Toyota Motor Corporation, the largest index constituent, its P/E ratio has climbed to 11x from 9x.
The depreciation of the Japanese yen should be a major plus for companies with global operations. One thing to note here is that many of these companies are not marginal exporters who can only thrive under a weak domestic currency; to the contrary, they are market leaders in their respective fields with competitive profit margins and strong pricing power so the currency tailwind is purely an added bonus for their fundamentals.
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.
Fund holdings and sector allocations are subject to change. A non-diversified fund, which may concentrate its assets in fewer individual holdings than a diversified fund, is more exposed to individual stock volatility than a diversified fund. A fund that concentrates its investments within one country, one sector, or a small group of industries, such as Japan, may be subject to a higher degree of market risk.
P/E, or price-to-earnings ratio, is a valuation measure calculated by dividing a company’s market price per share by its earnings per share. P/B, or price-to-book ration, is a valuation measure calculated by dividing a company’s market price per share by its book value per share.
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.
Please refer to the Schedule of Investments included in this report for additional portfolio information.
| HENNESSY FUNDS | 1-800-966-4354 | |
Performance Overview (Unaudited)
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED APRIL 30, 2022
| | Six | One | Five | Ten |
| | Months(1) | Year | Years | Years |
| Hennessy Japan Small Cap Fund – | | | | |
| Investor Class (HJPSX) | -22.97% | -21.14% | 3.60% | 9.45% |
| Hennessy Japan Small Cap Fund – | | | | |
Institutional Class (HJSIX)(2) | -22.83% | -20.84% | 4.01% | 9.72% |
Russell/Nomura Small CapTM Index | -19.49% | -19.13% | 0.64% | 5.76% |
| Tokyo Stock Price Index (TOPIX) | -16.29% | -14.60% | 3.42% | 6.07% |
Expense ratios: 1.53% (Investor Class); 1.13% (Institutional Class)
(1) | Periods of less than one year are not annualized. |
(2) | 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 OVERVIEW/SCHEDULE OF INVESTMENTS |
Financial Statements
Schedule of Investments as of April 30, 2022 (Unaudited) |
HENNESSY JAPAN SMALL CAP FUND
(% of Net Assets)
| TOP TEN HOLDINGS (EXCLUDING MONEY MARKET FUNDS) | % NET ASSETS |
| TRE Holdings Corp. | 2.12% |
| Creek & River Co., Ltd. | 2.11% |
| BIPROGY, Inc. | 2.08% |
| Ship Healthcare Holdings, Inc. | 2.07% |
| MIRAIT Holdings Corp. | 2.06% |
| Nihon Kohden Corp. | 2.06% |
| SBS Holdings, Inc. | 2.05% |
| Elecom Co., Ltd. | 1.99% |
| Kito Corp. | 1.99% |
| Transcosmos, 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 – 96.02% | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Communication Services – 3.31% | | | | | | | | | |
| Macromill, Inc. | | | 122,600 | | | $ | 1,127,573 | | | | 1.52 | % |
| Septeni Holdings Co., Ltd. | | | 261,200 | | | | 1,322,203 | | | | 1.79 | % |
| | | | | | | | 2,449,776 | | | | 3.31 | % |
| | | | | | | | | | | | | |
| Consumer Discretionary – 11.24% | | | | | | | | | | | | |
| Benesse Holdings, Inc. | | | 75,000 | | | | 1,312,267 | | | | 1.77 | % |
| Matsuoka Corp. | | | 57,900 | | | | 488,154 | | | | 0.66 | % |
| Musashi Seimitsu Industry Co., Ltd. | | | 112,700 | | | | 1,145,320 | | | | 1.55 | % |
| NGK Spark Plug Co., Ltd. | | | 88,100 | | | | 1,351,914 | | | | 1.83 | % |
| Nojima Corp. | | | 60,500 | | | | 1,216,803 | | | | 1.64 | % |
| Sac’s Bar Holdings, Inc. | | | 234,100 | | | | 909,108 | | | | 1.23 | % |
| Saizeriya Co., Ltd. | | | 40,400 | | | | 740,927 | | | | 1.00 | % |
| Seiren Co., Ltd. | | | 72,700 | | | | 1,152,251 | | | | 1.56 | % |
| | | | | | | | 8,316,744 | | | | 11.24 | % |
| | | | | | | | | | | | | |
| Consumer Staples – 2.56% | | | | | | | | | | | | |
| Nishimoto Co., Ltd. | | | 65,600 | | | | 1,408,943 | | | | 1.90 | % |
| Yoshimura Food Holdings KK (a) | | | 118,900 | | | | 489,908 | | | | 0.66 | % |
| | | | | | | | 1,898,851 | | | | 2.56 | % |
| | | | | | | | | | | | | |
| Energy – 1.61% | | | | | | | | | | | | |
| Iwatani Corp. | | | 29,900 | | | | 1,189,626 | | | | 1.61 | % |
| | | | | | | | | | | | | |
| Financials – 5.96% | | | | | | | | | | | | |
| AEON Financial Service Co., Ltd. | | | 110,500 | | | | 1,015,871 | | | | 1.37 | % |
| Aruhi Corp. | | | 130,900 | | | | 1,007,466 | | | | 1.36 | % |
| Lifenet Insurance Co. (a) | | | 228,200 | | | | 923,792 | | | | 1.25 | % |
| Musashino Bank Ltd. | | | 107,000 | | | | 1,463,574 | | | | 1.98 | % |
| | | | | | | | 4,410,703 | | | | 5.96 | % |
| | | | | | | | | | | | | |
| Health Care – 4.13% | | | | | | | | | | | | |
| Nihon Kohden Corp. | | | 63,400 | | | | 1,521,988 | | | | 2.06 | % |
| Ship Healthcare Holdings, Inc. | | | 91,800 | | | | 1,533,421 | | | | 2.07 | % |
| | | | | | | | 3,055,409 | | | | 4.13 | % |
| | | | | | | | | | | | | |
| Industrials – 33.97% | | | | | | | | | | | | |
| Benefit One, Inc. | | | 47,700 | | | | 723,248 | | | | 0.98 | % |
| Creek & River Co., Ltd. | | | 96,800 | | | | 1,562,598 | | | | 2.11 | % |
| Daihen Corp. | | | 28,100 | | | | 803,868 | | | | 1.08 | % |
| Fugi Corp. | | | 58,800 | | | | 981,051 | | | | 1.32 | % |
The accompanying notes are an integral part of these financial statements.
| COMMON STOCKS | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Industrials (Continued) | | | | | | | | | |
| Glory Ltd. | | | 52,400 | | | $ | 842,852 | | | | 1.14 | % |
| Hanwa Co., Ltd. | | | 54,100 | | | | 1,322,398 | | | | 1.79 | % |
| Hito Communications Holdings, Inc. | | | 116,000 | | | | 1,383,144 | | | | 1.87 | % |
| Kawada Technologies, Inc. | | | 17,500 | | | | 480,010 | | | | 0.65 | % |
| Kito Corp. | | | 113,400 | | | | 1,472,891 | | | | 1.99 | % |
| MIRAIT Holdings Corp. | | | 108,600 | | | | 1,521,881 | | | | 2.06 | % |
| Mitsubishi Logisnext Co., Ltd. | | | 112,400 | | | | 659,516 | | | | 0.89 | % |
| Nichiha Corp. | | | 60,700 | | | | 1,097,434 | | | | 1.48 | % |
| Nihon Flush Co., Ltd. | | | 13,700 | | | | 101,282 | | | | 0.14 | % |
| Nippon Koei Co., Ltd. | | | 64,900 | | | | 1,448,654 | | | | 1.96 | % |
| Sato Holdings Corp. | | | 96,600 | | | | 1,328,263 | | | | 1.79 | % |
| SBS Holdings, Inc. | | | 65,400 | | | | 1,517,583 | | | | 2.05 | % |
| Senko Group Holdings Co., Ltd. | | | 55,100 | | | | 372,635 | | | | 0.50 | % |
| Tadano Ltd. | | | 130,000 | | | | 923,492 | | | | 1.25 | % |
| Tanseisha Co., Ltd. | | | 204,900 | | | | 1,248,978 | | | | 1.69 | % |
| Tocalo Co., Ltd. | | | 111,700 | | | | 1,115,297 | | | | 1.51 | % |
| TRE Holdings Corp. | | | 98,300 | | | | 1,572,690 | | | | 2.12 | % |
| Tsubakimoto Chain Co. | | | 63,900 | | | | 1,459,129 | | | | 1.97 | % |
| Ushio, Inc. | | | 93,000 | | | | 1,205,799 | | | | 1.63 | % |
| | | | | | | | 25,144,693 | | | | 33.97 | % |
| | | | | | | | | | | | | |
| Information Technology – 19.30% | | | | | | | | | | | | |
| Anritsu Corp. | | | 50,000 | | | | 628,726 | | | | 0.85 | % |
| Bell System24 Holdings, Inc. | | | 70,300 | | | | 812,989 | | | | 1.10 | % |
| BIPROGY, Inc. | | | 60,900 | | | | 1,538,638 | | | | 2.08 | % |
| Digital Garage, Inc. | | | 33,100 | | | | 1,095,433 | | | | 1.48 | % |
| Elecom Co., Ltd. | | | 122,900 | | | | 1,473,731 | | | | 1.99 | % |
| Macnica Fuji Electronics Holdings, Inc. | | | 36,200 | | | | 750,530 | | | | 1.01 | % |
| Mimaki Engineering Co., Ltd. | | | 271,500 | | | | 1,424,121 | | | | 1.93 | % |
| Nippon Signal Company, Ltd. | | | 155,000 | | | | 1,076,019 | | | | 1.45 | % |
| Pole To Win Holdings, Inc. | | | 28,400 | | | | 216,730 | | | | 0.29 | % |
| SIIX Corp. | | | 137,900 | | | | 1,053,391 | | | | 1.42 | % |
| Towa Corp. | | | 82,800 | | | | 1,284,869 | | | | 1.74 | % |
| Transcosmos, Inc. | | | 62,400 | | | | 1,471,163 | | | | 1.99 | % |
| Yamaichi Electronics Co., Ltd. | | | 115,100 | | | | 1,458,204 | | | | 1.97 | % |
| | | | | | | | 14,284,544 | | | | 19.30 | % |
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 – 9.50% | | | | | | | | | |
| Asia Pile Holdings Corp. | | | 423,300 | | | $ | 1,390,665 | | | | 1.88 | % |
| Kyoei Steel Ltd. | | | 141,200 | | | | 1,448,707 | | | | 1.96 | % |
| Rengo Co., Ltd. | | | 226,100 | | | | 1,338,638 | | | | 1.81 | % |
| Sanyo Chemical Industries Ltd. | | | 36,600 | | | | 1,399,607 | | | | 1.89 | % |
| Tokyo Ohka Kogyo Co., Ltd. | | | 26,700 | | | | 1,450,779 | | | | 1.96 | % |
| | | | | | | | 7,028,396 | | | | 9.50 | % |
| | | | | | | | | | | | | |
| Real Estate – 3.42% | | | | | | | | | | | | |
| Star Mica Holdings Co., Ltd. | | | 120,400 | | | | 1,424,615 | | | | 1.92 | % |
| Tosei Corp. | | | 131,900 | | | | 1,109,858 | | | | 1.50 | % |
| | | | | | | | 2,534,473 | | | | 3.42 | % |
| | | | | | | | | | | | | |
| Utilities – 1.02% | | | | | | | | | | | | |
| EF-ON, Inc. | | | 179,900 | | | | 756,150 | | | | 1.02 | % |
| | | | | | | | | | | | | |
| Total Common Stocks | | | | | | | | | | | | |
| (Cost $80,236,110) | | | | | | | 71,069,365 | | | | 96.02 | % |
| | | | | | | | | | | | | |
| SHORT-TERM INVESTMENTS – 1.89% | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Money Market Funds – 1.89% | | | | | | | | | | | | |
| First American Government Obligations Fund, | | | | | | | | | | | | |
| Institutional Class, 0.22% (b) | | | 1,402,127 | | | | 1,402,127 | | | | 1.89 | % |
| | | | | | | | | | | | | |
| Total Short-Term Investments | | | | | | | | | | | | |
| (Cost $1,402,127) | | | | | | | 1,402,127 | | | | 1.89 | % |
| | | | | | | | | | | | | |
| Total Investments | | | | | | | | | | | | |
| (Cost $81,638,237) – 97.91% | | | | | | | 72,471,492 | | | | 97.91 | % |
| Other Assets in Excess of Liabilities – 2.09% | | | | | | | 1,545,277 | | | | 2.09 | % |
| | | | | | | | | | | | | |
TOTAL NET ASSETS – 100.00% | | | | | | $ | 74,016,769 | | | | 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 April 30, 2022. |
The accompanying notes are an integral part of these financial statements.
Summary of Fair Value Exposure as of April 30, 2022
The following is a summary of the inputs used to value the Fund’s net assets as of April 30, 2022 (see Note 3 in the accompanying Notes to the Financial Statements):
| Common Stocks | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Communication Services | | $ | — | | | $ | 2,449,776 | | | $ | — | | | $ | 2,449,776 | |
| Consumer Discretionary | | | — | | | | 8,316,744 | | | | — | | | | 8,316,744 | |
| Consumer Staples | | | — | | | | 1,898,851 | | | | — | | | | 1,898,851 | |
| Energy | | | — | | | | 1,189,626 | | | | — | | | | 1,189,626 | |
| Financials | | | — | | | | 4,410,703 | | | | — | | | | 4,410,703 | |
| Health Care | | | — | | | | 3,055,409 | | | | — | | | | 3,055,409 | |
| Industrials | | | — | | | | 25,144,693 | | | | — | | | | 25,144,693 | |
| Information Technology | | | — | | | | 14,284,544 | | | | — | | | | 14,284,544 | |
| Materials | | | — | | | | 7,028,396 | | | | — | | | | 7,028,396 | |
| Real Estate | | | — | | | | 2,534,473 | | | | — | | | | 2,534,473 | |
| Utilities | | | — | | | | 756,150 | | | | — | | | | 756,150 | |
| Total Common Stocks | | $ | — | | | $ | 71,069,365 | | | $ | — | | | $ | 71,069,365 | |
| Short-Term Investments | | | | | | | | | | | | | | | | |
| Money Market Funds | | $ | 1,402,127 | | | $ | — | | | $ | — | | | $ | 1,402,127 | |
| Total Short-Term Investments | | $ | 1,402,127 | | | $ | — | | | $ | — | | | $ | 1,402,127 | |
| Total Investments | | $ | 1,402,127 | | | $ | 71,069,365 | | | $ | — | | | $ | 72,471,492 | |
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 April 30, 2022 (Unaudited) |
| ASSETS: | | | |
| Investments in securities, at value (cost $81,638,237) | | $ | 72,471,492 | |
| Dividends and interest receivable | | | 1,003,022 | |
| Receivable for fund shares sold | | | 171,686 | |
| Receivable for securities sold | | | 490,641 | |
| Prepaid expenses and other assets | | | 20,029 | |
| Total assets | | | 74,156,870 | |
| | | | | |
| LIABILITIES: | | | | |
| Payable for securities purchased | | | 1,219 | |
| Payable for fund shares redeemed | | | 27,563 | |
| Payable to advisor | | | 53,869 | |
| Payable to administrator | | | 16,609 | |
| Payable to auditor | | | 11,228 | |
| Accrued distribution fees | | | 6,026 | |
| Accrued service fees | | | 3,017 | |
| Accrued trustees fees | | | 5,591 | |
| Accrued expenses and other payables | | | 14,979 | |
| Total liabilities | | | 140,101 | |
| NET ASSETS | | $ | 74,016,769 | |
| | | | | |
| NET ASSETS CONSISTS OF: | | | | |
| Capital stock | | $ | 81,562,959 | |
| Accumulated deficit | | | (7,546,190 | ) |
| Total net assets | | $ | 74,016,769 | |
| | | | | |
| NET ASSETS: | | | | |
| Investor Class | | | | |
| Shares authorized (no par value) | | Unlimited | |
| Net assets applicable to outstanding shares | | $ | 35,348,233 | |
| Shares issued and outstanding | | | 2,543,697 | |
| Net asset value, offering price, and redemption price per share | | $ | 13.90 | |
| | | | | |
| Institutional Class | | | | |
| Shares authorized (no par value) | | Unlimited | |
| Net assets applicable to outstanding shares | | $ | 38,668,536 | |
| Shares issued and outstanding | | | 2,817,999 | |
| Net asset value, offering price, and redemption price per share | | $ | 13.72 | |
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 six months ended April 30, 2022 (Unaudited) |
| INVESTMENT INCOME: | | | |
Dividend income(1) | | $ | 1,260,940 | |
| Interest income | | | 1,142 | |
| Total investment income | | | 1,262,082 | |
| | | | | |
| EXPENSES: | | | | |
| Investment advisory fees (See Note 5) | | | 394,710 | |
| Sub-transfer agent expenses – Investor Class (See Note 5) | | | 48,489 | |
| Sub-transfer agent expenses – Institutional Class (See Note 5) | | | 26,373 | |
| Administration, accounting, custody, and transfer agent fees (See Note 5) | | | 59,583 | |
| Distribution fees – Investor Class (See Note 5) | | | 30,889 | |
| Service fees – Investor Class (See Note 5) | | | 20,593 | |
| Federal and state registration fees | | | 17,112 | |
| Compliance expense (See Note 5) | | | 15,156 | |
| Audit fees | | | 11,222 | |
| Trustees’ fees and expenses | | | 9,226 | |
| Reports to shareholders | | | 7,152 | |
| Interest expense (See Note 7) | | | 1,702 | |
| Legal fees | | | 719 | |
| Other expenses | | | 7,684 | |
| Total expenses | | | 650,610 | |
| NET INVESTMENT INCOME | | $ | 611,472 | |
| | | | | |
| REALIZED AND UNREALIZED GAINS (LOSSES): | | | | |
| Net realized gain on investments | | $ | 1,158,512 | |
| Net change in unrealized appreciation/depreciation on investments | | | (26,930,310 | ) |
| Net loss on investments | | | (25,771,798 | ) |
| NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS | | $ | (25,160,326 | ) |
(1) | Net of foreign taxes withheld of $140,102. |
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 |
| | | Six Months Ended | | | | |
| | | April 30, 2022 | | | Year Ended | |
| | | (Unaudited) | | | October 31, 2021 | |
| OPERATIONS: | | | | | | |
| Net investment income | | $ | 611,472 | | | $ | 392,688 | |
| Net realized gain on investments | | | 1,158,512 | | | | 1,288,362 | |
| Net change in unrealized | | | | | | | | |
| appreciation/depreciation on investments | | | (26,930,310 | ) | | | 10,917,876 | |
| Net increase (decrease) in net | | | | | | | | |
| assets resulting from operations | | | (25,160,326 | ) | | | 12,598,926 | |
| | | | | | | | | |
| DISTRIBUTIONS TO SHAREHOLDERS: | | | | | | | | |
| Distributable earnings – Investor Class | | | (186,236 | ) | | | (121,856 | ) |
| Distributable earnings – Institutional Class | | | (589,255 | ) | | | (260,753 | ) |
| Total distributions | | | (775,491 | ) | | | (382,609 | ) |
| | | | | | | | | |
| CAPITAL SHARE TRANSACTIONS: | | | | | | | | |
| Proceeds from shares subscribed – Investor Class | | | 4,287,995 | | | | 10,823,523 | |
| Proceeds from shares subscribed – Institutional Class | | | 14,174,002 | | | | 45,926,109 | |
| Dividends reinvested – Investor Class | | | 180,037 | | | | 116,988 | |
| Dividends reinvested – Institutional Class | | | 571,970 | | | | 246,865 | |
| Cost of shares redeemed – Investor Class | | | (4,482,096 | ) | | | (18,166,242 | ) |
| Cost of shares redeemed – Institutional Class | | | (27,506,462 | ) | | | (19,434,438 | ) |
| Net increase (decrease) in net assets | | | | | | | | |
| derived from capital share transactions | | | (12,774,554 | ) | | | 19,512,805 | |
| TOTAL INCREASE (DECREASE) IN NET ASSETS | | | (38,710,371 | ) | | | 31,729,122 | |
| | | | | | | | | |
| NET ASSETS: | | | | | | | | |
| Beginning of period | | | 112,727,140 | | | | 80,998,018 | |
| End of period | | $ | 74,016,769 | | | $ | 112,727,140 | |
| | | | | | | | | |
| CHANGES IN SHARES OUTSTANDING: | | | | | | | | |
| Shares sold – Investor Class | | | 268,767 | | | | 607,997 | |
| Shares sold – Institutional Class | | | 878,090 | | | | 2,575,700 | |
| Shares issued to holders as reinvestment | | | | | | | | |
| of dividends – Investor Class | | | 10,154 | | | | 6,496 | |
| Shares issued to holders as reinvestment | | | | | | | | |
| of dividends – Institutional Class | | | 33,206 | | | | 13,885 | |
| Shares redeemed – Investor Class | | | (282,420 | ) | | | (1,018,588 | ) |
| Shares redeemed – Institutional Class | | | (1,804,192 | ) | | | (1,098,633 | ) |
| Net increase (decrease) in shares outstanding | | | (896,395 | ) | | | 1,086,857 | |
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
| | | Six Months Ended | |
| | | April 30, 2022 | |
| | | (Unaudited) | |
| PER SHARE DATA: | | | |
| Net asset value, beginning of period | | $ | 18.12 | |
| | | | | |
| Income from investment operations: | | | | |
| Net investment income | | | 0.08 | (1) |
| Net realized and unrealized gains (losses) on investments | | | (4.23 | ) |
| Total from investment operations | | | (4.15 | ) |
| | | | | |
| Less distributions: | | | | |
| Dividends from net investment income | | | (0.00 | )(2) |
| Dividends from net realized gains | | | (0.07 | ) |
| Total distributions | | | (0.07 | ) |
| Net asset value, end of period | | $ | 13.90 | |
| | | | | |
| TOTAL RETURN | | | -22.97 | %(3) |
| | | | | |
| SUPPLEMENTAL DATA AND RATIOS: | | | | |
| Net assets, end of period (millions) | | $ | 35.35 | |
| Ratio of expenses to average net assets | | | 1.55 | %(4) |
| Ratio of net investment income to average net assets | | | 1.07 | %(4) |
Portfolio turnover rate(5) | | | 8 | %(3) |
(1) | Calculated using the average shares outstanding method. |
(2) | Amount is between $(0.005) and $0.005. |
(3) | Not annualized. |
(4) | Annualized. |
(5) | 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 period
| | | Six Months Ended | |
| | | April 30, 2022 | |
| | | (Unaudited) | |
| PER SHARE DATA: | | | |
| Net asset value, beginning of period | | $ | 17.94 | |
| | | | | |
| Income from investment operations: | | | | |
| Net investment income | | | 0.11 | (1) |
| Net realized and unrealized gains (losses) on investments | | | (4.17 | ) |
| Total from investment operations | | | (4.06 | ) |
| | | | | |
| Less distributions: | | | | |
| Dividends from net investment income | | | (0.09 | ) |
| Dividends from net realized gains | | | (0.07 | ) |
| Total distributions | | | (0.16 | ) |
| Net asset value, end of period | | $ | 13.72 | |
| | | | | |
| TOTAL RETURN | | | -22.83 | %(2) |
| | | | | |
| SUPPLEMENTAL DATA AND RATIOS: | | | | |
| Net assets, end of period (millions) | | $ | 38.67 | |
| Ratio of expenses to average net assets | | | 1.15 | %(3) |
| Ratio of net investment income to average net assets | | | 1.36 | %(3) |
Portfolio turnover rate(4) | | | 8 | %(2) |
(1) | Calculated using the average shares outstanding method. |
(2) | Not annualized. |
(3) | Annualized. |
(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 | |
| | | | | | | | | | | | | | |
| $ | 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 April 30, 2022 (Unaudited) |
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. |
| | |
| 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. |
| NOTES TO THE FINANCIAL STATEMENTS |
| 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 fluctuations, economic and political factors, lower liquidity, government regulations, differences in accounting standards, and other factors. |
| | |
| 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 |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | 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. |
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 |
| NOTES TO THE FINANCIAL STATEMENTS |
| | 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 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 April 30, 2022, 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 the six months ended April 30, 2022, were $7,366,842 and $15,955,143, respectively.
There were no purchases or sales/maturities of long-term U.S. government securities for the Fund during the six months ended April 30, 2022.
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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, 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
| NOTES TO THE FINANCIAL STATEMENTS |
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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, are included in the Statement of Operations.
Quasar Distributors, LLC (“Quasar”), a wholly owned broker-dealer subsidiary of Foreside Financial Group, LLC, acts as the Fund’s principal underwriter in a continuous public offering of Fund shares.
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 the six months ended April 30, 2022, are included in the Statement of Operations.
| HENNESSY FUNDS | 1-800-966-4354 | |
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 the six months ended April 30, 2022, the Fund had an outstanding average daily balance and a weighted average interest rate of $96,735 and 3.50%, respectively. The interest expensed by the Fund during the six months ended April 30, 2022, is included in the Statement of Operations. The maximum amount outstanding for the Fund during the period was $3,666,000. As of April 30, 2022, the Fund did not have any borrowings outstanding under the line of credit.
8). FEDERAL TAX INFORMATION
As of October 31, 2021, the Fund’s most recent fiscal year end, 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.
| NOTES TO THE FINANCIAL STATEMENTS |
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 year 2022 (year to date) and fiscal year 2021, the tax character of distributions paid by the Fund was as follows:
| | | | Six Months Ended | | | Year Ended | |
| | | | April 30, 2022 | | | October 31, 2021 | |
| | Ordinary income(1) | | $ | 327,681 | | | $ | 382,609 | |
| | Long-term capital gains | | | 447,810 | | | | — | |
| | Total distributions | | $ | 775,491 | | | $ | 382,609 | |
| | (1) Ordinary income includes short-term capital gains. |
9). EVENTS SUBSEQUENT TO PERIOD END
Management has evaluated the Fund’s related events and transactions that occurred subsequent to April 30, 2022, 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 | |
Expense Example (Unaudited)
April 30, 2022
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 November 1, 2021, through April 30, 2022.
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.
| | Beginning | Ending | |
| | Account Value | Account Value | Expenses Paid |
| | November 1, 2021 | April 30, 2022 | During Period(1) |
| Investor Class | | | |
| Actual | $1,000.00 | $ 770.30 | $6.80 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,017.11 | $7.75 |
| | | | |
| Institutional Class | | | |
| Actual | $1,000.00 | $ 771.70 | $5.05 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,019.09 | $5.76 |
(1) | Expenses are equal to the Fund’s annualized expense ratio of 1.55% for Investor Class shares or 1.15% for Institutional Class shares, as applicable, multiplied by the average account value over the period, multiplied by 181/365 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 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 its 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 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.
| | Country | 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 800-261-6950 or 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 — BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENTS |
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 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 electronically. 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 800-261-6950 or 414-765-4124.
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Board Approval of Investment Advisory
Agreements
At its meeting on March 11, 2022, the Board of Trustees of the Fund (the “Board,” and the members thereof, the “Trustees”) unanimously approved the continuation of the investment advisory agreement of the Fund with Hennessy Advisors, Inc. (the “Advisor”) and the sub-advisory agreement for the Fund between the Advisor and SPARX Asset Management Co., Ltd. (the “Sub-Advisor”). As part of the process, the Trustees reviewed their fiduciary duties and the relevant factors for them to consider with respect to approving the advisory and sub-advisory agreements. In addition, the Trustees who are not deemed “interested persons” (as defined by the Investment Company Act of 1940, as amended) of the Fund (the “Independent Trustees”) met in executive session to discuss the approval of the advisory and sub-advisory agreements. As part of their discussion, the Independent Trustees confirmed their understanding of the need to have asked about, and received answers to, any matters that they believed are relevant to determining whether to approve the continuation of the advisory and sub-advisory agreements.
In advance of the meeting, the Advisor sent detailed information to the Trustees to assist them in their evaluation of the advisory and sub-advisory agreements. This information included, but was not limited to, the following:
| | (1) | A memorandum from outside legal counsel that described the fiduciary duties of the Board with respect to approving the continuation of the advisory and sub-advisory agreements and the relevant factors for consideration; |
| | | |
| | (2) | A memorandum from the Advisor that listed the factors relevant to the Board’s approval of the continuation of the advisory and sub-advisory agreements and also referenced the documents that had been provided to help the Board assess each such factor; |
| | | |
| | (3) | The Advisor’s financial statements from its most recent Form 10-K and Form 10-Q; |
| | | |
| | (4) | Summaries of the advisory and sub-advisory agreements; |
| | | |
| | (5) | A recent Fund fact sheet, which included, among other things, Fund performance over various periods; |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | (6) | A description of the range of services provided by the Advisor and the Sub-Advisor and the distinction between the Advisor-provided services and the Sub-Advisor-provided services; |
| | | |
| | (7) | A peer expense comparison of the net expense ratio and investment advisory fee of the Fund; |
| | | |
| | (8) | A memorandum from the Advisor regarding economies of scale; |
| | | |
| | (9) | A completed questionnaire from the Sub-Advisor; |
| | | |
| | (10) | A summary of the Sub-Advisor’s responses to the questionnaire, as well as relevant information from the Sub-Advisor’s Form ADVs Parts 1 and 2 and the certifications submitted by the Sub-Advisor each quarter; |
| | | |
| | (11) | Financial information of the Sub-Advisor and its parent company; and |
| | | |
| | (12) | The Sub-Advisor’s Code of Ethics. |
The Trustees reviewed and discussed all of the information provided by the Advisor and the Sub-Advisor. Following this review, and further discussion with the Advisor, the Trustees concluded that the information provided before and at the meeting addressed all of the relevant matters that they wanted to consider in assessing the performance of the Funds and the performance of the Advisor and the Sub-Advisor under the advisory and sub-advisory agreements, and that said information provided them with a fulsome understanding of the advisory and sub-advisory agreements and the services provided by the Advisor and the Sub-Advisor.
All of the factors discussed were considered as a whole by the Trustees, as well as by the Independent Trustees meeting in executive session. The Trustees viewed the relevant factors in their totality, with no single factor being the principal or determinative factor in the Trustees’ determination of whether to approve the continuation of the advisory and sub-advisory agreements. The Trustees recognized that the management and fee arrangements for the Fund are the result of years of review and discussion between the Independent Trustees and the Advisor, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements and information received during the course of the year and in prior years.
Prior to approving the continuation of the advisory and sub-advisory agreements, the Trustees, including the Independent Trustees in executive session, considered, among other items:
| | (1) | The nature and quality of the advisory services provided by the Advisor and the Sub-Advisor; |
| | | |
| | (2) | A comparison of the fees and expenses of the Fund to other similar funds; |
| | | |
| | (3) | Whether economies of scale are recognized by the Fund; |
| | | |
| | (4) | The costs and profitability of the Fund to the Advisor and the Sub-Advisor; |
| | | |
| | (5) | The performance of the Fund; and |
| | | |
| | (6) | Any benefits to the Advisor and the Sub-Advisor from serving as an investment advisor to the Fund (other than the advisory and sub-advisory fees). |
The material considerations and determinations of the Trustees, including the Independent Trustees, were as follows:
| | (1) | The Trustees considered the services identified below that are provided by the Advisor. Based on this review and an assessment of the Advisor’s performance, the Trustees concluded that the Advisor provides high-quality services to the Fund, and they noted that their overall confidence in the Advisor was high. The |
| BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENTS |
| | | Trustees also concluded that they were satisfied with the nature, extent, and quality of the advisory services provided to the Fund by the Advisor and that the nature and extent of the services provided by the Advisor were appropriate to assure that the Fund’s operations are conducted in compliance with applicable laws, rules, and regulations. |
| | | (a) | The Advisor oversees the Sub-Advisor for the Fund, and the Sub-Advisor acts as the portfolio manager for the Fund by providing portfolio management services. |
| | | | |
| | | (b) | The Advisor performs a daily reconciliation of portfolio positions and cash for the Fund. |
| | | | |
| | | (c) | The Advisor monitors the liquidity of each Fund. |
| | | | |
| | | (d) | The Advisor monitors the Fund’s compliance with its investment objectives and restrictions and federal securities laws. |
| | | | |
| | | (e) | The Advisor maintains a compliance program (including a code of ethics), conducts ongoing reviews of the compliance programs of the Sub-Advisor and the Fund’s other service providers (including their codes of ethics, as appropriate), conducts on-site visits to the Sub-Advisor and the Fund’s other service providers, as feasible, monitors incidents of abusive trading practices, reviews Fund expense accruals, payments, and fixed expense ratios, evaluates insurance providers for fidelity bond, D&O/E&O insurance, and cybersecurity insurance coverage, manages regulatory examination compliance and responses, conducts employee compliance training, reviews reports provided by service providers, and maintains books and records. |
| | | | |
| | | (f) | The Advisor oversees the selection and continued employment of the Sub-Advisor, reviews the Fund’s investment performance, and monitors the Sub-Advisor’s adherence to the Fund’s investment objectives, policies, and restrictions. |
| | | | |
| | | (g) | The Advisor oversees service providers that provide accounting, administration, distribution, transfer agency, custodial, sales, marketing, public relations, audit, information technology, and legal services to the Fund. |
| | | | |
| | | (h) | The Advisor maintains in-house marketing and distribution departments on behalf of the Fund. |
| | | | |
| | | (i) | The Advisor prepares or directs the preparation of all regulatory filings for the Fund, including writing and annually updating the Fund’s prospectus and related documents. |
| | | | |
| | | (j) | For each annual report of the Fund, the Advisor reviews the written summary prepared by the Sub-Advisor of the Fund’s performance during the most recent 12-month period. |
| | | | |
| | | (k) | The Advisor oversees distribution of the Fund through third-party broker/dealers and independent financial institutions such as Charles Schwab, Inc., Fidelity, TD Ameritrade, and Pershing. The Advisor participates in “no transaction fee” (“NTF”) programs with these companies on behalf of the Fund, which allow customers to purchase the Fund through third-party distribution channels without paying a transaction fee. The Advisor compensates, in part, a number of these third-party providers of NTF programs out of its own revenues. |
| | | | |
| | | (l) | The Advisor pays the incentive compensation of the Fund’s compliance officers and employs other staff, such as legal, marketing, national accounts, distribution, sales, administrative, and trading oversight personnel, as well as management executives. |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | | (m) | The Advisor provides a quarterly compliance certification to the Board. |
| | | | |
| | | (n) | The Advisor prepares or reviews all Board materials, presents to and leads discussions with the Board, prepares or reviews all meeting minutes, and arranges for Board training and education. |
| | (2) | The Trustees considered the services identified below that are provided by the Sub-Advisor. Based on this review and an assessment of the Sub-Advisor’s performance, the Trustees concluded that the Sub-Advisor provides high-quality services to the Fund. The Trustees also concluded that they were satisfied with the nature, extent, and quality of the advisory services provided to the Fund by the Sub-Advisor and that the nature and extent of the services provided by the Sub-Advisor were appropriate to assure that the Fund’s portfolio aligns properly with its investment objective and principal investment strategies. |
| | | (a) | The Sub-Advisor acts as the portfolio manager for the Fund. In this capacity, the Sub-Advisor does the following: |
| | | | (i) | manages the composition of the Fund’s portfolio, including the purchase, retention, and disposition of portfolio securities in accordance with the Fund’s investment objectives, policies, and restrictions; |
| | | | | |
| | | | (ii) | seeks best execution for the Fund’s portfolio; and |
| | | | | |
| | | | (iii) | manages proxy voting for the Fund. |
| | | (b) | The Sub-Advisor ensures that its compliance program includes policies and procedures relevant to the Fund and the Sub-Advisor’s duties as a portfolio manager to the Fund. |
| | | | |
| | | (c) | For each annual report of the Fund, the Sub-Advisor prepares a written summary of the Fund’s performance during the most recent 12-month period. |
| | | | |
| | | (d) | The Sub-Advisor provides a quarterly compliance certification to the Board regarding trading and allocation practices, supervisory matters, the Sub-Advisor’s compliance program (including its code of ethics), compliance with the Fund’s policies, and general firm updates. |
| | (3) | Trustees considered the distinction between the services performed by the Advisor and the Sub-Advisor. The Trustees noted that the management of the Fund, including the oversight of the Sub-Advisor, involves more comprehensive and substantive duties than the duties of the Sub-Advisor. Specifically, the Trustees considered the lists of Advisor services previously identified and concluded that the services performed by the Advisor for the Fund require a higher level of service and oversight than the services performed by the Sub-Advisor. Based on this determination, the Trustees concluded that the differential in advisory fees between the Advisor and the Sub-Advisor is reasonable. |
| | | |
| | (4) | The Trustees compared the performance of the Fund to benchmark indices over various periods and noted that the Trustees review and discuss reports comparing the investment performance of the Fund to various indices at each quarterly Board meeting. Based on such information, the Trustees determined that the Advisor and the Sub-Advisor manage the Fund in a manner materially consistent with its stated investment objective and style. The Trustees concluded that the performance of the Fund over various periods warranted the continuation of the advisory and sub-advisory agreements. |
| | | |
| | (5) | The Trustees reviewed the advisory fees and overall expense ratios of the Fund compared to other funds similar in asset size and investment objective to the Fund using data from Morningstar. As part of the discussion with management, |
| BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENTS |
| | | the Trustees ensured that they understood and were comfortable with the criteria used to determine the mutual funds included in the Morningstar categories for purposes of the materials considered at the meeting. The Trustees determined that the advisory fee and overall expense ratio of the Fund falls within a reasonable range of the advisory fees and overall expense ratios of other comparable funds and concluded that they are reasonable and warranted continuation of the advisory and sub-advisory agreements. |
| | | |
| | (6) | The Trustees also considered whether the Advisor was realizing economies of scale that should be shared with the Fund’s shareholders. The Trustees noted that the majority of expenses incurred to manage the Fund are variable asset-based fees, so the Advisor does not realize material economies of scale relating to these expenses as the assets of the Fund increase. For example, third-party platform fees and sub-advisory fees increase as the Fund’s assets grow. |
| | | |
| | (7) | The Trustees considered the profitability of the Advisor and the Sub-Advisor, including the impact of mutual fund platform fees on the Advisor’s profitability, and also considered the resources and revenues that the Advisor has put into managing and distributing the Fund. The Trustees then concluded that the profits of the Advisor and the Sub-Advisor are reasonable and not excessive when compared to profitability guidelines set forth in relevant court cases. |
| | | |
| | (8) | The Trustees considered the high level of professionalism and knowledge of the Advisor’s employees and concluded that this was beneficial to the Fund and its shareholders. |
| | | |
| | (9) | The Trustees considered any benefits to the Advisor and the Sub-Advisor from serving as an advisor to the Fund (other than the advisory and sub-advisory fees). The Trustees noted that the Advisor and the Sub-Advisor may derive ancillary benefits from, by way of example, their association with the Fund in the form of proprietary and third-party research products and services received from broker-dealers that execute portfolio trades for the Fund. The Trustees determined that any such products and services have been used for legitimate purposes relating to the Fund by providing assistance in the investment decision-making process. The Trustees concluded that any additional benefits realized by the Advisor and the Sub-Advisor from their relationship with the Fund were reasonable, which was based on, among other things, the Trustees’ findings that (i) the research, analytical, statistical, and other information and services provided by brokers are merely supplemental to the Advisor’s and the Sub-Advisor’s own efforts in the performance of their duties under the advisory and sub-advisory agreements and (ii) although the Sub-Advisor could derive benefits from the conversion of Fund shareholders into separate account clients, the Fund also could benefit from potential institutional shareholders who might choose to invest in the Fund. |
After reviewing the materials and information provided at the meeting, as well as other information regularly provided at the Board’s quarterly meetings throughout the year regarding the quality of services provided by the Advisor and the Sub-Advisor, the performance of the Fund, expense information, brokerage commissions information, the adequacy and efficacy of the Advisor’s and the Sub-Advisor’s written policies and procedures, other regulatory compliance issues, trading information and related matters, and other factors that the Trustees deemed relevant, the Trustees, including the Independent Trustees, approved the continuation of the advisory and sub-advisory agreements.
| HENNESSY FUNDS | 1-800-966-4354 | |
For information, questions, or assistance, please call
The Hennessy Funds
800-966-4354 or 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
J. Dennis DeSousa
Robert T. Doyle
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 1250
Milwaukee, Wisconsin 53202
www.hennessyfunds.com | 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.
SEMI-ANNUAL REPORT
APRIL 30, 2022
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 | 5 |
| Statement of Assets and Liabilities | 8 |
| Statement of Operations | 9 |
| Statements of Changes in Net Assets | 11 |
| Financial Highlights | 12 |
| Notes to the Financial Statements | 16 |
| Expense Example | 24 |
| Proxy Voting Policy and Proxy Voting Records | 26 |
| Availability of Quarterly Portfolio Schedule | 26 |
| Important Notice Regarding Delivery of Shareholder Documents | 26 |
| Electronic Delivery | 26 |
| Board Approval of Investment Advisory Agreement | 27 |
| HENNESSY FUNDS | 1-800-966-4354 | |
May 2022
Dear Hennessy Funds Shareholder:
We’d like to start our semi-annual letter with a pause. At the end of 2021, we looked forward to a new year – a potentially calmer year – having come through almost two full years of the coronavirus pandemic. As people, we were aware our lives had changed, but we hoped for a better 2022; as investors, we were aware that the economy was strong and employment was robust, yet challenges loomed, including inflation, supply chain disruptions, and tightening monetary policy; as employees, students, and family members, we recognized much was different, but we sought a return to what’s familiar. What we didn’t know was that a world leader who controls one of the largest militaries on the planet was about to start one of the worst atrocities in Europe since World War II. Our thoughts are with the Ukrainian people, and our hope is for this unjustified, senseless human tragedy to end quickly.
The equity market started 2022 on a high note, with the S&P 500® Index hitting an all-time high on the first trading day of the year. This turned out to be the last hurrah for a market that saw a continuous march higher in 2021, having hit 70 new all-time highs, with a new all-time high being recorded on average every three and a half days. Concerns in the market then coalesced and overpowered bullish sentiment, and the market has spiraled lower throughout 2022. Factors that drove the market lower include: tightening monetary policy as the Federal Reserve has begun raising rates and has announced plans for shrinking its $8.5 trillion asset portfolio; inflation, higher energy costs, and their effects on the domestic and global economies; continued supply chain disruptions; investors’ indiscriminate liquidation of broad-based ETFs and index funds and the detrimental effect on equities; and the near-term and long-term global implications of the Russian invasion of Ukraine.
While markets are adjusting, many positive conditions remain intact. Corporate balance sheets and profits remain strong, GDP growth remains positive, the consumer continues to show resilience in the face of rising prices, cash is abundant both at the corporate and household levels, unemployment is exceptionally low, and our financial system remains healthy. Markets are also experiencing a change in leadership, as value stocks have been outperforming growth stocks, and traditionally defensive sectors such as Utilities and Consumer Staples have been outperforming the broader market. Finally, the Energy sector has soared in 2022, as companies reap the benefits of dramatically higher oil and natural gas prices, and shareholders are rewarded with significantly higher dividends, aggressive buybacks, and higher stock prices after many years of underperformance for the sector.
With history as our guide, we are hopeful that eventually the market may bottom and head higher again. Since the financial crisis of 2008, we have experienced many corrections and many recoveries to new highs. The Dow Jones Industrial Average has dropped over 10% eight times, including the current drop, for a median decline of 14.00%, and on average, it took 45 trading days to drop from peak to trough and 127 trading days to return to the previous peak. Since the current drop has taken longer to go from peak to its recent trough, it may take some time for a recovery in prices to truly take hold.
On a positive note, valuations have come in, and many stocks have become more attractive, especially for longer-term investors. We note, however, that the concept of “historically cheap stocks” does not, on its own, move the market higher. Rather, it is
overall capitulation and improving fundamentals that could bring buyers back into the market and reverse any bearish trends. Investors need to see improving company earnings, retreating inflationary trends, a measured pace of interest rate increases globally that does not cause significant economic contraction, hope for a more peaceful and orderly world economic system unconstrained by supply bottlenecks and other hindrances to global trade, and, most importantly, a subsidence of the deleterious effects of the coronavirus pandemic. While that may seem like a “tall order,” we believe that patient investing, focusing on value, quality, and downside risk mitigation, works well over the longer term.
During this tumultuous period, performance of the majority of the Hennessy Funds has been relatively strong when compared to the overall market as well as to our benchmarks. During the six months ended April 30, 2022, the Dow Jones Industrial Average, the S&P 500® Index, and the NASDAQ Composite Index dropped 7.05%, 9.65%, and 20.15%, respectively, on a total return basis. During this period when these three major indices saw significant declines, we were pleased that seven of our 16 Funds posted positive total returns, 10 of our 14 domestic Funds outperformed the S&P 500® Index, and over half of our active funds outperformed their primary benchmarks.
We thank you, our shareholders, for your continued interest in our family of Funds. We are grateful for the trust you put in us, and we will continue to strive to manage our portfolios for long-term performance, ever mindful of downside risk. While volatility and uncertainty may impact the markets in the short-term, we encourage investors to stay the course, maintain a diversified portfolio, and keep a long-term perspective. If you have any questions or would like to speak with us, please don’t hesitate to call us directly at (800) 966-4354. In closing, we would also like to thank all of the healthcare and frontline workers that have worked – and still work – tirelessly throughout the coronavirus pandemic.
Best regards,
| |
| |
| |
|
| Ryan C. Kelley, CFA |
| Chief Investment Officer, |
| Senior Vice President, and Portfolio Manager |
Past performance does not guarantee future results.
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 NASDAQ Composite Index comprises all common stocks listed on The NASDAQ Stock Market and is commonly used to measure the performance of technology-related stocks. 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.
Please refer to the Performance Overview section for more detailed performance information.
| HENNESSY FUNDS | 1-800-966-4354 | |
Performance Overview (Unaudited)
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED APRIL 30, 2022
| | Six | One | Five | Ten |
| | Months(1) | Year | Years | Years |
| Hennessy Large Cap Financial Fund – | | | | |
| Investor Class (HLFNX) | -24.53% | -18.71% | 8.41% | 10.07% |
| Hennessy Large Cap Financial Fund – | | | | |
Institutional Class (HILFX)(2) | -24.39% | -18.41% | 8.78% | 10.35% |
Russell 1000® Index Financials | -13.99% | -3.31% | 13.03% | 14.04% |
Russell 1000® Index | -11.29% | -2.10% | 13.44% | 13.53% |
Expense ratios: 1.68% (Investor Class); 1.32% (Institutional Class)
(1) | Periods of less than one year are not annualized. |
(2) | 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 OVERVIEW/SCHEDULE OF INVESTMENTS |
Financial Statements
Schedule of Investments as of April 30, 2022 (Unaudited) |
HENNESSY LARGE CAP FINANCIAL FUND
(% of Net Assets)
| TOP TEN HOLDINGS (EXCLUDING MONEY MARKET FUNDS) | % NET ASSETS |
| Berkshire Hathaway Inc., Class B | 6.11% |
| Bank of America Corp. | 5.30% |
| Wells Fargo & Co. | 5.20% |
| JPMorgan Chase & Co. | 4.97% |
| Capital One Financial Corp. | 4.95% |
| Citizens Financial Group, Inc. | 4.92% |
| KeyCorp | 4.75% |
| State Street Corp. | 4.69% |
| Morgan Stanley | 4.50% |
| Huntington Bancshares, Inc. | 4.30% |
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 – 91.73% | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Financials – 78.80% | | | | | | | | | |
| Ally Financial, Inc. | | | 33,000 | | | $ | 1,318,680 | | | | 2.49 | % |
| Bank of America Corp. | | | 78,500 | | | | 2,800,880 | | | | 5.30 | % |
| Berkshire Hathaway, Inc., Class B (a) | | | 10,000 | | | | 3,228,300 | | | | 6.11 | % |
| BlackRock, Inc. | | | 1,300 | | | | 812,084 | | | | 1.54 | % |
| Blackstone, Inc. | | | 3,500 | | | | 355,495 | | | | 0.67 | % |
| Capital One Financial Corp. | | | 21,000 | | | | 2,617,020 | | | | 4.95 | % |
| Citigroup, Inc. | | | 44,000 | | | | 2,121,240 | | | | 4.01 | % |
| Citizens Financial Group, Inc. | | | 66,000 | | | | 2,600,400 | | | | 4.92 | % |
| Fifth Third Bancorp | | | 50,000 | | | | 1,876,500 | | | | 3.55 | % |
| Huntington Bancshares, Inc. | | | 173,000 | | | | 2,274,950 | | | | 4.30 | % |
| JPMorgan Chase & Co. | | | 22,000 | | | | 2,625,920 | | | | 4.97 | % |
| KeyCorp | | | 130,000 | | | | 2,510,300 | | | | 4.75 | % |
| Moody’s Corp. | | | 5,800 | | | | 1,835,584 | | | | 3.47 | % |
| Morgan Stanley | | | 29,500 | | | | 2,377,405 | | | | 4.50 | % |
| Signature Bank | | | 7,000 | | | | 1,695,750 | | | | 3.21 | % |
| State Street Corp. | | | 37,000 | | | | 2,477,890 | | | | 4.69 | % |
| The Goldman Sachs Group, Inc. | | | 7,000 | | | | 2,138,430 | | | | 4.04 | % |
| Tradeweb Markets, Inc. | | | 8,000 | | | | 569,520 | | | | 1.08 | % |
| Truist Financial Corp. | | | 26,000 | | | | 1,257,100 | | | | 2.38 | % |
| Wells Fargo & Co. | | | 63,000 | | | | 2,748,690 | | | | 5.20 | % |
| Zions Bancorp NA | | | 25,000 | | | | 1,412,750 | | | | 2.67 | % |
| | | | | | | | 41,654,888 | | | | 78.80 | % |
| | | | | | | | | | | | | |
| Information Technology – 12.93% | | | | | | | | | | | | |
| Apple, Inc. | | | 14,000 | | | | 2,207,100 | | | | 4.17 | % |
| Block, Inc. (a) | | | 900 | | | | 89,586 | | | | 0.17 | % |
| Mastercard, Inc., Class A | | | 5,000 | | | | 1,816,900 | | | | 3.44 | % |
| PayPal Holdings, Inc. (a) | | | 7,000 | | | | 615,510 | | | | 1.16 | % |
| SoFi Technologies, Inc. (a) | | | 24,000 | | | | 146,880 | | | | 0.28 | % |
| Visa, Inc., Class A | | | 9,200 | | | | 1,960,796 | | | | 3.71 | % |
| | | | | | | | 6,836,772 | | | | 12.93 | % |
| | | | | | | | | | | | | |
| Total Common Stocks | | | | | | | | | | | | |
| (Cost $41,725,206) | | | | | | | 48,491,660 | | | | 91.73 | % |
The accompanying notes are an integral part of these financial statements.
| SHORT-TERM INVESTMENTS – 9.43% | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Money Market Funds – 9.43% | | | | | | | | | |
| First American Government Obligations Fund, | | | | | | | | | |
| Institutional Class, 0.22% (b) | | | 2,728,000 | | | $ | 2,728,000 | | | | 5.16 | % |
| First American Treasury Obligations Fund, | | | | | | | | | | | | |
| Institutional Class, 0.29% (b) | | | 2,258,894 | | | | 2,258,894 | | | | 4.27 | % |
| | | | | | | | | | | | | |
| Total Short-Term Investments | | | | | | | | | | | | |
| (Cost $4,986,894) | | | | | | | 4,986,894 | | | | 9.43 | % |
| | | | | | | | | | | | | |
| Total Investments | | | | | | | | | | | | |
| (Cost $46,712,100) – 101.16% | | | | | | | 53,478,554 | | | | 101.16 | % |
| Liabilities in Excess of Other Assets – (1.16)% | | | | | | | (614,271 | ) | | | (1.16 | )% |
| | | | | | | | | | | | | |
TOTAL NET ASSETS – 100.00% | | | | | | $ | 52,864,283 | | | | 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 April 30, 2022. |
Summary of Fair Value Exposure as of April 30, 2022
The following is a summary of the inputs used to value the Fund’s net assets as of April 30, 2022 (see Note 3 in the accompanying Notes to the Financial Statements):
| Common Stocks | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Financials | | $ | 41,654,888 | | | $ | — | | | $ | — | | | $ | 41,654,888 | |
| Information Technology | | | 6,836,772 | | | | — | | | | — | | | | 6,836,772 | |
| Total Common Stocks | | $ | 48,491,660 | | | $ | — | | | $ | — | | | $ | 48,491,660 | |
| Short-Term Investments | | | | | | | | | | | | | | | | |
| Money Market Funds | | $ | 4,986,894 | | | $ | — | | | $ | — | | | $ | 4,986,894 | |
| Total Short-Term Investments | | $ | 4,986,894 | | | $ | — | | | $ | — | | | $ | 4,986,894 | |
| Total Investments | | $ | 53,478,554 | | | $ | — | | | $ | — | | | $ | 53,478,554 | |
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 April 30, 2022 (Unaudited) |
| ASSETS: | | | |
| Investments in securities, at value (cost $46,712,100) | | $ | 53,478,554 | |
| Dividends and interest receivable | | | 86,480 | |
| Receivable for fund shares sold | | | 63,348 | |
| Return of capital receivable | | | 1,663 | |
| Prepaid expenses and other assets | | | 21,838 | |
| Total assets | | | 53,651,883 | |
| | | | | |
| LIABILITIES: | | | | |
| Payable for securities purchased | | | 588,020 | |
| Payable for fund shares redeemed | | | 111,405 | |
| Payable to advisor | | | 42,130 | |
| Payable to administrator | | | 11,795 | |
| Payable to auditor | | | 11,228 | |
| Accrued distribution fees | | | 3,920 | |
| Accrued service fees | | | 2,280 | |
| Accrued trustees fees | | | 5,876 | |
| Accrued expenses and other payables | | | 10,946 | |
| Total liabilities | | | 787,600 | |
| NET ASSETS | | $ | 52,864,283 | |
| | | | | |
| NET ASSETS CONSISTS OF: | | | | |
| Capital stock | | $ | 43,213,393 | |
| Total distributable earnings | | | 9,650,890 | |
| Total net assets | | $ | 52,864,283 | |
| | | | | |
| NET ASSETS: | | | | |
| Investor Class | | | | |
| Shares authorized (no par value) | | Unlimited | |
| Net assets applicable to outstanding shares | | $ | 25,824,886 | |
| Shares issued and outstanding | | | 1,018,123 | |
| Net asset value, offering price, and redemption price per share | | $ | 25.37 | |
| | | | | |
| Institutional Class | | | | |
| Shares authorized (no par value) | | Unlimited | |
| Net assets applicable to outstanding shares | | $ | 27,039,397 | |
| Shares issued and outstanding | | | 1,054,738 | |
| Net asset value, offering price, and redemption price per share | | $ | 25.64 | |
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 six months ended April 30, 2022 (Unaudited) |
| INVESTMENT INCOME: | | | |
| Dividend income | | $ | 609,730 | |
| Interest income | | | 878 | |
| Total investment income | | | 610,608 | |
| | | | | |
| EXPENSES: | | | | |
| Investment advisory fees (See Note 5) | | | 299,700 | |
| Administration, accounting, custody, and transfer agent fees (See Note 5) | | | 42,190 | |
| Sub-transfer agent expenses – Investor Class (See Note 5) | | | 31,960 | |
| Sub-transfer agent expenses – Institutional Class (See Note 5) | | | 9,523 | |
| Distribution fees – Investor Class (See Note 5) | | | 23,915 | |
| Federal and state registration fees | | | 17,728 | |
| Service fees – Investor Class (See Note 5) | | | 15,943 | |
| Compliance expense (See Note 5) | | | 15,156 | |
| Audit fees | | | 11,222 | |
| Trustees’ fees and expenses | | | 8,947 | |
| Reports to shareholders | | | 5,161 | |
| Interest expense (See Note 7) | | | 716 | |
| Legal fees | | | 450 | |
| Other expenses | | | 6,252 | |
| Total expenses | | | 488,863 | |
| NET INVESTMENT INCOME | | $ | 121,745 | |
| | | | | |
| REALIZED AND UNREALIZED GAINS (LOSSES): | | | | |
| Net realized gain on investments | | $ | 4,016,220 | |
| Net change in unrealized appreciation/deprecation on investments | | | (22,161,550 | ) |
| Net loss on investments | | | (18,145,330 | ) |
| NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS | | $ | (18,023,585 | ) |
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 |
| | | Six Months Ended | | | | |
| | | April 30, 2022 | | | Year Ended | |
| | | (Unaudited) | | | October 31, 2021 | |
| OPERATIONS: | | | | | | |
| Net investment income (loss) | | $ | 121,745 | | | $ | (190,967 | ) |
| Net realized gain on investments | | | 4,016,220 | | | | 4,934,331 | |
| Net change in unrealized | | | | | | | | |
| appreciation/depreciation on investments | | | (22,161,550 | ) | | | 21,198,437 | |
| Net increase (decrease) in net | | | | | | | | |
| assets resulting from operations | | | (18,023,585 | ) | | | 25,941,801 | |
| | | | | | | | | |
| DISTRIBUTIONS TO SHAREHOLDERS: | | | | | | | | |
| Distributable earnings – Investor Class | | | (1,687,916 | ) | | | — | |
| Distributable earnings – Institutional Class | | | (1,797,726 | ) | | | — | |
| Total distributions | | | (3,485,642 | ) | | | — | |
| | | | | | | | | |
| CAPITAL SHARE TRANSACTIONS: | | | | | | | | |
| Proceeds from shares subscribed – Investor Class | | | 1,797,839 | | | | 10,760,638 | |
| Proceeds from shares subscribed – Institutional Class | | | 10,093,477 | | | | 24,725,649 | |
| Dividends reinvested – Investor Class | | | 1,636,788 | | | | — | |
| Dividends reinvested – Institutional Class | | | 1,782,399 | | | | — | |
| Cost of shares redeemed – Investor Class | | | (3,731,016 | ) | | | (10,552,763 | ) |
| Cost of shares redeemed – Institutional Class | | | (8,689,907 | ) | | | (23,051,103 | ) |
| Net increase in net assets derived | | | | | | | | |
| from capital share transactions | | | 2,889,580 | | | | 1,882,421 | |
| TOTAL INCREASE (DECREASE) IN NET ASSETS | | | (18,619,647 | ) | | | 27,824,222 | |
| | | | | | | | | |
| NET ASSETS: | | | | | | | | |
| Beginning of period | | | 71,483,930 | | | | 43,659,708 | |
| End of period | | $ | 52,864,283 | | | $ | 71,483,930 | |
| | | | | | | | | |
| CHANGES IN SHARES OUTSTANDING: | | | | | | | | |
| Shares sold – Investor Class | | | 56,620 | | | | 356,674 | |
| Shares sold – Institutional Class | | | 309,167 | | | | 786,529 | |
| Shares issued to holders as reinvestment | | | | | | | | |
| of dividends – Investor Class | | | 50,270 | | | | — | |
| Shares issued to holders as reinvestment | | | | | | | | |
| of dividends – Institutional Class | | | 54,242 | | | | — | |
| Shares redeemed – Investor Class | | | (119,939 | ) | | | (333,681 | ) |
| Shares redeemed – Institutional Class | | | (292,694 | ) | | | (744,960 | ) |
| Net increase in shares outstanding | | | 57,666 | | | | 64,562 | |
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
| | | Six Months Ended | |
| | | April 30, 2022 | |
| | | (Unaudited) | |
| PER SHARE DATA: | | | |
| Net asset value, beginning of period | | $ | 35.32 | |
| | | | | |
| Income from investment operations: | | | | |
| Net investment income (loss) | | | 0.02 | (1) |
| Net realized and unrealized gains (losses) on investments | | | (8.32 | ) |
| Total from investment operations | | | (8.30 | ) |
| | | | | |
| Less distributions: | | | | |
| Dividends from net investment income | | | — | |
| Dividends from net realized gains | | | (1.65 | ) |
| Total distributions | | | (1.65 | ) |
| Net asset value, end of period | | $ | 25.37 | |
| | | | | |
| TOTAL RETURN | | | -24.53 | %(2) |
| | | | | |
| SUPPLEMENTAL DATA AND RATIOS: | | | | |
| Net assets, end of period (millions) | | $ | 25.82 | |
| Ratio of expenses to average net assets | | | 1.67 | %(3) |
| Ratio of net investment income (loss) to average net assets | | | 0.15 | %(3) |
Portfolio turnover rate(4) | | | 40 | %(2) |
(1) | Calculated using the average shares outstanding method. |
(2) | Not annualized. |
(3) | Annualized. |
(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 | |
| | | | | | | | | | | | | | |
| $ | 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 period
| | | Six Months Ended | |
| | | April 30, 2022 | |
| | | (Unaudited) | |
| PER SHARE DATA: | | | |
| Net asset value, beginning of period | | $ | 35.63 | |
| | | | | |
| Income from investment operations: | | | | |
| Net investment income (loss) | | | 0.09 | (1) |
| Net realized and unrealized gains (losses) on investments | | | (8.41 | ) |
| Total from investment operations | | | (8.32 | ) |
| | | | | |
| Less distributions: | | | | |
| Dividends from net investment income | | | — | |
| Dividends from net realized gains | | | (1.67 | ) |
| Total distributions | | | (1.67 | ) |
| Net asset value, end of period | | $ | 25.64 | |
| | | | | |
| TOTAL RETURN | | | -24.39 | %(2) |
| | | | | |
| SUPPLEMENTAL DATA AND RATIOS: | | | | |
| Net assets, end of period (millions) | | $ | 27.04 | |
| Ratio of expenses to average net assets | | | 1.28 | %(3) |
| Ratio of net investment income (loss) to average net assets | | | 0.57 | %(3) |
Portfolio turnover rate(4) | | | 40 | %(2) |
(1) | Calculated using the average shares outstanding method. |
(2) | Not annualized. |
(3) | Annualized. |
(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 | |
| | | | | | | | | | | | | | |
| $ | 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 April 30, 2022 (Unaudited) |
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. |
| | |
| 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. |
| NOTES TO THE FINANCIAL STATEMENTS |
| 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 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 |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | 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 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 |
| NOTES TO THE FINANCIAL STATEMENTS |
| | 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.
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
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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 April 30, 2022, 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 the six months ended April 30, 2022, were $25,717,079 and $29,512,320, respectively.
There were no purchases or sales/maturities of long-term U.S. government securities for the Fund during the six months ended April 30, 2022.
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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, are included in the Statement of Operations.
| NOTES TO THE FINANCIAL STATEMENTS |
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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, are included in the Statement of Operations.
Quasar Distributors, LLC (“Quasar”), a wholly owned broker-dealer subsidiary of Foreside Financial Group, LLC, acts as the Fund’s principal underwriter in a continuous public offering of Fund shares.
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 the six months ended April 30, 2022, 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
| HENNESSY FUNDS | 1-800-966-4354 | |
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 the six months ended April 30, 2022, the Fund had an outstanding average daily balance and a weighted average interest rate of $40,696 and 3.50%, respectively. The interest expensed by the Fund during the six months ended April 30, 2022, is included in the Statement of Operations. The maximum amount outstanding for the Fund during the period was $1,896,000. As of April 30, 2022, the Fund did not have any borrowings outstanding under the line of credit.
8). FEDERAL TAX INFORMATION
As of October 31, 2021, the Fund’s most fiscal year end, 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 year 2022 (year to date) and fiscal year 2021, the tax character of distributions paid by the Fund was as follows:
| | | | Six Months Ended | | | Year Ended | |
| | | | April 30, 2022 | | | October 31, 2021 | |
| | Ordinary income(1) | | $ | — | | | $ | — | |
| | Long-term capital gains | | | 3,485,642 | | | | — | |
| | Total distributions | | $ | 3,485,642 | | | $ | — | |
| | (1) Ordinary income includes short-term capital gains. |
| 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. Most LIBOR settings are no longer being published as of December 31, 2021, and the FCA and ICE Benchmark Administrator have announced that 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 PERIOD END
Management has evaluated the Fund’s related events and transactions that occurred subsequent to April 30, 2022, 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.
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Expense Example (Unaudited)
April 30, 2022
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 November 1, 2021, through April 30, 2022.
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.
| | Beginning | Ending | |
| | Account Value | Account Value | Expenses Paid |
| | November 1, 2021 | April 30, 2022 | During Period(1) |
| Investor Class | | | |
| Actual | $1,000.00 | $ 754.70 | $7.27 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,016.51 | $8.35 |
| | | | |
| Institutional Class | | | |
| Actual | $1,000.00 | $ 756.10 | $5.57 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,018.45 | $6.41 |
(1) | Expenses are equal to the Fund’s annualized expense ratio of 1.67% for Investor Class shares or 1.28% for Institutional Class shares, as applicable, multiplied by the average account value over the period, multiplied by 181/365 days (to reflect the half-year period). |
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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 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 its 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 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 800-261-6950 or 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 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 electronically. To sign up for eDelivery or change your delivery preference, please visit www.hennessyfunds.com/account.
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| PROXY VOTING — BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENT |
Board Approval of Investment Advisory
Agreement
At its meeting on March 11, 2022, the Board of Trustees of the Fund (the “Board,” and the members thereof, the “Trustees”) unanimously approved the continuation of the investment advisory agreement of the Fund with Hennessy Advisors, Inc. (the “Advisor”). As part of the process, the Trustees reviewed their fiduciary duties and the relevant factors for them to consider with respect to approving the advisory agreement. In addition, the Trustees who are not deemed “interested persons” (as defined by the Investment Company Act of 1940, as amended) of the Fund (the “Independent Trustees”) met in executive session to discuss the approval of the advisory agreement. As part of their discussion, the Independent Trustees confirmed their understanding of the need to have asked about, and received answers to, any matters that they believed are relevant to determining whether to approve the continuation of the advisory agreement.
In advance of the meeting, the Advisor sent detailed information to the Trustees to assist them in their evaluation of the advisory agreement. This information included, but was not limited to, the following:
| | (1) | A memorandum from outside legal counsel that described the fiduciary duties of the Board with respect to approving the continuation of the advisory agreement and the relevant factors for consideration; |
| | | |
| | (2) | A memorandum from the Advisor that listed the factors relevant to the Board’s approval of the continuation of the advisory agreement and also referenced the documents that had been provided to help the Board assess each such factor; |
| | | |
| | (3) | The Advisor’s financial statements from its most recent Form 10-K and Form 10-Q; |
| | | |
| | (4) | A summary of the advisory agreement; |
| | | |
| | (5) | A recent Fund fact sheet, which included, among other things, Fund performance over various periods; |
| | | |
| | (6) | A description of the range of services provided by the Advisor; |
| | | |
| | (7) | A peer expense comparison of the net expense ratio and investment advisory fee of the Fund; and |
| | | |
| | (8) | A memorandum from the Advisor regarding economies of scale. |
The Trustees reviewed and discussed all of the information provided by the Advisor. Following this review, and further discussion with the Advisor, the Trustees concluded that the information provided before and at the meeting addressed all of the relevant matters that they wanted to consider in assessing the performance of the Funds and the performance of the Advisor under the advisory agreement, and that said information provided them with a fulsome understanding of the advisory agreement and the services provided by the Advisor.
All of the factors discussed were considered as a whole by the Trustees, as well as by the Independent Trustees meeting in executive session. The Trustees viewed the relevant factors in their totality, with no single factor being the principal or determinative factor in the Trustees’ determination of whether to approve the continuation of the advisory agreement. The Trustees recognized that the management and fee arrangements for the Fund are the result of years of review and discussion between the Independent Trustees and the Advisor, that certain aspects of such arrangements may receive greater scrutiny in
| HENNESSY FUNDS | 1-800-966-4354 | |
some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements and information received during the course of the year and in prior years.
Prior to approving the continuation of the advisory agreement, the Trustees, including the Independent Trustees in executive session, considered, among other items:
| | (1) | The nature and quality of the advisory services provided by the Advisor; |
| | | |
| | (2) | A comparison of the fees and expenses of the Fund to other similar funds; |
| | | |
| | (3) | Whether economies of scale are recognized by the Fund; |
| | | |
| | (4) | The costs and profitability of the Fund to the Advisor; |
| | | |
| | (5) | The performance of the Fund; and |
| | | |
| | (6) | Any benefits to the Advisor from serving as an investment advisor to the Fund (other than the advisory fee). |
The material considerations and determinations of the Trustees, including the Independent Trustees, were as follows:
| | (1) | The Trustees considered the services identified below that are provided by the Advisor. Based on this review and an assessment of the Advisor’s performance, the Trustees concluded that the Advisor provides high-quality services to the Fund, and they noted that their overall confidence in the Advisor was high. The Trustees also concluded that they were satisfied with the nature, extent, and quality of the advisory services provided to the Fund by the Advisor and that the nature and extent of the services provided by the Advisor were appropriate to assure that the Fund’s operations are conducted in compliance with applicable laws, rules, and regulations. |
| | | (a) | The Advisor acts as the portfolio manager for the Fund. In this capacity, the Advisor does the following: |
| | | | (i) | manages the composition of the Fund’s portfolio, including the purchase, retention, and disposition of portfolio securities in accordance with the Fund’s investment objectives, policies, and restrictions; |
| | | | | |
| | | | (ii) | seeks best execution for the Fund’s portfolio; |
| | | | | |
| | | | (iii) | manages the use of soft dollars for the Fund; and |
| | | | | |
| | | | (iv) | manages proxy voting for the Fund. |
| | | (b) | The Advisor performs a daily reconciliation of portfolio positions and cash for the Fund. |
| | | | |
| | | (c) | The Advisor monitors the liquidity of each Fund. |
| | | | |
| | | (d) | The Advisor monitors the Fund’s compliance with its investment objectives and restrictions and federal securities laws. |
| | | | |
| | | (e) | The Advisor maintains a compliance program (including a code of ethics), conducts ongoing reviews of the compliance programs of the Fund’s service providers (including their codes of ethics, as appropriate), conducts on-site visits to the Fund’s service providers, as feasible, monitors incidents of abusive trading practices, reviews Fund expense accruals, payments, and fixed expense ratios, evaluates insurance providers for fidelity bond, D&O/E&O insurance, and cybersecurity insurance coverage, manages regulatory examination compliance and responses, conducts employee compliance training, reviews reports provided by service providers, and maintains books and records. |
| BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENT |
| | | (f) | The Advisor oversees service providers that provide accounting, administration, distribution, transfer agency, custodial, sales, marketing, public relations, audit, information technology, and legal services to the Fund. |
| | | | |
| | | (g) | The Advisor maintains in-house marketing and distribution departments on behalf of the Fund. |
| | | | |
| | | (h) | The Advisor prepares or directs the preparation of all regulatory filings for the Fund, including writing and annually updating the Fund’s prospectus and related documents. |
| | | | |
| | | (i) | For each annual report of the Fund, the Advisor prepares a written summary of the Fund’s performance during the most recent 12-month period. |
| | | | |
| | | (j) | The Advisor oversees distribution of the Fund through third-party broker/dealers and independent financial institutions such as Charles Schwab, Inc., Fidelity, TD Ameritrade, and Pershing. The Advisor participates in “no transaction fee” (“NTF”) programs with these companies on behalf of the Fund, which allow customers to purchase the Fund through third-party distribution channels without paying a transaction fee. The Advisor compensates, in part, a number of these third-party providers of NTF programs out of its own revenues. |
| | | | |
| | | (k) | The Advisor pays the incentive compensation of the Fund’s compliance officers and employs other staff, such as legal, marketing, national accounts, distribution, sales, administrative, and trading oversight personnel, as well as management executives. |
| | | | |
| | | (l) | The Advisor provides a quarterly compliance certification to the Board. |
| | | | |
| | | (m) | The Advisor prepares or reviews all Board materials, presents to and leads discussions with the Board, prepares or reviews all meeting minutes, and arranges for Board training and education. |
| | (2) | The Trustees compared the performance of the Fund to benchmark indices over various periods and noted that the Trustees review and discuss reports comparing the investment performance of the Fund to various indices at each quarterly Board meeting. Based on such information, the Trustees determined that the Advisor manages the Fund in a manner materially consistent with its stated investment objective and style. The Trustees concluded that the performance of the Fund over various periods warranted the continuation of the advisory agreement. |
| | | |
| | (3) | The Trustees reviewed the advisory fees and overall expense ratios of the Fund compared to other funds similar in asset size and investment objective to the Fund using data from Morningstar. As part of the discussion with management, the Trustees ensured that they understood and were comfortable with the criteria used to determine the mutual funds included in the Morningstar categories for purposes of the materials considered at the meeting. The Trustees determined that the advisory fee and overall expense ratio of the Fund falls within a reasonable range of the advisory fees and overall expense ratios of other comparable funds and concluded that they are reasonable and warranted continuation of the advisory agreement. |
| | | |
| | (4) | The Trustees also considered whether the Advisor was realizing economies of scale that should be shared with the Fund’s shareholders. The Trustees noted that the majority of expenses incurred to manage the Fund are variable |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | | asset-based fees, so the Advisor does not realize material economies of scale relating to these expenses as the assets of the Fund increase. For example, third-party platform fees increase as the Fund’s assets grow. |
| | | |
| | (5) | The Trustees considered the profitability of the Advisor, including the impact of mutual fund platform fees on the Advisor’s profitability, and also considered the resources and revenues that the Advisor has put into managing and distributing the Fund. The Trustees then concluded that the profits of the Advisor are reasonable and not excessive when compared to profitability guidelines set forth in relevant court cases. |
| | | |
| | (6) | The Trustees considered the high level of professionalism and knowledge of the Advisor’s employees and concluded that this was beneficial to the Fund and its shareholders. |
| | | |
| | (7) | The Trustees considered any benefits to the Advisor from serving as an advisor to the Fund (other than the advisory fee). The Trustees noted that the Advisor may derive ancillary benefits from, by way of example, its association with the Fund in the form of proprietary and third-party research products and services received from broker-dealers that execute portfolio trades for the Fund. The Trustees determined that any such products and services have been used for legitimate purposes relating to the Fund by providing assistance in the investment decision-making process. The Trustees concluded that any additional benefits realized by the Advisor from its relationship with the Fund were reasonable, which was based on, among other things, the Trustees’ finding that the research, analytical, statistical, and other information and services provided by brokers are merely supplemental to the Advisor’s own efforts in the performance of its duties under the advisory agreement. |
After reviewing the materials and information provided at the meeting, as well as other information regularly provided at the Board’s quarterly meetings throughout the year regarding the quality of services provided by the Advisor, the performance of the Fund, expense information, brokerage commissions information, the adequacy and efficacy of the Advisor’s written policies and procedures, other regulatory compliance issues, trading information and related matters, and other factors that the Trustees deemed relevant, the Trustees, including the Independent Trustees, approved the continuation of the advisory agreement.
| BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENT |
(This Page Intentionally Left Blank.)
For information, questions, or assistance, please call
The Hennessy Funds
800-966-4354 or 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
J. Dennis DeSousa
Robert T. Doyle
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 1250
Milwaukee, Wisconsin 53202
www.hennessyfunds.com | 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.
SEMI-ANNUAL REPORT
APRIL 30, 2022
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 | 5 |
| Statement of Assets and Liabilities | 8 |
| Statement of Operations | 9 |
| Statements of Changes in Net Assets | 11 |
| Financial Highlights | 12 |
| Notes to the Financial Statements | 16 |
| Expense Example | 24 |
| Proxy Voting Policy and Proxy Voting Records | 26 |
| Availability of Quarterly Portfolio Schedule | 26 |
| Federal Tax Distribution Information | 26 |
| Important Notice Regarding Delivery of Shareholder Documents | 26 |
| Electronic Delivery | 26 |
| Board Approval of Investment Advisory Agreement | 27 |
| HENNESSY FUNDS | 1-800-966-4354 | |
May 2022
Dear Hennessy Funds Shareholder:
We’d like to start our semi-annual letter with a pause. At the end of 2021, we looked forward to a new year – a potentially calmer year – having come through almost two full years of the coronavirus pandemic. As people, we were aware our lives had changed, but we hoped for a better 2022; as investors, we were aware that the economy was strong and employment was robust, yet challenges loomed, including inflation, supply chain disruptions, and tightening monetary policy; as employees, students, and family members, we recognized much was different, but we sought a return to what’s familiar. What we didn’t know was that a world leader who controls one of the largest militaries on the planet was about to start one of the worst atrocities in Europe since World War II. Our thoughts are with the Ukrainian people, and our hope is for this unjustified, senseless human tragedy to end quickly.
The equity market started 2022 on a high note, with the S&P 500® Index hitting an all-time high on the first trading day of the year. This turned out to be the last hurrah for a market that saw a continuous march higher in 2021, having hit 70 new all-time highs, with a new all-time high being recorded on average every three and a half days. Concerns in the market then coalesced and overpowered bullish sentiment, and the market has spiraled lower throughout 2022. Factors that drove the market lower include: tightening monetary policy as the Federal Reserve has begun raising rates and has announced plans for shrinking its $8.5 trillion asset portfolio; inflation, higher energy costs, and their effects on the domestic and global economies; continued supply chain disruptions; investors’ indiscriminate liquidation of broad-based ETFs and index funds and the detrimental effect on equities; and the near-term and long-term global implications of the Russian invasion of Ukraine.
While markets are adjusting, many positive conditions remain intact. Corporate balance sheets and profits remain strong, GDP growth remains positive, the consumer continues to show resilience in the face of rising prices, cash is abundant both at the corporate and household levels, unemployment is exceptionally low, and our financial system remains healthy. Markets are also experiencing a change in leadership, as value stocks have been outperforming growth stocks, and traditionally defensive sectors such as Utilities and Consumer Staples have been outperforming the broader market. Finally, the Energy sector has soared in 2022, as companies reap the benefits of dramatically higher oil and natural gas prices, and shareholders are rewarded with significantly higher dividends, aggressive buybacks, and higher stock prices after many years of underperformance for the sector.
With history as our guide, we are hopeful that eventually the market may bottom and head higher again. Since the financial crisis of 2008, we have experienced many corrections and many recoveries to new highs. The Dow Jones Industrial Average has dropped over 10% eight times, including the current drop, for a median decline of 14.00%, and on average, it took 45 trading days to drop from peak to trough and 127 trading days to return to the previous peak. Since the current drop has taken longer to go from peak to its recent trough, it may take some time for a recovery in prices to truly take hold.
On a positive note, valuations have come in, and many stocks have become more attractive, especially for longer-term investors. We note, however, that the concept of “historically cheap stocks” does not, on its own, move the market higher. Rather, it is
overall capitulation and improving fundamentals that could bring buyers back into the market and reverse any bearish trends. Investors need to see improving company earnings, retreating inflationary trends, a measured pace of interest rate increases globally that does not cause significant economic contraction, hope for a more peaceful and orderly world economic system unconstrained by supply bottlenecks and other hindrances to global trade, and, most importantly, a subsidence of the deleterious effects of the coronavirus pandemic. While that may seem like a “tall order,” we believe that patient investing, focusing on value, quality, and downside risk mitigation, works well over the longer term.
During this tumultuous period, performance of the majority of the Hennessy Funds has been relatively strong when compared to the overall market as well as to our benchmarks. During the six months ended April 30, 2022, the Dow Jones Industrial Average, the S&P 500® Index, and the NASDAQ Composite Index dropped 7.05%, 9.65%, and 20.15%, respectively, on a total return basis. During this period when these three major indices saw significant declines, we were pleased that seven of our 16 Funds posted positive total returns, 10 of our 14 domestic Funds outperformed the S&P 500® Index, and over half of our active funds outperformed their primary benchmarks.
We thank you, our shareholders, for your continued interest in our family of Funds. We are grateful for the trust you put in us, and we will continue to strive to manage our portfolios for long-term performance, ever mindful of downside risk. While volatility and uncertainty may impact the markets in the short-term, we encourage investors to stay the course, maintain a diversified portfolio, and keep a long-term perspective. If you have any questions or would like to speak with us, please don’t hesitate to call us directly at (800) 966-4354. In closing, we would also like to thank all of the healthcare and frontline workers that have worked – and still work – tirelessly throughout the coronavirus pandemic.
Best regards,
| |
| |
| |
|
| Ryan C. Kelley, CFA |
| Chief Investment Officer, |
| Senior Vice President, and Portfolio Manager |
Past performance does not guarantee future results.
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 NASDAQ Composite Index comprises all common stocks listed on The NASDAQ Stock Market and is commonly used to measure the performance of technology-related stocks. 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.
Please refer to the Performance Overview section for more detailed performance information.
| HENNESSY FUNDS | 1-800-966-4354 | |
Performance Overview (Unaudited)
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED APRIL 30, 2022
| | Six | One | Five | Ten |
| | Months(1) | Year | Years | Years |
| Hennessy Small Cap Financial Fund – | | | | |
| Investor Class (HSFNX) | -12.23% | -8.84% | 6.31% | 10.71% |
| Hennessy Small Cap Financial Fund – | | | | |
| Institutional Class (HISFX) | -12.09% | -8.54% | 6.69% | 11.10% |
Russell 2000® Index Financials | -15.16% | -9.93% | 4.92% | 9.99% |
Russell 2000® Index | -18.38% | -16.87% | 7.24% | 10.06% |
Expense ratios: 1.58% (Investor Class); 1.20% (Institutional Class)
(1) | Periods of less than one year are not annualized. |
_______________
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 OVERVIEW/SCHEDULE OF INVESTMENTS |
Financial Statements
Schedule of Investments as of April 30, 2022 (Unaudited) |
HENNESSY SMALL CAP FINANCIAL FUND
(% of Net Assets)
| TOP TEN HOLDINGS (EXCLUDING MONEY MARKET FUNDS) | % NET ASSETS |
| First BanCorp. | 6.05% |
| Independent Bank Corp. | 5.81% |
| Hingham Institution for Savings | 5.72% |
| Hancock Whitney Corp. | 5.65% |
| Old National Bancorp | 5.37% |
| First Citizens BancShares, Inc. | 4.93% |
| Texas Capital Bancshares, Inc. | 4.90% |
| Lakeland Bancorp, Inc. | 4.89% |
| Banner Corp. | 4.88% |
| WSFS Financial Corp. | 4.73% |
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 – 98.27% | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Financials – 98.03% | | | | | | | | | |
| Associated Banc-Corp. | | | 160,000 | | | $ | 3,192,000 | | | | 2.90 | % |
| Banner Corp. | | | 100,000 | | | | 5,370,000 | | | | 4.88 | % |
| Berkshire Hills Bancorp, Inc. | | | 10,000 | | | | 247,400 | | | | 0.22 | % |
| Cadence Bank | | | 90,000 | | | | 2,253,600 | | | | 2.05 | % |
| Coastal Financial Corp. (a) | | | 18,000 | | | | 738,720 | | | | 0.67 | % |
| ConnectOne Bancorp, Inc. | | | 185,000 | | | | 5,154,100 | | | | 4.68 | % |
| Eastern Bankshares, Inc. | | | 170,000 | | | | 3,257,200 | | | | 2.96 | % |
| First BanCorp. (b) | | | 490,000 | | | | 6,668,900 | | | | 6.05 | % |
| First Citizens BancShares, Inc. | | | 8,500 | | | | 5,434,730 | | | | 4.93 | % |
| Flushing Financial Corp. | | | 220,000 | | | | 4,730,000 | | | | 4.29 | % |
| Hancock Whitney Corp. | | | 133,000 | | | | 6,220,410 | | | | 5.65 | % |
| HarborOne Bancorp, Inc. | | | 40,000 | | | | 535,600 | | | | 0.49 | % |
| Hingham Institution for Savings | | | 19,500 | | | | 6,299,865 | | | | 5.72 | % |
| HomeTrust Bancshares, Inc. | | | 185,000 | | | | 5,000,550 | | | | 4.54 | % |
| Independent Bank Corp. | | | 83,000 | | | | 6,404,280 | | | | 5.81 | % |
| Kearny Financial Corp. of Maryland | | | 308,000 | | | | 3,652,880 | | | | 3.32 | % |
| Lakeland Bancorp, Inc. | | | 358,000 | | | | 5,380,740 | | | | 4.89 | % |
| Luther Burbank Corp. | | | 20,000 | | | | 265,400 | | | | 0.24 | % |
| New York Community Bancorp, Inc. | | | 410,000 | | | | 3,788,400 | | | | 3.44 | % |
| Northeast Community Bancorp, Inc. | | | 228,331 | | | | 2,561,874 | | | | 2.33 | % |
| Old National Bancorp | | | 390,000 | | | | 5,912,400 | | | | 5.37 | % |
| PacWest Bancorp | | | 97,000 | | | | 3,190,330 | | | | 2.90 | % |
| Shore Bancshares, Inc. | | | 82,000 | | | | 1,650,660 | | | | 1.50 | % |
| Silvergate Capital Corp. (a) | | | 19,500 | | | | 2,280,720 | | | | 2.07 | % |
| Synovus Financial Corp. | | | 25,000 | | | | 1,038,500 | | | | 0.94 | % |
| Texas Capital Bancshares, Inc. (a) | | | 105,000 | | | | 5,392,800 | | | | 4.90 | % |
| Western New England Bancorp, Inc. | | | 337,000 | | | | 2,894,830 | | | | 2.63 | % |
| Wintrust Financial Corp. | | | 37,000 | | | | 3,230,840 | | | | 2.93 | % |
| WSFS Financial Corp. | | | 130,000 | | | | 5,209,100 | | | | 4.73 | % |
| | | | | | | | 107,956,829 | | | | 98.03 | % |
| | | | | | | | | | | | | |
| Information Technology – 0.24% | | | | | | | | | | | | |
| Bread Financial Holdings, Inc. | | | 5,000 | | | | 274,000 | | | | 0.24 | % |
| | | | | | | | | | | | | |
| Total Common Stocks | | | | | | | | | | | | |
| (Cost $87,627,986) | | | | | | | 108,230,829 | | | | 98.27 | % |
The accompanying notes are an integral part of these financial statements.
| SHORT-TERM INVESTMENTS – 1.86% | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Money Market Funds – 1.86% | | | | | | | | | |
| First American Government Obligations Fund, | | | | | | | | | |
| Institutional Class, 0.22% (c) | | | 2,043,774 | | | $ | 2,043,774 | | | | 1.86 | % |
| | | | | | | | | | | | | |
| Total Short-Term Investments | | | | | | | | | | | | |
| (Cost $2,043,774) | | | | | | | 2,043,774 | | | | 1.86 | % |
| | | | | | | | | | | | | |
| Total Investments | | | | | | | | | | | | |
| (Cost $89,671,760) – 100.13% | | | | | | | 110,274,603 | | | | 100.13 | % |
| Liabilities in Excess of Other Assets – (0.13)% | | | | | | | (148,361 | ) | | | (0.13 | )% |
| | | | | | | | | | | | | |
TOTAL NET ASSETS – 100.00% | | | | | | $ | 110,126,242 | | | | 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 April 30, 2022. |
Summary of Fair Value Exposure as of April 30, 2022
The following is a summary of the inputs used to value the Fund’s net assets as of April 30, 2022 (see Note 3 in the accompanying Notes to the Financial Statements):
| Common Stocks | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Financials | | $ | 107,956,829 | | | $ | — | | | $ | — | | | $ | 107,956,829 | |
| Information Technology | | | 274,000 | | | | — | | | | — | | | | 274,000 | |
| Total Common Stocks | | $ | 108,230,829 | | | $ | — | | | $ | — | | | $ | 108,230,829 | |
| Short-Term Investments | | | | | | | | | | | | | | | | |
| Money Market Funds | | $ | 2,043,774 | | | $ | — | | | $ | — | | | $ | 2,043,774 | |
| Total Short-Term Investments | | $ | 2,043,774 | | | $ | — | | | $ | — | | | $ | 2,043,774 | |
| Total Investments | | $ | 110,274,603 | | | $ | — | | | $ | — | | | $ | 110,274,603 | |
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 April 30, 2022 (Unaudited) |
| ASSETS: | | | |
| Investments in securities, at value (cost $89,671,760) | | $ | 110,274,603 | |
| Dividends and interest receivable | | | 25,073 | |
| Receivable for fund shares sold | | | 4,466 | |
| Prepaid expenses and other assets | | | 30,645 | |
| Total assets | | | 110,334,787 | |
| | | | | |
| LIABILITIES: | | | | |
| Payable for fund shares redeemed | | | 43,102 | |
| Payable to advisor | | | 91,412 | |
| Payable to administrator | | | 25,781 | |
| Payable to auditor | | | 11,228 | |
| Accrued distribution fees | | | 15,873 | |
| Accrued service fees | | | 8,082 | |
| Accrued trustees fees | | | 5,079 | |
| Accrued expenses and other payables | | | 7,988 | |
| Total liabilities | | | 208,545 | |
| NET ASSETS | | $ | 110,126,242 | |
| | | | | |
| NET ASSETS CONSISTS OF: | | | | |
| Capital stock | | $ | 79,797,895 | |
| Total distributable earnings | | | 30,328,347 | |
| Total net assets | | $ | 110,126,242 | |
| | | | | |
| NET ASSETS: | | | | |
| Investor Class | | | | |
| Shares authorized (no par value) | | Unlimited | |
| Net assets applicable to outstanding shares | | $ | 86,076,734 | |
| Shares issued and outstanding | | | 3,141,868 | |
| Net asset value, offering price, and redemption price per share | | $ | 27.40 | |
| | | | | |
| Institutional Class | | | | |
| Shares authorized (no par value) | | Unlimited | |
| Net assets applicable to outstanding shares | | $ | 24,049,508 | |
| Shares issued and outstanding | | | 1,503,730 | |
| Net asset value, offering price, and redemption price per share | | $ | 15.99 | |
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 six months ended April 30, 2022 (Unaudited) |
| INVESTMENT INCOME: | | | |
Dividend income(1) | | $ | 1,627,528 | |
| Interest income | | | 978 | |
| Total investment income | | | 1,628,506 | |
| | | | | |
| EXPENSES: | | | | |
| Investment advisory fees (See Note 5) | | | 697,529 | |
| Sub-transfer agent expenses – Investor Class (See Note 5) | | | 107,310 | |
| Sub-transfer agent expenses – Institutional Class (See Note 5) | | | 8,782 | |
| Distribution fees – Investor Class (See Note 5) | | | 95,275 | |
| Administration, accounting, custody, and transfer agent fees (See Note 5) | | | 90,052 | |
| Service fees – Investor Class (See Note 5) | | | 63,516 | |
| Federal and state registration fees | | | 22,509 | |
| Compliance expense (See Note 5) | | | 15,156 | |
| Audit fees | | | 11,222 | |
| Trustees’ fees and expenses | | | 9,598 | |
| Interest expense (See Note 7) | | | 7,476 | |
| Reports to shareholders | | | 6,971 | |
| Legal fees | | | 900 | |
| Other expenses | | | 11,805 | |
| Total expenses | | | 1,148,101 | |
| NET INVESTMENT INCOME | | $ | 480,405 | |
| | | | | |
| REALIZED AND UNREALIZED GAINS (LOSSES): | | | | |
| Net realized gain on investments | | $ | 12,219,980 | |
| Net change in unrealized appreciation/depreciation on investments | | | (29,977,548 | ) |
| Net loss on investments | | | (17,757,568 | ) |
| NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS | | $ | (17,277,163 | ) |
(1) | Net of foreign taxes withheld of $10,250. |
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 |
| | | Six Months Ended | | | | |
| | | April 30, 2022 | | | Year Ended | |
| | | (Unaudited) | | | October 31, 2021 | |
| OPERATIONS: | | | | | | |
| Net investment income | | $ | 480,405 | | | $ | 1,237,630 | |
| Net realized gain on investments | | | 12,219,980 | | | | 7,181,600 | |
| Net change in unrealized | | | | | | | | |
| appreciation/depreciation on investments | | | (29,977,548 | ) | | | 46,273,638 | |
| Net increase (decrease) in net | | | | | | | | |
| assets resulting from operations | | | (17,277,163 | ) | | | 54,692,868 | |
| | | | | | | | | |
| DISTRIBUTIONS TO SHAREHOLDERS: | | | | | | | | |
| Distributable earnings – Investor Class | | | (1,276,583 | ) | | | (640,077 | ) |
| Distributable earnings – Institutional Class | | | (587,596 | ) | | | (266,480 | ) |
| Total distributions | | | (1,864,179 | ) | | | (906,557 | ) |
| | | | | | | | | |
| CAPITAL SHARE TRANSACTIONS: | | | | | | | | |
| Proceeds from shares subscribed – Investor Class | | | 13,698,920 | | | | 89,150,331 | |
| Proceeds from shares subscribed – Institutional Class | | | 10,472,749 | | | | 23,725,263 | |
| Dividends reinvested – Investor Class | | | 1,243,912 | | | | 621,958 | |
| Dividends reinvested – Institutional Class | | | 549,827 | | | | 237,659 | |
| Cost of shares redeemed – Investor Class | | | (53,557,247 | ) | | | (49,466,414 | ) |
| Cost of shares redeemed – Institutional Class | | | (15,247,960 | ) | | | (11,517,594 | ) |
| Net increase (decrease) in net assets | | | | | | | | |
| derived from capital share transactions | | | (42,839,799 | ) | | | 52,751,203 | |
| TOTAL INCREASE (DECREASE) IN NET ASSETS | | | (61,981,141 | ) | | | 106,537,514 | |
| | | | | | | | | |
| NET ASSETS: | | | | | | | | |
| Beginning of period | | | 172,107,383 | | | | 65,569,869 | |
| End of period | | $ | 110,126,242 | | | $ | 172,107,383 | |
| | | | | | | | | |
| CHANGES IN SHARES OUTSTANDING: | | | | | | | | |
| Shares sold – Investor Class | | | 422,231 | | | | 3,020,767 | |
| Shares sold – Institutional Class | | | 566,377 | | | | 1,373,793 | |
| Shares issued to holders as reinvestment | | | | | | | | |
| of dividends – Investor Class | | | 39,265 | | | | 28,361 | |
| Shares issued to holders as reinvestment | | | | | | | | |
| of dividends – Institutional Class | | | 29,680 | | | | 18,452 | |
| Shares redeemed – Investor Class | | | (1,762,262 | ) | | | (1,754,093 | ) |
| Shares redeemed – Institutional Class | | | (819,660 | ) | | | (688,529 | ) |
| Net increase (decrease) in shares outstanding | | | (1,524,369 | ) | | | 1,998,751 | |
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
| | | Six Months Ended | |
| | | April 30, 2022 | |
| | | (Unaudited) | |
| PER SHARE DATA: | | | |
| Net asset value, beginning of period | | $ | 31.52 | |
| | | | | |
| Income from investment operations: | | | | |
| Net investment income (loss) | | | 0.09 | (1) |
| Net realized and unrealized gains (losses) on investments | | | (3.90 | ) |
| Total from investment operations | | | (3.81 | ) |
| | | | | |
| Less distributions: | | | | |
| Dividends from net investment income | | | (0.22 | ) |
| Dividends from net realized gains | | | (0.09 | ) |
| Total distributions | | | (0.31 | ) |
| Net asset value, end of period | | $ | 27.40 | |
| | | | | |
| TOTAL RETURN | | | -12.23 | %(3) |
| | | | | |
| SUPPLEMENTAL DATA AND RATIOS: | | | | |
| Net assets, end of period (millions) | | $ | 86.08 | |
| Ratio of expenses to average net assets | | | 1.55 | %(4) |
| Ratio of net investment income (loss) to average net assets | | | 0.56 | %(4) |
Portfolio turnover rate(5) | | | 12 | %(3) |
(1) | Calculated using the average shares outstanding method. |
(2) | Amount is between $(0.005) and $0.005. |
(3) | Not annualized. |
(4) | Annualized. |
(5) | 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 period
| | | Six Months Ended | |
| | | April 30, 2022 | |
| | | (Unaudited) | |
| PER SHARE DATA: | | | |
| Net asset value, beginning of period | | $ | 18.57 | |
| | | | | |
| Income from investment operations: | | | | |
| Net investment income | | | 0.08 | (1) |
| Net realized and unrealized gains (losses) on investments | | | (2.28 | ) |
| Total from investment operations | | | (2.20 | ) |
| | | | | |
| Less distributions: | | | | |
| Dividends from net investment income | | | (0.33 | ) |
| Dividends from net realized gains | | | (0.05 | ) |
| Total distributions | | | (0.38 | ) |
| Net asset value, end of period | | $ | 15.99 | |
| | | | | |
| TOTAL RETURN | | | -12.09 | %(2) |
| | | | | |
| SUPPLEMENTAL DATA AND RATIOS: | | | | |
| Net assets, end of period (millions) | | $ | 24.05 | |
| Ratio of expenses to average net assets | | | 1.19 | %(3) |
| Ratio of net investment income to average net assets | | | 0.91 | %(3) |
Portfolio turnover rate(4) | | | 12 | %(2) |
(1) | Calculated using the average shares outstanding method. |
(2) | Not annualized. |
(3) | Annualized. |
(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 | |
| | | | | | | | | | | | | | |
| $ | 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 April 30, 2022 (Unaudited) |
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. |
| | |
| 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. |
| NOTES TO THE FINANCIAL STATEMENTS |
| 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 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 |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | 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 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 |
| NOTES TO THE FINANCIAL STATEMENTS |
| | 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.
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
| HENNESSY FUNDS | 1-800-966-4354 | |
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 April 30, 2022, 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 the six months ended April 30, 2022, were $18,071,556 and $59,136,586, respectively.
There were no purchases or sales/maturities of long-term U.S. government securities for the Fund during the six months ended April 30, 2022.
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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, are included in the Statement of Operations.
| NOTES TO THE FINANCIAL STATEMENTS |
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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, are included in the Statement of Operations.
Quasar Distributors, LLC (“Quasar”), a wholly owned broker-dealer subsidiary of Foreside Financial Group, LLC, acts as the Fund’s principal underwriter in a continuous public offering of Fund shares.
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 the six months ended April 30, 2022, 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
| HENNESSY FUNDS | 1-800-966-4354 | |
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 the six months ended April 30, 2022, the Fund had an outstanding average daily balance and a weighted average interest rate of $440,254 and 3.38%, respectively. The interest expensed by the Fund during the six months ended April 30, 2022, is included in the Statement of Operations. The maximum amount outstanding for the Fund during the period was $15,682,000. As of April 30, 2022, the Fund did not have any borrowings outstanding under the line of credit.
8). FEDERAL TAX INFORMATION
As of October 31, 2021, the Fund’s most recent fiscal year end, 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.
During fiscal year 2022 (year to date) and fiscal year 2021, the tax character of distributions paid by the Fund was as follows:
| | | | Six Months Ended | | | Year Ended | |
| | | | April 30, 2022 | | | October 31, 2021 | |
| | Ordinary income(1) | | $ | 1,378,796 | | | $ | 906,557 | |
| | Long-term capital gains | | | 485,383 | | | | — | |
| | Total distributions | | $ | 1,864,179 | | | $ | 906,557 | |
| | (1) Ordinary income includes short-term capital gains. |
| 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. Most LIBOR settings are no longer being published as of December 31, 2021, and the FCA and ICE Benchmark Administrator have announced that 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 PERIOD END
Management has evaluated the Fund’s related events and transactions that occurred subsequent to April 30, 2022, 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 | |
Expense Example (Unaudited)
April 30, 2022
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 November 1, 2021, through April 30, 2022.
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.
| | Beginning | Ending | |
| | Account Value | Account Value | Expenses Paid |
| | November 1, 2021 | April 30, 2022 | During Period(1) |
| Investor Class | | | |
| Actual | $1,000.00 | $ 877.70 | $7.22 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,017.11 | $7.75 |
| | | | |
| Institutional Class | | | |
| Actual | $1,000.00 | $ 879.10 | $5.54 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,018.89 | $5.96 |
(1) | Expenses are equal to the Fund’s annualized expense ratio of 1.55% for Investor Class shares or 1.19% for Institutional Class shares, as applicable, multiplied by the average account value over the period, multiplied by 181/365 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 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 its 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 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 800-261-6950 or 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 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 electronically. 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 800-261-6950 or 414-765-4124.
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| PROXY VOTING — BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENT |
Board Approval of Investment Advisory
Agreement
At its meeting on March 11, 2022, the Board of Trustees of the Fund (the “Board,” and the members thereof, the “Trustees”) unanimously approved the continuation of the investment advisory agreement of the Fund with Hennessy Advisors, Inc. (the “Advisor”). As part of the process, the Trustees reviewed their fiduciary duties and the relevant factors for them to consider with respect to approving the advisory agreement. In addition, the Trustees who are not deemed “interested persons” (as defined by the Investment Company Act of 1940, as amended) of the Fund (the “Independent Trustees”) met in executive session to discuss the approval of the advisory agreement. As part of their discussion, the Independent Trustees confirmed their understanding of the need to have asked about, and received answers to, any matters that they believed are relevant to determining whether to approve the continuation of the advisory agreement.
In advance of the meeting, the Advisor sent detailed information to the Trustees to assist them in their evaluation of the advisory agreement. This information included, but was not limited to, the following:
| | (1) | A memorandum from outside legal counsel that described the fiduciary duties of the Board with respect to approving the continuation of the advisory agreement and the relevant factors for consideration; |
| | | |
| | (2) | A memorandum from the Advisor that listed the factors relevant to the Board’s approval of the continuation of the advisory agreement and also referenced the documents that had been provided to help the Board assess each such factor; |
| | | |
| | (3) | The Advisor’s financial statements from its most recent Form 10-K and Form 10-Q; |
| | | |
| | (4) | A summary of the advisory agreement; |
| | | |
| | (5) | A recent Fund fact sheet, which included, among other things, Fund performance over various periods; |
| | | |
| | (6) | A description of the range of services provided by the Advisor; |
| | | |
| | (7) | A peer expense comparison of the net expense ratio and investment advisory fee of the Fund; and |
| | | |
| | (8) | A memorandum from the Advisor regarding economies of scale. |
The Trustees reviewed and discussed all of the information provided by the Advisor. Following this review, and further discussion with the Advisor, the Trustees concluded that the information provided before and at the meeting addressed all of the relevant matters that they wanted to consider in assessing the performance of the Funds and the performance of the Advisor under the advisory agreement, and that said information provided them with a fulsome understanding of the advisory agreement and the services provided by the Advisor.
All of the factors discussed were considered as a whole by the Trustees, as well as by the Independent Trustees meeting in executive session. The Trustees viewed the relevant factors in their totality, with no single factor being the principal or determinative factor in the Trustees’ determination of whether to approve the continuation of the advisory agreement. The Trustees recognized that the management and fee arrangements for the Fund are the result of years of review and discussion between the Independent Trustees and the Advisor, that certain aspects of such arrangements may receive greater scrutiny in
| HENNESSY FUNDS | 1-800-966-4354 | |
some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements and information received during the course of the year and in prior years.
Prior to approving the continuation of the advisory agreement, the Trustees, including the Independent Trustees in executive session, considered, among other items:
| | (1) | The nature and quality of the advisory services provided by the Advisor; |
| | | |
| | (2) | A comparison of the fees and expenses of the Fund to other similar funds; |
| | | |
| | (3) | Whether economies of scale are recognized by the Fund; |
| | | |
| | (4) | The costs and profitability of the Fund to the Advisor; |
| | | |
| | (5) | The performance of the Fund; and |
| | | |
| | (6) | Any benefits to the Advisor from serving as an investment advisor to the Fund (other than the advisory fee). |
The material considerations and determinations of the Trustees, including the Independent Trustees, were as follows:
| | (1) | The Trustees considered the services identified below that are provided by the Advisor. Based on this review and an assessment of the Advisor’s performance, the Trustees concluded that the Advisor provides high-quality services to the Fund, and they noted that their overall confidence in the Advisor was high. The Trustees also concluded that they were satisfied with the nature, extent, and quality of the advisory services provided to the Fund by the Advisor and that the nature and extent of the services provided by the Advisor were appropriate to assure that the Fund’s operations are conducted in compliance with applicable laws, rules, and regulations. |
| | | (a) | The Advisor acts as the portfolio manager for the Fund. In this capacity, the Advisor does the following: |
| | | | (i) | manages the composition of the Fund’s portfolio, including the purchase, retention, and disposition of portfolio securities in accordance with the Fund’s investment objectives, policies, and restrictions; |
| | | | | |
| | | | (ii) | seeks best execution for the Fund’s portfolio; |
| | | | | |
| | | | (iii) | manages the use of soft dollars for the Fund; and |
| | | | | |
| | | | (iv) | manages proxy voting for the Fund. |
| | | (b) | The Advisor performs a daily reconciliation of portfolio positions and cash for the Fund. |
| | | | |
| | | (c) | The Advisor monitors the liquidity of each Fund. |
| | | | |
| | | (d) | The Advisor monitors the Fund’s compliance with its investment objectives and restrictions and federal securities laws. |
| | | | |
| | | (e) | The Advisor maintains a compliance program (including a code of ethics), conducts ongoing reviews of the compliance programs of the Fund’s service providers (including their codes of ethics, as appropriate), conducts on-site visits to the Fund’s service providers, as feasible, monitors incidents of abusive trading practices, reviews Fund expense accruals, payments, and fixed expense ratios, evaluates insurance providers for fidelity bond, D&O/E&O insurance, and cybersecurity insurance coverage, manages regulatory examination compliance and responses, conducts employee compliance training, reviews reports provided by service providers, and maintains books and records. |
| BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENT |
| | | (f) | The Advisor oversees service providers that provide accounting, administration, distribution, transfer agency, custodial, sales, marketing, public relations, audit, information technology, and legal services to the Fund. |
| | | | |
| | | (g) | The Advisor maintains in-house marketing and distribution departments on behalf of the Fund. |
| | | | |
| | | (h) | The Advisor prepares or directs the preparation of all regulatory filings for the Fund, including writing and annually updating the Fund’s prospectus and related documents. |
| | | | |
| | | (i) | For each annual report of the Fund, the Advisor prepares a written summary of the Fund’s performance during the most recent 12-month period. |
| | | | |
| | | (j) | The Advisor oversees distribution of the Fund through third-party broker/dealers and independent financial institutions such as Charles Schwab, Inc., Fidelity, TD Ameritrade, and Pershing. The Advisor participates in “no transaction fee” (“NTF”) programs with these companies on behalf of the Fund, which allow customers to purchase the Fund through third-party distribution channels without paying a transaction fee. The Advisor compensates, in part, a number of these third-party providers of NTF programs out of its own revenues. |
| | | | |
| | | (k) | The Advisor pays the incentive compensation of the Fund’s compliance officers and employs other staff, such as legal, marketing, national accounts, distribution, sales, administrative, and trading oversight personnel, as well as management executives. |
| | | | |
| | | (l) | The Advisor provides a quarterly compliance certification to the Board. |
| | | | |
| | | (m) | The Advisor prepares or reviews all Board materials, presents to and leads discussions with the Board, prepares or reviews all meeting minutes, and arranges for Board training and education. |
| | (2) | The Trustees compared the performance of the Fund to benchmark indices over various periods and noted that the Trustees review and discuss reports comparing the investment performance of the Fund to various indices at each quarterly Board meeting. Based on such information, the Trustees determined that the Advisor manages the Fund in a manner materially consistent with its stated investment objective and style. The Trustees concluded that the performance of the Fund over various periods warranted the continuation of the advisory agreement. |
| | | |
| | (3) | The Trustees reviewed the advisory fees and overall expense ratios of the Fund compared to other funds similar in asset size and investment objective to the Fund using data from Morningstar. As part of the discussion with management, the Trustees ensured that they understood and were comfortable with the criteria used to determine the mutual funds included in the Morningstar categories for purposes of the materials considered at the meeting. The Trustees determined that the advisory fee and overall expense ratio of the Fund falls within a reasonable range of the advisory fees and overall expense ratios of other comparable funds and concluded that they are reasonable and warranted continuation of the advisory agreement. |
| | | |
| | (4) | The Trustees also considered whether the Advisor was realizing economies of scale that should be shared with the Fund’s shareholders. The Trustees noted that the majority of expenses incurred to manage the Fund are variable |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | | asset-based fees, so the Advisor does not realize material economies of scale relating to these expenses as the assets of the Fund increase. For example, third-party platform fees increase as the Fund’s assets grow. |
| | | |
| | (5) | The Trustees considered the profitability of the Advisor, including the impact of mutual fund platform fees on the Advisor’s profitability, and also considered the resources and revenues that the Advisor has put into managing and distributing the Fund. The Trustees then concluded that the profits of the Advisor are reasonable and not excessive when compared to profitability guidelines set forth in relevant court cases. |
| | | |
| | (6) | The Trustees considered the high level of professionalism and knowledge of the Advisor’s employees and concluded that this was beneficial to the Fund and its shareholders. |
| | | |
| | (7) | The Trustees considered any benefits to the Advisor from serving as an advisor to the Fund (other than the advisory fee). The Trustees noted that the Advisor may derive ancillary benefits from, by way of example, its association with the Fund in the form of proprietary and third-party research products and services received from broker-dealers that execute portfolio trades for the Fund. The Trustees determined that any such products and services have been used for legitimate purposes relating to the Fund by providing assistance in the investment decision-making process. The Trustees concluded that any additional benefits realized by the Advisor from its relationship with the Fund were reasonable, which was based on, among other things, the Trustees’ finding that the research, analytical, statistical, and other information and services provided by brokers are merely supplemental to the Advisor’s own efforts in the performance of its duties under the advisory agreement. |
After reviewing the materials and information provided at the meeting, as well as other information regularly provided at the Board’s quarterly meetings throughout the year regarding the quality of services provided by the Advisor, the performance of the Fund, expense information, brokerage commissions information, the adequacy and efficacy of the Advisor’s written policies and procedures, other regulatory compliance issues, trading information and related matters, and other factors that the Trustees deemed relevant, the Trustees, including the Independent Trustees, approved the continuation of the advisory agreement.
| BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENT |
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For information, questions, or assistance, please call
The Hennessy Funds
800-966-4354 or 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
J. Dennis DeSousa
Robert T. Doyle
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 1250
Milwaukee, Wisconsin 53202
www.hennessyfunds.com | 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.
SEMI-ANNUAL REPORT
APRIL 30, 2022
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 | 5 |
| 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 |
| Expense Example | 26 |
| Proxy Voting Policy and Proxy Voting Records | 28 |
| Availability of Quarterly Portfolio Schedule | 28 |
| Federal Tax Distribution Information | 28 |
| Important Notice Regarding Delivery of Shareholder Documents | 28 |
| Electronic Delivery | 28 |
| Board Approval of Investment Advisory Agreement | 29 |
| HENNESSY FUNDS | 1-800-966-4354 | |
May 2022
Dear Hennessy Funds Shareholder:
We’d like to start our semi-annual letter with a pause. At the end of 2021, we looked forward to a new year – a potentially calmer year – having come through almost two full years of the coronavirus pandemic. As people, we were aware our lives had changed, but we hoped for a better 2022; as investors, we were aware that the economy was strong and employment was robust, yet challenges loomed, including inflation, supply chain disruptions, and tightening monetary policy; as employees, students, and family members, we recognized much was different, but we sought a return to what’s familiar. What we didn’t know was that a world leader who controls one of the largest militaries on the planet was about to start one of the worst atrocities in Europe since World War II. Our thoughts are with the Ukrainian people, and our hope is for this unjustified, senseless human tragedy to end quickly.
The equity market started 2022 on a high note, with the S&P 500® Index hitting an all-time high on the first trading day of the year. This turned out to be the last hurrah for a market that saw a continuous march higher in 2021, having hit 70 new all-time highs, with a new all-time high being recorded on average every three and a half days. Concerns in the market then coalesced and overpowered bullish sentiment, and the market has spiraled lower throughout 2022. Factors that drove the market lower include: tightening monetary policy as the Federal Reserve has begun raising rates and has announced plans for shrinking its $8.5 trillion asset portfolio; inflation, higher energy costs, and their effects on the domestic and global economies; continued supply chain disruptions; investors’ indiscriminate liquidation of broad-based ETFs and index funds and the detrimental effect on equities; and the near-term and long-term global implications of the Russian invasion of Ukraine.
While markets are adjusting, many positive conditions remain intact. Corporate balance sheets and profits remain strong, GDP growth remains positive, the consumer continues to show resilience in the face of rising prices, cash is abundant both at the corporate and household levels, unemployment is exceptionally low, and our financial system remains healthy. Markets are also experiencing a change in leadership, as value stocks have been outperforming growth stocks, and traditionally defensive sectors such as Utilities and Consumer Staples have been outperforming the broader market. Finally, the Energy sector has soared in 2022, as companies reap the benefits of dramatically higher oil and natural gas prices, and shareholders are rewarded with significantly higher dividends, aggressive buybacks, and higher stock prices after many years of underperformance for the sector.
With history as our guide, we are hopeful that eventually the market may bottom and head higher again. Since the financial crisis of 2008, we have experienced many corrections and many recoveries to new highs. The Dow Jones Industrial Average has dropped over 10% eight times, including the current drop, for a median decline of 14.00%, and on average, it took 45 trading days to drop from peak to trough and 127 trading days to return to the previous peak. Since the current drop has taken longer to go from peak to its recent trough, it may take some time for a recovery in prices to truly take hold.
On a positive note, valuations have come in, and many stocks have become more attractive, especially for longer-term investors. We note, however, that the concept of “historically cheap stocks” does not, on its own, move the market higher. Rather, it is
overall capitulation and improving fundamentals that could bring buyers back into the market and reverse any bearish trends. Investors need to see improving company earnings, retreating inflationary trends, a measured pace of interest rate increases globally that does not cause significant economic contraction, hope for a more peaceful and orderly world economic system unconstrained by supply bottlenecks and other hindrances to global trade, and, most importantly, a subsidence of the deleterious effects of the coronavirus pandemic. While that may seem like a “tall order,” we believe that patient investing, focusing on value, quality, and downside risk mitigation, works well over the longer term.
During this tumultuous period, performance of the majority of the Hennessy Funds has been relatively strong when compared to the overall market as well as to our benchmarks. During the six months ended April 30, 2022, the Dow Jones Industrial Average, the S&P 500® Index, and the NASDAQ Composite Index dropped 7.05%, 9.65%, and 20.15%, respectively, on a total return basis. During this period when these three major indices saw significant declines, we were pleased that seven of our 16 Funds posted positive total returns, 10 of our 14 domestic Funds outperformed the S&P 500® Index, and over half of our active funds outperformed their primary benchmarks.
We thank you, our shareholders, for your continued interest in our family of Funds. We are grateful for the trust you put in us, and we will continue to strive to manage our portfolios for long-term performance, ever mindful of downside risk. While volatility and uncertainty may impact the markets in the short-term, we encourage investors to stay the course, maintain a diversified portfolio, and keep a long-term perspective. If you have any questions or would like to speak with us, please don’t hesitate to call us directly at (800) 966-4354. In closing, we would also like to thank all of the healthcare and frontline workers that have worked – and still work – tirelessly throughout the coronavirus pandemic.
Best regards,
| |
| |
| |
|
| Ryan C. Kelley, CFA |
| Chief Investment Officer, |
| Senior Vice President, and Portfolio Manager |
Past performance does not guarantee future results.
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 NASDAQ Composite Index comprises all common stocks listed on The NASDAQ Stock Market and is commonly used to measure the performance of technology-related stocks. 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.
Please refer to the Performance Overview section for more detailed performance information.
| HENNESSY FUNDS | 1-800-966-4354 | |
Performance Overview (Unaudited)
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED APRIL 30, 2022
| | Six | One | Five | Ten |
| | Months(1) | Year | Years | Years |
| Hennessy Technology Fund – | | | | |
| Investor Class (HTECX) | -20.53% | -18.77% | 12.86% | 9.93% |
| Hennessy Technology Fund – | | | | |
| Institutional Class (HTCIX) | -20.43% | -18.55% | 13.14% | 10.22% |
| Nasdaq Composite Index | -20.15% | -11.08% | 16.40% | 16.30% |
S&P 500® Index | -9.65% | 0.21% | 13.66% | 13.67% |
| Expense ratios: | Gross 2.79%, Net 1.23%(2) (Investor Class); |
| | Gross 2.44%, Net 0.98%(2) (Institutional Class) |
(1) | Periods of less than one year are not annualized. |
(2) | The Fund’s investment advisor has contractually agreed to limit expenses until February 28, 2023. |
_______________
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 OVERVIEW/SCHEDULE OF INVESTMENTS |
Financial Statements
Schedule of Investments as of April 30, 2022 (Unaudited) |
HENNESSY TECHNOLOGY FUND
(% of Net Assets)
| TOP TEN HOLDINGS (EXCLUDING MONEY MARKET FUNDS) | % NET ASSETS |
| Box, Inc. | 1.93% |
| Vontier Corp. | 1.92% |
| Sanmina Corp. | 1.85% |
| Sciplay Corp. | 1.83% |
| Arrow Electronics, Inc. | 1.81% |
| Mastercard, Inc., Class A | 1.81% |
| A10 Networks, Inc. | 1.79% |
| Gartner, Inc. | 1.78% |
| KnowBe4, Inc. | 1.78% |
| Vishay Intertechnology, Inc. | 1.78% |
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 – 98.52% | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Communication Services – 1.83% | | | | | | | | | |
| Sciplay Corp. (a) | | | 8,170 | | | $ | 109,151 | | | | 1.83 | % |
| | | | | | | | | | | | | |
| Consumer Discretionary – 5.80% | | | | | | | | | | | | |
| 1-800-Flowers.com, Inc. (a) | | | 8,379 | | | | 85,466 | | | | 1.43 | % |
| Etsy, Inc. (a) | | | 835 | | | | 77,814 | | | | 1.30 | % |
| Lands’ End, Inc. (a) | | | 6,581 | | | | 92,265 | | | | 1.54 | % |
| Shutterstock, Inc. | | | 1,204 | | | | 91,167 | | | | 1.53 | % |
| | | | | | | | 346,712 | | | | 5.80 | % |
| | | | | | | | | | | | | |
| Information Technology – 90.89% | | | | | | | | | | | | |
| 3D Systems Corp. (a) | | | 6,442 | | | | 73,052 | | | | 1.22 | % |
| A10 Networks, Inc. | | | 7,480 | | | | 106,814 | | | | 1.79 | % |
| Adobe, Inc. (a) | | | 234 | | | | 92,652 | | | | 1.55 | % |
| Advanced Micro Devices, Inc. (a) | | | 1,009 | | | | 86,290 | | | | 1.44 | % |
| Apple, Inc. | | | 618 | | | | 97,428 | | | | 1.63 | % |
| Applied Materials, Inc. | | | 861 | | | | 95,011 | | | | 1.59 | % |
| Arrow Electronics, Inc. (a) | | | 919 | | | | 108,313 | | | | 1.81 | % |
| ASE Technology Holding Co. Ltd. – ADR (b) | | | 15,257 | | | | 98,255 | | | | 1.65 | % |
| ASML Holding NV – ADR (b) | | | 162 | | | | 91,331 | | | | 1.53 | % |
| Atlassian Corp. PLC (a)(b) | | | 347 | | | | 78,016 | | | | 1.31 | % |
| Automatic Data Processing, Inc. | | | 467 | | | | 101,890 | | | | 1.71 | % |
| Box, Inc. (a) | | | 3,759 | | | | 115,101 | | | | 1.93 | % |
| Cadence Design Systems, Inc. (a) | | | 656 | | | | 98,958 | | | | 1.66 | % |
| CDW Corp. | | | 607 | | | | 99,050 | | | | 1.66 | % |
| Cohu, Inc. (a) | | | 3,797 | | | | 100,848 | | | | 1.69 | % |
| CommVault Systems, Inc. (a) | | | 1,647 | | | | 100,467 | | | | 1.68 | % |
| Dell Technologies, Inc. | | | 2,239 | | | | 105,255 | | | | 1.76 | % |
| DocuSign, Inc. (a) | | | 978 | | | | 79,218 | | | | 1.33 | % |
| DXC Technology Co. (a) | | | 3,467 | | | | 99,503 | | | | 1.67 | % |
| Extreme Networks, Inc. (a) | | | 8,763 | | | | 84,125 | | | | 1.41 | % |
| Flex Ltd. (a)(b) | | | 5,943 | | | | 98,000 | | | | 1.64 | % |
| Fortinet, Inc. (a) | | | 319 | | | | 92,194 | | | | 1.54 | % |
| Gartner, Inc. (a) | | | 366 | | �� | | 106,341 | | | | 1.78 | % |
| Hewlett Packard Enterprise Co. | | | 6,855 | | | | 105,636 | | | | 1.77 | % |
| Intel Corp. | | | 2,229 | | | | 97,162 | | | | 1.63 | % |
| Jabil, Inc. | | | 1,771 | | | | 102,240 | | | | 1.71 | % |
The accompanying notes are an integral part of these financial statements.
| COMMON STOCKS | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Information Technology (Continued) | | | | | | | | | |
| Kimball Electronics, Inc. (a) | | | 5,465 | | | $ | 97,496 | | | | 1.63 | % |
| KLA Corp. | | | 301 | | | | 96,097 | | | | 1.61 | % |
| KnowBe4, Inc. (a) | | | 4,457 | | | | 106,077 | | | | 1.78 | % |
| Kulicke & Soffa Industries, Inc. (b) | | | 1,969 | | | | 91,381 | | | | 1.53 | % |
| Lam Research Corp. | | | 206 | | | | 95,947 | | | | 1.61 | % |
| LG Display Co. Ltd. – ADR (a)(b) | | | 13,412 | | | | 86,239 | | | | 1.44 | % |
| Mastercard, Inc., Class A | | | 298 | | | | 108,287 | | | | 1.81 | % |
| Microsoft Corp. | | | 351 | | | | 97,410 | | | | 1.63 | % |
| NetApp, Inc. | | | 1,369 | | | | 100,279 | | | | 1.68 | % |
| Palo Alto Networks, Inc. (a) | | | 177 | | | | 99,347 | | | | 1.66 | % |
| Paychex, Inc. | | | 796 | | | | 100,877 | | | | 1.69 | % |
| Paycom Software, Inc. (a) | | | 303 | | | | 85,285 | | | | 1.43 | % |
| QIWI PLC – ADR (b)(d) | | | 15,383 | | | | 87,222 | | | | 1.46 | % |
| QUALCOMM, Inc. | | | 724 | | | | 101,136 | | | | 1.69 | % |
| Sanmina Corp. (a) | | | 2,701 | | | | 110,444 | | | | 1.85 | % |
| Seagate Technology Holdings PLC (b) | | | 1,214 | | | | 99,597 | | | | 1.67 | % |
| ServiceNow, Inc. (a) | | | 188 | | | | 89,883 | | | | 1.51 | % |
| SMART Global Holdings, Inc. (a)(b) | | | 4,435 | | | | 100,497 | | | | 1.68 | % |
| Taiwan Semiconductor Manufacturing Co. Ltd. – ADR (b) | | | 1,043 | | | | 96,926 | | | | 1.62 | % |
| Telefonaktiebolaget LM Ericsson – ADR (b) | | | 11,569 | | | | 92,089 | | | | 1.54 | % |
| Teradata Corp. (a) | | | 2,200 | | | | 90,970 | | | | 1.52 | % |
| Teradyne, Inc. | | | 920 | | | | 97,023 | | | | 1.62 | % |
| Texas Instruments, Inc. | | | 604 | | | | 102,831 | | | | 1.72 | % |
| The Western Union Co. | | | 5,800 | | | | 97,208 | | | | 1.63 | % |
| United Microelectronics Corp. – ADR (b) | | | 12,091 | | | | 96,244 | | | | 1.61 | % |
| UserTesting, Inc. (a) | | | 9,724 | | | | 75,945 | | | | 1.27 | % |
| Vertex, Inc. (a) | | | 6,817 | | | | 97,006 | | | | 1.62 | % |
| Vishay Intertechnology, Inc. | | | 5,695 | | | | 106,098 | | | | 1.78 | % |
| Vontier Corp. | | | 4,470 | | | | 114,521 | | | | 1.92 | % |
| Zeta Global Holdings Corp. (a) | | | 8,774 | | | | 95,022 | | | | 1.59 | % |
| | | | | | | | 5,428,534 | | | | 90.89 | % |
| | | | | | | | | | | | | |
| Total Common Stocks | | | | | | | | | | | | |
| (Cost $6,148,011) | | | | | | | 5,884,397 | | | | 98.52 | % |
The accompanying notes are an integral part of these financial statements.
| HENNESSY FUNDS | 1-800-966-4354 | |
| SHORT-TERM INVESTMENTS – 1.47% | | Number | | | | | | % of | |
| | | of Shares | | | Value | | | Net Assets | |
| Money Market Funds – 1.47% | | | | | | | | | |
| First American Government Obligations Fund, | | | | | | | | | |
| Institutional Class, 0.22% (c) | | | 87,564 | | | $ | 87,564 | | | | 1.47 | % |
| | | | | | | | | | | | | |
| Total Short-Term Investments | | | | | | | | | | | | |
| (Cost $87,564) | | | | | | | 87,564 | | | | 1.47 | % |
| | | | | | | | | | | | | |
| Total Investments | | | | | | | | | | | | |
| (Cost $6,235,575) – 99.99% | | | | | | | 5,971,961 | | | | 99.99 | % |
| Other Assets in Excess of Liabilities – 0.01% | | | | | | | 511 | | | | 0.01 | % |
| | | | | | | | | | | | | |
TOTAL NET ASSETS – 100.00% | | | | | | $ | 5,972,472 | | | | 100.00 | % |
Percentages are stated as a percent of net assets.
ADR – American Depository 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 April 30, 2022. |
| (d) | Value determined using significant unobservable inputs. As of April 30, 2022, this security amounted to $87,222 or 1.46% of net assets. |
Summary of Fair Value Exposure as of April 30, 2022
The following is a summary of the inputs used to value the Fund’s net assets as of April 30, 2022 (see Note 3 in the accompanying Notes to the Financial Statements):
| Common Stocks | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Communication Services | | $ | 109,151 | | | $ | — | | | $ | — | | | $ | 109,151 | |
| Consumer Discretionary | | | 346,712 | | | | — | | | | — | | | | 346,712 | |
| Information Technology | | | 5,341,312 | | | | — | | | | 87,222 | | | | 5,428,534 | |
| Total Common Stocks | | $ | 5,797,175 | | | $ | — | | | $ | 87,222 | | | $ | 5,884,397 | |
| Short-Term Investments | | | | | | | | | | | | | | | | |
| Money Market Funds | | $ | 87,564 | | | $ | — | | | $ | — | | | $ | 87,564 | |
| Total Short-Term Investments | | $ | 87,564 | | | $ | — | | | $ | — | | | $ | 87,564 | |
| Total Investments | | $ | 5,884,739 | | | $ | — | | | $ | 87,222 | | | $ | 5,971,961 | |
The accompanying notes are an integral part of these financial statements.
Level 3 Reconciliation Disclosure
The following is a reconciliation of Level 3 holdings for which significant unobservable inputs were used in determining fair value as of April 30, 2022:
| | | | Fair Value as of | | | Transfers into | | | Fair Value as of | |
| | | | November 1, 2021 | | | Level 3(1) | | | April 30, 2022 | |
| | Investments in Securities | | | | | | | | | |
| | Common Stocks | | $ | — | | | $ | 87,222 | | | $ | 87,222 | |
| | Total | | $ | — | | | $ | 87,222 | | | $ | 87,222 | |
(1) | Transfers into Level 3 can be attributed to changes in the availability of pricing sources or in the observability of significant inputs used to measure the fair value of those instruments. |
The following is a summary of quantitative information about Level 3 Fair Value Measurements:
| | | | | | | | | | | | Impact to |
| | | | Fair Value | | Valuation | | Unobservable | | Unobservable | | Valuation from an |
| | Type of Security | | at 4/30/2022 | | Techniques
| | Input
| | Input Values
| | Increase in Input
|
| | Common Stocks | | $87,222 | | Last Traded | | Market | | $5.67 | | Significant changes |
| | | | | | Price | | Assessments | | | | in market conditions |
| | | | | | | | | | | | could result in direct |
| | | | | | | | | | | | and proportional |
| | | | | | | | | | | | changes in the fair |
| | | | | | | | | | | | value of the security |
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 April 30, 2022 (Unaudited) |
| ASSETS: | | | |
| Investments in securities, at value (cost $6,235,575) | | $ | 5,971,961 | |
| Dividends and interest receivable | | | 639 | |
| Prepaid expenses and other assets | | | 17,383 | |
| Due from advisor | | | 4,858 | |
| Total assets | | | 5,994,841 | |
| | | | | |
| LIABILITIES: | | | | |
| Payable to auditor | | | 11,226 | |
| Accrued distribution fees | | | 747 | |
| Accrued service fees | | | 398 | |
| Accrued trustees fees | | | 6,311 | |
| Accrued printing & mailing fees | | | 3,042 | |
| Accrued expenses and other payables | | | 645 | |
| Total liabilities | | | 22,369 | |
| NET ASSETS | | $ | 5,972,472 | |
| | | | | |
| NET ASSETS CONSISTS OF: | | | | |
| Capital stock | | $ | 6,531,817 | |
| Accumulated deficit | | | (559,345 | ) |
| Total net assets | | $ | 5,972,472 | |
| | | | | |
| NET ASSETS: | | | | |
| Investor Class | | | | |
| Shares authorized (no par value) | | Unlimited | |
| Net assets applicable to outstanding shares | | $ | 4,538,709 | |
| Shares issued and outstanding | | | 283,704 | |
| Net asset value, offering price, and redemption price per share | | $ | 16.00 | |
| | | | | |
| Institutional Class | | | | |
| Shares authorized (no par value) | | Unlimited | |
| Net assets applicable to outstanding shares | | $ | 1,433,763 | |
| Shares issued and outstanding | | | 87,074 | |
| Net asset value, offering price, and redemption price per share | | $ | 16.47 | |
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 six months ended April 30, 2022 (Unaudited) |
| INVESTMENT INCOME: | | | |
Dividend income(1) | | $ | 42,493 | |
| Interest income | | | 53 | |
| Total investment income | | | 42,546 | |
| | | | | |
| EXPENSES: | | | | |
| Investment advisory fees (See Note 5) | | | 26,470 | |
| Federal and state registration fees | | | 15,385 | |
| Compliance expense (See Note 5) | | | 15,156 | |
| Audit fees | | | 11,222 | |
| Administration, accounting, custody, and transfer agent fees (See Note 5) | | | 10,210 | |
| Trustees’ fees and expenses | | | 8,394 | |
| Distribution fees – Investor Class (See Note 5) | | | 3,998 | |
| Sub-transfer agent expenses – Investor Class (See Note 5) | | | 3,162 | |
| Sub-transfer agent expenses – Institutional Class (See Note 5) | | | 306 | |
| Reports to shareholders | | | 3,258 | |
| Service fees – Investor Class (See Note 5) | | | 2,665 | |
| Other expenses | | | 2,446 | |
| Total expenses before waivers and reimbursements | | | 102,672 | |
| Service provider expense waiver (See Note 5) | | | (10,210 | ) |
| Expense reimbursement from advisor – Investor Class | | | (38,397 | ) |
| Expense reimbursement from advisor – Institutional Class | | | (12,347 | ) |
| Net expenses | | | 41,718 | |
| NET INVESTMENT INCOME | | $ | 828 | |
| | | | | |
| REALIZED AND UNREALIZED GAINS (LOSSES): | | | | |
| Net realized loss on investments | | $ | (264,921 | ) |
| Net change in unrealized appreciation/depreciation on investments | | | (1,314,801 | ) |
| Net loss on investments | | | (1,579,722 | ) |
| NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS | | $ | (1,578,894 | ) |
(1) | Net of foreign taxes withheld and issuance fees of $1,716 |
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 |
| | | Six Months Ended | | | | |
| | | April 30, 2022 | | | Year Ended | |
| | | (Unaudited) | | | October 31, 2021 | |
| OPERATIONS: | | | | | | |
| Net investment income (loss) | | $ | 828 | | | $ | (1,224 | ) |
| Net realized gain (loss) on investments | | | (264,921 | ) | | | 2,211,486 | |
| Net change in unrealized | | | | | | | | |
| appreciation/depreciation on investments | | | (1,314,801 | ) | | | 358,442 | |
| Net increase (decrease) in net assets | | | | | | | | |
| resulting from operations | | | (1,578,894 | ) | | | 2,568,704 | |
| | | | | | | | | |
| DISTRIBUTIONS TO SHAREHOLDERS: | | | | | | | | |
| Distributable earnings – Investor Class | | | (1,498,176 | ) | | | (493,580 | ) |
| Distributable earnings – Institutional Class | | | (513,645 | ) | | | (175,930 | ) |
| Total distributions | | | (2,011,821 | ) | | | (669,510 | ) |
| | | | | | | | | |
| CAPITAL SHARE TRANSACTIONS: | | | | | | | | |
| Proceeds from shares subscribed – Investor Class | | | 132,457 | | | | 917,272 | |
| Proceeds from shares subscribed – Institutional Class | | | 30,683 | | | | 57,969 | |
| Dividends reinvested – Investor Class | | | 1,465,100 | | | | 482,162 | |
| Dividends reinvested – Institutional Class | | | 513,645 | | | | 175,930 | |
| Cost of shares redeemed – Investor Class | | | (444,363 | ) | | | (1,006,346 | ) |
| Cost of shares redeemed – Institutional Class | | | (261,393 | ) | | | (125,590 | ) |
| Net increase in net assets derived | | | | | | | | |
| from capital share transactions | | | 1,436,129 | | | | 501,397 | |
| TOTAL INCREASE (DECREASE) IN NET ASSETS | | | (2,154,586 | ) | | | 2,400,591 | |
| | | | | | | | | |
| NET ASSETS: | | | | | | | | |
| Beginning of period | | | 8,127,058 | | | | 5,726,467 | |
| End of period | | $ | 5,972,472 | | | $ | 8,127,058 | |
| | | | | | | | | |
| CHANGES IN SHARES OUTSTANDING: | | | | | | | | |
| Shares sold – Investor Class | | | 7,308 | | | | 35,433 | |
| Shares sold – Institutional Class | | | 1,554 | | | | 2,256 | |
| Shares issued to holders as reinvestment | | | | | | | | |
| of dividends – Investor Class | | | 73,365 | | | | 21,237 | |
| Shares issued to holders as reinvestment | | | | | | | | |
| of dividends – Institutional Class | | | 25,019 | | | | 7,528 | |
| Shares redeemed – Investor Class | | | (22,443 | ) | | | (38,822 | ) |
| Shares redeemed – Institutional Class | | | (14,145 | ) | | | (4,863 | ) |
| Net increase in shares outstanding | | | 70,658 | | | | 22,769 | |
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
| | | Six Months Ended | |
| | | April 30, 2022 | |
| | | (Unaudited) | |
| PER SHARE DATA: | | | |
| Net asset value, beginning of period | | $ | 26.89 | |
| | | | | |
| Income from investment operations: | | | | |
| Net investment income (loss) | | | 0.00 | (1)(2) |
| Net realized and unrealized gains (losses) on investments | | | (4.18 | ) |
| Total from investment operations | | | (4.18 | ) |
| | | | | |
| Less distributions: | | | | |
| Dividends from net investment income | | | — | |
| Dividends from net realized gains | | | (6.71 | ) |
| Total distributions | | | (6.71 | ) |
| Net asset value, end of period | | $ | 16.00 | |
| | | | | |
| TOTAL RETURN | | | -20.53 | %(3) |
| | | | | |
| SUPPLEMENTAL DATA AND RATIOS: | | | | |
| Net assets, end of period (millions) | | $ | 4.54 | |
| Ratio of expenses to average net assets: | | | | |
| Before expense reimbursement | | | 2.96 | %(4) |
| After expense reimbursement | | | 1.23 | %(4)(5) |
| Ratio of net investment income (loss) to average net assets: | | | | |
| Before expense reimbursement | | | (1.77 | )%(4) |
| After expense reimbursement | | | (0.04 | )%(4) |
Portfolio turnover rate(7) | | | 99 | %(3) |
(1) | Calculated using the average shares outstanding method. |
(2) | Amount is between $(0.005) and $0.005. |
(3) | Not annualized. |
(4) | Annualized. |
(5) | Certain service provider expenses were voluntarily waived during the period. |
(6) | 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. |
(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, | |
| 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 | %(5) | | | 1.23 | %(5) | | | 1.23 | % | | | 1.23 | % | | | 2.15 | %(6) |
| | | | | | | | | | | | | | | | | | | |
| | (1.64 | )% | | | (2.12 | )% | | | (2.80 | )% | | | (2.83 | )% | | | (3.16 | )% |
| | (0.08 | )% | | | 0.10 | % | | | (0.19 | )% | | | (0.36 | )% | | | (1.15 | )%(6) |
| | 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 period
| | | Six Months Ended | |
| | | April 30, 2022 | |
| | | (Unaudited) | |
| PER SHARE DATA: | | | |
| Net asset value, beginning of period | | $ | 27.65 | |
| | | | | |
| Income from investment operations: | | | | |
| Net investment income (loss) | | | 0.02 | (1) |
| Net realized and unrealized gains (losses) on investments | | | (4.31 | ) |
| Total from investment operations | | | (4.29 | ) |
| | | | | |
| Less distributions: | | | | |
| Dividends from net investment income | | | — | |
| Dividends from net realized gains | | | (6.89 | ) |
| Total distributions | | | (6.89 | ) |
| Net asset value, end of period | | $ | 16.47 | |
| | | | | |
| TOTAL RETURN | | | -20.43 | %(2) |
| | | | | |
| SUPPLEMENTAL DATA AND RATIOS: | | | | |
| Net assets, end of period (millions) | | $ | 1.43 | |
| Ratio of expenses to average net assets: | | | | |
| Before expense reimbursement | | | 2.62 | %(3) |
| After expense reimbursement | | | 0.98 | %(3)(4) |
| Ratio of net investment income (loss) to average net assets: | | | | |
| Before expense reimbursement | | | (1.43 | )%(3) |
| After expense reimbursement | | | 0.21 | %(3) |
Portfolio turnover rate(6) | | | 99 | %(2) |
(1) | Calculated using the average shares outstanding method. |
(2) | Not annualized. |
(3) | Annualized. |
(4) | Certain service provider expenses were voluntarily waived during the period. |
(5) | 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. |
(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, | |
| 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 | %(4) | | | 0.98 | %(4) | | | 0.98 | % | | | 0.98 | % | | | 1.77 | %(5) |
| | | | | | | | | | | | | | | | | | | |
| | (1.29 | )% | | | (1.74 | )% | | | (2.43 | )% | | | (2.41 | )% | | | (2.74 | )% |
| | 0.17 | % | | | 0.36 | % | | | 0.06 | % | | | (0.12 | )% | | | (0.77 | )%(5) |
| | 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 April 30, 2022 (Unaudited) |
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. |
| | |
| 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. |
| NOTES TO THE FINANCIAL STATEMENTS |
| 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 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 |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | 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 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 |
| NOTES TO THE FINANCIAL STATEMENTS |
| | 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.
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
| HENNESSY FUNDS | 1-800-966-4354 | |
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 April 30, 2022, 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 the six months ended April 30, 2022, were $6,986,597 and $7,395,271, respectively.
There were no purchases or sales/maturities of long-term U.S. government securities for the Fund during the six months ended April 30, 2022.
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 the six months ended April 30, 2022, 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, 2023.
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 April 30, 2022, 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 | Fiscal Year | |
| | | 2022
| 2023
| 2024
| 2025
| Total
|
| | Investor Class | $51,219 | $86,892 | $75,956 | $38,397 | $252,464 |
| | Institutional Class | $16,327 | $27,643 | $23,799 | $12,347 | $ 80,116 |
| NOTES TO THE FINANCIAL STATEMENTS |
The Advisor did not recoup expenses from the Fund during the six months ended April 30, 2022.
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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, are included in the Statement of Operations.
Quasar Distributors, LLC (“Quasar”), a wholly owned broker-dealer subsidiary of Foreside Financial Group, LLC, acts as the Fund’s principal underwriter in a continuous public offering of Fund shares.
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
| HENNESSY FUNDS | 1-800-966-4354 | |
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 the six months ended April 30, 2022, 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 the six months ended April 30, 2022, the Fund did not have any borrowings outstanding under the line of credit.
8). FEDERAL TAX INFORMATION
As of October 31, 2021, the Fund’s most recent fiscal year end, 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 | |
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.
| NOTES TO THE FINANCIAL STATEMENTS |
During fiscal year 2022 (year to date) and fiscal year 2021, the tax character of distributions paid by the Fund was as follows:
| | | | Six Months Ended | | | Year Ended | |
| | | | April 30, 2022 | | | October 31, 2021 | |
| | Ordinary income(1) | | $ | 1,183,100 | | | $ | 239,745 | |
| | Long-term capital gains | | | 828,721 | | | | 429,765 | |
| | Total distributions | | $ | 2,011,821 | | | $ | 669,510 | |
| | (1) Ordinary income includes short-term capital gains. |
9). EVENTS SUBSEQUENT TO PERIOD END
Management has evaluated the Fund’s related events and transactions that occurred subsequent to April 30, 2022, 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 | |
Expense Example (Unaudited)
April 30, 2022
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 November 1, 2021, through April 30, 2022.
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.
| | Beginning | Ending | |
| | Account Value | Account Value | Expenses Paid |
| | November 1, 2021 | April 30, 2022 | During Period(1) |
| Investor Class | | | |
| Actual | $1,000.00 | $ 794.70 | $5.47 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,018.70 | $6.16 |
| | | | |
| Institutional Class | | | |
| Actual | $1,000.00 | $ 795.70 | $4.36 |
| Hypothetical (5% return before expenses) | $1,000.00 | $1,019.93 | $4.91 |
(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 181/365 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 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 its 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 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 800-261-6950 or 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 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 electronically. 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 800-261-6950 or 414-765-4124.
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www.hennessyfunds.com/subscribe
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| PROXY VOTING — BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENT |
Board Approval of Investment Advisory
Agreement
At its meeting on March 11, 2022, the Board of Trustees of the Fund (the “Board,” and the members thereof, the “Trustees”) unanimously approved the continuation of the investment advisory agreement of the Fund with Hennessy Advisors, Inc. (the “Advisor”). As part of the process, the Trustees reviewed their fiduciary duties and the relevant factors for them to consider with respect to approving the advisory agreement. In addition, the Trustees who are not deemed “interested persons” (as defined by the Investment Company Act of 1940, as amended) of the Fund (the “Independent Trustees”) met in executive session to discuss the approval of the advisory agreement. As part of their discussion, the Independent Trustees confirmed their understanding of the need to have asked about, and received answers to, any matters that they believed are relevant to determining whether to approve the continuation of the advisory agreement.
In advance of the meeting, the Advisor sent detailed information to the Trustees to assist them in their evaluation of the advisory agreement. This information included, but was not limited to, the following:
| | (1) | A memorandum from outside legal counsel that described the fiduciary duties of the Board with respect to approving the continuation of the advisory agreement and the relevant factors for consideration; |
| | | |
| | (2) | A memorandum from the Advisor that listed the factors relevant to the Board’s approval of the continuation of the advisory agreement and also referenced the documents that had been provided to help the Board assess each such factor; |
| | | |
| | (3) | The Advisor’s financial statements from its most recent Form 10-K and Form 10-Q; |
| | | |
| | (4) | A summary of the advisory agreement; |
| | | |
| | (5) | A recent Fund fact sheet, which included, among other things, Fund performance over various periods; |
| | | |
| | (6) | A description of the range of services provided by the Advisor; |
| | | |
| | (7) | A peer expense comparison of the net expense ratio and investment advisory fee of the Fund; and |
| | | |
| | (8) | A memorandum from the Advisor regarding economies of scale. |
The Trustees reviewed and discussed all of the information provided by the Advisor. Following this review, and further discussion with the Advisor, the Trustees concluded that the information provided before and at the meeting addressed all of the relevant matters that they wanted to consider in assessing the performance of the Funds and the performance of the Advisor under the advisory agreement, and that said information provided them with a fulsome understanding of the advisory agreement and the services provided by the Advisor.
All of the factors discussed were considered as a whole by the Trustees, as well as by the Independent Trustees meeting in executive session. The Trustees viewed the relevant factors in their totality, with no single factor being the principal or determinative factor in the Trustees’ determination of whether to approve the continuation of the advisory agreement. The Trustees recognized that the management and fee arrangements for the Fund are the result of years of review and discussion between the Independent Trustees and the Advisor, that certain aspects of such arrangements may receive greater scrutiny in
| HENNESSY FUNDS | 1-800-966-4354 | |
some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements and information received during the course of the year and in prior years.
Prior to approving the continuation of the advisory agreement, the Trustees, including the Independent Trustees in executive session, considered, among other items:
| | (1) | The nature and quality of the advisory services provided by the Advisor; |
| | | |
| | (2) | A comparison of the fees and expenses of the Fund to other similar funds; |
| | | |
| | (3) | Whether economies of scale are recognized by the Fund; |
| | | |
| | (4) | The costs and profitability of the Fund to the Advisor; |
| | | |
| | (5) | The performance of the Fund; and |
| | | |
| | (6) | Any benefits to the Advisor from serving as an investment advisor to the Fund (other than the advisory fee). |
The material considerations and determinations of the Trustees, including the Independent Trustees, were as follows:
| | (1) | The Trustees considered the services identified below that are provided by the Advisor. Based on this review and an assessment of the Advisor’s performance, the Trustees concluded that the Advisor provides high-quality services to the Fund, and they noted that their overall confidence in the Advisor was high. The Trustees also concluded that they were satisfied with the nature, extent, and quality of the advisory services provided to the Fund by the Advisor and that the nature and extent of the services provided by the Advisor were appropriate to assure that the Fund’s operations are conducted in compliance with applicable laws, rules, and regulations. |
| | | (a) | The Advisor acts as the portfolio manager for the Fund. In this capacity, the Advisor does the following: |
| | | | (i) | manages the composition of the Fund’s portfolio, including the purchase, retention, and disposition of portfolio securities in accordance with the Fund’s investment objectives, policies, and restrictions; |
| | | | | |
| | | | (ii) | seeks best execution for the Fund’s portfolio; |
| | | | | |
| | | | (iii) | manages the use of soft dollars for the Fund; and |
| | | | | |
| | | | (iv) | manages proxy voting for the Fund. |
| | | (b) | The Advisor performs a daily reconciliation of portfolio positions and cash for the Fund. |
| | | | |
| | | (c) | The Advisor monitors the liquidity of each Fund. |
| | | | |
| | | (d) | The Advisor monitors the Fund’s compliance with its investment objectives and restrictions and federal securities laws. |
| | | | |
| | | (e) | The Advisor maintains a compliance program (including a code of ethics), conducts ongoing reviews of the compliance programs of the Fund’s service providers (including their codes of ethics, as appropriate), conducts on-site visits to the Fund’s service providers, as feasible, monitors incidents of abusive trading practices, reviews Fund expense accruals, payments, and fixed expense ratios, evaluates insurance providers for fidelity bond, D&O/E&O insurance, and cybersecurity insurance coverage, manages regulatory examination compliance and responses, conducts employee compliance training, reviews reports provided by service providers, and maintains books and records. |
| BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENT |
| | | (f) | The Advisor oversees service providers that provide accounting, administration, distribution, transfer agency, custodial, sales, marketing, public relations, audit, information technology, and legal services to the Fund. |
| | | | |
| | | (g) | The Advisor maintains in-house marketing and distribution departments on behalf of the Fund. |
| | | | |
| | | (h) | The Advisor prepares or directs the preparation of all regulatory filings for the Fund, including writing and annually updating the Fund’s prospectus and related documents. |
| | | | |
| | | (i) | For each annual report of the Fund, the Advisor prepares a written summary of the Fund’s performance during the most recent 12-month period. |
| | | | |
| | | (j) | The Advisor oversees distribution of the Fund through third-party broker/dealers and independent financial institutions such as Charles Schwab, Inc., Fidelity, TD Ameritrade, and Pershing. The Advisor participates in “no transaction fee” (“NTF”) programs with these companies on behalf of the Fund, which allow customers to purchase the Fund through third-party distribution channels without paying a transaction fee. The Advisor compensates, in part, a number of these third-party providers of NTF programs out of its own revenues. |
| | | | |
| | | (k) | The Advisor pays the incentive compensation of the Fund’s compliance officers and employs other staff, such as legal, marketing, national accounts, distribution, sales, administrative, and trading oversight personnel, as well as management executives. |
| | | | |
| | | (l) | The Advisor provides a quarterly compliance certification to the Board. |
| | | | |
| | | (m) | The Advisor prepares or reviews all Board materials, presents to and leads discussions with the Board, prepares or reviews all meeting minutes, and arranges for Board training and education. |
| | (2) | The Trustees compared the performance of the Fund to benchmark indices over various periods and noted that the Trustees review and discuss reports comparing the investment performance of the Fund to various indices at each quarterly Board meeting. Based on such information, the Trustees determined that the Advisor manages the Fund in a manner materially consistent with its stated investment objective and style. The Trustees concluded that the performance of the Fund over various periods warranted the continuation of the advisory agreement. |
| | | |
| | (3) | The Trustees reviewed the advisory fees and overall expense ratios of the Fund compared to other funds similar in asset size and investment objective to the Fund using data from Morningstar. As part of the discussion with management, the Trustees ensured that they understood and were comfortable with the criteria used to determine the mutual funds included in the Morningstar categories for purposes of the materials considered at the meeting. The Trustees determined that the advisory fee and overall expense ratio of the Fund falls within a reasonable range of the advisory fees and overall expense ratios of other comparable funds and concluded that they are reasonable and warranted continuation of the advisory agreement. |
| | | |
| | (4) | The Trustees also considered whether the Advisor was realizing economies of scale that should be shared with the Fund’s shareholders. The Trustees noted that the majority of expenses incurred to manage the Fund are variable |
| HENNESSY FUNDS | 1-800-966-4354 | |
| | | asset-based fees, so the Advisor does not realize material economies of scale relating to these expenses as the assets of the Fund increase. For example, third-party platform fees increase as the Fund’s assets grow. |
| | | |
| | (5) | The Trustees considered the profitability of the Advisor, including the impact of mutual fund platform fees on the Advisor’s profitability, and also considered the resources and revenues that the Advisor has put into managing and distributing the Fund. The Trustees then concluded that the profits of the Advisor are reasonable and not excessive when compared to profitability guidelines set forth in relevant court cases. |
| | | |
| | (6) | The Trustees considered the high level of professionalism and knowledge of the Advisor’s employees and concluded that this was beneficial to the Fund and its shareholders. |
| | | |
| | (7) | The Trustees considered any benefits to the Advisor from serving as an advisor to the Fund (other than the advisory fee). The Trustees noted that the Advisor may derive ancillary benefits from, by way of example, its association with the Fund in the form of proprietary and third-party research products and services received from broker-dealers that execute portfolio trades for the Fund. The Trustees determined that any such products and services have been used for legitimate purposes relating to the Fund by providing assistance in the investment decision-making process. The Trustees concluded that any additional benefits realized by the Advisor from its relationship with the Fund were reasonable, which was based on, among other things, the Trustees’ finding that the research, analytical, statistical, and other information and services provided by brokers are merely supplemental to the Advisor’s own efforts in the performance of its duties under the advisory agreement. |
After reviewing the materials and information provided at the meeting, as well as other information regularly provided at the Board’s quarterly meetings throughout the year regarding the quality of services provided by the Advisor, the performance of the Fund, expense information, brokerage commissions information, the adequacy and efficacy of the Advisor’s written policies and procedures, other regulatory compliance issues, trading information and related matters, and other factors that the Trustees deemed relevant, the Trustees, including the Independent Trustees, approved the continuation of the advisory agreement.
| BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENT |
(This Page Intentionally Left Blank.)
For information, questions, or assistance, please call
The Hennessy Funds
800-966-4354 or 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
J. Dennis DeSousa
Robert T. Doyle
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 1250
Milwaukee, Wisconsin 53202
www.hennessyfunds.com | 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.
NOTICE:
Important Shareholder Report(s) Available Online and in Print by Request
Shareholder reports contain important information about your investments, including portfolio holdings and financial statements. We encourage you to review the shareholder report(s) and other information by visiting: www.hennessyfunds.com/funds/fund-documents
You may request printed copies or change your delivery preferences at any time by calling:
U.S. Bank Global Fund Services
1-800-261-6950 or 1-414-765-4124
Please contact U.S. Bank Global Fund Services if you would like to:
| ✔ | Request a paper copy of a specific shareholder report, free of charge. Unless you contact U.S. Bank Global Fund Services, you will NOT receive a paper copy.
|
| ✔ | Elect to receive paper copies of ALL future shareholder reports, free of charge.
|
| ✔ | Elect to receive shareholder reports and other communications (including quarterly statements, annual tax statements, and prospectuses) electronically delivered to your email. |
Note: You may also elect eDelivery by accessing your account online at www.hennessyfunds.com/account
Subscribe to receive our team’s unique market and sector insights delivered to your inbox
www.hennessyfunds.com/subscribe
Follow us on social media
Item 2. Code of Ethics.
Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semi-annual reports.
Item 4. Principal Accountant Fees and Services.
Not applicable for semi-annual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable to registrants who are not listed issuers (as defined in Rule 10A-3 under the Securities Exchange Act of 1934 (the “Exchange Act”)).
Item 6. Investments.
(a) | The Schedules of Investments are included as part of the reports to shareholders filed under Item 1 of this Form. |
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable to open-end investment companies.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable to open-end investment companies.
Item 9. Purchases of Equity Securities by Closed‑End Management Investment Company and Affiliated Purchasers.
Not applicable to open-end investment companies.
Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11. Controls and Procedures.
(a) | The registrant’s principal executive officer and principal financial officer have reviewed the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) as of a date within 90 days of the filing date of this report, as required by Rule 30a‑3(b) under the Act and Rules 13a-15(b) or 15d‑15(b) under the Exchange Act. Based on their review, such officers have concluded that the disclosure controls and procedures are effective in ensuring that information required to be disclosed in this report is appropriately recorded, processed, summarized, and reported and made known to them by others within the registrant and by the registrant’s service providers. |
(b) | There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. |
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
Not applicable to open-end investment companies.
Item 13. Exhibits.
| (a) | (1) Code of ethics, or amendments thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy Item 2 requirements through filing of an exhibit. Not applicable. |
(3) Any written solicitation to purchase securities under Rule 23c‑1 under the Act sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. Not applicable to open-end investment companies.
(4) Change in the registrant’s independent public accountant. Provide the information called for by Item 4 of Form 8-K under the Exchange Act. Unless otherwise specified by Item 4, or related to and necessary for a complete understanding of information not previously disclosed, the information should relate to events occurring during the reporting period. There was no change in the registrant’s independent public accountant for the period covered by this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HENNESSY FUNDS TRUST
(Registrant)
By: /s/Neil J. Hennessy
Neil J. Hennessy
President
Date: July 8, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: /s/Neil J. Hennessy
Neil J. Hennessy, President and Principal Executive Officer |
| |
Date: July 8, 2022 |
By: /s/Teresa M. Nilsen Teresa M. Nilsen, Treasurer and Principal Financial Officer |
| |
Date: July 8, 2022 |
