##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-K







|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the Fiscal Year Ended September 30, 2010

or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the Transition Period From  to

Commission File Number 000-49872





HENNESSY ADVISORS, INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|California                                                     |  | 68-0176227                       
|(State or other jurisdiction of
incorporation or organization) |  | (IRS Employer Identification No.)



|                                                 |  |           
|------------------------------------------------ |  | ----------
|7250 Redwood Blvd., Suite 200 Novato, California |  | 94945     
|(Address of principal executive office)          |  | (Zip Code)

(415)
899-1555

(Registrants telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None.

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, no par value

(Title of class)





Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    Yes   ̈    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ̈    No  x

Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act:



|                        |  |   |  |                           |  |  
|----------------------- |  | - |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈ |  | Accelerated filer         |  |  ̈
|                        |  |   | 
|Non-accelerated filer   |  |  ̈ |  | Smaller reporting company |  | x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ̈    No  x

The
aggregate market value of Common Stock held by non-affiliates (as affiliates are defined in Rule 12b-2 of the Exchange Act) of the Registrant, based on the closing price of $2.50 on March 31, 2010, was $8,800,295.

APPLICABLE ONLY TO CORPORATE REGISTRANTS

Indicate the number of shares outstanding of each of the registrants classes of common stock, as of the latest practicable date:

As of October 25, 2010 there were 5,709,839 shares of Common Stock (no par value) issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions
of the registrants definitive proxy statement for its 2011 annual meeting of stockholders will be, when filed, incorporated by reference in Part III, Items 10, 11, 12, 13 and 14.









---

##### Table of Contents

HENNESSY ADVISORS, INC.

FORM 10-K

For
the Fiscal Year Ended September 30, 2010





Table of Contents:



|                                                                                                        |  |  |    | 
|------------------------------------------------------------------------------------------------------- |  |  | -- | 
|PART I                                                                                                  |  |  |    | 
|ITEM 1. DESCRIPTION OF BUSINESS                                                                         |  |  | 3  | 
|GENERAL                                                                                                 |  |  | 3  | 
|BUSINESS OPERATIONS, PRODUCTS AND STRATEGIES                                                            |  |  | 5  | 
|EMPLOYEES                                                                                               |  |  | 17 | 
|ITEM 1A. RISK FACTORS                                                                                   |  |  | 17 | 
|ITEM 1B. UNRESOLVED STAFF COMMENTS                                                                      |  |  | 22 | 
|ITEM 2. DESCRIPTION OF PROPERTY                                                                         |  |  | 22 | 
|ITEM 3. LEGAL PROCEEDINGS                                                                               |  |  | 22 | 
|ITEM 4. [RESERVED]                                                                                      |  |  | 22 | 
|                                                                                                        | 
|PART II                                                                                                 |  |  |    | 
|                                                                                                        | 
|ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES |  |  | 22 | 
|MARKET INFORMATION                                                                                      |  |  | 22 | 
|HOLDERS                                                                                                 |  |  | 23 | 
|DIVIDENDS                                                                                               |  |  | 23 | 
|PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS                                  |  |  | 24 | 
|ITEM 6. SELECTED FINANCIAL DATA                                                                         |  |  | 25 | 
|ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS           |  |  | 25 | 
|ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                     |  |  | 34 | 
|ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                     |  |  | 35 | 
|ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE            |  |  | 56 | 
|ITEM 9A. CONTROLS AND PROCEDURES                                                                        |  |  | 56 | 
|ITEM 9B. OTHER INFORMATION                                                                              |  |  | 56 | 
|                                                                                                        | 
|PART III                                                                                                |  |  |    | 
|                                                                                                        | 
|ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE                                        |  |  | 57 | 
|CODE OF ETHICS                                                                                          |  |  | 57 | 
|ITEM 11. EXECUTIVE COMPENSATION                                                                         |  |  | 57 | 
|ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS |  |  | 57 | 
|SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS                                      |  |  | 57 | 
|ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                         |  |  | 58 | 
|ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                         |  |  | 58 | 
|                                                                                                        | 
|PART IV                                                                                                 |  |  |    | 
|                                                                                                        | 
|ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                     |  |  | 59 | 
|SIGNATURES                                                                                              |  |  | 61 | 



2



---

##### Table of Contents

PART I



|ITEM 1. | DESCRIPTION OF BUSINESS
|------- | -----------------------

GENERAL

Overview

We are
a publicly traded investment management firm. Our principal business activity is managing, servicing and marketing our ten open-end mutual funds. All of our mutual funds are no-load, meaning investors do not pay any upfront or deferred sales
charges. We have two series of mutual funds. Our Cornerstone Series of mutual funds use quantitative stock selection strategies to manage their portfolios. It includes: the Hennessy Cornerstone Growth Fund, the Hennessy Cornerstone
Growth Fund, Series II, the Hennessy Focus 30 Fund, the Hennessy Cornerstone Large Growth Fund, the Hennessy Cornerstone Value Fund, the Hennessy Total Return Fund and the Hennessy Balanced Fund (the Hennessy Cornerstone Series of
Funds). Our Select Series of mutual funds are actively managed and each employs a seasoned sub-advisor. It includes: the Hennessy Select Large Value Fund, the Hennessy Select SPARX Japan Fund and the Hennessy Select SPARX Japan
Smaller Companies Fund (the Hennessy Select Series of Funds). In total, the net assets of the mutual funds we manage have increased by 360% from $194 million on September 30, 2001 to $892 million as of September 30, 2010.
Collectively, we refer to the Hennessy Cornerstone Series of Funds and the Hennessy Select Series of Funds as the Hennessy Funds.

Each of the Hennessy Funds pays fees to us for our management services. Management services include investment research, supervision of investments, conducting investment programs (including the
evaluation, sale and reinvestment of assets), the placement of orders for purchase and sale of securities, solicitation of brokers to execute transactions, sub-advisor oversight and the preparation and distribution of reports and statistical
information. The original class shares of our mutual funds also pay fees to us for shareholder services. Shareholder services consist primarily of providing a call center to respond to shareholder inquiries, including inquiries regarding specific
mutual fund account and investment information. The fees that we receive for management and shareholder services are based on a percentage of the average daily net asset values of our mutual funds.

Company History

We were
founded in 1989 as a California corporation under the name Edward J. Hennessy Incorporated. We initially registered with the appropriate federal, state and self-regulatory organizations as a broker-dealer with a retail business. In addition, we were
a member of the National Association of Securities Dealers, serving mainly individual investors, but we terminated this registration in July 2000 and are no longer engaged in the broker-dealer business. In 1990, we registered as an investment
advisor. From 1990 to 1996, we provided management services to private clients and limited partnerships utilizing strategies similar to those we use in advising our mutual funds today. In 1996, we launched our first mutual fund, the Hennessy
Balanced Fund. We initially managed the Hennessy Balanced Fund through The Hennessy Management Co., L.P., a California limited partnership for which we served as the general partner. As general partner, we performed all of the management functions
on behalf of The Hennessy Management Co., L.P. for the Hennessy Balanced Fund.

In 1998, we launched our second mutual fund,
the Hennessy Total Return Fund. We initially managed the Hennessy Total Return Fund through The Hennessy Management Co. 2, L.P., another California limited partnership for which we served as the general partner and as such, performed all of the
management functions on behalf of The Hennessy Management Co. 2, L.P. for the Hennessy Total Return Fund.

In 2000, we began
acquiring the rights to manage the assets of additional mutual funds by entering into agreements with the funds investment advisors to acquire management contracts related to such funds. When we acquire the rights to manage the assets of a
mutual fund, we generally either enter into a management agreement covering the mutual fund or reorganize the assets of the mutual fund into one of our existing mutual funds.



3



---

##### Table of Contents

In June 2000, we completed our first acquisition by entering into a management agreement
covering the OShaughnessy Cornerstone Growth Fund and the OShaughnessy Cornerstone Value Fund and changed the names of these funds to the Hennessy Cornerstone Growth Fund and the Hennessy Cornerstone Value Fund. In connection with this
acquisition, we obtained an exclusive, perpetual license to use the names and investment strategies of the Cornerstone Growth Fund and the Cornerstone Value Fund from Netfolio, Inc. These two mutual funds had approximately $197 million in combined
net assets at the time we began managing them.

In May 2002, we completed our initial public offering, raising $5.7 million in
a non-underwritten offering at a split-adjusted price of $2.97 and became a public reporting company as a small-business issuer. At the time of our initial public offering, assets under management were approximately $348 million. In connection with
our initial public offering, the limited partners of The Hennessy Management Co., L.P. and The Hennessy Management Co. 2, L.P. agreed to merge their partnerships into our new public company, thereby allowing the consolidation of all our management
activities directly into Hennessy Advisors, Inc.

In September 2003, we acquired the management agreement for the SYM Select
Growth Fund. In connection with that acquisition, we launched our fifth mutual fund, the Hennessy Focus 30 Fund, into which we reorganized the assets of the SYM Select Growth Fund. At the time of this acquisition, the SYM Fund had approximately $35
million in net assets.

In March 2004, we acquired the management agreements for five funds managed by Lindner Asset
Management, Inc., which we refer to as the Lindner Funds. In connection with this acquisition, the assets of the Lindner Funds were reorganized into four of our existing mutual funds. At the time of this acquisition, the Lindner Funds had
approximately $301 million in combined net assets.

In July 2005, we acquired the management agreement for The Henlopen Fund
and changed the name to the Hennessy Cornerstone Growth Fund, Series II. At the time of this acquisition, The Henlopen Fund had approximately $299 million in net assets.

In November 2007, we opened the Hennessy Micro Cap Growth Fund, LLC, a non-registered private pooled investment fund. Hennessy Advisors, Inc. is the managing member and invested approximately $0.5 million
in the Micro Cap Growth Fund at inception.

In March 2008, we established an institutional share class for four of our mutual
funds: the Hennessy Cornerstone Growth Fund, the Hennessy Cornerstone Growth Fund, Series II, the Hennessy Focus 30 Fund and the Hennessy Cornerstone Value Fund. The institutional shares require a minimum investment of $0.25 million per fund, and
net expenses do not exceed 0.98% of the average daily net assets of the Funds.

In March 2009, we acquired the management
agreements for two funds managed by RBC Global Asset Management (U.S.) Inc.: the Tamarack Large Cap Growth Fund and the Tamarack Value Fund (which we refer to as the Tamarack Funds). In connection with this acquisition, shares of the Tamarack Large
Cap Growth Fund were exchanged for shares of the Hennessy Cornerstone Large Growth Fund (original class shares), and shares of the Tamarack Value Fund were exchanged for shares of the Hennessy Select Large Value Fund (original class shares). Both
funds also offer institutional class shares. Additionally, we retained RBC Global Asset Management (U.S.) Inc. as sub-advisor to manage the portfolio of the Hennessy Select Large Value Fund. This Fund was the first of the new Hennessy Select Series
of Funds launched for the purpose of employing seasoned, yet undiscovered asset managers.

In September 2009, we acquired the
management agreements for two funds managed by SPARX Investment & Research, USA, Inc., and sub-advised by SPARX Asset Management Co., Ltd.: the Hennessy Select SPARX Japan Fund and the Hennessy Select SPARX Japan Smaller Companies Fund
(which we refer to as the SPARX Funds) as additions to our Hennessy Select Series of Funds. Once the acquisition was approved, we changed the names to the Hennessy Select SPARX Japan Fund and the Hennessy Select SPARX Japan Smaller Companies Fund,
respectively. However, we retained SPARX Asset Management Co., Ltd. as sub-advisor to continue to handle the day to day portfolio management of the SPARX Funds and the investment objectives and strategies remain the same. The Hennessy Select SPARX
Japan Fund also offers institutional class shares.



4



---

##### Table of Contents

BUSINESS OPERATIONS, PRODUCTS and STRATEGIES

Management Agreements and Fees

We have entered into management agreements covering all of our mutual funds with the registered investment companies or trusts under which
our mutual funds are organized. Our registered investment companies or trusts are currently Hennessy Funds, Inc., Hennessy Mutual Funds, Inc., Hennessy Funds Trust, and Hennessy SPARX Funds Trust. Our management agreement with (1) Hennessy
Funds, Inc. covers the Hennessy Total Return Fund and the Hennessy Balanced Fund; (2) Hennessy Mutual Funds, Inc. covers the Hennessy Cornerstone Growth Fund, the Hennessy Cornerstone Value Fund and the Hennessy Focus 30 Fund; (3) Hennessy
Funds Trust covers the Hennessy Cornerstone Growth Fund, Series II, the Hennessy Cornerstone Large Growth Fund and the Hennessy Select Large Value Fund; and (4) Hennessy SPARX Funds Trust covers the Hennessy Select SPARX Japan Fund and the
Hennessy Select SPARX Japan Smaller Companies Fund. Under these agreements, we are responsible for overall investment and management services, subject to the oversight of the applicable board of directors or trustees and according to each mutual
funds particular fundamental investment objectives and policies. The boards of each of Hennessy Funds, Inc., Hennessy Mutual Funds, Inc., Hennessy Funds Trust, and Hennessy SPARX Funds Trust consist of four individuals, including our chairman
of the board and chief executive officer, Neil J. Hennessy, and three directors or trustees who are not interested persons of the funds (disinterested directors or trustees). Under the Investment Company Act of 1940, a majority of the
disinterested directors or trustees must approve the entry into and continuation of our management agreements. The disinterested directors also have sole responsibility for selecting and nominating other disinterested directors or trustees.

We also provide any ordinary clerical and bookkeeping services needed by our mutual funds that are not provided by the
funds custodian, administrator or transfer agent. We fulfill requests for information about our mutual funds or pay the fulfillment expenses that our mutual funds would otherwise incur.

In exchange for all of these services, we receive a management fee from each of our mutual funds, which is based on the amount of each
funds average daily net assets. The annual management fees payable to us by our mutual funds are as follows:



|                                                          |  |                                                |      |  
|--------------------------------------------------------- |  | ---------------------------------------------- | ---- | -
|Fund                                                      |  | Management Fee(as a percentage of fund assets) |     
|Hennessy Cornerstone Growth Fund (all classes)            |  |                                                | 0.74 | %
|                                                          | 
|Hennessy Cornerstone Growth Fund, Series II (all classes) |  |                                                | 0.74 | %
|                                                          | 
|Hennessy Focus 30 Fund (all classes)                      |  |                                                | 0.74 | %
|                                                          | 
|Hennessy Cornerstone Value Fund (all classes)             |  |                                                | 0.74 | %
|                                                          | 
|Hennessy Cornerstone Large Growth Fund (all classes)      |  |                                                | 0.74 | %
|                                                          | 
|Hennessy Total Return Fund                                |  |                                                | 0.60 | %
|                                                          | 
|Hennessy Balanced Fund                                    |  |                                                | 0.60 | %
|                                                          | 
|Hennessy Select Large Value Fund (all classes)            |  |                                                | 0.85 | %
|                                                          | 
|Hennessy Select SPARX Japan Fund (all classes)            |  |                                                | 1.00 | %
|                                                          | 
|Hennessy Select SPARX Japan Smaller Companies Fund        |  |                                                | 1.20 | %



5



---

##### Table of Contents

For the institutional share classes of the funds (all of the funds other than the Hennessy
Total Return Fund, the Hennessy Balanced Fund and the Hennessy Select SPARX Japan Smaller Companies Fund have an institutional share class), we have a contractual obligation to waive the advisory fee or reimburse fund expenses to the extent
necessary to ensure that net expenses do not exceed 0.98% of the average daily net assets of the funds, except for the institutional share class of the Hennessy Select SPARX Japan Fund, which has does not have an expense ratio cap.

After an initial two year term, our management agreements must be renewed annually by (1) the board of directors or trustees of the
applicable investment company or by the vote of a majority of the outstanding shares of the applicable fund and (2) by the vote of a majority of the directors or trustees of the applicable investment company who are not parties to the
management agreement and are disinterested directors or trustees. Two other circumstances might lead to termination of the management agreements: the assignment of a management agreement to another advisor automatically terminates the agreement
(assignment includes indirect assignment, which is the transfer of our common stock in sufficient quantities deemed to constitute a controlling block), and the termination of the agreement, upon 60 days written notice by our firm
or by one of the funds investment companies. The current management agreements were renewed by the Board of Directors of the Hennessy Funds, Inc. and Hennessy Mutual Funds, Inc. and by the trustees of the Hennessy Funds Trust on March 3,
2010 for a period of one year.

The management agreements for the Hennessy Cornerstone Large Growth Fund and the Hennessy
Select Large Value Fund were approved by the Board of Trustees of Hennessy Funds Trust on March 3, 2009 for an initial period of two years (expiring on March 3, 2011), to be renewed annually thereafter; and the management agreements for
the Hennessy Select SPARX Japan Fund and the Hennessy Select SPARX Japan Smaller Companies Fund were approved by the Board of Trustees of Hennessy SPARX Funds Trust on July 13, 2009 and by the shareholders of the SPARX Funds on
September 17, 2009 for an initial period of two years (expiring on September 17, 2011), to be renewed annually thereafter.

As of October 1, 2007, Hennessy Advisors, Inc. was also appointed the Managing Member of the Hennessy Micro Cap Growth Fund, LLC. Hennessy Advisors, Inc. will serve as the Managing Member until its
resignation or removal. The Managing Member may voluntarily resign with 30 days prior written notice to the other members or 60 days prior written notice if there is not then a remaining Managing Member. At any time, the Managing Member
may designate an additional Managing Member or designate a successor Managing Member with no further consent or approval required from the other members. The Managing Member may be removed at any time, with or without cause, by the vote of the other
members owning a majority-in-interest of the capital accounts of the Disinterested Members, defined as members other than members who are the Managing Member or affiliates of the Managing Member.

In the Hennessy Micro Cap Growth Fund, LLC, the annual advisory fee is 2.0% of the aggregate capital accounts of the members, but no
management fee is charged to the capital account of the Managing Member. Additionally, an incentive allocation can potentially be earned on any members balance, other than the Managing Member. The allocation is determined at the
end of each calendar quarter as 20% of the amount by which net profits (defined as the amount by which the net asset value on the last day of a period exceeds the net asset value on the commencement of the same period), if any, exceed the positive
balance, if any, of a members loss carryforward (defined as a memorandum account kept for each member having an initial balance of zero that is increased by the net loss, if any, allocated to each member for each calendar period).



6



---

##### Table of Contents

Shareholder Services

In addition to our management agreements, we also have shareholder servicing agreements covering the original share classes of the Hennessy Cornerstone Growth Fund, the Hennessy Cornerstone Growth Fund,
Series II, the Hennessy Focus 30 Fund, the Hennessy Cornerstone Value Fund, the Hennessy Cornerstone Large Growth Fund, the Hennessy Select Large Value Fund, the Hennessy Select SPARX Japan Fund, the Hennessy Select SPARX Japan Smaller Companies
Fund, the Hennessy Total Return Fund and the Hennessy Balanced Fund. We have provided shareholder services under a shareholder servicing agreement to the Hennessy Cornerstone Growth Fund and the Hennessy Cornerstone Value Fund since October 2003; to
the Hennessy Focus 30 Fund since June 30, 2005; to the Hennessy Cornerstone Growth Fund, Series II since July 1, 2005; to the Hennessy Total Return Fund and the Hennessy Balanced Fund since July 1, 2007; to the Hennessy Cornerstone
Large Growth Fund and the Hennessy Select Large Value Fund since March 23, 2009; and to the Hennessy Select SPARX Japan Fund and the Hennessy Select SPARX Japan Smaller Companies Fund since June 1, 2010. Under these agreements, we provide
administrative support services to these funds, including, among other things, the following:



| |  |  | maintaining an 800 number that current fund shareholders may call to ask questions about the funds or their accounts with the funds;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | assisting shareholders in processing exchange and redemption requests;
| | - |  | ----------------------------------------------------------------------



| |  |  | assisting shareholders in changing dividend options, account designations and addresses;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | responding generally to shareholder questions; and
| | - |  | --------------------------------------------------



| |  |  | providing other similar services that the funds may request.
| | - |  | ------------------------------------------------------------

In exchange for these services, we receive an annual shareholder servicing fee from each of the above-named funds of 0.10% of the
funds average daily net assets.

Sub-advisory agreements and Fees

We have entered into sub-advisory agreements covering our Hennessy Select Series of Funds with the same asset management companies that
previously managed the Funds. The management companies are currently RBC Global Asset Management (U.S.) Inc. and SPARX Asset Management Co., Ltd. Our sub-advisory agreement with RBC Global Asset Management (U.S.) Inc. covers the Hennessy Select
Large Value Fund and with SPARX Asset Management Co., Ltd. covers the Hennessy Select SPARX Japan Fund and the Hennessy Select SPARX Japan Smaller Companies Fund. Under these agreements, the sub-advisor is responsible for the investment and
reinvestment of the assets of the fund, in accordance with the terms of the sub-advisory agreement, the funds Prospectus and the funds Statement of Additional Information and subject to the direction, supervision and control of Hennessy
Advisors, the manager of the Hennessy Select Series of Funds, and the Trustees of the Hennessy Funds Trust and Hennessy SPARX Funds Trust.

In exchange for the sub-advisory services, we (not the funds) pay a sub-advisor fee to the sub-advisors, which is based on the amount of each funds average daily net assets. The annual sub-advisor
fees payable by us to our sub-advisors are as follows:



|                                                   |  |                                                 |      |  
|-------------------------------------------------- |  | ----------------------------------------------- | ---- | -
|Fund                                               |  | Sub-Advisor Fee(as a percentage of fund assets) |     
|Hennessy Select Large Value Fund (all classes)     |  |                                                 | 0.35 | %
|                                                   | 
|Hennessy Select SPARX Japan Fund (all classes)     |  |                                                 | 0.35 | %
|                                                   | 
|Hennessy Select SPARX Japan Smaller Companies Fund |  |                                                 | 0.20 | %



7



---

##### Table of Contents

The sub-advisory agreement for the Hennessy Select Large Value Fund was approved by the
Board of Trustees of Hennessy Funds Trust on March 3, 2009 for an initial period of two years, to be renewed annually thereafter, and the sub-advisory agreement for the Hennessy Select SPARX Japan Fund and the Hennessy Select SPARX Japan
Smaller Companies Fund were approved by the Board of Trustees of Hennessy SPARX Funds Trust on July 13, 2009 and by the shareholders of the SPARX Funds on September 17, 2009 for an initial period of two years, to be renewed annually
thereafter. After the initial period of two years, the agreements may be renewed from year to year, as long as continuance is specifically approved at least annually in accordance with the requirements of the Investment Company Act of 1940. Each
sub-advisory agreement will terminate in the event of its assignment, or it may be terminated by Hennessy Funds Trust or Hennessy SPARX Funds Trust (either by the Board of Trustees or by vote of a majority of the outstanding voting securities of a
Fund), respectively, or by Hennessy Advisors, upon 60 days prior written notice.

12b-1 Plan

The Hennessy Total Return Fund and the Hennessy Balanced Fund have each adopted a 12b-1 plan. Under Rule 12b-1 of the Investment Company
Act of 1940, mutual funds can adopt a plan that allows them to make payments to third parties in connection with the distribution of their fund shares. Such distribution activities might include: advertising; compensation paid to financial
institutions, broker-dealers, and others for sales and marketing; shareholder accounting services; the printing and mailing of prospectuses to possible new shareholders; and the printing and mailing of sales literature. Mutual funds can also employ
a distributor to distribute and market mutual fund shares. 12b-1 fees can be used to pay the distributor for expenses incurred for telephone costs, overhead costs, costs of employees who engage in or support the distribution of the fund shares, the
printing of prospectuses and other reports for possible new shareholders, advertising and the preparation and distribution of sales literature. The 12b-1 plan adopted by the Hennessy Total Return Fund and the Hennessy Balanced Fund authorizes each
fund to make payments at an annual rate not to exceed 0.15% of each Funds average daily net assets. The Securities and Exchange Commission (SEC) has considered changes to Rule 12b-1 of the Investment Company Act of 1940 and has
proposed changes to Rule 12b-1. At this time, it is not clear what final changes the SEC will adopt. Such final changes (depending on the form they take), or other future changes, could restrict our current practices.

Custodial and Brokerage Arrangements

All shareholder funds are held by third party custodians. Independent brokerage firms execute all trades for our funds, at our direction.

Currently, we participate in soft dollar arrangements with four brokers. This means that we receive research reports and
real-time electronic research to assist us in trading and managing our mutual funds. Under these soft dollar arrangements, we pay brokerage commissions for securities trades on behalf of a mutual fund, but in exchange we receive research or other
services that benefit our mutual funds. 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 funds now known as 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, Inc. Under the license agreement, Netfolio, Inc. 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, Inc., except that we do not need
Netfolio Inc.s prior written approval to use the trademarks in a manner that is not substantially unchanged from any prior use by Netfolio, Inc. in its own business or from any prior use by us previously approved by Netfolio, Inc. We can
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, Inc. does not have any
contractual rights to terminate the license agreement.



8



---

##### Table of Contents

Business Strategy

From 1996, when we started our first mutual fund, until September 30, 2010, we have grown our assets under management to $892 million, with fluctuations during that time. Recent market conditions
have created significant volatility in the equity markets, causing increased redemptions and negative performance. However, we strive to increase our profitability and assets under management by implementing the following key strategies:

-Utilizing our branding and marketing campaign for growth.

We believe that we can attract investors to our Hennessy Cornerstone Series of Funds by effectively marketing our unique quantitative investment style. We believe that our investment philosophy appeals to
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. Additionally, we believe the talents of the seasoned sub-advisors managing
our Hennessy Select Series of Funds will attract investors who appreciate fundamental, hands-on investment management.

We
will continue our efforts to make Hennessy a name readily recognizable by investors through frequent print media, radio and television appearances. We use our media appearances to convey to investors that we manage our Hennessy Cornerstone Series of
Funds with the discipline and consistency of an index fund by never straying from our strategies. We believe that a straightforward, quantitative approach is easily understood by investors and makes them more likely to recommend us to others by word
of mouth. As our brand recognition broadens, we believe that our investment philosophy will generate organic growth through new investments in our mutual funds. We will also team up with our sub-advisors for media coverage in order to promote our
Hennessy Select Series of Funds when co-branding opportunities arise.

-Expanding our distribution network to additional
mutual fund supermarkets.

One of the ways that investors can buy shares of our mutual funds is through mutual fund
supermarkets, principally Schwab, Fidelity, TD Ameritrade and Pershing. Mutual fund supermarkets can offer funds of many different investment companies to investors, often without a transaction fee or sales charge to the investor. Instead of
charging a fee to investors, mutual fund supermarkets are reimbursed for their services by the applicable fund or that funds investment advisor. This ability to purchase various mutual funds at no cost in a single location is very attractive
to investors. Mutual fund supermarkets have been a significant source of our asset growth. Of the $892 million of assets under management in our mutual funds as of September 30, 2010, approximately 52% of those assets came from mutual fund
supermarkets. We see continued opportunities to form new relationships with mutual fund supermarkets, thereby enhancing the accessibility of our no-load mutual funds to investors.

-Increasing our current base of investment professionals who utilize no-load mutual funds for their clients.

Investment professionals generally have a wide variety of investment products that they can recommend to their clients. A recommendation
by an investment professional to a client to buy one of our mutual funds can be very influential to that client. Thus, we believe that expanding our current base of investment professionals who utilize no-load funds for their clients will help us
increase the amount of assets that we manage, which will in turn increase our revenues.

-Securing participation in the
platforms of national full-service firms that permit their investment professionals to utilize no-load funds for their clients.



9



---

##### Table of Contents

We will strive to continue developing 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 selective acquisitions.

We selectively consider strategic acquisitions of management agreements of additional mutual funds. Through our acquisition strategy, we have added over $1.06 billion of net assets to our family of mutual
funds over a period of approximately ten years. We believe there are a number of attractive acquisition opportunities from smaller mutual fund managers who are reaching retirement age or whose investment strategy does not lend itself to the
economies of scale inherent in our strictly quantitative approach. We have been able to offer lower overall expense ratios to the shareholders of acquired funds. We have also been able to improve performance in some instances. The addition of our
Hennessy Select Series of Funds has expanded the pool of possible acquisition candidates to now include actively managed funds wishing to retain their manager in a sub-advisory role.

-Delivering strong, high quality financial results.

We seek to manage our investment management business to the highest regulatory, ethical and business standards while strenuously controlling costs, maintaining a relatively small staff, and creating high
margins for our shareholders.

Marketing

We generate all of our operating revenues by providing management and shareholder services to our mutual funds. The revenues that we receive from the mutual funds are based on the amount of average daily
net assets in the funds and thus, we can increase our revenues by growing the amount of net assets in the funds. One of the best ways we can grow the assets of the mutual funds is by delivering strong investment performance, which we believe should:



| |  |  | result in an increase in the value of existing assets in the funds;
| | - |  | -------------------------------------------------------------------



| |  |  | encourage more investors to buy shares of our mutual funds and decrease the number of investors who redeem their shares and leave our mutual funds; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | motivate current investors to invest additional money in our mutual funds.
| | - |  | --------------------------------------------------------------------------

We have developed an aggressive public relations outreach program to target audiences we would otherwise be unable to address. Our public
relations outreach program has resulted in the Hennessy Funds being mentioned in national print and broadcast media an average of once every two to three days in such vehicles as CNBC, Fox News, The Wall Street Journal, The New York Times, Smart
Money, Barrons, and Investors Business Daily. To facilitate our presence in the media, we installed LiveStudio, an in-house studio providing a direct link to media broadcasts. Along with our primary spokesperson, Neil J. Hennessy, our CIO and
Portfolio Manager, we now utilize Frank Ingarra, Jr., our Co-Portfolio Manager, in a spokesperson role. Mr. Ingarra has enabled us to further expand our public relations program.

We also send quarterly information mailings, fund performance updates, news articles pertaining to the funds and commentaries from Neil
J. Hennessy to clients and prospective clients, and we exhibit at select investment advisor trade shows throughout the year. Additionally, we attend strategic industry-related conferences.

Acquisition Strategy and Market Opportunity

We believe that we are well
positioned to experience organic growth, and possibly growth by acquisition, in the future. Our scalable business model allows us to increase our profit margins as assets under management grow, since we do not necessarily need to add personnel
proportional to the increase in assets under management.



10



---

##### Table of Contents

Together with organic growth, our growth strategy revolves around the acquisition of
management agreements. We believe the regulatory burden imposed upon the mutual fund industry has compressed the margins of smaller mutual fund managers, making those managers more receptive to an acquisition. We believe that we are well positioned
to benefit from these attractive acquisition trends and from the increasing supply of potential targets.

Investment Strategy

Hennessy Cornerstone Series of Funds:

Each of the Hennessy Cornerstone Series of Funds employs a consistent and repeatable investment process, combining time-tested, purely quantitative stock selection formulas with a highly disciplined,
team-managed approach. Our stock selection formulas have been tested over historical periods for hypothetical performance results, and we adhere to our proven formulas in all types of market conditions. A brief description of each of the Cornerstone
Funds objectives and investment formulas follows:

-Hennessy Cornerstone Growth Fund (original class symbol HFCGX and
institutional class symbol HICGX). The Hennessy Cornerstone Growth Fund seeks long-term growth of capital. While it has historically selected small cap companies, the formula may select mid and large cap companies. This fund screens a universe
of stocks with a market capitalization of more than $175 million, a price-to-sales ratio of less than 1.5, higher annual earnings than in the previous year and stock price appreciation, or positive relative strength, over the prior three- and
six-month periods. The fund then invests in the 50 stocks with the highest one-year price appreciation.

-Hennessy Cornerstone
Growth Fund, Series II (original class symbol HENLX and institutional class symbol HINLX). The Hennessy Cornerstone Growth Fund, Series II seeks long-term capital appreciation. This fund utilizes the same investment formula as the Hennessy
Cornerstone Growth Fund but rebalances its portfolio at a different time of the year, in an effort to create as different a portfolio of stocks as possible.

-Hennessy Focus 30 Fund (original class symbol HFTFX and institutional class symbol HIFTX). The Hennessy Focus 30 Fund seeks long-term growth of capital by investing in mid-cap, growth-oriented
companies. This fund screens a universe of stocks with a market capitalization of between $1 to $10 billion, excluding American Depository Receipts (ADRs), a price-to-sales ratio of less than 1.5, higher annual earnings than in the previous year and
positive stock price appreciation over a three- and six-month periods. The fund then invests in the 30 stocks with the highest one-year price appreciation.

-Hennessy Cornerstone Large Growth Fund (original class symbol HFGLX and institutional class symbol HIGLX). The Hennessy Cornerstone Large Growth Fund invests in growth-oriented common stocks of
larger companies by utilizing a highly disciplined, purely quantitative formula. This fund screens a universe of stocks, excluding ADRs, with a market capitalization that exceeds the average of the database, a price-to-cash flow ratio less than the
median of the database (this value criterion helps to uncover relative bargains among large companies), and positive total capital. The fund then invests in the 50 stocks with the highest one-year return on total capital.

-Hennessy Cornerstone Value Fund (original class symbol HFCVX and institutional class symbol HICVX). The Hennessy Cornerstone Value
Fund seeks total return, consisting of capital appreciation and current income, by investing in large, dividend-paying companies. This fund screens a universe of stocks with above average market capitalization, shares outstanding and cash flow, and
12-month sales that are at least 50% higher than average. The fund then invests in the 50 stocks with the highest dividend yield, which is calculated as the annual dividends paid by a company divided by the per share price of its stock.

-Hennessy Total Return Fund (original class symbol HDOGX). The Hennessy Total Return Fund seeks total return, consisting of capital
appreciation and current income, by investing approximately 75% of its assets in the 10 highest dividend-yielding common stocks of the Dow Jones Industrial Average (commonly referred to as the Dogs of the Dow) and the remaining 25% in
U.S. Treasury securities with a maturity of less than one year.



11



---

##### Table of Contents

-Hennessy Balanced Fund (original class symbol HBFBX). The Hennessy Balanced Fund seeks
a combination of capital appreciation and current income by investing approximately 50% of its assets in the Dogs of the Dow stocks and approximately 50% in U.S. Treasury securities with a maturity of less than one year.

Hennessy Select Series of Funds:

The Hennessy Select Series of Funds, launched with the acquisition of the Hennessy Select Large Value Fund in March 2009, are actively
managed and each employs a seasoned sub-advisor. This newer series of funds allows us to expand our product offering and to showcase the talents of what we believe are excellent, yet undiscovered asset managers. We have sought out highly qualified
category experts to oversee the day to day portfolio management of each of the Hennessy Select Series of Funds. A brief description of the objective and investment strategy of each Select Fund is set forth below:

-Hennessy Select Large Value Fund (original class symbol HSVFX and institutional class symbol HSVIX). The Hennessy Select Large
Value Fund seeks long-term growth of capital and current income by purchasing larger capitalization companies that are out of favor and undervalued. The fund invests in stocks which its portfolio managers consider to be undervalued based on
earnings, dividends and/or assets, or on other widely recognized stock value measurements. Further, the portfolio managers believe that these companies have sound businesses with good future potential based on their fundamental characteristics.

-Hennessy Select SPARX Japan Fund (original class symbol SPXJX and institutional class symbol SPARX). The Hennessy
Select SPARX Japan Fund seeks long-term capital appreciation by investing at least 80% of its net assets in equity securities of Japanese companies. The Fund invests in companies regardless of market capitalization, and portfolio construction is
unconfined to benchmarks or tracking error. The fund invests in stocks which its portfolio managers believe to be good businesses with exceptional management and which are trading at an attractive price. Individual stock selection is based on
rigorous, on-site research and focuses on factors such as market growth potential, management quality, earnings quality and balance sheet strength. The Fund seeks arbitrage opportunities between a companys fundamental value and its market
price. The portfolio selects just the managers best ideas and has a concentrated number of holdings.

- Hennessy Select
SPARX Japan Smaller Companies Fund (original class symbol SPJSX). The Hennessy Select SPARX Japan Smaller Companies Fund seeks long-term capital appreciation. The Fund normally invests at least 80% of its net assets in equity securities of
smaller Japanese companies, defined as those with market capitalization of approximately $200 million to $1.5 billion at time of purchase. The Funds portfolio construction is unconfined to benchmarks or tracking error. The investment strategy
mirrors the Hennessy Select SPARX Japan Fund, but it operates within the market capitalizations discussed above.

Historical Fund Investment
Performance

The following table presents the average annualized returns for each of our mutual funds and the relevant
benchmark indices for the one-year, three-year, five-year, ten-year and since inception periods ended September 30, 2010.

Although we did not begin managing the Hennessy Cornerstone Growth Fund and the Hennessy Cornerstone Value Fund until June 2000, we have
included historical performance information for these funds from their inception date of November 1, 1996 because the previous investment manager to these funds managed the funds using the same strategies that we still use today.

Although we did not begin managing the Hennessy Select Large Value Fund until March 2009, and we did not begin managing the Hennessy
Select SPARX Japan Fund and the Hennessy Select SPARX Japan Smaller Companies Fund until September 2009, we have included historical performance information for these funds from their inception dates because the previous investment managers have
remained in a sub-advisory role and continue to adhere to the same investment strategies.



12



---

##### Table of Contents

The performance shown for the period 4/20/04 to 3/20/09 for the Hennessy Select Large Value
Fund reflects performance for the Tamarack Value Fund, the predecessor to the Hennessy Select Large Value Fund, and the performance shown for the period 9/30/84 to 4/19/04 reflects performance for the Babson Value Fund, the predecessor to the
Tamarack Value Fund.

Returns are presented net of all expenses borne by mutual fund shareholders, but are not net of fees
waived or expenses borne by us. The past investment performance of our mutual funds is no guarantee of future performance and all of these mutual funds have experienced negative performance over various time periods in the past and may do so again
in the future.

Hennessy Funds Performance as of September 30, 2010:



|                                            |  |        |       |   |         |  |        |         |  |  |          |   |  |                           |       |   |  |  |       |  
|------------------------------------------- |  | ------ | ----- | - | ------- |  | ------ | ------- |  |  | -------- | - |  | ------------------------- | ----- | - |  |  | ----- | -
|Hennessy Cornerstone Growth Fund            |  | 1 Year |       |   | 3 Years |  |        | 5 Years |  |  | 10 Years |   |  | Since Inception(11/01/96) |      
|                                            |  |        |       |   |        
|Institutional Class Share - HICGX           |  |        | 10.03 | % |         |  | -15.54 | %       |  |  | -7.26    | % |  |                           | 2.27  | % |  |  | 7.83  | %
|Original Class Share - HFCGX                |  |        | 9.52  | % |         |  | -15.83 | %       |  |  | -7.53    | % |  |                           | 2.01  | % |  |  | 7.55  | %
|Russell 2000 Index (2)(3)                   |  |        | 13.35 | % |         |  | -4.29  | %       |  |  | 1.60     | % |  |                           | 4.00  | % |  |  | 6.45  | %
|S&P 500 Index(1)(2)                         |  |        | 10.16 | % |         |  | -7.16  | %       |  |  | 0.64     | % |  |                           | -0.43 | % |  |  | 5.37  | %
|                                            |  |        |       |   |        
|Hennessy Cornerstone Growth Fund, Series II |  | 1 Year |       |   | 3 Years |  |        | 5 Years |  |  | 10 Years |   |  | Since Inception(07/01/05) |      
|                                            |  |        |       |   |        
|Institutional Class Share - HINLX           |  |        | 13.35 | % |         |  | 16.56  | %       |  |  | -7.85    | % |  |                           | N/A   |   |  |  | -7.52 | %
|Original Class Share - HENLX                |  |        | 12.64 | % |         |  | -17.06 | %       |  |  | -8.28    | % |  |                           | N/A   |   |  |  | -7.94 | %
|Russell 2000 Growth (2)(3)                  |  |        | 14.79 | % |         |  | -3.75  | %       |  |  | 2.35     | % |  |                           | N/A   |   |  |  | 3.35  | %
|S&P 500 Index (1)(2)                        |  |        | 10.16 | % |         |  | -7.16  | %       |  |  | 0.64     | % |  |                           | N/A   |   |  |  | 1.23  | %
|                                            |  |        |       |   |        
|Hennessy Focus 30 Fund                      |  | 1 Year |       |   | 3 Years |  |        | 5 Years |  |  | 10 Years |   |  | Since Inception(09/17/03) |      
|                                            |  |        |       |   |        
|Institutional Class Share - HIFTX           |  |        | 19.27 | % |         |  | -3.77  | %       |  |  | 2.64     | % |  |                           | N/A   |   |  |  | 9.07  | %
|Original Class Share - HFTFX                |  |        | 18.82 | % |         |  | -4.10  | %       |  |  | 2.32     | % |  |                           | N/A   |   |  |  | 8.70  | %
|S&P 400 Mid cap Index (2)(6)                |  |        | 17.78 | % |         |  | -1.67  | %       |  |  | 3.77     | % |  |                           | N/A   |   |  |  | 7.66  | %
|S&P 500 Index (1)(2)                        |  |        | 10.16 | % |         |  | -7.16  | %       |  |  | 0.64     | % |  |                           | N/A   |   |  |  | 3.59  | %
|                                            |  |        |       |   |        
|Hennessy Cornerstone Value Fund             |  | 1 Year |       |   | 3 Years |  |        | 5 Years |  |  | 10 Years |   |  | Since Inception(11/01/96) |      
|                                            |  |        |       |   |        
|Institutional Class Share - HICVX           |  |        | 12.81 | % |         |  | -6.27  | %       |  |  | 1.62     | % |  |                           | 4.55  | % |  |  | 5.45  | %
|Original Class Share - HFCVX                |  |        | 12.50 | % |         |  | -6.51  | %       |  |  | 1.39     | % |  |                           | 4.21  | % |  |  | 5.01  | %
|Russell 1000 Value (2)(4)                   |  |        | 8.90  | % |         |  | -9.39  | %       |  |  | -0.48    | % |  |                           | 2.59  | % |  |  | 6.40  | %
|S&P 500 Index (1)(2)                        |  |        | 10.16 | % |         |  | -7.16  | %       |  |  | 0.64     | % |  |                           | -0.43 | % |  |  | 5.37  | %
|                                            |  |        |       |   |        
|Hennessy Cornerstone Large Growth Fund      |  | 1 Year |       |   | 3 Years |  |        | 5 Years |  |  | 10 Years |   |  | Since Inception(3/20/09)  |      
|                                            |  |        |       |   |        
|Institutional Class Share - HILGX           |  |        | 18.89 | % |         |  | N/A    |         |  |  | N/A      |   |  |                           | N/A   |   |  |  | 41.28 | %
|Original Class Share - HFLGX                |  |        | 18.38 | % |         |  | N/A    |         |  |  | N/A      |   |  |                           | N/A   |   |  |  | 40.79 | %
|Russell 1000 Index (2)(4)                   |  |        | 10.75 | % |         |  | N/A    |         |  |  | N/A      |   |  |                           | N/A   |   |  |  | 33.48 | %
|S&P 500 ndex (1)(2)                         |  |        | 10.16 | % |         |  | N/A    |         |  |  | N/A      |   |  |                           | N/A   |   |  |  | 32.20 | %



13



---

##### Table of Contents



|                                                   |  |        |       |   |         |  |       |         |  |  |          |   |  |                           |       |   |  |  |       |  
|-------------------------------------------------- |  | ------ | ----- | - | ------- |  | ----- | ------- |  |  | -------- | - |  | ------------------------- | ----- | - |  |  | ----- | -
|Hennessy Select Large Value Fund                   |  | 1 Year |       |   | 3 Years |  |       | 5 Years |  |  | 10 Years |   |  | Since Inception(9/30/84)  |      
|                                                   |  |        |       |   |        
|Institutional Class Share - HSVIX                  |  |        | 4.29  | % |         |  | -9.45 | %       |  |  | -1.52    | % |  |                           | 1.99  | % |  |  | 9.37  | %
|Original Class Share - HSVFX                       |  |        | 3.86  | % |         |  | -9.64 | %       |  |  | -1.67    | % |  |                           | 1.92  | % |  |  | 9.34  | %
|Russell 1000 Value (2)(4)                          |  |        | 8.90  | % |         |  | -9.39 | %       |  |  | -0.48    | % |  |                           | 2.59  | % |  |  | 10.75 | %
|S&P 500 Index (1)(2)                               |  |        | 10.16 | % |         |  | -7.16 | %       |  |  | 0.64     | % |  |                           | -0.43 | % |  |  | 10.35 | %
|                                                   |  |        |       |   |        
|Hennessy Select SPARX Japan Fund                   |  | 1 Year |       |   | 3 Years |  |       | 5 Years |  |  | 10 Years |   |  | Since Inception(10/31/03) |      
|                                                   |  |        |       |   |        
|Institutional Class Share - SPARX                  |  |        | 4.47  | % |         |  | -8.64 | %       |  |  | -5.09    | % |  |                           | N/A   |   |  |  | 4.75  | %
|Original Class Share - SPXJX                       |  |        | 4.41  | % |         |  | -8.65 | %       |  |  | -5.17    | % |  |                           | N/A   |   |  |  | 4.65  | %
|MSCI Japan Index (2)(7)                            |  |        | 0.25  | % |         |  | -9.95 | %       |  |  | -2.38    | % |  |                           | N/A   |   |  |  | 2.63  | %
|TOPIX (2)(8)                                       |  |        | -0.34 | % |         |  | -9.31 | %       |  |  | -2.95    | % |  |                           | N/A   |   |  |  | 2.05  | %
|                                                   |  |        |       |   |        
|Hennessy Select SPARX Japan Smaller Companies Fund |  | 1 Year |       |   | 3 Years |  |       | 5 Years |  |  | 10 Years |   |  | Since Inception(8/31/07)  |      
|                                                   |  |        |       |   |        
|Original Class Share - SPJSX                       |  |        | -2.10 | % |         |  | -0.94 | %       |  |  | N/A      |   |  |                           | N/A   |   |  |  | -0.27 | %
|MSCI Japan Small Cap Index (2)(9)                  |  |        | -1.64 | % |         |  | -5.76 | %       |  |  | N/A      |   |  |                           | N/A   |   |  |  | -5.79 | %
|TOPIX (2)(8)                                       |  |        | -0.34 | % |         |  | -9.31 | %       |  |  | N/A      |   |  |                           | N/A   |   |  |  | -8.52 | %
|                                                   |  |        |       |   |        
|Hennessy Total Return Fund                         |  | 1 Year |       |   | 3 Years |  |       | 5 Years |  |  | 10 Years |   |  | Since Inception(07/29/98) |      
|                                                   |  |        |       |   |        
|Original Class Share - HDOGX                       |  |        | 15.31 | % |         |  | -6.33 | %       |  |  | 1.94     | % |  |                           | 3.34  | % |  |  | 2.45  | %
|Dow Jones Industrial Average (2)(5)                |  |        | 14.12 | % |         |  | -5.38 | %       |  |  | 3.13     | % |  |                           | 2.51  | % |  |  | 3.87  | %
|S&P 500 Index (1)(2)                               |  |        | 10.16 | % |         |  | -7.16 | %       |  |  | 0.64     | % |  |                           | -0.43 | % |  |  | 1.90  | %
|                                                   |  |        |       |   |        
|Hennessy Balanced Fund                             |  | 1 Year |       |   | 3 Years |  |       | 5 Years |  |  | 10 Years |   |  | Since Inception(03/08/96) |      
|                                                   |  |        |       |   |        
|Original Class Share - HBFBX                       |  |        | 8.23  | % |         |  | -2.89 | %       |  |  | 2.57     | % |  |                           | 2.52  | % |  |  | 3.71  | %
|Dow Jones Industrial Average (2)(5)                |  |        | 14.12 | % |         |  | -5.38 | %       |  |  | 3.13     | % |  |                           | 2.51  | % |  |  | 7.06  | %
|S&P 500 Index (1)(2)                               |  |        | 10.16 | % |         |  | -7.16 | %       |  |  | 0.64     | % |  |                           | -0.43 | % |  |  | 5.99  | %



|(1) | The S&P 500 is the Standard & Poors Composite Index of 500 stocks, a widely recognized index of U.S. stocks.
|--- | -------------------------------------------------------------------------------------------------------------

|(2) | Reflects no deduction for fees or expenses.
|--- | -------------------------------------------

|(3) | The Russell 2000 Index is a recognized small-cap index of the 2,000 smallest stocks of the Russell 3000 Index, which is comprised of the 3,000 largest U.S. stocks as
determined by total market capitalization.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | The Russell 1000 Value Index is a recognized large-cap index of U.S. stocks.
|--- | ----------------------------------------------------------------------------

|(5) | The Dow Jones Industrial Average is an index of common stocks comprised of major industrial companies and assumes reinvestment of dividends.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------

|(6) | The S&P Mid-cap 400 Index is a recognized mid-cap index of U.S. stocks.
|--- | -----------------------------------------------------------------------

|(7) | The MSCI Japan Index is a market capitalization-weighted index of Japanese equities.
|--- | ------------------------------------------------------------------------------------

|(8) | The Tokyo Stock Price Index (TOPIX) is a market capitalization-weighted index of all companies listed on the First Section of the Tokyo Stock Exchange.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) | The MSCI Japan Small Cap Index represents the universe of small capitalization companies in the Japanese equity markets.
|--- | ------------------------------------------------------------------------------------------------------------------------



14



---

##### Table of Contents

Development of New Investment Strategies and Expanding Our Product Offerings

We begin developing new investment strategies or expanding 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 gain the new strategy: (a) by screening the appropriate universe of stocks
with a set of parameters that we believe identify stocks that will produce higher long-term returns with lower associated risk than their relative indices and introducing the new investment strategies into the marketplace by opening and directly
marketing a new mutual fund, (b) by acquiring the management agreement for an existing mutual fund and implementing our new strategy, or (c) by acquiring the management agreement for an existing fund and utilizing strategic sub-advisors to
expand our product offering.

Competition

We face substantial competition in the investment management industry. The investment management industry is characterized by a relatively low cost of entry and by the formation of new investment
management entities that may compete directly with us. We compete directly with a large number of global and U.S. investment advisors, commercial banks, brokerage firms, broker-dealers, insurance companies and other financial institutions. These
institutions range from small boutique firms to large financial services complexes. We compete on a wide variety of factors, including:



| |  |  | investment performance of our mutual funds;
| | - |  | -------------------------------------------



| |  |  | expense ratio of our mutual funds;
| | - |  | ----------------------------------



| |  |  | product offerings;
| | - |  | ------------------



| |  |  | quality of service;
| | - |  | -------------------



| |  |  | brand recognition; and
| | - |  | ----------------------



| |  |  | business reputation.
| | - |  | --------------------



15



---

##### Table of Contents

We are considered a small investment management firm. Many competing firms are part of
larger financial services companies and have greater marketing, financial, technical, research and other capabilities. Most larger firms offer a broader range of financial services than we do and compete with us for retail and institutional clients.
Nonetheless, we have learned to compete successfully with these firms by creating unique investment strategies and by branding our investment style through public relations and outstanding customer service.

Our mutual funds also face competition, primarily from nationally and regionally distributed funds that offer equivalent financial
products with returns equal to or greater than those we offer. The competition for new investors is intense, but we feel that by increasing our mutual funds distribution channels and continuing to brand our investment style and the competency
of our sub-advisors, we can capture portions of the available investment business.

Regulation

Virtually all aspects of our business are subject to federal and state laws and regulations. These laws and regulations are intended to
protect shareholders of registered investment companies and clients of registered investment advisors. We believe that we are in compliance in all material respects with all laws and regulations.

We are registered as an investment advisor with the SEC. As a registered investment advisor, we must comply with the requirements of the
Investment Advisors Act of 1940 and related SEC regulations. Such requirements relate to, among other things, fiduciary duties to clients, engaging in transactions with clients, maintaining an effective compliance program, solicitation arrangements,
conflicts of interest, advertising, limitations on agency cross and principal transactions between an advisor and advisory clients, recordkeeping and reporting requirements, disclosure requirements and general anti-fraud provisions. Our mutual funds
are registered with the SEC under the Investment Company Act of 1940. The Investment Company Act of 1940 imposes additional obligations on both the funds and the advisor, including detailed operational requirements. The SEC is authorized to
institute proceedings and impose sanctions for violations of the Investment Advisors Act and Investment Company Act, ranging from fines and censures to termination of an investment advisors registration. Our failure to comply with the SEC
requirements could have a material adverse effect on us. We believe we are in compliance with SEC requirements.

In response
to the 2001 to 2004 scandals in the financial services industry regarding late trading, market timing and the selective disclosure of portfolio information, the U.S. Congress and the various regulatory agencies that supervise our operations adopted
various legislative and regulatory proposals. The SEC, other regulators and Congress continue to investigate certain practices in our industry. In addition, we are subject to periodic examination by the SEC under SEC rules and regulations. The most
recent SEC examination occurred in August, 2007 for the period of January 1, 2005 to June 30, 2007. The findings of the examination were minor in nature and had no effect on our financial statements.

At the end of 2003, the SEC adopted rules requiring investment advisors and investment companies to adopt written compliance programs
designed to prevent violations of the federal securities laws. These compliance programs must be reviewed annually for adequacy and effectiveness. Investment advisors and investment companies must also designate a chief compliance officer to
implement the compliance policies and procedures and to report directly to the funds board of directors or trustees.

Over the past several years, Congress has occasionally advanced the ideas of eliminating asset-based distribution fees or Rule 12b-1 fees
for open-end mutual funds. The changes could prohibit revenue sharing, which allows a mutual fund company to pay for shelf space at brokerage firms or other intermediaries selling mutual fund shares. Although such reforms have been
advanced, they have not been adopted. Should adoption occur, it may become more expensive for us to distribute and manage our mutual funds.



16



---

##### Table of Contents

Because many regulations are subject to varying interpretations, our firms compliance
with these regulations subjects it to a number of risks. Regulators make periodic examinations and review annual, monthly and other reports on our operations, track record and financial condition. In the event that we violate or fail to comply with
an applicable law or regulation, governmental regulators may institute administrative or judicial proceedings against us that could result in censures, fines, compensation orders, civil penalties, criminal penalties, the issuance of cease-and-desist
orders, the deregistration or suspension of our firm, the suspension or disqualification of our officers or employees and other adverse consequences. We have not experienced any such penalties to date. Such violations or non-compliance could also
subject us and/or our employees to civil actions by private persons.

EMPLOYEES

As of September 30, 2010, Hennessy Advisors, Inc. employed eleven full-time employees.

The executive officers of the company are Neil J. Hennessy, President, Chairman of the Board, Chief Executive Officer, and Chief
Investment Officer; Teresa M. Nilsen, Executive Vice President, Chief Operating Officer, Chief Financial Officer, Secretary and a Director of Hennessy Advisors; and Daniel B. Steadman, Executive Vice President in charge of expansion, Chief
Compliance Officer and a Director of Hennessy Advisors. In addition to our executive officers responsibilities at Hennessy Advisors, Inc., Mr. Hennessy serves as President, Portfolio Manager of the Hennessy Funds and a member of the board
of directors and board of trustees of the Hennessy Funds, Ms. Nilsen is an Executive Vice President and Treasurer of the Hennessy Funds and Mr. Steadman is an Executive Vice President and Secretary of the Hennessy Funds.

Other employees of Hennessy Advisors include: Frank Ingarra, Jr., Co-Portfolio Manager; Tania Kelley, Marketing Director; Brian Peery,
Director of Research; Kathryn Fahy, Controller; Ana Miner, Operations Specialist; Joseph Fahy, Chief Compliance Officer of Hennessy Funds; Michelle Hennessy, Sales Associate; and Lauren Puliafico, Receptionist.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

Risks relating to our
business

-Our revenues decline when the value of the securities held by the mutual funds we manage declines.

We derive all of our operating revenues from management fees and shareholder servicing fees paid to us by the mutual funds we manage.
These fees are calculated as a percentage of the average daily net assets of our mutual funds and vary from fund to fund. The securities markets are inherently volatile and may be affected by factors beyond our control, including global economic
conditions, interest rate fluctuations, inflation rate increases and other factors, such as the sub-prime lending crisis, that are difficult to predict. Volatility in the securities markets, and the equity markets in particular, has reduced the net
assets of our mutual funds and consequently reduced our revenues, and could continue to do so in the future. In addition to declines in the equity markets, failure of these markets to sustain prior levels of growth or continued short-term volatility
in these markets has resulted in investors withdrawing their investments from our mutual funds and decreasing their rate of investment, both of which have adversely affected our revenues. This risk is further discussed and quantified in Item 7A
in this Annual Report on Form 10-K.

-Investors in our mutual funds can redeem their investments in our funds at any time and
for any reason, including poor investment performance. This adversely affects our revenues.



17



---

##### Table of Contents

Fund investors may redeem their investments in any of our mutual funds at any time and for
any reason without prior notice. Investors may also reduce the total amount of assets that they have invested with us for a number of reasons, including our investment performance, changes in prevailing interest rates and financial market
performance. Success in the investment management and mutual fund business is dependent on investment performance, as well as distribution and client servicing. If our mutual funds perform poorly compared to the mutual funds of other investment
management firms, we may experience a decrease in purchases of shares of our mutual funds and an increase in redemptions of shares of our mutual funds. A decrease in the net assets of our mutual funds adversely affects our revenues.

-Adverse opinions of our mutual funds by third party rating agencies or industry analysts could decrease new investments in or accelerate
redemptions from our mutual funds, which adversely affects our revenues.

Many investors rely heavily on the opinions of third
party rating agencies and industry analysts when making decisions to purchase or redeem shares of mutual funds. Adverse opinions regarding our mutual funds could erode investor confidence, potentially leading to a decrease in new investments and an
increase in redemptions, thereby reducing the net assets of our mutual funds. A decrease in the net assets of our mutual funds adversely affects our revenues.

-Investor behavior is influenced by short-term investment performance of mutual funds.

Investor behavior may be based on many factors, including short-term investment performance. Poor short-term performance of our mutual funds, irrespective of longer-term success, could potentially lead to
a decrease in new investments and an increase in redemptions, thereby reducing the net assets of our mutual funds. A decrease in the net assets of our mutual funds adversely affects our revenues.

-For our Hennessy Cornerstone Series of Funds, we utilize quantitative investment strategies that require us to invest in specific
portfolios of securities and hold these positions for a specified period of time.

Our Hennessy Cornerstone Series of Funds
adhere to the investment strategies for each of our mutual funds during the annual rebalancing period and throughout the course of the year. Adhering to our investment strategies during the annual rebalancing of our mutual funds may result in the
elimination of better performing assets from our funds portfolios and an increase in investments with relatively lower total return. Additionally, we will maintain a position in a relatively poorly performing security throughout the course of
the portfolio holding period. Either of these actions could result in relatively lower performance of our mutual funds and adversely affect the net assets of our mutual funds. A decrease in the net assets of our mutual funds adversely affects our
revenues.

-The Hennessy Select SPARX Japan Fund and the Hennessy Select SPARX Japan Smaller Companies Fund invest in the
Japanese stock market in Yen. Since the assets are held in U.S. dollars, there is currency risk.

The Hennessy Select SPARX
Japan Fund and the Hennessy Select SPARX Japan Smaller Companies Fund are invested in Japanese securities and are sub-advised by the Tokyo-based (but U.S. registered) SPARX Asset Management Co., Ltd. The value of these funds fluctuates with changes
in the value of the Japanese Yen versus the U.S. dollar. Furthermore, any changes in the political climate of Japan may have an effect on the value of the stocks in these funds.

-We depend upon key personnel to manage our business. Their loss would adversely affect our business and financial condition.

Our success is largely dependent on the skills, experience and performance of key personnel, including Neil J. Hennessy, our Chairman of
the Board, Chief Executive Officer, Portfolio Manager and President; Teresa M. Nilsen, our Executive Vice President, Chief Operating Officer, Chief Financial Officer and Secretary; and Daniel B. Steadman, our Executive Vice President in charge of
expansion and Chief Compliance Officer. The loss of such individuals or other key personnel could have an adverse effect on our business, financial condition and results of operations. Moreover, in order to retain certain key personnel, we may be
required to increase compensation to such individuals, resulting in additional expense.



18



---

##### Table of Contents

-Our business is extensively regulated and our failure to comply with regulatory
requirements may harm our financial condition.

Our business is subject to extensive regulation in the United States,
particularly by the SEC. Our failure to comply with applicable laws or regulations could result in fines, suspensions of personnel or other sanctions, including revocation of our registration as an investment advisor. The mutual fund industry has
undergone increased scrutiny by the SEC and state regulators for the past several years, resulting in numerous enforcement actions, sweep examinations, and new rules and rule proposals. These actions have increased our costs in managing
our mutual funds, and we could continue to experience higher costs if new rules and other regulatory actions or legislation require us to spend more time, hire additional personnel or buy new technology to comply with these rules and laws.
Additional changes in laws or regulations, the interpretation or enforcement of existing laws and rules or governmental policies could also have a material adverse effect on us by limiting the sources of our revenues and increasing our costs. Our
business may be materially affected not only by securities regulations, but also by regulations of general application. For example, the amount of net assets in our mutual funds in a given time period could be affected by, among other things,
existing and proposed tax legislation and other governmental regulations and policies, including the interest rate policies of the Federal Reserve Board.

Our management activities are also subject to contractual commitments and our mutual fund business involves compliance with numerous investment, asset valuation, distribution and tax requirements. Failure
to adhere to these requirements could result in losses that a client could recover from us. We have installed procedures and utilize the services of experienced administrators, accountants and lawyers to assist in satisfying these requirements.
However, there can be no assurance that these precautions will protect us from potential liabilities.

-The costs of full
compliance with new securities regulations may increase expenses and reduce earnings.

In order to comply with securities
regulations, we may have additional expenses beyond our control, which may have a substantial impact on earnings per share. In October 2004, we hired a chief compliance officer as required by Rule 206(4)-7 of the Investment Advisors Act of 1940.

In addition to requiring the hiring of a chief compliance officer, Rule 206(4)-7 of the Investment Advisors Act of 1940
required that we adopt written compliance policies and procedures. Under Rule 38a-1 of the Investment Company Act of 1940, our mutual funds were also required to adopt written compliance policies and procedures, including policies and procedures
that provide for oversight of the funds key service providers, including us. We may experience increases in audit, legal, internal technology and other expenses associated with the regulations of the Sarbanes-Oxley Act of 2002, especially as
they relate to internal controls and compliance with financial reporting.

-Management contracts acquired by the Company are
currently classified as an indefinite life asset subject to impairment analysis. The impairment analysis is based on subjective criteria, and an impairment loss could be recorded.

The management contracts acquired by the Company, currently a $22.3 million asset on the balance sheet, are considered an intangible
asset with an indefinite useful life. Management reviews the classification of the asset as indefinite life each reporting period. If the contracts become an asset with a definite life, the Company would begin amortizing the contracts
over the remaining useful life of the contracts. If the contracts are determined to remain an indefinite life asset, the Company reviews the carrying value of management contracts acquired to determine if any impairment has occurred. The analysis is
based on anticipated future cash flows, which are calculated based on assets under management. Although the contracts are not currently impaired, there is always a possibility of impairment in the future, which could require the Company to write-off
all or a portion of the contracts. A write-off, depending on the amount, could have a significant impact on earnings per share.



19



---

##### Table of Contents

-Acquisitions involve inherent risks that could adversely affect our operating results and
financial condition as well as dilute the holdings of current shareholders.

As part of our business strategy, we intend to
pursue additional acquisitions of management agreements for other mutual funds. Future acquisitions of management agreements would be accompanied by risks including, among others:



| |  |  | inability to secure enough affirmative votes to gain approval from the target funds shareholders of a proposed acquisition;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | the loss of mutual fund assets through redemptions by shareholders of newly acquired mutual funds;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | higher than anticipated acquisition expenses;
| | - |  | ---------------------------------------------



| |  |  | the potential diversion of our managements time and attention; and
| | - |  | -------------------------------------------------------------------



| |  |  | dilution to our shareholders if the acquisition is made with our common stock.
| | - |  | ------------------------------------------------------------------------------

If one or more of these risks occur, we may be unable to successfully complete an acquisition of a management agreement, we may
experience an impairment of management agreement valuations and we may not achieve the expected return on investment. Any of these results could have an adverse effect on our business, financial condition and results of operations.

-Our management and shareholder servicing agreements can be terminated on short notice and are subject to annual renewals.

We generate all of our operating revenues from the management and shareholder servicing agreements covering our mutual funds. Management
and shareholder servicing agreements covering our mutual funds are terminable without penalty on 60 days notice and must be approved at least annually by a majority of each funds board of directors or trustees and a majority of the
disinterested members of each funds board of directors or trustees. If any of these management or shareholder servicing agreements are terminated or not renewed, our revenues would substantially decline.

-We face intense competition in attracting investors and retaining net assets in our mutual funds.

The investment management business is intensely competitive. We are considered a small investment management company, but must compete
with a large number of global and U.S. investment advisors, commercial banks, brokerage firms, broker-dealers, insurance companies and other financial institutions for investors in our mutual funds. Many organizations are attempting to market to and
service the same investors as we do, not only with mutual fund products and services, but also with a wide range of other financial products and services. Many of our competitors have greater marketing, financial, technical, research, distribution
and other capabilities than we do and offer more product lines and services. These competitors would tend to have a substantial advantage over us during periods when our investment performance is not strong enough to counter these competitors
greater resources or due to a wide variety of other factors, such as the expense ratios of our mutual funds or our small number of mutual funds. If we are not able to attract investors and retain net assets in our mutual funds, our revenues could
decline and our business, financial condition and results of operations would suffer.

-Assets invested through mutual fund
supermarkets have a higher risk of redemption due to more accessibility to alternative investment options.



20



---

##### Table of Contents

The mutual fund assets held through mutual fund supermarkets, as opposed to assets directly
invested in our mutual funds, can be more easily moved to investments in funds outside of our fund family. Mutual fund supermarkets are attractive to investors because of the ease of accessibility to a variety of funds, but this causes the
investments to be more sensitive to fluctuations in performance, especially in the short-term. If we are not able to retain the investor assets held through mutual fund supermarkets, it will cause decreased net assets in our mutual funds; as a
result, our revenues could decline and our business, financial condition and results of operations would suffer.

-Market
pressure to lower our management fees could reduce our profit margin.

To the extent we are forced to compete on the basis of
the management fees we charge our mutual funds, we may not be able to maintain our current fee structure. Historically, we have competed primarily on the performance of our mutual funds and not on the level of our management fees relative to those
of our competitors. In recent years, however, there has been a trend toward lower fees in some segments of the investment management industry. In order for us to maintain our fee structure in a competitive environment, we must be able to provide our
mutual fund shareholders with investment returns and service that will encourage them to invest in the mutual funds that pay our fees. We cannot be assured that we will succeed in providing investment returns that will allow us to maintain our
current fee structure. Fee reductions on existing or future business could have a material adverse effect on our results of operations.

-We may be required to forego all or a portion of our fees under our management agreements covering our mutual funds.

The board of directors or trustees of each of our mutual funds must make certain findings regarding the reasonableness of our fees. We monitor ratios of expenses to average daily net assets and waive
management fees that we would otherwise receive from, or reimburse expenses incurred by, our mutual funds if we believe that our expense ratios might lead fund investors to redeem their shares in our mutual funds in order to seek lower expense
ratios with other fund managers.

We currently waive our advisor fees or reimburse fund expenses to the extent necessary to
maintain expense ratio limitations on the institutional share class of our funds. In the past, fees have only been waived based on contractual obligations. However, the Company regularly analyzes the fees and has the right to waive fees at its
discretion to compete with other mutual funds with lower expense ratios. Any decision to waive fees would not apply to previous periods, but would apply on a going forward basis.

-Changes in mutual fund supermarkets fee structures could reduce our revenues, increase our expenses and slow our growth.

We derive a significant portion of our sales through individual investors and investment advisors who utilize mutual fund
supermarkets. Mutual fund supermarkets provide services to their customers, but instead of charging their customers for these services, they charge us and our mutual funds. Fees paid to mutual fund supermarkets may increase in the future. Higher
payments to mutual fund supermarkets by us or our mutual funds could increase our expenses or reduce our revenues by decreasing our assets under management, either of which could slow our growth.

-We depend on third party investment professionals and the distribution channels they utilize to market our mutual funds.



21



---

##### Table of Contents

Our ability to distribute our mutual funds is highly dependent on access to the retail
distribution systems and client bases of third party investment professionals that also offer competing investment products. These investment professionals who recommend our mutual funds may reduce or eliminate their involvement in marketing our
funds at any time, or may elect to emphasize the investment products of competing sponsors or the proprietary products of their own firms. In addition, an investment professional may only distribute our mutual funds for so long as we continue to
participate in the platforms of national full-service firms that permit their investment professionals to utilize no-load funds for their clients. These firms can terminate their relationships with us on short notice, limiting our participation in
these platforms. Either of these events could cause the net assets of our mutual funds to decline, which would decrease our revenues and have a material adverse effect on our results of operations.



|ITEM 1B. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

None.



|ITEM 2. | DESCRIPTION OF PROPERTY.
|------- | ------------------------

Our
principal executive offices are located at 7250 Redwood Boulevard, Suite 200, Novato, California 94945, where we occupy approximately 13,728 square feet and have the right to use all common areas. The term of our lease expires on March 31,
2012, with one three-year extension available.

Additionally, we have an office for our Co-Portfolio Manager located at One
Landmark Square, Suite 424, Stamford, Connecticut 06901, where we occupy approximately 1,400 square feet. The term of our lease expires on September 30, 2011.



|ITEM 3. | LEGAL PROCEEDINGS.
|------- | ------------------

None.



|ITEM 4. | [RESERVED]
|------- | ----------

PART II



|ITEM 5. | MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|------- | -----------------------------------------------------------------------------------------------

MARKET INFORMATION

Our common stock is traded on the
OTC Bulletin Board under the trading symbol HNNA.OB. Our stock began trading on July 15, 2002.

The following table sets
forth the high and low sales prices for our common stock on the OTC Bulletin Board for the periods indicated:



22



---

##### Table of Contents



|                                     |  |             |      |  |     |   |      |                         |  |   |      |    
|------------------------------------ |  | ----------- | ---- |  | --- | - | ---- | ----------------------- |  | - | ---- | ---
|                                     |  | Price Range |      |  |     |  
|Fiscal Year Ended September 30, 2010 |  | High        |      |  | Low |   |      | Dividends Paidper Share | 
|                                     |  |             |     
|First Quarter                        |  | $           | 3.35 |  |     | $ | 2.50 |                         |  |   |     |    
|Second Quarter                       |  |             | 2.95 |  |     |   | 2.41 |                         |  | $ | 0.09 | (1)
|Third Quarter                        |  |             | 3.45 |  |     |   | 2.48 |                         |  |   |     |    
|Fourth Quarter                       |  |             | 2.78 |  |     |   | 2.20 |                         |  |   |     |    
|                                     |  |            
|                                     |  | Price Range |      |  |     |  
|Fiscal Year Ended September 30, 2009 |  | High        |      |  | Low |   |      | Dividends Paidper Share | 
|                                     |  |             |     
|First Quarter                        |  | $           | 5.00 |  |     | $ | 1.50 |                         |  |   |     |    
|Second Quarter                       |  |             | 3.00 |  |     |   | 2.00 |                         |  | $ | 0.09 | (2)
|Third Quarter                        |  |             | 3.75 |  |     |   | 2.10 |                         |  |   |     |    
|Fourth Quarter                       |  |             | 3.50 |  |     |   | 3.00 |                         |  |   |     |    



|(1) | We paid a cash dividend on March 4, 2010 of $0.09 per share.
|--- | ------------------------------------------------------------

|(2) | We paid a cash dividend on March 5, 2009 of $0.09 per share.
|--- | ------------------------------------------------------------

On October 25, 2010, the last reported sale price of our common stock on the OTC Bulletin Board was $2.50 per share.

HOLDERS

As of October 28, 2010, there were 164
holders of record of Common Stock of the Company. The 164 holders of record include several brokerage firm accounts which represent about 450 additional individual shareholders for approximately 614 total shareholders as of October 28, 2010.

DIVIDENDS

We paid a cash dividend of $0.09 per share on March 4, 2010.

We announced
an additional cash dividend of $0.09 per share to be paid on November 18, 2010 to shareholders of record as of October 27, 2010.

The declaration and payment of dividends to holders of our common stock by us, if any, are subject to the discretion of our board of directors. Our board of directors will take into account such matters
as general economic and business conditions, our strategic plans, our financial results and condition, contractual, legal and regulatory restrictions on the payment of dividends by us, and such other factors as our board of directors may consider
relevant.



23



---

##### Table of Contents

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

We purchased shares as part of a stock buyback program (announced August 5, 2010) as well as shares underlying vested restricted
stock units (RSUs) from employees to provide withholding and tax payments on behalf of our employees. The stock repurchases are presented in the following table for the quarter ended September 30, 2010:



|               |  |                                 |        |     |                                 |   |      |                                                                                  |  |  |                                                                                |  |  |  |         | 
|-------------- |  | ------------------------------- | ------ | --- | ------------------------------- | - | ---- | -------------------------------------------------------------------------------- |  |  | ------------------------------------------------------------------------------ |  |  |  | ------- | 
|Period         |  | Total number ofshares purchased |        |     | Average pricepaid per share (3) |   |      | Total number ofshares purchasedas part of publiclyannounced
plansor programs (4) |  |  | Maximum number ofshares that mayyet
be purchasedunder the plansor programs (4) | 
|               |  | (a)                             |        |     | (b)                             |   |      | (c)                                                                              |  |  | (d)                                                                            | 
|July 2010      |  |                                 | 0      |     |                                 | $ | 0.00 |                                                                                  |  |  | 0                                                                              |  |  |  | 0       | 
|August 2010    |  |                                 | 2,076  | (1) |                                 | $ | 2.59 |                                                                                  |  |  | 1,950                                                                          |  |  |  | 998,050 | 
|September 2010 |  |                                 | 89,243 | (2) |                                 | $ | 2.40 |                                                                                  |  |  | 89,243                                                                         |  |  |  | 908,807 | 
|Total (5)      |  |                                 | 91,319 |     |                                 | $ | 2.40 |                                                                                  |  |  | 91,193                                                                         |  |  |  | 908,807 | 



|(1) | Includes 125 shares owned and tendered by employees to pay for tax expense and withholding on the compensation recognized for vested RSUs; and 1,951 shares
repurchased pursuant to the stock buyback program described below.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The 89,243 shares repurchased in September, 2010 were repurchased pursuant to the stock buyback program described below.
|--- | ------------------------------------------------------------------------------------------------------------------------

|(3) | Average price paid per share is calculated on a settlement basis and excludes commission.
|--- | -----------------------------------------------------------------------------------------

|(4) | The share repurchases above (other than those related to vested RSUs) were completed pursuant to a plan announced August 5, 2010. The company is authorized
to purchase a maximum of 1,000,000 shares. The plan has no expiration date.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



24



---

##### Table of Contents



|ITEM 6. | SELECTED FINANCIAL DATA
|------- | -----------------------

The
following financial information is derived from the Companys audited consolidated financial statements, included in the Companys annual reports, and should be read in conjunction therewith.



|                          |  |                                                                                       |        |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|------------------------- |  | ------------------------------------------------------------------------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ |  |  | ---- | ------ |  |  | - | ------ | 
|                          |  | Hennessy Advisors, Inc.
Financial Highlights
(In thousands, except per share amounts) |       
|                          |  | Years Ended September 30,                                                             |       
|                          |  | 2010                                                                                  |        |  | 2009 |   |        | 2008 |  |   | 2007   |  |  | 2006 |       
|Income Statement Data:    |  |                                                                                       |        |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|Revenue                   |  | $                                                                                     | 7,723  |  |      | $ | 5,813  |      |  | $ | 10,275 |  |  | $    | 16,072 |  |  | $ | 16,934 | 
|Net income (loss)         |  | $                                                                                     | 913    |  |      | $ | (195   | )    |  | $ | 1,611  |  |  | $    | 4,133  |  |  | $ | 4,403  | 
|                          |  |                                                                                       |        |  |     
|Balance Sheet Data:       |  |                                                                                       |        |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|Total assets              |  | $                                                                                     | 31,899 |  |      | $ | 30,099 |      |  | $ | 34,335 |  |  | $    | 35,704 |  |  | $ | 33,107 | 
|Cash and cash equivalents |  | $                                                                                     | 8,054  |  |      | $ | 5,747  |      |  | $ | 12,788 |  |  | $    | 13,760 |  |  | $ | 10,360 | 
|Long-term debt            |  | $                                                                                     | 2,552  |  |      | $ |       |      |  | $ | 4,417  |  |  | $    | 6,508  |  |  | $ | 8,599  | 
|                          |  |                                                                                       |        |  |     
|Per Share Data:           |  |                                                                                       |        |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|Earnings per share:       |  |                                                                                       |        |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|Basic                     |  | $                                                                                     | 0.16   |  |      | $ | (0.03  | )    |  | $ | 0.29   |  |  | $    | 0.73   |  |  | $ | 0.79   | 
|Diluted                   |  | $                                                                                     | 0.16   |  |      | $ | (0.03  | )    |  | $ | 0.28   |  |  | $    | 0.70   |  |  | $ | 0.73   | 
|Cash dividends declared   |  | $                                                                                     | 0.09   |  |      | $ | 0.09   |      |  | $ | 0.09   |  |  | $    | 0.08   |  |  | $ | 0.06   | 



|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 harbors for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. These forward-looking statements
include statements about, among other things, assets under management, our anticipated financial performance, business prospects, new developments and similar matters, and statements preceded by, followed by or including the words
expect, anticipate, intend, may, plan, will, should, would, believe, estimate, predict, project,
continue, seek or similar expressions. We have based these forward-looking statements on our current expectations and projections about future events, based on information currently available to us. Forward-looking statements
should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or means by, which such performance or results will be achieved. These forward-looking statements are subject to
risks, uncertainties and assumptions, including those described in the section entitled Risks Relating to Our Business and elsewhere in this report that could cause actual performance or results to differ substantially from those
expressed in or suggested by the forward-looking statements.

Factors that may affect the Companys actual results
include those described in Item 1A under Risks Relating to Our Business. There is no regulation requiring an update of any of the forward-looking statements after the date of this report and prior to our next Form 10-Q to conform
these statements to actual results or to changes in our expectations.



25



---

##### Table of Contents

Overview

We derive our operating revenue from management fees and shareholder servicing fees paid to us by the Hennessy Funds. These fees are calculated as a percentage of the average daily net assets in our
mutual funds and vary from fund to fund. The fees we receive fluctuate with changes in the total net asset value of the assets in our mutual funds, which are affected by our investment performance, redemptions, completed acquisitions of management
agreements, market conditions and the success of our marketing efforts. Average assets under management were $902.8 million for the fiscal year ended September 30, 2010 compared to $713.4 million for the prior comparable period.

The assets we manage have decreased as a result of net fund outflows. The following table illustrates the change by year in assets under
management since the beginning of fiscal year 2007:



|                                   |  |                                                          |           |   |           |   |           |           |  |   |           |   |  |   |          |  
|---------------------------------- |  | -------------------------------------------------------- | --------- | - | --------- | - | --------- | --------- |  | - | --------- | - |  | - | -------- | -
|                                   |  | Assets Under ManagementAt Each Fiscal Year End
2007-2010 |          
|                                   |  | 9/30/2007                                                |           |   | 9/30/2008 |   |           | 9/30/2009 |  |   | 9/30/2010 |  
|                                   |  | (In Thousands)                                           |          
|Beginning assets under management  |  | $                                                        | 2,056,253 |   |           | $ | 1,720,763 |           |  | $ | 876,069   |   |  | $ | 923,404  |  
|                                   |  |                                                          |           |  
|Acquisition inflows                |  |                                                          |          |   |           |   |          |           |  |   | 232,549   |   |  |   |         |  
|                                   |  |                                                          |           |  
|Organic inflows                    |  |                                                          | 320,090   |   |           |   | 264,998   |           |  |   | 80,409    |   |  |   | 132,560  |  
|                                   |  |                                                          |           |  
|Redemptions                        |  |                                                          | (917,280  | ) |           |   | (632,474  | )         |  |   | (231,054  | ) |  |   | (262,547 | )
|                                   |  |                                                          |           |  
|Market appreciation (depreciation) |  |                                                          | 261,700   |   |           |   | (477,218  | )         |  |   | (34,569   | ) |  |   | 99,048   |  
|                                   |  |                                                          |           |   |           |   |           |           |  |   |           |   |  |   |          |  
|                                   |  |                                                          |           |  
|Ending assets under management     |  | $                                                        | 1,720,763 |   |           | $ | 876,069   |           |  | $ | 923,404   |   |  | $ | 892,465  |  
|                                   |  |                                                          |           |   |           |   |           |           |  |   |           |   |  |   |          |  

A significant portion of our expenses, including employee compensation, are fixed and have historically
demonstrated minimal variation. However, our staffing has decreased throughout the current year, causing a decrease in our expenses. Additionally, we have had increasing revenues, causing our fixed costs to become a smaller percent of revenues and
therefore further increasing our profitability.

The principal asset on our balance sheet, management contracts  net of
accumulated amortization, represents the capitalized costs incurred in connection with the acquisition of management agreements. This asset had a net balance of $22.3 million as of September 30, 2010 compared to $22.2 million at the end of the
prior comparable period.

The principal liability on our balance sheet is the bank debt incurred in connection with the
acquisition of management agreements for the Lindner Funds and the Henlopen Fund. As of September 30, 2010, this liability had a balance of $3.13 million, compared to $1.95 million at the end of the prior comparable period. The current period
increase in funds is due to a loan amendment to borrow an additional $2.0 million entered into September 27, 2010, net of principal payments of $0.83 million.



26



---

##### Table of Contents

RESULTS OF OPERATIONS

The following table sets forth information about components of our revenue and expense for the periods shown:



|                                                  |  |                                    |       |  |                        |  |       |         |  |   |                        |   |  |  |       |   
|------------------------------------------------- |  | ---------------------------------- | ----- |  | ---------------------- |  | ----- | ------- |  | - | ---------------------- | - |  |  | ----- | --
|                                                  |  | Fiscal Year Ended September 30,    |      
|                                                  |  | 2010                               |       |  | 2009                   | 
|                                                  |  | (In thousands, except percentages) |      
|                                                  |  | Amounts                            |       |  | Percentof TotalRevenue |  |       | Amounts |  |   | Percentof TotalRevenue |  
|Revenue:                                          |  |                                    |       |  |                        |  |       |         |  |   |                        |   |  |  |       |   
|Investment advisory fees                          |  | $                                  | 6,887 |  |                        |  | 89.2  | %       |  | $ | 5,114                  |   |  |  | 88.0  | % 
|Shareholder service fees                          |  |                                    | 816   |  |                        |  | 10.6  |         |  |   | 680                    |   |  |  | 11.7  |   
|Other                                             |  |                                    | 20    |  |                        |  | 0.2   |         |  |   | 19                     |   |  |  | 0.3   |   
|                                                  |  |                                    |       |  |                        |  |       |         |  |   |                        |   |  |  |       |   
|Total revenue                                     |  |                                    | 7,723 |  |                        |  | 100.0 |         |  |   | 5,813                  |   |  |  | 100.0 |   
|                                                  |  |                                    |       |  |                        |  |       |         |  |   |                        |   |  |  |       |   
|                                                  |  |                                    |       | 
|Operating expenses:                               |  |                                    |       |  |                        |  |       |         |  |   |                        |   |  |  |       |   
|Compensation and benefits                         |  |                                    | 2,765 |  |                        |  | 35.8  |         |  |   | 3,044                  |   |  |  | 52.4  |   
|General and administrative                        |  |                                    | 1,847 |  |                        |  | 23.9  |         |  |   | 1,980                  |   |  |  | 34.1  |   
|Mutual fund distribution                          |  |                                    | 662   |  |                        |  | 8.6   |         |  |   | 620                    |   |  |  | 10.7  |   
|Sub-advisor fees                                  |  |                                    | 698   |  |                        |  | 9.0   |         |  |   | 239                    |   |  |  | 4.1   |   
|Amortization and depreciation                     |  |                                    | 128   |  |                        |  | 1.7   |         |  |   | 120                    |   |  |  | 2.0   |   
|                                                  |  |                                    |       |  |                        |  |       |         |  |   |                        |   |  |  |       |   
|Total operating expenses                          |  |                                    | 6,100 |  |                        |  | 79.0  |         |  |   | 6,003                  |   |  |  | 103.3 |   
|                                                  |  |                                    |       |  |                        |  |       |         |  |   |                        |   |  |  |       |   
|                                                  |  |                                    |       | 
|Operating income (loss)                           |  |                                    | 1,623 |  |                        |  | 21.0  |         |  |   | (190                   | ) |  |  | (3.3  | ) 
|                                                  |  |                                    |       | 
|Interest expense                                  |  |                                    | 35    |  |                        |  | 0.5   |         |  |   | 87                     |   |  |  | 1.5   |   
|Other income (expense)                            |  |                                    | 4     |  |                        |  | (0.0  | )       |  |   | (38                    | ) |  |  | (0.7  | ) 
|                                                  |  |                                    |       |  |                        |  |       |         |  |   |                        |   |  |  |       |   
|                                                  |  |                                    |       | 
|Income (loss) before income tax expense (benefit) |  |                                    | 1,584 |  |                        |  | 20.5  |         |  |   | (239                   | ) |  |  | (4.1  | ) 
|                                                  |  |                                    |       | 
|Income tax expense (benefit)                      |  |                                    | 671   |  |                        |  | 8.7   |         |  |   | (44                    | ) |  |  | (0.7  | ) 
|                                                  |  |                                    |       |  |                        |  |       |         |  |   |                        |   |  |  |       |   
|                                                  |  |                                    |       | 
|Net income (loss)                                 |  | $                                  | 913   |  |                        |  | 11.8  | %       |  | $ | (195                   | ) |  |  | (3.4  | )%
|                                                  |  |                                    |       |  |                        |  |       |         |  |   |                        |   |  |  |       |   

Revenues: Total revenue increased 32.9% to $7.7 million in the year ended September 30, 2010, due
to increased average assets under management. Investment advisory fees increased 34.7% to $6.9 million in the year ended September 30, 2010, and shareholder service fees increased 20.0% to $0.8 million in the year ended September 30, 2010.
These increases resulted from increases in the average daily net assets of our mutual funds, which can differ considerably from total net assets of our mutual funds at the end of an accounting period.

Average daily net assets in our mutual funds for the year ended September 30, 2010 increased by $189.4 million, or 26.6%, to $902.8
million from $713.4 million in the prior comparable period. The increase in average daily net assets is attributable to market appreciation in nearly all of the Hennessy Funds, coupled with net inflows into the Hennessy Cornerstone Value Fund (of
$11.8 million) and the Hennessy Total Return Fund (of $5.9 million). The increase in average daily net assets is also attributable to the fact that fiscal 2010 results include a full year of the assets held in the Hennessy Select SPARX Japan Fund
($53.8 million) and the Hennessy Select SPARX Japan Smaller Companies Fund ($14.8 million), which were acquired in September, 2009. The largest net outflows were from the Hennessy Cornerstone Growth Fund ($59.2 million) and the Hennessy Focus 30
Fund ($51.7 million).



27



---

##### Table of Contents

Almost a quarter of the average daily net assets ($220.3 million) for the year are
concentrated in the Hennessy Cornerstone Growth Fund. All of the largest funds generate revenue at a rate of 0.84% of average daily net assets, except for the Hennessy Select Large Value Fund, which generates revenue at a rate of 0.95% of average
daily net assets. However, the Company pays a sub-advisor fee of 0.35% of average daily net assets of the Hennessy Select Large Value Fund, which reduces the net impact to the Companys financial operations.

Total net assets of $892.5 million in our mutual funds decreased by $30.9 million, or 3.4%, as of September 30, 2010, from $923.4
million as of the end of the prior comparable period. The $30.9 million decrease in net mutual fund assets is attributable to net redemptions of $130.0 million, offset by market appreciation of $99.1 million. Redemptions as a percentage of assets
under management decreased from an average of 2.5% per month to 2.4% per month during the same period due to increased assets under management.

The increase in average assets under management is mainly based on acquisitions and market appreciation due to growth in the stock market during the year. The acquisitions occurred in March and September
of 2009, meaning the funds were only managed for a portion of the prior fiscal year, whereas these newly acquired funds were managed throughout the entire current fiscal year. Offsetting this increase, there are still net outflows from the Funds as
investors remain apprehensive of the equity market, though net outflows have decreased from the prior year.

The market
appreciation was due, among other factors, to the following:



| |  |  | During the most recent economic downturn, many public companies reduced their expenses, such as their number of employees, creating leaner,
more profitable companies. The increased corporate profits have created an upturn in the stock market.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Even though the markets remain volatile, some investors are gradually returning to the equity market.
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | The economy has shown some signs of strengthening, which has encouraged appreciation in the stock market.
| | - |  | ---------------------------------------------------------------------------------------------------------

Redemptions from the funds were due, among other factors, to the following:



| |  |  | The economic environment remains a difficult one, which is still requiring some investors to draw-down liquid investments, such as investments in
mutual funds, to pay for daily living expenses.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The U.S. government remains unclear on the future and their policies, which has created significant uncertainty in the economy and has contributed to
the flows out of the equity markets.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The equity markets are still quite volatile, and the fear created by that volatility continues to send many mutual fund investors from equity mutual
funds to fixed income investment products.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company has waived fees to comply with contractual expense
ratio limitations, though the waiver contracts are now expired. The Company does not normally waive fees, nor does it anticipate waiving fees, on a voluntary basis. The Company waived fees of $0.1 million for the year ended September 30, 2010,
a decrease of $0.1 million, or 49.9%, from the prior comparable period. The decrease is mainly due to the expiration of contractual waivers for the Hennessy Select SPARX Japan Fund and the Hennessy Select SPARX Japan Smaller Companies Fund (on
February 28, 2010) and the Hennessy Select Large Value Fund and the Hennessy Cornerstone Large Growth Fund (on March 31, 2010).



28



---

##### Table of Contents

Although the Company may earn incentive income on the Micro Cap Fund, the Company did not
earn incentive income for the fiscal years ended September 30, 2010 and 2009.

Operating Expenses: Total operating
expenses increased 1.6% to $6.1 million in the fiscal year ended September 30, 2010, from $6.0 million in the prior comparable period. The increase is due to: increased sub-advisor fees paid on the Hennessy Select Series of Funds (acquired in
March and September, 2009), increased mutual fund distribution fees paid on increased assets held through financial platforms and increased depreciation expense on fixed asset acquisitions. As a percentage of total revenue, total operating expenses
decreased by 24.3% to 79.0% in the fiscal year ended September 30, 2010, as compared to 103.3% in the prior comparable period.

Compensation and Benefits Expense: Compensation and benefits decreased 9.2% to $2.8 million in the fiscal year ended September 30, 2010, from $3.0 million in the prior comparable period. The
decrease resulted primarily from the elimination of a position in January, 2010. As a percentage of total revenue, compensation and benefits decreased by 16.6% to 35.8% for the fiscal year ended September 30, 2010, compared to 52.4% in the
prior comparable period.

General and Administrative Expenses: General and administrative expense decreased 6.7% to $1.8
million in the fiscal year ended September 30, 2010, from $2.0 million in the prior comparable period, primarily due to decreases in travel expense, business development expense, and office rent due to a lease re-negotiation for the Novato
office. As a percentage of total revenue, general and administrative expense decreased by 10.2% to 23.9% in the fiscal year ended September 30, 2010, from 34.1% in the prior fiscal year.

Mutual Fund Distribution Expense: Distribution expenses increased 6.8% to $0.7 million in the fiscal year ended September 30,
2010, from $0.6 million in the prior fiscal year. As a percentage of total revenue, distribution expenses decreased by 2.1% to 8.6% in the fiscal year ended September 30, 2010, from 10.7% in the prior fiscal year.

The mutual fund distribution expense consists of fees paid for our mutual funds to be offered on various financial platforms.
The platforms allow consumers to purchase from numerous mutual fund companies through a single location, which provides those customers with a single statement of investments and a single source for mutual fund information and customer service. When
our funds are purchased through one of these platforms, such as Charles Schwab, Fidelity, TD Ameritrade or Morgan Stanley Smith Barney, the platform typically charges us an asset based fee which is recorded in mutual fund distribution
expense in our statement of operations. The fees increase or decrease in line with the value of the funds held on the platforms, which can be affected by inflows, outflows and market impact.

The increased costs in the current year are due to an increase in the value of average assets held through mutual fund platforms such as
Charles Schwab, Fidelity and TD Ameritrade due to acquisitions and market appreciation. For the year ended September 30, 2010, the value of the mutual funds held on Charles Schwab (the platform that makes up over half of our mutual fund fees)
increased by over 17% from the prior year, mainly due to acquisitions and market appreciation.

The incremental assets
purchased through the mutual fund platforms are not as profitable as those purchased in direct shareholder accounts due to the participation fees paid on assets held in the various mutual fund platforms. All of our funds are impacted by activity on
the financial platforms as they are all available on several platforms.

Sub-Advisor Fee Expense: Sub-advisor fee expense
increased 192.1% to $0.7 million in the fiscal year ended September 30, 2010, from $0.2 million in the prior fiscal year. As a percentage of total revenue, sub-advisor fee expense increased by 4.9% to 9.0% in the fiscal year ended
September 30, 2010, from 4.1% in the prior fiscal year. Sub-advisor fee expenses are paid on assets in our new Hennessy Select Series of Funds. The Hennessy Select Series of Funds are actively managed by outside asset managers retained by
Hennessy Advisors, Inc. The Hennessy Select Large Value Fund, the first in the Hennessy Select Series of Funds, was acquired in March 2009. The Hennessy Select SPARX Japan Fund and the Hennessy Select SPARX Japan Smaller Companies Fund, the other
two Hennessy Select Series of Funds, were acquired in September 2009.



29



---

##### Table of Contents

Amortization and Depreciation Expense: Amortization and depreciation expense increased
6.7% to $0.13 million in the fiscal year ended September 30, 2010, from $0.12 million in the prior fiscal year, mainly due to more depreciation expense due to fixed asset purchases in the current year.

Interest Expense: Interest expense decreased 59.8% to $0.004 million in the fiscal year ended September 30, 2010 from $0.09
million in the prior fiscal year. The decrease is a result of the decreased interest rates (prime rate was reduced to 3.25% in December 2008) as well as principal payments of $0.8 million during the current year. As a percentage of total revenue,
interest expense decreased by 1.0% to 0.5% in the fiscal year ended September 30, 2010, from 1.5% in the prior fiscal year.

Other Income: Other income decreased 110.5% to an expense of $0.04 million in the fiscal year ended September 30, 2010 from income of $0.04 million in the prior fiscal year due to declining interest
rates earned on our cash investments.

Income Taxes: The provision for income taxes increased by 1,625% to a tax expense
of $0.7 million in the year ended September 30, 2010, from a tax benefit of $0.04 million in the prior fiscal year due to increased profitability in the current year creating net income before taxes versus a net loss before taxes.

The large change in the permanent differences in the tax rate is due to a large negative rate in the fiscal year ended September 30,
2009, which was due to the net loss before tax in that period. (The permanent differences consist of book expenses that are not tax deductible, specifically keyman insurance premiums, fifty percent of meals and entertainment expense and club
membership fees.) The positive tax rate in the fiscal year ended September 30, 2010 is due to the net income before tax in the current period. The permanent tax differences in total value decreased by $0.01 million, or 8.5%, from the prior
comparable period.

Net Income: Net income increased 568.2% to $0.9 million in the fiscal year ended September 30,
2010, from net loss of $0.2 million in the prior fiscal year, as a result of the factors discussed above.

Off-Balance Sheet Arrangements

We do not have and have not had any off-balance sheet arrangements.

Liquidity and Capital Resources

We continually review our capital requirements to
ensure that we have sufficient funding available to support our growth strategies. Management anticipates that cash and other liquid assets on hand as of September 30, 2010 will be sufficient to meet our short-term capital requirements. To the
extent that liquid resources and cash provided by operations are not adequate to meet long-term capital requirements, management plans to raise additional capital through debt or equity markets. There can be no assurance that we will be able to
borrow funds or raise additional equity.

Total assets under management as of September 30, 2010 were $892.5 million,
which was a decrease of $30.9 million, or 3.3%, from September 30, 2009. The primary source of our revenue, liquidity and cash flow are our fees, which are based on and generated by our average assets under management. Property and equipment
and management agreements acquired totaled $22.5 million as of September 30, 2010. We also invested $0.5 million in the Micro Cap Fund on October 30, 2007. We intend to keep this investment, decreasing our short-term liquidity. Our
remaining assets are very liquid, consisting primarily of cash and receivables derived from mutual fund asset management activities. As of September 30, 2010, we had cash and cash equivalents of $8.1 million.



30



---

##### Table of Contents

The following table summarizes key financial data relating to our liquidity and use of cash
for the years ended September 30, 2010 and 2009:



|                                                     |  |                                        |       |   |      |   |        |  
|---------------------------------------------------- |  | -------------------------------------- | ----- | - | ---- | - | ------ | -
|                                                     |  | For the Fiscal YearEnded September 30, |      
|                                                     |  | 2010                                   |       |   | 2009 |  
|Cash flow data:                                      |  |                                        |       |   |      |   |        |  
|Operating cash flows                                 |  | $                                      | 2,037 |   |      | $ | 873    |  
|Investing cash flows                                 |  |                                        | (133  | ) |      |   | (2,839 | )
|Financing cash flows                                 |  |                                        | 403   |   |      |   | (5,075 | )
|                                                     |  |                                        |       |   |      |   |        |  
|Net increase (decrease) in cash and cash equivalents |  | $                                      | 2,307 |   |      | $ | (7,041 | )
|                                                     |  |                                        |       |   |      |   |        |  

The increase in cash provided by operating activities of $1.2 million is due to a $1.1 million, or 568%,
increase in net income from the prior period. The increase in net income is due to greater average assets under management during the current period.

The decrease in cash used for investing activities is due to $2.8 million in payments to acquire the Tamarack Large Growth Fund (now the Hennessy Cornerstone Large Growth Fund), the Tamarack Value Fund
(now the Hennessy Select Large Value Fund) and costs associated with the Hennessy Select SPARX Japan Fund and the Hennessy Select SPARX Japan Smaller Companies Fund transaction made in the prior period.

The decrease in cash used for financing activities is due to a large debt paydown of $3.5 million in the prior period. The current period
increase in funds is due to a loan amendment to borrow an additional $2.0 million on September 27, 2010.

Dividend
Payments. On March 4, 2010, we paid a cash dividend of $0.09 per common share. The total payment from cash on hand was $0.5 million.

Our Bank Loan. We have an outstanding bank loan with U.S. Bank National Association. We incurred $7.9 million of indebtedness in connection with acquiring the management agreements for the Lindner
Funds and an additional $6.7 million of indebtedness in connection with acquiring the management agreement for The Henlopen Fund (now known as the Hennessy Cornerstone Growth Fund, Series II). The indebtedness we incurred to acquire the management
agreement of The Henlopen Fund was rolled into a single loan with the indebtedness we incurred to acquire the management agreements of the Lindner Funds. On September 27, 2010, we amended the loan to borrow an additional $2.0 million, which
bears interest at U.S. Bank National Associations prime rate, as set by U.S. Bank National Association from time to time, less one percent (2.25% as of December 17, 2008) and is secured by the Companys assets. The loan was amended
to require 60 monthly payments in the amount of $52,083 plus interest, with the final installment of the then outstanding principal and interest due on September 30, 2015. The loan agreement includes certain reporting requirements and loan
covenants requiring the maintenance of certain financial ratios. We are in compliance with our loan covenants as of September 30, 2010. As of September 30, 2010, we have $3.13 million currently outstanding under our bank loan.



31



---

##### Table of Contents

Contractual Obligations

The following table sets forth our contractual obligations as of September 30, 2010, consisting of loan payments, including the related interest payments due, and operating leases:



|                          |  |                                       |       |  |                 |   |     |             |  |   |             |  |  |                  |       |  |  |   |   | 
|------------------------- |  | ------------------------------------- | ----- |  | --------------- | - | --- | ----------- |  | - | ----------- |  |  | ---------------- | ----- |  |  | - | - | 
|                          |  | Payments due by period (in thousands) |      
|                          |  | Total                                 |       |  | Less Than1 Year |   |     | 1 - 3 Years |  |   | 3 - 5 Years |  |  | More Than5 Years |      
|Principal on bank loan    |  | $                                     | 3,125 |  |                 | $ | 521 |             |  | $ | 1,302       |  |  | $                | 1,302 |  |  | $ |  | 
|                          |  |                                       |       |  |                
|Interest on bank loan (1) |  |                                       | 181   |  |                 |   | 60  |             |  |   | 91          |  |  |                  | 30    |  |  |   |  | 
|                          |  |                                       |       |  |                
|Operating lease (2)       |  |                                       | 56    |  |                 |   | 51  |             |  |   | 5           |  |  |                  |      |  |  |   |  | 
|                          |  |                                       |       |  |                
|Operating lease (3)       |  |                                       | 494   |  |                 |   | 302 |             |  |   | 192         |  |  |                  |      |  |  |   |  | 
|                          |  |                                       |       |  |                 |   |     |             |  |   |             |  |  |                  |       |  |  |   |   | 
|                          |  |                                       |       |  |                
|Total                     |  | $                                     | 3,856 |  |                 | $ | 934 |             |  | $ | 1,590       |  |  | $                | 1,332 |  |  | $ |  | 
|                          |  |                                       |       |  |                 |   |     |             |  |   |             |  |  |                  |       |  |  |   |   | 



|(1) | The interest payable on the bank loan is calculated at the current effective rate of prime less one percent, or 2.25%, based on the prime rate of 3.25% set as of
December 17, 2008.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | This lease is for office space located at One Landmark Square, Suite 424, Stamford, Connecticut 06901.
|--- | ------------------------------------------------------------------------------------------------------

|(3) | This lease is for our principal executive office located at 7250 Redwood Boulevard, Suite 200, Novato, California 94945.
|--- | ------------------------------------------------------------------------------------------------------------------------

Critical Accounting Policies

Accounting policies, methods, and estimates are an integral part of the financial statements prepared by management and are based upon
managements current judgments. Those judgments are normally based on knowledge and experience with regard to past and current events and assumptions about future events. Certain accounting policies, methods, and estimates are particularly
sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ markedly from managements current judgment.

Our operating revenues consist of contractual management and shareholder servicing fees. We earn our management fees through
portfolio management of our mutual funds and private pooled equity fund, and we earn our shareholder servicing fees by assisting customers in purchases, sales, distribution and customer service. The revenues are earned and calculated daily by
our fund accountant. In accordance with the FASB guidance on revenue recognition, the fees are recognized monthly by the Company. Our contractual agreements provide persuasive evidence that an arrangement exists with fixed and determinable
fees, and the services are rendered daily. The collectability is probable as the fees are received from our fund accountant in the month subsequent to the month in which the services are provided.

The management agreements acquired by the Company are considered intangible assets with an indefinite life. In June 2001, the Financial
Accounting Standards Board issued the FASB guidance Intangibles  Goodwill and Other. It states that goodwill and intangible assets with indefinite useful lives are not amortized, but are tested at least annually for impairment. We
fully implemented the provisions of the FASB guidance on October 1, 2002, at which time we ceased amortization of these intangible assets. Impairment analysis is conducted quarterly and coincides with our quarterly and annual financial
reporting.



32



---

##### Table of Contents

In conducting the impairment analysis, the future revenues are calculated as a percent of
assets under management based on our existing management agreements with the Hennessy Funds. The future expenses are based on projections of our current expenses, adjusted for changes in the assets under management. For example, variable expenses
such as platform fees and sub-advisor fees grow in direct proportion with our assets under management. Other semi-variable expenses, such as office rent and professional services, grow at a rate slower than the growth in assets under management.
Specifically, the projected revenues and expenses are based on assumptions about the growth of our assets under management. Since our management contracts have an indefinite life, the projections of revenues and expenses in theory are calculated
into perpetuity. The actual values, however, were calculated over the future 15 years, and the value developed for the periods beyond the 15 year forecast is reflected in the terminal value calculation. Ultimately, growth rates of equities over the
long-term were used in estimating future rates, primarily based on the consistent tendency of returns to center about the 11% range, as evidenced by S&P 500 returns since inception. In addition, studies have concluded that in general, flows into
various mutual fund groups are highly correlated with market performance, which suggests the Hennessy Funds will average reasonable inflows over the future 15 years in response to market appreciation.

We engaged an independent valuation firm and measured the fair value of the management contracts by incorporating our estimates and
assumptions into a projection of future revenues, based in part upon estimates of assets under management growth and client attrition, and expenses. Based on the analysis, we concluded that projected revenues exceed projected expenses by an amount
that is greater than the current carrying value of the management contracts. We therefore concluded that the management contract assets are not impaired as of September 30, 2010. We continually evaluate whether events or circumstances have
occurred that indicate the management contracts may be impaired. If future valuations in the marketplace decline, the valuation of management agreements acquired may become impaired and net earnings would be negatively impacted by the resulting
impairment adjustment.

The costs related to the Companys acquisition of management contracts are capitalized as
incurred. The costs are defined as an intangible asset per FASB standard Intangibles  Goodwill and Other. The acquisition costs include legal fees, fees for soliciting shareholder approval and a percent of asset costs
to acquire the management contracts. The amounts are included in the management contract asset totaling $22.3 million as of September 30, 2010.

Recent Accounting Pronouncements

In June, 2009, the FASB issued amended standards
for determining whether to consolidate a variable entity. These amended standards eliminate a mandatory quantitative approach to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity in
favor of a qualitatively focused analysis, and require an ongoing reassessment of whether an entity is the primary beneficiary. These amended standards are effective for the annual period beginning after November 15, 2009 (the Companys
fiscal year 2011). We do not anticipate the adoption of these amendments to have any effect on our financial statements or results of operations.

In January, 2010, the FASB issued an amendment to standard Fair Value Measurements and Disclosure, to require reporting entities to separately disclose the amounts and business rationale for
significant transfers in and out of Level 1 and Level 2 fair value measurements and separately present information regarding purchase, sale, issuance, and settlement of Level 3 fair value measures on a gross basis. This standard, for which the
Company is currently assessing the impact, is effective for interim and annual reporting periods beginning after December 15, 2009 with the exception of disclosures regarding the purchase, sale, issuance, and settlement of Level 3 fair value
measures which are effective for fiscal years beginning after December 15, 2010. The adoption of this standard is not expected to have a significant impact on our financial statements or results of operations.



33



---

##### Table of Contents



|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------

The Company is subjected to different types of risk, including market risk. Market risk is the risk that the Company will be adversely affected by changes in the securities market, specifically changes in
equity prices.

As discussed in Item 1A under Risks Relating to Our Business, the Companys revenue is
calculated on the market value of assets under management. Declines in the value of the securities held by the mutual funds we manage will negatively impact the Companys revenue and net income. The following is a summary of the effect that a
ten percent increase or decrease in equity prices of the stocks within our mutual funds would have on the Companys assets under management, and therefore the Companys revenue. The changes are compared to total asset values as of
September 30, 2010, and values are based on an assumption that asset values are consistent throughout the year:



|                         |  |                                                                           |         |  |                                                |   |         |                                                |  |   |         | 
|------------------------ |  | ------------------------------------------------------------------------- | ------- |  | ---------------------------------------------- | - | ------- | ---------------------------------------------- |  | - | ------- | 
|                         |  | Effects of Market Risk on Revenue
(In thousands)                          |        
|                         |  |                                                                           |        
|                         |  | Values
Based on AverageNet Assets for Fiscal Yearended September 30, 2010 |         |  | Values Based ona 10% Increasein Average Assets |   |         | Values Based ona 10% Decreasein Average Assets | 
|Average Assets           |  |                                                                           |         |  |                                                |   |         |                                                |  |   |         | 
|Under Management         |  | $                                                                         | 902,807 |  |                                                | $ | 993,088 |                                                |  | $ | 812,527 | 
|                         |  |                                                                           |         |  |                                                |   |         |                                                |  |   |         | 
|                         |  |                                                                           |        
|Investment Advisor Fees  |  | $                                                                         | 6,887   |  |                                                | $ | 7,647   |                                                |  | $ | 6,256   | 
|Shareholder Service Fees |  |                                                                           | 816     |  |                                                |   | 919     |                                                |  |   | 752     | 
|                         |  |                                                                           |         |  |                                                |   |         |                                                |  |   |         | 
|Total Revenue:           |  | $                                                                         | 7,703   |  |                                                | $ | 8,566   |                                                |  | $ | 7,008   | 
|                         |  |                                                                           |         |  |                                                |   |         |                                                |  |   |         | 



34



---

##### Table of Contents



|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- | -------------------------------------------

Index to Financial Statements:



|                                                                                                    |  |  |    | 
|--------------------------------------------------------------------------------------------------- |  |  | -- | 
|Report of Marcum LLP, and Stonefield Josephson, Inc. Independent Registered Public Accounting
Firms |  |  | 36 | 
|                                                                                                    | 
|Balance Sheets                                                                                      |  |  | 38 | 
|                                                                                                    | 
|Statements of Operations                                                                            |  |  | 39 | 
|                                                                                                    | 
|Statements of Changes in Stockholders Equity                                                       |  |  | 40 | 
|                                                                                                    | 
|Statements of Cash Flows                                                                            |  |  | 41 | 
|                                                                                                    | 
|Notes to Financial Statements                                                                       |  |  | 42 | 



35



---

##### Table of Contents

Report of Independent Registered Public Accounting Firm

To The Board of Directors and Shareholders of Hennessy Advisors, Inc.:

We have audited the accompanying balance sheet of Hennessy Advisors, Inc. (the Company) as of September 30, 2010, and the related statements of operations, stockholders equity, and
cash flows for the year then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable
basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects,
the financial position of Hennessy Advisors, Inc. as of September 30, 2010, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of
America.



|                         
|-------------------------
|/s/ Marcum LLP           
|                         
|San Francisco, California
|December 3, 2010         



36



---

##### Table of Contents

Report of Independent Registered Public Accounting Firm

To The Board of Directors and Shareholders of Hennessy Advisors, Inc.:

We have audited the accompanying balance sheet of Hennessy Advisors, Inc. (the Company) as of September 30, 2009, and the related statements of operations, stockholders equity, and
cash flows for the year then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable
basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects,
the financial position of Hennessy Advisors, Inc. as of September 30, 2009, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of
America.



|                              
|------------------------------
|/s/ Stonefield Josephson, Inc.
|                              
|San Francisco, California     
|December 3, 2009              



37



---

##### Table of Contents

Hennessy Advisors, Inc.

Balance Sheets

(In thousands, except share and per share amounts)



|                                                                                                                                                            |  |                   |        |   |                   |   |        |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------ | - | ----------------- | - | ------ | -
|                                                                                                                                                            |  | September 30,2010 |        |   | September 30,2009 |  
|Assets                                                                                                                                                      |  |                   |        |   |                   |   |        |  
|Current assets:                                                                                                                                             |  |                   |        |   |                   |   |        |  
|Cash and cash equivalents                                                                                                                                   |  | $                 | 8,054  |   |                   | $ | 5,747  |  
|Investments in marketable securities, at fair value                                                                                                         |  |                   | 5      |   |                   |   | 5      |  
|Investment fee income receivable                                                                                                                            |  |                   | 619    |   |                   |   | 560    |  
|Prepaid expenses                                                                                                                                            |  |                   | 186    |   |                   |   | 665    |  
|Deferred income tax asset                                                                                                                                   |  |                   | 118    |   |                   |   | 241    |  
|Other current assets                                                                                                                                        |  |                   | 22     |   |                   |   | 20     |  
|                                                                                                                                                            |  |                   |        |   |                   |   |        |  
|Total current assets                                                                                                                                        |  |                   | 9,004  |   |                   |   | 7,238  |  
|                                                                                                                                                            |  |                   |        |   |                   |   |        |  
|                                                                                                                                                            |  |                  
|Property and equipment, net of accumulated depreciation of $383 and $366, respectively                                                                      |  |                   | 180    |   |                   |   | 222    |  
|Management contracts                                                                                                                                        |  |                   | 22,284 |   |                   |   | 22,220 |  
|Investment in the Hennessy Micro Cap Growth Fund, LLC, at fair value                                                                                        |  |                   | 364    |   |                   |   | 366    |  
|Other assets, net of accumulated amortization of $101 and $84, respectively                                                                                 |  |                   | 67     |   |                   |   | 53     |  
|                                                                                                                                                            |  |                   |        |   |                   |   |        |  
|Total assets                                                                                                                                                |  | $                 | 31,899 |   |                   | $ | 30,099 |  
|                                                                                                                                                            |  |                   |        |   |                   |   |        |  
|                                                                                                                                                            |  |                  
|Liabilities and Stockholders Equity                                                                                                                        |  |                   |        |   |                   |   |        |  
|Current liabilities:                                                                                                                                        |  |                   |        |   |                   |   |        |  
|Accrued liabilities and accounts payable                                                                                                                    |  | $                 | 1,005  |   |                   | $ | 1,394  |  
|Income taxes payable                                                                                                                                        |  |                   | 18     |   |                   |   |       |  
|Current portion of deferred rent                                                                                                                            |  |                   | 50     |   |                   |   | 23     |  
|Current portion of long-term debt                                                                                                                           |  |                   | 573    |   |                   |   | 1,950  |  
|                                                                                                                                                            |  |                   |        |   |                   |   |        |  
|Total current liabilities                                                                                                                                   |  |                   | 1,646  |   |                   |   | 3,367  |  
|                                                                                                                                                            |  |                   |        |   |                   |   |        |  
|                                                                                                                                                            |  |                  
|Long-term debt, net of current portion                                                                                                                      |  |                   | 2,552  |   |                   |   |       |  
|Long-term portion of deferred rent                                                                                                                          |  |                   | 24     |   |                   |   | 4      |  
|Deferred income tax liability                                                                                                                               |  |                   | 3,177  |   |                   |   | 2,607  |  
|                                                                                                                                                            |  |                   |        |   |                   |   |        |  
|Total liabilities                                                                                                                                           |  |                   | 7,399  |   |                   |   | 5,978  |  
|                                                                                                                                                            |  |                   |        |   |                   |   |        |  
|                                                                                                                                                            |  |                  
|Commitments and Contingencies (Note 10)                                                                                                                     |  |                   |        |   |                   |   |        |  
|                                                                                                                                                            |  |                  
|Stockholders equity:                                                                                                                                       |  |                   |        |   |                   |   |        |  
|Adjustable rate preferred stock, $25 stated value, 5,000,000 shares authorized: zero shares issued and
outstanding                                          |  |                   |       |   |                   |   |       |  
|Common stock, no par value, 15,000,000 shares authorized: 5,709,839 shares issued and outstanding at September 30, 2010 and
5,754,419 at September 30, 2009 |  |                   | 9,456  |   |                   |   | 9,466  |  
|Accumulated other comprehensive loss                                                                                                                        |  |                   | (148   | ) |                   |   | (146   | )
|Retained earnings                                                                                                                                           |  |                   | 15,192 |   |                   |   | 14,801 |  
|                                                                                                                                                            |  |                   |        |   |                   |   |        |  
|                                                                                                                                                            |  |                  
|Total stockholders equity                                                                                                                                  |  |                   | 24,500 |   |                   |   | 24,121 |  
|                                                                                                                                                            |  |                   |        |   |                   |   |        |  
|                                                                                                                                                            |  |                  
|Total liabilities and stockholders equity                                                                                                                  |  | $                 | 31,899 |   |                   | $ | 30,099 |  
|                                                                                                                                                            |  |                   |        |   |                   |   |        |  

See accompanying notes to financial statements



38



---

##### Table of Contents

Hennessy Advisors, Inc.

Statements of Operations

(In thousands, except share and per share amounts)



|                                                  |  |                           |           |  |      |   |           |  
|------------------------------------------------- |  | ------------------------- | --------- |  | ---- | - | --------- | -
|                                                  |  | Years Ended September 30, |          
|                                                  |  | 2010                      |           |  | 2009 |  
|Revenue                                           |  |                           |           |  |      |   |           |  
|Investment advisory fees                          |  | $                         | 6,887     |  |      | $ | 5,114     |  
|Shareholder service fees                          |  |                           | 816       |  |      |   | 680       |  
|Other                                             |  |                           | 20        |  |      |   | 19        |  
|                                                  |  |                           |           |  |      |   |           |  
|Total revenue                                     |  |                           | 7,723     |  |      |   | 5,813     |  
|                                                  |  |                           |           |  |      |   |           |  
|                                                  |  |                          
|Operating expenses                                |  |                           |           |  |      |   |           |  
|Compensation and benefits                         |  |                           | 2,765     |  |      |   | 3,044     |  
|General and administrative                        |  |                           | 1,847     |  |      |   | 1,980     |  
|Mutual fund distribution                          |  |                           | 662       |  |      |   | 620       |  
|Sub-advisor fees                                  |  |                           | 698       |  |      |   | 239       |  
|Amortization and depreciation                     |  |                           | 128       |  |      |   | 120       |  
|                                                  |  |                           |           |  |      |   |           |  
|Total operating expenses                          |  |                           | 6,100     |  |      |   | 6,003     |  
|                                                  |  |                           |           |  |      |   |           |  
|Operating income (loss)                           |  |                           | 1,623     |  |      |   | (190      | )
|                                                  |  |                          
|Interest expense                                  |  |                           | 35        |  |      |   | 87        |  
|Other (income) expense, net                       |  |                           | 4         |  |      |   | (38       | )
|                                                  |  |                           |           |  |      |   |           |  
|                                                  |  |                          
|Income (loss) before income tax expense (benefit) |  |                           | 1,584     |  |      |   | (239      | )
|                                                  |  |                          
|Income tax expense (benefit)                      |  |                           | 671       |  |      |   | (44       | )
|                                                  |  |                           |           |  |      |   |           |  
|                                                  |  |                          
|Net income (loss)                                 |  | $                         | 913       |  |      | $ | (195      | )
|                                                  |  |                           |           |  |      |   |           |  
|                                                  |  |                          
|Earnings (loss) per share:                        |  |                           |           |  |      |   |           |  
|Basic                                             |  | $                         | 0.16      |  |      | $ | (0.03     | )
|                                                  |  |                           |           |  |      |   |           |  
|                                                  |  |                          
|Diluted                                           |  | $                         | 0.16      |  |      | $ | (0.03     | )
|                                                  |  |                           |           |  |      |   |           |  
|                                                  |  |                          
|Weighted average shares outstanding:              |  |                           |           |  |      |   |           |  
|Basic                                             |  |                           | 5,701,780 |  |      |   | 5,673,628 |  
|                                                  |  |                           |           |  |      |   |           |  
|                                                  |  |                          
|Diluted                                           |  |                           | 5,716,783 |  |      |   | 5,673,628 |  
|                                                  |  |                           |           |  |      |   |           |  
|                                                  |  |                          
|Cash dividends declared per share:                |  | $                         | 0.09      |  |      | $ | 0.09      |  
|                                                  |  |                           |           |  |      |   |           |  

See accompanying notes to financial statements



39



---

##### Table of Contents

Hennessy Advisors, Inc.

Statements of Changes in Stockholders Equity

Years Ended September 30, 2010 and 2009

(In thousands, except share
data)



|                                                                   |  |              |           |   |             |   |       |                  |  |   |                        |   |  |                          |      |   |  |   |        |  
|------------------------------------------------------------------ |  | ------------ | --------- | - | ----------- | - | ----- | ---------------- |  | - | ---------------------- | - |  | ------------------------ | ---- | - |  | - | ------ | -
|                                                                   |  | CommonShares |           |   | CommonStock |   |       | RetainedEarnings |  |   | OtherComprehensiveLoss |   |  | TotalStockholdersEquity |     
|                                                                   |  |              |           |   |            
|Balance at September 30, 2008                                      |  |              | 5,718,850 |   |             | $ | 9,105 |                  |  | $ | 15,513                 |   |  | $                        | (95  | ) |  | $ | 24,523 |  
|                                                                   |  |              |           |   |            
|Net loss                                                           |  |              |          |   |             |   |      |                  |  |   | (195                   | ) |  |                          |     |   |  |   | (195   | )
|                                                                   |  |              |           |   |            
|Dividends paid                                                     |  |              |          |   |             |   |      |                  |  |   | (517                   | ) |  |                          |     |   |  |   | (517   | )
|                                                                   |  |              |           |   |            
|Unrealized loss on investment in Hennessy                          |  |              |           |   |             |   |       |                  |  |   |                        |   |  |                          |      |   |  |   |        |  
|Micro Cap Growth Fund, LLC                                         |  |              |          |   |             |   |      |                  |  |   |                       |   |  |                          | (51  | ) |  |   | (51    | )
|                                                                   |  |              |           |   |            
|Employee and director restricted stock vested                      |  |              | 39,356    |   |             |   |      |                  |  |   |                       |   |  |                          |     |   |  |   |       |  
|                                                                   |  |              |           |   |            
|Repurchase of vested employee restricted stock for tax withholding |  |              | (3,787    | ) |             |   | (11   | )                |  |   |                       |   |  |                          |     |   |  |   | (11    | )
|                                                                   |  |              |           |   |            
|Deferred restricted stock unit compensation                        |  |              |          |   |             |   | 536   |                  |  |   |                       |   |  |                          |     |   |  |   | 536    |  
|                                                                   |  |              |           |   |            
|Tax effect of RSU vesting                                          |  |              |          |   |             |   | (164  | )                |  |   |                       |   |  |                          |     |   |  |   | (164   | )
|                                                                   |  |              |           |   |             |   |       |                  |  |   |                        |   |  |                          |      |   |  |   |        |  
|Balance at September 30, 2009                                      |  |              | 5,754,419 |   |             | $ | 9,466 |                  |  | $ | 14,801                 |   |  | $                        | (146 | ) |  | $ | 24,121 |  
|                                                                   |  |              |           |   |            
|Net income                                                         |  |              |          |   |             |   |      |                  |  |   | 913                    |   |  |                          |     |   |  |   | 913    |  
|                                                                   |  |              |           |   |            
|Dividends paid                                                     |  |              |          |   |             |   |      |                  |  |   | (522                   | ) |  |                          |     |   |  |   | (522   | )
|                                                                   |  |              |           |   |            
|Unrealized loss on investment in Hennessy                          |  |              |           |   |             |   |       |                  |  |   |                        |   |  |                          |      |   |  |   |        |  
|Micro Cap Growth Fund, LLC                                         |  |              |          |   |             |   |      |                  |  |   |                       |   |  |                          | (2   | ) |  |   | (2     | )
|                                                                   |  |              |           |   |            
|Employee and director restricted stock vested                      |  |              | 54,762    |   |             |   |      |                  |  |   |                       |   |  |                          |     |   |  |   |       |  
|                                                                   |  |              |           |   |            
|Employee restricted stock forfeited                                |  |              |          |   |             |   | (13   | )                |  |   |                       |   |  |                          |     |   |  |   | (13    | )
|                                                                   |  |              |           |   |            
|Repurchase of vested employee restricted stock for tax withholding |  |              | (8,149    | ) |             |   | (22   | )                |  |   |                       |   |  |                          |     |   |  |   | (22    | )
|                                                                   |  |              |           |   |            
|Share repurchase                                                   |  |              | (91,193   | ) |             |   | (219  | )                |  |   |                       |   |  |                          |     |   |  |   | (219   | )
|                                                                   |  |              |           |   |            
|Deferred restricted stock unit compensation                        |  |              |          |   |             |   | 411   |                  |  |   |                       |   |  |                          |     |   |  |   | 411    |  
|                                                                   |  |              |           |   |            
|Tax effect of RSU vesting                                          |  |              |          |   |             |   | (167  | )                |  |   |                       |   |  |                          |     |   |  |   | (167   | )
|                                                                   |  |              |           |   |             |   |       |                  |  |   |                        |   |  |                          |      |   |  |   |        |  
|Balance at September 30, 2010                                      |  |              | 5,709,839 |   |             | $ | 9,456 |                  |  | $ | 15,192                 |   |  | $                        | (148 | ) |  | $ | 24,500 |  
|                                                                   |  |              |           |   |             |   |       |                  |  |   |                        |   |  |                          |      |   |  |   |        |  

See accompanying notes to financial statements



40



---

##### Table of Contents

Hennessy Advisors, Inc.

Statements of Cash Flows



|                                                                                         |  |                                 |       |   |      |   |        |  
|---------------------------------------------------------------------------------------- |  | ------------------------------- | ----- | - | ---- | - | ------ | -
|                                                                                         |  | Fiscal Year Ended September 30, |      
|                                                                                         |  | 2010                            |       |   | 2009 |  
|                                                                                         |  | (In thousands)                  |      
|Cash flows from operating activities:                                                    |  |                                 |       |   |      |   |        |  
|Net income (loss)                                                                        |  | $                               | 913   |   |      | $ | (195   | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                                 |       |   |      |   |        |  
|Depreciation and amortization                                                            |  |                                 | 128   |   |      |   | 120    |  
|Deferred income taxes                                                                    |  |                                 | 693   |   |      |   | 562    |  
|Tax effect from restricted stock unit vesting                                            |  |                                 | (167  | ) |      |   | (164   | )
|Restricted stock units vested                                                            |  |                                 | (22   | ) |      |   | (11    | )
|Deferred restricted stock unit compensation                                              |  |                                 | 398   |   |      |   | 536    |  
|                                                                                         |  |                                
|(Increase) decrease in operating assets:                                                 |  |                                 |       |   |      |   |        |  
|Investment fee income receivable                                                         |  |                                 | (59   | ) |      |   | 110    |  
|Prepaid expenses                                                                         |  |                                 | 479   |   |      |   | (230   | )
|Other current assets                                                                     |  |                                 | (2    | ) |      |   | (3     | )
|Other assets                                                                             |  |                                 |      |   |      |   | 2      |  
|Increase (decrease) in operating liabilities:                                            |  |                                 |       |   |      |   |        |  
|Accrued liabilities and accounts payable                                                 |  |                                 | (389  | ) |      |   | 156    |  
|Income taxes payable                                                                     |  |                                 | 18    |   |      |   |       |  
|Current portion of deferred rent                                                         |  |                                 | 27    |   |      |   | 12     |  
|Long-term portion of deferred rent                                                       |  |                                 | 20    |   |      |   | (22    | )
|                                                                                         |  |                                 |       |   |      |   |        |  
|Net cash provided by operating activities                                                |  |                                 | 2,037 |   |      |   | 873    |  
|                                                                                         |  |                                 |       |   |      |   |        |  
|                                                                                         |  |                                
|Cash flows used in investing activities:                                                 |  |                                 |       |   |      |   |        |  
|Purchases of property and equipment                                                      |  |                                 | (69   | ) |      |   | (25    | )
|Payments related to acquisition of management contracts                                  |  |                                 | (64   | ) |      |   | (2,814 | )
|                                                                                         |  |                                 |       |   |      |   |        |  
|Net cash used in investing activities                                                    |  |                                 | (133  | ) |      |   | (2,839 | )
|                                                                                         |  |                                 |       |   |      |   |        |  
|                                                                                         |  |                                
|Cash flows provided by (used in) financing activities:                                   |  |                                 |       |   |      |   |        |  
|Principal payments on bank loan                                                          |  |                                 | (825  | ) |      |   | (4,558 | )
|Proceeds from amended bank loan                                                          |  |                                 | 2,000 |   |      |   |       |  
|Loan fees payments on bank loan                                                          |  |                                 | (31   | ) |      |   |       |  
|Dividend payment                                                                         |  |                                 | (522  | ) |      |   | (517   | )
|Stock repurchases                                                                        |  |                                 | (219  | ) |      |   |       |  
|                                                                                         |  |                                 |       |   |      |   |        |  
|Net cash provided by (used in) financing activities                                      |  |                                 | 403   |   |      |   | (5,075 | )
|                                                                                         |  |                                 |       |   |      |   |        |  
|                                                                                         |  |                                
|Net increase (decrease) in cash and cash equivalents                                     |  |                                 | 2,307 |   |      |   | (7,041 | )
|                                                                                         |  |                                
|Cash and cash equivalents at the beginning of the period                                 |  |                                 | 5,747 |   |      |   | 12,788 |  
|                                                                                         |  |                                 |       |   |      |   |        |  
|                                                                                         |  |                                
|Cash and cash equivalents at the end of the period                                       |  | $                               | 8,054 |   |      | $ | 5,747  |  
|                                                                                         |  |                                 |       |   |      |   |        |  
|                                                                                         |  |                                
|Supplemental disclosures of cash flow information:                                       |  |                                 |       |   |      |   |        |  
|Unrealized loss on investment                                                            |  | $                               | (2    | ) |      | $ | (51    | )
|                                                                                         |  |                                 |       |   |      |   |        |  
|Cash paid for:                                                                           |  |                                 |       |   |      |   |        |  
|Income taxes                                                                             |  | $                               | 138   |   |      | $ |       |  
|                                                                                         |  |                                 |       |   |      |   |        |  
|Interest                                                                                 |  | $                               | 36    |   |      | $ | 99     |  
|                                                                                         |  |                                 |       |   |      |   |        |  

See accompanying notes to financial statements



41



---

##### Table of Contents

Notes to Financial Statements  Fiscal Years Ended
September 30, 2010 and 2009



|(1) | Summary of the Organization, Description of Business and Significant Accounting Policies
|--- | ----------------------------------------------------------------------------------------



| | (a) | Organization and Description of Business
| | --- | ----------------------------------------

Hennessy Advisors, Inc. (the Company) was founded on February 1, 1989, as a California corporation under the name Edward J. Hennessy, Incorporated. In 1990, the Company became a
registered investment advisor and on April 15, 2001, the Company changed its name to Hennessy Advisors, Inc.

The operating activities of the Company consist primarily of providing investment management services to ten open-end mutual funds (the Hennessy Funds) and one non-registered private pooled investment
fund (the Hennessy Micro Cap Growth Fund). The Company serves as the investment advisor to all classes of the Hennessy Cornerstone Growth Fund, the Hennessy Cornerstone Growth Fund, Series II, the Hennessy Cornerstone Large Growth Fund, the Hennessy
Focus 30 Fund, the Hennessy Cornerstone Value Fund, the Hennessy Select Large Value Fund, the Hennessy Select SPARX Japan Fund, the Hennessy Select SPARX Japan Smaller Companies Fund, the Hennessy Total Return Fund, and the Hennessy Balanced Fund;
and the Managing Member to the Hennessy Micro Cap Growth Fund, LLC (the Micro Cap Fund).

The
Companys operating revenues consist of contractual management and shareholder servicing fees. The Company earns management fees through portfolio management of mutual funds and a private pooled equity fund. The Company earns shareholder
servicing fees by assisting customers in purchases, sales, distribution and customer service. The revenues are earned and calculated daily by the fund accountants at US Bancorp Fund Services, LLC. The fees are computed and billed monthly, at which
time they are recognized in accordance with ASC 605.

The Company waives fees to comply with contractual
expense ratio limitations. The fee waivers are calculated daily by the fund accountants at US Bancorp Fund Services, LLC and are expensed monthly by the Company as an offset to revenue. The fees are deducted from the management fee income, and are
deducted from the funds received from US Bancorp Fund Services, LLC in the subsequent month. To date, the Company has only waived fees based on contractual obligations, but the Company has the ability to waive fees at its discretion to compete with
other mutual funds with lower expense ratios. If the Company were to elect to waive fees, then the decision to waive fees would not apply to previous periods, but would only apply on a going forward basis. As of September 30, 2010, the Company
has never voluntarily waived, and has no current intention to waive fees.

Incentive income can only be earned
on the assets in the private pooled equity fund, the Hennessy Micro Cap Growth Fund. Incentive income is earned only if the value of the Micro Cap Growth Fund assets is above a high water mark (described in the Management
Agreements and Fees section of Item 1). The incentive fee is calculated and earned on the last day of the quarter, at which point it would be recognized in accordance with ASC 605. The incentive income is not subject to any clawback
provisions.

The Company earns management fees through portfolio management of mutual funds and a private
pooled equity fund, and earns shareholder servicing fees by assisting customers in purchases, sales, distribution and customer service. The revenues are earned and calculated daily by the fund accountants. In accordance with the FASB
guidance on revenue recognition, the fees are recognized monthly by the Company. The Companys contractual agreements provide persuasive evidence that an arrangement exists with fixed and determinable fees, and the services are rendered
daily. The collectability is probable as the fees are received from the fund accountants in the month subsequent to the month in which the services are provided.



42



---

##### Table of Contents



| | (b) | Cash and Cash Equivalents
| | --- | -------------------------

Cash and cash equivalents include all cash balances and highly liquid investments which are readily convertible into cash.



| | (c) | Investments
| | --- | -----------

Investments in highly liquid financial instruments with remaining maturities less than one year are classified as
short-term investments. Financial instruments with remaining maturities greater than one year are classified as long-term investments. A table of investments is included in Footnote 4.

Marketable securities classified as available-for-sale are reported at fair value, with net unrealized gains or losses
recorded in accumulated other comprehensive income (loss), a separate component of stockholders equity, until realized. Realized gains and losses on investments are computed based upon specific identification and are included in interest and
other income (expense), net. Investments designated as trading securities are stated at fair value, with gains or losses resulting from changes in fair value recognized in the income statement.

The Company holds investments in publicly traded mutual funds which are accounted for as trading securities. Accordingly,
any unrealized gains and losses on the investments are recognized currently in operations.

Dividend income is
recorded on the ex-dividend date. Purchases and sales of marketable securities are recorded on a trade date basis, and realized gains and losses recognized on sale are determined on a specific identification/average cost basis.

The Company also holds an investment in the Micro Cap Fund. The investment is classified as an available-for-sale
security, and is included on the balance sheet at market value. Accordingly, any unrealized gains and losses on the investment is recognized as other comprehensive in equity.

The investment in the Micro Cap Fund represents approximately 22.7% of the total subscriptions in the Micro Cap Fund. The
Micro Cap Fund is a limited liability company for which the Company is the Managing Member. The value of the investment at September 30, 2010 was $0.4 million.

The accounting method the Company uses for equity investments is generally dependent upon the influence the Company has
over the investee. If there are investments such as the Micro Cap Fund where the Company can exert control over the financial and operating policies of the investee, which generally exists if there is a 50% or greater voting interest, the investee
will be consolidated into the Companys financial statements. Further, as managing member of the Micro Cap Fund, the Company is generally presumed to control the Micro Cap Fund (and should consolidate the fund into the Companys financial
statements) unless this presumption is overcome because members of the Micro Cap Fund other than the Company and its affiliates have the substantive ability to dissolve the Micro Cap Fund or otherwise remove the Company as the managing member
without cause. After considering Financial Accounting Standards Board (FASB) guidance on investment in equity and variable interest entities with respect to the investment in the Micro Cap Fund, the Company determined that the Micro Cap Fund should
not be consolidated because the investment is less than 25% of the total investment, and the Company can be removed from the position of managing member at any time, with or without cause, by the vote of the other members owning a
majority-in-interest of the capital accounts of the Disinterested Members (defined as members other than members who are the Managing Member or affiliates of the Managing Member).



43



---

##### Table of Contents



| | (d) | Management Contracts Acquired
| | --- | -----------------------------

The Company was appointed as investment advisor to the Hennessy Cornerstone Growth Fund and the Hennessy Cornerstone Value Fund concurrent with its licensing of patented automated investment strategies
from Netfolio, Inc. in June 2000.

The initial management contracts acquired were capitalized at $4,190,840. In
February of 2002, the Company recorded $918,675 as the incremental value of management contracts acquired in connection with its mergers with Hennessy Management Co. L.P. and Hennessy Management Co. 2 L.P. Until February 28, 2002, the Hennessy
Balanced Fund and the Hennessy Total Return Fund were managed by Hennessy Management Co., L.P. and Hennessy Management Co. 2, L.P., respectively, each of which was a California limited partnership. Hennessy Advisors was the general partner of each
limited partnership and as general partner, performed all advisory functions on behalf of the partnerships for the funds. In order to consolidate all investment advisory activities directly into Hennessy Advisors, the limited partners of these
limited partnerships agreed to merge the partnerships into Hennessy Advisors, subject to the closing of an initial minimum public offering of common stock, which occurred on February 28, 2002. Limited partners received an aggregate of 306,248
shares of common stock and cash of $11,275, in exchange for their partnership interests in the merger, and the Company was appointed advisor to the Hennessy Balanced Fund and the Total Return Fund.

In accordance with the FASB guidance on Intangibles  Goodwill and Other, effective June 30, 2001,
intangible assets with an indefinite life are not subject to amortization. Accordingly, the Company ceased amortization of the contracts acquired in connection with the mergers of the partnerships as of the effective date.

On September 18, 2003, the Company was appointed investment advisor to the Hennessy Focus 30 Fund, concurrent with
the acquisition of all the assets of the SYM Select Growth Fund, which were immediately merged into the Hennessy Focus 30 Fund.

On March 11, 2004, Hennessy Advisors, Inc. completed the acquisition of the management contract for the majority of the mutual fund assets managed by Lindner Asset Management, Inc.
(Lindner), based in Deerfield, Illinois. In conjunction with the Asset Purchase Agreement, the assets of five of Lindners mutual funds were merged into four of the five Hennessy Funds. The purchase price was $7.95 million which
equaled 2.625% of the $300 million in assets under management on the closing date. The transaction was funded through a credit facility provided by US Bank National Association.

On July 1, 2005, we completed the acquisition of the management contract for The Henlopen Fund from Landis Associates
LLC and Michael L. Hershey. We paid $6.7 million, which equaled 2.25% of the $299 million in assets under management at the close of business on June 30, 2005. The purchase price was allocated $5.1 million to the management contract and $1.6
million to a three year non-compete agreement with Michael L. Hershey. The non-compete agreement was amortized on a straight-line basis over three years. The transaction was financed by U.S. Bank National Association. Following completion of the
acquisition, we changed the name of The Henlopen Fund to the Hennessy Cornerstone Growth Fund, Series II (symbol HENLX), and began to implement our investment strategy for Series II. The indebtedness we incurred to acquire the management agreement
of The Henlopen Fund was rolled into a single loan with the indebtedness we incurred to acquire the management agreements of the Lindner Funds. As of September 30, 2010, we had $3.13 million of principal outstanding under our bank loan, which
bears interest at U.S. Bank National Associations prime rate, as set by U.S. Bank National Association from time to time, less one percent, per a loan amendment dated February 1, 2007. The banks prime rate, which may change from
time to time, is currently 3.25% (last changed on December 17, 2008), making the current effective interest rate 2.25%. An additional installment of $3.5 million was paid on December 29, 2008, and the loan was amended to require 20 monthly
payments in the amount of $68,750 plus interest, with the final installment of the then outstanding principal and interest due on September 30, 2010. The Company borrowed an additional $2.0 million on September 27, 2010, and the loan was
amended to require 60 monthly payments in the amount of $52,083 plus interest, with the final installment of the then outstanding principal and interest due on September 30, 2015.



44



---

##### Table of Contents

In March and September 2009, respectively, we acquired the management
agreements for two funds managed by RBC Global Asset Management (U.S.) Inc. (the Tamarack Large Cap Growth Fund and the Tamarack Value Fund), and we acquired the management agreements for two funds managed by SPARX Investment & Research,
USA, Inc. and sub-advised by SPARX Asset Management Co., Ltd. (the Select SPARX Japan Fund and the Hennessy Select SPARX Japan Smaller Companies Fund). We were able to fund these acquisitions from existing cash and did not have to incur any
additional debt.

The Company periodically reviews the carrying value of management contracts acquired to
determine if any impairment has occurred. The fair value of management contracts are based on management estimates and assumptions, including third-party valuations that utilize appropriate valuation techniques. The fair value of the management
contracts was estimated by applying the income approach. It is the opinion of the Companys management that there was no impairment as of September 30, 2010.

Under the FASB guidance on Intangibles  Goodwill and Other, intangible assets that have indefinite
useful lives are not amortized but tested at least annually for impairment. The Company reviews the life of the management contracts each reporting period to determine if they continue to have an indefinite useful life. The Company considers the
mutual fund management contracts to be intangible assets with an indefinite useful life as of September 30, 2010.



| | (e) | Fair Value of Financial Instruments
| | --- | -----------------------------------

The FASB guidance on Disclosures about Fair Value of Financial Instruments requires disclosures regarding the fair value of all financial instruments for financial statement purposes. The
estimates presented in these statements are based on information available to management as of September 30, 2010. Accordingly, the fair value presented in financial statements for the year then ended may not be indicative of amounts that could
be realized on disposition of the financial instruments. The fair value of receivables, accounts payable and notes payable has been estimated at carrying value due to the short maturity of these instruments. The fair value of management contracts
acquired is estimated at the cost of acquisition. The fair value of marketable securities and money market accounts is based on closing net asset values as reported by securities exchanges registered with the Securities and Exchange Commission.



| | (f) | Property and Equipment
| | --- | ----------------------

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally one to ten years.



| | (g) | Income Taxes
| | --- | ------------

Effective October 1, 2007, the Company adopted the FASB guidance on Accounting for Uncertainty in Income
Tax. It prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a companys income tax return, and also provides
guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The FASB guidance utilizes a two-step approach for evaluating uncertain tax positions. Step one, recognition, requires a
company to determine if the weight of available evidence indicates that a tax position is more likely than not to be sustained upon audit, including resolution of related appeals or litigation processes, if any. Step two, measurement, is based on
the largest amount of benefit, which is more likely than not to be realized on ultimate settlement. The cumulative effect of adopting the FASB guidance on October 1, 2007 is recognized as a change in accounting principle, recorded as an
adjustment to the opening balance of retained earnings on the adoption date. As a result of the implementation of FASB guidance, the Company did not recognize any increase or decrease in the liability for unrecognized tax benefits related to tax
positions taken in prior periods, therefore, there was no corresponding adjustment in retained earnings.



45



---

##### Table of Contents

Upon adoption of the FASB guidance on Accounting for Uncertainty in
Income Tax, the Companys policy to include interest and penalties related to unrecognized tax benefits within the Companys provision for (benefit from) income taxes, did not change. As of September 30, 2010, the Company did
not have any accrual for payment of interest and penalties related to unrecognized tax benefits.

The Company
did not have any amounts of unrecognized tax benefits as of October 1, 2007 (adoption date) and September 30, 2010. Also, the Company did not have any amounts of unrecognized tax benefits that, if recognized, would affect its
effective tax rate.

The Company files U.S. federal and state tax returns and has determined that its
major tax jurisdictions are the United States and California. The tax years ended in 2006 through 2009 remain open and subject to examination by the appropriate governmental agencies in the U.S., and the 2005 through 2009 tax years remain
open in California.

The Companys effective tax rate of 42.4% and 18.2% for the fiscal years ended
September 30, 2010 and 2009, respectively, differ from the federal statutory rate of 34% primarily due to the effects of state income taxes.



| | (h) | Earnings Per Share
| | --- | ------------------

Basic earnings per share is determined by dividing net earnings by the weighted average number of shares of common stock outstanding, while diluted earnings per share is determined by dividing net
earnings by the weighted average number of shares of common stock outstanding adjusted for the dilutive effect of common stock equivalents.

There were 693,750 and 807,638 common stock equivalents, consisting of unexercised options and unvested RSUs, excluded from the per share calculations for the year ended September 30, 2010 and 2009,
respectively, because they were anti-dilutive.



| | (i) | Authorized Common and Preferred Shares
| | --- | --------------------------------------

Authorized common and preferred shares are 15.0 million and 5.0 million shares, respectively.



| | (j) | Stock-Based Compensation
| | --- | ------------------------

On May 2, 2001, the Company established an incentive plan (the Plan) providing for the issuance of options, stock appreciation rights, restricted stock, performance awards, and stock loans for the
purpose of attracting and retaining executive officers and key employees. The maximum number of shares which may be issued under the Plan is 25% of the outstanding common stock of the Company, subject to adjustment by the compensation committee of
the Board of Directors. The 25% limitation does not invalidate any awards made prior to a decrease in the number of outstanding shares, even though such awards have resulted or may result in shares constituting more than 25% of the outstanding
shares being available for issuance under the Plan. Shares available under the Plan which are not awarded in one particular year may be awarded in subsequent years. The compensation committee of the Board of Directors has the authority to determine
the awards granted under the Plan, including among other things, the individuals who receive the awards, the times when they receive them, vesting schedules, performance goals, whether an option is an incentive or nonqualified option and the number
of shares to be subject to each award. However, no participant may receive options or stock appreciation rights under the Plan for an aggregate of more than 75,000 shares in any calendar year. The exercise price and term of each option or stock
appreciation right will be fixed by the compensation committee except that the exercise price for each stock option which is intended to qualify as an incentive stock option must be at least equal to the fair market value of the stock on the date of
grant and the term of the option cannot exceed 10 years. In the case of an incentive stock option granted to a 10% shareholder, the exercise price must be at least 110% of the fair market value on the date of grant and cannot exceed five years.
Incentive stock options may be granted only within ten years from the date of adoption of the Plan. The aggregate fair market value (determined at the time the option is granted) of shares with respect to which incentive stock options may be granted
to any one individual, which stock options are exercisable for the first time during any calendar year, may not exceed $100,000. An optionee may, with the consent of the compensation committee, elect to pay for the shares to be received upon
exercise of their options in cash or shares of common stock or any combination thereof.



46



---

##### Table of Contents

As the exercise price of all options granted under the Plan was equal to the
market price of the underlying common stock on the grant date and all options were granted and fully vested prior to the adoption of the revised FASB guidance on Stock Compensation, no stock-based employee compensation cost related to options
granted was recognized in net income. There were no options granted during the fiscal years ended September 30, 2010 and 2009.

Effective October 1, 2005, the Company adopted the fair value recognition provisions of the revised FASB guidance on Stock Compensation under the Modified Perspective method in accordance
with the transition and disclosure provisions of the codification. All compensation costs related to restricted stock units vested during the years ended September 30, 2010 and 2009 have been recognized in our financial statements.

The Company has reserved up to 1,427,460 options for shares of the Companys common stock, in accordance with terms
of the Plan. An aggregate of 669,050 options have been granted to certain employees, executive officers, and directors of the Company as of September 30, 2010. These options were fully vested at the date of grant, and have a weighted average
exercise price of $4.46 per share. Through September 30, 2010, there was no activity, leaving 669,050 options fully vested and exercisable as of that date.

A summary of the status of stock options granted is presented in the following table for the fiscal years ended September 30, 2010 and 2009:



47



---

##### Table of Contents



|                         |  |                  |         |  |                            |   |      |                                        |  |  |                         |  |  |   |         | 
|------------------------ |  | ---------------- | ------- |  | -------------------------- | - | ---- | -------------------------------------- |  |  | ----------------------- |  |  | - | ------- | 
|                         |  | Number OfOptions |         |  | Weighted Avg.ExercisePrice |   |      | Weighted Avg.RemainingContractual Term |  |  | AggregateIntrinsicValue | 
|                         |  |                  |         | 
|Outstanding at 9/30/2008 |  |                  | 669,050 |  |                            | $ | 4.46 |                                        |  |  | 4.82 years              |  |  | $ | 355,511 | 
|                         |  |                  |         | 
|Granted                  |  |                  |        |  |                            |   |     |                                        |  |  |                         |  |  |   |         | 
|Exercised                |  |                  |        |  |                            |   |     |                                        |  |  |                         |  |  |   |         | 
|Forfeited                |  |                  |        |  |                            |   |     |                                        |  |  |                         |  |  |   |         | 
|Expired                  |  |                  |        |  |                            |   |     |                                        |  |  |                         |  |  |   |         | 
|                         |  |                  |         |  |                            |   |      |                                        |  |  |                         |  |  |   |         | 
|                         |  |                  |         | 
|Outstanding at 9/30/2009 |  |                  | 669,050 |  |                            | $ | 4.46 |                                        |  |  | 3.82 years              |  |  | $ | 0       | 
|                         |  |                  |         | 
|Granted                  |  |                  |        |  |                            |   |     |                                        |  |  |                         |  |  |   |         | 
|Exercised                |  |                  |        |  |                            |   |     |                                        |  |  |                         |  |  |   |         | 
|Forfeited                |  |                  |        |  |                            |   |     |                                        |  |  |                         |  |  |   |         | 
|Expired                  |  |                  |        |  |                            |   |     |                                        |  |  |                         |  |  |   |         | 
|                         |  |                  |         |  |                            |   |      |                                        |  |  |                         |  |  |   |         | 
|                         |  |                  |         | 
|Outstanding at 9/30/2010 |  |                  | 669,050 |  |                            | $ | 4.46 |                                        |  |  | 2.82 years              |  |  | $ | 0       | 
|                         |  |                  |         |  |                            |   |      |                                        |  |  |                         |  |  |   |         | 
|                         |  |                  |         | 
|Exercisable at 9/30/2010 |  |                  | 669,050 |  |                            | $ | 4.46 |                                        |  |  | 2.82 years              |  |  | $ | 0       | 
|                         |  |                  |         |  |                            |   |      |                                        |  |  |                         |  |  |   |         | 

During the years ended September 30, 2010 and 2009, the Company did not issue
stock options or restricted stock units (RSU) under its 2001 Omnibus Plan. Under the Companys 2001 Omnibus Plan, participants may be granted RSUs, representing an unfunded, unsecured right to receive a Company common share on
the date specified in the recipients award. The Company issues new shares for shares delivered for RSU recipients. The RSU granted under this plan vests over four years at the rate of 25 percent per year. The Company recognizes compensation
expense on a straight-line basis over the four-year vesting term of each award. RSU activity for the years ended September 30, 2010 and 2009 was as follows:



48



---

##### Table of Contents



|                                         |  |                                                                        |         |   |                                     |   |       | 
|---------------------------------------- |  | ---------------------------------------------------------------------- | ------- | - | ----------------------------------- | - | ----- | 
|                                         |  | Restricted Stock Unit 
ActivityYears Ended September 30, 2010 and 2009 |        
|                                         |  | Number of RestrictedShare
Units                                        |         |   | Weighted Avg.Fair Value atEach Date |  
|Non-vested Balance at September 30, 2008 |  |                                                                        | 88,596  |   |                                     | $ | 12.26 | 
|                                         |  |                                                                       
|Granted                                  |  |                                                                        | 61,000  |   |                                     | $ | 2.66  | 
|                                         |  |                                                                       
|Vested (1)                               |  |                                                                        | (53,335 | ) |                                     | $ | 9.88  | 
|                                         |  |                                                                       
|Forfeited                                |  |                                                                        |        |   |                                     | $ |      | 
|                                         |  |                                                                        |         |   |                                     |   |       | 
|Non-vested Balance at September 30, 2009 |  |                                                                        | 96,261  |   |                                     | $ | 7.40  | 
|                                         |  |                                                                       
|Granted                                  |  |                                                                        |        |   |                                     | $ |      | 
|                                         |  |                                                                       
|Vested (1)                               |  |                                                                        | (41,233 | ) |                                     | $ | 9.49  | 
|                                         |  |                                                                       
|Forfeited                                |  |                                                                        | (11,500 | ) |                                     | $ | 5.23  | 
|                                         |  |                                                                        |         |   |                                     |   |       | 
|Non-vested Balance at September 30, 2010 |  |                                                                        | 43,528  |   |                                     | $ | 7.65  | 
|                                         |  |                                                                        |         |   |                                     |   |       | 



|(1) | The restricted share units vested includes partially vested shares. Shares of common stock have not been issued for the partially vested shares, but the related
compensation costs have been expensed. There were 51,509 and 39,356 shares of common stock issued for restricted stock units vested in the fiscal years ended September 30, 2010 and 2009, respectively.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                         |  |                |        |  
|------------------------------------------------------------------------ |  | -------------- | ------ | -
|Restricted Stock Unit
Compensation Fiscal Year Ended September 30, 2010  | 
|                                                                         |  | (In Thousands) |       
|Total expected compensation expense related to Restricted Stock Units    |  | $              | 2,181  |  
|                                                                         | 
|Compensation Expense recognized as of September 30, 2010                 |  |                | (1,927 | )
|                                                                         |  |                |        |  
|                                                                         | 
|Unrecognized compensation expense related to RSUs at September 30, 2010 |  | $              | 254    |  
|                                                                         |  |                |        |  

As of September 30, 2010, there was $0.3 million of total RSU compensation expense
related to non-vested awards not yet recognized which is expected to be recognized over a weighted-average vesting period of 1.8 years.



49



---

##### Table of Contents



| | (k) | Use of Estimates
| | --- | ----------------

The preparation of financial statements in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ from those estimates.



|(2) | Investment Advisory Agreements
|--- | ------------------------------

Pursuant to investment management agreements (the Agreements), the Company provides investment advisory services to all
classes of the ten Hennessy Funds. The Agreements are renewable annually based upon approval by a majority of the Funds disinterested directors. Additionally, each agreement may be terminated prior to its expiration upon 60 days notice by
either the Company or the Fund.

As provided in the Agreements with the ten Hennessy Funds, the Company receives investment
advisory fees monthly based on a percentage of the respective Funds average daily net assets.

The Company has entered
into sub-advisory agreements covering the Hennessy Select Series of Funds with the same asset management companies that previously managed the Funds. Under these agreements, the sub-advisor is responsible for the investment and re-investment of the
assets of the fund, in accordance with the terms of the sub-advisory agreement, the funds Prospectus and the funds Statement of Additional Information and subject to the direction, supervision and control of Hennessy Advisors, the
manager of the Hennessy Select Series of Funds, and the Trustees of the Hennessy Select Series of Funds.

In exchange for the
sub-advisory services, the Company (not the funds) pays a sub-advisor fee to the sub-advisors, which is based on the amount of each funds average daily net assets.

The Company was also appointed the Managing Member of the Micro Cap Fund. The annual advisory fee for the Micro Cap Fund is 2.0% of the aggregate capital accounts of the members, but no management fee is
charged to the capital account of the Managing Member. An additional incentive allocation can potentially be earned on any members balance, other than the Managing Member, as discussed in Item 1 under Management
Agreements and Fees.



|(3) | Fair Value Measurement
|--- | ----------------------

As of
October 1, 2008, the Company adopted FASB standard Fair Value Measurements for all financial assets and liabilities, which establishes a framework for measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements. The standard defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. It also establishes a fair value hierarchy consisting of the following three levels that prioritize the inputs to the valuation techniques used to measure fair value:



| |  |  | Level 1  quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 2  from other than quoted market prices that are observable for the asset or liability, either directly or indirectly (namely, similar
assets or from markets that are not active).
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3  unobservable and shall be used to measure fair value to the extent that observable inputs are not available (namely, reflecting an
entitys own assumptions).
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



50



---

##### Table of Contents

Based on the standards definitions, the following table represents the Companys
financial assets categorized in the level 1 to 3 hierarchy as of September 30, 2010:



|                                          |  |                                                                 |       |  |         |   |     |         |  |   |       |  |  |   |       | 
|----------------------------------------- |  | --------------------------------------------------------------- | ----- |  | ------- | - | --- | ------- |  | - | ----- |  |  | - | ----- | 
|                                          |  | Fair Value Measurements at Reporting
Date(amounts in thousands) |      
|                                          |  | Level 1                                                         |       |  | Level 2 |   |     | Level 3 |  |   | Total | 
|                                          |  |                                                                 |       | 
|Money market fund deposits                |  | $                                                               | 7,035 |  |         | $ |    |         |  | $ |      |  |  | $ | 7,035 | 
|Mutual fund investments                   |  |                                                                 | 5     |  |         |   |    |         |  |   |      |  |  |   | 5     | 
|Investment in domestic equities           |  |                                                                 |      |  |         |   | 364 |         |  |   |      |  |  |   | 364   | 
|                                          |  |                                                                 |       |  |         |   |     |         |  |   |       |  |  |   |       | 
|                                          |  |                                                                 |       | 
|Total                                     |  | $                                                               | 7,040 |  |         | $ | 364 |         |  | $ |      |  |  | $ | 7,404 | 
|                                          |  |                                                                 |       |  |         |   |     |         |  |   |       |  |  |   |       | 
|                                          |  |                                                                 |       | 
|Amounts included in:                      |  |                                                                 |       |  |         |   |     |         |  |   |       |  |  |   |       | 
|Cash and cash equivalents                 |  | $                                                               | 7,035 |  |         | $ |    |         |  | $ |      |  |  | $ | 7,035 | 
|Investments in marketable securities      |  |                                                                 | 5     |  |         |   |    |         |  |   |      |  |  |   | 5     | 
|Investment in the Hennessy Micro Cap Fund |  |                                                                 |      |  |         |   | 364 |         |  |   |      |  |  |   | 364   | 
|                                          |  |                                                                 |       |  |         |   |     |         |  |   |       |  |  |   |       | 
|                                          |  |                                                                 |       | 
|Total                                     |  | $                                                               | 7,040 |  |         | $ | 364 |         |  | $ |      |  |  | $ | 7,404 | 
|                                          |  |                                                                 |       |  |         |   |     |         |  |   |       |  |  |   |       | 



|(4) | Investments
|--- | -----------

The cost, gross
unrealized gains, gross unrealized losses, and fair market value of our trading investment at the years ended September 30 are as follows:

The mutual fund investments are included as a separate line item in current assets on the balance sheets.



|                        |  |      |   |  |                      |   |   |                       |  |   |       |   |  |   |   | 
|----------------------- |  | ---- | - |  | -------------------- | - | - | --------------------- |  | - | ----- | - |  | - | - | 
|                        |  | Cost |   |  | GrossUnrealizedGains |   |   | GrossUnrealizedLosses |  |   | Total |  
|(in thousands)          |  |      |   |  |                      |   |   |                       |  |   |       |  
|2010                    |  |      |   |  |                      |   |   |                       |  |   |       |   |  |   |   | 
|                        |  |      |   | 
|Mutual fund investments |  | $    | 5 |  |                      | $ | 1 |                       |  | $ | (1    | ) |  | $ | 5 | 
|                        |  |      |   |  |                      |   |   |                       |  |   |       |   |  |   |   | 
|Total                   |  | $    | 5 |  |                      | $ | 1 |                       |  | $ | (1    | ) |  | $ | 5 | 
|                        |  |      |   |  |                      |   |   |                       |  |   |       |   |  |   |   | 
|                        |  |      |   | 
|2009                    |  |      |   |  |                      |   |   |                       |  |   |       |   |  |   |   | 
|                        |  |      |   | 
|Mutual fund investments |  | $    | 5 |  |                      | $ | 1 |                       |  | $ | (1    | ) |  | $ | 5 | 
|                        |  |      |   |  |                      |   |   |                       |  |   |       |   |  |   |   | 
|Total                   |  | $    | 5 |  |                      | $ | 1 |                       |  | $ | (1    | ) |  | $ | 5 | 
|                        |  |      |   |  |                      |   |   |                       |  |   |       |   |  |   |   | 



51



---

##### Table of Contents

The cost, gross unrealized gains, gross unrealized losses, and fair market value of our
available-for-sale investment at the years ended September 30 are as follows:



|                                          |  |      |     |  |                      |   |     |                       |  |   |       |   |  |   |     | 
|----------------------------------------- |  | ---- | --- |  | -------------------- | - | --- | --------------------- |  | - | ----- | - |  | - | --- | 
|                                          |  | Cost |     |  | GrossUnrealizedGains |   |     | GrossUnrealizedLosses |  |   | Total |  
|(in thousands)                            |  |      |     |  |                      |   |     |                       |  |   |       |  
|2010                                      |  |      |     |  |                      |   |     |                       |  |   |       |   |  |   |     | 
|                                          |  |      |     | 
|Investment in the Hennessy Micro Cap Fund |  | $    | 366 |  |                      | $ | 59  |                       |  | $ | (61   | ) |  | $ | 364 | 
|                                          |  |      |     |  |                      |   |     |                       |  |   |       |   |  |   |     | 
|Total                                     |  | $    | 366 |  |                      | $ | 59  |                       |  | $ | (61   | ) |  | $ | 364 | 
|                                          |  |      |     |  |                      |   |     |                       |  |   |       |   |  |   |     | 
|                                          |  |      |     | 
|2009                                      |  |      |     |  |                      |   |     |                       |  |   |       |   |  |   |     | 
|                                          |  |      |     | 
|Investment in the Hennessy Micro Cap Fund |  | $    | 417 |  |                      | $ | 104 |                       |  | $ | (155  | ) |  | $ | 366 | 
|                                          |  |      |     |  |                      |   |     |                       |  |   |       |   |  |   |     | 
|Total                                     |  | $    | 417 |  |                      | $ | 104 |                       |  | $ | (155  | ) |  | $ | 366 | 
|                                          |  |      |     |  |                      |   |     |                       |  |   |       |   |  |   |     | 

The investment in the Hennessy Micro Cap Fund is included as a separate line item in non-current assets on
the balance sheets.



|(5) | Property and Equipment
|--- | ----------------------

Property
and equipment were comprised of the following at the fiscal years ended:



|                               |  |               |         |  |      |   |         | 
|------------------------------ |  | ------------- | ------- |  | ---- | - | ------- | 
|                               |  | September 30, |        
|                               |  | 2010          |         |  | 2009 |  
|                               |  |              
|Equipment                      |  | $             | 238,712 |  |      | $ | 251,832 | 
|Leasehold improvements         |  |               | 128,207 |  |      |   | 128,207 | 
|Furniture and fixtures         |  |               | 122,516 |  |      |   | 145,394 | 
|IT Infrastructure              |  |               | 46,538  |  |      |   | 46,538  | 
|Software                       |  |               | 27,438  |  |      |   | 16,312  | 
|                               |  |               |         |  |      |   |         | 
|                               |  |               | 563,411 |  |      |   | 588,283 | 
|                               |  |              
|Less: accumulated depreciation |  |               | 383,019 |  |      |   | 366,577 | 
|                               |  |               |         |  |      |   |         | 
|                               |  | $             | 180,392 |  |      | $ | 221,706 | 
|                               |  |               |         |  |      |   |         | 



|(6) | Acquisition Cost
|--- | ----------------

The
organization costs related to the Companys acquisition of management contracts are capitalized as incurred. The management contract asset was $22.3 million as of September 30, 2010 compared to $22.2 million at the end of the prior
comparable period. The costs are defined as an intangible asset per FASB standard Intangibles  Goodwill and Other. The organization costs include legal fees, shareholder vote fees and percent of asset costs to acquire
the management contracts. In March and September 2009, respectively, we acquired the management agreements for two funds managed by RBC Global Asset Management (U.S.) Inc. (the Tamarack Large Cap Growth Fund and the Tamarack Value Fund), and we
acquired the management agreements for two funds managed by SPARX Investment & Research, USA, Inc. and sub-advised by SPARX Asset Management Co., Ltd. (the Hennessy Select SPARX Japan Fund and the Hennessy Select SPARX Japan Smaller
Companies Fund). The acquisition costs related to these transactions were included in the management contract asset as of September 30, 2010.



52



---

##### Table of Contents



|(7) | Bank Loan
|--- | ---------

On March 11,
2004, Hennessy Advisors, Inc. secured financing from US Bank National Association to acquire the management contracts for certain Lindner funds in the amount of $7.9 million. The loan agreement required fifty-nine (59) monthly payments in the
amount of $94,060 plus interest at the banks prime rate as it may change from time to time and was secured by the Companys assets. On July 1, 2005, the loan was amended to provide an additional $6.7 million to fund acquisition of
the management contract for the Henlopen Fund. An additional $2.0 million was loaned to the Company on September 27, 2010, and the loan was amended to require 60 monthly payments in the amount of $52,083 plus interest at the banks prime
rate (currently 3.25%, in effect since December 17, 2008) less one percent (effective interest rate of 2.25%) and is secured by the Companys assets. The final installment of the then outstanding principal and its interest are due
September 30, 2015. The loan balance is $3.13 million as of September 30, 2010 compared to $1.95 million at the end of the prior comparable period. The note maturity schedule is as follows:



|                         |  |   |           | 
|------------------------ |  | - | --------- | 
|Year ended September 30: |  |   |          
|                         | 
|2011                     |  | $ | 572,917   | 
|2012                     |  |   | 625,000   | 
|2013                     |  |   | 625,000   | 
|2014                     |  |   | 625,000   | 
|2015                     |  |   | 677,083   | 
|                         |  |   |           | 
|Total                    |  | $ | 3,125,000 | 
|                         |  |   |           | 

The loan agreement includes certain reporting requirements and loan covenants requiring the maintenance of
certain financial ratios.

In connection with securing the financing discussed above, Hennessy Advisors, Inc. incurred loan
costs in the amount of $31,250. These costs are included in other assets and the unamortized balance of $31,250 (as of the loan amendment date of September 27, 2010) is being amortized on a straight-line basis over 60 months. Amortization
expense during the fiscal year ended September 30, 2010 was $17,324 compared to $15,992 for the prior comparable period. Future amortization expense is as follows:



|                         |  |   |        | 
|------------------------ |  | - | ------ | 
|Year ended September 30: |  |   |       
|                         | 
|2011                     |  | $ | 6,250  | 
|2012                     |  |   | 6,250  | 
|2013                     |  |   | 6,250  | 
|2014                     |  |   | 6,250  | 
|2015                     |  |   | 6,250  | 
|                         |  |   |        | 
|Total                    |  | $ | 31,250 | 
|                         |  |   |        | 



|(8) | Income Taxes
|--- | ------------

The provision for income taxes is comprised of the following for the years ended September 30, 2010 and 2009:



|          |  |      |         |  |      |   |          |  
|--------- |  | ---- | ------- |  | ---- | - | -------- | -
|          |  | 2010 |         |  | 2009 |  
|          |  |     
|Current:  |  |      |         |  |      |   |          |  
|Federal   |  | $    | 143,300 |  |      | $ | (445,700 | )
|State     |  |      | 800     |  |      |   | 3,200    |  
|          |  |      |         |  |      |   |          |  
|          |  |      | 144,100 |  |      |   | (442,500 | )
|          |  |      |         |  |      |   |          |  
|          |  |     
|Deferred: |  |      |         |  |      |   |          |  
|Federal   |  |      | 442,500 |  |      |   | 407,900  |  
|State     |  |      | 84,500  |  |      |   | (9,000   | )
|          |  |      |         |  |      |   |          |  
|          |  |      | 527,000 |  |      |   | 398,900  |  
|          |  |      |         |  |      |   |          |  
|          |  |     
|          |  | $    | 671,100 |  |      | $ | (43,600  | )
|          |  |      |         |  |      |   |          |  



53



---

##### Table of Contents

The principal reasons for the differences from the federal statutory rate of
34% are as follows:



|                              |  |      |       |   |      |  |        |  
|----------------------------- |  | ---- | ----- | - | ---- |  | ------ | -
|                              |  | 2010 |       |   | 2009 | 
|                              |  |     
|Federal tax at statutory rate |  |      | 34.00 | % |      |  | 34.00  | %
|State tax at statutory rate   |  |      | 5.57  |   |      |  | 5.83   |  
|Permanent differences         |  |      | 2.79  |   |      |  | (21.59 | )
|                              |  |      |       |   |      |  |        |  
|                              |  |     
|Income tax provision          |  |      | 42.36 | % |      |  | 18.24  | %
|                              |  |      |       |   |      |  |        |  

The effective tax rate for the fiscal year ended September 30, 2009 resulted from the relative magnitude of
the operating loss to the nominal size of that years permanent tax differences. (The permanent differences consist of book expenses that are not tax deductible, specifically keyman insurance premiums, fifty percent of meals and entertainment
expense and club membership fees.) The positive tax rate in the fiscal year ended September 30, 2010 is due to the net income before tax in the current period. The permanent tax differences in total value decreased by $0.01 million, or 8.5%,
from the prior comparable period.

The tax effects of temporary differences that give rise to significant portions of deferred
tax assets and liabilities as of September 30, 2010 and 2009 are presented below:



|                                     |  |      |            |   |      |   |            |  
|------------------------------------ |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                     |  | 2010 |            |   | 2009 |  
|Current deferred tax assets:         |  |      |            |   |      |   |            |  
|Accrued compensation                 |  | $    | 83,200     |   |      | $ | 160,200    |  
|Accrued rent                         |  |      | 0          |   |      |   | 1,500      |  
|Net operating loss                   |  |      | 34,800     |   |      |   | 71,700     |  
|Other                                |  |      | 0          |   |      |   | 7,200      |  
|                                     |  |      |            |   |      |   |            |  
|Total deferred tax assets            |  |      | 118,000    |   |      |   | 240,600    |  
|                                     |  |      |            |   |      |   |            |  
|                                     |  |     
|Noncurrent deferred tax liabilities: |  |      |            |   |      |   |            |  
|Property and equipment               |  |      | (9,000     | ) |      |   | (21,800    | )
|Management contracts                 |  |      | (3,168,000 | ) |      |   | (2,585,100 | )
|                                     |  |      |            |   |      |   |            |  
|Total deferred tax liabilities       |  |      | (3,177,000 | ) |      |   | (2,606,900 | )
|                                     |  |      |            |   |      |   |            |  
|                                     |  |     
|Net deferred tax liabilities         |  | $    | (3,059,000 | ) |      | $ | (2,366,300 | )
|                                     |  |      |            |   |      |   |            |  



54



---

##### Table of Contents



|(9) | Earnings Per Share
|--- | ------------------

The weighted
average common shares outstanding used in the calculation of basic earnings per share and weighted average common shares outstanding, adjusted for common stock equivalents, used in the computation of diluted earnings per share were as follows for
the years ended:



|                                                   |  |               |           |  |      |  |           | 
|-------------------------------------------------- |  | ------------- | --------- |  | ---- |  | --------- | 
|                                                   |  | September 30, |          
|                                                   |  | 2010          |           |  | 2009 | 
|Weighted average common stock outstanding          |  |               | 5,701,780 |  |      |  | 5,673,628 | 
|                                                   |  |              
|Common stock equivalents - stock options and RSUs |  |               | 15,003    |  |      |  |          | 
|                                                   |  |               |           |  |      |  |           | 
|                                                   |  |               | 5,716,783 |  |      |  | 5,673,628 | 
|                                                   |  |               |           |  |      |  |           | 

There were 693,750 and 807,638 common stock equivalents, consisting of unexercised options and unvested
RSUs, excluded from the per share calculations for the year ended September 30, 2010 and 2009, respectively, because they were anti-dilutive.



|(10) | Commitments and Contingencies
|---- | -----------------------------

The Companys headquarters is located in leased office space under a single non-cancelable operating lease at 7250 Redwood Blvd.,
Suite 200, in Novato, California. The initial lease was re-negotiated and a lease amendment was signed April 1, 2010 with a new expiration date of March 31, 2012 with one three-year extension available thereafter. The minimum future rental
commitment under this lease as of September 30, 2010 is $329,472 per year in the base year of 2010 with no rental increases.

The Companys portfolio trading operation is located in leased office space under a non-cancelable operating lease at One Landmark Square, Suite 424, in Stamford Connecticut. The lease expires
September 30, 2011. The minimum future rental commitment under this lease as of September 30, 2010 is $55,650 for the remaining year of the lease.

The annual minimum future rental commitments under these leases as of September 30, 2010 and for future fiscal years ending September 30, 2012 are as follows:



|            |  |              |         |  |                |   |        | 
|----------- |  | ------------ | ------- |  | -------------- | - | ------ | 
|Fiscal Year |  | Amount       |        
|            |  | Novato Lease |         |  | Stamford Lease |  
|2011        |  | $            | 329,472 |  |                | $ | 55,650 | 
|2012        |  |              | 164,736 |  |                |   |       | 
|            |  |              |         |  |                |   |        | 
|Total       |  | $            | 494,208 |  |                | $ | 55,650 | 
|            |  |              |         |  |                |   |        | 



|(11) | Concentration of Credit Risk
|---- | ----------------------------

The Company maintains its cash accounts with three commercial banks which, at times, may exceed federally insured limits. The amount on
deposit at September 30, 2010 exceeded the insurance limits of the Federal Deposit Insurance Corporation by approximately $0.7 million. In addition, total cash and cash equivalents include $6.7 million held in the First American Prime
Obligations Fund which is not federally insured. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.



55



---

##### Table of Contents



|(12) | New Accounting Pronouncements
|---- | -----------------------------

In June, 2009, the FASB issued amended standards for determining whether to consolidate a variable entity. These amended standards
eliminate a mandatory quantitative approach to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity in favor of a qualitatively focused analysis, and require an ongoing reassessment of
whether an entity is the primary beneficiary. These amended standards are effective for the annual period beginning after November 15, 2009 (the Companys fiscal year 2011). We do not anticipate the adoption of these amendments to have any
effect on our financial statements or results of operations.

In January, 2010, the FASB issued an amendment to standard
Fair Value Measurements and Disclosure, to require reporting entities to separately disclose the amounts and business rationale for significant transfers in and out of Level 1 and Level 2 fair value measurements and separately present
information regarding purchase, sale, issuance, and settlement of Level 3 fair value measures on a gross basis. This standard, for which the Company is currently assessing the impact, is effective for interim and annual reporting periods beginning
after December 15, 2009 with the exception of disclosures regarding the purchase, sale, issuance, and settlement of Level 3 fair value measures which are effective for fiscal years beginning after December 15, 2010. The adoption of this
standard is not expected to have a significant impact on our financial statements or results of operations.



|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ------------------------------------------------------------------------------------

None.



|ITEM 9A. | CONTROLS AND PROCEDURES
|-------- | -----------------------

Evaluation of
Disclosure Controls and Procedures

Under the supervision and with the participation of the Companys management,
including the Companys principal executive officer and principal financial officer, the Company conducted an evaluation of its disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on such evaluation, the Companys principal executive officer and principal financial officer have concluded that the Companys disclosure controls
and procedures are effective.

Changes in Internal Controls

There have been no changes in internal control over financial reporting as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934 that occurred during the year ended September 30, 2010
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



|ITEM 9B. | OTHER INFORMATION
|-------- | -----------------

None



56



---

##### Table of Contents

PART III



|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|-------- | ------------------------------------------------------

Information required by the Item regarding the executive officers and directors of the Company, Section 16 compliance and the members of the Audit Committee and the Audit Committee financial expert
can be found in the Companys Proxy Statement for its 2011 Annual Meeting (Proxy Statement), under the captions Election of Directors and Executive Officers, respectively. Such information is incorporated by
reference as if fully set forth herein.

CODE OF ETHICS

On July 1, 2005, Hennessy Advisors, Inc. adopted an expanded code of ethics that applies to the principal executive officer,
principal financial officer, executive vice presidents and all other employees. The code has been designed in accordance with expanded provisions of the Sarbanes-Oxley Act of 2002, to promote honest and ethical conduct. The code also applies to
Hennessy Mutual Funds, Inc. and Hennessy Funds, and was amended in July, 2005 to include the Hennessy Funds Trust. The revised code is posted on our website at www.hennessyadvisors.com and all future amendments to and waivers from the code will be
posted there.

Any person may obtain a copy of the Hennessy Advisors, Inc. Code of Ethics, at no cost, by forwarding a written
request to:

Hennessy Advisors, Inc.

7250 Redwood Blvd., Suite 200

Novato, CA 94945

Attention: Teresa Nilsen



|ITEM 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------

Information required by the Item regarding compensation paid by the Company to its directors and its named executive officers
in 2010 can be found in the Proxy Statement under the caption Executive Compensation. Such information is incorporated by reference as if fully set forth herein.



|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
|-------- | -----------------------------------------------------------------------------------------------

Information required by the Item regarding the principal securities holders of the Company and the security holdings of its directors and
executive officers can be found in the Proxy Statement under the caption Voting Securities. Such information is incorporated by reference as if fully set forth herein.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The Company has adopted an Option Plan (the Plan) providing for the issuance of up to 1,438,604 options for shares of the Companys common stock. An aggregate of 865,689 options for the
Companys common stock and 224,050 RSUs have been granted as of September 30, 2010, to certain employees, executive officers, and directors of the Company. The options were fully vested when granted, and have a weighted average
exercise price of $4.46 per share, and RSUs vest 25% per year over four-years, and have a weighted average exercise price of zero per share. As of the fiscal year ended September 30, 2010, employees had exercised 196,639 options,
19,688 options were forfeited, 16,813 RSUs were forfeited and 110,750 net shares of common stock were issued for the vesting of 140,491 RSUs (net of shares repurchased for tax withholding). There were 669,050 options fully vested and
exercisable and 71,763 RSUs for stock not yet issued at year-end.



57



---

##### Table of Contents

The following table sets forth information regarding our equity incentive
plan. All information presented is as of September 30, 2010. We do not have any equity compensation plans that have not been approved by our shareholders:



|                                                           |  |                                                                                             |         |  |                                                                               |   |      |                                                                                                                     |  |  |         | 
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- | ------- |  | ----------------------------------------------------------------------------- | - | ---- | ------------------------------------------------------------------------------------------------------------------- |  |  | ------- | 
|Plan Category                                              |  | Number of securitiesto be
issued uponexercise ofoutstanding options,warrants and rights (2) |         |  | Weighted-averageexercise price 
ofoutstanding options,warrants and rights (2) |   |      | Number of securitiesremaining for issuanceunder compensation 
plans(excluding securitiesreflected in column (a))(1) | 
|                                                           |  | (a)                                                                                         |         |  | (b)                                                                           |   |      | (c)                                                                                                                 | 
|Equity compensation plans approved by security holders     |  |                                                                                             | 740,813 |  |                                                                               | $ | 4.03 |                                                                                                                     |  |  | 347,533 | 
|Equity compensation plans not approved by security holders |  |                                                                                             | 0       |  |                                                                               |   | 0    |                                                                                                                     |  |  | 0       | 
|Total                                                      |  |                                                                                             | 740,813 |  |                                                                               | $ | 4.03 |                                                                                                                     |  |  | 347,533 | 



|(1) | The maximum number of shares of common stock that may be issued under our equity incentive plan is 25% of our outstanding common stock, or 1,427,460 shares, as of the
fiscal year ended September 30, 2010.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The number of securities to be issued includes 71,763 shares relating to RSUs to be issued according to the vesting schedule of 25% per year. The exercise
price for RSUs is zero, which is included in the weighted average exercise price of outstanding securities.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 13. | CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
|-------- | ---------------------------------------------------------------------

Information required by the Item regarding the Companys related person transactions and director independence can be found in the Proxy Statement under the caption Election of Directors.
Such information is incorporated by reference as if fully set forth herein.



|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-------- | --------------------------------------

For a summary of the fees billed to the Company by Marcum LLP and Stonefield Josephson, Inc. for professional services performed for 2010 and 2009, respectively, please see the Proxy Statement under the
caption Independent Registered Public Accounting Firm. Such information is incorporated by reference as if fully set forth herein.



58



---

##### Table of Contents

PART IV



|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|-------- | ------------------------------------------

The financial statements and financial statement schedules for Hennessy Advisors, Inc. are included under Item 8 of this Annual Report on Form 10-K.



|         |  |                                                                                                                                                                                                                                  
|-------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibits |  |                                                                                                                                                                                                                                  
|         | 
|2.1      |  | Form of Agreement of Merger of Hennessy Advisors, Inc., Hennessy Management Co., L.P. and Hennessy Management Co. 2, L.P. (1)                                                                                                    
|         | 
|2.2      |  | Asset Purchase Agreement, dated September 10, 2003, between registrant and Linder Asset Management, Inc., as amended by First Amendment, dated January 19, 2004 (4)                                                              
|         | 
|2.3      |  | Asset Purchase Agreement, dated March 15, 2005, between registrant and Landis Associates LLC (5)                                                                                                                                 
|         | 
|2.4      |  | Asset Purchase Agreement, dated March 15, 2005, between registrant and Michael L. Hershey (5)                                                                                                                                    
|         | 
|2.5      |  | Asset Purchase Agreement, dated December 9, 2008, between registrant and RBC Global Asset Management (U.S.) Inc. (6)*                                                                                                            
|         | 
|2.6      |  | Asset Purchase Agreement, dated December 9, 2008, between registrant and RBC Global Asset Management (U.S.) Inc. (6)*                                                                                                            
|         | 
|3.1      |  | Amended and Restated Articles of Incorporation (1)                                                                                                                                                                               
|         | 
|3.2      |  | Second Amended and Restated Bylaws (3)                                                                                                                                                                                           
|         | 
|10.1     |  | Restated Management Agreement, dated June 30, 2000, between registrant and Hennessy Mutual Funds, Inc. (on behalf of the Hennessy Cornerstone Growth Fund, the Hennessy Cornerstone
Value Fund and the Hennessy Focus 30 Fund)(1)
|         | 
|10.2     |  | License Agreement, dated April 10, 2000, between Edward J. Hennessy, Inc. And Netfolio, Inc. (1)                                                                                                                                 
|         | 
|10.3     |  | Hennessy Advisors, Inc. 2001 Omnibus Plan (1) (2)                                                                                                                                                                                
|         | 
|10.4     |  | Form of Option Award Agreement (1) (2)                                                                                                                                                                                           
|         | 
|10.5     |  | Employment Agreement of Neil J. Hennessy (1) (2)                                                                                                                                                                                 
|         | 
|10.6     |  | Amended and Restated Loan Agreement between the registrant and U.S. Bank National Association, dated July 1, 2005 (7)                                                                                                            
|         | 
|10.7     |  | Restated Investment Advisory Agreement, dated February 28, 2002, between the registrant and The Hennessy Funds, Inc. (on behalf of the Hennessy Total Return Fund)
(7)                                                           
|         | 
|10.8     |  | Restated Investment Advisory Agreement, dated February 28, 2002, between the registrant and The Hennessy Funds, Inc. (on behalf of the Hennessy Balanced Fund) (7)                                                               
|         | 
|10.9     |  | Investment Advisory Agreement, dated July 1, 2005, between the registrant and Hennessy Funds Trust (on behalf of the Hennessy Cornerstone Growth Fund, Series II)
(7)                                                            
|         | 
|10.10    |  | Servicing Agreement, dated October 1, 2002, between the registrant and The Hennessy Mutual Funds, Inc. (on behalf of the Hennessy Cornerstone Growth Fund, the Hennessy Cornerstone
Value Fund and the Hennessy Focus 30 Fund)(7)



59



---

##### Table of Contents



|         |  |                                                                                                                                                                                                                                                                                                      
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         | 
|10.10(a) |  | Amendment to Servicing Agreement, dated June 30, 2005, between the registrant and The Hennessy Mutual Funds, Inc. with respect to the Hennessy Focus 30 Fund
(7)                                                                                                                                     
|         | 
|10.11    |  | Servicing Agreement, dated July 1, 2005 between the registrant and Hennessy Funds Trust (on behalf of the Hennessy Cornerstone Growth Fund, the Hennessy Cornerstone Value Fund, the
Hennessy Focus 30 Fund, the Hennessy Cornerstone Large Growth Fund and the Hennessy Select Large Value Fund) (7)
|         | 
|10.12    |  | Non-Competition Agreement, dated March 15, 2005, between the registrant and Michael L. Hershey (5)                                                                                                                                                                                                   
|         | 
|10.13    |  | Amendment No. 1, dated August 28, 2006, to Employment Agreement between Hennessy Advisors, Inc. and Neil J. Hennessy (2) (9)                                                                                                                                                                         
|         | 
|10.14    |  | Restricted Stock Unit Award Agreement for officers (2) (8)                                                                                                                                                                                                                                           
|         | 
|10.15    |  | Restricted Stock Unit Agreement for Directors (2) (8)                                                                                                                                                                                                                                                
|         | 
|10.16    |  | Bonus Agreement, dated August 28, 2006, between Hennessy Advisors, Inc. and Teresa M. Nilsen (2) (9)                                                                                                                                                                                                 
|         | 
|10.17    |  | Bonus Agreement, dated August 28, 2006, between Hennessy Advisors, Inc. and Daniel B. Steadman (2) (9)                                                                                                                                                                                               
|         | 
|10.18    |  | Amendment No. 2, dated December 18, 2008, to Employment Agreement between Hennessy Advisors, Inc. and Neil J. Hennessy (2) (10)                                                                                                                                                                      
|         | 
|10.19    |  | Amendment No. 3, dated September 3, 2009, to Employment Agreement between Hennessy Advisors, Inc. and Neil J. Hennessy (2) (11)                                                                                                                                                                      
|         | 
|10.20    |  | First Amendment to Amended and Restated Loan Agreement between the registrant and U.S. Bank National Association (10)                                                                                                                                                                                
|         | 
|10.21    |  | Second Amendment to Amended and Restated Loan Agreement between the registrant and U.S. Bank National Association (10)                                                                                                                                                                               
|         | 
|10.22    |  | Third Amendment to Amended and Restated Loan Agreement between the registrant and U.S. Bank National Association (10)                                                                                                                                                                                
|         | 
|10.23    |  | Fourth Amendment to Amended and Restated Loan Agreement between the registrant and U.S. Bank National Association (10)                                                                                                                                                                               
|         | 
|10.24    |  | Fifth Amendment to Amended and Restated Loan Agreement between the registrant and U.S. Bank National Association (10)                                                                                                                                                                                
|         | 
|10.25    |  | Investment Advisory Agreement, dated March 23, 2009, between the registrant and Hennessy Funds Trust (on behalf of the Hennessy Cornerstone Large Growth Fund) (12)                                                                                                                                  
|         | 
|10.26    |  | Investment Advisory Agreement, dated March 23, 2009, between the registrant and Hennessy Funds Trust (on behalf of the Hennessy Select Large Value Fund) (12)                                                                                                                                        
|         | 
|10.27    |  | Sub-Advisory Agreement, dated March 23, 2009, between the registrant and RBC Global Asset Management (U.S.) Inc. (on behalf of the Hennessy Select Large Value Fund)
(12)                                                                                                                            
|         | 
|10.28    |  | Investment Advisory Agreement, dated September 18, 2009, between the registrant and Hennessy SPARX Funds Trust (on behalf of the Hennessy Select SPARX Japan Fund and the Hennessy
Select SPARX Japan Smaller Companies Fund) (12)                                                                   
|         | 
|10.29    |  | Sub-Advisory Agreement, dated September 18, 2009, between the registrant and SPARX Management Co., Ltd. (on behalf of the Hennessy Select SPARX Japan Fund and the Hennessy Select
SPARX Japan Smaller Companies Fund) (12)                                                                          



60



---

##### Table of Contents

|      |  |                                                                                                                 
|----- |  | ----------------------------------------------------------------------------------------------------------------
|      | 
|10.30 |  | Sixth Amendment to Amended and Restated Loan Agreement between the registrant and U.S. Bank National Association
|      | 
|23.1  |  | Consent of Marcum LLP, and Stonefield Josephson, Inc. Independent Registered Public Accounting Firms            
|      | 
|31.1  |  | Rule 13a  14a Certification of the Chief Executive Officer                                                     
|      | 
|31.2  |  | Rule 13a  14a Certification of the Chief Financial Officer                                                     
|      | 
|32.1  |  | Written Statement of the Chief Executive Officer, Pursuant to 18 U.S.C. § 1350                                  
|      | 
|32.2  |  | Written Statement of the Chief Financial Officer, Pursuant to 18 U.S.C. § 1350                                  

Notes:



|* | The related schedules to the agreement are not being filed herewith. The registrant agrees to furnish supplementally a copy of any such schedules to the Securities and
Exchange Commission upon request.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(1) | Incorporated by reference from the Companys Form SB-2 registration statement (SEC File No. 333-66970).
|--- | -------------------------------------------------------------------------------------------------------

|(2) | Management contract or compensatory plan or arrangement.
|--- | --------------------------------------------------------

|(3) | Incorporated by reference from the Companys Form 8-K (SEC File No. 000-49872) filed July 29, 2005.
|--- | ---------------------------------------------------------------------------------------------------

|(4) | Incorporated by reference from the Companys Form 10-KSB for the fiscal year ended September 30, 2004.
|--- | ------------------------------------------------------------------------------------------------------

|(5) | Incorporated by reference from the Companys Form 10-QSB for the quarter ended March 31, 2005.
|--- | ----------------------------------------------------------------------------------------------

|(6) | Incorporated by reference from the Companys Form 8-K (SEC File No. 000-49872) filed December 12, 2008.
|--- | -------------------------------------------------------------------------------------------------------

|(7) | Incorporated by reference from the Companys Form S-1 registration statement filed July 26, 2005 (SEC File No. 333-126896).
|--- | ---------------------------------------------------------------------------------------------------------------------------

|(8) | Incorporated by reference from the Companys Form 10-QSB for the quarter ended March 31, 2006.
|--- | ----------------------------------------------------------------------------------------------

|(9) | Incorporated by reference from the Companys Form 8-K (SEC File No. 000-49872) filed August 28, 2006.
|--- | -----------------------------------------------------------------------------------------------------

|(10) | Incorporated by reference from the Companys Form 10-Q for the quarter ended December 31, 2008.
|---- | -----------------------------------------------------------------------------------------------

|(11) | Incorporated by reference from the Companys Form 8-K (SEC File No. 000-49872) filed September 9, 2009.
|---- | -------------------------------------------------------------------------------------------------------

|(12) | Incorporated by reference from the Companys Form 10-K (SEC File No. 000-49872) filed December 4, 2009.
|---- | -------------------------------------------------------------------------------------------------------

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, as duly
authorized:



61



---

##### Table of Contents



|                        |  |                                                                                                                                      |  |  |  |                        
|----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------ |  |  |  | -----------------------
|Hennessy Advisors, Inc.
|(Registrant)           
|                        |  |                                                                                                                                      | 
|By:                     |  | /s/    Neil J. Hennessy                                                                                                              |  |  |  | Dated: December 3, 2010
|                        |  | Neil J. Hennessy                                                                                                                     |  |  |  |                        
|                        |  | Chief Executive Officer and President                                                                                                |  |  |  |                        
|                        |  | (As a duly authorized Officer on behalf of the Registrant and as Principal Executive Officer and Chairman of the Board of
Directors) |  |  |  |                        

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:



|    |  |                                                 |  |  |  |                        
|--- |  | ----------------------------------------------- |  |  |  | -----------------------
|By: |  | /s/    Teresa M. Nilsen                         |  |  |  | Dated: December 3, 2010
|    |  | Teresa M. Nilsen                                |  |  |  |                        
|    |  | Chief Financial Officer, Secretary and Director |  |  |  |                        
|    |  |                                                 | 
|By: |  | /s/    Daniel B. Steadman                       |  |  |  | Dated: December 3, 2010
|    |  | Daniel B. Steadman                              |  |  |  |                        
|    |  | Executive Vice President and Director           |  |  |  |                        
|    |  |                                                 | 
|By: |  | /s/    Kathryn R. Fahy                          |  |  |  | Dated: December 3, 2010
|    |  | Kathryn R. Fahy                                 |  |  |  |                        
|    |  | Controller                                      |  |  |  |                        
|    |  |                                                 | 
|By: |  | /s/    Charles W. Bennett                       |  |  |  | Dated: December 3, 2010
|    |  | Charles W. Bennett                              |  |  |  |                        
|    |  | Director                                        |  |  |  |                        
|    |  |                                                 | 
|By: |  | /s/    Daniel G. Libarle                        |  |  |  | Dated: December 3, 2010
|    |  | Daniel G. Libarle                               |  |  |  |                        
|    |  | Director                                        |  |  |  |                        
|    |  |                                                 | 
|By: |  | /s/    Thomas L. Seavey                         |  |  |  | Dated: December 3, 2010
|    |  | Thomas L. Seavey                                |  |  |  |                        
|    |  | Director                                        |  |  |  |                        
|    |  |                                                 | 
|By: |  | /s/    Henry Hansel                             |  |  |  | Dated: December 3, 2010
|    |  | Henry Hansel                                    |  |  |  |                        
|    |  | Director                                        |  |  |  |                        
|    |  |                                                 | 
|By: |  | /s/    Brian A. Hennessy                        |  |  |  | Dated: December 3, 2010
|    |  | Brian A. Hennessy                               |  |  |  |                        
|    |  | Director                                        |  |  |  |                        
|    |  |                                                 | 
|By: |  | /s/    Rodger Offenbach                         |  |  |  | Dated: December 3, 2010
|    |  | Rodger Offenbach                                |  |  |  |                        
|    |  | Director                                        |  |  |  |                        



62



---

##### Table of Contents

Exhibit Index

Set forth below is a listing of all exhibits to this Annual Report on Form 10-K, including those incorporated by reference.



|         |  |                                                                                                                                                                                                                                   
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibits |  |                                                                                                                                                                                                                                   
|         | 
|2.1      |  | Form of Agreement of Merger of Hennessy Advisors, Inc., Hennessy Management Co., L.P. and Hennessy Management Co. 2, L.P. (1)                                                                                                     
|         | 
|2.2      |  | Asset Purchase Agreement, dated September 10, 2003, between registrant and Linder Asset Management, Inc., as amended by First Amendment, dated January 19, 2004 (4)                                                               
|         | 
|2.3      |  | Asset Purchase Agreement, dated March 15, 2005, between registrant and Landis Associates LLC (5)                                                                                                                                  
|         | 
|2.4      |  | Asset Purchase Agreement, dated March 15, 2005, between registrant and Michael L. Hershey (5)                                                                                                                                     
|         | 
|2.5      |  | Asset Purchase Agreement, dated December 9, 2008, between registrant and RBC Global Asset Management (U.S.) Inc. (6)                                                                                                              
|         | 
|2.6      |  | Asset Purchase Agreement, dated December 9, 2008, between registrant and RBC Global Asset Management (U.S.) Inc. (6)                                                                                                              
|         | 
|3.1      |  | Amended and Restated Articles of Incorporation (1)                                                                                                                                                                                
|         | 
|3.2      |  | Second Amended and Restated Bylaws (3)                                                                                                                                                                                            
|         | 
|10.1     |  | Restated Management Agreement, dated June 30, 2000, between registrant and Hennessy Mutual Funds, Inc. (on behalf of the Hennessy Cornerstone Growth Fund, the Hennessy Cornerstone
Value Fund and the Hennessy Focus 30 Fund) (1)
|         | 
|10.2     |  | License Agreement, dated April 10, 2000, between Edward J. Hennessy, Inc. And Netfolio, Inc. (1)                                                                                                                                  
|         | 
|10.3     |  | Hennessy Advisors, Inc. 2001 Omnibus Plan (1) (2)                                                                                                                                                                                 
|         | 
|10.4     |  | Form of Option Award Agreement (1) (2)                                                                                                                                                                                            
|         | 
|10.5     |  | Employment Agreement of Neil J. Hennessy (1) (2)                                                                                                                                                                                  
|         | 
|10.6     |  | Amended and Restated Loan Agreement between the registrant and U.S. Bank National Association, dated July 1, 2005 (7)                                                                                                             
|         | 
|10.7     |  | Restated Investment Advisory Agreement, dated February 28, 2002, between the registrant and The Hennessy Funds, Inc. (on behalf of the Hennessy Total Return Fund)
(7)                                                            
|         | 
|10.8     |  | Restated Investment Advisory Agreement, dated February 28, 2002, between the registrant and The Hennessy Funds, Inc. (on behalf of the Hennessy Balanced Fund) (7)                                                                
|         | 
|10.9     |  | Investment Advisory Agreement, dated July 1, 2005, between the registrant and Hennessy Funds Trust (on behalf of the Hennessy Cornerstone Growth Fund, Series II)
(7)                                                             
|         | 
|10.10    |  | Servicing Agreement, dated October 1, 2002, between the registrant and The Hennessy Mutual Funds, Inc. (on behalf of the Hennessy Cornerstone Growth Fund, the Hennessy Cornerstone
Value Fund and the Hennessy Focus 30 Fund) (7)



63



---

##### Table of Contents

|         |  |                                                                                                                                                                                                                                                                                                      
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         | 
|10.10(a) |  | Amendment to Servicing Agreement, dated June 30, 2005, between the registrant and The Hennessy Mutual Funds, Inc. with respect to the Hennessy Focus 30 Fund
(7)                                                                                                                                     
|         | 
|10.11    |  | Servicing Agreement, dated July 1, 2005 between the registrant and Hennessy Funds Trust (on behalf of the Hennessy Cornerstone Growth Fund, the Hennessy Cornerstone Value Fund, the
Hennessy Focus 30 Fund, the Hennessy Cornerstone Large Growth Fund and the Hennessy Select Large Value Fund) (7)
|         | 
|10.12    |  | Non-Competition Agreement, dated March 15, 2005, between the registrant and Michael L. Hershey (5)                                                                                                                                                                                                   
|         | 
|10.13    |  | Amendment No. 1, dated August 28, 2006, to Employment Agreement between                                                                                                                                                                                                                              
|         | 
|         |  | Hennessy Advisors, Inc. and Neil J. Hennessy (2) (9)                                                                                                                                                                                                                                                 
|         | 
|10.14    |  | Restricted Stock Unit Award Agreement for officers (2) (8)                                                                                                                                                                                                                                           
|         | 
|10.15    |  | Restricted Stock Unit Agreement for Directors (2) (8)                                                                                                                                                                                                                                                
|         | 
|10.16    |  | Bonus Agreement, dated August 28, 2006, between Hennessy Advisors, Inc. and Teresa M. Nilsen (2) (9)                                                                                                                                                                                                 
|         | 
|10.17    |  | Bonus Agreement, dated August 28, 2006, between Hennessy Advisors, Inc. and Daniel B. Steadman (2) (9)                                                                                                                                                                                               
|         | 
|10.18    |  | Amendment No. 2, dated December 18, 2008, to Employment Agreement between Hennessy Advisors, Inc. and Neil J. Hennessy (2) (10)                                                                                                                                                                      
|         | 
|10.19    |  | Amendment No. 3, dated September 3, 2009, to Employment Agreement between Hennessy Advisors, Inc. and Neil J. Hennessy (2) (11)                                                                                                                                                                      
|         | 
|10.20    |  | First Amendment to Amended and Restated Loan Agreement between the registrant and U.S. Bank National Association (10)                                                                                                                                                                                
|         | 
|10.21    |  | Second Amendment to Amended and Restated Loan Agreement between the registrant and U.S. Bank National Association (10)                                                                                                                                                                               
|         | 
|10.22    |  | Third Amendment to Amended and Restated Loan Agreement between the registrant and U.S. Bank National Association (10)                                                                                                                                                                                
|         | 
|10.23    |  | Fourth Amendment to Amended and Restated Loan Agreement between the registrant and U.S. Bank National Association (10)                                                                                                                                                                               
|         | 
|10.24    |  | Fifth Amendment to Amended and Restated Loan Agreement between the registrant and U.S. Bank National Association (10)                                                                                                                                                                                
|         | 
|10.25    |  | Investment Advisory Agreement, dated March 23, 2009, between the registrant and Hennessy Funds Trust (on behalf of the Hennessy Cornerstone Large Growth Fund) (12)                                                                                                                                  
|         | 
|10.26    |  | Investment Advisory Agreement, dated March 23, 2009, between the registrant and Hennessy Funds Trust (on behalf of the Hennessy Select Large Value Fund) (12)                                                                                                                                        
|         | 
|10.27    |  | Sub-Advisory Agreement, dated March 23, 2009, between the registrant and RBC Global Asset Management (U.S.) Inc. (on behalf of the Hennessy Select Large Value Fund)
(12)                                                                                                                            
|         | 
|10.28    |  | Investment Advisory Agreement, dated September 18, 2009, between the registrant and Hennessy SPARX Funds Trust (on behalf of the Hennessy Select SPARX Japan Fund and the Hennessy
Select SPARX Japan Smaller Companies Fund) (12)                                                                   
|         | 
|10.29    |  | Sub-Advisory Agreement, dated September 18, 2009, between the registrant and SPARX Asset Management Co., Ltd. (on behalf of the Hennessy Select SPARX Japan Fund and the Hennessy
Select SPARX Japan Smaller Companies Fund) (12)                                                                    



64



---

##### Table of Contents



|      |  |                                                                                                                                  
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.30 |  | Sixth Amendment to Amended and Restated Loan Agreement between the registrant and U.S. Bank National Association  Filed Herewith
|      | 
|23.1  |  | Consent of Marcum LLP, and Stonefield Josephson, Inc. Independent Registered Public Accounting Firms  Filed Herewith            
|      | 
|31.1  |  | Rule 13a  14a Certification of the Chief Executive Officer  Filed Herewith                                                     
|      | 
|31.2  |  | Rule 13a  14a Certification of the Chief Financial Officer  Filed Herewith                                                     
|      | 
|32.1  |  | Written Statement of the Chief Executive Officer, Pursuant to 18 U.S.C. § 1350  Filed Herewith                                  
|      | 
|32.2  |  | Written Statement of the Chief Financial Officer, Pursuant to 18 U.S.C. § 1350  Filed Herewith                                  

Notes:



|* | The related schedules to the agreement are not being filed herewith. The registrant agrees to furnish supplementally a copy of any such schedules to the Securities and
Exchange Commission upon request.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(1) | Incorporated by reference from the Companys Form SB-2 registration statement (SEC File No. 333-66970).
|--- | -------------------------------------------------------------------------------------------------------



|(2) | Management contract or compensatory plan or arrangement.
|--- | --------------------------------------------------------



|(3) | Incorporated by reference from the Companys Form 8-K (SEC File No. 000-49872) filed July 29, 2005.
|--- | ---------------------------------------------------------------------------------------------------



|(4) | Incorporated by reference from the Companys Form 10-KSB for the fiscal year ended September 30, 2004.
|--- | ------------------------------------------------------------------------------------------------------



|(5) | Incorporated by reference from the Companys Form 10-QSB for the quarter ended March 31, 2005.
|--- | ----------------------------------------------------------------------------------------------



|(6) | Incorporated by reference from the Companys Form 8-K (SEC File No. 000-49872) filed December 12, 2008.
|--- | -------------------------------------------------------------------------------------------------------



|(7) | Incorporated by reference from the Companys Form S-1 registration statement filed July 26, 2005 (SEC File No. 333-126896).
|--- | ---------------------------------------------------------------------------------------------------------------------------



|(8) | Incorporated by reference from the Companys Form 10-QSB for the quarter ended March 31, 2006.
|--- | ----------------------------------------------------------------------------------------------



|(9) | Incorporated by reference from the Companys Form 8-K (SEC File No. 000-49872) filed August 28, 2006.
|--- | -----------------------------------------------------------------------------------------------------



|(10) | Incorporated by reference from the Companys Form 10-Q for the quarter ended December 31, 2008.
|---- | -----------------------------------------------------------------------------------------------



|(11) | Incorporated by reference from the Companys Form 8-K (SEC File No. 000-49872) filed September 9, 2009.
|---- | -------------------------------------------------------------------------------------------------------



|(12) | Incorporated by reference from the Companys Form 10-K (SEC File No. 000-49872) filed December 4, 2009.
|---- | -------------------------------------------------------------------------------------------------------



65