<PAGE>
- --------------------------------------------------------------------------------
[EMPIRE BUILDER TAX FREE BOND FUND LOGO]
237 PARK AVENUE, SUITE 910
NEW YORK, NY 10017
Telephone (212) 808-3900
Toll Free (800) 847-5886
(except Alaska and Hawaii)
April 1, 1996
Dear Shareholder,
We are pleased to present the annual report for the Empire Builder Tax Free
Bond Fund for the year ended February 29, 1996. We believe that tax exempt bonds
are attractive at these yield levels, and will continue to remain attractive
versus taxable bonds. There are several reasons for our outlook. The disparity
of income has resulted in the poor and middle class losing income to the
wealthy. While this disparity has been overshadowed thus far by sharp increases
in consumer credit as compared to disposable income, it cannot continue
indefinitely and appears to be approaching its end. In addition, the federal
government, municipalities and large corporations are cutting back strongly.
This will serve to contract the economy. These economic factors argue well for
the bond market and particularly for municipal bonds.
The Fund posted a 8.95% return for the twelve month period ended February
29, 1996. Over this same period the Fund maintained an average life to call of
7.2 years and an average credit quality between AAA and AA. We continue to
emphasize the importance of high credit quality and a conservative approach to
risk management.
The Fund has gone to great lengths to protect the shareholders from both
credit risk and market volatility. We hold more 'AAA' rated bonds than any other
rating and the Fund has been more stable (in terms of market volatility) than
the Lipper Municipal Bond Fund Index as well as the Lehman Municipal Bond Index
of long-term municipal bonds.
We are pleased to announce the implementation of our dual class structure
effective April 15, 1996. As many of you already know, a little over a year ago
we began a campaign to improve the features and benefits of the Empire Builder.
The first part of our plan was to introduce a 'true no-load' fee structure (no
sales charges, no 12b-1 fees, reinvestment fees or redemption fees) making it
simpler and more profitable to invest or add money to the Fund. The second part
of our plan was to create a dual-class structure to more effectively meet the
needs and objectives of our diverse shareholder base. With these changes one
thing remains constant. Both the 'Builder Class' and 'Premier Class'
shareholders will continue to enjoy the performance, stability and relative
safety of the Empire Builder.
Sincerely,
/s/ Seth M. Glickenhaus
Seth M. Glickenhaus
President
<PAGE>
EMPIRE BUILDER TAX FREE BOND FUND
The following graph illustrates the total return based on a $10,000
investment in the Empire Builder Tax Free Bond Fund made at the trading
commencement date of June 30, 1984 and held through February 29, 1996, as well
as the performance of the Lehman Municipal Bond Index over the same period.
The Lehman Municipal Bond Index includes 25,000 long-term, investment
grade, municipal bonds. In the opinion of the Fund's advisor, this index most
accurately represents the performance of the municipal market. However, there
are substantial differences between the index and the Fund. First, the index
covers municipal bonds nationwide, whereas the Fund invests only in New York
exempt bonds. Second, the index does not reflect the costs and expenses of
actually obtaining the underlying bonds. Third, the index had a higher level
of market risk than the Fund during the ten years ended December 31, 1995, as
measured by Beta according to a recent study conducted by Lipper Analytical
Services. Finally, the index represents an unmanaged portfolio whereas the
Fund is professionally managed.
The graph assumes all dividends and distributions are reinvested at net
asset value. Past performance is not predictive of future performance.
The Fund's average annual total return for the periods indicated was as
follows:
+8.95% for the one-year period beginning March 1, 1995 and ended
February 29, 1996;
+7.57% for the five-year period beginning March 1, 1991 and ended
February 29, 1996;
+9.42% for the period beginning June 30, 1984 (commencement of
operations) and ended February 29, 1996.
Empire Builder Lehman Municipal
Tax Free Bond Fund Bond Index*
------------------ ----------------
June 30, 1984
Commencement of Operations 9,575 10,000
Feb. 28, 1985 11,079 11,530
Feb. 28, 1986 13,076 14,774
Feb. 28, 1987 15,195 16,575
Feb. 28, 1988 15,663 17,008
Feb. 28, 1989 16,538 18,063
Feb. 28, 1990 17,693 19,915
Feb. 28, 1991 19,144 21,751
Feb. 28, 1992 20,678 23,924
Feb. 28, 1993 23,746 27,218
Feb. 28, 1994 25,039 28,722
Feb. 28, 1995 28,440 29,262
Feb. 28, 1996 29,362 31,881
*An unmanaged portfolio
2
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 29, 1996
<TABLE>
<CAPTION>
Principal Value
Credit Ratings* Municipal Securities -- 94.8% Amount (Note 2)
- ---------------- -------------------------------------------------------------------- ---------- ------------
<S> <C> <C> <C>
NEW YORK CITY -- 8.2%
Aaa/AAA New York City General Obligation (MBIA), Series C, 6.625%,
8/01/2012......................................................... $ 105,000 $ 115,631
Baa1/BBB+ New York City General Obligation, Series G, 5.75%, 2/01/2014........ 4,000,000 3,790,000
A/A- New York City Municipal Water & Sewer Authority, Series A, 5.50%,
6/15/2023......................................................... 2,000,000 1,922,500
Aaa/AAA New York City Municipal Water & Sewer Authority (MBIA), Series B,
5.375%, 6/15/2019................................................. 4,000,000 3,870,000
------------
TOTAL NEW YORK CITY (Identified Cost $9,997,313).................... 9,698,131
------------
NEW YORK STATE AGENCIES -- 74.3%
New York State Dormitory Authority Revenue,
Baa1/BBB City University, Consolidated Revenue, Series D, 8.20%,
7/01/2012(a).................................................... 2,500,000 2,765,625
Aaa/AAA City University (MBIA), 6.875%, 7/01/2014(a)...................... 4,825,000 5,379,875
Aaa/AAA City University (MBIA), 6.75%, 7/01/2024.......................... 400,000 436,000
Aa/AA Cornell University, Series A, 7.375%, 7/01/2020................... 750,000 840,938
NR/A+ Crouse Irving Memorial Hospital (HIBI), 10.50%, 7/01/2017......... 1,945,000 1,997,359
Baa1/BBB Department of Education, 7.625%, 7/01/2011(a)..................... 3,200,000 3,648,000
Baa1/BBB Department of Health, 5.75%, 7/01/2017............................ 3,500,000 3,386,250
Aaa/AA Ellis Hospital (MBIA-FHA), 5.50%, 8/01/2015....................... 6,555,000 6,440,288
NR/AAA Heritage House Nursing Center, (FHA), 7.00%, 8/01/2031............ 485,000 537,138
Aaa/AAA Mt. Sinai School of Medicine (MBIA), 6.75%, 7/01/2015............. 2,250,000 2,446,875
Aaa/AAA Mt. Sinai School of Medicine (MBIA), 5.00%, 7/01/2011............. 1,725,000 1,666,781
Aaa/AAA Rockefeller University, (FGIC), Series A, 6.75%, 7/01/2010........ 525,000 582,750
Aaa/AAA Rockefeller University, (FGIC), Series A, 6.75%, 7/01/2011........ 1,000,000 1,105,000
Aaa/AAA Special Act School District (MBIA), 6.00%, 7/01/2019.............. 3,940,000 4,072,975
Aaa/AAA State University (AMBAC), Series A, 5.30%, 7/01/2024.............. 2,000,000 1,922,500
NR/AAA St. Francis Geriatric (FHA), 7.65%, 8/01/2030..................... 975,000 1,090,781
Aaa/AAA University of Rochester (MBIA), 5.75%, 7/01/2014.................. 2,650,000 2,679,813
NR/AAA St. John's Fisher College (Connie Lee), 6.75%, 7/01/2011.......... 2,670,000 2,900,288
New York State Housing Finance Agency,
A1/NR Village of St. John (Section 8 Assisted), 8.25%, 5/01/2009........ 1,725,000 1,767,452
Aa/NR Multi-Family Housing Secured Mortgage (SONYMA Insured), 6.45%,
8/15/2014....................................................... 2,245,000 2,331,994
New York State Local Government Assistance Corp.,
A/A Series A, 7.125%, 4/01/2011....................................... 1,600,000 1,776,000
A/A Series A, 6.875%, 4/01/2019....................................... 2,750,000 3,025,000
New York State Medical Care Facilities Finance Agency Revenue,
Aaa/AAA N.Y. Hospital Mortgage (AMBAC - FHA), Series A, 6.50%,
8/15/2029....................................................... 1,500,000 1,623,750
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 29, 1996 -- CONTINUED
<TABLE>
<CAPTION>
Principal Value
Credit Ratings* Municipal Securities -- continued Amount (Note 2)
- ---------------- -------------------------------------------------------------------- ---------- ------------
<S> <C> <C> <C>
NEW YORK STATE AGENCIES -- CONTINUED
Aaa/AAA N.Y. Hospital Mortgage (AMBAC - FHA), Series A, 6.90%,
8/15/2034(a).................................................... $3,350,000 $ 3,718,500
NR/AAA Hospital & Nursing Home Mortgage, Mount Sinai Medical Center,
5.75%, 8/15/2019................................................ 2,000,000 2,005,000
NR/AAA Hospital & Nursing Home Mortgage, St. Vincent (FHA), Series A,
6.20%, 2/15/2021................................................ 2,500,000 2,556,250
Aa/AA Hospital & Nursing Home Mortgage (FHA), Series B, 9.125%,
2/15/2025....................................................... 1,105,000 1,139,531
Aaa/AAA Long Term Health Care (CGIC), 6.50%, 11/01/2015................... 2,400,000 2,550,000
Baa1/BBB+ Mental Health Services Facilities, Series A, 7.625%, 2/15/2008.... 705,000 757,875
Aaa/AAA Mental Health Services Facilities (FSA), Series E, 6.25%,
2/15/2009....................................................... 1,420,000 1,556,675
Baa1/BBB+ Mental Health Services Facilities, Series B, 7.875%, 8/15/2020.... 1,055,000 1,189,513
Aaa/AAA North Shore University Hospital (MBIA), 5.125%, 11/01/2012........ 1,000,000 963,750
Aaa/AAA St. Mary's Hospital (AMBAC), Series A, 6.20%, 11/01/2014.......... 2,100,000 2,218,125
Aaa/AAA Montefiore Medical Center (AMBAC-FHA), 5.75%, 2/15/2015........... 2,165,000 2,197,475
Aaa/AAA New York State Thruway Authority General Revenue (FGIC), Series A,
5.75%, 1/01/2019.................................................. 2,550,000 2,565,938
New York State Urban Development Corporation,
Baa1/BBB Correctional Facilities, 5.50%, 1/01/2015......................... 2,000,000 1,882,500
Baa1/BBB (Empire State), University Facilities, 6.00%, 1/01/2008........... 850,000 871,250
Baa1/BBB (Empire State), University Facilities, 6.00%, 1/01/2009........... 905,000 923,100
Baa1/BBB (Empire State), University Facilities, 6.00%, 1/01/2010........... 955,000 975,294
Baa1/BBB Youth Facilities, 5.75%, 4/01/2008................................ 1,000,000 1,012,500
A1/A- Triborough Bridge and Tunnel Authority, Special Obligation, Series
B, 7.10%, 1/01/2010(a)............................................ 3,725,000 4,083,531
------------
TOTAL NEW YORK STATE AGENCIES (Identified Cost $82,962,933)......... 87,590,239
------------
OTHER NEW YORK STATE BONDS -- 7.3%
Baa1/NR Albany County, New York, Housing Authority, 6.25%, 10/01/2012....... 1,000,000 1,021,250
Aaa/AAA Buffalo Municipal Water Authority, Water System Revenue, (FGIC),
5.75%, 7/01/2013.................................................. 500,000 510,000
Aaa/AAA Buffalo Municipal Water Authority, Water System Revenue, (FGIC),
5.75%, 7/01/2019.................................................. 500,000 505,625
Aaa/AAA Dutchess County Resource Recovery Agency Revenue Solid Waste,
(FGIC), Series A, 7.50%, 1/01/2009................................ 1,500,000 1,655,625
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 29, 1996 -- CONTINUED
<TABLE>
<CAPTION>
Principal Value
Credit Ratings* Municipal Securities -- continued Amount (Note 2)
- ---------------- -------------------------------------------------------------------- ---------- ------------
<S> <C> <C> <C>
OTHER NEW YORK STATE BONDS -- CONTINUED
Evans NY Public Improvement General Obligation Bank Qualified,
Aaa/AAA (AMBAC), 6.80%, 4/15/2012......................................... $ 225,000 $ 261,843
Aaa/AAA (AMBAC), 6.80%, 4/15/2013......................................... 225,000 261,843
Baa1/A- Hempstead Industrial Development Agency Resource Recovery Revenue,
American Ref-Fuel Company, 7.40%, 12/01/2010...................... 700,000 726,026
NR/AAA Lillian Cooper Housing Development Corporation Mortgage Revenue
Section 8 (FNMA & FHA), 7.00%, 1/01/2022.......................... 1,100,000 1,175,625
Aaa/AAA Mt. Sinai Union Free School District (AMBAC), 6.20%, 2/15/2012...... 1,065,000 1,182,150
North Hempstead General Obligation Refunding
Aaa/AAA (FGIC), Series B, 6.375%, 4/01/2009............................... 570,000 639,112
Aaa/AAA (FGIC), Series B, 6.40%, 4/01/2010................................ 560,000 630,000
------------
TOTAL OTHER NEW YORK STATE BONDS
(Identified Cost $7,876,871)...................................... 8,569,099
------------
OTHER MUNICIPAL BONDS -- 3.1%
Aaa/AAA Guam Government Limited Obligation Highway Revenue (CGIC), Series A,
6.25%, 5/01/2007.................................................. 1,000,000 1,083,750
Aaa/AAA University of Puerto Rico (MBIA), Series N, 4.50%, 6/01/1996........ 2,530,000 2,536,274
------------
TOTAL OTHER MUNICIPAL BONDS (Identified Cost $3,523,070)............ 3,620,024
------------
<CAPTION>
Shares
----------
<S> <C> <C> <C>
SHORT TERM INVESTMENTS -- VARIABLE RATE -- 1.9%
Dreyfus New York Municipal Cash Management Fund
(Identified Cost $2,265,000)...................................... 2,265,000 2,265,000
------------
TOTAL INVESTMENTS -- 94.8% (Identified Cost $106,625,187)+.......... 111,742,493
OTHER ASSETS LESS LIABILITIES -- 5.2%............................... 6,117,769
------------
NET ASSETS -- 100.0%................................................ $117,860,262
------------
------------
</TABLE>
- ------------------
+ The cost for Federal income taxes is the same.
(a) Pledged as collateral for futures transactions or when-issued securities.
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 29, 1996 -- CONTINUED
*Credit Ratings given by Moody's Investors Service Inc. and Standard & Poor's
Corporation (unaudited).
MOODY'S STANDARD & POOR'S
Aaa AAA Instrument judged to be of the highest quality and
carrying the smallest amount of investment risk.
Aa AA Instrument judged to be of high quality by all
standards.
A A Instrument judged to be adequate by all standards.
Baa BBB Instrument judged to be of moderate quality by all
standards.
NR NR Not Rated. In the opinion of the Investment
Adviser, instrument judged to be of comparable
investment quality to rated securities which may be
purchased by the Fund.
For items possessing the strongest investment attributes of their category,
Moody's gives that letter rating followed by a number. The Standard & Poor's
ratings may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
ABBREVIATIONS USED IN THIS STATEMENT:
AMBAC Insured as to principal and interest by the American Municipal
Bond Assurance Corporation.
CGIC Insured as to principal and interest by the Capital Guarantee
Insurance Corporation.
Connie Lee Insured as to principal and interest by Connie Lee Insurance
Company.
FGIC Insured as to principal and interest by the Financial Guarantee
Insurance Corporation.
FHA Insured by the Federal Housing Administration.
FNMA Insured by the Federal National Mortgage Association.
FSA Insured as to principal and interest by Financial Security
Assurance.
HIBI Insured by Health Industry Bond Insurance.
MBIA Insured as to principal and interest by the Municipal Bond
Insurance Association.
SONYMA Insured as to principal and interest by the State of New York
Mortgage Association.
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 1996
ASSETS:
Investments in securities, at value (identified cost
$106,625,187) (Note 2)........................................ $111,742,493
Receivable for investments sold................................. 8,777,203
Interest receivable............................................. 1,165,301
Receivable for Fund shares sold................................. 25,362
Prepaid insurance and other assets.............................. 35,928
------------
Total Assets.................................................. 121,746,287
LIABILITIES:
Payable for investments purchased................... $1,151,857
Payable to custodian................................ 2,451,534
Income distribution payable......................... 68,796
Fund accounting and shareholder servicing fees
payable (Note 4).................................. 58,770
Advisory fee payable (Note 4)....................... 36,923
Payable for Fund shares redeemed.................... 22,815
Administrative services fee payable (Note 4)........ 18,460
Other payables and accrued expenses................. 76,870
----------
Total Liabilities............................................. 3,886,025
------------
NET ASSETS........................................................ $117,860,262
------------
------------
NET ASSETS:
Net assets consist of:
Capital paid in............................................... $111,902,662
Accumulated net realized gain on investments.................. 840,294
Net unrealized appreciation on investments.................... 5,117,306
------------
NET ASSETS........................................................ $117,860,262
------------
------------
NET ASSET VALUE, offering and redemption price per share
($117,860,262 / 6,563,330 shares)............................... $17.96
------------
------------
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 29, 1996
INCOME:
Interest......................................................... $6,693,445
EXPENSES:
Advisory fees (Note 4).............................. $ 446,694
Administrative services fees (Note 4)............... 223,340
Shareholder servicing and dividend disbursing agent
fees (Note 4)..................................... 167,281
Legal............................................... 68,281
Custody............................................. 48,504
Fund accounting fees and expenses (Note 4).......... 42,295
Audit............................................... 26,496
Printing............................................ 41,409
Trustees' fees and expenses......................... 25,000
Insurance........................................... 15,230
Registration........................................ 25,240
Miscellaneous....................................... 18,443
-----------
Total expenses.................................... 1,148,213
Custody fee credit.................................. (48,504)
-----------
Total net expenses............................................. 1,099,709
----------
INVESTMENT INCOME-NET.............................................. 5,593,736
Realized and unrealized gain / (loss) on investments
(Notes 2 and 3):
Net realized gain on investments on basis of
identified cost................................... 3,309,546
Net realized loss on futures contracts on basis of
identified cost (Note 2).......................... (435,150)
Net increase in unrealized appreciation on
investments including futures contracts........... 1,273,183
-----------
Net gain on investments........................................ 4,147,579
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............... $9,741,315
----------
----------
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
Year Year
Ended Ended
2/29/96 2/28/95
------------- -------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income........................... $ 5,593,736 $ 5,331,488
Net realized gain / (loss) on investments on
basis of identified cost...................... 3,309,546 (1,734,925)
Net realized gain / (loss) on futures contracts
on basis of identified cost................... (435,150) 707,186
Net increase / (decrease) in unrealized
appreciation on investments
including futures contracts................... 1,273,183 (3,198,060)
------------- ------------
Net increase in net assets resulting from
operations.................................... 9,741,315 1,105,689
------------- ------------
Distributions to shareholders from net
investment income (Note 2).................... (5,593,736) (5,331,488)
------------- ------------
Distributions to shareholders in excess of net
realized capital gains (Note 2)............... -- (1,334,813)
------------- ------------
SHARE TRANSACTIONS:
Proceeds from sale of 921,372 and 906,669
shares, respectively.......................... 16,324,081 15,723,643
Proceeds from reinvestment of income and capital
gain distributions of 280,743 and 351,640
shares, respectively.......................... 4,983,473 6,024,176
Cost of 880,432 and 955,825 shares redeemed,
respectively.................................. (15,615,064) (16,472,014)
------------- ------------
Net increase in net assets from capital share
transactions.................................. 5,692,490 5,275,805
------------- ------------
Net increase / (decrease) in Net Assets........... 9,840,069 (284,807)
NET ASSETS:
Beginning of year............................... 108,020,193 108,305,000
------------- ------------
End of year..................................... $ 117,860,262 $108,020,193
------------- ------------
------------- ------------
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION AND SHARES OF THE FUND:
The Fund was established as a Massachusetts business trust by an Agreement
and Declaration of Trust dated September 30, 1983. The Fund is registered under
the Investment Company Act of 1940 as an open-end, non-diversified investment
company. The Fund has an unlimited authorized number of shares (no par value).
The Fund seeks as high a level of current income exempt from Federal income
tax and New York State and City personal income taxes as the Fund's investment
adviser believes is consistent with the preservation of capital. The Fund
invests primarily in a portfolio of New York tax-exempt bonds.
2. SIGNIFICANT ACCOUNTING POLICIES:
SECURITY VALUATION
Tax-exempt securities for which transaction prices are not readily
available (which constitute the majority of the Fund's portfolio securities) are
valued at their fair value as determined by an independent pricing service
approved by the Fund's Board of Trustees as the Fund believes that reliable
transaction prices are generally not readily available for purposes of valuing
tax-exempt securities on a daily basis. The pricing service uses information
with respect to transactions in bonds, quotations from bond dealers, market
transactions in comparable securities and various relationships between
securities in determining value. The methods used by the pricing service and the
quality of valuations so established are reviewed by Officers of the Fund and
the Fund's Investment Adviser, under the general supervision of the Trustees of
the Fund.
Securities for which quotations are readily available are stated at market.
Short-term debt securities having remaining maturities of sixty (60) days or
less are stated at amortized cost, which approximates market.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are accounted for on the trade date. Interest income
is accrued as earned. Realized gains and losses from security transactions and
unrealized appreciation and depreciation of investments are determined on the
basis of identified cost.
TAXES
The Fund qualifies and intends to continue to qualify as a 'regulated
investment company' under Sub-chapter M of the Internal Revenue Code of 1986, as
amended, and to distribute all or substantially all of its tax-exempt and
taxable income to its shareholders. Therefore, no Federal income tax provision
is believed to be required.
In addition, by distributing during each calendar year substantially all of
its net investment income, capital gains and certain other amounts, if any, the
Fund will not be subject to a Federal excise tax.
FUTURES CONTRACTS
Upon entering into a futures contract, the Fund is required to deposit cash
or pledge securities in an amount equal to a certain percentage of the purchase
price indicated in the futures contract (initial margin). Subsequent payments,
which are dependent on the daily fluctuations in the value of the
10
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
underlying security, are made or received by the Fund each day (daily variation
margin) and are recorded as unrealized gains or losses until the contracts are
closed.
DISTRIBUTIONS AND DIVIDENDS
Distributions to shareholders from net investment income are declared daily
and paid monthly. The Fund also distributes to shareholders substantially all
net capital gains realized from portfolio transactions.
The characterization of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes due to differences in the
recognition of income and expense items for financial statement and federal
income tax purposes.
USE OF ESTIMATES
Estimates and assumptions are required to be made regarding assets,
liabilities, and changes in net assets resulting from operations when financial
statements are prepared. Changes in the economic environment, financial markets
and any other parameters used in determining these estimates could cause actual
results to differ from these amounts.
3. PURCHASES AND SALES OF INVESTMENT SECURITIES:
Purchases and sales of investment securities, excluding short-term
investments, during the year ended February 29, 1996, amounted to $165,665,665
and $162,268,226, respectively.
At February 29, 1996, aggregate gross unrealized appreciation for
securities in which there is an excess of value over tax cost amounted to
$5,608,764 and the aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $491,458.
4. ADVISORY FEES AND OTHER RELATED PARTY TRANSACTIONS:
The Fund retains Glickenhaus & Co. to act as Investment Adviser (the
'Adviser') pursuant to an Investment Advisory Agreement. As compensation for its
advisory services, the Adviser receives a fee, computed daily and paid monthly,
at the annual rates of 0.40% of the first $100,000,000 of average daily net
assets and 0.3333% of any excess over $100,000,000. For the year ended February
29, 1996, the advisory fee earned by the Adviser was $446,694.
Glickenhaus has agreed to a reduction of advisory fees to the extent that
the Fund's expenses, including the advisory fees, exceed (a) 1.50% of the Fund's
average annual net assets or (b) any expense limitation on investment company
expenses imposed by any statute or regulatory authority of any jurisdiction in
which shares of the Fund are qualified for offer or sale. For the year ended
February 29, 1996, there was no reduction of advisory fees pursuant to this
agreement.
Pursuant to an Administration Agreement, Furman Selz LLC ('Furman Selz')
provides various administrative services and personnel necessary for the
operations of the Fund. For providing such services and personnel, Furman Selz
receives a fee from the Fund, computed daily and paid monthly, at the annual
rates of 0.20% of the first $100,000,000 of average daily net assets and 0.1666%
of any excess over $100,000,000. For the year ended February 29, 1996, Furman
Selz earned $223,340.
11
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
Furman Selz also provides the Fund with certain accounting and related
services. For its services under the Fund Accounting Agreement, Furman Selz
receives from the Fund a monthly fee of $2,500 plus 1/75th of 1% of any excess
over $100,000,000 of the Fund's average daily net assets for the month. For the
year ended February 29, 1996, Furman Selz received fees and expense
reimbursement of $42,295 for the performance of these services.
Furman Selz acts as transfer agent for the Fund. For the year ended
February 29, 1996, Furman Selz was entitled to, and received, fees and expense
reimbursements of $167,281 for the performance of these services.
5. OFF-BALANCE-SHEET RISK AND DERIVATIVES:
The Fund's use of futures contracts involves, to varying degrees, elements
of market risk in excess of the amount recognized in the statement of assets and
liabilities. Futures contracts are one type of derivative financial instrument
and are used by the Fund to hedge against changes in the values of New York tax
exempt bonds that the Fund owns or expects to purchase. Although the futures
contracts are not used by the Fund for the purpose of leveraging or speculating,
they can result in additional risks if used improperly.
The Fund sold short futures contracts aggregating $55,925,569 and closed
future contracts aggregating $56,360,719 resulting in a loss of $435,150, during
the year ended February 29, 1996. At February 29, 1996, there were no open
contracts.
6. SUBSEQUENT EVENT:
DUAL CLASS STRUCTURE
Effective April 15, 1996, the Fund will offer two classes of shares, the
Premier Class and the Builder Class. The Premier Class will be held by
shareholders whose account balances are $20,000 or more, and the Builder Class
will be held by shareholders whose account balances are under $20,000.
Builder Class shares offer a higher level of shareholder services and
features. Premier Class shares offer fewer services and features, and require a
higher minimum investment, but benefit from a lower level of expenses.
Consequently, Premier Class shares produce a higher investment yield than
Builder Class shares.
FEDERAL TAX STATUS OF DIVIDENDS (UNAUDITED)
This information is presented to you to meet regulatory requirements and
requires no current action on your part. Certain portions of this information
were previously reported to you on Form 1099 at the
close of calendar year 1995.
Ordinary income dividends paid to you in cash or reinvested in your account
during the fiscal year ended February 29, 1996 were 100% derived from New York
State and Federal exempt obligations.
12
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
FINANCIAL HIGHLIGHTS
AMOUNTS EXPRESSED AS DOLLARS ARE FOR A
SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------------
2/29/96 2/28/95 2/28/94 2/28/93 2/29/92
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $ 17.31 $ 18.24 $ 18.41 $ 17.17 $ 17.02
-------- -------- -------- ------- -------
Income from Investment Operations:
Net investment income................................... 0.87 0.87 0.90 0.94 1.00
Net gain (loss) on securities (both realized and
unrealized)........................................... 0.65 (0.71) 0.09 1.43 0.47
-------- -------- -------- ------- -------
Total from Investment Operations........................ 1.52 0.16 0.99 2.37 1.47
-------- -------- -------- ------- -------
Less Distributions:
Dividends from net investment
income................................................ (0.87) (0.87) (0.90) (0.94) (1.00)
Distributions from net realized capital gains........... -- -- (0.26) (0.19) (0.32)
Distributions in excess of net realized capital gains... -- (0.22) -- -- --
-------- -------- -------- ------- -------
Total Distributions..................................... (0.87) (1.09) (1.16) (1.13) (1.32)
-------- -------- -------- ------- -------
Net Asset Value, End of Period.............................. $ 17.96 $ 17.31 $ 18.24 $ 18.41 $ 17.17
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
Total Return (not including sales load)..................... 8.95% 1.09% 5.44% 14.32% 8.89%
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands)................ $117,860 $108,020 $108,305 $96,568 $79,690
Ratio of Expenses to Average Net Assets................. 1.01%* 0.93% 0.98% 1.03% 1.07%
Ratio of Net Investment Income to Average Net Assets.... 4.91% 5.04% 4.85% 5.31% 5.78%
Portfolio Turnover Rate................................. 150% 143% 164% 122% 166%
</TABLE>
- ------------------
* Effective fiscal year ended 1996, the ratio does not include a reduction of
expenses for custodian fee credits on cash balances maintained with the
custodian. Including such custodian fee credits, the expense ratio would be
0.96%.
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
THE EMPIRE BUILDER TAX FREE BOND FUND
We have audited the accompanying statement of assets and liabilities of The
Empire Builder Tax Free Bond Fund, including the portfolio of investments, as of
February 29, 1996, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 29, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of The
Empire Builder Tax Free Bond Fund as of February 29, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
April 3, 1996
14
<PAGE>
THE MANAGEMENT
TRUSTEES AND OFFICERS
TRUSTEES
SETH M. GLICKENHAUS,* CHAIRMAN OF THE BOARD OF TRUSTEES
Senior Partner of Glickenhaus & Co.
EDWARD FALKENBERG, Trustee
Vice President and Controller,
Joseph E. Seagram & Sons, Inc. and Seagram Company Ltd.
EDWARD A. KUCZMARSKI, Trustee
Certified Public Accountant and Partner, Hays & Company
MILTON R. NEAMAN, Trustee
Retired Attorney
ELIZABETH B. NEWELL, Trustee
Director, International Preschools
JOHN P. STEINES, Trustee
Professor of Law, New York University School of Law
OFFICERS
SETH M. GLICKENHAUS
President of the Fund; Senior Partner of Glickenhaus & Co.
BRIAN C. LAUX
Senior Vice President of the Fund; Director, Unit Trust Department, Glickenhaus
& Co.
JOHN J. PILEGGI
Treasurer of the Fund; Senior Managing Director, Furman Selz LLC
JOAN V. FIORE
Secretary of the Fund; Managing Director and Counsel, Furman Selz LLC
GORDON M. FORRESTER
Assistant Treasurer of the Fund; Managing Director, Furman Selz LLC
SHERYL HIRSCHFELD
Assistant Secretary of the Fund; Director, Corporate Secretary Services, Furman
Selz LLC
* Trustee who is an 'interested person' of the Fund as that term is defined in
the Investment Company Act of 1940.
15
<PAGE>
[EMPIRE BUILDER LOGO]
TAX FREE BOND FUND
ANNUAL REPORT
FEBRUARY 29, 1996
Investment Adviser and Distributor
Glickenhaus & Co.
6 East 43rd Street
New York, New York 10017
Administrator and Shareholder Servicing Agent
Furman Selz LLC
230 Park Avenue
New York, New York 10169
Custodian
Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, Missouri 64105
Legal Counsel
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Independent Accountants
Coopers & Lybrand L.L.P.
1301 Avenue of the Americas
New York, New York 10019
This report is submitted for the information of the shareholders of the Empire
Builder Tax Free Bond Fund. It is not authorized for distribution to prospective
investors in the Fund unless preceded or accompanied by an effective prospectus,
obtainable from an investment dealer, which includes information regarding the
Fund's objectives and policies, record, management, sales commission and other
data.
[EMPIRE BUILDER LOGO]
237 Park Avenue, Suite 910
New York, New York 10017
(212) 808-3900
1-800-847-5886
