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What changed in HENNESSY ADVISORS INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of HENNESSY ADVISORS INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+240 added−205 removedSource: 10-K (2023-12-07) vs 10-K (2022-12-07)

Top changes in HENNESSY ADVISORS INC's 2023 10-K

240 paragraphs added · 205 removed · 185 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

74 edited+18 added−3 removed99 unchanged
Biggest changeHennessy Cornerstone Growth Fund One Year Three Years Five Years Ten Years Institutional Class Share - HICGX -8.11 % 11.97 % 4.71 % 9.19 % Investor Class Share - HFCGX -8.38 % 11.64 % 4.37 % 8.86 % Russell 2000 ® Index (1) -23.50 % 4.29 % 3.55 % 8.55 % S&P 500 ® Index (2) -15.47 % 8.16 % 9.24 % 11.70 % Hennessy Focus Fund* One Year Three Years Five Years Ten Years Institutional Class Share - HFCIX -24.73 % 1.03 % 4.73 % 9.72 % Investor Class Share - HFCSX -25.01 % 0.66 % 4.34 % 9.33 % Russell 3000 ® Index (3) -17.63 % 7.70 % 8.62 % 11.39 % Russell Midcap ® Growth Index (4) -29.50 % 4.26 % 7.62 % 10.85 % Hennessy Cornerstone Mid Cap 30 Fund One Year Three Years Five Years Ten Years Institutional Class Share - HIMDX -0.39 % 16.40 % 7.35 % 10.17 % Investor Class Share - HFMDX -0.73 % 15.60 % 6.97 % 9.80 % Russell Midcap ® Index (5) -19.39 % 5.19 % 6.48 % 10.30 % S&P 500 ® Index (2) -15.47 % 8.16 % 9.24 % 11.70 % Hennessy Cornerstone Large Growth Fund One Year Three Years Five Years Ten Years Institutional Class Share - HILGX -17.68 % 5.63 % 6.22 % 9.50 % Investor Class Share - HFLGX -17.96 % 5.33 % 5.90 % 9.22 % Russell 1000 ® Index (6) -17.22 % 7.95 % 9.00 % 11.60 % S&P 500 ® Index (2) -15.47 % 8.16 % 9.24 % 11.70 % Hennessy Cornerstone Value Fund One Year Three Years Five Years Ten Years Institutional Class Share - HICVX -0.17 % 6.31 % 5.53 % 8.50 % Investor Class Share - HFCVX -0.40 % 6.08 % 5.32 % 8.28 % Russell 1000 ® Value Index (7) -11.36 % 4.36 % 5.29 % 9.17 % S&P 500 ® Index (2) -15.47 % 8.16 % 9.24 % 11.70 % Hennessy Total Return Fund One Year Three Years Five Years Ten Years Investor Class Share - HDOGX -6.09 % -0.49 % 2.27 % 5.24 % 75/25 Blended DJIA/Treasury Index (8) -9.82 % 3.77 % 6.12 % 8.14 % Dow Jones Industrial Average (9) -13.40 % 4.36 % 7.42 % 10.45 % 7 Table of Contents Hennessy Equity and Income Fund* One Year Three Years Five Years Ten Years Institutional Class Share - HEIIX -12.86 % 2.47 % 3.90 % 5.93 % Investor Class Share - HEIFX -13.15 % 2.11 % 3.52 % 5.56 % S&P 500 ® Index (2) -15.47 % 8.16 % 9.24 % 11.70 % Hennessy Balanced Fund One Year Three Years Five Years Ten Years Investor Class Share - HBFBX -5.34 % -0.27 % 1.67 % 3.41 % 50/50 Blended DJIA/Treasury Index (10) -7.50 % 2.74 % 4.54 % 5.73 % Dow Jones Industrial Average (9) -13.40 % 4.36 % 7.42 % 10.45 % Hennessy Energy Transition Fund* One Year Three Years Five Years Since Inception (12/31/13) Institutional Class Share - HNRIX 30.92 % 15.53 % 3.24 % 1.74 % Investor Class Share - HNRGX 30.50 % 15.19 % 2.93 % 1.48 % S&P 500 ® Energy Index (11) 45.69 % 13.44 % 6.09 % 1.73 % S&P 500 ® Index (2) -15.47 % 8.16 % 9.24 % 9.95 % Hennessy Midstream Fund* One Year Three Years Five Years Since Inception (12/31/13) Institutional Class Share - HMSIX** 15.31 % 2.57 % -1.00 % -1.25 % Investor Class Share - HMSFX 15.13 % 2.33 % -1.23 % -1.49 % Alerian US Midstream Energy Index (12) 18.18 % 8.23 % 5.62 % 2.10 % S&P 500 ® Index (2) -15.47 % 8.16 % 9.24 % 9.95 % Hennessy Gas Utility Fund* One Year Three Years Five Years Ten Years Institutional Class Share - HGASX** 9.70 % 3.09 % 4.81 % 7.70 % Investor Class Share - GASFX 9.35 % 2.77 % 4.47 % 7.50 % AGA Stock Index (13) 10.60 % 3.87 % 5.67 % 8.69 % S&P 500 ® Index (2) -15.47 % 8.16 % 9.24 % 11.70 % Hennessy Japan Fund One Year Three Years Five Years Ten Years Institutional Class Share - HJPIX -40.28 % -6.08 % -0.93 % 6.90 % Investor Class Share - HJPNX -40.50 % -6.45 % -1.33 % 6.53 % Russell/Nomura Total Market TM Index (14) -28.19 % -2.36 % -0.68 % 5.32 % Tokyo Stock Price Index (TOPIX) (15) -28.41 % -2.49 % -0.82 % 5.24 % Hennessy Japan Small Cap Fund One Year Three Years Five Years Ten Years Institutional Class Share - HJSIX** -27.40 % -2.53 % -0.04 % 9.90 % Investor Class Share - HJPSX -27.70 % -2.94 % -0.46 % 9.60 % Russell/Nomura Small Cap TM Index (16) -26.93 % -4.07 % -3.07 % 5.32 % Tokyo Stock Price Index (TOPIX) (15) -28.41 % -2.49 % -0.82 % 5.24 % 8 Table of Contents Hennessy Large Cap Financial Fund* One Year Three Years Five Years Ten Years Institutional Class Share - HILFX** -29.71 % 2.19 % 3.96 % 8.81 % Investor Class Share - HLFNX -29.95 % 1.85 % 3.61 % 8.51 % Russell 1000 ® Index Financials (17) -16.76 % 7.21 % 8.60 % 12.55 % Russell 1000 ® Index (6) -17.22 % 7.95 % 9.00 % 11.60 % Hennessy Small Cap Financial Fund* One Year Three Years Five Years Ten Years Institutional Class Share - HISFX -10.84 % 11.41 % 5.17 % 10.32 % Investor Class Share - HSFNX -11.16 % 11.02 % 4.79 % 9.93 % Russell 2000 ® Index Financials (18) -15.23 % 2.66 % 2.65 % 8.71 % Russell 2000 ® Index (1) -23.50 % 4.29 % 3.55 % 8.55 % Hennessy Technology Fund* One Year Three Years Five Years Ten Years Institutional Class Share - HTCIX** -30.15 % 4.33 % 7.89 % 9.00 % Investor Class Share - HTECX -30.30 % 4.06 % 7.63 % 8.70 % NASDAQ Composite Index (19) -26.25 % 10.63 % 11.25 % 14.24 % S&P 500 ® Index (2) -15.47 % 8.16 % 9.24 % 11.70 % * Performance information from prior to the date that we acquired the assets related to the management of the fund is included because the previous investment manager managed the fund using a similar investment strategy. ** Performance shown for periods prior to the inception of Institutional Class shares represents the performance of Investor Class shares of the fund and includes expenses that are not applicable to, and are higher than, those of Institutional Class shares.
Biggest changeHennessy Cornerstone Growth Fund One Year Three Years Five Years Ten Years Institutional Class Share - HICGX 27.89 % 19.23 % 8.60 % 9.67 % Investor Class Share - HFCGX 27.44 % 18.83 % 8.25 % 9.33 % Russell 2000 ® Index (1) 8.93 % 7.16 % 2.40 % 6.65 % S&P 500 ® Index (2) 21.62 % 10.15 % 9.92 % 11.91 % Hennessy Focus Fund* One Year Three Years Five Years Ten Years Institutional Class Share - HFCIX 15.99 % 5.91 % 5.97 % 8.28 % Investor Class Share - HFCSX 15.57 % 5.52 % 5.58 % 7.89 % Russell 3000 ® Index (3) 20.46 % 9.38 % 9.14 % 11.28 % Russell Midcap ® Growth Index (4) 17.47 % 2.61 % 6.97 % 9.94 % Hennessy Cornerstone Mid Cap 30 Fund One Year Three Years Five Years Ten Years Institutional Class Share - HIMDX 33.60 % 23.00 % 13.26 % 11.28 % Investor Class Share - HFMDX 33.13 % 22.57 % 12.87 % 10.91 % Russell Midcap ® Index (5) 13.45 % 8.09 % 6.38 % 8.98 % S&P 500 ® Index (2) 21.62 % 10.15 % 9.92 % 11.91 % Hennessy Cornerstone Large Growth Fund One Year Three Years Five Years Ten Years Institutional Class Share - HILGX 29.28 % 12.94 % 8.93 % 10.15 % Investor Class Share - HFLGX 28.96 % 12.64 % 8.62 % 9.88 % Russell 1000 ® Index (6) 21.19 % 9.53 % 9.63 % 11.63 % S&P 500 ® Index (2) 21.62 % 10.15 % 9.92 % 11.91 % Hennessy Cornerstone Value Fund One Year Three Years Five Years Ten Years Institutional Class Share - HICVX 16.57 % 17.20 % 6.59 % 8.44 % Investor Class Share - HFCVX 16.32 % 16.94 % 6.38 % 8.22 % Russell 1000 ® Value Index (7) 14.44 % 11.05 % 6.23 % 8.45 % S&P 500 ® Index (2) 21.62 % 10.15 % 9.92 % 11.91 % Hennessy Total Return Fund One Year Three Years Five Years Ten Years Investor Class Share - HDOGX 11.86 % 6.81 % 3.04 % 5.52 % 75/25 Blended DJIA/Treasury Index (8) 15.66 % 7.14 % 6.10 % 8.53 % Dow Jones Industrial Average (9) 19.18 % 8.62 % 7.14 % 10.79 % 7 Table of Contents Hennessy Equity and Income Fund* One Year Three Years Five Years Ten Years Institutional Class Share - HEIIX 11.47 % 3.88 % 4.34 % 6.00 % Investor Class Share - HEIFX 10.97 % 3.49 % 3.94 % 5.61 % S&P 500® Index (2) 21.62 % 10.15 % 9.92 % 11.91 % Hennessy Balanced Fund One Year Three Years Five Years Ten Years Investor Class Share - HBFBX 6.91 % 4.16 % 2.01 % 3.59 % 50/50 Blended DJIA/Treasury Index (10) 11.66 % 4.94 % 4.73 % 6.10 % Dow Jones Industrial Average (9) 19.18 % 8.62 % 7.14 % 10.79 % Hennessy Energy Transition Fund* One Year Three Years Five Years Since Inception (12/31/13) Institutional Class Share - HNRIX 26.63 % 50.26 % 5.77 % 4.05 % Investor Class Share - HNRGX 26.22 % 49.74 % 5.44 % 3.77 % S&P 500® Energy Index (11) 30.21 % 51.42 % 8.96 % 4.34 % S&P 500® Index (2) 21.62 % 10.15 % 9.92 % 11.10 % Hennessy Midstream Fund* One Year Three Years Five Years Since Inception (12/31/13) Institutional Class Share - HMSIX** 33.28 % 38.81 % 5.73 % 1.84 % Investor Class Share - HMSFX 32.95 % 38.51 % 5.51 % 1.59 % Alerian US Midstream Energy Index (12) 25.56 % 40.32 % 8.95 % 4.29 % S&P 500® Index (2) 21.62 % 10.15 % 9.92 % 11.10 % Hennessy Gas Utility Fund* One Year Three Years Five Years Ten Years Institutional Class Share - HGASX** -0.12 % 8.73 % 4.76 % 6.01 % Investor Class Share - GASFX -0.42 % 8.41 % 4.44 % 5.78 % AGA Stock Index (13) 0.25 % 9.43 % 5.50 % 6.92 % S&P 500® Index (2) 21.62 % 10.15 % 9.92 % 11.91 % Hennessy Japan Fund One Year Three Years Five Years Ten Years Institutional Class Share - HJPIX 24.49 % -5.06 % -0.45 % 6.90 % Investor Class Share - HJPNX 24.04 % -5.41 % -0.84 % 6.52 % Russell/Nomura Total Market TM Index (14) 25.77 % 2.93 % 2.05 % 4.93 % Tokyo Stock Price Index (TOPIX) (15) 25.90 % 2.82 % 1.92 % 4.83 % Hennessy Japan Small Cap Fund One Year Three Years Five Years Ten Years Institutional Class Share - HJSIX** 15.51 % -0.59 % -0.04 % 7.82 % Investor Class Share - HJPSX 15.16 % -0.98 % -0.43 % 7.50 % Russell/Nomura Small Cap TM Index (16) 18.86 % -0.80 % -1.20 % 4.51 % Tokyo Stock Price Index (TOPIX) (15) 25.90 % 2.82 % 1.92 % 4.83 % 8 Table of Contents Hennessy Large Cap Financial Fund* One Year Three Years Five Years Ten Years Institutional Class Share - HILFX** -4.93 % -1.87 % 0.27 % 5.41 % Investor Class Share - HLFNX -5.21 % -2.21 % -0.07 % 5.09 % Russell 1000 ® Index Financials (17) 13.59 % 14.39 % 8.82 % 11.15 % Russell 1000 ® Index (6) 21.19 % 9.53 % 9.63 % 11.63 % Hennessy Small Cap Financial Fund* One Year Three Years Five Years Ten Years Institutional Class Share - HISFX -12.52 % 19.01 % 2.21 % 6.00 % Investor Class Share - HSFNX -12.85 % 18.53 % 185.00 % 5.61 % Russell 2000 ® Index Financials (18) -3.89 % 10.55 % 0.51 % 6.06 % Russell 2000 ® Index (1) 8.93 % 7.16 % 2.40 % 6.65 % Hennessy Technology Fund* One Year Three Years Five Years Ten Years Institutional Class Share - HTCIX** 30.01 % 8.10 % 9.15 % 10.26 % Investor Class Share - HTECX 29.71 % 7.84 % 8.88 % 9.95 % NASDAQ Composite Index (19) 26.11 % 6.60 % 11.41 % 14.52 % S&P 500 ® Index (2) 21.62 % 10.15 % 9.92 % 11.91 % Hennessy Stance ESG ETF* One Year Three Years Five Years Since Inception (3/15/21) STNC - Net Asset Value 8.41 % - - 0.71 % STNC - Market Price 8.35 % - - 0.73 % S&P 500® Index (2) 21.62 % - - 4.70 % * Performance information from prior to the date that we acquired the assets related to the management of the fund is included because the previous investment manager managed the fund using a similar investment strategy. ** Performance shown for periods prior to the inception of Institutional Class shares represents the performance of Investor Class shares of the fund and includes expenses that are not applicable to, and are higher than, those of Institutional Class shares.
Hennessy, Inc., and registered as a broker-dealer with the Financial Industry Regulatory Authority. 1996 In March, we launched our first mutual fund, the Hennessy Balanced Fund. 1998 In October, we launched our second mutual fund, the Hennessy Total Return Fund. 2000 In June, we successfully completed our first asset purchase by purchasing the assets related to the management of two funds previously managed by Netfolio, Inc.
Hennessy, Inc., and registered as a broker-dealer with the Financial Industry Regulatory Authority. 1996 In March, we launched our first mutual fund, the Hennessy Balanced Fund. 1998 In October, we launched our second mutual fund, the Hennessy Total Return Fund. 2000 In June, we successfully completed our first asset purchase by purchasing the assets related to the management of two mutual funds previously managed by Netfolio, Inc.
Nilsen, President, Chief Operating Officer, Secretary, and a member of our Board of Directors, (iii) Kathryn R. Fahy, Chief Financial Officer and Senior Vice President, and (iv) Daniel B. Steadman, Executive Vice President and a member of our Board of Directors. In addition to our executive officers’ responsibilities at Hennessy Advisors, Inc., (a) Mr.
Nilsen, President, Chief Operating Officer, Secretary, and a member of our Board of Directors, (iii) Kathryn R. Fahy, Chief Financial Officer and Senior Vice President, and (iv) Daniel B. Steadman, Executive Vice President. In addition to our executive officers’ responsibilities at Hennessy Advisors, Inc., (a) Mr.
The amount of the purchased assets as of the closing date was approximately $299 million. 2007 In November, we launched the Hennessy Micro Cap Growth Fund, LLC, a non-registered private pooled investment fund. 2009 In March, we purchased the assets related to the management of two funds previously managed by RBC Global Asset Management (U.S.) Inc. and reorganized the assets of such funds into the newly created Hennessy Cornerstone Large Growth Fund and the Hennessy Large Value Fund.
The amount of the purchased assets as of the closing date was approximately $299 million. 2007 In November, we launched the Hennessy Micro Cap Growth Fund, LLC, a non‑registered private pooled investment fund. 2009 In March, we purchased the assets related to the management of two mutual funds previously managed by RBC Global Asset Management (U.S.) Inc. and reorganized the assets of such funds into the newly created Hennessy Cornerstone Large Growth Fund and the Hennessy Large Value Fund.
The services that we provide to each Hennessy Fund pursuant to these investment advisory agreements include, among other things, the following: • acting as portfolio manager for the fund or overseeing the sub-advisor acting as portfolio manager for the fund, which includes managing 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), seeking best execution for the fund’s portfolio, managing the use of soft dollars for the fund, and managing proxy voting for the fund; • performing a daily reconciliation of portfolio positions and cash for the fund; • monitoring the liquidity of the fund; • monitoring the fund’s compliance with its investment objectives and restrictions and federal securities laws; • maintaining a compliance program (including a code of ethics), conducting ongoing reviews of the compliance programs of the fund’s service providers (including any sub-advisor), including their codes of ethics, as appropriate, conducting on-site visits to the fund’s service providers (including any sub-advisor) as feasible, monitoring incidents of abusive trading practices, reviewing fund expense accruals, payments, and fixed expense ratios, evaluating insurance providers for fidelity bond, directors and officers and errors and omissions insurance, and cybersecurity insurance coverage, managing regulatory examination compliance and responses, conducting employee compliance training, reviewing reports provided by service providers, and maintaining books and records; • if applicable, overseeing the selection and continued employment of the fund’s sub-advisor, reviewing the fund’s investment performance, and monitoring the sub-advisor’s adherence to the fund’s investment objectives, policies, and restrictions; • overseeing service providers that provide accounting, administration, distribution, transfer agency, custodial, sales, marketing, public relations, audit, information technology, and legal services to the fund; • maintaining in-house marketing and distribution departments on behalf of the fund; • preparing or directing the preparation of all regulatory filings for the fund, including writing and annually updating the fund’s prospectus and related documents; • for each annual report of the fund, preparing or reviewing a written summary of the fund’s performance during the most recent 12-month period; • monitoring and overseeing the accessibility of the fund on third-party financial intermediary platforms; • paying the incentive compensation of the fund’s compliance officer and employing other staff such as legal, marketing, national accounts, distribution, sales, administrative, and trading oversight personnel, as well as management executives; • providing a quarterly compliance certification to the Funds’ Board of Trustees; and • preparing or reviewing materials for the Funds’ Board of Trustees, presenting to or leading discussions with the Funds’ Board of Trustees, preparing or reviewing all meeting minutes, and arranging for training and education of the Funds’ Board of Trustees. 12 Table of Contents The investment advisory agreements also provide that we are responsible for performing any ordinary clerical and bookkeeping services needed by the Hennessy Funds that are not provided by the funds’ custodian, administrator, or transfer agent.
The services that we provide to each Hennessy Fund pursuant to these investment advisory agreements include, among other things, the following: ● acting as portfolio manager for the fund or overseeing the sub‑advisor acting as portfolio manager for the fund, which includes managing 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), seeking best execution for the fund’s portfolio, managing the use of soft dollars for the fund, and managing proxy voting for the fund; ● performing a daily reconciliation of portfolio positions and cash for the fund; ● monitoring the liquidity of the fund; ● monitoring the fund’s compliance with its investment objectives and restrictions and federal securities laws; ● maintaining a compliance program (including a code of ethics), conducting ongoing reviews of the compliance programs of the fund’s service providers (including any sub‑advisor), including their codes of ethics, as appropriate, conducting on‑site visits to the fund’s service providers (including any sub‑advisor) as feasible, monitoring incidents of abusive trading practices, reviewing fund expense accruals, payments, and fixed expense ratios, evaluating insurance providers for fidelity bond, directors and officers and errors and omissions insurance, and cybersecurity insurance coverage, managing regulatory examination compliance and responses, conducting employee compliance training, reviewing reports provided by service providers, and maintaining books and records; ● if applicable, overseeing the selection and continued employment of the fund’s sub‑advisor, reviewing the fund’s investment performance, and monitoring the sub-advisor’s adherence to the fund’s investment objectives, policies, and restrictions; ● overseeing service providers that provide accounting, administration, distribution, transfer agency, custodial, sales, marketing, public relations, audit, information technology, and legal services to the fund; ● maintaining in‑house marketing and distribution departments on behalf of the fund; ● preparing or directing the preparation of all regulatory filings for the fund, including writing and annually updating the fund’s prospectus and related documents; ● for each annual report of the fund, preparing or reviewing a written summary of the fund’s performance during the most recent 12‑month period; ● monitoring and overseeing the accessibility of the fund on financial institution platforms; ● paying the incentive compensation of the fund’s compliance officer and employing other staff such as legal, marketing, national accounts, distribution, sales, administrative, and trading oversight personnel, as well as management executives; ● providing a quarterly compliance certification to the Funds’ Board of Trustees; and ● preparing or reviewing materials for the Funds’ Board of Trustees, presenting to or leading discussions with the Funds’ Board of Trustees, preparing or reviewing all meeting minutes, and arranging for training and education of the Funds’ Board of Trustees. 12 Table of Contents The investment advisory agreements also provide that we are responsible for performing any ordinary clerical and bookkeeping services needed by the Hennessy Funds that are not provided by the funds’ custodian, administrator, or transfer agent.
Our total assets under management at the time of our initial public offering was approximately $358 million. 2003 In September, we purchased the assets related to the management of a fund previously managed by SYM Financial Corporation and reorganized the assets of such fund into the newly created Hennessy Cornerstone Mid Cap 30 Fund.
Our total assets under management at the time of our initial public offering was approximately $358 million. 2003 In September, we purchased the assets related to the management of a mutual fund previously managed by SYM Financial Corporation and reorganized the assets of such fund into the newly created Hennessy Cornerstone Mid Cap 30 Fund.
ASSETS UNDER MANAGEMENT, SOURCES OF REVENUES, AND 12B-1 PLANS We earn revenues primarily by providing investment advisory services to the Hennessy Funds and secondarily by providing shareholder services to investors in the Hennessy Funds. The fees we receive for these services are calculated as a percentage of the average daily net asset values of the Hennessy Funds.
ASSETS UNDER MANAGEMENT, SOURCES OF REVENUES, AND 12B-1 PLANS We earn revenues primarily by providing investment advisory services to the Hennessy Funds and secondarily by providing shareholder services to investors in the Hennessy Mutual Funds. The fees we receive for these services are calculated as a percentage of the average daily net asset values of the Hennessy Funds.
If the shareholder servicing agreement is not renewed, it terminates automatically. In addition, the shareholder servicing agreement may be terminated prior to its expiration upon 60 days’ written notice by Hennessy Funds Trust or us. 12b-1 Plans All of the Hennessy Funds have adopted a 12b-1 plan.
If the shareholder servicing agreement is not renewed, it terminates automatically. In addition, the shareholder servicing agreement may be terminated prior to its expiration upon 60 days’ written notice by Hennessy Funds Trust or us. 12b-1 Plans All of the Hennessy Mutual Funds have adopted a 12b-1 plan.
In June, we launched Institutional Class shares for the Hennessy Japan Small Cap Fund and the Hennessy Large Cap Financial Fund. 2016 In September, we purchased the assets related to the management of two funds previously managed by Westport Advisers, LLC and reorganized the assets of such funds into the Hennessy Cornerstone Mid Cap 30 Fund.
In June, we launched Institutional Class shares for the Hennessy Japan Small Cap Fund and the Hennessy Large Cap Financial Fund. 2016 In September, we purchased the assets related to the management of two mutual funds previously managed by Westport Advisers, LLC and reorganized the assets of such funds into the Hennessy Cornerstone Mid Cap 30 Fund.
In March, we launched Institutional Class shares for the Hennessy Gas Utility Fund. In December, we purchased the assets related to the management of two funds previously managed by Rainier Investment Management, LLC (“Rainier”) and reorganized the assets of such funds into the Hennessy Cornerstone Large Growth Fund and the Hennessy Cornerstone Mid Cap 30 Fund.
In March, we launched Institutional Class shares for the Hennessy Gas Utility Fund. In December, we purchased the assets related to the management of two mutual funds previously managed by Rainier Investment Management, LLC (“Rainier”) and reorganized the assets of such funds into the Hennessy Cornerstone Large Growth Fund and the Hennessy Cornerstone Mid Cap 30 Fund.
The amount of the purchased assets as of the closing date totaled approximately $253 million. In October, we purchased the assets related to the management of the two funds previously managed by BP Capital Fund Services, LLC and reorganized the assets of such funds into the newly created Hennessy Energy Transition Fund and the Hennessy Midstream Fund.
The amount of the purchased assets as of the closing date totaled approximately $253 million. In October, we purchased the assets related to the management of the two mutual funds previously managed by BP Capital Fund Services, LLC ("BP Capital") and reorganized the assets of such funds into the newly created Hennessy Energy Transition Fund and the Hennessy Midstream Fund.
The amount of the purchased assets as of the closing date totaled approximately $74 million. 2011 In October, we reorganized the assets of the Hennessy Cornerstone Growth, Series II Fund into the Hennessy Cornerstone Growth Fund. 2012 In October, we purchased the assets related to the management of 10 funds previously managed by FBR Fund Advisers (the “FBR Funds”).
The amount of the purchased assets as of the closing date totaled approximately $74 million. 2011 In October, we reorganized the assets of the Hennessy Cornerstone Growth, Series II Fund into the Hennessy Cornerstone Growth Fund. 2012 In October, we purchased the assets related to the management of 10 mutual funds previously managed by FBR Fund Advisers (the “FBR Funds”).
The amount of the purchased assets as of the closing date was approximately $35 million. 2004 In March, we purchased the assets related to the management of five funds previously managed by Lindner Asset Management, Inc. and reorganized the assets of such funds into four of our existing Hennessy Funds.
The amount of the purchased assets as of the closing date was approximately $35 million. 2004 In March, we purchased the assets related to the management of five mutual funds previously managed by Lindner Asset Management, Inc. and reorganized the assets of such funds into four of our existing Hennessy Funds.
The amount of the purchased assets as of the closing date totaled approximately $301 million. 2005 In July, we purchased the assets related to the management of a fund previously managed by Landis Associates LLC and changed the fund name to the Hennessy Cornerstone Growth, Series II Fund.
The amount of the purchased assets as of the closing date totaled approximately $301 million. 2005 In July, we purchased the assets related to the management of a mutual fund previously managed by Landis Associates LLC and changed the fund name to the Hennessy Cornerstone Growth, Series II Fund.
The amount of the purchased assets as of the closing date totaled approximately $122 million. 2018 In January, we purchased the assets related to the management of a third fund previously managed by Rainier and reorganized the assets of such fund into the Hennessy Cornerstone Mid Cap 30 Fund.
The amount of the purchased assets as of the closing date totaled approximately $122 million. 2018 In January, we purchased the assets related to the management of a third mutual fund previously managed by Rainier and reorganized the assets of such fund into the Hennessy Cornerstone Mid Cap 30 Fund.
The percentage amount of the investment advisory fees varies from fund to fund, but the percentage amount of the shareholder service fees is consistent across all funds. We have delegated the day-to-day portfolio management responsibilities to sub-advisors, subject to our oversight, for some of the Hennessy Funds.
The percentage amount of the investment advisory fees varies from fund to fund, but the percentage amount of the shareholder service fees is consistent across all Hennessy Mutual Funds. We have delegated the day‑to‑day portfolio management responsibilities to sub‑advisors, subject to our oversight, for some of the Hennessy Funds.
Our firm was founded on these principles over 30 years ago, and the same principles guide us today. We earn revenues primarily by providing investment advisory services to the Hennessy Funds and secondarily by providing shareholder services to investors in the Hennessy Funds.
Our firm was founded on these principles over 30 years ago, and the same principles guide us today. We earn revenues primarily by providing investment advisory services to the Hennessy Funds and secondarily by providing shareholder services to investors in the Hennessy Mutual Funds.
In September, we purchased the assets related to the management of two funds previously managed by SPARX Investment & Research, USA, Inc. and sub-advised by SPARX Asset Management Co., Ltd. and changed the fund names to the Hennessy Japan Fund and the Hennessy Japan Small Cap Fund.
In September, we purchased the assets related to the management of two mutual funds previously managed by SPARX Investment & Research, USA, Inc. and sub‑advised by SPARX Asset Management Co., Ltd. and changed the fund names to the Hennessy Japan Fund and the Hennessy Japan Small Cap Fund.
Investment advisory services include managing the composition of each fund’s portfolio (including the purchase, retention, and disposition of portfolio securities in accordance with each fund’s investment objectives, policies, and restrictions), monitoring each fund’s compliance with its investment objectives and restrictions and federal securities laws, monitoring the liquidity of each fund, reviewing each fund’s investment performance, overseeing the selection and continued employment of sub-advisors and monitoring such sub-advisors’ adherence to the fund’s investment objectives, policies, and restrictions, overseeing other service providers, maintaining in-house marketing and distribution departments, preparing and distributing regulatory reports, and overseeing distribution of the funds through third-party financial intermediaries.
Investment advisory services include managing the composition of each fund’s portfolio (including the purchase, retention, and disposition of portfolio securities in accordance with each fund’s investment objectives, policies, and restrictions), monitoring each fund’s compliance with its investment objectives and restrictions and federal securities laws, monitoring the liquidity of each fund, reviewing each fund’s investment performance, overseeing the selection and continued employment of sub-advisors and monitoring such sub-advisors’ adherence to the fund’s investment objectives, policies, and restrictions, overseeing other service providers, maintaining in‑house marketing and distribution departments, preparing and distributing regulatory reports, and overseeing distribution of the funds through third‑party financial institutions.
We believe we are in compliance in all material respects with all applicable laws and regulations. We are registered as an investment advisor with the SEC and, therefore, must comply with the requirements of the Investment Advisers Act of 1940 and related SEC regulations.
We believe we are in compliance in all material respects with all applicable laws and regulations. We are registered as an investment advisor with the SEC and, therefore, must comply with the requirements of the Advisers Act and related SEC regulations.
Amounts paid under a plan may be spent on any activities or expenses primarily intended to result in sale of shares of the fund, including, but not limited to (i) advertising, (ii) compensation paid to financial intermediaries, broker-dealers, and others for sales and marketing, (iii) shareholder accounting servicing, (iv) printing and mailing prospectuses to possible new investors, and (v) printing and mailing sales literature.
Amounts paid under a plan may be spent on any activities or expenses primarily intended to result in sale of shares of the fund, including, but not limited to (i) advertising, (ii) compensation paid to financial institutions, broker-dealers, and others for sales and marketing, (iii) shareholder accounting servicing, (iv) printing and mailing prospectuses to possible new investors, and (v) printing and mailing sales literature.
Thus, we believe that expanding our current base of investment professionals who utilize no-load funds for their clients will help us increase our assets under management, which will in turn increase our revenues. • Securing participation on the platforms of national full-service firms We continually strive to develop relationships with national full-service firms that permit their investment professionals to offer no-load funds to their clients as a way to increase the amount of assets that we manage, which will in turn increase our revenues. • Pursuing strategic purchases of management agreements for additional funds A primary component of our growth strategy is to selectively pursue strategic purchases of the assets related to the management of additional funds.
Thus, we believe that expanding our current base of investment professionals who utilize no-load funds for their clients will help us increase our assets under management, which will in turn increase our revenues. ● Securing participation on the platforms of national full-service firms We continually strive to develop relationships with national full-service firms that permit their investment professionals to offer no-load funds to their clients as a way to increase the amount of assets that we manage, which will in turn increase our revenues. 18 Table of Contents ● Pursuing strategic purchases of management agreements for additional funds A primary component of our growth strategy is to selectively pursue strategic purchases of the assets related to the management of additional funds.
There are two additional circumstances in which an investment advisory agreement terminates. First, an investment advisory agreement automatically terminates if we assign it to another advisor (assignment includes “indirect assignment,” which is the transfer of our common stock in sufficient quantities deemed to constitute a controlling block).
If an investment advisory agreement is not renewed, it terminates automatically. There are two additional circumstances in which an investment advisory agreement terminates. First, an investment advisory agreement automatically terminates if we assign it to another advisor (assignment includes “indirect assignment,” which is the transfer of our common stock in sufficient quantities deemed to constitute a controlling block).
These plans are named after Rule 12b-1 of the Investment Company Act of 1940, which permits a fund to adopt a plan that allows the fund to collect fees to use to make payments to third parties in connection with the distribution of fund shares.
These plans are named after Rule 12b-1 of the 1940 Act, which permits a fund to adopt a plan that allows the fund to collect fees to use to make payments to third parties in connection with the distribution of fund shares.
Key competitive factors include: • the investment performance of the Hennessy Funds; • the expense ratios of the Hennessy Funds; • the breadth of our product offerings; • industry rankings of the Hennessy Funds; • the quality of our services; • our ability to further develop and market our brand; • our commitment to placing the interests of investors first; and • our general business reputation.
Key competitive factors include: ● the investment performance of the Hennessy Funds; ● the breadth of our product offerings; ● industry rankings of the Hennessy Funds; ● the quality of our services; ● our ability to further develop and market our brand; ● our commitment to placing the interests of investors first; and ● our general business reputation.
Competition is an important risk that our business faces and should be considered along with other risk factors that we discuss in Item 1A, “Risk Factors.” REGULATORY ENVIRONMENT We are subject to an increasing number of extensive and complex federal and state laws and regulations intended to protect investors in funds and investors of registered investment advisors.
Competition is an important risk that our business faces and should be considered along with other risk factors that we discuss in Item 1A, “Risk Factors.” 19 Table of Contents REGULATORY ENVIRONMENT We are subject to an increasing number of extensive and complex federal and state laws and regulations intended to protect investors in funds and investors of registered investment advisors.
Sector and Specialty Funds Eight of the Hennessy Funds are categorized as Sector and Specialty products. Of those eight funds, one is designed as an index fund and the other seven are actively managed, and each focuses on a niche sector of the stock market.
Sector and Specialty Funds Nine of the Hennessy Funds are categorized as Sector and Specialty products. Of those nine funds, one is designed as an index fund and the other eight are actively managed, and each focuses on a niche sector of the stock market.
The Hennessy Funds Family Domestic Equity Multi-Asset Sector and Specialty Hennessy Cornerstone Growth Fund Hennessy Total Return Fund Hennessy Energy Transition Fund Hennessy Focus Fund Hennessy Equity and Income Fund Hennessy Midstream Fund Hennessy Cornerstone Mid Cap 30 Fund Hennessy Balanced Fund Hennessy Gas Utility Fund Hennessy Cornerstone Large Growth Fund Hennessy Japan Fund Hennessy Cornerstone Value Fund Hennessy Japan Small Cap Fund Hennessy Large Cap Financial Fund Hennessy Small Cap Financial Fund Hennessy Technology Fund Domestic Equity Funds Five of the Hennessy Funds are categorized as Domestic Equity products.
The Hennessy Funds Family Domestic Equity Multi-Asset Sector and Specialty Hennessy Cornerstone Growth Fund Hennessy Total Return Fund Hennessy Energy Transition Fund Hennessy Focus Fund Hennessy Equity and Income Fund Hennessy Midstream Fund Hennessy Cornerstone Mid Cap 30 Fund Hennessy Balanced Fund Hennessy Gas Utility Fund Hennessy Cornerstone Large Growth Fund Hennessy Japan Fund Hennessy Cornerstone Value Fund Hennessy Japan Small Cap Fund Hennessy Large Cap Financial Fund Hennessy Small Cap Financial Fund Hennessy Technology Fund Hennessy Stance ESG ETF Domestic Equity Funds Five of the Hennessy Funds are categorized as Domestic Equity products.
The Funds’ Board of Trustees comprises four trustees who are not interested persons of the Hennessy Funds (the “disinterested trustees”) and Neil J. Hennessy, who is our Chief Executive Officer and Chairman of our Board of Directors.
The Funds’ Board of Trustees comprises five trustees who are not interested persons of the Hennessy Funds (the “disinterested trustees”) and Neil J. Hennessy, who is our Chief Executive Officer and Chairman of our Board of Directors.
Although there is no single statutory definition, Securities and Exchange Commission (“SEC”) releases and other legal guidelines make clear that this duty requires us to seek “the most advantageous terms reasonably available under the circumstances for a customer’s account.” The lowest possible commission, while important, is not the sole determinative factor.
Although there is no single statutory definition, SEC releases and other legal guidelines make clear that this duty requires us to seek “the most advantageous terms reasonably available under the circumstances for a customer’s account.” The lowest possible commission, while important, is not the sole determinative factor.
A violation of applicable law or regulations could also subject us, our directors, and our employees to civil actions brought by private parties. We believe we are in compliance in all material respects with all applicable SEC requirements. EMPLOYEES As of the end of fiscal year 2022, we had 19 employees, 17 of whom were full-time employees.
A violation of applicable law or regulations could also subject us, our directors, and our employees to civil actions brought by private parties. We believe we are in compliance in all material respects with all applicable SEC requirements. EMPLOYEES As of the end of fiscal year 2023, we had 17 employees, 16 of whom were full-time employees.
(9) The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the NYSE or The Nasdaq Stock Market LLC. 9 Table of Contents (10) The 50/50 Blended DJIA/Treasury Index consists of 50% common stocks represented by the Dow Jones Industrial Average and 50% short-duration Treasury securities represented by the ICE BofAML 1-Year U.S.
(9) The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange or The Nasdaq Stock Market LLC. 9 Table of Contents (10) The 50/50 Blended DJIA/Treasury Index consists of 50% common stocks represented by the Dow Jones Industrial Average and 50% short-duration Treasury securities represented by the ICE BofAML 1-Year U.S.
These factors may place us at a competitive disadvantage, and we can give no assurance that our strategies and efforts to maintain and enhance our current investor 17 Table of Contents relationships, as well as to create new ones, will be successful. To grow our business, we must be able to compete effectively for assets under management.
These factors may place us at a competitive disadvantage, and we can give no assurance that our strategies and efforts to maintain and enhance our current investor relationships, as well as to create new ones, will be successful. To grow our business, we must be able to compete effectively for assets under management.
Our provision of investment advisory services to the Hennessy Funds is subject to the oversight of the Board of Trustees of Hennessy Funds Trust (the “Funds’ Board of Trustees”) and must be in accordance with the applicable Hennessy Fund’s investment advisory agreement, Prospectus, and 11 Table of Contents Statement of Additional Information.
Our provision of investment advisory services to the Hennessy Funds is subject to the oversight of the Board of Trustees of Hennessy Funds Trust (the “Funds’ Board of Trustees”) and must be in accordance with the applicable Hennessy Fund’s investment advisory agreement, Prospectus, and Statement of Additional Information.
The Hennessy Funds are registered with the SEC under the Investment Company Act of 1940, which imposes additional obligations on both the Hennessy Funds and us, as the advisor to the Hennessy Funds, including detailed operational requirements.
The Hennessy Funds are registered with the SEC under the 1940 Act, which imposes additional obligations on both the Hennessy Funds and us, as the advisor to the Hennessy Funds, including detailed operational requirements.
In connection with the transaction, BP Capital Fund Services, LLC became the sub-adviser to both funds.
In connection with the transaction, BP Capital Fund Services, LLC became the sub‑advisor to both funds.
(18) The Russell 2000 ® Index Financials is a subset of the Russell 2000 ® Index that measures the performance of securities classified in the Financials sector of the small-cap U.S. equity market. (19) The NASDAQ Composite Index is a broad-based capitalization-weighted index of all common stocks listed on The Nasdaq Stock Market LLC.
(18) The Russell 2000® Index Financials is a subset of the Russell 2000® Index that measures the performance of securities classified in the Financials sector of the small‑cap U.S. equity market. (19) The NASDAQ Composite Index is a broad-based capitalization-weighted index of all common stocks listed on The Nasdaq Stock Market LLC. Investors cannot invest directly in an index.
Under the Investment Company Act of 1940, a majority of the trustees must be disinterested trustees, and the disinterested trustees must approve entering into and continuing our investment advisory agreements. The disinterested trustees also have sole responsibility for selecting and nominating other disinterested trustees.
Under the Investment Company Act of 1940, as amended (the “1940 Act”), a majority of the trustees must be disinterested trustees, and the disinterested trustees must approve entering into and continuing our investment advisory agreements. The disinterested trustees also have sole responsibility for selecting and nominating other disinterested trustees.
In exchange for these services, we receive a shareholder service fee from each Hennessy Fund of 0.10% of the average daily net assets of such fund’s Investor Class shares. 14 Table of Contents The shareholder servicing agreement must be renewed annually by the Funds’ Board of Trustees, including the vote of a majority of the disinterested trustees.
Bank Global Fund Services. In exchange for these services, we receive a shareholder service fee from each Hennessy Mutual Fund of 0.10% of the average daily net assets of such fund’s Investor Class shares. The shareholder servicing agreement must be renewed annually by the Funds’ Board of Trustees, including the vote of a majority of the disinterested trustees.
The provision of sub-advisory services must be in accordance with 13 Table of Contents the applicable Hennessy Fund’s sub-advisory agreement, Prospectus, and Statement of Additional Information.
The provision of sub‑advisory services must be in accordance with the applicable Hennessy Fund’s sub‑advisory agreement, Prospectus, and Statement of Additional Information.
Investors cannot invest directly in an index. Performance data for an index does not reflect any deductions for fees, expenses, or taxes. 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.
Performance data for an index does not reflect any deductions for fees, expenses, or taxes. 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.
The ability to purchase various funds in a single location is very attractive to investors, and the majority of our assets under management as of the end of fiscal year 2022 was held at fund supermarkets. Additionally, we continually seek opportunities to form new relationships with financial intermediaries to make our no-load funds even more accessible to investors.
The ability to purchase various funds in a single location is very attractive to investors, and the majority of our assets under management as of the end of fiscal year 2023 was held at fund supermarkets. Additionally, we continually seek opportunities to form new relationships with financial institutions to make the Hennessy Funds even more accessible to investors.
Through our asset purchase strategy, we have completed 10 purchases of the assets related to the management of mutual funds over a 20-year period, integrating $4.3 billion in net assets of 30 different mutual funds into the Hennessy Funds family. • Delivering strong, high-quality financial results.
Through our asset purchase strategy, we have completed 11 purchases of the assets related to the management of investment funds over a 20‑year period, integrating $4.3 billion in net assets of 31 different investment funds into the Hennessy Funds family. ● Delivering strong, high ‑ quality financial results.
We oversee distribution of the Hennessy Funds through all financial intermediaries. Investors may also purchase shares of the Hennessy Funds directly through the Hennessy Funds website or by calling us or U.S.
We oversee distribution of the Hennessy Funds through all financial institutions. Investors may also purchase shares of the Hennessy Mutual Funds directly through the Hennessy Funds' website or by calling us or U.S.
Our average assets under management for fiscal year 2022 was $3.6 billion, and our total assets under management as of the end of fiscal year 2022 was $2.9 billion. Our business strategy centers on (i) organic growth through our marketing, sales, and distribution efforts and (ii) growth through strategic purchases of management-related assets.
Our average assets under management for fiscal year 2023 was $3.0 billion, and our total assets under management as of the end of fiscal year 2023 was $3.0 billion. Our business strategy centers on (i) organic growth through our marketing, sales, and distribution efforts and (ii) growth through strategic purchases of management‑related assets.
Our 19 employees had an average tenure of 12 years as of the end of fiscal year 2022. We focus on providing our employees competitive compensation, a friendly and flexible office environment, and fostering close-knit working relationships among our team members.
Our 17 employees had an average tenure of 14 years as of the end of fiscal year 2023. We focus on providing our employees competitive compensation, a friendly and flexible office environment, and fostering close-knit working relationships among our team members.
AVAILABLE INFORMATION We make available free of charge through a link on our website, www.hennessyadvisors.com, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
Steadman is an Executive Vice President and Secretary of the Hennessy Funds. 20 Table of Contents AVAILABLE INFORMATION We make available free of charge through a link on our website, www.hennessyadvisors.com, our Annual Report on Form 10-K, Quarterly Reports on Form 10‑Q, Current Reports on Form 8-K, and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
The services that each sub-advisor provides to the applicable Hennessy Fund pursuant to the terms of the sub-advisory agreement include, among other things, the following: • acting as portfolio manager for the fund, which includes managing 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), seeking best execution for the fund’s portfolio, managing the use of soft dollars for the fund, and managing proxy voting for the fund; • ensuring that its compliance programs include policies and procedures relevant to the fund and the sub-advisor’s duties as a portfolio manager to the fund; • for each annual report of the fund, preparing a written summary of the fund’s performance during the most recent 12-month period; and • providing a quarterly certification to Funds’ Board of Trustees 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.
The services that each sub‑advisor provides to the applicable Hennessy Fund pursuant to the terms of the sub‑advisory agreement include, among other things, the following (except these responsibilities are divided between Stance Capital and Vident Advisory for the Hennessy Stance ESG ETF): ● acting as portfolio manager for the fund, which includes managing 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), seeking best execution for the fund’s portfolio, managing the use of soft dollars for the fund, and managing proxy voting for the fund; ● ensuring that its compliance programs include policies and procedures relevant to the fund and the sub‑advisor’s duties as a portfolio manager to the fund; ● for each annual report of the fund, preparing a written summary of the fund’s performance during the most recent 12‑month period; and ● providing a quarterly certification to Funds’ Board of Trustees 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. 14 Table of Contents In exchange for sub-advisory services, we pay sub‑advisory fees to the sub‑advisors out of our own assets.
The following table summarizes our assets under management for the past three fiscal years: Fiscal Years Ended September 30, 2022 2021 2020 (In thousands) Beginning assets under management $ 4,065,922 $ 3,564,597 $ 4,873,839 Acquisition inflows — — — Organic inflows 656,491 818,358 571,195 Redemptions (1,147,888 ) (1,345,371 ) (1,771,127 ) Market (depreciation) appreciation (678,808 ) 1,028,338 (109,310 ) Ending assets under management $ 2,895,717 $ 4,065,922 $ 3,564,597 As stated above, the amount of fees we receive for providing investment advisory and shareholder services increases or decreases as our average assets under management rises or falls.
The following table summarizes our assets under management for the past three fiscal years: Fiscal Years Ended September 30, 2023 2022 2021 (In thousands) Beginning assets under management $ 2,895,717 $ 4,065,922 $ 3,564,597 Acquisition inflows 43,088 - - Organic inflows 598,119 656,491 818,358 Redemptions (915,397 ) (1,147,888 ) (1,345,371 ) Market appreciation (depreciation) 410,515 (678,808 ) 1,028,338 Ending assets under management $ 3,032,042 $ 2,895,717 $ 4,065,922 As stated above, the amount of fees we receive for providing investment advisory and shareholder services increases or decreases as our average assets under management rises or falls.
As of the end of fiscal year 2022, the percentages of each fund’s assets used to calculate the annual investment advisory fees payable to us are as follows: Hennessy Fund (All Class Shares) Investment Advisory Fee (as a % of fund assets) Hennessy Cornerstone Growth Fund 0.74 % Hennessy Focus Fund 0.90 % Hennessy Cornerstone Mid Cap 30 Fund 0.74 % Hennessy Cornerstone Large Growth Fund 0.74 % Hennessy Cornerstone Value Fund 0.74 % Hennessy Total Return Fund 0.60 % Hennessy Equity and Income Fund 0.80 % Hennessy Balanced Fund 0.60 % Hennessy Energy Transition Fund 1.25 % Hennessy Midstream Fund 1.10 % Hennessy Gas Utility Fund 0.40 % Hennessy Japan Fund 0.80 % Hennessy Japan Small Cap Fund 0.80 % Hennessy Large Cap Financial Fund 0.90 % Hennessy Small Cap Financial Fund 0.90 % Hennessy Technology Fund 0.74 % We waived a portion of our fees with respect to the Hennessy Energy Transition Fund through the expiration of the fund’s expense limitation agreement on October 25, 2020.
As of the end of fiscal year 2023, the percentages of each fund’s assets used to calculate the annual investment advisory fees payable to us are as follows: Hennessy Fund Investment Advisory Fee (All Class Shares) (as a % of fund assets) Hennessy Cornerstone Growth Fund 0.74% Hennessy Focus Fund 0.90% Hennessy Cornerstone Mid Cap 30 Fund 0.74% Hennessy Cornerstone Large Growth Fund 0.74% Hennessy Cornerstone Value Fund 0.74% Hennessy Total Return Fund 0.60% Hennessy Equity and Income Fund 0.80% Hennessy Balanced Fund 0.60% Hennessy Energy Transition Fund 1.25% Hennessy Midstream Fund 1.10% Hennessy Gas Utility Fund 0.40% Hennessy Japan Fund 0.80% Hennessy Japan Small Cap Fund 0.80% Hennessy Large Cap Financial Fund 0.90% Hennessy Small Cap Financial Fund 0.90% Hennessy Technology Fund 0.74% Hennessy Stance ESG ETF 0.95% We waive a portion of our fees with respect to the Hennessy Midstream Fund, the Hennessy Technology Fund, and the Hennessy Stance ESG ETF to comply with contractual expense ratio limitations.
The following table summarizes our sources of revenues, net of sub-advisory fees, for the past three fiscal years: Fiscal Years Ended September 30, 2022 2021 2020 (In thousands) Investment advisory fees $ 27,468 $ 30,367 $ 30,831 Shareholder service fees 2,199 2,393 2,558 Subtotal 29,667 32,760 33,389 Sub-advisory fees (5,727 ) (7,332 ) (7,573 ) Revenue, net of sub-advisory fees $ 23,940 $ 25,428 $ 25,816 Investment Advisory Agreements and Fees We provide investment advisory services to the Hennessy Funds pursuant to investment advisory agreements with Hennessy Funds Trust.
The following table summarizes our sources of revenues, net of sub-advisory fees, for the past three fiscal years: Fiscal Years Ended September 30, 2023 2022 2021 (In thousands) Investment advisory fees $ 22,090 $ 27,468 $ 30,367 Shareholder service fees 1,930 2,199 2,393 Subtotal 24,020 29,667 32,760 Sub-advisory fees (3,759) (5,727) (7,332) Revenue, net of sub-advisory fees $ 20,261 $ 23,940 $ 25,428 11 Table of Contents Investment Advisory Agreements and Fees We provide investment advisory services to the Hennessy Funds pursuant to investment advisory agreements with Hennessy Funds Trust.
The following table lists each of our sub-advised funds, the sub-advisor for such fund, and the percentage used to calculate the annual sub-advisory fees payable by us to such fund’s sub-advisor as of the end of fiscal year 2022: Hennessy Fund (All Class Shares) Sub-Advisor Sub-Advisory Fee (As a % of Fund Assets) Hennessy Focus Fund Broad Run Investment Management, LLC 0.29% Hennessy Equity and Income Fund FCI Advisors (fixed income allocation) 0.27% The London Company of Virginia, LLC (equity allocation) 0.33% Hennessy Japan Fund SPARX Asset Management Co., Ltd. $0-$500 million: 0.35 % Above $500 million-$1 billion: 0.40 % Above $1 billion: 0.42 % Hennessy Japan Small Cap Fund SPARX Asset Management Co., Ltd. $0-$500 million: 0.35 % Above $500 million-$1 billion: 0.40 % Above $1 billion: 0.42 % The sub-advisory agreements must be renewed annually in the same manner as the investment advisory agreements and are subject to the same termination provisions.
The following table lists each of our sub‑advised funds, the sub‑advisor for such fund, and the percentage used to calculate the annual sub‑advisory fees payable by us to such fund’s sub‑advisor as of the end of fiscal year 2023: Hennessy Fund Sub-Advisory Fee (All Class Shares) Sub-Advisor (As a % of Fund Assets) Hennessy Focus Fund Broad Run Investment Management, LLC 0.29% Hennessy Equity and Income Fund FCI Advisors (fixed income allocation) 0.27% The London Company of Virginia, LLC (equity allocation) 0.33% Hennessy Japan Fund SPARX Asset Management Co., Ltd. $0-$500 million: 0.35% Above $500 million-$1 billion: 0.40% Above $1 billion: 0.42% Hennessy Japan Small Cap Fund SPARX Asset Management Co., Ltd. $0-$500 million: 0.35% Above $500 million-$1 billion: 0.40% Above $1 billion: 0.42% Hennessy Stance ESG ETF Stance Capital, LLC (portfolio composition sub-advisor) $0-$125 million: 0.40% Above $125-$250 million: 0.37% Above $250 million: 0.35% Vident Advisory, LLC* (trading sub-advisor) $0-$250 million: 0.05% Above $250-$500 million: 0.05% Above $500 million: 0.04% *Subject to a minimum sub-advisory fee to Vident Advisory, LLC of $18,750 on an annual basis.
All trades for the Hennessy Funds are executed by independent brokerage firms following our direction or the direction of our sub-advisors. When selecting brokers, we and our sub-advisors are required to seek best execution.
CUSTODIAL, DISTRIBUTION, AND BROKERAGE ARRANGEMENTS We use independent third parties for custody and distribution of our assets under management. 16 Table of Contents All trades for the Hennessy Funds are executed by independent brokerage firms following our direction or the direction of our sub‑advisors. When selecting brokers, we and our sub‑advisors are required to seek best execution.
ITEM 1. BUSINESS GENERAL Hennessy Advisors, Inc. (the “Company,” “we,” “us,” or “our”) is a publicly traded investment management firm whose primary business activity is managing, servicing, and marketing a family of open-end mutual funds branded as the Hennessy Funds.
ITEM 1. BUSINESS GENERAL Hennessy Advisors, Inc. (the “Company,” “we,” “us,” or “our”) is a publicly traded investment management firm whose primary business activity is providing investment advisory services to a family of 16 open-end mutual funds (collectively, the “Hennessy Mutual Funds”) and one exchange‑traded fund (“ETF”) branded as the Hennessy Funds.
Shareholder Servicing Agreements and Fees Pursuant to a shareholder servicing agreement with Hennessy Funds Trust, we provide shareholder services to investors in the Hennessy Funds including, among other things, maintaining a toll-free number that the current investors in the Hennessy Funds may call to ask questions about their accounts or the funds or to get help with processing exchange and redemption requests or changing account options.
Shareholder Servicing Agreements and Fees Pursuant to a shareholder servicing agreement with Hennessy Funds Trust, we provide shareholder services to investors in the Hennessy Mutual Funds including, among other things, maintaining a toll‑free number that the current investors in the Hennessy Funds may call to ask questions about their accounts or the funds and actively participating as a liaison between investors in the Hennessy Funds and U.S.
(4) The Russell Midcap ® Growth Index comprises those companies in the Russell Midcap ® Index with relatively higher price-to-book ratio, higher forecasted growth values, and higher sales per share historical growth.
(4) The Russell Midcap® Growth Index comprises those companies in the Russell Midcap® Index with relatively higher price‑to‑book ratio, higher forecasted growth values, and higher sales per share historical growth. (5) The Russell Midcap® Index comprises approximately 800 of the smallest securities in the Russell 1000® Index, representing approximately 27% of the total market capitalization of the Russell 1000® Index.
We also believe that our actively managed funds attract investors who appreciate a fundamental, hands-on investment management approach and talented portfolio managers. Finally, we believe our more conservative, income-generating funds attract investors seeking alternatives to funds invested entirely in equities.
We also believe that our actively managed funds attract investors who appreciate a fundamental, hands-on investment management approach and talented portfolio managers.
Upon completion of the transaction, which is subject to the approval of the shareholders of the Stance Equity ESG Large Cap Core ETF, the assets related to the Stance Equity ESG Large Cap Core ETF will be reorganized to become a series of Hennessy Funds Trust named the Hennessy Stance ESG Large Cap ETF.
Upon completion of the transaction, which is subject to the approval of the shareholders of each of the CCM Equity Funds, the assets of the CCM Equity Funds will be reorganized into the Hennessy Stance ESG ETF.
From the investable common stocks of public companies in the S&P Capital IQ Database with market capitalizations exceeding $175 million, this fund invests in approximately 60 stocks (weighted equally by dollar amount) that the portfolio managers believe demonstrate sector-leading cash flows and profits, a history of delivering returns in excess of cost of capital, attractive relative valuations, ability to generate cash, attractive balance sheet risk profiles, and prospects for sustainable profitability. 6 Table of Contents Historical Investment Performance of the Hennessy Funds The following table presents the average annualized returns for each Hennessy Fund and its relevant benchmark indices for the one-year, three-year, five-year, and ten-year (or since inception for Hennessy Funds that commenced operations less than ten years ago) periods ended September 30, 2022.
From the investable common stocks of public companies in the S&P Capital IQ Database with market capitalizations exceeding $175 million, this fund invests in approximately 60 stocks (weighted equally by dollar amount) that the portfolio managers believe demonstrate sector‑leading cash flows and profits, a history of delivering returns in excess of cost of capital, attractive relative valuations, ability to generate cash, attractive balance sheet risk profiles, and prospects for sustainable profitability. ● Hennessy Stance ESG ETF (NYSE: STNC).
There are no ongoing licensing fees associated with this license agreement, and Netfolio does not have any contractual rights to terminate the license agreement. 15 Table of Contents BUSINESS STRATEGY From the time we launched our first mutual fund in 1996, we have consistently pursued a growth strategy centered on organic growth through our marketing, sales, and distribution efforts and growth through strategic purchases of management-related assets.
BUSINESS STRATEGY From the time we launched our first mutual fund in 1996, we have consistently pursued a growth strategy centered on organic growth through our marketing, sales, and distribution efforts and growth through strategic purchases of management‑related assets.
Our content marketing includes overall market and sector-specific thought leadership, promotional investment ideas, fund updates, and commentary from our portfolio managers, as well as feature news articles and broadcast appearances. We attend select investment advisor trade shows and strategic industry-related conferences, and we seek opportunities to moderate or speak on industry-related panels.
Our content marketing includes overall market and sector‑specific thought leadership, promotional investment ideas, fund updates, and commentary from our portfolio managers, as well as feature news articles and broadcast appearances.
In exchange for sub-advisory services, we pay sub-advisory fees to the sub-advisors out of our own assets. Sub-advisory fees are calculated as a percentage of the applicable fund’s average daily net asset value.
Sub-advisory fees are calculated as a percentage of the applicable fund’s average daily net asset value.
The 12b-1 fee for each Hennessy Fund is 0.15% of the average daily net assets of such fund’s Investor Class shares. CUSTODIAL, DISTRIBUTION, AND BROKERAGE ARRANGEMENTS We use independent third parties for custody and distribution of our assets under management.
The 12b‑1 fee for each Hennessy Mutual Fund is 0.15% of the average daily net assets of such fund’s Investor Class shares.
Our investment advisory agreements must be renewed annually (except in limited circumstances) by (a) the Funds’ Board of Trustees or the vote of a majority of the outstanding shares of the applicable Hennessy Fund and (b) the vote of a majority of the disinterested trustees. If an investment advisory agreement is not renewed, it terminates automatically.
Any decision to waive fees would apply only on a going‑forward basis. 13 Table of Contents Our investment advisory agreements must be renewed annually (except in limited circumstances) by (a) the Funds’ Board of Trustees or the vote of a majority of the outstanding shares of the applicable Hennessy Fund and (b) the vote of a majority of the disinterested trustees.
We have the right to assign the license to another person or entity if the assignee agrees in writing to be bound by the terms of the license agreement.
We have the right to assign the license to another person or entity if the assignee agrees in writing to be bound by the terms of the license agreement. There are no ongoing licensing fees associated with this license agreement, and Netfolio does not have any contractual rights to terminate the license agreement.
That fiduciary duty may be enforced by the SEC, by administrative action, or through litigation initiated by investors in the Hennessy Funds pursuant to a private right of action. 18 Table of Contents The SEC is authorized to institute proceedings and impose sanctions for violations of the Investment Advisers Act of 1940 and the Investment Company Act of 1940, ranging from fines and censures to the suspension of individual employees to termination of our registration as an investment advisor.
The SEC is authorized to institute proceedings and impose sanctions for violations of the Advisers Act of 1940 and the 1940 Act, ranging from fines and censures to the suspension of individual employees to termination of our registration as an investment advisor.
We continue to waive a portion of our fees with respect to the Hennessy Midstream Fund and the Hennessy Technology Fund to comply with contractual expense ratio limitations. The fee waivers are calculated daily by the Hennessy Funds’ accountants at U.S. Bank Global Fund Services, reviewed by management, and then charged to expense monthly as offsets to our revenues.
The fee waivers are calculated daily by the Hennessy Funds’ accountants at U.S. Bank Global Fund Services, reviewed by management, and then charged to expense monthly as offsets to our revenues. Each waived fee is then deducted from investment advisory fee income and reduces the aggregate amount of advisory fees we receive from such fund in the subsequent month.
Shareholder services include maintaining a toll-free number that the current investors in the Hennessy Funds may call to ask questions about their accounts or the funds or to get help with processing exchange and redemption requests or changing account options.
Shareholder services include maintaining a toll‑free number that the current investors in the Hennessy Funds may call to ask questions about their accounts or the funds and actively participating as a liaison between investors in the Hennessy Funds and U.S. Bank Global Fund Services, the Hennessy Funds’ administrator.
(See Note 16 in Item 8, “Financial Statements and Supplementary Data.”) 3 Table of Contents PRODUCT INFORMATION Investment Strategies of the Hennessy Funds We manage 16 mutual funds, each of which is categorized as a Domestic Equity, Multi-Asset, or Sector and Specialty product.
On the same date, we entered into a new sub‑advisory agreement with Vident Advisory, LLC (“Vident Advisory”). 3 Table of Contents PRODUCT INFORMATION Investment Strategies of the Hennessy Funds We manage 16 mutual funds and one ETF, each of which is categorized as a Domestic Equity, Multi‑Asset, or Sector and Specialty product.
We run a comprehensive and far-reaching public relations program designed to disseminate our message to a wide variety of potential investors through frequent television appearances, radio spots, feature articles, and print media mentions. We have partnered with an industry-leading public relations firm, SunStar Strategic, to proactively promote the Hennessy Funds to national financial media.
Finally, we believe our more conservative, income‑generating funds attract investors seeking alternatives to funds invested entirely in equities. 17 Table of Contents We run a comprehensive and far-reaching public relations program designed to disseminate our message to a wide variety of potential investors through frequent television appearances, radio spots, feature articles, and print media mentions.
Also in October, we completed a public offering of 4.875% notes due 2026 (the “2026 Notes”) in the aggregate principal amount of $40.25 million, which included the full exercise of the underwriters’ overallotment option. 2022 In August, we signed a definitive agreement with Stance Capital, LLC (“Stance Capital”) and Red Gate Advisers, LLC, among others, to purchase the assets related to the management of the Stance Equity ESG Large Cap Core ETF.
Also in October, we completed a public offering of 4.875% notes due 2026 (the “2026 Notes”) in the aggregate principal amount of $40.25 million, which included the full exercise of the underwriters’ overallotment option. 2022 In January, we mutually agreed with BP Capital to terminate the sub‑advisory agreement for the Hennessy Energy Transition Fund and the Hennessy Midstream Fund and began managing such funds internally.
The Investment Company Act of 1940 also imposes on us a fiduciary duty with respect to receiving investment advisory fees.
The 1940 Act also imposes on us a fiduciary duty with respect to receiving investment advisory fees. That fiduciary duty may be enforced by the SEC, by administrative action, or through litigation initiated by investors in the Hennessy Funds pursuant to a private right of action.
To date, we have only waived fees based on contractual obligations, but we have the ability to waive fees at our discretion. Any decision to waive fees would apply only on a going-forward basis.
Total fee waivers during each of fiscal year 2023 and 2022 were $0.1 million. To date, we have only waived fees based on contractual obligations, but we have the ability to waive fees at our discretion.
Through much of our fiscal year 2021 and the second half of our fiscal year 2020, we participated in these activities via videoconference or teleconference, as necessary. • Expanding our distribution network to additional distribution platforms Investors may purchase shares of the Hennessy Funds through third-party financial intermediaries, including fund supermarkets, national wirehouses and broker-dealers, independent and regional broker-dealers, and registered investment advisors, or directly from the Hennessy Funds. 16 Table of Contents Fund supermarkets, such as Schwab, Fidelity, TD Ameritrade, and Pershing, generally offer funds of many different investment companies to investors in exchange for a services fee paid by the applicable fund or that fund’s investment advisor.
Fund supermarkets, such as Schwab, Fidelity, TD Ameritrade, and Pershing, generally offer funds of many different investment companies to investors in exchange for a services fee paid by the applicable fund or that fund’s investment advisor.
Removed
(5) The Russell Midcap ® Index comprises approximately 800 of the smallest securities in the Russell 1000 ® Index, representing approximately 27% of the total market capitalization of the Russell 1000 ® Index.
Added
In December, we purchased the assets related to the management of an ETF previously managed by Red Gate Advisers, LLC and reorganized the assets of such fund into the newly created Hennessy Stance ESG ETF. In connection with the transaction, Stance Capital, LLC (“Stance Capital”) and Vident Investment Advisory, LLC (“VIA”) became sub‑advisors to the fund.
Removed
Each waived fee is then deducted from investment advisory fee income and reduces the aggregate amount of advisory fees we receive from such fund in the subsequent month. Total fee waivers during each of fiscal year 2022 and 2021 were $0.1 million.
Added
The amount of the purchased assets as of the closing date totaled approximately $43 million. 2023 In April, we signed a definitive agreement with Community Capital Management, LLC (“CCM”) to purchase the assets related to the management of the CCM Core Impact Equity Fund and the CCM Small/Mid-Cap Impact Value Fund (the “CCM Equity Funds”).
Removed
Steadman is an Executive Vice President and Secretary of the Hennessy Funds.
Added
In July, VIA completed an acquisition transaction that resulted in a change of control of VIA and automatic termination of our sub‑advisory agreement with VIA.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

50 edited+16 added−4 removed88 unchanged
Biggest changeWe may need to raise additional capital to fund new business initiatives, and resources may not be available to us in sufficient amounts or on acceptable terms, which could have an adverse impact on our business. Our ability to meet our future cash needs is dependent upon our ability to generate cash.
Biggest changeOur ability to meet our future cash needs is dependent upon our ability to generate cash. Although we have been successful in generating sufficient cash in the past, we may not be successful in the future.
If the management contracts asset is ever reclassified as an asset with a definite life, we would begin amortizing the management contracts over their remaining useful life. If the management contracts asset continues to be classified as an indefinite-life asset, we will continue to periodically review the carrying value to determine if any impairment has occurred.
If the management contract asset is ever reclassified as an asset with a definite life, we would begin amortizing the management contracts over their remaining useful life. If the management contract asset continues to be classified as an indefinite‑life asset, we will continue to periodically review the carrying value to determine if any impairment has occurred.
This strategy is accompanied by risks including, among others, the possibility of the following: • the potential unavailability of attractive acquisition opportunities; • a high level of competition from other companies that may have greater financial resources than we do; • our inability to value potential asset purchases accurately and negotiate acceptable purchase terms; • our inability to obtain quorum and secure enough affirmative votes to gain approval of the proposed fund reorganization from the target fund’s investors; • the loss of fund assets paid for in an asset purchase through redemptions by investors of the funds involved in the asset purchase; • higher than anticipated asset purchase expenses; • our inability to successfully integrate and maintain adequate infrastructure to support business growth; • increasing our leverage; • the potential diversion of our management’s time and attention; • dilution to our shareholders if we fund an asset purchase in whole or in part with our common stock; and • adverse effects on our earnings if purchased intangible assets become impaired.
This strategy is accompanied by risks including, among others, the possibility of the following: ● the potential unavailability of attractive acquisition opportunities; ● a high level of competition from other companies that may have greater financial resources than we do; ● our inability to value potential asset purchases accurately and negotiate acceptable purchase terms; ● our inability to obtain quorum and secure enough affirmative votes to gain approval of the proposed fund reorganization from the target fund’s investors; ● the loss of fund assets paid for in an asset purchase through redemptions by investors of the funds involved in the asset purchase; ● higher than anticipated asset purchase expenses; 25 Table of Contents ● our inability to successfully integrate and maintain adequate infrastructure to support business growth; ● increasing our leverage; ● the potential diversion of our management’s time and attention; ● dilution to our shareholders if we fund an asset purchase in whole or in part with our common stock; and ● adverse effects on our earnings if purchased intangible assets become impaired.
If one or more of these risks occur, we may be unable to successfully complete a purchase of management-related assets (thereby requiring us to write off any related expenses), we may experience an impairment of our management contracts asset, we may receive negative publicity or suffer other negative impacts on our reputation, and we may not achieve the expected return on investment.
If one or more of these risks occur, we may be unable to successfully complete a purchase of management‑related assets (thereby requiring us to write off any related expenses), we may experience an impairment of our management contract asset, we may receive negative publicity or suffer other negative impacts on our reputation, and we may not achieve the expected return on investment.
Increasing competition for these distribution channels could cause our distribution costs to rise, which could have a material adverse effect on our net income. These financial intermediaries generally can terminate their relationships with us on short notice. Mergers and other corporate transactions among distributors also may affect our relationships with financial intermediaries.
Increasing competition for these distribution channels could cause our distribution costs to rise, which could have a material adverse effect on our net income. These financial institutions generally can terminate their relationships with us on short notice. Mergers and other corporate transactions among distributors also may affect our relationships with financial institutions.
Any failure to maintain strong business relationships with these financial intermediaries and the consultant community due to any of the above-described factors would impair our ability to distribute the Hennessy Funds, which in turn would have a negative effect on our assets under management, revenues, and net income.
Any failure to maintain strong business relationships with these financial institutions and the consultant community due to any of the above-described factors would impair our ability to distribute the Hennessy Funds, which in turn would have a negative effect on our assets under management, revenues, and net income.
Certain of the financial intermediaries upon whom we rely to distribute the Hennessy Funds also sell their own competing proprietary investment products, which could limit the distribution of our products. Investors increasingly rely on external consultants and other third parties for advice on the choice of investment manager.
Certain of the financial institutions upon whom we rely to distribute the Hennessy Funds also sell their own competing proprietary investment products, which could limit the distribution of our products. Investors increasingly rely on external consultants and other third parties for advice on the choice of investment manager.
The impairment analysis is based on anticipated future cash flows, which are calculated based on assets under management. Although the management contracts asset is not currently impaired, there is always a possibility of impairment in the future, which could require us to write off all or a portion of the asset.
The impairment analysis is based on anticipated future cash flows, which are calculated based on assets under management. Although the management contract asset is not currently impaired, there is always a possibility of impairment in the future, which could require us to write off all or a portion of the asset.
Borrowings, also known as leverage, magnify the potential for gain or loss on amounts invested and therefore increase the risks associated with investing in our securities. On October 20, 2021, we completed a public offering of the 2026 Notes in the aggregate principal amount of $40.25 million, which included the full exercise of the underwriters’ overallotment option.
Borrowings, also known as leverage, magnify the potential for gain or loss on amounts invested and therefore increase the risks associated with investing in our securities. 23 Table of Contents On October 20, 2021, we completed a public offering of the 2026 Notes in the aggregate principal amount of $40.25 million, which included the full exercise of the underwriters’ overallotment option.
We are subject to regulation under the Securities Act of 1933, as amended, the Exchange Act, the Investment Company Act of 1940, the Investment Advisers Act of 1940, and various other statutes. The laws to which we are subject are designed primarily to protect investors in the Hennessy Funds as opposed to our shareholders.
We are subject to regulation under the Securities Act of 1933, as amended, the Exchange Act, the 1940 Act, the Advisers Act, and various other statutes. The laws to which we are subject are designed primarily to protect investors in the Hennessy Funds as opposed to our shareholders.
Our ability to make payments of principal and interest on our indebtedness depends upon our future performance, which is subject to general economic conditions and financial, business, and other factors affecting our consolidated operations, many of which are beyond our control. 21 Table of Contents Changes in the distribution channels on which we depend could reduce our net revenues and hinder our growth.
Our ability to make payments of principal and interest on our indebtedness depends upon our future performance, which is subject to general economic conditions and financial, business, and other factors affecting our consolidated operations, many of which are beyond our control. Changes in the distribution channels on which we depend could reduce our net revenues and hinder our growth.
In addition, while we strive to comply with the relevant laws and regulations, any failure to comply could result in regulatory investigations and penalties as well as negative publicity, which could materially adversely affect our business, results of operations, and financial condition. We are exposed to legal risk and litigation, which could increase our expenses and reduce our profitability.
In addition, while we strive to comply with the relevant laws and regulations, any failure to comply could result in regulatory investigations and penalties as well as negative publicity, which could materially adversely affect our business, results of operations, and financial condition. 28 Table of Contents We are exposed to legal risk and litigation, which could increase our expenses and reduce our profitability.
Any of these results could have an adverse effect on our business, results of operations, and financial condition. 23 Table of Contents Our investment advisory and shareholder servicing agreements can be terminated on short notice, are not freely assignable, and must be renewed annually; the loss of such agreements would reduce our revenues.
Any of these results could have an adverse effect on our business, results of operations, and financial condition. Our investment advisory and shareholder servicing agreements can be terminated on short notice, are not freely assignable, and must be renewed annually; the loss of such agreements would reduce our revenues.
A write-off, depending on the amount, could have operational risks and could have a significant impact on the value of our equity and our earnings per share. We may be required to forego all or a portion of our fees under our investment advisory agreements with the Hennessy Funds.
A write-off, depending on the amount, could have operational risks and could have a significant impact on the value of our equity and our earnings per share. 24 Table of Contents We may be required to forego all or a portion of our fees under our investment advisory agreements with the Hennessy Funds.
We depend on key personnel to manage our business, and the loss of any key person’s services, combined with our inability to identify and retain a suitable replacement for such person, could materially adversely affect us. Additionally, the cost to retain our key personnel could put pressure on our operating margins.
We depend on key personnel to manage our business, and the loss of any key person ’ s services, combined with our inability to identify and retain a suitable replacement for such person, could materially adversely affect us. Additionally, the cost to retain our key personnel could put pressure on our operating margins.
Additionally, particularly in the United States, certain third-party financial intermediaries have substantially reduced the number of investment funds they make available to their clients. If a material portion of the financial intermediaries with whom we do business were to substantially narrow their product offerings, it could have a significant adverse effect on our assets under management, revenues, and net income.
Additionally, particularly in the United States, certain financial institutions have substantially reduced the number of investment funds they make available to their clients. If a material portion of the financial institutions with whom we do business were to substantially narrow their product offerings, it could have a significant adverse effect on our assets under management, revenues, and net income.
We are dependent on the effectiveness of our information and cybersecurity policies, procedures, and capabilities we maintain to protect our computer and telecommunications systems and the data that resides on or is transmitted through them, including 25 Table of Contents data provided by third parties that is significant to our business.
We are dependent on the effectiveness of our information and cybersecurity policies, procedures, and capabilities we maintain to protect our computer and telecommunications systems and the data that resides on or is transmitted through them, including data provided by third parties that is significant to our business.
Conversely, the development and introduction of new products, including the creation or acquisition of products with a focus on ESG (environmental, social, and governance) matters, requires continued innovative effort on our part and may require significant time and resources, as well as ongoing support and investment.
Conversely, the development and introduction of new products, including the creation or acquisition of products with a focus on ESG matters, requires continued innovative effort on our part and may require significant time and resources, as well as ongoing support and investment.
Substantial 24 Table of Contents risks and uncertainties are associated with the introduction of new products, including the implementation of new and appropriate operational controls and procedures, shifting investor and market preferences, the introduction of competing products, constraints on our ability to manage growth, and compliance with regulatory and disclosure requirements.
Substantial risks and uncertainties are associated with the introduction of new products, including the implementation of new and appropriate operational controls and procedures, shifting investor and market preferences, the introduction of competing products, constraints on our ability to manage growth, and compliance with regulatory and disclosure requirements.
Having a limited number of shareholders also causes us to experience limited trading volume in our securities. We intend to pay regular dividends to our shareholders, but our ability to do so is subject to the discretion of our Board of Directors.
Having a limited number of shareholders also causes us to experience limited trading volume in our securities. 30 Table of Contents We intend to pay regular dividends to our shareholders, but our ability to do so is subject to the discretion of our Board of Directors.
More broadly, in both retail and institutional channels, financial intermediaries (distribution firms and consultants) are seeking to reduce the number of investment management firms with which they do business. This poses risks of additional lost business if a particular financial intermediary chooses to stop or significantly reduce its business relationship with us.
More broadly, in both retail and institutional channels, financial institutions (distribution firms and consultants) are seeking to reduce the number of investment management firms with which they do business. This poses risks of additional lost business if a particular financial institution chooses to stop or significantly reduce its business relationship with us.
In addition to an 26 Table of Contents increased number of applicable laws, the investment fund industry has undergone increased scrutiny by the SEC and state regulators in recent years, resulting in numerous enforcement actions and sweep examinations.
In addition to an increased number of applicable laws, the investment fund industry has undergone increased scrutiny by the SEC and state regulators in recent years, resulting in numerous enforcement actions and sweep examinations.
Assets invested through third-party financial intermediaries can be quickly redeemed, which could reduce our revenues. Third-party financial intermediaries are attractive to investors because of the ease of accessibility to a variety of funds, but this may cause the investments to be more sensitive to fluctuations in performance, especially in the short term.
Assets invested through financial institutions can be quickly redeemed, which could reduce our revenues. Financial institutions are attractive to investors because of the ease of accessibility to a variety of funds, but this may cause the investments to be more sensitive to fluctuations in performance, especially in the short term.
Changing market conditions could also cause an impairment to the value of our management contracts asset. 19 Table of Contents Investors in the Hennessy Funds can redeem their investments at any time and for any reason, including poor investment performance and volatile equity markets. A decline in our assets under management adversely affects our revenues.
Changing market conditions could also cause an impairment to the value of our management contract asset. Investors in the Hennessy Funds can redeem their investments at any time and for any reason, including poor investment performance and volatile equity markets. A decline in our assets under management adversely affects our revenues.
For the past several years, approximately 75% of our assets under management has been concentrated in four of our funds.
For the past several years, approximately 75% of our assets under management has been concentrated in five of our funds.
Our primary source of distribution of the Hennessy Funds is through a variety of third-party financial intermediaries. Our success is highly dependent on access to these various distribution channels. We cannot guarantee we will be able to retain access to these channels at similar pricing or at all.
Our primary source of distribution of the Hennessy Funds is through a variety of financial institutions. Our success is highly dependent on access to these various distribution channels. We cannot guarantee we will be able to retain access to these channels at similar pricing or at all.
We periodically negotiate the terms and conditions of these sub-advisory relationships, and there can be no assurance that such terms will remain acceptable to us or our sub-advisors. These relationships may also be terminated by us or the applicable sub-advisor upon short notice without penalty.
We periodically negotiate the terms and conditions of these sub‑advisory relationships, and there can be no assurance that such terms will remain acceptable to us or our sub‑advisors. These relationships may also be terminated by us or the applicable sub‑advisor without penalty on 60 days’ notice.
This has reduced, and may continue to reduce, our assets under management and revenues. 20 Table of Contents We utilize unaffiliated sub-advisors to manage the portfolio composition of certain of the Hennessy Funds, and any matters that have an adverse impact on their businesses or any change in our relationships with our sub-advisors could lead to a reduction in assets under management, which would adversely affect our revenues.
We utilize unaffiliated sub ‑ advisors to manage the portfolio composition of certain of the Hennessy Funds, and any matters that have an adverse impact on their businesses or any change in our relationships with our sub ‑ advisors could lead to a reduction in assets under management, which would adversely affect our revenues.
The management contracts we have purchased, an $80.9 million asset on the balance sheet as of the end of fiscal year 2022, are considered an intangible asset with an indefinite useful life. Management reviews the indefinite life classification of our management contracts asset each reporting period.
The management contracts we have purchased, an $81.3 million asset on the balance sheet as of the end of fiscal year 2023, are considered an intangible asset with an indefinite useful life. Management reviews the indefinite life classification of our management contract asset each reporting period.
These institutions range from small boutique firms to large financial services complexes. We are considered a small investment advisory company. Many competing companies are part of larger financial services companies that conduct business in more markets and have greater marketing, financial, technical, research, and distribution resources and other capabilities than we do.
We are considered a small investment advisory company. Many competing companies are part of larger financial services companies that conduct business in more markets and have greater marketing, financial, technical, research, and distribution resources and other capabilities than we do.
Although we have been successful in generating sufficient cash in the past, we may not be successful in the future. We may need to raise additional capital to fund new business initiatives or repay the 2026 Notes, and financing may not be available to us in sufficient amounts, on acceptable terms, or at all.
We may need to raise additional capital to fund new business initiatives or repay the 2026 Notes, and financing may not be available to us in sufficient amounts, on acceptable terms, or at all.
Adhering to our investment strategies regardless of any adverse developments that may arise could result in substantial losses to the formula-driven Hennessy Funds if, for example, the stocks selected for a fund are experiencing financial difficulty or are out of favor with investors in a given period This could, in theory, result in relatively low performance of the formula-driven Hennessy Funds and adversely affect the net assets of such Hennessy Funds.
Adhering to our investment strategies regardless of any adverse developments that may arise could result in substantial losses to the formula‑driven Hennessy Funds if, for example, the stocks selected for a fund are experiencing financial difficulty or are out of favor with investors in a given period.
As our insurance policies come up for renewal, we may need to assume higher deductibles or co-insurance liabilities, or pay higher premiums, which would increase our expenses and have a material adverse effect on our results of operations.
Certain insurance coverage may not be available or may be prohibitively expensive in future periods. As our insurance policies come up for renewal, we may need to assume higher deductibles or co-insurance liabilities, or pay higher premiums, which would increase our expenses and have a material adverse effect on our results of operations.
An interruption or termination of our sub-advisory relationships could affect our ability to market our sub-advised funds and result in a reduction in assets under management, which would adversely affect our revenues.
Any interruption or termination of our sub‑advisory relationships, whether due to a change of control or any other circumstance, could affect our ability to market our sub‑advised funds and result in a reduction in assets under management, which would adversely affect our revenues.
If the Hennessy Funds perform poorly compared to the investment products offered by other investment advisory firms, we may experience a decrease in purchases of shares and an increase in redemptions of shares of the Hennessy Funds.
If the Hennessy Funds perform poorly compared to the investment products offered by other investment advisory firms, we may experience a decrease in purchases of shares and an increase in redemptions of shares of the Hennessy Funds. Further, sharp declines in the stock market have and may continue to cause increases in redemptions of shares of the Hennessy Funds.
A decrease in the net assets of the Hennessy Funds would adversely affect our revenues. We pursue strategic asset purchases as part of our regular business strategy, and such acquisitions involve inherent risks that could adversely affect our operating results and financial condition and potentially dilute the holdings of current shareholders.
We pursue strategic asset purchases as part of our regular business strategy, and such acquisitions involve inherent risks that could adversely affect our operating results and financial condition and potentially dilute the holdings of current shareholders. As part of our regular business strategy, we pursue strategic purchases of the assets related to the management of additional funds.
Investments in Japanese securities also expose these funds to the economic uncertainties affecting Japan, which may 22 Table of Contents differ from those affecting the United States. For example, the adverse effects of a pandemic may disproportionately impact Japan. Further, Japanese financial accounting standards and practices may differ, and there may be less information on Japanese companies available publicly.
Investments in Japanese securities also expose these funds to the economic uncertainties affecting Japan, which may differ from those affecting the United States. Further, Japanese financial accounting standards and practices may differ, and there may be less information on Japanese companies available publicly.
Consequently, our revenues followed a similar pattern of concentration: (a) the Hennessy Focus Fund (32% of total revenue); (b) the Hennessy Japan Fund (16% of total revenue); (c) the Hennessy Mid Cap 30 Fund (10% of total revenue); and (d) the Hennessy Gas Utility Fund (9% of total revenue).
Consequently, our revenues followed a similar pattern of concentration: (a) the Hennessy Focus Fund (27% of total revenue); (b) the Hennessy Cornerstone Midcap 30 Fund (15% of total revenue); (c) the Hennessy Gas Utility Fund (10% of total revenue); (d) the Hennessy Cornerstone Value Fund (10% of total revenue); and (e) the Hennessy Japan Fund (10% of total revenue).
If we are unable to access sufficient capital on acceptable terms, our business could be adversely impacted. 27 Table of Contents Failure to establish adequate controls and risk management policies, as well as circumvention of established controls and policies by employees, could harm us by impairing our ability to attract and retain investors in the Hennessy Funds and by subjecting us to significant legal liability, regulatory scrutiny, and reputational harm.
Failure to establish adequate controls and risk management policies, as well as circumvention of established controls and policies by employees, could harm us by impairing our ability to attract and retain investors in the Hennessy Funds and by subjecting us to significant legal liability, regulatory scrutiny, and reputational harm.
If the Hennessy Funds received an adverse rating, ranking, or assessment from a third party, it could result in an increase in the withdrawal of assets from the Hennessy Funds by existing investors and the inability to attract additional investments into the Hennessy Funds from existing and new investors, thereby reducing our assets under management and adversely affecting our revenues.
If the Hennessy Funds received an adverse rating, ranking, or assessment from a third party, it could result in an increase in the withdrawal of assets from the Hennessy Funds by existing investors and the inability to attract additional investments into the Hennessy Funds from existing and new investors, thereby reducing our assets under management and adversely affecting our revenues. 21 Table of Contents The failure or negative performance of products offered by competitors may have a negative impact on the Hennessy Funds within such similar product type, irrespective of our fund performance.
Our ability to access bank financing or capital markets efficiently depends on a number of factors, including the state of credit and equity markets, interest rates, and credit spreads.
Our ability to access bank financing or capital markets efficiently depends on a number of factors, including the state of credit and equity markets, interest rates, and credit spreads. If we are unable to access sufficient capital on acceptable terms, our business could be adversely impacted.
During fiscal year 2022, our average assets under management was concentrated in the following four funds: (i) the Hennessy Focus Fund (27% of average assets under management); (ii) the Hennessy Japan Fund (16% of average assets under management); (iii) the Hennessy Gas Utility Fund (16% of average assets under management); and (iv) the Hennessy Cornerstone Mid Cap 30 Fund (10% of average assets under management).
During fiscal year 2023, our average assets under management was concentrated in the following five funds: (i) the Hennessy Focus Fund (23% of average assets under management); (ii) the Hennessy Gas Utility Fund (17% of average assets under management); (iii) the Hennessy Cornerstone Midcap 30 Fund (15% of average assets under management); (iv) the Hennessy Japan Fund (10% of average assets under management); and (v) the Hennessy Cornerstone Value Fund (10% of average assets under management).
The investment advisory industry is intensely competitive and new participants are continually entering the industry. We compete directly with numerous global and U.S. investment advisors, commercial banks, savings and loan associations, brokerage and investment banking firms, broker-dealers, insurance companies, and other financial institutions that often provide investment products with similar features and objectives to those we offer.
We compete directly with numerous global and U.S. investment advisors, commercial banks, savings and loan associations, brokerage and investment banking firms, broker-dealers, insurance companies, and other financial institutions that often provide investment products with similar features and objectives to those we offer. These institutions range from small boutique firms to large financial services complexes.
Any loss of confidence in a product type could lead to redemptions in the Hennessy Fund within such product type, which could have a material adverse effect on our business, results of operations, and financial condition. RISKS RELATING TO OUR BUSINESS MODEL AND OPERATIONS We derive a substantial portion of our revenues from a limited number of the Hennessy Funds.
Any loss of confidence in a product type could lead to redemptions in the Hennessy Fund within such product type, which could have a material adverse effect on our business, results of operations, and financial condition. Our business and operations are subject to adverse effects from market reactions to the outbreak of contagious diseases.
In addition, insurance premiums and required retentions have increased in recent years and may continue to do so. We are subject to regulatory and governmental inquiries and civil litigation. An adverse outcome of any such proceeding could involve substantial financial penalties. Various claims may also arise against us in the ordinary course of business, such as employment-related claims.
In addition, insurance premiums and required retentions have increased in the past and may do so again in the future. 27 Table of Contents We are subject to regulatory and governmental inquiries and civil litigation. An adverse outcome of any such proceeding could involve substantial financial penalties.
We have implemented procedures and utilize the services of experienced administrators, accountants, and lawyers to assist in satisfying these requirements, but there can be no assurance that these precautions will protect us from potential liabilities.
We have implemented procedures and utilize the services of experienced administrators, accountants, and lawyers to assist in satisfying these requirements, but there can be no assurance that these precautions will protect us from potential liabilities. 29 Table of Contents We may need to raise additional capital to fund new business initiatives, and resources may not be available to us in sufficient amounts or on acceptable terms, which could have an adverse impact on our business.
There has been increased incidence of litigation and regulatory investigations in the financial services industry in recent years, including customer claims and class action suits alleging substantial monetary damages. Certain insurance coverage may not be available or may be prohibitively expensive in future periods.
Various claims may also arise against us in the ordinary course of business, such as employment-related claims. There has been increased incidence of litigation and regulatory investigations in the financial services industry in recent years, including customer claims and class action suits alleging substantial monetary damages.
It also limited our ability to source and pursue potential acquisitions. Future outbreaks of contagious diseases could have similar adverse impacts on our business and financial performance. Adverse opinions of the Hennessy Funds by third parties, including rating agencies or industry analysts, could decrease new investments in, or accelerate redemptions from, the Hennessy Funds, which would adversely affect our revenues.
Such redemptions reduce our assets under management and adversely affect our revenues. Adverse opinions of the Hennessy Funds by third parties, including rating agencies or industry analysts, could decrease new investments in, or accelerate redemptions from, the Hennessy Funds, which would adversely affect our revenues.
If we were unable to retain the assets of the Hennessy Funds held through financial intermediaries, our assets under management would be reduced. As a result, our revenues could decline and our business, results of operations, and financial condition could be materially adversely affected. We face intense competition in attracting investors and retaining net assets in the Hennessy Funds.
As a result, our revenues could decline and our business, results of operations, and financial condition could be materially adversely affected. 26 Table of Contents We face intense competition in attracting investors and retaining net assets in the Hennessy Funds. The investment advisory industry is intensely competitive and new participants are continually entering the industry.
Enactment of new privacy laws or regulations could, among other things, result in additional costs of compliance or litigation.
Finally, cybersecurity and data privacy have become high priorities for regulators, and many jurisdictions are enacting laws and regulations in these areas. Enactment of privacy laws or regulations could, among other things, result in additional costs of compliance or litigation.
Removed
Further, sharp declines in the stock market, such as those experienced during fiscal year 2022, have and may continue to cause increases in redemptions of shares of the Hennessy Funds. Such redemptions reduce our assets under management and adversely affect our revenues. Our business and operations are subject to adverse effects from market reactions to the outbreak of contagious diseases.
Added
It also limited our ability to source and pursue potential acquisitions. Future outbreaks of contagious diseases could have similar adverse impacts on our business and financial performance. RISKS RELATING TO OUR BUSINESS MODEL AND OPERATIONS We derive a substantial portion of our revenues from a limited number of the Hennessy Funds.
Removed
The failure or negative performance of products offered by competitors may have a negative impact on the Hennessy Funds within such similar product type, irrespective of our fund performance.
Added
This has reduced, and may continue to reduce, our assets under management and revenues.
Removed
As part of our regular business strategy, we pursue strategic purchases of the assets related to the management of additional funds.
Added
In addition, each sub‑advisory agreement must be renewed annually by the Funds’ Board of Trustees (or by the vote of a majority of the outstanding shares of the applicable Hennessy Fund), including a majority of the disinterested trustees. Furthermore, a sub‑advisory agreement automatically terminates if it is assigned.
Removed
Finally, cybersecurity and data privacy have become high priorities for regulators, and many jurisdictions are enacting laws and regulations in these areas. Two such laws are the California Consumer Privacy Act of 2018, which took effect in 2020, and the California Privacy Rights Act of 2020, which will take effect in 2023.
Added
Assignment is generally defined under the 1940 Act and the Advisers Act to include direct assignments as well as assignments that are deemed to occur due to the change in control of the investment advisor, which includes us or one of the sub‑advisors that we have engaged on behalf of certain of the Hennessy Funds.
Added
However, a transaction is not an assignment under the 1940 Act or the Advisers Act if it does not result in a change of actual control or management of us or, in the context of a sub-advisor, a change of actual control or management of the sub-advisor. 22 Table of Contents Generally, if a sub‑advisor experiences a change of control but we do not, we could continue acting as an advisor to the applicable Hennessy Fund, but the shareholders of such Hennessy Fund would have to approve a new sub‑advisory agreement for the sub‑advisor.
Added
However, for the Hennessy Stance ESG ETF, we have the authority to appoint and replace unaffiliated sub‑advisors and to enter into and make material amendments to the related sub‑advisory agreements without shareholder approval.
Added
This is because we recently sought and received an exemptive order from the SEC to operate under a manager of managers structure and subsequently obtained shareholder approval to implement such structure for the Hennessy Stance ESG ETF.
Added
Under the manager of managers structure, we have ultimate responsibility, subject to oversight of and approval by the Hennessy Funds’ Board of Trustees, for overseeing the Hennessy Funds’ unaffiliated sub-advisors and recommending their hiring, termination, or replacement.
Added
We have not yet received, and do not have an estimated timeline for receiving, shareholder approval to operate under a manager of managers structure for the Hennessy Mutual Funds that are sub‑advised.
Added
We utilize a unitary fee structure for the Hennessy Stance ESG ETF, and we bear the risk that the Fund ’ s operating expenses may increase and lead to a reduction in our revenues from the fund. The Hennessy Stance ESG ETF pays us a unitary fee under its investment advisory agreement with us.
Added
Under a unitary fee structure, we bear all operating expenses incurred in connection with providing services to the fund. The operating expenses covered by the unitary fee include third party data providers, transfer agency, custody, fund administration, legal, audit and other services.
Added
Additionally, for no compensation, we pay all other operating expenses of the fund, including sub-advisory fees, with the exception of the following: (1) the management fees paid to us; (2) distribution fees and expenses paid by the fund under any distribution plan adopted pursuant to Rule 12b-1 under the Investment Company Act; (3) interest expenses; (4) brokerage expenses, trading expenses, and other expenses (such as stamp taxes) in connection with the execution of portfolio transactions or in connection with creation or redemption transactions; (5) compensation paid to the independent trustees of the fund and fees paid to independent trustees’ counsel; (6) tax expenses and governmental fees; and (7) extraordinary expenses not incurred in the course of ordinary business (the “Excluded Fees”).
Added
The fund and its shareholders bear the costs of Excluded Fees. The unitary fee structure generally eliminates the possibility for any decrease in the total fund expense ratio during periods when assets under management increased, which could lead to increased profitability for us if ware able to achieve economies of scale.
Added
On the other hand, if the fund’s operating expenses increase (other than Excluded Fees), this will lead to a reduction in our revenues from the fund.
Added
This could, in theory, result in relatively low performance of the formula‑driven Hennessy Funds and adversely affect the net assets of such Hennessy Funds. A decrease in the net assets of the Hennessy Funds would adversely affect our revenues.
Added
If we were unable to retain the assets of the Hennessy Funds held through financial institutions, our assets under management would be reduced.

Item 2. Properties

Properties — owned and leased real estate

1 edited+0 added−0 removed1 unchanged
Biggest changeWe consider these arrangements to be suitable and adequate for the management and operations of our business. We do not own any real property. 28 Table of Contents
Biggest changeWe consider these arrangements to be suitable and adequate for the management and operations of our business. We do not own any real property.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+0 added−0 removed1 unchanged
Biggest changeMARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES Until October 18, 2021, our common stock traded on The Nasdaq Capital Market under the stock symbol “HNNA.” On October 19, 2021, our common stock moved to and began trading on The Nasdaq Global Market, where it continues to trade under the stock symbol “HNNA.” We have paid regular cash dividends to our shareholders and intend to continue to do so, although the declaration of a dividend is always subject to the discretion of our Board of Directors.
Biggest changeMARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock trades on The Nasdaq Global Market under the stock symbol “HNNA.” We have paid regular cash dividends to our shareholders and intend to continue to do so, although the declaration of a dividend is always subject to the discretion of our Board of Directors.
The equity compensation plan information required by Item 201(d) of Regulation S-K is set forth in the “Equity Compensation Plan Information” subheading under Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.” PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS During fiscal year 2022, we repurchased shares underlying vested restricted stock units (“RSUs”) from employees to satisfy tax withholding obligations arising in connection with the vesting of RSUs.
The equity compensation plan information required by Item 201(d) of Regulation S‑K is set forth in the “Equity Compensation Plan Information” subheading under Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.” 31 Table of Contents PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS During fiscal year 2023, we repurchased shares underlying vested restricted stock units (“RSUs”) from employees to satisfy tax withholding obligations arising in connection with the vesting of RSUs.
We did not repurchase any shares pursuant to the stock buyback program during the three months ended September 30, 2022. (2) The shares that we repurchased in August and September 2022 are not subject to a maximum per plan or program because we did not repurchase them pursuant to a plan or program. 29 Table of Contents
We did not repurchase any shares pursuant to the stock buyback program during the three months ended September 30, 2023. (2) The shares that we repurchased in August and September 2023 are not subject to a maximum per plan or program because we did not repurchase them pursuant to a plan or program.
As of the end of fiscal year 2022, we had 127 holders of record of our common stock. In addition, there were 47 brokerage firm accounts that represent 2,055 additional individual shareholders for a total of 2,182 shareholders.
As of the end of fiscal year 2023, we had 127 holders of record of our common stock. In addition, there were 45 brokerage firm accounts that represent 1,977 additional individual shareholders for a total of 2,104 shareholders.
The stock repurchases are presented in the following table for the three months ended September 30, 2022: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) July 1-31, 2022 — $ — — 596,368 August 1-31, 2022 (2) 8,731 9.93 — 1,096,368 September 1-30, 2022 (2) 25,529 9.15 — 1,096,368 Total 34,260 $ 9.35 — 1,096,368 (1) We are authorized to purchase a maximum of 2,000,000 shares under our stock buyback program.
The stock repurchases are presented in the following table for the three months ended September 30, 2023: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) July 1-31, 2023 - $ - - 596,368 August 1-31, 2023 (2) 7,849 6.89 - 1,096,368 September 1-30, 2023 (2) 26,343 6.79 - 1,096,368 Total 34,192 $ 6.81 - 1,096,368 (1) We are authorized to purchase a maximum of 2,000,000 shares under our stock buyback program.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

55 edited+21 added−13 removed20 unchanged
Biggest changeThe 2026 Notes are the principal liability on our balance sheet at $38.9 million, net of issuance costs. 32 Table of Contents RESULTS OF OPERATIONS The following table sets forth items in the statements of income as dollar amounts and as percentages of total revenue: Fiscal Years Ended September 30, 2022 2021 Amounts Percent of Total Revenue Amounts Percent of Total Revenue (In thousands, except percentages) Revenue Investment advisory fees $ 27,468 92.6 % $ 30,367 92.7 % Shareholder service fees 2,199 7.4 2,393 7.3 Total revenue 29,667 100.0 32,760 100.0 Operating expenses Compensation and benefits 8,322 28.0 9,078 27.7 General and administrative 5,036 17.0 4,754 14.5 Mutual fund distribution 536 1.8 485 1.5 Sub-advisory fees 5,727 19.3 7,332 22.4 Depreciation 207 0.7 232 0.7 Total operating expenses 19,828 66.8 21,881 66.8 Operating income 9,839 33.2 10,879 33.2 Interest expense 2,122 7.2 — — Other income (229 ) (0.8 ) (2 ) (0.0 ) Income before income tax expense 7,946 26.8 10,881 33.2 Income tax expense 1,756 5.9 2,979 9.1 Net income $ 6,190 20.9 % $ 7,902 24.1 % Revenue – Investment Advisory Fees and Shareholder Service Fees Total revenue comprises investment advisory fees and shareholder service fees.
Biggest changeRESULTS OF OPERATIONS The following table sets forth items in the statements of income as dollar amounts and as percentages of total revenue: Fiscal Years Ended September 30, 2023 2022 Amounts Percent of Total Revenue Amounts Percent of Total Revenue (In thousands, except percentages) Revenue Investment advisory fees $ 22,090 92.0 % $ 27,468 92.6 % Shareholder service fees 1,930 8.0 2,199 7.4 Total revenue 24,020 100.0 29,667 100.0 Operating expenses Compensation and benefits 7,732 32.2 8,322 28.0 General and administrative 5,479 22.8 5,036 17.0 Fund distribution and other 486 2.0 536 1.8 Sub-advisory fees 3,759 15.6 5,727 19.3 Depreciation 230 1.0 207 0.7 Total operating expenses 17,686 73.6 19,828 66.8 Net operating income 6,334 26.4 9,839 33.2 Interest expense 2,256 9.4 2,122 7.2 Interest income (2,522 ) (10.5 ) (229 ) (0.8 ) Income before income tax expense 6,600 27.5 7,946 26.8 Income tax expense 1,829 7.6 1,756 5.9 Net income $ 4,771 19.9 % $ 6,190 20.9 % Revenue – Investment Advisory Fees and Shareholder Service Fees Total revenue comprises investment advisory fees and shareholder service fees.
The 2026 Notes mature on December 31, 2026, and may be redeemed in whole or in part at any time or from time to time at our option on or after December 31, 2023. The 2026 Notes bear interest at 4.875% per annum, payable on the last day of each calendar quarter and at maturity, beginning December 31, 2021.
The 2026 Notes mature on December 31, 2026, and may be redeemed in whole or in part at any time or from time to time at our option on or after December 31, 2023. The 2026 Notes bear interest at 4.875% per annum, payable on the last day of each calendar quarter and at maturity, beginning December 31, 2021.
The decrease in sub-advisory fees was due to a decrease in average daily net assets of the sub-advised Hennessy Funds, with an additional decrease as a result of us no longer paying sub-advisory fees with respect to the Hennessy Energy Transition Fund and the Hennessy Midstream Fund after January 31, 2022.
The decrease in sub‑advisory fees expense was due to a decrease in average daily net assets of the sub‑advised Hennessy Funds, with an additional decrease as a result of us no longer paying sub‑advisory fees with respect to the Hennessy Energy Transition Fund and the Hennessy Midstream Fund after January 31, 2022.
Assets held in Investor Class shares of the Hennessy Funds are subject to a shareholder service fee, whereas assets held in Institutional Class shares of the Hennessy Funds are not subject to a shareholder service fee. We collect investment advisory fees from each Hennessy Fund at differing annual rates.
Assets held in Investor Class shares of the Hennessy Mutual Funds are subject to a shareholder service fee, whereas assets held in Institutional Class shares of the Hennessy Mutual Funds are not subject to a shareholder service fee. We collect investment advisory fees from each Hennessy Fund at differing annual rates.
If an entity determines that it is more likely than not that an indefinite-lived intangible asset is impaired, then it must conduct an impairment analysis. We were able to forego the annual impairment analysis for fiscal year 2022 as the more-likely-than-not threshold was not met as of the end of fiscal year 2022.
If an entity determines that it is more likely than not that an indefinite‑lived intangible asset is impaired, then it must conduct an impairment analysis. We were able to forego the annual impairment analysis for fiscal year 2023 as the more-likely-than-not threshold was not met as of the end of fiscal year 2023.
Management anticipates that cash and other liquid assets on hand as of the end of fiscal year 2022 will be sufficient to meet our capital requirements for one year from the issuance date of this report, as well as our longer-term capital requirements for periods beyond one year from the issuance date of this report.
Management anticipates that cash and other liquid assets on hand as of the end of fiscal year 2023 will be sufficient to meet our capital requirements for one year from the issuance date of this report, as well as our longer‑term capital requirements for periods beyond one year from the issuance date of this report.
We provide service to over 145,000 fund accounts nationwide, including accounts held by investors who employ financial advisors to assist them with investing as well as accounts held by retail investors who invest directly with us.
We provide service to over 149,000 fund accounts nationwide, including accounts held by investors who employ financial advisors to assist them with investing as well as accounts held by retail investors who invest directly with us.
(See Note 16 in Item 8, “Financial Statements and Supplementary Data.”) On October 20, 2021, we completed a public offering of the 2026 Notes in the aggregate principal amount of $40.25 million, which included the full exercise of the underwriters’ overallotment option.
(See Note 16 in Item 8, “Financial Statements and Supplementary Data.”) 34 Table of Contents On October 20, 2021, we completed a public offering of the 2026 Notes in the aggregate principal amount of $40.25 million, which included the full exercise of the underwriters’ overallotment option.
The decrease in investment advisory fees was due to decreased average daily net assets of the Hennessy Funds. The decrease in shareholder service fees was due to a decrease in the average daily net assets held in Investor Class shares of the Hennessy Funds.
The decrease in investment advisory fees was due mainly to decreased average daily net assets of the Hennessy Funds. The decrease in shareholder service fees was due to a decrease in the average daily net assets held in Investor Class shares of the Hennessy Mutual Funds.
The collectability is probable as the fees are received from the Hennessy Funds in the month subsequent to the month in which the services are provided. 36 Table of Contents The management contracts we have purchased are considered intangible assets with an indefinite life and we account for them in accordance with Accounting Standards Codification 350: Intangibles – Goodwill and Other (“ASC 350”).
The collectability is probable as the fees are received from the Hennessy Funds in the month subsequent to the month in which the services are provided. The management contracts we have purchased are considered intangible assets with an indefinite life and we account for them in accordance with Accounting Standards Codification 350: Intangibles – Goodwill and Other (“ASC 350”).
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This report contains “forward-looking statements” within the meaning of the securities laws, for which we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
ITEM 7. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD ‑ LOOKING STATEMENTS This report contains “forward-looking statements” within the meaning of the securities laws, for which we claim the protection of the safe harbor for forward‑looking statements contained in the Private Securities Litigation Reform Act of 1995.
RECENTLY ISSUED AND ADOPTED ACCOUNTING STANDARDS We reviewed accounting pronouncements issued between November 24, 2021, the filing date of our most recent previously filed Annual Report on Form 10-K, and December 7, 2022, the filing date of this Annual Report on Form 10-K, and have determined that no accounting pronouncement issued would have a material impact on our financial position, results of operations, or disclosures.
RECENTLY ISSUED AND ADOPTED ACCOUNTING STANDARDS We reviewed accounting pronouncements issued between December 7, 2022, the filing date of our most recent previously filed Annual Report on Form 10-K, and December 6, 2023, the filing date of this Annual Report on Form 10-K, and have determined that no accounting pronouncement issued would have a material impact on our financial position, results of operations, or disclosures.
The decrease in dollar value of compensation and benefits expense was due primarily to a decrease in head count and incentive-based compensation during fiscal year 2022. General and Administrative Expense : Comparing fiscal year 2021 to fiscal year 2022, general and administrative expense increased by 5.9%, from $4.8 million to $5.0 million.
The decrease in dollar value of compensation and benefits expense was due primarily to a decrease in head count and incentive-based compensation during fiscal year 2023. General and Administrative Expense : Comparing fiscal year 2022 to fiscal year 2023, general and administrative expense increased by 8.8% from $5.0 million to $5.5 million.
We serve approximately 12,600 financial advisors who utilize the Hennessy Funds on behalf of their clients, including nearly 800 who purchased one of our Funds for the first time during fiscal year 2022. Approximately 17% of such advisors own two or more Hennessy Funds, and nearly 400 advisors hold a position of over $500,000.
We serve approximately 11,600 financial advisors who utilize the Hennessy Funds on behalf of their clients, including nearly 800 who purchased one of our Funds for the first time during fiscal year 2023. Approximately 14% of such advisors own two or more Hennessy Funds, and over 400 advisors hold a position of over $500,000.
Our operating revenues consist of contractual investment advisory and shareholder service fees. We earn our investment advisory fees through portfolio management of the Hennessy Funds, and we earn our shareholder service fees by assisting investors in purchases, sales, distribution, and customer service. These fee revenues are earned and calculated daily by the Hennessy Funds’ accountants.
Our operating revenues consist of contractual investment advisory and shareholder service fees. We earn our investment advisory fees through portfolio management of the Hennessy Funds, and we earn our shareholder service fees by assisting investors in the Hennessy Mutual Funds. These fee revenues are earned and calculated daily by the Hennessy Funds’ accountants.
The primary sources of our revenues, liquidity, and cash flow are our investment advisory fees and shareholder service fees, which are based on, and generated by, our average assets under management. Our average assets under management for fiscal year 2022 was $3.6 billion. As of the end of fiscal year 2022, we had cash and cash equivalents of $58.5 million.
The primary sources of our revenues, liquidity, and cash flow are our investment advisory fees and shareholder service fees, which are based on, and generated by, our average assets under management. Our average assets under management for fiscal year 2023 was $3.0 billion. As of the end of fiscal year 2023, we had cash and cash equivalents of $60.5 million.
Our quarterly dividend rate remained constant during fiscal years 2022 and 2021, and our dividend payments totaled $4.1 and $4.0 million in each such fiscal year, respectively. 2026 Notes .
Our quarterly dividend rate remained constant during fiscal years 2023 and 2022, and our dividend payments totaled $4.2 and $4.1 million in each such fiscal year, respectively. 2026 Notes .
However, we pay a sub-advisory fee at an annual rate of 0.29% to the fund’s sub-advisor, which reduces the net operating profit contribution of the fund to our financial operations. The Hennessy Fund with the second largest average daily net assets for fiscal year 2022 was the Hennessy Japan Fund, with $583 million.
However, we pay a sub‑advisory fee at an annual rate of 0.29% to the fund’s sub‑advisor, which reduces the net operating profit contribution of the fund to our financial operations. The Hennessy Fund with the second largest average daily net assets for fiscal year 2023 was the Hennessy Gas Utility Fund, with $509 million.
CRITICAL ACCOUNTING POLICIES Our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States, which require the use of estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented.
The 2026 Notes mature on December 31, 2026. 38 Table of Contents CRITICAL ACCOUNTING POLICIES Our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States, which require the use of estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented.
There have been no other significant changes to our critical accounting policies and estimates during fiscal year 2022. 37 Table of Contents
There have been no other significant changes to our critical accounting policies and estimates during fiscal year 2023. 39 Table of Contents
These annual rates range between 0.40% and 1.25% of average daily net assets. Average daily net assets of the Hennessy Funds for fiscal year 2022 was $3.6 billion, which represents a decrease of $0.3 billion, or 8.6%, compared to fiscal year 2021.
These annual rates range between 0.40% and 1.25% of average daily net assets. Average daily net assets of the Hennessy Funds for fiscal year 2023 was $3.0 billion, which represents a decrease of $0.7 billion, or 17.9%, compared to fiscal year 2022.
The Hennessy Fund with the largest average daily net assets for fiscal year 2022 was the Hennessy Focus Fund, with $1.0 billion. We collect an investment advisory fee from the Hennessy Focus Fund at an annual rate of 0.90% of average daily net assets.
The Hennessy Fund with the largest average daily net assets for fiscal year 2023 was the Hennessy Focus Fund, with $684 million. We collect an investment advisory fee from the Hennessy Focus Fund at an annual rate of 0.90% of average daily net assets.
The following table illustrates the changes in our assets under management over the past three fiscal years: Fiscal Years Ended September 30, 2022 2021 2020 (In thousands) Beginning assets under management $ 4,065,922 $ 3,564,597 $ 4,873,839 Acquisition inflows — — — Organic inflows 656,491 818,358 571,195 Redemptions (1,147,888 ) (1,345,371 ) (1,771,127 ) Market (depreciation) appreciation (678,808 ) 1,028,338 (109,310 ) Ending assets under management $ 2,895,717 $ 4,065,922 $ 3,564,597 As stated above, the fees we receive for providing investment advisory and shareholder services are based on average assets under management.
The following table illustrates the year-by-year changes in our assets under management over the past three fiscal years: Fiscal Years Ended September 30, 2023 2022 2021 (In thousands) Beginning assets under management $ 2,895,717 $ 4,065,922 $ 3,564,597 Acquisition inflows 43,088 - - Organic inflows 598,119 656,491 818,358 Redemptions (915,397 ) (1,147,888 ) (1,345,371 ) Market appreciation (depreciation) 410,515 (678,808 ) 1,028,338 Ending assets under management $ 3,032,042 $ 2,895,717 $ 4,065,922 As stated above, the fees we receive for providing investment advisory and shareholder services are based on average assets under management.
The percentage amount of the investment advisory fees varies by fund. The percentage amount of the shareholder service fees is consistent across all funds, but shareholder service fees are charged on Investor Class shares only.
The percentage amount of the shareholder service fees is consistent across all Hennessy Mutual Funds, but shareholder service fees are charged on Investor Class shares only.
The following table summarizes key financial data relating to our liquidity and use of cash: Fiscal Years Ended September 30, 2022 2021 (In thousands) Net cash provided by operating activities $ 8,665 $ 10,386 Net cash used in investing activities (231 ) (249 ) Net cash provided by (used) in financing activities 34,217 (4,256 ) Net increase in cash and cash equivalents $ 42,651 $ 5,881 The decrease in cash provided by operating activities of $1.7 million was mainly due to the interest expense related to the 2026 Notes in the current period.
The following table summarizes key financial data relating to our liquidity and use of cash: Fiscal Years Ended September 30, 2023 2022 (In thousands) Net cash provided by operating activities $ 7,134 $ 8,665 Net cash used in investing activities (819 ) (231 ) Net cash (used in) provided by financing activities (4,326 ) 34,217 Net increase in cash and cash equivalents $ 1,989 $ 42,651 The decrease in cash provided by operating activities of $1.5 million was mainly due to decreased net income in the current period.
When the Hennessy Funds are purchased through one of these financial intermediaries, the intermediary typically charges an asset-based fee, which is recorded as mutual fund distribution expense on our statement of operations to the extent paid by us. When the Hennessy Funds are purchased directly, we do not incur any such expense.
When the Hennessy Funds are purchased through one of these financial institutions, the institution typically charges an asset‑based fee, which is recorded as a fund distribution expense on our statement of operations to the extent paid by us.
Mutual Fund Distribution Expense : Mutual fund distribution expense consists of fees paid to various third-party financial intermediaries that offer the Hennessy Funds as potential investments to their clients.
Fund Distribution and Other Expense : The distribution component of fund distribution and other expense consists of fees paid to various financial institutions that offer the Hennessy Funds as potential investments to their clients.
The Hennessy Funds with the three largest amounts of net inflows were as follows: Fiscal Year Ended September 30, 2022 Fund Name Amount Hennessy Cornerstone Value Fund $ 12 million Hennessy Japan Small Cap Fund $ 2 million Hennessy Cornerstone Growth Fund $ 2 million The Hennessy Funds with the three largest amounts of net outflows were as follows: Fiscal Year Ended September 30, 2022 Fund Name Amount Hennessy Japan Fund $ (222) million Hennessy Focus Fund $ (181) million Hennessy Cornerstone Mid Cap 30 Fund $ (31) million Redemptions as a percentage of assets under management decreased from an average of 2.8% per month during fiscal year 2021 to an average of 2.6% per month during fiscal year 2022.
The Hennessy Funds with the three largest amounts of net inflows were as follows: Fiscal Year Ended September 30, 2023 Fund Name Amount Hennessy Cornerstone Mid Cap 30 Fund $ 169 million Hennessy Japan Small Cap Fund $ 18 million Hennessy Midstream Fund $ 1 million The Hennessy Funds with the three largest amounts of net outflows were as follows: Fiscal Year Ended September 30, 2023 Fund Name Amount Hennessy Focus Fund $ (203) million Hennessy Gas Utility Fund $ (89) million Hennessy Japan Fund $ (82) million Redemptions as a percentage of assets under management decreased from an average of 2.6% per month during fiscal year 2022 to an average of 2.5% per month during fiscal year 2023.
The following table shows average assets under management by share class over the past three fiscal years: Fiscal Years Ended September 30, 2022 2021 2020 (In thousands) Average assets under management - Investor Class $ 2,199,250 $ 2,394,194 $ 2,556,875 Average assets under management - Institutional Class 1,445,112 1,595,106 1,541,529 Total $ 3,644,362 $ 3,989,300 $ 4,098,404 The principal asset on our balance sheet, management contracts, represents the capitalized costs incurred in connection with the purchase of the assets related to the management of investment funds.
The following table shows average assets under management by share class over the past three fiscal years: Fiscal Years Ended September 30, 2023 2022 2021 (In thousands) Hennessy Mutual Funds Investor Class $ 1,930,294 $ 2,199,250 $ 2,394,194 Institutional Class 1,027,166 1,445,112 1,595,106 Hennessy Stance ESG ETF 34,230 - - Average assets under management $ 2,991,690 $ 3,644,362 $ 3,989,300 The principal asset on our balance sheet, management contract asset, represents the capitalized costs incurred in connection with the purchase of the assets related to the management of investment funds.
Operating Expenses Comparing fiscal year 2021 to fiscal year 2022, total operating expenses decreased by 9.4%, from $21.9 million to $19.8 million. The decrease in operating expenses was primarily due to decreases in sub-advisory fee and compensation and benefits expenses, partially offset by increases in general and administrative expense and mutual fund distribution expense.
Operating Expenses Comparing fiscal year 2022 to fiscal year 2023, total operating expenses decreased by 10.8%, from $19.8 million to $17.7 million. The decrease in operating expenses was primarily due to decreases in sub-advisory fee, compensation and benefits, and fund distribution and other expenses, partially offset by an increase in general and administrative and depreciation expenses.
Accordingly, we continually seek new and improved ways to support investors in the Hennessy Funds, including by providing market insights, sector highlights, and other resources to help them manage their fund investments with confidence.
Our goal is to provide products that investors can have confidence in, knowing their money is invested as promised and with their best interests in mind. Accordingly, we continually seek new and improved ways to support investors in the Hennessy Funds, including by providing market insights, sector highlights, and other resources to help them manage their fund investments with confidence.
Comparing fiscal year 2022 to fiscal year 2021, total revenue decreased by 9.4%, from $32.8 million to $29.7 million, investment advisory fees decreased by 9.5%, from $30.4 million to $27.5 million, and shareholder service fees decreased by 8.1%, from $2.4 million to $2.2 million.
Comparing fiscal year 2023 to fiscal year 2022, total revenue decreased by 19.0%, from $29.7 million to $24.0 million, investment advisory fees decreased by 19.6%, from $27.5 million to $22.1 million, and shareholder service fees decreased by 12.2%, from $2.2 million to $1.9 million.
While numbers have declined in recent years, we continue to focus significant efforts on financial advisors who own two or more Hennessy Funds or hold a position of over $500,000 in an effort to build and maintain brand loyalty among our top tier of advisors. 31 Table of Contents Total assets under management as of the end of fiscal year 2022 was $2.9 billion, a decrease of $1.2 billion, or 28.8%, compared to the end of fiscal year 2021.
While numbers have declined in recent years, we continue to focus significant efforts on financial advisors who own two or more Hennessy Funds or hold a position of over $500,000 in an effort to build and maintain brand loyalty among our top tier of advisors.
Effective as of that date, we mutually agreed with BP Capital Fund Services, LLC to terminate the sub-advisory agreement for those funds. We derive our operating revenues from investment advisory fees and shareholder service fees paid to us by the Hennessy Funds. These fees are calculated as a percentage of the average daily net assets of each Hennessy Fund.
We derive our operating revenues from investment advisory fees paid to us by the Hennessy Funds and shareholder service fees paid to us by the Hennessy Mutual Funds. These fees are calculated as a percentage of the average daily net assets of each Hennessy Fund. The percentage amount of the investment advisory fees varies by fund.
The amounts are included in the management contracts asset, totaling $80.9 million as of the end of fiscal year 2022.
The amounts are included in the management contract asset, totaling $81.3 million as of the end of fiscal year 2023.
As a percentage of total revenue, total operating expenses remained flat at 66.8%. Compensation and Benefits Expense : Comparing fiscal year 2021 to fiscal year 2022, compensation and benefits expense decreased by 8.3%, from $9.1 million to $8.3 million. As a percentage of total revenue, compensation and benefits expense increased 0.3 percentage points to 28.0%.
As a percentage of total revenue, total operating expenses increased 6.8 percentage points to 73.6%. Compensation and Benefits Expense : Comparing fiscal year 2022 to fiscal year 2023, compensation and benefits expense decreased by 7.1%, from $8.3 million to $7.7 million. As a percentage of total revenue, compensation and benefits expense increased 4.2 percentage points to 32.2%.
The cash used in investing activities of $0.2 million remained the same in both periods. The increase in cash provided by financing activities of $38.5 million was due to the issuance of the 2026 Notes on October 20, 2021. Dividend Payments . We have consistently paid dividends each year since 2005.
The decrease in cash provided by financing activities of $38.5 million was due to the issuance of the 2026 Notes in the prior comparable period. Dividend Payments . We have consistently paid dividends each year since 2005.
The 2026 Notes are direct unsecured obligations, rank equally in right of payment with any of our future unsecured unsubordinated indebtedness, senior to any of our future indebtedness that expressly provides that it is subordinate to the 2026 Notes, effectively subordinate to all of our existing and future secured indebtedness, and structurally subordinated to all existing and future indebtedness and other obligations of any future subsidiaries of ours. 35 Table of Contents Our total assets under management as of the end of fiscal year 2022 was $2.9 billion, a decrease of $1.2 billion, or 28.8%, compared to the end of fiscal year 2021.
The 2026 Notes are direct unsecured obligations, rank equally in right of payment with any of our future unsecured unsubordinated indebtedness, senior to any of our future indebtedness that expressly provides that it is subordinate to the 2026 Notes, effectively subordinate to all of our existing and future secured indebtedness, and structurally subordinated to all existing and future indebtedness and other obligations of any future subsidiaries of ours.
The success of our business strategy may be influenced by the factors discussed in Item 1A, “Risk Factors.” All statements regarding our business strategy, as well as statements regarding market trends and risks and assumptions about changes in the marketplace, are forward-looking by their nature.
The success of our business strategy may be influenced by the factors discussed in Item 1A, “Risk Factors.” All statements regarding our business strategy, as well as statements regarding market trends and risks and assumptions about changes in the marketplace, are forward‑looking by their nature. 32 Table of Contents OVERVIEW Our primary business activity is providing investment advisory services to a family of 16 open-end mutual funds and one ETF branded as the Hennessy Funds.
The decrease in net income was primarily due to the interest expense related to the 2026 Notes in the current period. LIQUIDITY AND CAPITAL RESOURCES We continually review our capital requirements to ensure that we have funding available to support our business model.
The decrease in net income was primarily due to decreased average assets under management in the current period, which resulted in lower revenue and net operating income. 37 Table of Contents LIQUIDITY AND CAPITAL RESOURCES We continually review our capital requirements to ensure that we have funding available to support our business model.
The decrease in income tax expense was due primarily to lower net operating income in the current period and secondarily to a lower effective income tax rate as discussed in Item 8, “Financial Statements and Supplementary Data.” Net Income Comparing fiscal year 2021 to fiscal year 2022, net income decreased by 21.7%, from $7.9 million to $6.2 million.
The higher effective tax rate in the current period is due to the release of a portion of uncertain tax benefit position in the prior comparable period, as discussed in Item 8, “Financial Statements and Supplementary Data.” Net Income Comparing fiscal year 2022 to fiscal year 2023, net income decreased by 22.9%, from $6.2 million to $4.8 million.
As a percentage of total revenue, mutual fund distribution expense increased 0.3 percentage points to 1.8%. 34 Table of Contents Mutual fund distribution expenses are affected by many factors, including the following: • average daily net assets held by financial intermediaries; • the split of average daily net assets held by financial intermediaries in Institutional Class shares of the Hennessy Funds versus Investor Class shares of the Hennessy Funds; and • fee minimums at various financial intermediaries.
In such cases, we pay the minimum fee. 36 Table of Contents The distribution component of fund distribution and other expenses is affected by many factors, including the following: ● average daily net assets held by financial institutions; ● the split of average daily net assets held by financial institutions in Institutional Class shares of the Hennessy Mutual Funds versus Investor Class shares of the Hennessy Mutual Funds; and ● fee minimums at various financial institutions.
These fees generally increase or decrease in line with the net assets of the Hennessy Funds held through these financial intermediaries, which are affected by inflows, outflows, and fund performance. In addition, some financial intermediaries charge a minimum fee if the average daily net assets of a Hennessy Fund held by such an intermediary are less than a threshold amount.
In addition, some financial institutions charge a minimum fee if the average daily net assets of a Hennessy Fund held by such an institution are less than a threshold amount.
The dollar amount of the fees we receive fluctuates with changes in the average net asset value of each Hennessy Fund, which is affected by each fund’s investment performance, purchases and redemptions of shares, general market conditions, and the success of our marketing, sales, and public relations efforts. 30 Table of Contents U.S. equities had negative performance for the one-year period ended September 30, 2022, with the S&P 500 ® Index returning -15.47% and the Dow Jones Industrial Average returning -13.40% for the period (on a total return basis).
The dollar amount of the fees we receive fluctuates with changes in the average net asset value of each Hennessy Fund, which is affected by each fund’s investment performance, purchases and redemptions of shares, general market conditions, and the success of our marketing, sales, and public relations efforts.
As of the end of fiscal year 2022, this asset had a net balance of $80.9 million, an increase of $0.3 since the end of fiscal year 2021. The increase is related to costs associated with the definitive agreement signed with Stance Capital in August 2022.
As of the end of fiscal year 2023, this asset had a net balance of $81.3 million, an increase of $0.4 million since the end of fiscal year 2022.
The longer-term performance numbers remain strong, with 13 of the Hennessy Funds posting positive returns for the five-year period ended September 30, 2022, and all 14 Hennessy Funds with at least 10 years of operating history posting positive returns for the 10-year period ended September 30, 2022.
The longer‑term performance numbers remain strong, with 13 of the Hennessy Funds posting positive returns for the three-year and five‑year periods ended September 30, 2023, and all 14 Hennessy Funds with at least 10 years of operating history posting positive returns for the 10‑year period ended September 30, 2023. 33 Table of Contents As always, we are committed to providing superior service to investors and employing a consistent and disciplined approach to investing based on a buy‑and‑hold philosophy that rejects the idea of market timing.
The decrease was attributable to net outflows of the Hennessy Funds and market depreciation.
The increase in total assets was attributable to market appreciation, partially offset by net outflows of the Hennessy Funds.
Sub-Advisory Fees Expense : Comparing fiscal year 2021 to fiscal year 2022, sub-advisory fees expense decreased by 21.9%, from $7.3 million to $5.7 million. As a percentage of total revenue, sub-advisory fees expense decreased 3.1 percentage point to 19.3%.
As a percentage of total revenue, sub‑advisory fees expense decreased 3.7 percentage points to 15.6%.
We oversee the selection and continued employment of each sub-advisor, review each fund’s investment performance, and monitor each sub-advisor’s adherence to each applicable fund’s investment objectives, policies, and restrictions. In addition, we conduct ongoing reviews of the compliance programs of sub-advisors and make onsite visits to sub-advisors, as feasible.
We manage 12 of the 17 Hennessy Funds internally. For the remaining five funds, we have delegated the day‐to‑day portfolio management responsibilities to sub‑advisors, subject to our oversight. We oversee the selection and continued employment of each sub‑advisor, review each fund’s investment performance, and monitor each sub‑advisor’s adherence to each applicable fund’s investment objectives, policies, and restrictions.
Depreciation Expense : Comparing fiscal year 2021 to fiscal year 2022, depreciation expense decreased by 10.8% from $0.23 million to $0.21 million due to fewer fixed asset purchases. As a percentage of total revenue, depreciation expense remained flat at 0.7%. Interest Expense Comparing fiscal year 2021 to fiscal year 2022, interest expense increased from $0 to $2.1 million.
As a percentage of total revenue, depreciation expense increased 0.3 percentage points to 1.0%. Interest Expense Comparing fiscal year 2022 to fiscal year 2023, interest expense increased by 6.3% from $2.1 to $2.3 million. The increase in interest expense was due to a full period of 2026 Notes interest expense incurred in the current period.
As a percentage of total revenue, general and administrative expense increased 2.5 percentage points to 17.0%. The increase in general and administrative expense was due to an increase in overall business travel, including conference and other industry event attendance, as we trend towards pre-pandemic travel levels.
As a percentage of total revenue, general and administrative expense increased 5.8 percentage points to 22.8%. The increase in general and administrative expense was due to an increase in professional services, including investment banking, legal and marketing costs, in the current period.
However, we pay a sub-advisory fee at an annual rate in the range of 0.35% to 0.42% (depending on asset level) to the fund’s sub-advisor, which reduces the net operating profit contribution of the fund to our financial operations. 33 Table of Contents Total assets under management as of the end of fiscal year 2022 was $2.9 billion, a decrease of $1.2 billion, or 28.8%, compared to the end of fiscal year 2021.
We collect an investment advisory fee from the Hennessy Gas Utility Fund at an annual rate of 0.40% of average daily net assets. 35 Table of Contents Total assets under management as of the end of fiscal year 2023 was $3.0 billion, an increase of $0.1 billion, or 4.7%, compared to the end of fiscal year 2022.
The Japanese equity market declined 28.41% (in U.S. dollar terms) for the one-year period ended September 30, 2022, as measured by the Tokyo Stock Price Index. Like many other markets, Japan has experienced elevated levels of inflation coupled with restrained trade with key trading partners. China’s zero-COVID strategy has hampered growth in the country and adversely affected Japanese economic growth.
The Japanese equity market increased 25.56% (in U.S. dollar terms) for the one‑year period ended September 30, 2023, as measured by the Tokyo Stock Price Index (TOPIX). Like many other markets, Japan’s stock market has rebounded sharply from its weakness in the prior twelve-month period.
The increase in interest expense was due to our issuance of the 2026 Notes on October 20, 2021, for which we make interest payments quarterly, with the first interest payment made on December 31, 2021. Income Tax Expense Comparing fiscal year 2021 to fiscal year 2022, income tax expense decreased by 41.1%, from $3.0 million to $1.8 million.
The 2026 Notes were issued on October 20, 2021, and therefore incurred a partial period of interest expense in the first quarter of the prior comparable period. Interest Income Comparing fiscal year 2022 to fiscal year 2023, interest income increased from $0.2 to $2.5 million. The increase was due to rising interest rates.
Japanese Yen weakness versus the U.S. Dollar contributed to weak absolute dollar returns as the Tokyo Stock Price Index was only down 7.29% in local currency terms. Against this negative equity performance backdrop, only three of the 16 Hennessy Funds posted positive returns for the one-year period ended September 30, 2022.
Against this positive equity performance backdrop, 14 of the 17 Hennessy Funds posted positive returns for the one‑year period ended September 30, 2023.
Removed
OVERVIEW Our primary business activity is providing investment advisory services to a family of open-end mutual funds branded as the Hennessy Funds. We manage 12 of the 16 Hennessy Funds internally. For the remaining four funds, we have delegated the day-to-day portfolio management responsibilities to sub-advisors, subject to our oversight.
Added
In addition, we conduct ongoing reviews of the compliance programs of sub‑advisors and make onsite visits to sub‑advisors, as feasible. Our secondary business activity is providing shareholder services to investors in the Hennessy Mutual Funds.
Removed
Our secondary business activity is providing shareholder services to investors in the Hennessy Funds. Prior to January 31, 2022, the day-to-day management of two Hennessy Funds, the Hennessy Energy Transition Fund and the Hennessy Midstream Fund, was performed by a sub-advisor, BP Capital Fund Services, LLC.
Added
U.S. equities had strong, positive performance for the one‑year period ended September 30, 2023, with the S&P 500® Index returning 21.62% and the Dow Jones Industrial Average returning 19.18% for the period (on a total return basis).
Removed
Equity prices dropped sharply during the period as investors have turned their attention to rising interest rates amid continuing inflationary concerns. Recent interest rate hikes by the Federal Reserve and the expectation of further rate hikes have contributed to weakness in equities.
Added
Equity prices advanced despite a rise in interest rates as it appears investors now expect that the Federal Reserve is likely to be near the end of raising the Federal Funds rate. The United States economy continues to create jobs with the unemployment rate now standing at 3.8% while inflation continues to moderate.
Removed
Despite weakness in economic growth, the Federal Reserve has indicated that it will likely raise rates at upcoming meetings in an attempt to tame inflation. According to Bloomberg, the Consumer Price Index is expected to increase 8.0% in 2022, while real GDP is expected to advance 1.6%.
Added
The steady drop in inflation from levels one year ago, within the backdrop of a strong labor market, has helped to propel the stock market higher. The Consumer Price Index advanced 8.0% in 2022 and is expected to rise 4.1% in 2023, according to Bloomberg.
Removed
While lower economic growth expectations would typically lead to talk of an easing interest rate environment, a strong labor market and volatile energy prices have contributed to stubbornly high and above average inflation levels. The Federal Reserve has indicated a resolve to do what it takes to bring inflation down, regardless of economic growth conditions.
Added
While this current level is still above the Federal Reserve’s 2% target for inflation, the market seems to be pricing in the Federal Reserve standing on the sidelines for the foreseeable future.
Removed
Long-term U.S. bonds declined meaningfully during the one-year period ended September 30, 2022, as the Federal Reserve tapered its bond-buying activity and continued to raise the Federal Funds rate. With a yield curve that is currently inverted, investor attention has focused on economic growth projections that continue to be revised downward.
Added
According to Bloomberg, the market is not expecting any reasonable chance of any Fed action until next July, when the market is pricing in a better than even chance of a rate cut. Long-term U.S. bonds increased meaningfully during the one‑year period ended September 30, 2023, as the Federal Reserve continued raising the Federal Funds rate.
Removed
While the unemployment rate in the United States stood at an incredibly low 3.5% as of September 2022, economic growth expectations continue to trend lower. According to Bloomberg, consensus estimates for real GDP growth for 2022 are 1.6% and for 2023 are 0.7%.
Added
With a yield curve that remains inverted, investor attention has focused on economic growth that continues to defy consensus expectations. While real GDP increased 1.9% in 2022, it is expected to accelerate slightly in 2023 with consensus growth expectation of 2.1%, according to Bloomberg.
Removed
The sharp decline in equities, coupled with recent weakness in the residential real estate market, likely portends some softening in consumer spending in the months to come. For the one-year period ended September 30, 2022, 10-year U.S. Government Bond yields rose from 1.49% to 3.83%.
Added
The idea that the economy was inevitably headed toward a recession has been reconsidered and the market seems to now believe that the economy, while perhaps slowing, is not likely to go into a recession. For the one‑year period ended September 30, 2023, 10-year U.S. Government Bond yields rose from 3.83% to 4.57%.
Removed
As always, we are committed to providing superior service to investors and employing a consistent and disciplined approach to investing based on a buy-and-hold philosophy that rejects the idea of market timing. Our goal is to provide products that investors can have confidence in, knowing their money is invested as promised and with their best interests in mind.
Added
A relatively strong earnings backdrop in Japan has been supported by the weakening of the yen and strong domestic demand. The market is now focusing its attention on the idea that the Bank of Japan could announce an end to negative interest rates by the end of the year.
Removed
We collect an investment advisory fee from the Hennessy Japan Fund at an annual rate of 0.80% of average daily net assets.
Added
Total assets under management as of the end of fiscal year 2023 was $3.0 billion, an increase of $0.1 billion, or 4.7%, compared to the end of fiscal year 2022. The increase in total assets was attributable to market appreciation, partially offset by net outflows of the Hennessy Funds.
Removed
The decrease was attributable to net outflows of the Hennessy Funds and market depreciation.
Added
The increase is related to the purchase of assets related to the management of an ETF that were reorganized into the Hennessy Stance ESG ETF and the costs associated with the definitive agreement signed with CCM in April 2023.
Removed
In such cases, we pay the minimum fee. Comparing fiscal year 2021 to fiscal year 2022, mutual fund distribution expense increased by 10.5%, from $0.49 million to $0.54 million.
Added
The 2026 Notes are the principal liability on our balance sheet at $39.2 million, net of issuance costs.
Removed
The 2026 Notes mature on December 31, 2026.

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