HENNESSY ADVISORS INC

Previous wording

The securities markets are inherently volatile and may be affected by factors beyond our control, including global economic conditions, industry trends, interest and inflation rate fluctuations, political factors, the imposition of economic sanctions, public health crises, natural disasters, and other factors that are difficult to predict. Because our assets under management is largely concentrated in equity products, our results are particularly susceptible to downturns in the equity markets. We derive all of 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 asset value of the Hennessy Funds. Accordingly, our revenues increase or decrease as our average assets under management increases or decreases, which is affected by market appreciation or depreciation and purchases and redemptions of shares of the Hennessy Funds. Changing market conditions could also cause an impairment to the value of our management contract asset.

Current wording

The securities markets are inherently volatile and may be affected by factors beyond our control, including global economic conditions, industry trends, interest and inflation rate fluctuations, political factors, the imposition of economic sanctions, trade policies and tariffs, public health crises, natural disasters, geopolitical instability and war, including the invasion by Russia into Ukraine and the conflict between Israel and Hamas, as well as actions taken by other countries in response to such conflicts, and other factors that are difficult to predict. Because our assets under management is largely concentrated in equity products, our results are particularly susceptible to downturns in the equity markets. We derive all of 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 asset value of the Hennessy Funds. Accordingly, our revenues increase or decrease as our average assets under management increases or decreases, which is affected by market appreciation or depreciation and purchases and redemptions of shares of the Hennessy Funds. Changing market conditions could also cause an impairment to the value of our management contract asset.

Previous wording

For the past several years, approximately 75% of our assets under management has been concentrated in five or six of our funds. During fiscal year 2024, our average assets under management was concentrated in the following five funds: (i) the Hennessy Cornerstone Mid Cap 30 Fund (27% of average assets under management); (ii) the Hennessy Focus Fund (18% of average assets under management); (iii) the Hennessy Gas Utility Fund (12% of average assets under management); (iv) the Hennessy Japan Fund (10% of average assets under management); and (v) the Hennessy Cornerstone Growth Fund (9% of average assets under management). Consequently, our revenues followed a similar pattern of concentration: (a) the Hennessy Cornerstone Mid Cap 30 Fund (26% of total revenue); (b) the Hennessy Focus Fund (21% of total revenue); (c) the Hennessy Japan Fund (10% of total revenue); (d) the Hennessy Cornerstone Growth Fund (9% of total revenue); and (e) the Hennessy Cornerstone Value Fund (8% of total revenue). As a result, our operating results are particularly dependent upon the performance of a small number of funds and our ability to maintain and grow assets under management in these funds. These funds have from time to time experienced significant redemptions and may do so again in the future. A significant increase in redemptions for any reason would reduce our assets under management and revenues.

Current wording

For the past several years, approximately 75% of our assets under management has been concentrated in five or six of our funds. During fiscal year 2025, our average assets under management was concentrated in the following five funds: (i) the Hennessy Cornerstone Mid Cap 30 Fund (34% of average assets under management); (ii) the Hennessy Focus Fund (13% of average assets under management); (iii) Hennessy Cornerstone Growth Fund (12% of average assets under management); (iv) the Hennessy Gas Utility Fund (11% of average assets under management); and (v) the Hennessy Japan Fund (9% of average assets under management). Consequently, our revenues followed a similar pattern of concentration: (a) the Hennessy Cornerstone Mid Cap 30 Fund (33% of total revenue); (b) the Hennessy Focus Fund (16% of total revenue); (c) the Hennessy Cornerstone Growth Fund (12% of total revenue); (d) the Hennessy Japan Fund (10% of total revenue); and (e) the Hennessy Gas Utility Fund (7% of total revenue). As a result, our operating results are particularly dependent upon the performance of a small number of funds and our ability to maintain and grow assets under management in these funds. These funds have from time to time experienced significant redemptions and may do so again in the future. A significant increase in redemptions for any reason would reduce our assets under management and revenues.

Previous wording

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.

Current wording

We utilize a unitary fee structure for the Hennessy Sustainable 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.

Previous wording

The Hennessy Stance ESG ETF pays us a unitary fee under its investment advisory agreement with us. 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. Additionally, for no compensation, we pay all other operating expenses of the fund, including sub-advisory fees, with the exception of the following: (i) the management fees paid to us; (ii) distribution fees and expenses paid by the fund under any distribution plan adopted pursuant to Rule 12b-1 under the Investment Company Act; (iii) interest expenses; (iv) 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; (v) compensation paid to the independent trustees of the fund and fees paid to independent trustees’ counsel; (vi) tax expenses and governmental fees; and (vii) extraordinary expenses not incurred in the course of ordinary business (the “Excluded Fees”). 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 increase, which could lead to increased profitability for us if we are able to achieve economies of scale. On the other hand, if the fund’s operating expenses increase (other than Excluded Fees), this will lead to a reduction in our profitability from the fund.

Current wording

The Hennessy Sustainable ETF pays us a unitary fee under its investment advisory agreement with us. 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. Additionally, for no compensation, we pay all other operating expenses of the fund, including sub-advisory fees, with the exception of the following: (i) the management fees paid to us; (ii) distribution fees and expenses paid by the fund under any distribution plan adopted pursuant to Rule 12b-1 under the Investment Company Act; (iii) interest expenses; (iv) 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; (v) compensation paid to the independent trustees of the fund and fees paid to independent trustees’ counsel; (vi) tax expenses and governmental fees; and (vii) extraordinary expenses not incurred in the course of ordinary business (the “Excluded Fees”). 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 increase, which could lead to increased profitability for us if we are able to achieve economies of scale. On the other hand, if the fund’s operating expenses increase (other than Excluded Fees), this will lead to a reduction in our profitability from the fund.

Previous wording

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. 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. This is because we sought and received an exemptive order from the SEC in 2023 to operate under a manager of managers structure and subsequently obtained shareholder approval to implement such structure for the Hennessy Stance ESG ETF. 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. 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.

Current wording

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. However, for the Hennessy Sustainable 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. This is because we sought and received an exemptive order from the SEC in 2023 to operate under a manager of managers structure and subsequently obtained shareholder approval to implement such structure for the Hennessy Sustainable ETF. 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. 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.

Previous wording

We depend on information technology, and any failures of or damage to, attack on or unauthorized access to our information technology systems or facilities, or those of third parties with which we do business, including as a result of cyber attacks, could result in significant limits on our ability to conduct our operations and activities, costs, and reputational damage.

Current wording

We rely on information technology and infrastructure. Any failures of, damage to, attack on or unauthorized access to our systems or facilities, or those of third parties with whom we conduct business, including as a result of cyber‑attacks, could significantly limit our ability to conduct our operations effectively, increase our costs, and cause reputational damage.

Previous wording

If any of these events were to occur, we could suffer a financial loss, a disruption of our business, liability to the Hennessy Funds and their investors, regulatory intervention, or reputational damage, any of which could have a material adverse effect on our business, results of operations, and financial condition. We also may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures. In addition, our cybersecurity insurance may not cover all losses and damages from such events and our ability to maintain or obtain sufficient insurance coverage in the future may be limited.

Current wording

If material information security incidents occur in the future, we could experience financial losses, business disruptions, liability to the Hennessy Funds and their investors, regulatory intervention, or reputational damage, any of which could be material and could materially adversely affect our business, results of operations, and financial condition. We also may be required to expend significant additional resources to strengthen our protective measures or to investigate and remediate vulnerabilities or other exposures. In addition, our cybersecurity insurance may not cover all losses and damages from such events and our ability to maintain or obtain sufficient insurance coverage in the future may be limited.

Previous wording

Finally, cybersecurity and data privacy are high priorities for many regulators, and many jurisdictions have enacted laws and regulations in these areas. Enactment of privacy laws or regulations have, and may continue to, result in additional costs of compliance or litigation. 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.

Current wording

Finally, cybersecurity and data privacy are priorities for many regulators worldwide, and many jurisdictions have enacted laws and regulations in these areas. Compliance with evolving privacy laws and cybersecurity regulations has resulted, and may continue to result, in additional costs of compliance or potential litigation exposure. While we strive to comply with applicable laws and regulations, any failure to do so could result in regulatory investigations, penalties, or negative publicity, any of which could materially adversely affect our business, results of operations, and financial condition.

Previous wording

The management contracts we have purchased, an $82.3 million asset on the balance sheet as of the end of fiscal year 2024, are considered an intangible asset with an indefinite useful life. Management reviews the indefinite life classification of our management contract asset each reporting period. 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. 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. 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.

Current wording

The management contracts we have purchased, an $82.6 million asset on the balance sheet as of the end of fiscal year 2025, are considered an intangible asset with an indefinite useful life. Management reviews the indefinite life classification of our management contract asset each reporting period. 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. 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. 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.