1933 Act File No. 33-7805
1940 Act File No. 811-7675
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. ..........
Post-Effective Amendment No. 1 .......... X
--- ---
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 3 ......................... X
-
BATTERY PARK FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
(check appropriate box)
[X] immediately upon filing pursuant to paragraph (b)
[ ] on pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ]this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:
[.] filed the Notice required by that Rule on ; or
[X] intends to file the Notice required by that Rule on or about on or
about November 1997; or
[ ] during the most recent fiscal year did not sell any securities pursuant
to Rule 24f-2 under the Investment Company Act of 1940, and, pursuant
to Rule 24f-2(b)(2), need not file the Notice.
CROSS-REFERENCE SHEET
This amendment to the Registration Statement of BATTERY PARK FUNDS,
INC. which is comprised of two classes of shares: (1) Class A shares and
(2) Class Y shares, relates to both classes of shares and is comprised of
the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page...............(1-2) Cover Page.
Item 2. Synopsis.................(1-2) Summary of Fund Expenses.
Item 3. Condensed Financial
Information..............(1-2) Financial Highlights; (1-2)
Shareholder Reports; (1-2) Performance
Data.
Item 4. General Description of
Registrant...............(1-2) The Fund; (1-2) The Investment
Adviser; (1-2) Investment Objectives and
Policies; (1-2) Other Investment
Policies and Practices; (1-2) Investment
Restrictions; (1-2) Risk Factors and
Special Considerations (1-2) Additional
Information; (1-2) Organization of the
Fund.
Item 5. Management of the Fund...(1-2) Management of the Fund; (1-2)
Directors; (1-2) Management and Advisory
Arrangements; (1-2) Transfer Agency
Services.
Item 6. Capital Stock and Other
Securities...............(1-2) Shareholder Services; (1-2)
Investment Account; (1-2) Reinvestment
of Dividends and Capital Gains
Distributions; (1-2) Retirement Plans;
(1-2) Exchange Privilege.; (1-2) Taxes.
Item 7. Purchase of Securities Being
Offered..................(1-2) Purchase of Shares; (1) Class A
Shares; (2) Class Y Shares; (1-2)
Dividends and Distributions; (1-2)
Determination of Net Asset Value.
Item 8. Redemption or Repurchase.(1-2) Redemption of Shares.
Item 9. Legal Proceedings........None.
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page............... (1-2) Cover Page.
Item 11. Table of Contents........(1-2) Table of Contents.
Item 12. General Information and
History..................(1-2) General Information.
Item 13. Investment Objectives and
Policies.................(1-2 Investment Objectives and Policies;
(1-2) Portfolio Transactions.
Item 14. Management of the Fund...(1-2) Management of the Fund.
Item 15. Control Persons and Principal
Holders of Securities....(1-2) Fund Ownership.
Item 16. Investment Advisory and Other
Services.................(1-2) Management of the Fund.
Item 17. Brokerage Allocation.....(1-2) Portfolio Transactions.
Item 18. Capital Stock and Other
Securities...............Not applicable.
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered..................(1-2) Purchase of Shares; (1-2)
Redemption of Shares; (1-2)
Determination of Net Asset Value; (1-2)
Shareholder Services.
Item 20. Tax Status...............(1-2) Taxes.
Item 21. Underwriters.............Not applicable.
Item 22. Calculation of Performance
Data.....................(1-2) Performance Data.
Item 23. Financial Statements.....(1-2) Filed in Part A.
A. Please insert the following "Financial Highlights" tables
as page 4 and page 5 of the prospectus. In addition, please
add the heading "Financial Highlights" to the Table of
Contents page.
BATTERY PARKSM HIGH YIELD FUND
Financial Highlights--Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD
ENDED
(UNAUDITED)
MARCH 31,
1997(A)
- ------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- ------------------------------------------------------------
Income from investment operations
- ------------------------------------------------------------
Net investment income 0.37
- ------------------------------------------------------------
Net realized and unrealized gain on investments 0.56
- ------------------------------------------------------------
Total from investment operations 0.93
- ------------------------------------------------------------
Less distributions
- ------------------------------------------------------------
Distributions from net investment income (0.37)
- ------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.56
- ------------------------------------------------------------
Total return (b) 9.37%
- ------------------------------------------------------------
Ratios to average net assets
- ------------------------------------------------------------
Expenses 1.25%*
- ------------------------------------------------------------
Net investment income 8.38%*
- ------------------------------------------------------------
Expense waiver/reimbursement (c) 2.80%*
- ------------------------------------------------------------
Supplemental Data
- ------------------------------------------------------------
Net assets, end of period (000 omitted) $1,205
- ------------------------------------------------------------
Portfolio turnover 98%
- ------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from October 28, 1996 (date of initial
public offering) to March 31, 1997.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
BATTERY PARKSM HIGH YIELD FUND
Financial Highlights--Class Y Shares
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD
ENDED
(UNAUDITED)
MARCH 31,
1997(A)
- ------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- ------------------------------------------------------------
Income from investment operations
- ------------------------------------------------------------
Net investment income 0.38
- ------------------------------------------------------------
Net realized and unrealized gain on investments 0.56
- ------------------------------------------------------------
Total from investment operations 0.94
- ------------------------------------------------------------
Less distributions
- ------------------------------------------------------------
Distributions from net investment income (0.38)
- ------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.56
- ------------------------------------------------------------
Total return (b) 9.48%
- ------------------------------------------------------------
Ratios to average net assets
- ------------------------------------------------------------
Expenses 1.00%*
- ------------------------------------------------------------
Net investment income 8.63%*
- ------------------------------------------------------------
Expense waiver/reimbursement (c) 2.80%*
- ------------------------------------------------------------
Supplemental Data
- ------------------------------------------------------------
Net assets, end of period (000 omitted) $10,971
- ------------------------------------------------------------
Portfolio turnover 98%
- ------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from October 28, 1996 (date of initial
public investment) to March 31, 1997. For the period from September 19,
1996 (start of business) to October 27, 1996, the investment income was
distributed to the Fund's Adviser.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
B. Please delete the section entitled "The Investment Adviser"
which begins on page 4 of the prospectus and replace it
with the following.
THE INVESTMENT ADVISER
- --------------------------------------------------------------------------------
The Fund's Investment Adviser is Nomura Corporate Research and Asset Management
Inc. (the "Investment Adviser" or "NCRAM"). As of March 31, 1997, NCRAM managed
in excess of $855 million in high yield bonds.
HISTORICAL INVESTMENT RESULTS OF THE INVESTMENT ADVISER. Set forth below is
certain performance data provided by the Investment Adviser relating to
investment results of a composite of all client accounts whose portfolios were
managed by the Investment Adviser during a five year period commencing in 1991,
which had the same investment objective as the Fund and were managed using
substantially similar, though not necessarily identical, investment strategies
and techniques as those contemplated by the Fund (the "Advisory Accounts"). See
"Investment Objective and Policies." Because of the similarities in investment
strategies and techniques, the Investment Adviser believes that the Advisory
Accounts are sufficiently comparable to the Fund to make performance data
listed below relevant to investors in the Fund. The results presented (the
"Total Return Composite") are not intended to predict or suggest the returns
that will be experienced by the Fund or the return an investor will achieve by
investing in the Fund. Different methods of determining performance from those
described in the footnotes to the charts below may result in different
performance figures. An investor should not rely on the following performance
figures as an indication of future performance of either the Investment
Adviser's separate Advisory Accounts or the Fund.
<TABLE>
<CAPTION>
NCRAM HIGH YIELD TOTAL RETURN FIGURES
TOTAL RETURN COMPOSITE OCTOBER 1, 1991 TO MARCH 31, 1997
- --------------------------------------------------------------------------
<S> <C>
AVERAGE TOTAL RETURN NET OF FEES
- --------------------------------------------------------------------------
1991 (Fourth Quarter) 4.22%
- --------------------------------------------------------------------------
1992 18.70%
- --------------------------------------------------------------------------
1993 25.37%
- --------------------------------------------------------------------------
1994 8.39%
- --------------------------------------------------------------------------
1995 22.43%
- --------------------------------------------------------------------------
1996 19.59%
- --------------------------------------------------------------------------
1997 (First Quarter) 1.83%
- --------------------------------------------------------------------------
Annualized Total Return Since Inception 18.18%
- --------------------------------------------------------------------------
</TABLE>
Another way to consider the above schedule is as follows: $10,000 invested in
an Advisory Account on October 1, 1991 which received a return based on the
Total Return Composite would have grown to $25,066, including reinvestment of
dividends, by March 31, 1997.
<TABLE>
<CAPTION>
PERFORMANCE OF NCRAM HIGH YIELD TOTAL RETURN COMPOSITE VS. LIPPER HIGH YIELD FUND AVERAGE
- ------------------------------------------------------------------------------------------------------
[NET OF FEES] Q1 Q2 Q3 Q4 ANNUAL
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
NCRAM +1.83% N/A N/A N/A N/A
Lipper* +0.77% N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
1996
NCRAM +2.43% +2.69% +6.73% +6.52% +19.59%
Lipper* +2.87% +2.01% +4.68% +3.62% +13.83%
- ------------------------------------------------------------------------------------------------------
1995
NCRAM +5.97% +6.19% +3.64% +4.99% +22.43%
Lipper* +4.49% +5.26% +3.13% +2.96% +16.79%
- ------------------------------------------------------------------------------------------------------
1994
NCRAM +3.60% +1.22% +0.51% +2.83% +8.39%
Lipper* -0.97% -1.29% -0.17% -1.25% -3.63%
- ------------------------------------------------------------------------------------------------------
1993
NCRAM +9.41% +5.17% +2.79% +6.00% +25.37%
Lipper* +6.73% +4.63% +1.88% +4.58% +18.88%
- ------------------------------------------------------------------------------------------------------
1992
NCRAM +5.45% +2.98% +7.29% +1.89% +18.70%
Lipper* +8.27% +3.17% +4.10% +1.16% +17.63%
- ------------------------------------------------------------------------------------------------------
1991
NCRAM N/A N/A N/A +4.22% N/A
Lipper* N/A N/A N/A +5.05% N/A
- ------------------------------------------------------------------------------------------------------
</TABLE>
*Source: Lipper Analytical Services, Inc.
The indices above each represent past performance, are shown solely for
comparative purposes and may not be indicative of future returns. Past
performance is no guarantee of future results. Mutual funds, including the Fund
and those funds comprising the Lipper High Yield Fund Average, typically are
subject to portfolio management restrictions, investment limitations and
diversification requirements imposed by the Investment Company Act and the
Internal Revenue Code of 1986 that are not applicable to private accounts. The
imposition of such restrictions may result in lower returns than reflected in
the above table for the NCRAM High Yield Total Return Composite, as discussed
in note 6, below. In particular, such funds are subject to limitations on their
profits attributable to purchases and sales of shares held for less than three
months. See "Investment Objective and Policies--Other Investment Policies and
Practices--Portfolio Turnover."
NOTES TO INVESTMENT PERFORMANCE
The schedule on page 3 of this prospectus supplement represents the average
investment results for the periods ending after October 1, 1991 for all clients
whose portfolios were included in the Advisory Accounts managed by the
Investment Adviser.
1. TYPES OF ACCOUNTS AND ELIGIBLE ACCOUNTS FOR COMPOSITE
The Total Return Composite contains accounts that are aggressively managed for
a high level of current income and capital appreciation. Accounts in the Total
Return
Composite invest primarily in fixed income securities of U.S. issuers which are
rated in the lower rating categories of the established rating services or are
unrated securities of comparable quality. Investments in fixed income
securities include cash pay securities, pay-in-kind and zero coupon notes,
convertible debt securities and increasing rate and resettable notes. These
investments include both new issues and issues traded in the secondary market.
New accounts are eligible for inclusion in the composite rate of return
calculations upon completion of the first full quarter under management. Closed
accounts are eligible for inclusion in the composite rate of return
calculations through the completion of the last full quarter under management.
All existing accounts under management are reevaluated for possible inclusion
in the composite on a quarterly basis.
2. CALCULATION OF RATES OF RETURN
All rate of return calculations conform to standards established by the
Association for Investment Management and Research. All accounts are valued
monthly based on principal market values plus accrued income. Account returns
are calculated monthly utilizing the modified Dietz methodology where security
and cash flows are "day-weighted" during the month. All amounts are rounded to
the nearest one-hundredth of one percent. Monthly returns are geometrically
linked to determine quarterly returns.
3. COMPOSITE CHANGES AND OTHER MATTERS
No alteration of Total Return Composite as presented here has occurred at any
time because of changes in personnel. The composition of the composite has been
amended only where a change in the investment mandates of an account so
dictates. Leverage has not been used in portfolios included in the Total Return
Composite. An affiliated account which represents an average of approximately
7.58% of the total assets of the Total Return Composite (for the period October
1, 1992 through March 31, 1994) was a non-fee paying account. Due to a change
of investment strategy, this account was removed from the Total Return
Composite as of April 1, 1994.
There has been no linkage with simulated portfolios.
4. TOTAL RETURN COMPOSITE
During the term of its existence, the Total Return Composite comprised five or
fewer separate accounts. As of March 31, 1997, assets in the Total Return
Composite Accounts aggregated approximately $176 million (approximately 8.56%
of the Investment Adviser's total assets under management). As of March 31,
1997, the Investment Adviser managed approximately $678 million of assets in a
high yield mutual fund registered in Japan.
5. FEES
Fees range from .50% to 1% of assets under management.
6. LIPPER HIGH CURRENT YIELD FUND AVERAGE
The Lipper High Current Yield Fund Average (the "Index") is a published average
total return net of fees figure for approximately 175 high current yield funds
monitored by Lipper Analytical Services ("Lipper"). Lipper defines High Current
Yield Funds as those that "aim at high (relative) current income from fixed
income securities." The Index has no quality or maturity restrictions and the
funds tend to invest in lower-grade debt securities. Typically, such funds have
concentration, diversification, liquidity, portfolio turnover and distribution
restrictions which may result in lower returns than aggressively traded
accounts such as those in the Total Return Composite. The Index includes all
high yield funds in existence for the current period reported, whereas
historical averages are restated each quarter due to changes in the number of
component funds and revisions for new funds, mergers, liquidations, etc.
C. Please insert the following directly after the Class A
shares offering price chart on page 18 of the prospectus.
Class A shares may be sold at net asset value to registered representatives and
employees of broker-dealers that are parties to dealer agreements with the
Distributor. Class A shares may also be purchased without sales charges by
investors who participate in certain broker-dealer wrap fee investment
programs.
Class A shares of the Fund may be sold at net asset value without any sales
charge under a NAV Transfer Program. To qualify for the NAV Transfer Program,
an investor must provide adequate proof that within 90 days prior to the
purchase of Class A shares of the Fund an investor redeemed shares from a load
or no-load mutual fund other than the Fund or any money market fund. To provide
adequate proof, an investor must complete a qualification form and provide a
statement showing the value liquidated from the other mutual fund.
From October 10, 1996 through December 31, 1996, Class A shares of the Fund
were sold at net asset value, without a front-end sales charge (the "Special
Offer"). Class A shares purchased pursuant to this Special Offer that are
redeemed within one year of purchase, however, will be subject to a contingent
deferred sales charge, which will be paid to the Distributor, of 1.0% of the
amount invested or the proceeds of redemption, whichever is less.
THE FOLLOWING SUMMARY OF FUND EXPENSES RELATES TO CLASS A SHARES PURCHASED
DURING THE SPECIAL OFFER DESCRIBED ON THE PREVIOUS PAGE:
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
CLASS A(1)
- -------------------------------------------------------------------------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
- -------------------------------------------------------------------------------
Maximum Sales Load Imposed on Purchases (as a percentage of offer-
ing price) None(2)
- -------------------------------------------------------------------------------
Maximum Sales Load Imposed on Reinvested Dividends (as a percent-
age of offering price) None
- -------------------------------------------------------------------------------
Contingent Deferred Sales Charge (as a percentage of original pur-
chase price or redemption
proceeds, as applicable) 1.00%(3)
- -------------------------------------------------------------------------------
Redemption Fees (as a percentage of amount redeemed, if applica-
ble) None
- -------------------------------------------------------------------------------
Exchange Fee None
- -------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (4)
(AS A PERCENTAGE OF PROJECTED AVERAGE NET ASSETS)
- -------------------------------------------------------------------------------
Management Fees (after waiver)(5) 0.37%
- -------------------------------------------------------------------------------
Rule 12b-1 Fees 0.25%
- -------------------------------------------------------------------------------
Total Other Expenses 0.63%
- -------------------------------------------------------------------------------
Total Annual Fund Operating Expenses (6) 1.25%
- -------------------------------------------------------------------------------
</TABLE>
(1) Class A shares of the Fund held in accounts of financial planners or
individuals will convert to Class Y shares when the aggregate value of the
Class A shares in such account reaches $1 million or more. See "Purchase of
Shares--Class A Shares--Conversion of Class A Shares to Class Y Shares."
(2) During the Special Offer, Class A shares were sold at the net asset value,
without a front-end sales charge.
(3) Class A shares purchased pursuant to the Special Offer that are redeemed
within one year of purchase will be subject to a contingent deferred sales
charge. The amount of the contingent deferred sales charge, which will be
paid to the Distributor, will be 1.00% of the amount invested or the
proceeds of redemption, whichever is less.
(4) Annual Fund Operating Expenses are estimated based on average expenses
expected to be incurred during the fiscal year ending September 30, 1997.
During the course of this period, expenses may be more or less than the
average amount shown.
(5) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee by the investment adviser. The adviser can
terminate this voluntary waiver at any time at its sole discretion. The
maximum management fee is 0.65%.
(6) Total Annual Fund Operating Expenses for the Class A shares are estimated
to be 1.53% absent the voluntary waiver of management fees.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder will bear either directly or indirectly.
For more complete descriptions of the various costs and expenses, see "Purchase
of Shares."
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return; (2) redemption at the end of each time period; and (3) payment
of the maximum sales charge, if applicable.
<TABLE>
<CAPTION>
CLASS A
- ----------------
<S> <C>
1 Year $23
- ----------------
1 Year+ $13
- ----------------
3 Years $40
- ----------------
</TABLE>
+Reflects expenses on the same investment, assuming no redemption.
The above example should not be considered a representation of past or future
performance. Actual expenses may be greater or less than those shown. This
example is based on estimated data for the Fund's fiscal year ending September
30, 1997.
D. Please insert the following as the second paragraph of the
section entitled "Redemption of Shares" on page 21 of the
prospectus.
Class A shares purchased between October 10, 1996 and December 31, 1996 are
subject to a contingent deferred sales charge if redeemed within one year. See
"Purchase of Shares--Class A Shares."
E. Please insert the following as the third paragraph of the
sub-section entitled "Organization of the Fund" which
begins on page 28 of the prospectus.
As of April 14, 1997, Nomura Holding America Inc. ("NHA"), New York, New York,
owned 98.95% of the Class Y shares of the Fund, comprising 89.70% of the total
common stock of the Fund, and, therefore, may, for certain purposes, be deemed
to control the Fund and be able to affect the outcome of certain matters
presented for a vote of shareholders.
F. Please insert the following Financial Statements after the
subsection entitled "Shareholder Reports" and before
Appendix A. In addition, please add the heading "Financial
Statements" to the Table of Contents page after the heading
"Shareholder Reports."
BATTERY PARKSM HIGH YIELD FUND
Portfolio of Investments
March 31, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------
CORPORATE BONDS--91.5%
- ---------------------------------------------------------------------------
<C> <S> <C>
AEROSPACE & DEFENSE--4.2%
- ---------------------------------------------------------------------------
$500,000 Newport News Shipping, 9.25%, 12/1/2006 $ 512,500
- ---------------------------------------------------------------------------
AUTOMOTIVE--6.4%
- ---------------------------------------------------------------------------
500,000 Blue Bird Body Co., 10.75%, 11/15/2006 525,000
- ---------------------------------------------------------------------------
250,000 LDM Technologies, Inc., 10.75%, 1/15/2007 256,250
- ---------------------------------------------------------------------------
Total 781,250
- ---------------------------------------------------------------------------
BROADCAST RADIO & TV--7.8%
- ---------------------------------------------------------------------------
500,000 Katz Media Corp., 10.50%, 1/15/2007 505,000
- ---------------------------------------------------------------------------
450,000 Sinclair Broadcast Group, Inc., 10.00%, 12/15/2003 449,438
- ---------------------------------------------------------------------------
Total 954,438
- ---------------------------------------------------------------------------
BUSINESS EQUIPMENT & SERVICES--3.5%
- ---------------------------------------------------------------------------
400,000 Unisys Corp., 11.75%, 10/15/2004 424,000
- ---------------------------------------------------------------------------
CHEMICAL--3.9%
- ---------------------------------------------------------------------------
450,000 Sterling Chemicals, Inc., 11.75%, 8/15/2006 475,875
- ---------------------------------------------------------------------------
CONTAINERS--4.2%
- ---------------------------------------------------------------------------
500,000 Plastic Containers, Inc., 10.00%, 12/15/2006 512,500
- ---------------------------------------------------------------------------
ELECTRONICS--4.2%
- ---------------------------------------------------------------------------
500,000 Fairchild Semiconductor Corp., 10.125%, 3/15/2007 506,250
- ---------------------------------------------------------------------------
FOOD PRODUCTS--4.2%
- ---------------------------------------------------------------------------
500,000 CFP Holdings, Inc., 11.625%, 1/15/2004 512,500
- ---------------------------------------------------------------------------
HEALTHCARE--6.4%
- ---------------------------------------------------------------------------
500,000 IMED Corp., 9.75%, 12/1/2006 511,250
- ---------------------------------------------------------------------------
250,000 Quest Diagnostic Inc., 10.75%, 12/15/2006 261,874
- ---------------------------------------------------------------------------
Total 773,124
- ---------------------------------------------------------------------------
HOTELS/CASINOS--4.1%
- ---------------------------------------------------------------------------
500,000 Grand Casinos, Inc., 10.125%, 12/1/2003 502,500
- ---------------------------------------------------------------------------
NON-FERROUS METALS--3.3%
- ---------------------------------------------------------------------------
400,000 Westmin Resources Ltd., 11.00%, 3/15/2007 397,000
- ---------------------------------------------------------------------------
OIL & GAS--4.3%
- ---------------------------------------------------------------------------
500,000 Abraxas Petroleum Corp., 11.50%, 11/1/2004 525,000
- ---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------
CORPORATE BONDS--CONTINUED
- -------------------------------------------------------------------------------
<C> <S> <C>
PUBLISHING--2.0%
- -------------------------------------------------------------------------------
$250,000 Hollinger International Publishing, Inc., 9.25%,
3/15/2007 $ 245,000
- -------------------------------------------------------------------------------
RETAILER--3.6%
- -------------------------------------------------------------------------------
500,000 K Mart Corp., 7.75%, 10/1/2012 443,750
- -------------------------------------------------------------------------------
STEEL--8.1%
- -------------------------------------------------------------------------------
500,000 Acindar Industria Argentina de Aceros S.A., 11.25%,
2/15/2004 507,505
- -------------------------------------------------------------------------------
450,000 GS Technologies Operating Co., Inc., 12.25%, 10/1/2005 478,125
- -------------------------------------------------------------------------------
Total 985,630
- -------------------------------------------------------------------------------
TELECOMMUNICATIONS--15.0%
- -------------------------------------------------------------------------------
500,000 ESAT Holdings Ltd., 0/12.50%, 2/1/2007 282,500
- -------------------------------------------------------------------------------
500,000 Globalstar LP/ Capital, 11.375%, 2/15/2004 490,000
- -------------------------------------------------------------------------------
500,000 McLeod, Inc., 0/10.50%, 3/1/2007 277,500
- -------------------------------------------------------------------------------
250,000 Sprint PCS, 11.00%, 8/15/2006 265,000
- -------------------------------------------------------------------------------
750,000 Teleport Communications Group, Inc., 0/11.125%,
7/1/2007 506,250
- -------------------------------------------------------------------------------
Total 1,821,250
- -------------------------------------------------------------------------------
TEXTILES--2.1%
- -------------------------------------------------------------------------------
250,000 William Carter Co., 10.375%, 12/1/2006 253,750
- -------------------------------------------------------------------------------
TRANSPORTATION--4.2%
- -------------------------------------------------------------------------------
500,000 Atlantic Express Transportation Corp., 10.75%,
2/1/2004 513,750
- -------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $10,894,950) 11,140,067
- -------------------------------------------------------------------------------
<CAPTION>
(A) REPURCHASE AGREEMENT--6.7%
- -------------------------------------------------------------------------------
<C> <S> <C>
821,644 Merrill Lynch, Pierce, Fenner and Smith, Inc. 5.25%,
dated 3/31/1997, due 4/3/1997 (at amortized cost) 821,644
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST $11,716,594)(B) $11,961,711
- -------------------------------------------------------------------------------
</TABLE>
(a) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
(b) The cost of investments for federal tax purposes amounts to $11,716,594.
The net unrealized appreciation of investments on a federal tax basis
amounts to $245,117 which is comprised of $286,431 appreciation and $41,314
depreciation at March 31, 1997.
Note: The categories of investments are shown as a percentage of net assets
($12,176,588) at March 31, 1997.
The following acronym is used throughout this portfolio:
LP--Limited Partnership
(See Notes which are an integral part of the Financial Statements)
BATTERY PARKSM HIGH YIELD FUND
Statement of Assets and Liabilities
March 31, 1997 (unaudited)
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------
Total investments in securities, at
value (identified and tax cost
$11,716,594) $11,961,711
- ---------------------------------------------------
Cash 22,383
- ---------------------------------------------------
Income receivable 285,796
- ---------------------------------------------------
Receivable for shares sold 49,669
- ---------------------------------------------------
Total assets 12,319,559
- ---------------------------------------------------
LIABILITIES:
- ---------------------------------------------------
Income distribution payable $95,537
- ---------------------------------------------------
Accrued expenses 47,434
- ---------------------------------------------------
Total liabilities 142,971
- ---------------------------------------------------
Net Assets for 1,153,493 shares
outstanding $12,176,588
- ---------------------------------------------------
NET ASSETS CONSIST OF:
- ---------------------------------------------------
Paid in capital $11,622,795
- ---------------------------------------------------
Net unrealized appreciation of
investments 245,117
- ---------------------------------------------------
Accumulated net realized gain on
investments 308,676
- ---------------------------------------------------
Total Net Assets $12,176,588
- ---------------------------------------------------
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PROCEEDS PER SHARE:
- ---------------------------------------------------
CLASS A SHARES:
- ---------------------------------------------------
Net Asset Value Per Share ($1,205,447 /
114,196 shares outstanding) $10.56
- ---------------------------------------------------
Offering Price Per Share (100/95.50 of
$10.56)* $11.06
- ---------------------------------------------------
Redemption Proceeds Per Share $10.56
- ---------------------------------------------------
CLASS Y SHARES:
- ---------------------------------------------------
$10,971,141 / 1,039,297 shares
outstanding $10.56
- ---------------------------------------------------
</TABLE>
*See "Purchase of Shares--Class A Shares" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
BATTERY PARKSM HIGH YIELD FUND
Statement of Operations
For the Period from September 19, 1996 (Start of Business) through March 31,
1997 (unaudited)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------
Interest $458,452
- --------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------
Investment advisory fee $ 30,873
- --------------------------------------------------------------------------
Administrative personnel and services fee 21,096
- --------------------------------------------------------------------------
Custodian fees 2,736
- --------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and
expenses 25,546
- --------------------------------------------------------------------------
Directors'/Trustees' fees 13,709
- --------------------------------------------------------------------------
Legal fees 18,278
- --------------------------------------------------------------------------
Portfolio accounting fees 27,603
- --------------------------------------------------------------------------
Distribution services fee--Class A shares 515
- --------------------------------------------------------------------------
Share registration costs 24,659
- --------------------------------------------------------------------------
Printing and postage 5,002
- --------------------------------------------------------------------------
Insurance premiums 1,371
- --------------------------------------------------------------------------
Taxes 2,091
- --------------------------------------------------------------------------
Miscellaneous 7,715
- --------------------------------------------------------------------------
Total expenses 181,194
- --------------------------------------------------------------------------
Waivers and reimbursements--
- --------------------------------------------------------------------------
Waiver of investment advisory fee $ (30,873)
- --------------------------------------------------------------------------
Reimbursement of other operating expenses (102,310)
- --------------------------------------------------------------------------
Total waivers and reimbursements (133,183)
- --------------------------------------------------------------------------
Net expenses 48,011
- --------------------------------------------------------------------------
Net investment income 410,441
- --------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------
Net realized gain on investments 308,676
- --------------------------------------------------------------------------
Net change in unrealized appreciation of investments 245,117
- --------------------------------------------------------------------------
Net realized and unrealized gain on investments 553,793
- --------------------------------------------------------------------------
Change in net assets resulting from operations $964,234
- --------------------------------------------------------------------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BATTERY PARKSM HIGH YIELD FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
PERIOD
ENDED
(UNAUDITED)
MARCH 31,
1997(A)
- ----------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------------
Net investment income $ 410,441
- ----------------------------------------------------------------------------
Net realized gain (loss) on investments ($308,676, as computed
for federal tax purposes) 308,676
- ----------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 245,117
- ----------------------------------------------------------------------------
Change in net assets resulting from operations 964,234
- ----------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------------------
Distributions from net investment income
- ----------------------------------------------------------------------------
Class A Shares (18,463)
- ----------------------------------------------------------------------------
Class Y Shares (391,978)
- ----------------------------------------------------------------------------
Change in net assets resulting from distributions to
shareholders (410,441)
- ----------------------------------------------------------------------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------------------------
Proceeds from sale of shares 11,242,140
- ----------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 314,443
- ----------------------------------------------------------------------------
Cost of shares redeemed (33,888)
- ----------------------------------------------------------------------------
Change in net assets resulting from share transactions 11,522,695
- ----------------------------------------------------------------------------
Change in net assets 12,076,488
- ----------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------
Beginning of period 100,100
- ----------------------------------------------------------------------------
End of period $12,176,588
- ----------------------------------------------------------------------------
</TABLE>
(a) For the period from September 19, 1996 (start of business) to March 31,
1997.
(See Notes which are an integral part of the Financial Statements)
BATTERY PARKSM HIGH YIELD FUND
Notes to Financial Statements
March 31, 1997 (unaudited)
1. ORGANIZATION
Battery Park Funds, Inc. (the "Company") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-ended management
investment company. The Company consists of one portfolio. The financial
statements included herein are only those of Battery Park High Yield Fund (the
"Fund"), a diversified portfolio. The Fund offers two classes of shares: Class
A shares and Class Y shares. The Fund's investment objective is to provide
shareholders with high total return, consisting of current income and capital
appreciation.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS. U.S. government securities, listed corporate bonds,
(other fixed income and asset-backed securities), unlisted and private
placement securities are generally valued at the mean of the latest bid and
asked price as furnished by an independent pricing service. Short-term
securities are valued at the prices provided by an independent pricing service.
However, short-term securities with remaining maturities of sixty days or less
at the time of purchase may be valued at amortized cost, which approximates
fair market value.
REPURCHASE AGREEMENTS. It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault, all
securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to be
paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the "Directors").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less
than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS. Interest income and expenses are
accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code of 1986, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES. It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provision for Federal income taxes are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may engage in when-
issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are
marked to market daily and begin earning interest on the settlement date.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual results could differ from
those estimated.
OTHER. Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At March 31, 1997, the Fund has authorized capital of 200,000,000 shares of
common stock, par value $0.001 per share, initially classified as one series,
namely the Fund, consisting of two classes as follows:
<TABLE>
<CAPTION>
CAPITAL STOCK
CLASS NAME CLASSIFIED
- -----------------------------
<S> <C>
Class A shares 25,000,000
- -----------------------------
Class Y shares 25,000,000
- -----------------------------
</TABLE>
The remainder of 150,000,000 shares are not classified as to any class or
series. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
MARCH 31, 1997(A)
- -------------------------------------------------------------------------------
CLASS A SHARES SHARES AMOUNT
- -------------------------------------------------------------------------------
<S> <C> <C>
Shares sold 116,621 $1,237,990
- -------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 808 8,676
- -------------------------------------------------------------------------------
Shares redeemed (3,243) (33,888)
- -------------------------------------------------------------------------------
Net change resulting from Class A shares transactions 114,186 $1,212,778
- -------------------------------------------------------------------------------
</TABLE>
(a) For the period from October 28, 1996 (date of initial public offering) to
March 31, 1997.
<TABLE>
<CAPTION>
PERIOD ENDED
MARCH 31, 1997(B)
- -----------------------------------------------------------------------------
CLASS Y SHARES SHARES AMOUNT
- -----------------------------------------------------------------------------
<S> <C> <C>
Shares sold 1,000,400 $10,004,150
- -----------------------------------------------------------------------------
Shares issued to shareholders in payment of
distributions declared 28,897 305,767
- -----------------------------------------------------------------------------
Shares redeemed -- --
- -----------------------------------------------------------------------------
Net change resulting from Class Y shares transactions 1,029,297 $10,309,917
- -----------------------------------------------------------------------------
Net change resulting from Class A shares and Class Y
shares transactions 1,143,483 $11,522,695
- -----------------------------------------------------------------------------
</TABLE>
(b) For the period from October 28, 1996 (date of initial public investment) to
March 31, 1997.
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE. Nomura Corporate Research and Asset Management Inc.,
the Fund's investment adviser (the "Adviser"), receives for its services an
annual investment advisory fee equal to 0.65% of the Fund's average daily net
assets. The Adviser may voluntarily choose to waive any portion of its fee and
reimburse certain operating expenses of the Fund. The Adviser can modify or
terminate this voluntary waiver and reimbursement at any time at its sole
discretion.
ADMINISTRATIVE FEE. Federated Services Company ("FServ") provides the Fund with
certain administrative personnel and services. The fee paid to FServ is based
on the level of average aggregate net assets of the Company for the period.
DISTRIBUTION SERVICES FEE. The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Fund will compensate Nomura Securities International, Inc., the (the
"distributor") of the Fund's shares, from the net assets of the Fund's Class A
shares to finance activities intended to result in the sale of the Fund's Class
A shares. The Plan provides that the Fund may incur distribution expenses up to
0.25% of the average daily net assets of Class A shares annually to compensate
the distributor. The distributor may voluntarily choose to waive any portion of
its fee. The distributor can modify or terminate any such voluntary waiver at
any time at its sole discretion.
SHAREHOLDER SERVICES AGREEMENT. The Fund also may enter into a Shareholder
Services Agreement with Federated Shareholder Services Company ("FSSC") under
which the Fund may make additional payments up to 0.25% of the average daily
net asset value of Class A shares to obtain certain personal services for
certain shareholders and the maintenance of certain shareholder accounts. Under
this Shareholder Services Agreement, FSSC would either perform shareholder
service directly or will select financial institutions to perform shareholder
services, and financial institutions would receive fees based upon Class A
shares owned by their clients or customers. The schedules of such fees and the
basis upon which such fees would be paid will be determined from time to time
by the Fund and FSSC. The Fund has no current intention to enter into any
Shareholder Services Agreement.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES. FServ, through its
subsidiary, FSSC serves as transfer and dividend disbursing agent for the Fund.
The fee paid to FSSC is based on the size, type, and number of accounts and
transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES. FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES. Organizational and/or start-up administrative service
expenses of $212,000 were borne initially by the Adviser. The Fund has agreed
to reimburse the Adviser for the organizational and/or start-up administrative
expenses during the five year period following effective date. For the period
ended March 31, 1997, the Fund paid $5,889 pursuant to this agreement.
GENERAL. Certain of the Officers of the Company are Officers and Directors or
Trustees of FServ and/or FSSC.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended March 31, 1997, were as follows:
<TABLE>
- ----------------------
<S> <C>
PURCHASES $20,055,988
- ----------------------
SALES $ 9,507,281
- ----------------------
</TABLE>
Directors Officers
- --------------------------------------------------------------------------------
Michael A. Berman Robert Levine
Chairman and President
John Fitting, Jr.
Richard A. Buch
Francis L. Fraenkel
Vice President
Robert Levine
Lance B. Fraser
Frank K. Reilly
Treasurer
C. Christine Thomson
Assistant Treasurer
Deborah A. Montick
Secretary
Gail Cagney
Assistant Secretary
Mutual funds are not obligations of or insured by any bank nor are
they insured by the federal government or any of its agencies.
Investment in these shares involves risk, including the possible
loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Fund's prospectus, which contains facts
concerning its investment objective and policies, management fees, expenses and
other information.
NOMURA SECURITIES
INTERNATIONAL, INC.
Distributor
2 World Financial Center
Building B, 25th Floor
New York, NY 10281-1198
Cusip 07132Q108
Cusip 07132Q207
G02047-01 (4/97)
[LOGO]
BATTERY PARK /SM/
HIGH YIELD FUND
SEMI-ANNUAL REPORT
AND SUPPLEMENT TO
PROSPECTUS DATED
OCTOBER 10, 1996
APRIL 30, 1997
NOMURA CORPORATE RESEARCH
AND ASSET MANAGEMENT INC.
2 World Financial Center
Building B, 25th Floor
New York, NY 10281-1198
[LOGO OF BATTERY PARK] BATTERY PARK(SM)
HIGH YIELD FUND
PROSPECTUS DATED OCTOBER 10, 1996
- --------------------------------------------------------------------------------
ABOUT THE FUND. Battery Park(SM) High Yield Fund (the "Fund") is the only
existing series of Battery Park Funds, Inc., a newly organized, diversified,
open-end series-type investment company. The Fund's investment objective is to
provide shareholders with high total return, consisting of current income and
capital appreciation. The Fund attempts 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. See "Investment Objective and Policies." No
assurance can be given that the Fund's investment objective will be realized.
The Fund's Investment Adviser is Nomura Corporate Research and Asset Management
Inc.
RISK FACTORS. The Fund may invest up to 100% of its assets in lower rated or
unrated securities (commonly referred to as "junk bonds"). Investment in junk
bonds involves special considerations and certain risks, including risks of
default and price volatility, and such securities are regarded as being
predominantly speculative as to the issuer's ability to make payments of
principal and interest. Investors should consider these risks carefully before
investing. See "Risk Factors and Special Considerations" and "Appendix A--
Ratings of High Yield Debt Securities."
PURCHASING SHARES. The Fund offers two classes of shares with different fees
and other features. Shares may be purchased from securities dealers which have
entered into selected dealer agreements with Nomura Securities International,
Inc. ("NSI" or the "Distributor"), 2 World Financial Center, Building B, New
York, New York 10281. The minimum initial purchase for Class A shares is $1,000
and the minimum subsequent purchase is $100. The minimum initial purchase for
Class Y shares is $1 million. See "Purchase of Shares."
ABOUT THIS PROSPECTUS. This Prospectus is a concise statement of information
about the Fund that a prospective investor should know before investing in the
Fund. This Prospectus should be retained for future reference. A statement
containing additional information about the Fund dated October 10, 1996 (the
"Statement of Additional Information") has been filed with the Securities and
Exchange Commission (the "SEC") and is available, without charge, by calling
the Transfer Agent toll-free at 1-888-254-2874 or writing to the Transfer Agent
at its address on the back cover of the Prospectus. The Statement of Additional
Information is hereby incorporated by reference into this Prospectus.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Summary of Fund Expenses.................................................... 3
The Fund.................................................................... 4
The Investment Adviser...................................................... 4
Investment Objective and Policies........................................... 8
Other Investment Policies and Practices.................................... 9
Investment Restrictions.................................................... 12
Risk Factors and Special Considerations..................................... 13
Management of the Fund...................................................... 15
Directors.................................................................. 15
Management and Advisory Arrangements....................................... 15
Transfer Agency Services................................................... 16
Purchase of Shares.......................................................... 16
Class A Shares............................................................. 18
Class Y Shares............................................................. 20
Redemption of Shares........................................................ 21
Shareholder Services........................................................ 22
Investment Account......................................................... 22
Reinvestment of Dividends and Capital Gains Distributions.................. 22
Retirement Plans........................................................... 22
Exchange Privilege......................................................... 23
Taxes....................................................................... 23
Performance Data............................................................ 25
Portfolio Transactions...................................................... 26
Additional Information...................................................... 27
Dividends and Distributions................................................ 27
Determination of Net Asset Value........................................... 28
Organization of the Fund................................................... 28
Shareholder Inquiries...................................................... 29
Shareholder Reports........................................................ 29
Appendix A--Ratings of High Yield Debt Securities........................... A-1
Appendix B--Hedging Techniques.............................................. B-1
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS Y(1)
- -------------------------------------------------------------------------------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
- -------------------------------------------------------------------------------
Maximum Sales Load Imposed on Purchases (as a percentage
of offering price) 4.50%(2) None
- -------------------------------------------------------------------------------
Maximum Sales Load Imposed on Reinvested Dividend (as a
percentage of offering price) None None
- -------------------------------------------------------------------------------
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds,
as applicable) None None
- -------------------------------------------------------------------------------
Redemption Fees (as a percentage of amount redeemed, if
applicable) None None
- -------------------------------------------------------------------------------
Exchange Fee None None
- -------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES(3)
(AS A PERCENTAGE OF PROJECTED AVERAGE NET ASSETS)
- -------------------------------------------------------------------------------
Management Fees (after waiver)(4) 0.37% 0.37%
- -------------------------------------------------------------------------------
Rule 12b-1 Fees 0.25% None
- -------------------------------------------------------------------------------
Total Other Expenses 0.63% 0.63%
- -------------------------------------------------------------------------------
Total Annual Fund Operating Expenses(5) 1.25% 1.00%
- -------------------------------------------------------------------------------
</TABLE>
(1) Class Y shares are sold only to certain specified investors. See "Purchase
of Shares--Class Y Shares."
(2) Class A shares of the Fund held in accounts of financial planners or
individuals will convert to Class Y shares when the aggregate value of the
Class A shares in such account reaches $1 million or more. See "Purchase of
Shares--Class A Shares-- Conversion of Class A Shares to Class Y Shares."
(3) Annual Fund Operating Expenses are estimated based on average expenses
expected to be incurred during the fiscal year ending September 30, 1997.
During the course of this period, expenses may be more or less than the
average amount shown.
(4) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee by the investment adviser. The adviser can
terminate this voluntary waiver at any time at its sole discretion. The
maximum management fee is 0.65%.
(5) Total Annual Fund Operating Expenses for the Class A and Class Y Shares are
estimated to be 1.53% and 1.28% respectively, absent the voluntary waiver
of management fees.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder will bear either directly or indirectly.
For more complete descriptions of the various costs and expenses, see "Purchase
of Shares."
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return; (2) redemption at the end of each time period; and (3) payment
of the maximum sales charge, if applicable. The Fund charges no redemption
fees.
<TABLE>
<CAPTION>
CLASS A CLASS Y
- -------------------------
<S> <C> <C>
1 Year $57 $10
- -------------------------
3 Years $83 $32
- -------------------------
</TABLE>
The above example should not be considered a representation of past or future
performance. Actual expenses may be greater or less than those shown. This
example is based on estimated data for the Fund's fiscal year ending September
30, 1997.
THE FUND
- --------------------------------------------------------------------------------
Battery Park(SM) High Yield Fund (the "Fund") is a diversified, open-end
investment company. The Fund is the only existing series of Battery Park Funds,
Inc. (the "Company"), a newly organized series-type investment company that was
incorporated under the laws of the State of Maryland on June 4, 1996, and is
registered under the Investment Company Act of 1940 (the "Investment Company
Act"). The Fund's principal office is located at 2 World Financial Center,
Building B, New York, New York 10281-1198 and its telephone number is (212)
667-9300. The Fund's investment objective is to provide shareholders with high
total return, consisting of current income and capital appreciation. The Fund
attempts 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. There can be no assurance that the Fund's investment objective will be
realized. See "Investment Objective and Policies."
Investment in lower rated or unrated securities (commonly referred to as "junk
bonds") involves special considerations and certain risks, including risks of
failure to pay interest and principal, default and price volatility. Investors
should carefully consider these risks before investing. See "Risk Factors and
Special Considerations."
THE INVESTMENT ADVISER
- --------------------------------------------------------------------------------
The Fund's Investment Adviser is Nomura Corporate Research and Asset Management
Inc. (the "Investment Adviser" or "NCRAM"). As of September 30, 1996, NCRAM
managed in excess of $1.0 billion in high yield bonds.
HISTORICAL INVESTMENT RESULTS OF THE INVESTMENT ADVISER. Set forth below is
certain performance data provided by the Investment Adviser relating to
investment results of a composite of all client accounts whose portfolios were
managed by the Investment Adviser during a five year period commencing in 1991,
which had the same investment objective as the Fund and were managed using
substantially similar, though not necessarily identical, investment strategies
and techniques as those contemplated by the Fund (the "Advisory Accounts"). See
"Investment Objective and Policies." Because of the similarities in investment
strategies and techniques, the Investment Adviser believes that the Advisory
Accounts are sufficiently comparable to the Fund to make performance data
listed below relevant to investors in the Fund. The results presented (the
"Total Return Composite") are not intended to predict or suggest the returns
that will be experienced by the Fund or the return an investor will achieve by
investing in the Fund. Different methods of determining performance from those
described in the footnotes to the charts below may result in different
performance figures. An investor should not rely on the following performance
figures as an indication of future performance of either the Investment
Adviser's separate Advisory Accounts or the Fund.
<TABLE>
<CAPTION>
NCRAM HIGH YIELD TOTAL RETURN FIGURES
TOTAL RETURN COMPOSITE OCTOBER 1, 1991 TO SEPTEMBER 30, 1996
- ------------------------------------------------------------------------------
AVERAGE TOTAL RETURN NET OF FEES
- ------------------------------------------------------------------------------
<S> <C>
1991 (Fourth Quarter) 4.22%
- ------------------------------------------------------------------------------
1992 18.70%
- ------------------------------------------------------------------------------
1993 25.37%
- ------------------------------------------------------------------------------
1994 8.39%
- ------------------------------------------------------------------------------
1995 22.43%
- ------------------------------------------------------------------------------
1996 (First through Third Quarter) 12.27%
- ------------------------------------------------------------------------------
Annualized Total Return Since Inception 18.24%
- ------------------------------------------------------------------------------
</TABLE>
Another way to consider the above schedule is as follows: $10,000 invested in
an Advisory Account on October 1, 1991 which received a return based on the
Total Return Composite would have grown to $23,109, including reinvestment of
dividends, by September 30, 1996.
<TABLE>
<CAPTION>
PERFORMANCE OF NCRAM HIGH YIELD TOTAL RETURN COMPOSITE VS. LIPPER HIGH YIELD FUND AVERAGE
- ------------------------------------------------------------------------------------------------------
[NET OF FEES] Q1 Q2 Q3 Q4 ANNUAL
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
NCRAM +2.43% +2.69 +6.73 N/A N/A
Lipper* +2.82% +2.03 +4.66 N/A N/A
- ------------------------------------------------------------------------------------------------------
1995
NCRAM +5.97% +6.19% +3.64% +4.99% +22.43%
Lipper* +4.37% +5.28% +3.13% +2.95% +16.66%
- ------------------------------------------------------------------------------------------------------
1994
NCRAM +3.60% +1.22% +0.51% +2.83% +8.39%
Lipper* -1.10% -1.37% -0.13% -1.32% -3.87%
- ------------------------------------------------------------------------------------------------------
1993
NCRAM +9.41% +5.17% +2.79% +6.00% +25.37%
Lipper* +6.71% +4.74% +2.04% +4.43% +19.10%
- ------------------------------------------------------------------------------------------------------
1992
NCRAM +5.45% +2.98% +7.29% +1.89% +18.70%
Lipper* +8.03% +3.21% +4.11% +1.11% +17.37%
- ------------------------------------------------------------------------------------------------------
1991
NCRAM N/A N/A N/A +4.22% N/A
Lipper* N/A N/A N/A +5.04% N/A
- ------------------------------------------------------------------------------------------------------
</TABLE>
*Source: Lipper Analytical Services, Inc.
The indices above each represent past performance, are shown solely for
comparative purposes and may not be indicative of future returns. Past
performance is no guarantee of future results. Mutual funds, including the Fund
and those funds comprising the Lipper High Yield Fund Average, typically are
subject to portfolio management restrictions, investment limitations and
diversification requirements imposed by the Investment Company Act and the
Internal Revenue Code of 1986 that are not applicable to private accounts. The
imposition of such restrictions may result in lower returns than reflected in
the above table for the NCRAM High Yield Total Return Composite, as discussed
in note 6, below. In particular, such funds are subject to limitations on their
profits attributable to purchases and sales of shares held for less than three
months. See "Investment Objective and Policies--Other Investment Policies and
Practices--Portfolio Turnover."
NOTES TO INVESTMENT PERFORMANCE
The schedule on page 6 represents the average investment results for the
periods ending after October 1, 1991 for all clients whose portfolios were
included in the Advisory Accounts managed by the Investment Adviser.
1. TYPES OF ACCOUNTS AND ELIGIBLE ACCOUNTS FOR COMPOSITE
The Total Return Composite contains accounts that are aggressively managed for
a high level of current income and capital appreciation. Accounts in the Total
Return Composite invest primarily in fixed income securities of U.S. issuers
which are rated in the lower rating categories of the established rating
services or are unrated securities of comparable quality. Investments in fixed
income securities include cash pay securities, pay-in-kind and zero coupon
notes, convertible debt securities and increasing rate and resettable notes.
These investments include both new issues and issues traded in the secondary
market.
New accounts are eligible for inclusion in the composite rate of return
calculations upon completion of the first full quarter under management. Closed
accounts are eligible for inclusion in the composite rate of return
calculations through the completion of the last full quarter under management.
All existing accounts under management are reevaluated for possible inclusion
in the composite on a quarterly basis.
2. CALCULATION OF RATES OF RETURN
All rate of return calculations conform to standards established by the
Association for Investment Management and Research. All accounts are valued
monthly based on principal market values plus accrued income. Account returns
are calculated monthly utilizing the modified Dietz methodology where security
and cash flows are "day-weighted" during the month. All amounts are rounded to
the nearest one-hundredth of one percent. Monthly returns are geometrically
linked to determine quarterly returns.
3. COMPOSITE CHANGES AND OTHER MATTERS
No alteration of Total Return Composite as presented here has occurred at any
time because of changes in personnel. The composition of the composite has been
amended only where a change in the investment mandates of an account so
dictates. Leverage has not been used in portfolios included in the Total Return
Composite. An affiliated account which represents an average of approximately
7.58% of the total assets of the Total Return Composite (for the period October
1, 1992 through March 31, 1994) was a non-fee paying account. Due to a change
of investment strategy, this account was removed from the Total Return
Composite as of April 1, 1994.
There has been no linkage with simulated portfolios.
4. TOTAL RETURN COMPOSITE
During the term of its existence, the Total Return Composite comprised five or
fewer separate accounts. As of September 30, 1996, assets in the Total Return
Composite Accounts aggregated approximately $112 million (approximately 7.21%
of the Investment Adviser's total assets under management). As of September 30,
1996, the Investment Adviser also managed approximately $400 million of assets
in portfolios comprised of collateralized bond obligations ("CBOs") and
approximately $625 million of assets in a high yield mutual fund registered in
Japan.
5. FEES
Fees range from .50% to 1% of assets under management.
6. LIPPER HIGH CURRENT YIELD FUND AVERAGE
The Lipper High Current Yield Fund Average (the "Index") is a published average
total return net of fees figure for approximately 140 high current yield funds
monitored by Lipper Analytical Services ("Lipper"). Lipper defines High Current
Yield Funds as those that "aim at high (relative) current income from fixed
income securities." The Index has no quality or maturity restrictions and the
funds comprising the Index tend to invest in lower-grade debt securities.
Typically, such funds have concentration, diversification, liquidity, portfolio
turnover and distribution restrictions which may result in lower returns than
aggressively traded accounts such as those included in the Total Return
Composite.
EXPERIENCED MANAGEMENT. NCRAM is 80% owned by Nomura Holding America Inc.
("NHA") and 20% owned by The Nomura Securities Co., Ltd. ("NSC"), the parent of
NHA. NCRAM is affiliated with NSI, a broker-dealer and investment adviser
dually registered with the SEC. NSC and the Investment Adviser are part of an
affiliated group of Nomura companies.
Mr. Robert Levine founded the Investment Adviser in 1991 and is its current
President and Chief Executive Officer. He is a member of the Board of Directors
of the Investment Adviser and an Executive Managing Director of NHA. Mr. Levine
is responsible for the structuring, credit selection and management of all the
Investment Adviser's high yield portfolios. Mr. Levine will be the chief
investment officer for the Fund. Prior to his present position at NCRAM, Mr.
Levine was with Kidder, Peabody & Co., Inc. ("Kidder") for 13 years. His most
recent position at Kidder was President of Kidder, Peabody High Yield Asset
Management, Inc. and Managing Director for Kidder. Mr. Richard A. Buch, the
Fund's portfolio manager, heads up the Investment Adviser's trading operations
and also is a member of its Board of Directors. Mr. Buch joined the Investment
Adviser from Kidder in 1993. He has extensive experience in credit selection
and the management of high yield portfolios. Messrs. Levine and Buch are
supported by six credit analysts who specialize in different high yield
industry sectors.
INVESTMENT PHILOSOPHY. NCRAM believes that the domestic high yield market
provides attractive investment opportunities for investors who approach it
with a long-term, diligent research-intensive approach. NCRAM's investment
approach is based upon identifying and investing in those companies that it
believes to be the strongest in the high yield market.
NCRAM's investment philosophy, style and approach in managing high yield bonds
are less dependent on interest rate exposure and forecasts and more dependent
on company success, i.e., credit risk. Credit research is the fundamental
basis for decision making. NCRAM seeks companies (bottom-up approach) which it
believes are improving their ability to service debt. NCRAM refers to these
companies as "strong horses." The securities of these "strong horses"
constitute the core holdings of NCRAM's high yield portfolios.
Research constitutes the backbone of NCRAM and thus substantial resources are
allocated to the Investment Adviser's analysts, including five in-house
trained industry-specific research analysts plus two senior analysts/managers,
who provide in-depth coverage.
INITIAL INVESTMENT BY NCRAM AFFILIATE. To facilitate the establishment of the
Fund's portfolio, NHA, an affiliate of NCRAM, will invest approximately $10
million in the Fund shortly after its commencement of operations. Although NHA
will purchase Fund shares for investment purposes, all or a portion of this
investment may be redeemed at any time.
INVESTMENT OBJECTIVE AND POLICIES
- -------------------------------------------------------------------------------
The Fund's investment objective is to provide shareholders with high total
return, consisting of current income and capital appreciation. The foregoing
investment objective is a fundamental policy of the Fund and may not be
changed without a vote of a majority of the outstanding shares of the Fund.
The Fund attempts to achieve its objective by investing principally in fixed
income securities which are rated in the lower rating categories of the
established rating services or are unrated securities of comparable quality.
No assurance can be given that the Fund's investment objective will be
realized.
Under normal circumstances, the Fund will invest at least 80% of its total
assets in fixed income securities rated Ba1 or lower by Moody's Investors
Service, Inc. ("Moody's") or BB+ or lower by Standard & Poor's Ratings Group
("S&P"), or unrated securities of comparable quality. The Fund has established
no minimum acceptable rating for the securities in which it will invest, and
the Fund may, from time to time, purchase or hold securities in the lowest
rating categories. Securities rated below Baa by Moody's or below BBB by S&P,
and unrated securities of comparable quality, are commonly known as "junk
bonds." See Appendix A--"Ratings of High Yield Debt Securities" for a
description of these rating categories. The high yield market is generally
defined as including bonds with ratings below investment grade. However, when
prevailing economic conditions cause a narrowing of spreads between the yields
derived from medium to lower rated or comparable non-rated securities and those
derived from higher rated securities, the Fund may invest in higher rated fixed
income securities which provide similar yields with less risk. Since some
issuers do not seek ratings for their securities, unrated securities also will
be considered for investment, but only when the Investment Adviser believes
that the financial condition of the issuers of such securities and/or the
protection afforded by the terms of the securities themselves limit the risk to
the Fund to a degree comparable to that of the rated securities which are
consistent with the Fund's investment objective and policies.
The Fund will seek to achieve its objective of high total return by investing
in a variety of high yield, high current income securities including both
convertible and non-convertible debt securities, preferred stock, units of high
yield securities (including warrants), pay-in-kind bonds or notes, contingent
interest securities and increasing rate and resettable and extendable notes. In
seeking capital appreciation, the Fund also may invest in zero coupon bonds or
notes, or common stock, rights or other equity securities which do not provide
high current income but offer the potential for capital appreciation. See "Risk
Factors and Special Considerations."
The average maturity of the Fund's portfolio securities will vary based upon
the Investment Adviser's assessment of economic and market conditions. The Fund
reserves the right, as a temporary defensive measure or in anticipation of
purchasing high yield securities, to hold cash or short-term, high quality
securities such as United States Government securities, United States
Government agency or instrumentality securities, domestic bank or savings
institution certificates of deposit and bankers' acceptances, short-term debt
securities such as commercial paper and other corporate debt, and repurchase
agreements.
OTHER INVESTMENT POLICIES AND PRACTICES
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities, which
include any corporate debt security or preferred stock which may be converted
into underlying shares of common stock. Convertible securities entitle the
holder to receive interest payments paid on corporate debt securities or the
dividend preference on a preferred stock until such time as the convertible
security matures or is redeemed or until the holder elects to exercise the
conversion privilege. Although the Fund generally expects that it will sell
convertible securities rather than convert such securities into common stock,
the Fund may, at various times, exercise conversion rights on convertible
securities.
NON-U.S. SECURITIES. The Fund may invest up to 25% of its total assets in
securities issued by non-U.S. issuers. Included within such investments, the
Fund may invest up to 15% of its total assets in securities of issuers in
emerging markets. All of the Fund's investments in securities of non-U.S.
issuers will be U.S. dollar-denominated. Investment in securities of foreign
issuers involves risks not typically related to domestic investment. See "Risk
Factors and Special Considerations."
CORPORATE LOANS. The Fund may invest in corporate loans made by banks or other
financial institutions either at origination or by acquiring participations in,
assignments of or novations of corporate loans. Corporate loans generally are
not readily marketable and may be subject to restrictions on resale and are
therefore subject to the Fund's limitation on illiquid securities, as set forth
below. The corporate loans in which the Fund invests typically are originated,
negotiated and structured by a syndicate of co-lenders, one or more of which
administers the loan on behalf of the syndicate. The value of a corporate loan
depends primarily on the creditworthiness of the borrower. The Fund will invest
in a corporate loan only if, in the Investment Adviser's judgment, the borrower
can meet debt service on such loan; however, the Investment Adviser has set no
minimum credit rating criteria regarding the borrowers. Although the Investment
Adviser will continue to monitor the creditworthiness of the borrowers of
corporate loans in which the Fund invests, there can be no assurance that such
analysis will disclose factors that will impair the value of a corporate loan.
ASSET-BACKED SECURITIES. The Fund may invest in asset-backed securities, which
are securities that directly or indirectly represent an interest in, or are
backed by and payable from, receivables (including lease receivables) on pools
of assets such as (but not limited to) mortgage loans secured by real property,
notes secured by property, equipment or lease payments, credit card debt,
automobile loans or student loans. Asset-backed securities are issued in
structured financings wherein the sponsor is often a special purpose entity
established for the purpose of securitizing the underlying assets in order to
increase the liquidity of those assets or to achieve certain other financial
goals. In choosing asset-backed securities in which the Fund will invest, the
Investment Adviser will take into consideration, among other things, the
underwriting standards of the originator of the underlying obligations,
applicable loan-to-value ratios and the general sensitivity of the securities
to economic conditions and trends.
REPURCHASE AGREEMENTS. The Fund may invest in securities pursuant to repurchase
agreements. U.S. dollar-denominated repurchase agreements may be entered into
only with a member bank of the Federal Reserve System or a primary dealer in
U.S. Government securities or an affiliate thereof. Under such agreements, the
bank or primary dealer or an affiliate thereof agrees, upon entering into the
contract, to repurchase the security at a mutually agreed upon time and price,
thereby determining the yield during the term of the agreement. This results in
a fixed rate of return insulated from market fluctuations during such period.
Repurchase agreements may be construed to be collateralized loans by the
purchaser to the seller secured by the securities transferred to the purchaser.
As a purchaser, the Fund will require the seller to provide additional
collateral if the market value of the securities that are the subject of the
repurchase agreement falls below the repurchase price at any time during the
term of the repurchase agreement. In the event of default by the seller under a
repurchase agreement construed to be a collateralized loan, the underlying
securities are not owned by the Fund but only constitute collateral for the
seller's obligation to pay the repurchase price. Therefore, the Fund may suffer
time delays and incur costs or possible losses in connection with disposition
of the collateral.
"WHEN-ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS. The Fund may purchase and
sell portfolio securities on a "when-issued" and "delayed delivery" basis. No
income accrues to the Fund in such securities in connection with such
transactions prior to the date the Fund actually takes delivery of such
securities. These transactions are subject to market fluctuation; the value of
the securities at delivery may be more or less than their purchase price, and
yields generally available on such securities when delivery occurs may be
higher or lower than yields on the securities obtained pursuant to such
transactions. Failure of the buyer or seller, as the case may be, to consummate
the transaction may result in a missed opportunity to obtain the best price or
yield available on the purchase or sale of the subject security.
LENDING OF PORTFOLIO SECURITIES. The Fund may from time to time lend securities
from its portfolio with a value not exceeding 33-1/3% of its total assets, to
banks, brokers and other financial institutions and receive collateral in cash
or securities issued or guaranteed by the United States Government which will
be maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. During the period of this loan, the Fund
receives the income on the loaned securities and either receives the income on
the collateral or other compensation (i.e., negotiated loan premium or fee) for
entering into the loan and thereby increases its yield. In the event that the
borrower defaults on its obligation to return borrowed securities, because of
insolvency or otherwise, the Fund could experience delays and costs in gaining
access to the collateral and could suffer a loss to the extent that the value
of the collateral falls below the market value of the borrowed securities.
ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in
securities that are not readily marketable, including securities that are
restricted as to disposition under the federal securities laws or otherwise. If
registration of such securities under the Securities Act of 1933 (the
"Securities Act") is required, such registration may not be readily
accomplished, and if such securities may be resold without registration, such
resale may be permissible only in limited quantities. In either event, the
inability to sell securities at the most opportune time may affect negatively
the net asset value of the Fund. Notwithstanding the foregoing, the Fund may
purchase certain restricted securities ("Rule 144A securities") for which there
is a secondary market of qualified institutional buyers as defined by Rule 144A
under the Securities Act. Rule 144A securities held by the Fund that are
determined to be liquid securities, either by the Fund's Board of Directors or
by the Investment Adviser pursuant to guidelines approved by the Fund's Board,
will not be subject to the Fund's limitation on illiquid securities. See
"Investment Objective and Policies--Rule 144A Securities" in the Statement of
Additional Information for additional information regarding Rule 144A
securities.
PORTFOLIO TURNOVER. Generally, the Fund does not purchase securities for short-
term trading profits. However, the Fund may dispose of securities without
regard to the time they have been held when such actions, for defensive or
other reasons, appear advisable to the Investment Adviser in light of a change
in circumstances in general market, economic or financial conditions. As a
result of its investment policies, the Fund may engage in a substantial number
of portfolio transactions. Accordingly, while the Fund anticipates that its
annual portfolio turnover rate should not exceed 200% under normal conditions,
it is impossible to predict portfolio turnover rates. The portfolio turnover
rate is calculated by dividing the lesser of the Fund's annual sales or
purchases of portfolio securities (exclusive of purchases or sales of
securities whose maturities at the time of acquisition were one year or less)
by the monthly average value of the securities in the portfolio during the
year. Higher portfolio turnover (over 100%) involves correspondingly greater
transaction costs and may result in the realization of greater net short-term
capital gains. In order to qualify as a regulated investment company for
federal income tax purposes, less than 30% of the annual gross income of the
Fund must be derived from the sale or other disposition of securities and
certain other investments held by the Fund for less than three months.
LEVERAGE. Although the Fund does not presently intend to utilize leverage to
purchase portfolio securities, it is authorized to borrow from banks amounts of
up to 33-1/3% of its total assets (including the amount borrowed). The Fund may
also utilize its borrowing authority to obtain funds to meet redemption
requests or settle investment transactions or for temporary or emergency
purposes.
Borrowings by the Fund create an opportunity for greater total return but, at
the same time, increase exposure to capital risk. For example, leveraging may
exaggerate changes in the net asset value of Fund shares and in the yield on
the Fund's portfolio. Borrowing will create interest expenses for the Fund
which can exceed the income from the assets attributable to the borrowed funds.
To the extent the income derived from securities purchased with borrowed funds
exceeds the interest the Fund will have to pay, the Fund's net income will be
greater than if borrowing were not used. Conversely, if the income from the
assets acquired with borrowed funds is not sufficient to cover the cost of
borrowing, the net income of the Fund will be less than if borrowing were not
used, and therefore the amount available for distribution to shareholders as
dividends will be reduced.
OPTIONS AND FUTURES TRANSACTIONS. The Fund is authorized, but does not
currently intend, to engage in various portfolio strategies to hedge its
portfolio against investment and interest rate risks, including the utilization
of options and futures. See Appendix B--"Hedging Techniques."
INVESTMENT RESTRICTIONS
The Fund has adopted a number of restrictions and policies relating to the
investment of its assets and its activities which are fundamental policies and
may not be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company Act.
Investors are referred to the Statement of Additional Information for a
complete description of such restrictions and policies.
RISK FACTORS AND SPECIAL CONSIDERATIONS
- --------------------------------------------------------------------------------
JUNK BONDS. Junk bonds (sometimes referred to as "high yield securities") are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the security and generally
involve a greater volatility of price than securities in higher rating
categories. In purchasing such junk bonds, the Fund will rely on the Investment
Adviser's judgment, analysis and experience in evaluating the creditworthiness
of an issuer of such securities. The Investment Adviser will take into
consideration, among other things, the issuer's financial resources, its
sensitivity to economic conditions and trends, its operating history, the
quality of the issuer's management and regulatory matters.
The market values of junk bonds tend to reflect individual issuer developments
to a greater extent than do higher rated securities, which react primarily to
fluctuations in the general level of interest rates. Issuers of junk bonds may
be highly leveraged and may not have available to them more traditional methods
of financing. Therefore, the risk associated with acquiring the securities of
such issuers generally is greater than is the case with higher-rated
securities. For example, during an economic downturn or a sustained period of
rising interest rates, issuers of junk bonds may be more likely to experience
financial stress, especially if such issuers are highly leveraged. During
periods of economic recession, such issuers may not have sufficient revenues to
meet their interest payment obligations. The issuer's ability to service its
debt obligations also may be adversely affected by specific issuer developments
or the issuer's inability to meet specific projected business forecasts or the
unavailability of additional financing. The risk of loss due to default by the
issuer is significantly greater for the holders of junk bonds because such
securities may be unsecured and may be subordinated to other creditors of the
issuer.
Junk bonds may have call or redemption features which would permit an issuer to
repurchase the securities from the Fund. If a call were exercised by the issuer
during a period of declining interest rates, the Fund likely would have to
replace such called securities with lower-yielding securities, thus decreasing
the net investment income to the Fund and dividends to shareholders.
As with all fixed income securities, changes in the market yield will affect
the Fund's net asset value as the prices of junk bonds generally increase when
interest rates decline and decrease when interest rates rise. Prices of longer
term securities generally fluctuate more in response to interest rate changes
than do shorter term securities.
The Fund may have difficulty disposing of certain junk bonds because there may
be a thin trading market for such securities. To the extent that a secondary
trading market for junk bonds does exist, it is generally not as liquid as the
secondary market for higher-rated securities. Reduced secondary market
liquidity may have an adverse effect on market price and the Fund's ability to
dispose of particular issues which is necessary to meet the Fund's liquidity
needs or in response to a specific economic event such as deterioration in the
creditworthiness of the issuer. Reduced secondary market liquidity for certain
junk bonds also may make it more difficult for the Fund to obtain accurate
market quotations for purposes of valuing the Fund's portfolio. Market
quotations are generally available on many junk bonds only from a limited
number of dealers and may not necessarily represent firm bids of such dealers
or prices for actual sales. The Fund's Directors, or the Investment Adviser
pursuant to guidelines which may be adopted by the Directors, will carefully
consider the factors affecting the market for junk bonds in determining whether
any particular security is liquid or illiquid and whether market quotations are
readily available for purposes of valuing portfolio securities.
Adverse publicity and investor perceptions, which may not be based on
fundamental analysis, also may decrease the value and liquidity of junk bonds,
particularly in a thinly traded market. Factors adversely affecting the market
value of junk bonds are likely to affect adversely the Fund's net asset value.
In addition, the Fund may incur additional expenses to the extent it is
required to seek recovery upon a default on a portfolio holding or participate
in the restructuring of the obligation.
FOREIGN AND EMERGING MARKET SECURITIES. Investment in the securities of foreign
issuers involves special considerations that are not typically associated with
investment in the securities of U.S. issuers. These risks include adverse
political, economic and social developments, trading restrictions, low trading
volume, greater price volatility, settlement delays and less governmental
supervision and regulation. Individual foreign economies may differ favorably
or unfavorably from the U.S. economy in such respects as growth of gross
national product, rates of inflation, capital reinvestment, resources, self-
sufficiency and balance of payments position. Other risks include imposition of
foreign withholding taxes on Fund income, the possible seizure or
nationalization of foreign assets and the possible establishment of exchange
controls, expropriation, confiscatory taxation, or other foreign laws or
restrictions that might affect adversely payments due on securities held by the
Fund. Moreover, brokerage commissions and other transaction costs on foreign
securities are generally higher than in the United States. In addition, in the
event of a default on a foreign obligation, it may be more difficult for the
Fund to obtain or enforce a judgment against the issuer of such obligation.
There may be less publicly available information about a foreign issuer than a
U.S. issuer, and foreign issuers may not be subject to the same auditing and
financial recordkeeping standards and requirements as U.S. issuers. Often
foreign issuers are not subject to uniform accounting, auditing and financial
reporting standards or to practices comparable to those applicable to U.S.
companies, and therefore a foreign issuer's financial statements may not
reflect its financial position or results of operations as they would be
reflected had the financial statements been prepared in accordance with U.S.
generally accepted accounting principles.
These risks may be heightened in connection with investments in issuers in
emerging markets. Investment in certain emerging market securities is
restricted or controlled to varying degrees which may at times limit or
preclude investment in or disposal of those securities and may increase the
costs and expenses of trading in those securities to the Fund. In addition,
certain emerging market countries may significantly restrict foreign
investment, require governmental approval for investment by foreign investors
or to repatriate investment income, capital or the proceeds of sales of
securities by foreign investors, which also may adversely affect the Fund.
In addition to the risks described above, investors will be subject to risks
resulting from the Fund's investment policies described under "Investment
Objective and Policies--Other Investment Policies and Practices."
OPTIONS AND FUTURES TRANSACTIONS. The Fund is authorized, but does not
currently intend, to engage in various portfolio strategies to hedge its
portfolio against investment and interest rate risks, including the utilization
of options and futures. See Appendix B--"Hedging Techniques."
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
DIRECTORS
The Directors of the Fund consist of five individuals, three of whom are not
"interested persons" as defined in the Investment Company Act. The Directors
are responsible for the overall supervision of the operations of the Fund and
perform the various duties imposed on the directors of investment companies by
the Investment Company Act.
The Directors of the Fund are:
Robert Levine*--Founder, President and Chief Executive Officer of the
Investment Adviser and an Executive Managing Director of NHA.
Michael A. Berman*--Chairman and Chief Executive Officer of NSI.
John Fitting, Jr.--Former Chairman and Chief Executive Officer of National
Securities & Research, Inc.
Francis L. Fraenkel--President of Delta Capital Management Inc.
Frank K. Reilly--Bernard J. Hank Professor of Business Administration,
University of Notre Dame College of Business Administration.
- --------
* Interested person, as defined in the Investment Company Act, of the Fund.
MANAGEMENT AND ADVISORY ARRANGEMENTS
Subject to the direction of the Directors, the Investment Adviser is
responsible for the actual management of the Fund's portfolio and constantly
reviews the Fund's holdings in light of its own research analysis and that from
other relevant sources. The responsibilities for making decisions to buy, sell
or hold a particular security rest with the Investment Adviser. The Investment
Adviser performs certain of the other administrative services and provides
office space, facilities, equipment and personnel necessary for management of
the Fund.
Pursuant to the management agreement between the Investment Adviser and the
Fund (the "Investment Advisory Agreement"), the Investment Adviser is entitled
to receive from the Fund a monthly fee based upon the average daily net assets
of the Fund at an annual rate of 0.65%. During the Fund's first year of
operations, the Investment Adviser has agreed to waive that portion of the
investment advisory fee necessary to limit the total operating expenses of each
class of the Fund to 1.25% of average daily net assets. The Investment Adviser
may discontinue this waiver any time after the Fund's first year of operations.
The Investment Advisory Agreement obligates the Fund to pay certain expenses
incurred in the Fund's operations, including, among other things, the
management fee, legal and audit fees, unaffiliated Directors' fees and
expenses, registration fees, custodian and transfer agency fees, accounting and
pricing costs, and certain of the costs of printing proxies, shareholder
reports, prospectuses and statements of additional information. To the extent
that accounting services are provided to the Fund by the Investment Adviser,
the Fund will reimburse the Investment Adviser for its costs in connection with
such services.
TRANSFER AGENCY SERVICES
Federated Shareholder Services Company ("FSS"), acts as the Fund's transfer
agent (the "Transfer Agent") pursuant to an agreement (the "Transfer Agency
Agreement"). Pursuant to the Transfer Agency Agreement, the Transfer Agent is
responsible for the issuance, transfer and redemption of shares and the opening
and maintenance of shareholder accounts.
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
Shares of the Fund are offered continuously for sale by the Distributor and
other eligible securities dealers. The minimum initial purchase for Class A
shares is $1,000 and the minimum subsequent purchase is $100; the minimum
initial purchase for Class Y shares is $1 million.
The Fund offers its shares in two classes at a public offering price equal to
the next determined net asset value per share plus, in the case of Class A
shares, a sales charge imposed at the time of purchase. Class A shares may be
purchased through securities dealers that have entered into selected dealer
agreements with the Distributor. Class Y investors not purchasing through a
securities dealer should contact the Fund's Transfer Agent at 1-888-254-2874
prior to sending a purchase wire. Failure to notify the Transfer Agent in
advance may result in a delay in processing the purchase. Purchase wires should
be sent to The Bank of New York, New York, NY, ABA# 021-000-018, Nomura
Securities Deposit Account, Account #8900312076, c/o Federated Shareholder
Services Company, For Further Credit To: Battery Park(SM) High Yield Fund; an
investor should indicate his or her account number and the name under which the
account is registered. Purchase orders for Class A shares of the Fund must be
submitted through a securities dealer to the Fund's Transfer Agent. Purchase
orders must be received by securities dealers prior to the close of business on
the New York Stock Exchange (the "NYSE") which is normally 4:00 p.m. E.S.T. and
will include orders received after the close of business on the previous day.
The applicable offering price will be based on the net asset value determined
as of the close of business on the NYSE that day, provided the Transfer Agent
in turn receives the order from the securities dealer prior to 30 minutes after
the close of business on the NYSE on that day (normally 4:30 p.m. E.S.T.). If
the purchase orders are not received by the Transfer Agent prior to 30 minutes
after the close of business on the NYSE, such orders shall be deemed received
on the next business day.
The Fund or the Distributor may suspend the continuous offering of any class of
the Fund's shares at any time in response to conditions in the securities
markets or otherwise and may thereafter resume such offering from time to time.
Any order may be rejected by the Distributor or the Fund. Neither the
Distributor nor the dealers are permitted to withhold placing orders to benefit
themselves by a price change.
Each Class A share and Class Y share of the Fund represents an identical
interest in the investment portfolio of the Fund and has the same rights,
except that Class A shares bear the expenses of the ongoing distribution fees
and Class A shares may convert to Class Y shares. See "Class A Shares--
Conversion of Class A Shares to Class Y Shares." The distribution fees that are
imposed on Class A shares will be imposed directly against the assets
represented by Class A shares and not against all assets of the Fund and,
accordingly, such charges will not affect the net asset value of Class Y shares
or have any impact on investors choosing Class Y shares. Dividends paid by the
Fund for both classes of shares will be calculated in the same manner at the
same time and will differ only to the extent that distribution fees and any
incremental costs relating to a particular class are borne exclusively by that
class. Class A shares have exclusive voting rights with respect to the Class A
Rule 12b-1 distribution plan. See "Distribution Plan" below. Each class has an
exchange privilege with the Liberty U.S. Government Money Market Trust. See
"Shareholder Services--Exchange Privilege."
CLASS A SHARES
The public offering price of Class A shares is the next determined net asset
value plus varying sales charges (i.e., sales loads) as set forth in the table
below:
<TABLE>
<CAPTION>
SALES CHARGE AS A DISCOUNT TO
SALES CHARGE AS A PERCENTAGE* OF THE SELECTED DEALERS AS
AMOUNT OF PERCENTAGE OF NET AMOUNT A PERCENTAGE OF THE
PURCHASE OFFERING PRICE INVESTED OFFERING PRICE
- ----------------------------------------------------------------------------
<S> <S> <C> <C>
Less than $50,000 4.50% 4.71% 4.00%
- ----------------------------------------------------------------------------
$50,000--$99,999 4.00% 4.17% 3.50%
- ----------------------------------------------------------------------------
$100,000--$249,999 3.25% 3.36% 2.75%
- ----------------------------------------------------------------------------
$250,000--$499,999 2.50% 2.56% 2.25%
- ----------------------------------------------------------------------------
$500,000--$999,999 2.00% 2.04% 1.80%
- ----------------------------------------------------------------------------
$1,000,000 or more 0.00% 0.00% N/A
- ----------------------------------------------------------------------------
</TABLE>
* Rounded to the nearest one-hundredth percent.
Reduced initial sales charges are applicable to Class A share purchases
aggregating $50,000 or more made within a 13-month period starting with the
first purchase pursuant to a letter of intention. The letter of intention is
not a binding obligation to purchase any amount of Class A shares; however, its
execution will result in the purchaser paying a lower sales charge at the
appropriate quantity level. For details regarding letters of intention, see
"Purchase of Shares--Letter of Intention" in the Statement of Additional
Information.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A shares
of the Fund will receive a concession equal to a substantial portion of the
sales charge, they may be deemed underwriters under the Securities Act.
Class A shares are available to certain qualified investors and other entities
(herein referred to as "Qualified Investors") without a sales charge. Qualified
Investors include:
. U.S. purchasers which place orders through a broker that maintains an omnibus
account with the Fund and makes such purchases: (i) through U.S. investment
advisers or financial planners placing trades for their accounts or the
accounts of their clients, and who charge a fee for their services; (ii) for
U.S. clients of such investment adviser or financial planner who place trades
for their own accounts if the accounts are linked to a master account of such
investment adviser or financial planner on the books and records of the
broker or agent; (iii) for U.S. retirement and deferred compensation plans,
and trusts used to fund those plans, including but not limited to those
defined in section 401(a), 403(b) or 457 of the Internal Revenue Code or
"rabbi trusts" or (iv) using the proceeds of a redemption of shares of
another registered open-end investment company;
. charitable organizations (as defined in section 501(c) of the Internal
Revenue Code of 1986, as amended) investing $100,000 or more;
. any U.S. pension fund, corporation, state or local government, Taft Hartley
plan, foundation and/or endowment which is a client of a consulting firm, if
that firm has made appropriate arrangements with the Fund, NHA, NCRAM or any
affiliate of NHA or NCRAM with respect to furnishing advice to the client or
with respect to the purchase of Fund shares by such client;
. accounts as to which a U.S. bank or broker-dealer charges an account
management fee, provided the bank or broker-dealer has an agreement with
NCRAM or NHA relating to investment in the Fund;
. U.S. investors, and their spouses and minor children, who are investment
advisory clients of NCRAM or NHA or any of their affiliates or who are
affiliated persons or sponsoring companies of those clients; and
. employees (and their spouses and minor children) of the Investment Adviser.
DISTRIBUTION PLAN. The Fund has adopted a distribution plan for Class A shares
pursuant to Rule 12b-1 under the Investment Company Act (the "Distribution
Plan") with respect to the distribution fees paid by the Fund to the
Distributor with respect to such class.
Under the Distribution Plan, the Distributor will be paid a fee in an amount
computed at an annual rate of .25 of 1% of the average daily net assets of
Class A shares, accrued daily and paid monthly, to finance any activity which
is principally intended to result in the sale of Class A shares. Under the
Distribution Plan, all or part of this fee will be paid to financial
institutions such as banks, fiduciaries, custodians for public funds,
investment advisers and broker/dealers that have entered into agreements with
the Fund or the Distributor to provide sales services or distribution-related
support services to the Fund.
SHAREHOLDER SERVICES AGREEMENT. The Fund also may enter into a Shareholder
Services Agreement with FSS under which the Fund may make additional payments
up to .25 of 1% of the average daily net asset value of Class A shares to
obtain certain personal services for certain shareholders and the maintenance
of certain shareholder accounts. Under this Shareholder Services Agreement, FSS
would either perform shareholder services directly or will select financial
institutions to perform shareholder services, and financial institutions would
receive fees based upon Class A shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees would be paid will be
determined from time to time by the Fund and FSS. The Fund has no current
intention to enter into any Shareholder Services Agreement.
CONVERSION OF CLASS A SHARES TO CLASS Y SHARES. When the aggregate net
investments of clients of a securities dealer or fee-based financial planner
with appropriate arrangements with the Fund or NCRAM or the investment of a
single investor in Class A shares reaches $1 million, such Class A shares will
convert to Class Y shares upon written request by the securities dealer or
investor. Thereafter, such securities dealer or individual investor will be
offered Class Y shares of the Fund so long as such investor has at least $1
million invested in the Fund at the date the purchase order is accepted by the
Transfer Agent. Eligible shares will be transferred from Class A to Class Y at
net asset value on the day that the written request is received by the Transfer
Agent without the imposition of any fee or other charge.
If share certificates were issued, the share certificates for Class A shares of
the Fund to be converted must be delivered to the Transfer Agent with the
written request to transfer the shares. In the event such certificates are not
received by the Transfer Agent together with the request, the related Class A
shares will convert to Class Y shares after such certificates are delivered.
REINSTATEMENT PRIVILEGE. Shareholders who have redeemed their Class A shares
have a one-time privilege to reinstate their accounts by purchasing Class A
shares of the Fund, at net asset value without a sales charge, up to the dollar
amount redeemed. The reinstatement privilege may be exercised by sending a
notice of exercise along with a check for the amount to be reinstated to the
Transfer Agent within 90 days of the date the request for redemption was
accepted by the Transfer Agent. The reinstatement will be made at the net asset
value per share next determined after the notice of reinstatement is received
and cannot exceed the amount of the redemption proceeds. The reinstatement
privilege is a one-time privilege and may be exercised only the first time a
Class A shareholder makes a redemption.
CLASS Y SHARES
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.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. The Investment Adviser and/or
the Distributor also may pay financial institutions a fee for providing certain
services to both Class A and Class Y shareholders. This fee is in addition to
the amounts paid under the Distribution Plan and/or Shareholder Services
Agreement and, to the extent paid, will be reimbursed by the Investment Adviser
and not the Fund.
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
The Fund is required to redeem for cash all shares of the Fund upon receipt of
a written request in proper form. Class A shares and Class Y shares of the Fund
may be redeemed through securities dealers, or when appropriate in the case of
Class Y shares, by contacting the Transfer Agent at 1-888-254-2874. The
redemption price is the net asset value per share next determined after the
initial receipt of proper notice of redemption. There will be no charge for
redemption. Shareholders liquidating their holdings will receive on redemption
all dividends declared through the date of redemption. The value of shares at
the time of redemption may be more or less than the shareholder's cost,
depending on the market value of the securities held by the Fund at such time.
A shareholder may redeem shares by sending a written request to the Transfer
Agent. The written request should include the shareholder's name, the Fund
name, the account number, the share or dollar amount requested and, if share
certificates were issued, the share certificates. Shareholders should call the
Transfer Agent for assistance in redeeming by mail. Shareholders requesting a
redemption of $50,000 or more, a redemption of any amount to be sent to an
address other than that on record with the Fund, or a redemption payable other
than to a shareholder of record must have signatures on written redemption
requests guaranteed by:
. a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund, which is administered by the Federal Deposit Insurance
Corporation ("FDIC");
. a member of the New York, American, Boston, Midwest or Pacific Stock
Exchange;
. a savings bank or savings association whose deposits are insured by the
Savings Association Insurance Fund, which is administered by the FDIC; or
. any other "eligible guarantor institution" as defined by the Securities
Exchange Act of 1934.
The Transfer Agent does not accept signatures guaranteed by a notary public.
The Fund and its Transfer Agent have adopted standards for accepting signature
guarantees from the above institutions. The Transfer Agent may elect in the
future to limit eligible signature guarantees to institutions that are members
of a signature guarantee program. The Fund and its Transfer Agent reserve the
right to amend these standards at any time without notice.
At various times the Fund may be requested to redeem shares for which it has
not yet received good payment (e.g., cash, Federal funds or certified check
drawn on a United States bank). The Fund may delay or cause to be delayed the
mailing of a redemption check until such time as it has assured itself that
good payment has been collected for the purchase of such Fund shares, which
will not exceed seven days.
Due to the relatively high cost of maintaining accounts of less than $500, the
Fund reserves the right to redeem shares in any Class A share account for their
then current net asset value (which will be promptly paid to the shareholder),
if at any time the total investment does not have a value of at least $500.
Shareholders will be notified that the value of their account is less than $500
and allowed 60 days to make an additional investment before the redemption is
processed. In such event, the $100 minimum on subsequent investment will not be
applicable.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
The Fund offers a number of shareholder services and investment plans described
below which are designed to facilitate investment in shares of the Fund. Full
details as to each of such services can be obtained from the Fund by calling
the telephone number on the cover page hereof or from the Transfer Agent.
Included in such services are the following:
INVESTMENT ACCOUNT
An Investment Account is established by the Transfer Agent for each
shareholder. The shareholder will receive statements with respect to share
transactions showing the activity in the shareholder's Investment Account.
Share certificates for full shares will be issued without charge upon the
request of the shareholder to the Transfer Agent.
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions to the contrary are given as to the method of
payment of dividends and capital gains distributions, dividends and
distributions will automatically be reinvested in additional shares of the
Fund. Such reinvestment will be at the net asset value of shares of the Fund,
without sales charge, as of the close of business on the last business day of
each month. Shareholders may elect in writing to receive either their income
dividends or capital gains distributions, or both, in cash, in which event
payment will be mailed on the payment date.
Shareholders may, at any time, notify the Transfer Agent in writing that they
no longer wish to have their dividends and/or distributions reinvested in
shares of the Fund or vice versa, and commencing ten days after the receipt by
the Transfer Agent of such notice, those instructions will be effected.
RETIREMENT PLANS
Shares of the Fund may be purchased in connection with individual retirement
accounts. Copies of plans establishing such accounts are available from dealers
offering shares of the Fund.
Capital gains and income received in retirement plans are generally exempt from
federal taxation until distributed from the plans. Investors considering
participation in any such plan should review specific tax laws relating thereto
and should consult their attorneys or tax advisers with respect to the
establishment and maintenance of any such plan.
EXCHANGE PRIVILEGE
Shareholders of each class of shares of the Fund have an exchange privilege
with Liberty U.S. Government Money Market Trust (the "Money Fund"), a money
market mutual fund advised by Federated Advisers, an affiliate of FSS. There is
currently no limitation on the number of times a shareholder may exercise the
exchange privilege. The exchange privilege may be modified or terminated in
accordance with the rules of the SEC. The exchange privilege is available only
to U.S. shareholders in states where the exchange legally may be made.
Exchanges of Class A shares and Class Y shares for shares of the Money Fund are
made on the basis of the relative net asset values per Class A share or Class Y
share, respectively, without the imposition of any fee or other charge.
Shareholders of the Money Fund who wish to exchange their Money Fund shares for
Class A shares of the Fund and who did not acquire their Money Fund shares in
exchange for Class A shares will be required to pay the sales charge applicable
to the Class A shares acquired in exchange for those Money Fund shares.
Should the relationship between the Fund and FSS terminate, the Fund will seek
to enter into arrangements with another similar money market fund to continue
to provide the exchange privilege. Should FSS be replaced, former Fund
shareholders who exchanged their shares of the Fund for shares of the Money
Fund will be given a one-time opportunity to exchange their shares of the Money
Fund for shares of the new money market fund and thus preserve the ability to
exchange their money market fund shares for shares of the Fund at a future
date.
TAXES
- --------------------------------------------------------------------------------
The Fund intends to elect and to qualify for the special tax treatment afforded
regulated investment companies ("RICs") under the Internal Revenue Code of
1986, as amended (the "Code"). If it so qualifies, the Fund (but not its
shareholders) will not be subject to Federal income tax on the part of its net
ordinary income and net realized capital gains which it distributes to Class A
and Class Y shareholders (together, the "shareholders"). The Fund intends to
distribute all of such income.
Dividends paid by the Fund from its ordinary income or from an excess of net
short-term capital gains over net long-term capital losses (together referred
to hereafter as "ordinary income dividends") are taxable to shareholders as
ordinary income. Distributions made from an excess of net long-term capital
gains over net short-term capital losses (including gains or losses from
certain transactions in futures and options) ("capital gain dividends") are
taxable to shareholders as long-term capital gains, regardless of the length of
time the shareholder has owned Fund shares. Any loss upon the sale or exchange
of Fund shares held for one year or less, however, will be treated as long-term
capital loss to the extent of any capital gain dividends received by the
shareholder. Distributions in excess of the Fund's earnings and profits will
first reduce the adjusted tax basis of a holder's shares and, after such
adjusted tax basis is reduced to zero, will constitute capital gains to such
holder (assuming the shares are held as a capital asset).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Not later than 60 days after the close of the
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gain
dividends. Distributions by the Fund, whether from ordinary income or capital
gains, generally will not be eligible for the dividends received deduction
allowed to corporations under the Code. If the Fund pays a dividend in January
which was declared in the previous October, November or December to
shareholders of record on a specified date in one of such months, then such
dividend will be treated for tax purposes as being paid by the Fund and
received by its shareholders on December 31 of the year in which such dividend
was declared.
Ordinary income dividends paid to shareholders who are nonresident aliens or
foreign entities will be subject to a 30% United States withholding tax under
existing provisions of the Code applicable to foreign individuals and entities
unless a reduced rate of withholding or a withholding exemption is provided
under applicable treaty law. Nonresident shareholders are urged to consult
their own tax advisers concerning the applicability of the United States
withholding tax.
Dividends and interest received by the Fund may give rise to withholding and
other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes.
Under certain provisions of the Code, some shareholders may be subject to a 31%
withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with the Fund or who, to the Fund's knowledge, have furnished
an incorrect number. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that such investor is
not otherwise subject to backup withholding.
No gain or loss will be recognized on the conversion of Class A shares into
Class Y shares in the circumstances described in the Prospectus. A
shareholder's basis in the shares acquired will be the same as such
shareholder's basis in the shares converted, and the holding period of the
acquired shares will include the holding period for the converted shares.
If a shareholder exercises an exchange privilege within 90 days of acquiring
the shares, then the loss the shareholder can recognize on the exchange will be
reduced (or the gain increased) to the extent any sales charge paid to the Fund
on the exchanged shares reduces any sales charge the shareholder would have
owed upon purchase of the new shares in the absence of the exchange privilege.
Instead, such sales charge will be treated as an amount paid for the new
shares.
A loss realized on a sale or exchange of shares of the Fund will be disallowed
if other Fund shares are acquired (whether through the automatic reinvestment
of dividends or otherwise) within a 61-day period beginning 30 days before and
ending 30 days after the date that the shares are disposed of. In such a case,
the basis of the shares acquired will be adjusted to reflect the disallowed
loss.
The foregoing is a general and abbreviated summary of the applicable provisions
of the Code and Treasury regulations presently in effect. For the complete
provisions, reference should be made to the pertinent Code sections and the
Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative, judicial or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs which
are derived from interest on U.S. Government obligations. State law varies as
to whether dividend income attributable to U.S. Government obligations is
exempt from state income tax.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors
should consider applicable foreign taxes in their evaluation of an investment
in the Fund.
PERFORMANCE DATA
- --------------------------------------------------------------------------------
From time to time, the Fund may include its average annual total return and
yield for various specified time periods in advertisements or information
furnished to present or prospective shareholders. Average annual total return
and yield are computed separately for Class A and Class Y shares in accordance
with formulas specified by the SEC.
Average annual total return quotations for the specified period will be
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return will be computed assuming all dividends and
distributions are reinvested and taking into account all applicable recurring
and nonrecurring expenses, and the maximum sales charge in the case of Class A
shares. Dividends paid by the Fund with respect to all shares, to the extent
any dividends are paid, will be calculated in the same manner at the same time
on the same day and will be in the same amount, except that account maintenance
and distribution fees and any incremental transfer agency costs relating to
each class of shares will be borne exclusively by that class. The Fund will
include performance data for all classes of shares of the Fund in any
advertisement or information including performance data of the Fund. In
addition, advertisements may include performance data that does not take the
Class A sales charge into account and therefore may reflect greater total
return since a lower amount of expenses is deducted. See "Purchase of Shares."
The Fund's total return may be expressed either as a percentage or as a dollar
amount in order to illustrate such total return on a hypothetical $1,000
investment in the Fund at the beginning of each specified period.
Yield quotations will be computed based on a 30-day period by dividing (a) net
income based on the yield of each security earned during the period by (b) the
average daily number of shares outstanding during that period that were
entitled to receive dividends multiplied by the maximum offering price per
share on the last day of the period.
Total return and yield figures are based on the Fund's historical performance
and are not intended to indicate future performance. The Fund's total return
and yield will vary depending on market conditions, the securities comprising
the Fund's portfolio, the Fund's operating expenses and the amount of realized
and unrealized net capital gains or losses during the period. The value of an
investment in the Fund will fluctuate and an investor's shares, when redeemed,
may be worth more or less than their original cost.
On occasion, the Fund may compare its performance to performance data published
by the Merrill Lynch High Yield Bond Index, Lipper Analytical Services, Inc.,
Morningstar Publications, Inc., Money Magazine, U.S. News & World Report,
Business Week, CDA Investment Technology, Inc., Forbes Magazine and Fortune
Magazine. From time to time, the Fund may include the Fund's Morningstar risk-
adjusted performance ratings in advertisements or supplemental sales
literature. As with other performance data, performance comparisons should not
be considered indicative of the Fund's relative performance for any future
period.
PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------
Subject to policies established by the Board of Directors of the Fund, the
Investment Adviser is primarily responsible for the execution of the Fund's
portfolio transactions. In executing such transactions, the Investment Adviser
seeks to obtain the best results for the Fund, taking into account such factors
as price (including the applicable brokerage commission or dealer spread), size
of order, difficulty of execution and operational facilities of the firm
involved and the firm's risk in positioning a block of securities. While the
Investment Adviser generally seeks reasonably competitive commission rates or
spreads, the Fund does not necessarily pay the lowest commission or spread
available.
The Fund has no obligation to deal with any broker or dealer in execution of
transactions in portfolio securities. Subject to obtaining the best price and
execution, securities firms which provided supplemental investment research to
the Investment Adviser, including NSI, may receive orders for transactions by
the Fund. Information so received will be in addition to and not in lieu of the
services required to be performed by the Investment Adviser under the
Investment Advisory Agreement, and the expenses of the Investment Adviser will
not necessarily be reduced as a result of the receipt of such supplemental
information. In addition, consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc. and policies established by the
Directors of the Fund, the Investment Adviser may consider sales of shares of
the Fund as a factor in the selection of brokers or dealers to execute
portfolio transactions for the Fund.
The securities in which the Fund invests are traded primarily in the over-the-
counter market. Since portfolio transactions will generally not be effected on
foreign securities exchanges, the Fund does not expect typically to incur
potential settlement delays which may occur on certain of such exchanges. Where
possible, the Fund will deal directly with the dealers who make a market in the
securities involved except in those circumstances where better prices and
execution are available elsewhere. Such dealers usually are acting as principal
for their own account. On occasion, securities may be purchased directly from
the issuer. Such portfolio securities are generally traded on a net basis and
do not normally involve either brokerage commissions or transfer taxes.
Securities firms may receive brokerage commissions on certain portfolio
transactions, including options, futures and options on futures transactions
and the purchase and sale of underlying securities upon exercise of options.
Under the Investment Company Act, persons affiliated with the Fund, including
NSI, are prohibited from dealing with the Fund as a principal in the purchase
and sale of securities unless a permissive order allowing such transactions is
obtained from the SEC. An affiliated person of the Fund may serve as its broker
in transactions conducted on an exchange and in over-the-counter transactions
conducted on an agency basis.
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute all its net investment income. Dividends from
such net investment income will be declared daily prior to the determination of
net asset value on that day and paid monthly. Shares will accrue dividends as
long as they are issued and outstanding. Shares are issued and outstanding from
the settlement date of a purchase order to the settlement date of a redemption
order. All net realized long-term and short-term capital gains, if any, will be
distributed to the Fund's shareholders at least annually.
The per share dividends and distributions on each class of shares will be
reduced as a result of any fees or expenses applicable with respect to such
class of shares. See "Additional Information--Determination of Net Asset
Value." Dividends and distributions may be reinvested automatically in shares
of the Fund at net asset value. Shareholders may elect to receive any such
dividends or distributions, or both, in cash. Dividends and distributions are
taxable to shareholders as discussed under "Taxes" whether they are reinvested
in shares of the Fund or received in cash.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Fund is determined as of the close of trading
(normally 4:00 p.m. E.S.T.) on the NYSE, Monday through Friday, except on: (i)
days on which there is not sufficient changes in the value of the Fund's
portfolio securities that its net asset value might be materially affected;
(ii) days during which no shares are tendered for redemption and no orders to
purchase shares are received; or (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. The net asset value per share is computed
by dividing the value of the securities held by the Fund plus any cash or other
assets (including interest and dividends accrued but not yet received) minus
all liabilities (including accrued expenses) by the total number of shares
outstanding at such time, rounded to the nearest cent. Expenses, including the
fees payable to the Investment Adviser and any account maintenance and/or
distribution fees payable to the Distributor, are accrued daily.
The per share net asset value of the Class Y shares generally will be higher
than the per share net asset value of the Class A shares, reflecting the daily
expense accruals of the distribution fees applicable to Class A shares. It is
expected, however, that the per share net asset value of the classes will tend
to converge (although not necessarily meet) immediately after the payment of
dividends or distributions, which will differ by approximately the amount of
the expense accrual differentials between the classes.
ORGANIZATION OF THE FUND
The Fund is the only existing series of the Company, a series-type investment
company incorporated under Maryland law on June 4, 1996. The Company has an
authorized capital of 200,000,000 shares of common stock, par value $0.001 per
share, of which 50,000,000 shares are initially classified as one series,
namely the Fund, consisting of two classes, designated Class A and Class Y
common stock, each of which consists of 25,000,000 shares and the remainder of
150,000,000 shares are not classified as to any class or series. Shares of
Class A and Class Y common stock represent interests in the same assets of the
Fund and are identical in all respects except that the Class A shares bear
certain expenses related to the shareholder services and distribution
associated with such shares and may cease to be subject to such expenses if
they are converted to Class Y shares. Class A shareholders have exclusive
voting rights with respect to matters relating to that class' shareholder
services and distribution expenditures, as applicable. See "Purchase of
Shares." The Directors of the Company may classify and reclassify the shares of
the Fund and of the Company into additional classes or series of common stock
at a future date.
Shareholders are entitled to one vote for each share held and fractional votes
for fractional shares held and will vote on the election of Directors and any
other matter submitted to a shareholder vote. The Fund does not intend to hold
meetings of shareholders in any year in which the Investment Company Act does
not require shareholders to act upon the election of directors. Also, the By-
laws of the Fund require that a special meeting of stockholders be held upon
the written request of shareholders of the Fund as required by Maryland
corporate law and the Investment Company Act. Voting rights for Directors are
not cumulative. Shares issued are fully paid and nonassessable and have no
preemptive rights. Shares have the conversion features described in this
Prospectus. Each share of common stock is entitled to participate equally in
dividends and distributions declared by the Fund and in the net assets of the
Fund upon liquidation or dissolution after satisfaction of outstanding
liabilities except, as noted above, the Class A shares bear certain additional
expenses.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Fund at the address or telephone
number set forth on the cover page of this Prospectus.
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder communications
will be mailed to each identified shareholder regardless of the number of
accounts such shareholder has. If a shareholder wishes to receive separate
copies of each report and communication for each of the shareholder's related
accounts, the shareholder should notify in writing:
Battery Park Funds, Inc. P.O. Box 1226 Pittsburgh, PA 15230-1226
The written notification should include the shareholder's name, address, tax
identification number and account numbers. If you have any questions regarding
this, please call 1-888-254-2874.
APPENDIX A--RATINGS OF HIGH YIELD DEBT SECURITIES
- --------------------------------------------------------------------------------
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE RATINGS
Ba-Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B-Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa-Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca-Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C-Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers l, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") CORPORATE DEBT RATINGS
An S&P corporate or municipal rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers,
or lessees.
The debt rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended or withdrawn as a
result of changes in, or unavailability of, such information, or for other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
II. nature of and provisions of the obligation; and
III. protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
Debt rated BB, B, CCC, CC and C is regarded, on balance, as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B--Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions would likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC--Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to meet
timely payments of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC--The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
C--The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed but debt service
payments are continued.
CI--The rating CI is reserved for income bonds on which no interest is being
paid.
D--Debt rated D is in payment default. The D rating category is also used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing with the major
ratings categories.
Provisional ratings: The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit
quality subsequent to completion of the project, makes no comment on the
likelihood of, or risk of default upon failure of, such completion. The
investor should exercise judgment with respect to such likelihood and risk.
L--The letter "L" indicates that the rating pertains to the principal amount of
those bonds to the extent that the underlying deposit collateral is insured by
the Federal Savings & Loan Insurance Corp. or the Federal Deposit Insurance
Corp. and interest is adequately collateralized.
*--Continuance of the rating is contingent upon S&P's receipt of an executed
copy of the escrow agreement or closing documentation confirming investments
and cash flows.
NR--Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that S&P does not rate a particular
type of obligation as a matter of policy.
Debt Obligations of Issuers outside the United States and its territories are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank regulations
issued by the Comptroller of the Currency, Bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments may impose certain
rating or other standards for obligations eligible for investment by savings
banks, trust companies, insurance companies and fiduciaries generally.
The ratings are based on current information furnished to S&P by the issuer,
and obtained by S&P from other sources it considers reliable. The ratings may
be changed, suspended, or withdrawn as a result of changes in, or
unavailability of such information.
APPENDIX B--HEDGING TECHNIQUES
- --------------------------------------------------------------------------------
The Fund may engage in various portfolio strategies to hedge its portfolio
against interest rate risks. These strategies include use of options on
portfolio positions, futures and options on such futures. The Fund may enter
into such transactions only in connection with its hedging strategies. While
the Fund's use of hedging strategies is intended to reduce the volatility of
the net asset value of Fund shares, the Fund's net asset value will fluctuate.
There can be no assurance that the Fund's hedging transactions will be
effective and the Fund may not necessarily be engaging in hedging activities
when movements in interest rates occur. See "Investment Objective and Policies"
in the Fund's Prospectus for further information concerning these strategies.
Although certain risks are involved in options and futures transactions (as
discussed below in "Risk Factors in Options and Futures Transactions"), the
Investment Adviser believes that, because the Fund will only engage in these
transactions for hedging purposes, the options and futures portfolio strategies
of the Fund will not subject the Fund to the risks frequently associated with
the speculative use of options and futures transactions. Tax requirements may
limit the Fund's ability to engage in the hedging transactions and strategies
described below. See "Taxes" in the Statement of Additional Information.
The Fund may use the hedging instruments described below to hedge against
interest rate risks:
OPTIONS. The Fund may purchase and write (i.e., sell) call options and put
options on securities and engage in transactions in financial futures and
related options, as described below.
The Fund may write covered call options with respect to securities it owns and
enter into closing purchase transactions with respect to such options. A
covered call option provides the holder of the option with the right to buy the
underlying security covered by the option at the stated exercise price until
the option expires. A covered call option is an option where the Fund, in
return for a premium, gives another party a right to buy particular securities
held by the Fund at a specified price for a certain period of time. In return
for the premium income realized from the sale of the option, the Fund gives up
the opportunity to profit from a price increase in the underlying security
above the option exercise price while the option is in effect. In addition, the
Fund's ability to sell the underlying security will be limited until the option
is closed or expires. A closing purchase transaction cancels out the Fund's
position as the writer of an option by means of an offsetting purchase of an
identical option prior to the expiration of the option it has written. The Fund
also may purchase call options on securities held in its portfolio on which it
has written call options or on securities which it intends to purchase. There
is no percentage limitation with respect to portfolio securities on which the
Fund may write call options.
The Fund may purchase put options on portfolio securities. In return for
payment of a premium, the purchase of a put option gives the holder thereof the
right to sell the security underlying the option to another party at a
specified price until the put option is closed out, expires or is exercised.
The Fund will purchase put options to seek to reduce the risk of a decline in
value of the underlying security owned by the Fund. The Fund does not intend to
purchase uncovered puts in excess of 10% of its total assets. The total return
on the security may be reduced by the amount of the premium paid for the
option. The Fund may write put options which give the holder of the option the
right to sell the underlying security to the Fund at the stated exercise price.
The Fund will receive a premium for writing a put option which increases the
Fund's return. The Fund writes only covered put options which means that so
long as the Fund is obligated as the writer of the option it will have
deposited and maintained with its custodian cash or liquid securities with a
value equal to or greater than the exercise price of the underlying securities.
By writing a put, the Fund will be obligated to purchase the underlying
security at a price that may be higher than the market value of that security
at the time of exercise for as long as the option is outstanding. The Fund may
engage in closing transactions in order to terminate put options that it has
written or purchased. The Fund intends to limit its writing of covered puts so
that the aggregate value of the obligations underlying the puts will not exceed
5% of its net assets.
FUTURES. The Fund also may purchase and sell financial futures contracts
("futures contracts") as a hedge against adverse changes in interest rates, as
described below. A futures contract is an agreement between two parties which
obligates the purchaser of the futures contract to buy and the seller of a
futures contract to sell a security for a set price on a future date. The Fund
may effect transactions in futures contracts in United States and foreign
agency and government securities and corporate debt securities. Transactions by
the Fund in futures contracts are subject to limitation as described below
under "Restrictions on the Use of Futures Transactions."
The Fund may sell futures contracts in anticipation of an increase in the
general level of interest rates. Generally, as interest rates rise, the market
value of securities held by the Fund will fall, thus reducing the net asset
value of the Fund. As interest rates rise, however, the value of the Fund's
short position in the futures contract also will tend to increase, thus
offsetting all or a portion of the depreciation in the market value of the
Fund's investments which are being hedged. While the Fund will incur commission
expenses in selling and closing out futures positions, these commissions are
generally less than the transaction expenses which would have been incurred had
the Fund sold portfolio securities in order to reduce its exposure to increases
in interest rates.
The Fund may purchase futures contracts in anticipation of a decline in
interest rates when it is not fully invested in a particular market in which it
intends to make investments to gain market exposure that may in part or
entirely offset an increase in the cost of securities it intends to purchase.
The Fund does not consider purchases of futures contracts to be a speculative
practice under these circumstances. In a substantial majority of these
transactions, the Fund will purchase securities upon termination of the futures
contract.
The Fund also may purchase and write call and put options on futures contracts
in connection with its hedging activities. Generally, these strategies are
utilized under the same market and market sector conditions (i.e., conditions
relating to specific types of investments) in which the Fund enters into
futures transactions. The Fund may purchase put options or write call options
on futures contracts rather than selling the underlying futures contract in
anticipation of an increase in interest rates. Similarly, the Fund may purchase
call options or write put options on futures contracts as a substitute for the
purchase of such futures to hedge against the increased cost resulting from a
decline in interest rates of securities which the Fund intends to purchase.
Limitations on transactions in options on futures contracts are described
below.
The Fund may engage in options and futures transactions on exchanges and in the
over-the-counter ("OTC") markets. In general, exchange-traded contracts are
third-party contracts (i.e., performance of the parties' obligations is
guaranteed by an exchange or clearing corporation) with standardized strike
prices and expiration dates. OTC transactions are two-party contracts with
price and terms negotiated by the buyer and seller. The Fund will engage in OTC
options only with member banks of the Federal Reserve System and primary
dealers in U.S. Government securities or with affiliates of such banks or
dealers which have capital of at least $50 million or whose obligations are
guaranteed by an entity having capital of at least $50 million.
The staff of the Securities and Exchange Commission (the "SEC") has taken the
position that purchased OTC options and the assets used as cover for written
OTC options are illiquid securities. Therefore, the Fund has adopted an
investment policy pursuant to which it will not purchase or sell OTC options
(including OTC options on futures contracts) if, as a result of such
transaction, the sum of the market value of OTC options currently outstanding
which are held by the Fund, the market value of the underlying securities
covered by OTC call options currently outstanding which were sold by the Fund
and margin deposits on the Funds existing OTC options on futures contracts
exceed 15% (10% to the extent required by certain state laws) of the net assets
of the Fund, taken at market value, together with all other assets of the Fund
which are illiquid or are not otherwise readily marketable. However, if the OTC
option is sold by the Fund to a primary U.S. Government securities dealer
recognized by the Federal Reserve Bank of New York and the Fund has the
unconditional contractual right to repurchase such OTC option from the dealer
at a predetermined price, then the Fund will treat as illiquid such amount of
the underlying securities as is equal to the repurchase price less the amount
by which the option is "in-the-money" (i.e., current market value of the
underlying security minus the option's strike price). The repurchase price with
the primary dealers is typically a formula price which is generally based on a
multiple of the premium received for the option plus the amount by which the
option is "in-the-money." This policy as to OTC options is not a fundamental
policy of the Fund and may be amended by the Directors of the Fund without the
approval of the Fund's shareholders. However, the Fund will not change or
modify this policy prior to the change or modification by the SEC staff of its
position.
To trade futures contracts, the Fund is not required to deposit funds equal to
the value of the futures contract. The Fund need only make a deposit, called an
"initial margin deposit," equal to a percentage (typically 15% or less) of the
value of the futures contract. As a result, a relatively small adverse move in
the price of a futures contract may result in a substantial loss. For example,
if at the time of purchase 10% of the price of a futures contract is deposited
as margin, a 10% decrease in the price of that contract would, if the contract
were then closed out, result in a total loss of the initial margin deposit
before any deduction for brokerage commissions and other transaction costs. A
decrease of more than 10% would result in a loss of more than the total initial
margin deposit. Options on futures contracts are generally similarly or even
more highly leveraged. However, when the Fund purchases a futures contract, or
writes a put option or purchases a call option thereon, an amount of cash and
cash equivalents will be deposited in a segregated account with the Fund's
custodian so that the amount so segregated, plus the amount of initial and
variation margin held in the account of its broker, equals the market value of
the futures contract, thereby minimizing the effect of leverage from such
futures contract.
RESTRICTIONS ON THE USE OF FUTURES TRANSACTIONS. Regulations of the Commodity
Futures Trading Commission (the "CFTC") applicable to the Fund permit the
Fund's futures and options on futures transactions to include (i) bona fide
hedging transactions without regard to the percentage of the Fund's assets
committed to margin and option premiums, and (ii) non-hedging transactions,
provided that the Fund not enter into such non-hedging transactions if,
immediately thereafter, the sum of the amount of initial margin and option
premiums required to establish non-hedging transactions would exceed 5% of the
market value of the Fund's liquidation value, after taking into account
unrealized profits and unrealized losses on any such transactions. However, as
stated above, the Fund intends to engage in options and futures transactions
only for hedging purposes.
When the Fund purchases a futures contract or writes a put option or purchases
a call option thereon, it will maintain an amount of cash, cash equivalents
(e.g., high grade commercial paper and daily tender adjustable notes) or short-
term high grade fixed income securities in a segregated account with the Fund's
custodian so that the amount so segregated, plus the amount of initial and
variation margin held in the account of its broker, equals the market value of
the futures contract, thereby ensuring that the use of such futures is
unleveraged.
RISK FACTORS IN OPTIONS AND FUTURES TRANSACTIONS. Utilization of futures trans-
actions involves the risk of imperfect correlation in movements in the price of
futures contracts and movements in the price of the securities and currencies
which are the subject of the hedge. If the price of the futures contract moves
more or less than the price of the security or currency, the Fund will experi-
ence a gain or loss which will not be completely offset by movements in the
price of the debt securities which are the subject of the hedge. There is also
a risk of imperfect correlations where the securities underlying futures con-
tracts have different maturities than the portfolio securities being hedged.
Transactions in options on futures contracts involve similar risks.
The Fund intends to enter into options and futures transactions, on an exchange
or in the OTC market, only if there appears to be a liquid secondary market for
such options or futures or, in the case of OTC transactions, management
believes the Fund can receive on each business day a bid or offer. There can be
no assurance, however, that a liquid secondary market will exist at any
specific time. Thus, it may not be possible to close an options or futures
transaction. The inability to close options and futures positions also could
have an adverse impact on the Fund's ability to effectively hedge its
portfolio. There is also the risk of loss by the Fund of margin deposits or
collateral in the event of bankruptcy of a broker with whom the Fund has an
open position in an option, a futures contract or related option.
The exchanges on which options on portfolio securities are traded have
generally established limitations governing the maximum number of call or put
options on the same underlying security (whether or not covered) which may be
written by a single investor, whether acting alone or in concert with others
(regardless of whether such options are written on the same or different
exchanges or are held or written on one or more accounts or through one or more
brokers). "Trading limits" are imposed on the maximum number of contracts which
any person may trade on a particular trading day. The Investment Adviser does
not believe that these trading and position limits will have any adverse impact
on the portfolio strategies for hedging the Fund's portfolio.
INTEREST RATE HEDGING TRANSACTIONS. In order to hedge the value of the Fund's
portfolio against interest rate fluctuations, the Fund may enter into various
hedging transactions, such as interest rate swaps and the purchase or sale of
interest rate caps and floors. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio or to protect against any increase in
the price of securities the Fund anticipates purchasing at a later date. The
Fund intends to use these transactions as a hedge and not as a speculative
investment.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index falls below a predetermined interest rate, to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor.
In an interest rate swap, the Fund exchanges with another party their
respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments. The net amount of the excess,
if any, of the Fund's obligations over its entitlement with respect to each
interest rate swap will be accrued on a daily basis and an amount of cash, cash
equivalents or high grade liquid debt securities having an aggregate net asset
value at least equal to the accrued excess will be maintained in a segregated
account by the Fund's custodian.
The Fund will not enter into any interest rate swap, cap or floor transaction
unless the unsecured senior debt or the claims-paying ability of the other
party thereto is rated in one of the highest two rating categories of at least
one nationally recognized statistical rating organization at the time of
entering into such transaction or whose creditworthiness is believed by the
Investment Adviser to be equivalent to such rating. If there is a default by
the other party to such a transaction, the Fund will have contractual remedies
pursuant to the agreements related to the transaction. The Investment Adviser
believes that the swap market is relatively liquid. Caps and floors, however,
are less liquid than swaps. The Fund will not enter into a cap or floor
transaction in an amount which, together with other illiquid investments of the
Fund, exceeds 15% of the Fund's total assets (or 10% of the Fund's total assets
as presently required by certain state laws).
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offer contained in this Prospectus and, if given or made, such other
information or representation must not be relied upon as having been authorized
by the Fund, the Investment Adviser or Distributor. This Prospectus does not
constitute an offering in any state in which such offering may not lawfully be
made.
------------
- -------------------------------------------------
- -------------------------------------------------
BATTERY
PARK(SM)
HIGH YIELD FUND
- -------------------------------------------------
- -------------------------------------------------
Investment Adviser NOMURA CORPORATE RESEARCH
AND ASSET MANAGEMENT INC.
2 World Financial Center
Building B, 25th Floor
New York, NY 10281-1198
- -------------------------------------------------
Distributor NOMURA SECURITIES
INTERNATIONAL, INC.
2 World Financial Center
Building B, 25th Floor
New York, NY 10281-1198
- -------------------------------------------------
Transfer Agent FEDERATED SHAREHOLDER
SERVICES COMPANY
Federated Investors Tower
Pittsburgh, PA 15222-3775
- -------------------------------------------------
Custodian THE BANK OF NEW YORK
48 Wall Street
New York, NY 10286
- -------------------------------------------------
Independent Auditors DELOITTE & TOUCHE LLP
2500 One PPG Place
Pittsburgh, PA 15222
- -------------------------------------------------
Counsel BROWN & WOOD LLP
One World Trade Center
New York, NY 10048-0557
- -------------------------------------------------
- -------------------------------------------------
G01843-01
[LOGO OF BATTERY PARK]
BATTERY
PARK(SM)
HIGH YIELD FUND
PROSPECTUS DATED
OCTOBER 10, 1996
This prospectus should be retained for future reference.
BATTERY PARKSM HIGH YIELD FUND
Class A Shares
Class Y Shares
(A Series of Battery Park Funds, Inc.)
SUPPLEMENT TO STATEMENT OF ADDITIONAL INFORMATION DATED OCTOBER 10, 1996
A. Please insert the following directly after the section entitled
`Management of the Fund'' which begins on page 3 of the Statement of
Additional Information.
`FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding
shares.
As of April 14, 1997, the following shareholders of record owned 5% or
more of the outstanding Class A shares of the Fund: Fumiko Hosoda, New
York, NY, owned approximately 6,728 (5.59%) Class A shares; Kikuo
Yamazaki, New York, NY, owned approximately 6,718 (5.59%) Class A
shares; The Zen Studies Society, New York, NY, owned approximately
6,852 (5.70%) Class A shares and John B. Edgerton, Jr., Trustee, owned
approximately 24,224 (20.14%) Class A shares.
As of April 14, 1997, the following shareholder of record owned 5% or
more of the outstanding Class Y shares of the Fund: Nomura Holding
America Inc., New York, NY, owned approximately 1,036,764 (98.95%)
Class Y shares.''
B. Please delete the section entitled `Compensation of Directors'' on page
4 of the Statement of Additional Information and replace it with the
following.
`DIRECTORS' COMPENSATION
AGGREGATE
NAME, COMPENSATION
POSITION WITH THE FROM THE
COMPANY COMPANY*
Robert Levine, $0
Chairman, President, Director
and Chief Investment Officer
Michael A. Berman, $0
Director
John Fitting, Jr., $2,500
Director
Francis L. Fraenkel, $2,500
Director
Frank K. Reilly, $2,500
Director
*Information is furnished for the period from October 28, 1996 (date of
initial public investment) to March 31, 1997. It is anticipated that each
unaffiliated Director will receive aggregate compensation of approximately
$7,500 from the Fund for the fiscal year ending September 30, 1997. The
Fund is the only investment company in the Fund Complex.''
C. Please insert the following as the fifth paragraph of the section
entitled `Management and Advisory Arrangements'' which begins on page 4
of the Statement of Additional Information.
`For the period from September 19, 1996 (start of business) to March
31, 1997, the Investment Adviser earned management and advisory fees of
$30,873, all of which was waived.''
D. Please insert the following as the third paragraph of the section
entitled `Distribution Plan'' on page 6 of the Statement of Additional
Information.
`For the period from September 19, 1996 (start of business) to March
31, 1997, the Class A shares incurred $515 in distribution services
fees, none of which was waived.''
E. Please insert the following directly after the section entitled
`Performance Data'' which begins on page 10 of the Statement of
Additional Information.
`TOTAL RETURN
The Fund's cumulative total return for Class A shares for the period
from October 28, 1996 (date of initial public investment) to March 31,
1997, was 4.46%.
The Fund's cumulative total return for Class Y shares for the period
from October 28, 1996 (date of initial public investment) to March 31,
1997, was 9.48%.
Cumulative total return reflects the Fund's total performance over a
specific period of time. The Class A shares' total return assumes and
is reduced by the payment of the maximum sales charge. The Fund's
total return is representative of approximately six months of
investment activity since the Fund's effective date.
YIELD
The Fund's yield for Class A shares for the thirty-day period ended
March 31, 1997 was 7.99%.
The Fund's yield for Class Y shares for the thirty-day period ended
March 31, 1997 was 8.64%.''
F. Please insert the following directly after the section entitled
`Shareholder Services'' on page 8 of the Statement of Additional
Information.
`SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
The Investment Adviser and/or the Distributor may pay financial
institutions a fee for providing certain services to both Class A and
Class Y shareholders and for services involved in connection with the
distribution of shares of the Fund. These fees are in addition to the
amounts paid under the Distribution Plan and/or Shareholder Services
Agreement and, to the extent paid by the Distributor, such fees will be
reimbursed to the Distributor by the Investment Adviser and not the
Fund.''
April 30, 1997
Nomura Corporate Research and Asset Management Inc.
Investment Adviser
Nomura Securities International, Inc. -- Distributor
Cusip 07132Q108
Cusip 07132Q207
G02047-02 (4/97)
BATTERY PARKSM HIGH YIELD FUND
STATEMENT OF ADDITIONAL INFORMATION
Battery ParkSM High Yield Fund (the "Fund") is the only existing series
of Battery Park Funds, Inc., a newly organized, diversified, open-end
series-type investment company. The Fund's investment objective is to
provide shareholders with high total return, consisting of current
income and capital appreciation. The Fund attempts 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. No assurance can be given that the Fund's investment
objective will be realized.
The Fund offers two classes of shares with different fees and other
features. Shares may be purchased from securities dealers which have
entered into selected dealer agreements with Nomura Securities
International, Inc. (the "Distributor"). The minimum initial purchase
for Class A shares is $1,000 and the minimum subsequent purchase is
$100. The minimum initial purchase for Class Y shares is $1,000,000.
This Statement of Additional Information of the Fund is not a
prospectus and should be read in conjunction with the prospectus of the
Fund, dated October 10, 1996 (the "Prospectus"), which has been filed
with the Securities and Exchange Commission (the "SEC") and can be
obtained, without charge, by writing the Transfer Agent at Federated
Shareholder Services Company, Federated Investors Tower, Pittsburgh, PA
15222-3775, or by calling the Transfer Agent toll-free at
1-888-254-2874. This Statement of Additional Information has been
incorporated by reference into the Prospectus.
2 WORLD FINANCIAL CENTER
NEW YORK, NEW YORK 10281-1198
The date of this Statement of Additional Information is October 10,
1996.
Nomura Corporate Research and Asset Management Inc. Investment Adviser
Nomura Securities International, Inc. -- Distributor
G01843-02 (10/96)
INVESTMENT OBJECTIVE AND POLICIES 1
Investment Restrictions 2
MANAGEMENT OF THE FUND 3
Directors and Officers 3
Management and Advisory Arrangements 4
PURCHASE OF SHARES 5
Reduced Initial Sales Charges 5
Distribution Plan 6
REDEMPTION OF SHARES 6
PORTFOLIO TRANSACTIONS 6
Portfolio Turnover 7
DETERMINATION OF NET ASSET VALUE 7
SHAREHOLDER SERVICES 8
Automatic Reinvestment of Dividends and
Capital Gains Distributions 8
Systematic Redemption and Automatic Investment
Plans 8
TAXES 8
Tax Treatment of Options and Futures
Transactions 9
PERFORMANCE DATA 10
GENERAL INFORMATION 11
Dividends and Distributions 11
Description of Shares 11
Computation of Offering Price Per Share 12
Independent Auditors 12
Custodian 12
Transfer Agent 12
Legal Counsel 12
Reports to Shareholders 12
Additional Information 12
Independent Auditors' Report 13
Statement of Assets and Liabilities 14
INVESTMENT OBJECTIVE AND POLICIES
Reference is made to "Investment Objective and Policies" in the Prospectus
for a discussion of the investment objective and policies of the Fund.
The Fund's investment objective is to provide shareholders with high total
return, consisting of current income and capital appreciation. The Fund
attempts to achieve its objective by investing principally in fixed income
securities of U.S. companies which securities are rated in the lower rating
categories of the established rating services or are unrated securities of
comparable quality. Under normal circumstances, the Fund will invest at
least 80% of the Fund's total assets in fixed income securities rated Ba1
or lower by Moody's Investors Service, Inc. ("Moody's") or BB+ or lower by
Standard & Poor's Ratings Group ("S&P"). The Fund is authorized to, but
does not currently intend to, engage in various portfolio strategies to
enhance income and to hedge its portfolio against investment and interest
rate risks, including the utilization of leverage and the use of options
and futures. See `Risk Factors and Special Considerations'' in the
Prospectus for a discussion of these risks.
INVESTMENT IN FOREIGN AND EMERGING MARKETS. Investment in the
securities of foreign markets involve certain risk factors and special
considerations in addition to those discussed under "Investment
Objective and Policies--Risk Factors and Special Considerations--
Foreign and Emerging Market Securities" in the Fund's Prospectus, and
these risks are often amplified in connection with investments in
emerging markets. Certain emerging market countries require prior
governmental approval of foreign investors, limit the amount of
investment by foreign investors in a particular issuer, limit the
investment by foreign investors only to a specified class of
securities that may have less advantageous rights than other classes,
restrict investment opportunities in issuers in industries deemed
important to national interests and/or impose additional taxes on
foreign investors. It may be difficult to find qualified
subcustodians in emerging market countries with extensive operating
experience, and the Fund may be more limited in its ability to recover
assets in the event of a subcustodian's bankruptcy than it would be in
more developed countries. Investing in local markets in emerging
market countries may require the Fund to adopt special procedures,
seek local government approvals or take other actions, each of which
may involve additional costs to the Fund. See `Investment Objective
and Policies-Investment in Foreign and Emerging Markets''in the
Prospectus for additional information regarding foreign and emerging
market securities.
The securities markets of emerging market countries are not as large
as the U.S. securities markets and have substantially less trading
volume, resulting in a lack of liquidity with high price volatility.
Certain markets are in only the earliest stages of development. There
is also a high concentration of market capitalization and trading
volume in a small number of issuers representing a limited number of
industries, as well as a high concentration of investors and financial
intermediaries. Many of such markets also may be affected by
developments with respect to more established markets in the region.
Brokers in emerging market countries typically are fewer in number and
less capitalized than brokers in the United States. These factors,
combined with the U.S. regulatory requirements for open-end investment
companies and the restrictions on foreign investment discussed in the
Prospectus, may result in potentially fewer investment opportunities
for the Fund and may have an adverse effect on the investment
performance of the Fund.
RULE 144A SECURITIES. In promulgating Rule 144A under the Securities
Act, the Securities and Exchange Commission (the "SEC") stated that
the ultimate responsibility for liquidity determinations rests with a
fund's board of directors; however, the board may delegate the day-to-
day function of determining liquidity to the investment adviser
provided the board retains sufficient oversight. The Board of
Directors of the Fund has adopted policies and procedures for the
purpose of determining whether securities that are eligible for resale
under Rule 144A are liquid or illiquid and has approved guidelines
under these policies and procedures pursuant to which the Investment
Adviser makes these determinations on an ongoing basis. In making
these determinations, consideration is given to, among other things,
the frequency of trades and quotes for the security, the number of
dealers willing to sell the security and the number of potential
purchasers, dealer undertakings to make a market in the security, the
nature of the security and the time needed to dispose of the security.
The Board of Directors periodically reviews Fund purchases and sales
of Rule 144A securities.
To the extent that liquid Rule 144A securities become illiquid, due to
the lack of sufficient qualified institutional buyers or market or
other conditions, the percentage of the Fund's assets invested in
illiquid assets would increase. The Investment Adviser, under the
supervision of the Board of Directors, will monitor Fund investments
in Rule 144A securities and will consider appropriate measures to
enable the Fund to maintain sufficient liquidity for operating
purposes and to meet redemption requests.
INVESTMENT RESTRICTIONS
In addition to the investment restrictions set forth in the Prospectus, the
Fund has adopted both fundamental and nonfundamental restrictions and
policies relating to the investment of its assets and its activities.
Fundamental restrictions and policies may not be changed without the
approval of the holders of a majority of the Fund's outstanding voting
securities (which for this purpose and under the Investment Company Act of
1940, as amended (the "Investment Company Act") means the lesser of (a) 67%
of the shares represented at a meeting at which more than 50% of the
outstanding shares are represented or (b) more than 50% of the outstanding
shares). Under these fundamental restrictions, the Fund may not:
Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities).
Make investments for the purpose of exercising control or
management.
Purchase or sell real estate, except that, to the extent permitted
by applicable law, the Fund may invest in securities directly or
indirectly secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein.
Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in
government obligations, commercial paper, pass-through instruments,
certificates of deposit, bankers acceptances, repurchase agreements
or any similar instruments shall not be deemed to be the making of a
loan, and except further that the Fund may lend its portfolio
securities, provided that the lending of portfolio securities may be
made only in accordance with applicable law and the guidelines set
forth in the Fund's Prospectus and Statement of Additional
Information, as they may be amended from time to time, provided that
purchases of assignments or participations in loans (including
bridge loans) will not be prohibited by this paragraph.
Issue senior securities to the extent such issuance would violate
applicable law.
Borrow money, except that (i) the Fund may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3% of
its total assets (including the amount borrowed), (ii) the Fund may
borrow up to an additional 5% of its total assets for temporary
purposes, (iii) the Fund may obtain such short-term credit as may be
necessary for the clearance of purchases and sales of portfolio
securities and (iv) the Fund may purchase securities on margin to
the extent permitted by applicable law. The Fund may not pledge its
assets other than to secure such borrowings or, to the extent
permitted by the Fund's investment policies as set forth in its
Prospectus and Statement of Additional Information, as they may be
amended from time to time, in connection with hedging transactions,
short sales, when-issued and forward commitment transactions and
similar investment strategies.
Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act of
1933, as amended (the "Securities Act"), in selling portfolio
securities.
Purchase or sell commodities or contracts on commodities, except to
the extent that the Fund may do so in accordance with applicable law
and the Fund's Prospectus and Statement of Additional Information,
as they may be amended from time to time, and without registering as
a commodity pool operator under the Commodity Exchange Act.
Make any investment inconsistent with the Fund's classification as a
diversified investment company under the Investment Company Act.
Non-fundamental restrictions may be amended by a majority vote of the Board
of Directors of the Fund. Under the non-fundamental investment
restrictions, the Fund may not:
Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law.
Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law. The Fund currently does
not intend to engage in short sales.
Invest in securities which cannot be readily resold because of legal
or contractual restrictions or which cannot otherwise be marketed,
redeemed or put to the issuer or a third party, if at the time of
acquisition more than 15% of its net assets would be invested in
such securities. This restriction shall not apply to securities
which mature within seven days or securities which the Board of
Directors of the Fund has otherwise determined to be liquid pursuant
to applicable law. Securities purchased in accordance with Rule 144A
under the Securities Act and determined to be liquid by the Fund's
Board of Directors are not subject to the limitations set forth in
this investment restriction.
Invest in warrants if, at the time of acquisition, its investments
in warrants, valued at the lower of cost or market value, would
exceed 5% of the Fund's net assets; included within such limitation,
but not to exceed 2% of the Fund's net assets, are warrants which
are not listed on the New York Stock Exchange or American Stock
Exchange or a major foreign exchange. For purposes of this
restriction, warrants acquired by the Fund in units or attached to
securities may be deemed to be without value.
Purchase or retain the securities of any issuer, if those individual
officers and directors of the Fund or the officers and directors of
the Investment Adviser or the officers and directors of any
subsidiary thereof each owning beneficially more than 1/2 of 1% of
the securities of such issuer own in the aggregate more than 5% of
the securities of such issuer.
Invest in real estate limited partnership interests or interests in
oil, gas or other mineral leases, or exploration or development
programs, except that the Fund may invest in securities issued by
companies that engage in oil, gas or other mineral exploration or
development activities.
Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except to the extent permitted in the Fund's
Prospectus and Statement of Additional Information, as they may be
amended from time to time.
Portfolio securities of the Fund generally may not be purchased from, sold
or loaned to the Investment Adviser or its affiliates or any of their
directors, officers or employees, acting as principal, unless pursuant to a
rule or exemptive order under the Investment Company Act.
Because of the affiliation of the Investment Adviser with the Fund and the
Distributor, the Fund is prohibited from engaging in portfolio transactions
with the Distributor or its affiliates acting as principal and from
purchasing securities in public offerings which are not registered under
the Securities Act in which the Distributor or any of its affiliates
participate as an underwriter or dealer. See "Portfolio Transactions."
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The Directors and executive officers of the Fund, their dates of birth and
their principal occupations for at least the last five years are set forth
below. Unless otherwise noted, the address of each executive officer and
Director is 2 World Financial Center, New York, New York 10281-1198.
ROBERT LEVINE* (September 19, 1944)-Chairman, President, Director and Chief
Investment Officer-Founder, President and Chief Executive Officer of the
Investment Adviser and an Executive Managing Director of Nomura Holding
America Inc .
MICHAEL A. BERMAN* (October 4, 1950)-Director-Chairman and Chief Executive
Officer of the Distributor since 1996; President and Chief Operating
Officer of the Distributor from 1994 to 1996; Senior Vice President of the
Distributor prior to 1994.
JOHN FITTING, JR. (May 29, 1916)-Director-Former Chairman and Chief
Executive Officer of National Securities & Research, Inc.; Former President
of Dreyfus Asset Management, Individual Investors Accounts.
FRANCIS L. FRAENKEL (July 3, 1932)-Director-President of Delta Capital
Management Inc. from 1992 to present; Managing Director of Salomon Brothers
Inc and President of Salomon Brothers Asset Management Inc prior to 1992.
FRANK K. REILLY (December 30, 1935)-Director-Bernard J. Hank Professor of
Business Administration, University of Notre Dame College of Business
Administration.
RICHARD A. BUCH* (February 18, 1959)-Vice President and Portfolio Manager-
Managing Director of the Investment Adviser from 1993 to present; portfolio
manager for Kidder, Peabody & Co., Inc. prior to 1993.
LANCE B. FRASER* (December 2, 1960)-Treasurer-Director of the Investment
Adviser.
DEBORAH A. MONTICK* (December 10, 1957)-Secretary-Counsel to the Investment
Adviser from 1993 to present; Associate Counsel to Kemper Financial
Services, Inc. prior to 1993.
* Interested person, as defined in the Investment Company Act, of the
Fund.
COMPENSATION OF DIRECTORS. Pursuant to the terms of the Fund's investment
advisory agreement with the Investment Adviser relating to the Fund (the
"Investment Advisory Agreement"), the Investment Adviser pays all
compensation of officers and employees of the Fund as well as the fees of
all Directors of the Fund who are affiliated persons of the Distributor or
its subsidiaries. The Fund pays each unaffiliated Director $6,000 per year
plus $1,000 per meeting attended together with such Director's actual out-
of-pocket expenses for each meeting that he attends. It is anticipated
that each unaffiliated Director will receive aggregate compensation of
approximately $12,500 from the Fund during its first fiscal year. As of
the date of this Statement of Additional Information, none of the
unaffiliated Directors serves on the board of another registered investment
company that (a) holds itself out to the public as related to the Fund for
purposes of investment or investor services or (b) has as its investment
adviser the Investment Adviser or one of its affiliates.
MANAGEMENT AND ADVISORY ARRANGEMENTS
Reference is made to "Management of the Fund-Management and Advisory
Arrangements" in the Prospectus for certain information concerning the
management and advisory arrangements of the Fund.
The Investment Advisory Agreement provides that, subject to the direction
of the Board of Directors of the Fund, the Investment Adviser is
responsible for the actual management of the Fund and for the review of the
Fund's holdings in light of its own research analysis and analyses from
other relevant sources. The responsibility for making decisions to buy,
sell or hold a particular security rests with the Investment Adviser,
subject to review by the Board of Directors. The Investment Adviser
supplies the portfolio managers for the Fund, who consider analyses from
various sources, make the necessary investment decisions and place
transactions accordingly. The Investment Adviser also is obligated to
perform certain administrative and management services for the Fund and is
required to provide all the office space, facilities, equipment and
personnel necessary to perform its duties under the Investment Advisory
Agreement. As compensation for its services to the Fund, the Investment
Adviser will receive from the Fund a monthly fee based on the average daily
value of the Fund's net assets at an annual rate of 0.65%.
Securities held by the Fund also may be held by or be appropriate
investments for other funds for which the Investment Adviser or its
affiliates act as adviser or by investment advisory clients of the
Investment Adviser. Because of different investment objectives or other
factors, a particular security may be bought for one or more clients when
one or more clients are selling the same security. If purchases or sales
of securities for the Fund or other funds for which the Investment Adviser
or its affiliates act as investment adviser or for their advisory clients
arise for consideration at or about the same time, transactions in such
securities will be made, insofar as feasible, for the respective funds and
clients in a manner deemed equitable to all. To the extent that
transactions on behalf of more than one client of the Investment Adviser or
its affiliates during the same period may increase the demand for
securities being purchased or the supply of securities being sold, there
may be an adverse effect on price.
The Investment Advisory Agreement obligates the Investment Adviser to
provide investment advisory services and to pay all compensation of and
furnish office space for officers and employees of the Fund connected with
investment and economic research, trading and investment management of the
Fund, as well as the fees of all Directors of the Fund who are affiliated
persons of the Investment Adviser or the Distributor or any of their
subsidiaries. The Fund pays all other expenses incurred in its operation,
including redemption expenses, expenses of portfolio transactions,
shareholder servicing costs, expenses of registering the shares under
Federal and state securities laws, pricing costs (including the daily
calculation of net asset value), interest, certain taxes, charges of the
Custodian and Transfer Agent, directors' fees, legal expenses, state
franchise taxes, auditing services, costs of printing proxies, stock
certificates, shareholder reports and prospectuses (except to the extent
paid by the Distributor), SEC fees, accounting costs and other expenses
properly payable by the Fund. To the extent accounting services are
provided for the Fund by the Investment Adviser, the Fund will reimburse
the Investment Adviser for its costs in connection with such services. As
required by the Distribution Agreement, the Distributor will pay certain of
the expenses of the Fund incurred in connection with the offering of shares
of the Fund, including the expenses of printing the prospectuses and
statements of additional information used in connection with the continuous
offering of shares by the Fund.
DURATION AND TERMINATION. Unless earlier terminated as described below,
the Investment Advisory Agreement for the Fund will remain in effect until
September 30, 1998 and thereafter from year to year if approved annually
(a) by the Board of Directors of the Fund or by a majority of the
outstanding shares of the Fund and (b) by a majority of the Directors who
are not parties to such contract or interested persons (as defined in the
Investment Company Act) of any such party. Such contract is not assignable
and may be terminated without penalty on 60 days' written notice by the
majority vote of the Directors or of the outstanding voting securities of
the Fund or on 120 days' written notice by the Investment Adviser.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" and "Redemption of Shares" in the
Prospectus for certain information as to the purchase of shares of the
Fund.
The term "purchase," as used in the Prospectus and this Statement of
Additional Information in connection with an investment in Class A and
Class Y shares of the Fund, refers to a single purchase by an individual or
to concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his or her spouse and their children
under the age of 21 years purchasing shares for his or her own account and
to single purchases by a trustee or other fiduciary purchasing shares for a
single trust estate or single fiduciary account although more than one
beneficiary is involved. The term "purchase" also includes purchases by
any "company," as that term is defined in the Investment Company Act, but
does not include purchases by any such company which has not been in
existence for at least six months or which has no purpose other than the
purchase of shares of the Fund or shares of other registered investment
companies at a discount; provided, however, that it shall not include
purchases by any group of individuals whose sole organizational nexus is
that the participants therein are credit cardholders of a company,
policyholders of an insurance company, customers of either a bank or
broker-dealer or clients of an investment adviser.
REDUCED INITIAL SALES CHARGES
LETTER OF INTENTION. Reduced sales charges are applicable to purchases
aggregating $50,000 or more of the Class A shares of the Fund made within a
13-month period starting with the first purchase pursuant to the Letter of
Intention in the form provided in the Prospectus. The Letter of Intention
is not a binding obligation to purchase any amount of Class A shares;
however, its execution will result in the purchaser paying a lower sales
charge at the appropriate quantity purchase level. A purchase not
originally made pursuant to a Letter of Intention may be included under a
subsequent Letter of Intention executed within 90 days of such purchase if
the Transfer Agent is informed in writing of this intent within such 90-day
period. The value of Class A shares of the Fund may be included as a
credit toward the completion of such Letter, but the reduced sales charge
applicable to the amount covered by such Letter will be applied only to new
purchases. If the total amount of shares does not equal the amount stated
in the Letter of Intention (minimum of $50,000), the investor will be
notified within 20 days of the expiration of such Letter. Class A shares
equal to up to 4.5% of the intended amount will be held in escrow during
the 13-month period (while remaining registered in the name of the
purchaser) for this purpose. The first purchase under the Letter of
Intention must be at least 5.0% of the dollar amount of such Letter. The
value of any shares redeemed or otherwise disposed of by the purchaser
prior to termination or completion of the Letter of Intention will be
deducted from the total purchases made under such Letter. If the amount
specified in the Letter of Intention is not purchased, an appropriate
number of escrowed shares will be redeemed to realize the difference
between the sales charge on the Class A shares purchased at the reduced
rate and the sales charge applicable to the shares actually purchased
through the Letter.
ACQUISITION OF CERTAIN INVESTMENT COMPANIES. The public offering price of
Class A shares may be reduced to the net asset value per Class A share in
connection with the acquisition of the assets of or merger or consolidation
with a personal holding company or a public or private investment company.
The issuance of Class A shares for consideration other than cash is limited
to bona fide reorganizations, statutory mergers or other acquisitions of
portfolio securities which (i) meet the investment objective and policies
of the Fund; (ii) are acquired for investment and not for resale (subject
to the understanding that the disposition of the Fund's portfolio
securities shall at all times remain within its control); and (iii) are
liquid securities, the value of which is readily ascertainable, which are
not restricted as to transfer either by law or liquidity of market (except
that the Fund may acquire through such transactions restricted or illiquid
securities to the extent the Fund does not exceed the applicable limits on
acquisition of such securities set forth under "Investment Objective and
Policies" herein).
Reductions in or exemptions from the imposition of a sales load are due to
the nature of the investors and/or the reduced sales efforts that will be
needed in obtaining such investments. Under such programs, the Fund
realizes economies of scale and reduction of sales related expenses by
virtue of familiarity with the Fund.
DISTRIBUTION PLAN
Reference is made to "Purchase of Shares-Class A Shares-Class A
Distribution Plan" in the Prospectus for certain information with respect
to the distribution plan for Class A shares pursuant to Rule 12b-1 under
the Investment Company Act (the "Distribution Plan") with respect to the
distribution fees paid by the Fund to the Distributor with respect to such
class.
Payments of the distribution fees are subject to the provisions of Rule
12b-1 under the Investment Company Act. Among other things, the
Distribution Plan provides that the Distributor shall provide and the
Directors shall review quarterly reports of the disbursement of the
distribution fees paid to the Distributor. In their consideration of the
Distribution Plan, the Directors must consider all factors they deem
relevant, including information as to the benefits of the Distribution Plan
to the Fund and its shareholders. The Distribution Plan further provides
that so long as the Distribution Plan remains in effect, the selection and
nomination of Directors who are not "interested persons" of the Fund, as
defined in the Investment Company Act (the "Independent Directors"), shall
be committed to the discretion of the Independent Directors then in office.
In approving the Distribution Plan in accordance with Rule 12b-1, the
Independent Directors concluded that there is a reasonable likelihood that
such Distribution Plan will benefit the Fund and its related class of
shareholders. The Distribution Plan can be terminated at any time, without
penalty, by the vote of a majority of the Independent Directors, or the
vote of the holders of a majority of the outstanding related class of
voting securities of the Fund or by the Distributor upon 60 days' written
notice to the Fund. The Distribution Plan cannot be amended to increase
materially the amount to be spent by the Fund without the approval of the
related class of shareholders, and all material amendments are required to
be approved by the vote of Directors, including a majority of the
Independent Directors who have no direct or indirect financial interest in
such Distribution Plan, cast in person at a meeting called for that
purpose. Rule 12b-1 further requires that the Fund preserve copies of the
Distribution Plan and any reports made pursuant to the plan for a period of
not less than six years from the date of such Distribution Plan or such
report, the first two years in an easily accessible place.
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the redemption and repurchase of shares of the Fund.
The right to redeem shares or to receive payment with respect to any such
redemption may be suspended only for any period during which trading on the
New York Stock Exchange is restricted as determined by the SEC or such
Exchange is closed (other than customary weekend and holiday closings), for
any period during which an emergency exists as defined by the SEC as a
result of which disposal of portfolio securities or determination of the
net asset value of any Fund is not reasonably practicable, and for such
other periods as the SEC may by order permit for the protection of
shareholders of the Fund.
PORTFOLIO TRANSACTIONS
Reference is made to "Portfolio Transactions" in the Prospectus. Subject
to policies established by the Board of Directors of the Fund, the
Investment Adviser is primarily responsible for the portfolio decisions of
the Fund and the placing of the portfolio transactions for the Fund. With
respect to such transactions, the Investment Adviser seeks to obtain the
best net results for the Fund, taking into account such factors as price
(including the applicable brokerage commission or dealer spread), size of
order, difficulty of execution and operational facilities of the firm
involved and the firm's risk in positioning a block of securities. While
the Investment Adviser generally seeks reasonably competitive commission
rates, the Fund will not necessarily be paying the lowest commission or
spread available. Transactions with respect to the high yield securities
in which the Fund invests may involve specialized services on the part of
the broker or dealer and thereby entail higher commissions or spreads than
would be the case with transactions involving more widely traded
securities. The Fund has no obligation to deal with any broker in the
execution of transactions for its portfolio securities.
The securities in which the Fund invests are traded primarily in the over-
the-counter market. Transactions in the over-the-counter market generally
are principal transactions with dealers and the costs of such transactions
involve dealer spreads. With respect to over-the-counter transactions, the
Fund, where possible, will deal directly with the dealers who make a market
in the securities involved except in those circumstances where better
prices and execution are available elsewhere. Such dealers usually act as
principals for their own account. On occasion, securities may be purchased
directly from the issuer. Bonds and money market securities are generally
traded on a net basis and do not normally involve either brokerage
commissions or transfer taxes. The cost of portfolio securities
transactions of the Fund will consist primarily of dealer or underwriter
spreads.
Under the Investment Company Act, persons affiliated with the Fund are
prohibited from dealing with the Fund as a principal in the purchase and
sale of securities unless an exemptive order allowing such transactions is
obtained from the SEC. Since transactions in the over-the-counter market
usually involve transactions with dealers acting as principal for their own
account, affiliated persons of the Fund, including the Distributor, may not
serve as the Fund's dealer in connection with such transactions. See
"Investment Objective and Policies-Investment Restrictions." However, with
certain limitations, an affiliated person of the Fund may serve as its
broker in over-the-counter transactions conducted on an agency basis.
The Board of Directors of the Fund has considered the possibilities of
seeking to recapture for the benefit of the Fund brokerage commissions,
dealer spreads and other expenses of possible portfolio transactions, such
as underwriting commissions and tender offer solicitation fees, by
conducting such portfolio transactions through affiliated entities,
including the Distributor. For example, brokerage commissions received by
the Distributor could be offset against the advisory fee payable by the
Fund to the Investment Adviser. The Board will reconsider this matter from
time to time. The Investment Adviser has arranged for the Fund's custodian
to receive any tender offer solicitation fees on behalf of the Fund payable
with respect to portfolio securities of the Fund.
PORTFOLIO TURNOVER
The Fund intends to comply with the various requirements of the Code so as
to qualify as a "regulated investment company" thereunder. See "Taxes."
Among such requirements is a limitation to less than 30% on the amount of
gross income which the Fund may derive from gain on the sale or other
disposition of securities held for less than three months. Accordingly,
the Fund's ability to effect certain portfolio transactions may be limited.
DETERMINATION OF NET ASSET VALUE
Reference is made to "Additional Information - Determination of Net Asset
Value" in the Prospectus concerning the determination of net asset value.
Normally, the net asset value of the shares of the Fund is determined once
daily Monday through Friday as of 4:00 p.m., New York time, on each day
during which the New York Stock Exchange is open for trading. The New York
Stock Exchange is not open on New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day. The Fund also will determine its net asset value on any day in which
there is sufficient trading in its portfolio securities that the net asset
value might be affected materially, but only if on any such day the Fund is
required to sell or redeem shares. The net asset value per share of the
Fund is computed by dividing the sum of the value of the securities held by
the Fund plus any cash or other assets (including interest and dividends
accrued but not yet received) minus all liabilities (including accrued
expenses) by the total number of shares outstanding at such time, rounded
to the nearest cent. Expenses, including the investment advisory fees and
distribution fees, are accrued daily. The per share net asset value of the
Class A shares of the Fund generally will be lower than the per share net
asset value of the Class Y shares of the Fund reflecting the daily expense
accruals of the distribution or shareholder service fees applicable with
respect to the Class A shares. It is expected, however, that the per share
net asset value of the two classes will tend to converge immediately after
the payment of dividends or distributions, which will differ by
approximately the amount of the expense accrual differential between the
classes.
Market and fair values of the Fund's portfolio securities are determined as
follows:
ofor bonds and other fixed income securities, as determined by an
independent pricing service;
ofor short-term obligations, according to the mean between bid and
asked prices as furnished by an independent pricing service, or for
short-term obligations with remaining maturities of 60 days or less
at the time of purchase, at amortized cost;
ofor equity securities, according to the last sale price on a
national securities exchange, if applicable;
oin the absence of recorded sales for listed equity securities,
according to the mean between the last closing bid and asked prices;
ofor unlisted equity securities, latest bid prices; or
ofor all other securities, at fair value as determined in good faith
by the Directors.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading
in similar groups of securities, yield, quality, coupon rate, maturity,
type of issue, trading characteristics and other market data.
The Fund will value futures contracts at their market value established by
the exchanges at the close of options trading on such exchanges unless the
Directors determine in good faith that another method of valuing option
positions is necessary.
Over-the-counter put options will be valued at the mean between the bid and
asked prices. Covered call options will be valued at the last sale price
on the national exchange on which such option is traded. Unlisted call
options will be valued at the latest bid price as provided by brokers.
OPTION ACCOUNTING PRINCIPLES. When a Fund sells an option, an amount equal
to the premium received by the Fund is included in the Fund's Statement of
Assets and Liabilities as a deferred credit. The amount of such liability
will be subsequently marked to market to reflect the current market value
of the option written. If current market value exceeds the premium
received there is an unrealized loss; conversely, if the premium exceeds
current market value there is an unrealized gain. If an option expires on
its stipulated expiration date or if a Fund enters into a closing purchase
transaction, the Fund will realize a gain (or loss if the cost of a closing
purchase transaction exceeds the premium received when the option was sold)
without regard to any unrealized gain or loss on the underlying security,
and the liability related to such option will be extinguished. If an
option is exercised, the Fund will realize a gain or loss from the sale of
the underlying security and the proceeds of sale are increased by the
premium originally received.
SHAREHOLDER SERVICES
A number of shareholder services and investment plans are available which
are designed to facilitate investment in the Fund's shares. Full details
as to each of such services, copies of the various plans described below
and instructions as to how to participate in the various services or plans,
or how to change options with respect thereto, can be obtained from the
Fund by calling the telephone number on the cover page hereof or from the
Transfer Agent.
Automatic Reinvestment of Dividends and Capital Gains Distributions
All dividends and capital gains distributions of the Fund are reinvested
automatically in full and fractional shares of the Fund, at the net asset
value per share next determined on the ex-dividend date of such dividend or
distribution. A shareholder may, at any time, by written notification to
the Transfer Agent, elect to have subsequent dividends or both dividends
and capital gains distributions paid in cash.
SYSTEMATIC REDEMPTION AND AUTOMATIC INVESTMENT PLANS
A Class A or Class Y shareholder may elect to receive systematic redemption
payments from his or her Investment Account in the form of payments by
check or through automatic payment by direct deposit to his or her bank
account on either a monthly or quarterly basis.
TAXES
The Fund intends to elect and to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Code. If it so
qualifies, the Fund (but not its shareholders) will not be subject to
Federal income tax on the part of its net ordinary income and net realized
capital gains which it distributes to Class A and Class Y shareholders
(together, the "shareholders"). The Fund intends to distribute all of such
income.
Dividends paid by the Fund from its ordinary income or from an excess of
net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income. Distributions made from an excess of net
long-term capital gains over net short-term capital losses (including gains
or losses from certain transactions in futures and options) ("capital gain
dividends") are taxable to shareholders as long-term capital gains,
regardless of the length of time the shareholder has owned Fund shares.
Any loss upon the sale or exchange of Fund shares held for one year or
less, however, will be treated as long-term capital loss to the extent of
any capital gain dividends received by the shareholder. Distributions in
excess of the Fund's earnings and profits will first reduce the adjusted
tax basis of a holder's shares and, after such adjusted tax basis is
reduced to zero, will constitute capital gains to such holder (assuming the
shares are held as a capital asset).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Not later than 60 days after the close of
its taxable year, the Fund will provide its shareholders with a written
notice designating the amounts of any ordinary income dividends or capital
gain dividends. Distributions by the Fund, whether from ordinary income or
capital gains, generally will not be eligible for the dividends received
deduction allowed to corporations under the Code. If the Fund pays a
dividend in January which was declared in the previous October, November or
December to shareholders of record on a specified date in one of such
months, then such dividend will be treated for tax purposes as being paid
by the Fund and received by its shareholders on December 31 of the year in
which such dividend was declared.
Ordinary income dividends paid to shareholders who are nonresident aliens
or foreign entities will be subject to a 30% United States withholding tax
under existing provisions of the Code applicable to foreign individuals and
entities unless a reduced rate of withholding or a withholding exemption is
provided under applicable treaty law. Nonresident shareholders are urged
to consult their own tax advisers concerning the applicability of the
United States withholding tax.
To the extent the Fund invests in securities issued by issuers in foreign
countries, dividends and interest received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. Tax conventions
between certain countries and the United States may reduce or eliminate
such taxes.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends
and redemption payments ("backup withholding"). Generally, shareholders
subject to backup withholding will be those for whom no certified taxpayer
identification number is on file with the Fund or who, to the Fund's
knowledge, have furnished an incorrect number. When establishing an
account, an investor must certify under penalty of perjury that such number
is correct and that such investor is not otherwise subject to backup
withholding.
No gain or loss will be recognized on the conversion of Class A shares into
Class Y shares in the circumstances described in the Prospectus. A
shareholder's basis in the shares acquired will be the same as such
shareholder's basis in the shares converted, and the holding period of the
acquired shares will include the holding period for the converted shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring such shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales
charge paid to the Fund on the exchanged shares reduces any sales charge
the shareholder would have owed upon the purchase of the new shares in the
absence of the exchange privilege. Instead, such sales charge will be
treated as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30
days before and ending 30 days after the date that the shares are disposed
of. In such a case, the basis of the shares acquired will be adjusted to
reflect the disallowed loss.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain
undistributed amounts from previous years. While the Fund intends to
distribute its income and capital gains in the manner necessary to minimize
imposition of the 4% excise tax, there can be no assurance that sufficient
amounts of the Fund's taxable income and capital gains will be distributed
to avoid entirely the imposition of the tax. In such event, the Fund will
be liable for the tax only on the amount by which it does not meet the
foregoing distribution requirements.
The Fund will invest in securities rated in the lower rating categories of
nationally recognized rating organizations, and in unrated securities
("junk bonds" or "high yield securities"), as described in the Prospectus.
Some of these high yield securities may be purchased at a discount and may
therefore cause the Fund to accrue and distribute income before amounts due
under the obligations are paid. In addition, a portion of the interest
payments on such high yield securities may be treated as dividends for
Federal income tax purposes; in such case, if the issuer of such high yield
securities is a domestic corporation, dividend payments by the Fund will be
eligible for the dividends received deduction to the extent of the deemed
dividend portion of such interest payments.
TAX TREATMENT OF OPTIONS AND FUTURES TRANSACTIONS
The Fund may write, purchase or sell options and futures. Options and
futures contracts that are "Section 1256 contracts" will be "marked to
market" for Federal income tax purposes at the end of each taxable year,
i.e., each such option or futures contract will be treated as sold for its
fair market value on the last day of the taxable year. In general, unless
an election is available to the Fund or an exception applies, options and
futures contracts that are "Section 1256 contracts" will be "marked to
market" for Federal income tax purposes at the end of each taxable year,
i.e., each such option or futures contract will be treated as sold for its
fair market value on the last day of the taxable year, and any gain or loss
attributable to Section 1256 contracts will be 60% long-term and 40% short-
term capital gain or loss. Application of these rules to Section 1256
contracts held by the Fund may alter the timing and character of
distributions to shareholders. The mark-to-market rules outlined above,
however, may not apply to certain transactions entered into by the Fund
solely to reduce the risk of changes in price or interest or currency
exchange rates with respect to its investments.
Code Section 1092, which applies to certain "straddles," may affect the
taxation of the Fund's sales of securities and transactions in options and
futures contracts. Under Section 1092, the Fund may be required to
postpone recognition for tax purposes of losses incurred in certain sales
of securities and certain closing transactions in options and futures
contracts.
One of the requirements for qualification as a RIC is that less than 30% of
the Fund's gross income be derived from gains from the sale or other
disposition of securities held for less than three months. Accordingly,
the Fund may be restricted in effecting closing transactions within three
months after entering into an options or futures contract.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For
the complete provisions, reference should be made to the pertinent Code
sections and the Treasury regulations promulgated thereunder. The Code and
the Treasury regulations are subject to change by legislative, judicial or
administrative action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on U.S. Government obligations. State law
varies as to whether dividend income attributable to U.S. Government
obligations is exempt from state income tax.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors
should consider applicable foreign taxes in their evaluation of an
investment in the Fund.
PERFORMANCE DATA
From time to time, the Fund may include its average total return and other
total return data, as well as yield, in advertisements or information
furnished to present or prospective shareholders. Total return and yield
figures will be based on the Fund's historical performance and are not
intended to indicate future performance. Average annual total return and
yield are determined separately for Class A and Class Y shares of the Fund
in accordance with formulae specified by the SEC.
Average annual total return quotations for the Fund for the specified
periods will be computed by finding the average annual compounded rates of
return (based on net investment income and any realized and unrealized
capital gains or losses on portfolio investments over such periods) that
would equate the initial amount invested to the redeemable value of such
investment at the end of each period. Average annual total return will be
computed assuming all dividends and distributions are reinvested and taking
into account all applicable recurring and nonrecurring expenses, including
the maximum sales charge in the case of Class A shares.
The Fund also may quote total return and aggregate total return performance
data for various specified time periods. Such data will be computed as
described above, except that (1) the rates of return calculated will not be
average annual rates, but rather, actual annual, annualized or aggregate
rates of return and (2) the maximum applicable sales charges will not be
included with respect to annual or annualized rates of return calculations.
Aside from the impact on the performance data calculations of including or
excluding the maximum applicable sales charges, actual annual or annualized
total return data generally will be lower than average annual total return
data since the average rates of return reflect compounding of return;
aggregate total return data generally will be higher than average annual
total return since the aggregate rates of return reflect compounding over a
longer period of time. The Fund's total return may be expressed either as
a percentage or as a dollar amount in order to illustrate the effect of
such total return on a hypothetical $1,000 investment in a Fund at the
beginning of each specified period.
Yield quotations for the Fund will be computed based on a 30-day period by
dividing (a) the net income based on the yield of each security earned
during the period by (b) the average daily number of shares outstanding in
the Fund during the period that were entitled to receive dividends
multiplied by the maximum offering price/net asset value per share of the
Fund on the last day of the period.
Total return figures and yield figures are based on the Fund's historical
performance and are not intended to indicate future performance. The
Fund's total return will vary depending on market conditions, the
securities comprising the Fund's holdings, operating expenses and the
amount of realized and unrealized net capital gains or losses during the
period. The value of an investment in the Fund will fluctuate and an
investor's shares, when redeemed, may be worth more or less than their
original cost.
On occasion, the Fund may compare its performance to that of the Merrill
Lynch High Yield Master Index, the Standard & Poor's 500 Composite Stock
Price Index, the Dow Jones Industrial Average, or performance data
published by Lipper Analytical Services, Inc., Morningstar Publications,
Inc., Money Magazine, U.S. News & World Report, Business Week, CDA
Investment Technology, Inc., Forbes Magazine and Fortune Magazine. As with
other performance data, performance comparisons should not be considered
representative of the Fund's relative performance for any future period.
GENERAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
Reference is made to "Additional Information-Dividends and Distributions"
in the Prospectus.
DESCRIPTION OF SHARES
The Fund is the only existing series of Battery Park Funds, Inc. (the
"Company"), a series-type investment company incorporated under Maryland
law on June 4, 1996. The Company has an authorized capital of 200,000,000
shares of common stock, par value $0.001 per share, of which 50,000,000
shares are initially classified as one series, namely the Fund, consisting
of two classes, designated Class A and Class Y Common Stock, each of which
consists of 25,000,000 shares, and the remainder of 150,000,000 shares are
not classified as to any class or series. Shares of Class A and Class Y
Common Stock represent interests in the same assets of the Fund and are
identical in all respects except that the Class A shares bear certain
expenses related to the distribution associated with such shares. Class A
shareholders each have exclusive voting rights with respect to matters
relating to expenditures made under that class's Rule 12b-1 plan, as
applicable.
Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Directors
and any other matter submitted to a shareholder vote. The Fund does not
intend to hold meetings of shareholders in any year in which the Investment
Company Act does not require shareholders to act upon election of
Directors. The By-laws of the Company provide that a special meeting of
shareholders may be called for any purpose on the written request of the
holders of at least 10% of the outstanding shares of the Fund. Voting
rights for Directors are not cumulative. Shares issued are fully paid and
non-assessable and have no preemptive or conversion rights. Redemption
rights are discussed elsewhere herein and in the Prospectus. Each share is
entitled to participate equally in dividends and distributions declared by
the Fund and in the net assets of the Fund on liquidation or dissolution
after satisfaction of outstanding liabilities. Stock certificates are
issued by the Transfer Agent only on specific request. Certificates for
fractional shares are not issued in any case.
COMPUTATION OF OFFERING PRICE PER SHARE
An illustration of the computation of the initial offering price for Fund
shares, based on the projected value of the Fund's estimated net assets and
projected number of shares outstanding on the date its shares are first
offered for sale to public investors is as follows:
Class A Class Y
Net Assets $50,000 $50,000
Number of Shares Outstanding 5,000 5,000
Net Asset Value Per Share (net assets divided
by number of shares outstanding) $10.00 $10.00
Sales Charge (4.50% on Class A only; 4.71%
of amount invested) $ .47 $ --
Offering Price $10.47 $10.00
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 2500 One PPG Place, Pittsburgh, PA 15222-5401, has
been selected as the independent auditors of the Fund.
CUSTODIAN
The Bank of New York, 48 Wall Street, New York, NY 10286, acts as Custodian
of the Fund's assets. The Custodian is responsible for safeguarding and
controlling the Fund's cash and securities, handling the receipt and
delivery of securities and collecting interest and dividends on the Fund's
investments.
TRANSFER AGENT
Federated Shareholder Services Company, Federated Investors Tower,
Pittsburgh, PA 15222-3775, acts as the Fund's transfer agent. The Transfer
Agent is responsible for the issuance, transfer and redemption of shares
and the opening, maintenance and servicing of shareholder accounts. See
"Management of the Fund-Transfer Agency Services" in the Prospectus.
LEGAL COUNSEL
Brown & Wood LLP, One World Trade Center, New York, NY 10048-0557, is
counsel for the Fund.
REPORTS TO SHAREHOLDERS
The fiscal year of the Fund ends on September 30 of each year. The Fund
will send to its shareholders at least semiannually reports showing the
Fund's portfolio and other information. An annual report, containing
financial statements audited by independent auditors, is sent to
shareholders each year. After the end of each calendar year, shareholders
will receive Federal income tax information regarding dividends and capital
gains distributions.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the
exhibits relating thereto which the Fund has filed with the SEC,
Washington, D.C., under the Securities Act of 1933 and the Investment
Company Act, to which reference is hereby made.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of the BATTERY PARK FUNDS, INC.
and the Shareholder of BATTERY PARKSM HIGH YIELD FUND:
We have audited the accompanying statement of assets and liabilities of
Battery ParkSM High Yield Fund as of September 19, 1996. This financial
statement is the responsibility of the Fund's management. Our
responsibility is to express an opinion on this financial statement based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such statement of assets and liabilities presents fairly,
in all material respects, the financial position of Battery ParkSM High
Yield Fund as of September 19, 1996, in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
October 2, 1996
BATTERY PARK HIGH YIELD FUND
OF
BATTERY PARK FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 19, 1996
Assets:
Cash $ 100,100
LIABILITIES: --
Net Assets for 10,010 shares of common stock outstanding $
100,100
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
Class Y Shares:
$100,000 , 10,000 shares of common stock outstanding $ 10.00
Class A Shares:
$100 , 10 shares of common stock outstanding $ 10.00
Offering Price Per Share
($10.00 x 100/95.5) $ 10.47
NOTES TO THE STATEMENT OF ASSETS AND LIABILITIES
Battery ParkSM High Yield Fund (the "Fund") is the only existing series of
Battery Park Funds, Inc. (the "Company") which was organized as a Maryland
corporation on June 4, 1996 and has had no operations since that date other
than those relating to organizational matters, including the issuance on
September 19, 1996, of 10,010 shares of common stock @ $10.00 per share to
Nomura Corporate Research and Asset Management Inc. (the "Investment
Adviser"). The Company is registered under the Investment Company Act of
1940 as an open-end investment company. The Fund has entered into an
Investment Advisory Agreement (the "Investment Advisory Agreement") with
the Investment Adviser and a distribution agreement (the "Distribution
Agreement") with Nomura Securities International, Inc. (the "Distributor").
See "Management and Advisory Arrangements" in the Statement of Additional
Information. Prepaid registration fees are charged to income as the
related shares are issued. Expenses of organization incurred by the Fund,
estimated at $230,000, were borne initially by the Investment Adviser.
Deferred organization expenses will be amortized over a period from the
date the Fund commences operations not exceeding five years. In the event
that the Investment Adviser (or any subsequent holder) redeems any of its
original shares prior to the end of the five-year period, the proceeds of
the redemption payable in respect of such shares shall be reduced by the
pro rata share (based on the proportionate share of the original shares
redeemed to the total number of original shares outstanding at the time of
redemption) of the unamortized deferred organization expenses as of the
date of such redemption. In the event that the Fund is liquidated prior to
the end of the five-year period, the Investment Adviser (or any subsequent
holder) shall bear the unamortized deferred organization expenses. Certain
officers and/or directors of the Fund are officers and/or directors of the
Investment Adviser and/or Distributor.
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits:
(a) Financial Statements (filed in Part A)
(b) Exhibits:
(1) (i) Conformed copy of Articles of Incorporation of
the Registrant; (2)
(ii) Conformed copy of Articles of Amendment to the
Articles of Incorporation; (2)
(2) (i) Copy of By-Laws of the Registrant; (1)
(ii) Copy of Amended By-Laws of the Registrant; (2)
(3) Not Applicable
(4) (i) Portion of the Articles of Incorporation and
By-Laws of the Registrant defining the rights
of shareholders; (3)
(ii) Copy of Class A Specimen Share Certificate; (3)
(iii)..........Copy of Class Y Specimen Share
Certificate; (3)
(5) Conformed copy of Investment Advisory Agreement of the
Registrant; (3)
(6) Conformed copy of Distribution Agreement of the
Registrant; (3)
(7) Not Applicable.
(8) Conformed copy of Custody Agreement of the Registrant;
(3)
(9) (i)Conformed copy of Agreement For Fund Accounting
Services, Administrative Services and Transfer Agency
Services of the Registrant; (3)
(ii)...........Conformed copy of License Agreement of
the Registrant; (3)
(10) Conformed copy of Opinion and Consent of Counsel as to
legality of shares being registered; (3)
(11) Conformed copy of Consent of Independent Public
Accountants; (3)
(12) Not Applicable.
(13) Conformed copy of Certificate of Initial Capital
Understanding; (3)
(14) Not Applicable.
(15) Conformed copy of Distribution Plan; (3)
(16) (i) Copy of Schedule of Computation of Fund
Performance Data for Class A shares;+
(ii) Copy of Computation of SEC Yield for Class A
shares;+
(iii)..........Copy of Schedule of Computation of Fund
Performance Data for Class Y shares;+.
(iv) Copy of Computation of SEC Yield for Class Y
shares;+
(17) Copy of Financial Data Schedules; +
(18) Conformed copy of Multiple Class Plan; (3)
(19) Conformed copy of Power of Attorney. +
+ All Exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N1-A filed June 19, 1996 (File Nos. 33-
7805 and 811-7675).
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N1-A filed September 20, 1996 (File Nos. 33-
7805 and 811-7675).
3. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 2 on Form N1-A filed October 10, 1996 (File Nos. 33-7805
and 811-7675).
Item 25. Persons Controlled by or under Common Control with the
Registrant:
None.
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of April 14, 1997
Class A shares 79
Class Y shares 10
Item 27. Indemnification: (3)
Item 28. Business and Other Connections of the Investment Adviser:
For a description of the other business of the investment
adviser, see the sections entitled `The Investment Adviser'' and
`Management of the Fund'' in Part A. The address of the
investment adviser is 2 World Financial Center, Building B, New
York, New York 10281-1198.
Set forth below is a list of each executive officer and partner
of the investment adviser indicating each business, profession,
vocation or employment of a substantial nature in which each such
person or entity has been engaged since September 30, 1994, for
his or its own account or in the capacity of director, officer,
partner or trustee.
Other Substantial
Business,
Position(s) with Profession, Vocation
Name Investment Adviser or Employment
Robert Levine President and Chief Executive
Executive Officer Managing
Director,
Nomura Holding
America Inc.
Richard A. Buch Managing Director None
Lance B. Fraser Director None
Steven Sorensen Director Director of
Institutional
Services,
Neuberger & Berman
3. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 2 on Form N1-A filed October 10, 1996 (File Nos. 33-7805
and 811-7675).
Item 29. Principal Underwriters:
(a)The Registrant's principal underwriter, Nomura Securities
International, Inc. also serves as principal underwriter for Nomura
Pacific Basin Fund, Inc.
(b)Set forth below is information concerning each director and
officer of the distributor. The principal business address of each
such person is 2 World ..........Financial Center, Building B, New
York, New York 10281-1198.
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Michael A. Berman Co-President and Co-Chief Director
Executive Officer
Hiroshi Tsujimura Co-President and Co-Chief None
Executive Officer
John E. Toffolon, Jr. Chief Financial Officer None
and Executive Managing Director
William Wraith, Jr. Chief Operating Officer None
and Executive Managing Director
Ira L. Sorkin Chief Legal Officer and None
Executive Managing Director
William B. Aimetti Executive Managing Director None
William T. Maitland Executive Managing Director None
Mark W. McGauley Executive Managing Director None
Ethan Penner Executive Managing Director None
Lawrence J. Pomerantz Executive Managing Director None
Joseph D. Schmuckler Executive Managing Director None
Atsuki Yoshikama Executive Managing Director None
Arthur S. Ainsberg Independent Director None
(c) Not applicable.
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the Rules 31a-1 through 31a-3
promulgated thereunder are maintained at one of the following locations:
Registrant 2 World Financial Center
Building B
New York, NY 10281-1198
Federated Shareholder Services Company Federated Investors Tower
(`Transfer Agent and Dividend Pittsburgh, PA 15222-3779
Disbursing Agent')
Federated Services Company Federated Investors Tower
(`Administrator'') Pittsburgh, PA 15222-3779
Nomura Corporate Research and Asset 2 World Financial Center
Management Inc. Building B
(`Adviser'') New York, NY 10281-1198
The Bank of New York 48 Wall Street
(`Custodian'') New York, NY 10286
Item 31. Management Services:
Other than as set forth under the caption "Management of the
Fund-Management and Advisory Arrangements" in the Prospectus
constituting Part A of the Registration Statement and under
"Management of the Fund-Management and Advisory Arrangements" in
the Statement of Additional Information constituting Part B of
the Registration Statement, the Registrant is not a party to any
management-related service contract.
Item 32. Undertakings:
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered, a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, BATTERY PARK FUNDS, INC.,
certifies that it meets all of the reqiurements for effectiveness of this
Amendment to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its
Registratioon Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Pittsburgh and Commonwealth of
Pennsylvania, on the 30th day of April, 1997.
BATTERY PARK FUNDS, INC.
By: /s/Gail Cagney
Gail Cagney, Assistant Secretary
Attorney in Fact for Roberty Levine
April 30, 1997
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated.
NAME TITLE DATE
By:/s/Gail Cagney Attorney in Fact April 30, 1997
Gail Cagney for the Persons
ASSISTANT SECRETARY Listed Below
NAME TITLE
/s/Robert Levine Chairman, President
Robert Levine and Director (Chief
Executive Officer)
/s/Lance B. Fraser Treasurer
Lance B. Fraser (Principal Financial
and Accounting Officer)
/s/Michael A. Berman Director
Michael A. Berman
/s/John Fitting, Jr. Director
John Fitting, Jr.
/s/Francis L. Fraenkel Director
NAME TITLE
Francis L. Fraenkel
/s/Frank K. Reilly Director
Frank K. Reilly
Exhibit 19 under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints the Secretary and Assistant Secretary of BATTERY PARK FUNDS, INC.
and the Deputy General Counsel of Federated Services Company, and each of
them, their true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution for them and in their names, place and
stead, in any and all capacities, to sign any and all documents to be filed
with the Securities and Exchange Commission pursuant to the Securities Act
of 1933, the Securities Exchange Act of 1934 and the Investment Company Act
of 1940, by means of the Securities and Exchange Commission's electronic
disclosure system known as EDGAR; and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to sign and perform each and
every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as each of them might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
SIGNATURES TITLE DATE
/s/Robert Levine Chairman, President April 3, 1997
Robert Levine and Director
(Chief Executive Officer)
/s/Lance B. Fraser Treasurer April 3, 1997
Lance B. Fraser (Principal Financial and
Accounting Officer)
/s/Michael A. Berman Director April 3, 1997
Michael A. Berman
/s/John Fitting, Jr. Director April 3, 1997
John Fitting, Jr.
/s/Francis Fraenkel Director April 3, 1997
Francis Fraenkel
/s/Frank K. Reilly Director April 3, 1997
Frank K. Reilly
Sworn to and subscribed before me this 3 day of April, 1997
/s/Ronnelle A. Selva
Ronnelle A. Selva
Notary Public, State of New York
No. 24-4975272
Certificate Filed in New York City
Qualified in Kings County
Commission Expires December 3, 1998
<TABLE>
<CAPTION>
Exhibit 16(i) under Form N-1A
Exhibit 99 under Item 601/Reg. S-K
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Schedule for Computation Initial
of Fund Performance Data Invest of: $1,000
Offering
BATTERY PARK HIGH YIELD CLASS A Price/
Share= $10.47
Return Since Inception
ending 3/31/97 NAV= $10.00
FYE: SEPTEMBER 30
Begin Capital Reinvest Ending Total
DECLARED: DAILY Reinvest Period Dividend Gain Price Period Ending Invest
PAID: MONTHLY Dates Shares /Share /Share /Share Shares Price Value
10/31/96 95.511 0.004643733 0.00000 $10.04 95.555 $10.04 $959.37
11/30/96 95.555 0.062649381 0.00000 $10.35 96.134 $10.35 $994.98
12/31/96 96.134 0.075198595 0.00000 $10.53 96.820 $10.53 $1,019.52
1/31/97 96.820 0.075808898 0.00000 $10.60 97.513 $10.60 $1,033.63
2/28/97 97.513 0.072287164 0.00000 $10.86 98.162 $10.86 $1,066.03
3/31/97 98.162 0.081501189 0.00000 $10.56 98.919 $10.56 $1,044.59
$1,000 (1+T) = End Value
T = 4.46%
</TABLE>
<TABLE>
<CAPTION>
Exhibit 16(iii) under Form N-1A
Exhibit 99 under Item 601/Reg. S-K
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Schedule for Computation Initial
of Fund Performance Data Invest of: $1,000,000
Offering
BATTERY PARK HIGH YIELD CLASS Y Price/
Share= $10.00
Return Since Inception
ending 03/31/97 NAV= $10.00
FYE: SEPTEMBER 30
Begin Capital Reinvest Ending Total
DECLARED: DAILY Reinvest Period Dividend Gain Price Period Ending Invest
PAID: MONTHLY Dates Shares /Share /Share /Share Shares Price Value
10/31/96 100000.000 0.004912684 0.00000 $10.04 100048.931 $10.04 $1,004,491.27
11/30/96 100048.931 0.064765587 0.00000 $10.35 100674.992 $10.35 $1,041,986.16
12/31/96 100674.992 0.077375907 0.00000 $10.53 101414.766 $10.53 $1,067,897.48
1/31/97 101414.766 0.078005541 0.00000 $10.60 102161.078 $10.60 $1,082,907.43
2/28/97 102161.078 0.074341151 0.00000 $10.86 102860.413 $10.86 $1,117,064.08
3/31/97 102860.413 0.083781602 0.00000 $10.56 103676.493 $10.56 $1,094,823.77
$1,000 (1+T) = End Value
T = 9.48%
</TABLE>
<TABLE>
<CAPTION>
Exhibit 16(ii) under Form N-1A
Exhibit 99 under Item 601/Reg. S-K
<S> <C> <C> <C> <C> <C> <C> <C>
BATTERY PARK HIGH YIELD CLASS A Yield = 2{( $8,488.72 - $1,119.55 )+1)^6-
1}=
Computation of SEC Yield 101,670 *( $11.06 - 0.00000)
As of: March 31, 1997
SEC Yield = 7.99%
Dividend and/or Interest
Inc for the 30 days ended $8,488.72
Net Expenses for $1,119.55
the Period
Avg Daily Shares
Outstanding and entitled
to receive dividends 101,670
Maxium offering price $11.06
per share as of 3-31-97
Undistributed net income 0.00000
Tax Equivalent Yield
(assumes individual
does not itemize
on Federal Return)
100 % minus the Federal
taxable % (100%-28%=72%)
30 SEC yield / by the tax
equiv % (0.00% / 72.0%)= 11.10%
</TABLE>
<TABLE>
<CAPTION>
Exhibit 16(iv) under Form N-1A
Exhibit 99 under Item 601/Reg. S-K
<S> <C> <C> <C> <C> <C> <C> <C>
BATTERY PARK HIGH YIELD CLASS Y Yield = 2{( $86,786.85 - $9,156.81 )+1)^6-
1}=
Computation of SEC Yield 1,039,062 *( $10.56 - 0.00000)
As of: March 31, 1997
SEC Yield = 8.64%
Dividend and/or Interest
Inc for the 30 days ended $86,786.85
Net Expenses for $9,156.81
the Period
Avg Daily Shares
Outstanding and entitled
to receive dividends 1,039,062
Maxium offering price $10.56
per share as of 3-31-97
Undistributed net income 0.00000
Tax Equivalent Yield
(assumes individual
does not itemize
on Federal Return)
100 % minus the Federal
taxable % (100%-28%=72%)
30 SEC yield / by the tax
equiv % (0.00% / 72.0%)= 12.00%
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> Battery Park High Yield Fund
Class A
<PERIOD-TYPE> 5-Mos
<FISCAL-YEAR-END> Sep-30-1997
<PERIOD-END> Mar-31-1997
<INVESTMENTS-AT-COST> 11,716,594
<INVESTMENTS-AT-VALUE> 11,961,711
<RECEIVABLES> 335,465
<ASSETS-OTHER> 22,383
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,319,559
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 142,971
<TOTAL-LIABILITIES> 142,971
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,622,795
<SHARES-COMMON-STOCK> 114,196
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 308,676
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 245,117
<NET-ASSETS> 1,205,447
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 458,452
<OTHER-INCOME> 0
<EXPENSES-NET> 48,011
<NET-INVESTMENT-INCOME> 410,441
<REALIZED-GAINS-CURRENT> 308,676
<APPREC-INCREASE-CURRENT> 245,117
<NET-CHANGE-FROM-OPS> 964,234
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 18,463
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 116,621
<NUMBER-OF-SHARES-REDEEMED> 3,243
<SHARES-REINVESTED> 808
<NET-CHANGE-IN-ASSETS> 12,076,488
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 30,873
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 181,194
<AVERAGE-NET-ASSETS> 11,081,940
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> 0.370
<PER-SHARE-GAIN-APPREC> 0.560
<PER-SHARE-DIVIDEND> 0.370
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.560
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 002
<NAME> Battery Park High Yield Fund
Class Y
<PERIOD-TYPE> 5-Mos
<FISCAL-YEAR-END> Sep-30-1997
<PERIOD-END> Mar-31-1997
<INVESTMENTS-AT-COST> 11,716,594
<INVESTMENTS-AT-VALUE> 11,961,711
<RECEIVABLES> 335,465
<ASSETS-OTHER> 22,383
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,319,559
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 142,971
<TOTAL-LIABILITIES> 142,971
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,622,795
<SHARES-COMMON-STOCK> 1,039,297
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 308,676
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 245,117
<NET-ASSETS> 10,971,141
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 458,452
<OTHER-INCOME> 0
<EXPENSES-NET> 48,011
<NET-INVESTMENT-INCOME> 410,441
<REALIZED-GAINS-CURRENT> 308,676
<APPREC-INCREASE-CURRENT> 245,117
<NET-CHANGE-FROM-OPS> 964,234
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 391,978
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,000,400
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 28,897
<NET-CHANGE-IN-ASSETS> 12,076,488
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 30,873
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 181,194
<AVERAGE-NET-ASSETS> 11,081,940
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> 0.380
<PER-SHARE-GAIN-APPREC> 0.560
<PER-SHARE-DIVIDEND> 0.380
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.560
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
