Battery Park High Yield Fund
Annual Report as of September 30, 1997
We remain optimistic that the current favorable
high yield environment will continue
Battery Park High Yield Fund's objective is to provide shareholders with high
total return consisting of current income and capital appreciation. The Fund
seeks to achieve its objective by investing principally in fixed income
securities of U.S. companies which are rated in the lower rating categories of
the established rating services or are unrated securities of comparable quality.
The Fund has generated impressive returns
Since its inception on October 28, 1996, the Battery Park High Yield Fund has
posted a total return of 23.13% for Class A Shares (17.61% net of maximum sales
charge of 4.50%) and 23.41% for Class Y Shares.(1) The Fund significantly
outperformed its benchmark, the Merrill Lynch High Yield Master II Index(2),
which returned 14.41%.
[Graphic representation "A1" omitted. See Appendix.]
[Graphic representation "A2" omitted. See Appendix.]
This graph compares a $10,000 investment in the Class A shares (after deducting
the 4.50% sales charge) and Class Y shares of the Fund, made at its inception,
with a similar hypothetical investment in the Merrill Lynch High Yield Master II
Index. The hypothetical investment in Class A shares minus the sales charge
($10,000 - $450) represents an actual investment of $9,550. Results include the
reinvestment of all dividends and capital gains distributions. Past performance
is not predictive of future performance. The Fund's portfolio may differ
significantly from the securities in the index. The index is unmanaged and
therefore does not reflect the cost of portfolio management or trading.
Portfolio highlights
During its initial eleven months, the Fund benefited from strong performance
from individual bond investments and the overweighting of specific industries.
In the fourth quarter of 1996, the Fund was overweighted in the energy sector,
which was one of the best performing sectors due to high commodity prices. The
Fund generated attractive returns in Abraxus Petroleum and Parker Petroleum. As
security prices in the energy sector rose to reflect its improved fundamentals,
the Fund reduced its exposure to energy in early 1997.
The overweighted exposure to the telecommunications industry enhanced the Fund's
performance since its inception. The portfolio held approximately 17% of total
assets in this sector, as of September 30, 1997. Telecommunications performed
well because of the global trend toward deregulation, which has led to
consolidation and takeovers by investment grade credits in the industry. Some of
the Fund's holdings, including Teleport, McLeod, and Colt Telecom, performed
well in anticipation of potential takeovers.
The Fund has not had any credit problems since its inception, and had very
little exposure to one of the worst performing industries N supermarkets N where
credits suffered from store over-development. The Fund was well diversified, as
illustrated in the chart of top ten industries below.
[Graphic representation "A3" omitted. See Appendix.]
Portfolio characteristics* as of 9/30/97
Modified Duration 4.90 yrs.
Average Maturity 6.85 yrs.
Average Rating B
30-Day SEC Yield**
Class A shares 8.47%
Class A shares net of load 8.08%
Class Y shares 8.72%
* Portfolio characteristics include cash & cash equivalents which represent
approximately 2% of the Fund's assets as of September 30, 1997
** The Adviser temporarily waived fees of 0.65% and absorbed expenses of 1.61%
in order to cap expenses at 1.25% for A shares and 1.00% for Y shares. The
annualized 30-day SEC Yield would have been 6.21% for Class A shares at NAV,
5.82% for Class A shares net of maximum sales charge and 6.46% for Class Y
shares.
The Adviser's approach to
high yield investing
Our research intensive, bottom-up approach, combined with our focus on total
return, have been integral to our success thus far. Our conservative investment
philosophy resulted in the following Standard & Poor's ratings breakdown:
[Graphic representation "A4" omitted. See Appendix.]
Morningstar* Total Return Ranking
One Year as of 10/31/97
CLASS Y SHARES #2 of 167 funds
CLASS A SHARES #3 of 167 funds
*Ranking is based on total return performance of high yield mutual funds in
Morningstar's universe. Morningstar is a privately owned company that tracks the
performance statistics of more than 8,000 U.S. registered mutual funds.
Morningstar does not deduct sales charges for ranking purposes. The above
mentioned ranking is not to be intended as "a discretionary star rating" of
mutual funds which it provides and which is based on a risk/return profile for a
minimum 3-year track record.
Market environment
High yield market performance has been helped by a favorable economic
environment. Real growth has been strong and inflation during this period has
actually declined. Defaults have been low and interest rates have fallen since
the Fund's inception. A strong equity market has provided high yield companies
access to capital. These conditions have provided numerous benefits for high
yield investors and have enabled us to focus on improving credits.
Outlook and strategy
We remain optimistic that the current favorable environment will continue. We
will maintain our focus on buying the bonds of leading companies with improving
business prospects. We believe spreads in the upper and middle tier of the high
yield market reflect the favorable environment, and the lower tier is currently
overvalued. Accordingly, we are extremely selective when investing in lower tier
credits.
Intense credit research will continue to be the basis of our investment focus.
We truly believe credit discipline and the patience to invest in improving
companies, rather than investing for current yield, are key to minimizing risk
and generating attractive long term returns. Of course, investors should
understand that the Fund invests primarily in non-investment grade bonds which
involve greater risk of price volatility and default in payment of interest and
principal than higher rated bonds. Please see the prospectus for a more detailed
discussion of risk.
Thank you for your confidence in the Battery Park High Yield Fund. We look
forward to helping you reach your investment goals in the future.
Robert Levine, CFA
President, Battery Park Funds
Richard Buch, CFA
Portfolio Manager
[PHOTO APPEARS HERE]
About the Portfolio Manager
Richard A. Buch, CFA, is a Managing Director and Senior Portfolio Manager of
NCRAM. He is the portfolio manager of the Battery Park High Yield Fund since the
Fund's inception and other high yield accounts. He supervises NCRAM's team of
credit analysts/portfolio managers. Mr. Buch was previously Senior VP and High
Yield Portfolio Manager for Kidder, Peabody Asset Management, Assistant VP at
Reliance Insurance, and a Senior Securities Analyst at Teachers Insurance
Annuity Association. He is a member of the Financial Analyst Federation.
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Class A Shares incur a maximum initial sales charge (front-end load) of 4.50%
and bear annual 12b-1 fees of 0.25%. Class A shares are available only through
securities dealers that have entered into selected dealer agreements with the
Distributor.
Class Y Shares are offered at net asset value without a sales charge to an
investor that invests at least $1 million in the Fund or purchases shares
through a fee-based financial planner whose clients have a current investment in
the Fund aggregating at least $1 million. Class Y shares also are offered for
purchases of less than $1 million to Directors of the Fund and to retirement
plans administered by the Investment Adviser or its affiliates for the benefit
of employees of the Investment Adviser and/or its affiliates.
(1) Total return measures change in the value of an investment in the Fund,
assuming reinvestment of all dividends and capital gains. The Investment Adviser
of the Battery Park High Yield Fund waived management fees of 0.65% and absorbed
expenses of 2.21% in order to cap expenses at 1.25% for A shares and 1.00% for Y
shares. Absent the waiver and absorption of fees, the total return performance
for the returns of Class A shares at NAV would have been 20.49%; Class A shares
(net of maximum sales charge of 4.50%) would have been 14.97%; and the
performance of Y shares would have been 20.77%.
(2) The Merrill Lynch High Yield Master II Index is a publicly reported
unmanaged composite benchmark of the hypothetical return on approximately 900
high yield debt securities of at least $50 million ranging in rating from Ba1 to
C by Moody's Investors Service, Inc., and BBB+ to C by Standard & Poor's Ratings
Services. The Index has no cash component or transaction costs and is trader,
not market priced and may not reflect prices at which securities could actually
trade. Approximately 10% of the Index is comprised of zero coupon bonds. The
index is unmanaged and investments cannot be made in an index.
THIS REPORT IS AUTHORIZED FOR DISTRIBUTION ONLY WHEN IT IS ACCOMPANIED OR
PRECEDED BY A CURRENT PROSPECTUS OF THE BATTERY PARK HIGH YIELD FUND, WHICH
CONTAINS MORE COMPLETE INFORMATION REGARDING FEES AND EXPENSES ASSOCIATED WITH
AN INVESTMENT IN THE FUND. INFORMATION CONTAINED HEREIN IS AS OF THE DATE HEREOF
AND IS SUBJECT TO CHANGE.
Nomura Securities International, Inc., Distributor
Cusip 07132Q108
Cusip 07132Q207
G01843-04 (11/97)
Appendix
A1. The graphic presentation here displayed consists of a four-column chart
entitled "Fund Performance as of 9/30/97." The information is as follows:
Battery Park - Class Y Shares, 23.41%; Battery Park - Class A Shares, 23.13%;
Battery Park - Class A Shares Net of Max Sales Charge (4.5%), 17.61; and Merrill
Lynch HY Master II, $14.41%.
A2. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class Y
Shares of Battery Park High Yield Fund, are represented by a solid line. The
Class A Shares, based on a 4.5% sales charge, is represented by a broken line.
The Class A Shares, without a sales charge, is represented by a line with
triangles. The Merrill Lynch High Yield Master II Index is represented by a
dashed line. The line graph is a visual representation of a comparison of change
in value of a $10,000 hypothetical investment in the Class Y Shares, Class A
Shares based on a 4.5% sales charge, and Class A Shares without a sales charge,
of the fund, and the Merrill Lynch High Yield Master II Index. The "x" axis
reflects computation periods from 10/28/96 to 9/97. The "y" axis reflects the
cost of the investment. The right margin reflects the ending value of the
hypothetical investment in the fund's Class Y Shares, Class A Shares based on a
4.5% sales charge, and Class A Shares without a sales charge, as compared to the
Merrill Lynch High Yield Master II Index. The ending values were $12,342,
$11,758, $12,312, and $11,472, respectively.
A3. The graphic presentation here displayed consists of a pie chart entitled
"Battery Park Fund's Diverse Portfolio. Top 10 Industries (%) as of Sept. 30,
1997." The information is as follows: Building & Development, 4%;
Telecommunications, 17%; Cable TV, 8%; Hotels/Casinos, 9%; Retailers, 7%; Oil &
Gas, 6%; Surface Transportation, 5%; Forest Products, 5%; Food Products, 4%; and
Steel, 4%.
A4. The graphic presentation here displayed consists of a pie chart entitled
"Battery Park Fund's Quality Breakdown as of 9/30/97." The information is as
follows: Cash, 2%; B-, 38%; B, 29%; B+, 17%; NR, 12%; and BB-, 2%.
