Filed with the Securities and Exchange Commission on January 28, 2000
1933 Act Registration File No. 333-7805
1940 Act File No. 811-7675
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. |_|
Post-Effective Amendment No. 5 |X|
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 7 |X|
BATTERY PARK FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
2 World Financial Center, Building B, New York, NY 10281-1198
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 667-9300
Robert Levine
Battery Park Funds, Inc.
2 World Financial Center
Building B
New York, NY 10281-1198
(Name and Address of Agent for Service)
Copies to:
John MacKinnon, Esq.
Brown & Wood LLP
One World Trade Center
New York, N.Y. 10048-0057
Patrick D. Sweeney, Esq.
Nomura Corporate Research and Asset Management Inc.
2 World Financial Center
Building B
New York, NY 10281-1198
It is proposed that this filing will become effective
_X_ immediately upon filing pursuant to paragraph (b)
___ on ___________ pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
___ on ___________ pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2)
___ on ___________ pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
___ This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
[LOGO]
BATTERY
PARK SM
FUNDS
Battery ParkSM High Yield Fund
PROSPECTUS
JANUARY 28, 2000
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
BATTERY PARKSM HIGH YIELD FUND
Battery ParkSM Funds, Inc. currently offers one series in two
share classes to investors--the Battery ParkSM High Yield
Fund. The Fund is diversified and its investment objective is
to provide shareholders with high total return consisting of
current income and capital appreciation.
This prospectus has information you should know before you
invest. Please read it carefully and keep it with your
investment records.
TABLE OF CONTENTS
RISK/RETURN SUMMARY............................................................4
PAST PERFORMANCE...............................................................6
FUND EXPENSES..................................................................7
INVESTMENT OBJECTIVE...........................................................8
PRINCIPAL INVESTMENT STRATEGIES................................................8
PRINCIPAL INVESTMENT RISKS....................................................10
MANAGEMENT OF THE FUND........................................................12
DISTRIBUTION OF SHARES........................................................13
DISTRIBUTOR...................................................................13
DISTRIBUTION PLAN.............................................................13
DESCRIPTION OF CLASSES........................................................14
PURCHASING SHARES.............................................................17
OPENING AN ACCOUNT............................................................17
REDEEMING SHARES..............................................................19
ACCOUNTS WITH LOW BALANCES....................................................20
SIGNATURE GUARANTEES..........................................................20
EXCHANGING SHARES.............................................................21
REINSTATEMENT PRIVILEGE.......................................................21
PRICE OF SHARES...............................................................21
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS......................22
TAXES.........................................................................22
RETIREMENT PLANS..............................................................23
YEAR 2000 ISSUE...............................................................23
OTHER INFORMATION.............................................................23
FINANCIAL HIGHLIGHTS..........................................................25
FOR MORE INFORMATION...........................................SEE THE LAST PAGE
RISK/RETURN SUMMARY
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INVESTMENT OBJECTIVE
The goal of the Battery ParkSM High Yield Fund ("the Fund") is to provide
shareholders with high total return, consisting of current income and capital
appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund seeks to achieve its investment objective primarily by investing
in medium and lower quality fixed income securities (commonly referred to as
"junk bonds") of U.S. companies. Debt securities may include units of high yield
securities including warrants, convertible and non-convertible debt securities,
preferred stock, increasing rate, resettable and extendable notes, contingent
interest securities, pay-in-kind bonds or notes and zero coupon bonds or notes.
In seeking capital appreciation, in addition to the investment in debt
securities described above, the Fund also may invest in common stock, rights or
other equity securities, which do not offer high current income, but offer the
potential for capital appreciation. The Fund may also invest in foreign and
emerging markets. The investment adviser does not manage the portfolio on the
basis of maturity, and the maturity of the portfolio will vary from time to
time.
PRINCIPAL RISKS OF THE FUND
Investing in junk bonds involves special considerations and certain risks
because such securities are regarded as being very speculative as to the
issuer's ability to make payments of principal and interest. Such instruments
may be volatile, may be more sensitive to economic and market changes than
higher rated bonds and may be difficult to sell at the time or price the Fund
would like. Fixed income securities generally may fluctuate in value in response
to interest rate changes or other factors that may affect a particular issuer or
obligation. Generally, when interest rates go up, the value of debt instruments
goes down. Longer term debt instruments are more sensitive to interest rate
changes than are shorter term instruments.
The Fund may invest in foreign securities. Foreign investing involves
special risks including the possibility of substantial volatility due to adverse
political, economic or other developments. Foreign securities may also be less
liquid and harder to value than U.S. securities. These risks are greater for
investments in emerging markets.
Equity investments are subject to stock market risks and significant
fluctuations in value. If the stock market declines in value, the value of the
Fund's investments is likely to decline in value. You should consider these
risks carefully before investing in this Fund. If the value of the Fund's
investments goes down, you may lose money.
WHO MAY WANT TO INVEST
This Fund may be appropriate for investors who:
o wish to invest for the long term.
o want to allocate some portion of their long-term investments to aggressive
fixed income investing.
o are willing to accept a high degree of volatility and risk.
This Fund may not be appropriate for investors who:
o are investing for the short term.
o are risk adverse.
PAST PERFORMANCE
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The bar chart and table below illustrate the variability of the Battery
ParkSM High Yield Fund's returns. The bar chart indicates the risks of investing
in the Fund by showing the changes in the Fund's performance from year to year
(on a calendar year basis). The table shows how the Fund's average annual
returns for one-year and since inception compare with those of the Merrill Lynch
High Yield Master II Index, a broad measure of market performance. THE FUND'S
PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF HOW THE FUND WILL PERFORM
IN THE FUTURE.
Battery Park High Yield Fund - Y Shares
Calendar Year Returns as of 12/31
1997 18.31%
1998 0.22%
1999 6.11%
BEST QUARTER: 3 months ending 9/30/97 6.28%
WORST QUARTER: 3 months ending 9/30/98 -6.37%
Class Y shares do not impose any sales charges and therefore the returns shown
above are actual returns for Class Y shares. Returns for Class A shares are
lower than Class Y because of the sales charges imposed.
- ------------------------------------------------- --------- -----------
Since
1 Year Inception2
AVERAGE ANNUAL TOTAL RETURN THROUGH 12/31/991
- ------------------------------------------------- --------- -----------
Battery ParkSM High Yield Fund A Shares3 0.93% 7.86%
Y Shares 6.11% 9.74%
Merrill Lynch High Yield Master II Index4 2.51% 6.92%
- ------------------------------------------------- --------- -----------
FOR UPDATED YIELD INFORMATION PLEASE CALL 1-888-254-2874.
1 Management fee and expense waivers are reflected in the average annual total
returns shown above. If management did not provide waivers, the returns would be
lower than those shown.
2 Both Classes A and Y shares commenced operations on October 28, 1996.
3 The average annual total returns for Class A shares reflect the
maximum sales charge of 4.50%.
4 Source: 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 900 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.
FUND EXPENSES
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This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ------------ ------------
SHAREHOLDER FEES CLASS A CLASS Y
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- ------------------------------------------------------------ ------------ ------------
<S> <C> <C>
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES (as a 4.50%1 None
percentage of offering price)
MAXIMUM DEFERRED SALES CHARGE (LOAD) None None
(as a percentage of offering price)
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON REINVESTED DIVIDENDS None None
REDEMPTION FEE None None
EXCHANGE FEE None None
- ------------------------------------------------------------ ------------ ------------
- ------------------------------------------------------------ ------------ ------------
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS Y
(EXPENSES DEDUCTED FROM FUND ASSETS)
- ------------------------------------------------------------ ------------ ------------
MANAGEMENT FEES 0.65% 0.65%
DISTRIBUTION AND SERVICE (12B-1) FEES 0.25% NONE
OTHER EXPENSES 1.32% 1.18%
TOTAL ANNUAL FUND OPERATING EXPENSES 2.22% 1.83%
LESS EXPENSE REIMBURSEMENT 0.97% 0.83%
NET EXPENSES2 1.25% 1.00%
- ------------------------------------------------------------ ------------ ------------
</TABLE>
1 Class A shares of the Fund held in accounts of financial planners or
individuals will convert to Class Y shares when the aggregate value of the Class
A shares in such account reaches $1 million or more. See "Purchase of Shares."
2 Pursuant to an Expense Waiver and Reimbursement Agreement dated as of November
29, 1999, the investment adviser has agreed to limit each Class's Net Expenses
to the amounts shown in the table 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.
EXAMPLE The example below is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds.
This example assumes that:
1. You invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods,
2. You reinvested all dividends and capital gains distributions,
3. Your investment has a 5% return each year, and
4. The Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
- ----------------- --------------- --------------- --------------- --------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------- --------------- --------------- --------------- --------------
CLASS A $572 $1,024 $1,502 $2,817
- ----------------- --------------- --------------- --------------- --------------
CLASS Y $102 $495 $913 $2,080
- ----------------- --------------- --------------- --------------- --------------
CLASS DESCRIPTIONS ARE ON PAGE 15.
INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The investment objective of the Battery Park High Yield Fund is to
provide shareholders with high total return, consisting of current income and
capital appreciation. THE FUND CANNOT ASSURE YOU THAT IT WILL REACH ITS
INVESTMENT OBJECTIVE.
PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Fund attempts to achieve its investment objective by investing
primarily in medium and lower-quality fixed income securities of U.S. companies.
Under normal circumstances, the Fund will invest at least 80% of its total
assets in fixed income securities rated as follows:
o Ba1 or lower by Moody's Investors Service, Inc. (Moody's)
o BB+ or lower by Standard & Poor's (S&P), or
o unrated securities of comparable quality
There is no minimum rating in which the Fund may invest, and as a
result, the Fund may purchase or hold securities in the lowest rating
categories. Debt securities rated below Baa by Moody's or below BBB by S&P, and
unrated securities of comparable quality are commonly known as high yield or
"junk bonds."
The high yield market is generally defined as including bonds with
ratings below investment grade. However, when economic conditions cause a
narrowing of spreads between the yields received from medium to lower rated or
comparable non-rated securities and those received from higher rated securities,
the Fund may invest in higher rated fixed income securities which provide
similar yields with less risk. Since some issuers do not seek ratings for their
securities, unrated securities of similar quality will also be considered for
investment. However, the Fund will only purchase unrated securities when the
investment adviser believes that the issuers' financial condition, or the
protection provided by the terms of the securities themselves, limit the risk to
the Fund to a comparable degree to that of the rated securities in which the
Fund invests.
When buying junk bonds, the investment adviser considers, among other
things, the issuer's
o financial resources
o sensitivity to economic conditions and trends
o operating history
o quality of management, and
o regulatory matters.
The Fund will invest in a variety of high yield, high current-income
securities, which may include :
o Units of high yield securities (corporate bonds or notes combined with
warrants to purchase common stock of the issuer)
o Increasing Rate and Resettable and Extendable Notes (debt instruments the
coupon and maturity of which are subject to adjustment by the terms of
the instrument)
o Preferred stock (equity securities with fixed dividend rates and
liquidation preferences which are senior to the rights of common stockholders)
o Contingent Interest Securities (debt instruments the payment of interest
on which is subject to conditions set forth in the terms of the instrument)
oConvertible Debt Securities (corporate bonds or notes convertible at the
option of the holder into common stock of the issuer)
o Pay-in-Kind Notes or Bonds (debt instruments the interest obligations on
which may be satisfied by issuance of additional debt instruments)
o Zero Coupon Instruments (corporate bonds or notes issued at a discount to
principal amount, which for some stipulated period of time do not pay cash
interest but accrete interest payments)
In seeking capital appreciation, in addition to investment in debt
securities described above, the Fund also may invest in common stock, rights or
other equity securities which do not provide high current income but offer the
potential for capital appreciation.
The Fund may also invest up to 25% of its assets in securities issued
by non-U.S. issuers. As part of its foreign investments, up to 15% of the
Fund's total assets may be invested in securities of issuers in
emerging markets. All of the Fund's foreign investments will be denominated in
U.S. dollars.
The investment adviser does not manage the portfolio on the basis of
maturity, and the maturity of the portfolio will vary from time to time. To
respond to adverse market, economic, political or other conditions as a
temporary defensive measure, the Fund may invest up to 100% of its assets in
cash or short-term, high quality securities. These securities include:
o U.S. government securities o repurchase agreements
o U.S. government agency or o short-term debt securities such as commercial
instrumentality securities paper and other corporate debt
o domestic bank or savings o bankers' acceptances
institution certificates
of deposit
To the extent the Fund engages in this temporary defensive strategy,
the Fund may not achieve its investment objective.
The Fund's investment strategy may result in high turnover rates which
may increase the Fund's short-term capital appreciation. Rapid portfolio
turnover also exposes taxable shareholders to a higher current realization of
capital gains and could cause you to pay higher taxes.
PRINCIPAL INVESTMENT RISKS
- --------------------------------------------------------------------------------
HIGH YIELD (JUNK) BONDS
Junk bonds are debt securities that are rated below investment grade by
the major rating agencies or are unrated securities that Fund management
believes are of comparable quality. Although junk bonds generally pay higher
rates of interest than investment grade bonds, they are high-risk investments
that may cause income and principal losses for the Fund. Junk bonds generally
are less liquid and experience more price volatility than higher rated debt
securities. The issuers of junk bonds may have a larger amount of outstanding
debt relative to their assets than issuers of investment grade bonds. In the
event of an issuer's bankruptcy, claims of other creditors may have priority
over the claims of junk bond holders, leaving few or no assets available to
repay junk bond holders. Junk bonds may be subject to greater call and
redemption risk than higher rated debt securities. During an economic downturn
or a sustained period of rising interest rates, issuers of junk bonds may be
more likely to experience financial stress, especially if such issuers are
highly leveraged. During periods of economic recession, such issuers may not
have sufficient revenues to meet their interest payment obligations. The
issuer's ability to service its debt obligations also may be adversely affected
by specific issuer developments or the issuer's inability to meet specific
projected business forecasts or the unavailability of additional financing. The
risk of loss due to default by the issuer is significantly greater for the
holders of junk bonds because such securities may be unsecured and may be
subordinated to other creditors of the issuer. In addition, the Fund may incur
additional expenses to the extent it is required to seek recovery upon a default
on a portfolio holding or participate in the restructuring of the obligation.
The following list explains the specific risks of junk bonds:
CREDIT RISKS: According to various rating agencies, junk bonds (i.e.,
bonds rated BB and lower by S&P or B and lower by Moody's) are more speculative
than other securities. Issuers of junk bonds may be highly leveraged and may not
be able to take advantage of traditional methods of financing. As a result,
these bonds are more susceptible to weakened economic conditions and their
market values tend to reflect developments of individual issuers to a greater
extent than higher-rated securities. As a result, the risk associated with
purchasing bonds from such issuers is generally higher than purchasing
higher-rated securities.
LIQUIDITY RISKS: The Fund may have difficulty disposing of certain junk
bonds because there may be a thin trading market for such securities. To the
extent that a secondary trading market for junk bonds does exist, it is
generally not as liquid as the secondary market for higher-rated securities.
Reduced secondary market liquidity may have an adverse effect on market price
and the Fund's ability to dispose of particular securities. This may make it
more difficult to meet the Fund's liquidity needs or to respond to specific
economic events such as deterioration in the creditworthiness of the issuer.
INTEREST RATE RISKS: As with all fixed income securities, changes in
the market yield will affect the Fund's net asset value because the prices of
junk bonds generally increase when interest rates decline and decrease when
interest rates rise. Prices of longer-term securities generally fluctuate more
in response to interest rate changes than do shorter-term securities.
PRICING RISKS: Reduced secondary market liquidity for certain junk
bonds also may make it more difficult for the Fund to obtain accurate market
quotations for purposes of valuing the Fund's portfolio. Market quotations are
generally available for many junk bonds only from a limited number of dealers
and may not necessarily represent firm bids of those dealers or prices for
actual sales. The Fund's directors, or the investment adviser following
guidelines adopted by the directors, will carefully consider the factors
affecting the market for junk bonds in determining whether a particular security
is liquid or illiquid and whether market quotations are readily available for
purposes of valuing portfolio securities.
PRICE VOLATILITY RISKS: The prices of junk bonds tend to fluctuate
more than the prices of higher rated securities.
REINVESTMENT RISKS: Junk bonds may have call or redemption features,
which would permit an issuer to repurchase the bonds from the Fund. If an issuer
exercises a call during a period of declining interest rates, the Fund would
likely have to replace the called securities with lower-yielding securities,
which would decrease the net investment income to the Fund and decrease your
dividends.
BOND SELECTION RISK: In purchasing junk bonds, the Fund relies on the
investment adviser's judgment, analysis and experience in evaluating the
creditworthiness of an issuer.
FOREIGN AND EMERGING MARKET SECURITIES
As stated above, the Fund may invest up to 25% of its assets in foreign
securities. Foreign securities may be substantially riskier than domestic
investments. The economies of foreign countries may differ from the U.S. economy
in such respects as growth of gross domestic product, rate of inflation,
currency depreciation, capital reinvestment, resource self-sufficiency, and
balance of payments position. Furthermore, the economies of emerging and
developing countries generally are heavily dependent on international trade and,
accordingly, have been, and may continue to be, adversely affected by trade
barriers, exchange controls, managed adjustments in relative currency values and
other protective measures imposed or negotiated by the countries with which they
trade. These economies also have been, and may continue to be, adversely
affected by economic conditions in the countries with which they trade.
Investments in foreign markets may also be adversely affected by political
instability or by governmental actions such as the imposition of capital
controls, nationalization of companies or industries, expropriation of assets or
the imposition of punitive taxes. STOCK MARKET RISKS
As stated above, the Fund may invest a portion of its portfolio in
equity securities to achieve capital appreciation. Equity securities are subject
to stock market risks and significant fluctuations in value. If the stock market
declines in value, the Fund is likely to decline in value. To the extent the
Fund invests in equity securities, you could lose money if the value of the Fund
declines.
The Statement of Additional Information contains more information about
the Fund and the types of securities in which it may invest. The SAI also
contains an Appendix that provides a detailed list of the bond rating
categories.
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
The investment adviser for the Fund is Nomura Corporate Research and
Asset Management Inc. ("NCRAM" or "Investment Adviser"). NCRAM is located at 2
World Financial Center, Building B, New York, New York 10281-1198. The
investment decisions NCRAM makes for the Fund are subject to the supervision of
the Fund's board of directors. The Investment Adviser conducts investment
research and supervision for the Fund and is responsible for the purchase and
sale of securities for the Fund's portfolios. The Investment Adviser charges a
fee of 0.65% for each class of shares for its services; however, the Investment
Adviser waived management fees, and reimbursed certain expenses of the Fund, for
the fiscal year ended September 30, 1999 to the extent necessary to limit the
Fund's annualized expenses for that period to the annual rate of 1.25% of
average daily net assets for Class A shares and 1.00% of average daily net
assets 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. As of September 30, 1999,
NCRAM managed $2.2 billion in high yield bonds.
PORTFOLIO MANAGER
RICHARD A. BUCH, CFA, has been the Senior Portfolio Manager of the Fund
since its inception on October 28, 1996. Mr. Buch joined NCRAM in 1993 as Senior
Vice President and served as a Director of NCRAM until 1995. In 1995, Mr. Buch
became a Managing Director of the Investment Adviser and in 1996 became one of
the Investment Adviser's board members. He has extensive experience in credit
selection and managing high yield portfolios. Prior to 1993, Mr. Buch was a
Senior Vice President and High Yield Portfolio Manager for Kidder Peabody High
Yield Asset Management. Mr. Buch received his MBA from Cornell University in
1985 and a Bachelor of Science in Management from State University of New York
at Binghamton. He is a Chartered Financial Analyst and a member of the
Association for Investment Management Research.
FUND ADMINISTRATION, FUND ACCOUNTING, TRANSFER AGENT AND CUSTODY SERVICES
Firstar Mutual Fund Services, LLC, located in Milwaukee, Wisconsin,
provides administrative, accounting and transfer agency services to the Fund.
Firstar Bank, N.A. serves as custodian for the Fund.
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
DISTRIBUTOR
Nomura Securities International, Inc., (the "Distributor ") an
affiliate of the Fund's Investment Adviser, serves as distributor for shares of
the Fund. The Distributor is registered as a broker-dealer and is a member of
the National Association of Securities Dealers.
The Distributor selects brokers, dealers and financial institutions to
enter into agreements to sell the Fund's shares. The Distributor also provides
marketing and shareholder servicing support for the Fund and coordinates the
distribution activities of the Fund, its service providers and selling dealers.
DISTRIBUTION PLAN
The Fund has adopted a distribution plan for Class A shares according
to Rule 12b-1 under the Investment Company Act of 1940. Under the distribution
plan, Class A shares may pay up to an annual rate of 0.25% of 1% of the average
daily net asset value of shares to the Distributor. The Distributor uses this
fee to finance activities that promote the sale of the Class A shares. Such
activities include, but are not necessarily limited to, advertising, printing
and mailing prospectuses to persons other than current shareholders, printing
and mailing sales literature, and compensating underwriters, dealers and sales
personnel.
Rule 12b-1 fees are paid out of Fund assets on an on-going basis. Over
time, these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
DESCRIPTION OF CLASSES
- --------------------------------------------------------------------------------
The Fund offers its shares in two classes at a public offering price
equal to the next determined net asset value per share plus, in the case of
Class A shares, a sales charge imposed at the time of purchase. Each Class A
share and Class Y share represents an identical interest in the Fund and have
the same rights, except that Class A shares bear the expenses of the ongoing
distribution fees as explained above and Class A shares may be converted to
Class Y shares. The Fund or Distributor may suspend the continuous offering of
any class of Fund shares at any time in response to conditions in the securities
markets and may resume offering a class at any time thereafter. Each class is
described in greater detail below. CLASS A SHARES
Class A shares are retail shares and may be purchased by individuals or
IRAs. With Class A shares, you will likely pay a sales charge when you invest.
Class A shares also impose a Rule 12b-1 fee (as discussed above) which is
assessed against the shares of the Fund. If you purchase Class A shares of the
Fund, you will pay the net asset value next determined after your order is
received PLUS a sales charge (shown in percentages below) depending on the
amount of your investment:
<TABLE>
<CAPTION>
- ------------------------- ----------------------------- ------------------------------- -------------------------------
AMOUNT OF PURCHASE SALES CHARGE AS A SALES CHARGE AS A PERCENTAGE DISCOUNT TO SELECTED DEALERS
PERCENTAGE OF PUBLIC OF NET AMOUNT INVESTED AS A PERCENTAGE OF OFFERING
OFFERING PRICE PRICE
- ------------------------- ----------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C>
LESS THAN $50,000 4.50% 4.71% 4.00%
- ------------------------- ----------------------------- ------------------------------- -------------------------------
$50,000 - $99,999 4.00% 4.17% 3.50%
- ------------------------- ----------------------------- ------------------------------- -------------------------------
$100,000 - $249,999 3.25% 3.36% 2.75%
- ------------------------- ----------------------------- ------------------------------- -------------------------------
$250,000 - $499,999 2.50% 2.56% 2.25%
- ------------------------- ----------------------------- ------------------------------- -------------------------------
$500,000 - $999,999 2.00% 2.04% 1.80%
- ------------------------- ----------------------------- ------------------------------- -------------------------------
$1 MILLION + 0.00% 0.00% N/A
- ------------------------- ----------------------------- ------------------------------- -------------------------------
</TABLE>
Waivers and Fee Reductions
YOU WILL NOT HAVE TO PAY A SALES CHARGE WHEN PURCHASING CLASS A SHARES
IF YOU ARE:
1. A registered representative or employee of a broker-dealer that
has a dealer agreement with the Distributor.
2. Participating in the NAV Transfer Program. To participate in the
NAV Transfer Program, you must show proof that within 90 days
prior to purchasing Class A shares of the Fund, you redeemed
shares from any load or no-load mutual fund (other than the Fund)
including money market funds. Adequate proof includes providing a
completed qualification form and a statement showing the value
liquidated from the other mutual fund.
3. A qualified investor or other entity ("Qualified Investors"). Qualified
Investors include:
o U.S. purchasers which place orders through a broker that maintains an omnibus
account with the Fund and makes such purchases:
a) through U.S. investment advisers or financial planners placing trades for
their accounts or the accounts of their clients, and who charge a fee for their
services;
b) for U.S. clients of such investment adviser or financial planner who place
trades for their own accounts if the accounts are linked to a master account of
such investment adviser or financial planner on the books and records of the
broker or agent;
c) for U.S. retirement and deferred compensation plans, and trusts used to fund
those plans, including but not limited to those defined in section 401(a),
403(b) or 457 of the Code or "rabbi trusts;" or
d) using the proceeds of a redemption of shares of another registered open-end
investment company; charitable organizations (as defined in section 501(c) of
the Code) investing $100,000 or more.
o any U.S. pension fund, corporation, state or local government, Taft Hartley
plan, foundation and/or endowment which is a client of a consulting firm, if
that firm has made appropriate arrangements with the Fund, NCRAM or any of its
affiliates of NCRAM with respect to furnishing advice to the client or with
respect to the purchase of Fund shares by such client;
o accounts as to which a U.S. bank or broker-dealer charges an account
management fee, provided the bank or broker-dealer has an agreement with NCRAM
or any of its affiliates relating to investment in the Fund;
o U.S. investors, and their spouses and minor children, who are investment
advisory clients of NCRAM or any of its affiliates or who are affiliated persons
or sponsoring companies of those clients; and
o employees (and their spouses and minor children) of the Investment Adviser.
YOU MAY HAVE THE SALES CHARGE REDUCED IF:
1. You aggregate your purchases of $50,000 or more made within a
13-month period using a letter of intention with your first
purchase. The letter of intention is not a binding obligation to
purchase any amount of Class A shares; however, if you meet the
terms of the letter of intention, you will pay lower sales charges
according to the table shown above.
2. You are a selected dealer with a dealer agreement with the
Distributor. The Distributor allows discounts to selected dealers
and retains the balance over such discounts. The Distributor may
waive the entire sales charge to dealers.
CLASS Y SHARES
Class Y shares are offered at net asset value without a sales charge to
you if you invest at least $1 million in the Fund. You may also purchase Class Y
shares through a fee-based financial planner whose clients have a current
investment in the Fund totaling at least $1 million. Directors of the Fund may
purchase Class Y shares even if they do not have at least $1 million invested in
the Fund. In addition, retirement plans administered by the Investment Adviser
or its affiliates for the benefit of employees of the Investment Adviser and its
affiliates may purchase Class Y shares for less than $1 million. If you purchase
Class Y shares of the Fund you will pay the NAV next determined after your order
is received. There is no sales charge on this class at the time you purchase
your shares.
CONVERSION OF CLASS A SHARES TO CLASS Y SHARES
As a single investor of Class A shares, when your aggregate net
investments reach $1 million, you may have your shares converted into Class Y
shares if you send a written request to the Fund's transfer agent. Likewise,
clients of securities dealers or fee-based financial planners that have
appropriate arrangements with the Fund or the Investment Adviser may have their
Class A shares converted into Class Y shares if they send a written request to
the Fund's transfer agent. Once your shares have been converted, you (or your
securities dealer) will be offered Class Y shares as long as you (or your
securities dealer) have at least $1 million invested in the Fund at the time the
Fund receives your next purchase order. Eligible shares will be converted from
Class A to Class Y at net asset value on the day the transfer agent receives
your written request. There is no charge for the conversion. Requests for
conversion should be sent to the Fund's transfer agent at the following address:
BY REGULAR MAIL BY OVERNIGHT DELIVERY
Battery Park Funds Battery Park Funds
c/o Firstar Mutual Fund Services, LLC c/o Firstar Mutual Fund Services, LLC
P.O. Box 701 615 E. Michigan Street, Third Floor
Milwaukee, Wisconsin 53201-0701 Milwaukee, Wisconsin 53202
PURCHASING SHARES
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT
To open an account, first determine if you are buying Class A or Y
shares (see page 15 for class descriptions). The minimum initial and subsequent
investment purchase amounts are as follows:
MINIMUM MINIMUM
INITIAL PURCHASE SUBSEQUENT PURCHASE
Class A Shares $ 1,000 $100
($50 for automatic investment plan)
Class Y Shares $1,000,000 $100
METHODS OF BUYING
BY TELEPHONE. If you are purchasing Class Y shares, call Battery ParkSM
Funds, Inc. at 1-888-254-2874 to place your order. (Note: For security reasons,
requests by telephone will be recorded.) If you are purchasing Class A shares,
call your dealer directly.
BY MAIL. Fill out the account application form and make your check payable to
"Battery Park Funds." Forward the check and your application to the address
below. No third party checks will be accepted. If your check is returned for
any reason, a $25 fee will be assessed against your account. To add to your
account, fill out the investment stub from an account statement and write the
Fund's name and account number on your check. Make your check payable to
"Battery Park Funds" and forward the check and stub to the address below.
BY REGULAR MAIL BY OVERNIGHT DELIVERY
Battery Park Funds Battery Park Funds
c/o Firstar Mutual Fund Services, LLC c/o Firstar Mutual Fund Services, LLC
P.O. Box 701 615 E. Michigan Street, Third Floor
Milwaukee, Wisconsin 53201-0701 Milwaukee, Wisconsin 53202
NOTE: THE FUND DOES NOT CONSIDER THE U.S. POSTAL SERVICE OR OTHER INDEPENDENT
DELIVERY SERVICES TO BE ITS AGENTS.
BY FEDERAL FUNDS WIRE. You may not open an account with a wire. You must
first forward your application and check to Battery ParkSM Funds, Inc. at the
above address. To make subsequent purchases, call Battery ParkSM Funds, Inc.
at 1-888-254-2874 to notify of your incoming wire. You should use the following
instructions:
Firstar Bank, N.A.
Milwaukee, WI 53202
ABA #: 075000022
Credit: Firstar Mutual Fund Services, LLC
Account #: 112-952-137
Further Credit: Battery Park High Yield Fund, Class__
(Your name/title on the
account) (Account #)
AUTOMATIC INVESTMENT PLAN. Open an account using one of the above
methods. If by mail, be sure to include your checking account number on the
appropriate section of your application and enclose a voided check or deposit
slip. If you didn't set up an automatic investment plan with your original
application, call Battery ParkSM Funds, Inc. at 1-888-254-2874. You can choose
whether you wish to make automatic additional investments monthly or quarterly
from your checking account. The minimum subsequent investment under the
automatic investment plan is $50 per period.
THROUGH YOUR BROKER. You may purchase shares through your own broker or
dealer, but keep in mind that the broker/dealer may impose a service charge for
his or her services.
RECEIPT OF ORDERS
Shares may only be purchased on days the New York Stock Exchange and
the Federal Reserve wire system are open for business. Your purchase must be
in U.S. dollars and your check must be drawn on a U.S. bank. We do not
accept cash or traveler's checks. If your check does not clear, we will cancel
your purchase and hold you liable for any losses and any applicable fees. When
you buy shares by any type of check, electronic funds transfer or
automatic investment purchase, you may redeem the shares, but the Fund may
withhold the proceeds for up to 12 days or until your check has cleared,
which ever is earlier.
When making a purchase request, make sure your request is in good order. "Good
order" means your purchase request includes:
o the NAME of the Fund
o the DOLLAR amount of shares to be purchased
o purchase application or investment stub
o check payable to BATTERY PARK FUNDS
TIMING OF PURCHASE REQUESTS
The price per share will be the net asset value next computed after the
time your purchase request is received in good order and accepted by the Fund or
the Fund's authorized agent. All purchase requests (telephone orders and federal
funds wire) received in good order by the Fund before 4:00 p.m. EST will be
executed on that same day. Purchase requests received after 4:00 p.m. will be
processed on the next business day.
REDEEMING SHARES
- --------------------------------------------------------------------------------
METHODS OF REDEEMING
BY TELEPHONE. If you own Class Y shares, you may call Battery ParkSM Funds,
Inc. at 1-888-254-2874 to redeem any amount of shares you wish. (NOTE: For
security reasons, requests by telephone will be recorded.) If you own Class A
shares, call your dealer directly to redeem shares.
BY MAIL. Send a letter instructing the Battery ParkSM Funds, Inc. to redeem
the dollar amount or number of shares you wish. The letter should contain the
Fund's name, the account number and the number of shares or the dollar amount of
shares to be redeemed. Be sure to have all shareholders sign the letter. If
your account is an IRA, your signature must be guaranteed and your request must
indicate whether or not 10% withholding should apply. Requests submitted
without an election whether or not to withhold will be subject to
withholding.
BY FEDERAL FUNDS WIRE. Call Battery ParkSM Funds, Inc. at 1-888-254-2874 to
request the amount of money you want to redeem. Be sure to have all necessary
information from your bank. Your bank may charge a fee to receive wired funds.
SYSTEMATIC WITHDRAWAL PLAN. Call Battery ParkSM Funds, Inc. at 1-888-254-2874
to arrange for regular monthly or quarterly fixed withdrawal payments by check
or through automatic payment by direct deposit. The minimum payment you may
receive is $50 per period. Note that this plan may deplete your investment and
affect your income or yield.
THROUGH YOUR BROKER. You may redeem shares through your own broker or dealer,
but keep in mind that the broker/dealer may impose a service charge for his or
her services.
WHEN REDEMPTION PROCEEDS ARE SENT TO YOU
Your shares may only be redeemed on days on which the Fund computes its
net asset value, as described in "PRICE OF SHARES -- How NAV is Determined."
Your redemption request cannot be processed on days the New York Stock Exchange
is closed. Your shares will be redeemed at the net asset value next determined
after Battery Park Funds receives your redemption request in good order.
When making a redemption request, make sure your request is in good order. "Good
order" means your letter of instruction includes:
o the NAME of the Fund
o the NUMBER of shares or the DOLLAR amount of shares to be redeemed
o SIGNATURES of all registered shareholders exactly as the shares are
registered (signature guaranteed for IRAs)
o the ACCOUNT registration number
All requests received in good order by Battery ParkSM Funds, Inc. before
4:00 p.m. (Eastern time), will normally be wired to the bank you indicate or
mailed on the following day to the address of record. In no event will proceeds
be wired or a check mailed more than 7 calendar days after Firstar receives a
proper redemption request.
If you purchase shares using a check and soon after request a
redemption, Battery ParkSM Funds, Inc. will honor the redemption request, but
will not mail the proceeds until your purchase check has cleared (usually within
12 days).
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, Battery
ParkSM Funds, Inc. may mail you a notice if your account falls below $500, due
to withdrawals, requesting that you bring the account back up to $500 or close
it out. If you do not respond to the request within 60 days, Battery ParkSM
Funds, Inc. may close the account on your behalf and send you the proceeds. If
you have an account through a broker/dealer or other financial institution,
consult your account agreement for information on accounts with low balances.
SIGNATURE GUARANTEES
You will need your signature guaranteed if:
o you are redeeming $50,000 more,
o you are redeeming shares from an IRA account,
o you request a redemption to be made payable to a person not on record with
the Fund, or
o you request that a redemption be mailed to an address other than that on
record with the Fund.
You may obtain signature guarantees from most trust companies,
commercial banks or other eligible guarantor institutions. A notary public
cannot guarantee signatures.
EXCHANGING SHARES
- --------------------------------------------------------------------------------
As an investor of the Fund, you have the privilege of exchanging shares
of the Fund with shares of Firstar Money Market Fund, a money market Fund
advised by Firstar Investment Research and Management Company, LLC., an
affiliate of Firstar Mutual Fund Services, LLC. The same policies that apply to
purchases and sales apply to exchanges, including minimum investment amounts.
Currently, there is no limit on the number of times you may exercise the
exchange privilege. The exchange privilege is available only to U.S.
shareholders in states where the exchange legally may be made. You may only
exchange Class A shares of the Fund for Class A shares of Firstar Money Market
Fund. Likewise, you may only exchange Class Y shares of the Fund for Class Y
shares of Firstar Money Market Fund.
Exercising the exchange privilege is really two transactions: a sale of one Fund
and the purchase of another.
Should the relationship between the Fund and Firstar Mutual Fund
Services, LLC terminate, the Fund will seek to enter into an arrangement with
another similar money market fund to continue to provide the exchange privilege
to Fund investors. If you exchanged shares into Firstar Money Market Fund, you
will be given a one-time opportunity to exchange shares of the Firstar Money
Market Fund into the new money market fund and thereby preserve the ability to
exchange new money market fund shares with shares of the Fund at a future date.
This exchange privilege may be modified or terminated in accordance with SEC
rules at any time.
REINSTATEMENT PRIVILEGE
- --------------------------------------------------------------------------------
If you are an investor who recently redeemed your Class A shares, you
have a one-time privilege to reinstate your account by purchasing Class A shares
of the Fund without a sales charge up to the dollar amount you redeemed. You may
exercise this reinstatement privilege at any time within 90 days from the time
your redemption request was accepted by the transfer agent. To exercise your
reinstatement privilege, send a written notice to the Fund's transfer agent
stating that you wish to exercise your reinstatement privilege together with a
check for the amount to be reinstated. The reinstatement will be made at the net
asset value per share next determined after the notice of reinstatement is
received.
PRICE OF SHARES
- --------------------------------------------------------------------------------
HOW NAV IS DETERMINED
The net asset value (NAV) is calculated by taking the value of the
Fund's assets, including interest and dividends accrued, but not yet collected,
less all liabilities including accrued expenses and dividing the result by the
number of shares outstanding. The net asset value for the Fund is determined as
of the close of trading (normally 4:00 p.m., EST) on the New York Stock
Exchange, Monday through Friday, except on the following days:
1. days on which the value of the Fund's portfolio securities has not changed
enough to materially affect the NAV.
2. days during which no shares are purchased or sold.
3. days on which the New York Stock Exchange is closed, including New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day.
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund declares dividends on a daily basis and pays dividends on a monthly
basis. If the Fund realizes capital gains, they will be distributed at least
annually.
Unless you provide a written request to receive payments in cash, your
dividends and capital gains distributions will automatically be reinvested in
additional shares of the Fund at the net asset value without sales charge.
Dividends will be distributed on the last business day of each month. Dividends
or capital gains distributions paid in cash will be mailed to you via the U.S.
Postal Service. Keep in mind, undeliverable checks or checks not deposited
within six months will be reinvested in additional shares of the Fund at the
then current net asset value. Amounts paid in cash or in additional shares are
treated the same for tax purposes.
TAXES
- --------------------------------------------------------------------------------
The Fund will pay no federal income tax because it expects to meet
certain Internal Revenue Code requirements. The Fund will be treated as a
single, separate entity for federal income tax purposes so that income
(including capital gains, if any) and losses realized by the Fund will not be
combined for tax purposes with those realized by other Funds. The Fund will
provide you with detailed tax information for reporting purposes. The Fund
intends to distribute all ordinary income and net realized capital gains.
Unless otherwise exempt, shareholders are required to pay federal
income tax on any dividends and capital gains distributions received. This
applies whether dividends and distributions are received in cash or as
additional shares. All ordinary income dividends paid by the Fund, which include
distributions of net realized short-term capital gains are taxable as ordinary
income. Distributions paid by the Fund from net realized long-term capital
gains, are taxable as long-term capital gains. The capital gains holding period
and the applicable tax rate is determined by the length of time that the Fund
has held the security and not the length of time that you have held shares in
the Fund. The Fund expects that, because of its investment objectives,
distributions will consist primarily of ordinary income dividends. The Fund will
provide you with detailed tax information for reporting purposes.
An exchange is not a tax-free transaction. An exchange of shares
pursuant to the Fund's exchange privilege is treated the same as an ordinary
sale and purchase for federal income tax purposes and you will realize a capital
gain or loss.
The Fund may be required to withhold federal income tax at a rate of
31% (back up withholding) from dividend payments, distributions and redemption
proceeds if you fail to furnish the Fund with your social security number. You
must also certify that your social security number is correct and that you are
not subject to backup withholding. The certification is included as part of the
purchase application.
You should consult your own tax adviser regarding the status of your
accounts under state and local tax laws.
RETIREMENT PLANS
- --------------------------------------------------------------------------------
You may purchase shares of the Fund for your individual retirement accounts. To
obtain the appropriate disclosure documentation and more complete information on
how to open a retirement account call 1-888-254-2874.
YEAR 2000 ISSUE
- --------------------------------------------------------------------------------
As the year 2000 began, there were few problems caused by the inability of
certain computer systems to tell the difference between the year 2000 and the
year 1900 (commonly know as the "Year 2000 Problem"). It is still possible that
some computer systems could malfunction in the future because of the Year 2000
Problem or as a result of actions taken to address the Year 2000 Problem. The
Fund does not anticipate that its services or those of the Fund's service
providers will be adversely affected, but the Fund will continue to monitor the
situation. If malfunctions related to the Year 2000 Problem do arise, the Fund
and its investments could be negatively affected.
OTHER INFORMATION
- --------------------------------------------------------------------------------
Certain of the information contained in "PAST PERFORMANCE" regarding the Merrill
Lynch High Yield Master II Index has been provided by Merrill Lynch. Any
information sourced to Merrill Lynch & Co. has been reprinted by permission, all
rights reserved. Copyright(C) 1999 Merrill Lynch, Pierce, Fenner & Smith
Incorporated. The Indices 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.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights tables set forth below are intended to help you
understand the Fund's financial performance for the past 3 years since the Fund
commenced operations. Most of the information reflects financial results with
respect to a single Fund share. The total returns in the tables represent the
rates that an investor would have earned (or lost) on an investment in a
Fund(assuming reinvestment of all dividends and distributions). This information
has been audited by Deloitte & Touche LLP, whose report, along with the Fund's
financial statements, are included in the Fund's annual report, which is
available upon request.
<TABLE>
<CAPTION>
CLASS A SHARES Year Ended September 30,
1999 1998 1997(a)
- ------------------------------------------------------------------ ---------------- -------------- -----------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.10 $11.40 $10.00
- ------------------------------------------------------------------ ---------------- -------------- -----------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------ ---------------- -------------- -----------------
Net investment income 0.80 0.89 0.84
- ------------------------------------------------------------------ ---------------- -------------- -----------------
Net realized and unrealized gain (loss) on investments (0.72) (0.70) 1.40
- ------------------------------------------------------------------ ---------------- -------------- -----------------
Total from investment operations 0.08 0.19 2.24
- ------------------------------------------------------------------ ---------------- -------------- -----------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------ ---------------- -------------- -----------------
Distributions from net investment income (0.79) (0.91) (0.84)
- ------------------------------------------------------------------ ---------------- -------------- -----------------
Distributions from net realized gain on investments (0.39) (0.58) --
- ------------------------------------------------------------------ ---------------- -------------- -----------------
Total distributions (1.18) (1.49) (0.84)
- ------------------------------------------------------------------ ---------------- -------------- -----------------
NET ASSET VALUE, END OF PERIOD $9.00 $10.10 $11.40
- ------------------------------------------------------------------ ---------------- -------------- -----------------
Total return (b) 0.77% 1.50% 23.13%
- ------------------------------------------------------------------ ---------------- -------------- -----------------
SUPPLEMENTAL DATA AND RATIOS:
- ------------------------------------------------------------------ ---------------- -------------- -----------------
RATIOS OF NET EXPENSES TO AVERAGE NET ASSETS:
- ------------------------------------------------------------------ ---------------- -------------- -----------------
Before expense reimbursement 2.22% 2.92% 4.04%*
- ------------------------------------------------------------------ ---------------- -------------- -----------------
After expense reimbursement 1.25% 1.25% 1.25%*
- ------------------------------------------------------------------ ---------------- -------------- -----------------
RATIOS OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS:
- ------------------------------------------------------------------ ---------------- -------------- -----------------
Before expense reimbursement 7.33% 6.77% 5.87%*
- ------------------------------------------------------------------ ---------------- -------------- -----------------
After expense reimbursement 8.30% 8.44% 8.66%*
- ------------------------------------------------------------------ ---------------- -------------- -----------------
Net assets, end of period (000 omitted) $4,211 $3,894 $1,829
- ------------------------------------------------------------------ ---------------- -------------- -----------------
Portfolio turnover(c) 178% 190% 236%
- ------------------------------------------------------------------ ---------------- -------------- -----------------
</TABLE>
*Computed on an annualized basis.
a) Reflects operations for the period from October 28, 1996 (date of initial
public offering) to September 30, 1997. For the period from September 16,
1996 (start of business) to October 27, 1996, the investment income was
distributed to the Fund's Investment Adviser.
b) Based on net asset value, which does not reflect the sales charge.
c) Portfolio turnover rate is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
<TABLE>
<CAPTION>
CLASS Y SHARES Year Ended September 30,
1999 1998 1997(a)
- ------------------------------------------------------------------ ---------------- -------------- -----------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.10 $11.40 $10.00
- ------------------------------------------------------------------ ---------------- -------------- -----------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------ ---------------- -------------- -----------------
Net investment income 0.76 0.93 0.86
- ------------------------------------------------------------------ ---------------- -------------- -----------------
Net realized and unrealized gain (loss) on investments (0.64) (0.71) 1.40
- ------------------------------------------------------------------ ---------------- -------------- -----------------
Total from investment operations 0.12 0.22 2.26
- ------------------------------------------------------------------ ---------------- -------------- -----------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------ ---------------- -------------- -----------------
Distributions from net investment income (0.82) (0.94) (0.86)
- ------------------------------------------------------------------ ---------------- -------------- -----------------
Distributions from net realized gain on investments (0.39) (0.58) --
- ------------------------------------------------------------------ ---------------- -------------- -----------------
Total distributions (1.21) (1.52) (0.86)
- ------------------------------------------------------------------ ---------------- -------------- -----------------
NET ASSET VALUE, END OF PERIOD $9.01 $10.10 $11.40
- ------------------------------------------------------------------ ---------------- -------------- -----------------
Total return (b) 1.13% 1.76% 23.41%
- ------------------------------------------------------------------ ---------------- -------------- -----------------
SUPPLEMENTAL DATA AND RATIOS:
- ------------------------------------------------------------------ ---------------- -------------- -----------------
RATIOS OF NET EXPENSES TO AVERAGE NET ASSETS:
- ------------------------------------------------------------------ ---------------- -------------- -----------------
Before expense reimbursement 1.83% 2.67% 3.87%*
- ------------------------------------------------------------------ ---------------- -------------- -----------------
After expense reimbursement 1.00% 1.00% 1.00%*
- ------------------------------------------------------------------ ---------------- -------------- -----------------
RATIOS OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS:
- ------------------------------------------------------------------ ---------------- -------------- -----------------
Before expense reimbursement 7.72% 6.96% 5.86%*
- ------------------------------------------------------------------ ---------------- -------------- -----------------
After expense reimbursement 8.55% 8.63% 8.73%*
- ------------------------------------------------------------------ ---------------- -------------- -----------------
Net assets, end of period (000 omitted) $19,866 $16,158 $13,361
- ------------------------------------------------------------------ ---------------- -------------- -----------------
Portfolio turnover(c) 178% 190% 236%
- ------------------------------------------------------------------ ---------------- -------------- -----------------
</TABLE>
* Computed on an annualized basis.
a) Reflects operations for the period from October 28, 1996 (date of initial
public offering) to September 30, 1997. For the period from September 19,
1996 (start of business) to October 27, 1996, the investment income was
distributed to the Fund's Investment Adviser.
b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
c) Portfolio turnover rate is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
BATTERY
PARK
HIGH YIELD FUND
- ------------------------- ======================================
NOMURA CORPORATE RESEARCH AND ASSET
MANAGEMENT INC.
Investment Adviser 2 World Financial Center
Building B
New York, NY 10281-1198
http://www1.nomurany.com
- ------------------------- ======================================
Distributor NOMURA SECURITIES INTERNATIONAL, INC.
2 World Financial Center
Building B
New York, NY 10281-1198
- ------------------------- ======================================
Transfer Agent FIRSTAR MUTUAL FUND SERVICES, LLC
615 East Michigan Street, 3rd Floor
Milwaukee, WI 53202
- ------------------------- ======================================
Custodian FIRSTAR BANK, N.A.
425 Walnut Street
Cincinnati, OH 45202
- ------------------------- ======================================
Additional information about the Fund is included in the Statement of Additional
Information (SAI). The SAI is incorporated into this prospectus by reference
(i.e., legally made a part of this prospectus). The SAI provides more details
about the Fund's policies and management. Additional information about the
Fund's investments is available in the Fund's annual and semiannual reports to
shareholders. In the Fund's annual report, you will find a discussion of the
market conditions and strategies that significantly affected the Fund's
performance during its last fiscal year.
To obtain a free copy of the SAI, the annual and semiannual reports or other
information about the Fund, or to make shareholder inquires about the Fund,
please call 1-888-254-2874. You may also write to:
BATTERY PARK FUNDS
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
You may review and obtain copies of Fund information (including the SAI) at the
SEC Public Reference Room in Washington, D.C. Please call 1-202-942-8090 for
information relating to the operation of the Public Reference Room. Reports and
other information about the Fund are available on the EDGAR Database on the
SEC's Internet site at http://www.sec.gov. Copies of the information may be
obtained, after paying a duplicating fee, by electronic request at the following
E-mail address: [email protected], or by writing the Public Reference Section,
Securities and Exchange Commission, Washington, D.C. 20549-0102.
Investment Company Act File # 811-7675
BATTERY PARK SM HIGH YIELD FUND
A SERIES OF BATTERY PARKSM FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
January 28, 2000
This Statement of Additional Information, incorporated by reference into the
Prospectus, is not a prospectus and should be read in conjunction with the
Fund's Prospectus dated January 28, 2000, which has been filed with the
Securities and Exchange Commission. To receive a copy of the Prospectus free of
charge, write to Battery ParkSM Funds, Inc. or call the toll-free number
1-888-254-2874.
The Fund's audited financial statements for the fiscal year ended September 30,
1999 are incorporated by reference to the Fund's 1999 Annual Report. You may
request a copy of the annual report at no charge by calling 1-888-254-2874
between 8:00 am and 5:00 pm central standard time on a any business day.
BATTERY PARKSM HIGH YIELD FUND
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
Nomura Corporate Research and Asset Management Inc. - Investment Adviser
Nomura Securities International, Inc. - Distributor
TABLE OF CONTENTS
General Information about Battery ParkSM Funds, Inc............................3
Investment Objective and Policies..............................................3
Investment Restrictions........................................................7
Management of the Fund.........................................................9
Control Persons and Principal Holders of Securities...........................10
Management and Advisory Arrangements..........................................11
Fund Administration...........................................................12
Fund Accounting and Transfer Agent............................................13
Custodian.....................................................................13
Distributor...................................................................13
Distribution Plan.............................................................14
Brokerage Transactions........................................................15
Purchase of Shares............................................................16
Redeeming Shares..............................................................17
Determination of Net Asset Value..............................................17
Shareholder Services..........................................................19
Taxes.........................................................................20
Performance Data..............................................................22
Reports to Shareholders.......................................................23
Independent Auditors..........................................................24
Legal Counsel.................................................................24
APPENDIX A....................................................................25
APPENDIX B....................................................................28
GENERAL INFORMATION ABOUT BATTERY PARKSM FUNDS, INC.
- --------------------------------------------------------------------------------
Battery ParkSM High Yield Fund (the "Fund") is the only existing series of
Battery Park Funds, Inc. (the "Company"), a diversified, open-end series-type
investment company. The Company was incorporated under Maryland law on June 4,
1996.
CAPITAL STOCK
The Company has an authorized capital of 200,000,000 shares of common stock, par
value $0.001 per share, of which 50,000,000 shares are initially classified as
one series, namely the Fund. The Fund consists of two classes, designated Class
A and Class Y Common Stock, each of which consists of 25,000,000 shares. The
remaining 150,000,000 shares are not classified as to any class or series.
RIGHTS OF EACH SHARE CLASS
Shares of Class A and Class Y Common Stock represent interests in the same
assets of the Fund and are identical in all respects except that the Class A
shares bear certain expenses related to the distribution associated with such
shares. Class A shareholders each have exclusive voting rights with respect to
matters relating to expenditures made under that class's Rule 12b-1 plan, as
applicable.
Shareholders are entitled to one vote for each share held and fractional votes
for fractional shares held and will vote on the election of Directors and any
other matter submitted to a shareholder vote. The Fund does not intend to hold
meetings of shareholders in any year in which the Investment Company Act of
1940, as amended, ("1940 Act") does not require shareholders to act upon
election of Directors. The By-laws of the Company provide that, with written
request, holders of at least 10% of the outstanding shares of the Fund may call
a special meeting of shareholders for any purpose.
Voting rights for Directors are not cumulative. Shares issued are fully paid and
non-assessable and have no preemptive or conversion rights. Redemption rights
are discussed elsewhere herein and in the Prospectus. Each share is entitled to
participate equally in dividends and distributions declared by the Fund and in
the net assets of the Fund on liquidation or dissolution after satisfaction of
outstanding liabilities. Stock certificates will only be issued upon shareholder
request.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Investment Objective and Policies of the Fund are discussed in the
Prospectus. This section provides additional information regarding investments
and transactions the Fund is permitted to make.
The Fund's investment objective is to provide shareholders with high total
return, consisting of current income and capital appreciation. The Fund attempts
to achieve its objective by investing principally in fixed income securities of
U.S. companies which are rated in the lower rating categories of the established
rating services or are unrated securities of comparable quality. Under normal
circumstances, the Fund will invest at least 80% of the Fund's total assets in
fixed income securities rated Ba1 or lower by Moody's Investors Service, Inc.
("Moody's") or BB+ or lower by Standard & Poor's ("S&P"). The Fund is authorized
to, but does not currently intend to, engage in various portfolio strategies to
enhance income and to hedge its portfolio against investment and interest rate
risks, including the utilization of leverage and the use of options and futures.
No assurance can be given that the Fund will realize its investment objective.
Other securities in which the Fund may invest are described below.
See Appendix A to this SAI for more information on ratings of high yield debt
securities.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities, which include any corporate debt
security or preferred stock that may be converted into underlying shares of
common stock. Convertible securities entitle the holder to receive interest
payments paid on corporate debt securities or the dividend preference on a
preferred stock until such time as the convertible security matures or is
redeemed or until the holder elects to exercise the conversion privilege.
Although the Fund generally expects that it will sell convertible securities
rather than convert such securities into common stock, the Fund may, at various
times, exercise conversion rights on convertible securities.
CORPORATE LOANS
The Fund may invest in corporate loans made by banks or other financial
institutions either at origination or by acquiring participations in,
assignments of or novations of corporate loans. Corporate loans generally are
not readily marketable and may be subject to restrictions on resale and are
therefore subject to the Fund's limitation on illiquid securities, as set forth
below. The corporate loans in which the Fund invests typically are originated,
negotiated and structured by a syndicate of co-lenders, one or more of which
administers the loan on behalf of the syndicate. The value of a corporate loan
depends primarily on the creditworthiness of the borrower. The Fund will invest
in a corporate loan only if, in the Investment Adviser's judgment, the borrower
can meet debt service on such loan; however, the Investment Adviser has set no
minimum credit rating criteria regarding the borrowers. Although the Investment
Adviser will continue to monitor the creditworthiness of the borrowers of
corporate loans in which the Fund invests, there can be no assurance that such
analysis will disclose factors that will impair the value of a corporate loan.
ASSET BACKED SECURITIES
The Fund may invest in asset-backed securities. Asset-backed securities are
securities that directly or indirectly represent an interest in, or are backed
by and payable from, receivables (including lease receivables) on pools of
assets such as, but not limited to, the following:
o mortgage loans secured by real property,
o notes secured by property,
o equipment or lease payments,
o credit card debt,
o automobile loans or student loans.
Asset-backed securities are issued in structured financings wherein the sponsor
is often a special purpose entity established for the purpose of securitizing
the underlying assets in order to increase the liquidity of those assets or to
achieve certain other financial goals. In choosing asset-backed securities in
which the Fund will invest, the Investment Adviser will take into consideration,
among other things, the underwriting standards of the originator of the
underlying obligations, applicable loan-to-value ratios and the general
sensitivity of the securities to economic conditions and trends.
REPURCHASE AGREEMENTS
The Fund may invest in securities pursuant to repurchase agreements. U.S.
dollar-denominated repurchase agreements may be entered into only with a member
bank of the Federal Reserve System or a primary dealer in U.S. government
securities or an affiliate thereof. Under such agreements, the bank or primary
dealer or an affiliate thereof agrees, upon entering into the contract, to
repurchase the security at a mutually agreed upon time and price, thereby
determining the yield during the term of the agreement. This results in a fixed
rate of return insulated from market fluctuations during such period. Repurchase
agreements may be construed to be collateralized loans by the purchaser to the
seller secured by the securities transferred to the purchaser. As a purchaser,
the Fund will require the seller to provide additional collateral if the market
value of the securities that are the subject of the repurchase agreement falls
below the repurchase price at any time during the term of the repurchase
agreement. In the event of default by the seller under a repurchase agreement
construed to be a collateralized loan, the underlying securities are not owned
by the Fund but only constitute collateral for the seller's obligation to pay
the repurchase price. Therefore, the Fund may suffer time delays and incur costs
or possible losses in connection with disposition of the collateral.
WHEN ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase and sell portfolio securities on a "when-issued" and
"delayed delivery" basis. No income accrues to the Fund in such securities in
connection with such transactions prior to the date the Fund actually takes
delivery of such securities. These transactions are subject to market
fluctuation; the value of the securities at delivery may be more or less than
their purchase price, and yields generally available on such securities when
delivery occurs may be higher or lower than yields on the securities obtained
pursuant to such transactions. Failure of the buyer or seller, as the case may
be, to consummate the transaction may result in a missed opportunity to obtain
the best price or yield available on the purchase or sale of the subject
security.
LENDING PORTFOLIO SECURITIES
The Fund may from time to time lend securities from its portfolio with a value
not exceeding 33 1/3% of its total assets, to banks, brokers and other financial
institutions. The Fund may receive collateral in cash or securities issued or
guaranteed by the U.S. government that will be maintained at all times in an
amount equal to at least 100% of the current market value of the loaned
securities. During the period of this loan, the Fund receives the income on the
loaned securities and either receives the income on the collateral or other
compensation (i.e., negotiated loan premium or fee) for entering into the loan
and thereby increases its yield. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or otherwise, the
Fund could experience delays and costs in gaining access to the collateral. The
Fund could also suffer a loss to the extent that the value of the collateral
falls below the market value of the borrowed securities.
LEVERAGE
Although the Fund does not presently intend to utilize leverage to purchase
portfolio securities, it is authorized to borrow from banks amounts of up to 33
1/3% of its total assets (including the amount borrowed). The Fund may also
utilize its borrowing authority to obtain funds to meet redemption requests or
settle investment transactions or for temporary or emergency purposes.
Borrowings by the Fund create an opportunity for greater total return but, at
the same time, increase exposure to capital risk. For example, leveraging may
exaggerate changes in the net asset value of Fund shares and in the yield on the
Fund's portfolio. Borrowing will create interest expenses for the Fund, which
can exceed the income from the assets attributable to the borrowed funds. To the
extent the income derived from securities purchased with borrowed funds exceeds
the interest the Fund will have to pay, the Fund's net income will be greater
than if borrowing were not used. Conversely, if the income from the assets
acquired with borrowed funds is not sufficient to cover the cost of borrowing,
the net income of the Fund will be less than if borrowing were not used, and
therefore the amount available for distribution to shareholders as dividends
will be reduced.
OPTIONS AND FUTURES TRANSACTIONS
The Fund is authorized, but does not currently intend, to engage in various
portfolio strategies to hedge its portfolio against investment and interest rate
risks, including the utilization of options and futures. See Appendix B to this
SAI --"Hedging Techniques."
INVESTMENT IN FOREIGN AND EMERGING MARKETS
As stated in the Prospectus, the Fund may invest up to 25% of its total assets
in securities issued by non-U.S. issuers. Included within such investments, the
Fund may invest up to 15% of its total assets in securities of issuers in
emerging markets. All of the Fund's investments in securities of non-U.S.
issuers will be U.S. dollar-denominated. Investment in the securities of foreign
markets involve certain risk factors and special considerations in addition to
those discussed under "Investment Risks" in the Fund's Prospectus, and these
risks are often amplified in connection with investments in emerging markets.
Certain emerging market countries have the following qualities:
(1) require prior governmental approval of foreign investors,
(2) limit the amount of investment by foreign investors in a particular issuer,
(3) limit the investment by foreign investors only to a specified
class of securities that may have less advantageous rights than
other classes,
(4) restrict investment opportunities in issuers in industries deemed
important to national interests, and/or
(5) impose additional taxes on foreign investors.
Furthermore, it may be difficult to find qualified subcustodians in emerging
market countries with extensive operating experience, and the Fund may be more
limited in its ability to recover assets in the event of a subcustodian's
bankruptcy than it would be in more developed countries. Investing in local
markets in emerging market countries may require the Fund to adopt special
procedures, seek local government approvals or take other actions, each of which
may involve additional costs to the Fund.
The securities markets of emerging market countries are not as large as the U.S.
securities markets and have substantially less trading volume, resulting in a
lack of liquidity with high price volatility. Certain markets are in only the
earliest stages of development. There is also a high concentration of market
capitalization and trading volume in a small number of issuers representing a
limited number of industries, as well as a high concentration of investors and
financial intermediaries. Many of such markets also may be affected by
developments with respect to more established markets in the region. Brokers in
emerging market countries typically are fewer in number and less capitalized
than brokers in the United States.
Some foreign investments may be subject to repatriation controls that could
render such securities illiquid. Other countries might undergo nationalization,
expropriation, political changes, governmental regulation, social instability or
diplomatic developments (including war) that could adversely affect the
economies of such countries or the value of the investments in those countries.
For this reason, if the Fund invests a substantial portion of its portfolio in
the securities of certain foreign countries, it could be greatly impacted by any
political, economic or regulatory developments affecting the value of the
securities. Additional risks include differences in financial reporting
standards, and less stringent regulation of securities markets.
These factors, combined with the U.S. regulatory requirements for open-end
investment companies and the restrictions on foreign investment discussed in the
Prospectus, may result in potentially fewer investment opportunities for the
Fund and may have an adverse effect on the investment performance of the Fund.
See "Investment Risks" in the Prospectus for additional information regarding
foreign and emerging market securities.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest up to 15% of its net assets in securities that are not
readily marketable, including securities that are restricted as to disposition
under the federal securities laws or otherwise. If registration of such
securities under the Securities Act of 1933 (the "Securities Act") is required,
such registration may not be readily accomplished, and if such securities may be
resold without registration, such resale may be permissible only in limited
quantities. In either event, the inability to sell securities at the most
opportune time may negatively affect the net asset value of the Fund.
Notwithstanding the foregoing, the Fund may purchase certain restricted
securities ("Rule 144A securities") for which there is a secondary market of
qualified institutional buyers as defined by Rule 144A under the Securities Act.
Rule 144A securities held by the Fund that are determined to be liquid
securities, either by the Fund's Board of Directors (the "Directors") or by the
Investment Adviser pursuant to guidelines approved by the Fund's Board, will not
be subject to the Fund's limitation on illiquid securities.
In promulgating Rule 144A under the Securities Act, the SEC stated that the
ultimate responsibility for liquidity determinations rests with a fund's board
of directors; however, the board may delegate the day-to-day function of
determining liquidity to the investment adviser provided the board retains
sufficient oversight. The Directors of the Fund have adopted policies and
procedures for the purpose of determining whether securities that are eligible
for resale under Rule 144A are liquid or illiquid and has approved guidelines
under these policies and procedures pursuant to which the Investment Adviser
makes these determinations on an ongoing basis. In making these determinations,
consideration is given to, among other things, the frequency of trades and
quotes for the security, the number of dealers willing to sell the security and
the number of potential purchasers, dealer undertakings to make a market in the
security, the nature of the security and the time needed to dispose of the
security. The Directors periodically review Fund purchases and sales of Rule
144A securities.
To the extent that liquid Rule 144A securities become illiquid, due to the lack
of sufficient qualified institutional buyers or market or other conditions, the
percentage of the Fund's assets invested in illiquid assets would increase. The
Investment Adviser, under the supervision of the Directors, will monitor Fund
investments in Rule 144A securities and will consider appropriate measures to
enable the Fund to maintain sufficient liquidity for operating purposes and to
meet redemption requests.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Fund has adopted both fundamental and nonfundamental restrictions and
policies relating to the investment of its assets and its activities.
Fundamental restrictions and policies may not be changed without the approval of
the holders of a majority of the Fund's outstanding voting securities. For this
purpose and under the 1940 Act, "majority shareholder approval" means the lesser
of:
(a) 67% of the shares represented at a meeting at which more than 50% of the
outstanding shares are represented or
(b) more than 50% of the outstanding shares.
Under these fundamental restrictions, the Fund may not:
1. Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S.
government and its agencies and instrumentalities).
2. Make investments for the purpose of exercising control or management.
3. Purchase or sell real estate, except that, to the extent permitted by
applicable law, the Fund may invest in securities directly or indirectly
secured by real estate or interests therein or issued by companies that
invest in real estate or interests therein.
4. Make loans to other persons, except that the acquisition of bonds, debentures
or other corporate debt securities and investment in government obligations,
commercial paper, pass-through instruments, certificates of deposit, bankers
acceptances, repurchase agreements or any similar instruments shall not be
deemed to be the making of a loan, and except further that the Fund may lend its
portfolio securities, provided that the lending of portfolio securities may be
made only in accordance with applicable law and the guidelines set forth in this
Statement of Additional Information, as they may be amended from time to time,
provided that purchases of assignments or participations in loans (including
bridge loans) will not be prohibited by this paragraph.
5. Issue senior securities to the extent such issuance would violate applicable
law.
6. Borrow money, except that (a) the Fund may borrow from banks (as defined in
the Investment Company Act) in amounts up to 33 1/3% of its total assets
(including the amount borrowed), (b) the Fund may borrow up to an additional 5%
of its total assets for temporary purposes, (c) the Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities and (d) the Fund may purchase securities on margin to
the extent permitted by applicable law. The Fund may not pledge its assets
other than to secure such borrowings or, to the extent permitted by the Fund's
investment policies as set forth in its Prospectus and this Statement of
Additional Information, as they may be amended from time to time, in connection
with hedging transactions, short sales, when-issued and forward commitment
transactions and similar investment strategies.
7. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act of 1933,
as amended (the "Securities Act"), in selling portfolio securities.
8. Purchase or sell commodities or contracts on commodities, except to the
extent that the Fund may do so in accordance with applicable law and the
Fund's Prospectus and Statement of Additional Information, as they may be
amended from time to time, and without registering as a commodity pool
operator under the Commodity Exchange Act.
9. Make any investment inconsistent with the Fund's classification as a
diversified investment company under the Investment Company Act.
Non-fundamental restrictions may be amended by a majority vote of the Directors
of the Fund. Under the non-fundamental investment restrictions, the Fund may
not:
1. Purchase securities of other investment companies, except to the extent
such purchases are permitted by applicable law or by order of the SEC.
2. Make short sales of securities or maintain a short position, except to the
extent permitted by applicable law. The Fund currently does not intend to
engage in short sales.
3. Invest in securities which cannot be readily resold because of legal or
contractual restrictions or which cannot otherwise be marketed, redeemed or
put to the issuer or a third party, if at the time of acquisition more than
15% of its net assets would be invested in such securities. This
restriction shall not apply to securities that mature within seven days or
securities that the Board of Directors of the Fund has otherwise determined
to be liquid pursuant to applicable law. Securities purchased in accordance
with Rule 144A under the Securities Act and determined to be liquid by the
Fund's Board of Directors are not subject to the limitations set forth in
this investment restriction.
4. Write, purchase or sell puts, calls, straddles, spreads or combinations
thereof, except to the extent permitted in the Fund's Prospectus and
Statement of Additional Information, as they may be amended from time to
time.
Portfolio securities of the Fund generally may not be purchased from, sold or
loaned to the Investment Adviser or its affiliates or any of their directors,
officers or employees, acting as principal, unless pursuant to a rule or
exemptive order under the 1940 Act.
Because of the affiliation of the Investment Adviser with the Fund and the
Distributor, the Fund is prohibited from engaging in portfolio transactions
with the Distributor or its affiliates acting as principal and from
purchasing securities in public offerings which are not registered under the
Securities Act in which the Distributor or any of its affiliates participate
as an underwriter or dealer. See "Portfolio Transactions."
PORTFOLIO TURNOVER
Generally, the Fund does not purchase securities for short-term trading profits.
However, the Fund may dispose of securities without regard to the time that they
have been held when such actions, for defensive or other reasons, appear
advisable to the Investment Adviser in light of a change in circumstances in
general market, economic or financial conditions. As a result of its investment
policies, the Fund may engage in a substantial number of portfolio transactions.
Accordingly, while the Fund anticipates that its annual portfolio turnover rate
should not exceed 200% under normal conditions, it is impossible to predict
portfolio turnover rates. The portfolio turnover rate is calculated by dividing
the lesser of the Fund's annual sales or purchases of portfolio securities
(exclusive of purchases or sales of securities whose maturities at the time of
acquisition were one year or less) by the monthly average value of the
securities in the portfolio during the year. Higher portfolio turnover (over
100%) may result in the realization of greater net short-term capital gains.
The portfolio turnover rates for the fiscal years ended September 30, 1998 and
1999 were as follows:
--------------------- -----------------------------
PORTFOLIO TURNOVER RATE
--------------------- -----------------------------
Sept. 30, 1998 190%
--------------------- -----------------------------
Sept. 30, 1999 178%
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
The Fund is managed by a Board of Directors. The Fund's Board of Directors
consists of four individuals, two of whom are not "interested persons" of the
Fund as that term is defined in the 1940 Act. The Directors are fiduciaries for
the Fund's shareholders and are governed by the laws of the State of Maryland in
this regard. They establish policies for the operation of the Fund and appoint
the officers who conduct the daily business of the Fund. The Directors and
executive officers of the Fund, their ages and their principal occupations for
at least the last five years are set forth below.
<TABLE>
<CAPTION>
- ------------------------------- -------- ---------------------- --------------------------------------------
NAME AND ADDRESS AGES POSITION AND OFFICE PRINCIPAL OCCUPATION
WITH THE COMPANY DURING THE PAST FIVE YEARS
- ------------------------------- -------- ---------------------- --------------------------------------------
<S> <C> <C> <C>
Robert Levine* 55 Chairman, President Founder, President and Chief Executive
2 World Financial Center, New and Director Officer of the Investment Adviser and an
York, New York Executive Managing Director of Nomura
10281-1198 Holding America Inc. from 1991 to present.
- ------------------------------- -------- ---------------------- --------------------------------------------
Francis L. Fraenkel 67 Director President of Delta Capital Management Inc.
2 World Financial Center, New from 1992 to present; Managing Director of
York, New York Salomon Brothers Inc. and President of
10281-1198 Salomon Brothers Asset Management Inc.
prior to 1992.
- ------------------------------- -------- ---------------------- --------------------------------------------
Frank K. Reilly 64 Director Bernard J. Hank Professor of Business
2 World Financial Center, New Administration, University of Notre Dame
York, New York College of Business Administration from
10281-1198 1981 to present.
- ------------------------------- -------- ---------------------- --------------------------------------------
Richard A. Buch* 40 Vice President and Managing Director of the Investment
2 World Financial Center, New Portfolio Manager Adviser from 1995 to present; Senior Vice President
York, New York and Director of the Investment Advisor from 1993 to 1995;
10281-1198 Senior Vice President and High Yield Portfolio Manager
for Kidder, Peabody Asset Management prior
to 1993.
- ------------------------------- -------- ---------------------- --------------------------------------------
Jennie Wong* 33 Director and Vice President of the Investment Advisor
2 World Financial Center, New Treasurer since June 1999. Employed in various
York, New York financial positions with the Investment
10281-1198 Advisor since 1993.
- ------------------------------- -------- ---------------------- --------------------------------------------
</TABLE>
* Interested person, as defined in the 1940 Act, of the Fund.
COMPENSATION
For their service as Directors, the non-interested Directors receive a fee of
$2,500 per meeting attended, as well as reimbursement for expenses incurred in
connection with attendance at such meetings. The "interested persons" of the
Fund receive no compensation for their service as Directors. None of the
executive officers receive compensation from the Fund. For the fiscal year ended
September 30, 1999, the Directors received the following compensation.
<TABLE>
<CAPTION>
- ---------------------------- ----------------- ----------------------- ---------------------- ------------------------
NAME AND POSITION AGGREGATE PENSION OR RETIREMENT ESTIMATED ANNUAL TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED AS BENEFITS UPON FROM FUND COMPLEX PAID
FROM FUND PART OF FUND EXPENSES RETIREMENT TO DIRECTORS
COMPLEX
- ---------------------------- ----------------- ----------------------- ---------------------- ------------------------
<S> <C> <C> <C> <C>
Robert Levine* None None None None
Chairman, Director and
President
Francis L. Fraenkel $10,000 None None $10,000
Director
Frank K. Reilly $10,000 None None $10,000
Director
Jennie Wong* None None None None
Director and Treasurer
- ---------------------------- ----------------- ----------------------- ---------------------- ------------------------
</TABLE>
*This trustee is deemed to be an interested person as defined by the 1940 Act.
SALES LOADS
Directors and employees of the investment adviser or its affiliates have the
privilege of being able to purchase Class Y shares of the Fund with out meeting
all the purchase requirements. Class Y shares (unlike Class A shares) are
offered at net asset value without a sales charge. However, the typical investor
must invest at least $1 million in the Fund to be able to purchase Class Y
shares instead of Class A shares. The alternative is to purchase Class Y shares
through a fee-based financial planner whose clients have a current investment in
the Fund totaling at least $1 million. Directors of the Fund may purchase Class
Y shares even if they do not have $1 million invested in the Fund. In addition,
retirement plans administered by the Investment Adviser or its affiliates for
the benefit of employees of the Investment Adviser and its affiliates may
purchase Class Y shares for less than $1 million.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
- --------------------------------------------------------------------------------
CONTROL PERSON
As of January 1, 2000, the following shareholders are considered control persons
of the Fund because they have either:
(1) the beneficial ownership, either directly or through one or more controlled
companies, of more than 25% of the voting securities of a company
(2) the acknowledgment or assertion by either the controlled or controlling
party of the existence of control; or
(3) an adjudication under section 2(a)(9) of the 1940 Act, which has become
final, that control exists.
<TABLE>
<CAPTION>
- ----------------------------------------- --------- -------------------------- --------------------------
SHAREHOLDER NAME AND ADDRESS CLASS NUMBER OF SHARES PERCENTAGE OWNED
- ----------------------------------------- --------- -------------------------- --------------------------
<S> <C> <C> <C>
Nomura Holding America Inc. Y 1,442,949 58%
</TABLE>
PRINCIPAL HOLDERS
As of January 1, 2000, the following shareholders are considered principal
holders of the Fund because they own of record or beneficially own 5% or more
the outstanding shares of a class of the Fund.
<TABLE>
<CAPTION>
- ----------------------------------------- --------- -------------------------- --------------------------
SHAREHOLDER NAME AND ADDRESS CLASS NUMBER OF SHARES PERCENTAGE OWNED
- ----------------------------------------- --------- -------------------------- --------------------------
<S> <C> <C> <C>
Nomura Holding America Inc.1, 2 Y 1,442,949 58%
Charles Schwab & Co., Inc.1 Y 658,121 26%
</TABLE>
1 Record holder
2 Beneficial holder
MANAGEMENT OWNERSHIP
As of January 1, 2000, the officers and Directors own less than 1% of the Fund's
outstanding shares.
MANAGEMENT AND ADVISORY ARRANGEMENTS
- --------------------------------------------------------------------------------
See "Management of the Fund" in the Prospectus for certain information
concerning the management and advisory arrangements of the Fund.
The Fund's Investment Adviser is Nomura Corporate Research and Asset Management
Inc. located at 2 World Financial Center, Building B, New York, New York
10281-1198. The Investment Adviser serves as adviser for the Fund pursuant to an
Investment Advisory Agreement dated October 1, 1996 (the "Investment Advisory
Agreement").
The Investment Advisory Agreement provides that, subject to the direction of the
Directors of the Fund, the Investment Adviser is responsible for the actual
management of the Fund and for the review of the Fund's holdings in light of its
own research analysis and analyses from other relevant sources. The
responsibility for making decisions to buy, sell or hold a particular security
rests with the Investment Adviser, subject to review by the Directors. The
Investment Adviser employs portfolio managers for the Fund, who consider
analyses from various sources, make the necessary investment decisions and place
transactions accordingly. The Investment Adviser also is obligated to perform
certain administrative and management services for the Fund and is required to
provide all the office space, facilities, equipment and personnel necessary to
perform its duties under the Investment Advisory Agreement.
Securities held by the Fund also may be held by or be appropriate investments
for other funds for which the Investment Adviser or its affiliates act as
adviser or by investment advisory clients of the Investment Adviser. Because of
different investment objectives or other factors, a particular security may be
bought for one or more clients when one or more clients are selling the same
security. If purchases or sales of securities for the Fund or other funds for
which the Investment Adviser or its affiliates act as investment adviser or for
their advisory clients arise for consideration at or about the same time,
transactions in such securities will be made, insofar as feasible, for the
respective funds and clients in a manner deemed equitable to all. To the extent
that transactions on behalf of more than one client of the Investment Adviser or
its affiliates during the same period may increase the demand for securities
being purchased or the supply of securities being sold, there may be an adverse
effect on price.
The Investment Advisory Agreement obligates the Investment Adviser to provide
investment advisory services and to pay all compensation of and furnish office
space for officers and employees of the Fund connected with investment and
economic research, trading and investment management of the Fund, as well as the
fees of all Directors of the Fund who are affiliated persons of the Investment
Adviser or the Distributor or any of their subsidiaries. The Fund pays all other
expenses incurred in its operation, including redemption expenses, expenses of
portfolio transactions, shareholder servicing costs, expenses of registering the
shares under federal and state securities laws, pricing costs (including the
daily calculation of net asset value), interest, certain taxes, charges of the
Custodian and Transfer Agent, directors' fees, legal expenses, state franchise
taxes, auditing services, costs of printing proxies, stock certificates,
shareholder reports and prospectuses (except to the extent paid by the
Distributor), SEC fees, accounting costs and other expenses properly payable by
the Fund. To the extent accounting services are provided for the Fund by the
Investment Adviser, the Fund will reimburse the Investment Adviser for its costs
in connection with such services. As required by the Distribution Agreement, the
Distributor will pay certain of the expenses of the Fund incurred in connection
with the offering of shares of the Fund, including the expenses of printing the
prospectuses and statements of additional information used in connection with
the continuous offering of shares by the Fund.
DURATION AND TERMINATION
The Investment Advisory Agreement for the Fund will remain in effect from year
to year if approved annually (a) by the Directors of the Fund or by a majority
of the outstanding shares of the Fund and (b) by a majority of the Directors who
are not parties to such contract or interested persons (as defined in the
Investment Company Act) of any such party. Such contract is not assignable and
may be terminated without penalty on 60 days' written notice by the majority
vote of the Directors or of the outstanding voting securities of the Fund or on
120 days' written notice by the Investment Adviser.
ADVISORY FEES
The Investment Adviser charges a fee of 0.65% for each class of shares for its
services; however, the Investment Adviser waived management fees, and reimbursed
certain expenses of the Fund, for the fiscal year ended September 30, 1999 to
the extent necessary to limit the Fund's annualized expenses for that period to
the annual rate of 1.25% of average daily net assets for Class A shares and
1.00% of average daily net assets 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.
Subject to the approval of the Board of Directors of the Fund, the Investment
Adviser may seek to recover management fees deferred pursuant to this Agreement
in subsequent fiscal periods of the Fund to the extent that the Fund's expenses
fall below the annualized rates of 1.25% and 1.00% of average daily net assets
for Class A shares and Class Y shares, respectively. For the fiscal years (or
period, as the case may be) ended September 30, 1997, 1998 and 1999 and the
Investment Adviser earned and was paid the following amounts, unless some
portion of the fee was waived as indicated.
<TABLE>
<CAPTION>
- ---------------------------- -------------------------- -------------------------- --------------------------
Fiscal Year Ended ADVISORY FEES ADVISORY FEES WAIVED ADVISORY FEES
September 30 EARNED PAID BY FUND
- ---------------------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
1997* $ 74,637 $ 74,637 None
- ---------------------------- -------------------------- -------------------------- --------------------------
1998 $115,986 $115,986 None
- ---------------------------- -------------------------- -------------------------- --------------------------
1999 $163,178 $163,178 None
- ---------------------------- -------------------------- -------------------------- --------------------------
</TABLE>
*For the period from September 19, 1996 (start of business) to September 30,
1997.
FUND ADMINISTRATION
- --------------------------------------------------------------------------------
Firstar Mutual Fund Services, LLC ("Firstar") serves as Fund
Administrator pursuant to a Fund Administration Servicing Agreement with the
Company. As such Firstar provides all necessary bookkeeping, shareholder
recordkeeping services and share transfer services to the Fund.
Under the Fund Administration Servicing Agreement, Firstar receives an
administration fee for the Fund, at an annual rate of 7 basis points (0.07%) on
the first $200 million, 5 basis points (0.05%) on the next $500 million and 4
basis points (0.04%) on the balance of the daily average net assets of the Fund.
The Fund Administration Servicing Agreement further provides that the annual fee
in any event shall not be less than $30,000 for Class A shares and $25,000 for
Class Y shares. Fees are billed to the Fund on a monthly basis. Prior to August
30, 1999, Federated Services Company ("Federated") provided administrative
services to the Fund. Over the last three fiscal years, the Fund paid the
following amounts in administrative fees:
<TABLE>
<CAPTION>
Administrative Fees Paid to:
- ------------------------ -------------------------------- -----------------------------------
Fiscal Year Ended FEDERATED FIRSTAR
September 30 (Sept. 19, 1996 - Aug. 29, (Aug. 30, 1999 - Sept. 30, 1999)
1999)
- ------------------------ -------------------------------- -----------------------------------
<S> <C> <C>
1997* $46,164 N/A
- ------------------------ -------------------------------- -----------------------------------
1998 $50,001 N/A
- ------------------------ -------------------------------- -----------------------------------
1999 $45,834 $4,583
- ------------------------ -------------------------------- -----------------------------------
</TABLE>
*For the period from September 19, 1996 (start of business) to
September 30, 1997.
FUND ACCOUNTING AND TRANSFER AGENT
- --------------------------------------------------------------------------------
Firstar Mutual Fund Services, LLC, serves as Fund Accountant and
Transfer Agent to the Fund pursuant to a Fund Accounting Servicing Agreement and
a Transfer Agent Servicing Agreement. Under the Fund Accounting Servicing
Agreement, Firstar will provide portfolio accounting services, expense accrual
and payment services, fund valuation and financial reporting services, tax
accounting services and compliance control services. Firstar will receive a fund
accountant fee for the Fund, which will be billed on a monthly basis.
Under the Transfer Agent Servicing Agreement, Firstar will provide all
of the customary services of a transfer agent and dividend disbursing agent
including, but not limited to: (1) receiving and processing orders to purchase
or redeem shares; (2) mailing shareholder reports and prospectuses to current
shareholders; and (3) providing blue sky services to monitor the number of Fund
shares sold in each state. Firstar will receive a transfer agent fee, which will
be billed on a monthly basis.
CUSTODIAN
- --------------------------------------------------------------------------------
The Custodian for the Fund is Firstar Bank, N.A., 425 Walnut Street,
Cincinnati, OH 45202. Firstar Bank, N.A., as Custodian, holds all of securities
and cash owned by the Fund.
DISTRIBUTOR
- --------------------------------------------------------------------------------
Nomura Securities International, Inc. ("Nomura Securities" or
"Distributor") serves as distributor and principal underwriter for the Fund
pursuant to a Distribution Agreement and a Rule 12b-1 Plan. As stated in the
Prospectus, Nomura Securities is an affiliate of the Investment Adviser and is a
registered broker-dealer and member of the National Association of Securities
Dealers.
Nomura Securities bears all expenses of providing distribution services
pursuant to the Distribution Agreement. Under the Distribution Agreement, the
Distributor offers shares of the Fund continuously at the public offering price
as set forth in the Prospectus, which will not exceed the net asset value plus
and sales charge. Nomura Securities provides for the preparation of advertising
or sales literature and bears the cost of printing and mailing Prospectuses to
persons other than shareholders. The Fund bears the cost of qualifying and
maintaining the qualification of Fund shares for sale under the securities laws
of the various states and the expense of registering their shares with the
Securities and Exchange Commission. For its services under the Distribution
Agreement, Nomura Securities receives a fee, payable monthly, at the annual rate
of 0.25% of average daily net assets of Class A shares of the Fund. This fee is
accrued daily as an expense of the Fund.
The Distributor may enter into related selling group agreements with
various broker-dealer firms that provide distribution services to investors.
Since the Distribution Agreement provides for fees that are used by
Nomura Securities to pay for distribution services, the Distribution Agreement
along with the related selling agreements is approved and reviewed in accordance
with the Fund's Rule 12b-1 Plan under the 1940 Act, which regulates the manner
in which an investment company may, directly or indirectly, bear the expenses of
distributing its shares.
The Fund paid the Distributor the following commissions over the last
three fiscal years:
<TABLE>
<CAPTION>
- ------------------------- ----------------------------------- -----------------------------------
Fiscal Year Ended DISTRIBUTION COMMISSIONS PAID COMMISSIONS RETAINED BY
September 30 DISTRIBUTOR
- ------------------------- ----------------------------------- -----------------------------------
<S> <C> <C>
1997* 50,848 22,696
- ------------------------- ----------------------------------- -----------------------------------
1998 45,515 20,730
- ------------------------- ----------------------------------- -----------------------------------
1999 32,228 27,737
- ------------------------- ----------------------------------- -----------------------------------
</TABLE>
*For the period from September 19, 1996 (start of business) to
September 30, 1997.
DISTRIBUTION PLAN
- --------------------------------------------------------------------------------
See "Distribution of Shares" in the Prospectus for certain information with
respect to the distribution plan for Class A shares pursuant to Rule 12b-1 under
the Investment Company Act (the "Distribution Plan") with respect to the
distribution fees paid by the Fund to the Distributor with respect to such
class.
The Distribution Plan is a compensation plan, which means that the Distributor
receives a fee of 0.25% of the average daily net asset value of Class A shares
for performing certain services for such class. Payments of the distribution
fees are subject to the provisions of Rule 12b-1 under the 1940 Act. Among other
things, the Distribution Plan provides that the Distributor shall provide and
the Directors shall review quarterly reports of the disbursement of the
distribution fees paid to the Distributor. In their consideration of the
Distribution Plan, the Directors must consider all factors they deem relevant,
including information as to the benefits of the Distribution Plan to the Fund
and its shareholders. The Distribution Plan further provides that so long as the
Distribution Plan remains in effect, the selection and nomination of Directors
who are not "interested persons" of the Fund, as defined in the 1940 Act, (the
"Independent Directors"), shall be committed to the discretion of the
Independent Directors then in office. In approving the Distribution Plan in
accordance with Rule 12b-1, the Independent Directors concluded that there is a
reasonable likelihood that such Distribution Plan will benefit the Fund and its
related class of shareholders. The Distribution Plan can be terminated at any
time, without penalty, by the vote of a majority of the Independent Directors,
or the vote of the holders of a majority of the outstanding related class of
voting securities of the Fund or by the Distributor upon 60 days' written notice
to the Fund. The Distribution Plan cannot be amended to increase materially the
amount to be spent by the Fund without the approval of the related class of
shareholders, and all material amendments are required to be approved by the
vote of Directors, including a majority of the Independent Directors who have no
direct or indirect financial interest in such Distribution Plan, cast in person
at a meeting called for that purpose. Rule 12b-1 further requires that the Fund
preserve copies of the Distribution Plan and any reports made pursuant to the
plan for a period of not less than six years from the date of such Distribution
Plan or such report, the first two years in an easily accessible place.
For the fiscal year ended September 30, 1999, the Class A shares incurred Rule
12b-1 fees of $12,696 representing commissions paid to the Distributor and
Broker Dealers. The Fund did not pay any fees from the Distribution Plan for
advertising or printing.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
Subject to policies established by the Directors of the Fund, the Investment
Adviser is primarily responsible for the portfolio decisions of the Fund and the
placing of the portfolio transactions for the Fund. With respect to such
transactions, the Investment Adviser seeks to obtain the best net results for
the Fund, taking into account such factors as price (including the applicable
brokerage commission or dealer spread), size of order, difficulty of execution
and operational facilities of the firm involved and the firm's risk in
positioning a block of securities. While the Investment Adviser generally seeks
reasonably competitive commission rates, the Fund will not necessarily be paying
the lowest commission or spread available. Transactions with respect to the high
yield securities in which the Fund invests may involve specialized services on
the part of the broker or dealer and thereby entail higher commissions or
spreads than would be the case with transactions involving more widely traded
securities.
The Fund has no obligation to deal with any broker in the execution of
transactions for its portfolio securities. Subject to obtaining the best price
and execution, securities firms that provided supplemental investment research
to the Investment Adviser, including the Distributor, may receive orders for
transactions by the Fund. Information so received will be in addition to and not
in lieu of the services required to be performed by the Investment Adviser under
the Investment Advisory Agreement, and the expenses of the Investment Adviser
will not necessarily be reduced as a result of the receipt of such supplemental
information. In addition, consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc. and policies established by the
Directors of the Fund, the Investment Adviser may consider sales of shares of
the Fund as a factor in the selection of brokers or dealers to execute portfolio
transactions for the Fund.
The securities in which the Fund invests are traded primarily in the
over-the-counter market. Transactions in the over-the-counter market generally
are principal transactions with dealers and the costs of such transactions
involve dealer spreads. With respect to over-the-counter transactions, the Fund,
where possible, will deal directly with the dealers who make a market in the
securities involved except in those circumstances where better prices and
execution are available elsewhere. Such dealers usually act as principals for
their own account. On occasion, securities may be purchased directly from the
issuer. Bonds and money market securities are generally traded on a net basis
and do not normally involve either brokerage commissions or transfer taxes.
Securities firms may receive brokerage commissions on certain portfolio
transactions, including options, futures and options on futures transactions and
the purchase and sale of underlying securities upon exercise of options. The
cost of portfolio securities transactions of the Fund will consist primarily of
dealer or underwriter spreads. Since portfolio transactions will generally not
be effected on foreign securities exchanges, the Fund does not expect typically
to incur potential settlement delays which may occur on certain of such
exchanges.
For the fiscal years ended September 30, 1997, September 30, 1998 and September
30, 1999, the Fund did not pay any commissions on the purchase of portfolio
securities. With regard to over-the-counter transactions, the price paid by the
Fund generally includes the cost paid by the dealer plus the applicable spread
earned by the dealer on the transaction.
Under the 1940 Act, persons affiliated with the Fund are prohibited from dealing
with the Fund as a principal in the purchase and sale of securities unless an
exemptive order allowing such transactions is obtained from the SEC. Since
transactions in the over-the-counter market usually involve transactions with
dealers acting as principal for their own account, affiliated persons of the
Fund, including the Distributor, may not serve as the Fund's dealer in
connection with such transactions. See "Investment Objective and
Policies--Investment Restrictions." However, with certain limitations, an
affiliated person of the Fund may serve as its broker in over-the-counter
transactions conducted on an agency basis.
The Directors of the Fund have considered the possibilities of seeking to
recapture for the benefit of the Fund brokerage commissions, dealer spreads and
other expenses of possible portfolio transactions, such as underwriting
commissions and tender offer solicitation fees, by conducting such portfolio
transactions through affiliated entities, including the Distributor. For
example, brokerage commissions received by the Distributor could be
offset against the advisory fee payable by the Fund to the Investment Adviser.
The Board of Directors will reconsider this matter from time to time. The
Investment Adviser has arranged for the Fund's custodian to receive any tender
offer solicitation fees on behalf of the Fund payable with respect to portfolio
securities of the Fund.
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
See "Purchasing Shares" in the Prospectus for certain information as to the
purchase of shares of the Fund.
The term "purchase," as used in the Prospectus and this Statement of Additional
Information in connection with an investment in Class A and Class Y shares of
the Fund, refers to a single purchase by an individual or to concurrent
purchases, which in the aggregate are at least equal to the prescribed amounts,
by an individual, his or her spouse and their children under the age of 21 years
purchasing shares for his or her own account and to single purchases by a
trustee or other fiduciary purchasing shares for a single trust estate or single
fiduciary account although more than one beneficiary is involved. The term
"purchase" also includes purchases by any "company," as that term is defined in
the Investment Company Act, but does not include purchases by any such company
which has not been in existence for at least six months or which has no purpose
other than the purchase of shares of the Fund or shares of other registered
investment companies at a discount; provided, however, that it shall not include
purchases by any group of individuals whose sole organizational nexus is that
the participants therein are credit cardholders of a company, policyholders of
an insurance company, customers of either a bank or broker-dealer or clients of
an investment adviser.
PURCHASES THROUGH AGENTS OF THE FUND
The Fund has authorized one or more brokers to accept on its behalf purchase and
redemption orders. The Fund will be deemed to have received a purchase or
redemption order when an authorized broker accepts the order. Customer orders
will be priced at the Fund's net asset value next computed after they are
accepted by an authorized broker or the broker's designee.
REDUCED INITIAL SALES CHARGES
LETTER OF INTENTION. Reduced sales charges are applicable to purchases
aggregating $50,000 or more of the Class A shares of the Fund made within a
13-month period starting with the first purchase pursuant to the Letter of
Intention in the form provided in the Prospectus. The Letter of Intention is not
a binding obligation to purchase any amount of Class A shares; however, its
execution will result in the purchaser paying a lower sales charge at the
appropriate quantity purchase level. A purchase not originally made pursuant to
a Letter of Intention may be included under a subsequent Letter of Intention
executed within 90 days of such purchase if the Transfer Agent is informed in
writing of this intent within such 90-day period. The value of Class A shares of
the Fund may be included as a credit toward the completion of such Letter, but
the reduced sales charge applicable to the amount covered by such Letter will be
applied only to new purchases. If the total amount of shares does not equal the
amount stated in the Letter of Intention (minimum of $50,000), the investor will
be notified within 20 days of the expiration of such Letter. Class A shares
equal to up to 4.5% of the intended amount will be held in escrow during the
13-month period (while remaining registered in the name of the purchaser) for
this purpose. The first purchase under the Letter of Intention must be at least
5.0% of the dollar amount of such Letter. The value of any shares redeemed or
otherwise disposed of by the purchaser prior to termination or completion of the
Letter of Intention will be deducted from the total purchases made under such
Letter. If the amount specified in the Letter of Intention is not purchased, an
appropriate number of escrowed shares will be redeemed to realize the difference
between the sales charge on the Class A shares purchased at the reduced rate and
the sales charge applicable to the shares actually purchased through the Letter.
ACQUISITION OF CERTAIN INVESTMENT COMPANIES. The public offering price of Class
A shares may be reduced to the net asset value per Class A share in connection
with the acquisition of the assets of or merger or consolidation with a personal
holding company or a public or private investment company. The issuance of Class
A shares for consideration other than cash is limited to bona fide
reorganizations, statutory mergers or other acquisitions of portfolio securities
that
(a) meet the investment objective and policies of the Fund;
(b) are acquired for investment and not for resale (subject to the
understanding that the disposition of the Fund's portfolio securities
shall at all times remain within its control); and
(c) are liquid securities, the value of which is readily ascertainable,
which are not restricted as to transfer either by law or liquidity of
market (except that the Fund may acquire through such transactions
restricted or illiquid securities to the extent the Fund does not
exceed the applicable limits on acquisition of such securities set
forth under "Investment Objective and Policies" herein).
Reductions in or exemptions from the imposition of a sales load are due to the
nature of the investors and/or the reduced sales efforts that will be needed in
obtaining such investments. Under such programs, the Fund realizes economies of
scale and reduction of sales related expenses by virtue of familiarity with the
Fund.
REDEEMING SHARES
- --------------------------------------------------------------------------------
See "Redeeming Shares" in the Prospectus for certain information as to the
redemption and repurchase of shares of the Fund.
The right to redeem shares or to receive payment with respect to any such
redemption may be suspended only for any period during which trading on the New
York Stock Exchange is restricted as determined by the SEC or such Exchange is
closed (other than customary weekend and holiday closings), for any period
during which an emergency exists as defined by the SEC as a result of which
disposal of portfolio securities or determination of the net asset value of the
Fund is not reasonably practicable, and for such other periods as the SEC may by
order permit for the protection of shareholders of the Fund.
DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
See "Price of Shares" in the Prospectus concerning the determination of net
asset value. Normally, the net asset value of the shares of the Fund is
determined once daily Monday through Friday as of 4:00 p.m., EST, on each day
during which the New York Stock Exchange is open for trading. The New York Stock
Exchange is not open on New Year's Day, Martin Luther King Jr., Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. The Fund also will determine its net asset value on any day
in which there is sufficient trading in its portfolio securities that the net
asset value might be affected materially, but only if on any such day the Fund
is required to sell or redeem shares. The net asset value per share of the Fund
is computed by dividing the sum of the value of the securities held by the Fund
plus any cash or other assets (including interest and dividends accrued but not
yet received) minus all liabilities (including accrued expenses) by the total
number of shares outstanding at such time, rounded to the nearest cent.
Expenses, including the investment advisory fees and distribution fees, are
accrued daily. The per share net asset value of the Class A shares of the Fund
generally will be lower than the per share net asset value of the Class Y shares
of the Fund reflecting the daily expense accruals of the distribution or
shareholder service fees applicable with respect to the Class A shares. It is
expected, however, that the per share net asset value of the two classes will
tend to converge immediately after the payment of dividends or distributions,
which will differ by approximately the amount of the expense accrual
differential between the classes.
Market and fair values of the Fund's portfolio securities are determined as
follows:
o for bonds and other fixed income securities, as determined by an independent
pricing service;
o for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, or for short-term obligations
with remaining maturities of 60 days or less at the time of purchase,
at amortized cost;
o for equity securities, according to the last sale price on a national
securities exchange, if applicable; o in the absence of recorded sales for
listed equity securities, according to the mean between the last closing bid
and asked prices;
o for unlisted equity securities, latest bid prices; or
o for all other securities, at fair value as determined in good faith by the
Directors.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics and other market data. The Fund will value
futures contracts at their market value established by the exchanges at the
close of trading on such exchanges unless the Directors determine in good faith
that another method of valuing positions is necessary.
Over-the-counter put options will be valued at the mean between the bid and
asked prices. Covered call options will be valued at the last sale price on the
national exchange on which such option is traded. Unlisted call options will be
valued at the latest bid price as provided by brokers.
An illustration of the computation of the initial offering price for Fund
shares, based on the projected value of the Fund's estimated net assets and
projected number of shares outstanding on the date its shares are first offered
for sale to public investors is as follows:
<TABLE>
<CAPTION>
Class A Class Y
-------------- ----------------
<S> <C> <C>
Net Assets $4,210,884 $19,866,229
Number of Shares Outstanding 467,686 2,205,666
Net Asset Value Per Share $9.00 $9.01
(net assets divided by number of shares outstanding)
Sales Charge $0.42 $0
(4.5% on Class A only; 4.71% of amount invested)
Offering Price $9.42 $9.01
</TABLE>
OPTION ACCOUNTING PRINCIPLES
When the Fund sells an option, an amount equal to the premium received by the
Fund is included in the Fund's Statement of Assets and Liabilities as a deferred
credit. The amount of such liability will be subsequently marked to market to
reflect the current market value of the option written. If current market value
exceeds the premium received there is an unrealized loss; conversely, if the
premium exceeds current market value there is an unrealized gain. If an option
expires on its stipulated expiration date or if the Fund enters into a closing
purchase transaction, the Fund will realize a gain (or loss if the cost of a
closing purchase transaction exceeds the premium received when the option was
sold) without regard to any unrealized gain or loss on the underlying security,
and the liability related to such option will be extinguished. If an option is
exercised, the Fund will realize a gain or loss from the sale of the underlying
security and the proceeds of sale are increased by the premium originally
received.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times that vary from the
closing of the New York Stock Exchange. In computing the net asset value, the
Fund values foreign securities at the latest closing price on the exchange on
which they are traded immediately prior to the closing of the New York Stock
Exchange. Certain foreign currency exchange rates may also be determined at the
latest rate prior to the closing of the New York Stock Exchange. Foreign
securities quoted in foreign currencies are translated into U.S. dollars at
current rates. Occasionally, events that affect these values and exchange rates
may occur between the times at which they are determined and the closing of the
New York Stock Exchange. If such events materially affect the value of portfolio
securities, these securities may be valued at their fair value as determined in
good faith by the underlying fund's board of directors, although the actual
calculation may be done by others.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
A number of shareholder services and investment plans are available which are
designed to facilitate investment in the Fund's shares. Full details as to each
of such services, copies of the various plans described below and instructions
as to how to participate in the various services or plans, or how to change
options with respect thereto, can be obtained from the Fund by calling the
telephone number on the cover page hereof or from the Transfer Agent.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specified otherwise, all dividends and capital gains distributions of the
Fund are reinvested automatically in full and fractional shares of the Fund, at
the net asset value per share next determined on the ex-dividend date of such
dividend or distribution. A shareholder may, at any time, by written
notification to the Transfer Agent, elect to have subsequent dividends or both
dividends and capital gains distributions paid in cash.
SYSTEMATIC WITHDRAWAL AND SYSTEMATIC INVESTMENT PLANS
A Class A or Class Y shareholder may elect to receive systematic redemption
payments from his or her investment account in the form of payments by check or
through automatic payment by direct deposit to his or her bank account on either
a monthly or quarterly basis.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
The Investment Adviser and/or Distributor may pay financial institutions a fee
for providing certain services to both Class A and Class Y shareholders and for
services involved in connection with the distribution of shares of the Fund.
These fees are in addition to the amounts paid under the Distribution Plan
and/or Shareholder Services Agreement and, to the extent paid by the
Distributor, such fees will be reimbursed to the Distributor by the Investment
Adviser and not the Fund.
TAXES
- --------------------------------------------------------------------------------
The Fund intends to continue to qualify for the special tax treatment afforded
regulated investment companies ("RICs") under the Code. If it so qualifies, the
Fund (but not its shareholders) will not be subject to federal income tax on the
part of its net ordinary income and net realized capital gains which it
distributes to Class A and Class Y shareholders (together, the "shareholders").
The Fund intends to distribute all of such income.
Dividends paid by the Fund from its ordinary income or from an excess of net
short-term capital gains over net long-term capital losses (together referred to
hereafter as "ordinary income dividends") are taxable to shareholders as
ordinary income. Distributions made from an excess of net long-term capital
gains over net short-term capital losses (including gains or losses from certain
transactions in futures and options) ("capital gain dividends") are taxable to
shareholders as long-term capital gains, regardless of the length of time the
shareholder has owned Fund shares. Certain categories of capital gains are
taxable at different rates. The categories of gain and related rates will be
passed through to shareholders in capital gain dividends. Any loss upon the sale
or exchange of Fund shares held for six months or less will be treated as
long-term capital loss to the extent of any long term capital gain dividends
received by the shareholder. Distributions in excess of the Fund's earnings and
profits will first reduce the adjusted tax basis of a holder's shares and, after
such adjusted tax basis is reduced to zero, will constitute capital gains to
such holder (assuming the shares are held as a capital asset).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any capital gain dividends as well as any amount of
capital gain dividends in the different categories of capital gain referred to
above. Distributions by the Fund, whether from ordinary income or capital gains,
generally will not be eligible for the dividends received deduction allowed to
corporations under the Code. If the Fund pays a dividend in January which was
declared in the previous October, November or December to shareholders of record
on a specified date in one of such months, then such dividend will be treated
for tax purposes as being paid by the Fund and received by its shareholders on
December 31 of the year in which such dividend was declared.
Ordinary income dividends paid to shareholders who are nonresident aliens or
foreign entities will be subject to a 30% United States withholding tax under
existing provisions of the Code applicable to foreign individuals and entities
unless a reduced rate of withholding or a withholding exemption is provided
under applicable treaty law. Nonresident shareholders are urged to consult their
own tax advisers concerning the applicability of the United States withholding
tax.
To the extent the Fund invests in securities issued by issuers in foreign
countries, dividends and interest received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes.
Under certain provisions of the Code, some shareholders may be subject to a 31%
withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with the Fund or who, to the Fund's knowledge, have furnished
an incorrect number. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that such investor is
not otherwise subject to backup withholding.
No gain or loss will be recognized on the conversion of Class A shares into
Class Y shares in the circumstances described in the Prospectus. A shareholder's
basis in the shares acquired will be the same as such shareholder's basis in the
shares converted, and the holding period of the acquired shares will include the
holding period for the converted shares.
If a shareholder exercises an exchange privilege within 90 days of acquiring
such shares, then the loss the shareholder can recognize on the exchange will be
reduced (or the gain increased) to the extent any sales charge paid to the Fund
on the exchanged shares reduces any sales charge the shareholder would have owed
upon the purchase of the new shares in the absence of the exchange privilege.
Instead, such sales charge will be treated as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be disallowed
if other Fund shares are acquired (whether through the automatic reinvestment of
dividends or otherwise) within a 61-day period beginning 30 days before and
ending 30 days after the date that the shares are disposed of. In such a case,
the basis of the shares acquired will be adjusted to reflect the disallowed
loss.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent the
RIC does not distribute, during each calendar year, 98% of its ordinary income,
determined on a calendar year basis, and 98% of its capital gains, determined,
in general, on an October 31 year end, plus certain undistributed amounts from
previous years. While the Fund intends to distribute its income and capital
gains in the manner necessary to minimize imposition of the 4% excise tax, there
can be no assurance that sufficient amounts of the Fund's taxable income and
capital gains will be distributed to avoid entirely the imposition of the tax.
In such event, the Fund will be liable for the tax only on the amount by which
it does not meet the foregoing distribution requirements.
The Fund will invest in securities rated in the lower rating categories of
nationally recognized statistical rating organizations, and in unrated
securities ("junk bonds" or "high yield securities"), as described in the
Prospectus. Some of these high yield securities may be purchased at a discount
and may therefore cause the Fund to accrue and distribute income before amounts
due under the obligations are paid. In addition, a portion of the interest
payments on such high yield securities may be treated as dividends for federal
income tax purposes; in such case, if the issuer of such high yield securities
is a domestic corporation, dividend payments received by the Fund will be
eligible for the dividends received deduction to the extent of the deemed
dividend portion of such interest payments.
TAX TREATMENT OF OPTIONS AND FUTURES TRANSACTIONS
The Fund may write, purchase or sell options and futures. In general, unless an
election is available to the Fund or an exception applies, options and futures
contracts that are "Section 1256 contracts" will be "marked to market" for
federal income tax purposes at the end of each taxable year, (I.E., each such
option or futures contract will be treated as sold for its fair market value on
the last day of the taxable year), and any gain or loss attributable to Section
1256 contracts will be 60% long-term and 40% short-term capital gain or loss.
Application of these rules to Section 1256 contracts held by the Fund may alter
the timing and character of distributions to shareholders. The mark-to-market
rules outlined above, however, may not apply to certain transactions entered
into by the Fund solely to reduce the risk of changes in price or interest or
currency exchange rates with respect to its investments.
Code Section 1092, which applies to certain "straddles," may affect the taxation
of the Fund's sales of securities and transactions in options and futures
contracts. Under Section 1092, the Fund may be required to postpone recognition
for tax purposes of losses incurred in certain sales of securities and certain
closing transactions in options and futures contracts.
The foregoing is a general and abbreviated summary of the applicable provisions
of the Code and Treasury regulations presently in effect. For the complete
provisions, reference should be made to the pertinent Code sections and the
Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative, judicial or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states are exempt from state income taxation dividends paid by RICs,
which are derived from interest on U.S. government obligations. State law varies
as to whether dividend income attributable to U.S. government obligations is
exempt from state income tax.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Fund.
PERFORMANCE DATA
- --------------------------------------------------------------------------------
From time to time, the Fund may include its average annual total return and
other total return data, as well as yield, in advertisements or information
furnished to present or prospective shareholders. Total return and yield figures
will be based on the Fund's historical performance and are not intended to
indicate future performance. Average annual total return and yield are
determined separately for Class A and Class Y shares of the Fund in accordance
with formulae specified by the SEC.
Average annual total return quotations for the Fund for the specified periods
will be computed by finding the average annual compounded rates of return (based
on net investment income and any realized and unrealized capital gains or losses
on portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return will be computed assuming all dividends and
distributions are reinvested and taking into account all applicable recurring
and nonrecurring expenses, including the maximum sales charge in the case of
Class A shares.
The Fund also may quote total return and aggregate total return performance data
for various specified time periods. Such data will be computed as described
above, except that (1) the rates of return calculated will not be average annual
rates, but rather, actual annual, annualized or aggregate rates of return and
(2) the maximum applicable sales charges will not be included with respect to
annual or annualized rates of return calculations. Aside from the impact on the
performance data calculations of including or excluding the maximum applicable
sales charges, actual annual or annualized total return data generally will be
lower than average annual total return data since the average rates of return
reflect compounding of return; aggregate total return data generally will be
higher than average annual total return since the aggregate rates of return
reflect compounding over a longer period of time. The Fund's total return may be
expressed either as a percentage or as a dollar amount in order to illustrate
the effect of such total return on a hypothetical $1,000 investment in a Fund at
the beginning of each specified period.
Yield quotations for the Fund will be computed based on a 30-day period by
dividing (a) the net income based on the yield of each security earned during
the period by (b) the average daily number of shares outstanding in the Fund
during the period that were entitled to receive dividends multiplied by the
maximum offering price/net asset value per share of the Fund on the last day of
the period.
Total return figures and yield figures are based on the Fund's historical
performance and are not intended to indicate future performance. The Fund's
total return will vary depending on market conditions, the securities comprising
the Fund's holdings, operating expenses and the amount of realized and
unrealized net capital gains or losses during the period. The value of an
investment in the Fund will fluctuate and an investor's shares, when redeemed,
may be worth more or less than their original cost.
On occasion, the Fund may compare its performance to that of the Merrill Lynch
High Yield Master II Index, the Standard & Poor's 500 Composite Stock Price
Index, the Dow Jones Industrial Average, or performance data published by Lipper
Analytical Services, Inc., Morningstar Publications, Inc., MONEY MAGAZINE, U.S.
NEWS & WORLD REPORT, BUSINESS WEEk, CDA Investment Technology, Inc., FORBES
MAGAZINE and FORTUNE MAGAZINe. As with other performance data, performance
comparisons should not be considered representative of the Fund's relative
performance for any future period.
TOTAL RETURN
The average annual total return of the Fund for one year ending September 30,
1999 and from inception to September 30, 1999 is as follows:
- ---------------------------------------- -------------- ------------
ANNUALIZED TOTAL RETURN CLASS A* CLASS Y
- ---------------------------------------- -------------- ------------
1 year ending 9/30/99 -3.80% 1.13%
- ---------------------------------------- -------------- ------------
10/28/96 (Inception) to 9/30/99 6.52% 8.51%
- ---------------------------------------- -------------- ------------
*With maximum sales load of 4.50%.
Average annual total return quotations used in the Fund's advertising and
promotional materials are calculated according to the following formula:
P(1+T)n = ERV
where P equals a hypothetical initial payment of $1,000; T equals average annual
total return; n equals the number of years; and ERV equals the ending redeemable
value at the end of the period of a hypothetical $1,000 payment made at the
beginning of the period.
Under the foregoing formula, the time periods used in advertising will be based
on rolling calendar quarters, updated to the last day of the most recent
calendar quarter prior to submission of the advertising for publication. Average
annual total return, or "T" in the above formula, is computed by finding the
average annual compounded rates of return over the period that would equate the
initial amount invested to the ending redeemable value. Average annual total
return assumes the reinvestment of all dividends and distributions.
YIELD
The Fund's yield for the thirty-day period ended September 30, 1999 was as
follows:
- ------------------------------------- ----------- ------------
YIELD CLASS A CLASS Y
- ------------------------------------- ----------- ------------
30 days ending 9/30/99 9.07% 9.75%
Annualized yield quotations used in a Fund's advertising and promotional
materials are calculated by dividing the Fund's interest income for a specified
thirty-day period, net of expenses, by the average number of shares outstanding
during the period, and expressing the result as an annualized percentage
(assuming semi-annual compounding) of the net asset value per share at the end
of the period. Yield quotations are calculated according to the following
formula:
YIELD = 2[(A-B + 1)6 - 1]
c-d
where "a" equals dividends and interest earned during the period; "b" equals
expenses accrued for the period, net of reimbursements; "c" equals the average
daily number of shares outstanding during the period that are entitled to
receive dividends; and "d" equals the maximum offering price per share on the
last day of the period.
For purposes of these calculations, the maturity of an obligation with one or
more call provisions is assumed to be the next date on which the obligation
reasonably can be expected to be called or, if none, the maturity date.
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
The fiscal year of the Fund ends on September 30 of each year. The Fund will
send to its shareholders at least semi-annually reports showing the Fund's
portfolio and other information. An annual report, containing financial
statements audited by independent auditors, is sent to shareholders each year.
After the end of each calendar year, shareholders will receive federal income
tax information regarding dividends and capital gains distributions.
INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
Deloitte & Touche, LLP, 180 North Stetson Avenue, Chicago, Illinois 60601-6779,
has been selected as the independent auditors of the Fund.
LEGAL COUNSEL
- --------------------------------------------------------------------------------
Brown & Wood LLP, One World Trade Center, New York, NY 10048-0557, is counsel
for the Fund.
APPENDIX A
- --------------------------------------------------------------------------------
RATINGS OF HIGH YIELD DEBT SECURITIES DESCRIPTION OF MOODY'S INVESTORS SERVICE,
INC. CORPORATE RATINGS Ba-Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well-safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B-Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa-Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca-Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C-Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
NOTE: Moody's applies numerical modifiers l, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF STANDARD & POOR'S CORPORATE DEBT RATINGS
An S&P corporate or municipal rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The debt rating is not a recommendation to purchase, sell or hold a security,
nor a comment as to market price or suitability for a particular investor.
The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended or withdrawn as a result of
changes in, or unavailability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
II. nature of and provisions of the obligation; and
III. protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
Debt rated BB, B, CCC, CC and C is regarded, on balance, as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B--Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions would likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC--Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to meet
timely payments of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC--The rating CC is typically applied to debt subordinated to senior debt that
is assigned an actual or implied CCC rating.
C--The rating C is typically applied to debt subordinated to senior debt that is
assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed but debt service
payments are continued.
CI--The rating CI is reserved for income bonds on which no interest is being
paid.
D--Debt rated D is in payment default. The D rating category is also used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing with the major
ratings categories.
Provisional ratings: The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the likelihood of,
or risk of default upon failure of, such completion. The investor should
exercise judgment with respect to such likelihood and risk.
L--The letter "L" indicates that the rating pertains to the principal amount of
those bonds to the extent that the underlying deposit collateral is insured by
the Federal Savings & Loan Insurance Corp. or the Federal Deposit
Insurance Corp. and interest is adequately collateralized.
*--Continuance of the rating is contingent upon S&P's receipt of an executed
copy of the escrow agreement or closing documentation confirming investments and
cash flows.
NR--Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that S&P does not rate a particular
type of obligation as a matter of policy.
Debt obligations of issuers outside the U.S. and its territories are rated on
the same basis as domestic corporate and municipal issues. The ratings measure
the creditworthiness of the obligor but do not take into account currency
exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank regulations
issued by the Comptroller of the Currency, Bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments may impose certain rating
or other standards for obligations eligible for investment by savings banks,
trust companies, insurance companies and fiduciaries generally.
The ratings are based on current information furnished to S&P by the issuer, and
obtained by S&P from other sources it considers reliable. The ratings may be
changed, suspended, or withdrawn as a result of changes in, or unavailability of
such information.
APPENDIX B
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HEDGING TECHNIQUES
The Fund may engage in various portfolio strategies to hedge its portfolio
against interest rate risks. These strategies include use of options on
portfolio positions, futures and options on such futures. The Fund may enter
into such transactions only in connection with its hedging strategies. While the
Fund's use of hedging strategies is intended to reduce the volatility of the net
asset value of Fund shares, the Fund's net asset value will fluctuate. There can
be no assurance that the Fund's hedging transactions will be effective and the
Fund may not necessarily be engaging in hedging activities when movements in
interest rates occur. See "Investment Objective and Policies" in the Fund's
Prospectus for further information concerning these strategies.
Although certain risks are involved in options and futures transactions (as
discussed below in "Risk Factors in Options and Futures Transactions"), the
Investment Adviser believes that, because the Fund will only engage in these
transactions for hedging purposes, the options and futures portfolio strategies
of the Fund will not subject the Fund to the risks frequently associated with
the speculative use of options and futures transactions. See "Taxes" in the
Statement of Additional Information.
The Fund may use the hedging instruments described below to hedge against
interest rate risks:
OPTIONS. The Fund may purchase and write (i.e., sell) call options and put
options on securities and engage in transactions in financial futures and
related options, as described below.
The Fund may write covered call options with respect to securities it owns and
enter into closing purchase transactions with respect to such options. A covered
call option provides the holder of the option with the right to buy the
underlying security covered by the option at the stated exercise price until the
option expires. A covered call option is an option where the Fund, in return for
a premium, gives another party a right to buy particular securities held by the
Fund at a specified price for a certain period of time. In return for the
premium income realized from the sale of the option, the Fund gives up the
opportunity to profit from a price increase in the underlying security above the
option exercise price while the option is in effect. In addition, the Fund's
ability to sell the underlying security will be limited until the option is
closed or expires. A closing purchase transaction cancels out the Fund's
position as the writer of an option by means of an offsetting purchase of an
identical option prior to the expiration of the option it has written. The Fund
also may purchase call options on securities held in its portfolio on which it
has written call options or on securities which it intends to purchase. There is
no percentage limitation with respect to portfolio securities on which the Fund
may write call options.
The Fund may purchase put options on portfolio securities. In return for payment
of a premium, the purchase of a put option gives the holder thereof the right to
sell the security underlying the option to another party at a specified price
until the put option is closed out, expires or is exercised. The Fund will
purchase put options to seek to reduce the risk of a decline in value of the
underlying security owned by the Fund. The Fund does not intend to purchase
uncovered puts in excess of 10% of its total assets. The total return on the
security may be reduced by the amount of the premium paid for the option. The
Fund may write put options which give the holder of the option the right to sell
the underlying security to the Fund at the stated exercise price. The Fund will
receive a premium for writing a put option, which increases the Fund's return.
The Fund writes only covered put options which means that so long as the Fund is
obligated as the writer of the option it will have deposited and maintained with
its custodian cash or liquid securities with a value equal to or greater than
the exercise price of the underlying securities. By writing a put, the Fund will
be obligated to purchase the underlying security at a price that may be higher
than the market value of that security at the time of exercise for as long as
the option is outstanding. The Fund may engage in closing transactions in order
to terminate put options that it has written or purchased. The Fund intends to
limit its writing of covered puts so that the aggregate value of the obligations
underlying the puts will not exceed 5% of its net assets.
FUTURES. The Fund also may purchase and sell financial futures contracts
("futures contracts") as a hedge against adverse changes in interest rates, as
described below. A futures contract is an agreement between two parties which
obligates the purchaser of the futures contract to buy and the seller of a
futures contract to sell a security for a set price on a future date. The Fund
may effect transactions in futures contracts in U.S. and foreign agency and
government securities and corporate debt securities. Transactions by the Fund in
futures contracts are subject to limitation as described below under
"Restrictions on the Use of Futures Transactions."
The Fund may sell futures contracts in anticipation of an increase in the
general level of interest rates. Generally, as interest rates rise, the market
value of securities held by the Fund will fall, thus reducing the net asset
value of the Fund. As interest rates rise, however, the value of the Fund's
short position in the futures contract also will tend to increase, thus
offsetting all or a portion of the depreciation in the market value of the
Fund's investments which are being hedged. While the Fund will incur commission
expenses in selling and closing out futures positions, these commissions are
generally less than the transaction expenses which would have been incurred had
the Fund sold portfolio securities in order to reduce its exposure to increases
in interest rates.
The Fund may purchase futures contracts in anticipation of a decline in interest
rates when it is not fully invested in a particular market in which it intends
to make investments to gain market exposure that may in part or entirely offset
an increase in the cost of securities it intends to purchase. The Fund does not
consider purchases of futures contracts to be a speculative practice under these
circumstances. In a substantial majority of these transactions, the Fund will
purchase securities upon termination of the futures contract.
The Fund also may purchase and write call and put options on futures contracts
in connection with its hedging activities. Generally, these strategies are
utilized under the same market and market sector conditions (i.e., conditions
relating to specific types of investments) in which the Fund enters into futures
transactions. The Fund may purchase put options or write call options on futures
contracts rather than selling the underlying futures contract in anticipation of
an increase in interest rates. Similarly, the Fund may purchase call options or
write put options on futures contracts as a substitute for the purchase of such
futures to hedge against the increased cost resulting from a decline in interest
rates of securities which the Fund intends to purchase. Limitations on
transactions in options on futures contracts are described below.
The Fund may engage in options and futures transactions on exchanges and in the
over-the-counter ("OTC") markets. In general, exchange-traded contracts are
third-party contracts (i.e., performance of the parties' obligations is
guaranteed by an exchange or clearing corporation) with standardized strike
prices and expiration dates. OTC transactions are two-party contracts with price
and terms negotiated by the buyer and seller. The Fund will engage in OTC
options only with member banks of the Federal Reserve System and primary dealers
in U.S. government securities or with affiliates of such banks or dealers which
have capital of at least $50 million or whose obligations are guaranteed by an
entity having capital of at least $50 million.
The staff of the SEC has taken the position that purchased OTC options and the
assets used as cover for written OTC options are illiquid securities. Therefore,
the Fund has adopted an investment policy pursuant to which it will not purchase
or sell OTC options (including OTC options on futures contracts) if, as a result
of such transaction, the sum of the market value of OTC options currently
outstanding which are held by the Fund, the market value of the underlying
securities covered by OTC call options currently outstanding which were sold by
the Fund and margin deposits on the Funds existing OTC options on futures
contracts exceed 15% of the net assets of the Fund, taken at market value,
together with all other assets of the Fund which are illiquid or are not
otherwise readily marketable. However, if the OTC option is sold by the Fund to
a primary U.S. government securities dealer recognized by the Federal Reserve
Bank of New York and the Fund has the unconditional contractual right to
repurchase such OTC option from the dealer at a predetermined price, then the
Fund will treat as illiquid such amount of the underlying securities as is equal
to the repurchase price less the amount by which the option is "in-the-money"
(i.e., current market value of the underlying security minus the option's strike
price). The repurchase price with the primary dealers is typically a formula
price which is generally based on a multiple of the premium received for the
option plus the amount by which the option is "in-the-money. " This policy as to
OTC options is not a fundamental policy of the Fund and may be amended by the
Directors of the Fund without the approval of the Fund's shareholders. However,
the Fund will not change or modify this policy prior to the change or
modification by the SEC staff of its position.
To trade futures contracts, the Fund is not required to deposit funds equal to
the value of the futures contract. The Fund need only make a deposit, called an
"initial margin deposit," equal to a percentage (typically 15% or less) of the
value of the futures contract. As a result, a relatively small adverse move in
the price of a futures contract may result in a substantial loss. For example,
if at the time of purchase 10% of the price of a futures contract is deposited
as margin, a 10% decrease in the price of that contract would, if the contract
were then closed out, result in a total loss of the initial margin deposit
before any deduction for brokerage commissions and other transaction costs. A
decrease of more than 10% would result in a loss of more than the total initial
margin deposit. Options on futures contracts are generally similarly or even
more highly leveraged. However, when the Fund purchases a futures contract, or
writes a put option or purchases a call option thereon, an amount of cash and
cash equivalents will be deposited in a segregated account with the Fund's
custodian so that the amount so segregated, plus the amount of initial and
variation margin held in the account of its broker, equals the market value of
the futures contract, thereby minimizing the effect of leverage from such
futures contract.
RESTRICTIONS ON THE USE OF FUTURES TRANSACTIONS. Regulations of the Commodity
Futures Trading Commission (the "CFTC") applicable to the Fund Permit the Fund's
futures and options on futures transactions to include (i) bona fide hedging
transactions without regard to the percentage of the Fund's assets committed to
margin and option premiums, and (ii) non-hedging transactions, provided that the
Fund not enter into such non-hedging transactions if, immediately thereafter,
the sum of the amount of initial margin and option premiums required to
establish non-hedging transactions would exceed 5% of the market value of the
Fund's liquidation value, after taking into account unrealized profits and
unrealized losses on any such transactions. However, as stated above, the Fund
intends to engage in options and futures transactions only for hedging purposes.
When the Fund purchases a futures contract or writes a put option or purchases a
call option thereon, it will maintain an amount of cash, cash equivalents (e.g.,
high grade commercial paper and daily tender adjustable notes) or short-term
high grade fixed income securities in a segregated account with the Fund's
custodian so that the amount so segregated, plus the amount of initial and
variation margin held in the account of its broker, equals the market value of
the futures contract, thereby ensuring that the use of such futures is
unleveraged.
RISK FACTORS IN OPTIONS AND FUTURES TRANSACTIONS. Utilization of futures
transactions involves the risk of imperfect correlation in movements in the
price of futures contracts and movements in the price of the securities and
currencies, which are the subject of the hedge. If the price of the futures
contract moves more or less than the price of the security or currency, the Fund
will experience a gain or loss, which will not be completely offset by movements
in the price of the debt securities which are the subject of the hedge. There is
also a risk of imperfect correlations where the securities underlying futures
contracts have different maturities than the portfolio securities being hedged.
Transactions in options on futures contracts involve similar risks.
The Fund intends to enter into options and futures transactions, on an exchange
or in the OTC market, only if there appears to be a liquid secondary market for
such options or futures or, in the case of OTC transactions, management believes
the Fund can receive on each business day a bid or offer. There can be no
assurance, however, that a liquid secondary market will exist at any specific
time. Thus, it may not be possible to close an options or futures transaction.
The inability to close options and futures positions also could have an adverse
impact on the Fund's ability to effectively hedge its portfolio. There is also
the risk of loss by the Fund of margin deposits or collateral in the event of
bankruptcy of a broker with whom the Fund has an open position in an option, a
futures contract or related option.
The exchanges on which options on portfolio securities are traded have generally
established limitations governing the maximum number of call or put options on
the same underlying security (whether or not covered) which may be written by a
single investor, whether acting alone or in concert with others (regardless of
whether such options are written on the same or different exchanges or are held
or written on one or more accounts or through one or more brokers). "Trading
limits" are imposed on the maximum number of contracts that any person may trade
on a particular trading day. The Investment Adviser does not believe that these
trading and position limits will have any adverse impact on the portfolio
strategies for hedging the Fund's portfolio.
INTEREST RATE HEDGING TRANSACTIONS. In order to hedge the value of the Fund's
portfolio against interest rate fluctuations, the Fund may enter into various
hedging transactions, such as interest rate swaps and the purchase or sale of
interest rate caps and floors. The Fund expects to enter into these transactions
primarily to preserve a return or spread on a particular investment or portion
of its portfolio or to protect against any increase in the price of securities
the Fund anticipates purchasing at a later date. The Fund intends to use these
transactions as a hedge and not as a speculative investment.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index falls below a predetermined interest rate, to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor.
In an interest rate swap, the Fund exchanges with another party their respective
commitments to pay or receive interest, e.g., an exchange of floating rate
payments for fixed rate payments. The net amount of the excess, if any, of the
Fund's obligations over its entitlement with respect to each interest rate swap
will be accrued on a daily basis and an amount of cash, cash equivalents or high
grade liquid debt securities having an aggregate net asset value at least equal
to the accrued excess will be maintained in a segregated account by the Fund's
custodian.
The Fund will not enter into any interest rate swap, cap or floor transaction
unless the unsecured senior debt or the claims-paying ability of the other party
thereto is rated in one of the highest two rating categories of at least one
nationally recognized statistical rating organization at the time of entering
into such transaction or whose creditworthiness is believed by the Investment
Adviser to be equivalent to such rating. If there is a default by the other
party to such a transaction, the Fund will have contractual remedies pursuant to
the agreements related to the transaction. The Investment Adviser believes that
the swap market is relatively liquid. Caps and floors, however, are less liquid
than swaps. The Fund will not enter into a cap or floor transaction in an
amount, which, together with other illiquid investments of the Fund, exceeds 15%
of the Fund's total assets.
BATTERY PARK FUND
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(a) ARTICLES OF INCORPORATION
(1) Conformed copy of Articles of Incorporation of the Registrant. (2)
(2) Conformed copy of Articles of Amendment to the Articles of
Incorporation. (2)
(b) BY-LAWS
(1) Copy of By-Laws of the Registrant. (1)
(2) Copy of Amended By-Laws of the Registrant. (2)
(c) INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS
(1) Portion of the Articles of Incorporation and By-Laws of the
Registrant defining the rights of shareholders. (3)
(2) Copy of Class A Specimen Share Certificate. (3)
(3) Copy of Class Y Specimen Share Certificate. (3)
(d) INVESTMENT ADVISORY AGREEMENT of the Registrant. (3)
(e) DISTRIBUTION AGREEMENT of the Registrant. (3)
(f) BONUS OR PROFIT SHARING CONTRACTS. Not Applicable.
(g) CUSTODIAN AGREEMENT between Registrant and Firstar Bank, N.A. dated
August 30, 1999. (5)
(h) OTHER MATERIAL CONTRACTS
(1) Fund Accounting Services Agreement between Registrant and Firstar
Mutual Fund Services, LLC dated August 30, 1999. (5)
(2) Administrative Services Agreement between Registrant and Firstar
Mutual Fund Services, LLC dated August 30, 1999. (5)
(3) Transfer Agency Services Agreement between Registrant and Firstar
Mutual Fund Services, LLC dated August 30, 1999. (5)
(4) Conformed copy of License Agreement of the Registrant. (3)
(5) Conformed copy of Amended and Restated Shareholder Services
Agreement. (5)
(6) Form of Expense Waiver and Reimbursement Agreement between the
Registrant and Nomura Corporate Research and Assets
Management Inc. (5)
(i) OPINION AND CONSENT OF COUNSEL as to legality of shares being
registered. (3)
(j) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS filed herewith.
(k) OMITTED FINANCIAL STATEMENTS. Not applicable.
(l) CERTIFICATE OF INITIAL CAPITAL UNDERSTANDING. (3)
(m) RULE 12B-1 PLAN
(1) Conformed copy of Distribution Plan. (3)
(2) Conformed copy of Amendment to Distribution Plan. (4)
(n) RULE 18F-3 PLAN. Multiple Class Plan. (3)
(o) RESERVED
(p) CODE OF ETHICS to be filed by amendment.
(1) Response is incorporated by reference to Registrant's Initial
Registration Statement of Form N-1A filed June 19, 1996.
(2) Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed September 20, 1996.
(3) Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 2 on Form N-1A filed October 10, 1996.
(4) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 3 on Form N-1A filed November 26, 1997.
(5) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 4 on Form N-1A filed November 30, 1999.
ITEM 24 PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT:
None
ITEM 25 INDEMNIFICATION:
Reference is made to Article V of the Registrant's Articles of Incorporation and
to Article VI of the Registrant's By-Laws, incorporated by reference to Exhibits
1 and 2 to this Registration Statement, and to Section 2-418 of the Maryland
General Corporation Law.
Insofar as the conditional advancing of indemnification moneys for actions based
on the 1940 Act may be concerned, Article VI of the Registrant's By-Laws
provides that such payments will be made only on the following conditions: (i)
the person seeking indemnification shall provide to the Registrant a written
affirmation of his good faith belief that the standard of conduct necessary for
indemnification by the Registrant has been met and a written undertaking to
repay any such advance, if it ultimately should be determined that the standard
of conduct has not been met, and (ii) at least one of the following additional
conditions is met: (a) the person seeking indemnification shall provide a
security in form and amount acceptable to the Registrant for his or her
undertaking, (b) the Registrant is insured against losses arising by reason of
the advance, or (c) a majority of a quorum of non-party independent directors,
or independent legal counsel in a written opinion shall determine, based upon a
review of facts readily available to the Registrant at the time the advance is
proposed to be made, that there is reason to believe that the person seeking
indemnification will ultimately be found to be entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "1933 Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the 1933 Act and therefore is unenforceable. In the event that a claim for
indemnification against such liabilities (other than for expenses paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant, unless the matter has been settled by controlling precedent in the
opinion of its counsel, will submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of such
issue.
ITEM 26 BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER:
For a description of the other business of the investment adviser, see the
sections entitled "The Investment Adviser" and "Management of the Fund" in Part
A. The address of the investment adviser is 2 World Financial Center, Building
B, New York, New York 10281-1198.
Set forth below is a list of each executive officer and partner of the
investment adviser indicating each business, profession, vocation or employment
of a substantial nature in which each such person or entity has been engaged
since September 30, 1994, for his or its own account or in the capacity of
director, officer, partner or trustee.
<TABLE>
<CAPTION>
POSITION(S) WITH INVESTMENT ADVISER BUSINESS, PROFESSION, VOCATION OR
NAME EMPLOYMENT
- ------------------------ -------------------------------------- -------------------------------------------
<S> <C> <C>
Robert Levine President, Chief Executive Officer, Executive Managing Director, Nomura
and Executive Managing Director Holding America Inc.
- ------------------------ -------------------------------------- -------------------------------------------
Richard A. Buch Managing Director
</TABLE>
ITEM 27 PRINCIPAL UNDERWRITERS:
(a) The Registrant's principal underwriter, Nomura Securities
International, Inc. also serves as principal
underwriter for Nomura Pacific Basin Fund, Inc.
(b) Set forth below is information concerning each director and officer of
the distributor. The principal business address of each such person is
2 World Financial Center, Building B, New York, New York 10281-1198.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS POSITIONS AND OFFICES WITH POSITIONS AND OFFICES WITH
ADDRESS UNDERWRITER REGISTRANT
- --------------------------------- ----------------------------------- ----------------------------
<S> <C> <C>
Atsushi Yoshikawa Co-President None
- --------------------------------- ----------------------------------- ----------------------------
Joseph D. Schmuckler Co-President None
- --------------------------------- ----------------------------------- ----------------------------
John E. Toffolon, Jr. Chief Financial Officer and None
Executive Managing Director
- --------------------------------- ----------------------------------- ----------------------------
Howard Steinberg General Counsel and Managing None
Director
- --------------------------------- ----------------------------------- ----------------------------
William B. Aimetti Executive Managing Director None
- --------------------------------- ----------------------------------- ----------------------------
Yoshikazu Yasuoka Managing Director None
- --------------------------------- ----------------------------------- ----------------------------
Yukiko Murata Assistant Vice President None
- --------------------------------- ----------------------------------- ----------------------------
Arthur S. Ainsberg Independent Director None
- --------------------------------- ----------------------------------- ----------------------------
</TABLE>
(c) Not applicable.
ITEM 28 LOCATION OF ACCOUNTS AND RECORDS:
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:
<TABLE>
<CAPTION>
- ------------------------------------------------------- ------------------------------------
ENTITY ADDRESS
- ------------------------------------------------------- ------------------------------------
<S> <C>
Registrant 2 World Financial Center Building B
New York, NY 10281-1198
- ------------------------------------------------------- ------------------------------------
Firstar Mutual Fund Services, LLC 615 East Michigan Street
(Transfer Agent, Fund Accountant, Administrator) Milwaukee, WI 53202
- ------------------------------------------------------- ------------------------------------
Nomura Corporate Research and Asset Management Inc. 2 World Financial Center Building B
(Adviser) New York, NY 10281-1198
- ------------------------------------------------------- ------------------------------------
Firstar Bank, N.A. 425 Walnut Street
(Custodian) Cincinnati, OH 45202
- ------------------------------------------------------- ------------------------------------
</TABLE>
ITEM 29 MANAGEMENT SERVICES:
Not applicable.
ITEM 30 UNDERTAKINGS:
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, BATTERY PARK FUNDS, INC.,
certifies that it meets all of the requirements for effectiveness of this
Amendment to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Pittsburgh and Commonwealth of Pennsylvania, on the
28th day of January, 2000.
BATTERY PARK FUNDS, INC.
BY: /S/ ROBERT LEVINE*
Robert Levine, Chairman and President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below on November 30,
1999 by the following person in the capacity and on the date indicated.
Name Title
/S/ ROBERT LEVINE* Chairman, President and Director
- ------------------
Robert Levine
/S/ JENNIE WONG Director and Treasurer
- ---------------
Jennie Wong
/S/ FRANCIS L. FRAENKEL* Director
- ------------------------
Francis L. Fraenkel
/S/ FRANK K. REILLY* Director
- --------------------
Frank K. Reilly
*By:/S/ JENNIE WONG
Signed as Attorney in Fact for
the Persons Listed Above Pursuant
to Power of Attorney filed with
Post-Effective Amendment No. 4 to
the Registrant Statement on
November 30, 1999
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective Amendment
No. 5 to Registration Statement No. 333-7805 of Battery Park Funds, Inc. on Form
N-1A of our report dated November 10, 1999, appearing in the annual report of
Battery Park High Yield Fund, which comprises Battery Park Funds, Inc., for the
year ended September 30, 1999, and to the reference to us under the heading
"Financial Highlights" in the Prospectus and to the reference to us under the
heading "Independent Auditors" in the Statement of Additional Information, which
are part of such Registration Statement.
DELOITTE & TOUCHE LLP
Chicago, Illinois
January 26, 2000
