<PAGE> 1
April 16, 1998
Dear Shareholder,
Thank you for choosing the Empire Builder as one of your investment vehicles.
The Empire Builder is one of New York's oldest tax free bond funds. We are proud
to provide you with triple tax-free income (if you live in New York City) or
double tax-free income for residents outside of the city.
The Builder Class and the Premier Class are the two options that make up the
Empire Builder Tax Free Bond Fund, a true no-load fund. When you purchase shares
in either series, there is no up-front charge, no back-end fee and no deferred
sales charges. All of your money goes to work right away. The no-load feature
makes the Builder and Premier series attractive for reinvestment and for adding
additional monies.
You can enroll in our automatic investment plan, investing each month directly
from your checking account without a sales charge. It's a convenient and
disciplined approach to investing. Minimums and restrictions do apply, so please
consult the prospectus for details, or call the Customer Service line at (800)
847-5886.
As shown in the Annual Report, the Builder and Premier series had an exciting
year. I hope you'll take full advantage of all the opportunities it has to
offer.
We look forward to hearing from you.
Sincerely,
Michael J. Lynch
Glickenhaus & Co.
Distributor
For more complete information including charges and expenses, please call (800)
847-5886 to receive a prospectus. Read the prospectus carefully before investing
or sending money.
Systematic investing does not insure a profit and does not protect against loss
in declining markets.
The fund's income may be subject to certain state and local taxes and, depending
on your tax status, the federal alternative minimum tax.
<PAGE> 2
==========================================
EMPIRE BUILDERS
------------------------------
TAX FREE BOND FUND
3435 STELZER ROAD
COLUMBUS, OHIO 43219
1-800-847-5886
April 1, 1998
Dear Shareholder,
We are pleased to present the Empire Builder Tax Free Bond Fund Annual
Report for the year ended February 28, 1998. Total returns for the year ended
February 28, 1998 were 8.08% for the Premier class and 7.82% for the Builder
class.
With the shortage of skilled labor and growing union militancy, inflation
may be on the verge of increasing. If this occurs, it could be a negative for
interest rates and the bond market. Although municipals are typically much
cheaper than taxable bonds, they could be mildly vulnerable at these levels, and
we are increasingly cautious. The strength of the economy and of the stock
market reinforces this view.
While the inflation outlook remains favorable as measured by consumer and
producer prices, a number of other economic and market factors could spell more
inflation. The employment picture and labor markets remain very tight. Retail
sales have rebounded, and consumer confidence remains very strong. The Fed,
while not raising rates at its last meeting, continues to warn that they feel
the risks remain weighted toward a stronger economy and they will do whatever it
takes to keep inflation in check. Japan and other Asian countries are
experiencing significant recessions, with their currencies having depreciated so
much against the dollar. We believe they will import much less from us and
export competitively, far more than usual. This slowing of exports could counter
the above-outlined potential inflation and help our bond markets with these
counter trends. We will seek to maintain our conservative approach to the
market. As always, preservation of capital is foremost in our minds. The Fund
remains heavily weighted in triple-A bonds.
In our opinion, the no-load structure of the Empire Builder Tax Free Bond
Fund continues to offer value to you, the Shareholders. Our automatic investment
program makes good sense if you want to follow a disciplined regular investment
plan. This strategy is known as dollar cost averaging.* We look forward to
helping you meet your investment needs.
Sincerely,
/s/ Seth M. Glickenhaus
Seth M. Glickenhaus
President
* Dollar cost averaging does not insure a profit and does not protect against
loss in declining markets. An investor should consider his or her financial
ability to continue making additional investments through periods of low share
price levels.
Not FDIC insured. May lose value. No bank guarantee.
For more complete information, including charges and expenses, please call
1-800-847-5886 to receive a prospectus. Read the prospectus carefully before
investing or sending money.
The fund's income may be subject to certain state and local taxes and, depending
on your tax status, the federal alternative minimum tax.
Past performance does not guarantee future results.
<PAGE> 3
THE EMPIRE BUILDER TAX FREE BOND FUND
The following graphs illustrate the total return based on a $10,000
investment in Builder Class shares of the Fund made February 29, 1988, and a
$10,000 investment in Premier Class shares of the Fund made at the commencement
date of April 15, 1996, held in each through February 28, 1998, as well as the
performance of the Lehman Municipal Bond Index over the same period.
The Lehman Municipal Bond Index includes 25,000 long-term, investment
grade, municipal bonds. In the opinion of the Fund's adviser, this index most
accurately represents the performance of the broad municipal bond market.
However, there are substantial differences between the index and the Fund.
First, the index covers municipal bonds nationwide, whereas the Fund invests
only in New York tax exempt bonds. Second, the index does not reflect the cost
and expenses of actually obtaining the underlying bonds. Third, the index had a
higher level of market risk than the Fund during the ten years ended December
31, 1997, as measured by Beta according to a recent study conducted by Lipper
Analytical Services. Finally, the index represents an unmanaged portfolio
whereas the Fund is professionally managed.
The graphs assume all dividends and distributions are reinvested at net
asset value. Past performance is not predictive of future performance.
The Fund's Builder Class shares average annual total return for the periods
indicated was as follows:
+7.82% for the one-year period beginning March 1, 1997 and ended February
28,1998;
+5.48% for the five-year period beginning March 1, 1993 and ended February
28, 1998;
+7.07% for the ten-year period beginning March 1, 1988 and ended February
28, 1998;
<TABLE>
<CAPTION>
Empire
Builder Tax
Free Bond Lehman
Measurement Period Fund Builder Municipal
(Fiscal Year Covered) Class Bond Index*
<S> <C> <C>
Feb. 29, 1988 10000 10000
Feb. 28, 1989 10558 10621
Feb. 28, 1990 11296 11710
Feb. 28, 1991 12221 12790
Feb. 29, 1992 13201 14067
Feb. 28, 1993 15519 16003
Feb. 28, 1994 15985 16890
Feb. 28, 1995 16159 17208
Feb. 29, 1996 17605 19109
Feb. 28, 1997 18362 20161
Feb. 28, 1998 19797 22004
</TABLE>
2
<PAGE> 4
The Fund's Premier class shares average annual total return for the periods
indicated was as follows:
+8.08% for the one-year period beginning March 1, 1997 and ended February
28,1998;
+7.86% for the period beginning April 15, 1996 (commencement of operations)
and ended February 28, 1998;
<TABLE>
<CAPTION>
Empire
Builder Tax
Free Bond
Fund Lehman
Measurement Period Premier Municipal
(Fiscal Year Covered) Class Bond Index*
<S> <C> <C>
April 15, 1996 10000 10000
April 30, 1996 10013 9972
May 31, 1996 10025 9968
June 30, 1996 10126 10076
July 30, 1996 10221 10168
August 31, 1996 10199 10165
Sept. 30, 1996 10335 10307
Oct. 31, 1996 10417 10424
Nov. 30, 1996 10578 10615
Dec. 31, 1996 10530 10570
Jan. 31, 1997 10525 10590
Feb. 28, 1997 10602 10687
Jan. 31, 1998 11489 11661
Feb. 28, 1998 11459 11664
</TABLE>
3
<PAGE> 5
THE EMPIRE BUILDER TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 28, 1998
<TABLE>
<CAPTION>
Principal Value
Credit Ratings** Municipal Securities -- 96.2% Amount (Note 2)
- ---------------- ----------------------------- --------- --------
<C> <S> <C> <C>
NEW YORK CITY -- 13.8%
Aaa/AAA New York City, GO, Series C, (MBIA), 6.625%, 8/1/2012, Callable
8/1/2002 @ 101.5............................................... $ 105,000 $ 116,288
Aaa/AAA New York City Municipal Water Finance Authority, (FGIC), 5.00%,
6/15/2021, Callable 6/15/2007 @ 101............................ 10,000,000 9,749,999
Aa3/AA New York City Transitional Finance Authority, Series A, 5.00%,
8/15/2027, Callable 8/15/2007 @ 101............................ 7,500,000 7,237,499
------------
TOTAL NEW YORK CITY (Cost $17,406,749)........................... 17,103,786
------------
NEW YORK STATE AGENCIES -- 67.3%
New York State Dormitory Authority Revenue
Baa1/BBB+ Albany County Airport, 5.25%, 4/1/2013, Callable 4/1/2008 @
101.......................................................... 1,200,000 1,197,000
Baa1/NR City University, Series D, 8.20%, 7/1/2012, Callable 7/1/1998 @
102.......................................................... 2,500,000 2,582,400
Aaa/AAA Columbia University Capital Appreciation, Series A, (AMBAC)
(FHA), 0.00%, 8/15/2036, Callable 2/15/2008 @ 21.728......... 4,500,000 585,000
Aa2/AA Cornell University, Series A, 7.375%, 7/1/2020, Callable
7/1/2000 @ 102............................................... 750,000 818,438
NR/AAA Heritage House Nursing Center, (FHA), 7.00%, 8/1/2031, Callable
8/1/2001 @ 102............................................... 475,000 519,531
Aaa/AAA Millard Fillmore Hospital, (AMBAC) (FHA), 5.00%, 2/1/2006,
Callable 8/1/2004 @ 105...................................... 910,000 945,263
Aaa/AAA Millard Fillmore Hospital, (AMBAC) (FHA), 5.00%, 8/1/2006,
Callable 8/1/2004 @ 105...................................... 1,735,000 1,804,400
Aaa/AAA Mt. Sinai School of Medicine, (MBIA), 6.75%, 7/1/2015, Callable
7/1/2001 @ 102............................................... 2,250,000 2,446,875
Aaa/NR New York Law School, (AMBAC), 5.00%, 7/1/2017, Callable
7/1/2008 @ 102............................................... 620,000 609,150
Aaa/AAA Rockefeller University, Series A, (FGIC), 6.75%, 7/1/2010,
Callable 7/1/2001 @ 102...................................... 525,000 576,844
Aaa/AAA Rockefeller University, Series A, (FGIC), 6.75%, 7/1/2011,
Callable 7/1/2001 @ 102...................................... 1,000,000 1,095,000
Aaa/AAA Secured Hospital, Southside Hospital, (MBIA), 5.00%, 2/15/2018,
Callable 2/15/2008 @ 101.5................................... 2,250,000 2,196,563
Aaa/AAA Secured Hospital, Southside Hospital, (MBIA), 5.00%, 2/15/2025,
Callable 2/15/2008 @ 101.5................................... 3,500,000 3,377,500
Baa1/BBB+ Secured Hospital, St. Clare's Hospital, Series B, 5.20%,
2/15/2013, Callable 2/15/2008 @ 101.5........................ 1,670,000 1,663,738
Baa1/BBB+ Secured Hospital, St. Clare's Hospital, Series B, 5.25%,
2/15/2014, Callable 2/15/2008 @ 101.5........................ 1,760,000 1,757,800
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 6
THE EMPIRE BUILDER TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 28, 1998
<TABLE>
<CAPTION>
Principal Value
Credit Ratings** Municipal Securities -- continued Amount (Note 2)
- ---------------- --------------------------------- --------- --------
<C> <S> <C> <C>
NEW YORK STATE AGENCIES -- CONTINUED
Baa1/BBB+ Secured Hospital, St. Clare's Hospital, Series B, 5.25%,
2/15/2015, Callable 2/15/2008 @ 101.5........................ $ 1,850,000 $ 1,843,063
Aaa/AAA Special Acts School District Program, (MBIA), 6.00%, 7/1/2019,
Callable 7/1/2005 @ 102...................................... 3,540,000 3,823,200
A3/A- State University Educational Facilities, Series A, 5.25%,
5/15/2001.................................................... 1,450,000 1,502,563
A3/A- State University Educational Facilities, 5.00%, 5/15/2010,
Callable 5/15/2008 @ 101..................................... 1,500,000 1,522,500
A3/A- State University Educational Facilities, 5.00%, 5/15/2014,
Callable 5/15/2008 @ 101..................................... 2,545,000 2,522,731
NR/AAA St. John's Fisher College, (Connie Lee), 6.75%, 7/1/2011,
Callable 7/1/2001 @ 102...................................... 2,670,000 2,903,625
New York State Environmental Facilities Corp.
Aaa/AAA Water Pollution Control Revenue, Revolving Fund, Water Pooled
Loan, 5.90%, 1/15/2018, Callable 1/15/2006 @ 102............. 1,510,000 1,628,913
New York State Housing Finance Agency
Aa2/NR Multi-Family Housing, Secured Mortgage Program, (SONYMA
Insured), 6.45%, 8/15/2014, Callable 2/15/2004 @ 102......... 2,245,000 2,433,019
A1/NR Village of St. John Project, Section 8 Assisted, 8.25%,
5/1/2009, Callable 5/01/1998 @ 101........................... 1,600,000 1,625,600
Aaa/AAA New York St. Local Gov't. Assistance Corp., Series B, (MBIA),
4.875%, 4/1/2020, Callable 4/1/2008 @ 101.................... 5,500,000 5,266,249
New York State Medical Care Facilities Finance Agency
Aaa/AAA Hospital and Nursing Home, St. Vincent Hospital Project,
(AMBAC) (FHA), 6.20%, 2/15/2021, Callable 2/15/2004 @ 102.... 2,500,000 2,690,625
Aaa/AAA Long Term Health Care, (FSA) (SONYMA Insured), 6.50%,
11/1/2015, Callable 11/1/2002 @ 102.......................... 2,245,000 2,472,306
A3/A- Mental Health Services Facilities, 7.625%, 2/15/2008, Callable
4/20/1998 @ 102.............................................. 330,000 341,850
Aaa/AAA Mental Health Services Facilities, (FSA), 6.25%, 2/15/2009,
Callable 8/15/2004 @ 102..................................... 1,420,000 1,581,525
A3/A- Mental Health Services Facilities, 7.875%, 8/15/2020, Callable
8/15/2000 @102............................................... 385,000 423,981
Aaa/AAA New York Hospital, (AMBAC) (FHA), Series A, 6.50%, 8/15/2029,
Pre-refunded 2/15/2005 @ 102................................. 1,500,000 1,728,750
Aaa/AAA New York Hospital, (AMBAC) (FHA), 6.90%, 8/15/2034, Pre-
refunded 2/15/2005 @ 102..................................... 3,350,000 3,940,438
Aaa/AAA St. Mary's Hospital Project, Series A, (AMBAC), 6.20%,
11/1/2014, Callable 11/01/2003 @ 102......................... 2,100,000 2,315,250
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 7
THE EMPIRE BUILDER TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 28, 1998 -- CONTINUED
<TABLE>
<CAPTION>
Principal Value
Credit Ratings** Municipal Securities -- continued Amount (Note 2)
- ---------------- --------------------------------- --------- --------
<C> <S> <C> <C>
NEW YORK STATE AGENCIES -- CONTINUED
New York State Thruway Authority
Aaa/AAA Service Contract Revenue, Local Highways & Bridges, (AMBAC),
5.30%, 4/1/2004.............................................. $ 5,000,000 $ 5,306,249
New York State Urban Development Corporation, Empire State
Development Corporation
Aa3/A+ Triborough Bridge & Tunnel Authority, General Purpose, Series
A, 5.125%, 1/1/2022, Callable 1/1/2007 @ 101................. 5,000,000 4,949,999
A1/A- Triborough Bridge & Tunnel Authority, Special Obligation,
Series B, 7.10%, 1/1/2010, Callable 1/1/2001 @ 102........... 3,725,000 4,050,938
Baa1/BBB+ University Facilities Grants, 6.00%, 1/1/2008.................. 850,000 928,625
Baa1/BBB+ University Facilities Grants, 6.00%, 1/1/2009.................. 905,000 992,106
Baa1/BBB+ University Facilities Grants, 6.00%, 1/1/2010.................. 955,000 1,048,113
Baa1/BBB+ Youth Facilities, 5.00%, 4/1/18, Callable 4/1/2008 @ 101....... 2,185,000 2,111,256
Baa1/BBB+ Youth Facilities, 5.75%, 4/1/08, Callable 4/1/2005 @ 102....... 1,000,000 1,065,000
------------
TOTAL NEW YORK STATE AGENCIES (Cost $78,848,682)................. 83,193,976
------------
OTHER NEW YORK STATE BONDS -- 14.2%
Baa/NR Albany County Housing Authority, Ltd. Obligation, 6.25%,
10/1/2012, Callable 10/1/2005 @ 102............................ 1,000,000 1,078,750
Aaa/AAA Buffalo Municipal Water Finance Authority, Water System Revenue,
(FGIC), 5.75%, 7/1/19, Callable 7/1/2005 @ 102................. 500,000 525,625
Aaa/AAA Dutchess County, Resource Recovery Agency, Solid Waste
Management, Series A, (FGIC), 7.50%, 1/1/2009, Callable
1/1/2000 @ 102................................................. 1,500,000 1,612,500
Aaa/AAA Evans, GO, (AMBAC), 6.80%, 4/15/2012............................. 225,000 273,938
Aaa/AAA Evans, GO, (AMBAC), 6.80%, 4/15/2013............................. 225,000 274,219
NR/AAA Lillian Cooper Housing Development Corp. Mortgage Revenue, Series
A, (FNMA) (FHA), 7.00%, 1/1/2022, Callable 7/1/2001 @ 100...... 1,100,000 1,172,875
Baa1/BBB+ Metropolitan Transit Authority of New York, Transit Facilities
Revenue, 5.50%, 7/1/2022, Callable 7/1/2007 @ 101.............. 4,750,000 4,821,249
Aaa/AAA Mount Sinai Union Free School District, GO, (AMBAC), 6.20%,
2/15/2012...................................................... 1,065,000 1,228,744
Aaa/AAA North Hempstead, GO, Series B, (FGIC), 6.375%, 4/1/2009.......... 570,000 658,350
Aaa/AAA North Hempstead, GO, Series A, (FGIC), 6.40%, 4/1/2010........... 560,000 651,700
Aaa/AAA Suffolk County, GO, Series C, (FGIC), 5.00%, 9/15/2015, Callable
9/15/2008 @ 101................................................ 965,000 954,144
Aaa/AAA Suffolk County, GO, Series D, (FGIC), 5.00%, 11/1/2015, Callable
11/1/2008 @ 101................................................ 1,125,000 1,112,344
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 8
THE EMPIRE BUILDER TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 28, 1998 -- CONTINUED
<TABLE>
<CAPTION>
Principal Value
Credit Ratings** Municipal Securities -- continued Amount (Note 2)
- ---------------- --------------------------------- --------- --------
<C> <S> <C> <C>
OTHER NEW YORK STATE BONDS -- CONTINUED
Aaa/AAA Suffolk County, GO, Series C, (FGIC), 5.00%, 9/15/2016, Callable
9/15/2008 @ 101................................................ $ 550,000 $ 543,125
Aaa/AAA Suffolk County, GO, Series D, (FGIC), 5.00%, 11/1/2016, Callable
11/1/2008 @ 101................................................ 1,110,000 1,096,125
Aaa/AAA Suffolk County, GO, Series C, (FGIC), 5.00%, 9/15/2017, Callable
9/15/2008 @ 101................................................ 480,000 471,000
Aaa/AAA Suffolk County, GO, Series C, (FGIC), 5.00%, 9/15/2018, Callable
9/15/2008 @ 101................................................ 445,000 433,875
Aaa/AAA Suffolk County, GO, Series C, (FGIC), 5.00%, 9/15/2019, Callable
9/15/2008 @ 101................................................ 530,000 516,088
Aaa/AAA Suffolk County, GO, Series C, (FGIC), 5.00%, 9/15/2020, Callable
9/15/2008 @ 101................................................ 125,000 121,719
------------
TOTAL OTHER NEW YORK STATE BONDS (Cost $16,594,070).............. 17,546,370
------------
OTHER MUNICIPAL BONDS -- .9%
Aaa/AAA Guam Government Limited Obligation Highway Revenue, Series A,
(FSA), 6.25%, 5/1/2007, Callable 5/1/2002 @ 102 (Cost
$992,942)...................................................... 1,000,000 1,090,000
------------
Shares
-----------
SHORT TERM INVESTMENTS -- VARIABLE RATE -- 4.9%
Dreyfus New York Municipal Cash Management Fund (Cost
$6,000,000).................................................... 6,000,000 6,000,000
------------
TOTAL INVESTMENTS -- 101.1% (Cost $119,842,443)*................. 124,934,132
OTHER LIABILITIES IN EXCESS OF ASSETS -- (1.1%).................. (1,403,958)
------------
NET ASSETS -- 100%............................................... $123,530,174
============
</TABLE>
- ------------------
Percentages indicated are based on net assets of $123,530,174
* Represents cost for federal income tax purposes and differs from value by net
unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $5,527,339
Unrealized depreciation..................................... (435,650)
----------
Net unrealized appreciation................................. $5,091,689
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE> 9
THE EMPIRE BUILDER TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 28, 1998 -- CONTINUED
**Credit Ratings given by Moody's Investors Service Inc. and Standard & Poor's
Corporation (unaudited).
<TABLE>
<CAPTION>
MOODY'S STANDARD & POOR'S
<C> <C> <S>
Aaa AAA Instrument judged to be of the highest quality and carrying
the smallest amount of investment risk.
Aa AA Instrument judged to be of high quality by all standards
A A Instrument judged to be adequate by all standards
Baa BBB Instrument judged to be moderate quality by all standards
NR NR Not Rated. In the opinion of the Investment Adviser,
Instrument judged to be of comparable investment quality to
rated securities which may be purchased by the Fund
</TABLE>
For items possessing the strongest investment attributes of their category,
Moody's gives that letter rating followed by a number. The Standard & Poor's
ratings may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
ABBREVIATIONS USED IN THIS STATEMENT:
<TABLE>
<S> <C>
AMBAC Insured as to principal and interest by the American
Municipal Bond Assurance Corporation
FGIC Insured as to principal and interest by the Financial
Guarantee Insurance Corporation.
FHA Insured by the Federal Housing Administration
FNMA Insured by the Federal National Mortgage Association.
FSA Insured as to principal and interest by Financial Security
Assurance.
GO General Obligation
MBIA Insured as to principal and interest by the Municipal Bond
Insurance Association.
SONYMA Insured as to principal and interest by the State of New
York Mortgage Association.
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE> 10
THE EMPIRE BUILDER TAX FREE BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities, at value (cost $119,842,443) (Note 2)...... $124,934,132
Interest receivable................................................... 1,261,024
Prepaid insurance and other assets.................................... 12,746
------------
Total Assets........................................................ 126,207,902
LIABILITIES:
Income distribution payable............................... $ 45,581
Payable to custodian...................................... 30,091
Payable for securities purchased.......................... 2,451,861
Fund accounting and shareholder servicing fees payable
(Note 4)................................................ 12,151
Advisory fee payable (Note 4)............................. 36,798
Administrative services fee payable (Note 4).............. 21,706
Other payables and accrued expenses....................... 79,540
----------
Total Liabilities................................................... 2,677,728
------------
NET ASSETS.............................................................. $123,530,174
============
NET ASSETS:
Net assets consist of:
Capital paid in..................................................... $115,843,623
Accumulated net investment income................................... 26,243
Accumulated net realized gain/(loss) on investments................. 2,568,619
Net unrealized appreciation/(depreciation) on investments........... 5,091,689
------------
NET ASSETS.............................................................. $123,530,174
============
SHARES OF BENEFICIAL INTEREST:
Builder Class:
Shares of beneficial interest outstanding................. 3,243,297
==========
Net asset value, offering and redemption price per share
($59,091,348 / 3,243,297 shares)........................ $ 18.22
==========
Premier Class:
Shares of beneficial interest outstanding................. 3,536,798
==========
Net asset value, offering and redemption price per share
($64,438,826 / 3,536,798 shares)........................ $ 18.22
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE> 11
THE EMPIRE BUILDER TAX FREE BOND FUND
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1998
<TABLE>
<S> <C> <C>
INCOME:
Interest.............................................................. $6,545,313
EXPENSES:
Advisory fees (Note 4).................................... $ 464,929
Administrative services fees (Note 4)..................... 227,275
Transfer agency and dividend disbursing fees (Builder
Class) (Note 4)......................................... 169,852
Transfer agency and dividend disbursing fees (Premier
Class) (Note 4)......................................... 30,259
Legal..................................................... 40,107
Custody................................................... 126,733
Printing.................................................. 47,836
Audit..................................................... 32,677
Fund accounting fees and expenses (Note 4)................ 45,145
Trustees' fees and expenses............................... 25,026
Registration.............................................. 8,694
Miscellaneous............................................. 18,923
----------
Total expenses.......................................... 1,237,456
Custody fee credit........................................ (125,417)
----------
Total net expenses.................................................... 1,112,039
----------
INVESTMENT INCOME-NET................................................... 5,433,274
Realized and unrealized gain/(loss) on investments (Notes 2
and 3)
Net realized gain/(loss) on investments................... 3,075,195
Net increase in unrealized appreciation/(depreciation) on
investments............................................. 631,363
----------
Net gain/(loss) on investments...................................... 3,706,558
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................... $9,139,832
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE> 12
THE EMPIRE BUILDER TAX FREE BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Year
Ended Ended
02/28/98 02/28/97
-------- --------
<S> <C> <C>
INCREASE IN NET ASSETS:
OPERATIONS:
Investment income--net.................................... $ 5,433,274 $ 5,706,608
Net realized gain/(loss) on investments................... 3,075,195 720,080
Net realized gain/(loss) on futures contracts............. -- (732,415)
Net increase/(decrease) in unrealized
appreciation/(depreciation) on investments including
futures contracts....................................... 631,363 (656,980)
------------ ------------
Net increase in net assets resulting from operations...... 9,139,832 5,037,293
------------ ------------
Distributions to shareholders from:
Net investment income--Builder Class...................... (2,554,368) (3,318,420)
Net investment income--Premier Class...................... (2,878,905) (2,388,188)
Net realized gains on investments--Builder Class.......... (223,745) (535,066)
Net realized gains on investments--Premier Class.......... (244,521) (304,958)
------------ ------------
Total distributions....................................... (5,901,539) (6,546,632)
------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from sale of shares--Builder Class............... 6,733,305 9,479,126
Proceeds from sale of shares--Premier Class............... 6,426,129 61,910,250
Proceeds from reinvestment of income and capital gains
distributions-- Builder Class........................... 2,510,068 3,354,882
Proceeds from reinvestment of income and capital gains
distributions--Premier Class............................ 2,816,592 2,422,316
Cost of shares redeemed--Builder Class.................... (10,822,859) (69,479,003)
Cost of shares redeemed--Premier Class.................... (5,860,550) (5,549,298)
------------ ------------
Net increase/(decrease) in net assets from capital share
transactions............................................ 1,802,685 2,138,273
------------ ------------
Net increase in net assets................................ 5,040,978 628,934
NET ASSETS:
Beginning of Year......................................... 118,489,196 117,860,262
------------ ------------
End of Year............................................... $123,530,174 $118,489,196
============ ============
Undistributed net investment income included in net assets
at end of period.......................................... $ 26,243
============
SHARE TRANSACTIONS:
Issued--Builder Class..................................... 373,722 535,999
Issued--Premier Class..................................... 358,743 3,525,184
Reinvested--Builder Class................................. 139,720 190,140
Reinvested--Premier Class................................. 156,849 137,550
Redeemed--Builder Class................................... (604,911) (3,954,973)
Redeemed--Premier Class................................... (327,014) (314,512)
------------ ------------
Change in shares............................................ 97,109 119,388
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE> 13
THE EMPIRE BUILDER TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION AND SHARES OF THE FUND:
The Empire Builder Tax Free Bond Fund (the "Fund") was established as a
Massachusetts business trust by an Agreement and Declaration of Trust dated
September 30, 1983. The Fund is registered under the Investment Company Act of
1940, as amended, as an open-end, non-diversified investment company. The Fund
has an unlimited number of shares authorized with no par value.
The Fund seeks as high a level of current income exempt from Federal income
tax and New York State and City personal income taxes as the Fund's investment
adviser believes is consistent with the preservation of capital. The Fund
invests primarily in a portfolio of New York tax-exempt bonds.
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.
Each class of shares outstanding bears the same dividend, liquidation and
other rights and conditions, except that the Builder Class shares and the
Premier Class shares bear separate transfer agency expenses. Each class of
shares has exclusive voting rights with respect to matters affecting only that
class.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles.
USE OF ESTIMATES
Estimates and assumptions are required to be made regarding assets,
liabilities, and changes in net assets resulting from operations when financial
statements are prepared. Changes in the economic environment, financial markets
and any other parameters used in determining these estimates could cause actual
results to differ from these amounts.
SECURITY VALUATION
Tax-exempt securities for which transaction prices are not readily
available are valued at their fair value as determined by an independent pricing
service approved by the Fund's Board of Trustees. The pricing service uses
information with respect to transactions in bonds, quotations from bond dealers,
market transactions in comparable securities and various relationships between
securities in determining value. The methods used by the pricing service and the
quality of valuations so established are reviewed by officers of the Fund and
the Fund's Investment Adviser, under the general supervision of the Trustees of
the Fund.
12
<PAGE> 14
THE EMPIRE BUILDER TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
Securities for which quotations are readily available are stated at market
value. Short-term debt securities having remaining maturities of sixty (60) days
or less are stated at amortized cost, which approximates market value.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are accounted for on the trade date. Interest income,
which includes amortization of premium and accretion of discounts, is accrued as
earned. Realized gains and losses from security transactions and unrealized
appreciation and depreciation of investments are determined on the basis of
identified cost.
TAXES
The Fund qualifies and intends to continue to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code, and to
distribute substantially all of its tax-exempt and taxable income. Therefore, no
federal income tax provision is required.
In addition, by distributing during each calendar year substantially all of
its net investment income, capital gains and certain other amounts, if any, the
Fund will not be subject to a federal excise tax.
FUTURES CONTRACTS
The Fund may purchase and sell financial futures contracts, options on such
futures contracts and options on securities indices to hedge against changes in
the values of New York tax exempt bonds the Fund owns or expects to purchase.
The Fund may also purchase and sell futures and options on U.S. Treasury
securities in order to hedge against interest rate changes or other general
changes in market values.
Upon entering into a futures contract, the Fund is required to deposit cash
or pledge securities in an amount equal to a certain percentage of the purchase
price indicated in the futures contract (initial margin). Subsequent payments,
which are dependent on the daily fluctuations in the value of the underlying
security, are made or received by the Fund each day (daily variation margin) and
are recorded as unrealized gains or losses until the contracts are closed.
DISTRIBUTIONS AND DIVIDENDS
Distributions to shareholders from net investment income are declared daily
and paid monthly. The Fund also distributes at least annually substantially all
net capital gains, if any, realized from portfolio transactions.
The amounts of dividends from net investment income and of distributions
from net realized gains are determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or per-
13
<PAGE> 15
THE EMPIRE BUILDER TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
manent in nature. To the extent these differences are permanent in nature, such
amounts are reclassified within the composition of net assets based on their
federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions to shareholders which exceed net
investment income and net realized capital gains for financial reporting
purposes but not for tax purposes are reported as dividends in excess of net
investment income or distributions in excess of net realized gains. To the
extent they exceed net investment income and net realized gains for tax
purposes, they are reported as distributions of capital.
DETERMINATION OF NET ASSET VALUE AND ALLOCATION OF EXPENSES
In calculating net asset value per share of each class, investment income
and expenses, other than class-specific expenses, are allocated daily to each
class of shares based on the value of outstanding settled shares.
OTHER:
The Fund maintains a cash balance with its custodian and receives a
reduction of their custody fees and expenses for the amounts of interest earned
on such uninvested cash balance. There was no effect on net investment income.
The Fund could have invested such cash amounts in an income producing asset if
they had not agreed to a reduction of fees or expenses under the expense offset
arrangement with their custodian.
3. PURCHASES AND SALES OF INVESTMENT SECURITIES:
Purchases and sales of investment securities, excluding short-term
investments, during the year ended February 28, 1998, amounted to $233,318,879
and $229,073,127, respectively.
4. ADVISORY FEES AND OTHER RELATED PARTY TRANSACTIONS:
The Fund retains Glickenhaus & Co. (the "Adviser") to act as investment
adviser pursuant to an Investment Advisory Agreement. As compensation for its
advisory services, the Adviser receives a fee computed daily and paid monthly,
at the annual rates of 0.40% of the first $100,000,000 of average daily net
assets and 0.3333% of any excess over $100,000,000. For the year ended February
28, 1998, the advisory fee earned by the Adviser was $464,929.
Glickenhaus has agreed to a reduction of advisory fees to the extent that
the Fund's expenses, including the advisory fees, exceed 1.50% of the Fund's
average annual net assets. For the year ended February 28, 1998, there was no
reduction of advisory fees pursuant to this agreement.
BISYS Fund Services provides the Fund with administrative services pursuant
to an Administrative Services Agreement (the "Administration Agreement"). BISYS
receives a fee from the Fund, computed daily and paid monthly at the annual
rates of 0.20% of the first $100,000,000 of average daily net assets
14
<PAGE> 16
THE EMPIRE BUILDER TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
and 0.14% of any excess over $100,000,000. For the year ended February 28, 1998,
BISYS earned $227,275 under its Administration Agreement with the Fund.
BISYS also provides the Fund with certain accounting and related services
pursuant to a Fund Accounting Agreement. For its services under the Fund
Accounting Agreement, BISYS receives from the Fund a monthly fee of $2,500 plus
reimbursement for out of pocket expenses. For the year ended February 28, 1998,
BISYS received fees and expense reimbursements of $45,145 under the Fund
Accounting Agreement.
Transfer agency services and dividend and capital gain disbursing agent
services are provided to the Fund pursuant to a Transfer Agency Agreement
between the Fund and BISYS ("Transfer Agency Agreement"). For its services under
the Transfer Agency Agreement, BISYS is entitled to receive a fee of $8 per
account per year plus out-of-pocket expenses. During the year ended, February
28, 1998, BISYS received fees and expense reimbursements of $169,852 for the
Builder Class and $30,259 for the Premier Class under the Transfer Agency
Agreement.
5. FEDERAL INCOME TAX INFORMATION (UNAUDITED):
The Fund designated $5,368,548 as exempt-interest dividends for the year
ended February 28, 1998. Ordinary income dividends paid to you in cash or
reinvested in your account during the fiscal year ended February 28, 1998 were
100% derived from New York State and Federal exempt obligations.
15
<PAGE> 17
THE EMPIRE BUILDER TAX FREE BOND FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Year Ended Period Ended** Year Ended
------------------------- ------------------------- ---------------------------------------
02/28/98 02/28/97 02/28/97 02/29/96 02/28/95 02/28/94
------------------------- ----------- ----------- ----------- ----------- -----------
Builder Premier Builder Premier Builder Builder Builder
Class Class Class Class Class Class Class
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period......................... $ 17.73 $ 17.73 $ 17.96 $ 17.57 $ 17.31 $ 18.24 $ 18.41
------- ------- ------- ------- -------- -------- --------
Income from Investment
Operations:
Net investment income.......... 0.79 0.84 0.84 0.75 0.87 0.87 0.9
Net realized and unrealized
gains (losses) on
securities................... 0.56 0.56 (0.10) 0.29 0.65 (0.71) 0.09
------- ------- ------- ------- -------- -------- --------
Total from Investment
Operations................... 1.35 1.40 0.74 1.04 1.52 0.16 0.99
------- ------- ------- ------- -------- -------- --------
Less Distributions:
Dividends from net investment
income....................... (0.79) (0.84) (0.84) (0.75) (0.87) (0.87) (0.90)
Distributions from net realized
capital gains................ (0.07) (0.07) (0.13) (0.13) (0.26)
Distributions in excess of net
realized capital gains....... (0.22)
------- ------- ------- ------- -------- -------- --------
Total Distributions............ (0.86) (0.91) (0.97) (0.88) (0.87) (1.09) (1.16)
------- ------- ------- ------- -------- -------- --------
Net Asset Value, End of
Period......................... $ 18.22 $ 18.22 $ 17.73 $ 17.73 $ 17.96 $ 17.31 $ 18.24
======= ======= ======= ======= ======== ======== ========
Total Return (excludes sales
charge)........................ 7.82% 8.08% 4.30% 6.03%(c) 8.95% 1.09% 5.44%
Ratios/Supplementary Data:
Net Assets, End of Period (in
thousands)................... $59,091 $64,439 $59,133 $59,356 $117,860 $108,020 $108,305
Ratios of Net Investment Income
to Average Net Assets........ 4.42% 4.66% 4.81% 4.88%(b) 4.91% 5.04% 4.85%
Ratios of Expenses to Average
Net Assets................... 0.77% 0.88% 1.03% 0.93%(b) 0.96% 0.93% 0.98%
Ratios of Expenses to Average
Net Assets*.................. 0.87% 0.99% 1.07% 0.97%(b) 1.01%
Portfolio Turnover Rate (a).... 201.00% 201.00% 181.00% 181.00% 150.00% 143.00% 164.00%
</TABLE>
- ------------------
* The ratio does not include a reduction of expenses for custodian fee credits
of cash balances maintained with the custodian.
** Premier Class commenced operations on April 15, 1996
(a) Portfolio turnover is calculated on the basis on the Fund as a whole without
distinguishing between the classes of shares issued.
(b) Annualized
(c) Not annualized
16
<PAGE> 18
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees
The Empire Builder Tax Free Bond Fund
We have audited the accompanying statement of assets and liabilities of The
Empire Builder Tax Free Bond Fund, including the schedule of portfolio
investments, as of February 28, 1998, and the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of The Empire Builder Tax Free Bond Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 28, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of The
Empire Builder Tax Free Bond Fund as of February 28, 1998, and the results of
its operations for the year then ended, the changes in its net assets for the
two years in the period then ended, and the financial highlights for each of the
five years in the period then ended, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
April 24, 1998
17
<PAGE> 19
[This page intentionally left blank]
<PAGE> 20
THE MANAGEMENT
TRUSTEES AND OFFICERS
TRUSTEES
SETH M. GLICKENHAUS,* CHAIRMAN OF THE BOARD OF TRUSTEES
Senior Partner of Glickenhaus & Co.
EDWARD A. FALKENBERG, Trustee
Vice President and Controller,
Joseph E. Seagram & Sons, Inc. and
Controller, Seagram Company Ltd.
EDWARD A. KUCZMARSKI, Trustee
Certified Public Accountant and Partner,
Hays & Company
ELIZABETH B. NEWELL, Trustee
Trustee, International Preschools
JOHN P. STEINES, Trustee
Professor of Law, New York University
School of Law
OFFICERS
SETH M. GLICKENHAUS
President of the Fund; Senior Partner of
Glickenhaus & Co.
MICHAEL J. LYNCH
Senior Vice President of the Fund; Director,
Unit Trust Department, Glickenhaus & Co.
FRANK M. DEUTCHKI
Vice President of the Fund; Registration and
Compliance Officer,
Administration and Regulatory,
Services, BISYS Fund Services
GEORGETTE L. HORTON
Vice President of the Fund; Director,
BISYS Fund Services
THOMAS E. LINE
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
ALAINA V. METZ
Assistant Secretary of the Fund; Chief
Administrative Officer, Administration and
Regulatory Services, BISYS Fund Services
* Trustee who is an "interested person" of the Fund as that term is defined in
the Investment Company Act of 1940.
<PAGE> 21
Empire Logo
3435 STELZER ROAD
COLUMBUS, OHIO 43219
1-800-847-5886
Empire Logo
TAX FREE BOND FUND
ANNUAL REPORT
FEBRUARY 28, 1998
Investment Adviser and Distributor
GLICKENHAUS & CO.
6 East 43rd Street
New York, New York 10017
Administrator
BISYS FUND SERVICES LIMITED PARTNERSHIP
D/B/A BISYS FUND SERVICES
3435 Stelzer Road
Columbus, Ohio 43219
Transfer and Shareholder Servicing Agent
BISYS FUND SERVICES, INC.
3435 Stelzer Road
Columbus, Ohio 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.
100 E. Broad Street
Columbus, Ohio 43215
Customer Service
3435 Stelzer Road
Columbus, Ohio 43219
1-800-847-5886
This report is submitted for the information of the shareholders of the Empire
Builder Tax Free Bond Fund. It is not authorized for distribution to prospective
investors in the Fund unless preceded or accompanied by an effective prospectus,
obtainable from an investment dealer, which includes information regarding the
Fund's objectives and policies record, management, sales commission and other
data.
