HENNESSY ADVISORS INC - Annual Report: 2012 (Form 10-K)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

For the Fiscal Year Ended September 30, 2012

or

For the Transition Period From                      to                     

Commission File Number 000-49872

HENNESSY ADVISORS, INC.

(Exact name of registrant as specified in its charter)

(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  x    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.    x

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:

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 $2.75 on March 31, 2012, was $9,521,003.

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 19, 2012 there were 5,759,857 shares of Common Stock (no par value) issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the registrant’s definitive proxy statement for its 2013 annual meeting of stockholders will be, when filed, incorporated by reference in Part III, Items 10, 11, 12, 13 and 14.

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HENNESSY ADVISORS, INC.

FORM 10-K

For the Fiscal Year Ended September 30, 2012

Table of Contents:

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PART I

GENERAL

Overview

Hennessy Advisors, Inc. is a publicly traded investment management firm.

Our primary business activity is managing, servicing and marketing our open-end mutual funds, the Hennessy Funds. We are committed to our consistent and repeatable investment process, combining proven stock selection strategies with a highly disciplined, team-managed approach, and to superior service to shareholders. The firm was founded on these principles 23 years ago and the same principles guide us today. Our goal is to provide products that shareholders can have confidence in, knowing their money is invested as promised and managed in their best interest.

Our business strategy is to grow our mutual fund assets under management through two distinct efforts: our marketing and sales efforts and through strategic purchases of management related assets. On October 26, 2012, we successfully completed the purchase of assets related to the management of the entire family of ten FBR funds (the “FBR Funds”). As a result, the FBR Funds have been reorganized into the Hennessy Funds, bringing our total assets under management to $3.1 billion and our total number of shareholders to approximately 180,000.

The successful purchase of the assets related to the management of FBR Funds not only allowed us to broaden our product line-up and increase our assets under management, it also provided an opportunity to refresh the branding and grouping for our existing product offerings. We have renamed several of our funds as follows:

Subsequent to our fiscal year-end, the following seven FBR Funds have moved under the Hennessy investment management umbrella, and continue to be managed by the same portfolio managers (the investment objectives and strategies of these Funds remain the same):

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The remaining three FBR Funds were reorganized into existing Hennessy Funds with similar investment objectives:

The newly expanded family of Hennessy Funds includes sixteen mutual funds, including traditional domestic equity, sector and specialty, as well as balanced and fixed income products.

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*Formerly FBR Funds

Fiscal Year Ended September 30, 2012

For our fiscal year ended September 30, 2012, the net assets of the mutual funds we manage were $919 million, an increase of 145% from $375 million as of September 30, 2002, the end of our first fiscal year as a public company.

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 the 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 investor class shares of certain 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.

Historical Timeline

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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 The Hennessy Funds, Inc., Hennessy Mutual Funds, Inc., Hennessy Funds Trust, and Hennessy SPARX Funds Trust. As of September 30, 2012, our management agreement with (1) The 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 Cornerstone Mid Cap 30 Fund (3) Hennessy Funds Trust covers the Hennessy Cornerstone Large Growth Fund and the Hennessy Large Value Fund; and (4) Hennessy SPARX Funds Trust covers the Hennessy

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Japan Fund and the Hennessy Japan Small Cap Fund. Under these agreements, we are responsible for overall investment and management services, subject to the oversight of the applicable board of directors/trustees and according to each mutual fund’s particular fundamental investment objectives and policies. The boards of each of The Hennessy Funds, Inc., Hennessy Mutual Funds, Inc., Hennessy Funds Trust, and Hennessy SPARX Funds Trust consist of the same four individuals, including our chairman of the board and chief executive officer, Neil J. Hennessy, and three directors/trustees who are not interested persons of the funds (“disinterested directors/trustees”). Under the Investment Company Act of 1940, a majority of the disinterested directors/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/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. As of September 30, 2012, the annual management fees payable to us by our mutual funds are as follows:

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 Japan Small Cap 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 Japan Fund, which does not have an expense ratio cap.

Our management agreements must be renewed annually by (1) the board of directors/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/trustees of the applicable investment company who are not parties to the management agreement and are disinterested directors/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 management agreements discussed above were renewed by the Board of Directors of The Hennessy Funds, Inc. and Hennessy Mutual Funds, Inc. and by the Board of Trustees of the Hennessy Funds Trust and the Hennessy SPARX Funds Trust on March 7, 2012 for a period of one year.

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

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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.

For 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).

Shareholder Services

In addition to our management agreements, we also have shareholder servicing agreements covering the investor share classes of the following funds:

Under these agreements, we provide administrative support services to these funds, including, among other things, the following:

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In exchange for these services, we receive an annual shareholder servicing fee in the amount noted above from each of the funds as a percent of the fund’s average daily net assets.

Sub-advisory Agreements and Fees

We have entered into sub-advisory agreements covering several of our purchased Funds with the same asset management companies that previously managed the Funds. As of September 30, 2012, the management companies were 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 Large Value Fund, while the sub-advisory agreement with SPARX Asset Management Co., Ltd. covers the Hennessy Japan Fund and the Hennessy Japan Small Cap 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 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:

The sub-advisory agreement for the Hennessy Large Value Fund was approved by the Board of Trustees of Hennessy Funds Trust on March 7, 2012, and the sub-advisory agreement for the Hennessy Japan Fund and the Hennessy Japan Small Cap Fund were approved by the Board of Trustees of Hennessy SPARX Funds Trust on March 7, 2012. 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. Although no changes have currently been adopted, it

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is unclear what changes the SEC will adopt in the future. 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.

Business Strategy

From 1996, when we started our first mutual fund, until September 30, 2012, we have grown our assets under management to $919 million, with fluctuations during that time. The overall conditions of the United States economy as a whole, and the stock market specifically, have once again created significant volatility in the equity markets, causing redemptions. During our most recent fiscal year, all of our mutual funds had positive performance, and yet we still experienced net outflows, though they were significantly less than prior years. However, we were able to sustain our profitability even while our average assets under management decreased, by implementing the following key strategies:

–Utilizing our branding and marketing campaign to attract assets.

We believe that we can attract investors to our formula-based 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 portfolio managers of our actively-managed funds will attract investors who appreciate a fundamental, hands-on investment management approach. We also believe our more conservative, income-generating funds will provide investors with an alternative to mutual funds invested entirely in equities.

We are continuing our successful campaign 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

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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 sub-advised and actively managed Domestic Equity Funds, Sector and Specialty Funds, and Balanced and Fixed Income Funds when co-branding opportunities arise.

–Expanding our distribution network to additional mutual fund supermarkets.

One of the ways that investors can purchase 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 $919 million of assets under management in our mutual funds as of September 30, 2012, approximately 55% 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.

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 strategic purchases of management related assets.

We selectively consider strategic purchases of assets related to management of additional mutual funds. Through our asset purchase strategy, we have added over $1.06 billion of net assets to our family of mutual funds over a period of over twelve years, and on October 26, 2012, we completed the purchase of assets related to the management of the ten FBR Funds which added an additional $2.2 billion of net assets. We believe there are a number of attractive asset purchase opportunities from mutual fund managers who are reaching retirement age or who are leaving the mutual fund management arena. We have generally been able to offer lower overall expense ratios to the shareholders of purchased funds. We have also been able to improve performance in some instances. The addition of our sub-advised and actively-managed mutual funds has expanded the pool of possible asset purchase candidates.

–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

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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:

We have developed a comprehensive and far reaching public relations program to target audiences we would otherwise be unable to address. Our public relations outreach program has consistently 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 also utilize Brian Peery, our Co-Portfolio Manager, in a spokesperson role. Mr. Peery has enabled us to further expand our public relations program.

We also send 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, and Mr. Hennessy participates as a moderator or guest speaker on industry-related panels whenever the opportunity arises.

Asset Purchase Strategy and Market Opportunity

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

Together with organic growth, our growth strategy revolves around the purchase of assets related to management of mutual funds, as evidenced by our most recent transaction. We believe the regulatory burden imposed upon the mutual fund industry along with sustained volatility in the financial markets has compressed the margins of smaller to mid-sized mutual fund managers, making those managers more receptive to an asset purchase. We believe that we are well prepared to benefit from these attractive asset purchase trends and from the increasing supply of potential targets.

Investment Strategy

As a result of the October 26, 2012 purchase of assets related to the management of the ten FBR Funds, we are now able to offer an expanded line-up of sixteen mutual funds, including domestic equity, sector and specialty, as well as balanced and fixed income products.

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The Newly Expanded Hennessy Family of Funds

* Formerly FBR Funds

As of September 30, 2012, Hennessy Funds offered a strong line-up of nine mutual funds, with strategically changed names and ticker symbols subsequent to year-end.

Domestic Equity Funds:

Each fund in the Domestic Equity group of Hennessy Funds employs a highly disciplined, team-managed approach to investing. Our stock selection criteria are unwavering and we adhere to our proven methodology in all types of market conditions. A brief description of each Fund’s objectives and investment strategies follows:

–Hennessy Cornerstone Growth Fund (investor 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 Mid Cap 30 Fund (investor class symbol HFMDX and institutional class symbol HIMDX) (formerly Hennessy Focus 30 Fund). The Hennessy Cornerstone Mid Cap 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, or positive relative strength, over the 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 (investor class symbol HFLGX and institutional class symbol HILGX). The Hennessy Cornerstone Large Growth Fund seeks long-term growth of capital by investing in growth-oriented common stocks of larger companies 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 (investor 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 larger, dividend-paying companies. This fund screens a universe of stocks with a market capitalization that exceeds the average of the database, shares outstanding that exceeds the average of the database, cash flow that exceeds the average of the database, and 12-month sales

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that are at least 50% higher than the average of the database. 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 Large Value Fund (investor class symbol HLVFX and institutional class symbol HLVIX) (formerly Hennessy Select Large Value Fund). The Hennessy Large Value Fund seeks long-term growth of capital and current income by investing at least 80% of its net assets in larger capitalization companies that are out of favor and undervalued. Specifically, 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, and to have sound businesses with good future potential based on their fundamental characteristics.

–Hennessy Total Return Fund (investor class symbol HDOGX). The Hennessy Total Return Fund seeks total return, consisting of capital appreciation and current income, by investing approximately 50% of its assets in the 10 highest dividend-yielding common stocks of the Dow Jones Industrial Average (commonly referred to as the “Dogs of the Dow”) and the remaining 50% in U.S. Treasury securities with a maturity of less than one year. The fund then utilizes a borrowing strategy which allows the Fund’s performance to approximate what it would be if the fund had an asset allocation of roughly 75% Dogs of the Dow stocks and 25% U.S. Treasury securities.

Sector and Specialty Funds:

The funds in the Sector and Specialty group of Hennessy Funds are actively managed and focus on a niche sector of the stock market, specifically the Japanese stock market. We sought out a highly qualified category expert to oversee the day to day portfolio management of the Hennessy Japan Fund and the Hennessy Japan Small Cap Fund. A brief description of the objective and investment strategy of each Fund is set forth below:

–Hennessy Japan Fund (investor class symbol HJPNX and institutional class symbol HJPIX) (formerly Hennessy Select SPARX Japan Fund). The Hennessy 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. The fund typically invests in stocks which its portfolio managers believe to be good businesses with exceptional management and which are trading at an attractive price. While the fund is considered a “diversified” fund, it may employ a relatively focused investment strategy and may hold securities of fewer issuers than other diversified funds.

–Hennessy Japan Small Cap Fund (investor class symbol HJPSX) (formerly Hennessy Select SPARX Japan Smaller Companies Fund). The Hennessy Japan Small Cap 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 capitalizations in the bottom 15% of all Japanese companies. The fund typically invests in stocks which its portfolio managers believe to be good businesses with exceptional management and which are trading at an attractive price. While the fund is considered a “diversified” fund, it may employ a relatively focused investment strategy and may hold securities of fewer issuers than other diversified funds.

Balanced and Fixed Income Funds:

The Balanced and Fixed Income group of Hennessy Funds encompass a more conservative investment strategy focused on generating income and providing an alternative to mutual funds containing only equity stocks. A brief description of the objective and investment strategy is set forth below:

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

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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, 2012.

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 Large Value Fund until March 2009, and we did not begin managing the Hennessy Japan Fund and the Hennessy Japan Small Cap 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.

The performance shown for the period April 20, 2004 to March 20, 2009 for the Hennessy Large Value Fund reflects performance for the Tamarack Value Fund, the predecessor to the Hennessy Large Value Fund, and the performance shown for the period September 30, 1984 to April 19, 2004 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, 2012:

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Development of New Investment Strategies and Expanding Our Product Offerings

We develop new investment strategies or expand our product offerings by identifying client needs and reviewing asset allocation tables to determine where we can augment our family of mutual funds. Once we identify an attractive market segment, we select one of the following methods to 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, (c) by acquiring the management agreement for an existing fund and utilizing strategic sub-advisors to expand our product offering, or (d) by acquiring the management agreement and engaging the portfolio management team for an existing fund to expand our product offering.

Competition

We face considerable 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 managers, 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:

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 of the larger firms offer a broader range of financial services. We compete directly with these larger investment management firms 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 will capture portions of the available investment business.

Regulation

The firm is subject to federal and state laws and regulations intended to protect shareholders of registered investment companies and clients of registered investment

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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 and therefore 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 which 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. We believe we are in compliance with all SEC requirements.

During the past ten years, the federal securities laws that we adhere to have been significantly amended and made more complex by the passage of the USA Patriot Act of 2001 and the Sarbanes Oxley Act of 2002 (SOX). The enactment and interpretation of these laws has required the firm to dedicate far more time and money to meeting these regulatory hurdles in our industry.

In response to the most recent recession and the failure of several financial institutions, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into law on July 21, 2010. This act is expected to result in the most sweeping change to financial regulation in the United States since the Great Depression. It is intended to fundamentally change the regulations imposed on the financial services industry. The initial impact of the Dodd-Frank Act is in its infancy and we are unsure of the full impact it will have on our compliance program. As the full scope of the new legislation becomes effective, there may be broad changes to the way in which the firm’s business is regulated.

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. 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, 2012, Hennessy Advisors, Inc. employed ten full-time employees and one part-time employee.

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 and Portfolio Manager of the Hennessy Funds and is 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: Brian Peery, Co-Portfolio Manager; Tania Kelley, Marketing Director; Kathryn Fahy, Controller; Ana Miner, Operations Specialist; Joseph Fahy, Chief Compliance Officer of Hennessy Funds; A.J. Hennessy,

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Sales Associate; Lauren Puliafico, Office Manager; Lesha Harding, Assistant Controller; and from time to time we employ temporary help.

The firm faces many risk factors, several of which are inherent to the financial services industry and the investment management business. Below are the risk factors that could materially affect the firm:

–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 and inflation rate fluctuations, and other factors that are difficult to predict. This risk is further discussed and quantified in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in Part II of this Annual Report on Form 10-K.

–Investors in our mutual funds can redeem their investments at any time and for any reason, including poor investment performance. A decrease in net assets adversely affects our revenues.

Fund investors may redeem their investments in any of our mutual funds at any time and for any reason without prior notice. 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 revenue.

–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 and adversely affecting our revenue.

–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 and adversely affecting our revenue.

–For many of our 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 formula driven funds adhere to specific investment strategies during the annual rebalancing period and throughout the course of the year. Adhering to our investment strategies 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 revenue.

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–The Hennessy Japan Fund and the Hennessy Japan Small Cap Fund invest in the Japanese stock market in Yen. Since the assets are held in U.S. dollars, there is currency risk.

The Hennessy Japan Fund and the Hennessy Japan Small Cap 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.

–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.

–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. The changes in laws or regulations 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.

–Breaches of security involving consumer personal data may adversely affect our business and financial condition.

We and certain of our third-party vendors receive and store personal information. A breach of the systems on which sensitive consumer information is stored or other unauthorized release of consumer information may adversely affect our reputation and lead to claims against us.

–Management contracts purchased by us 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 purchased by us, a $22.6 million asset on the balance sheet as of September 30, 2012, are considered an intangible asset with an indefinite useful life. Management reviews the classification of the asset as ‘indefinite life’

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each reporting period. If the contracts become an asset with a definite life, we would begin amortizing the contracts over their remaining useful life. If the contracts are determined to remain an indefinite life asset, we review the carrying value 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 us to write-off all or a portion of the contracts. A write-off, depending on the amount, could have operational risks and could have a significant impact on earnings per share.

–Asset purchases 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 pursue additional purchases of assets related to management of other mutual funds. Current and future purchases of management related assets would be accompanied by risks including, among others:

If one or more of these risks occur, we may be unable to successfully complete an asset purchase of a management agreement (requiring us to write-off any related expenses), 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. The 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/trustees and a majority of the disinterested members of each fund’s board of directors/trustees. If any of these 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. 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 and are subject to changes in fee structures, which could reduce our revenues.

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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.

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.

–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 maintaining 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/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, we regularly analyze the fees and have the right to waive fees at our 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.

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

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 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.

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–Higher insurance premiums and related insurance coverage risks could increase costs and reduce profitability.

While we carry insurance in amounts and under terms that we believe are appropriate, we cannot assure that our insurance will cover all liabilities and losses to which we may be exposed, or that our insurance policies will continue to be available at current terms and fees. We are subject to regulatory and governmental inquiries and civil litigation. An adverse outcome of any such proceeding could involve substantial financial penalties. From time to time, various claims against us arise in the ordinary course of business, including employment-related claims. There has been increased incidence of litigation and regulatory investigations in the financial services industry in recent years, including customer claims and class action suits alleging substantial monetary damages. Certain insurance coverage may not be available or may be prohibitively expensive in future periods. As our insurance policies come up for renewal, we may need to assume higher deductibles or co-insurance liabilities, or pay higher premiums, which would increase our expenses and have a material adverse effect on our results of operations.

–We are exposed to legal risk and litigation could increase costs and reduce profitability.

While we conduct our business with the highest ethical standards, we are always open to the risk of litigation. Even if we are not at fault, legal fees incurred to contest a suit could increase expenses and have a material adverse effect on our results of operations.

–Volatility and disruption of the capital and credit markets, and adverse changes in the global economy, may significantly affect our results of operations and may put pressure on our financial results.

The capital and credit markets continue to experience volatility and disruption worldwide. Declines in global financial market conditions may negatively impact our performance. Such declines may in the future have an adverse impact on our results of operations. We may need to modify our business, strategies or operations and we may be subject to additional constraints or costs in order to satisfy new regulatory requirements or to compete in a changed business environment.

–We are subject to extensive and complex, overlapping and frequently changing rules, regulations and legal interpretations.

There is uncertainty associated with the regulatory environment in which we operate. Our business is subject to extensive and complex, overlapping and frequently changing rules, regulations and legal interpretations, including, among others, securities, accounting, tax, ethics and privacy laws and regulations. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Reform Act”) imposes additional restrictions and limitations on us and will likely result in increased scrutiny and oversight of our financial services and products as the various rules and regulations required for implementation continue to be adopted. Due to the complexity and broad scope of the Reform Act and the time required for regulatory implementation, we are not able to predict at this time all of the specific requirements that will be adopted by regulatory agencies having authority over us pursuant to the Reform Act, or the impact of all of the changes in regulation. In addition to the rulemaking mandated by the Reform Act, new rules adopted by the Commodity Futures Trading Commission (“CFTC”) removed or limited previously available exemptions and exclusions which may impose additional registration and reporting requirements for mutual funds and certain other pooled vehicles that use or trade in futures, swaps and other derivatives regulated by the CFTC.

Not Applicable.

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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, 2014, with one three-year or five-year extension available.

None.

Not applicable.

PART II

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:

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On October 19, 2012, the last reported sale price of our common stock on the OTC Bulletin Board was $2.65 per share.

HOLDERS

As of September 30, 2012, we had 157 holders of record of our Common Stock. The 157 holders of record include several brokerage firm accounts which represent 379 additional individual shareholders for 536 total shareholders as of September  30, 2012.

DIVIDENDS

A quarterly cash dividend of $0.025 per share was paid on December 8, 2011 to shareholders of record as of November 15, 2011. Additionally, quarterly cash dividends of $0.03125 per share, respectively, were paid on March 1, 2012 to shareholders of record as of February 7, 2012, on June 8, 2012 to shareholders of record as of May 18, 2012, and on September 5, 2012 to shareholders of record as of August 20, 2012.

On October 30, 2012, we announced an additional cash dividend of $0.03125 per share to be paid on December 7, 2012 to shareholders of record as of November 14, 2012.

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.

The equity compensation plan information called for by Item 201(d) of Regulation S-K is set forth in Item 12 of Part III of this Form 10-K under the heading “Equity Compensation Plan Information.”

The following financial information is derived from our audited consolidated financial statements and should be read in conjunction therewith.

Hennessy Advisors, Inc.

Financial Highlights

(In thousands, except per share amounts)

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Forward Looking Statements

This report contains “forward-looking statements” within the meaning of the securities laws, for which we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. 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 “Risk Factors” 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 our actual results include those described in Item 1A, “Risk Factors” of Part I of this Annual Report on Form 10-K. 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.

Recent Development

Subsequent to the fiscal year ended September 30, 2012, on October 26, 2012, we completed our purchase of certain assets of FBR Fund Advisers, Inc. that relate to the management of the entire family of ten FBR funds. The purchase was consummated in accordance with the terms and conditions of that certain Asset Purchase Agreement, dated as of June 6, 2012, between us and FBR Fund Advisers. This brings our total assets under management to $3.1 billion. See Footnote 13 to the Financial Statements under Item 8, “Financial Statements and Supplementary Data,” of Part II of this Annual Report on Form 10-K for more detail on the purchase of the assets related to the FBR Funds.

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 purchases of management agreements, market conditions and the success of our marketing efforts. Average assets under management were $823.4 million for the fiscal year ended September 30, 2012 compared to $883.8 million for the prior comparable period.

The assets we manage have increased as a result of market appreciation. The following table illustrates the change by year in assets under management since the beginning of fiscal year 2009:

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Assets Under Management

At Each Fiscal Year End 2009-2012

A significant portion of our expenses are fixed and have historically demonstrated minimal variation. However, our revenues declined, causing our fixed costs to become a larger percent of revenues and therefore decreasing our profitability.

The principal asset on our balance sheet, management contracts, represents the capitalized costs incurred in connection with the purchase of management agreements. This asset had a net balance of $22.6 million as of September 30, 2012, compared to $22.3 million at the end of the prior comparable period. The current period increase is due to payments relating to the purchase of the assets related to the FBR Funds.

The principal liability on our balance sheet is the bank debt incurred in connection with the purchase of management agreements. As of September 30, 2012, this liability had a balance of $1.93 million, compared to $2.55 million at the end of the prior comparable period. The current period decrease in funds is due to principal payments of $0.63 million.

RESULTS OF OPERATIONS

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

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Revenues: Total revenue decreased 7.5% to $7.1 million in the year ended September 30, 2012, due to decreased average assets under management, which can differ considerably from total net assets of our mutual funds at the end of an accounting period. Investment advisory fees decreased 7.5% to $6.3 million in the year ended September 30, 2012, and shareholder servicing fees decreased 6.8% to $0.78 million in the year ended September 30, 2012. The decreases are due to decreased average assets under management.

Average daily net assets in our mutual funds for the year ended September 30, 2012 decreased by $60.4 million, or 6.8%, to $823.4 million from $883.8 million in the prior comparable period. The decrease in average daily net assets is attributable to net outflows from the majority of our funds. The largest net outflows were from the Hennessy Japan Small Cap Fund (of $20.8 million) and the Hennessy Large Value Fund (of $17.6 million).

A quarter of the average daily net assets ($205.6 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 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 Large Value Fund, which reduces the net impact to the Company’s financial operations.

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Total net assets of $919.3 million in our mutual funds increased by $170.0 million, or 22.7%, as of September 30, 2012, from $749.3 million as of the end of the prior comparable period. The $170.0 million increase in net mutual fund assets is attributable to market appreciation of $185.6 million, partly offset by net outflows of $15.6 million. Redemptions as a percentage of assets under management decreased from an average of 3.1% per month to 2.4% per month during the same period due to decreased net outflows.

The decrease in average assets under management is due to net outflows (redemptions) for the year. Although there continued to be volatility during the current fiscal year, we have seen a recovery in the confidence of all investors, including the mutual fund investor, in the last quarter of our fiscal year. Our fund family invests primarily in domestic equities, and mutual funds invested in U.S. equities have experienced net outflows for the past four years. However, we have seen this trend beginning to turn in recent months as investors return to the equity market. Market appreciation in the current year increased our assets under management.

Fund asset flows were due, among other factors, to the following:

We are pleased to see our lowest net redemptions since fiscal year 2006. Although the economic environment remains turbulent, we are finally seeing investors slowly returning to the equity markets. For the year ended September 30, 2012, every one of our Hennessy Funds had positive returns, which has encouraged inflows.

There is continued political and economic uncertainty due to: continued unemployment, struggling housing market, rising US debt and continued volatility in Europe, among other things. However, Americans have poured record amounts into their savings, despite interest rates at record lows. The lack of clarity from the U.S. Government will continue to plague our economy as it struggles to sustain a recovery, but we believe the strong character of the business leaders and of the people of the United States will lead us to continued growth in the near future.

We offer two sub-advised funds that are invested in the Japanese equity market. These funds have continued to experience outflows as Japan carries on in their recovery from the earthquake and tsunami of March, 2011. However, we continue to believe in the resiliency and aptitude of the Japanese people and of Japanese companies.

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

This fiscal year the financial markets showed great resiliency despite the consistently negative news that drive consumer and investor fear. We are finally seeing the confidence of the individual investor return, and there is nothing like positive returns to convince even the greatest market bear to invest in the US equity markets.

The fundamentals continue to support viable markets: Price to Sales, Price to Earnings, Price to Book, and Price to Cash Flow ratios are below their historical averages, and corporate profits were at an all-time high during the fiscal year, with companies sitting on over $2 trillion in cash on their balance sheets. If investors stay the course and focus on the fundamentals, we expect to see the success in the stock market continue.

While we have waived fees to comply with contractual expense ratio limitations in the past (these waiver contracts are now expired), we do not normally waive fees, other than with regard to the institutional share class of our mutual funds. We do not anticipate waiving fees on a voluntary basis. We were reimbursed previously waived fees of $0.03 million for the year ended September 30, 2012, a decrease of $0.03 million, or 421%, from waived fees of $0.001 million in the prior comparable period. The decrease

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is due to the reimbursement of waivers from the Hennessy Cornerstone Large Growth Fund and the merger of the institutional class of Hennessy Cornerstone Growth Fund, Series II into the institutional class of Hennessy Cornerstone Growth Fund in October, 2011, which reduced the expense ratio to a level at which waivers were unnecessary.

Although we may earn incentive income on the Micro Cap Fund, we did not earn incentive income for the fiscal years ended September 30, 2012 and 2011.

Operating Expenses: Total operating expenses decreased 3.8% to $5.3 million in the fiscal year ended September 30, 2012, from $5.5 million in the prior comparable period. The decrease is due to: decreased sub-advisor fees paid on decreased assets under management in our sub-advised funds, decreased mutual fund distribution fees paid on decreased assets held through financial platforms, decreased general and administrative expenses and decreased depreciation expense on fixed asset acquisitions. As a percentage of total revenue, total operating expenses increased by 2.9% to 74.8% in the fiscal year ended September 30, 2012, as compared to 71.9% in the prior comparable period.

Compensation and Benefits Expense: Compensation and benefits increased 8.1% to $2.4 million in the fiscal year ended September 30, 2012, from $2.2 million in the prior comparable period. The increase resulted primarily from increased compensation due to internal promotions. As a percentage of total revenue, compensation and benefits increased by 5.0% to 34.4% for the fiscal year ended September 30, 2012, compared to 29.4% in the prior comparable period.

General and Administrative Expenses: General and administrative expense decreased 12.2% to $1.6 million in the fiscal year ended September 30, 2012, from $1.9 million in the prior comparable period, primarily due to decreased rent expense and decreased public relations expense. As a percentage of total revenue, general and administrative expense decreased by 1.3% to 23.2% in the fiscal year ended September 30, 2012, from 24.5% in the prior fiscal year.

Mutual Fund Distribution Expense: Distribution expenses decreased 10.5% to $0.58 million in the fiscal year ended September 30, 2012, from $0.65 million in the prior fiscal year. As a percentage of total revenue, distribution expenses decreased by 0.2% to 8.2% in the fiscal year ended September 30, 2012, from 8.4% 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 appreciation or depreciation.

The decreased costs in the current year are due to a decrease in the value of average assets held through mutual fund platforms such as Charles Schwab, Fidelity and TD Ameritrade due to net outflows and market depreciation. For the year ended September 30, 2012, the value of the mutual funds held on Charles Schwab (the platform that makes up over half of our mutual fund fees) decreased by 10% from the prior year.

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 decreased 13.8% to $0.55 million in the fiscal year ended September 30, 2012, from $0.63 million in the prior fiscal year. As a percentage of total revenue, sub-advisor fee expense decreased by 0.6% to 7.7% in the fiscal year ended September 30, 2012, from 8.3% in the prior fiscal year. Sub-advisor fee expenses are paid on sub-advised assets. The sub-advised funds are

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actively managed by outside asset managers retained by Hennessy Advisors, Inc. The average assets under management in the sub-advised funds decreased in the current year causing a corresponding decrease in sub-advisor fees paid to the asset managers.

Amortization and Depreciation Expense: Amortization and depreciation expense decreased 6.9% to $0.09 million in the fiscal year ended September 30, 2012, from $0.10 million in the prior fiscal year, mainly due to a reduction in depreciation due to assets becoming fully depreciated.

Interest Expense: Interest expense decreased 21.5% to $0.05 million in the fiscal year ended September 30, 2012 from $0.07 million in the prior fiscal year. The decrease is a result of the continued paydown of the loan at a rate of $0.63 million per year. As a percentage of total revenue, interest expenses decreased by 0.1% to 0.7% in the fiscal year ended September 30, 2012, from 0.8% in the prior fiscal year.

Other Income: Other income remained the same at $0.001 million in the fiscal year ended September 30, 2012.

Income Taxes: The provision for income taxes decreased by 12.3% to $0.8 million in the year ended September 30, 2012, from $0.9 million in the prior fiscal year due to decreased profitability in the current year.

Net Income: Net income decreased 20.1% to $0.97 million in the fiscal year ended September 30, 2012, from $1.2 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, 2012, in conjunction with the loan amendment signed on October 26, 2012 to add $16.3 million to our existing loan balance to purchase the FBR Funds (bringing our total loan outstanding to $18.4 million with the inclusion of $0.2 million in loan fees), 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. There can be no assurance that we will be able to raise additional capital.

Total assets under management as of September 30, 2012 were $919.3 million, which was an increase of $170.0 million, or 22.7%, from September 30, 2011. The primary source of our revenue, liquidity and cash flow are our management fees and shareholder servicing fees, which are based on and generated by our average assets under management. Property and equipment and management agreements purchased totaled $22.7 million as of September 30, 2012. 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, 2012, we had cash and cash equivalents of $8.7 million.

The following table summarizes key financial data relating to our liquidity and use of cash for the years ended September 30, 2012 and 2011:

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The increase in cash provided by operating activities of $0.16 million is mainly due to a $0.35 million increase in accrued liability and accounts payable due to increased taxes and bonuses payable, partly offset by a $0.2 million decrease in net income from prior year.

The increase in cash used for investing activities is due to costs associated with acquiring the FBR Funds in the current year.

The decrease in cash used for financing activities is due to $0.7 million in cash dividends paid out in the current year, a decrease of $0.3 million from the prior year.

Dividend Payments. A quarterly cash dividend of $0.025 per share was paid on December 8, 2011. Additionally, quarterly cash dividends of $0.03125 per share, respectively, were paid on March 1, 2012, on June 8, 2012, and on September 5, 2012. The total payment from cash on hand was $0.7 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 (known as the Hennessy Cornerstone Growth Fund, Series II, and subsequently merged into the Hennessy Cornerstone Growth Fund in October, 2011). The indebtedness we incurred to purchase the management agreement of The Henlopen Fund was rolled into a single loan with the indebtedness we incurred to purchase 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% since December 17, 2008) and is secured by our 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 increase in the loan was negotiated to allow us to have cash on hand and be more credit worthy in the event of a potential asset purchase.

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, 2012. As of September 30, 2012, we had $1.93 million currently outstanding under our bank loan.

In connection with the purchase of the assets related to the FBR Funds, we funded part of the purchase price by entering into an amendment to our existing bank loan, bringing the total loan balance to $18.4 million. See Footnote 13 to the Financial Statements under Item 8, “Financial Statements and Supplementary Data,” of Part II of this Annual Report on Form 10-K for more detail on the amendment to the loan agreement.

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Contractual Obligations

The following table sets forth our contractual obligations as of September 30, 2012, consisting of loan payments, including the related interest payments due, and operating leases: