HENNESSY ADVISORS INC 10-K

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. 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. 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 shareholders of the Hennessy Funds. 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 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, monitoring and overseeing other service providers, maintaining in-house marketing and distribution departments, preparing and distributing regulatory reports, and monitoring and overseeing distribution through third-party financial intermediaries. Shareholder services include maintaining a toll-free number that the current investors in the Hennessy Funds may call to ask questions about the funds or their accounts or to get help with processing exchange and redemption requests or changing account options. The fees we receive for investment advisory and shareholder services are calculated as a percentage of the average daily net asset values of the Hennessy Funds. Accordingly, our total revenue increases or decreases as our average assets under management rises or falls. 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. In exchange for these sub-advisory services, we pay each sub-advisor a fee out of our own assets, which is calculated as a percentage of the average daily net asset values of the sub-advised funds. Accordingly, the sub-advisory fees we pay increase or decrease as our average assets under management in our sub-advised funds increases or decreases, respectively. Our average assets under management for fiscal year 2020 was $4.1 billion, and our total assets under management as of the end of fiscal year 2020 was $3.6 billion. Although our total AUM has fluctuated up and down throughout our history, it was 851% higher as of the end of fiscal year 2020 than our total AUM of $375 million as of the end of fiscal year 2002, which was our first fiscal year as a public company. 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. HISTORICAL CALENDAR YEAR TIMELINE 1989 In February, we were founded as a California corporation under our previous name, Edward J. 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. (“Netfolio”) and changed the fund names to the Hennessy Cornerstone Growth Fund and the Hennessy Cornerstone Value Fund. The amount of the purchased assets as of the closing date totaled approximately $197 million. 1 Table of Contents 2002 In May, we successfully completed a self-underwritten initial public offering of our stock by raising $5.7 million at an offering price of $1.98 (HNNA.OB) and changed our firm name to Hennessy Advisors, Inc. 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. 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 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 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. In conjunction with the completion of the transaction, RBC Global Asset Management (U.S.) Inc. became the sub-advisor to the Hennessy Large Value Fund. The amount of the purchased assets as of the closing date totaled approximately $158 million. 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 conjunction with the completion of the transaction, SPARX Asset Management Co., Ltd. became the sub-advisor to both 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 funds previously managed by FBR Fund Advisers (the “FBR Funds”). We reorganized the assets of three of the FBR Funds into existing Hennessy Funds and reorganized the assets of the seven other FBR Funds into newly created series of the Hennessy Funds. In conjunction with the completion of the transaction, Broad Run Investment Management, LLC became the sub-advisor to the Hennessy Focus Fund, FCI Advisors became the sub-advisor to the Hennessy Equity and Income Fund (fixed income allocation) and the Hennessy Core Bond Fund, and The London Company of Virginia, LLC became the sub-advisor to the Hennessy Equity and Income Fund (equity allocation). The amount of the purchased assets as of the closing date was approximately $2.2 billion. In December, we closed the Hennessy Micro Cap Growth Fund, LLC. 2014 In April, our common stock began trading on The NASDAQ Capital Market. 2 Table of Contents 2015 In September, we completed a self-tender offer, under which we repurchased 1,500,000 shares of our common stock at $16.67 per share. 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. The amount of the purchased assets as of the closing date totaled approximately $435 million. 2017 In February, we liquidated the Hennessy Core Bond Fund and reorganized the Hennessy Large Value Fund into the Hennessy Cornerstone Value Fund. Additionally, for the Hennessy Technology Fund, we implemented changes to the investment strategy and the portfolio management team. 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. 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 $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 BP Energy Fund and the Hennessy BP Midstream Fund. In connection with the transaction, BP Capital Fund Services, LLC became the sub-adviser to both funds. The amount of the purchased assets as of the closing date totaled approximately $200 million. 2019 During the year, we repurchased an aggregate of 560,734 shares of our common stock pursuant to our stock buyback program. 2020 In the first three months of the year, we repurchased an aggregate of 206,109 shares of our common stock pursuant to our stock buyback program. 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. Shares of the funds generally are available for purchase only by U.S. residents and, in certain circumstances, U.S. citizens living abroad. The Hennessy Funds Family Domestic Equity Multi-Asset Sector and Specialty Hennessy Cornerstone Growth Fund Hennessy Total Return Fund Hennessy BP Energy Fund Hennessy Focus Fund Hennessy Equity and Income Fund Hennessy BP 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. Of those five funds, four utilize a quantitative investment strategy and one is actively managed, and they all employ consistent and disciplined approaches to investing. Following is a brief description of the investment objectives and principal investment strategies of the Hennessy Funds in the Domestic Equity product category: • Hennessy Cornerstone Growth Fund (Investor Class symbol HFCGX; Institutional Class symbol HICGX). The Hennessy Cornerstone Growth Fund seeks long-term growth of capital by investing in growth-oriented common stocks using a quantitative formula. 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 the 50 common stocks with the highest one-year price appreciation that also have price-to-sales ratios below 1.5, higher annual earnings than in the previous year, and positive stock price appreciation over the prior three-month and six-month periods. • Hennessy Focus Fund (Investor Class symbol HFCSX; Institutional Class symbol HFCIX). The Hennessy Focus Fund seeks capital appreciation by maintaining a highly concentrated portfolio of approximately 20 companies whose valuations in the market are modest, that earn higher than average economic returns, that are well managed, and that have ample opportunity to reinvest excess profits at above-average rates. This fund’s holdings are conviction-weighted, with 60-80% of its assets typically concentrated in what the portfolio managers believe to be the fund’s top 10 investments. • Hennessy Cornerstone Mid Cap 30 Fund (Investor Class symbol HFMDX; Institutional Class symbol HIMDX). The Hennessy Cornerstone Mid Cap 30 Fund seeks long-term growth of capital by investing in mid-cap growth-oriented common stocks using a quantitative formula. From the investable common stocks of public companies in the S&P Capital IQ Database with market capitalizations between $1 billion and $10 billion, this fund invests in the 30 common stocks with the highest one-year price appreciation that also have price-to-sales ratios below 1.5, higher annual earnings than in the previous year, and positive stock price appreciation over the prior three-month and six-month periods. 4 Table of Contents • Hennessy Cornerstone Large Growth Fund (Investor Class symbol HFLGX; Institutional Class symbol HILGX). The Hennessy Cornerstone Large Growth Fund seeks long-term growth of capital by investing in growth-oriented common stocks of larger companies using a quantitative formula. From the investable common stocks of public companies in the S&P Capital IQ Database, this fund invests in the 50 stocks that meet the following criteria, in the specified order: (1) above-average market capitalization; (2) a price-to-cash-flow ratio less than the median of the remaining securities; (3) positive total capital; and (4) the highest one-year return on total capital. • Hennessy Cornerstone Value Fund (Investor Class symbol HFCVX; Institutional Class symbol HICVX). The Hennessy Cornerstone Value Fund seeks total return, consisting of capital appreciation and current income, by investing in larger, dividend-paying common stocks using a quantitative formula. From the investable common stocks of public companies in the S&P Capital IQ Database, this fund invests in the 50 stocks with the highest dividend yield that also have above-average market capitalizations, above-average number of shares outstanding, 12-month sales that are 50% greater than the average, and above-average cash flows. Multi-Asset Funds Three of the Hennessy Funds are categorized as Multi-Asset products. Of those three funds, two utilize a quantitative investment strategy and one is actively managed. These funds follow a more conservative investment strategy focused on generating income and providing an alternative to mutual funds containing only equity stocks. Following is a brief description of the investment objectives and principal investment strategies of the Hennessy Funds in the Multi-Asset product category: • Hennessy Total Return Fund (Investor Class symbol HDOGX). The Hennessy Total Return Fund seeks total return, consisting of capital appreciation and current income, by investing approximately 50% of its assets in the 10 highest dividend-yielding common stocks of the Dow Jones Industrial Average (known as the “Dogs of the Dow”) in roughly equal dollar amounts and the remaining 50% of its assets in U.S. Treasury securities with a maturity of less than one year. This fund then utilizes a borrowing strategy that allows the fund’s performance to approximate what it would be if the fund had an asset allocation of roughly 75% Dogs of the Dow stocks and 25% U.S. Treasury securities. • Hennessy Equity and Income Fund (Investor Class symbol HEIFX; Institutional Class symbol HEIIX). The Hennessy Equity and Income Fund seeks income and long-term capital growth with reduced volatility of returns by investing approximately 60% of its assets in common stock, preferred stock, and convertible securities and approximately 40% of its assets in high-quality corporate, agency, and government bonds. • Hennessy Balanced Fund (Investor Class symbol HBFBX). The Hennessy Balanced Fund seeks a combination of capital appreciation and current income by investing approximately 50% of its assets in roughly equal dollar amounts in the Dogs of the Dow stocks but limits exposure to market risk and volatility by investing approximately 50% of its assets in U.S. Treasury securities with a maturity of less than one year. 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. Following is a brief description of the investment objectives and principal investment strategies of the Hennessy Funds in the Sector and Specialty product category: • Hennessy BP Energy Fund (Investor Class symbol HNRGX; Institutional Class symbol HNRIX). The Hennessy BP Energy Fund seeks total return by investing in companies operating in the United States in a capacity related to the supply, transportation, production, transmission, or demand of energy, also known as the energy value chain. The portfolio managers use a proprietary research and investment process that involves fundamental and quantitative analysis of various macroeconomic and commodity price and other factors to select this fund’s investments and determine the weighting of each investment. 5 Table of Contents • Hennessy BP Midstream Fund (Investor Class symbol HMSFX; Institutional Class symbol HMSIX). The Hennessy BP Midstream Fund seeks capital appreciation through distribution growth and current income by investing in midstream energy infrastructure companies, including master limited partnerships, that own and operate assets used in the transporting, storing, gathering, processing, distributing, or marketing of natural gas, natural gas liquids, crude oil, refined products, coal, or electricity or that provide energy-related equipment and services. The portfolio managers combine a top-down deductive reasoning approach with a detailed bottom-up analysis of individual companies. • Hennessy Gas Utility Fund (Investor Class symbol GASFX; Institutional Class symbol HGASX). The Hennessy Gas Utility Fund seeks income and capital appreciation by investing in companies that are members of the American Gas Association (“AGA”) in approximately the same percentage as the percentage weighting of such company in the AGA Stock Index. The AGA Stock Index is a capitalization-weighted index that consists of publicly traded member companies of the AGA whose securities are traded on a U.S. stock exchange. The index is adjusted monthly for the percentage of natural gas assets on each company’s balance sheet. • Hennessy Japan Fund (Investor Class symbol HJPNX; Institutional Class symbol HJPIX). The Hennessy Japan Fund seeks long-term capital appreciation by investing in equity securities of Japanese companies. Using in-depth analysis and on-site research, the portfolio managers focus on stocks with a potential “value gap” by screening for companies that they believe have strong businesses and management and are trading at attractive prices. The portfolio managers limit the portfolio to what they consider to be their best ideas and maintain a concentrated number of holdings. • Hennessy Japan Small Cap Fund (Investor Class symbol HJPSX; Institutional Class symbol HJSIX). The Hennessy Japan Small Cap Fund seeks long-term capital appreciation by investing in equity securities of smaller Japanese companies, typically considered to be companies with market capitalizations in the bottom 20% of all publicly traded Japanese companies. Using in-depth analysis and on-site research, the portfolio managers focus on stocks with a potential “value gap” by screening for small-cap companies that the portfolio managers believe have strong businesses and management and are trading at attractive prices. The portfolio managers limit the portfolio to what they consider to be their best ideas and is unconstrained by its benchmarks. • Hennessy Large Cap Financial Fund (Investor Class symbol HLFNX; Institutional Class symbol HILFX). The Hennessy Large Cap Financial Fund seeks capital appreciation by investing in securities of large-cap companies principally engaged in the business of providing financial services, including information technology companies that are primarily engaged in providing products or services to financial services companies. • Hennessy Small Cap Financial Fund (Investor Class symbol HSFNX; Institutional Class symbol HISFX). The Hennessy Small Cap Financial Fund seeks capital appreciation by investing in securities of small-cap companies principally engaged in the business of providing financial services. • Hennessy Technology Fund (Investor Class symbol HTECX; Institutional Class symbol HTCIX). The Hennessy Technology Fund seeks long-term capital appreciation by investing in securities of companies principally engaged in the research, design, development, manufacturing, or distributing of products or services in the technology industry. 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, 2020. Returns are presented net of all expenses borne by mutual fund shareholders, but are not net of fees waived or expenses borne by the Company. The past investment performance of the Hennessy Funds is no guarantee of future performance, and all of the Hennessy Funds have experienced negative performance over various periods in the past and may do so again in the future. Hennessy Cornerstone Growth Fund One Year Three Years Five Years Ten Years Institutional Class Share—HICGX 5.93 % -1.70 % 3.18 % 8.74 % Investor Class Share—HFCGX 5.66 % -2.03 % 2.86 % 8.42 % Russell 2000 ® Index (1) 0.39 % 1.77 % 8.00 % 9.85 % S&P 500 ® Index (2) 15.15 % 12.28 % 14.15 % 13.74 % Hennessy Focus Fund* One Year Three Years Five Years Ten Years Institutional Class Share—HFCIX 0.68 % 7.14 % 9.15 % 12.20 % Investor Class Share—HFCSX 0.31 % 6.75 % 8.75 % 11.84 % Russell 3000 ® Index (3) 15.00 % 11.65 % 13.69 % 13.48 % Russell Midcap ® Growth Index (4) 23.23 % 16.23 % 15.53 % 14.55 % Hennessy Cornerstone Mid Cap 30 Fund One Year Three Years Five Years Ten Years Institutional Class Share—HIMDX 12.18 % 0.78 % 2.97 % 9.68 % Investor Class Share—HFMDX 11.70 % 0.42 % 2.61 % 9.31 % Russell Midcap ® Index (5) 15.00 % 11.65 % 13.69 % 13.48 % S&P 500 ® Index (2) 15.15 % 12.28 % 14.15 % 13.74 % Hennessy Cornerstone Large Growth Fund One Year Three Years Five Years Ten Years Institutional Class Share—HILGX 5.74 % 6.65 % 9.36 % 10.46 % Investor Class Share—HFLGX 5.44 % 6.33 % 9.06 % 10.19 % Russell 1000 ® Index (6) 16.01 % 12.38 % 14.09 % 13.76 % S&P 500 ® Index (2) 15.15 % 12.28 % 14.15 % 13.74 % Hennessy Cornerstone Value Fund One Year Three Years Five Years Ten Years Institutional Class Share—HICVX -13.00 % -1.76 % 5.65 % 7.41 % Investor Class Share—HFCVX -13.16 % -1.95 % 5.41 % 7.17 % Russell 1000 ® Value Index (7) -5.03 % 2.63 % 7.66 % 9.95 % S&P 500 ® Index (2) 15.15 % 12.28 % 14.15 % 13.74 % Hennessy Total Return Fund One Year Three Years Five Years Ten Years Investor Class Share—HDOGX -9.54 % 0.89 % 5.91 % 6.92 % 75/25 Blended DJIA/Treasury Index (8) 5.08 % 8.17 % 10.92 % 9.74 % Dow Jones Industrial Average (9) 5.70 % 9.98 % 14.02 % 12.69 % 7 Table of Contents Hennessy Equity and Income Fund* One Year Three Years Five Years Ten Years Institutional Class Share—HEIIX 7.00 % 6.39 % 7.48 % 8.27 % Investor Class Share—HEIFX 6.61 % 5.98 % 7.07 % 7.91 % Blended Balanced Index (10) 12.21 % 9.49 % 10.03 % 9.53 % S&P 500 ® Index (2) 15.15 % 12.28 % 14.15 % 13.74 % Hennessy Balanced Fund One Year Three Years Five Years Ten Years Investor Class Share—HBFBX -6.18 % 0.91 % 4.43 % 4.53 % 50/50 Blended DJIA/Treasury Index (11) 4.79 % 6.46 % 7.93 % 6.90 % Dow Jones Industrial Average (9) 5.70 % 9.98 % 14.02 % 12.69 % Since Inception Hennessy BP Energy Fund* One Year Three Years Five Years (12/31/13) Institutional Class Share—HNRIX -42.44 % -24.08 % -10.55 % -11.63 % Investor Class Share—HNRGX -42.54 % -24.27 % -10.80 % -11.84 % S&P 500 ® Energy Index (12) -45.24 % -20.42 % -9.70 % -11.58 % S&P 500 ® Index (2) 15.15 % 12.28 % 14.15 % 11.52 % Since Inception Hennessy BP Midstream Fund* One Year Three Years Five Years (12/31/13) Institutional Class Share—HMSIX** -46.24 % -22.04 % -11.40 % -11.27 % Investor Class Share—HMSFX -46.40 % -22.24 % -11.63 % -11.49 % Alerian MLP Index (13) -48.35 % -20.75 % -11.58 % -11.58 % S&P 500 ® Index (2) 15.15 % 12.28 % 14.15 % 13.74 % Hennessy Gas Utility Fund* One Year Three Years Five Years Ten Years Institutional Class Share—HGASX** -14.90 % -0.58 % 4.18 % 8.88 % Investor Class Share—GASFX -15.16 % -0.91 % 3.93 % 8.75 % AGA Stock Index (14) -14.26 % 0.27 % 5.22 % 9.66 % S&P 500 ® Index (2) 15.15 % 12.28 % 14.15 % 13.74 % Hennessy Japan Fund One Year Three Years Five Years Ten Years Institutional Class Share—HJPIX 20.51 % 11.54 % 15.25 % 13.57 % Investor Class Share—HJPNX 20.00 % 11.08 % 14.80 % 13.19 % Russell/Nomura Total Market TM Index (15) 7.36 % 3.69 % 8.13 % 6.84 % Tokyo Stock Price Index (TOPIX) (16) 7.38 % 3.59 % 7.94 % 6.81 % 8 Table of Contents Hennessy Japan Small Cap Fund One Year Three Years Five Years Ten Years Institutional Class Share—HJSIX** 8.87 % 5.48 % 12.46 % 13.06 % Investor Class Share—HJPSX 8.45 % 5.05 % 12.10 % 12.85 % Russell/Nomura Small Cap TM Index (17) 7.49 % 1.37 % 8.68 % 8.62 % Tokyo Stock Price Index (TOPIX) (16) 7.38 % 3.59 % 7.94 % 6.81 % Hennessy Large Cap Financial Fund* One Year Three Years Five Years Ten Years Institutional Class Share—HILFX** 7.37 % 6.90 % 10.46 % 9.95 % Investor Class Share—HLFNX 7.07 % 6.57 % 10.05 % 9.74 % Russell 1000 ® Index Financials (18) -6.48 % 4.65 % 9.85 % 11.13 % Russell 1000 ® Index (7) -5.03 % 2.63 % 7.66 % 9.95 % Hennessy Small Cap Financial Fund* One Year Three Years Five Years Ten Years Institutional Class Share—HISFX -28.25 % -12.59 % -1.60 % 4.27 % Investor Class Share—HSFNX -28.38 % -12.87 % -1.94 % 3.95 % Russell 2000 ® Index Financials (19) -23.05 % -6.76 % 2.85 % 7.84 % Russell 2000 ® Index (1) 0.39 % 1.77 % 8.00 % 9.85 % Hennessy Technology Fund* One Year Three Years Five Years Ten Years Institutional Class Share—HTCIX** 16.87 % 14.59 % 14.48 % 10.17 % Investor Class Share—HTECX 16.56 % 14.31 % 14.15 % 9.87 % NASDAQ Composite Index (20) 40.96 % 21.05 % 20.63 % 18.15 % S&P 500 ® Index (2) 15.15 % 12.28 % 14.15 % 13.74 % * 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. (1) The Russell 2000 ® Index comprises the smallest 2,000 companies in the Russell 3000 ® Index based on market capitalization, representing approximately 8% of the Russell 3000 ® Index in terms of total market capitalization. (2) The S&P 500 ® Index is a capitalization-weighted index that is designed to represent the broad domestic economy through changes in the aggregate market value of 500 stocks across all major industries. (3) The Russell 3000 ® Index comprises the 3,000 largest U.S. companies based on market capitalization, representing approximately 98% of the investable U.S. equities market. (4) The Russell Midcap ® Growth Index comprises approximately 65% of the total market value of the Russell Midcap ® Index and includes companies with higher price-to-book ratios and higher forecasted growth values. (5) The Russell Midcap ® Index comprises approximately 800 of the smallest securities of the Russell 1000 ® Index based on a combination of market capitalization and current index membership. (6) The Russell 1000 ® Index comprises the 1,000 largest companies in the Russell 3000 ® Index based on market capitalization. 9 Table of Contents (7) The Russell 1000 ® Value Index comprises those Russell 1000 ® companies with lower price-to-book ratios and lower forecasted growth value. (8) The 75/25 Blended DJIA/Treasury Index consists of 75% common stocks represented by the Dow Jones Industrial Average and 25% short-duration Treasury securities represented by the ICE BofAML U.S. 3-Month Treasury Bill Index, which comprises U.S. Treasury securities maturing in three months. (9) The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the NYSE or The NASDAQ Stock Market. (10) The Blended Balanced Index consists of 60% common stocks represented by the S&P 500 ® Index and 40% bonds represented by the Bloomberg Barclays Intermediate U.S. Government/Credit Index, which measures the performance of U.S. dollar-denominated Treasury securities and government-related and investment-grade corporate securities that have $250 million or more of outstanding face value, are fixed rate and non-convertible, and have remaining maturities of greater than or equal to one year and less than 10 years. (11) The 50/50 Blended DJIA/Treasury Index consists of 50% common stocks represented by the Dow Jones Industrial Average and 50% short-duration Treasury securities represented by the ICE BofAML 1-Year U.S. Treasury Note Index, which comprises U.S. Treasury securities maturing in approximately one year. (12) The S&P 500 ® Energy Index comprises those companies included in the S&P 500 ® that are classified in the Energy sector. (13) The Alerian MLP Index comprises companies that earn a majority of their cash flow from midstream activities involving energy commodities. (14) The AGA Stock Index is a capitalization-weighted index consisting of publicly traded members of the American Gas Association whose securities are traded on a U.S. stock exchange. (15) The Russell/Nomura Total Market ™ Index contains the top 98% of all stocks listed on Japan’s stock exchanges and registered on Japan’s over-the-counter market based on market capitalization. (16) The Tokyo Stock Price Index (TOPIX) is a market capitalization-weighted index of all of the companies listed on the First Section of the Tokyo Stock Exchange. (17) The Russell/Nomura Small Cap ™ Index contains the bottom 15% of the Russell/Nomura Total Market ™ Index based on market capitalization. (18) The Russell 1000 ® Index Financials is a subset of the Russell 1000 ® Index that measures the performance of the securities classified in the financials sector of the large-cap U.S. equity market. (19) The Russell 2000 ® Index Financials is a subset of the Russell 2000 ® Index that measures the performance of the securities classified in the financials sector of the small-cap U.S. equity market. (20) The NASDAQ Composite Index comprises all common stocks listed on The NASDAQ Stock Market. 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. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes or Russell ratings or underlying data, and no party may rely on any Russell Indexes or Russell ratings or underlying data contained in this communication. No further distribution of Russell data is permitted without Russell’s express written consent. Russell does not promote, sponsor, or endorse the content of this communication. Standard & Poor’s Financial Services LLC is the source and owner of the S&P ® and S&P 500 ® trademarks. The Dow Jones Industrial Average is the property of the Dow Jones & Company, Inc. Dow Jones & Company, Inc. is not affiliated with the Hennessy Funds or its investment advisor. Dow Jones & Company, Inc. has not participated in any way in the creation of the Hennessy Funds or in the selection of stocks included in the Hennessy Funds and has not approved any information included in this communication. 10 Table of Contents The Alerian MLP Index is a servicemark of GKD Index Partners. LLC d/b/a Alerian (“Alerian”), and its use is granted under a license from Alerian. Alerian makes no express or implied warranties, representations, or promises regarding the originality, merchantability, suitability, or fitness for a particular purpose or use with respect to the Alerian indices. No party may rely on, and Alerian does not accept any liability for any errors, omissions, interruptions, or defects in, the Alerian indices or underlying data. Development of New Investment Strategies and Expanding Our Product Offerings We develop new investment strategies and expand our product offerings by identifying client needs and reviewing asset allocation tables to determine where we can augment our family of mutual funds. Once we identify an attractive market segment, we select one of the following methods to initiate the new strategy: • We screen the appropriate universe of stocks with a set of parameters that we believe identifies stocks that will produce higher long-term returns with lower associated risk than their relative indices, and we then introduce the new investment strategy into the marketplace by opening and directly marketing a new mutual fund; • We purchase the assets related to the management of an existing mutual fund that we then manage ourselves; • We purchase the assets related to the management of an existing mutual fund and then engage the existing portfolio managers or strategic firm to act as a sub-advisor to manage the fund; or • We purchase the assets related to the management of an existing mutual fund and then employ the existing portfolio management team to manage the 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 shareholders of 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. In addition, the sub-advisory fees that we pay are also calculated as a percentage of the average daily net asset values of the sub-advised Hennessy Funds. The amount of our assets under management fluctuates as a result of organic inflows (purchases of shares of the Hennessy Funds by new or existing shareholders), acquisition inflows, outflows (redemptions of shares of the Hennessy Funds by shareholders), and market appreciation or depreciation. The following table summarizes our assets under management: Fiscal Years Ended September 30, 2020 2019 2018 (In thousands) Beginning assets under management $ 4,873,839 $ 6,197,617 $ 6,612,812 Acquisition inflows — 194,948 374,361 Organic inflows 571,195 825,541 1,193,270 Redemptions (1,771,127 ) (2,374,734 ) (2,376,180 ) Market appreciation (depreciation) (109,310 ) 30,467 393,354 Ending assets under management $ 3,564,597 $ 4,873,839 $ 6,197,617 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. 11 Table of Contents The following table summarizes our sources of revenues, net of sub-advisory fees: Fiscal Years Ended September 30, 2020 2019 2018 (In thousands) Investment advisory fees $ 30,831 $ 39,357 $ 50,235 Shareholder service fees 2,558 3,358 4,355 Subtotal 33,389 42,715 54,590 Sub-advisory fees (7,573 ) (9,228 ) (10,461 ) Revenue, net of sub-advisory fees $ 25,816 $ 33,487 $ 44,129 Investment Advisory Agreements and Fees We provide investment advisory services to the Hennessy Funds pursuant to investment advisory agreements with Hennessy Funds Trust. 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 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; • monitoring compliance with 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), 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, D&O/E&O 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; 12 Table of Contents • preparing or reviewing a written summary of the fund’s performance during the most recent 12-month period for each annual report of the fund; • monitoring and overseeing the accessibility of the fund on third-party platforms; • paying the incentive compensation of the fund’s compliance officers 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. 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 Funds’ Board of Trustees comprises three 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. 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. In exchange for the services described above, we receive an investment advisory fee from each Hennessy Fund that is calculated as a percentage of such fund’s average daily net asset value. As of the end of fiscal year 2020, 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 BP Energy Fund 1.25 % Hennessy BP 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 (i) the Hennessy Cornerstone Large Growth Fund through the expiration of the expense limitation agreement on November 30, 2019, (ii) the Hennessy BP Energy Fund during the second half of fiscal year 2020, and (iii) the Hennessy BP Midstream Fund and the Hennessy Technology Fund throughout fiscal year 2020, in each case 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. 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. 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. 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. If an investment advisory agreement is not renewed, it terminates automatically. There are two additional circumstances in which an investment advisory agreement would terminate. 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). Second, an investment advisory agreement may be terminated prior to its expiration upon 60 days’ written notice by either the applicable Hennessy Fund or us. Sub-Advisory Agreements and Fees We have delegated the day-to-day portfolio management responsibilities to sub-advisors, subject to our oversight, for some of the Hennessy Funds. In each case, the sub-advisor entity or the individuals working at the sub-advisor entity is the same entity or are the same individuals who advised the fund prior to our purchase of the assets related to the management of such fund. 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. 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. 14 Table of Contents 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. 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 2020: 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 BP Energy Fund BP Capital Fund Advisors, LLC 0.40% Hennessy BP Midstream Fund BP Capital Fund Advisors, LLC 0.40% Hennessy Japan Fund SPARX Asset Management Co., Ltd. $0-$500 million: Above $500 million-$1 billion: Above $1 billion: 0.35% 0.40% 0.42% Hennessy Japan Small Cap Fund SPARX Asset Management Co., Ltd. $0-$500 million: Above $500 million-$1 billion: Above $1 billion: 0.35% 0.40% 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. Shareholder Servicing Agreements and Fees Pursuant to a shareholder servicing agreement with Hennessy Funds Trust, we provide shareholder services to shareholders of 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 the funds or their accounts or to get help with processing exchange and redemption requests or changing account options. 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. The shareholder servicing agreement must be renewed annually by the Funds’ Board of Trustees, including the vote of a majority of the disinterested trustees. 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. These plans are named after Rule 12b-1 of the Investment Company Act of 1940, which permits a mutual 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. 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 shareholders, and (v) printing and mailing sales literature. A mutual fund may also employ a distributor to distribute and market fund shares and then use 12b-1 fees to pay the distributor for expenses relating to telephone use, overhead, employing employees who engage in or support the distribution of the fund shares, printing prospectuses and other reports for possible new shareholders, advertising, and preparing and distributing sales literature. 15 Table of Contents 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. 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. 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. We and our sub-advisors also consider factors such as order size and market depth, availability of competing markets and liquidity, trading characteristics of the security, financial responsibility of the broker-dealer, and the broker’s ability to address current market conditions. Currently, we participate in soft dollar arrangements with one of our brokers. This means we receive research reports and real-time electronic research to assist us in trading and managing the Hennessy Funds. Under these soft dollar arrangements, the Hennessy Funds pay brokerage commissions for securities trades at the regular market rate, and some or all of the value of those commissions is received by us in the form of research or other services that benefit the Hennessy Funds. We believe our soft dollar arrangements comply with SEC guidance regarding soft dollars. LICENSE AGREEMENT Our ability to use the names and formulaic investment strategies of the Hennessy Cornerstone Growth Fund and the Hennessy Cornerstone Value Fund are governed by the terms and conditions of a license agreement, dated as of April 10, 2000, with Netfolio. Under the license agreement, Netfolio granted us a perpetual, paid-up, royalty-free, exclusive license to use certain trademarks, such as “Strategy Indexing,” “Cornerstone Growth,” and “Cornerstone Value,” as well as the formula investment strategies used by the Hennessy Cornerstone Growth Fund and the Hennessy Cornerstone Value Fund. All of our advertising, marketing, promotional, and other materials incorporating or referring to the trademarks are subject to the prior written approval of Netfolio, except that we do not need Netfolio’s prior written approval to use the trademarks in a manner that is not substantially unchanged from any prior use by Netfolio in its own business or from any prior use by us previously approved by Netfolio. 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. 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. The implementation of this business strategy is described below. • Seeking to deliver strong investment performance of the Hennessy Funds One of the most effective ways we can grow the assets of the Hennessy Funds is by delivering strong investment performance, which we believe should: • result in an increase in the value of existing assets of the Hennessy Funds; • encourage more investors to buy shares of the Hennessy Funds and decrease the number of investors who redeem their shares and leave the Hennessy Funds; and • motivate current investors to invest additional money in the Hennessy Funds. 16 Table of Contents • Utilizing our branding and marketing campaign to attract assets We believe we can attract investors to the Hennessy Funds by effectively marketing our consistent and disciplined approach to investing based on a buy-and-hold philosophy that rejects the idea of market timing. We offer quantitative funds, actively managed funds, and income-generating funds. We believe our quantitative funds will attract investors who want to understand exactly how their investments are managed and who favor statistical analysis and empirical evidence as the basis for investment decisions. We also believe that our actively managed funds will attract investors who appreciate a fundamental, hands-on investment management approach and talented portfolio managers. Finally, we believe our more conservative, income-generating funds will attract investors seeking alternatives to mutual funds invested entirely in equities. 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. This public relations program has consistently resulted in the Hennessy Funds being mentioned an average of once every two to three days in national print and broadcast media such as CNBC, Fox News, Bloomberg radio and TV, The Wall Street Journal, Kiplinger, and Barron’s, among others. To facilitate our presence in the media, we utilize LiveStudio, an in-house studio providing a direct link to media broadcasts, at our office in Novato, California. We have several spokespeople who help us expand our public relations program and provide comprehensive media coverage of our products, including Neil J. Hennessy, who is our Chief Executive Officer and Chairman of our Board of Directors and President, Chief Investment Officer, and a Portfolio Manager of the Hennessy Funds, Portfolio Managers David Ellison, Ryan Kelley, and Josh Wein, as well as the Portfolio Managers at our sub-advisors. We maintain and regularly update a robust website and social media presence. Our core marketing efforts include targeted outreach to both current and prospective investors in the Hennessy Funds, including financial advisors and retail investors. 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. In the last half of our fiscal year, we participated in these activities via videoconference or teleconference. • Expanding our distribution network to additional distribution platforms Investors may purchase shares of the Hennessy Funds through financial intermediaries, including mutual fund supermarkets, national wirehouses and broker-dealers, independent and regional broker-dealers, and registered investment advisors, or directly from the Hennessy Funds. Mutual 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. The ability to purchase various mutual funds in a single location is very attractive to investors, and the majority of our $3.6 billion of assets under management as of the end of fiscal year 2020 was held at mutual fund supermarkets. Additionally, we continually seek opportunities to form new relationships with financial intermediaries to make our no-load mutual funds even more accessible to investors. 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. Bank Global Fund Services, the Hennessy Funds’ administrator. • Increasing our current base of financial advisors and investment professionals Investment professionals generally have access to a wide variety of investment products they may recommend to their investors. A recommendation by an investment professional to an investor to buy one of the Hennessy Funds may greatly influence that investor. Thus, we believe that expanding our current base of investment professionals who utilize no-load funds for their investors will help us increase our assets under management, which will in turn increase our revenues. 17 Table of Contents • 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 investors 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 mutual funds A primary component of our growth strategy is to selectively pursue strategic purchases of the assets related to the management of additional mutual funds. We believe the regulatory burden imposed upon the mutual fund industry, along with increased competition, has compressed the margins of smaller to mid-sized mutual fund managers, making those managers more receptive to an asset purchase. The long-term trend toward lower fees has made it more challenging to identify accretive asset purchases, but we believe that we are well positioned to move quickly once we identify any attractive purchase targets from the increasingly large supply of potential targets. 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. We completed our most recent asset purchase on October 26, 2018, when we purchased the assets related to the management of the BP Capital TwinLine Energy Fund and the BP Capital TwinLine MLP Fund (together, the “BP Funds”). This asset purchase added nearly $200 million to our assets under management. Upon completion of the transaction, the assets related to the management of the BP Funds were reorganized into two new series of Hennessy Funds Trust called the Hennessy BP Energy Fund and the Hennessy BP Midstream Fund, respectively. In connection with the transaction, BP Capital Fund Advisors, LLC, the investment advisor to the BP Funds, became the sub-advisor to the Hennessy BP Energy Fund and the Hennessy BP Midstream Fund. • Delivering strong, high-quality financial results. We seek to maintain a strong financial position and to manage our investment advisory business to meet the highest regulatory, ethical, and business standards and to maintain continuity of service to all of the investors in the Hennessy Funds. COMPETITION The investment advisory industry is highly competitive, with new competitors continually entering the industry. We compete directly with numerous global and U.S. investment managers, commercial banks, savings and loans 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. 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. Most of the larger firms offer a broader range of financial services to the same retail and institutional investors we seek to serve. 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. Key competitive factors include: • the investment performance of the Hennessy Funds; • the expense ratios of the Hennessy Funds; • the array of our product offerings; • industry rankings of the Hennessy Funds; • the quality of our services; 18 Table of Contents • our ability to further develop and market our brand; • our commitment to placing the interests of investors first; and • our general business reputation. Increased competition could reduce the demand for our products and services, which could have a material adverse effect on our business, results of operations, and financial condition. 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 shareholders of mutual funds and investors of registered investment advisors. 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. Such requirements relate to, among other things, fiduciary duties to investors, transactions with investors, compliance program effectiveness, solicitation arrangements, conflicts of interest, advertising, recordkeeping and reporting, disclosure, and anti-fraud matters. We manage accounts for the Hennessy Funds on a discretionary basis, meaning that we have the authority to buy and sell securities for each portfolio, select broker-dealers to execute trades, and negotiate brokerage commission rates. In connection with certain of these transactions, we receive soft dollar credits from broker-dealers that have the effect of reducing certain of our expenses. All of our soft dollar arrangements are intended to be within the safe harbor provided by Section 28(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). If our ability to use soft dollars were reduced or eliminated as a result of the implementation of statutory amendments or new regulations, our operating expenses would increase. Our mutual 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. While we exercise broad discretion over the day-to-day management of the business, affairs, and investment portfolios of the Hennessy Funds, our operations are subject to oversight and management by the Funds’ Board of Trustees. The responsibilities of the Funds’ Board of Trustees include, among other things, annually approving the continuation of our investment advisory agreements and shareholder servicing agreement with the Hennessy Funds and our sub-advisory agreements with the sub-advisors to the Hennessy Funds, approving other service providers, determining the method of valuing assets, and monitoring transactions involving affiliates. The Investment Company Act of 1940 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. 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. 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 2020, we had 21 employees, 19 of whom were full-time employees. Our 21 employees had an average tenure of 11 years as of the end of fiscal year 2020. We have historically experienced very low employee turnover, which we attribute to our focus on competitive compensation, a friendly and flexible office environment, and fostering close-knit working relationships among our team members. In response to the ongoing COVID-19 pandemic, we have maintained open lines of communication with employees, including by holding remote office-wide meetings, trainings, and events. Further, over 50% of our employees are women, and with an executive team that is 50% women and 25% minority, we believe we have created an environment in which all team members can be successful and supported. 19 Table of Contents Our executive officers are (i) Neil J. Hennessy, Chief Executive Officer and Chairman of our Board of Directors, (ii) Teresa M. 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. Hennessy is President, Chief Investment Officer, and a Portfolio Manager of the Hennessy Funds and is a member of the Funds’ Board of Trustees, (b) Ms. Nilsen is an Executive Vice President and Treasurer of the Hennessy Funds, (c) Ms. Fahy is Vice President, Assistant Treasurer, and Assistant Secretary of the Hennessy Funds, and (d) Mr. Steadman is an Executive Vice President and Secretary of the Hennessy Funds. 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. We are not including the information contained on our website as part of, or incorporating it by reference into, this Annual Report on Form 10-K.