UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number (811-07168)
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HENNESSY FUNDS TRUST
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(Exact name of registrant as specified in charter)
THE COURTYARD SQUARE
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750 GRANT AVENUE, SUITE 100
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NOVATO, CA 94945
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(Address of principal executive offices) (Zip code)
NEIL J. HENNESSY
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HENNESSY ADVISORS, INC.
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THE COURTYARD SQUARE
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750 GRANT AVENUE, SUITE 100
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NOVATO, CA 94945
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(Name and address of agent for service)
800-966-4354
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Registrant's telephone number, including area code
Date of fiscal year end: JUNE 30, 2005
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Date of reporting period: JUNE 30, 2005
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ITEM 1. REPORT TO STOCKHOLDERS.
- ------------------------------
HENNESSY FUNDS
ANNUAL REPORT
JUNE 30, 2005
HENNESSY CORNERSTONE GROWTH FUND, SERIES II
FORMERLY KNOWN AS THE HENLOPEN FUND
FUND SYMBOL: HENLX
(HENNESSY FUNDS LOGO)
FORMULAS FOR SMART INVESTING
CONTENTS
Letter to shareholders 1
Financial statements
Summary of statement of net assets 5
Statement of operations 10
Statements of changes in net assets 11
Financial highlights 12
Notes to financial statements 14
Report of Independent Registered Public Accounting Firm 18
Expense example 19
Trustees and officers of the Fund 22
Proxy voting policy 26
Advisory agreement 27
LETTER TO SHAREHOLDERS
August 2005
DEAR HENNESSY FUND SHAREHOLDER:
Welcome to the Hennessy family of mutual funds and thank you for voting for
Hennessy Advisors, Inc. to manage your investment in The Henlopen Fund. We
manage our funds with the highest ethical standards in the investment industry
and at Hennessy Funds our shareholders always come first. Those are the
principles that we founded our business on 16 years ago, and those are the
principles that guide us today. I am pleased to announce that your Fund expense
ratio has been lowered from 1.33% to 1.25% effective July 1, 2005. To provide an
extra measure of confidence, we will cap expenses at 1.25% through June 2006.
We want you to get to know about our funds and about us. The Hennessy Funds
are a family of no-load mutual funds, which utilize time-tested, quantitative
stock selection strategies. We do not let emotions, hunches and fads play any
part in our investment decisions. We will manage your Fund with discipline and
consistency, and we will not stray from our proven investment formula. As a part
of the Hennessy family of investors, you can be confident that your money is
invested as promised in the prospectus. We feel it is critical for you, as our
mutual fund shareholders, to understand the strategies, risks and costs of
investing, as well as the rewards. That is why the strategy and performance of
your Fund is fully disclosed.
HOW WE WILL MANAGE YOUR INVESTMENT
On July 1st, the name of The Henlopen Fund changed to HENNESSY CORNERSTONE
GROWTH FUND, SERIES II. The Fund symbol (HENLX) remains the same. The Fund is
now managed using a disciplined, quantitative formula, known as the Cornerstone
Growth Strategy(R). The objective of the Fund remains the same - long-term
capital appreciation. The Hennessy Cornerstone Growth Fund, Series II, similar
to The Henlopen Fund, will utilize both value and momentum criteria to select
growth-oriented companies that can be purchased at a reasonable price.
Specifically, the Cornerstone Growth Strategy selects the 50 stocks that have
the highest one-year stock price appreciation that also meet the following
criteria:
- Market capitalization above $134 million
- Price to sales ratio below 1.5
- Annual earnings higher than the previous year
- Positive stock price appreciation over the past 3- and 6-month periods
RETURNS AT A GLANCE (AS OF JUNE 30, 2005)
One-Year Five-Year Ten-Year Since
Annualized Annualized Annualized Inception
Return Return Return (12/2/92)
---------- ---------- ---------- ---------
HENNESSY CORNERSTONE GROWTH
FUND, SERIES II (FORMERLY
THE HENLOPEN FUND) 13.04% 3.37% 15.09% 15.79%
Lipper Growth Fund Index 5.21% -5.64% 7.60% 10.93%
S&P 500 Index 6.32% -2.37% 9.94% 10.50%
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE; PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE OF THE FUND MAY
BE LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. PERFORMANCE DATA CURRENT TO THE
MOST RECENT MONTH-END MAY BE OBTAINED BY VISITING WWW.HENNESSYFUNDS.COM. THE
TABLE ABOVE AND FOLLOWING CHART DO NOT REFLECT THE DEDUCTION OF TAXES THAT A
SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
THE PERFORMANCE OF THE FUND
For the twelve-month period ending June 30, 2005, the returns for the Hennessy
Cornerstone Growth Fund, Series II (which was known as The Henlopen Fund during
this period) were more than double the returns of each of the indices used to
benchmark the Fund's performance. For the twelve-month period, the Hennessy
Cornerstone Growth Fund, Series II returned +13.04%, versus the S&P 500 Index at
+6.32% and the Lipper Growth Fund Index at +5.21%. As reported by the previous
manager in quarterly and semi-annual reports to shareholders, the Fund saw broad
weakness in its technology holdings, while retail, metals and energy-related
holdings posted solid gains in the first quarter of the fiscal year. In the
second quarter, the Fund's performance was driven by the general market rally
following the presidential election, with especially strong gains in the gaming,
tanker, homebuilding and financial sectors. In the second half of the fiscal
year, the Fund showed strong performance in the mining and energy sectors, and
performance in the most recent quarter was driven significantly by the Fund's
strong concentration (over 25% of the portfolio) in the energy sector.
SINCE INCEPTION COMPARISON OF CHANGE IN
VALUE OF A $10,000 INVESTMENT IN
HENNESSY CORNERSTONE GROWTH FUND, SERIES II*<F1>,
S&P 500 INDEX AND LIPPER GROWTH FUND INDEX
Hennessy Cornerstone Growth Lipper Growth
Date Fund, Series II*<F1> S&P 500 Index Fund Index
---- --------------------------- ------------- -------------
6/30/95 $10,000 $10,000 $10,000
6/30/96 $13,839 $12,620 $12,070
6/30/97 $14,534 $16,999 $14,919
6/30/98 $19,300 $22,150 $19,439
6/30/99 $22,471 $27,178 $23,657
6/30/2000 $34,540 $29,135 $27,821
6/30/2001 $24,882 $24,814 $21,564
6/30/2002 $21,868 $20,351 $16,639
6/30/2003 $23,614 $20,402 $16,860
6/30/2004 $36,105 $24,300 $19,787
6/30/2005 $40,812 $25,836 $20,818
AVERAGE ANNUAL TOTAL RETURN
1-Year 5-Year 10-Year
------ ------ -------
13.04% 3.37% 15.09%
*<F1> For the 1996-2005 fiscal years, Landis Associates LLC was the Fund's
investment adviser and portfolio manager. On July 1, 2005, Hennessy
Advisors, Inc. became the investment adviser and portfolio manager.
OUR OUTLOOK
Despite tremendous negativity and volatility in the markets, I continue to be
bullish about the economy. Interest rates remain at historic lows and inflation
is in check. Corporations are seeing stronger earnings and are increasing their
spending and hiring. Despite these positive economic indicators, the market has
not rallied as might be expected. In this otherwise strong economy, investors
appear to have lacked the confidence and enthusiasm to drive the markets higher.
One of the metrics we use to screen for undervalued stocks is a low price-to-
sales ratio. We recently used this metric to analyze the market overall, and we
were not surprised to find that the market appears to be undervalued versus
historical levels. The S&P 500 Index currently has a price-to-sales ratio of
1.5, which is approximately 5% below the average levels over the past ten years,
and is significantly below the high of 2.3 we saw in 2000. Couple this general
market undervaluation with the estimates for growth in corporate earnings in the
S&P 500 of approximately 9-10% and you may agree with me that the market appears
poised to run.
At Hennessy Funds, we know one of the keys to investing success is
maintaining a long-term view. We remain invested in the market and adhere to our
formulas through good and bad markets, and we never let headlines or emotions
distract us from our proven strategies. Of course, no one has a crystal ball
that can predict the movements of the stock market. However, history tends to
repeat itself, and we continue to believe that the market, over the long-run,
will gain approximately 10-11% per year. The intelligent investor will continue
to buy and hold mutual funds that employ strategies they understand and that
have shown solid performance over time.
As I look forward, I expect we will see continued volatility and increasing
speculation by individual investors and analysts alike. However, with strong
positive economic factors in place, I continue to be a market bull, anticipating
strong market performance over the long run.
At Hennessy Funds, we remain committed to our proven, disciplined investment
style, and foremost we are committed to our shareholders. Thank you for your
trust and confidence, and if you have any questions about this change in
management of the Fund, or would like additional information about the Fund,
please don't hesitate to call us at (800) 966-4354, or visit our website at
www.hennessyfunds.com. We look forward to a long and successful partnership.
Best regards,
/s/Neil J. Hennessy
Neil J. Hennessy
President & Portfolio Manager
SMALL- AND MEDIUM-CAPITALIZATION COMPANIES TEND TO HAVE LIMITED LIQUIDITY AND
GREATER PRICE VOLATILITY THAN LARGE-CAPITALIZATION COMPANIES. INVESTMENTS IN
FOREIGN SECURITIES INVOLVE GREATER VOLATILITY AND POLITICAL, ECONOMIC AND
CURRENCY RISKS AND DIFFERENCES IN ACCOUNTING METHODS.
The S&P 500 Index is an unmanaged index of stocks commonly used to measure the
performance of U.S. stocks. The Lipper Growth Fund Index is an index of mutual
funds having an investment objective similar to the Fund's investment objective.
One cannot invest directly in an index.
While the Fund is no-load, management and other expenses still apply. Please
refer to the Prospectus for further details.
Price-to-sales ratio is a tool for calculating a stock's valuation relative to
other companies. It is calculated by dividing a stock's current price by its
revenue per share.
Opinions expressed are those of Neil Hennessy and are subject to change, are not
guaranteed and should not be considered investment advice. 8/05
SUMMARY OF STATEMENT OF NET ASSETS
The following summary of statement of net assets is designed to help investors
better understand the Fund's principal holdings. The summary is as of June 30,
2005.
INDUSTRY SECTORS AS OF JUNE 30, 2005
Energy 25.7%
Consumer-Cyclicals 18.5%
Industrials 12.2%
Consumer - Non-Cyclicals 8.6%
Financial 7.7%
Basic Materials 5.7%
Communications 4.8%
REITS 2.4%
Technology 2.0%
Other Investments 1.4%
Cash 11.0%
FINANCIAL STATEMENTS
LONG-TERM INVESTMENTS - 89.0% (a)<F3>
COMMON STOCKS - 85.2% (a)<F3>
Shares Cost Value
------ ---- -----
Basic Materials Sector - 5.7%
Ashland Inc.*<F2> 45,000 $ 3,091,500 $ 3,234,150
Cameco Corp. 100,000 1,668,053 4,475,000
Cleveland-Cliffs Inc. 25,000 1,956,675 1,444,000
Oregon Steel Mills, Inc.*<F2> 150,000 3,001,755 2,581,500
Rio Tinto PLC - SP-ADR 10,000 1,269,146 1,219,200
Universal Stainless &
Alloy Products, Inc.*<F2> 82,000 1,075,764 996,382
Western Silver Corp.*<F2> 360,000 1,269,629 3,132,000
----------- ------------ ------------
13,332,522 17,082,232
Communications Sector - 4.8%
America Movil S.A. de C.V. ADR Series L 60,000 3,199,233 3,576,600
CheckFree Corp.*<F2> 85,000 3,150,264 2,895,100
Forgent Networks, Inc.*<F2> 400,000 1,170,401 588,000
JAMDAT Mobile Inc.*<F2> 75,000 2,141,453 2,076,000
Marchex, Inc. Cl B*<F2> 200,000 1,967,000 3,008,000
XM Satellite Radio Holdings Inc.*<F2> 65,000 2,044,985 2,187,900
----------- ------------ ------------
13,673,336 14,331,600
Consumer, Cyclical Sector - 18.5%
Abercrombie & Fitch Co. 25,000 1,617,510 1,717,500
Alliance Gaming Corp.*<F2> 100,000 1,502,630 1,402,000
Amerigon Inc.*<F2> 400,000 2,151,000 1,400,000
Aztar Corp.*<F2> 100,000 2,891,608 3,425,000
Building Materials Holding Corp. 46,500 2,576,463 3,221,985
Comstock Homebuilding
Companies, Inc.*<F2> 135,000 2,605,944 3,269,700
Gaylord Entertainment Co.*<F2> 90,000 3,392,226 4,184,100
Harrah's Entertainment, Inc. 50,000 3,415,710 3,603,500
Hartmarx Corp.*<F2> 100,000 994,000 1,007,000
Isle of Capri Casinos, Inc.*<F2> 75,000 1,868,265 1,965,000
KB Home, Inc. 50,000 2,745,647 3,811,500
Kohl's Corp.*<F2> 50,000 2,754,385 2,795,500
Nevada Gold & Casinos, Inc.*<F2> 229,300 2,889,024 2,487,905
Penn National Gaming, Inc.*<F2> 100,000 3,341,120 3,650,000
Pulte Homes, Inc. 40,000 3,045,761 3,370,000
Rubio's Restaurants, Inc.*<F2> 245,000 2,098,908 2,560,250
Rush Enterprises, Inc.*<F2> 200,000 3,208,630 2,668,000
The Sports Authority, Inc.*<F2> 120,000 3,441,241 3,816,000
Stanley Furniture Company, Inc. 116,500 2,572,418 2,861,240
WestCoast Hospitality Corp.*<F2> 300,300 2,002,776 2,063,061
----------- ------------ ------------
51,115,266 55,279,241
Consumer, Non-Cyclical Sector - 8.6%
Access Pharmaceuticals, Inc.*<F2> 250,000 1,513,841 462,500
Amylin Pharmaceuticals, Inc.*<F2> 100,000 1,852,300 2,093,000
Bioveris Corp.*<F2> 310,000 5,285,500 1,354,700
Community Health Systems Inc.*<F2> 85,000 3,218,083 3,212,150
ImClone Systems Inc.*<F2> 100,000 3,330,540 3,097,000
Neurometrix Inc.*<F2> 150,000 1,200,000 3,004,500
OXiGENE, Inc.*<F2> 200,000 1,821,327 908,000
Schering-Plough Corp. 100,000 2,071,000 1,906,000
Steiner Leisure Ltd.*<F2> 75,000 2,563,703 2,780,250
StemCells, Inc.*<F2> 200,000 1,236,520 842,000
Universal Health Services, Inc. Cl B 60,000 3,150,690 3,730,800
Wyeth 50,000 2,243,900 2,225,000
----------- ------------ ------------
29,487,404 25,615,900
Energy Sector - 25.7%
ATP Oil & Gas Corp.*<F2> 150,000 2,395,400 3,510,000
Burlington Resources Inc. 90,000 2,878,354 4,971,600
Cimarex Energy Co.*<F2> 30,000 1,076,001 1,167,300
CONSOL Energy Inc. 75,000 2,574,682 4,018,500
ENSCO International Inc. 70,000 2,623,111 2,502,500
EOG Resources, Inc. 100,000 2,713,825 5,680,000
Grey Wolf, Inc.*<F2> 600,000 3,887,199 4,446,000
Helmerich & Payne, Inc. 50,000 1,820,985 2,346,000
KCS Energy, Inc.*<F2> 200,000 1,878,383 3,474,000
Lufkin Industries, Inc. 100,000 3,138,309 3,598,000
McMoRan Exploration Co.*<F2> 100,000 1,492,010 1,951,000
Murphy Oil Corp. 70,000 2,904,355 3,656,100
Noble Energy, Inc. 50,000 2,702,440 3,782,500
Occidental Petroleum Corp. 25,000 1,626,360 1,923,250
Patterson-UTI Energy, Inc. 40,000 1,146,196 1,113,200
Pioneer Natural Resources Co. 90,000 3,455,655 3,787,200
Plains Exploration & Production Co.*<F2> 75,000 1,711,560 2,664,750
Questar Corp. 25,000 1,608,920 1,647,500
Quicksilver Resources Inc.*<F2> 60,000 1,862,884 3,835,800
Southwestern Energy Co.*<F2> 80,000 941,264 3,758,400
Suncor Energy, Inc. 90,000 2,837,790 4,258,800
Tesoro Corp. 65,000 2,839,454 3,023,800
Ultra Petroleum Corp.*<F2> 60,000 1,664,949 1,821,600
Valero Energy Corp. 50,000 3,813,390 3,955,500
----------- ------------ ------------
55,593,476 76,893,300
Financial Sector - 7.7%
ASTA Funding, Inc. 60,000 1,481,974 1,666,800
Franklin Bank Corp.*<F2> 100,000 1,842,311 1,876,000
North Fork Bancorporation, Inc. 75,000 2,191,090 2,106,750
Pacific Premier Bancorp, Inc.*<F2> 185,000 2,420,688 1,981,350
PrivateBancorp, Inc. 50,000 1,650,323 1,769,000
Sanders Morris Harris Group Inc. 225,000 2,866,527 3,870,000
Shore Bancshares, Inc. 37,500 1,217,385 1,059,750
The St. Joe Co. 45,000 3,238,510 3,669,300
Texas United Bancshares, Inc. 93,000 1,581,486 1,692,600
WSFS Financial Corp. 60,000 3,398,755 3,282,600
----------- ------------ ------------
21,889,049 22,974,150
Industrials Sector - 12.2%
Ampex Corp.*<F2> 81,500 3,518,270 3,202,950
ARGON ST, Inc.*<F2> 75,000 2,681,745 2,662,500
Axsys Technologies, Inc.*<F2> 200,000 3,344,002 3,530,200
Energy Conversion Devices, Inc.*<F2> 200,000 3,445,412 4,476,000
Frontline Ltd. 25,000 1,120,002 1,006,000
Golar LNG Ltd.*<F2> 125,000 2,093,343 1,500,000
Jacobs Engineering Group Inc.*<F2> 30,000 1,572,633 1,687,800
Manitowoc Company, Inc. 80,000 2,983,475 3,281,600
McDermott International, Inc.*<F2> 175,000 3,908,800 3,675,000
NS Group, Inc.*<F2> 118,700 3,324,170 3,858,937
Perini Corp.*<F2> 200,000 3,266,840 3,284,000
Texas Industries, Inc. 25,000 1,417,088 1,405,750
Washington Group
International, Inc.*<F2> 55,000 2,209,944 2,811,600
----------- ------------ ------------
34,885,724 36,382,337
Technology Sector - 2.0%
Eclipsys Corp.*<F2> 100,000 1,914,050 1,407,000
Novell, Inc.*<F2> 500,000 2,454,555 3,100,000
Semitool, Inc.*<F2> 175,000 2,247,925 1,669,500
----------- ------------ ------------
6,616,530 6,176,500
TOTAL COMMON STOCKS 226,593,307 254,735,260
OTHER INVESTMENTS - 1.4% (a)<F3>
Fording Canadian Coal Trust 45,000 3,796,962 4,149,000
REITS - 2.4 % (a)<F3>
ECC Capital Corp. 400,000 2,703,000 2,664,000
New Century Financial Corp. 70,000 4,158,297 3,601,500
ProLogis 25,000 1,004,850 1,006,000
----------- ------------ ------------
TOTAL REITS 7,866,147 7,271,500
TOTAL LONG-TERM INVESTMENTS 238,256,416 266,155,760
SHORT-TERM
INVESTMENTS - 11.0% (a)<F3> Principal
Amount
---------
Commercial Paper - 4.3%
General Electric Capital Corp.,
3.15%, due 7/01/05 $13,000,000 13,000,000 13,000,000
Variable Rate Demand Notes - 6.7%
American Family Financial
Services, 2.95% 2,880,000 2,880,000 2,880,000
U.S. Bank, N.A., 3.08% 16,579,128 16,579,128 16,579,128
Wisconsin Corporate
Central Credit Union, 3.00% 520,000 520,000 520,000
----------- ------------ ------------
TOTAL VARIABLE RATE DEMAND NOTES 19,979,128 19,979,128
------------ ------------
TOTAL SHORT-TERM INVESTMENTS 32,979,128 32,979,128
------------ ------------
TOTAL INVESTMENTS $271,235,544 299,134,888
------------ ------------
Liabilities, less cash and
receivables (0.0%) (a)<F3> (165,421)
------------
NET ASSETS $298,969,467
------------
------------
Net Asset Value Per Share
(No par value, unlimited
shares authorized), offering
and redemption price
($298,969,467 / 9,555,591
shares outstanding) $31.29
------------
------------
*<F2> Non-income producing security.
(a)<F3> Percentages for the various classifications relate to net assets.
ADR - American Depository Receipts
The accompanying notes to financial statements are an integral part of this
statement.
FINANCIAL STATEMENTS
Statement of Operations For the Year Ended June 30, 2005
INCOME:
Dividends $ 2,327,527
Interest 283,888
-----------
Total income 2,611,415
-----------
EXPENSES:
Investment management fees 3,111,485
Transfer agent fees 445,049
Administrative services 222,193
Printing and postage expense 116,532
Custodian fees 74,432
Professional fees 49,053
Registration fees 45,680
Insurance expense 41,612
Board of Trustees fees 18,000
Other expenses 8,372
-----------
Total expenses 4,132,408
-----------
NET INVESTMENT LOSS (1,520,993)
-----------
NET REALIZED GAIN ON INVESTMENTS 16,052,260
CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS 18,659,508
-----------
NET GAIN ON INVESTMENTS 34,711,768
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $33,190,775
-----------
-----------
The accompanying notes to financial statements are an integral part of this
statement.
Statements of Changes in Net Assets For the Years Ended June 30, 2005 and 2004
2005 2004
---- ----
OPERATIONS:
Net investment loss $ (1,520,993) $ (1,709,190)
Net realized gain on investments 16,052,260 26,606,550
Change in unrealized appreciation on investments 18,659,508 23,126,655
------------ ------------
Net increase in net assets resulting from operations 33,190,775 48,024,015
------------ ------------
DISTRIBUTION TO SHAREHOLDERS:
Dividend from net investment income
($0.01002 per share) (108,497)*<F4> --
------------ ------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (3,865,585
and 10,464,939 shares, respectively) 108,849,934 278,958,856
Net asset value of shares issued in
distributions (3,532 shares) 107,365 --
Cost of shares redeemed (6,875,515
and 2,202,536 shares, respectively) (190,917,296) (57,182,968)
Redemption fees 23,301 66,882
------------ ------------
Net (decrease) increase in net assets
derived from Fund share activities (81,936,696) 221,842,770
------------ ------------
TOTAL (DECREASE) INCREASE (48,854,418) 269,866,785
NET ASSETS AT THE BEGINNING OF THE YEAR 347,823,885 77,957,100
------------ ------------
NET ASSETS AT THE END OF THE YEAR
(Includes accumulated net investment loss
of ($1,871,871) and ($1,189,371), respectively) $298,969,467 $347,823,885
------------ ------------
------------ ------------
*<F4> See Note 7
The accompanying notes to financial statements are an integral part of these
statements.
Financial Highlights
(Selected data for each share of the Fund outstanding throughout each year)
For the Years Ended June 30,
----------------------------------------------------------------
2005 2004 2003 2002 2001
---- ---- ---- ---- ----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $27.69 $18.13 $16.79 $19.15 $28.39
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss (a)<F5> (0.14) (0.23) (0.16) (0.18) (0.16)
Net realized and unrealized
gains (losses) on investments 3.75 9.79 1.50 (2.14) (7.85)
------ ------ ------ ------ ------
Total from investment operations 3.61 9.56 1.34 (2.32) (8.01)
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividend from net investment income (0.01) -- -- -- --
Distributions from net realized gains -- -- -- (0.04) (1.23)
------ ------ ------ ------ ------
Total from distributions (0.01) -- -- (0.04) (1.23)
------ ------ ------ ------ ------
Net asset value, end of year $31.29 $27.69 $18.13 $16.79 $19.15
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL RETURN 13.04% 52.73% 7.98% (12.11)% (27.96)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's $) 298,969 347,824 77,957 95,317 150,872
Ratio of expenses to average net assets 1.33% 1.38% 1.58% 1.39% 1.28%
Ratio of net investment loss to average net assets (0.49)% (0.90)% (1.04)% (0.98)% (0.74)%
Portfolio turnover rate 192.24% 113.27% 90.06% 132.21% 287.66%
(a)<F5> Net investment loss per share is calculated using average shares
outstanding.
The accompanying notes to financial statements are an integral part of this
statement.
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
The following is a summary of significant accounting policies of the Hennessy
Cornerstone Growth Fund, Series II (the "Fund") (formerly known as The Henlopen
Fund), which is organized as a Delaware Business Trust and is registered as a
diversified open-end management company under the Investment Company Act of
1940, as amended. The Fund commenced operations on December 2, 1992. The
investment objective of the Fund is long-term capital appreciation. Effective
July 1, 2005, the Fund will invest in growth-oriented common stocks by utilizing
a highly disciplined, quantitative formula known as the Cornerstone Growth
Strategy(R).
(a) Each security, excluding short-term investments, is valued at the last
sale price reported by the principal security exchange on which the issue
is traded. Securities that are traded on the Nasdaq National Market or
the Nasdaq SmallCap Market are valued at the Nasdaq Official Closing
Price, or if no sale is reported, the latest bid price. Securities which
are traded over-the-counter are valued at the latest bid price.
Effective July 1, 2005, the Fund will no longer use Nasdaq Official
Closing Price for securities traded on the Nasdaq National Market. These
securities will be priced at the last sale price on the security exchange
on which such securities are primarily traded. Securities for which
quotations are not readily available are valued at fair value as
determined by the investment adviser under the supervision of the Board
of Trustees. The fair value of a security may differ from the last
quoted price and the Fund may not be able to sell a security at the fair
value. Market quotations may not be available, for example, if trading
in particular securities has halted during the day and not resumed prior
to the close of trading on the New York Stock Exchange. Short-term
investments with maturities of 60 days or less are valued at amortized
cost which approximates value. For financial reporting purposes,
investment transactions are recorded on trade date.
(b) Net realized gains and losses on sales of securities are computed on the
identified cost basis.
(c) Dividend income is recorded on the ex-dividend date. Interest income is
recorded on the accrual basis.
(d) The Fund has investments in short-term variable rate demand notes, which
are unsecured instruments. The Fund may be susceptible to credit risk
with respect to these notes to the extent the issuer defaults on its
payment obligation. The Fund's policy is to monitor the creditworthiness
of the issuer and nonperformance by these counterparties is not
anticipated.
(e) Accounting principles generally accepted in the United States of America
("GAAP") require that permanent differences between income for financial
reporting and tax purposes be reclassified in the capital accounts.
(f) The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
(g) Provision has not been made for Federal income taxes since the Fund has
elected to be taxed as a "regulated investment company" and intends to
distribute substantially all net investment company taxable income and
net capital gains to its shareholders and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies.
(h) Prior to July 1, 2005, the Fund imposed a 1.0% redemption fee on the
value of shares redeemed less than 30 days after purchase. Effective
with shares purchased on or after July 1, 2005, the Fund will impose a
1.5% redemption fee on the value of shares redeemed less than three
months after purchase. The redemption fee will not apply to shares
purchased through reinvested distributions (dividends and capital gains),
shares held in retirement plans or through the systematic withdrawal
plan. The redemption fee is designed to discourage short-term trading
and any proceeds of the fee will be credited to paid in capital.
(2) INVESTMENT ADVISER AND MANAGEMENT AGREEMENT AND TRANSACTIONS WITH RELATED
PARTIES --
As a result of a special meeting of shareholders, on June 9, 2005, a new
advisory agreement was approved naming Hennessy Advisors, Inc. as the new
investment adviser. Under the terms of the new agreement, effective July 1,
2005, Hennessy Advisors, Inc. will receive an annual fee, payable monthly, of
0.74% of the Fund's average daily net assets. In addition, Hennessy Advisors,
Inc., has agreed to reimburse the Fund to the extent necessary to ensure that
the total annual Fund operating expense does not exceed 1.25%. This expense cap
will be in effect through June 30, 2006. Prior to July 1, 2005, the Fund had a
management agreement with Landis Associates LLC ("Landis"), with whom certain
officers and trustees of the Fund were affiliated, to serve as investment
adviser and manager. Under the terms of the agreement, the Fund paid Landis a
monthly management fee at the annual rate of 1% on the daily net assets of the
Fund.
Subsequent to the fiscal year ended June 30, 2005, the Fund decided to change
service providers for administrative and accounting services. Effective July 1,
2005, U.S. Bancorp Fund Services, LLC will be the administrator and fund
accountant for the Fund. Prior to July 1, 2005, the Fund had an administrative
agreement with Fiduciary Management, Inc. ("FMI"), with whom an officer of the
Fund was affiliated, to supervise all aspects of the Fund's operations except
those performed by Landis. Under the terms of the agreement, the Fund paid FMI a
monthly administrative fee at the annual rate of 0.2% on the first $30,000,000
of the daily net assets of the Fund, 0.1% on the daily net assets of the Fund on
the next $30,000,000 and 0.05% on the daily net assets of the Fund over
$60,000,000.
In the normal course of business the Fund enters 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. However, based on
experience, the Fund expects the risk of loss to be remote.
(3) DISTRIBUTIONS TO SHAREHOLDERS --
Net investment income and net realized gains, if any, are distributed to
shareholders at least annually. On July 13, 2005, the Fund distributed
$6,598,182 from short-term realized gains ($0.69794 per share). The distribution
was paid on July 13, 2005 to shareholders of record on July 12, 2005.
(4) INVESTMENT TRANSACTIONS --
For the year ended June 30, 2005, purchases and proceeds of sales of investment
securities (excluding short-term securities) were $577,368,114 and $683,306,604,
respectively.
(5) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES --
As of June 30, 2005, liabilities of the Fund included the following:
Due to custodian $ 214,028
Payable to Landis for management fees 197,944
Payable to shareholders for redemptions 58,758
Payable to FMIfor administrative fees 17,235
Other liabilities 50,236
(6) SOURCES OF NET ASSETS --
As of June 30, 2005 the sources of net assets were as follows:
Fund shares issued and outstanding $266,788,556
Net unrealized appreciation on investments 27,899,344
Undistributed net realized gains 6,153,438
Accumulated net investment loss (1,871,871)
------------
$298,969,467
------------
------------
(7) INCOME TAX INFORMATION --
The following information for the Fund is presented on an income tax basis as of
June 30, 2005:
GROSS GROSS NET UNREALIZED DISTRIBUTABLE DISTRIBUTABLE
COST OF UNREALIZED UNREALIZED APPRECIATION ORDINARY LONG-TERM
INVESTMENTS APPRECIATION DEPRECIATION ON INVESTMENTS INCOME CAPITAL GAINS
----------- ------------ ------------ -------------- ------------- -------------
$273,107,627 $41,540,016 $15,512,755 $26,027,261 $6,598,182 $ --
The difference, if any, between the cost amount for financial statement and
federal income tax purposes is due primarily to timing differences in
recognizing certain gains and losses in security transactions and for mark to
market for Passive Foreign Investment Companies ("PFICs").
The tax components of dividends paid during the years ended June 30, 2005 and
2004, capital loss carryovers, which may be used to offset future capital gains,
subject to Internal Revenue Code limitations, as of June 30, 2005, and tax basis
post-October losses as of June 30, 2005, which are not recognized for tax
purposes until the first day of the following fiscal year are:
JUNE 30, 2005 JUNE 30, 2004
------------------------------------------------------------- -------------------------------
ORDINARY LONG -TERM NET CAPITAL ORDINARY LONG-TERM
INCOME CAPITAL GAINS LOSS POST-OCTOBER INCOME CAPITAL GAINS
DISTRIBUTIONS DISTRIBUTIONS CARRYOVERS LOSSES DISTRIBUTIONS DISTRIBUTIONS
------------- ------------- ----------- ------------ ------------- -------------
$108,497 $ -- $ -- $444,531 $ -- $ --
The Fund utilized $8,943,326 of its capital loss carryovers during the year
ended June 30, 2005.
For corporate shareholders in the Fund, the percentage of dividend income
distributed for the year ended June 30, 2005 which is designated as qualifying
for the dividends received deduction is 4.6%, (unaudited).
For shareholders in the Fund, the percentage of dividend income distributed
for the year ended June 30, 2005 which is designated as qualified dividend
income under the Jobs and Growth Tax Relief Act of 2003, is 100%, (unaudited).
(8) MATTERS SUBMITTED TO A SHAREHOLDER VOTE (UNAUDITED) --
A special meeting of shareholders of The Henlopen Fund was held on June 9, 2005
and the following matters were approved by such Fund's voting shares:
For Against Abstain
--- ------- -------
1) Approve a new investment advisory
agreement for the Fund with
Hennessy Advisors, Inc.; 9,322,407 228,103 102,530
2) Elect four trustees of the Fund:
J. Dennis DeSousa 9,421,080 0 231,959
Robert T. Doyle 9,425,013 0 228,026
Gerald P. Richardson 9,431,688 0 221,352
Neil J. Hennessy 9,388,235 0 264,804
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Trustees
of the Hennessy Cornerstone Growth Fund, Series II
(formerly known as The Henlopen Fund)
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Hennessy Cornerstone Growth Fund, Series II (the "Fund") (formerly known as
The Henlopen Fund) at June 30, 2005, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with standards of the Public
Company Accounting Oversight Board (United States), which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at June
30, 2005 by correspondence with the custodian, provide a reasonable basis for
our opinion.
/s/PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
July 28, 2005
EXPENSE EXAMPLE June 30, 2005
As a shareholder of the Fund you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments, reinvested
dividends, or other distributions; redemption fees; and exchange fees; and (2)
ongoing costs, including management fees and other Fund expenses. This example
is intended to help you understand your ongoing costs (in dollars) of investing
in the Hennessy Cornerstone Growth Fund, Series II 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 January 1, 2005 through June 30,
2005.
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, 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 entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
In addition to the costs highlighted and described below, the only Fund
transaction costs you might currently incur would be wire fees ($15 per wire),
if you choose to have proceeds from a redemption wired to your bank account
instead of receiving a check. Additionally, U.S. Bank charges an annual
processing fee ($15) if you maintain an IRA account with the Fund. To determine
your total costs of investing in the Fund, you would need to add any applicable
wire or IRA processing fees you've incurred during the period to the costs
provided in the example at the end of this article.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads), redemption or exchange fees. Therefore, the second line of the
table is useful in comparing ongoing costs only, and will not help you determine
the relative total costs of owning different funds. In addition, if these
transactional costs were included, your costs would have been higher.
BEGINNING ENDING EXPENSES PAID
ACCOUNT ACCOUNT DURING PERIOD*<F6>
VALUE 1/01/05 VALUE 6/30/05 1/01/05-6/30/05
------------- ------------- ------------------
Hennessy Cornerstone
Growth Fund, Series II Actual $1,000 $1,000.00 $1,026.90 $6.99
Hypothetical (5% return before expenses) $1,000.00 $1,017.90 $6.95
*<F6> Expenses are equal to the Fund's annualized expense ratio of 1.39%,
multiplied by the average account value over the period, multiplied by
181/365 (to reflect the one-half year period between January 1, 2005
and June 30, 2005).
TRUSTEES AND OFFICERS OF THE FUND
As a Delaware statutory trust, the business and affairs of the Fund are managed
by its officers under the direction of its Board of Trustees. Prior to July 1,
2005, the trustees were Michael L. Hershey, Howard E. Cosgrove, Robert J. Fahey,
Jr. and John H. Remer. The name, age, address, principal occupation(s) during
the past five years, and other information with respect to each of the current
trustees and officers of the Fund are as follows:
NUMBER OF
PORTFOLIOS
IN THE FUND OTHER
POSITION(S) TERM OF OFFICE COMPLEX DIRECTORSHIPS
HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY
NAME, AGE AND ADDRESS THE FUND TIME SERVED DURING PAST 5 YEARS TRUSTEE (1)<F7> TRUSTEE
- --------------------- ----------- -------------- ----------------------- --------------- -------------
"DISINTERESTED PERSONS"
J. Dennis DeSousa Trustee Indefinite, until Currently a real 6 None.
Age: 68 successor elected estate investor.
Address:
c/o Hennessy Advisors, Inc. Newly elected
The Courtyard Square
750 Grant Avenue, Suite 100
Novato, CA 94945
Robert T. Doyle Trustee Indefinite, until Currently the Sheriff of 6 None.
Age: 57 successor elected Marin County, California
Address: (since 1996) and has been
c/o Hennessy Advisors, Inc. Newly elected employed in the Marin County
The Courtyard Square Sheriff's Office in various
750 Grant Avenue, Suite 100 capacities since 1969.
Novato, CA 94945
Gerald P. Richardson Trustee Indefinite, until Chief Executive Officer and 6 None.
Age: 58 successor elected owner of ORBIS Payment
Address: Services since January 2001;
c/o Hennessy Advisors, Inc. Newly elected and in 2000, Mr. Richardson
The Courtyard Square was an independent consultant.
750 Grant Avenue, Suite 100
Novato, CA 94945
"INTERESTED PERSONS"
Neil J. Hennessy(1)<F7>(2)<F8> Trustee Trustee: President, Chairman, CEO and 6 Director of
Age: 49 and President -------- Portfolio Manager of Hennessy Hennessy
Address: Indefinite, until Advisors, Inc., the Fund's Advisors,
c/o Hennessy Advisors, Inc. successor elected investment adviser, since Inc.
The Courtyard Square Newly elected 1989; President of The Hennessy
750 Grant Avenue, Suite 100 Mutual Funds, Inc. and The
Novato, CA 94945 Officer: Hennessy Funds, Inc. since 1996.
--------
1 year term
Newly elected
Frank Ingarra, Jr. (2)<F8> Assistant 1 year term Assistant Portfolio Manager Not Not
Age: 33 Portfolio for Hennessy Advisors, Inc., applicable. applicable.
Address: Manager and Newly elected the Fund's investment adviser,
c/o Hennessy Advisors, Inc. Vice President from March 2002 to the present;
The Courtyard Square from August 2000 through March
750 Grant Avenue, Suite 100 2002, Mr. Ingarra was the head
Novato, CA 94945 trader for Hennessy Advisors,
Inc.; from August 2002 to
the present, Mr. Ingarra has
been a Vice President of The
Hennessy Mutual Funds, Inc. and
The Hennessy Funds, Inc.; and
from July 1999 through August
2000, Mr. Ingarra was the Vice
President and lead trader for
O'Shaughnessy Capital Management.
Harry F. Thomas(2)<F8> Chief 1 year term Chief Compliance Officer for Not Not
Age: 58 Compliance Hennessy Advisors, Inc., the applicable. applicable.
Address: Officer Newly elected Fund's investment adviser,
c/o Hennessy Advisors, Inc. since 2004; retired business
The Courtyard Square executive from 2001 through
750 Grant Avenue, Suite 100 2004; director of The Hennessy
Novato, CA 94945 Mutual Funds, Inc. and The
Hennessy Funds, Inc. from 2000
to May 2004; and Managing
Director of Emplifi, Inc., a
consulting firm, from 1999
through 2001.
Teresa M. Nilsen(2)<F8> Executive Vice 1 year term Currently Executive Vice Not Not
Age: 39 President and President, Chief Financial applicable. applicable.
Address: Treasurer Newly elected Officer and Secretary of
c/o Hennessy Advisors, Inc. Hennessy Advisors, Inc.,
The Courtyard Square the Fund's investment adviser;
750 Grant Avenue, Suite 100 Ms. Nilsen has been the
Novato, CA 94945 corporate secretary and a
financial officer of Hennessy
Advisors, Inc. since 1989; Ms.
Nilsen has been an officer of
The Hennessy Mutual Funds, Inc.
and The Hennessy Funds, Inc.
since 1996, and is currently
Executive Vice President
and Treasurer.
Daniel B. Steadman(2)<F8> Executive Vice 1 year term Executive Vice President of Not Not
Age: 49 President and Hennessy Advisors, Inc., the applicable. applicable.
Address: Secretary Newly elected Fund's investment adviser,
c/o Hennessy Advisors, Inc. from 2000 to the present;
The Courtyard Square Vice President of Westamerica
750 Grant Avenue, Suite 100 Bank from 1995 through 2000;
Novato, CA 94945 Mr. Steadman has been Executive
Vice President and Secretary of
The Hennessy Mutual Funds, Inc.
and The Hennessy Funds, Inc.
since 2000.
(1)<F7> There are six portfolios in the fund complex overseen by the trustees:
(a) the Fund; (b) the Hennessy Cornerstone Growth Fund, Hennessy Focus
30 Fund and Hennessy Cornerstone Value Fund, series of The Hennessy
Mutual Funds, Inc.; and (c) the Hennessy Total Return Fund and
Hennessy Balanced Fund, series of The Hennessy Funds, Inc.
(collectively, the "Hennessy Funds").
--------------
(2)<F8> All officers of the Trust and employees of the Manager are interested
persons (as defined in the 1940 Act) of the Trust.
HOW TO OBTAIN A COPY OF THE FUND'S PROXY VOTING POLICY AND PROXY VOTING RECORDS
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge:
(1) by calling 1-800-966-4354; (2) on the Hennessy Funds website at
www.hennessyfunds.com; or (3) on the U.S. Securities and Exchange Commission's
website at www.sec.gov. The Hennessy Cornerstone Growth Fund, Series II proxy
voting record will be available on the SEC's website at www.sec.gov no later
than August 31 for the prior 12 months ending June 30.
QUARTERLY FILINGS ON FORM N-Q
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Form N-Q
will be available on the SEC's website at www.sec.gov. The Fund's Form N-Q may
be reviewed and copied at the SEC's Public Reference Room in Washington, DC and
information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330. Information included in the Fund's N-Q will also be
available upon request by calling 1-800-966-4354.
ADVISORY AGREEMENT
At a meeting of the Board held on April 5, 2005, the Board of Trustees of the
Fund, including all of the Independent Trustees, approved a new investment
advisory agreement with Hennessy Advisors, Inc.
In reaching a decision to engage Hennessy Advisors as the Fund's investment
adviser, the Board, including all of the Independent Trustees, considered (1)
the nature, extent and quality of the services to be provided by Hennessy
Advisors as compared to the nature, extent and quality of the services
previously provided by Landis Associates LLC; (2) the performance of the Fund
over various periods as compared to the Hennessy Cornerstone Growth Fund and
other funds managed by Hennessy Advisors, as well as the performance of the
Hennessy Cornerstone Growth Fund over various periods as compared to the
relevant Lipper category averages; (3) the lower compensation to be paid under
the new agreement and the fairness of such compensation in light of the services
to be provided as compared to that of Landis Associates LLC and the average
compensation paid by mutual funds in the relevant Lipper category; (4) the lower
expense ratio of the Fund under the new agreement as compared to the Fund's
current expense ratio and the average expense ratio for mutual funds in the
relevant Lipper category, as well as Hennessy Advisors' agreement to waive fees
and reimburse expenses to the extent necessary to maintain the expense ratio
under the new agreement through June 30, 2006; (5) the qualifications of
Hennessy Advisors' personnel, portfolio management capabilities and investment
methodologies; (6) Hennessy Advisors' operations, compliance program, policies
with respect to trade allocation and brokerage practices and Code of Ethics; (7)
the financial condition of Hennessy Advisors; (8) the personal investment by
Neil J. Hennessy, the President of Hennessy Advisors, in the mutual funds
managed by the firm; (9) the cost of services to be provided by Hennessy
Advisors and Hennessy Advisors' profitability for the year ended September 30,
2004 in managing the Hennessy Funds and its estimated profitability in managing
the Fund; (10) the extent to which economies of scale are relevant given the
Fund's current asset size and current asset growth potential; (11) the
appropriateness of the selection of Hennessy Advisors and the employment of the
new investment strategy, which represents a formulaic approach to the Fund's
current investment strategy; and (12) the benefits that Fund shareholders will
realize by being part of the Hennessy Funds family, including the ability to
purchase shares of the Fund on over 1500 platforms, to exchange into other
Hennessy Funds and an unaffiliated money market fund, and to have access to the
administrative support services provided by Hennessy Advisors (subject, with
respect to such services, to a servicing fee).
Prior to approving the new agreement, the Independent Trustees met in
executive session with their independent counsel to discuss and consider the
selection of Hennessy Advisors and the terms and conditions of the new
agreement. They also discussed and considered the written information that had
been provided to them in advance of the Board meeting relating to Hennessy
Advisors and its personnel, operations, financial condition, philosophy of
management and performance and the additional related information that had been
provided by Hennessy Advisors during its presentation at the meeting.
During the course of its deliberations, the Board, including all of the
Independent Trustees, reached the following conclusions regarding Hennessy
Advisors and the new agreement, among others:
o Prior Fund Performance. Hennessy Advisors has demonstrated its abilities
as an investment adviser while serving as the investment adviser to the
Hennessy Funds. In particular, Hennessy Advisors is qualified to manage
the Fund's assets in accordance with the new investment strategy based on
Hennessy Advisors' performance in managing the Hennessy Cornerstone
Growth Fund.
o Investment Advisory Fees. The fees paid by the Fund under the new
agreement are lower than both the fees paid by the Fund under the
previous agreement and the average fees paid by mutual funds in the
relevant Lipper category.
o Total Expense Ratio. The expense ratio of the Fund will be lower under
the new agreement, as Hennessy Advisors will enter into an operating
expenses limitation agreement with the Fund, and will be lower than the
average expense ratio for mutual funds in the relevant Lipper category.
o Services Rendered by Hennessy Advisors. The services to be performed by
Hennessy Advisors under the new agreement are substantially the same as
the services performed by Landis under the previous agreement.
o Profits. The estimated profits to be realized by Hennessy Advisors from
its relationship with the Fund are not excessive.
o Economies of Scale. Given the Fund's current asset size and current
potential for asset growth, economies of scale are not a relevant
consideration at this time.
Thus, based upon its review, the Board concluded that the new investment
advisory agreement was reasonable, fair and in the best interests of the Fund
and the Fund's shareholders and the fees provided under the new investment
advisory agreement were fair and reasonable.
FOR INFORMATION,
QUESTIONS OR ASSISTANCE,
PLEASE CALL
THE HENNESSY FUNDS
1-800-966-4354 OR
1-415-899-1555
(HENNESSY FUNDS LOGO)
FORMULAS FOR SMART INVESTING
WWW.HENNESSYFUNDS.COM
This report has been prepared for shareholders and may be distributed to others
only if preceded or accompanied by a current prospectus.
FUND
Hennessy Cornerstone Growth Fund, Series II
The Courtyard Square
750 Grant Avenue, Suite 100
Novato, California 94945
INVESTMENT MANAGER
Hennessy Advisors, Inc.
The Courtyard Square
750 Grant Avenue, Suite 100
Novato, California 94945
(800) 966-4354
ADMINISTRATOR, TRANSFER AGENT,
DIVIDEND PAYING AGENT &
SHAREHOLDER SERVICING AGENT
U.S. Bancorp Fund Services, LLC
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
(800) 261-6950
CUSTODIAN
U.S. Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45202
TRUSTEES
J. Dennis DeSousa
Robert T. Doyle
Neil J. Hennessy
Gerald P. Richardson
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
LEGAL COUNSEL
Foley & Lardner LLP
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-5306
DISTRIBUTOR
Quasar Distributors, LLC
615 East Michigan Street
Milwaukee, Wisconsin 53202
ITEM 2. CODE OF ETHICS.
- -----------------------
The registrant has adopted a code of ethics that applies to the registrant's
principal executive officer and principal financial officer. The registrant has
not granted any waivers from any provisions of the code of ethics during the
period covered by this report.
On July 1, 2005, the registrant adopted a new code of ethics. A copy of the
registrant's Code of Ethics is filed herewith.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
- -----------------------------------------
The registrant's board of trustees has determined that it does not have an audit
committee financial expert serving on its audit committee. At this time, the
registrant believes that the experience provided by each member of the audit
committee together offers the registrant adequate oversight for the registrant's
level of financial complexity.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
- -----------------------------------------------
The registrant has engaged its principal accountant to perform audit services,
audit-related services, tax services and other services during the past two
fiscal years. "Audit services" refer to performing an audit of the registrant's
annual financial statements or services that are normally provided by the
accountant in connection with statutory and regulatory filings or engagements
for those fiscal years. "Audit-related services" refer to the assurance and
related services by the principal accountant that are reasonably related to the
performance of the audit. "Tax services" refer to professional services rendered
by the principal accountant for tax compliance, tax advice, and tax planning.
The following table details the aggregate fees billed for each of the last two
fiscal years for audit fees, audit-related fees, tax fees and other fees by the
principal accountant.
FYE 6/30/2005 FYE 6/30/2004
-------------- --------------
Audit Fees $14,250 $13,350
Audit-Related Fees - -
Tax Fees 18,250 4,300
All Other Fees
The audit committee has adopted pre-approval policies and procedures that
require the audit committee to pre-approve all audit and non-audit services of
the registrant, including services provided to any entity affiliated with the
registrant. All of the principal accountant's hours spent on auditing the
registrant's financial statements were attributed to work performed by full-time
permanent employees of the principal accountant.
The following table indicates the non-audit fees billed by the registrant's
accountant for services to the registrant and to the registrant's investment
adviser (and any other controlling entity, etc.--not sub-adviser) for the last
two years. The audit committee of the board of trustees/directors has
considered whether the provision of non-audit services that were rendered to the
registrant's investment adviser is compatible with maintaining the principal
accountant's independence and has concluded that the provision of such non-audit
services by the accountant has not compromised the accountant's independence.
Non-Audit Related Fees FYE 6/30/2005 FYE 6/30/2004
- ---------------------- -------------- --------------
Registrant - -
Registrant's Investment Adviser - -
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
- ----------------------------------------------
Not applicable to open-end investment companies.
ITEM 6. SCHEDULE OF INVESTMENTS.
- --------------------------------
Schedule of Investments is included as part of the report to shareholders filed
under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
- -------------------------------------------------------------------------
MANAGEMENT INVESTMENT COMPANIES.
- --------------------------------
Not applicable to open-end investment companies.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
- ------------------------------------------------------------------------
Not applicable to open-end investment companies.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
- ---------------------------------------------------------------------------
COMPANY AND AFFILIATED PURCHASES.
- ---------------------------------
Not applicable to open-end investment companies.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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Not Applicable.
ITEM 11. CONTROLS AND PROCEDURES.
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(a) The Registrant's President/Chief Executive Officer and Treasurer/Chief
Financial Officer have concluded that the Registrant's disclosure controls
and procedures (as defined in Rule 30a-3(c) under the Investment Company
Act of 1940 (the "1940 Act")) are effective as of a date within 90 days of
the filing date of the report that includes the disclosure required by this
paragraph, based on the evaluation of these controls and procedures
required by Rule 30a-3(b) under the 1940 Act and Rules 15d-15(b) under the
Securities Exchange Act of 1934, as amended.
(b) There were no significant changes in the Registrant's internal controls
over financial reporting that occurred during the Registrant's last fiscal
half-year that has materially affected, or is reasonably likely to
materially affect, the Registrant's internal control over financial
reporting.
ITEM 12. EXHIBITS.
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(a) (1) Any code of ethics or amendment thereto, that is subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy Item 2 requirements through filing an exhibit. Filed herewith.
(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. Filed herewith.
(3) Not applicable to open-end investment companies.
(b) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Hennessy Funds Trust
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By (Signature and Title) /s/Neil J. Hennessy
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Neil J. Hennessy, President
Date September 8, 2005
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Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)*<F9> /s/Neil J. Hennessy
---------------------------
Neil J. Hennessy, President
Date September 8, 2005
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By (Signature and Title)*<F9> /s/Teresa M. Nilsen
---------------------------
Teresa M. Nilsen, Treasurer
Date September 8, 2005
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*<F9> Print the name and title of each signing officer under his or her
signature.