<PAGE>
As filed with the Securities and Exchange Commission on June 30, 1997.
Registration Nos. 811-3907 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. 16 [X]
and
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 17 [X]
(Check appropriate box or boxes)
THE EMPIRE BUILDER TAX FREE BOND FUND
(Exact name of registrant as specified in
charter)
3435 Stelzer Road, Columbus, OH 43219
(Address of principal executive offices)
Registrant's telephone number, including area code: (614) 470-8000
Seth M. Glickenhaus, President
The Empire Builder Tax Free Bond Fund
3435 Stelzer Road
Columbus, OH 34219
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)
<TABLE>
<S> <C>
[ X] immediately upon filing pursuant to paragraph (b) [ ] on [date] pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1) [ ] on [date] pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii) [ ] on [date] pursuant to paragraph (a)(ii) of Rule 485.
</TABLE>
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 25, 1997 for Registrant's fiscal year ended February 28,
1997.
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 404(c))
PART A
<TABLE>
<CAPTION>
N-1A Item No. Location
<S> <C>
1. Cover Page...................................... Cover Page
2. Synopsis........................................ Summary of Expenses
3. Condensed Financial Information................. A Look at the Fund's Financial History; 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
5a. Management's Discussion of Fund Performance..... Not Applicable
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
PART B
N-1A Item No. Location
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 Bond Fund logo]
3435 Stelzer Road
Columbus, OH 43219
1-800-847-5886
Prospectus dated July 1, 1997
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,
1997 Statement of Additional Information, as amended from time to time (the
'SAI'), available without charge from BISYS Fund Services Limited Partnership
d/b/a BISYS Fund Services, 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
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.....................13
The Fund's Investment Objective...................5 Distributions and Taxes............................14
How the Fund Has Performed........................5 How the Fund Shows Performance.....................15
How the Fund Pursues its Objective............... 6 How to Buy Shares..................................16
Features and Benefits of the Fund................10 How to Sell Shares.................................16
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...................19
</TABLE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE 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.
1
<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%
Exchange Fee for each exchange from Premier to Builder Class................................. $5 $0
Annual Fund Operating Expenses
(as a percentage of net assets)
Advisory Fees........................................................................... 0.39% 0.39%
Administration Fees..................................................................... 0.19% 0.19%
Other Expenses.......................................................................... 0.35% 0.45%
----- -----
Total Fund Operating Expenses................................................................ 0.93% 1.03%
===== =====
</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) a 5%
annual return and (2) full redemption at
the end of each time period:
Builder Class: $ 11 $ 33 $ 57 $ 126
Premier Class: $ 9 $ 30 $ 51 $ 114
</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 28, 1997, restated to reflect certain changes in fee rates
that took effect during that year.
The Example illustrates expenses attributable to a hypothetical $1,000
investment in the Fund (Federal regulations require the Example to assume a
$1,000 investment; however, a minimum $20,000 investment is required for the
Premier Class.). The Example is based on the operating expenses shown above for
the Fund's last fiscal year 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.'
2
<PAGE>
A LOOK AT THE FUND'S FINANCIAL HISTORY
The following table presents financial highlights for the Builder Class for
each fiscal year beginning with the year ended February 28, 1988 and through the
fiscal year ended February 28, 1997 and for the Premier Class for the period
beginning April 15, 1996 and ending February 28, 1997. 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.
3
<PAGE>
Financial Highlights
for a share outstanding throughout each period
Year Ended
<TABLE>
<CAPTION>
2/28/97 2/29/92
Builder Premier 2/29/96 2/28/95 2/28/94 2/28/93 (1)
Class Class#
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........ $ 17.96 $ 17.57 $ 17.31 $ 18.24 $ 18.41 $ 17.17 $ 17.02
------- ------- ------- ------- ------- ------- -------
Income from Investment
Operations:
Net investment income.... 0.84 0.75 0.87 0.87 0.90 0.94 1.00
Net gain (loss) on
securities (both
realized and
unrealized)............ (0.10) 0.29 0.65 (0.71) 0.09 1.43 0.47
------ ---- ---- ------ ---- ---- ----
Total from Investment
Operations................. 0.74 1.04 1.52 0.16 0.99 2.37 1.47
---- ---- ---- ---- ---- ---- ----
Less Distributions:
Distributions from net
investment income............. (0.84) (0.75) (0.87) (0.87) (0.90) (0.94) (1.00)
Distributions from net
realized capital gains........ (0.13) (0.13) -- -- (0.26) (0.19) (0.32)
Distributions in excess of
net realized capital gains.... -- -- -- (0.22) -- -- --
------ ------ ------ ------ ------ ------ ------
Total Distributions.......... (0.97) (0.88) (0.87) (1.09) (1.16) (1.13) (1.32)
------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period................. $ 17.73 $ 17.73 $17.96 $ 17.31 $ 18.24 $ 18.41 $ 17.17
======= ======= ====== ======= ======= ======= =======
Total Return........... 4.30% 6.03%(1) 8.95% 1.09% 5.44% 14.32% 8.89%
Ratios/Supplemental Data:
Net Assets, End of Period
(in thousands)............... $59,133 $59,356 $117,860 $108,020 $108,305 $96,568 $79,690
Ratio of Expenses to Average
Net Assets................... 1.07% 0.97%* 1.01%*** 0.93% 0.98% 1.03% 1.07%
Ratio of Net Investment
Income to Average Net
Assets....................... 4.81% 4.88%* 4.91% 5.04% 4.85% 5.31% 5.78%
Portfolio Turnover
Rate......................... 181% 181% 150% 143% 164% 122% 166%
<CAPTION>
2/28/91 2/28/90 ** 2/29/88
(1) (1) (1) (1)
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........ $ 16.78 $ 16.70 $16.88 $ 18.00
------- ------- ------ -------
Income from Investment
Operations:
Net investment income.... 1.02 1.01 1.03 1.06
Net gain (loss) on
securities (both
realized and
unrealized)............ 0.24 0.16 (0.10) (0.59)
---- ---- ------ ------
Total from Investment
Operations............... 1.26 1.17 0.93 0.47
---- ---- ---- ----
Operations Less Distributions:
Distributions from net
investment income............. (1.02) (1.01) (1.03) (1.06)
Distributions from net
realized capital gains........ -- (0.08) (0.08) (0.53)
Distributions in excess of
net realized capital gains.... -- -- -- --
Total Distributions.......... (1.02) (1.09) (1.11) (1.59)
------ ------ ------ ------
Net Asset Value, End of
Period................. $ 17.02 $ 16.78 $ 16.70 $ 16.88
======= ======= ======= =======
Total Return........... 7.75% 7.06% 5.77% 3.08%
Ratios/Supplemental Data:
Net Assets, End of Period
(in thousands)............... $80,535 $58,155 $58,734 $55,737
Ratio of Expenses to Average
Net Assets................... 1.27% 1.42% 1.32% 1.34%
Ratio of Net Investment
Income to Average Net
Assets....................... 6.05% 5.96% 6.21% 6.46%
Portfolio Turnover
Rate......................... 181% 199% 250% 529%
</TABLE>
- - -------------
# Premier Class commenced operations on April 15, 1996.
* Annualized.
(1) Not Annualized.
** Glickenhaus & Co. assumed investment management of the Fund on July 1, 1988.
*** Does not include a reduction of expenses for custodian fee credits on cash
balances maintained with the custodian. Including such custodian fee
credits, the ratio of expenses to average net assets would be 0.96%.
(1) Not covered by accountants' report included in the SAI.
4
<PAGE>
A discussion and analysis by the Fund's management of the Fund's performance
during the fiscal year ended February 28, 1997 is included in the Fund's Annual
Report covering that year, which is available at no charge from the Fund.
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
Builder Class shares of the Fund for the one-, five- and ten-year periods ended
February 28, 1997, the total return of a hypothetical $10,000 investment in
Premier Class shares of the Fund from April 15, 1996 through February 28, 1997
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. This information should not be
construed as an indicator of future performance.
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 on the following page.
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 primarily 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. 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' on the following page.
5
<PAGE>
FUND PERFORMANCE
<TABLE>
<CAPTION>
Builder Class Builder Class Builder Class Premier Class
Ten Years Five Years One Year Since Inception
3/1/87- 3/1/92- 3/1/96- 4/15/96-
2/28/97 2/28/97 2/28/97 2/28/97
- - --------------------- --------------------------- -------------------------- ----------------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
The Fund
+89.28% $10,000 +39.10% $10,000 +4.30% $10,000 $10,000
became became became became
$18,928 $13,910 $10,430 $10,603
Average Annual
Total Return +6.58% +6.82% +4.30% +6.03%
- - --------------------- --------------------------- -------------------------- ----------------------------- -----------------------
Lehman
Municipal Bond +7.55% 7.47% +7.55% Not
Available
Index
(Average Annual
Increase)
</TABLE>
* This illustration is based on a hypothetical investment of $10,000, but the
actual investment minimum for the Premier Class is $20,000.
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 28, 1997, 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% 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
6
<PAGE>
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 return 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 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
7
<PAGE>
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 as defined under
the Investment Company Act of 1940, as amended (the "Act"), 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 tax 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 included
among such 50% in the securities of a single issuer. Also, 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 (the "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
8
<PAGE>
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 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 federal 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 28,
1997 was 181%.
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
9
<PAGE>
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.
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 this Prospectus or 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 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 9 p.m. (Eastern time) by calling toll free:
1-800-847-5886. Specially trained representatives will answer your questions
and provide you with information about your investment.
10
<PAGE>
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 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, orwhether 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.' The Builder Class is subject to
maintenance of a minimum account balance as described under 'History and
Organization of the Fund.'
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 Automatic 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.
Automatic 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 transfer is $100. For the Premier Class, the minimum transfer
is $1,000.
Automatic 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
11
<PAGE>
for your Builder Class account, call 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.
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
1-800-847-5886.
<TABLE>
<CAPTION>
SUMMARY OF FEATURES
Feature Builder Class Premier Class
- - ------- ------------- -------------
<S> <C> <C>
Goal Convenience Higher Yield
Sales Charge None None
Minimum Initial Investment $1,000 $20,000
Additional 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 Not available
$5,000 minimum balance
Direct Deposit No charge Not available
Historical Account Information Free $5 per request
Reinvestment from Glickenhaus Free Free
Sponsored Unit Investment
Trusts
</TABLE>
THE FUND'S MANAGEMENT
The Adviser, which was founded in 1961, had approximately $4.5 billion under
investment management as of December 31, 1996, 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 in the Adviser's Municipal
Department since 1993. He assumed responsibility for managing the Fund's
portfolio in 1988.
The Administrator, BISYS Fund Services Limited Partnership d/b/a BISYS Fund
Services("BISYS'), provides administrative services and personnel to the Fund.
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
12
<PAGE>
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 daily net assets and 0.3333% of any excess of such assets 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
daily net assets and 0.14% of any excess of such assets over $100 million. BISYS
Fund Services, Inc., an affiliate of the Administrator, provides the Fund with
certain accounting and related services for which it receives an additional fee
in the monthly amount of $2,500. BISYS Fund Services, Inc. also acts as transfer
and shareholder servicing agent of the Fund and receives additional
compensatio4n 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.
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 (normally at 4:00 p.m. Eastern time)
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 an
independent 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 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
13
<PAGE>
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
under the direction of 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.
If you elect to receive distributions in cash, and your checks are (1) returned
and marked as 'undeliverable' or (2) remain uncashed for six months, your cash
election will be changed automatically and your future dividend and capital
gains distributions will be reinvested in the Fund at the per share net asset
value determined as of the date of payment of the distribution. In addition, any
undeliverable checks or checks that remain uncashed for six months will be
canceled and will be reinvested in the Fund at the per share net asset value
determined as of the date of cancellation.
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 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 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
14
<PAGE>
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 and since inception through the end of the most
recent calendar quarter, assuming reinvestment of all distributions.
The Fund calculates 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 does not reflect changes in the net asset value of shares of the Fund.
From time to time, the Fund may include the effective yield of the Premier and
Builder Classes as well as current yield (in each case accompanied by its total
return) in information furnished to present or prospective shareholders and in
advertisements. Effective 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.
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.
15
<PAGE>
HOW TO BUY SHARES
You can buy Fund shares two ways -- through a participating dealer or through
BISYS Fund Services. Except as set forth below, the price per share is
the net asset value next determined after BISYS Fund Services 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 BISYS Fund Services: Complete the enclosed application form and return
it, along with a check payable to The Empire Builder Tax Free Bond Fund, P.O.
Box 182486, Columbus, OH 43218-2486. Shares purchased by check will not be
redeemed until payment of the shares has been collected, which may take up to
fifteen days after purchase.
Shares of the relevant class are sold at the net asset value next determined
after BISYS Fund Services receives your order. If you buy shares through your
investment dealer, the dealer must send and BISYS Fund Services receive your
order before the close of regular trading on the New York Stock
Exchange(normally 4 p.m. Eastern time) to receive that day's net asset value.
Third party or foreign checks will not be accepted
Investors in Empire State Municipal Exempt Trust, Empire Guaranteed Series and
Empire 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. As explained under 'Features of the Premier and Builder
Classes', these automatic reinvestments are not subject to the Fund's minimum
investment amounts.
In the interest of economy and convenience certificates for shares are not
issued.
HOW TO SELL SHARES
You can sell your shares to the Fund on any day the New York Stock Exchange is
open, either directly to the Fund (by sending a letter or by check) or through
your investment dealer. The Fund will repurchase only shares for which it has
received payment. Shares purchased by check are not permitted to be redeemed
until payment of the shares has been collected, which may take up to fifteen
days after purchase.
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 FundP.O. Box 182486, Columbus, OH
43218-2486. Please reference your account number. The price you will receive is
the net asset value for the relevant class next calculated after the Transfer
Agent receives your request. For your protection and to protect shareholder
accounts, the Fund and its Transfer Agent from fraud, if shares to be redeemed
have a value of $25,000 or more, signature guarantees are required to enable the
Transfer Agent to verify the identity of the person who has authorized a
redemption from an account. (See 'Signature Guarantees' below).
The Transfer Agent 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 Transfer Agent for details.
By check: Shareholders wishing to sell shares by drawing checks on their
accounts must first complete the signature card (and resolution, if the
shareholder is not an individual) provided with the application contained in
this Prospectus. Upon receiving the properly completed application, card and
resolution, the Transfer Agent will provide you with checks drawn on Huntington
National Bank. These checks may be made payable to the order of any person in
the amount of $500 or more for the
16
<PAGE>
Builder Class and $5,000 or more for the Premier Class. When a check is
presented for payment, a sufficient number of full and fractional shares in your
account will be redeemed to cover the amount of the check.
Shareholders utilizing checks will be subject to Huntington National Bank'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 Withdrawal Program (see page 12) 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 Transfer Agent. 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 4 p.m. Eastern 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.
Other Redemption Information: Requests must include the following documentation:
(a) a letter of instruction, if required, signed by all registered owners of the
shares in the exact names in which they are registered; (b) any required
signature guarantees (see 'Signature Guarantees' below); and (c) other
supporting legal documents, if required, in the case of estates, trusts,
guardianships, custodianships, corporations, pension and profit sharing plans
and other organizations.
Signature Guarantees: To protect shareholder accounts, the Fund and the 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) all redemptions of more than $25,000
(2) all redemptions where the proceeds are to be sent to someone other than the
registered shareowner(s) and the registered address and (3) all requests to
transfer ownership of shares. Signature guarantees may be obtained from certain
eligible financial institutions, including 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'). Further documentation, such
as copies of corporate resolutions and instruments of authority, may be
requested from corporations, administrators, executors, personal
representatives, 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 Transfer Agent and many commercial banks.
Shareholders may contact the Fund at 1-800-847-5886 for further details.
HISTORY AND ORGANIZATION OF THE FUND
The Fund was organized as a Massachusetts business trust on September 30,
1983. A copy of the Fund's Amended and Restated 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
17
<PAGE>
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.'
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.
If the balance in a shareholder's account is less than an amount set by the
Trustees (currently 20 shares in the Builder Class), 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.
Inquiries should be directed to The Empire Builder Tax Free Bond Fund, P.O.
Box 182486, Columbus, OH 43218-2486.
18
- - --------------------------------------
* Trustee who is an interested person of the Fund as that term is defined in the
Investment Company Act of 1940.
<PAGE>
THE FUND'S TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
Trustees Officers
<S> <C>
SETH M. GLICKENHAUS, SETH M. GLICKENHAUS
* Chairman of the Board of Trustees President of the Fund;
Senior Partner of Glickenhaus & Co. Senior Partner of
Glickenhaus & Co.
EDWARD FALKENBERG, Trustee
Vice President and Controller, MICHAEL J. LYNCH
Joseph E. Seagram & Sons, Inc. Senior Vice President of the Fund
and Seagram Company Ltd. Director, Unit Trust Department
Glickenhaus & Co.
EDWARD A. KUCZMARSKI, Trustee
Certified Public Accountant and Partner, FRANK M. DEUTCHKI
Hays & Company Vice President of the Fund
Regulationi and Compliance Officer
ELIZABETH B. NEWELL, Trustee Administration and Regulatory Services
Director, International Preschools BISYS Fund Services
JOHN P. STEINES, Trustee GEORGETTE L. HORTON
Professor of Law, New York University Vice President of the Fund
School of Law Director, Client Services
BISYS Fund Services
MICHAEL SAKALA
Treasurer of the Fund;
Vice President and Treasurer
BISYS Fund Services
ELLEN STOUTAMIRE
Secretary of the Fund
Vice President, Client Legal Services
BISYS Fund Services
AMY WARD KAUP
Assistant Secretary of the Fund;
Associate Manager, Client Legal Services,
BISYS Fund Services
ALAINA V. METZ
Assistant Secretary of the Fund;
Chief Administrative Officer, Administrative and
Regulatory Services,
BISYS Fund Services
BRUCE TREFF
Assistant Secretary of the Fund;
Counsel, BISYS Legal Services,
BISYS Fund Services
</TABLE>
19
- - --------------------------------------
* Trustee who is an interested person of the Fund as that term is defined in the
Investment Company Act of 1940.
<PAGE>
[EMPIRE BUILDER LOGO]
Investment Adviser and Distributor
GLICKENHAUS & CO.
6 East 43rd Street
New York, New York 10017
Administrator and Shareholder Servicing Agent
BISYS FUND SERVICES
3435 Stelzer Road
Columbus, OH 43219
Custodian
INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, Missouri 64105
Legal Counsel
ROPES & GRAY
One International Place
Boston, Massachusetts 02110
Independent Accountants
COOPERS & LYBRAND L.L.P.
1301 Avenue of the Americas
New York, New York 10019
Customer Service
3435 Stelzer Road
Columbus, OH 43219
1-800-847-5886
[FRONT COVER GRAPHIC SHOWING PENCIL AND STOCK REPORT]
THE
EMPIRE
BUILDER
TAX FREE
BOND
FUND
Builder Class
Premier Class
PROSPECTUS DATED July 1, 1997
[EMPIRE BUILDER LOGO]
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
Statement of Additional Information
July 1, 1997
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, 1997, 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 BISYS Funds Services, 3435 Stelzer
Road, Columbus, OH 43219.
Table of Contents
Page
Definitions..............................................................2
Investment Objective and Policies of the Fund............................2
Investment Restrictions of the Fund......................................7
Management of the Fund...................................................9
Determination of Net Asset Value........................................16
Fund Performance........................................................16
Purchase of Shares......................................................18
Investment Programs.....................................................18
Taxes...................................................................19
Automatic Withdrawal Program............................................21
Shareholder Liability...................................................21
Independent Accountants.................................................21
Financial Statements....................................................21
Custodian...............................................................22
Investment Ratings..............................................Appendix A
1
<PAGE>
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' BISYS Fund Services Limited
Partnership d/b/a BISYS Fund Services,
the Fund's
Administrator
The 'Transfer Agent'or "Fund BISYS Fund Services, Inc.
Accounting 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, 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
2
<PAGE>
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
investing 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,
3
<PAGE>
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 (the "Index"). The 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
4
<PAGE>
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
5
<PAGE>
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. The portfolio turnover for
the fiscal years ended February 29, 1996 and February 28, 1997 was 150% and
181%, respectively.
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
6
<PAGE>
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)
7
<PAGE>
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
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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 (56)
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.
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Seth M. Glickenhaus* (83)
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)
477 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.
Elizabeth B. Newell (56)
130 East End Avenue
Apartment 1C
New York, New York 10028
Trustee of the Fund; Director of Empire Tax Free Money Market, Inc.; Trustee,
International Preschools.
John P. Steines (48)
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.
Michael J. Lynch (34)
6 East 43rd Street
New York, New York 10017
Senior Vice President of the Fund; Director, Unit Trust Department, Glickenhaus
& Co.; formerly, Divisional Vice President/Desk Supervisor, Unit Investment
Trust at PaineWebber.
Frank M. Deutchki (43)
3435 Stelzer Road
Columbus, OH 43219
Vice President of the Fund; Regulation and Compliance Officer, Administration
and Regulatory Services, BISYS Fund Services; formerly, Vice President and Audit
Director at Mutual Funds Service Company .
Georgette L. Horton (31)
125 West 55th Street
11th Floor
New York, New York 10019
Vice President of the Fund; Director, BISYS Fund Services; formerly, Assistant
Vice President, Regional Sales for Paine Webber; Portfolio Management Assistant
for Eaton Vance Management.
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Michael Sakala (31)
125 West 55th Street
11th Floor
New York, New York 10019
Treasurer of the Fund; Vice President & Treasurer, BISYS Fund Services;
formerly, head of worldwide Fund Administration at Banque Paribas Luxemburg;
Accounting Manager at Fidelity Investments..
Ellen Stoutamire (48)
3435 Stelzer Road
Columbus, OH 43219
Secretary of the Fund; Vice President of Client Legal Services, BISYS Fund
Services; formerly, Associate Counsel for Franklin Templeton Mutual Funds; Vice
President and General Counsel for Pioneer Western Corporation.
Alaina V. Metz (30)
3435 Stelzer Road
Columbus, OH 43219
Assistant Secretary of the Fund; Chief Administrative Officer, Administration
and Regulatory Services, BISYS Fund Services; formerly, Supervisor of Blue Sky
Department at Alliance Capital Management L.P.
Bruce Treff (30)
3435 Stelzer Road
Columbus, OH 43219
Assistant Secretary of the Fund; Counsel, BISYS Legal Services., BISYS Fund
Services; formerly, Manager, Alliance Capital Management.
Amy Ward Kaup (25)
125 West 55th Street
11th Floor
New York, NY 10019
Assistant Secretary of the Fund; Associate Manager, Client Legal Services;
formerly, Administrative Assistant, Corporate Secretaries, Furman Selz LLC;
Marketing Assistant, Kemper Executive Council; Zurich Kemper Investments.
- - ------------
* Trustee who is an "interested person" of the Fund as that term is defined in
the Investment Company Act of 1940.
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
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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
$5,500 in Trustees' fees and expenses to each Trustee in the fiscal year ended
February 28, 1997. The aggregate Trustees' fees were $23,750 in the fiscal year
ended February 28, 1997. The Fund provides no pension or retirement benefits to
its Trustees or former Trustees.
Messrs. Deutchki, Glickenhaus, Lynch, Sakala and Treff and Mmes.
Horton, Stoutamire, Metz and Kaup, 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 $4.5 billion of equity and fixed-income
securities as of December 31, 1996, 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
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<PAGE>
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, 1995, February 29, 1996, and
February 28, 1997, the Fund paid the Adviser $419,467, $446,694 and $458,454,
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.
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<PAGE>
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, 1995, February 29, 1996 and
February 28, 1997, the Fund paid no underwriting commissions in underwritten
transactions.
Administrator, Fund Accounting Agent and Transfer Agent
Pursuant to an Administration Agreement dated as of October16, 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. For the fiscal years ended February 28,
1995 and February 29, 1996, and February 28, 1997 respectively, the Fund paid
the Administrator and its predecessor Furman Selz, LLC $209,733, $223,340 and
$228,434 in fees under the Administration Agreement (or a predecessor
agreement).
The Fund Accounting Agent provides the Fund with certain accounting and
related services, pursuant to a Fund Accounting Agreement dated as of October 1,
1996. For its services under the Fund Accounting Agreement, the Fund Accounting
Agent 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 28,1995, February 29, 1996 and February 28,
1997, the Fund paid the Fund
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<PAGE>
Accounting Agent and its predecessor Furman Selz, LLC $34,793, $42,295 and
$42,592, respectively, in fees and expenses under the Fund Accounting Agreement
(or a predecessor agreement).
During the fiscal years ended February 28, 1995, February 29, 1996 and
February 28, 1997,the Transfer Agent and its predecessor Furman Selz, LLC
received $160,742, $167,281 and $199,904, 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 year ended February 28, 1995, the Distributor
received $22,087 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 (normally 4:00 P.M. Eastern time), 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 an independent 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 Muller 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.
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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
16
<PAGE>
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 Transfer Agent. 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 normally 4
p.m., Eastern 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 Transfer Agent at the relevant net
asset value determined as at such closing time, provided the order is received
and accepted by the Transfer Agent 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 Transfer Agent prior to its close of business at 4:00 p.m.
Eastern 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.
17
<PAGE>
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 Automatic 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.
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 Transfer Agent (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 Transfer Agent 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 Transfer Agent. 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 Transfer Agent. The change will be effective
for the next distribution provided it is received prior to the record date for
that distribution.
18
<PAGE>
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.
Automatic Investment Program. 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 an 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
19
<PAGE>
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.
New York law provides that, to the extent distributions by a regulated
investment company are derived from interest on debt obligations issued by the
State of New York or its political subdivisions or certain other governmental
entities (for example, the Commonwealth of Puerto Rico, the United States Virgin
Islands or Guam), the interest on which was excludable from gross income for
purposes of both federal income taxation and New York State or City personal
income taxation (New York Tax Exempt Bonds) and designated as such, such
distributions shall be exempt from New York State and City personal income
taxes. For federal income tax purposes, all Fund distributions other than
exempt-interest dividends will be taxable as ordinary income, except that any
distributions of net long-term capital gains will be taxable to shareholders as
such, whether received in cash or shares and regardless of how long shareholders
have held their shares. For New York State and City personal income tax
purposes, distributions derived from investments other than New York Tax Exempt
Bonds and distributions from any net short-term capital gains will be taxable as
ordinary income, whether paid in cash or reinvested in additional shares. For
New York State and City personal income tax purposes, distributions of net
long-term capital gains will be taxable at the same rate as ordinary income,
whether received in cash or shares through the reinvestment of distributions.
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 WITHDRAWAL PROGRAM FOR BUILDER CLASS SHARES
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
20
<PAGE>
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.
FINANCIAL STATEMENTS
The financial highlights in the Prospectus for the periods indicated
which have been audited by the Fund's independent accountants, and the audited
financial statements appearing in the most current fiscal year Annual Report to
Shareholders, which is incorporated by reference 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. Copies of the Annual Report are available upon request and without
charge.
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
21
<PAGE>
Custodian does not determine the investment policies of the Fund or decide which
securities the Fund will buy or sell.
22
<PAGE>
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 rotection 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.
1
<PAGE>
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.
2
<PAGE>
Part C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A of the Registration Statement: Financial
Highlights for the ten year period ended February 28, 1997.
Incorporated by reference in Part B of the Registration
Statement are the following audited financial statements
contained in the Annual Report for the fiscal year ended
February 28, 1997:
Portfolio of Investments - February 28, 1997.
Statement of Assets and Liabilities as of February 28, 1997.
Statement of Operations for the year ended February 28, 1997.
Statement of Changes in Net Assets for the years ended
February 29, 1996 and February 28, 1997.
Financial Highlights for the five year period ended February
28, 1997.
Notes to Financial Statements.
Report of the Independent Accountants
(b) Exhibits:
1. Amended and Restated Agreement and Declaration of
Trust incorporated herein by reference Exhibit 1 to
Post Effective Amendment 15 filed May 2, 1997.
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
<PAGE>
to the Registration Statement, filed December 20,
1983.
9. (a) Administration Agreement dated October 1, 1996
between the Registrant and BISYS Fund Services
filed herewith.
(b) Fund Accounting Agreement dated October 1, 1996
between the Registrant and BISYS Fund Services,
Inc. filed herewith.
(c) Transfer Agency Agreement dated October 1, 1996
between the Registrant and BISYS Fund Services
filed herewith.
10. Incorporated herein by reference to Exhibit 10 to
Pre-Effective Amendment No. 1 to the Registration
Statement, filed on December 20, 1983.
11. Consent of Coopers & Lybrand L.L.P. filed herewith.
12. The financial statements in the Registrant's Annual
Report for the fiscal year ended February 28, 1997 as
filed with the Commission on April 30, 1997 are
incorporated herein by reference.
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 schedules filed herewith.
18. Rule 18f-3 plan incorporated herein by reference to
Exhibit 18 to Post Effective Amendment No. 15 filed
on May 2, 1996.
19. Power of Attorney in favor of Frank Deutchki.
Item 25. Persons Controlled by or under Common Control with Registrant
None.
<PAGE>
Item 26. Number of Holders of Securities
As of May 31, 1997, there were 5,371 Builder Class and 1,080 Premier
Class record holders of the shares of the Registrant.
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 general partner 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 President and
Trustee of the
Registrant
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 general partners, 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
BISYS Fund Services
3435 Stelzer Road, Columbus, Ohio 43219
31a-1(a)
31a-1(b) 1, 8 and 12
<PAGE>
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
The Registrant hereby undertakes to furnish each person to whom its
prospectus is delivered upon such person's request and without charge, a copy of
the Registrant's latest annual report to shareholders (if the information called
for by Item 5A of Form N-1A is contained in such report).
NOTICE
A copy of the Amended and Restated 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 30th day of June, 1997.
<PAGE>
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
MICHAEL SAKALA Treasurer, Principal Financial and
- - -------------- Accounting Officer
Michael Sakala
EDWARD FALKENBERG* Trustee
- - ---------------
Edward Falkenberg
EDWARD A. KUCZMARSKI* Trustee
- - ---------------
Edward A. Kuczmarski
ELIZABETH B. NEWELL* Trustee
- - --------------------------
Elizabeth B. Newell
JOHN P. STEINES* Trustee
- - --------------------------
John P. Steines
*By: FRANK M. DEUTCHKI June 30, 1997
-----------------
Frank M. Deutchki
Attorney in Fact
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit No.
<S> <C>
Administration Agreement between Registrant and BISYS Fund Services........... 9a
Fund Accounting Agreement between Registrant and BISYS Fund Services, Inc..... 9b
Transfer Agency Agreement between Registrant and BISYS Fund Services.......... 9c
Consent of Coopers & Lybrand, L.L.P........................................... 11
Financial Data Schedules...................................................... 27
Power of Attorney ............................................................ 19
</TABLE>
<PAGE>
ADMINISTRATION AGREEMENT
THIS AGREEMENT is made as of this 1st day of October, 1996, by and between
THE EMPIRE BUILDER TAX FREE BOND FUND, a Massachusetts business trust
(the "Trust"), and BISYS FUND SERVICES LIMITED PARTNERSHIP, d/b/a BISYS
FUND SERVICES (the "Administrator"), an Ohio limited partnership.
WHEREAS, the Trust is an open-end management investment company registered
under the Investment Trust Act of 1940, as amended (the " 1940 Act"), which is
authorized to issue multiple series of shares of beneficial interest ("Shares");
and
WHEREAS, the Trust desires the Administrator to provide, and the
Administrator is willing to provide, management and administrative services to
such series of the Trust as the Trust and the Administrator may agree on
("Portfolios") and as listed on Schedule A attached hereto and made a part of
this Agreement, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Trust and the Administrator hereby agree as follows:
ARTICLE 1. Retention of the Administrator; Conversion to the Services. The
Trust hereby engages the Administrator to act as the administrator of the
Portfolios and to furnish the Portfolios with the management and administrative
services as set forth in Article 2 below (collectively, the "Services"), and, in
connection therewith, the Trust agrees to convert to the Administrator's data
processing systems and software (the "BISYS System") as necessary in order to
receive the Services. The Trust shall cooperate with the Administrator to
provide the Administrator with all necessary information and assistance required
to successfully convert to the BISYS System. The Administrator shall provide the
Trust with a schedule relating to such conversion and the parties agree that the
conversion may progress in stages. The date upon which all Services shall have
been converted to the BISYS System shall be referred to herein as the
"Conversion Date." The Administrator hereby accepts such engagement and agrees
to perform the Services commencing, with respect to each individual Service, on
the date that the conversion of such Service to the BISYS System has been
completed. The Administrator shall determine in accordance with its normal
acceptance procedures when the applicable Service has been successfully
converted.
The Administrator shall, for all purposes herein, be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Trust in any way and shall
not be deemed an agent of the Trust.
ARTICLE 2. Administrative Services. The Administrator shall perform or
supervise the performance by others of other administrative services in
connection with the operations of the Portfolios, and, on behalf of the Trust,
will investigate, assist in the selection of and conduct relations
<PAGE>
with custodians, depositories, accountants, legal counsel, underwriters, brokers
and dealers, corporate fiduciaries, insurers, banks and persons in any other
capacity deemed to be necessary or desirable for the Portfolios' operations. The
Administrator shall provide the Trustees of the Trust with such reports
regarding investment performance as they may reasonably request but shall have
no responsibility for supervising the performance by any investment adviser or
sub-adviser of its responsibilities.
The Administrator shall provide the Trust with regulatory reporting, all
necessary office space, equipment, personnel, compensation and facilities
(including facilities for meetings of shareholders ("Shareholders") and Trustees
of the Trust) for handling the affairs of the Portfolios and such other services
as the Administrator shall, from time to time, determine to be necessary to
perform its obligations under this Agreement. In addition, at the request of the
Board of Trustees, the Administrator shall make reports to the Trust's Trustees
concerning the performance of its obligations hereunder.
Without limiting the generality of the foregoing, the Administrator
shall:
(a) calculate contractual Trust expenses and control all disbursements
for the Trust, and as appropriate compute the Trust's yields,
including tax-equivalent yields, total return, expense ratios,
portfolio turnover rate and, if required, portfolio average
dollar-weighted maturity;
(b) assist Trust counsel with the preparation of prospectuses, statements
of additional information, registration statements and proxy
materials;
(c) prepare such reports, applications and documents (including reports
regarding the sale and redemption of Shares as may be required in
order to comply with Federal and state securities law) as may be
necessary or desirable to register the Trust's Shares with state
securities authorities, monitor the sale of Trust Shares for
compliance with state securities laws, and file with the appropriate
state securities authorities the registration statements and reports
for the Trust and the Trust's Shares and all amendments thereto, as
may be necessary or convenient to register and keep effective the
Trust and the Trust's Shares with state securities authorities to
enable the Trust to make a continuous offering of its Shares;
(d) develop and prepare, with the assistance of the Trust's investment
adviser, communications to Shareholders, including the annual report
to Shareholders, coordinate the mailing of prospectuses, notices,
proxy statements, proxies and other reports to Trust Shareholders,
and supervise and facilitate the proxy solicitation process for all
shareholder meetings, including the tabulation of shareholder votes;
(e) administer contracts on behalf of the Trust with, among others, the
Trust's investment adviser, distributor, custodian, transfer agent
and fund accountant;
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(f) supervise the Trust's transfer agent with respect to the payment of
dividends and other distributions to Shareholders;
(g) calculate performance data of the Trust and its Portfolios for
dissemination to information services covering the investment company
industry;
(h) coordinate and supervise the preparation and filing of the Trust's
tax returns;
(i) examine and review the operations and performance of the various
organizations providing services to the Trust or any Portfolio of the
Trust, including, without limitation, the Trust's investment adviser,
distributor, custodian, fund accountant, transfer agent, outside
legal counsel and independent public accountants, and at the request
of the Board of Trustees, report to the Board on the performance of
organizations;
(j) assist with the layout and printing of publicly disseminated
prospectuses and assist with and coordinate layout and printing of
the Trust's semi-annual and annual reports to Shareholders;
(k) assist with the design, development, and operation of the Trust
Portfolios, including new classes, investment objectives, policies
and structure;
(l) provide individuals reasonably acceptable to the Trust's Board
of Trustees to serve as officers of the Trust, who will be
responsible for the management of certain of the Trust's affairs as
determined by the Trust's Board of Trustees;
(m) advise the Trust and its Board of Trustees on matters concerning the
Trust and its affairs;
(n) obtain and keep in effect fidelity bonds and directors and
officers/errors and omissions insurance policies for the Trust in
accordance with the requirements of Rules 17g-1 and 17d-l(d)(7) under
the 1940 Act as such bonds and policies are approved by the Trust's
Board of Trustees;
(o) monitor and advise the Trust and its Portfolios on their registered
investment company status under the Internal Revenue Code of 1986, as
amended;
(p) perform all administrative services and functions of the Trust and
each Portfolio to the extent administrative services and functions
are not provided to the Trust or such Portfolio pursuant to the
Trust's or such Portfolio's investment advisory agreement,
distribution agreement, custodian agreement, transfer agent agreement
and fund accounting agreement;
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(q) furnish advice and recommendations with respect to other aspects of
the business and affairs of the Portfolios as the Trust and the
Administrator shall determine desirable; and
(r) prepare and file with the SEC the semi-annual report for the Trust on
Form N-SAR and all required notices pursuant to Rule 24f-2.
The Administrator shall perform such other services for the Trust that are
mutually agreed upon by the parties from time to time. Such services may include
performing internal audit examinations; mailing the annual reports of the
Portfolios; preparing an annual list of Shareholders; and mailing notices of
Shareholders' meetings, proxies and proxy statements, for all of which the Trust
will pay the Administrator's out-of-pocket expenses.
ARTICLE 3. Allocation of Charges and Expenses.
(A) The Administrator. The Administrator shall furnish at its own expense
the executive, supervisory and clerical personnel necessary to perform its
obligations under this Agreement. The Administrator shall also provide the items
which it is obligated to provide under this Agreement, and shall pay all
compensation, if any, of officers of the Trust as well as all Trustees of the
Trust who are affiliated persons of the Administrator or any affiliated
corporation of the Administrator; provided, however, that unless otherwise
specifically provided, the Administrator shall not be obligated to pay the
compensation of any employee of the Trust retained by the Trustees of the Trust
to perform services on behalf of the Trust.
(B) The Trust. The Trust assumes and shall pay or cause to be paid all
other expenses of the Trust not otherwise allocated herein, including, without
limitation, organization costs, taxes, expenses for legal and auditing services,
the expenses of preparing (including typesetting), printing and mailing reports,
prospectuses, statements of additional information, proxy solicitation material
and notices to existing Shareholders, all expenses incurred in connection with
issuing and redeeming Shares, the costs of custodial services, the cost of
initial and ongoing registration of the Shares under Federal and state
securities laws, fees and out-of-pocket expenses of Directors who are not
affiliated persons of the Administrator or the Investment Adviser to the Trust
or any affiliated corporation of the Administrator or the Investment Adviser,
insurance, interest, brokerage costs, litigation and other extraordinary or
nonrecurring expenses, and all fees and charges of investment advisers to the
Trust.
ARTICLE 4. Compensation of the Administrator.
(A) Administration Fee. For the services to be rendered, the facilities
furnished and the expenses assumed by the Administrator pursuant to this
Agreement, the Trust shall pay to the Administrator compensation at an annual
rate specified in Schedule A attached hereto. Such compensation shall be
calculated and accrued daily, and paid to the Administrator monthly.
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<PAGE>
If the Conversion Date occurs subsequent to the first day of a month or
terminates before the last day of a month, the Administrator's compensation for
that part of the month in which this Agreement is in effect shall be prorated in
a manner consistent with the calculation of the fees as set forth above. Payment
of the Administrator's compensation for the preceding month shall be made
promptly.
(B) Survival of Compensation Rights. All rights of compensation under this
Agreement for services performed as of the termination date shall survive the
termination of this Agreement.
ARTICLE 5. Limitation of Liability of the Administrator. The duties of the
Administrator shall be confined to those expressly set forth herein, and no
implied duties are assumed by or may be asserted against the Administrator
hereunder. The Administrator shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any investment or for any act or
omission in carrying out its duties hereunder, except a loss resulting from
willful misfeasance, bad faith or negligence in the performance of its duties,
or by reason of reckless disregard of its obligations and duties hereunder,
except as may otherwise be provided under provisions of applicable law which
cannot be waived or modified hereby. (As used in this Article 5, the term
"Administrator" shall include partners, officers, employees and other agents of
the Administrator as well as the Administrator itself.)
So long as the Administrator acts in good faith and with due diligence and
without negligence, the Trust assumes full responsibility and shall indemnify
the Administrator and hold it harmless from and against any and all actions,
suits and claims, whether groundless or otherwise, and from and against any and
all losses, damages, costs, charges, reasonable counsel fees and disbursements,
payments, expenses and liabilities (including reasonable investigation expenses)
arising directly or indirectly out of the Administrator's actions taken or
inactions with respect to the performance of services hereunder. The indemnity
and defense provisions set forth herein shall indefinitely survive the
termination of this Agreement.
The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case the Trust may be asked to indemnify or hold the
Administrator harmless, the Trust shall be fully and promptly advised of all
pertinent facts concerning the situation in question, and it is further
understood that the Administrator will use all reasonable care to identify and
notify the Trust promptly concerning any situation which presents or appears
likely to present the probability of such a claim for indemnification against
the Trust, but failure to do so in good faith shall not affect the rights
hereunder.
The Trust shall be entitled to participate at its own expense or, if it so
elects, to assume the defense of any suit brought to enforce any claims subject
to this indemnity provision. If the Trust elects to assume the defense of any
such claim, the defense shall be conducted by counsel chosen by the Trust and
satisfactory to the Administrator, whose approval shall not be unreasonably
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withheld. In the event that the Trust elects to assume the defense of any suit
and retain counsel, the Administrator shall bear the fees and expenses of any
additional counsel retained by it. If the Trust does not elect to assume the
defense of a suit, it will reimburse the Administrator for the reasonable fees
and expenses of any counsel retained by the Administrator.
The Administrator may apply to the Trust at any time for instructions and
may consult counsel for the Trust or its own counsel and with accountants and
other experts with respect to any matter arising in connection with the
Administrator's duties, and the Administrator shall not be liable or accountable
for any action taken or omitted by it in good faith in accordance with such
instruction or with the opinion of such counsel, accountants or other experts.
Also, the Administrator shall be protected in acting upon any document
which it reasonably believes to be genuine and to have been signed or presented
by the proper person or persons. The Administrator will not be held to have
notice of any change of authority of any officers, employees or agents of the
Trust until receipt of written notice thereof from the Trust.
ARTICLE 6. Activities of the Administrator. The services of the
Administrator rendered to the Trust are not to be deemed to be exclusive. The
Administrator is free to render such services to others and to have other
businesses and interests. It is understood that trustees, officers, employees
and Shareholders of the Trust are or may be or become interested in the
Administrator, as partners, officers, employees and shareholders or otherwise
and that partners, officers and employees of the Administrator and its counsel
are or may be or become similarly interested in the Trust, and that the
Administrator may be or become interested in the Trust as a Shareholder or
otherwise.
ARTICLE 7. Duration of this Agreement. The Term of this Agreement shall be
as specified in Schedule A hereto.
ARTICLE 8. Assignment. This Agreement shall not be assignable by either
party without the written consent of the other party; provided, however, that,
upon the provision of advance written notice to the Trust, the Administrator
may, at its expense, subcontract with any entity or person concerning the
provision of the services contemplated hereunder. The Administrator shall not,
however, be relieved of any of its obligations under this Agreement by the
appointment of such subcontractor and provided further, that the Administrator
shall be responsible, to the extent provided in Article 5 hereof, for all acts
of such subcontractor as if such acts were its own. This Agreement shall be
binding upon, and shall inure to the benefit of, the parties hereto and their
respective successors and permitted assigns.
ARTICLE 9. Amendments. This Agreement may be amended by the parties hereto
only if such amendment is specifically approved (i) by the vote of a majority of
the Trustees of the Trust, and (ii) by the vote of a majority of the Trustees of
the Trust who are not parties to this Agreement or interested persons of any
such party.
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ARTICLE 10. Certain Records. The Administrator shall maintain customary
records in connection with its duties as specified in this Agreement. Any
records required to be maintained and preserved pursuant to Rules 3la-l and
3la-2 under the 1940 Act which are prepared or maintained by the Administrator
on behalf of the Trust shall be prepared and maintained at the expense of the
Administrator, but shall be the property of the Trust and will be made available
to or surrendered promptly to the Trust on request.
In case of any request or demand for the inspection of such records by
another party, the Administrator shall notify the Trust and follow the Trust's
instructions as to permitting or refusing such inspection; provided that the
Administrator may exhibit such records to any person in any case where it is
advised by its counsel that it may be held liable for failure to do so, unless
(in cases involving potential exposure only to civil liability) the Trust has
agreed to indemnify the Administrator against such liability.
ARTICLE 11. Definitions of Certain Terms. The terms "interested person" and
"affiliated person," when used in this Agreement, shall have the respective
meanings specified in the 1940 Act and the rules and regulations thereunder,
subject to such exemptions as may be granted by the Securities and Exchange
Commission.
ARTICLE 12. Notice. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient if sent by registered or certified
mail, postage prepaid, addressed by the party giving notice to the other party
at the following address: if to the Administrator, to it at 3435 Stelzer Road,
Columbus, Ohio 43219; if to the Trust, to it at
, or at such other address as such party may from time to time specify in
writing to the other party pursuant to this Section.
ARTICLE 13. Governing Law and Matters Relating to the Trust as a
Massachusetts Business Trust. This Agreement shall be governed by and provisions
shall be construed in accordance with the laws of the State of Ohio. It is
expressly agreed that the obligations of the Trust hereunder shall not be
binding upon any of the Trustees, shareholders, nominees, officers, agents or
employees of the Trust personally, but shall bind only the trust property of the
Trust. The execution and delivery of this Agreement have been authorized by the
Trustees, and this Agreement has been signed and delivered by an authorized
officer of the Trust, acting as such, and neither such authorization by the
Trustees nor such execution and delivery by such officer shall be deemed to have
been made by any of them individually or to impose any liability on any of them
personally, but shall bind only the trust property of the Trust as provided in
the Trust's Agreement and Declaration of Trust.
ARTICLE 14. Multiple Originals. This Agreement may be executed in two or
more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
THE EMPIRE BUILDER TAX FREE
BOND FUND
By:
---------------------------
Attest:
-----------------------
BISYS FUND SERVICES LIMITED
PARTNERSHIP
By: BISYS Fund Services,
General Partner
By:
----------------------------
President
Attest: /s/ Robert L. Luck
-------------------------
Assistant Secretary
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SCHEDULE A
TO THE ADMINISTRATION AGREEMENT
DATED AS OF OCTOBER 1, 1996
BETWEEN THE EMPIRE BUILDER TAX FREE BOND FUND
AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
Portfolios: This Agreement shall apply to all Portfolios of the Trust, either
now or hereafter created (collectively, the "Portfolios"). As of
October 1, 1996, the Trust consists of a single Portfolio.
Fees: Pursuant to Article 4, in consideration of services rendered
and expenses assumed pursuant to this Agreement, the Trust will
pay the Administrator on the first business day of each month, or
at such time(s) as the Administrator shall request and the
parties hereto shall agree, a fee computed daily at the annual
rate of:
0.20% of the first $100 million of average net assets
and 0.14% of any excess over $100 million
The fee for the period from the day of the month this Agreement
is entered into until the end of that month shall be prorated
according to the proportion which such period bears to the full
monthly period. Upon any termination of this Agreement before the
end of any month, the fee for such part of a month shall be
prorated according to the proportion which such period bears to
the full monthly period and shall be payable upon the date of
termination of this Agreement.
For purposes of determining the fees payable to the
Administrator, the value of the net assets of a particular
Portfolio shall be computed in the manner described in the
Trust's Declaration of Trust or in the Prospectus or Statement of
Additional Information respecting that Portfolio as from time to
time is in effect for the computation of the value of such net
assets in connection with the determination of the liquidating
value of the shares of such Portfolio.
The parties hereby confirm that the fees payable hereunder shall
be applied to each Portfolio as a whole, and not to separate
classes of shares within the Portfolios.
Term: The initial term of this Agreement (the "Initial Term") shall be
for a period commencing on the date this Agreement is executed by
both parties and ending on the date that is one year after the
Conversion Date. This Agreement shall be renewed automatically
for successive periods of one year after the Initial Term, unless
written notice of nonrenewal is provided by either party not less
than 90 days prior to the end of the then-current term. In the
event of a material breach of this Agreement by
A-l
<PAGE>
either party, the non-breaching party shall notify the breaching
party in writing of such breach and upon receipt of such notice,
the breaching party shall have 45 days to remedy the breach. In
the event the breach is not remedied within such time period, the
nonbreaching party may immediately terminate this Agreement.
Notwithstanding the foregoing, after such termination for so long
as the Administrator, with the written consent of the Trust, in
fact continues to perform any one or more of the services
contemplated by this Agreement or any schedule or exhibit hereto,
the provisions of this Agreement, including without limitation
the provisions dealing with indemnification, shall continue in
full force and effect. Compensation due the Administrator and
unpaid by the Trust upon such termination shall be immediately
due and payable upon and notwithstanding such termination. The
Administrator shall be entitled to collect from the Trust, in
addition to the compensation described in this Schedule A, the
amount of all of the Administrator's reasonable cash
disbursements for services in connection with the Administrator's
activities in effecting such termination, including without
limitation, the delivery to the Trust and/or its designees of the
Trust's property, records, instruments and documents, or any
copies thereof. Subsequent to such termination, for a reasonable
fee, the Administrator will provide the Trust with reasonable
access to any Trust documents or records remaining in its
possession.
If, for any reason other than a breach of this Agreement, the
Administrator is replaced as administrator, or if a third party
is added to perform all or a part of the services provided by the
Administrator under this Agreement (excluding any
subadministrator appointed by the Administrator as provided in
Article 7 hereof), then the Trust shall make a one-time cash
payment, as liquidated damages, to the Administrator equal to the
balance due the Administrator for the remainder of the term of
this Agreement, assuming for purposes of calculation of the
payment that the asset level of the Trust on the date the
Administrator is replaced, or a third party is added, will remain
constant for the balance of the contract term.
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FUND ACCOUNTING AGREEMENT
AGREEMENT made this 1st day of October, 1996, between THE EMPIRE
BUILDER TAX FREE BOND FUND (the "Trust"), a Massachusetts business trust
having its principal place of business at 237 Park Avenue, New York, New York
10017, and BISYS FUND SERVICES, INC. ("Fund Accountant"), a corporation
organized under the laws of the State of Delaware and having its principal
place of business at 3435 Stelzer Road, Columbus, Ohio 43219.
WHEREAS, the Trust desires that Fund Accountant perform certain fund
accounting services for each investment portfolio of the Trust, all as now or
hereafter may be established from time to time (individually referred to
herein as the "Fund" and collectively as the "Funds"); and
WHEREAS, Fund Accountant is willing to perform such services on the terms
and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services as Fund Accountant; Conversion to Services.
The Trust hereby engages Fund Accountant to perform fund accounting
services as set forth in this Section 1 (collectively, the "Services"), and,
in connection therewith, the Trust agrees to convert to Fund Accountant's data
processing systems and software (the "BISYS System") as necessary in order to
receive the Services. The Trust shall cooperate with Fund Accountant to
provide Fund Accountant with all necessary information and assistance required
to successfully convert to the BISYS System. Fund Accountant shall provide the
Trust with a schedule relating to such conversion and the parties agree that the
conversion may progress in stages. The date upon which all Services shall have
been converted to the BISYS System shall be referred to herein as the
"Conversion Date." Fund Accountant hereby accepts such engagement and agrees
to perform the Services commencing, with respect to each individual Service,
on the date that the conversion of such Service to the BISYS System has been
completed. Fund Accountant shall determine in accordance with its normal
acceptance procedures when the applicable Service has been successfully
converted.
(a) Maintenance of Books and Records. Fund Accountant will keep
and maintain the following books and records of each Fund
pursuant to Rule 3la-1 under the Investment Company Act of
1940 (the "Rule"):
(i) Journals containing an itemized daily record in detail
of all purchases and sales of securities, all receipts
and disbursements of cash and all other debits and
credits, as required by subsection (b)(l) of the Rule;
<PAGE>
(ii) General and auxiliary ledgers reflecting all asset,
liability, reserve, capital, income and expense
accounts, including interest accrued and interest
received, as required by subsection (b)(2)(I) of the
Rule;
(iii) Separate ledger accounts required by subsection
(b)(2)(ii) and (iii) of the Rule; and
(iv) A monthly trial balance of all ledger accounts (except
shareholder accounts) as required by subsection
(b)(8) of the Rule.
(b) Performance of Daily Accounting Services. In addition to the
maintenance of the books and records specified above, Fund
Accountant shall perform the following accounting services
daily for each Fund:
(i) Calculate the net asset value per share utilizing
prices obtained from the sources described in
subsection l(b)(ii) below;
(ii) Obtain security prices from independent pricing
services, or if such quotes are unavailable, then
obtain such prices from each Fund's investment
adviser or its designee, as approved by the Trust's
Board of Trustees;
(iii) Verify and reconcile with the Fund's custodian all
daily trade activity;
(iv) Compute, as appropriate, each Fund's net income and
capital gains, dividend payables, dividend factors,
30-day yields, including tax equivalent yields, and
weighted average portfolio maturity;
(v) Review daily the net asset value calculation and
dividend factor (if any) for each Fund prior to
release to shareholders, check and confirm the net
asset values and dividend factors for reasonableness
and deviations, and distribute net asset values and
yields to NASDAQ;
(vi) Report to the Trust the daily market pricing of
securities in any money market Funds, with the
comparison to the amortized cost basis;
(vii) Determine unrealized appreciation and depreciation on
securities held in variable net asset value Funds;
(viii) Amortize premiums and accrete discounts on securities
purchased at a price other than face value, if
requested by the Trust;
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<PAGE>
(ix) Update fund accounting system to reflect rate changes,
as received from a Fund's investment adviser, on
variable interest rate instruments;
(x) Post Fund transactions to appropriate categories;
(xi) Accrue expenses of each Fund according to instructions
received from the Trust's Administrator;
(xii) Determine the outstanding receivables and payables for
all (1) security trades, (2) Fund share transactions
and (3) income and expense accounts;
(xiii) Provide accounting reports in connection with the
Trust's regular annual audit and other audits and
examinations by regulatory agencies; and
(xiv) Provide such periodic reports as the parties shall
agree upon, as set forth in a separate schedule.
(c) Special Reports and Services.
(i) Fund Accountant may provide additional special reports
upon the request of the Trust or a Fund's investment
adviser, which may result in an additional charge, the
amount of which shall be agreed upon between the
parties.
(ii) Fund Accountant may provide such other similar
services with respect to a Fund as may be reasonably
requested by the Trust, which may result in an
additional charge, the amount of which shall be agreed
upon between the parties.
(d) Additional Accounting Services. Fund Accountant shall also
perform the following additional accounting services for each
Fund:
(i) Provide monthly a download (and hard copy thereof) of
the financial statements described below, upon request
of the Trust. The download will include the following
items:
Statement of Assets and Liabilities,
Statement of Operations,
Statement of Changes in Net Assets, and
Condensed Financial Information;
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<PAGE>
(ii) Provide accounting information for the following:
(A) federal and state income tax returns and federal
excise tax returns;
(B) the Trust's semi-annual reports with the
Securities and Exchange Commission ("SEC") on
Form N-SAR;
(C) the Trust's annual, semi-annual and quarterly (if
any) shareholder reports;
(D) registration statements on Form N-1A and other
filings relating to the registration of Shares;
(E) the Administrator's monitoring of the Trust's
status as a regulated investment company under
Subchapter M of the Internal Revenue Code, as
amended;
(F) annual audit by the Trust's auditors; and
(G) examinations performed by the SEC.
2. Subcontracting.
Fund Accountant may, at its expense, subcontract with any entity or
person concerning the provision of the services contemplated hereunder;
provided, however, that Fund Accountant shall not be relieved of any of its
obligations under this Agreement by the appointment of such subcontractor and
provided further, that Fund Accountant shall be responsible, to the extent
provided in Section 6 hereof, for all acts of such subcontractor as if such
acts were its own.
3. Compensation.
The Trust shall pay Fund Accountant for the services to be provided by
Fund Accountant under this Agreement in accordance with, and in the manner set
forth in, Schedule A hereto, as such Schedule may be amended from time to time.
4. Reimbursement of Expenses.
In addition to paying Fund Accountant the fees described in Section 3
hereof, the Trust agrees to reimburse Fund Accountant for its out-of-pocket
expenses in providing services hereunder, including without limitation the
following:
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<PAGE>
(a) All freight and other delivery and bonding charges incurred
by Fund Accountant in delivering materials to and from the
Trust;
(b) All direct telephone, telephone transmission and telecopy or
other electronic transmission expenses incurred by Fund
Accountant in communication with the Trust, the Trust's
investment advisor or custodian, dealers or others as
required for Fund Accountant to perform the services to be
provided hereunder;
(c) The cost of obtaining security market quotes pursuant to
Section l(b)(ii) above;
(d) The cost of microfilm or microfiche of records or other
materials;
(e) Any expenses Fund Accountant shall incur at the written
direction of an officer of the Trust thereunto duly
authorized; and
(f) Any additional expenses reasonably incurred by Fund
Accountant in the performance of its duties and obligations
under this Agreement.
5. Effective Date.
This Agreement shall become effective with respect to a Fund as
of the date first written above.
6. Term.
The initial term of this Agreement (the "Initial Term") shall be
for a period commencing on the date this Agreement is executed by both parties
and ending on the date that is one year after the Conversion Date. This
Agreement shall be renewed automatically for successive one-year terms unless
written notice not to renew is given by the non-renewing party to the other
party at least 60 days prior to the expiration of the then-current term;
provided, however, that after such termination for so long as Fund Accountant,
with the written consent of the Trust, in fact continues to perform any one or
more of the services contemplated by this Agreement or any schedule or exhibit
hereto, the provisions of this Agreement, including without limitation the
provisions dealing with indemnification, shall continue in full force and
effect. Compensation due Fund Accountant and unpaid by the Trust upon such
termination shall be immediately due and payable upon and notwithstanding such
termination. Fund Accountant shall be entitled to collect from the Trust, in
addition to the compensation described under Section 3 hereof, the amount of
all of Fund Accountant's cash disbursements for services in connection with
Fund Accountant's activities in effecting such termination, including without
limitation, the delivery to the Trust and/or its designees of the Trust's
property, records, instruments and documents, or any copies thereof. Subsequent
to such termination, for a reasonable fee, Fund Accountant will provide the
Trust with reasonable access to any Trust documents or records remaining in its
possession.
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<PAGE>
In the event of a material breach of this Agreement by either
party, the non-breaching party shall notify the breaching party in writing of
such breach and, upon receipt of such notice, the breaching party shall have
45 days to remedy the breach. In the event the breach is not remedied within
such time period, the nonbreaching party may immediately terminate this
Agreement.
If, for any reason other than a breach of this Agreement, Fund
Accountant is replaced as Fund Accountant, or if a third party is added to
perform all or a part of the services provided by Fund Accountant under this
Agreement (excluding any sub-accountant appointed by Fund Accountant as
provided in Section 2 hereof), then the Trust shall make a one-time cash
payment, as liquidated damages, to Fund Accountant equal to the balance due
Fund Accountant for the remainder of the term of this Agreement, assuming for
purposes of calculation of the payment that the asset level of the Trust on the
date Fund Accountant is replaced, or a third party is added, will remain
constant for the balance of the contract term.
7. Standard of Care: Reliance on Records and Instructions:
Indemnification.
Fund Accountant shall use its best efforts to insure the accuracy
of all services performed under this Agreement, but shall not be liable to the
Trust for any action taken or omitted by Fund Accountant in the absence of bad
faith, willful misfeasance, negligence or reckless disregard by it of its
obligations and duties. A Fund agrees to indemnify and hold harmless Fund
Accountant, its employees, agents, directors, officers and nominees from and
against any and all claims, demands, actions and suits, whether groundless or
otherwise, and from and against any and all judgments, liabilities, losses,
damages, costs, charges, counsel fees and other expenses of every nature and
character arising out of or in any way relating to Fund Accountant's actions
taken or nonactions with respect to the performance of services under this
Agreement with respect to such Fund or based, if applicable, upon reasonable
reliance on information, records, instructions or requests with respect to such
Fund given or made to Fund Accountant by a duly authorized representative of
the Trust; provided that this indemnification shall not apply to actions or
omissions of Fund Accountant (including actions or omissions by its employees,
agents, directors, officers or nominees) in cases of its own bad faith, willful
misfeasance, negligence or reckless disregard by it of its obligations and
duties, and further provided that prior to confessing any claim against it
which may be the subject of this indemnification, Fund Accountant shall give
the Trust written notice of and reasonable opportunity to defend against said
claim in its own name or in the name of Fund Accountant.
8. Record Retention and Confidentiality.
Fund Accountant shall keep and maintain on behalf of the Trust all
books and records which the Trust and Fund Accountant is, or may be, required
to keep and maintain pursuant to any applicable statutes, rules and
regulations, including, without limitation Rules 31a-1 and 31a-2 under the
Investment Company Act of 1940, as amended (the "1940 Act"), relating to the
maintenance of books and records in connection with the services to be provided
hereunder. Fund Accountant further agrees that all such books and records shall
be the property of the Trust and to make such
6
<PAGE>
books and records available for inspection by the Trust or by the Securities
and Exchange Commission at reasonable times and otherwise to keep confidential
all books and records and other information relative to the Trust and its
shareholders; except when requested to divulge such information by
duly-constituted authorities or court process.
9. Uncontrollable Events.
Fund Accountant assumes no responsibility hereunder, and shall
not be liable, for any damage, loss of data, delay or any other loss whatsoever
caused by events beyond its reasonable control.
10. Reports.
Fund Accountant will furnish to the Trust and to its properly
authorized auditors, investment advisers, examiners, distributors, dealers,
underwriters, salesmen, insurance companies and others designated by the Trust
in writing, such reports and at such times as are prescribed pursuant to the
terms and the conditions of this Agreement to be provided or completed by Fund
Accountant, or as subsequently agreed upon by the parties pursuant to an
amendment hereto.
11. Rights of Ownership.
All computer programs and procedures developed to perform services
required to be provided by Fund Accountant under this Agreement are the
property of Fund Accountant. All records and other data except such computer
programs and procedures are the exclusive property of the Trust and all such
other records and data will be furnished to the Trust in appropriate form as
soon as practicable after termination of this Agreement for any reason.
12. Return of Records.
Fund Accountant may at its option at any time, and shall promptly
upon the Trust's demand, turn over to the Trust and cease to retain Fund
Accountant's files, records and documents created and maintained by Fund
Accountant pursuant to this Agreement which are no longer needed by Fund
Accountant in the performance of its services or for its legal protection. If
not so turned over to the Trust, such documents and records will be retained
by Fund Accountant for six years from the year of creation. At the end of such
six-year period, such records and documents will be turned over to the Trust
unless the Trust authorizes in writing the destruction of such records and
documents.
13. Representations of the Trust.
The Trust certifies to Fund Accountant that: (1) as of the close
of business on each Conversion Date, each Fund that is in existence as of the
Conversion Date has authorized unlimited shares, and (2) this Agreement has
been duly authorized by the Trust and, when executed and
7
<PAGE>
delivered by the Trust, will constitute a legal, valid and binding obligation
of the Trust, enforceable against the Trust in accordance with its terms,
subject to bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting the rights and remedies of creditors and secured
parties.
14. Representations of Fund Accountant.
Fund Accountant represents and warrants that: (1) the various
procedures and systems which Fund Accountant has implemented with regard to
safeguarding from loss or damage attributable to fire, theft, or any other
cause the records, and other data of the Trust and Fund Accountant's records,
data, equipment, facilities and other property used in the performance of its
obligations hereunder are adequate and that it will make such changes therein
from time to time as are required for the secure performance of its obligations
hereunder, and (2) this Agreement has been duly authorized by Fund Accountant
and, when executed and delivered by Fund Accountant, will constitute a legal,
valid and binding obligation of Fund Accountant, enforceable against Fund
Accountant in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting the
rights and remedies of creditors and secured parties.
15. Insurance.
Fund Accountant shall notify the Trust should any of its insurance
coverage be canceled or reduced. Such notification shall include the date of
change and the reasons therefor. Fund Accountant shall notify the Trust of any
material claims against it with respect to services performed under this
Agreement, whether or not they may be covered by insurance, and shall notify
the Trust from time to time as may be appropriate of the total outstanding
claims made by Fund Accountant under its insurance coverage.
16. Information to be Furnished by the Trust and Funds.
The Trust has furnished to Fund Accountant the following:
(a) Copies of the Declaration of Trust of the Trust and of any
amendments thereto, certified by the proper official of the
state in which such document has been filed.
(b) Copies of the following documents:
(i) The Trust's Bylaws and any amendments thereto; and
(ii) Certified copies of resolutions of the Board of
Trustees covering the approval of the ??????????
authorization of a specified officer of the
8
<PAGE>
Trust to execute and deliver this Agreement and
authorization for specified officers of the Trust to
instruct Fund Accountant thereunder.
(c) A list of all the officers of the Trust, together with
specimen signatures of those officers who are authorized to
instruct Fund Accountant in all matters.
(d) Two copies of the Prospectuses and Statements of Additional
Information for each Fund.
17. Information Furnished by Fund Accountant.
(a) Fund Accountant has furnished to the Trust the following:
(i) Fund Accountant's Articles of Incorporation; and
(ii) Fund Accountant's Bylaws and any amendments thereto.
(b) Fund Accountant shall, upon request, furnish certified copies
of corporate actions covering the following matters:
(i) Approval of this Agreement, and authorization of a
specified officer of Fund Accountant to execute and
deliver this Agreement; and
(ii) Authorization of Fund Accountant to act as fund
accountant for the Trust and to provide accounting
services for the Trust.
18. Amendments to Documents.
The Trust shall furnish Fund Accountant written copies of any
amendments to, or changes in, any of the items referred to in Section 16
hereof forthwith upon such amendments or changes becoming effective. In
addition, the Trust agrees that no amendments will be made to the Prospectuses
or Statements of Additional Information of the Trust which might have the
effect of changing the procedures employed by Fund Accountant in providing the
services agreed to hereunder or which amendment might affect the duties of Fund
Accountant hereunder unless the Trust first obtains Fund Accountant's approval
of such amendments or changes.
19. Compliance with Law.
Except for the obligations of Fund Accountant set forth in
Section 8 hereof, the Trust assumes full responsibility for the preparation,
contents and distribution of each prospectus of the Trust as to compliance
with all applicable requirements of the Securities Act of 1933, as amended
(the "Securities Act"), the 1940 Act and any other laws, rules and regulations
of governmental authorities having jurisdiction. Fund Accountant shall have no
obligation to take cognizance of any
9
<PAGE>
laws relating to the sale of the Trust's Shares. The Trust represents and
warrants that no Shares of the Trust will be offered to the public until the
Trust's registration statement under the Securities Act and the 1940 Act has
been declared or becomes effective.
20. Notices.
Any notice provided hereunder shall be sufficiently given when
sent by registered or certified mail to the party required to be served with
such notice, at the following address: 3435 Stelzer Road, Columbus, Ohio 43219,
or at such other address as such party may from time to time specify in
writing to the other party pursuant to this Section.
21. Headings.
Paragraph headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
22. Assignment.
This Agreement and the rights and duties hereunder shall not be
assignable with respect to a Fund by either of the parties hereto except by the
specific written consent of the other party. This Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their
respective successors and permitted assigns.
23. Governing Law and Matters Relating to the Trust as a
Massachusetts Business Trust.
This Agreement shall be governed by and provisions shall be
construed in accordance with the laws of the State of Ohio. It is expressly
agreed that the obligations of the Trust hereunder shall not be binding upon
any of the Trustees, shareholders, nominees, officers, agents or employees of
the Trust personally, but shall bind only the trust property of the Trust. The
execution and delivery of this Agreement have been authorized by the Trustees,
and this Agreement has been signed and delivered by an authorized officer of the
Trust, acting as such, and neither such authorization by the Trustees nor such
execution delivery by such officer shall be deemed to have been made by any of
them individually or to impose any liability on any of them personally, but
shall bind only the trust property of the Trust as provided in the Trust's
Agreement and Declaration of Trust.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
THE EMPIRE BUILDER TAX FREE
BOND FUND
By:___________________________________
Attest:_______________________________
BISYS FUND SERVICES, INC.
By:___________________________________
President
Attest:_______________________________
Assistant Secretary
11
<PAGE>
Dated: October 1, 1996
SCHEDULE A
TO THE FUND ACCOUNTING AGREEMENT
BETWEEN
THE EMPIRE BUILDER TAX FREE BOND FUND
AND
BISYS FUND SERVICES, INC.
FEES
Fund Accountant shall be entitled to receive a fee from each Fund in
accordance with the following schedule:
$2,500
Multiple Classes of Shares:
THE EMPIRE BUILDER TAX FREE BISYS FUND SERVICES, INC.
BOND FUND
By:_____________________________ By:____________________________
President
A-l
<PAGE>
TRANSFER AGENCY AGREEMENT
AGREEMENT made this 1st day of October, 1996, between THE EMPIRE BUILDER
TAX FREE BOND FUND (the "Trust"), a Massachusetts business trust having its
principal place of business at 237 Park Avenue, New York, New York 10017, and
BISYS FUND SERVICES, INC. ("BISYS"), a Delaware corporation having its
principal place of business at 3435 Stelzer Road, Columbus, Ohio 43219.
WHEREAS, the Trust desires that BISYS perform certain services for each
series of the Trust (individually referred to herein as a "Fund" and
collectively as the "Funds"); and
WHEREAS, BISYS is willing to perform such services on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Retention of BISYS: Conversion to the Services.
The Trust hereby engages BISYS to act as the transfer agent for the
Funds to perform (i) the transfer agent services set forth in Schedule A
hereto (the "Initial Services"), (ii) such special services (the "Special
Services") incidental to the performance of such services as may be agreed to
by the parties from time to time (for such fees as the parties may agree as
aforesaid) and (iii) such additional services (collectively with the Initial
Services and the Special Services, the "Services"), as may be agreed to by the
parties from time to time and set forth in an amendment to said Schedule A
(for such fees as the parties may agree as aforesaid), and, in connection
therewith, the Trust agrees to convert to BISYS' data processing systems and
software (the "BISYS System") as necessary in order to receive the Services.
The Trust shall cooperate with BISYS to provide BISYS with all necessary
information and assistance required to successfully convert to the BISYS
System. BISYS shall provide the Trust with a schedule relating to such
conversion and the parties agree that the conversion may progress in stages.
The date upon which all Initial Services shall have been converted to the
BISYS System shall be referred to herein as the "Conversion Date." BISYS
hereby accepts such engagement and agrees to perform the Services commencing,
with respect to each individual Service, on the date that the conversion of
such Service to the BISYS System has been completed. BISYS shall determine in
accordance with its normal acceptance procedures when the applicable Service
has been successfully converted.
BISYS may, in its discretion, appoint in writing other parties
qualified to perform transfer agency services reasonably acceptable to the
Trust (individually, a "Sub-transfer Agent") to carry out some or all of its
responsibilities under this Agreement with respect to a Fund; provided,
however, that the Sub-transfer Agent shall be the agent of BISYS and not the
agent of the Trust or such Fund, and that BISYS shall be fully responsible for
the acts of such Sub-transfer Agent and
<PAGE>
shall not be relieved of any of its responsibilities hereunder by the
appointment of such Sub-transfer Agent.
2. Fees
The Trust shall pay BISYS for the services to be provided by BISYS under
this Agreement in accordance with, and in the manner set forth in, Schedule B
hereto. Fees for any additional services to be provided by BISYS pursuant to an
amendment to Schedule A hereto shall be subject to mutual agreement at the time
such amendment to Schedule A is proposed.
3. Reimbursement of Expenses.
In addition to paying BISYS the fees described in Section 2 hereof, the
Trust agrees to reimburse BISYS for BISYS' out-of-pocket expenses in providing
services hereunder, including without limitation, the following:
(a) All freight and other delivery and bonding charges incurred by
BISYS in delivering materials to and from the Trust and in delivering all
materials to shareholders;
(b) All direct telephone, telephone transmission and telecopy or
other electronic transmission expenses incurred by BISYS in communication with
the Trust, the Trust's investment adviser or custodian, dealers, shareholders
or others as required for BISYS to perform the services to be provided
hereunder;
(c) Costs of postage, couriers, stock computer paper, statements,
labels, envelopes, checks, reports, letters, tax forms, proxies, notices or
other form of printed material which shall be required by BISYS for the
performance of the services to be provided hereunder;
(d) The cost of microfilm or microfiche of records or other
materials; and
(e) Any expenses BISYS shall incur at the written direction of an
officer of the Trust thereunto duly authorized.
4. Effective Date.
This Agreement shall become effective as of the date first written
above (the "Effective Date").
2
<PAGE>
5. Term.
The initial term of this Agreement (the "Initial Term") shall be for a
period commencing on the date this Agreement is executed by both parties and
ending on the date that is one year after the Conversion Date. Thereafter, it
shall be renewed automatically for successive one-year terms unless written
notice not to renew is given by the non-renewing party to the other party at
least 60 days prior to the expiration of the then-current term; provided,
however, that after such termination, for so long as BISYS, with the written
consent of the Trust, in fact continues to perform any one or more of the
services contemplated by this Agreement or any Schedule or exhibit hereto, the
provisions of this Agreement including without limitation the provisions
dealing with indemnification, shall continue in full force and effect. Fees and
out-of-pocket expenses incurred by BISYS but unpaid by the Trust upon such
termination shall be immediately due and payable upon and notwithstanding such
termination. BISYS shall be entitled to collect from the Trust, in addition to
the fees and disbursements provided by Sections 2 and 3 hereof, the amount of
all of BISYS' reasonable cash disbursements and a reasonable fee (which fee
shall not be less than one hundred and two percent (102%) of the sum of the
actual costs, not including such cash disbursements, incurred by BISYS in
performing such service) for services in connection with BISYS' activities in
effecting such termination, including without limitation, the delivery to the
Trust and/or its distributor or investment adviser and/or other parties, of the
Trust's property, records, instruments and documents, or any copies thereof. To
the extent that BISYS may retain in its possession copies of any Trust
documents or records subsequent to such termination which copies had not been
requested by or on behalf of the Trust in connection with the termination
process described above, BISYS, for a reasonable fee, will provide the Trust
with reasonable access to such copies.
In the event of a material breach of this Agreement by either party,
the non-breaching party shall notify the breaching party in writing of such
breach and, upon receipt of such notice, the breaching party shall have 45
days to remedy the breach. In the event the breach is not remedied within such
time period, the non-breaching party may immediately terminate this Agreement.
If, for any reason other than a breach of this Agreement, BISYS is
replaced as transfer agent, or if a third party is added to perform all or a
part of the services provided by BISYS under this Agreement (excluding any sub-
transfer agent appointed by BISYS as provided in Section 1 hereof), then the
Trust shall make a one-time cash payment, as liquidated damages to, BISYS equal
to the balance due BISYS for the remainder of the term of this Agreement,
assuming for purposes of calculation of the payment that the asset level of the
Trust on the date BISYS is replaced, or a third party is added, will remain
constant for the balance of the contract term.
6. Uncontrollable Events.
BISYS assumes no responsibility hereunder, and shall not be liable for
any damage, loss of data, delay or any other loss whatsoever caused by events
beyond its reasonable control.
3
<PAGE>
7. Legal Advice.
BISYS shall notify the Trust at any time BISYS believes that it is in
need of the advice of counsel (other than counsel in the regular employ of
BISYS or any affiliated companies) with regard to BISYS' responsibilities and
duties pursuant to this Agreement; and after so notifying the Trust, BISYS, at
its discretion, shall be entitled to seek, receive and act upon advice of
legal counsel of its choosing, such advice to be at the expense of the Trust
or Funds unless relating to a matter involving BISYS' willful misfeasance, bad
faith, gross negligence or reckless disregard with respect to BISYS'
responsibilities and duties hereunder and BISYS shall in no event be liable to
the Trust or any Fund or any shareholder or beneficial owner of the Trust for
any action reasonably taken pursuant to such advice.
8. Instructions.
Whenever BISYS is requested or authorized to take action hereunder
pursuant to instructions from a shareholder, or a properly authorized agent of
a shareholder ("shareholder's agent"), concerning an account in a Fund, BISYS
shall be entitled to rely upon any certificate, letter or other instrument or
communication, believed by BISYS to be genuine and to have been properly made,
signed or authorized by an officer or other authorized agent of the Trust or by
the shareholder or shareholder's agent, as the case may be, and shall be
entitled to receive as conclusive proof of any fact or matter required to be
ascertained by it hereunder a certificate signed by an officer of the Trust or
any other person authorized by the Trust's Board of Trustees or by the
shareholder or shareholder's agent, as the case may be.
As to the services to be provided hereunder, BISYS may rely
conclusively upon the terms of the Prospectuses and Statement of Additional
Information of the Trust relating to the Funds to the extent that such
services are described therein unless BISYS receives written instructions to
the contrary in a timely manner from the Trust.
9. Standard of Care; Reliance on Records and Instructions;
Indemnification.
BISYS shall use its best efforts to ensure the accuracy of all services
performed under this Agreement, but shall not be liable to the Trust for any
action taken or omitted by BISYS in the absence of bad faith, willful
misfeasance, negligence or reckless disregard by it of its obligations and
duties. The Trust agrees to indemnify and hold harmless BISYS, its employees,
agents, directors, officers and nominees from and against any and all claims,
demands, actions and suits, whether groundless or otherwise, and from and
against any and all judgments, liabilities, losses, damages, costs, charges,
reasonable counsel fees and other expenses of every nature and character
arising out of or in any way relating to BISYS' actions taken or nonactions
with respect to the performance of services under this Agreement or based, if
applicable, upon reasonable reliance on information, records, instructions or
requests given or made to BISYS by the Trust, the investment adviser and on
any records provided by any fund accountant or custodian thereof; provided
that this indemnification shall not apply to actions or omissions of BISYS
(including actions or omissions
4
<PAGE>
by its employees, agents, directors, officers or nominees) in cases of its own
bad faith, willful misfeasance, negligence or reckless disregard by it of its
obligations and duties; and further provided that prior to confessing any claim
against it which may be the subject of this indemnification, BISYS shall give
the Trust written notice of and reasonable opportunity to defend against said
claim in its own name or in the name of BISYS.
10. Record Retention and Confidentiality.
BISYS shall keep and maintain on behalf of the Trust all books and
records which the Trust or BISYS is, or may be, required to keep and maintain
pursuant to any applicable statutes, rules and regulations, including without
limitation Rules 31a-l and 31a-2 under the Investment Company Act of 1940, as
amended (the "1940 Act"), relating to the maintenance of books and records in
connection with the services to be provided hereunder. BISYS further agrees
that all such books and records shall be the property of the Trust and to make
such books and records available for inspection by the Trust or by the
Securities and Exchange Commission (the "Commission") at reasonable times and
otherwise to keep confidential all books and records and other information
relative to the Trust and its shareholders, except when requested to divulge
such information by duly-constituted authorities or court process, or
requested by a shareholder or shareholder's agent with respect to information
concerning an account as to which such shareholder has either a legal or
beneficial interest or when requested by the Trust, the shareholder, or
shareholder's agent, or the dealer of record as to such account.
11. Reports.
BISYS will furnish to the Trust and to its properly-authorized
auditors, investment advisers, examiners, distributors, dealers, underwriters,
salesmen, insurance companies and others designated by the Trust in writing,
such reports at such times as are prescribed in Schedule C attached hereto, or
as subsequently agreed upon by the parties pursuant to an amendment to
Schedule C. The Trust agrees to examine each such report or copy promptly and
will report or cause to be reported any errors or discrepancies therein.
12. Rights of Ownership.
All computer programs and procedures developed to perform services
required to be provided by BISYS under this Agreement are the property of
BISYS. All records and other data except such computer programs and procedures
are the exclusive property of the Trust and all such other records and data
will be furnished to the Trust in appropriate form as soon as practicable
after termination of this Agreement for any reason.
13. Return of Records.
BISYS may at its option at any time, and shall promptly upon the
Trust's demand, turn over to the Trust and cease to retain BISYS' files,
records and documents created and maintained
5
<PAGE>
by BISYS pursuant to this Agreement which are no longer needed by BISYS in the
performance of its services or for its legal protection. If not so turned over
to the Trust, such documents and records will be retained by BISYS for six
years from the year of creation. At the end of such six-year period, such
records and documents will be turned over to the Trust unless the Trust
authorizes in writing the destruction of such records and documents.
14. Bank Accounts.
The Trust and the Funds shall establish and maintain such bank accounts
with such bank or banks as are selected by the Trust, as are necessary in order
that BISYS may perform the services required to be performed hereunder. To the
extent that the performance of such services shall require BISYS directly to
disburse amounts for payment of dividends, redemption proceeds or other
purposes, the Trust and Funds shall provide such bank or banks with all
instructions and authorizations necessary for BISYS to effect such
disbursements.
15. Representations of the Trust.
The Trust certifies to BISYS that: (a) as of the close of business on
the Effective Date, each Fund which is in existence as of the Effective Date
has authorized unlimited shares, and (b) by virtue of its Declaration of
Trust, shares of each Fund which are redeemed by the Trust may be sold by the
Trust from its treasury, and (c) this Agreement has been duly authorized by
the Trust and, when executed and delivered by the Trust, will constitute a
legal, valid and binding obligation of the Trust, enforceable against the
Trust in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting the
rights and remedies of creditors and secured parties.
16. Representations of BISYS.
BISYS represents and warrants that: (a) BISYS has been in, and shall
continue to be in, substantial compliance with all provisions of law, including
Section 17A(c) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), required in connection with the performance of its duties
under this Agreement; and (b) the various procedures and systems which BISYS
has implemented with regard to safekeeping from loss or damage attributable to
fire, theft or any other cause of the blank checks, records, and other data of
the Trust and BISYS' records, data, equipment, facilities and other property
used in the performance of its obligations hereunder are adequate and that it
will make such changes therein from time to time as are required for the
secure performance of its obligations hereunder.
17. Insurance.
BISYS shall notify the Trust should its insurance coverage with respect
to professional liability or errors and omissions coverage be canceled or
reduced. Such notification shall include the date of change and the reasons
therefor. BISYS shall notify the Trust of any material claims
6
<PAGE>
against it with respect to services performed under this Agreement, whether or
not they may be covered by insurance, and shall notify the Trust from time to
time as may be appropriate of the total outstanding claims made by BISYS under
its insurance coverage.
18. Information to be Furnished by the Trust and Funds.
The Trust has furnished to BISYS the following:
(a) Copies of the Declaration of Trust of the Trust and of any
amendments thereto, certified by the proper official of the state in which such
Declaration has been filed.
(b) Copies of the following documents:
1. The Trust's By-Laws and any amendments thereto.
2. Certified copies of resolutions of the Board of Trustees
covering the following matters:
A. Approval of this Agreement and authorization of
a specified officer of the Trust to execute and
deliver this Agreement and authorization for
specified officers of the Trust to instruct
BISYS hereunder; and
B. Authorization of BISYS to act as Transfer Agent
for the Trust on behalf of the Funds.
(c) A list of all officers of the Trust, together with specimen
signatures of those officers, who are authorized to instruct
BISYS in all matters.
(d) Two copies of the following (if such documents are employed by
the Trust):
1. Prospectuses and Statement of Additional Information;
2. Distribution Agreement; and
3. All other forms commonly used by the Trust or its
Distributor with regard to their relationships and
transactions with shareholders of the Funds.
(e) A certificate as to shares of beneficial interest of the Trust
authorized, issued, and outstanding as of the Effective Date of BISYS'
appointment as Transfer Agent (or as of the date on which BISYS' services are
commenced, whichever is the later date) and as to receipt of full consideration
by the Trust for all shares outstanding, such statement to be certified by the
Treasurer of the Trust.
7
<PAGE>
19. Information Furnished by BISYS.
BISYS has furnished to the Trust the following:
(a) BISYS' Articles of Incorporation.
(b) BISYS' By-Laws and any amendments thereto.
(c) Certified copies of actions of BISYS covering the following
matters:
1. Approval of this Agreement, and authorization of a
specified officer of BISYS to execute and deliver this
Agreement;
2. Authorization of BISYS to act as Transfer Agent for the
Trust.
(d) A copy of the most recent independent accountants' report
relating to internal accounting control systems as filed with the Commission
pursuant to Rule 17Ad-13 under the Exchange Act.
20. Amendments to Documents.
The Trust shall furnish BISYS written copies of any amendments to, or
changes in, any of the items referred to in Section 18 hereof forthwith upon
such amendments or changes becoming effective. In addition, the Trust agrees
that no amendments will be made to the Prospectuses or Statement of Additional
Information of the Trust which might have the effect of changing the procedures
employed by BISYS in providing the services agreed to hereunder or which
amendment might affect the duties of BISYS hereunder unless the Trust first
obtains BISYS' approval of such amendments or changes.
21. Reliance on Amendments.
BISYS may rely on any amendments to or changes in any of the documents
and other items to be provided by the Trust pursuant to Sections 18 and 20 of
this Agreement and the Trust hereby indemnifies and holds harmless BISYS from
and against any and all claims, demands, actions, suits, judgments,
liabilities, losses, damages, costs, charges, counsel fees and other expenses
of every nature and character which may result from actions or omissions on
the part of BISYS in reasonable reliance upon such amendments and/or changes.
Although BISYS is authorized to rely on the above-mentioned amendments to and
changes in the documents and other items to be provided pursuant to Sections
18 and 20 hereof, BISYS shall be under no duty to comply with or take any
action as a result of any of such amendments or changes unless the Trust first
obtains BISYS' written consent to and approval of such amendments or changes.
8
<PAGE>
22. Compliance with Law.
Except for the obligations of BISYS set forth in Section 10 hereof, the
Trust assumes full responsibility for the preparation, contents, and
distribution of each prospectus of the Trust as to compliance with all
applicable requirements of the Securities Act of 1933, as amended (the "1933
Act"), the 1940 Act, and any other laws, rules and regulations of governmental
authorities having jurisdiction. BISYS shall have no obligation to take
cognizance of any laws relating to the sale of the Trust's shares. The Trust
represents and warrants that no shares of the Trust will be offered to the
public until the Trust's registration statement under the 1933 Act and the
1940 Act has been declared or becomes effective.
23. Notices.
Any notice provided hereunder shall be sufficiently given when sent by
registered or certified mail to the party required to be served with such
notice at the following address: if to the Trust, to it at _______________; if
to BISYS, to it at 3435 Stelzer Road, Columbus, Ohio 43219, or at such other
address as such party may from time to time specify in writing to the other
party pursuant to this Section.
24. Headings.
Paragraph headings in this Agreement are included for convenience only
and are not to be used to construe or interpret this Agreement.
25. Assignment.
This Agreement and the rights and duties hereunder shall not be
assignable by either of the parties hereto except by the specific written
consent of the other party. This Section 25 shall not limit or in any way
affect BISYS' right to appoint a Sub-transfer Agent pursuant to Section 1
hereof. This Agreement shall be binding upon, and shall inure to the benefit
of, the parties hereto and their respective successors and permitted assigns.
26. Governing Law and Matters Relating to the Trust as a Massachusetts
Business Trust.
This Agreement shall be governed by and provisions shall be construed
in accordance with the laws of the State of Ohio. It is expressly agreed that
the obligations of the Trust hereunder shall not be binding upon any of the
Trustees, shareholders, nominees, officers, agents or employees of the Trust
personally, but shall bind only the trust property of the Trust. The execution
and delivery of this Agreement have been authorized by the Trustees, and this
Agreement has been signed and delivered by an authorized officer of the Trust,
acting as such, and neither such authorization by the Trustees nor such
execution and delivery by such officer shall be deemed to have been made by
any of them individually or to impose any liability on any of them personally,
9
<PAGE>
but shall bind only the trust property of the Trust as provided in the Trust's
Agreement and Declaration of Trust.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
THE EMPIRE BUILDER
TAX FREE BOND FUND
By: /s/ illegible
Attest: /s/ illegible
BISYS FUND SERVICES, INC.
By: /s/ illegible President
Attest: /s/ Rober L. Luck Assistant Secretary
10
<PAGE>
Dated: October 1, 1996
SCHEDULE A
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE EMPIRE BUILDER TAX FREE BOND FUND
AND
BISYS FUND SERVICES, INC.
TRANSFER AGENCY SERVICES
1. Shareholder Transactions
a. Process shareholder purchase and redemption orders.
b. Set up account information, including address, dividend option,
taxpayer identification numbers and wire instructions.
c. Issue confirmations in compliance with Rule 10b-10 under the
Securities Exchange Act of 1934, as amended.
d. Issue periodic statements for shareholders.
e. Process transfers and exchanges.
f. Process dividend payments, including the purchase of new
shares, through dividend reimbursement.
2. Shareholder Information Services
a. Provide toll-free lines for direct shareholder use and customer
liaison staff with on-line inquiry capacity.
b. Make information available to appropriate shareholder servicing
personnel and other remote access units regarding trade date,
share price, current holdings, yields, and dividend
information.
c. Produce detailed history of transactions through duplicate or
special order statements upon request.
A-1
<PAGE>
d. Provide mailing labels for distribution of financial reports,
prospectuses, proxy statements or marketing material to current
shareholders.
3. Compliance Reporting
a. Provide reports to the Securities and Exchange Commission, the
National Association of Securities Dealers and the States in
which the Fund is registered.
b. Prepare and distribute appropriate Internal Revenue Service
forms for corresponding Fund and shareholder income and capital
gains.
c. Issue tax withholding reports to the Internal Revenue Service.
4. Dealer/Load Processing (if applicable)
a. Provide reports for tracking rights of accumulation and
purchases made under a Letter of Intent.
b. Account for separation of shareholder investments from
transaction sale charges for purchase of Fund shares.
c. Calculate fees due under 12b-1 plans for distribution and
marketing expenses.
d. Track sales and commission statistics by dealer and provide for
payment of commissions on direct shareholder purchases in a
load Fund.
5. Shareholder Account Maintenance
a. Maintain all shareholder records for each account in the
Trust.
b. Issue customer statements on scheduled cycle, providing
duplicate second and third party copies if required.
c. Record shareholder account information changes.
d. Maintain account documentation files for each shareholder.
A-2
<PAGE>
SCHEDULE B
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE EMPIRE BUILDER TAX FREE BOND FUND
AND
BISYS FUND SERVICES, INC.
TRANSFER AGENT FEES
Annual Per Fund Fee: $8.00 plus reimbursement
of out-of-pocket expenses
Annual Per Account Fee:
Daily/Monthly Dividend $
Annual Dividend $
Closed Accounts $
Additional Services:
Additional services such as IRA processing, development of interface
capabilities, servicing of 403(b) and 408(c) accounts and management of cash
sweeps between DDAs and mutual fund accounts are subject to additional fees
which will be quoted upon request. Programming costs or database management
fees for special reports or specialized processing will be quoted upon request.
Multiple Classes of Shares:
Classes of shares which have different net asset values or pay
different daily dividends will be treated as separate classes, and the fee
schedule above, including the appropriate minimums, will be charged for each
separate class.
Out-of-pocket Expenses:
BISYS shall be entitled to be reimbursed for all reasonable
out-of-pocket expenses including, but not limited to, the expenses set forth
in Section 3 of the Transfer Agency Agreement to which this Schedule B is
attached.
B-1
<PAGE>
SCHEDULE C
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE EMPIRE BUILDER TAX FREE BOND FUND
AND
BISYS FUND SERVICES, INC.
REPORTS
1. Daily Shareholder Activity Journal
2. Daily Fund Activity Summary Report
a. Beginning Balance
b. Dealer Transactions
c. Shareholder Transactions
d. Reinvested Dividends
e. Exchanges
f. Adjustments
g. Ending Balance
3. Daily Wire and Check Registers
4. Monthly Dealer Processing Reports
5. Monthly Dividend Reports
6. Sales Data Reports for Blue Sky Registration
7. Annual report by independent public accountants concerning BISYS'
shareholder system and internal accounting control systems to be filed
with the Securities and Exchange Commission pursuant to Rule 17Ad-13
of the Securities Exchange Act of 1934, as amended.
C-1
<PAGE>
[letterhead of Coopers & Lybrand]
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in this Post-Effective Amendment
No. 16 to the Registration Statement of The Empire Builder Tax Free Bond Fund on
Form N-1A (File No. 811-2907), of our report dated April 17, 1997 on our audit
of the financial statements and financial highlights of The Empire Builder Tax
Free Bond Fund.
We also consent to the references to our Firm under the caption "Financial
Highlights" in the Prospectus and the captions "Independent Accountants" and
"Financial Statements" in the Statement of Additional Information which is part
of this Registration Statement.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
New York, New York
June 27, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> EMPIRE BUILDER TAX FREE BOND FUND BUILDER CLASS
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 110061
<INVESTMENTS-AT-VALUE> 114522
<RECEIVABLES> 1436
<ASSETS-OTHER> 6296
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 122254
<PAYABLE-FOR-SECURITIES> 3441
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 324
<TOTAL-LIABILITIES> 3765
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 114041
<SHARES-COMMON-STOCK> 3335
<SHARES-COMMON-PRIOR> 6563
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (12)
<ACCUM-APPREC-OR-DEPREC> 4460
<NET-ASSETS> 118489
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6869
<OTHER-INCOME> 0
<EXPENSES-NET> 1162
<NET-INVESTMENT-INCOME> 5707
<REALIZED-GAINS-CURRENT> (12)
<APPREC-INCREASE-CURRENT> (657)
<NET-CHANGE-FROM-OPS> 5038
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3318
<DISTRIBUTIONS-OF-GAINS> 535
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4061
<NUMBER-OF-SHARES-REDEEMED> 4269
<SHARES-REINVESTED> 328
<NET-CHANGE-IN-ASSETS> 629
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 840
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 458
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1214
<AVERAGE-NET-ASSETS> 117975
<PER-SHARE-NAV-BEGIN> 17.96
<PER-SHARE-NII> .84
<PER-SHARE-GAIN-APPREC> (.10)
<PER-SHARE-DIVIDEND> .84
<PER-SHARE-DISTRIBUTIONS> .13
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.73
<EXPENSE-RATIO> 1.07
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> EMPIRE BUILDER TAX FREE BOND PREMIER CLASS
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 110061
<INVESTMENTS-AT-VALUE> 114522
<RECEIVABLES> 1436
<ASSETS-OTHER> 6296
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 122254
<PAYABLE-FOR-SECURITIES> 3441
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 324
<TOTAL-LIABILITIES> 3765
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 114041
<SHARES-COMMON-STOCK> 3348
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (12)
<ACCUM-APPREC-OR-DEPREC> 4460
<NET-ASSETS> 118489
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6869
<OTHER-INCOME> 0
<EXPENSES-NET> 1162
<NET-INVESTMENT-INCOME> 5707
<REALIZED-GAINS-CURRENT> (12)
<APPREC-INCREASE-CURRENT> (657)
<NET-CHANGE-FROM-OPS> 5038
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2388
<DISTRIBUTIONS-OF-GAINS> 305
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4061
<NUMBER-OF-SHARES-REDEEMED> 4269
<SHARES-REINVESTED> 328
<NET-CHANGE-IN-ASSETS> 629
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 840
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 458
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1214
<AVERAGE-NET-ASSETS> 117975
<PER-SHARE-NAV-BEGIN> 17.57
<PER-SHARE-NII> .75
<PER-SHARE-GAIN-APPREC> .29
<PER-SHARE-DIVIDEND> .75
<PER-SHARE-DISTRIBUTIONS> .13
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.73
<EXPENSE-RATIO> .97
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
POWER OF ATTORNEY
We, the undersigned Trustees and/or officers of The Empire Builder Tax
Free Bond Fund (the "Fund"), an open-ended, non-diversified, management
investment company, organized as a Massachusetts business trust, do hereby
constitute and appoint Ellen Stoutamire, Esq., Frank M. Deutchki and John M.
Loder, Esq. and each of them individually, our true and lawful attorneys and
agents to take any and all action and execute any and all instruments which said
attorneys and agents may deem necessary or advisable to enable the Fund to
comply with:
(i) The Securities Act of 1933, as amended, and any rules,
regulations, orders or other requirements of the Securities and Exchange
Commission thereunder, in connection with the registration under such Securities
Act of 1933, as amended, of shares of beneficial interest of the Fund to be
offered by the Fund;
(ii) the Investment Company Act of 1940, as amended, and any
rules, regulations, orders or other requirements of the Securities and Exchange
Commission thereunder, in connection with the registration of the Fund under the
Investment Company Act of 1940, as amended; and
(iii) state securities and tax laws and any rules, regulations, orders
or other requirements of state securities and tax commissions, in connection
with the registration under state securities laws of the Fund and with the
registration under state securities laws of shares of beneficial interest of the
Fund to be offered by Fund;
including specifically but without limitation of the foregoing, power
and authority to sign the name of the Fund in its behalf and to affix its seal,
and to sign the name of such Trustee or officer in his or her behalf as such
Trustee or officer to any amendment or supplement (including post-effective
amendments) to the registration statement or statements, and to execute any
instruments or documents filed or to be filed as a part of or in connection with
compliance with state securities or tax laws; and the undersigned hereby
ratifies and confirms all that said attorneys and agents shall do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned place their hands as of the 16th
day of June, 1997.
/s/ Seth M. Glickenhaus
- - -----------------------------
Seth M. Glickenhaus
Trustee, Chairman of the Board and
President of the Fund
/s/ Edward Falkenberg
- - -----------------------------
Edward Falkenberg
Trustee
/s/ Edward A. Kuczmarski
- - -----------------------------
Edward A. Kuczmarski
Trustee
/s/ Elizabeth B. Newell
- - -----------------------------
Elizabeth B. Newell
Trustee
/s/ John P. Steines
- - -----------------------------
John P. Steines
Trustee
/s/ Michael Sakala
- - -----------------------------
Michael Sakala
Treasurer
