<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)
October 4, 1996
Dear Shareholder,
We are pleased to present the semi-annual report for the Empire Builder Tax
Free Bond Fund for the period ended August 31, 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
percentage of people who need tax exemptions is growing. As the middle class and
wealthy are becoming richer, the overall supply of new issues has been
insufficient to supply the demand. In addition, inflation is under control.
These economic factors auger well for the bond market and particularly for
municipal bonds.
The fund has posted a .42% return for the six month period ended August 31,
1996. The fund implemented a dual-class structure effective April 15, 1996. The
Premier Class has posted a 1.99% return and the Builder Class has posted a 1.93%
return since the effective date. During this period the fund maintained an
average life to call of 7.01 years and has continued to invest primarily in
bonds rated AAA and AA. Our emphasis on strong credits and relatively
conservative average life remains unwavering. We firmly believe that this
approach will benefit our shareholders by seeking to provide protection from
credit risk as well as market volatility.
Our dual-class, 'true no-load' structure is now fully implemented and
offers our shareholders the opportunity to choose a class of shares that is best
suited to their needs and objectives. We will continue to strive to meet our
objectives of high tax free income and capital preservation. At the same time we
will provide our investors a fund that is easy and inexpensive to invest in, and
yet still offers a wide array of conveniences and customer services. We look
forward to continued success in working with you to meet your financial goals.
Sincerely,
/s/ Seth M. Glickenhaus
Seth M. Glickenhaus
President
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS -- AUGUST 31, 1996
<TABLE>
<CAPTION>
Credit Principal Value
Ratings* Municipal Securities -- 101.9% Amount (Note 2)
- ---------- ---------------------------------------- ------------- -------------
<S> <C> <C> <C>
NEW YORK CITY -- 1.7%
Aaa/AAA New York City General Obligation (MBIA),
Series C, 6.625%, 8/01/2012........... $ 105,000 $ 113,138
Aaa/AAA New York City Municipal Water Finance
Authority (MBIA), Series B, 5.75%,
6/15/2026............................. 1,920,000 1,855,200
-------------
TOTAL NEW YORK CITY (Identified Cost
$1,993,205)........................... 1,968,338
-------------
NEW YORK STATE AGENCIES -- 85.0%
New York State Dormitory Authority
Revenue,
Baa1/BBB City University, Consolidated Revenue,
Series D, 8.20%, 7/01/2012.......... 2,500,000 2,700,000
Aaa/AAA City University (MBIA), 6.875%,
7/01/2014(a)........................ 4,825,000 5,283,375
Aaa/AAA City University (MBIA), 6.75%,
7/01/2024........................... 400,000 428,500
Aa/AA Cornell University, Series A, 7.375%,
7/01/2020........................... 750,000 824,063
NR/A+ Crouse Irving Memorial Hospital
(HIBI), 10.50%, 7/01/2017........... 1,945,000 1,995,337
Baa1/BBB Department of Education, 7.625%,
7/01/2011,
(Pre-refunded 7/01/2001)(a)......... 3,200,000 3,640,000
Aaa/AAA Ellis Hospital (MBIA-FHA), 5.50%,
8/01/2015........................... 6,555,000 6,276,413
NR/AAA Heritage House Nursing Center, (FHA),
7.00%, 8/01/2031.................... 485,000 526,831
NR/AAA Ideal Senior Living Center Housing
Corp. (FHA), 5.90%, 8/01/2026....... 6,030,000 5,841,563
Aaa/AAA Maimonides Medical Center (MBIA-FHA),
5.90%, 8/01/2035.................... 2,895,000 2,790,056
Aaa/AAA Mt. Sinai School of Medicine (MBIA),
6.75%, 7/01/2015.................... 2,250,000 2,413,125
NR/AAA WK Nursing Home (FHA), 5.95%,
2/01/2016........................... 2,500,000 2,503,125
Aaa/AAA Rockefeller University, (FGIC), Series
A, 6.75%, 7/01/2010................. 525,000 570,938
Aaa/AAA Rockefeller University, (FGIC), Series
A, 6.75%, 7/01/2011................. 1,000,000 1,085,000
Aaa/AAA Special Act School District (MBIA),
6.00%, 7/01/2019.................... 3,540,000 3,579,825
Aaa/AAA State University (AMBAC), Series A,
5.30%, 7/01/2024.................... 2,000,000 1,840,000
NR/AAA St. Francis Geriatric (FHA), 7.65%,
8/01/2030........................... 975,000 1,070,063
NR/AAA St. John's Fisher College (Connie
Lee), 6.75%, 7/01/2011.............. 2,670,000 2,860,238
New York State Environmental Facility
Corp.
Aaa\AAA Water Pollution Control Pool Loan,
5.90%, 1/15/2018...................... 1,510,000 1,511,888
New York State Housing Finance Agency,
Aaa/AAA Health Facilities (AMBAC), Series A,
6.00%, 11/01/2007..................... 5,000,000 5,212,500
A1/NR Village of St. John (Section 8
Assisted), 8.25%, 5/01/2009......... 1,725,000 1,744,372
Aa/NR Multi-Family Housing Secured Mortgage
(SONYMA Insured), 6.45%,
8/15/2014........................... 2,245,000 2,309,544
New York State Local Government
Assistance Corp.,
A/A Series A, 7.125%, 4/01/2011........... 1,600,000 1,752,000
A/A Series A, 6.875%, 4/01/2019........... 2,750,000 2,973,438
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS -- AUGUST 31, 1996 -- CONTINUED
<TABLE>
<CAPTION>
Credit Principal Value
Ratings* Municipal Securities -- continued Amount (Note 2)
- ---------- ---------------------------------------- ------------- -------------
NEW YORK STATE AGENCIES -- CONTINUED
<S> <C> <C> <C>
New York State Medical Care Facilities
Finance Agency
Aaa/AAA N.Y. Hospital Mortgage (AMBAC-FHA),
Series A, 6.50%, 8/15/2029.......... $ 1,500,000 $ 1,586,250
Aaa/AAA N.Y. Hospital Mortgage (AMBAC-FHA),
Series A, 6.90%, 8/15/2034(a)....... 3,350,000 3,643,125
NR/AAA Hospital & Nursing Home Mortgage, St.
Vincent (FHA), Series A, 6.20%,
2/15/2021........................... 2,500,000 2,528,125
Aa/AA Hospital & Nursing Home Mortgage
(FHA), Series B, 9.125%,
2/15/2025........................... 1,105,000 1,117,431
NR/AAA Hospital & Nursing Home Mortgage,
Mount Sinai Medical Center (FHA),
5.75%, 8/15/2019.................... 2,000,000 1,935,000
Aaa/AAA Long Term Health Care (CGIC), 6.50%,
11/01/2015.......................... 2,400,000 2,499,000
Baa1/BBB+ Mental Health Services Facilities,
Series A, 7.625%, 2/15/2008......... 705,000 743,775
Aaa/AAA Mental Health Services Facilities
(FSA), Series E, 6.25%, 2/15/2009... 1,420,000 1,515,850
Baa1/BBB+ Mental Health Services Facilities,
Series B, 7.875%, 8/15/2020......... 1,055,000 1,163,137
Aaa/AAA Montefiore Medical Center (AMBAC-FHA),
5.75%, 2/15/2025.................... 7,500,000 7,237,500
Aaa/AAA North Shore University Hospital
(MBIA), 5.125%, 11/01/2012.......... 1,000,000 931,250
Aaa/AAA St. Mary's Hospital (AMBAC), Series A,
6.20%, 11/01/2014................... 2,100,000 2,178,750
Aaa/AAA New York State Thruway Authority (FGIC),
Series C, 6.00%, 1/01/2025............ 1,000,000 1,011,250
New York State Urban Development
Corporation,
Baa1/BBB Youth Facilities, 5.75%, 4/01/2008.... 1,000,000 986,250
Baa1/BBB State Facilities, 5.60%, 4/01/2015.... 1,500,000 1,413,750
Empire State Development Corporation
Urban Development Corporation,
Baa1/BBB University Facilities, 6.00%,
1/01/2008........................... 850,000 855,312
Baa1/BBB University Facilities, 6.00%,
1/01/2009........................... 905,000 910,656
Baa1/BBB University Facilities, 6.00%,
1/01/2010........................... 955,000 957,387
A1/AA- Port Authority of New York & New Jersey,
100th Series, 5.75%, 6/15/2030........ 1,000,000 961,250
A1/A- Triborough Bridge and Tunnel Authority,
Special Obligation, Series B, 7.10%,
1/01/2010(a).......................... 3,725,000 3,999,718
-------------
TOTAL NEW YORK STATE AGENCIES
(Identified Cost $96,865,613)......... 99,906,960
-------------
OTHER NEW YORK STATE BONDS -- 11.1%
Baa1/NR Albany County, New York, Housing
Authority, 6.25%, 10/01/2012.......... 1,000,000 1,002,500
Aaa/AAA Buffalo Municipal Water Authority, Water
System Revenue, (FGIC), 5.75%,
7/01/2013............................. 500,000 495,625
Aaa/AAA Buffalo Municipal Water Authority, Water
System Revenue, (FGIC), 5.75%,
7/01/2019............................. 500,000 488,750
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS -- AUGUST 31, 1996 -- CONTINUED
<TABLE>
<CAPTION>
Credit Principal Value
Ratings* Municipal Securities -- continued Amount (Note 2)
- ---------- ---------------------------------------- ------------- -------------
OTHER NEW YORK STATE BONDS -- CONTINUED
<S> <C> <C> <C>
Aaa/AAA Dutchess County Resource Recovery Agency
Revenue Solid Waste, (FGIC), Series A,
7.50%, 1/01/2009...................... $ 1,500,000 $ 1,625,625
Evans NY Public Improvement General
Obligation Bank Qualified,
Aaa/AAA (AMBAC), 6.80%, 4/15/2012............. 225,000 249,187
Aaa/AAA (AMBAC), 6.80%, 4/15/2013............. 225,000 248,905
A/NR Hempstead Industrial Development Agency
Resource Recovery Revenue, American
Ref-Fuel Company, 7.40%, 12/01/2010... 700,000 717,325
NR/AAA Lillian Cooper Housing Development
Corporation Mortgage Revenue Section 8
(FNMA & FHA), 7.00%, 1/01/2022........ 1,100,000 1,163,250
Aaa/AAA Mt. Sinai Union Free School District
(AMBAC), 6.20%, 2/15/2012............. 1,065,000 1,135,556
A/A- New York State General Obligation,
Series C, 4.25%, 10/01/1997........... 4,700,000 4,720,915
North Hempstead General Obligation
Refunding
Aaa/AAA (FGIC), Series B, 6.375%, 4/01/2009... 570,000 618,450
Aaa/AAA (FGIC), Series B, 6.40%, 4/01/2010.... 560,000 609,000
-------------
TOTAL OTHER NEW YORK STATE BONDS
(Identified Cost $12,599,757)......... 13,075,088
-------------
OTHER MUNICIPAL BONDS -- 0.9%
AAA/AAA Guam Government Limited Obligation
Highway Revenue (CGIC), Series A,
6.25%, 5/01/2007...................... 1,000,000 1,070,000
-------------
TOTAL OTHER MUNICIPAL BONDS
(Identified Cost $990,370)............ 1,070,000
-------------
SHORT TERM INVESTMENTS -- VARIABLE
RATE -- 3.2%
Dreyfus New York Municipal Cash
Management Fund
(Identified Cost $3,815,000).......... 3,815,000 3,815,000
-------------
TOTAL INVESTMENTS -- 101.9% (Identified
Cost $116,263,945)+................... 119,835,386
OTHER ASSETS LESS
LIABILITIES -- (1.9%)................. (2,213,400)
-------------
NET ASSETS -- 100.0%.................... $ 117,621,986
-------------
-------------
</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.
4
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS -- AUGUST 31, 1996 -- CONTINUED
*Credit Ratings given by Moody's Investors Service Inc. and Standard & Poor's
Corporation (unaudited).
<TABLE>
<CAPTION>
MOODY'S STANDARD & POOR'S
<C> <C> <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.
</TABLE>
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:
<TABLE>
<S> <C>
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.
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1996
<TABLE>
<CAPTION>
ASSETS:
<S> <C> <C>
Investments in securities, at value (identified cost
$116,263,945) (Note 2)........................................ $119,835,386
Cash............................................................ 4,601,154
Interest receivable............................................. 1,387,544
Receivable for Fund shares sold................................. 1,199
Variation Margin Receivable..................................... 43,750
Prepaid insurance and other assets.............................. 29,443
------------
Total Assets.................................................. 125,898,476
LIABILITIES:
Payable for investments purchased................... $7,960,014
Income distribution payable......................... 91,862
Fund accounting and shareholder servicing fees
payable (Note 4).................................. 78,105
Advisory fee payable (Note 4)....................... 39,444
Payable for Fund shares redeemed.................... 36,415
Administrative services fee payable (Note 4)........ 19,721
Other payables and accrued expenses................. 50,929
----------
Total Liabilities............................................. 8,276,490
------------
NET ASSETS........................................................ $117,621,986
------------
------------
NET ASSETS:
Net assets consist of:
Capital paid in............................................... $114,922,130
Accumulated net realized gain on investments including futures
contracts.................................................... (676,273)
Net unrealized appreciation on investments including futures
contracts.................................................... 3,376,129
------------
NET ASSETS........................................................ $117,621,986
------------
------------
SHARES OF BENEFICIAL INTEREST
Builder Class:
Shares of beneficial interest outstanding........... 3,409,539
----------
----------
Net Asset Value and redempton price per share....... $ 17.47
----------
----------
Premier Class:
Shares of beneficial interest outstanding........... 3,323,563
----------
----------
Net Asset Value and redempton price per share....... $ 17.47
----------
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1996
<TABLE>
<S> <C> <C>
INCOME:
Interest......................................................... $3,487,904
EXPENSES:
Advisory fees (Note 4).............................. $ 230,022
Administrative services fees (Note 4)............... 115,007
Shareholder servicing and dividend disbursing agent
fees (Builder Class) (Note 4)..................... 63,718
Shareholder servicing and dividend disbursing agent
fees (Premier Class) (Note 4)..................... 19,832
Legal............................................... 24,000
Custody............................................. 27,173
Fund accounting fees and expenses (Note 4).......... 21,479
Audit............................................... 13,248
Printing............................................ 17,168
Trustees' fees and expenses......................... 17,476
Insurance........................................... 6,458
Registration........................................ 6,360
Miscellaneous....................................... 12,671
-----------
Total expenses.................................... 574,612
Custody fee credit.................................. (27,173)
-----------
Total net expenses............................................. 547,439
----------
INVESTMENT INCOME-NET.............................................. 2,940,465
Realized and unrealized gain / (loss) on investments
(Notes 2 and 3):
Net realized loss on investments on basis of
identified cost................................... (786,245)
Net realized gain on futures contracts on basis of
identified cost (Note 2).......................... 109,704
Net decrease in unrealized appreciation on
investments including futures contracts........... (1,741,179)
-----------
Net loss on investments........................................ (2,417,720)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............... $ 522,745
----------
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year
Six Months Ended
Ended 8/31/96 2/29/96
------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income........................... $ 2,940,465 $ 5,593,736
Net realized gain / (loss) on investments....... (786,245) 3,309,544
Net realized gain / (loss) on futures
contracts..................................... 109,704 (435,150)
Net increase / (decrease) in unrealized
appreciation (depreciation) on investments
including futures contracts................... (1,741,179) 1,273,185
------------- ------------
Net increase in net assets resulting from
operations.................................... 522,745 9,741,315
------------- ------------
Distributions to shareholders from:
Net investment income--Builder Class............ (1,948,398) (5,593,736)
Net investment income--Premier Class............ (992,067) --
Net realized gain on investments--Builder
Class......................................... (535,066) --
Net realized gain on investments--Premier
Class......................................... (304,958) --
------------- ------------
Total distributions............................. (3,780,489) (5,593,736)
------------- ------------
SHARE TRANSACTIONS:
Proceeds from sale of 349,413 shares--Builder
Class......................................... 6,176,571 16,324,081
Proceeds from sale of 3,369,523 shares--Premier
Class......................................... 59,155,338 --
Proceeds from reinvestment of income and capital
gain distributions of 119,637 shares--Builder
Class......................................... 2,102,529 4,983,473
Proceeds from reinvestment of income and capital
gain distributions of 65,086 shares--Premier
Class......................................... 1,140,073 --
Cost of 3,622,841 shares redeemed--Builder
Class......................................... (63,606,027) (15,615,064)
Cost of 111,046 shares redeemed--Premier
Class......................................... (1,949,016) --
------------- ------------
Net increase (decrease) in net assets from
capital share transactions.................... 3,019,468 5,692,490
------------- ------------
Increase / (decrease) in net assets............. (238,276) 9,840,069
NET ASSETS:
Beginning of year............................... 117,860,262 108,020,193
------------- ------------
End of year..................................... $ 117,621,986 $117,860,262
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<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.
As of April 15, 1996, the Fund has offered two classes of shares, the
Premier Class and the Builder Class. The Premier Class shares are held by
shareholders whose account balances are $20,000 or more, and the Builder Class
shares are 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.
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.
9
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
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 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 six months ended August 31, 1996, amounted to
$98,166,111 and $90,582,472, respectively.
At August 31, 1996, aggregate gross unrealized appreciation for securities
in which there is an excess of value over tax cost amounted to $4,188,809 and
the aggregate gross unrealized depreciation for all securities in which there is
an excess of tax cost over value amounted to $617,368.
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 six months ended
August 31, 1996, the advisory fee earned by the Adviser was $230,022.
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 six months
ended August 31, 1996, there was no reduction of advisory fees pursuant to this
agreement.
Furman Selz LLC, acts as Administrator of the Fund. Furman Selz is
primarily an institutional brokerage firm with membership on the New York,
American, Boston, Midwest, Pacific and Philadelphia Stock Exchanges. Furman Selz
also serves as sponsor, administrator and distributor of other mutual funds. On
June 28, 1996 Furman Selz and BYSIS Group, Inc. ('BYSIS') announced a
10
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
definitive agreement which provides for Furman Selz to transfer its mutual fund
business to BYSIS. This transaction is expected to close during the last quarter
of 1996. BYSIS, headquartered in Little Falls, New Jersey, supports more than
5,000 financial institutions and corporate clients through two strategic
business units. BYSIS Information Services Group provides image and data
processing outsourcing and pricing analysis to more than 600 banks nationwide.
BYSIS Investment Services Group designs, administers and distributes over 30
families of proprietary mutual funds consisting of more than 365 portfolios, and
provides 401(k) marketing support, administration and recordkeeping services in
partnership with banking institutions and investment management companies. At a
meeting held on September 10, 1996, the trustees reviewed and approved a new
Administration Agreement with BYSIS Fund Services Limited Partnership d/b/a
BYSIS Fund Services and a new Transfer Agency Agreement and a Fund Accounting
Agreement with BYSIS Fund Services, Inc. Both BYSIS companies have their
principal place of business at 3435 Stelzer Road, Columbus, Ohio 43219. These
new agreements are expected to take effect late in 1996 at which time the BYSIS
Companies will commence providing the services previously provided by Furman
Selz.
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 six months ended August 31, 1996,
Furman Selz earned $115,007.
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
six months ended August 31, 1996, Furman Selz received fees and expense
reimbursement of $21,479 for the performance of these services.
Furman Selz acts as transfer agent for the Fund. For the six months ended
August 31, 1996, Furman Selz was entitled to, and received, fees and expense
reimbursements of $63,718 for the Builder Class and $19,832 for the Premier
Class.
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 $55,844,689 and closed
futures contracts aggregating $55,725,285 resulting in a gain of $119,404 during
the six months ended August 31, 1996. The Fund also bought long futures
contracts aggregating $2,846,875 and closed futures contracts aggregating
$2,837,175 resulting in a loss of $9,700 during the six months ended August 31,
1996. At August 31, 1996, there were 100 open short contracts valued at
$11,365,625 carrying proceeds of $11,170,313.
11
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
FINANCIAL HIGHLIGHTS
AMOUNTS EXPRESSED AS DOLLARS ARE FOR A
SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Six Months Ended Year Ended
------------------- --------------------------------------------------------
8/31/96 2/29/96 2/28/95 2/28/94 2/28/93 2/29/92
------------------- -------- -------- -------- ------- -------
Builder Premier+ Builder Builder Builder Builder Builder
Class Class Class Class Class Class Class
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 17.96 $ 17.57 $ 17.31 $ 18.24 $ 18.41 $ 17.17 $ 17.02
------- -------- -------- -------- -------- ------- -------
Income from Investment Operations:
Net investment income............... 0.44 0.32 0.87 0.87 0.90 0.94 1.00
Net gain (loss) on securities (both
realized and unrealized).......... (0.36) 0.03 0.65 (0.71) 0.09 1.43 0.47
------- -------- -------- -------- -------- ------- -------
Total from Investment Operations.... 0.08 0.35 1.52 0.16 0.99 2.37 1.47
------- -------- -------- -------- -------- ------- -------
Less Distributions:
Dividends from net investment
income............................ (0.44) (0.32) (0.87) (0.87) (0.90) (0.94) (1.00)
Distributions from net realized
capital gains..................... (0.13) (0.13) -- -- (0.26) (0.19) (0.32)
Distributions in excess of net
realized capital gains............ -- -- -- (0.22) -- -- --
------- -------- -------- -------- -------- ------- -------
Total Distributions................. (0.57) (0.45) (0.87) (1.09) (1.16) (1.13) (1.32)
------- -------- -------- -------- -------- ------- -------
Net Asset Value, End of Period.......... $ 17.47 $ 17.47 $ 17.96 $ 17.31 $ 18.24 $ 18.41 $ 17.17
------- -------- -------- -------- -------- ------- -------
------- -------- -------- -------- -------- ------- -------
Total Return (not including sales
load)................................. .42%** 1.99%** 8.95% 1.09% 5.44% 14.32% 8.89%
Ratios/Supplemental Data:
Net Assets, End of Period (in
thousands)........................ $59,570 $ 58,052 $117,860 $108,020 $108,305 $96,568 $79,690
Ratio of Expenses to Average Net
Assets*........................... .99% .88% 1.01% 0.93% 0.98% 1.03% 1.07%
Ratio of Net Investment Income to
Average Net Assets................ 4.99% 5.11% 4.91% 5.04% 4.85% 5.31% 5.78%
Portfolio Turnover Rate............. 81% 81% 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 for fiscal
year ended February 29, 1996 would be .96% for the Builder Class. For the six
months ended August 31, 1996 the ratio would be .95% for the Builder Class
and .84% for the Premier Class, respectively.
** Not Annualized.
+ Premier Class commenced operations on April 15, 1996.
The accompanying notes are an integral part of the financial statements.
12
<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
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.
13
<PAGE>
[EMPIRE BUILDER LOGO]
237 Park Avenue, Suite 910
New York, New York 10017
(212) 808-3900
1-800-847-5886
[EMPIRE BUILDER LOGO]
TAX FREE BOND FUND
SEMI-ANNUAL REPORT
AUGUST 31, 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
Customer Service
237 Park Avenue, Ste 910
New York, New York 10017
(212) 808-3900
1-800-847-5886
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.
