LOGO
BATTERY PARK
HIGH YIELD FUND
SEMI-ANNUAL REPORT
NOMURA SECURITIES MARCH 31, 1998
INTERNATIONAL, INC. NOMURA CORPORATE RESEARCH
Distributor AND ASSET MANAGEMENT INC.
2 World Financial Center Investment Adviser
Building B, 25th Floor 2 World Financial Center
New York, NY 10281-1198 Building B, 25th Floor
New York, NY 10281-1198
Cusip 07132Q108
Cusip 07132Q207
G02047-01 (5/98)
Battery Park High Yield Fund
President's Message
Dear Shareholder:
I am pleased to present the semi-annual report for Battery Park High Yield Fund,
covering the six-month period from October 1, 1997 to March 31, 1998. This
report begins with a commentary by the Fund's portfolio manager, followed by a
complete listing of the Fund's high-yielding corporate bond holdings and the
financial statements.
The Fund is managed by Nomura Corporate Research and Asset Management Inc.,
which seeks to provide you with a high total return--consisting of current
income and capital appreciation--from a diversified portfolio of high-yield
bonds.
We have had a favorable economic environment for high-yield bonds. The
performance of each share class in terms of total return, income and capital
gains distribution for the six-month period is shown below.* The Fund's assets
reached $18 million at the end of the period.
SIX MONTH TOTAL RETURN FOR PERIOD 10/1/97--3/31/98
<TABLE>
<CAPTION>
TOTAL RETURN INCOME CAPITAL GAINS
- -------------------------------------------------
<S> <C> <C> <C>
Class A Shares 7.23% $0.38 $0.58
- -------------------------------------------------
Class Y Shares 7.36% $0.39 $0.58
- -------------------------------------------------
</TABLE>
Thank you for putting your money to work in the high-yield bond market through
the diversification and professional management of Battery Park High Yield Fund.
We look forward to keeping you up-to-date on your progress.
Sincerely,
/s/ Robert Levine
Robert Levine, CFA
Chairman and President
May 15, 1998
*Performance quoted is based on net asset value, reflects past performance and
is not indicative of future results. Investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Total return for the period for Class A Shares
reflecting the sales charge (maximum of 4.50%) was 2.38%.
Battery Park High Yield Fund
Fund Performance and Outlook
WE BELIEVE DIVERSIFICATION, INTENSIVE CREDIT RESEARCH AND PROACTIVE MANAGEMENT
ARE KEY TO ACHIEVING CONSISTENT LONG-TERM TOTAL RETURNS.
Battery Park High Yield Fund's objective is to provide shareholders with high
total return consisting of current income and capital appreciation. The Fund
seeks to achieve its objective by investing principally in fixed income
securities of U.S. companies which are rated in the lower rating categories of
the established rating services or are unrated securities of comparable quality.
IMPRESSIVE PERFORMANCE
For the six months ended March 31, 1998, the Battery Park High Yield Fund has
posted a total return of 7.23% for Class A shares at NAV (2.38% net of maximum
sales charge of 4.50%) and 7.36% for Class Y Shares.(1) The Fund continued to
outperform its benchmark, the Merrill Lynch High Yield Master II Index (2),
which returned 5.47%.
(1) Total return measures change in the value of an investment in the Fund,
assuming reinvestment of all dividends and capital gains. The Investment
Adviser of the Battery Park High Yield Fund waived management fees of 0.65%
and absorbed expenses of 1.02% in order to cap expenses at 1.25% for A
Shares and 1.00% for Y Shares. Absent the waiver and absorption of fees,
returns would have been lower.
(2) The Merrill Lynch High Yield Master II Index is a publicly reported
unmanaged composite benchmark of the hypothetical return on approximately
900 high yield debt securities of at least $50 million ranging in rating
from Ba1 to C by Moody's Investors Service, Inc., and BB+ to C by Standard &
Poor's. The Index has no cash component or transaction costs and is trader,
not market priced and may not reflect prices at which securities could
actually trade. Approximately 10% of the Index is comprised of zero coupon
bonds. It is not possible to invest in an Index. The Merrill Lynch High
Yield Master II Index is used with permission. Copyright 1998 Merrill Lynch,
Pierce, Fenner & Smith Incorporated. All rights reserved. This Research is
not sponsored, endorsed, sold or promoted by Merrill Lynch. Merrill Lynch
makes no representation or warranty, express or implied, to any person,
including without limitation, any recipient of the Research or any member of
the public regarding the advisability of investing in securities generally
or in the ability of the Index to track market performance. The Index may
not be copied, used or distributed without Merrill Lynch's prior written
approval.
FUND PERFORMANCE AS OF 3/31/98
See Appendix A.1.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
See Appendix A.2.
This graph compares a $10,000 investment in the Fund, made at its inception,
with a similar hypothetical investment in the Merrill Lynch High Yield Master II
Index. Results include the reinvestment of all dividends and capital gains
distributions. Past performance is not predicative of future performance.
Investment returns and principal value may vary, and you may have a gain or loss
when you sell shares. The Fund's portfolio may differ significantly from the
securities in the Index. The Index is unmanaged and therefore does not reflect
the cost of portfolio management or trading. It is not possible to invest in an
index.
PORTFOLIO HIGHLIGHTS
The Fund benefited from strong performance from individual bond investments and
a favorable economic environment with moderate growth.
The Fund continued to avoid problem credit situations. It had overweighted
exposure to the telecommunications sector, which is one of the largest and
fastest growing segments of the high yield market. The industry has been driven
by deregulation, consolidation, the rapid growth of the Internet and other forms
of data communication, and constantly improving technology. Our investments in
TELEPORT COMMUNICATIONS, which was acquired by AT&T, performed well during the
past six months, as did COLT TELECOM and MICROCELL.
Our "bottom-up" investment approach has led us to identify attractive
opportunities in the cable industry. Cable bonds have offered strong performance
over the last six months due to strengthening credit statistics and rising
equity valuations. In fact, equity valuations have risen sharply in anticipation
of cash flows from recently introduced Internet access service. OPTEL, a company
focused on providing cable and telephone service to apartment buildings,
performed very well in recent months as it rolled out its new telephone service.
Other cable companies such as CENTURY COMMUNICATIONS, CHARTER COMMUNICATIONS and
NORTHLAND CABLE, have reported rising cash flows in recent periods as a result
of continued growth in subscribers as well as higher rates.
Another contributing factor to the Fund's performance was its limited exposure
to emerging market corporate issuers. The Fund, which never had more than 6% of
its assets in this category, eliminated its positions during the fourth quarter.
In addition, due to the potential impact of the events in Asia, we reduced the
Fund's exposure to industries that rely on commodities, such as chemicals and
forest products.
BATTERY PARK FUND'S DIVERSE PORTFOLIO
Top ten industries [%] as of March 31, 1998
See Appendix A.3.
PORTFOLIO CHARACTERISTICS* AS OF 3/31/98
<TABLE>
<S> <C>
Modified Duration 4.4 yrs.
Average Maturity 6.0 yrs.
Average Rating B
30-Day SEC Yield**
Class A Shares 7.44%
Class A Shares net of sales charge 7.11%
Class Y Shares 7.69%
</TABLE>
* Portfolio characteristics include cash & cash equivalents which represent 3.8%
of the Fund's assets as of March 31, 1998.
** The Investment Adviser temporarily waived management fees of 0.65% and
absorbed expenses of 1.02% in order to cap expenses at 1.25% for A Shares and
1.00% for Y shares. The annualized 30-day SEC Yield would have been 5.93% for
Class A Shares (at NAV) and 5.60% for Class A Shares (net of maximum sales
charge of 4.50%) and 6.18% for Class Y Shares.
MARKET ENVIRONMENT
The high yield market has benefited from the healthy U.S. economic environment,
strong equity market, low interest rates and historically low default rates.
Over the last three months, the ratio of high yield upgrades to downgrades has
increased significantly (from less than one to 1.6 by the end of March). High
yield
investors continue to absorb the hefty supply of new issues. Institutions and
investment-grade managers are making substantial allocations to the high yield
asset class. In fact, the net cash flowing into high yield bonds has outpaced
all other taxable fixed-income investments over the past three years.
High yield bonds continued to outperform all other fixed income categories. In
the first quarter of 1998, middle tier (Single B rated) issues have outperformed
the higher and lower tiers. The Fund's average rating over the past six months
has been "B" and the ratings breakdown as of March 31, 1998, is illustrated in
the chart below.
See Appendix A.4.
MORNINGSTAR* TOTAL RETURN RANKING
ONE YEAR AS OF 3/31/98 CLASS Y SHARES #18 of 202
funds in high yield category CLASS A SHARES #22 of 202 funds in
high yield category
* Ranking is based on total return performance of high yield mutual funds in
Morningstar's universe. Morningstar is a privately owned company that tracks
the performance statistics of more than 8,000 U.S. registered mutual funds.
The above mentioned ranking is not to be intended as a "discretionary star
rating" of mutual funds which it provides and which is based on a risk/return
profile for a minimum 3-year track record.
Morningstar does not deduct sales charges for ranking purposes. The one year
ranking for Class A Shares is based on the total return for Class A shares at
NAV. Without fee waivers, performance returns (for Class A and Y shares) and
ranking would have been lower.
OUTLOOK AND STRATEGY
We believe there continue to be attractive investment opportunities in the high
yield market. In general, the high yield market is unforgiving when it comes to
earnings disappointments. We do our best to anticipate earnings with our
detailed credit research and regular communication with company management. We
are not afraid to sell and incur losses as it may save principal in the long
run.
Our investment team will continue to focus on buying the bonds of leading
companies with improving business prospects. The quality companies with
potential for upgrade should do well in most economic environments. We believe
diversification, intensive credit research and proactive management are key to
achieving consistent long-term total returns. Investing for total return,
consisting of current income and capital appreciation, versus maximizing current
income, makes the Adviser's investment team extremely selective.
Investors should keep in mind that this unique asset class demands patience. The
Fund invests primarily in non-investment grade bonds which involve greater risk
of price volatility and default in payment of interest and principal than higher
rated bonds. Please see the prospectus for a more detailed discussion of risk.
Thank you for investing in the Battery Park High Yield Fund. We look forward to
continuing to serve your investment needs.
/s/ Robert Levine
Robert Levine, CFA
President, Battery Park Funds, Inc.
/s/ Richard Buch
Richard Buch, CFA
Portfolio Manager
ABOUT THE PORTFOLIO MANAGER
[PHOTO OF RICHARD A. BUCH GOES HERE]
Richard A. Buch, CFA, is a Managing Director and Senior Portfolio Manager of
NCRAM. He is the portfolio manager of the Battery Park High Yield Fund since the
Fund's inception and other high yield accounts. He supervises NCRAM's team of
credit analysts/portfolio managers. Mr. Buch was previously Senior VP and High
Yield Portfolio Manager for Kidder, Peabody Asset Management, Assistant VP at
Reliance Insurance, and a Senior Securities Analyst at Teachers Insurance
Annuity Association. Richard received his MBA from Cornell University in 1985
and is a member of the Financial Analyst Federation.
RISK FACTORS. High yield bonds, while offering greater total return potential,
also possess greater risks than lower yielding higher rated bonds. Please see
the Fund's Prospectus.
CLASS A SHARES incur a maximum initial sales charge (front-end load) of 4.50%
and bear annual 12b-1 fees of 25 basis points. Class A shares are available only
through financial planners and securities dealers that have entered into
selected dealer agreements with the Distributor. Class A shares are available to
certain qualified investors and other entities without a sales charge. Please
see the Fund's prospectus for more details regarding the purchase of Class A
shares at NAV.
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 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.
Battery Park(SM) High Yield Fund
Portfolio of Investments
March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS--96.3%
- -------------------------------------------------------------------------------
AEROSPACE & DEFENSE--1.5%
- -------------------------------------------------------------------------------
$ 250,000 L-3 Comms Corp., Sr. Sub. Note, 10.375%, 5/1/2007 $ 278,125
- -------------------------------------------------------------------------------
AUTOMOTIVE--3.1%
- -------------------------------------------------------------------------------
500,000 Collins & Aikman Products Co., Sr. Sub. Note, 11.50%, 565,000
4/15/2006
- -------------------------------------------------------------------------------
BROADCAST RADIO & TV--6.0%
- -------------------------------------------------------------------------------
500,000 Gray Communications, Sr. Sub. Note, 10.625%, 10/1/2006 550,000
- -------------------------------------------------------------------------------
500,000 Sinclair Broadcast Group, Inc., Sr. Sub. Note, 9.00%, 524,375
7/15/2007
- -------------------------------------------------------------------------------
Total 1,074,375
- -------------------------------------------------------------------------------
BUILDING & DEVELOPMENT--5.9%
- -------------------------------------------------------------------------------
500,000 MMI Products, Inc., Sr. Sub. Note, 11.25%, 4/15/2007 556,250
- -------------------------------------------------------------------------------
500,000 Signature Resorts, Inc., Sr. Sub. Note, Series, 9.75%, 505,000
10/1/2007
- -------------------------------------------------------------------------------
Total 1,061,250
- -------------------------------------------------------------------------------
CABLE TELEVISION--11.0%
- -------------------------------------------------------------------------------
500,000 Century Communications, Corp., Sr. Note, 8.875%, 523,750
1/15/2007
- -------------------------------------------------------------------------------
500,000 Charter Communications Holdings, Inc., Sr. Disc. Note, 403,750
0/14.00%, 3/15/2007
- -------------------------------------------------------------------------------
500,000 Optel, Inc., Sr. Note, Series B, 13.00%, 2/15/2005 557,500
- -------------------------------------------------------------------------------
750,000 RCN Corp., Sr. Disc. Note, 0/11.125%, 10/15/2007 502,500
- -------------------------------------------------------------------------------
Total 1,987,500
- -------------------------------------------------------------------------------
CONGLOMERATES--1.5%
- -------------------------------------------------------------------------------
250,000 Insilco Corp., Sr. Sub. Note, 10.25%, 8/15/2007 263,750
- -------------------------------------------------------------------------------
FOOD/DRUG RETAILERS--5.9%
- -------------------------------------------------------------------------------
600,000 Duane Reade, Inc., Sr. Sub. Note, 9.25%, 2/15/2008 613,500
- -------------------------------------------------------------------------------
400,000 Jitney-Jungle Stores of America, Inc., Company 454,000
Guarantee, 12.00%, 3/1/2006
- -------------------------------------------------------------------------------
Total 1,067,500
- -------------------------------------------------------------------------------
HEALTHCARE--8.0%
- -------------------------------------------------------------------------------
500,000 Alaris Medical Systems, Company Guarantee, 9.75%, 531,250
12/1/2006
- -------------------------------------------------------------------------------
250,000 Kinetic Concepts, Inc., Company Guarantee, 9.625%, 258,750
11/1/2007
- -------------------------------------------------------------------------------
1,000,000 Paragon Health Network, Inc., Sr. Sub. Note, 0/10.50%, 652,500
11/1/2007
- -------------------------------------------------------------------------------
Total 1,442,500
- -------------------------------------------------------------------------------
HOME FURNISHINGS--3.5%
- -------------------------------------------------------------------------------
590,000 Simmons Co., Sr. Sub. Note, 10.75%, 4/15/2006 637,200
- -------------------------------------------------------------------------------
LEISURE--9.6%
- -------------------------------------------------------------------------------
600,000 Bally Total Fitness Holding Corp., Sr. Sub. Note, 640,500
9.875%, 10/15/2007
- -------------------------------------------------------------------------------
500,000 Livent, Inc., Sr. Note, 9.375%, 10/15/2004 502,500
- -------------------------------------------------------------------------------
350,000 Premier Parks, Inc., Sr. Disc. Note, 0/10%, 4/1/2008 224,875
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS--CONTINUED
- -------------------------------------------------------------------------------
$ 350,000 Premier Parks, Inc., Sr. Note, 9.25%, 4/1/2006 $ 359,625
- -------------------------------------------------------------------------------
Total 1,727,500
- -------------------------------------------------------------------------------
NON-FERROUS METALS--2.6%
- -------------------------------------------------------------------------------
400,000 Boliden Westmin Resources Ltd., Sr. Note, 11.00%, 464,000
3/15/2007
- -------------------------------------------------------------------------------
OIL & GAS--8.6%
- -------------------------------------------------------------------------------
500,000 (b)Dailey Petroleum Services Corp., Sr. Note, 9.50%, 506,250
2/15/2008
- -------------------------------------------------------------------------------
250,000 (b)Parker Drilling Co., Company Guarantee, 9.75%, 266,875
11/15/2006
- -------------------------------------------------------------------------------
600,000 TransAmerican Energy, Sr. Disc. Note, 0/13.00%, 510,000
6/15/2002
- -------------------------------------------------------------------------------
250,000 United Refining Co., Sr. Note, 10.75%, 6/15/2007 263,750
- -------------------------------------------------------------------------------
Total 1,546,875
- -------------------------------------------------------------------------------
RETAILER--2.7%
- -------------------------------------------------------------------------------
500,000 United Auto Group, Inc., Sr. Sub. Note, 11.00%, 477,500
7/15/2007
- -------------------------------------------------------------------------------
STEEL--1.2%
- -------------------------------------------------------------------------------
200,000 Armco, Inc., Sr. Note, 9.00%, 9/15/2007 209,000
- -------------------------------------------------------------------------------
SURFACE TRANSPORTATION--3.0%
- -------------------------------------------------------------------------------
500,000 Atlantic Express Transportation Corp., Company 537,500
Guarantee, 10.75%, 2/1/2004
- -------------------------------------------------------------------------------
TELECOMMUNICATIONS--18.9%
- -------------------------------------------------------------------------------
700,000 Colt Telecom Group PLC, Unit, 0/12.00%, 12/15/2006 663,250
- -------------------------------------------------------------------------------
600,000 MGC Communications, Inc., Sr. Sub. Note, 13.00%, 624,000
10/1/2004
- -------------------------------------------------------------------------------
600,000 McLeod, Inc., Sr. Note, 9.25%, 7/15/2007 646,500
- -------------------------------------------------------------------------------
500,000 NEXTLINK Communications, Inc., Sr. Note, 9.625%, 532,500
10/1/2007
- -------------------------------------------------------------------------------
500,000 Paging Network, Inc., Sr. Sub. Note, 10.00%, 527,500
10/15/2008
- -------------------------------------------------------------------------------
500,000 Sprint PCS, Sr. Disc. Note, 0/12.50%, 8/15/2006 420,000
- -------------------------------------------------------------------------------
Total 3,413,750
- -------------------------------------------------------------------------------
TEXTILES--3.3%
- -------------------------------------------------------------------------------
550,000 William Carter Co., Sr. Sub. Note, 10.375%, 12/1/2006 594,000
- -------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $16,604,187) 17,347,325
- -------------------------------------------------------------------------------
WARRANTS--0.2%
- -------------------------------------------------------------------------------
CABLE TELEVISION--0.1%
- -------------------------------------------------------------------------------
500 (a)Optel, Inc. 20,000
- -------------------------------------------------------------------------------
TELECOMMUNICATIONS--0.1%
- -------------------------------------------------------------------------------
600 (a)MGC Communications, Inc., Warrants 21,150
- -------------------------------------------------------------------------------
TOTAL WARRANTS (IDENTIFIED COST $21,002) 41,150
- -------------------------------------------------------------------------------
REPURCHASE AGREEMENT--4.1%
- -------------------------------------------------------------------------------
736,274 (c)Merrill Lynch, Pierce, Fenner and Smith, 5.65%,
dated 3/31/1998, due 4/1/1998 (at amortized cost) 736,274
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST $17,361,463 )(D) $18,124,749
- -------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At March 31, 1998, these securities amounted
to $773,125 which represents 4.3% of net assets. See Restricted Securities
in Notes to Financial Statements.
(c) The repurchase agreement is fully collateralized by U.S. government
obligations based on market prices at March 31, 1998.
(d) The cost of investments for federal tax purposes amounts to $17,361,463. The
net unrealized appreciation of investments on a federal tax basis amounts to
$763,286 which is comprised of $783,341 appreciation and $20,055
depreciation at March 31, 1998.
Note: The categories of investments are shown as a percentage of net assets
($18,010,131) at March 31, 1998.
The following acronym is used throughout this portfolio:
PLC--Public Limited Company
(See Notes which are an integral part of the Financial Statements)
Battery Park(SM) High Yield Fund
Statement of Assets and Liabilities
March 31, 1998 (unaudited)
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------
Total investments in securities, at value (identified and $18,124,749
tax cost $17,361,463)
- -------------------------------------------------------------------------------
Cash 6,285
- -------------------------------------------------------------------------------
Income receivable 417,644
- -------------------------------------------------------------------------------
Receivable for investments sold 76,125
- -------------------------------------------------------------------------------
Receivable for shares sold 19,537
- -------------------------------------------------------------------------------
Deferred organizational costs 185,533
- -------------------------------------------------------------------------------
Total assets 18,829,873
- -------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------
Payable for investments purchased $646,677
- -------------------------------------------------------------------------------
Payable for shares redeemed 11,130
- -------------------------------------------------------------------------------
Income distribution payable 126,476
- -------------------------------------------------------------------------------
Accrued expenses 35,459
- -------------------------------------------------------------------------------
Total liabilities 819,742
- -------------------------------------------------------------------------------
Net Assets for 1,617,829 shares outstanding $18,010,131
- -------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------
Paid in capital $16,730,294
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 763,286
- -------------------------------------------------------------------------------
Accumulated net realized gain on investments 516,551
- -------------------------------------------------------------------------------
Total Net Assets $18,010,131
- -------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS
PER SHARE:
- -------------------------------------------------------------------------------
CLASS A SHARES:
- -------------------------------------------------------------------------------
Net Asset Value Per Share ($2,691,924 / 241,811 shares $11.13
outstanding)
- -------------------------------------------------------------------------------
Offering Price Per Share (100/95.50 of $11.13)* $11.65
- -------------------------------------------------------------------------------
Redemption Proceeds Per Share ($2,691,924 / 241,811 $11.13
shares outstanding)
- -------------------------------------------------------------------------------
CLASS Y SHARES:
- -------------------------------------------------------------------------------
$15,318,207 / 1,376,018 shares outstanding $11.13
- -------------------------------------------------------------------------------
</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
Six Months Ended March 31, 1998 (unaudited)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------
Interest $ 769,459
- -----------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------
Investment advisory fee $ 52,925
- -----------------------------------------------------------------------------
Transfer and dividend disbursing agent fees 35,947
and expenses
- -----------------------------------------------------------------------------
Portfolio accounting fees 29,169
- -----------------------------------------------------------------------------
Administrative personnel and services fee 24,932
- -----------------------------------------------------------------------------
Amortization of organizational cost 22,716
- -----------------------------------------------------------------------------
Directors'/Trustees' fees 14,959
- -----------------------------------------------------------------------------
Share registration costs 10,915
- -----------------------------------------------------------------------------
Printing and postage 9,104
- -----------------------------------------------------------------------------
Legal fees 5,500
- -----------------------------------------------------------------------------
Custodian fees 3,250
- -----------------------------------------------------------------------------
Auditing fees 2,992
- -----------------------------------------------------------------------------
Miscellaneous 2,928
- -----------------------------------------------------------------------------
Distribution services fee--Class A Shares 2,697
- -----------------------------------------------------------------------------
Insurance premiums 1,340
- -----------------------------------------------------------------------------
Taxes 524
- -----------------------------------------------------------------------------
Total expenses 219,898
- -----------------------------------------------------------------------------
Waivers and reimbursements--
- -----------------------------------------------------------------------------
Waiver of investment advisory fee $(52,925)
- -----------------------------------------------------------------------------
Reimbursement of other operating expenses (82,853)
- -----------------------------------------------------------------------------
Total waivers and reimbursements (135,778)
- -----------------------------------------------------------------------------
Net expenses 84,120
- -----------------------------------------------------------------------------
Net investment income 685,339
- -----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
- -----------------------------------------------------------------------------
Net realized gain on investments 616,845
- -----------------------------------------------------------------------------
Net change in unrealized appreciation (134,760)
(depreciation) of investments
- -----------------------------------------------------------------------------
Net realized and unrealized gain on 482,085
investments
- -----------------------------------------------------------------------------
Change in net assets resulting from $1,167,424
operations
- -----------------------------------------------------------------------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Battery Park(SM) High Yield Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) PERIOD ENDED
MARCH 31, SEPTEMBER 30,
1998 1997(A)
- -------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------------------
Net investment income $ 685,339 $ 1,001,841
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments ($616,845
net gain and $702,862 net gain, respectively, as
computed for federal tax purposes) 616,845 702,862
- -------------------------------------------------------------------------------
Net change in unrealized appreciation/depreciation (134,760) 898,046
- -------------------------------------------------------------------------------
Change in net assets resulting from operations 1,167,424 2,602,749
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------------------------------
Distributions from net investment income
- -------------------------------------------------------------------------------
Class A Shares (88,460) (80,857)
- -------------------------------------------------------------------------------
Class Y Shares (598,519) (919,344)
- -------------------------------------------------------------------------------
Distributions from net realized gains
- -------------------------------------------------------------------------------
Class A Shares (99,753) --
- -------------------------------------------------------------------------------
Class Y Shares (703,403) --
- -------------------------------------------------------------------------------
Change in net assets resulting from distributions (1,490,135) (1,000,201)
to shareholders
- -------------------------------------------------------------------------------
SHARE TRANSACTIONS--
- -------------------------------------------------------------------------------
Proceeds from sale of shares 1,891,405 12,722,126
- -------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of distributions declared 1,310,284 977,217
- -------------------------------------------------------------------------------
Cost of shares redeemed (58,284) (112,454)
- -------------------------------------------------------------------------------
Change in net assets resulting from share 3,143,405 13,586,889
transactions
- -------------------------------------------------------------------------------
Change in net assets 2,820,694 15,189,437
- -------------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------------
Beginning of period 15,189,437 --
- -------------------------------------------------------------------------------
End of period (including undistributed net
investment income of $0 and
$1,640, respectively) $18,010,131 $15,189,437
- -------------------------------------------------------------------------------
</TABLE>
(a) For the period from September 19, 1996 (start of business) to September 30,
1997.
(See Notes which are an integral part of the Financial Statements)
BATTERY PARK(SM) HIGH YIELD FUND
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
(UNAUDITED) ENDED
MARCH 31, SEPTEMBER 30,
1998 1997(A)
- ------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.40 $10.00
- ------------------------------------------------------------------------------
Income from investment operations
- ------------------------------------------------------------------------------
Net investment income 0.38 0.84
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on 0.31 1.40
investments
- ------------------------------------------------------------------------------
Total from investment operations 0.69 2.24
- ------------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------------
Distributions from net investment income (0.38) (0.84)
- ------------------------------------------------------------------------------
Distributions from net realized gain on investments (0.58) --
- ------------------------------------------------------------------------------
Total distributions (0.96) (0.84)
- ------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.13 $11.40
- ------------------------------------------------------------------------------
Total return (b) 7.23% 23.13%
- ------------------------------------------------------------------------------
Ratios to average net assets
- ------------------------------------------------------------------------------
Expenses 1.25%* 1.25%*
- ------------------------------------------------------------------------------
Net investment income 8.18%* 8.66%*
- ------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 1.67%* 2.79%*
- ------------------------------------------------------------------------------
Supplemental Data
- ------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $2,692 $1,829
- ------------------------------------------------------------------------------
Portfolio turnover 132% 236%
- ------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from October 28, 1996 (date of initial
public offering) to September 30, 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 PARK(SM) HIGH YIELD FUND
FINANCIAL HIGHLIGHTS--CLASS Y SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
(UNAUDITED) ENDED
MARCH 31, SEPTEMBER 30,
1998 1997(A)
- ------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.40 $ 10.00
- ------------------------------------------------------------------------
Income from investment operations
- ------------------------------------------------------------------------
Net investment income 0.39 0.86
- ------------------------------------------------------------------------
Net realized and unrealized gain (loss) on 0.31 1.40
investments
- ------------------------------------------------------------------------
Total from investment operations 0.70 2.26
- ------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------
Distributions from net investment income (0.39) (0.86)
- ------------------------------------------------------------------------
Total distributions from net realized gain on (0.58) --
investments
- ------------------------------------------------------------------------
Total distributions (0.97) (0.86)
- ------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.13 $ 11.40
- ------------------------------------------------------------------------
Total return (b) 7.36% 23.41%
- ------------------------------------------------------------------------
Ratios to average net assets
- ------------------------------------------------------------------------
Expenses 1.00%* 1.00%*
- ------------------------------------------------------------------------
Net investment income 8.45%* 8.73%*
- ------------------------------------------------------------------------
Expense waiver/reimbursement (c) 1.67%* 2.87%*
- ------------------------------------------------------------------------
Supplemental Data
- ------------------------------------------------------------------------
Net assets, end of period (000 omitted) $15,318 $13,361
- ------------------------------------------------------------------------
Portfolio turnover 132% 236%
- ------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from October 28, 1996 (date of initial
public offering) to September 30, 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)
Battery Park(SM) High Yield Fund
Notes to Financial Statements
March 31, 1998
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), and unlisted securities 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, 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 provisions for
Federal income tax 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.
DEFERRED EXPENSES. The costs incurred by the Fund with respect to registration
of its shares in its first fiscal year, excluding the initial expense of
registering its shares, have been deferred and are being amortized over a period
not to exceed five years from the Fund's commencement date.
RESTRICTED SECURITIES. Restricted securities are securities that may only be
resold upon registration under Federal Securities laws or in transactions exempt
from such registration. In some cases, the issuer of restricted securities has
agreed to register such securities for resale, at the issuer's expense either
upon demand by the Fund or in connection with another registered offering of the
securities. Many restricted securities may be resold in the secondary market in
transactions exempt from registration. All restricted securities held by the
Fund at March 31, 1998 have been determined to be liquid under criteria
established by the Board of Directors. The Fund will not incur any registration
costs upon such resales.
Additional information on each restricted security held at March 31, 1998 is as
follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
- ------------------------------------------------------------------
<S> <C> <C>
Dailey Petroleum Services Corp. 2/6/98 $500,000
- ------------------------------------------------------------------
Parker Drilling Co. 3/5/98 $259,583
- ------------------------------------------------------------------
</TABLE>
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
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997(A)
- -------------------------------------------------------------------------------
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 73,092 $808,548 164,628 $1,763,523
- -------------------------------------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 10,319 112,336 5,519 60,261
- -------------------------------------------------------------------------------
Shares redeemed (1,972) (21,942) (9,775) (106,271)
- -------------------------------------------------------------------------------
Net change resulting from Class A 81,439 $898,942 160,372 $1,717,513
share transactions
- -------------------------------------------------------------------------------
</TABLE>
(a) For the period from October 28, 1996 (date of initial public offering) to
September 30, 1997.
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997(A)
- -------------------------------------------------------------------------------
CLASS Y SHARES SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 97,746 $1,082,857 1,087,480 $10,958,603
- -------------------------------------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 109,954 1,197,948 84,653 916,956
- -------------------------------------------------------------------------------
Shares redeemed (3,264) (36,342) (551) (6,183)
- -------------------------------------------------------------------------------
Net change resulting from Class Y 204,436 $2,244,463 1,171,582 $11,869,376
share transactions
- -------------------------------------------------------------------------------
Net change resulting from Class A
shares and Class Y shares
transactions 285,875 $3,143,405 1,331,954 $13,586,889
- -------------------------------------------------------------------------------
</TABLE>
(a) For the period from September 19, 1996 (start of business) to September 30,
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") is entitled to receive 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 Fund 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 "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 FEE. The Fund has entered 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 not made any payments pursuant to the Shareholder Services
Agreement and has no current intention of making any such payments.
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 expenses of $213,984 and $13,290 were
borne initially by the Adviser and Fserv, respectively. The Fund has reimbursed
the Adviser and Fserv for these expenses. These expenses have been deferred and
are being amortized over the five year period following the Fund's effective
date. For the period ended March 31, 1998, the Fund expensed $22,716 of
organizational expenses.
GENERAL. Certain of the Officers of the Company are Officers of FServ and/or
FSSC.
5. YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and Administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended March 31, 1998, were as follows:
- ----------------------
PURCHASES $22,912,276
- ----------------------
SALES $20,627,118
- ----------------------
Directors Officers
- --------------------------------------------------------------------------------
Francis L. Fraenkel Robert Levine
Lance B. Fraser Chairman and President
Robert Levine Richard A. Buch
Frank K. Reilly Vice President
Lance B. Fraser
Treasurer
C. Christine Thomson
Assistant Treasurer
Deborah A. Montick
Secretary
Gail Cagney
Assistant Secretary
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.
Appendix
A.1. The graphic presentation here consists of two four-column charts entitled
"Fund Performance as of 3/31/98." The first four-column chart gives the Fund's
performance for the one-year ended 3/31/98. The information is as follows:
Battery Park - Class Y Shares, 21.03%; Battery Park - Class A Shares, 20.73%;
Battery Park - Class A Shares net of max sales charge (4.5%), 15.27%; and
Merrill Lynch High Yield Master II Index, 15.60%. The second four-column chart
gives the Fund's performance since inception (10/28/96) to 3/31/98. The
information is as follows: Battery Park - Class Y Shares, 32.50%; Battery Park -
Class A Shares, 32.04%; Battery Park - Class A Shares net of max sales charge
(4.5%), 26.11%; and Merrill Lynch High Yield Master II Index, 20.67%.
A.2. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class Y
Shares of Battery Park High Yield Fund are represented by a solid line. The
Class A Shares are represented by a line with triangles. The Class A Shares with
a sales charge are represented by a dotted line. The Merrill Lynch High Yield
Master II Index is represented by a dashed line. The line graph is a visual
presentation of a comparison of change in value of a $10,000 hypothetical
investment in the Class Y Shares, Class A Shares, Class A Shares with sales
charge, of the Fund, and the Merrill Lynch High Yield Master II Index. The "x"
axis reflects computation periods from 10/28/96 to 3/98. The "y" axis reflects
the cost of investment. The right margin reflects the ending value of the
hypothetical investment in the Fund's Class Y Shares, Class A Shares, and Class
A Shares with a sales charge, as compared to the Merrill Lynch High Yield Master
II Index. The ending values were $13,249, $13,201, $12,607, and $12,100,
respectively.
A.3. The graphic presentation here displayed consists of a ten-column chart
entitled "Battery Park Fund's Diverse Portfolio - Top ten industries (%) as of
March 31, 1998." The information is as follows: Media/Telecom., 19%; Cable TV,
11%; Leisure, 10%; Oil & Gas, 9%; Healthcare, 8%; Broadcast Radio & TV, 6%;
Food/Drug Retailers, 6%; Home Furnishings, 4%; Textiles, 3%; and Automotive, 3%.
A.4. The graphic presentation here displayed consists of a pie chart. The
information is as follows: B, 74%; Not Rated, 16%; Cash & equivalents, 4%; and
BB, 6%.
