<PAGE>
- ---------------------------- [EMPIRE BUILDER LOGO] -----------------------------
------------------------------
TAX FREE BOND FUND
3435 STELZER ROAD
COLUMBUS, OHIO 43219
1-800-847-5886
October 1, 1998
Dear Shareholder,
We are pleased to present the Empire Builder Tax-Free Bond Fund Semi Annual
Report for the six months ended August 31, 1998.
Despite the crises in Asia and South America, the long-term capital
management and other hedge fund crises contributing to the stock market's
volatility, the U.S. government bond market has improved steadily and is the
beneficiary of strong inflows of money. The spread between corporate and
government bonds has widened, and the market for below investment grade bonds is
very weak to nonexistent.
Tax-exempt municipals have remained at attractive levels compared to
government bonds for two reasons. First, the flight to quality of foreign
investors into the U.S. treasury market; and second, the continued heavy
issuance of new municipal bonds. We continue to believe that municipals offer
excellent value at these levels. Safety remains our primary concern in these
uncertain times. Therefore, we will continue to focus on our conservative
approach to the market.
The Federal Reserve Bank cut the FEDERAL FUNDS RATE (the rate at which
banks lend one another money overnight) by 1/4 point on September 29th, from
5.50% to 5.25%. This cut should help the overall bond market.
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 (also known as DOLLAR COST AVERAGING*) makes good sense if you want to
follow a disciplined regular investment plan. We look forward to helping you
meet your investment needs.
Sincerely,
/s/ Seth M. Glickenhaus
Seth M. Glickenhaus
President
<PAGE>
* 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.
This report must be preceded or accompanied by a prospectus. 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.
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
2
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS -- AUGUST 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
Credit Principal Value (Note
Ratings** Municipal Securities -- 98.6% Amount 2)
- ---------- ---------------------------------------- ------------- -------------
<S> <C> <C> <C>
NEW YORK CITY--9.3%
A3/A- New York City, General Obligation,
Series F, 5.00%, 8/1/2023, Callable
2/1/2008 @ 101........................ $ 2,000,000 $ 1,947,500
A3/A- New York City, General Obligation,
Series J, 5.25%, 8/1/2018, Callable
8/1/2008 @ 101........................ 1,500,000 1,505,625
A1/A New York City Municipal Water Finance
Authority, 5.125%, 6/15/2021, Callable
6/15/2007 @ 101....................... 8,000,000 8,010,000
-------------
TOTAL NEW YORK CITY (Cost
$11,238,349).......................... 11,463,125
-------------
NEW YORK STATE--0.8%
A2/A General Obligation, Series F, 5.00%,
9/15/2018, Callable 9/15/2008 @ 101... 500,000 496,250
A2/A General Obligation, Series F, 5.00%,
9/15/2021, Callable 9/15/2008 @ 101... 500,000 495,625
-------------
TOTAL NEW YORK (Cost $974,764).......... 991,875
-------------
NEW YORK STATE AGENCIES--57.7%
New York State Dormitory Authority
Baa1/BBB+ Albany County Airport, 5.25%,
4/1/2013, Callable 4/1/2008
@ 101............................... 1,200,000 1,231,500
Aaa/AAA City University, (FGIC), 5.00%,
7/1/2026, Callable 7/1/2008
@ 102............................... 3,000,000 2,981,250
Aa2/AA Cornell University, Series A, 7.375%,
7/1/2020, Callable 7/1/2000 @ 102... 750,000 809,062
NR/AAA Heritage House Nursing Center, (FHA),
7.00%, 8/1/2031, Callable 8/1/2001 @
102................................. 475,000 515,375
Aaa/AAA Memorial Sloan Kettering, (MBIA),
5.75%, 7/1/2019..................... 1,000,000 1,123,750
Aaa/AAA Millard Fillmore Hospital, (AMBAC)
(FHA), 5.00%, 2/1/2006, Callable
8/1/2004 @ 105...................... 910,000 953,225
Aaa/AAA Millard Fillmore Hospital, (AMBAC)
(FHA), 5.00%, 8/1/2006, Callable
8/1/2004 @ 105...................... 1,735,000 1,821,750
Aaa/AAA Mt. Sinai School of Medicine, (MBIA),
6.75%, 7/1/2015, Callable 7/1/2001 @
102................................. 2,250,000 2,438,437
Aaa/AAA New York Medical College, (MBIA),
5.25%, 7/1/2013, Callable 7/1/2008 @
101................................. 1,015,000 1,044,181
Aaa/AAA New York University, Series A, (MBIA),
6.00%, 7/1/2017..................... 1,000,000 1,157,500
Aaa/AAA North Shore Health System, Forest
Hills Hospital, (MBIA), 5.00%,
11/1/2017, Callable 11/1/2008 @
101................................. 2,000,000 2,000,000
Aaa/AAA North Shore Health System, North Shore
University Hospital, (MBIA), 5.50%,
11/1/2014........................... 1,000,000 1,087,500
Aaa/AAA North Shore Health System, Plainview
Hospital, (MBIA), 5.00%, 11/1/2017,
Callable 11/1/2008 @ 101............ 2,000,000 2,000,000
Aaa/AAA Secured Hospital, Southside Hospital,
(MBIA), 5.00%, 2/15/2018, Callable
2/15/2008 @ 101.5................... 1,250,000 1,248,438
</TABLE>
3
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS -- AUGUST 31, 1998 (UNAUDITED) -- CONTINUED
<TABLE>
<CAPTION>
Credit Principal Value (Note
Ratings** Municipal Securities -- continued Amount 2)
- ---------- ---------------------------------------- ------------- -------------
<S> <C> <C> <C>
Aaa/AAA Secured Hospital, Southside Hospital,
(MBIA), 5.00%, 2/15/2025, Callable
2/15/2008 @ 101.5................... 2,250,000 2,227,500
Aaa/AAA Special Acts School Districts Program,
(MBIA), 6.00%, 7/1/2019, Callable
7/1/2005 @ 102...................... 3,540,000 3,849,750
A3/A- State University Educational
Facilities, 5.00%, 5/15/2010,
Callable 5/15/2008 @ 101............ 1,500,000 1,546,875
A3/A- State University Educational
Facilities, 5.00%, 5/15/2014,
Callable 5/15/2008 @ 101............ 2,545,000 2,586,356
NR/AAA St. John Fisher College, (Connie Lee),
6.75%, 7/1/2011, Callable 7/1/2001 @
102................................. 2,670,000 2,890,275
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 1,630,800
New York State Housing Finance Agency
Aa1/NR Multi-Family Housing, Secured Mortgage
Program, (SONYMA Insured), 6.45%,
8/15/2014, Callable 2/15/2004 @
102................................. 2,245,000 2,438,631
A1/NR Village of St. John Project,
Section 8 Assisted, 8.25%, 5/1/2009,
Callable 10/1/1998 @ 101............ 1,555,000 1,575,961
New York State Medical Care Facilities
Finance Agency
Aaa/AAA Hospital and Nursing Home, St.
Vincent's Hospital Project, (AMBAC)
(FHA), 6.20%, 2/15/2021, Prerefunded
2/15/2004 @ 102..................... 1,440,000 1,616,400
Aaa/AAA Hospital and Nursing Home, St.
Vincent's Hospital Project, (AMBAC)
(FHA), 6.20%, 2/15/2021, Callable
02/15/2004 @ 102.................... 1,060,000 1,159,375
Aaa/AAA Long Term Health Care, (FSA) (SONYMA
Insured), 6.50%, 11/1/2015, Callable
11/1/2002 @ 102..................... 2,245,000 2,475,113
Aaa/AAA Mental Health Services Facilities,
(FSA), 6.25%, 2/15/2009, Callable
8/15/2004 @ 102..................... 1,420,000 1,586,850
A3/A- Mental Health Services Facilities,
7.625%, 2/15/2008, Callable
9/28/1998 @ 102..................... 330,000 338,884
A3/A- Mental Health Services Facilities,
7.875%, 8/15/2020, Callable
8/15/2000 @ 102..................... 385,000 418,688
Aaa/AAA New York Hospital, Series A, (AMBAC)
(FHA), 6.50%, 8/15/2029, Prerefunded
2/15/2005 @ 102..................... 1,500,000 1,725,000
Aaa/AAA New York Hospital, Series A, (AMBAC)
(FHA), 6.90%, 8/15/2034, Prerefunded
2/15/2005 @ 102..................... 3,350,000 3,927,875
Aaa/AAA St. Mary's Hospital Project, Series A,
(AMBAC), 6.20%, 11/1/2014, Callable
11/1/2003 @ 102..................... 2,100,000 2,323,125
New York State Thruway Authority
Aa3/AA- New York State Thruway Authority
Revenue, Series E, 5.25%, 1/1/2014,
Callable 1/1/2008 @ 101............. 4,755,000 4,933,313
Aa3/AA- New York State Thruway Authority
Revenue, Series E, 5.00%, 1/1/2025,
Callable 1/1/2008 @ 101............. 3,265,000 3,236,431
</TABLE>
4
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS -- AUGUST 31, 1998 (UNAUDITED) -- CONTINUED
<TABLE>
<CAPTION>
Credit Principal Value (Note
Ratings** Municipal Securities -- continued Amount 2)
- ---------- ---------------------------------------- ------------- -------------
<S> <C> <C> <C>
New York State Urban Development
Corporation, Empire State Development
Corporation
Baa1/BBB+ University Facilities Grants, 6.00%,
1/1/2008............................ 850,000 943,500
Baa1/BBB+ University Facilities Grants, 6.00%,
1/1/2009............................ 905,000 1,009,075
Baa1/BBB+ University Facilities Grants, 6.00%,
1/1/2010............................ 955,000 1,073,181
Baa1/BBB+ Youth Facilities, 5.75%, 4/1/2008,
Callable 4/1/2005 @ 102............. 1,000,000 1,082,500
A1/A- Triborough Bridge & Tunnel Authority,
Special Obligation, Series B, 7.10%,
1/1/2010, Callable 1/1/2001 @ 102..... 3,725,000 4,018,344
-------------
TOTAL NEW YORK STATE AGENCIES (Cost
$67,468,338).......................... 71,025,770
-------------
OTHER NEW YORK STATE BONDS--22.27%
Baa1/NR Albany County Housing Authority, Ltd.
Obligation, 6.25%, 10/1/2012, Callable
10/1/2005 @ 102....................... 1,000,000 1,113,750
Aaa/AAA Buffalo Municipal Water Finance
Authority, Water System Revenue,
(FGIC), 5.00%, 7/1/2028, Callable
7/1/2008 @ 101........................ 1,000,000 993,750
Aaa/AAA Buffalo Municipal Water Finance
Authority, Water System Revenue,
(FGIC), 5.75%, 7/1/2019, Callable
7/1/2005 @ 102........................ 500,000 532,500
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 1,595,625
Aaa/AAA Evans, General Obligation, (AMBAC),
6.80%, 4/15/2012...................... 225,000 275,625
Aaa/AAA Evans, General Obligation, (AMBAC),
6.80%, 4/15/2013...................... 225,000 277,031
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 1,167,375
Baa1/BBB+ Metropolitan Transportation Authority,
Commuter Facilities, Series A, 5.25%,
7/1/2028, Callable 7/1/2008 @ 101..... 4,000,000 4,030,000
NR/AAA Monroe County Industrial Development
Agency Civic Facility, Nazareth
College, (MBIA), 5.25%, 4/1/2023,
Callable 4/1/2008 @ 101............... 500,000 508,750
Aaa/AAA Mount Sinai Union Free School District,
General Obligation, (AMBAC), 6.20%,
2/15/2012............................. 1,065,000 1,239,394
Aaa/AAA Nassau County Industrial Development
Agency Civic Facility, Hofstra
University, (MBIA), 5.00%, 7/1/2023,
Callable 7/1/2008 @ 102............... 3,985,000 3,980,019
Aaa/AAA North Hempstead, General Obligation,
Series B, (FGIC), 6.375%, 4/1/2009.... 570,000 668,325
Aaa/AAA North Hempstead, General Obligation,
Series B, (FGIC), 6.40%, 4/1/2010..... 560,000 661,500
NR/AAA Oneida County, Industrial Develpoment
Agency, Mohawk Valley Network, Faxton
Hospital, (FSA), 5.00%, 1/1/2013,
Callable 1/1/2008 @ 101............... 1,250,000 1,268,750
</TABLE>
5
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS -- AUGUST 31, 1998 (UNAUDITED) -- CONTINUED
<TABLE>
<CAPTION>
Credit Principal Value (Note
Ratings** Municipal Securities -- continued Amount 2)
- ---------- ---------------------------------------- ------------- -------------
<S> <C> <C> <C>
NR/AAA Oneida County, Industrial Development
Agency, Mohawk Valley Network, St
Luke's Memorial Hospital, (FSA),
5.00%, 1/1/2013, Callable 1/1/2008 @
101................................... 2,000,000 2,030,000
Suffolk County, General Obligation
Aaa/AAA Series C, (FGIC), 5.00%, 9/15/2015,
Callable 9/15/2008 @ 101............ 965,000 973,444
Aaa/AAA Series D, (FGIC), 5.00%, 11/1/2015,
Callable 11/1/2008 @ 101............ 1,125,000 1,134,844
Aaa/AAA Series C, (FGIC), 5.00%, 9/15/2016,
Callable 9/15/2008 @ 101............ 550,000 553,437
Aaa/AAA Series D, (FGIC), 5.00%, 11/1/2016,
Callable 11/1/2008 @ 101............ 1,110,000 1,116,937
Aaa/AAA Series C, (FGIC), 5.00%, 9/15/2017,
Callable 9/15/2008 @ 101............ 480,000 480,600
NR/A- Westchester County Industrial
Development Agency Civic Facility,
Lawrence Hospital, Series A, 5.125%,
1/1/2018, Callable 1/1/2008 @ 102..... 2,800,000 2,807,000
-------------
TOTAL OTHER NEW YORK STATE BONDS (Cost
$25,190,229).......................... 27,408,656
-------------
OTHER MUNICIPAL BONDS--8.5%
Aaa/AAA Guam Government Limited Obligation
Highway Revenue, Series A, (FSA),
6.25%, 5/1/2007, Callable 5/1/2002 @
102................................... 1,000,000 1,087,500
Baa1/A Puerto Rico Commonwealth, General
Obligation, 5.00%, 7/1/2027, Callable
7/1/2008 @ 101........................ 3,500,000 3,473,750
Baa1/A- Puerto Rico Commonwealth, Highway &
Transportation Authority, 5.00%,
7/1/2028, Callable 7/1/2008 @ 101..... 6,000,000 5,932,500
-------------
TOTAL OTHER MUNICIPAL BONDS (Cost
$10,148,388).......................... 10,493,750
-------------
SHORT TERM INVESTMENTS -VARIABLE
RATE--.08% Dreyfus New York Municipal
Cash Management Fund (Cost
$100,000)............................. 100,000 100,000
-------------
TOTAL INVESTMENTS--98.7% (Cost
$115,120,068)*........................ 121,483,176
OTHER ASSETS IN EXCESS OF
LIABILITIES--1.3%..................... 1,559,264
-------------
NET ASSETS--100.0%...................... 123,042,440
-------------
-------------
</TABLE>
- ------------------
Percentages indicated are based on net assets of $123,042,440
(a) Securities pledged as collateral for futures transactions or when issued
securities.
* Represents cost for federal income tax purposes and differs from value by net
unrealized appreciation of securities as follows:
<TABLE>
<S> <C> <C> <C>
Unrealized appreciation............................................ $ 6,140,452
Unrealized depreciation............................................ 0
-------------
Net unrealized appreciation........................................ 6,140,452
-------------
-------------
</TABLE>
At August 31, 1998 the funds open future contracts were as follows:
<TABLE>
<CAPTION>
# of
Contracts Opening Current Market Expiration
Sold Contract Type Position Value Date
- --------- -------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
25 CBT Muni Index $3,092,969 $3,165,625 September 98
50 CBT Muni Index $6,181,250 $6,331,250 September 98
</TABLE>
6
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS -- AUGUST 31, 1998 -- CONTINUED
**Credit Ratings given by Moody's Investors Service Inc. and Standard & Poor's
Corporation (unaudited).
<TABLE>
<CAPTION>
MOODY'S STANDARD & POOR'S
<S> <C> <C>
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 quality 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
Connie Lee Insured as to principal and interest by Connie Lee Insurance Company
FGIC Insured as to principal and interest by the Financial Guarantee Insurance Corporation.
FHA Insured by the Federal Housing Administration
FNMA Insured by the Federal National Mortgage Association.
FSA Insured as to principal and interest by Financial Security Assurance.
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>
7
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
AUGUST 31, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities, at value (cost $115,120,068) (Note 2)............................... $ 121,483,176
Interest receivable............................................................................ 1,354,930
Receivable from investment securities sold..................................................... 491,255
Prepaid insurance and other assets............................................................. 20,413
--------------
Total Assets................................................................................. 123,349,774
LIABILITIES:
Income distribution payable...................................................... $ 87,535
Payable to custodian............................................................. 48,336
Fund accounting and shareholder servicing fees payable (Note 4).................. 4,430
Advisory fee payable (Note 4).................................................... 40,165
Administrative services fee payable (Note 4)..................................... 3,179
Variation margin payable on futures contracts.................................... 35,156
Other payables and accrued expenses.............................................. 88,533
------------
Total Liabilities.............................................................. 307,334
------------
NET ASSETS....................................................................................... $ 123,042,440
--------------
--------------
NET ASSETS:
Net assets consist of:
Paid-in capital.............................................................................. $ 114,284,540
Accumulated net investment income............................................................ 26,242
Accumulated net realized gain/(loss) on investments including futures contracts.............. 2,591,206
Net unrealized appreciation/(depreciation) on investments including futures contracts........ 6,140,452
--------------
NET ASSETS....................................................................................... $ 123,042,440
--------------
--------------
SHARES OF BENEFICIAL INTEREST:
Builder Class:
Shares of beneficial interest outstanding........................................ 3,171,159
------------
------------
Net asset value, offering and redemption price per share ($58,286,450 divided by
3,171,159)..................................................................... $ 18.38
------------
------------
Premier Class:
Shares of beneficial interest outstanding........................................ 3,523,051
------------
------------
Net asset value, offering and redemption price per share ($64,755,990 divided by
3,523,051)..................................................................... $ 18.38
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED AUGUST 31, 1998
<TABLE>
<S> <C> <C>
INCOME:
Interest............................................ $3,160,335
Dividend............................................ 72,519
----------
3,232,854
EXPENSES:
Advisory fees (Note 4).............................. $ 237,660
Administrative services fees (Note 4)............... 115,951
Transfer agency and dividend disbursing fees
(Builder Class) (Note 4).......................... 113,920
Transfer agency and dividend disbursing fees
(Premier Class) (Note 4).......................... 22,109
Legal............................................... 15,469
Custody............................................. 22,489
Printing............................................ 29,777
Audit............................................... 16,285
Fund accounting fees and expenses (Note 4).......... 17,462
Trustees' fees and expenses......................... 12,543
Registration........................................ 6,100
Miscellaneous....................................... 10,453
-----------
Total expenses.................................... 620,218
Less: Custody fee credit.......................... (20,392)
-----------
Total net expenses.................................. 599,826
----------
INVESTMENT INCOME-NET............................... 2,633,028
----------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
(NOTES 2 AND 3)
Net realized gain/(loss) on investments............. 22,587
Net increase/(decrease) in unrealized
appreciation/(depreciation) on investments
including futures contracts....................... 1,048,763
-----------
Net gain/(loss) on investments.................... 1,071,350
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................................ $3,704,378
----------
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the
Six Months
Ended For the Year
August 31, Ended
1998 February 28,
(unaudited) 1998
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS:
OPERATIONS:
Investment income--net.......................... $ 2,633,028 $ 5,433,274
Net realized gain/(loss) on investments......... 22,587 3,075,195
Net increase/(decrease) in unrealized
appreciation/(depreciation) on investments
including futures contracts................... 1,048,763 631,363
------------ ------------
Net increase in net assets resulting from
operations.................................... 3,704,378 9,139,832
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income--Builder Class............ (1,202,359) (2,554,368)
Net investment income--Premier Class............ (1,430,670) (2,878,905)
Net realized gains on investments--Builder
Class......................................... -- (223,745)
Net realized gains on investments--Premier
Class......................................... -- (244,521)
------------ ------------
Total distributions............................. (2,633,029) (5,901,539)
------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from sale of shares--Builder Class..... 3,715,770 6,733,305
Proceeds from sale of shares--Premier Class..... 2,647,044 6,426,129
Proceeds from reinvestment of income and capital
gains distributions--Builder Class............ 1,060,652 2,510,068
Proceeds from reinvestment of income and capital
gains distributions--Premier Class............ 1,246,709 2,816,592
Cost of shares redeemed--Builder Class.......... (6,080,836) (10,822,859)
Cost of shares redeemed--Premier Class.......... (4,148,422) (5,860,550)
------------ ------------
Net increase/(decrease) in net assets from
capital share transactions.................... (1,559,083) 1,802,685
------------ ------------
Net increase/(decrease) in net assets........... (487,734) 5,040,978
NET ASSETS:
Beginning of period............................. 123,530,174 118,489,196
------------ ------------
End of period................................... $123,042,440 $123,530,174
------------ ------------
------------ ------------
Undistributed net investment income included in
net assets at end of period....................... $ 26,242 $ 26,243
------------ ------------
------------ ------------
SHARE TRANSACTIONS:
Issued--Builder Class........................... 204,726 373,722
Issued--Premier Class........................... 145,940 358,743
Reinvested--Builder Class....................... 58,517 139,720
Reinvested--Premier Class....................... 68,781 156,849
Redeemed--Builder Class......................... (335,381) (604,911)
Redeemed--Premier Class......................... (228,468) (327,014)
------------ ------------
Change in shares.................................. (85,885) 97,109
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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
11
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
established are reviewed by officers of the Fund and the Fund's Investment
Adviser, under the general supervision of the Trustees of the Fund.
Securities for which quotations are readily available are stated at market
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.
FUTURE 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.
12
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
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 permanent 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. 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 six months ended August 31, 1998, amounted to
$115,118,832 and $114,096,806, 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 six months ended
August 31, 1998, the advisory fee earned by the Adviser was $237,660.
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 six months ended August 31, 1998, there was
no reduction of advisory fees pursuant to this agreement.
13
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
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 and 0.14%
of any excess over $100,000,000. For the six months ended August 31, 1998, BISYS
earned $115,951 under its Administration Agreement with the Fund.
BISYS also provided 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 six months year ended August 31,
1998, BISYS received fees and expense reimbursement of $17,462 under its Fund
Accounting Agreement with the Fund.
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 six months ended,
August 31, 1998, BISYS received fees and expense reimbursements of $113,920 for
the Builder Class and $22,109 for the Premier Class under the Transfer Agency
Agreement.
5. OFF-BALANCE-SHEET RISK AND DERIVATIVES:
The Fund's use of futures contracts involves, to varying degrees, elements
of market risk in excess of the amount recognized in the statement of assets and
liabilities. Futures contracts are one type of derivative financial instrument
and are used by the Fund to hedge against changes in the values of New York tax
exempt bonds that the Fund owns or expects to purchase. Although futures
contracts are not used by the Fund for the purpose of leveraging or speculating,
they can result in additional risks if used improperly. The objective in buying
or selling a derivative instrument is to increase or decrease a Fund's exposure
to changing security prices and interest rates. If the Adviser misjudges market
conditions or employs a strategy that does not correlate well with the Fund's
other investments; use of these derivatives could result in a loss, regardless
of the Adviser's original intent to reduce risk.
14
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OF BENEFICIAL INTEREST
OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Period Ended**
Six Months Ended Year Ended --------------------------
-------------------------- ------------------ February 28, February 28,
August 31, 1998 February 28, 1998 1997 1997
-------------------------- ------------------ ------------ ------------
Builder Premier Builder Premier Builder Premier
Class Class Class Class* Class Class
----------- ----------- ------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................. $ 18.22 $ 18.22 $ 17.73 $ 17.73 $ 17.96 $ 17.57
-------- ------- ------- -------- -------- --------
Income from Investment Operations:
Net investment income............ 0.37 0.40 0.79 0.84 0.84 0.75
Net realized and unrealized gains
(losses) on securities......... 0.16 0.16 0.56 0.56 (0.10) 0.29
-------- ------- ------- -------- -------- --------
Total from Investment
Operations..................... 0.53 0.56 1.35 1.40 0.74 1.04
-------- ------- ------- -------- -------- --------
Less Distributions:
Dividends from net investment
income......................... (0.37) (0.40) (0.79) (0.84) (0.84) (0.75)
Distributions from net realized
capital gains.................. -- -- (0.07) (0.07) (0.13) (0.13)
Distributions in excess of net
realized capital gains......... -- -- -- -- -- --
-------- ------- ------- -------- -------- --------
Total distributions.............. (0.37) (0.40) (0.86) (0.91) (0.97) (0.88)
-------- ------- ------- -------- -------- --------
Net Asset Value, End of Period...... $ 18.38 $ 18.38 $ 18.22 $ 18.22 $ 17.73 $ 17.73
-------- ------- ------- -------- -------- --------
-------- ------- ------- -------- -------- --------
Total Return (excludes sales
charge)............................ 2.96%(c) 3.13%(c) 7.82% 8.08% 4.30% 6.03%(c)
Ratios/Supplementary Data:
Net Assets, End of Period
(in thousands)................. $58,286 $64,756 $59,091 $ 64,439 $ 59,133 $ 59,356
Ratios of Net Investment Income
to Average Net Assets.......... 2.08%(b) 2.25% 4.42% 4.66% 4.81% 4.88%(b)
Ratios of Expenses to Average Net
Assets......................... 0.58%(b) 0.42% 1.06% 0.81% 1.03% 0.93%(b)
Ratios of Expenses to Average Net
Assets* ....................... 0.60%(b) 0.44% 1.16% 0.91% 1.07% 0.97%(b)
Portfolio Turnover Rate(a)....... 99.00% 99.00% 201.00% 201.00% 181.00% 181.00%
<CAPTION>
Year Ended
------------------------------
February February February
28, 1995 28, 1995 28, 1994
-------- -------- --------
Builder Builder Builder
Class Class Class
-------- -------- --------
<S> <C> <C> <C>
Net Asset Value, Beginning of $ 17.31 $ 18.24 $ 18.41
Period.............................
-------- -------- --------
Income from Investment Operations:
Net investment income............ 0.87 0.87 0.9
Net realized and unrealized gains
(losses) on securities......... 0.65 (0.71) 0.09
-------- -------- --------
Total from Investment
Operations..................... 1.52 0.16 .99
-------- -------- --------
Less Distributions:
Dividends from net investment
income......................... (0.87) (0.87) (0.90)
Distributions from net realized
capital gains.................. -- -- (0.26)
Distributions in excess of net
realized capital gains......... -- (0.22) --
-------- -------- --------
Total distributions.............. (0.87) (1.09) (1.16)
-------- -------- --------
Net Asset Value, End of Period...... $ 17.96 $ 17.31 $ 18.24
-------- -------- --------
-------- -------- --------
Total Return (excludes sales
charge)............................ 8.95% 1.09% 5.44%
Ratios/Supplementary Data:
Net Assets, End of Period
(in thousands)................. $117,860 $108,020 $108,305
Ratios of Net Investment Income
to Average Net Assets.......... 4.91% 5.04% 4.85%
Ratios of Expenses to Average Net
Assets......................... 0.96% 0.93% 0.98%
Ratios of Expenses to Average Net
Assets* ....................... 1.01% 164.00%
Portfolio Turnover Rate(a)....... 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
15
<PAGE>
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<PAGE>
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<PAGE>
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<PAGE>
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; Vice President, Tax
and Financial Services, BISYS Fund Services
GEORGETTE L. HORTON
Vice President of the Fund; Vice President,
BISYS Fund Services
PAUL T. KANE
Treasurer of the Fund; Vice President and
Treasurer, Tax and Financial Services, 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>
[EMPIRE BUILDER LOGO]
3435 Stelzer Road
Columbus, Ohio 43219
1-800-847-5886
[EMPIRE BUILDER LOGO]
TAX FREE BOND FUND
SEMI ANNUAL REPORT
AUGUST 31, 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
PRICEWATERHOUSECOOPERS LLP
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.
101262-10
