As filed with the Securities and Exchange Commission on May 2, 1996
Registration Nos. 811-2907 and 2-86931
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 15 [X]
and
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 16 [X]
(Check appropriate box or boxes)
-------------
THE EMPIRE BUILDER TAX FREE BOND FUND
(Exact name of registrant as specified in charter)
237 Park Avenue, New York, New York 10017
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 309-8400
Seth M. Glickenhaus, President
The Empire Builder Tax Free Bond Fund
237 Park Avenue
New York, New York 10017
with a copy to:
John M. Loder, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
(Name and address of agent for service)
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on [date] pursuant to paragraph (b)
[ ] on [date] pursuant to paragraph (a)(i)
[ ] on [date] pursuant to paragraph (a)(ii) of Rule 485.
Registrant has registered an indefinite number or amount of its shares of
beneficial interest under the Securities Act of 1933 pursuant to Rule 24f-2
under the Investment Company Act of 1940. Registrant filed the Notice required
by Rule 24f-2 on April 17, 1996 for Registrant's fiscal year ended February 29,
1996.
Calculation of Registration Fee
Under the Securities Act of 1933
<TABLE>
<CAPTION>
Title of Securities Amount Being Proposed Maximum Proposed Maximum Amount of
Being Offered Registered Offering Price Aggregate Offering Registration
Per Unit Price* Fee
<S> <C> <C> <C> <C>
Shares of beneficial interest 896,946 shares $17.56** $15,750,386 $100.00
</TABLE>
* The calculation of the maximum aggregate offering price is made pursuant to
Rule 24e-2 under the Investment Company Act of 1940. The following information
is furnished pursuant to the requirements of Paragraph (b) thereof:
<TABLE>
<S> <C>
Total amount of securities redeemed or repurchased during the
previous year: $ 15,460,386
Total amount of redeemed or repurchased securities used for
reductions pursuant to paragraph (a) of Rule 24e-2 or pursuant to
paragraph (c) of Rule 24f-2 in all previous filings during the
current year: 0
Amount of redeemed or repurchased securities being used for such
reduction in this amendment: $ 15,460,386
Amount being registered hereby in excess of amount of redeemed or
repurchased securities being used for reduction in this
amendment: $ 290,000
Total amount being registered: $ 15,750,386
</TABLE>
** Pursuant to Rule 457(d) under the Securities Act of 1933, the maximum public
offering price per share as calculated on April 17, 1996 is $17.56.
CROSS REFERENCE SHEET
(as required by Rule 404(c))
<TABLE>
<CAPTION>
PART A
N-1A Item No. Location
<S> <C> <C>
1. Cover Page.................................... Cover Page
2. Synopsis...................................... Summary of Expenses
3. Condensed Financial Information............... A Look at the Fund's Financial History;
Financial Hihlights
How the Fund Has Performed
4. General Description of Registrant............. How the Fund Pursues its Objective;
History and Organization of
the Fund
5. Management of the Fund........................ How the Fund is Managed
6. Capital Stock and Other Securities............ History and Organization
of the Fund; Distributions and Taxes
7. Purchase of Securities Being Offered.......... How to Buy Shares; How the Fund Values its Shares;
How the Fund is Managed
8. Redemption or Repurchase...................... How to Sell Shares
9. Pending Legal Proceedings..................... Not Applicable
<CAPTION>
PART B
N-1A Item No. Location
<S> <C> <C>
10. Cover Page.................................... Cover page
11. Table of Contents............................. Cover Page
12. General Information and History............... History and Organization of the Fund (Part A)
13. Investment Objectives and Policies............ Investment Objective and Policies of the Fund;
Investment Restrictions of the Fund
14. Management of the Registrant.................. Management of the Fund
15. Control Persons and Principal Holders
of Securities................................. Not Applicable
16. Investment Advisory and Other Services........ Management of the Fund;
Investment Adviser; Principal Underwriter)
17. Brokerage Allocation.......................... Management of the Fund (Brokerage)
18. Capital Stock and Other Securities ........... History and Organization of the Fund (Part A)
19. Purchase, Redemption and Pricing of
Securities Being Offered...................... Purchase of Shares; Investment Account; Automatic
Cash Withdrawal Program
20. Tax Status.................................... Distributions and Taxes (Part A)
21. Underwriters.................................. Management of the Fund (Principal Underwriter)
22. Calculations of Performance Data.............. Fund Performance
23. Financial Statements.......................... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of the Registration Statement.
<PAGE>
- - --------------------------------------------------------------------------------
[EMPIRE BUILDER TAX FREE FUND LOGO]
-----------------------------------------
237 PARK AVENUE, SUITE 910
NEW YORK, NEW YORK 10017
1-800-847-5886
PROSPECTUS DATED JULY 1, 1996
SHARES OF BENEFICIAL INTEREST
A NO-LOAD MUTUAL FUND FOR NEW YORK INVESTORS SEEKING CURRENT INCOME EXEMPT
FROM FEDERAL INCOME TAX AND NEW YORK STATE AND CITY PERSONAL INCOME TAXES, AND
PRESERVATION OF CAPITAL THROUGH CONSERVATIVE PORTFOLIO MANAGEMENT.
The Empire Builder Tax Free Bond 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
preservation of capital. Consistent with the Fund's investment objective of
preservation of capital, it is also a policy of the Fund, when possible, to seek
capital appreciation and to minimize capital losses. The Fund invests primarily
in a portfolio of New York Tax Exempt Bonds.
The Fund offers TWO CLASSES of shares--the Builder Class and the Premier
Class. 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.
This Prospectus explains concisely what you should know before investing in
the Fund. Please read it carefully before investing and keep it for future
reference. You can find more detailed information about the Fund in the July 1,
1996 Statement of Additional Information, as amended from time to time (the
'SAI'), available without charge from Furman Selz LLC, the Fund's Administrator
(the 'Administrator'). The SAI has been filed with the Securities and Exchange
Commission and is incorporated into this Prospectus by reference. For additional
information, call the Administrator: Toll free 1-800-847-5886
- - --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary of Expenses................................. 2 How the Fund is Managed.............................13
A Look at the Fund's Financial History.............. 3 How the Fund Values its Shares......................14
The Fund's Investment Objective..................... 4 Distributions and Taxes.............................14
How the Fund Has Performed.......................... 4 How the Fund Shows Performance......................15
How the Fund Pursues its Objective.................. 5 How to Buy Shares...................................16
Features and Benefits of the Fund...................10 How to Sell Shares..................................17
Features of the Premier and Builder Classes.........11 History and Organization of the Fund................18
The Fund's Management...............................12 The Fund's Trustees and Officers....................20
</TABLE>
- - --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus does not constitute an offering in any jurisdiction in
which such offering may not lawfully be made.
<PAGE>
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in the Fund.
The following table summarizes your maximum transaction costs from investing in
each class of shares of the Fund and the expenses of the Fund associated with
each class of shares. The Example shows the cumulative expenses attributable to
a hypothetical $1,000 investment in the Fund over specified periods.
<TABLE>
<CAPTION>
Premier Builder
Class Class
------- -------
<S> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a percentage of
the offering price)........................................ 0% 0%
Annual Fund Operating Expenses
(as a percentage of net assets)
Advisory Fees........................................... 0.39% 0.39%
Administration Fees..................................... 0.20% 0.20%
Other Expenses.......................................... 0.26% 0.58%
----- -----
Total Fund Operating Expenses........................... 0.85% 1.17%
----- -----
----- -----
</TABLE>
<TABLE>
<CAPTION>
Example 1 year 3 years 5 years 10 years
- - -------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Your investment of $1,000 would incur the
following expenses, assuming (1) 5% annual
return and (2) redemption at the end of
each period:
Builder Class: $ 12 $ 37 $ 64 $ 142
Premier Class: $ 9 $ 27 $ 47 $ 105
</TABLE>
This table is provided to help you understand the expenses of investing in
the Fund and the operating expenses that the Fund incurs. 'Annual Fund Operating
Expenses' are based on expenses actually incurred by the Fund during its fiscal
year ended February 29, 1996, except that 'Other Expenses' and 'Total Fund
Operating Expenses' have been restated, based on shareholder accounts existing
on April 15, 1996, to reflect the difference in transfer agency costs expected
to result from the division of the Fund into two classes of shares (assuming
that 100% of shares eligible for Premier Class status elect to participate in
that class).
The Example illustrates expenses attributable to a hypothetical $1,000
investment in the Fund. The Example is based on the operating expenses shown
above for the Fund's last fiscal year (adjusted to reflect the hypothetical
transfer agency costs of the two classes of shares) and does not necessarily
represent past or future expense levels. All of these expenses are paid by the
Fund for investment management, shareholder servicing, custodial and other
services incurred in the Fund's operations. Federal regulations require the
Example to assume a 5% annual return, but your actual annual total return will
vary.
The Fund's investment adviser has voluntarily agreed to limit each class's
expenses to 1.5% of average daily net assets, until further notice. See 'How the
Fund Is Managed -- Expense Limitations,' in the Prospectus.
2
<PAGE>
A LOOK AT THE FUND'S FINANCIAL HISTORY
The following table presents financial highlights for each fiscal year
beginning with the year ended February 28, 1987 and through the fiscal year
ended February 29, 1996. The financial highlights for the five most recent
fiscal years have been audited by Coopers & Lybrand L.L.P., independent
accountants. Their unqualified report is included in the SAI. During the periods
covered by the tables, the Fund issued only a single class of shares. (The
Premier Class/Builder Class structure went into effect on April 15, 1996.) The
data presented in the table do not necessarily represent the results that would
have been achieved by either class had the two-class structure been in effect
during the periods presented.
Financial Highlights
Amounts expressed as dollars are for a share outstanding throughout each period
<TABLE>
<CAPTION>
Year Ended
----------------------------------------------------------------------------------------
2/28/89
2/28/91 2/28/90 **
2/29/96 2/28/95 2/28/94 2/28/93 2/29/92 (1) (1) (1)
-------- -------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........................... $ 17.31 $ 18.24 $ 18.41 $ 17.17 $ 17.02 $ 16.78 $ 16.70 $ 16.88
-------- -------- -------- ------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income............ 0.87 0.87 0.90 0.94 1.00 1.02 1.01 1.03
Net gain (loss) on securities
(both realized and
unrealized).................... 0.65 (0.71) 0.09 1.43 0.47 0.24 0.16 (0.10)
-------- -------- -------- ------- ------- ------- ------- -------
Total from Investment Operations 1.52 0.16 0.99 2.37 1.47 1.26 1.17 0.93
-------- -------- -------- ------- ------- ------- ------- -------
Less Distributions:
Distributions from net investment
income......................... (0.87) (0.87) (0.90) (0.94) (1.00) (1.02) (1.01) (1.03)
Distributions from net realized
capital gains.................. -- -- (0.26) (0.19) (0.32) -- (0.08) (0.08)
Distributions in excess of net
realized capital gains......... -- (0.22) -- -- -- -- -- --
-------- -------- -------- ------- ------- ------- ------- -------
Total Distributions.............. (0.87) (1.09) (1.16) (1.13) (1.32) (1.02) (1.09) (1.11)
-------- -------- -------- ------- ------- ------- ------- -------
Net Asset Value, End of Period.... $ 17.96 $ 17.31 $ 18.24 $ 18.41 $ 17.17 $ 17.02 $ 16.78 $ 16.70
-------- -------- -------- ------- ------- ------- ------- -------
-------- -------- -------- ------- ------- ------- ------- -------
Total Return...................... 8.95% 1.09% 5.44% 14.32% 8.89% 7.75% 7.06% 5.77%
Ratios/Supplemental Data:
Net Assets, End of Period
(in thousands)................. $117,860 $108,020 $108,305 $96,568 $79,690 $80,535 $58,155 $58,734
Ratio of Expenses to Average Net
Assets......................... 1.01%*** 0.93% 0.98% 1.03% 1.07% 1.27% 1.42% 1.32%
Ratio of Net Investment Income to
Average Net Assets............. 4.91% 5.04% 4.85% 5.31% 5.78% 6.05% 5.96% 6.21%
Portfolio Turnover Rate.......... 150% 143% 164% 122% 166% 181% 199% 250%
<CAPTION>
2/29/88 2/28/87
(1) (1)
------- -------
<S> <C> <C>
Net Asset Value, Beginning of
Period........................... $ 18.00 $ 17.52
------- -------
Income from Investment Operations:
Net investment income............ 1.06 1.14
Net gain (loss) on securities
(both realized and
unrealized).................... (0.59) 0.67
------- -------
Total from Investment Operations 0.47 1.81
------- -------
Less Distributions:
Distributions from net investment
income......................... (1.06) (1.14)
Distributions from net realized
capital gains.................. (0.53) (0.19)
Distributions in excess of net
realized capital gains......... -- --
------- -------
Total Distributions.............. (1.59) (1.33)
------- -------
Net Asset Value, End of Period.... $ 16.88 $ 18.00
------- -------
------- -------
Total Return...................... 3.08% 10.80%
Ratios/Supplemental Data:
Net Assets, End of Period
(in thousands)................. $55,737 $42,786
Ratio of Expenses to Average Net
Assets......................... 1.34% 1.50%+
Ratio of Net Investment Income to
Average Net Assets............. 6.46% 6.51%
Portfolio Turnover Rate.......... 529% 278%
</TABLE>
- - ------------------
* Annualized.
** Glickenhaus & Co. assumed investment management of the Fund on July 1,
1988.
*** Effective for the fiscal year ended February 29, 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%.
+ Expenses have been limited to 1.50% of average daily net assets (see
page 13 below). Had expenses not been so limited, the ratio of expenses to
average daily net assets would have been 1.78% for the fiscal year ended
February 28, 1987.
(1) Not covered by accountants' report included in the SAI.
3
<PAGE>
A discussion and analysis by the Fund's management of the Fund's performance
during the fiscal year ended February 29, 1996 is included in the Fund's Annual
Report covering that year, which is available at no charge from the
Administrator.
THE FUND'S INVESTMENT OBJECTIVE
The Fund's investment objective is to seek as high a level of current income
exempt from federal income tax and New York State and City personal income taxes
as Glickenhaus & Co. (the 'Adviser'), the Fund's investment adviser, believes is
consistent with preservation of capital. Consistent with the Fund's objective of
preservation of capital, it is also a policy of the Fund, when possible, to seek
capital appreciation and to minimize capital losses. The Fund is not intended to
be a complete investment program, and there is no assurance the Fund will
achieve its objective.
HOW THE FUND HAS PERFORMED
The following table sets forth the total return (capital changes plus
reinvestment of all distributions) on a hypothetical $10,000 investment in the
Fund for the one-, five- and ten-year periods ended February 29, 1996, and the
Fund's average annual total return for those periods. These were periods of
fluctuating tax-exempt bond prices. Also, during these periods, the Fund had
outstanding only a single class of shares. (The Premier Class/Builder Class
structure went into effect on April 15, 1996.) This information should not be
construed as an indicator of future performance, or of the performance that
either Premier Class or Builder Class shares would have achieved had they been
outstanding during the periods presented.
Performance information for the Fund is based on the net asset value of a
share of the Fund at the beginning and end of the periods shown, assumes
reinvestment of all distributions and does not take into account any taxes
payable on capital gains distributions or the taxable portion of income
distributions. All figures reflect recurring Fund expenses for the periods
shown, such as advisory fees. The Average Annual Total Return figures are
standardized performance measures computed in accordance with requirements of
the Securities and Exchange Commission. There is no sales charge on purchases of
Fund shares. During certain past periods, sales charges have applied to certain
purchases. These sales charges were not taken into account in calculating the
performance information shown below.
The Lehman Municipal Bond Index includes 25,000 long-term, investment grade,
municipal bonds. In the opinion of the Adviser, this Index most accurately
represents the performance of the municipal bond 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 Tax Exempt
Bonds. Second, the Index does not reflect the costs and expenses of actually
obtaining the underlying bonds, or the operating costs associated with an
investment in a mutual fund like the Fund. 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, Inc. Finally, the Index represents an unmanaged portfolio whereas the
Fund is professionally managed.
For more information about performance data of the Fund, see 'How the Fund
Shows Performance' below.
4
<PAGE>
FUND PERFORMANCE
<TABLE>
<CAPTION>
10 Years | Five Years | One Year
3/1/86- | 3/1/91- | 3/1/95-
2/29/96 | 2/29/96 | 2/29/96
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> | <C> <C> | <C> <C>
$10,000 | $10,000 | $10,000
The Fund +101.20% became | +44.05% became | +8.95% became
NAV $20,119 | $14,405 | $10,895
Average Annual | |
Total Return +10.12% | +8.81% | +8.95%
| |
| |
Lehman | |
Municipal Bond | |
Index +8.20% | +8.36% | +11.05%
(Average Annual Increase) | |
</TABLE>
The NAV and Average Annual Total Return figures for the ten-year period give
effect to a voluntary expense limitation that had the effect of reducing Fund
expenses for periods prior to March 1, 1987. Had this limitation not been in
effect, the figures for the ten-year period would have been NAV, 82.42% ($10,000
became $18,242), and Average Annual Total Return, 9.27%.
HOW THE FUND PURSUES ITS OBJECTIVE
Basic Investment Strategy
In seeking its investment objective, the Fund invests primarily in New York
Tax Exempt Bonds (which are described below). New York law provides that to the
extent distributions by the Fund are derived from interest on New York Tax
Exempt Bonds, they shall be exempt from New York State and City personal income
taxes. It is a fundamental Fund policy that at least 90% of the Fund's income
distributions will be exempt from federal income tax and New York State and City
personal income taxes, except during times of adverse market conditions when the
Fund is investing for temporary defensive purposes (in which case more than 10%
of the Fund's income distributions could be subject to federal income tax and/or
New York State and City personal income taxes). During the Fund's fiscal year
ended February 29, 1996, 100% of the Fund's income distributions were exempt
from federal income tax and New York State and City personal income taxes. None
of the Fund's income distributions for such year were derived from 'private
activity bonds' the income from which is an item of tax preference for purposes
of the federal alternative minimum tax for individuals ('AMT Bonds'). It is a
fundamental policy of the Fund that distributions from interest income on AMT
Bonds, together with distributions of interest income on investments other than
New York Tax Exempt Bonds, will not normally exceed 10% of the total amount of
the Fund's income distributions.
New York Tax Exempt Bonds purchased by the Fund will be of 'investment grade'
quality. This means that at the time of purchase, the bonds will be rated not
lower than the four highest grades assigned by both Moody's Investors Service,
Inc. ('Moody's') (Aaa, Aa, A or Baa) and Standard & Poor's Corporation ('S&P')
(AAA, AA, A or BBB) or will be unrated securities which the Adviser determines
are of comparable quality. The Fund will not invest more than 50%
5
<PAGE>
of its total assets in New York Tax Exempt Bonds that are rated Baa by Moody's
or BBB by S&P at the time of purchase or that, if unrated, are determined by the
Adviser to be of comparable quality. Securities rated Baa or BBB (and comparable
unrated securities) have some speculative characteristics; unfavorable changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity of the issuer of these securities to make principal and
interest payments than is the case with higher quality securities. (A
description of the four highest grades of debt securities and the highest grade
of commercial paper of Moody's and of S&P is included in the SAI. Bonds rated
Baa by Moody's are considered medium grade obligations, the security for payment
of interest and principal being currently considered adequate, but certain
protective elements may be lacking over any great length of time. S&P's
description of BBB bonds is similar.) It should be noted that the amount of
information about the financial condition of an issuer of New York Tax Exempt
Bonds may not be as extensive as that which is made available by corporations
whose securities are publicly traded.
The value of the Fund's investments will change as the general level of
interest rates fluctuates. During periods of falling interest rates, the values
of fixed-income securities, such as New York Tax Exempt Bonds, generally rise.
Conversely, during periods of rising interest rates, the values of such
securities generally decline. Changes in the credit ratings of obligations and
in the ability of an issuer to make payments of interest and principal will also
affect the value of these investments. The value of the Fund's shares will
fluctuate with the value of its investments.
Because preservation of capital is part of the Fund's investment objective,
and the portion of the Fund's assets that may be invested in securities rated
below A (and comparable unrated securities) is limited, the Fund's yield and
total re turn may be significantly lower than that of many other New York Tax
Exempt Bond Funds during any particular period or over extended periods.
For temporary purposes (such as pending new investments) or liquidity purposes
(such as to meet repurchase or redemption obligations or to pay expenses), the
Fund may invest in taxable obligations, provided that not more than 10% of the
Fund's income distributions are subject to federal income tax and/or New York
State and City personal income taxes. The Fund may also invest in taxable
obligations on a temporary defensive basis due to market conditions, when more
than 10% of the Fund's income distributions could be subject to federal income
tax and/or New York State and City personal income taxes. Such taxable
obligations may include obligations of the U.S. government, its agencies or
instrumentalities, other debt securities rated within the four highest grades by
either Moody's or S&P, commercial paper rated in the highest two grades by
either of such rating services, certificates of deposit and bankers' acceptances
of banks having deposits in excess of $2 billion, and repurchase agreements with
respect to any of the foregoing investments. The Fund may also hold its assets
in other cash equivalents or in cash.
New York Tax Exempt Bonds
New York Tax Exempt Bonds are debt obligations issued by the State of New York
and its political subdivisions (for example, counties, cities, towns, villages,
districts and authorities), the interest from which is, in the opinion of bond
counsel, exempt from both federal income tax and New York State and City
personal income taxes (other than the possible incidence of any alternative
minimum taxes). These bonds are issued to obtain funds for various public
purposes, such as the construction of public facilities, the payment of general
operating expenses, the refunding of outstanding debts, or the lending of funds
to public or private institutions for the construction of housing, educational
or medical facilities. They may also include certain types of
6
<PAGE>
industrial development bonds and private activity bonds issued by public
authorities to finance privately owned or operated facilities. New York Tax
Exempt Bonds also include debt obligations issued by other governmental entities
(for example, U.S. possessions such as Puerto Rico) if such debt obligations
generate interest income that is exempt from federal income tax and New York
State and City personal income taxes.
Classifications of New York Tax Exempt Bonds. The two principal
classifications of New York Tax Exempt Bonds are general obligation and revenue
bonds. General obligation bonds involve the credit of an issuer possessing
taxing power and are payable from the issuer's general unrestricted revenues.
The characteristics and methods of enforcement of general obligation bonds vary
according to the law applicable to the particular issuer. Revenue bonds are
payable only from the revenues derived from a particular facility or class of
facilities or a specific revenue source, and generally are not payable from the
unlimited revenues of the issuer. Industrial development bonds and private
activity bonds are in most cases revenue bonds, the creditworthiness of which is
directly related to that of the user of the facilities.
Special Considerations Concerning New York Tax Exempt Bonds. Since the Fund
invests primarily in New York Tax Exempt Bonds, the performance of the Fund may
be especially affected by factors pertaining to the New York economy and other
factors specifically affecting the ability of issuers of New York Tax Exempt
Bonds to meet their obligations. As a result, the value of the Fund's shares may
fluctuate more widely than the value of shares of a portfolio investing in
securities relating to a number of different states. The ability of state or
local governments and political subdivisions to meet their obligations will
depend primarily on the availability of tax and other revenues to them and on
their fiscal conditions generally. The amounts of tax and other revenues
available to issuers of New York Tax Exempt Bonds may be affected from time to
time by economic, political and demographic conditions. In addition,
constitutional or statutory restrictions may limit a government's power to raise
revenues or increase taxes. The availability of federal, state and local aid to
issuers of New York Tax Exempt Bonds may also affect their ability to meet their
obligations. Payments of principal and interest on revenue bonds will depend on
the economic condition of the facility or specific revenue source from whose
revenues the payments will be made, which in turn could be affected by economic,
political and demographic conditions in New York or a particular locality. Any
reduction in the actual or perceived ability of an issuer of New York Tax Exempt
Bonds to meet its obligations (including a reduction in the rating of its
outstanding securities) would likely affect adversely the market value and
marketability of its obligations and could affect adversely the values of other
New York Tax Exempt Bonds as well.
Diversification
The Fund is a 'non-diversified' management investment company under the
Investment Company Act of 1940 and as such is not required to meet any
diversification requirements under that Act. However, the Fund must meet certain
standards to qualify as a regulated investment company under the Internal
Revenue Code. At the end of each fiscal quarter and with respect to at least 50%
of its total assets (1) the Fund may not invest more than 5% of its total assets
in the securities of any one issuer (except U.S. government obligations) and (2)
the Fund may not own more than 10% of the outstanding voting securities of any
one issuer. (By comparison, a 'diversified' investment company must at all times
satisfy those two conditions with respect to 75% of the value of its total
assets.) Since New York Tax Exempt Bonds are not voting securities, the only
effective limitation with respect to 50% of the Fund's assets is that the Fund
not invest more than 5% of its total assets in the securities of a single
issuer. As for the 50% of the Fund's
7
<PAGE>
total assets not subject to the limitations described above, the sole limitation
on concentration of these assets is that at the end of each fiscal quarter not
more than 25% of the Fund's total assets included among such 50% may be invested
in the securities of any one issuer. Because of the relatively small number of
issuers of investment-grade New York Tax Exempt Bonds, the Fund may use this
ability as a non-diversified fund to concentrate its assets in the securities of
a few issuers which the Adviser deems to be attractive investments, rather than
invest in a larger number of securities merely to satisfy diversification
requirements. While the Adviser believes that this ability to concentrate the
investments of the Fund in particular issuers is an advantage when investing in
New York Tax Exempt Bonds, such concentration involves an increased risk of loss
to the Fund should an issuer be unable to make interest or principal payments or
should the market value of such securities decline. There is no assurance that
the Fund will be able to meet its investment objective.
Futures and Options
The Fund may purchase and sell financial futures contracts, options on such
futures contracts and options on securities indexes to hedge against changes in
the values of New York Tax Exempt Bonds the Fund owns or expects to purchase.
Futures contracts on a Municipal Bond Index are traded on the Chicago Board of
Trade. This Index is intended to represent a numerical measure of market
performance for long-term tax-exempt bonds. The Fund may purchase and sell
futures contracts on this Index (or any other tax-exempt bond index approved for
trading by the Commodity Futures Trading Commission) to hedge against general
changes in market values of New York Tax Exempt Bonds which the Fund owns or
expects to purchase. For example, if the Adviser expected interest rates to
increase, the Fund might sell futures contracts on an index. If rates did
increase, the value of New York Tax Exempt Bonds held by the Fund would decline,
but this decline would usually, but not necessarily, be offset in whole or in
part by an increase in the value of the Fund's position in futures contracts.
If, on the other hand, the Fund had cash reserves and short-term investments
pending anticipated investment in New York Tax Exempt Bonds, and the Adviser
expected interest rates to decline, the Fund might purchase futures contracts on
an index. The Fund could thus take advantage of the anticipated rise in the
values of New York Tax Exempt Bonds without actually buying them until the
market had stabilized.
The Fund will not purchase or sell futures contracts or purchase or sell
related options or index options if as a result the sum of initial margin
deposits on the Fund's existing futures contracts and related options plus
premiums paid for outstanding options purchased by the Fund would exceed 5% of
the Fund's net assets.
The successful use of futures and related options and of index options will
usually depend on the Adviser's ability to forecast interest rate movements
correctly. The Fund's ability to hedge its portfolio positions through these
transactions also depends on the degree of correlation between the municipal
bond index underlying the futures and options purchased and sold by the Fund and
the New York Tax Exempt Bonds which are the subject of the hedge. The successful
use of futures and options also depends on the availability of a liquid
secondary market to enable the Fund to close its positions on a timely basis. In
the case of options purchased by the Fund, the risk of loss is limited to the
premium paid, whereas in the case of options written by the Fund and in the case
of a purchase or sale of a futures contract, the risk of loss is limited only to
the extent that increases in the value of the Fund's investment in securities
during the period of the futures contract may offset losses on the futures
contract over the same period.
Income derived by the Fund from options and futures transactions will not be
exempt from fed-
8
<PAGE>
eral income tax or New York State or City personal income taxes.
Portfolio Approach
The Adviser buys and sells securities for the Fund in pursuit of the Fund's
investment objective. In periods of rapidly fluctuating interest rates, there
may be frequent changes in investments. From time to time, consistent with its
investment objective, the Fund may also trade securities for the purpose of
seeking short-term profits. Securities may be sold in anticipation of a market
decline or bought in anticipation of a market rise. They may also be traded in
response to changes in the creditworthiness of issuers or anticipated movements
in the general level of interest rates, or to take advantage of perceived
short-term disparities in market values or yields among securities of comparable
quality and maturity.
A change in the securities held by the Fund is known as 'portfolio turnover.'
Portfolio turnover generally involves some expense to the Fund, including
brokerage commissions or dealer mark-ups and other transaction costs on the sale
of securities and reinvestment in other securities. To the extent that such
sales result in net realized capital gains, shareholders are taxed on any such
gains at applicable income tax rates. See 'Distributions and Taxes.' Under
certain market conditions the Fund's portfolio turnover rate may be higher than
that of similar mutual funds. A higher portfolio turnover rate may result in
increased realization by the Fund of capital gains. Distributions received by
Fund shareholders of capital gains realized by the Fund will generally not be
exempt from federal income tax or New York State or City personal income taxes.
The portfolio turnover rate of the Fund for the fiscal year ended February 29,
1996 was 150%.
Other Investment Practices
The Fund may enter into repurchase agreements, with banks and securities
brokers or dealers, on up to 10% of its total assets. These transactions must be
fully collateralized at all times, but involve some credit risk to the Fund. The
Fund may also purchase securities for future delivery (i.e., forward
commitments), which may increase its overall investment exposure. The SAI
contains more detailed information about these practices, including limitations
designed to reduce these risks.
Subject to certain limitations described in the SAI, the Fund may invest up to
10% of its assets in shares of other investment companies. Such investments by
the Fund may result in the Fund paying duplicative expenses on such assets,
including duplicative investment advisory fees.
Limiting Investment Risk
The Fund attempts to reduce risk for its shareholders through investment
restrictions that prohibit investing more than:
-- 5% of its total assets in the securities of any one issuer (other than the
U.S. government or its agencies or instrumentalities or issuers of New York
Tax Exempt Bonds);
-- 5% of its assets in securities of any issuer if the parties responsible for
payment, together with any predecessors, have been in operation for less
than three years (except U.S. government and agency obligations and
obligations of issuers of New York Tax Exempt Bonds);
-- 5% of its net assets in securities restricted as to resale;
-- 25% of its total assets in a single industry (issuers of New York Tax
Exempt Bonds and U.S. government and agency obligations do not constitute
an 'industry' except for issuers whose bonds are backed by non-governmental
users as described in the SAI); and
-- 10% of its net assets in securities that are not readily marketable, in
restricted securities and in repurchase agreements maturing in more than
seven days.
9
<PAGE>
The Fund's investment restrictions permit the Fund to borrow only as a temporary
measure to facilitate redemption requests, and limit such borrowing to 10% of
the value of its total assets. The Fund will repay any borrowings before making
any additional investments.
Except for the policies described in the SAI as fundamental, the investment
policies described in this Prospectus and in the SAI are not fundamental
policies. The Trustees may change any non-fundamental investment policy without
shareholder approval. Among the Fund's policies that are fundamental are the
policy that under normal market conditions at least 90% of the Fund's income
distributions will be exempt from federal income tax and New York State and City
personal income taxes and the policy that Fund distributions from interest
income on AMT Bonds, together with distributions of interest income on
investments other than New York Tax Exempt Bonds, will not normally exceed 10%
of the total amount of the Fund's income distributions. As a matter of policy,
the Trustees will not change the Fund's investment objective without shareholder
approval.
FEATURES AND BENEFITS OF THE FUND
The Fund offers its shareholders these important features and benefits on a
no-load basis:
Professional management: The Adviser is an experienced money management firm
whose personnel have considerable experience in making investments in New York
Tax Exempt Bonds. The Adviser establishes general investment policies, selects
individual securities and constantly supervises the Fund's portfolio.
Portfolio diversification: Your money is pooled with that of other investors
to purchase a greater variety of New York Tax Exempt Bonds than you would
probably purchase by yourself. Diversification helps reduce investment risk.
Daily liquidity: You may sell all or part of your shares on any day the New
York Stock Exchange is open without withdrawal penalty, at the net asset value
next determined.
Account statements and Fund reports: Each time you buy or sell shares or
reinvest a distribution including a capital gains distribution (other than
certain automatic reinvestments as described below), you will receive a
statement confirming the transaction and listing your current share balance.
Shareholders of the Fund who have elected to have their distributions of net
income from the Fund automatically reinvested in shares of the Fund (and
shareholders of certain unit investment trusts who have elected to have
distributions from such trusts automatically invested in shares of the Fund)
will receive a single quarterly statement confirming the amount of these
automatic reinvestments and investments in the Fund during the quarter.
The Fund also sends you annual and semi-annual reports that keep you informed
about the Fund's portfolio and investment performance. You will also receive
year end tax information to simplify your recordkeeping.
Account information: You can obtain information about your account on any
business day between 8 a.m. and 6 p.m. (New York time) by calling the
Administrator toll free: 1-800-847-5886. Specially trained representatives will
answer your questions and provide you with information about your investment.
Telephone Redemption: You may redeem your shares by calling the Fund toll
free at 1-800-847-5886. You should be prepared to give the telephone
representative the following information: (i) your account number, social
security number and account registration, (ii) the Class (Premier or Builder)
from which you are redeeming shares and (iii) the amount to be redeemed. The
conversation may be recorded to protect you and the Fund. Telephone redemptions
are available only if the shareholder so elects by checking the 'yes' box on the
10
<PAGE>
Purchase Application. The Fund employs these procedures to confirm that
instructions communicated by telephone are genuine. If the Fund fails to employ
reasonable procedures, the Fund may be liable for any loss, damage or expense
arising out of any telephone transactions purporting to be on a shareholder's
behalf but not actually authorized by the shareholder.
FEATURES OF THE PREMIER AND BUILDER CLASSES
The two classes of shares offer different services and features, as described
below. Premier Class shares bear lower transfer agency costs (as a percentage of
average net assets), and therefore generate a higher investment return.
Shareholders should choose between the two classes based upon whether they meet
the higher minimum account size for the Premier Class, and whether they desire
the benefits of the additional services and features associated with the Builder
Class.
Minimum Investment. For the Builder Class, the minimum investment to open an
account is $1,000. The minimum for additional investments in an account is $100.
However, these investment minimums do not apply to automatic investment into the
Fund of distributions from the unit investment trusts mentioned in the
Prospectus under 'How to Buy Shares.'
For the Premier Class, the minimum investment to open an account is $20,000.
The minimum for additional investments is $5,000, except that (1) the $5,000
minimum does not apply to automatic investments into the Fund of distributions
from the unit investment trusts mentioned below under 'How to Buy Shares,' and
(2) the minimum amount under the Systematic Investment Program (see below) is
$1,000. If the balance in a Premier Class shareholder's account falls below
$20,000 as a result of redemptions from the account, the shareholder will be
notified and will have two months within which to bring the account size back to
$20,000. If the shareholder does not do so, the Fund will convert the
shareholder's account from Premier Class to Builder Class shares.
Check Writing. For the Builder Class, shareholders may write checks on their
accounts, with a minimum check size of $500. There is no charge for this
service.
For the Premier Class, shareholders may write checks on their accounts, with a
minimum check size of $5,000. The charge for this service is $5 to activate the
check writing feature, and $1 for each check written on your account.
Exchanges Between Classes. Builder Class shareholders who meet the minimum
account size for the Premier Class are permitted to exchange their Builder Class
shares for Premier Class shares free of charge.
Premier Class shareholders who elect to exchange their shares for Builder
Class shares are charged a fee of $5 for each such exchange.
Exchanges between classes do not result in the recognition of capital gains or
losses for federal income tax purposes.
Systematic Investment Program. Shareholders can arrange to have a preset
amount transferred to the Fund each month from their bank accounts. For the
Builder Class, the minimum monthly transfer is $100. For the Premier Class, the
minimum monthly transfer is $1,000.
Systematic Withdrawal Program (Builder Class only). Builder Class
shareholders who have at least $5,000 in their accounts can elect to have a
preset amount sent to them from their account each month. This feature is not
available for Premier Class accounts.
Direct Deposit of Fund Dividends (Builder Class only). Builder Class
shareholders can elect to have their distributions of net investment income and
capital gains from the Fund automatically deposited into their bank account.
This feature is not available for Premier Class accounts. To institute this
service for your Builder
11
<PAGE>
Class account, call the Administrator at 1-800-847-5886 to request the
appropriate authorization form.
Historical Account Information. Builder Class shareholders can receive an
additional copy of a past account statement or tax report (Form 1099) free of
charge upon written request. Premier Class accounts are subject to a fee of $5
per request for such information.
Fund Expenses. Each class of shares bears the transfer agency costs
associated with that class of shares. In addition, Premier Class shareholders
bear certain charges for the check writing service, exchanges and historical
account information, as explained above. All expenses of the Fund other than
transfer agency costs are borne by the Fund as a whole and are not allocated
separately to the two classes of shares.
For more information about any of these programs and features, call the
Administrator at 1-800-847-5886.
SUMMARY OF FEATURES
<TABLE>
<CAPTION>
Feature Builder Class Premier Class
- - ---------------- ----------------- --------------------
<S> <C> <C>
Goal Convenience Higher Yield
Sales Charge None None
Income Exempt Exempt
Minimum Investment $1,000 $20,000
Add'l Investments $100 minimum $5,000 minimum
Checkwriting No charge $5 initial/$1 per check
$500 minimum check $5,000 minimum check
Class Exchanges Free to Premier $5 to Builder
Auto Investing $100 minimum/month $1,000 minimum/month
Auto Withdrawal No charge None
$5,000 minimum/balance
Direct Deposit No charge None
Dated Account
Information Free $5 per request
</TABLE>
THE FUND'S MANAGEMENT
The Adviser, which was founded in 1961, had approximately $3.8 billion under
investment management as of December 31, 1995, including approximately $388
million of municipal securities. Seth M. Glickenhaus, a general partner of the
Adviser and the President of the Fund, is a controlling person of the Adviser.
The Adviser also acts as the Fund's Distributor. James R. Vaccacio, limited
partner of the Adviser, is responsible for the day-to-day management of the
Fund's portfolio. Mr. Vaccacio joined the Adviser as Manager of Municipal
Trading in 1977 and has been a limited partner of the Adviser's Municipal
Department since 1993. He assumed responsibility for managing the Fund's
portfolio in 1988.
The Administrator, Furman Selz LLC, provides administrative services and
personnel to the Fund.
12
<PAGE>
HOW THE FUND IS MANAGED
The Trustees of the Fund are responsible under the terms of its Agreement
and Declaration of Trust, which is governed by Massachusetts law, for
overseeing the conduct of the Fund's business.
Under an Investment Advisory Agreement, subject to such policies as the
Trustees may determine, the Adviser furnishes a continuing investment program
for the Fund and makes investment decisions on the Fund's behalf. The Adviser
places orders for the purchase and sale of securities for the Fund. In
selecting broker-dealers, the Adviser may consider research and brokerage
services furnished to the Adviser and its affiliates. Subject to seeking the
most favorable price and execution available, the Adviser may consider sales
of shares of the Fund as a factor in the selection of broker-dealers. The Fund
pays fees to the Adviser at an annual rate of 0.4% of the first $100 million
of average net assets and 0.3333% of any excess over $100 million.
Subject to the control of the Trustees, the Administrator manages the Fund's
other affairs and business. The Administrator is obligated to furnish the Fund
with office space, administrative and certain other services and executive and
other personnel necessary for the operation of the Fund. The Fund pays fees to
the Administrator at an annual rate of 0.2% of the first $100 million of
average net assets and 0.1666% of any excess over $100 million. The
Administrator also provides the Fund with certain accounting and related
services for which it receives an additional fee in the monthly amount of
$2,500 plus 1/75 of 1% of any excess over $100 million of Fund net assets. The
Administrator also acts as transfer and shareholder servicing agent of the
Fund and receives additional compensation from the Fund for its services as
such.
Each of the Adviser and the Administrator pays all the compensation of
officers and Trustees of the Fund who are also employees, officers, partners
or directors of such firm or its affiliates.
Expenses. The Fund pays all expenses not assumed by the Adviser and the
Administrator, including, without limitation, auditing, legal, pricing of
portfolio securities, custodial, state blue sky and shareholder reporting
expenses. Because the Fund serves as a vehicle for the reinvestment of
distributions from certain unit investment trusts (see 'How to Buy Shares'
below), the average dollar value of Builder Class shareholder accounts is
smaller than for many other New York tax exempt bond funds. Smaller account
size generally results in higher operating expenses. Builder Class expenses,
as a percentage of Fund assets, are higher than Premier Class expenses.
Expense Limitations. The Investment Advisory Agreement provides that the
fee payable to the Adviser will be reduced to the extent that expenses of the
Fund exceed the annual rate of 1.5% of the Fund's average net assets. The
expenses subject to this limitation are exclusive of brokerage, interest,
taxes and deferred organizational and extraordinary expenses. The Adviser has
also agreed on a voluntary basis to limit the total expenses of each class of
the Fund's shares to the annual rate of 1.5% of the class's average net
assets. If the Adviser terminates this voluntary agreement, the Fund's
Prospectus will be supplemented.
13
<PAGE>
HOW THE FUND VALUES ITS SHARES
The Fund calculates the net asset value of a share by dividing the total value
of its assets, less liabilities, by the number of shares outstanding. Shares
are valued as of the close of regular trading on the New York Stock Exchange
each day, Monday through Friday, on which the Exchange is open and on any other
day on which there is sufficient trading in the Fund's portfolio securities to
affect the net asset value of the shares of the Fund. The Fund may authorize
additional computations at other times. The Fund will not calculate net asset
value on certain holidays including New Year's Day, Presidents Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Tax exempt securities (including New York Tax Exempt Bonds) are stated on the
basis of valuations provided by a pricing service approved by the Trustees which
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 Fund believes that reliable
transaction prices are generally not readily available for purposes of valuing
its portfolio securities. As a result, it is likely that most of the valuations
provided by such pricing service will be based upon fair value determined on the
basis of the factors listed above. Non tax exempt securities for which
transaction prices are readily available are stated at market value (determined
on the basis of the last reported sales price, or a similar means). Short-term
investments that will mature in 60 days or less are stated at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value as determined in good faith by the Trustees.
DISTRIBUTIONS AND TAXES
The Fund currently declares all of its net investment income as a distribution
on each day it is open for business. Net investment income consists of interest
accrued on portfolio investments of the Fund, less accrued expenses. Because the
Premier and Builder Classes of shares bear different rates of transfer agency
expenses, the net investment income per share, and the distributions per share,
will be different for the two classes. Normally, the Fund pays distributions of
net investment income monthly. The Fund will distribute at least annually all
net realized capital gains, if any, after applying any available capital loss
carryovers. Federal tax law also requires the Fund to distribute, prior to the
end of each calendar year, virtually all of the Fund's ordinary income for the
calendar year, and virtually all of the capital gain net income the Fund
realizes in the twelve months prior to October 31 of that year and has not
previously distributed, in order to avoid certain excise taxes on certain
undistributed amounts.
You begin earning distributions on the business day after the Fund receives
payment for your shares. It is your responsibility to see that your dealer
forwards payment promptly.
You can choose from three distribution options:
-- To reinvest all distributions in additional Fund shares;
-- To receive distributions from net investment income in cash while
reinvesting capital gains distributions in additional shares; or
-- To receive all distributions in cash.
You can change your distribution option at any time by notifying the
Administrator in writing. If you do not select an option when you open your
account, all distributions will be reinvested. Distributions are reinvested at
net asset value.
The Fund intends to qualify each year as a 'regulated investment company'
under the Internal
14
<PAGE>
Revenue Code so that it does not pay federal taxes on income and capital gains
distributed to shareholders. The Fund also intends to meet all IRS requirements
necessary to ensure that it is qualified to pay 'exempt-interest dividends,'
which means that the Fund can pass on to shareholders the federal tax exempt and
New York tax exempt status of its investment income.
For federal income tax and New York State and City personal income tax
purposes, your proportionate share of taxable distributions from the Fund's
other net investment income and short-term capital gains, if any, will be
taxable as ordinary income, whether received in cash or additional shares.
Distributions of long-term capital gains are taxable as long-term capital gains
regardless of how long you have held your Fund shares. Distributions by the Fund
are not eligible for the dividends-received deduction for corporations.
Income from certain private activity bonds issued after August 7, 1986 is an
item of tax preference for purposes of the federal alternative minimum tax at
the maximum rate of 28% for individuals and 20% for corporations. If the Fund
invests in such private activity bonds, shareholders may become subject to the
alternative minimum tax on that part of the Fund's distributions which is
derived from interest income on such bonds. However, it is a fundamental policy
of the Fund that distributions from interest income on such bonds, together with
distributions of interest income on investments other than New York Tax Exempt
Bonds, will normally not exceed 10% of the total amount of the Fund's income
distributions.
Interest on all tax exempt bonds is included in corporate 'book income' for
purposes of computing the alternative minimum tax applicable to corporations.
Seventy-five percent of the excess of adjusted current income over the amount of
income otherwise subject to the alternative minimum tax is added to the
corporation's alternative minimum taxable income, potentially giving rise to
alternative minimum tax liability.
All tax exempt bonds issued after August 16, 1986 (September 1, 1986 in the
case of certain bonds) are now subject to certain rules formerly applicable only
to industrial development bonds. If the issuer of bonds issued after such date
fails to observe these rules, the interest on the bonds could become taxable
retroactive to the date the bonds were issued. Also, the tax-exempt nature of
interest on municipal bonds generally could be affected by future changes in
applicable law.
Each year the Fund will send you tax information to help you report the prior
calendar year's distributions on your federal income tax return. Redemptions by
check, dealer or otherwise will be reported on Form 1099-B, as required by
federal law. You should consult your tax adviser about any state or local taxes
that may apply.
HOW THE FUND SHOWS PERFORMANCE
The Fund may furnish data about the investment performance of the Premier and
Builder Classes in advertisements, sales literature and reports to shareholders.
'Total return' represents the annual percentage change in value of $1,000
invested at the net asset value per share of the relevant class for the one-,
five- and ten-year periods through the end of the most recent calendar quarter,
assuming reinvestment of all distributions.
The Fund determines the yield of the Premier and Builder Classes in accordance
with the Securities and Exchange Commission's standardized formula for the
determination of mutual fund yield, under which the net investment income of the
relevant class for a stated 30-day period is shown as a percentage of net asset
value per share of that class at the end of the period. Unlike total return,
yield is not a measurement of changes in the net asset value of shares of the
15
<PAGE>
Fund. From time to time, the Fund may include the current yield of the Premier
and Builder Classes as well as a compound yield (in each case accompanied by its
total return) in information furnished to present or prospective shareholders
and in advertisements. Compound yield assumes that a particular rate of current
yield remains in effect for a full year and that all distributions of net
investment income during the year are reinvested in additional shares of the
relevant class. The Fund may also quote a taxable-equivalent yield for each
class, which is calculated to show what yield an investor who is subject to
income tax at a specified rate would need to realize on a fully taxable
investment in order to achieve the same yield, after taxes, as the yield of the
relevant class, after taxes, for a specified period. For comparative purposes,
the Fund may compare each class' expense and performance to a hypothetical
investment in the Fund as if it were still a single class fund.
Information about the Fund's performance may also be included in sales
literature relating to certain unit investment trusts sponsored by the Adviser.
This information may include the incremental dollar amount or percentage of
invested principal that a hypothetical investor would receive if the investor
invested a specified amount of principal in a specified series of a unit
investment trust on a specified date, and had his or her distributions from such
series automatically invested in shares of Premier or Builder Classes under
'sweep' arrangements made available by the Distributor, as compared to the
dollar amount or percentage that the investor would receive if such unit
investment trust distributions were paid out to the investor rather than
invested in shares of the Fund.
The total return and current yield of the Premier and Builder Classes may vary
from time to time depending on market conditions, the composition of the Fund's
portfolio and operating expenses. These factors and possible differences in the
methods used in calculating yield should be considered when comparing the
current yield of either class to yields published for other investment companies
and other investment vehicles. Total return and yield should also be considered
relative to changes in the value of the shares of the Premier and Builder
Classes and the risks associated with the Fund's investment objectives and
policies. At any time in the future, total returns and yields may be higher or
lower than past total returns and yields and there can be no assurance that any
historical total return or yield will continue.
HOW TO BUY SHARES
You can buy Fund shares two ways -- through a participating dealer or directly
through the Distributor. Except as set forth below, the price per share is the
net asset value next determined after the Distributor receives your order.
Through a participating dealer: Many investment dealers have a sales
agreement with the Distributor and will be glad to accept your order. If you do
not have a dealer, the Distributor can refer you to one.
Through the Distributor: Complete the enclosed application form and return it
with a check payable to the Fund to the Administrator, which will act as your
agent in purchasing shares.
Shares are sold at the net asset value of the relevant class next determined
after the Administrator receives your order. If you buy shares through your
investment dealer, the dealer must receive your order before the close of
regular trading on the New York Stock Exchange (normally 4 p.m. New York Time)
and transmit it to the Administrator by 5 p.m. to receive that day's net asset
value.
Investors in Empire State Municipal Exempt Trust, Empire Guaranteed Series and
Empire
16
<PAGE>
Maximus AMT Series A, which are unit investment trusts sponsored by the Adviser,
may automatically invest distributions from such unit investment trusts in
shares of the Fund. These automatic reinvestments are not subject to the Fund's
minimum investment amounts.
Certificates. In the interest of economy and convenience, physical stock
certificates representing the Fund's shares will not be issued unless requested
in writing directly to the Fund's Shareholder Servicing Agent or to an account
representative of an eligible broker-dealer or bank. Shares of the Fund are
recorded on a stock register by the Shareholder Servicing Agent and shareholders
who do not elect to receive stock certificates have the same rights of ownership
as if certificates had been issued to them. Redemptions and exchanges by
shareholders who hold certificates may take longer to effect than similar
transactions involving non-certificated shares because the physical delivery and
processing of properly executed certificates is required. Accordingly, the Fund
strongly recommends that shareholders do not request issuance of certificates.
Wire and telephone redemptions of shares held in certificate form are not
permitted and the shares represented thereby will not be reported on brokerage
or bank statements sent to clients. See 'How to Sell Shares' below.
HOW TO SELL SHARES
You can sell your shares to the Fund any day the New York Stock Exchange is
open, either directly to the Fund, by check or through your investment dealer.
The Fund will repurchase only shares for which it has received payment.
The Fund generally sends you payment for your shares the next business day.
However, if shares are redeemed through an investment dealer, payment is made to
that dealer. When you sell shares, you may realize a capital gain or loss
depending on the difference between what you paid for your shares and what you
received for them.
Under unusual circumstances, the Fund may suspend repurchases or postpone
payment for up to seven days or longer, as permitted by federal securities law.
Directly to the Fund: Send a signed letter of instruction or stock power form
to The Empire Builder Tax Free Bond Fund, 237 Park Avenue, Suite 910, New York,
NY 10017, along with any certificates that represent shares you want to sell.
Please reference your account number. The price you will receive is the net
asset value for the relevant class next calculated after the Fund receives your
request. For your protection, if shares to be redeemed have a value of $25,000
or more and to protect shareholder accounts, the Fund and its transfer agent
from fraud, signature guarantees are required to enable the Fund to verify the
identity of the person who has authorized a redemption from an account.
Signature guarantees are required for (1) redemptions where the proceeds are to
be sent to someone other than the registered shareholder(s) and the registered
address, and (2) share transfer requests. Signature guarantees may be obtained
from certain eligible financial institutions, including but not limited to, the
following: banks, trust companies, credit unions, securities brokers and
dealers, savings and loan associations and participants in the Securities
Transfer Association Medallion Program ('STAMP'), the Stock Exchange Medallion
Program ('SEMP') or the New York Stock Exchange Medallion Signature Program
('MSP'). Shareholders may contact the Fund at 1-800-847-5886 for further
details. Further documentation, such as copies of corporate resolutions and
instruments of authority, may be requested from corporations, administrators,
executors, personal representatives,
17
<PAGE>
trustees or custodians to evidence the authority of the person or entity making
the redemption request. Stock power forms are available from your investment
dealer, the Administrator and many commercial banks.
The Administrator usually requires additional documentation to sell shares
registered in the name of a corporation, agent or fiduciary, or if you are a
surviving joint owner. Contact the Administrator for details.
By check: Shareholders wishing to sell shares by drawing checks on their
accounts must first complete the signature card and resolution provided with the
application contained in this Prospectus. Upon receiving the properly completed
application, card and resolution, the Administrator will provide you with checks
drawn on Investors Fiduciary Trust Company, Kansas City, Missouri. These checks
may be made payable to the order of any person in the amount of $500 or more.
When a check is presented to Investors Fiduciary Trust Company for payment, a
sufficient number of full and fractional shares in the shareholder's account
will be redeemed to cover the amount of the check. Shares represented by stock
certificates may not be redeemed by this method.
Shareholders utilizing checks will be subject to Investors Fiduciary Trust
Company's rules governing checking accounts. You should make sure that there are
sufficient shares in your account to cover the amount of any check drawn, since
the net asset value of shares will fluctuate. If insufficient shares are in the
account, the check will be returned marked 'insufficient funds' and no shares
will be redeemed. It is not possible to determine in advance the total value of
an account so as to write a check for the value of the entire account, because
dividends declared on shares held in the account or prior redemptions and
possible changes in net asset value may cause the account to change in amount.
Accordingly, you should not close your account by writing a check. Shareholders
may not maintain an Automatic Cash Withdrawal Plan (see page 11) and utilize the
check writing privilege at the same time.
By telephone: You may elect to redeem shares by telephoning a redemption
request to the Administrator. For details, see page 11 of this Prospectus.
Through a participating investment dealer: Your dealer must receive your
request before the close of regular trading on the New York Stock Exchange and
transmit it to the Administrator before 5 p.m. New York time to receive that
day's price. Your dealer will be responsible for furnishing all necessary
documentation to the Administrator, and may charge for its services.
HISTORY AND ORGANIZATION OF THE FUND
The Fund is a Massachusetts business trust organized on September 30, 1983. A
copy of the Fund's Agreement and Declaration of Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts.
The Fund is a no-load, open-end, non-diversified management investment company
with an unlimited number of authorized shares of beneficial interest which may,
without shareholder approval, be divided into an unlimited number of series or
classes of such shares. Shares of different series or classes can bear different
levels of expenses. The Fund's shares are not presently divided into series. The
Fund's shares are, however, currently divided into two classes, the Premier
Class and the Builder Class. The two classes bear all Fund expenses pro rata
based on the aggregate net asset value of the outstanding shares of the two
classes, except that transfer agency costs are allocated between the two classes
based on the number of shareholder accounts in each class. The other differences
between the classes are described above under 'Features of the Premier and
Builder Classes.'
18
<PAGE>
Each share has one vote, with fractional shares voting proportionally. The
Fund does not hold regular annual shareholders' meetings, although special
meetings may be called from time to time. Shares are freely transferable, are
entitled to dividends as declared by the Trustees, and, if the Fund were
liquidated, would receive the net assets of the Fund. The Fund may suspend the
sale of shares at any time and may refuse any order to purchase shares.
Shareholders may under certain unusual conditions be held personally liable for
obligations of the Fund. See 'Shareholder Liability' in the SAI.
If the balance in a shareholder's account is less than an amount set by the
Trustees (currently 20 shares), the Fund may close the account involuntarily and
send the proceeds to the shareholder. A shareholder will receive at least 60
days' written notice before an account is closed (during which time he can avoid
termination by increasing his share ownership above the minimum). The Fund may
also redeem shares in an account in excess of an amount set from time to time by
the Trustees. In the event such a maximum account size is adopted in the future,
the Fund's Prospectus will be supplemented to describe it.
Shareholder inquiries about the Fund should be directed to the Fund at the
address or toll-free telephone number shown on the cover of this Prospectus.
19
<PAGE>
THE FUND'S 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.
20
<PAGE>
[FRONT COVER GRAPHIC SHOWING PENCIL AND STOCK REPORT]
THE
EMPIRE
BUILDER
TAX FREE
BOND
FUND
Builder Class
Premier Class
Prospectus
July 1, 1996
[EMPIRE BUILDER LOGO]
[EMPIRE BUILDER LOGO]
237 Park Avenue Suite 910
New York, New York 10017
1-800-847-5886
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
THE EMPIRE BUILDER TAX FREE BOND FUND
Statement of Additional Information
July 1, 1996
This Statement of Additional Information contains material which may be
of interest to investors but which is not included in the Prospectus of The
Empire Builder Tax Free Bond Fund. This Statement is not a Prospectus and is
authorized for distribution only when it accompanies or follows delivery of the
Prospectus of the Fund dated July 1, 1996, as supplemented from time to time.
This Statement should be read in conjunction with the Prospectus. Investors may
obtain a free copy of the Prospectus from Furman Selz LLC, 237 Park Avenue, New
York, New York 10017.
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Definitions 2
Investment Objective and Policies of the Fund 2
Investment Restrictions of the Fund 9
Management of the Fund 12
Determination of Net Asset Value 19
Fund Performance 20
Purchase of Shares 22
Investment Programs 22
Taxes 24
Automatic Cash Withdrawal Program 26
Financial Statements F-1
Investment Ratings Appendix A
</TABLE>
DEFINITIONS
The "Fund" The Empire Builder Tax Free Bond Fund
The "Adviser" or the "Distributor" Glickenhaus & Co., the Fund's Adviser
and Principal Underwriter
The "Administrator" Furman Selz LLC, the Fund's
Administrator and Transfer and
Shareholder Servicing Agent
The "SEC" The Securities and Exchange Commission
INVESTMENT OBJECTIVE AND POLICIES OF THE FUND
The Fund's investment objective and its investment policies are
described in the Prospectus. The investment objective of the Fund is to seek as
high a level of current income exempt from federal income tax and New York State
and City personal income taxes as is believed to be consistent with the
preservation of capital. This Statement contains additional information about
those policies and about certain miscellaneous investment practices in which the
Fund may engage. The Fund is also subject to certain investment restrictions
described below.
New York Tax Exempt Bonds
As used in this Statement, the term "New York Tax Exempt Bonds" refers
to debt securities the interest from which is, in the opinion of bond counsel,
exempt from federal income tax and New York State and City personal income taxes
(other than the possible incidence of any alternative minimum tax). New York Tax
Exempt Bonds consist primarily of bonds of The State of New York, its political
subdivisions (for example, counties, cities, towns, villages and school
districts) and Authorities issued to obtain funds for various public purposes,
including the construction of a wide range of public facilities such as
airports, bridges, highways, housing, hospitals, mass transportation, schools,
streets and water and sewer works. Other public purposes for which certain New
York Tax Exempt Bonds may be issued include refunding outstanding obligations,
obtaining funds for general operating expenses, or obtaining funds to lend to
public or private institutions for the construction of facilities such as
educational, hospital and housing facilities. In addition, certain types of
industrial development bonds and private activity bonds have been or may be
issued by public authorities or on behalf of state or local governmental units
to finance privately operated housing facilities, sports facilities, convention
or trade show facilities, airport, mass transit, port or parking facilities, air
or water pollution control facilities and certain local facilities for water
supply, gas, electricity or sewage or solid waste disposal. Other types of
industrial development and private activity bonds are used to finance the
construction, equipment, repair or improvement of privately-operated industrial
or commercial facilities. Industrial development bonds and private activity
bonds are included within the term New York Tax Exempt Bonds if the interest
paid thereon is, in the opinion of bond counsel, exempt from federal income tax
and New York State and City personal income taxes (other than the possible
incidence of any alternative minimum tax). The Fund may invest more than 25% of
the value of its total assets in such bonds, but not more than 25% in bonds
backed by nongovernmental users in any one industry (see "Investment
Restrictions of the Fund"). However, as described in the Prospectus under
"Distributions and Taxes," the income from certain private activity bonds is an
item of tax preference for purposes of the federal alternative minimum tax, and
it is a fundamental policy of the Fund that distributions from interest income
on such private activity bonds, together with distributions of interest income
on investments other than New York Tax Exempt Bonds, will normally not exceed
10% of the total amount of the Fund's income distributions.
In addition, the term "New York Tax Exempt Bonds" includes debt
obligations issued by other governmental entities (for example, U.S.
territories) if such debt obligations generate interest income which is exempt
from federal income tax and New York State and City personal income taxes (other
than any alternative minimum taxes).
There are, of course, variations in the credit quality of New York Tax
Exempt Bonds, both within a particular classification and between
classifications, depending on numerous factors (see Appendix A).
Yields. The yields on New York Tax Exempt Bonds are dependent on a
variety of factors, including general money market conditions, the financial
condition of the issuer, general conditions of the New York Tax Exempt Bond
market, the size of a particular offering, the maturity of the obligation and
the rating of the issue. The ratings of Moody's and Standard & Poor's represent
their opinions as to the quality of the New York Tax Exempt Bonds which they
undertake to rate. It should be emphasized, however, that ratings are general
and are not absolute standards of quality. Consequently, New York Tax Exempt
Bonds with the same maturity, interest rate and rating may have different yields
while New York Tax Exempt Bonds of the same maturity and interest rates with
different ratings may have the same yield. Subsequent to its purchase by the
Fund, an issue of New York Tax Exempt Bonds or other investment may cease to be
rated or the rating may be reduced below the minimum rating required for
purchase by the Fund. Neither event will require the elimination of an
investment from the Fund's portfolio, but the Adviser will consider such an
event as part of its normal, ongoing review of all the Fund's portfolio
securities.
"Moral Obligation" Bonds. The Fund does not currently intend to invest
in so-called "moral obligation" bonds, where repayment is backed by a moral
commitment of an entity other than the issuer, unless the credit of the issuer
itself, without regard to the "moral obligation," meets the investment criteria
established for investments by the Fund.
Additional Risks. Securities in which the Fund may invest, including
New York Tax Exempt Bonds, are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the federal Bankruptcy Code, and laws, if any, which may be enacted by
Congress or the New York legislature extending the time for payment of principal
or interest, or both, or imposing other constraints upon enforcement of such
obligations. There is also the possibility that as a result of litigation or
other conditions the power or ability of issuers to meet their obligations for
the payment of interest and principal on their New York Tax Exempt Bonds may be
materially affected or that their obligations may be found to be invalid and
unenforceable.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on debt obligations issued by states and their political subdivisions
and similar proposals may be introduced in the future. If such a proposal were
enacted, the availability of New York Tax Exempt Bonds for investment by the
Fund and the value of the Fund's portfolio could be materially affected, in
which event the Fund would reevaluate its investment objective and policies and
consider changes in the structure of the Fund or dissolution.
Hedging Activities
General Characteristics of Futures Contracts. The Fund may purchase and
sell financial futures contracts and related options in order to hedge against a
change in the values of securities that the Fund owns or expects to purchase.
A futures contract sale generally creates an obligation by the seller
to deliver the type of financial instrument called for in the contract in a
specified delivery month for a stated price. (As described below, however, index
futures contracts do not require actual delivery of the securities making up an
index.) A futures contract purchase creates an obligation by the purchaser to
take delivery of the underlying financial instrument in a specified delivery
month at a stated price. The specific instruments delivered or taken,
respectively, at settlement date are not determined until at or near that date.
The determination is made in accordance with the rules of the exchange on which
the futures contract sale or purchase was made. Futures contracts are traded
only on commodity exchanges or boards of trade -- known as "contract markets" --
approved for such trading by the Commodity Futures Trading Commission, and must
be executed through a futures commission merchant, or brokerage firm, which is a
member of the relevant contract market.
Although most futures contracts by their terms call for actual delivery
or acceptance of commodities or securities, in most cases the contracts are
closed out before the settlement date without the making or taking of delivery.
Closing out a futures contract sale is effected by purchasing a futures contract
for the same aggregate amount of the specific type of financial instrument or
commodity and with the same delivery date. If the price of the initial sale of
the futures contract exceeds the price of the offsetting purchase, the seller is
paid the difference and realizes a gain. Conversely, if the price of the
offsetting purchase exceeds the price of the initial sale, the seller realizes a
loss. Similarly, the closing out of a futures contract purchase is effected by
the purchaser entering into a futures contract sale. If the offsetting sale
price exceeds the purchase price, the purchaser realizes a gain, and if the
purchase price exceeds the offsetting sale price, the purchaser realizes a loss.
When the Fund purchases or sells a futures contract, it is required to
deposit with the Fund's custodian an amount of cash and/or securities. This
amount is known as "initial margin." Initial margin is similar to a performance
bond or good faith deposit that is returned to the Fund upon termination of the
contract, assuming the Fund satisfies its contractual obligations.
Subsequent payments to and from the broker involved in the transaction
occur on a daily basis in a process known as "marking to market." These payments
are called "variation margin" and are made as the value of the futures contract
fluctuates. For example, when the Fund has purchased a futures contract and the
price of the underlying index or security has risen, that position may have
increased in value, in which event the Fund would receive from the broker a
variation margin payment equal to that increase in value. Conversely, when the
Fund has purchased a futures contract and the price of the underlying index or
security has declined, the position may be less valuable, in which event the
Fund would be required to make a variation margin payment to the broker.
When the Fund terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to the
Fund, and the Fund realizes a loss or a gain. Such closing transactions involve
additional commission costs.
Index futures contracts and options. An index futures contract is a
contract to buy or sell units of a specified index at a specified future date at
a price agreed upon when the contract is made. Entering into a contract to buy
units of an index is commonly referred to as buying a contract or holding a long
position in the index. Entering into a contract to sell units of an index is
commonly referred to as selling a contract or holding a short position. A unit
is based on the current value of the index. For example, the Municipal Bond
Index futures contract currently traded on the Chicago Board of Trade is based
on The Bond Buyer Municipal Bond Index. This Index is composed of 40 high
quality tax-exempt bonds. The Index assigns relative weightings to the
tax-exempt bonds included in the Index, and the Index fluctuates with changes in
the market values of those bonds. The Municipal Bond Index futures contract
trades in units equal to $1,000 times the value of the Index. Unlike futures
contracts relating to a single specific security, which require the actual
delivery of the underlying security at a future date, no delivery of the actual
bonds making up the index will take place under an index futures contract.
Instead, settlement in cash must occur upon the termination of the contract,
with the settlement being based on the difference between the contract price and
the actual level of the Index at the expiration of the contract. For example, if
the Fund enters into a futures contract to buy 50 units of the Index at a
specified future date at a value of 90 and the value of the Index is 95 on that
future date, the Fund will gain $250,000 (50 units times a gain of 5 times
$1000). If the Fund enters into a futures contract to sell 50 units of the Index
at a specified future date at a value of 90 and the value of the Index is 95 on
that future date, the Fund will lose $250,000 (50 units times a loss of 5 times
$1000).
Options on index futures contracts are similar to options on securities
except that options on index futures contracts give the purchaser the right in
return for the premium paid to assume a position in an index futures contract (a
long position if the option is a call and a short position if the option is a
put), rather than to purchase or sell the specific securities, at the specified
exercise price at any time during the period of the option. Upon exercise of the
option, the delivery of the index futures position by the writer of the option
to the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account maintained with respect to the
option, which represents the amount by which the market price of the index
futures contract, at exercise, exceeds (in the case of a call) or is less than
(in the case of a put) the exercise price of the option on the index futures
contract. If an option is exercised on the last trading day prior to the
expiration date of the option, the settlement will be made on the expiration
date entirely in cash based on the difference between the exercise price of the
option and the closing level of the index on which the futures contracts are
based. Purchasers of options who fail to exercise their options prior to
expiration suffer a loss of the premium paid.
As an alternative to purchasing call and put options on an index
futures contract, the Fund may purchase and sell call and put options on the
underlying indices themselves to the extent that such options are traded on
national securities exchanges. Such options would be used in a manner similar to
the use of options on index futures contracts.
Special Risks of Transactions in Futures Contracts and Related Options --
Hedging risks. There are several risks in connection with the use by the Fund of
futures contracts and related options as a hedging device. One risk arises in
connection with the use of index futures contracts and options because of the
imperfect correlation between movements in the prices of the index futures
contracts and movements in the prices of the securities that are the subject of
the hedge. The Adviser will, however, attempt to reduce this risk by purchasing
and selling, to the extent possible, futures contracts and related options on
indices the movements of which are, in its judgment, likely to correlate closely
with movements in the prices of the Fund's portfolio securities sought to be
hedged.
Successful use of index futures contracts and related options by the
Fund for hedging purposes is also subject to the Adviser's ability to predict
correctly movements in the direction of the market. It is possible that, where
the Fund has purchased put options on index futures contracts to hedge its
portfolio against a decline in the market, the index on which the puts are
purchased may advance and the value of securities held in the Fund's portfolio
may decline. If this occurred, the Fund would lose money on the put options and
also experience a decline in value of its portfolio securities. In addition, the
prices of index futures and related options may not correlate perfectly with
movements in the underlying index due to certain market distortions. First, all
participants in the futures market are subject to margin deposit requirements.
Such requirements may cause investors to close futures contracts through
offsetting transactions which could distort the normal relationship between the
index and futures markets. Second, the margin requirements in the futures market
are less onerous than margin requirements in the securities market in general,
and as a result the futures market may attract more speculators than the
securities market does. Increased participation by speculators in the futures
market may also cause temporary price distortions. Due to the possibility of
price distortion, even a correct forecast of general market trends by the
Adviser may still not result in a successful hedging transaction over a short
time period. However, while this could occur to a certain degree, the Adviser
believes that over time the value of the Fund's portfolio will tend to move in
the same direction as the market indices which are intended to correlate with
the price movements of the portfolio securities sought to be hedged.
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on futures contracts involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances when the purchase
of a call or put option on a futures contract would result in a loss to the Fund
when the purchase or sale of a futures contract would not, such as when there is
no movement in the prices of the underlying securities or index. The writing of
an option on a futures contract involves risks similar to those risks relating
to the sale of futures contracts.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain market clearing
facilities inadequate, and thereby result in the institution by exchanges of
special procedures which may interfere with the timely execution of customer
orders.
-- Liquidity risks. To reduce or eliminate a hedge position held by the
Fund, the Fund may seek to close out a position. The ability to establish and
close out positions will be subject to the maintenance of a liquid secondary
market. There can be no assurance that this market will exist when the Fund
seeks to close a position. Reasons for the absence of a liquid secondary market
on an exchange include the following: (i) there may be insufficient trading
interest in certain contracts or options; (ii) restrictions may be imposed by an
exchange on opening transactions or closing transactions or both; (iii) trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of contracts or options, or underlying securities;
(iv) unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing corporation may not at
all times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of contracts or options (or a particular
class or series of contracts or options), in which event the secondary market on
that exchange (or in the class or series of contracts or options) would cease to
exist, although outstanding contracts or options on the exchange which had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
Miscellaneous Investment Practices
Forward Commitments. New issues of New York Tax Exempt Bonds and other
debt securities are often purchased on a "when issued" or delayed delivery
basis, with delivery and payment for the securities normally taking place 15 to
45 days after the date of the transaction. The payment obligation and the
interest rate that will be received on the securities are each fixed at the time
the buyer enters into the commitment. The Fund may enter into such "forward
commitments" if it holds, and maintains until the settlement date in a
segregated account with the Fund's custodian, cash or high-grade short-term debt
obligations in an amount sufficient to meet the purchase price at all times.
When the time comes to pay for when issued securities, the Fund will meet its
obligations from its then available cash flow, from sale of the securities held
in the segregated account or sale of other securities, or, although it would not
ordinarily expect to do so, from sale of the when issued securities themselves
(which may have a market value greater or less than the Fund's payment
obligation). Forward commitments may be considered securities in themselves.
They involve a risk of loss if the value of the New York Tax Exempt Bond or
other security to be purchased declines prior to the settlement date; and
because such risk is in addition to the risk of decline in value of the Fund's
other assets, forward commitments may involve a form of leveraging. Although the
Fund will generally enter into forward commitments with the intention of
acquiring New York Tax Exempt Bonds or other securities for its portfolio, the
Fund may dispose of a commitment prior to settlement if the Adviser deems it
appropriate to do so. The Fund may realize short-term profits or losses upon the
sale of forward commitments.
Portfolio Turnover. Portfolio transactions will be undertaken
principally to accomplish the Fund's objective in relation to anticipated
movements in the general level of interest rates, but the Fund may also engage
in short-term trading consistent with its objective.
Securities may be sold in anticipation of a market decline (a rise in
interest rates) or purchased in anticipation of a market rise (a decline in
interest rates) and later sold. In addition, a security may be sold and another
purchased at approximately the same time to take advantage of what the Adviser
believes to be a temporary disparity in the normal yield relationship between
the two securities. The Adviser believes that, in general, the secondary market
for New York Tax Exempt Bonds is less liquid than that for taxable fixed-income
securities. Accordingly, the ability of the Fund to make purchases and sales of
securities in the foregoing manner may, at any particular time and with respect
to any particular securities, be limited. Yield disparities may occur for
reasons not directly related to the investment quality of particular issues or
the general movement of interest rates, due to such factors as changes in the
overall demand for or supply of various types of New York Tax Exempt Bonds or
changes in the investment objectives of investors.
Repurchase Agreements. The Fund may enter into repurchase agreements
with registered broker/dealers and with U.S. commercial banks with respect to
not more than 10% of the value of its total assets (taken at current value)
except when investing for temporary defensive purposes during times of adverse
market conditions. A repurchase agreement is a contract under which the Fund
would acquire a security for a relatively short period (usually not more than
one week) subject to the obligation of the seller to repurchase and the Fund to
resell such security at a fixed time and price (representing the Fund's cost
plus interest). The seller's obligations are secured by collateral (which is
marked to market on a daily basis) having a market value not less than the value
of the securities purchased by the Fund plus accrued interest. In the event of a
bankruptcy or other default of the seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying securities and losses
including (a) possible decline in the value of the collateral during the period
while the Fund seeks to enforce its rights thereto, (b) possible sub-normal
levels of income during this period and (c) expenses of enforcing its rights. If
a repurchase agreement is treated as a securities loan, the Fund will not have
title to the collateral. Although the Fund may enter into repurchase agreements
with respect to any securities which it may acquire consistent with its
investment policies and restrictions, it is the Fund's present intention to
enter into repurchase agreements only with respect to obligations of the U.S.
government or its agencies or instrumentalities.
---------------
Except as described below under "Investment Restrictions of the Fund"
and except for (1) the policy that under normal market conditions at least 90%
of the Fund's income distributions will be exempt from federal income tax and
New York State and City personal income taxes and (2) the policy that Fund
distributions from interest income on "private activity bonds" the income from
which is an item of tax preference for purposes of the federal alternative
minimum tax for individuals, together with distributions of interest income on
investments other than New York Tax Exempt Bonds, will not normally exceed 10%
of the total amount of the Fund's income distributions, the investment policies
described in the Prospectus and in this Statement are not fundamental and the
Trustees may change such policies without an affirmative vote of a "majority of
the outstanding voting securities" of the Fund, as defined below. As a matter of
policy, the Trustees would not change the Fund's investment objective without
such a vote.
INVESTMENT RESTRICTIONS OF THE FUND
As fundamental investment restrictions, which may not be changed
without a vote of a majority of the outstanding voting securities of the Fund,
the Fund will not:
(1) Borrow money in excess of 10% of the value (taken at the
lower of cost or current value) of its total assets (not including the
amount borrowed) at the time the borrowing is made, and then only from
banks as a temporary measure to facilitate the meeting of redemption
requests (not for leverage) which might otherwise require the untimely
disposition of portfolio investments or for extraordinary or emergency
purposes. (Such borrowings will be repaid before any additional
investments are made.)
(2) Pledge, hypothecate, mortgage or otherwise encumber its
assets in excess of 10% of the value of its total assets (taken at the
lower of cost or current value) and then only to secure borrowings
permitted by restriction (1) above. For the purposes of this
restriction, collateral arrangements with respect to margin for
financial futures (including securities index futures) contracts,
options on such futures contracts and options on securities indexes are
not deemed to be pledges of assets.
(3) Purchase securities on margin, except such short-term
credits as may be necessary for the clearance of purchases and sales of
securities, but it may make margin payments in connection with
financial futures (including securities index futures) contracts,
options on such futures contracts or options on securities indexes.
(4) Make short sales of securities or maintain a short
position for the account of the Fund unless at all times when a short
position is open it owns an equal amount of such securities or owns
securities which, without payment of any further consideration, are
convertible into or exchangeable for securities of the same issue as,
and equal in amount to, the securities sold short.
(5) Underwrite securities issued by other persons except to
the extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under federal
securities laws.
(6) Purchase or sell real estate, although it may purchase
securities which are secured by or represent interests in real estate.
(7) Purchase or sell commodities or commodity contracts,
except financial futures (including securities index futures) contracts
and related options.
(8) Make loans, except by purchase of debt obligations in
which the Fund may invest consistent with its investment policies, and
through repurchase agreements.
(9) Invest in securities of any issuer if, to the knowledge of
the Fund, officers and Trustees of the Fund or officers and directors
of the Adviser who beneficially own more than 1/2 of 1% of the
securities of that issuer together own more than 5%.
(10) Invest in the securities of any issuer if, immediately
after such investment, more than 5% of the value of the total assets of
the Fund taken at current value would be invested in the securities of
such issuer; provided that this limitation does not apply either to
obligations issued or guaranteed as to interest and principal by the
U.S. government or its agencies or instrumentalities or to New York Tax
Exempt Bonds.
(11) Purchase securities restricted as to resale, if, as a
result, such investments would exceed 5% of the value of the Fund's net
assets.
(12) Purchase securities (other than securities of the U.S.
government, its agencies or instrumentalities or New York Tax Exempt
Bonds, except obligations backed only by the assets and revenues of
nongovernmental users) if as a result of such purchases more than 25%
of the value of the Fund's total assets would be invested in any one
industry.
(13) Acquire more than 10% of the voting securities of any
issuer.
(14) Issue any class of securities which is senior to the
Fund's shares of beneficial interest except to the extent that
borrowings permitted by investment restriction (1) are deemed to
involve the issuance of such securities.
(15) Invest in (a) securities which in the opinion of the
Fund's investment adviser at the time of such investment are not
readily marketable, (b) securities the disposition of which is
restricted under federal securities laws (as described in fundamental
restriction 11 above) and (c) repurchase agreements maturing in more
than seven days, if, as a result, more than 10% of the Fund's total
assets (taken at current value) would be invested in the aggregate in
securities described in (a), (b) and (c) above.
It is contrary to the Fund's present policy, which may be changed
without shareholder approval, to:
(1) Invest in the securities of other investment companies,
except shares of other open-end management investment companies
purchased on a no-load basis or by purchases in the open market
involving only customary brokers' commissions or in connection with a
merger, consolidation or similar transaction. (Under the Investment
Company Act of 1940, the Fund generally may not (a) invest more than
10% of its total assets (taken at current value) in such securities;
(b) own securities of any one investment company having a value in
excess of 5% of the Fund's total assets (taken at current value); or
(c) own more than 3% of the outstanding voting stock of any one
investment company.)
(2) Purchase options or puts, calls, straddles, spreads or
combinations thereof, except that the Fund may buy and sell call and
put options on financial futures (including securities index futures)
contracts and on securities indexes; in connection with the purchase of
fixed-income securities, however, the Fund may acquire attached
warrants or other rights to subscribe for securities of companies
issuing such fixed-income securities or securities of parents or
subsidiaries of such companies. (The Fund's investment policies do not
currently permit it to exercise warrants or rights with respect to
equity securities.)
(3) Invest in securities of any issuer if the party
responsible for payment, together with any predecessor, has been in
operation for less than three years, and, as a result of the
investment, the aggregate of such investments would exceed 5% of the
value of the Fund's total assets; provided, however, that this
restriction shall not apply to any obligation of the United States or
its agencies or for the payment of which is pledged the faith, credit
and taxing power of any person authorized to issue New York Tax Exempt
Bonds.
(4) Buy or sell oil, gas or other mineral leases, rights or
royalty contracts.
--------------
All percentage limitations on investments will apply at the time of the
making of an investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment.
As provided in the Investment Company Act of 1940, a "vote of a
majority of the outstanding voting securities" of the Fund means the affirmative
vote of the lesser of (1) more than 50% of the outstanding shares of the Fund or
(2) 67% or more of the shares present at a meeting if more than 50% of the
outstanding shares of the Fund are represented at the meeting in person or by
proxy.
MANAGEMENT OF THE FUND
Trustees and Officers (Age)
Edward A. Falkenberg (55)
800 Third Avenue
New York, New York 10022
Trustee of the Fund; Vice President and Controller, Joseph E. Seagram & Sons,
Inc.; Controller, Seagram Company Ltd.; Trustee, Burke Rehabilitation
Hospital and Milford School.
Seth M. Glickenhaus* (82)
6 East 43rd Street
New York, New York 10017
Trustee, Chairman of the Board and President of the Fund; Senior Partner of
Glickenhaus & Co.
Edward A. Kuczmarski (47)
479 Madison Avenue, 10th Floor
New York, New York 10022
Trustee of the Fund; Director of Empire Tax Free Money Market, Inc.; Certified
Public Accountant and Partner, Hays & Company.
Milton R. Neaman (84)
Brookhaven at Lexington
1010 Waltham Street, Apt. 13241
Lexington, Massachusetts 02173
Trustee of the Fund; Director of Empire Tax Free Money Market, Inc.; Retired
Attorney.
Elizabeth B. Newell (55)
330 E. 45th Street
New York, New York 10017
Trustee of the Fund; Director of Empire Tax Free Money Market, Inc.; Trustee,
International Preschools.
John P. Steines (47)
40 Washington Square South
New York, New York 10012
Trustee of the Fund; Director of Empire Tax Free Money Market, Inc.; Professor
of Law, New York University School of Law.
Brain C. Laux (32)
6 East 43rd Street
New York, New York 10017
Senior Vice President of the Fund; Director, Unit Trust Department, Glickenhaus
& Co.; formerly, Manager of Syndicate Department, First Investors Corporation
and Employee, Merrill Lynch (brokerage firm).
John J. Pileggi (37)
237 Park Avenue
New York, New York 10017
Treasurer of the Fund; Senior Managing Director, Furman Selz LLC.
Gordon M. Forrester (35)
237 Park Avenue
New York, New York 10017
Assistant Treasurer of the Fund; Managing Director, Furman Selz LLC.
Joan V. Fiore (40)
237 Park Avenue
New York, New York 10017
Secretary of the Fund; Managing Director and Counsel, Furman Selz LLC; formerly,
Staff Attorney, Securities and Exchange Commission.
Sheryl Hirschfeld (35)
237 Park Avenue
New York, New York 10012
Assistant Secretary of the Fund; Director, Corporate Secretary Services, Furman
Selz LLC, formerly, Employee, Dreyfus Corporation.
- - ---------------
* Trustee who is an "interested person" of the Fund as that term is defined
in the Investment Company Act of 1940.
The principal occupations of the officers and Trustees of the Fund for
the last five years have been with the employers shown above (although in some
cases they may have held different positions with such employers). As of April
30, 1996, the Trustees and officers of the Fund, as a group, did not own 1% or
more of the outstanding shares of the Fund and no one shareholder owned 5% or
more of the outstanding shares of the Fund.
The Fund's Agreement and Declaration of Trust provides that the Fund
will indemnify its Trustees and officers against liabilities and expenses
incurred in connection with litigation in which they may be involved because of
their offices with the Fund, except if it is determined in the manner specified
in the Agreement and Declaration of Trust that they have not acted in good faith
in the reasonable belief that their actions were in the best interests of the
Fund or that such indemnification would relieve any officer or Trustee of any
liability to the Fund or its shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of his or her duties. The Fund, at
its expense, will provide liability insurance for the benefit of its Trustees
and officers.
Each Trustee of the Fund receives an annual fee of $3,000, and an
additional fee of $500 for each Trustees' meeting attended. Trustees who are not
interested persons of the Fund and who serve on committees of the Trustees
receive additional fees for attendance at committee meetings. The Fund paid
$4,250 in Trustees' fees and expenses to each Trustee in the fiscal year ended
February 29, 1996. The aggregate Trustees' fees were $21,250 in the fiscal year
ended February 29, 1996. The Fund provides no pension or retirement benefits to
its Trustees or former Trustees.
Messrs. Forrester, Glickenhaus, Laux and Pileggi and Ms. Fiore
and Ms. Hirschfeld, as partners, officers, employees or shareholders of
the Adviser or the Administrator, will benefit from the fees paid by the Fund
to the Adviser or the Administrator.
Investment Adviser
The Adviser serves as the Fund's investment adviser pursuant to an
Investment Advisory Agreement with the Fund dated as of July 1, 1988. Pursuant
to the Investment Advisory Agreement, the Adviser provides investment research,
advice and supervision to the Fund and is responsible for formulating a
continuous program for investment of the Fund's assets, subject to the general
supervision of the Fund's Trustees. The Adviser places orders for all purchases
and sales of the Fund's portfolio securities. The Adviser also compensates its
own partners and employees who serve as trustees or officers of the Fund.
The Adviser was founded in 1961 by Seth M. Glickenhaus, who is Chairman
of the Board and President of the Fund and a controlling person of the Adviser.
The Adviser managed approximately $3.8 billion of equity and fixed-income
securities as of December 31, 1995, and acts as a securities broker-dealer and
as sponsor of Empire State Municipal Exempt Trust, Empire Guaranteed Services
and Empire Maximus AMT Series A, which are unit investment trusts.
The compensation payable to the Adviser under the Investment Advisory
Agreement is a monthly fee based on the average net asset value of the Fund, as
determined at the close of each business day during the month, at the following
annual rates: 0.4% of the first $100,000,000 of average daily net asset value
and 0.3333% of any excess of average daily net assets over $100,000,000. The
Adviser's compensation under the Investment Advisory Agreement is subject to
reduction to the extent that in any year the Fund's expenses, including the
Adviser's fee, exceed the lesser of (i) 1/2% of the Fund's average annual net
assets or (ii) 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 and sale. The term "expenses" is defined in the
statutes or regulations of such jurisdictions, and, generally speaking, excludes
brokerage commissions, taxes, interest and extraordinary expenses.
The Fund pays all expenses not assumed by the Adviser, including,
without limitation, auditing, legal, pricing of portfolio securities, custodial,
shareholder servicing, shareholder reporting, registration and blue sky
expenses.
As indicated under "Portfolio Transactions," the Adviser may place Fund
portfolio transactions with broker/dealers who furnish the Adviser, without cost
to the Adviser, certain research, statistical and quotation services of value to
the Adviser and its affiliates in advising the Fund and other clients. In so
doing, the Adviser may cause the Fund to pay greater brokerage commissions than
it might otherwise pay. See "Portfolio Transactions."
The Investment Advisory Agreement provides that the Adviser shall not
be subject to any liability to the Fund or to any shareholder of the Fund for
any act or omission in the course of or connected with rendering services
thereunder in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations and duties on the part of the Adviser.
The Agreement may be terminated without penalty by vote of the Trustees
or the shareholders of the Fund, or by the Adviser, on not less than 60 days'
written notice. It may be amended only with a vote of the shareholders of the
Fund. The Agreement also terminates without payment of any penalty in the event
of its assignment, as such term is defined in the Investment Company Act of
1940. The Agreement provides that it will continue in effect only so long as
such continuance is approved at least annually by vote of either the Trustees or
the shareholders and, in either case, by a majority of the Trustees who are not
"interested persons" of the Adviser or the Fund cast in person at a meeting
called for such purpose. In each of the foregoing cases, the vote of the
shareholders required is the affirmative vote of a "majority of the outstanding
voting securities" as defined in the Investment Company Act of 1940.
For the fiscal years ended February 28, 1994 and 1995 and February 29,
1996, the Fund paid the Adviser $414,872, $419,467 and $446,694, respectively,
in fees.
Voluntary Expense Limitation. The Adviser has voluntarily agreed,
during the period commencing July 1, 1988 and until further notice to the Fund,
to limit the total expenses of the Fund to the annual rate of 1 1/2% of the
Fund's average net assets. In the event the Adviser terminates its voluntary
agreement, the Fund's Prospectus will be supplemented.
Portfolio Transactions
Investment Decisions. Investment decisions for the Fund and for the
other investment advisory clients of the Adviser are made with a view to
achieving their respective investment objectives. Investment decisions are the
product of many factors in addition to basic suitability for the particular
client involved. Thus, a particular security may be bought or sold for certain
clients even though it could have been bought or sold for other clients at the
same time. Likewise, a particular security may be bought for one or more clients
when one or more other clients are selling the security. In some instances, one
client may sell a particular security to another client. It also happens that
two or more clients simultaneously buy or sell the same security, in which event
each day's transactions in such security are, insofar as possible, averaged as
to price and allocated between such clients in a manner which in the opinion of
the Adviser is equitable to each and in accordance with the amount being
purchased or sold by them. There may be circumstances when purchases or sales of
portfolio securities for one or more clients will have an adverse effect on
other clients.
Brokerage and Research Services. It is anticipated that most purchases
and sales of portfolio investments will be with underwriters of or dealers in
New York Tax Exempt Bonds and other tax-exempt securities, acting as principal.
Accordingly, it is not anticipated that the Fund will pay significant brokerage
commissions. There is generally no stated commission in the case of securities
traded in the over-the-counter markets, where most of the Fund's portfolio
transactions will be effected, but the price paid by the Fund usually includes
an undisclosed dealer commission or mark-up. In underwritten offerings, the
price paid by the Fund includes a disclosed, fixed commission or discount
retained by the underwriters or dealer.
The Adviser will place all orders for the purchase and sale of
portfolio securities for the Fund and will buy and sell securities for the Fund
through a substantial number of dealers. In so doing, the Adviser will use its
best efforts to obtain for the Fund the most favorable price and execution
available, except to the extent it may be permitted to pay higher brokerage
commissions as described below. In seeking the most favorable price and
execution, the Adviser, having in mind the Fund's best interests, considers all
factors it deems relevant, including, by way of illustration, price, the size of
the transaction, the nature of the market for the security, the amount of
commission, the timing of the transaction taking into account market prices and
trends, the reputation, experience and financial stability of the dealer
involved and the quality of service rendered by the dealer in other
transactions.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive research, statistical and quotation services from dealers that
execute portfolio transactions for the clients of such advisers. Consistent with
this practice, the Adviser will receive research, statistical and quotation
services from many dealers with which the Adviser places the Fund's portfolio
transactions. These services, which in some instances may also be purchased for
cash, include such matters as general economic and security market reviews,
industry and company reviews, evaluations of securities and recommendations as
to the purchase and sale of securities. Some of these services are of value to
the Adviser in advising various of its clients (including the Fund), although
not all of these services are necessarily useful and of value in managing the
Fund. The management fee paid by the Fund is not reduced because the Adviser
receives such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934
and by the Investment Advisory Agreement, the Adviser may cause the Fund to pay
a dealer which provides "brokerage and research services" (as defined in such
Act) to the Adviser an amount of disclosed commission for effecting a securities
transaction for the Fund in excess of the commission which another dealer would
have charged for effecting that transaction. The Adviser's authority to cause
the Fund to pay any such greater commissions is subject to such policies as the
Trustees may adopt from time to time.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and subject to seeking the most favorable price and
execution available and such other policies as the Trustees may determine, the
Adviser may consider sales of shares of the Fund as a factor in the selection of
dealers to execute portfolio transactions for the Fund.
Pursuant to conditions set forth in rules of the SEC, the Fund may
purchase securities from an underwriting syndicate of which the Adviser is a
member (but not from the Adviser itself). Such conditions relate to the price
and amount of the securities purchased, the commission or spread paid, and the
quality of the issuer. The rules further require that such purchases take place
in accordance with procedures adopted and reviewed periodically by the Trustees,
particularly those Trustees who are not "interested persons" of the Fund.
In addition, subject to the provisions of the Investment Company Act of
1940 and to policies of the Trustees adopted from time to time, the Adviser may
also act as agent in connection with the purchase and sale of portfolio
securities which are not effected on a stock exchange. Under such circumstances,
the Adviser would receive and retain a commission from the Fund for its
services.
During the fiscal years ended February 28, 1994 and 1995 and February
29, 1996, the Fund paid no underwriting commissions in underwritten
transactions.
Administrator and Transfer Agent
Pursuant to an Administration Agreement dated as of October 25, 1993,
the Administrator provides various administrative services and personnel
necessary for the operations of the Fund. For providing such services and
personnel, the Administrator receives a monthly fee, based on the average net
asset value of the Fund, calculated daily, at the following rates: 0.2% of the
first $100,000,000 of the Fund's average net assets and 0.1666% of any excess of
Fund average net assets over $100,000,000. The Administrator also provides the
Fund with certain accounting and related services, pursuant to a Fund Accounting
Agreement dated as of July 1, 1988. For its services under the Fund Accounting
Agreement, the Administrator 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 fiscal years ended February 28, 1994 and 1995 and
February 29, 1996, respectively, the Fund paid the Administrator $207,891,
$209,733 and $223,340 in fees under the Administration Agreement (or a
predecessor agreement) and $45,253, $34,793 and $42,295 in fees and expenses
under the Fund Accounting Agreement.
From November 10, 1988 to June 8, 1993, the Fund served as its own
transfer agent. During this period, pursuant to a Servicing Agreement, the
Administrator received additional compensation from the Fund for providing
personnel and facilities to perform Fund shareholder servicing and transfer
agency related services and received additional compensation from the Fund for
its services as such. The Administrator received $34,995 as compensation from
the Fund for these services during the period from March 1 to June 8, 1993.
Effective June 8, 1993, the Administrator became the Fund's transfer agent.
During the period from June 8, 1993 through February 28, 1994 and during the
fiscal years ended February 28, 1995 and February 29, 1996, the Administrator
received $128,384, $160,742 and $167,281, respectively, as compensation from the
Fund for serving as the Fund's transfer agent. Since April 15, 1996, the Fund's
shares have been divided into two classes: the Premier Class and the Builder
Class. The transfer agency fees associated with each Class are allocated to that
Class. The transfer agency fee is a specified dollar amount per shareholder
account and is the same for each Class. Since the average size of Premier Class
accounts is higher than for Builder Class accounts, the Premier Class bears
lower transfer agency fees as a percentage of the aggregate net assets of the
class.
Principal Underwriter
The Distributor is the principal underwriter of shares of the Fund. The
Distributor is not obligated to sell any specific amount of shares of the Fund
and will purchase shares for resale only against orders for shares.
The Fund pays the cost of typesetting for its prospectuses and the cost
of printing and mailing prospectuses sent to existing shareholders. The
Distributor pays the cost of printing and distributing all other prospectuses.
During the fiscal years ended February 28, 1994 and 1995, the
Distributor received $9,523 and $22,087, respectively, in sales charges on sales
of shares of the Fund. Since January 1995, shares of the Fund have been offered
on a no-load basis.
DETERMINATION OF NET ASSET VALUE
Net asset value per share of the Fund will be determined once on each
day on which the New York Stock Exchange is open, as of the close of regular
trading on the Exchange, and on any other day on which there is sufficient
trading in the Fund's portfolio securities to affect the net asset value of
shares of the Fund, if shares of the Fund are either sold or repurchased or
redeemed on such day, in the following manner: Tax exempt securities (including
New York Tax Exempt Bonds) will be stated on the basis of valuations provided by
a pricing service, approved by the Trustees, which 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. At the date of this Statement, this service is furnished by
Mellon Data Services Inc. The Fund believes that reliable market quotations are
generally not readily available for purposes of valuing tax exempt securities.
As a result, depending on the particular tax exempt securities owned by the
Fund, it is likely that most of the valuations for such securities will be based
upon fair value determined under the foregoing procedures, which have been
approved by the Trustees. Tax exempt and non tax exempt securities for which
market quotations are readily available will be stated at market value, which is
currently determined using the last reported sale price, or, if no sales are
reported -- as in the case of most securities traded over-the-counter -- the
last reported bid price, except that U.S. government securities will be stated
at the mean between the last reported bid and asked prices. Short-term notes
having remaining maturities of 60 days or less will be stated at amortized cost,
which approximates market. All other securities and other assets will be valued
at fair value using methods approved in good faith by the Trustees. Liabilities
will be deducted from the total, and the resulting amount will be divided by the
number of shares outstanding.
Generally, trading in certain securities, such as tax exempt
securities, corporate bonds, U.S. government securities and money market
instruments, is substantially completed each day at various times prior to the
close of the New York Stock Exchange. The values of such securities used in
determining the net asset value of the Fund's shares are computed as of such
times. Occasionally, events affecting the value of such securities may occur
between such times and the close of the Exchange which will not be reflected in
the computation of the Fund's net asset value. If events materially affecting
the value of such securities occur during such period, then these securities
will be valued at their fair market value as determined in good faith by the
Trustees.
FUND PERFORMANCE
Total Return. As summarized in the Prospectus, total return is a
measure of the change in value of an investment in a class of shares of the Fund
over the period covered, which assumes that any dividends or capital gains
distributions are automatically reinvested in the shares of the same class
rather than paid to the investor in cash. The formula for total return used by
the Fund includes three steps: (1) adding to the total number of shares of the
relevant class that would have been purchased by a hypothetical investment in
the Fund (assuming the investment is made at the net asset value per share) all
additional shares that would have been purchased if all dividends and
distributions paid or distributed during the period had been automatically
reinvested; (2) calculating the value of the hypothetical initial investment as
of the end of the period by multiplying the total number of shares owned at the
end of the period by the net asset value per share of the relevant class on the
last trading day of the period; and (3) dividing this account value for the
hypothetical investor by the amount of the initial investment and annualizing
the result for periods of less than one year. Total return may be stated with or
without giving effect to any expense limitations in effect for the Fund. Because
of the lower expense ratio of the Premier Class, the Premier Class will
generally have a higher total return than the Builder Class.
Yield. The Fund computes yield for each class by annualizing net
investment income per share for that class for a recent 30-day period and
dividing that amount by the relevant class's net asset value per share (reduced
by any undeclared earned income expected to be paid shortly as a dividend) on
the last trading day of that period. Net investment income will reflect
amortization of any market value premium or discount on fixed income securities
(except for obligations backed by mortgages or other assets). Each class's yield
will vary from time to time depending upon market conditions, the composition of
the Fund's portfolio and operating expenses of the class. These factors,
possible differences in the methods used in calculating yield (in the case of
investment vehicles that are not registered investment companies) and the tax
exempt status of distributions should be considered when comparing the Fund's
yields to yields published for other investment companies and other investment
vehicles. Yields should also be considered relative to changes in the value of
the Fund's shares and to the relative risks associated with the investment
objective and policies of the Fund. Yields may be stated with or without giving
effect to any expense limitations in effect for the Fund. The Fund may also
advertise a tax-equivalent yield for each class, calculated as described above
except that, for any given tax bracket, net investment income will be calculated
using as gross investment income an amount equal to the sum of (i) the
tax-exempt income of the Fund divided by the difference between 1 and the
effective federal, federal and state or federal, state and local income tax rate
for taxpayers in that tax bracket plus (ii) any taxable income of the Fund.
Because of the lower expense ratio of the Premier Class, the Premier Class will
generally have a higher yield than the Builder Class.
Comparisons
From time to time, in advertising and marketing literature, in
connection with communicating its performance to current or prospective
shareholders, the Fund may compare its performance to the performance of various
indexes. The indexes used may include, but are not limited to, Lehman Brothers
Municipal Bond Index, Bloomberg, Bond Buyer 40 and other bond or equity indexes.
Since there are different methods of calculating performance, investors should
consider the effects of the methods used to calculate performance when comparing
performance of the Fund with performance quoted with respect to other investment
companies or types of investments.
The Fund's performance may also be compared to the performance of broad
groups of mutual funds with similar investment goals, as tracked by independent
organizations such as Investment Company Data, Inc., Lipper Analytical Services,
Inc., CDA Investment Technologies, Inc., Morningstar, Inc. and Value Line Mutual
Fund Survey. When these organizations' tracking results are used, the Fund will
be compared to the appropriate fund category, that is, by fund objective and
portfolio holdings.
The Fund may also be compared to funds with similar volatility, as
measured statistically by independent organizations. The statistical measures
known as beta and standard deviation may be used for measuring the Fund's
relative risk. Beta is a measure of the volatility of the value of a Fund share
in relation to the volatility of a market index of securities. The value
assigned to the market index is 1.00. A fund with a beta of 1.20 during a
specified period experienced net asset value fluctuation 20% greater than the
price fluctuation of the index during the same period, and was therefore 1.20
times as volatile as the index. Conversely, a fund with a beta of 0.80 was only
80% as volatile as the index. Standard deviation measures the Fund's short-term
fluctuations in share value independent of the market. A fund with a high
standard deviation fluctuated more in share value than one with a low standard
deviation. Beta and standard deviation are measures of price volatility during a
specified past period, and should not be regarded as predictions of future
volatility.
The Fund may also compare its performance against the U.S. Bureau of
Labor Statistics Consumer Price Index, which is a statistical measure of changes
over time in the prices of goods and services in major U.S.
household expenditure groups.
General. At any time in the future, yields and total return may be
higher or lower than past yields and total return and there can be no assurance
that past results will continue.
Investors in the Fund are specifically advised that share prices,
expressed as the net asset value per share, will vary just as yields will vary.
An investor's focus on the yield of the Fund to the exclusion of the
consideration of the share price of the Fund may result in the investor's
misunderstanding the total return he or she may derive from the Fund.
PURCHASE OF SHARES
The Prospectus contains a general description of how investors may buy
shares of the Fund. This Statement contains additional information which may be
of interest to investors.
The Fund's shares may be purchased from broker/dealers who are members
of the National Association of Securities Dealers, Inc. and have sales
agreements with the Distributor ("Qualified Dealers") in states where shares are
qualified for offer and sale. The price of shares to the investor is the net
asset value for the relevant class of shares next determined after acceptance of
an order by the Administrator. The net asset value of each class is computed
once daily on each day that the New York Stock Exchange is open as of the close
of regular trading (the "closing time") on the Exchange. At the date of this
Statement of Additional Information, the close of regular trading is ordinarily
4 p.m., New York City time, but this time may be changed. The net asset values
so determined become effective at the New York Stock Exchange closing time.
Orders for shares of the Fund received by Qualified Dealers prior to the New
York Stock Exchange closing time are confirmed by the Administrator at the
relevant net asset value determined as at such closing time, provided the order
is received and accepted by the Administrator prior to its close of business. It
is the responsibility of the dealer to transmit such orders so that they will be
received by the Administrator prior to its close of business at 5:00 p.m. New
York City time. Orders received by Qualified Dealers subsequent to the New York
Stock Exchange closing time will be confirmed at the relevant net asset value
determined as at the closing time on the next day the New York Stock Exchange is
open. The Distributor will purchase shares from the Fund at net asset value and
sell them to Qualified Dealers.
INVESTMENT PROGRAMS
Investment Account. When a shareholder makes an initial investment in
the Fund, an open account (hereinafter referred to as an "Investment Account")
will be established for him, her or it on the books of the Fund by the
Administrator.
For the Builder Class, the minimum investment to open an account is
$1,000. The minimum for additional investments in an account is $100. However,
these investment minimums do not apply to automatic investment into the Fund of
distributions from the unit investment trusts described below (see "Unit
Investment Trusts").
For the Premier Class, the minimum investment to open an account is
$20,000. The minimum for additional investments is $5,000, except that (1) the
$5,000 minimum does not apply to automatic investments into the Fund of
distributions from the unit investment trusts described below (see "Unit
Investment Trusts"), and (2) the minimum amount under the Systematic Investment
Plan (see below) is $1,000. If the balance in a Premier Class shareholder's
account falls below $20,000 as a result of redemptions from the account, the
shareholder will be notified and will have two months within which to bring the
account size back to $20,000. If the shareholder does not do so, the Fund will
convert the shareholder's account from Premier Class to Builder Class shares.
All purchases by mail will be made at the relevant net asset value
determined as of the close of regular trading on the New York Stock Exchange on
the day of receipt by the Administrator (if such day is a trading day, or, if
not, on the first trading day thereafter). The shares are sold to the
shareholder by the dealer, for whom the Administrator acts as agent. Purchases
other than by mail will be made at the relevant net asset value next determined
after receipt of the order, as described under "Purchase of Shares."
By opening an Investment Account, the shareholder authorizes the Fund
to hold his shares on "deposit" with the Administrator, and, unless the
shareholder otherwise specifically requests in writing, he shall be deemed to
have instructed the Fund that no certificates therefor are to be issued. In no
event will certificates representing fractional shares be issued. Shares held in
an Investment Account may be redeemed as described under "Repurchase and
Redemption of Shares." Each time shares are credited to or withdrawn from an
Investment Account (except pursuant to an investment plan, or in connection with
certain automatic investments or reinvestments in the Fund, as described below),
the shareholder receives a statement showing the current transaction, prior
transactions in the account during the calendar year to date and the current
number of shares held therein. When shares are invested pursuant to an
investment plan, the shareholder receives a statement within five business days
following such transaction. Shareholders who have elected to have their
distributions of net interest income from the Fund automatically reinvested in
shares of the Fund, and shareholders of certain unit investment trusts who have
elected to have distributions from such trusts automatically invested in shares
of the Fund (see "Unit Investment Trusts" below), will receive a single
quarterly statement confirming the amount of these automatic investments and
reinvestments in the Fund during the quarter. At the end of each year a complete
annual statement of share transactions is mailed to each shareholder.
Unless otherwise indicated in writing by the shareholder, all income
dividends on the dividend payment date and any distributions of capital gains on
the record date are credited to the Investment Account in additional shares of
the same class on the basis of the closing net asset value for that class on
such respective dates. However, the shareholder may instead elect to receive
distributions of income dividends in cash and capital gain distributions in
additional shares of the same class, reinvested at the relevant net asset value
on the record date, or to receive both dividends and capital gain distributions
in cash. A shareholder may change this distribution option at any time by
written notification to the Administrator. The change will be effective for the
next distribution provided it is received prior to the record date for that
distribution.
The provisions applicable to Investment Accounts may be amended without
penalty by the Fund on 30 days' prior written notice to the shareholders. An
Investment Account does not assure a profit or offer protection against
depreciation in declining markets.
Systemic Investment Plan. Voluntary monthly investments of at least
$100 (Builder Class) or $1,000 (Premier Class) may be made automatically by
pre-authorized withdrawals from your bank checking account. Please call
1-(800)847-5886 for more information about how to establish a voluntary
investment plan.
Reinvestment of Dividends and Distributions. Purchases of shares of
either class may be made by reinvestment of dividends and capital gains
distributions paid by the Fund on shares of that class. These purchases are made
for you by the Fund at net asset value for your class of shares.
Redemption of Shares. Redemption or repurchase of shares is a taxable
event and gain or loss must be recognized. However, to the extent that any
shares are sold at a loss and the proceeds are reinvested in shares of the Fund,
some or all of the loss will not be allowed as a deduction, depending upon the
percentage of the proceeds reinvested.
Unit Investment Trusts. Certificate holders of unit investment trusts
sponsored by the Adviser may arrange to have their distributions from such unit
investment trusts automatically invested in shares of the Fund. Contact the
Adviser for information.
TAXES
The Prospectus describes generally the tax treatment of distributions
by the Fund. This section of the Statement includes additional information
concerning federal income tax and New York personal income taxes.
The Fund has qualified and intends to qualify as a "regulated
investment company" under the Internal Revenue Code (the "Code") and intends to
take all other action required to ensure that no federal income taxes will be
payable by the Fund and that the Fund may pay "exempt-interest dividends." Among
other requirements, this means that at the end of each fiscal quarter, at least
50% of the value of the Fund's total assets must be invested in obligations
exempt from federal income tax. If the Fund meets these requirements, its net
interest income on obligations exempt from federal income tax, when distributed
to shareholders and designated by the Fund as exempt-interest dividends, is
exempt from federal income tax in the hands of the Fund's shareholders. The
Fund's present policy is to designate exempt-interest dividends annually.
Under the Code, interest on indebtedness incurred or continued to
purchase or carry shares of an investment company paying exempt-interest
dividends, such as the Fund, will not be deductible by the investor for federal
income tax purposes in proportion to the percentage that the Fund's
distributions exempt from federal income tax bears to all distributions
excluding distributions from long-term capital gains. Persons who may be
"substantial users" (or "related persons" of substantial users) of facilities
financed by industrial development bonds or private activity bonds should
consult their tax advisers before purchasing Fund shares.
The receipt of exempt-interest dividends may affect the portion, if
any, of an individual Shareholder's Social Security and Railroad Retirement
benefits that will be includable in gross income subject to Federal income tax.
Up to 50% of Social Security and Railroad Retirement benefits may be included in
gross income in cases where the recipient's combined income, consisting of
adjusted gross income (with certain adjustments), tax exempt interest income and
one-half of any Social Security and Railroad Retirement benefits, exceeds a base
amount ($25,000 for a single individual and $32,000 for individuals filing a
joint return) and up to 85% of Social Security and Railroad Retirement benefits
may be included in gross income in cases where the recipient's combined income
(as described above) exceeds a higher base amount ($34,000 for a single
individual and $44,000 for individuals filing a joint return). Individual
shareholders receiving Social Security or Railroad Retirement benefits should
consult their tax advisers.
Distributions paid from the Fund's other investment income and from any
net realized short-term capital gains will be taxable to shareholders as
ordinary income, whether received in cash or in additional shares. Since none of
the Fund's income will consist of corporate dividends, the dividends-received
deduction for corporations will not be applicable to taxable distributions by
the Fund. Distributions paid from net realized long-term capital gains are
taxable as long-term capital gains for federal income tax purposes, whether
received in cash or shares, regardless of how long a shareholder has held the
shares.
The Fund will be required to withhold and remit to the U.S. Treasury
31% of all dividend income earned by any shareholder account for which an
incorrect or no taxpayer identification number has been provided or where the
Fund is notified that the shareholder has under-reported income in the past (or
the shareholder fails to certify that he is not subject to such withholding). In
addition, the Fund will be required to withhold and remit to the U.S. Treasury
31% of the amount of the proceeds of any redemption of shares from a shareholder
account for which an incorrect or no taxpayer identification number has been
provided.
After the end of each calendar year, shareholders will receive
information as to the tax status of distributions made by the Fund during such
calendar year.
The foregoing relates to federal income taxation and to New York State
and City personal income taxation as in effect as of the date of this Statement.
Distributions from investment income and capital gains, including
exempt-interest dividends, may be subject to New York State franchise taxes and
to the New York City General Corporation Tax if received by a corporation
subject to those taxes, to state taxes in states other than New York and to
local taxes in cities other than New York City. Investors may wish to consult
their own tax advisers regarding the treatment of distributions by the Fund.
The Fund is organized as a Massachusetts business trust. Under current
law, so long as it qualifies as a "regulated investment company" under the Code,
the Fund itself is not liable for any income or franchise tax in The
Commonwealth of Massachusetts.
AUTOMATIC CASH WITHDRAWAL PROGRAM
An investor who owns or buys Builder Class shares valued at $5,000 or
more at net asset value may open a Withdrawal Plan and have a designated sum of
money paid monthly (or quarterly) to the investor or another person. Shares are
deposited in a Plan account and all distributions are reinvested in additional
Builder Class shares at net asset value (except where the Plan is utilized in
connection with a charitable remainder trust). Shares in a Plan account are then
redeemed at net asset value to make each withdrawal payment. Redemptions for the
purpose of withdrawals are made on the first business day of the month at that
day's closing net asset value, and checks are mailed on the second business day
of the month. Payment will be made to any person the investor designates;
however, if the shares are registered in the name of a trustee or other
fiduciary, payment will be made only to the fiduciary, except in the case of a
profit-sharing or pension plan where payment will be made to the designee. As
withdrawal payments may include a return of principal, they cannot be considered
a guaranteed annuity or actual yield of income to the investor. The redemption
of shares in connection with a Withdrawal Plan may result in a gain or loss for
tax purposes. Continued withdrawals in excess of income will reduce and possibly
exhaust vested principal, especially in the event of a market decline. The cost
of administering these Plans for the benefit of those shareholders participating
in them is borne by the Fund as an expense of all Builder Class shareholders.
The Fund or the Distributor may terminate or change the terms of the Withdrawal
Plan at any time. The Withdrawal Plan is fully voluntary and may be terminated
by the shareholder at any time without the imposition by the Fund of any
penalty.
Since the Withdrawal Plan may involve invasion of capital, investors
should consider carefully with their own financial advisers whether the Plan and
the specified amounts to be withdrawn are appropriate in their circumstances.
The Fund makes no recommendations or representations in this regard.
The Withdrawal Plan is not available to shareholders who use the Fund's
check writing privilege (which is described in the Prospectus).
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund.
However, the Fund's Agreement and Declaration of Trust disclaims shareholder
liability for acts or obligations of the Fund and requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered into or
executed by the Fund or the Trustees. The Agreement and Declaration of Trust
provides for indemnification out of Fund property for all loss and expense of
any shareholder held personally liable for the obligations of the Fund. Thus,
the risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Fund would be unable to meet
its obligations.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P. are the Fund's independent accountants,
providing audit services, tax return preparation services and assistance and
consultation with review of SEC filings.
EXPERTS
The information regarding financial highlights in the Prospectus and
the financial statements in this Statement of Additional Information have been
so included in reliance upon the report of Coopers & Lybrand L.L.P., given on
the authority of said firm as experts in auditing and accounting.
CUSTODIAN
Investors Fiduciary Trust Company (the "Custodian") serves as custodian
of the Fund's assets. The Custodian's responsibilities include safeguarding and
controlling the Fund's cash and securities, handling the receipt and delivery of
securities and collecting interest and dividends on the Fund's investments. The
Custodian does not determine the investment policies of the Fund or decide which
securities the Fund will buy or sell.
APPENDIX A
INVESTMENT RATINGS
Ratings of Tax Exempt Bonds.
The four highest ratings of Moody's for tax exempt securities are Aaa,
Aa, A and Baa. Tax exempt securities rated Aaa are judged to be of the "best
quality." The rating of Aa is assigned to tax exempt securities which are of
"high quality by all standards", but as to which margins of protection or other
elements make long-term risks appear somewhat larger than for Aaa rated tax
exempt securities. The Aaa and Aa rated tax exempt securities comprise what are
generally known as "high grade bonds." Tax exempt securities which are rated A
by Moody's possess many favorable investment attributes and are considered
"upper medium grade obligations." Factors giving security to principal and
interest of A rated tax exempt securities are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future. Tax exempt securities rated Baa are considered as "medium grade"
obligations. They are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable over
any great length of time. Such tax exempt securities lack outstanding investment
characteristics and in fact have speculative characteristics as well. Those
securities in the A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols A1 and Baa1. Other A and Baa
securities comprise the balance of their respective groups. These rankings (1)
designate the securities which offer the maximum in security within their
quality group, (2) designate securities which can be bought for possible
upgrading in quality and (3) additionally afford the investor an opportunity to
gauge more precisely the relative attractiveness of offerings in the market
place.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade (MIG). This distinction is in
recognition of the differences between short-term credit risk and long-term
risk. Factors affecting the liquidity of the borrower are uppermost in
importance in short-term borrowing, while various factors of the first
importance in bond risk are of lesser importance in the short run. Loans bearing
the MIG 1 designation are of the best quality, enjoying strong protection from
established cash flows of funds for their servicing or from established and
broad-based access to the market for refinancing, or both. Loans bearing the MIG
2 designation are of high quality, with margins of protection ample although not
so large as in the preceding group.
The four highest ratings of Standard & Poor's for tax exempt securities
are AAA, AA, A and BBB. Tax exempt securities rated AAA bear the highest rating
assigned by Standard & Poor's to a debt obligation and indicate an extremely
strong capacity to pay principal and interest. Tax exempt securities rated AA
also qualify as high-quality debt obligations. Capacity to pay principal and
interest is very strong, and in the majority of instances they differ from AAA
issues only in small degree. Securities rated A have a strong capacity to pay
principal and interest, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions. The BBB
rating, which is the lowest "investment grade" security rating by Standard &
Poor's, indicates an adequate capacity to pay principal and interest. Whereas
they normally exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay principal and interest for securities in this category than for
securities in the A category.
Ratings of Corporate Obligations.
The Moody's corporate obligations ratings of Aaa, Aa, A and Baa and the
Standard & Poor's corporate obligations ratings of AAA, AA, A and BBB do not
differ materially from those set forth above for tax exempt securities.
Ratings of Commercial Paper.
The commercial paper ratings of A-1 by Standard & Poor's and Prime-1 by
Moody's are the highest commercial paper ratings of the respective agencies. The
issuer's earnings, quality of long-term debt, management and industry position
are among the factors considered in assigning such ratings.
<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
Part C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Portfolio of Investments - February 29, 1996.
Statement of Assets and Liabilities as of February 29, 1996.
Statement of Operations for the year ended February 29, 1996.
Statement of Changes in Net Assets for the years ended February
28, 1995 and February 29, 1996.
Notes to Financial Statements.
Financial Highlights.
(b) Exhibits:
1. Amended and Restated Agreement and Declaration of
Trust filed herewith.
2. Incorporated herein by reference to Exhibit 2 to
Pre-Effective Amendment No. 1 to the
Registration Statement, filed December 20, 1983.
3. Not applicable.
4. Incorporated herein by reference to Exhibit 4 to
Post-Effective Amendment No. 1 to the
Registration Statement, filed April 23, 1984.
5. Incorporated herein by reference to Exhibit 5(a)
to Post-Effective Amendment No. 7 to Registration
Statement No. 2-86931 filed on May 4, 1989.
6. Incorporated herein by reference to Exhibit 6 to
Post-Effective Amendment No. 9 to the
Registration Statement, filed May 2, 1991.
7. Not applicable.
8. Incorporated herein by reference to Exhibit 8 to
Pre-Effective Amendment No. 1 to the
Registration Statement, filed December 20, 1983.
9. (a) Incorporated herein by reference to Exhibit
9(a) to Post-Effective Amendment No. 7 to
the Registration Statement, filed on May 4,
1989.
(b) Incorporated herein by reference to Exhibit
9(b) to Post-Effective Amendment No. 7 to the
Registration Statement, filed on May 4, 1989.
(c) Incorporated herein by reference to Exhibit
9(c) to Post-Effective Amendment No. 7 to
the Registration Statement, filed on May 4,
1989.
10. (a) Incorporated herein by reference to Exhibit
10 to Pre-Effective Amendment No. 1 to the
Registration Statement, filed on December 20,
1983.
(b) Opinion of counsel pursuant to Rule 24e-2
filed herewith.
11. Consent of Coopers & Lybrand L.L.P. filed herewith.
12. Not applicable.
13. Incorporated herein by reference to Exhibit 13 to
Pre-Effective Amendment No. 1 to the
Registration Statement, filed December 20, 1983.
14. Not applicable.
15. Not applicable.
16. Incorporated herein by reference to Exhibit 16 to
Post-Effective Amendment No. 8 to the
Registration Statement, filed on July 2, 1990.
17. (a) Incorporated herein by reference to Exhibit
17 to Post-Effective Amendment No. 7 to the
Registration Statement, filed on May 4, 1989.
(b) Incorporated herein by reference to Exhibit
17(b) to Post-Effective Amendment No. 8 to
the Registration Statement, filed on July 2,
1990.
(c) Incorporated herein by reference to Exhibit
17(c) to Post-Effective Amendment No. 11 to
the Registration Statement, filed on July 1,
1992.
(d) Incorporated herein by reference to Exhibit
17(d) to Post-Effective Amendment No. 12 to
the Registration Statement, filed on June 30,
1993.
(e) Financial data schedule filed herewith.
18. Rule 18f-3 plan filed herewith.
Item 25. Persons Controlled by or under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
As of March 31, 1996, there were 7,238 holders of the Registrant's
shares of beneficial interest.
Item 27. Indemnification
The information required by this item is incorporated herein by
reference to Post-Effective Amendment No. 1 to the Registration Statement, filed
April 23, 1984.
Item 28. Business and Other Connections of Investment Adviser
Glickenhaus & Co., the Registrant's investment adviser (the "Adviser"),
is a registered investment adviser and broker-dealer and is a sponsor of The
Empire State Municipal Exempt Trust, Empire Guaranteed Series and Empire Maximus
AMT Series A, which are unit investment trusts.
Set forth below is a description of any other business, profession,
vocation or employment of a substantial nature in which each partner or officer
of the Adviser is or has been, at any time during the past two fiscal years,
engaged for his own account or in the capacity of director, officer, employee,
partner or trustee:
Name Position with Adviser Other Business
Alfred Feinman General Partner None
Seth M. Glickenhaus General Partner None
The address for each of the individuals listed above is Glickenhaus & Co., 6
East 43rd Street, New York, New York 10017.
Item 29. Principal Underwriter
(a),(b) Glickenhaus & Co., the Registrant's adviser, also acts as the
Registrant's principal underwriter. For information about Glickenhaus & Co. and
its partners and officers, see Item 28 above.
(c) The Registrant has no principal underwriter which is not an
affiliated person of the Registrant or an affiliated person of such an
affiliated person.
Item 30. Location of Accounts and Records
Registrant's accounts and records required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules thereunder are in the
physical possession of the following:
Registrant
31a-1(b)(2)(C)
31a-1(b) 4, 5, 6, 9, 10 and 11
31a-2(a) 1 and 2
Furman Selz Incorporated
237 Park Avenue, New York, New York 10017
31a-1(a)
31a-1(b) 1, 8 and 12
31a-1(b)(2)A, B and D
31a-2(a) 1 and 2
31a-2(c)
Glickenhaus & Co.
6 E. 43rd Street, New York, New York 10169
31a-1(b) 10
31a-1(f)
31a-2(e)
31a-1(d)
31a-2(c)
31a-2(e)
Not Applicable
31a-1(b) 3 and 7
31a-1(c)
31a-1(e)
31a-2(b)
31a-2(d)
Item 31. Management Services
None.
Item 32. Undertakings
Not Applicable.
NOTICE
A copy of the Agreement and Declaration of Trust of The Empire Builder
Tax Free Bond Fund is on file with the Secretary of The Commonwealth of
Massachusetts and notice is hereby given that this instrument is executed on
behalf of the Registrant by an officer of the Registrant as an officer and not
individually and that the obligations of or arising out of this instrument are
not binding upon any of the Trustees or shareholders individually but are
binding only upon the assets and property of the Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this 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,
thereunto duly authorized, in the City of New York, in The State of New York on
the 29th day of April, 1996.
THE EMPIRE BUILDER TAX FREE BOND FUND
By: SETH M. GLICKENHAUS*
---------------------------
Seth M. Glickenhaus, President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement of The Empire Builder Tax Free Bond Fund
has been signed below by the following persons in the capacities and on the date
indicated.
Signature Title
--------- -----
SETH M. GLICKENHAUS* Trustee, President, Principal
- - -------------------------- Executive Officer
Seth M. Glickenhaus
JOHN J. PILEGGI* Treasurer, Principal Financial and
- - -------------------------- Accounting Officer
John J. Pileggi
EDWARD FALKENBERG* Trustee
- - --------------------------
Edward Falkenberg
EDWARD A. KUCZMARSKI* Trustee
- - --------------------------
Edward A. Kuczmarski
MILTON R. NEAMAN* Trustee
- - --------------------------
Milton R. Neaman
ELIZABETH B. NEWELL* Trustee
- - --------------------------
Elizabeth B. Newell
JOHN P. STEINES* Trustee
- - --------------------------
John P. Steines
*By: JOHN J. PILEGGI April 29, 1996
--------------------------
John J. Pileggi
Attorney-in-Fact
INDEX OF EXHIBITS
Exhibit No.
Amended and Restated Declaration of Trust 1
Opinion of Ropes & Gray 10
Consent of Coopers & Lybrand, L.L.P. 11
Rule 18f-3 Plan 18
Financial Data Schedule 27
THE EMPIRE BUILDER TAX FREE BOND FUND
(originally ITB Empire Tax Free Income Fund)
AMENDED AND RESTATED
AGREEMENT AND DECLARATION OF TRUST
March 5, 1996
AGREEMENT AND DECLARATION OF TRUST made at Boston, Massachusetts, the
30th day of September, 1983, amended and restated this 5th day of March,
1996, by the Trustees hereunder, and by the holders of shares of beneficial
interest issued hereunder as hereinafter provided.
WITNESSETH:
WHEREAS, this Trust has been formed to carry on the business of an
investment company; and
WHEREAS, the Trustees have agreed to manage all property coming into
their hands as trustees of a Massachusetts voluntary association with
transferable shares in accordance with the provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will hold all
cash, securities and other assets, which they may from time to time acquire
in any manner as Trustees hereunder IN TRUST to manage and dispose of the
same upon the following terms and conditions for the pro rata benefit of the
holders from time to time of Shares in this Trust as hereinafter set forth.
ARTICLE I
Name and Definitions
Name
Section 1. This Trust shall be known as "The Empire Builder Tax Free
Bond Fund," and the Trustees shall conduct the business of the Trust under
that name or any other name as they may from time to time determine.
Definitions
Section 2. Whenever used herein, unless otherwise required by the
context or specifically provided:
(a) The "Trust" refers to the Massachusetts business trust
established by this Agreement and Declaration of Trust, as amended
from time to time;
(b) "Trustees" refers to the Trustees of the Trust named herein
or elected in accordance with Article IV;
(c) "Shares" means the equal proportionate transferable units of
interest into which the beneficial interest in the Trust shall be
divided from time to time or, if more than one series or class of
Shares is authorized by the Trustees, the equal proportionate
transferable units into which each series or class of Shares shall
be divided from time to time;
(d) "Shareholder" means a record owner of Shares;
(e) The "1940 Act" refers to the Investment Company Act of 1940
and the Rules and Regulations thereunder, all as amended from time
to time;
(f) The terms "Affiliated Person," "Assignment," "Commission,"
"Interested Person," "Principal Underwriter" and "Majority
Shareholder Vote" (the 67% or 50% requirement of the third sentence
of Section 2(a)(42) of the 1940 Act, whichever may be applicable)
shall have the meanings given them in the 1940 Act;
(g) "Declaration of Trust" shall mean this Agreement and
Declaration of Trust as amended or restated from time to time;
(h) "Bylaws" shall mean the Bylaws of the Trust as amended from
time to time;
(i) The term "series" or "series of Shares" refers to series of
Shares established and designated under or in accordance with the
provisions of Article III, Section 1 hereof; and
(j) The term "class" or "class of Shares" refers to the division
of Shares representing any series into two or more classes as
provided in Article III, Section 1 hereof.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to provide investors a managed investment
primarily in securities and debt instruments.
ARTICLE III
Shares
Division of Beneficial Interest
Section 1. The Shares of the Trust shall be issued in one or more
series as the Trustees may, without shareholder approval, authorize. Each
series shall be preferred over all other series in respect of the assets
allocated to that series. The beneficial interest in each series shall at
all times be divided into Shares, without par value, each of which shall,
unless the Trustees shall have divided the series into two or more classes
of Shares pursuant to the immediately following sentence, represent an equal
proportionate interest in the series with each other Share of the same
series, none having priority or preference over another. The Trustees may,
without Shareholder approval, divide the Shares of any series into two or
more classes, Shares of each such class having such preferences and special
or relative rights and privileges (including conversion rights, if any) as
the Trustees may determine. The number of Shares authorized shall be
unlimited. The Trustees may from time to time divide or combine the Shares
of any series or class into a greater or lesser number without thereby
changing the proportionate beneficial interests in the series or class.
Ownership of Shares
Section 2. The ownership of Shares shall be recorded on the books of
the Trust or a transfer or similar agent. No certificates certifying the
ownership of Shares shall be issued except as the Trustees may otherwise
determine from time to time. The Trustees may make such rules as they
consider appropriate for the issuance of Share certificates, the transfer of
Shares and similar matters. The record books of the Trust as kept by the
Trust or any transfer or similar agent, as the case may be, shall be
conclusive as to who are the Shareholders of each series and as to the
number of Shares of each series held from time to time by each Shareholder.
Investment in the Trust
Section 3. The Trustees shall accept investments in the Trust from such
persons and on such terms and for such consideration, which may consist of
cash or tangible or intangible property or a combination thereof, as they
from time to time authorize.
All consideration received by the Trust for the issue or sale of Shares
of each series, together with all income, earnings, profits, and proceeds
thereof, including any proceeds derived from the sale, exchange or
liquidation thereof, and any funds or payments derived from any reinvestment
of such proceeds in whatever form the same may be, shall irrevocably belong
to the series of Shares with respect to which the same were received by the
Trust for all purposes, subject only to the rights of creditors, and shall
be so handled upon the books of account of the Trust and are herein referred
to as "assets of" such series.
No Preemptive Rights
Section 4. Shareholders shall have no preemptive or other right to
subscribe to any additional Shares or other securities issued by the Trust.
Status of Shares and Limitation of Personal Liability
Section 5. Shares shall be deemed to be personal property giving only
the rights provided in this instrument. Every Shareholder by virtue of
having become a Shareholder shall be held to have expressly assented and
agreed to the terms hereof and to have become a party hereto. The death of
a Shareholder during the continuance of the Trust shall not operate to
terminate the same nor entitle the representative of any deceased
Shareholder to an accounting or to take any action in court or elsewhere
against the Trust or the Trustees, but only to the rights of said decedent
under this Trust. Ownership of Shares shall not entitle the Shareholder to
any title in or to the whole or any part of the Trust property or right to
call for a partition or division of the same or for an accounting, nor shall
the ownership of Shares constitute the Shareholders partners. Neither the
Trust nor the Trustees, nor any officer, employee or agent of the Trust
shall have any power to bind personally any Shareholder, nor except as
specifically provided herein to call upon any Shareholder for the payment of
any sum of money or assessment whatsoever other than such as the Shareholder
may at any time personally agree to pay.
ARTICLE IV
The Trustees
Election
Section 1. The number of Trustees shall be fixed by the Trustees,
except that there shall be not less than three Trustees. Any vacancies
occurring in the Board of Trustees may be filled by the Trustees if,
immediately after filling any such vacancy, at least two-thirds of the
Trustees then holding office shall have been elected to such office by the
Shareholders. In the event that at any time less than a majority of the
Trustees then holding office were elected to such office by the
Shareholders, the Trustees shall call a meeting of the Shareholders for the
purpose of electing Trustees. Each Trustee elected by the Shareholders or
by the Trustees shall serve until the next meeting of Shareholders and until
the election and qualification of his or her successor, or until he or she
sooner dies, resigns or is removed. No person shall serve as Trustee after
the holders of record of not less than two-thirds of the outstanding Shares
have declared that such Trustee be removed from that office either by
declaration in writing filed with the Trust's secretary or by votes cast in
person or by proxy at a meeting called for the purpose.
Effect of Death, Resignation, etc. of a Trustee
Section 2. The death, declination, resignation, retirement, removal or
incapacity of the Trustees, or any one of them, shall not operate to annul
the Trust or to revoke any existing agency created pursuant to the terms of
this Declaration of Trust.
Powers
Section 3. Subject to the provisions of this Declaration of Trust, the
business of the Trust shall be managed by the Trustees, and they shall have
all powers necessary or convenient to carry out that responsibility.
Without limiting the foregoing, the Trustees may adopt Bylaws not
inconsistent with this Declaration of Trust providing for the conduct of the
business of the Trust and may amend and repeal them to the extent that such
Bylaws do not reserve that right to the Shareholders; they may fill
vacancies in or add to their number, and may elect and remove such officers
and appoint and terminate such agents as they consider appropriate; they may
appoint from their own number, and terminate, any one or more committees
consisting of two or more Trustees, including an executive committee which
may, when the Trustees are not in session, exercise some or all of the power
and authority of the Trustees as the Trustees may determine; they may employ
one or more custodians of the assets of the Trust and may authorize such
custodians to employ subcustodians and to deposit all or any part of such
assets in a system or systems for the central handling of securities, retain
a transfer agent or a Shareholder servicing agent, or both, provide for the
distribution of Shares by the Trust, through one or more principal
underwriters or otherwise, set record dates for the determination of
Shareholders with respect to various matters, and in general delegate such
authority as they consider desirable to any officer of the Trust, to any
committee of the Trustees and to any agent or employee of the Trust or to
any such custodian or underwriter.
Without limiting the foregoing, the Trustees shall have power and
authority:
(a) To invest and reinvest cash, and to hold cash uninvested;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate,
write options on and lease any or all of the assets of the Trust;
(c) To vote or give assent, or exercise any rights of ownership,
with respect to stock or other securities, or property; and to
execute and deliver proxies or powers of attorney to such person or
persons as the Trustees shall deem proper, granting to such person
or persons such power and discretion with relation to securities or
property as the Trustees shall deem proper;
(d) To exercise powers and rights of subscription or otherwise
which in any manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating
any trust, whether in bearer, unregistered or other negotiable form,
or in the name of the Trustees or of the Trust or in the name of a
custodian, subcustodian or other depositary or a nominee or nominees
or otherwise;
(f) To allocate assets, liabilities and expenses of the Trust to
a particular series of Shares or to apportion the same among two or
more series, provided that any liabilities or expenses incurred by a
particular series of Shares shall be payable solely out of the
assets of that series; and to the extent necessary or appropriate to
give effect to the preferences and special or relative rights and
privileges of any classes of Shares, to allocate assets,
liabilities, income and expenses of a series to a particular class
of Shares of that series or to apportion the same among two or more
classes of Shares of that series;
(g) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or
issuer, any security of which is or was held in the Trust; to
consent to any contract, lease, mortgage, purchase or sale of
property by such corporation or issuer, and to pay calls or
subscriptions with respect to any security held in the Trust;
(h) To join with other security holders in acting through a
committee, depositary, voting trustee or otherwise, and in that
connection to deposit any security with, or transfer any security
to, any such committee, depositary or trustee, and to delegate to
them such power and authority with relation to any security (whether
or not so deposited or transferred) as the Trustees shall deem
proper, and to agree to pay, and to pay, such portion of the
expenses and compensation of such committee, depositary or trustee
as the Trustees shall deem proper;
(i) To compromise, arbitrate or otherwise adjust claims in favor
of or against the Trust or any matter in controversy, including but
not limited to claims for taxes;
(j) To enter into joint ventures, general or limited
partnerships and any other combinations or associations;
(k) To borrow funds;
(l) To endorse or guarantee the payment of any notes or other
obligations of any person; to make contracts of guaranty or
suretyship, or otherwise assume liability for payment thereof; and
to mortgage and pledge the Trust property or any part thereof to
secure any of or all such obligations;
(m) To purchase and pay for entirely out of Trust property such
insurance as they may deem necessary or appropriate for the conduct
of the business, including without limitation, insurance policies
insuring the assets of the Trust and payment of distributions and
principal on its portfolio investments, and insurance policies
insuring the Shareholders, Trustees, officers, employees, agents,
investment advisers or managers, principal underwriters, or
independent contractors of the Trust individually against all claims
and liabilities of every nature arising by reason of holding, being
or having held any such office or position, or by reason of any
action alleged to have been taken or omitted by any such person as
Shareholder, Trustee, officer, employee, agent, investment adviser
or manager, principal underwriter, or independent contractor,
including any action taken or omitted that may be determined to
constitute negligence, whether or not the Trust would have the power
to indemnify such person against such liability; and
(n) To pay pensions for faithful service, as deemed appropriate
by the Trustees, and to adopt, establish and carry out pension,
profit-sharing, share bonus, share purchase, savings, thrift and
other retirement, incentive and benefit plans, trusts and
provisions, including the purchasing of life insurance and annuity
contacts as a means of providing such retirement and other benefits,
for any or all of the Trustees, officers, employees and agents of
the Trust.
The Trustees shall not in any way be bound or limited by any present or
future law or custom in regard to investments by trustees. Except as
otherwise provided herein or from time to time in the Bylaws, any action to
be taken by the Trustees may be taken by a majority of the Trustees present
at a meeting of Trustees (a quorum being present), within or without
Massachusetts, including any meeting held by means of a conference telephone
or other communications equipment by means of which all persons
participating in the meeting can hear each other at the same time and
participation by such means shall constitute presence in person at a
meeting, or by written consents of a majority of the Trustees then in
office.
Payment of Expenses by Trust
Section 4. The Trustees are authorized to pay or to cause to be paid
out of the principal or income of the Trust, or partly out of principal and
partly out of income, as they deem fair, all expenses, fees, charges, taxes
and liabilities incurred or arising in connection with the Trust, or in
connection with the management thereof, including, but not limited to, the
Trustees' compensation and such expenses and charges for the services of the
Trust's officers, employees, investment adviser or manager, principal
underwriter, auditor, counsel, custodian, transfer agent, Shareholder
servicing agent, and such other agents or independent contractors and such
other expenses and charges as the Trustees may deem necessary or proper to
incur, provided, however, that all expenses, fees, charges, taxes and
liabilities incurred or arising in connection with a particular series of
Shares shall be payable solely out of the assets of that series.
Ownership of Assets of the Trust
Section 5. Title to all of the assets of each series of Shares and of
the Trust shall at all times be considered as vested in the Trustees.
Advisory, Management and Distribution
Section 6. Subject to a favorable Majority Shareholder Vote, the
Trustees may, at any time and from time to time, contract for exclusive or
nonexclusive advisory and/or management services with any corporation,
trust, association or other organization (the "Manager"), every such
contract to comply with such requirements and restrictions as may be set
forth in the Bylaws; and any such contract may authorize the delegation of
some or all of the functions of the Manager thereunder to any Sub-Adviser
and may contain such other terms interpretive of or in addition to said
requirements and restrictions as the Trustees may determine, including,
without limitation, authority to determine from time to time what
investments shall be purchased, held, sold or exchanged and what portion, if
any, of the assets of the Trust shall be held uninvested and to make changes
in the Trust's investments. The Trustees may also, at any time and from
time to time, contract with the Manager or any other corporation, trust,
association or other organization, appointing it exclusive or nonexclusive
distributor or principal underwriter for the Shares, every such contract to
comply with such requirements and restrictions as may be set forth in the
Bylaws; and any such contract may contain such other terms interpretive of
or in addition to said requirements and restrictions as the Trustees may
determine.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust
is a shareholder, director, officer, partner, trustee, employee,
manager, adviser, principal underwriter or distributor or agent of
or for any corporation, trust, association, or other organization,
or of or for any parent or affiliate of any organization, with which
an advisory or management contract, or principal underwriter's or
distributor's contract, or transfer, Shareholder servicing or other
agency contract may have been or may hereafter be made, or that any
such organization, or any parent or affiliate thereof, is a
Shareholder or has an interest in the Trust, or that
(ii) any corporation, trust, association or other organization
with which an advisory or management contract or principal
underwriter's or distributor's contract, or transfer, Shareholder
servicing or other agency contract may have been or may hereafter be
made also has an advisory or management contract, or principal
underwriter's or distributor's contract, or transfer, Shareholder
servicing or other agency contract with one or more other
corporations, trusts, associations, or other organizations, or has
other business or interests shall not affect the validity of any
such contract or disqualify any Shareholder, Trustee or officer of
the Trust from voting upon or executing the same or create any
liability or accountability to the Trust or its Shareholders.
ARTICLE V
Shareholders' Voting Powers and Meetings
Voting Powers
Section 1. The Shareholders shall have power to vote only (i) for the
election of Trustees as provided in Article IV, Section 1, (ii) with respect
to any Manager or Sub-Adviser as provided in Article IV, Section 6, (iii)
with respect to any termination of this Trust to the extent and as provided
in Article IX, Section 4, (iv) with respect to any amendment of this
Declaration of Trust to the extent and as provided in Article IX, Section 7,
(v) to the same extent as the stockholders of a Massachusetts business
corporation as to whether or not a court action, proceeding or claim should
or should not be brought or maintained derivatively or as a class action on
behalf of the Trust or the Shareholders, and (vi) with respect to such
additional matters relating to the Trust as may be required by this
Declaration of Trust, the Bylaws or any registration of the Trust with the
Commission (or any successor agency) or any state, or as the Trustees may
consider necessary or desirable. Each whole Share shall be entitled to one
vote as to any matter on which it is entitled to vote and each fractional
Share shall be entitled to a proportionate fractional vote. On any matter
submitted to a vote of Shareholders all Shares of the Trust then entitled to
vote shall, except as otherwise provided in the Bylaws, be voted in the
aggregate as a single class without regard to series or classes of Shares,
except (1) when required by the 1940 Act, Shares shall be voted by
individual series, in which event, unless otherwise required by the 1940
Act, a vote of Shareholders of all Shares of the Trust, irrespective of
series, shall not be required; and (2) when the Trustees have determined
that the matter affects only the interests of one or more series or classes,
then only Shareholders of such series or classes shall be entitled to vote
thereon. There shall be no cumulative voting in the election of Trustees.
Shares may be voted in person or by proxy. A proxy with respect to Shares
held in the name of two or more persons shall be valid if executed by any
one of them unless at or prior to exercise of the proxy the Trust receives a
specific written notice to the contrary from any one of them. A proxy
purporting to be executed by or on behalf of a Shareholder shall be deemed
valid unless challenged at or prior to its exercise and the burden of
proving invalidity shall rest on the challenger. Until Shares of any series
or class are issued, the Trustees may exercise all rights of Shareholders
and may take any action required by law, this Declaration of Trust or the
Bylaws to be taken by Shareholders as to such series or class.
Voting Power and Meetings
Section 2. Meetings of Shareholders of the Trust or of any series or
classes may be called by the Trustees or such other person or persons as may
be specified in the Bylaws and held from time to time for the purpose of
taking action upon any matter requiring the vote or the authority of the
Shareholders of the Trust or such series or classes as herein provided or
upon any other matter deemed by the Trustees to be necessary or desirable.
Written notice of any meeting of Shareholders shall be given or caused to be
given by the Trustees by mailing such notice at least seven days before such
meeting, postage prepaid, stating the time, place and purpose of the
meeting, to each Shareholder at the Shareholder's address as it appears on
the records of the Trust. If the Trustees shall fail to call or give notice
of any meeting of Shareholders for a period of 30 days after written
application by Shareholders holding at least 10% of the Shares then
outstanding requesting a meeting to be called for a purpose requiring action
by the Shareholders as provided herein or in the Bylaws, then Shareholders
holding at least 10% of the Shares then outstanding may call and give notice
of such meeting, and thereupon the meeting shall be held in the manner
provided for herein in case of call thereof by the Trustees.
Quorum and Required Vote
Section 3. A majority of Shares entitled to vote shall be a quorum for
the transaction of business at a Shareholders' meeting, except that where
any provision of law or of this Declaration of Trust permits or requires
that holders of any series or class shall vote as a series or class, then a
majority of the aggregate number of Shares of that series or class entitled
to vote shall be necessary to constitute a quorum for the transaction of
business by that series or class. Any lesser number shall be sufficient for
adjournments. Any adjourned session or sessions may be held, within a
reasonable time after the date set for the original meeting, without the
necessity of further notice. Except when a larger vote is required by any
provision of this Declaration of Trust or the Bylaws, a majority of the
Shares voted shall decide any questions and a plurality shall elect a
Trustee, provided that where any provision of law or of this Declaration of
Trust permits or requires that the holders of any series or class shall vote
as a series or class, then a majority of the Shares of that series or class
voted on the matter shall decide that matter insofar as that series or class
is concerned.
Action by Written Consent
Section 4. Any action taken by Shareholders may be taken without a
meeting if a majority of Shareholders entitled to vote on the matter (or
such larger proportion thereof as shall be required by any express provision
of this Declaration of Trust or the Bylaws) consent to the action in writing
and such written consents are filed with the records of the meetings of
Shareholders. Such consent shall be treated for all purposes as a vote
taken at a meeting of Shareholders.
Additional Provisions
5. The Bylaws may include further provisions of Shareholders' votes and
meetings and related matters.
ARTICLE VI
Distributions, Redemptions and Repurchases
Distributions
Section 1. The Trustees may each year, or more frequently if they so
determine, distribute to the Shareholders of each series such income and
capital gains, accrued or realized, as the Trustees may determine, after
providing for actual and accrued expenses and liabilities (including such
reserves as the Trustees may establish) determined in accordance with good
accounting practices. The Trustees shall have full discretion to determine
which items shall be treated as income and which items as capital and their
determination shall be binding upon the Shareholders. Distributions of each
year's income of each series shall be distributed pro rata to Shareholders
in proportion to the number of Shares of each series held by each of them,
except to the extent otherwise required or permitted by the preferences and
special or relative rights and privileges of any classes of Shares of that
series, and any distribution to the Shareholders of a particular class of
Shares of that Series shall be made to such Shareholders pro rata in
proportion to the number of Shares of such class held by each of them. Such
distributions shall be made in cash or Shares or a combination thereof as
determined by the Trustees. Any such distribution paid in Shares will be
paid at the net asset value thereof as determined in accordance with the
Bylaws.
Redemptions and Repurchases
Section 2. The Trust shall purchase such Shares as are offered by any
Shareholder for redemption, upon the presentation of any certificate for the
Shares to be purchased, a proper instrument of transfer and a request
directed to the Trust or a person designated by the Trust that the Trust
purchase such Shares, or in accordance with such other procedures for
redemption as the Trustees may from time to time authorize; and the Trust
will pay therefor the net asset value thereof, as next determined in
accordance with the Bylaws. Payment for said Shares shall be made by the
Trust to the Shareholder within seven days after the date on which the
request is made. The obligation set forth in this Section 2 is subject to
the provision that in the event that any time the New York Stock Exchange is
closed for other than customary weekends or holidays, or, if permitted by
rules of the Commission, during periods when trading on the Exchange is
restricted or during any emergency which makes it impractical for the Trust
to dispose of its investments or to determine fairly the value of its net
assets, or during any other period permitted by order of the Commission for
the protection of investors, such obligation may be suspended or postponed
by the Trustees. The Trust may also purchase or repurchase Shares at a
price not exceeding the net asset value of such Shares in effect when the
purchase or repurchase or any contract to purchase or repurchase is made.
Redemptions at the Option of the Trust
Section 3. The Trust shall have the right at its option and at any time
to redeem Shares of any Shareholder at the net asset value thereof as
determined in accordance with the Bylaws: (i) if at such time such
Shareholder owns fewer Shares than, or Shares having an aggregate net asset
value of less than, an amount determined from time to time by the Trustees;
or (ii) to the extent that such Shareholder owns Shares of a particular
series or class of Shares equal to or in excess of a percentage of the
outstanding Shares of that series or class determined from time to time by
the Trustees; or (iii) to the extent that such Shareholder owns Shares of
the Trust representing a percentage equal to or in excess of such percentage
of the aggregate number of outstanding Shares of the Trust or of any series
or class or the aggregate net asset value of the Trust or of any series or
class determined from time to time by the Trustees.
ARTICLE VII
Compensation and Limitation of Liability of Trustees
Compensation
Section 1. The Trustees as such shall be entitled to reasonable
compensation from the Trust; they may fix the amount of their compensation.
Nothing herein shall in any way prevent the employment of any Trustee for
advisory, management, legal, accounting, investment banking or other
services and payment for the same by the Trust.
Limitation of Liability
Section 2. The Trustees shall not be responsible or liable in any event
for any neglect or wrongdoing of any officer, agent, employee, manager or
principal underwriter of the Trust, nor shall any Trustee be responsible for
the act or omission of any other Trustee, but nothing herein contained shall
protect any Trustee against any liability to which he or she would otherwise
be subject by reason of wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her
office.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever executed or done by or on behalf of the
Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been executed or done only in or with respect to
their or his or her capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon.
ARTICLE VIII
Indemnification
Trustees, Officers, etc.
Section 1. The Trust shall indemnify each of its Trustees and officers
(including persons who serve at the Trust's request as directors, officers
or trustees of another organization in which the Trust has any interest as a
shareholder, creditor or otherwise) (hereinafter referred to as a "Covered
Person") against all liabilities and expenses, including but not limited to
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees reasonably incurred by any Covered Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been
involved as a party or otherwise or with which such Covered Person may be or
may have been threatened, while in office or thereafter, by reason of being
or having been such a Covered Person except with respect to any matter as to
which such Covered Person shall have been finally adjudicated in any such
action, suit or other proceeding (a) not to have acted in good faith in the
reasonable belief that such Covered Person's action was in the best
interests of the Trust or (b) to be liable to the Trust or its Shareholders
by reason of wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered Person's
office. Expenses, including counsel fees so incurred by any such Covered
Person (but excluding amounts paid in satisfaction of judgments, in
compromise or as fines or penalties), shall be paid from time to time by the
Trust in advance of the final disposition of any such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such Covered
Person to repay amounts so paid to the Trust if it is ultimately determined
that indemnification of such expenses is not authorized under this Article,
provided, however, that either (a) such Covered Person shall have provided
appropriate security for such undertaking, (b) the Trust shall be insured
against losses arising from any such advance payments or (c) either a
majority of the disinterested Trustees acting on the matter (provided that a
majority of the disinterested Trustees then in office act on the matter), or
independent legal counsel in a written opinion, shall have determined, based
upon a review of readily available facts (as opposed to a full trial type
inquiry) that there is reason to believe that such Covered Person will be
found entitled to indemnification under this Article.
Compromise Payment
Section 2. As to any matter disposed of (whether by a compromise
payment, pursuant to a consent decree or otherwise) without an adjudication
by a court, or by any other body before which the proceeding was brought,
that such Covered Person either (a) did not act in good faith in the
reasonable belief that his action was in the best interests of the Trust or
(b) is liable to the Trust or its Shareholders by reason of wilful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office, indemnification shall be
provided if (a) approved as in the best interests of the Trust, after notice
that it involves such indemnification, by at least a majority of the
disinterested Trustees acting on the matter (provided that a majority of the
disinterested Trustees then in office act on the matter) upon a
determination, based upon a review of readily available facts (as opposed to
a full trial type inquiry) that such Covered Person acted in good faith in
the reasonable belief that his action was in the best interests of the Trust
and is not liable to the Trust or its Shareholders by reasons of wilful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office, or (b) there has been obtained
an opinion in writing of independent legal counsel, based upon a review of
readily available facts (as opposed to a full trial type inquiry) to the
effect that such Covered Person appears to have acted in good faith in the
reasonable belief that his action was in the best interests of the Trust and
that such indemnification would not protect such Person against any
liability to the Trust to which he would otherwise be subject by reason of
wilful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. Any approval pursuant to this
Section shall not prevent the recovery from any Covered Person of any amount
paid to such Covered Person in accordance with this Section as
indemnification if such Covered Person is subsequently adjudicated by a
court of competent jurisdiction not to have acted in good faith in the
reasonable belief that such Covered Person's action was in the best
interests of the Trust or to have been liable to the Trust or its
Shareholders by reason of wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such Covered
Person's office.
Indemnification Not Exclusive
Section 3. The right of indemnification hereby provided shall not be
exclusive of or affect any other rights to which such Covered Person may be
entitled. As used in this Article VIII, the term "Covered Person" shall
include such person's heirs, executors and administrators and a
"disinterested Trustee" is a Trustee who is not an "interested person" of
the Trust as defined in Section 2(a)(19) of the Investment Company Act of
1940, as amended, (or who has been exempted from being an "interested
person" by any rule, regulation or order of the Commission) and against whom
none of such actions, suits or other proceedings or another action, suit or
other proceeding on the same or similar grounds is then or has been pending.
Nothing contained in this Article shall affect any rights to indemnification
to which personnel of the Trust, other than Trustees or officers, and other
persons may be entitled by contract or otherwise under law, nor the power of
the Trust to purchase and maintain liability insurance on behalf of any such
person.
Shareholders
Section 4. In case any Shareholder or former Shareholder shall be held
to be personally liable solely by reason of his or her being or having been
a Shareholder and not because of his or her acts or omissions or for some
other reason, the Shareholder or former Shareholder (or his or her heirs,
executors, administrators or other legal representatives or in the case of a
corporation or other entity, its corporate or other general successor) shall
be entitled to be held harmless from and indemnified against all loss and
expense arising from such liability, but only out of the assets of the
particular series of Shares of which he or she is or was a Shareholder.
ARTICLE IX
Miscellaneous
Trustees, Shareholders, etc. Not Personally Liable; Notice
Section 1. All persons extending credit to, contracting with or having
any claim against the Trust or a particular series of Shares shall look only
to the assets of the Trust or the assets of that particular series of Shares
for payment under such credit, contract or claim; and neither the
Shareholders nor the Trustees, nor any of the Trust's officers, employees or
agents, whether past, present or future, shall be personally liable
therefor. Nothing in this Declaration of Trust shall protect any Trustee
against any liability to which such Trustee would otherwise be subject by
reason of wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or undertaking made
or issued by the Trustees or by any officer or officers shall give notice
that this Declaration of Trust is on file with the Secretary of The
Commonwealth of Massachusetts and shall recite that the same was executed or
made by or on behalf of the Trust or by them as Trustee or Trustees or as
officers or officer and not individually and that the obligations of such
instrument are not binding upon any of them or the Shareholders individually
but are binding only upon the assets and property of the Trust, and may
contain such further recital as he or she or they may deem appropriate, but
the omission thereof shall not operate to bind any Trustee or Trustees or
officer or officers or Shareholder or Shareholders individually.
Trustees' Good Faith Action, Expert Advice, No Bond or Surety
Section 2. The exercise by the Trustees of their powers and discretions
hereunder shall be binding upon everyone interested. A Trustee shall be
liable for his or her own wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the office of
Trustee, and for nothing else, and shall not be liable for errors of
judgment or mistakes of fact or law. The Trustees may take advice of
counsel or other experts with respect to the meaning and operation of this
Declaration of Trust, and shall be under no liability for any act or
omission in accordance with such advice or for failing to follow such
advice. The Trustees shall not be required to give any bond as such, nor
any surety if a bond is required.
Liability of Third Persons Dealing with Trustees
Section 3. No person dealing with the Trustees shall be bound to make
any inquiry concerning the validity of any transaction made or to be made by
the Trustees or to see to the application of any payments made or property
transferred to the Trust or upon its order.
Duration and Termination of Trust
Section 4. Unless terminated as provided herein, the Trust shall
continue without limitation of time. The Trust may be terminated at any
time by vote of Shareholders holding at least 66 2/3% of the Shares entitled
to vote or by the Trustees by written notice to the Shareholders. Any series
of Shares, or any class of shares of any series, may be terminated at any
time by vote of Shareholders holding at least 66 2/3% of the Shares of such
series (or class, as the case may be) entitled to vote or by the Trustees by
written notice to the Shareholders of such series (or class).
Upon termination of the Trust or of any one or more series or classes of
Shares, after paying or otherwise providing for all charges, taxes, expenses
and liabilities, whether due or accrued or anticipated, of the Trust or of
the particular series or class as may be determined by the Trustees, the
Trust shall in accordance with such procedures as the Trustees consider
appropriate reduce the remaining assets to distributable form in cash or
shares or other securities, or any combination thereof, and distribute the
proceeds to the Shareholders of the series or class involved, ratably
according to the number of Shares of such series or class held by the
several Shareholders of such series or class on the date of termination,
except to the extent otherwise required or permitted by the preferences and
special or relative rights and privileges of any classes of Shares of that
series, provided that any distribution to the Shareholders of a particular
class of Shares of a series shall be made to such Shareholders pro rata in
proportion to the number of Shares of such class held by each of them.
Filing of Copies, References, Headings
Section 5. The original or a copy of this instrument and of each
amendment hereto shall be kept at the office of the Trust where it may be
inspected by any Shareholder. A copy of this instrument and of each
amendment hereto shall be filed by the Trust with the Secretary of The
Commonwealth of Massachusetts and with the Boston City Clerk, as well as any
other governmental office where such filing may from time to time be
required. Anyone dealing with the Trust may rely on a certificate by an
officer of the Trust as to whether or not any such amendments have been made
and as to any matters in connection with the Trust hereunder, and, with the
same effect as if it were the original, may rely on a copy certified by an
officer of the Trust to be a copy of this instrument or of any such
amendments. In this instrument and in any such amendment, references to
this instrument, and all expressions like "herein," "hereof" and "hereunder"
shall be deemed to refer to this instrument as amended or affected by any
such amendments. Headings are placed herein for convenience of reference
only and shall not be taken as a part hereof or control or affect the
meaning, construction or effect of this instrument. This instrument may be
executed in any number of counterparts each of which shall be deemed an
original.
Applicable Law
Section 6. This Declaration of Trust is made in The Commonwealth of
Massachusetts, and it is created under and is to be governed by and
construed and administered according to the laws of said Commonwealth. The
Trust shall be of the type commonly called a Massachusetts business trust,
and without limiting the provisions hereof, the Trust may exercise all
powers which are ordinarily exercised by such a trust.
Amendments
Section 7. This Declaration of Trust may be amended at any time by an
instrument in writing signed by a majority of the then Trustees when
authorized to do so by vote of Shareholders holding a majority of the Shares
entitled to vote, except that an amendment which shall affect the holders of
one or more series or classes of Shares but not the holders of all
outstanding series and classes shall be authorized by vote of the
Shareholders holding a majority of the Shares entitled to vote of each
series and class affected and no vote of Shareholders of a series or class
not affected shall be required. Amendments having the purpose of changing
the name of the Trust or of supplying any omission, curing any ambiguity or
curing, correcting or supplementing any defective or inconsistent provision
contained herein shall not require authorization by Shareholder vote.
IN WITNESS WHEREOF, the undersigned have hereunto set their hand and
seal for themselves and their assigns, as of the day and year first above
written.
______________________________ ______________________________
Seth M. Glickenhaus Milton R. Neaman
EDWARD FALKENBERG ELIZABETH B. NEWELL
______________________________ ______________________________
Edward Falkenberg Elizabeth B. Newell
EDWARD A. KUCZMARSKI JOHN P. STEINES
______________________________ ______________________________
Edward A. Kuczmarski John P. Steines
STATE OF NEW YORK
March 5, 1996
New York, ss.
Then personally appeared the above-named Trustees and acknowledged the
foregoing instrument to be his or her free act and deed, before me,
THERESA DONOVAN
Notary Public
My commission expires:
September 17, 1996
[LETTERHEAD OF ROPES & GRAY]
May 2, 1996
The Empire Builder Tax Free Bond Fund
237 Park Avenue
New York, New York 10017
Ladies and Gentlemen:
You have informed us that you propose to offer and sell from time to
time 896,946 of your shares of beneficial interest, no par value (the "Shares"),
for cash or securities at the net asset value per share, determined in
accordance with your By-Laws, which Shares are in addition to your shares of
beneficial interest which you have previously offered and sold or which you are
currently offering.
We have examined your Amended and Restated Agreement and Declaration of
Trust (the "Agreement and Declaration of Trust") on file in the office of the
Secretary of State of the Commonwealth of Massachusetts and are familiar with
the actions taken by your Trustees to authorize the issuance and sale from time
to time of your authorized and unissued shares of beneficial interest at not
less than net asset value. We have also examined a copy of your By-Laws and such
other documents, receipts and records as we have deemed necessary for the
purposes of this opinion.
Based upon the foregoing, we are of the opinion that:
1. The Empire Builder Tax Free Bond Fund (the "Trust") is a legally
organized and validly existing voluntary association with transferable shares of
beneficial interest under the laws of the Commonwealth of Massachusetts and is
authorized to issue an unlimited number of shares of beneficial interest.
2. Upon the issue of any of the Shares for cash or securities at net
asset value, and the receipt of the appropriate consideration therefor as
provided in your By-Laws, such Shares so issued will be validly issued, fully
paid and nonassessable by the Trust.
The Empire Builder Tax Free Bond Fund -2- May 2, 1996
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Agreement and Declaration of Trust disclaims shareholder liability
for acts or obligations of the Trust and requires that notice of such disclaimer
be given in each agreement, obligation or instrument entered into or executed by
the Trust or its Trustees. The Agreement and Declaration of Trust provides for
indemnification out of the property of the Trust for all loss and expense of any
shareholder held personally liable for the obligations of the Trust solely by
reason of his or her being or having been such a shareholder. Thus, the risk of
a shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations.
We understand that this opinion is to be used in connection with the
registration of the Shares for offering and sale pursuant to the Securities Act
of 1933, as amended, and the provisions of Rule 24e-2 under the Investment
Company Act of 1940, as amended. We consent to the filing of this opinion with
and as part of Post-Effective Amendment No.15 to your Registration Statement No.
2-86931.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
[LETTERHEAD OF COOPERS & LYBRAND]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post-Effective Amendment No. 15
to the Registration Statement of The Empire Builder Tax Free
Bond Fund on Form N-1A (File No. 2-86931), of our report dated
April 3, 1996 on our audit of the financial statements and
financial highlights of The Empire Builder Tax Free Bond Fund.
We also consent to the reference to our Firm under the headings
"Independent Accountants" and "Experts" in the Statement of
Additional Information which is part of this Registration
Statement.
COOPERS & LYBRAND L.L.P.
New York, New York
May 2, 1996
THE EMPIRE BUILDER TAX FREE BOND FUND
Plan pursuant to Rule 18f-3 under the Investment Company Act of 1940
This document constitutes the plan adopted by the Trustees of The Empire
Builder Tax Free Bond Fund (the "Fund") in connection with the establishment and
operation of two classes of shares of the Fund (the Premier Class and the
Builder Class).
Builder Class shares are intended for purchase primarily by shareholders
who intend to maintain relatively small account balances or desire certain
account features, services and conveniences customarily associated with retail
mutual fund investments. Premier Class shares are intended for purchase
primarily by shareholders who intend to maintain relatively large account
balances and do not desire the full range of account features, services and
conveniences associated with the Builder Class.
Expense Allocation. Each class of shares shall bear the transfer agency
fees and expenses associated with that class of shares. All expenses of the Fund
other than transfer agency fees and expenses shall be borne by the Fund as a
whole, rather than be allocated specially to the separate classes.
Shareholder Level Fees (Premier Class). Premier Class shareholders may be
assessed (as shareholder rather than Fund or class expenses) such fees with
respect to elective account features and services as are set forth in the Fund's
prospectus and statement of additional information as in effect from time to
time (the "Prospectus").
Conversion. Each Premier Class shareholder account shall be subject to
such minimum account size as is set forth in the Prospectus. If the balance in a
Premier Class shareholder account falls below the required minimum, the
shareholder's account will convert from Premier Class to Builder Class (subject
to such notice provisions, cure or grace periods and other terms and conditions
as may be provided in the Prospectus).
Exchanges. Except as may otherwise be provided in the Prospectus, and
subject to the minimum account size requirements for the respective classes, (1)
Builder Class shareholders may exchange Builder Class shares for Premier Class
shares free of charge, and (2) Premier Class shareholders may exchange Premier
Class shares for Builder Class shares, subject to such fee, if any, as is
provided in the Prospectus.
<TABLE> <S> <C>
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<CIK> 730004
<NAME> EMPIRE BUILDER TAX FREE BOND FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 106625
<INVESTMENTS-AT-VALUE> 111742
<RECEIVABLES> 9968
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<OTHER-ITEMS-LIABILITIES> 2734
<TOTAL-LIABILITIES> 3886
<SENIOR-EQUITY> 0
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<EXPENSES-NET> 1099
<NET-INVESTMENT-INCOME> 5594
<REALIZED-GAINS-CURRENT> 4147
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 9741
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5594
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 921372
<NUMBER-OF-SHARES-REDEEMED> 880432
<SHARES-REINVESTED> 280743
<NET-CHANGE-IN-ASSETS> 9840
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 447
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1148
<AVERAGE-NET-ASSETS> 119192
<PER-SHARE-NAV-BEGIN> 17.31
<PER-SHARE-NII> 0.87
<PER-SHARE-GAIN-APPREC> 0.65
<PER-SHARE-DIVIDEND> 0.87
<PER-SHARE-DISTRIBUTIONS> 0.87
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.96
<EXPENSE-RATIO> 1.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
