<PAGE>
Battery Park/SM/ 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, 1999 to March 31, 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 unaudited 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.
We are pleased to report that in an unfavorable environment for fixed income
asset classes generally, the Fund outperformed the Merrill Lynch High Yield
Master II Index.
Thank you for pursuing your financial goals 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, CFA
Robert Levine, CFA
Chairman and President
March 31, 2000
1
<PAGE>
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
In the beginning of this reporting period, investors were concerned that the
high yield market would slow down in anticipation of potential Y2K problems in
the fourth quarter of 1999. However, the high yield market showed renewed
strength following a weak third quarter. Spreads tightened despite a 25 bp
interest rate hike in November as investors became less concerned about
potential Y2K problems and structured products created more demand in the high
yield market. These factors led to a healthy positive return, which reversed
the downward momentum of the third quarter.
Expectations were high as we entered the New Year as high yield investors
anticipated increased demand and greater allocations to high yield funds post-
Y2K liquidity fears. However, high yield mutual funds, as well as other fixed
income products, experienced consistent outflows while new issuance for the
first quarter continued to be relatively strong ($21 billion versus $29 billion
in the first quarter of 1999, according to Chase Securities). This imbalance in
supply and demand put pressure on the high yield market throughout the quarter.
We believe that high yield mutual fund redemptions are a result of modest high
yield returns in the last two years, combined with a rising interest rate
environment. Meanwhile, attractive equity returns have brought major inflows to
equity mutual funds, despite recent volatility.
The spread between the Merrill Lynch High Yield Master II Index and 10-year
Treasuries widened by 132 bps in the first quarter of 2000. The last time
spreads were at this level was during the global crisis of 1998. Also, the last
time absolute yields were this high was at the end of 1990, when the default
rate was over 10% and the economy was weak, with flat GDP growth. Currently,
the economy is strong and growing at a healthy rate, and the 12-month rolling
default rate ending March 31, 2000 decreased to 3.87% from a 4.05% rate for the
period ending December 31, 1999, according to Donaldson, Lufkin, & Jenrette.
Therefore, we believe that fundamentals are sound and that current spreads
provide compelling buying opportunities.
For the six months ended March 31, 2000, 10-Year U.S. Treasuries returned
1.55%, while the high yield market returned -0.30% (according to the Merrill
Lynch High Yield Master II Index). The C-rated sector outperformed the B-rated
and BB-rated sectors, returning 0.80%, -0.69%, and 0.05%, respectively
(according to Merrill Lynch).
2
<PAGE>
PORTFOLIO HIGHLIGHTS
For the six months ended March 31, 2000, the Battery Park High Yield Fund
posted a total return of 3.82% (class Y shares), outperforming the Merrill
Lynch High Yield Master II Index return of negative .30%. The Fund benefited
from strong performance in individual bond investments and a healthy U.S.
economy. Our interests in the telecommunications and cable sectors performed
well during the period and helped the Fund outperform its benchmark.
The cable sector is attractive because the companies generate very stable cash
flows and post meaningful growth as they roll out new services. Additionally,
merger and acquisition activity remains heated in the sector. The cable
industry outperformed the high yield market over the last six months and in
turn, the Fund's investments in the sector outperformed the industry. Our
largest cable holding, 21st Century, was the Fund's best performing investment
as it was purchased by another of our holdings, RCN Corporation. Knology bonds
also performed well as the company raised $100 million in private equity and
announced plans for an IPO this year. Furthermore, Telewest bonds have traded
higher as the company continues to post dramatic growth.
We continue to view the telecommunications sector favorably. Over the last six
months we have increased our emphasis on the wireless component of the
telecommunications sector, and have reduced our exposure to wireline issuers.
Continued new issuance by wireline companies have caused this portion of the
telecommunications sector to underperform, while the wireless component has
traded very well as most operators generate exceptional growth. We expect the
number of wireless customers to double over the next four to five years as
prices continue to fall and penetration approaches European levels. Our
investments in wireless issuers have performed well. Airgate, a Sprint
affiliate, was our second best performing bond in the Fund over the last six
months as the company completed its IPO and achieved stellar results in its
initial market launches. Leap Wireless, which is sponsored by Qualcomm, is a
recent purchase that has traded well.
Despite the weakness of wireline issuers generally, we had several bonds that
performed well. MGC Communication completed several rounds of private and
public equity financing, hired a quality management team, and posted impressive
results. The bonds have moved up substantially over the last six months.
Nextlink has continued to display very strong revenue growth, and the bonds
have also traded well. In both of these situations, strong management teams
have been the differentiating factor that separates them from their peer group.
Performance was negatively impacted by our investment in Rhythms NetConnections
Inc., which provides high speed local access to the internet.
3
<PAGE>
In our last report, we noted that we had increased our exposure to the gaming
sector, which continued to perform well as companies reported favorable
operating results. As spreads have tightened to reflect this improvement in
operations, we have reduced exposure in this sector, taking profits and
pursuing more attractive total return opportunities. The Fund continued to
avoid exposure to emerging market corporate bonds and common stocks, two
investment categories that some of our competition include in their high yield
funds. Performance for the period was adversely affected by our investments in
Advanced Stores, the country's second largest auto parts retailer and Allied
Waste, a solid waste management company.
4
<PAGE>
BATTERY PARK FUND'S DIVERSE PORTFOLIO
Top ten industries [%] as of March 31, 2000
Telecommunications 22.31%
Cable Television 19.80%
Oil & Gas 7.36%
Broadcast Radio & Television 5.97%
Surface Transport 5.84%
Retailers 5.47%
Electronics/Electric 5.34%
Business Equipment & Services 4.91%
Food/Drug Retailers 4.33%
Food Service 3.80%
PORTFOLIO CHARACTERISTICS* AS OF MARCH 31, 2000
<TABLE>
<S> <C>
Modified Duration 5.64 years
Average Maturity 8.35 years
Average Rating B
30-Day SEC Yield**
Class A 10.11%
Class A Net of Load 9.65%
Class Y 10.37%
</TABLE>
* Portfolio characteristics exclude cash & cash equivalents which represent
approximately 0.56% of the Fund as of March 31, 2000.
** The Adviser 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 8.57%, Class A Shares (net of maximum sales charge)
would have been 8.17% and Class Y shares would have been 8.83% and
performance returns would have been lower.
5
<PAGE>
FUND QUALITY BREAKDOWN OF MARCH 31, 2000
BB 2%
BB- 3%
B+ 7%
B 37%
B- 27%
CCC+ 8%
CCC 6%
Not Rated 4%
Cash & Cash Equivalents & other 6%
MARKET AND STRATEGY
Yields and spreads are especially attractive at current levels because
investors have the opportunity to invest in fundamentally sound credits in a
weak technical environment. In addition, the Commerce Department recently
reported 5.4% GDP growth for the first quarter of 2000, and a strong and steady
GDP growth rate is expected (4.2% in 2Q00 and 5.0% for FY00(/1/)). The
continued strength of the U.S. economy combined with declining default rates
indicate that the high yield market will rebound. We believe that the market is
being pressured by short-term technical factors and therefore presents
investors with attractive buying opportunities. However, as high yield mutual
fund outflows continue we are still looking for a catalyst that will turn the
market around.
We will continue to evaluate carefully 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 long-term outlook for their high yield investments. We believe that
in light of declining default rates, and our outlook on the high yield market,
investors are being amply rewarded for the risk of potential defaults. While
past performance is no guarantee of future results, we
(1) 2000 estimate is based on projections provided by the Economic Research
Department at Nomura Securities International, Inc. (NSI).
6
<PAGE>
remain confident in our research-intensive investment strategy that has
produced competitive returns.
/s/ Robert Levine
Robert Levine, CFA
Chairman and President, Battery Park Funds, Inc.
/s/ Richard Buch
Richard Buch, CFA
Portfolio Manager
7
<PAGE>
ABOUT THE PORTFOLIO MANAGER
Richard A. Buch, CFA, is a Managing Director and Senior Portfolio Manager of
NCRAM. He is the portfolio manager of the Battery Park High Yield Fund since
the Fund's inception and other high yield accounts. He supervises NCRAM's team
of credit analysts/portfolio managers. Mr. Buch was previously Senior VP and
High Yield Portfolio Manager for Kidder, Peabody Asset Management, Assistant VP
at Reliance Insurance, and a Senior Securities Analyst at Teachers Insurance
and Annuity Association. Richard received his MBA from Cornell University in
1985 and is a member of the Association for Investment Management Research.
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.
8
<PAGE>
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
<TABLE>
<CAPTION>
Battery Park Merrill Lynch
Battery Park Class A Battery Park High Yield
Class A Shares Class Y Master II
Shares with Load Shares Index*
<S> <C> <C> <C> <C>
10/96 10000 9550 10000 10000
12/96 10675 10196 10679 10346
3/97 10937 10446 10949 10439
6/97 11592 11071 11612 10962
9/97 12312 11759 12342 11441
12/97 12595 12030 12633 11719
3/98 13201 12608 13249 12067
6/98 13354 12755 13411 12255
9/98 12494 11933 12556 11741
12/98 12590 12024 12661 12065
3/99 13014 12430 13097 12286
6/99 12842 12265 12931 12365
9/99 12592 12027 12702 12201
12/99 13314 12716 13437 12368
3/00 13073 12486 13188 12165
</TABLE>
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>
Since
Inception
Six One October 28,
AVERAGE ANNUAL RETURNS THROUGH MARCH 31, 2000*** Months** Year 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Battery Park Class Y Shares 3.82% 0.68% 8.40%
Battery Park Class A Shares 3.80 0.42 8.13
Battery Park Class A Shares net of maximum sales
charge (4.50%) (0.82) (4.08) 6.69
Merrill Lynch High Yield Master II Index* (0.30) (0.98) 5.89
- -----------------------------------------------------------------------------
</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 1,144 high yield debt securities of at least
$100 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 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
9
<PAGE>
permission, all rights reserved. Copyright/(C)/ 2000 Merrill Lynch, 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.
** Not annualized.
*** 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 has voluntarily waived, on an
average annualized basis, management fees of 0.65% and absorbed expenses
of 0.78% (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, 1999 and ending September
30, 2000. At October 1, 2000, the investment adviser may in its discretion
agree to continue, modify or discontinue this waiver and reimbursement
arrangement.
10
<PAGE>
Battery Park/SM/ High Yield Fund
Schedule of Investments
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
- ------------------------------------------------------------------------------
Corporate Bonds--94.35%
- ------------------------------------------------------------------------------
Broadcast Radio & Television--5.97%
- ------------------------------------------------------------------------------
$ 750,000 Sinclair Broadcasting, Inc., 9.000%, 7/15/2007 $ 671,250
- ------------------------------------------------------------------------------
250,000 Young Broadcasting Corp., 11.750%, 11/15/2004 252,500
- ------------------------------------------------------------------------------
250,000 Young Broadcasting, Inc., 9.000%, 1/15/2006 226,250
- ------------------------------------------------------------------------------
Total 1,150,000
- ------------------------------------------------------------------------------
Business Equipment & Services--4.91%
- ------------------------------------------------------------------------------
500,000 Buhrmann U.S. Inc., 12.250%, 11/1/2009(/1/) 510,000
- ------------------------------------------------------------------------------
500,000 WESCO Distribution, Inc., 9.125%, 6/1/2008 435,000
- ------------------------------------------------------------------------------
Total 945,000
- ------------------------------------------------------------------------------
Cable Television--19.80%
- ------------------------------------------------------------------------------
500,000 Cable Satisfaction International Inc., 12.750%, 475,000
units, 3/1/2010(/5/)
- ------------------------------------------------------------------------------
500,000 Classic Cable Inc., 10.500%, 3/1/2010(/1/) 498,125
- ------------------------------------------------------------------------------
1,000,000 Knology Holdings, 0/11.875%, 10/15/2007(/4/) 625,000
- ------------------------------------------------------------------------------
500,000 Mediacom LLC, 7.875%, 2/15/2011 435,000
- ------------------------------------------------------------------------------
500,000 RCN Corp., 10.125%, 1/15/2010 450,000
- ------------------------------------------------------------------------------
900,000 TeleWest PLC, 0/11.000%, 10/1/2007(/4/) 846,000
- ------------------------------------------------------------------------------
500,000 United Pan-Europe Communications N.V., 11.250%, 482,500
2/1/2010(/1/)
- ------------------------------------------------------------------------------
Total 3,811,625
- ------------------------------------------------------------------------------
Chemicals/Plastics--2.14%
- ------------------------------------------------------------------------------
500,000 Texas Petrochemical Corp., 11.125%, 7/1/2006 412,500
- ------------------------------------------------------------------------------
Clothing/Textiles--2.43%
- ------------------------------------------------------------------------------
500,000 St. John Knits International, Incorporated, 12.500%, 467,500
7/1/2009
- ------------------------------------------------------------------------------
Electronics/Electric--5.34%
- ------------------------------------------------------------------------------
500,000 Amkor Technologies, Inc., 10.500%, 5/1/2009 491,250
- ------------------------------------------------------------------------------
500,000 SCG Holding & Semiconductor Co., 12.000%, 8/1/2009 537,500
- ------------------------------------------------------------------------------
Total 1,028,750
- ------------------------------------------------------------------------------
Food/Drug Retailers--4.33%
- ------------------------------------------------------------------------------
900,000 Duane Reade, Inc., 9.250%, 2/15/2008 832,500
- ------------------------------------------------------------------------------
Food Service--3.80%
- ------------------------------------------------------------------------------
750,000 AFC Enterprises, 10.250%, 5/15/2007 731,250
- ------------------------------------------------------------------------------
Home Furnishings--2.09%
- ------------------------------------------------------------------------------
500,000 Home Interiors, 10.125%, 6/1/2008 402,500
- ------------------------------------------------------------------------------
Hotels/Motels/Inns & Casinos--2.56%
- ------------------------------------------------------------------------------
500,000 Ameristar Casinos, Inc., 10.500%, 8/1/2004 492,500
- ------------------------------------------------------------------------------
</TABLE>
See Notes to the Financial Statements.
11
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
- -------------------------------------------------------------------------------
Corporate Bonds--continued
- -------------------------------------------------------------------------------
Oil & Gas--7.36%
- -------------------------------------------------------------------------------
$ 500,000 Comstock Resources, Inc., 11.250%, 5/1/2007 $ 487,500
- -------------------------------------------------------------------------------
500,000 Denbury Management, Inc., 9.000%, 3/1/2008 450,000
- -------------------------------------------------------------------------------
500,000 Swift Energy Co., 10.250%, 8/1/2009 480,000
- -------------------------------------------------------------------------------
Total 1,417,500
- -------------------------------------------------------------------------------
Retailers--5.47%
- -------------------------------------------------------------------------------
750,000 Advance Stores Co., Inc., 10.250%, 4/15/2008 596,250
- -------------------------------------------------------------------------------
500,000 Group 1 Automotive, Inc., 10.875%, 3/1/2009 457,500
- -------------------------------------------------------------------------------
Total 1,053,750
- -------------------------------------------------------------------------------
Surface Transport--5.84%
- -------------------------------------------------------------------------------
650,000 Avis Group Holdings, Inc., 11.000%, 5/1/2009 648,375
- -------------------------------------------------------------------------------
500,000 Motor Coach Industries International, Inc., 11.250%, 475,000
5/1/2009
- -------------------------------------------------------------------------------
Total 1,123,375
- -------------------------------------------------------------------------------
Telecommunications--22.31%
- -------------------------------------------------------------------------------
800,000 Airgate PCS Inc., 0/13.500%, units, 589,000
10/1/2009(/4/)(/5/)
- -------------------------------------------------------------------------------
125,000 Colo.com, 13.875%, units, 3/15/2010(/1/)(/5/) 128,125
- -------------------------------------------------------------------------------
500,000 FLAG Telecom Holdings Limited, 11.625%, 475,000
3/30/2010(/1/)
- -------------------------------------------------------------------------------
500,000 Global Crossing Holdings Ltd., 9.125%, 477,500
11/15/2006(/1/)
- -------------------------------------------------------------------------------
1,250,000 GT Group Telecom Inc., 0/13.250%, units, 693,750
2/1/2010(/1/)(/4/)(/5/)
- -------------------------------------------------------------------------------
500,000 Leap Wireless International, Inc., 12.500%, units, 502,500
4/15/2010(/1/)(/5/)
- -------------------------------------------------------------------------------
500,000 Level 3 Communications, Inc., 11.000%, 3/15/2008(/1/) 480,000
- -------------------------------------------------------------------------------
500,000 MGC Communications, Inc., 13.000%, 10/1/2004 517,500
- -------------------------------------------------------------------------------
500,000 Rhythms NetConnections Inc., 14.000%, 2/15/2010(/1/) 432,500
- -------------------------------------------------------------------------------
Total 4,295,875
- -------------------------------------------------------------------------------
Total Corporate Bonds (Cost $18,723,183) 18,164,625
- -------------------------------------------------------------------------------
Demand Notes(/3/)--0.56%
- -------------------------------------------------------------------------------
57,208 Wisconsin Corporate Central Credit Union Demand Note, 57,208
5.8025%
- -------------------------------------------------------------------------------
51,168 American Family Home Insurance Demand Note, 5.7704% 51,168
- -------------------------------------------------------------------------------
Total Demand Note (Cost $108,376) 108,376
- -------------------------------------------------------------------------------
</TABLE>
See Notes to the Financial Statements.
12
<PAGE>
<TABLE>
<CAPTION>
Number
of Shares Value
- ----------------------------------------------------------------------
<C> <S> <C>
Common Stocks--0.0%
- ----------------------------------------------------------------------
Cable TV
- ----------------------------------------------------------------------
500 Optel, Inc.(/2/)(/6/) $ 68
- ----------------------------------------------------------------------
Total Common Stocks (Cost $2) 68
- ----------------------------------------------------------------------
TOTAL INVESTMENTS--94.91% (Cost $18,831,561) 18,273,069
- ----------------------------------------------------------------------
Other Assets in Excess of Liabilities-- 5.09% 979,969
- ----------------------------------------------------------------------
TOTAL NET ASSETS--100.0% $19,253,038
- ----------------------------------------------------------------------
</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 March 31,
2000, these securities amounted to $4,680,000 which represents 24.31% of
net assets.
(2) Non-income producing security.
(3) Variable rate security. The rate listed is as of March 31, 2000.
(4) Denotes a step feature, with the rate representing the future coupon.
(5) Consisting of bonds and warrants.
(6) This security has been deemed illiquid based upon criteria approved by the
Fund's Board of Directors.
See Notes to the Financial Statements.
13
<PAGE>
BATTERY PARK/SM/ HIGH YIELD FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2000 (UNAUDITED)
<TABLE>
<S> <C> <C>
Assets:
- -------------------------------------------------------------------------------
Investments, at value (cost $18,831,561) $18,273,069
- -------------------------------------------------------------------------------
Receivable for investments sold 505,917
- -------------------------------------------------------------------------------
Interest receivable 440,419
- -------------------------------------------------------------------------------
Deferred organizational costs 72,688
- -------------------------------------------------------------------------------
Receivable from investment adviser 23,671
- -------------------------------------------------------------------------------
Other assets 14,096
- -------------------------------------------------------------------------------
Total assets 19,329,860
- -------------------------------------------------------------------------------
Liabilities:
- -------------------------------------------------------------------------------
Payable to distributor $ 3,451
- -------------------------------------------------------------------------------
Payable for shareholder redemptions 17,027
- -------------------------------------------------------------------------------
Distributions to shareholders 5,920
- -------------------------------------------------------------------------------
Accrued expenses 50,424
- -------------------------------------------------------------------------------
Total liabilities 76,822
- -------------------------------------------------------------------------------
Net Assets $19,253,038
- -------------------------------------------------------------------------------
Net Assets Consist of:
- -------------------------------------------------------------------------------
Capital stock (par value $.001, 200,000,000 shares
authorized) $22,755,353
- -------------------------------------------------------------------------------
Net unrealized appreciation/(depreciation) of investments (558,492)
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments (3,003,362)
- -------------------------------------------------------------------------------
Undistributed net investment income 59,539
- -------------------------------------------------------------------------------
Total Net Assets $19,253,038
- -------------------------------------------------------------------------------
Class A:
- -------------------------------------------------------------------------------
Net assets $ 2,643,291
- -------------------------------------------------------------------------------
Shares outstanding (par value $.001, 25,000,000 shares
authorized) 297,136
- -------------------------------------------------------------------------------
Net asset value and redemption price per share $8.90
- -------------------------------------------------------------------------------
Maximum offering price per share (100/95.50 of
$8.90)(/1/) $9.32
- -------------------------------------------------------------------------------
Class Y:
- -------------------------------------------------------------------------------
Net assets $16,609,747
- -------------------------------------------------------------------------------
Shares outstanding (par value $.001, 25,000,000 shares
authorized) 1,866,604
- -------------------------------------------------------------------------------
Net asset value, offering and redemption price per share $8.90
- -------------------------------------------------------------------------------
</TABLE>
(1) See "Description of Classes--Class A Shares" in the Prospectus.
See Notes to the Financial Statements.
14
<PAGE>
BATTERY PARK/SM/ HIGH YIELD FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
<TABLE>
<S> <C> <C>
Investment Income:
- ------------------------------------------------------------------------------
Interest income $1,259,070
- ------------------------------------------------------------------------------
Total investment income 1,259,070
- ------------------------------------------------------------------------------
Expenses:
- ------------------------------------------------------------------------------
Investment advisory fee $ 76,071
- ------------------------------------------------------------------------------
Shareholder servicing and accounting fees and expenses 39,821
- ------------------------------------------------------------------------------
Administration fees 24,303
- ------------------------------------------------------------------------------
Amortization of organization costs 21,972
- ------------------------------------------------------------------------------
Professional fees 20,577
- ------------------------------------------------------------------------------
Federal and state registration fees 8,077
- ------------------------------------------------------------------------------
Directors' fees 17,059
- ------------------------------------------------------------------------------
Reports to shareholders 8,289
- ------------------------------------------------------------------------------
Distribution fee--Class A 4,452
- ------------------------------------------------------------------------------
Custody fees 5,333
- ------------------------------------------------------------------------------
Miscellaneous expenses 1,082
- ------------------------------------------------------------------------------
Total expenses before waiver and reimbursement 227,036
- ------------------------------------------------------------------------------
Less: Waiver of expenses and reimbursement from Adviser (105,551)
- ------------------------------------------------------------------------------
Net expenses 121,485
- ------------------------------------------------------------------------------
Net Investment Income 1,137,585
- ------------------------------------------------------------------------------
Realized and Unrealized Gain/(Loss) on Investments:
- ------------------------------------------------------------------------------
Net realized (loss) on investments (474,459)
- ------------------------------------------------------------------------------
Net change in unrealized appreciation/(depreciation) of
investments 325,215
- ------------------------------------------------------------------------------
Net (loss) on investments (149,244)
- ------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 988,341
- ------------------------------------------------------------------------------
</TABLE>
See Notes to the Financial Statements.
15
<PAGE>
BATTERY PARK/SM/ HIGH YIELD FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended
March 31, 2000 Year Ended
(Unaudited) September 30, 1999
- ------------------------------------------------------------------------------
<S> <C> <C>
Operations:
- ------------------------------------------------------------------------------
Net investment income $ 1,137,585 $ 2,133,603
- ------------------------------------------------------------------------------
Net realized gain/(loss) on investments (474,459) (2,518,357)
- ------------------------------------------------------------------------------
Net change in unrealized appreciation/
(depreciation) of investments 325,215 668,967
- ------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 988,341 284,213
- ------------------------------------------------------------------------------
Capital Share Transactions:
- ------------------------------------------------------------------------------
Shares sold 4,414,533 14,523,060
- ------------------------------------------------------------------------------
Shares issued to holders in reinvestment
of dividends 1,074,933 2,844,210
- ------------------------------------------------------------------------------
Shares redeemed (10,160,298) (10,569,979)
- ------------------------------------------------------------------------------
Net increase/(decrease) in net assets
resulting from capital share
transactions (4,670,832) 6,797,291
- ------------------------------------------------------------------------------
Distributions to Class A Shareholders:
- ------------------------------------------------------------------------------
From net investment income (168,200) (418,082)
- ------------------------------------------------------------------------------
From net realized gains -- (188,112)
- ------------------------------------------------------------------------------
Total distributions to Class A
shareholders (168,200) (606,194)
- ------------------------------------------------------------------------------
Distributions to Class Y Shareholders:
- ------------------------------------------------------------------------------
From net investment income (973,384) (1,795,488)
- ------------------------------------------------------------------------------
From net realized gains -- (654,910)
- ------------------------------------------------------------------------------
Total distributions to Class Y
shareholders (973,384) (2,450,398)
- ------------------------------------------------------------------------------
Total increase/(decrease) in net assets (4,824,075) 4,024,912
- ------------------------------------------------------------------------------
Net Assets:
- ------------------------------------------------------------------------------
Beginning of year 24,077,113 20,052,201
- ------------------------------------------------------------------------------
End of year (including undistributed net
investment income of $59,539 and $63,539,
respectively) $19,253,038 $24,077,113
- ------------------------------------------------------------------------------
</TABLE>
See Notes to the Financial Statements.
16
<PAGE>
BATTERY PARK/SM/ HIGH YIELD FUND
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Ended
September 30,
Six Months Ended -------------------------
March 31, 2000
(Unaudited) 1999 1998 1997(/1/)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Data:
- --------------------------------------------------------------------------------
Net asset value, beginning of $10.10 $11.40 $10.00
period $ 9.00
- --------------------------------------------------------------------------------
Income from investment
operations:
- --------------------------------------------------------------------------------
Net investment income 0.42 0.80 0.89 0.84
- --------------------------------------------------------------------------------
Net realized and unrealized
gain/(loss) on investments (0.08) (0.72) (0.70) 1.40
- --------------------------------------------------------------------------------
Total from investment
operations 0.34 0.08 0.19 2.24
- --------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------
Dividends from net investment
income (0.44) (0.79) (0.91) (0.84)
- --------------------------------------------------------------------------------
Distributions from net
realized gains -- (0.39) (0.58) --
- --------------------------------------------------------------------------------
Total distributions (0.44) (1.18) (1.49) (0.84)
- --------------------------------------------------------------------------------
Net asset value, end of
period $ 8.90 $ 9.00 $ 10.10 $ 11.40
- --------------------------------------------------------------------------------
Total Return(/2/) 3.80%(/4/) 0.77% 1.50% 23.13%(/4/)
- --------------------------------------------------------------------------------
Supplemental Data and Ratios:
- --------------------------------------------------------------------------------
Ratios of net expenses to
average net assets:
- --------------------------------------------------------------------------------
Before expense reimbursement 2.12%* 2.22% 2.92% 4.04%*
- --------------------------------------------------------------------------------
After expense reimbursement 1.25%* 1.25% 1.25% 1.25%*
- --------------------------------------------------------------------------------
Ratio of net investment
income to average net
assets:
- --------------------------------------------------------------------------------
Before expense reimbursement 8.67%* 7.33% 6.77% 5.87%*
- --------------------------------------------------------------------------------
After expense reimbursement 9.54%* 8.30% 8.44% 8.66%*
- --------------------------------------------------------------------------------
Net assets, in thousands, end
of period $2,643 $ 4,211 $ 3,894 $ 1,829
- --------------------------------------------------------------------------------
Portfolio turnover rate(/3/) 149% 178% 190% 236%
- --------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(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) Portfolio turnover rate is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
(4) Not annualized.
See Notes to the Financial Statements.
17
<PAGE>
BATTERY PARK/SM/ HIGH YIELD FUND
FINANCIAL HIGHLIGHTS--CLASS Y SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Ended
September 30,
Six Months Ended -------------------------
March 31, 2000
(Unaudited) 1999 1998 1997(/1/)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Data:
- --------------------------------------------------------------------------------
Net asset value, beginning $9.01 $10.10 $11.40 $10.00
of period
- --------------------------------------------------------------------------------
Income from investment
operations:
- --------------------------------------------------------------------------------
Net investment income 0.47 0.76 0.93 0.86
- --------------------------------------------------------------------------------
Net realized and unrealized
gain/(loss) on investments (0.12) (0.64) (0.71) 1.40
- --------------------------------------------------------------------------------
Total from investment
operations 0.35 0.12 0.22 2.26
- --------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------
Dividends from net
investment income (0.46) (0.82) (0.94) (0.86)
- --------------------------------------------------------------------------------
Distributions from net
realized gains -- (0.39) (0.58) --
- --------------------------------------------------------------------------------
Total distributions (0.46) (1.21) (1.52) (0.86)
- --------------------------------------------------------------------------------
Net asset value, end of
period $8.90 $ 9.01 $10.10 $11.40
- --------------------------------------------------------------------------------
Total Return(/2/) 3.82%(/4/) 1.13% 1.76% 23.41%(/4/)
- --------------------------------------------------------------------------------
Supplemental Data and
Ratios:
- --------------------------------------------------------------------------------
Ratios of net expenses to
average net assets:
- --------------------------------------------------------------------------------
Before expense
reimbursement 1.87%* 1.83% 2.67% 3.87%*
- --------------------------------------------------------------------------------
After expense reimbursement 1.00%* 1.00% 1.00% 1.00%*
- --------------------------------------------------------------------------------
Ratio of net investment
income to average net
assets:
- --------------------------------------------------------------------------------
Before expense
reimbursement 8.92%* 7.72% 6.96% 5.86%*
- --------------------------------------------------------------------------------
After expense reimbursement 9.79%* 8.55% 8.63% 8.73%*
- --------------------------------------------------------------------------------
Net assets, in thousands,
end of period $16,610 $19,866 $16,158 $13,361
- --------------------------------------------------------------------------------
Portfolio turnover rate(/3/) 149% 178% 190% 236%
- --------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(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) Portfolio turnover rate is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
(4) Not annualized.
See Notes to the Financial Statements.
18
<PAGE>
Battery Park/SM/ High Yield Fund
Notes to Financial Statements
March 31, 2000 (Unaudited)
1. ORGANIZATION
Battery Park Funds, Inc. (the "Company") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-ended management
investment company. The Company consists of one portfolio. The financial
statements included herein are only those of Battery Park High Yield Fund (the
"Fund"), a diversified portfolio. The Fund offers two classes of shares: Class
A Shares and Class Y Shares. The Fund's investment objective is to provide
shareholders with high total return, consisting of current income and capital
appreciation.
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.
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.
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).
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.
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 and otherwise comply with the provisions of the Internal Revenue
Code applicable to regulated investment companies.
19
<PAGE>
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.
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.
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.
OTHER. Investment transactions are accounted for on the trade date.
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund were as follows:
<TABLE>
<CAPTION>
Six Months Ended
March 31, 2000 Year Ended
(Unaudited) September 30, 1999
- -------------------------------------------------------------------------
Class A Amount Shares Amount Shares
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold $ 120,907 13,254 $4,099,371 423,413
- -------------------------------------------------------------------------
Shares issued to holders in
reinvestment of dividends 93,303 10,233 391,608 40,900
- -------------------------------------------------------------------------
Shares redeemed (1,792,134) (194,037) (3,709,854) (382,197)
- -------------------------------------------------------------------------
Net increase/(decrease) $(1,577,924) (170,550) $ 781,125 82,116
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
March 31, 2000 Year Ended
(Unaudited) September 30, 1999
- ---------------------------------------------------------------------------
Class Y Amount Shares Amount Shares
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold $ 4,293,626 470,245 $10,423,689 1,073,578
- ---------------------------------------------------------------------------
Shares issued to holders in
reinvestment of dividends 981,629 107,537 2,452,602 256,844
- ---------------------------------------------------------------------------
Shares redeemed (8,368,163) (916,844) (6,860,125) (724,703)
- ---------------------------------------------------------------------------
Net increase/(decrease) $(3,092,908) (339,062) $ 6,016,166 605,719
- ---------------------------------------------------------------------------
</TABLE>
20
<PAGE>
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. 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 period ended March 31, 2000, the Adviser has
waived fees and reimbursed expenses in the amount of $105,551.
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.
AGREEMENTS. Firstar Mutual Fund Services, LLC serves as transfer agent,
administrator and accounting services agent for the Fund. 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 six months ended March 31, 2000, were as
follows:
<TABLE>
- ----------------------
<S> <C>
Purchases $32,624,384
- ----------------------
Sales $36,783,388
- ----------------------
</TABLE>
At March 31, 2000, gross unrealized appreciation and depreciation of
investments for federal income tax purposes was as follows:
<TABLE>
- ------------------------------------------------------
<S> <C>
Appreciation $ 241,566
- ------------------------------------------------------
(Depreciation) $(800,058)
- ------------------------------------------------------
Net unrealized depreciation on investments $(558,492)
- ------------------------------------------------------
</TABLE>
At March 31, 2000, the cost of investments for federal income tax purposes was
$18,831,561.
21
<PAGE>
Directors Officers
- --------------------------------------------------------------------------------
Francis L. Fraenkel Robert Levine
Robert Levine Chairman and President
Frank K. Reilly Richard A. Buch
Jennie Wong Vice President
Jennie Wong
Treasurer
Patrick D. Sweeney
Secretary
Freddie Jacobs, Jr.
Assistant Treasurer, 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.
22
<PAGE>
Nomura Securities
International, Inc.
Distributor
2 World Financial Center
Building B
New York, NY 10281-1198
Cusip 07132Q108
Cusip 07132Q207
BATTERY PARK/SM/
HIGH YIELD FUND
SEMI-ANNUAL REPORT
MARCH 31, 2000
Nomura Corporate Research
and Asset Management Inc.
Investment Adviser
2 World Financial Center
Building B
New York, NY 10281-1198
