<PAGE> 1
<TABLE>
<S> <C>
[BATTERY PARK LOGO]
BATTERY
PARK(SM)
HIGH YIELD FUND
ANNUAL REPORT
NOMURA SECURITIES
INTERNATIONAL, INC. SEPTEMBER 30, 2000
Distributor
2 World Financial Center NOMURA CORPORATE RESEARCH
Building B AND ASSET MANAGEMENT INC.
New York, NY 10281-1198 Investment Adviser
2 World Financial Center
Cusip 07132Q108 Building B
Cusip 07132Q207 New York, NY 10281-1198
</TABLE>
<PAGE> 2
BATTERY PARK(SM) HIGH YIELD FUND
PRESIDENT'S MESSAGE:
DEAR SHAREHOLDER:
I am pleased to present the annual report for Battery Park High Yield Fund for
the fiscal year ended September 30, 2000. This report begins with a discussion
of the market environment and portfolio highlights by the Fund's portfolio
manager, followed by a schedule of the Fund's high yield corporate bond holdings
and the audited 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 -- by investing in a diversified portfolio of
high yield corporate bonds.
Although market conditions proved challenging throughout the year, we currently
have a positive outlook for the high yield market going forward. As you'll learn
in this report, spreads to Treasuries have widened to historic levels, and we
believe that high yield bonds remain an attractive investment opportunity over
the long term.
Thank you for your continued trust and investment in the Battery Park High Yield
Fund.
Sincerely,
/s/ ROBERT LEVINE
Robert Levine, CFA
Chairman and President
November 29, 2000
1
<PAGE> 3
BATTERY PARK(SM) 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.
MARKET ENVIRONMENT
The past twelve months have reflected another weak period for the U.S. High
Yield market causing spreads to widen and hopefully set the stage for recovery.
Several factors have contributed to market negatives over the last year. As the
year began, the Federal Reserve, worried that the booming domestic economy would
lead to higher inflation, continued to raise interest rates, finally settling at
its target rate, 6.5%, in May 2000. In our opinion, the Federal Reserve has put
pressure on the banks to be more cautious in their lending activities.
Additionally, the current trend of mutual fund redemptions has continued to put
pressure on the market. After some inflows during the summer of 2000, outflows
have returned causing additional selling in the marketplace. The recent meltdown
of the NASDAQ coupled with growing concerns of a slowing economy has added to
the selling at the end of the period. As investors have become more concerned
about the state of the economy going forward, they have become more risk averse.
Earnings disappointments have been received especially unfavorably.
While we are aware of the current state of the market, we believe that it
presents attractive investment opportunities. Spreads have widened to
historically high levels and with many fundamentally strong credits trading at
significant discounts, we see value in the market. Past performance is not
indicative of future results. However, we believe that our research-driven,
company-specific investment philosophy will allow us to take advantage of this
attractive market while avoiding problem credits. Below we discuss the sectors
that hurt and helped performance.
PORTFOLIO HIGHLIGHTS
Certain industries positively affected the Fund's performance. These include the
OIL AND GAS, ELECTRONICS/ELECTRIC, HOTELS/MOTELS/INNS AND CASINOS and BROADCAST
RADIO AND TELEVISION industries. Other industries performed poorly for the Fund
this year, particularly the TELECOMMUNICATIONS, RETAILING, and CABLE
TELEVISION industries. Here we discuss some issues driving performance within
these sectors.
During this period, the Fund benefited from its investments in the OIL AND GAS
sector. All segments of the sector benefited from the commodity price increases
as both oil and natural gas rallied throughout the period. Exploration and
Production (E&P) companies directly benefited by selling their production at the
higher prices, while Drillers and other
2
<PAGE> 4
Service companies saw their cash flows boosted by the reinvestment of E&Ps
looking to increase their reserves. While the sector has outperformed for the
period, we are watching it closely for any indication that it may be less
attractive on a relative value basis.
The Fund also benefited from its exposure to the ELECTRONICS/ELECTRIC sector.
Increased demand for semiconductors drove high sales for the products and
services of high yield technology companies. Demand was high for all
semiconductor uses including computing, networking, telecommunications, and
Internet applications, as well as for less high-tech applications such as autos
and other consumer products. Also, increased capital markets activity, including
M&A, IPOs, and secondary stock offerings, boosted performance in the sector.
The Fund benefited from an increase in exposure to the HOTELS/MOTELS/INNS AND
CASINOS sector. Specifically, gaming bonds have exhibited minimal price
volatility as companies continue to report stable revenues and cash flows with
strong growth in certain jurisdictions. Little new capacity coupled with strong
demand in most jurisdictions should result in robust cash flows for this
industry. Additionally, recent consolidation in the industry is resulting in
upside for many bonds as companies pursue refinancings and tender for existing
bonds in the process. The Fund's investments continue to reflect a favorable
outlook on the emerging gaming jurisdictions with an emphasis on large
diversified credits and strong management teams at both the executive and
operational levels.
The Fund also benefited from its exposure to the BROADCAST RADIO AND TELEVISION
industry. 2000 was a strong year for television broadcasters, which benefited
from political and Olympic advertising. Radio stations continued to gain
advertising market share from newspapers and television and benefited from
substantial Internet advertising during the first half, fueling double-digit
same station growth for the year. However, our outlook for the industry is less
bullish going forward for several reasons, and we have reduced the Fund's
exposure to the industry as a result. We believe that radio broadcasters will
suffer from tough comparisons following 2000's strong growth phase that was
fueled by consolidation, Internet advertising and a strong economy. We also
believe that 2001 will be a weak year for many television broadcasters, who will
not benefit from political advertising or the Olympics. Television broadcasters
and radio broadcasters alike will likely be hit by weaker national advertising,
which is why we invest in the companies that have identified a clear strategy to
increase the local advertising component of revenue.
The Fund's performance was negatively impacted by the Fund's investments in the
TELECOMMUNICATIONS sector, specifically the WIRELINE segment, as it tracked the
sell off of comparable companies in the NASDAQ. Many operators have had
difficulty executing their business plans. Additionally, the sector has
experienced limited access to the capital markets, leaving many companies with
funding issues. We remain very cautious and conservative when investing in this
segment of the market.
The RETAILING sector has also hurt the Fund's performance over the last year as
it traded poorly relative to the high yield market. There have been several
bankruptcies and no new issuance. However, the sector is very diverse with many
niche players, and we
3
<PAGE> 5
believe that there are selective opportunities in the sector as most major
problems are company specific. Thus our exposure to retailing in the fund is
limited, with investments in companies that are market leaders and moderately
leveraged.
Finally, the CABLE TELEVISION sector has also negatively impacted the Fund's
performance. Spreads in the industry have significantly widened over the course
of the past year. Cable operators continue to upgrade their networks to provide
customers with local telephone service, high-speed Internet service and expanded
digital video offerings. However the bonds of those companies with newer builds
and overbuilds have traded off in the market. Liquidity concerns and limited
access to the capital markets have also hurt the sector. The bonds of more
established players have performed well, and we continue to focus on well-funded
and well-capitalized firms in the industry.
During this period, the Fund has been a strictly high yield bond fund, with no
emerging markets or common equity exposure. We believe that our research-driven,
company-specific investment philosophy, which focuses on total return and
relative value, has allowed us to take advantage of this attractive market while
avoiding many of the problem credits. Finally we are pleased to report that, in
a period of rising default rates, none of the Fund's holdings have defaulted.
OUTLOOK AND STRATEGY
Under the current weak market conditions, we believe that the opportunity exists
to make sound investment decisions consistent with a long-term total return
investment strategy. Successful high yield issuers pay down debt at par. With
many fundamentally strong credits trading at lower levels, we see value in the
market. We believe that our team of analysts will be able to identify the strong
survivors in this market and make sound, long-term investment decisions based on
in-depth credit research. Historically, in markets such as this, the higher
quality BB names recover first (as investors make a flight to quality) followed
by improvement in B credits. As the market firms, investor confidence builds and
the lower quality, higher risk names return to favor. We expect this to be the
case in our market and will act accordingly. As investor confidence grows, our
investment decisions will follow suit, taking advantage of reestablished
strength in the marketplace. We will continue to carefully evaluate and select
investments that we believe offer the best opportunities to maximize total
returns, taking careful consideration of the changing global economy. Investors
should continue to maintain a positive long-term outlook for their high yield
investments. While past performance is no guarantee of future results, we remain
confident in our research-intensive investment strategy that has produced
competitive returns.
/s/ ROBERT LEVINE
Robert Levine, CFA
Chairman, President and Portfolio Manager, Battery Park Funds, Inc.
4
<PAGE> 6
SUMMARY OF PORTFOLIO STATISTICS
AS OF SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOP 10 INDUSTRIES % OF
INDUSTRY DESCRIPTION PORTFOLIO
<S> <C>
Cable Television 21.22%
Telecommunications 16.93%
Electronics/Electric 8.52%
Hotels/Motels/Inns and
Casinos 8.10%
Chemical/Plastics 5.56%
Building and Development 5.55%
Broadcast Radio and
Television 4.96%
Oil and Gas 4.75%
Food/Drug Retailers 3.69%
Retailers 3.63%
TOTAL 82.91%
</TABLE>
<TABLE>
<CAPTION>
TOP 10 ISSUERS % OF
ISSUER DESCRIPTION PORTFOLIO
<S> <C>
Duane Reade 3.69%
Leap Wireless 3.31%
Airgate 3.12%
Hollywood Shreveport 3.02%
Young Broadcasting 2.90%
Knology Holdings 2.90%
Amkor 2.86%
Telecorp 2.85%
International Wire Group 2.84%
Exodus Communications 2.83%
TOTAL 30.33%
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS*
<S> <C>
Modified Duration 5.50 Years
Average Maturity 8.48 Years
Average S&P Rating B
30-DAY SEC YIELD**
Class A 11.03%
Class A Net of Load 10.53%
Class Y 11.30%
</TABLE>
RATINGS DISTRIBUTIONS BY S&P
[BAR GRAPH]
<TABLE>
<S> <C>
BBB- 0.88
BB+ 1.45
BB 2.91
B+ 14.94
B 31.01
B- 27.67
CCC+ 8.53
CCC 6.66
NR 5.96
</TABLE>
* Portfolio characteristics exclude cash and cash equivalents which as of
September 30, 2000, represented approximately 2.72% of the Fund.
** The Advisor voluntarily waived management fees and absorbed expenses (please
refer to note (4) of the Notes to the Financial Statements). Absent the
waiver and absorption of fees, the annualized SEC yield for Class A shares
(NAV) would have been 9.05%, Class A Shares (net of maximum sales charge)
would have been 8.64% and Class Y shares would have been 9.32% and
performance returns would have been lower.
5
<PAGE> 7
<TABLE>
<S> <C>
ABOUT THE PORTFOLIO MANAGER
[ROBERT LEVINE PHOTO] Robert Levine, CFA, is a Chairman, President and a Director
of the Fund. Mr. Levine is also the founder, President and
Chief Executive Officer of the Investment Adviser and an
Executive Managing Director of Nomura Holding America Inc.,
a parent company, since 1991. Mr. Levine is Chief Investment
Officer for all of the Investment Adviser's high yield
portfolios. Prior to his present position at the Investment
Adviser, Mr. Levine was with Kidder, Peabody & Co., Inc.
("KPC") for thirteen years. His most recent position at KPC
was President of Kidder, Peabody High Yield Asset
Management, Inc. and Managing Director for KPC. Formerly, he
was a Managing Director of the Merchant Banking Department
and Director of Research at the Kidder, Peabody High Yield
Research Department. Prior to the formation of the High
Yield Research Group, Mr. Levine was the Director of
Corporate Bond Research in the Kidder, Peabody Fixed Income
Research Department. Prior to that, Mr. Levine was an
Analyst with Morgan Guaranty Trust Company. He earned his
MBA from the Wharton School of Finance and undergraduate
degree from the City College of New York.
</TABLE>
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.
6
<PAGE> 8
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
[GRAPH]
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.
FUND PERFORMANCE
<TABLE>
<CAPTION>
FOR PERIODS ENDED SEPTEMBER 30, 2000
-----------------------------------------------------------------------------------------
SINCE INCEPTION
AVERAGE ANNUAL RATE OF RETURN % ONE YEAR OCTOBER 28, 1996
-----------------------------------------------------------------------------------------
<S> <C> <C>
Battery Park Class Y Shares 5.25% 7.67%
Battery Park Class A Shares 5.10 7.42
Battery Park Class A Shares net of maximum sales charge
(4.50%) 0.41 6.17
Merrill Lynch High Yield Master II Index* 1.00 5.46
-----------------------------------------------------------------------------------------
</TABLE>
* Merrill Lynch & Co. The Merrill Lynch High Yield Master II Index is a
publicly reported unmanaged composite benchmark of the hypothetical
return on investment on approximately 1,199 high yield debt securities of
at least $100 million ranging in rating from Ba1 to C to 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 priced.
Approximately 10% of the Index is comprised of deferred interest bonds
and pay-in-kind bonds in addition to cash pay bonds. Certain of the
information contained in this presentation has been provided by Merrill
Lynch. Any information sourced to Merrill Lynch & Co. has been reprinted
by permission, all rights reserved. Copyright(C) 2000 Merrill Lynch,
7
<PAGE> 9
Pierce, Fenner & Smith Incorporated. The Index may not be copied, used or
distributed without Merrill Lynch's prior written approval. Merrill Lynch
makes no representation or warranty, express or implied, to any person
including without limitation, any recipient of this presentation or any
member of the public regarding the advisability of investing in
securities generally or in the ability of the Index (represented in the
literature) to track market performance. This presentation is not
sponsored, endorsed, sold or promoted by Merrill Lynch.
Note: Total return measures change in the value of an investment in the Fund,
assuming reinvestment of all dividends and capital gains. SINCE THE
INCEPTION DATE OF THE FUND, THE ADVISER VOLUNTARILY WAIVED MANAGEMENT FEES
OF 0.65% AND ABSORBED EXPENSES OF 0.68% (OF ANNUALIZED NET ASSETS) IN
ORDER TO CAP EXPENSES AT 1.25% FOR CLASS A SHARES AND 1.00% FOR CLASS Y
SHARES. PURSUANT TO AN EXPENSE WAIVER AND REIMBURSEMENT AGREEMENT DATED AS
OF NOVEMBER 29, 1999, THE INVESTMENT ADVISER HAS AGREED TO THE SAME WAIVER
AND REIMBURSEMENT ARRANGEMENT FOR THE FISCAL YEAR OF THE FUND BEGINNING
OCTOBER 1, 2000 AND ENDING SEPTEMBER 30, 2001. AT OCTOBER 1, 2001, THE
INVESTMENT ADVISER MAY IN ITS DISCRETION AGREE TO CONTINUE, MODIFY OR
DISCONTINUE THIS WAIVER AND REIMBURSEMENT ARRANGEMENT.
8
<PAGE> 10
BATTERY PARK(SM) HIGH YIELD FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------------------------------------
CORPORATE BONDS--96.08%
----------------------------------------------------------------------------------------
<C> <S> <C>
BROADCAST RADIO & TELEVISION--4.96%
----------------------------------------------------------------------------------------
$ 500,000 Lin Holdings Corp., 0/10.000%, 3/01/2008(4) $ 366,250
----------------------------------------------------------------------------------------
500,000 Young Broadcasting Corp., 11.750%, 11/15/2004 516,250
----------------------------------------------------------------------------------------
882,500
----------------------------------------------------------------------------------------
BUILDING AND DEVELOPMENT--5.55%
----------------------------------------------------------------------------------------
500,000 D.R. Horton, Inc., 9.750%, 09/15/2010 487,500
----------------------------------------------------------------------------------------
500,000 Standard Pacific Corp., 9.500%, 09/15/2010 498,750
----------------------------------------------------------------------------------------
986,250
----------------------------------------------------------------------------------------
CABLE TELEVISION--21.16%
----------------------------------------------------------------------------------------
300,000 Adelphia Communications, 10.875%, 10/01/2010 295,500
----------------------------------------------------------------------------------------
500,000 Cable Satisfaction International Inc., 12.750%, 3/1/2010 432,500
----------------------------------------------------------------------------------------
500,000 Callahan Nordrhein, 14.000%, 07/15/2010(1) 500,000
----------------------------------------------------------------------------------------
500,000 Echostar Broadband Corp., 10.375%, 10/01/2007(1) 500,000
----------------------------------------------------------------------------------------
500,000 Ekabel Hessen GMBH, 14.500%, 09/01/2010(1) 502,500
----------------------------------------------------------------------------------------
1,000,000 Knology Holdings, 0/11.875%, 10/15/2007(4) 515,000
----------------------------------------------------------------------------------------
250,000 Mediacom LLC, 7.875%, 2/15/2011 221,250
----------------------------------------------------------------------------------------
500,000 RCN Corp., 10.125%, 1/15/2010 357,500
----------------------------------------------------------------------------------------
500,000 United Pan-Europe Communications N.V., 11.250%, 2/1/2010 440,000
----------------------------------------------------------------------------------------
3,764,250
----------------------------------------------------------------------------------------
CHEMICALS/PLASTICS--5.55%
----------------------------------------------------------------------------------------
500,000 Avecia Group PLC, 11.000%, 07/01/2009 495,000
----------------------------------------------------------------------------------------
500,000 Huntsman ICI Chemicals, 10.125%, 07/01/2009 493,125
----------------------------------------------------------------------------------------
988,125
----------------------------------------------------------------------------------------
CONTAINERS/METAL-GLASS--1.72%
----------------------------------------------------------------------------------------
300,000 US Can Corp., 12.375%, 10/01/2010(1) 305,250
----------------------------------------------------------------------------------------
305,250
----------------------------------------------------------------------------------------
ECOLOGICAL SERVICES AND EQUIPMENT--2.47%
----------------------------------------------------------------------------------------
500,000 Allied Waste NA, 10.000%, 08/01/2009 438,750
----------------------------------------------------------------------------------------
438,750
----------------------------------------------------------------------------------------
ELECTRONICS/ELECTRIC--8.52%
----------------------------------------------------------------------------------------
500,000 Amkor Technologies, Inc., 10.500%, 5/1/2009 509,375
----------------------------------------------------------------------------------------
500,000 Exodus Communications, Inc., 11.625%, 07/15/2010(1) 503,750
----------------------------------------------------------------------------------------
476,000 SCG Holding & Semiconductor Co., 12.000%, 8/1/2009 502,180
----------------------------------------------------------------------------------------
1,515,305
----------------------------------------------------------------------------------------
FOOD/DRUG RETAILERS--3.69%
----------------------------------------------------------------------------------------
750,000 Duane Reade, Inc., 9.250%, 2/15/2008 656,250
----------------------------------------------------------------------------------------
656,250
----------------------------------------------------------------------------------------
See Notes to the Financial Statements.
</TABLE>
9
<PAGE> 11
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------------------------------------
CORPORATE BONDS--CONTINUED
----------------------------------------------------------------------------------------
<C> <S> <C>
FOOD SERVICE--2.21%
----------------------------------------------------------------------------------------
$ 500,000 Avado Brands, Inc., 9.750%, 06/01/2006 $ 393,750
----------------------------------------------------------------------------------------
393,750
----------------------------------------------------------------------------------------
HEALTHCARE--1.46%
----------------------------------------------------------------------------------------
250,000 Iasis Healthcare Corp., 13.000%, 10/15/2009 259,375
----------------------------------------------------------------------------------------
259,375
----------------------------------------------------------------------------------------
HOME FURNISHINGS--0.86%
----------------------------------------------------------------------------------------
500,000 Home Interiors, 10.125%, 6/1/2008 152,500
----------------------------------------------------------------------------------------
152,500
----------------------------------------------------------------------------------------
HOTELS/MOTELS/INNS & CASINOS--8.10%
----------------------------------------------------------------------------------------
500,000 Hollywood Casinos, 13.000%, 08/01/2006 537,500
----------------------------------------------------------------------------------------
150,000 MGM Mirage, Inc., 8.500%, 09/15/2010 150,392
----------------------------------------------------------------------------------------
250,000 Park Place Entertainment, 8.875%, 09/15/2008 248,750
----------------------------------------------------------------------------------------
500,000 Station Casinos, Inc., 9.875%, 07/01/2010(1) 503,750
----------------------------------------------------------------------------------------
1,440,392
----------------------------------------------------------------------------------------
NON-FERROUS METALS/MINERALS--2.84%
----------------------------------------------------------------------------------------
500,000 International Wire Group, 11.750%, 06/01/2005 505,000
----------------------------------------------------------------------------------------
505,000
----------------------------------------------------------------------------------------
OIL & GAS--4.75%
----------------------------------------------------------------------------------------
500,000 Denbury Management, Inc., 9.000%, 3/1/2008 462,500
----------------------------------------------------------------------------------------
125,000 Nuevo Energy Co., 9.375%, 10/01/2010(1) 124,844
----------------------------------------------------------------------------------------
250,000 Swift Energy Co., 10.250%, 8/1/2009 258,125
----------------------------------------------------------------------------------------
845,469
----------------------------------------------------------------------------------------
RETAILERS--3.63%
----------------------------------------------------------------------------------------
500,000 Advance Stores Co., Inc., 10.250%, 4/15/2008 392,500
----------------------------------------------------------------------------------------
250,000 Travelcenters of America, 10.250%, 4/01/2007 253,125
----------------------------------------------------------------------------------------
645,625
----------------------------------------------------------------------------------------
SURFACE TRANSPORT--2.07%
----------------------------------------------------------------------------------------
500,000 Motor Coach Industries International, Inc., 11.250%, 367,500
5/1/2009
----------------------------------------------------------------------------------------
367,500
----------------------------------------------------------------------------------------
TELECOMMUNICATIONS--16.54%
----------------------------------------------------------------------------------------
800,000 Airgate PCS Inc., 0/13.500%, 10/1/2009(4) 486,000
----------------------------------------------------------------------------------------
500,000 Alamosa PCS Holdings, Inc., 0/12.875%, 2/15/2010(4) 272,500
----------------------------------------------------------------------------------------
750,000 IPCS, Inc., 0/14.000%, units, 7/15/2010(1)(4)(5) 416,250
----------------------------------------------------------------------------------------
750,000 Leap Wireless International, Inc., 12.500%, 4/15/2010 588,750
----------------------------------------------------------------------------------------
500,000 MGC Communications, Inc., 13.000%, 4/1/2010 337,500
----------------------------------------------------------------------------------------
500,000 Rhythms NetConnections Inc., 14.000%, 2/15/2010 332,500
----------------------------------------------------------------------------------------
500,000 Telecorp PCS, Inc., 10.625%, 07/15/2010(1) 507,500
----------------------------------------------------------------------------------------
2,941,000
----------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (COST $18,427,855) 17,087,291
----------------------------------------------------------------------------------------
See Notes to the Financial Statements.
</TABLE>
10
<PAGE> 12
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------------------------------------
DEMAND NOTES(6)--2.71%
----------------------------------------------------------------------------------------
<C> <S> <C>
$ 483,321 Sara Lee Demand Note, 6.220% $ 483,321
----------------------------------------------------------------------------------------
TOTAL DEMAND NOTE (COST $483,321) 483,321
----------------------------------------------------------------------------------------
<CAPTION>
NUMBER
OF SHARES VALUE
<C> <S> <C>
----------------------------------------------------------------------------------------
COMMON STOCKS AND WARRANTS--0.45%
----------------------------------------------------------------------------------------
CABLE TV--0.06%
----------------------------------------------------------------------------------------
500 Cable Satisfaction--Warrants(2)(3) 10,125
----------------------------------------------------------------------------------------
500 Optel, Inc.(2)(3) 36
----------------------------------------------------------------------------------------
10,161
----------------------------------------------------------------------------------------
TELECOMMUNICATIONS--0.39%
----------------------------------------------------------------------------------------
800 Airgate PCS Inc.--Warrants(2) 69,400
----------------------------------------------------------------------------------------
750 Leap Wireless--Warrants(2)(3) 0
----------------------------------------------------------------------------------------
69,400
----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $26,007) 79,561
----------------------------------------------------------------------------------------
TOTAL INVESTMENTS--99.24% (COST $18,937,183) 17,650,173
----------------------------------------------------------------------------------------
OTHER ASSETS IN EXCESS OF LIABILITIES--0.76% 134,738
----------------------------------------------------------------------------------------
TOTAL NET ASSETS--100.0% $17,784,911
----------------------------------------------------------------------------------------
</TABLE>
(1) Denotes a restricted security which is subject to restrictions on resale
under federal securities laws. These securities have been deemed liquid
based upon criteria approved by the Fund's Board of Directors. At September
30, 2000, these securities amounted to $3,863,844 which represents 21.73% of
net assets.
(2) Non-income producing security.
(3) Deemed Restricted and Illiquid.
(4) Denotes a step feature, with the rate representing the future coupon.
(5) Consisting of bonds and warrants.
(6) Variable Rate Security--the rate listed is as of September 30, 2000.
See Notes to the Financial Statements.
11
<PAGE> 13
BATTERY PARK(SM) HIGH YIELD FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2000
<TABLE>
<S> <C>
ASSETS:
---------------------------------------------------------------------------
Investments, at value (cost $18,937,183) $17,650,173
---------------------------------------------------------------------------
Interest receivable 442,852
---------------------------------------------------------------------------
Deferred organizational costs 48,914
---------------------------------------------------------------------------
Receivable from investment adviser 19,271
---------------------------------------------------------------------------
Other assets 20,105
---------------------------------------------------------------------------
Total assets 18,181,315
---------------------------------------------------------------------------
LIABILITIES:
---------------------------------------------------------------------------
Distributions payable to shareholders 12,179
---------------------------------------------------------------------------
Payable to distributor 2,334
---------------------------------------------------------------------------
Payable for investments purchased 300,000
---------------------------------------------------------------------------
Accrued expenses 81,891
---------------------------------------------------------------------------
Total liabilities 396,404
---------------------------------------------------------------------------
NET ASSETS $17,784,911
---------------------------------------------------------------------------
NET ASSETS CONSIST OF:
---------------------------------------------------------------------------
Capital stock (par value $.001, 200,000,000 shares
authorized) $21,971,113
---------------------------------------------------------------------------
Net unrealized (depreciation) of investments (1,287,010)
---------------------------------------------------------------------------
Accumulated net realized loss on investments (2,997,931)
---------------------------------------------------------------------------
Undistributed net investment income 98,739
---------------------------------------------------------------------------
Total Net Assets $17,784,911
---------------------------------------------------------------------------
CLASS A:
---------------------------------------------------------------------------
Net assets $ 1,947,383
---------------------------------------------------------------------------
Shares outstanding (par value $.001, 25,000,000 shares
authorized) 226,953
---------------------------------------------------------------------------
Net asset value and redemption price per share $ 8.58
---------------------------------------------------------------------------
Maximum offering price per share (100/95.50 of $8.58)(1) $ 8.98
---------------------------------------------------------------------------
CLASS Y:
---------------------------------------------------------------------------
Net assets $15,837,528
---------------------------------------------------------------------------
Shares outstanding (par value $.001, 25,000,000 shares
authorized) 1,845,079
---------------------------------------------------------------------------
Net asset value, offering and redemption price per share $8.58
---------------------------------------------------------------------------
</TABLE>
(1) See "Description of Classes--Class A Shares" in the Prospectus
See Notes to the Financial Statements.
12
<PAGE> 14
BATTERY PARK(SM) HIGH YIELD FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
--------------------------------------------------------------------------
Interest income $2,334,502
--------------------------------------------------------------------------
Other Income 594
--------------------------------------------------------------------------
Total investment income 2,335,096
--------------------------------------------------------------------------
EXPENSES:
--------------------------------------------------------------------------
Investment advisory fee 139,244
--------------------------------------------------------------------------
Shareholder servicing and accounting fees and expenses 97,223
--------------------------------------------------------------------------
Administration fees 50,664
--------------------------------------------------------------------------
Amortization of organization costs 45,745
--------------------------------------------------------------------------
Professional fees 57,040
--------------------------------------------------------------------------
Federal and state registration fees 18,816
--------------------------------------------------------------------------
Directors' fees 36,062
--------------------------------------------------------------------------
Reports to shareholders 34,567
--------------------------------------------------------------------------
Distribution fee--Class A 7,229
--------------------------------------------------------------------------
Custody fees 16,221
--------------------------------------------------------------------------
Miscellaneous expenses 3,962
--------------------------------------------------------------------------
Total expenses before waiver and reimbursement 506,773
--------------------------------------------------------------------------
Less: Waiver of expenses and reimbursement from Adviser (284,323)
--------------------------------------------------------------------------
Net expenses 222,450
--------------------------------------------------------------------------
Net investment income 2,112,646
--------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
--------------------------------------------------------------------------
Net realized (loss) on investments (479,571)
--------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of
investments (403,304)
--------------------------------------------------------------------------
Net gain (loss) on investments (882,875)
--------------------------------------------------------------------------
Net change in net assets resulting from operations $1,229,771
--------------------------------------------------------------------------
</TABLE>
See Notes to the Financial Statements.
13
<PAGE> 15
BATTERY PARK(SM) HIGH YIELD FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
----------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
----------------------------------------------------------------------------------------------
Net investment income $ 2,112,646 $ 2,133,603
----------------------------------------------------------------------------------------------
Net realized (loss) on investments (479,571) (2,518,357)
----------------------------------------------------------------------------------------------
Net change in unrealized appreciation/(depreciation) of
investments (403,304) 668,967
----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,229,771 284,213
----------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
----------------------------------------------------------------------------------------------
Shares sold 9,887,052 14,523,060
----------------------------------------------------------------------------------------------
Shares issued to holders in reinvestment of dividends 1,980,553 2,844,210
----------------------------------------------------------------------------------------------
Shares redeemed (17,276,932) (10,569,979)
----------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
capital share transactions (5,409,327) 6,797,291
----------------------------------------------------------------------------------------------
DISTRIBUTIONS TO CLASS A SHAREHOLDERS:
----------------------------------------------------------------------------------------------
From net investment income (276,285) (418,082)
----------------------------------------------------------------------------------------------
From net realized gains -- (188,112)
----------------------------------------------------------------------------------------------
Total distributions to Class A shareholders (276,285) (606,194)
----------------------------------------------------------------------------------------------
DISTRIBUTIONS TO CLASS Y SHAREHOLDERS:
----------------------------------------------------------------------------------------------
From net investment income (1,836,361) (1,795,488)
----------------------------------------------------------------------------------------------
From net realized gains -- (654,910)
----------------------------------------------------------------------------------------------
Total distributions to Class Y shareholders (1,836,361) (2,450,398)
----------------------------------------------------------------------------------------------
Total increase/(decrease) in net assets (6,292,202) 4,024,912
----------------------------------------------------------------------------------------------
NET ASSETS:
----------------------------------------------------------------------------------------------
Beginning of year 24,077,113 20,052,201
----------------------------------------------------------------------------------------------
End of year (including undistributed net investment income
of $98,739 and $63,539, respectively) $ 17,784,911 $ 24,077,113
----------------------------------------------------------------------------------------------
</TABLE>
See Notes to the Financial Statements.
14
<PAGE> 16
BATTERY PARK(SM) HIGH YIELD FUND
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------
2000 1999 1998 1997(1)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE DATA:
---------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.00 $10.10 $11.40 $10.00
---------------------------------------------------------------------------------------------
Income from investment operations:
---------------------------------------------------------------------------------------------
Net investment income 0.89 0.80 0.89 0.84
---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments (0.43) (0.72) (0.70) 1.40
---------------------------------------------------------------------------------------------
Total from investment operations 0.46 0.08 0.19 2.24
---------------------------------------------------------------------------------------------
Less distributions:
---------------------------------------------------------------------------------------------
Dividends from net investment income (0.88) (0.79) (0.91) (0.84)
---------------------------------------------------------------------------------------------
Distributions from net realized gains 0.00 (0.39) (0.58) --
---------------------------------------------------------------------------------------------
Total distributions (0.88) (1.18) (1.49) (0.84)
---------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 8.58 $ 9.00 $10.10 $11.40
---------------------------------------------------------------------------------------------
Total Return(2) 5.10% 0.77% 1.50% 23.13%(4)
---------------------------------------------------------------------------------------------
Supplemental Data and Ratios:
---------------------------------------------------------------------------------------------
Ratios of net expenses to average net assets:
---------------------------------------------------------------------------------------------
Before expense reimbursement 2.49% 2.22% 2.92% 4.04%(3)
---------------------------------------------------------------------------------------------
After expense reimbursement 1.25% 1.25% 1.25% 1.25%(3)
---------------------------------------------------------------------------------------------
Ratio of net investment income to average net
assets:
---------------------------------------------------------------------------------------------
Before expense reimbursement 8.37% 7.33% 6.77% 5.87%(3)
---------------------------------------------------------------------------------------------
After expense reimbursement 9.60% 8.30% 8.44% 8.66%(3)
---------------------------------------------------------------------------------------------
Net assets, in thousands, end of period $1,947 $4,211 $3,894 $1,829
---------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 260% 178% 190% 236%
---------------------------------------------------------------------------------------------
</TABLE>
(1) Reflects operations for the period from October 28, 1996 (date of initial
public offering) to September 30, 1997. For the period from September 16,
1996 (start of business) to October 27, 1996, the investment income was
distributed to the Fund's Adviser.
(2) Based on net asset value, which does not reflect the sales charge.
(3) Computed on an annualized basis.
(4) Not annualized.
(5) Portfolio turnover rate is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
See Notes to the Financial Statements.
15
<PAGE> 17
BATTERY PARK(SM) HIGH YIELD FUND
FINANCIAL HIGHLIGHTS--CLASS Y SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------
2000 1999 1998 1997(1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE DATA:
--------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.01 $ 10.10 $ 11.40 $ 10.00
--------------------------------------------------------------------------------------------
Income from investment operations:
--------------------------------------------------------------------------------------------
Net investment income 0.92 0.76 0.93 0.86
--------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments (0.45) (0.64) (0.71) 1.40
--------------------------------------------------------------------------------------------
Total from investment operations 0.47 0.12 0.22 2.26
--------------------------------------------------------------------------------------------
Less distributions:
--------------------------------------------------------------------------------------------
Dividends from net investment income (0.90) (0.82) (0.94) (0.86)
--------------------------------------------------------------------------------------------
Distributions from net realized gains 0.00 (0.39) (0.58) --
--------------------------------------------------------------------------------------------
Total distributions (0.90) (1.21) (1.52) (0.86)
--------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 8.58 $ 9.01 $ 10.10 $ 11.40
--------------------------------------------------------------------------------------------
Total Return(2) 5.25% 1.13% 1.76% 23.41%(4)
--------------------------------------------------------------------------------------------
Supplemental Data and Ratios:
--------------------------------------------------------------------------------------------
Ratios of net expenses to average net assets:
--------------------------------------------------------------------------------------------
Before expense reimbursement 2.36% 1.83% 2.67% 3.87%(3)
--------------------------------------------------------------------------------------------
After expense reimbursement 1.00% 1.00% 1.00% 1.00%(3)
--------------------------------------------------------------------------------------------
Ratio of net investment income to average net
assets:
--------------------------------------------------------------------------------------------
Before expense reimbursement 8.60% 7.72% 6.96% 5.86%(3)
--------------------------------------------------------------------------------------------
After expense reimbursement 9.94% 8.55% 8.63% 8.73%(3)
--------------------------------------------------------------------------------------------
Net assets, in thousands, end of period $15,837 $19,866 $16,158 $13,361
--------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 260% 178% 190% 236%
--------------------------------------------------------------------------------------------
</TABLE>
(1) Reflects operations for the period from October 28, 1996 (date of initial
public offering) to September 30, 1997. For the period from September 16,
1996 (start of business) to October 27, 1996, the investment income was
distributed to the Fund's Adviser.
(2) Based on net asset value, which does not reflect the sales charge.
(3) Computed on an annualized basis.
(4) Not annualized.
(5) Portfolio turnover rate is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
See Notes to the Financial Statements.
16
<PAGE> 18
BATTERY PARK(SM) HIGH YIELD FUND
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
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.
Organizational expenses of $213,984 and $13,290 were borne initially by Nomura
Corporate Research and Asset Management Inc., the Fund's investment adviser (the
"Adviser"), and Federated Services Company ("FServ"), respectively. The Fund has
reimbursed the Adviser and FServ for these expenses. These expenses are being
amortized over the period of benefit, but not to exceed sixty months.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. These policies are in
conformity with generally accepted accounting principles.
A). INVESTMENT VALUATIONS. Securities which are traded on a national or
recognized stock exchange are valued at the last sale price on the securities
exchange on which such securities are primarily traded. Instruments with a
remaining maturity of 60 days or less are valued on an amortized cost basis.
Securities for which market quotations are not readily available, and securities
which are restricted as to resale are valued at fair value under criteria
established by the Board of Directors.
B). INCOME AND EXPENSES. 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"). The Fund is charged expenses directly
such as advisory, administration and certain shareholder service fees. Net
investment income other than class specific expenses, and realized and
unrealized gains and losses are allocated daily to each class of shares based
upon the relative net asset value of outstanding shares at the beginning of the
day (after adjusting for the current capital share activity of the respective
class).
C). DISTRIBUTIONS TO SHAREHOLDERS. Dividends from net investment income are
declared daily prior to the determination of net asset value on that day and
paid monthly. Distributions of net realized capital gains, if any, are declared
at least annually.
D). FEDERAL INCOME TAXES. Provision for federal income taxes or excise taxes
has not been made since the Fund has elected to be taxed as a "regulated
investment company" and intends to distribute substantially all taxable income
to its shareholders
17
<PAGE> 19
and otherwise comply with the provisions of the Internal Revenue Code applicable
to regulated investment companies.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for the
deductibility of organizational costs. The following reclassifications have been
made to the financial statements.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
-------------------------------------------------------------------------------------------------
UNDISTRIBUTED NET ACCUMULATED REALIZED
PAID-IN CAPITAL INVESTMENT INCOME LOSS ON INVESTMENTS
-------------------------------------------------------------------------------------------------
<S> <C> <C>
($45,745) $35,201 $10,544
-------------------------------------------------------------------------------------------------
</TABLE>
E). 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 day following 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.
F). 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. Such restricted
securities may be determined to be liquid under criteria established by the
Board of Directors. The Fund will not incur any registration costs upon such
resales. The Fund's restricted securities are valued at the price provided by
dealers in the secondary market or, if no market prices are available, at the
fair value under criteria established by the Board of Directors.
G). 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 reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
H). OTHER. Investment transactions are accounted for on the trade date.
18
<PAGE> 20
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
---------------------------------------------------------------------------------------------------
AMOUNT SHARES AMOUNT SHARES
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
---------------------------------------------------------------------------------------------------
Shares sold $ 345,204 38,780 $ 4,099,371 423,413
---------------------------------------------------------------------------------------------------
Shares issued to holders in reinvestment
of dividends 139,638 15,509 391,608 40,900
---------------------------------------------------------------------------------------------------
Shares redeemed (2,685,738) (295,022) (3,709,854) (382,197)
---------------------------------------------------------------------------------------------------
Net increase (decrease) $ (2,200,896) (240,733) $ 781,125 82,116
---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
---------------------------------------------------------------------------------------------------
AMOUNT SHARES AMOUNT SHARES
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS Y
---------------------------------------------------------------------------------------------------
Shares sold $ 9,541,848 1,064,410 $10,423,689 1,073,578
---------------------------------------------------------------------------------------------------
Shares issued to holders in reinvestment
of dividends 1,840,915 205,624 2,452,602 256,844
---------------------------------------------------------------------------------------------------
Shares redeemed (14,591,194) (1,630,621) (6,860,125) (724,703)
---------------------------------------------------------------------------------------------------
Net increase (decrease) $ (3,208,431) (360,587) $ 6,016,166 605,719
---------------------------------------------------------------------------------------------------
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
A). 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. Pursuant to an Expense Waiver and Reimbursement
Agreement dated as of November 29, 1999, the Adviser has agreed to waive its
entire fee and reimburse certain operating expenses of the Fund to ensure
expenses do not exceed 1.25% and 1.00% of average daily net assets for class A
and class Y shares, respectively, for the fiscal year of the Fund beginning
October 1, 1999 and ending September 30, 2000. At October 1, 2000, the Adviser
may in its discretion agree to continue, modify or discontinue this waiver and
reimbursement agreement. For the year ended September 30, 2000, the Advisor has
waived fees and reimbursed expenses in the amount of $284,323.
B). 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"),
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.
19
<PAGE> 21
C). AGREEMENTS. Firstar Mutual Fund Services, LLC ("Firstar") serves as
transfer agent, administrator, and accounting services agent for the Fund, and
Firstar Bank, N.A. serves as custodian for the Fund. Certain officers of Firstar
are also officers of the Fund, and are not compensated by the Fund.
5. INVESTMENT TRANSACTIONS.
The aggregate purchases and sales of securities, excluding short-term
investments, by the Fund for the year ended September 30, 2000, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Government Securities -- --
------------------------------------------------------------------------------------------
Other $51,493,834 $56,081,239
------------------------------------------------------------------------------------------
</TABLE>
At September 30, 2000, gross unrealized appreciation and depreciation of
investments for federal income tax purposes was as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
<S> <C>
Appreciation $ 261,611
---------------------------------------------------------------------------
(Depreciation) $(1,548,621)
---------------------------------------------------------------------------
Net unrealized depreciation on investments $(1,287,010)
---------------------------------------------------------------------------
</TABLE>
At September 30, 2000, the cost of investments for federal income tax purposes
was $18,885,300.
20
<PAGE> 22
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Battery Park Funds, Inc.:
We have audited the accompanying statement of assets and liabilities of the
Battery Park High Yield Fund (the "Fund"), a series of Battery Park Funds, Inc.,
including the schedule of investments, as of September 30, 2000, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the three years in the period then ended and for the
period from October 28, 1996 to September 30, 1997. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of September 30, 2000, by correspondence with the Fund's
custodian and broker. 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 audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Battery Park High Yield Fund as of September 30, 2000, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the three years in the period then ended and for the period from October 28,
1996 to September 30, 1997, in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
November 24, 2000
21
<PAGE> 23
<TABLE>
<CAPTION>
DIRECTORS OFFICERS
------------------------------------------------------------------------------------------------------------
<S> <C>
Francis L. Fraenkel Robert Levine
Robert Levine Chairman and President
Frank K. Reilly Patrick D. Sweeney
Jennie Wong Secretary
Jennie Wong
Treasurer
Freddie Jacobs, Jr.
Assistant Treasurer, Assistant Secretary
Joseph Neuberger
Assistant Secretary
</TABLE>
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.
22
