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As Filed with the Securities and Exchange Commission on June 28, 1999
Registration Nos. 2-86931
811-3907
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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. 19 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 20 |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, Ohio 43219
(Address of Principal Executive Offices with Zip Code)
Registrant's Telephone Number, including Area Code: (800) 847-5886
George Stevens, Esq.
The Empire Builder Tax Free Bond Fund
3435 Stelzer Road
Columbus, Ohio 43219
(Name and Address of Agent for Service)
with a copy to:
John M. Loder, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
It is proposed that this filing will become effective:
__X__ immediately upon filing pursuant to paragraph (b)
_____ on (date) pursuant to paragraph (b)
_____ 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
_____ 60 days after filing pursuant to paragraph (a)(i)
If appropriate, check the following box:
_____ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
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EMPIRE BUILDER TAX FREE BOND FUND CONTENTS
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RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
LOGO
Carefully review this 3 Overview
important section, which 5 Performance Bar Chart and Performance Table
summarizes the Fund's 6 Fees and Expenses
investment strategies,
risks, past performance,
and fees.
INVESTMENT GOAL, STRATEGIES AND RISKS
LOGO
LOGO
Review this section for 7 Investment Goal
more information on 7 Main Investment Strategies and Risks
investment strategies and 8 Main Investments of the Fund
their risks. 8 Main Risks of Investing in the Fund
9 Other Information about the Fund's Investment
Techniques and Policies
FUND MANAGEMENT
LOGO
LOGO
Review this section for 11 Investment Adviser
details on the people and 11 Portfolio Manager
organizations who oversee
the Fund.
SHAREHOLDER INFORMATION
LOGO
LOGO
Review this section for 12 Summary of Features
details on how shares are 13 Pricing of Fund Shares
valued, how to purchase, 13 Purchasing and Adding to Your Shares
sell and exchange shares, 17 Selling Your Shares
related charges and 19 General Policies on Selling Shares
payments of dividends and 21 Exchanging Your Shares
distributions. 21 Dividends, Distributions and Taxes
OTHER INFORMATION ABOUT THE FUND
LOGO
LOGO
Review this section for 23 Financial Highlights
details on selected
financial highlights of
the Fund.
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RISK/RETURN SUMMARY AND FUND EXPENSES
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RISK/RETURN SUMMARY OF THE EMPIRE BUILDER TAX FREE BOND FUND
INVESTMENT GOAL To seek as high a level of current income exempt from
federal, New York State and New York City personal income
taxes as it can while preserving its capital. The Fund may
or may not achieve its goal.
MAIN INVESTMENT STRATEGIES The Fund is a New York municipal bond fund which invests
mainly in New York Tax Exempt Bonds. New York Tax Exempt
Bonds are
- debt obligations issued by the State of New York and its
political subdivisions, or other governmental authorities,
such as U.S. possessions like Puerto Rico, Guam, and the
Virgin Islands.
- the interest from which is exempt from both federal income
tax and New York State and City personal income taxes (other
than alternative minimum tax).
At least 90% of the Fund's income distributions will be
exempt from federal, New York State and City personal income
taxes, including alternative minimum tax, during normal
market conditions.
CREDIT STRATEGY. The Fund will only invest in New York Tax
Exempt Bonds which are of investment grade quality. Also, no
more than 50% of the Fund's assets will be invested in New
York Tax Exempt Bonds which are of a quality reflected in
the lowest investment grade rating. Some of the New York Tax
Exempt Bonds may not be rated; they will be of investment
grade quality in the Adviser's opinion.
MATURITY STRATEGY. The Fund will vary its maturity strategy
depending on market conditions. However, its average
maturity is expected to be between 10-20 years under normal
market conditions.
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RISK/RETURN SUMMARY AND FUND EXPENSES
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MAIN INVESTMENT RISKS The value of the Fund's investments will go up and down with
market conditions, and so will the value of your investment
in the Fund. You could lose money on your investment in the
Fund, or the Fund could underperform other investments.
NONDIVERSIFICATION/NEW YORK CONCENTRATION. The Fund is
nondiversified, so it will probably hold shares of fewer
issuers than a diversified fund. Therefore, a default or a
credit downgrade of any single issuer will have a greater
impact on the Fund. The performance of the Fund is likely to
be especially affected by factors pertaining to the New York
economy and to New York governmental entities in particular.
Therefore, Fund shares could fluctuate more in value than
shares of a national municipal portfolio.
INTEREST RATE RISK. The Fund invests in debt securities,
which are subject to market risk. Market risk is the risk of
decline in market value in response to variation in interest
rates. When interest rates rise, the value of bonds like
those held by the Fund generally falls. The longer the
maturity of a security, the more its value will tend to
decline when interest rates rise.
CREDIT RISK. The debt securities in which the Fund invests
are subject to credit risk, which is the risk that the
issuer may fail to make timely payments. Bonds rated in the
lowest investment grade, which may comprise up to 50% of the
Fund's assets, are considered medium grade obligations. The
amount of information available about the financial
condition of an issuer of New York Tax Exempt Bonds is
generally considerably less than the information made
available by publicly held companies.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you are seeking:
[ ] REGULAR MONTHLY TAX-FREE DIVIDENDS;
[ ] TO REDUCE TAXES ON INVESTMENT INCOME;
[ ] A LONG-TERM GOAL SUCH AS RETIREMENT.
This Fund will not be appropriate for anyone:
[ ] INVESTING THROUGH A TAX-EXEMPT RETIREMENT PLAN;
[ ] PURSUING AN AGGRESSIVE HIGH GROWTH INVESTMENT STRATEGY;
OR
[ ] SEEKING TO AVOID MARKET FLUCTUATION IN SHARE PRICE.
The Fund is not intended as a complete investment program.
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RISK/RETURN SUMMARY AND FUND EXPENSES
The bar chart and table on this
page provide some indication of the
risks of investing in the Fund by
showing how the Fund has performed
and how its performance has varied
from year to year. The bar chart
shows changes in the Fund's yearly
performance over ten years to
demonstrate that the Fund's value
varied at different times. The
table below it compares the Fund's
performance over time to that of
the Lehman Municipal Bond Index, a
widely recognized, unmanaged index
of municipal bonds.
PERFORMANCE BAR CHART
TOTAL RETURNS BY CALENDAR YEAR (1)
FOR BUILDER CLASS SHARES
[STATED AS PERCENTAGES]
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'1989' 7.59
'1990' 5.56
'1991' 10.98
'1992' 8.74
'1993' 12.23
'1994' -4.49
'1995' 14.59
'1996' 3.23
'1997' 7.96
'1998' 4.94
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The returns shown in the bar chart are for
Builder Class shares. Of course, past
performance does not indicate how the Fund
will perform in the future.
Best quarter: 5.94% for the
quarter ending
March 31, 1995
Worst quarter: -4.87% for the
quarter ending
March 31, 1994
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending December 31, 1998*)
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<CAPTION>
CLASS PAST PAST PAST SINCE
INCEPTION YEAR 5 YEARS 10 YEARS INCEPTION
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PREMIER CLASS 4/15/96 5.26% N/A N/A 6.92%
BUILDER CLASS 6/1/84 4.94% 5.06% 7.01% 8.71%
LEHMAN MUNICIPAL 8.16% (4/15/96)
BOND INDEX 6.48% 6.23% 8.22% 9.60% (6/1/84)
</TABLE>
* For current performance information, including the Fund's 30-day yield and
tax equivalent yield, call 1-800-847-5886.
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(1) Both the chart and the table assume reinvestment of dividends and
distributions.
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RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
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As an investor in the Fund, you will SHAREHOLDER TRANSACTION EXPENSES PREMIER BUILDER
pay the following fees and expenses. (FEES PAID BY YOU DIRECTLY) CLASS CLASS
Shareholder transaction fees are paid
from your account. Annual Fund Maximum sales charge (load)
operating expenses are paid out of on purchases None None
Fund assets, and are reflected in the Exchange Fee* $5.00 N/A
share price. ANNUAL FUND OPERATING EXPENSES
(FEES PAID FROM FUND ASSETS)
Advisory Fee .39% .39%
Other Expenses
(including Administration Fee) .43% .72%
Total Annual Fund Operating Expenses .82% 1.11%
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* Exchanges are from Premier
Class to Builder Class.
Use this example to compare
fees and expenses with those
of other funds. It illustrates
the amount of fees and expenses
you would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end
of each period
- no changes in the
Fund's operating
expenses
Because this example is
hypothetical and for
comparison only, your actual
costs will be different.
EXAMPLE
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1 3 5 10
YEAR YEARS YEARS YEARS
PREMIER CLASS $ 84 $262 $456 $1,015
BUILDER CLASS $113 $353 $612 $1,353
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INVESTMENT GOAL, STRATEGIES AND RISKS
THE EMPIRE BUILDER TAX FREE BOND FUND
INVESTMENT GOAL
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 Adviser believes
is consistent with preservation of capital. If it can preserve capital at the
same time, the Fund will also try to achieve capital appreciation. The Fund
has a fundamental policy that, under normal market conditions, at least
[ ] 90% of its income distributions will consist of interest income on New
York Tax Exempt Bonds whose income is federal and New York State and City
tax exempt and not subject to alternative minimum tax.
[ ] Up to the remaining 10% of its income distributions may consist of
- interest income on AMT Bonds, which are New York Tax Exempt Bonds whose
income is subject to ALTERNATIVE MINIMUM TAX, and
- interest income on investments other than New York Tax Exempt Bonds,
which may be FULLY TAXABLE.
However, although the Fund retains the freedom to invest to a limited extent
in AMT Bonds and taxable investments, it has not done so over the past ten
years and does not currently anticipate any change in its practice of
avoiding such investments.
MAIN INVESTMENT STRATEGIES AND RISKS
The Fund invests mainly in New York Tax Exempt Bonds. New York law exempts
Fund distributions derived from interest on New York Tax Exempt Bonds from
New York State and City personal income taxes. During the Fund's fiscal year
ended February 28, 1999, 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 that year were derived from AMT
Bonds.
CREDIT STRATEGY. The Fund will only buy New York Tax Exempt Bonds if they are
investment grade quality. At the time of purchase, rated bonds will be rated
not lower than the four highest grades assigned by both Moody's (Aaa, Aa, A
or Baa) and Standard & Poor's (AAA, AA, A or BBB). Unrated bonds will be of
comparable quality in the Adviser's opinion. The Fund will not invest more
than 50% of its total assets in New York Tax Exempt Bonds that are rated in
the lowest investment grade rating or of comparable quality. Bonds rated in
the lowest investment grade rating have some speculative characteristics. A
description of the Moody's and S&P ratings of bonds and commercial paper of a
quality eligible for purchase by the Fund is included in the Statement of
Additional Information ("SAI"). Bonds rated in the lowest investment grade
are considered medium grade obligations. The amount of information available
about the financial condition of an issuer of New York Tax Exempt Bonds is
generally considerably less than the amount of information made available by
publicly held companies.
MATURITY STRATEGY. The Fund will vary its maturity strategy depending on
market conditions. However, its average maturity is generally expected to be
between 10-20 years under normal market conditions.
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INVESTMENT GOAL, STRATEGIES AND RISKS
MAIN INVESTMENTS OF THE FUND
NEW YORK TAX EXEMPT BONDS ARE
- debt obligations issued by the State of New York and its political
subdivisions, or certain other governmental authorities such as U.S.
possessions like Puerto Rico, Guam and the Virgin Islands
- the interest from which is exempt from both federal income tax and New York
State and City personal income taxes
- Some New York Tax Exempt Bonds, however, generate interest which is subject
to alternative minimum tax. They are called AMT Bonds.
New York Tax Exempt 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 industrial development bonds and private activity bonds
issued by public authorities to finance privately owned or operated
facilities. Such bonds may be AMT Bonds. The Fund generally avoids purchasing
AMT Bonds, although it retains the freedom to do so to a limited extent.
MAIN RISKS OF INVESTING IN THE FUND
INTEREST RATE RISK. The Fund's investments will go up and down in value as
the general level of interest rates changes. When interest rates fall, the
values of bonds like those held by the Fund generally rise. On the other
hand, when interest rates go up, the values of such bonds generally fall. The
longer the maturity of a security, the more its value will go up and down in
response to interest rate changes. Changes in the credit ratings of
obligations and in the ability of an issuer to make payments will also affect
the value of these investments. The value of the Fund's shares varies along
with the value of its investments.
EFFECT OF CREDIT STRATEGY ON YIELD AND TOTAL RETURN. The Fund seeks to
preserve capital, and the portion of the Fund's assets that may be invested
in lower-rated bonds is limited compared with some other New York municipal
bond funds. The higher risk of lower-rated bonds is normally accompanied by
higher yields and anticipated total returns than higher-rated bonds. The
Fund's yield and total return may therefore be significantly lower than that
of those other New York municipal bond funds which invest more of their
assets in lower-rated bonds.
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INVESTMENT GOAL, STRATEGIES AND RISKS
SPECIAL RISKS OF NEW YORK TAX EXEMPT BONDS. Most issuers of New York Tax
Exempt Bonds are located in New York, so the performance of the Fund will be
especially affected by the condition of the New York economy. As a result,
the value of the Fund's shares could fluctuate more than the value of shares
of a national municipal bond fund. State and local governments and political
subdivisions rely on tax and other revenues to make payments on their bonds.
Tax and other revenues will be affected by the state of the local economy,
the political climate and local population trends. Constitutional or
statutory restrictions may also limit issuers' power to raise revenues or
increase taxes. Decreases in the amount of federal, state or local aid to
issuers can lower the credit quality of their bonds. Revenue bonds depend for
payment on the revenues of the facility or specific revenue source which is
paying off the bonds. Those revenues will be affected by economic, political
and demographic conditions. Any default or credit downgrade of an issuer of
New York Tax Exempt Bonds would lower the market value and marketability of
its obligations. A downgrade or default by one issuer of New York Tax Exempt
Bonds, by influencing general market sentiment, could lead to a lowering of
the values of other New York Tax Exempt Bonds as well.
OTHER INFORMATION ABOUT THE FUND'S INVESTMENT TECHNIQUES AND POLICIES
CHANGE IN POLICY. The Trustees may change any policy not specifically
described in this prospectus or in the SAI as fundamental without a
shareholder vote. As a matter of policy, the Trustees will not change the
Fund's investment goal without shareholder approval.
TEMPORARY DEFENSIVE POSITIONS. The Fund may also invest in taxable debt
obligations on a temporary defensive basis due to market conditions. If it
does, more than 10% of the Fund's income distributions could be subject to
federal 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 investment grade debt securities, commercial paper
rated in the highest two grades by either Moody's or Standard & Poor's,
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. The use of such defensive positions may lower return,
may prevent the Fund from achieving its investment goal and will increase the
percentage of the Fund's distributions which are taxable.
PORTFOLIO TURNOVER. In periods of rapidly fluctuating interest rates, the
Fund may engage in active and frequent trading. Sometimes, the Fund may also
trade securities for the purpose of seeking short-term profits based on its
belief as to the direction of interest rates. The Fund may also trade in
response to changes in the creditworthiness of issuers, or to take advantage
of short-term disparities in market values or yields among comparable bonds.
A change in the securities held by the Fund is known as "portfolio turnover."
Portfolio turnover generally involves some expense to the Fund, including
dealer mark-ups and other transaction costs, and therefore affects Fund
performance. If sales create net realized capital gains, shareholders will
have to pay income tax on those gains. See "Dividends, Distributions and
Taxes." The Fund's portfolio turnover rate may be higher than that of similar
mutual funds.
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INVESTMENT GOAL, STRATEGIES AND RISKS
YEAR 2000 RISKS. Like other funds and business organizations around the
world, the Fund could be adversely affected if the computer systems used by
the Adviser and the Fund's other service providers do not properly process
and calculate date-related information for the Year 2000 and beyond. Year
2000 problems may adversely affect issuers of bonds in which the Fund
invests. For example, such issuers incur substantial costs to address Year
2000 issues which may affect their credit quality or they may suffer declines
in revenue or other adverse effects caused by the failure to adequately or
timely do so. The Fund has very little ability to influence the Year 2000
preparations of the issuers of the securities which it holds in its portfolio
or which it may propose to purchase.
The Fund has been assured that the Adviser and the Fund's other service
providers (i.e., Administrator, Transfer Agent, Fund Accounting Agent,
Custodian and Distributor) have developed and are implementing clearly
defined and documented plans intended to minimize risks to services critical
to the Fund's operations associated with Year 2000 issues. Internal efforts
include a commitment to dedicate adequate staff and funding to identify and
remedy Year 2000 issues, and specific actions such as inventorying software
systems, determining inventory items that may not function properly after
December 31, 1999, reprogramming or replacing such systems, and retesting for
Year 2000 readiness. The Adviser and service providers are likewise seeking
assurances from their respective vendors and suppliers that such entities are
addressing any Year 2000 issues, and each provider intends to engage, where
appropriate, in private and industry or "streetwide" interface testing of
systems for Year 2000 readiness.
In the event that any systems upon which the Fund is dependent are not Year
2000 ready by December 31, 1999, administrative errors and account
maintenance failures would likely occur. While the ultimate costs or
consequences of incomplete or untimely resolution of Year 2000 issues by the
Adviser or the Fund's service providers cannot be accurately assessed at this
time, the Fund currently has no reason to believe that the Year 2000 plans of
the Adviser and the Fund's service providers will not be completed by
December 31, 1999, or that the anticipated costs associated with full
implementation of their plans will have a material adverse impact on either
their business operations or financial condition of those of the Fund. The
Fund and the Adviser will continue to closely monitor developments relating
to this issue, including development by the Adviser and the Fund's service
providers of contingency plans for providing back-up computer services in the
event of a systems failure or the inability of any provider to achieve Year
2000 readiness. However, there is no way to be sure that these steps will be
sufficient to avoid any adverse impact on the Fund.
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FUND MANAGEMENT
INVESTMENT ADVISER
Glickenhaus & Co., (Glickenhaus or the "Adviser"), 6 East 43rd Street, New
York, NY 10017 is the adviser for the Funds. Glickenhaus & Co., which was
founded in 1961, has approximately $4.3 billion under investment management
as of December 31, 1998, including approximately $289 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. Glickenhaus
makes the day-to-day investment decisions and continuously reviews,
supervises and administers the Fund's investment program.
For these advisory services during the fiscal year ended February 28, 1999,
the Fund paid Glickenhaus a fee equal to .39% of the Fund's average net
assets.
PORTFOLIO MANAGER
James R. Vaccacio, Portfolio Manager, is primarily responsible for the
day-to-day management of the Fund's portfolio. Mr. Vaccacio joined the
Adviser as Manager of Municipal Trading in 1977. He assumed responsibility
for managing the Fund's portfolio in 1988.
The Statement of Additional Information has more detailed information about
the Investment Adviser and other service providers.
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SHAREHOLDER INFORMATION
SUMMARY OF FEATURES
The following chart is a summary of features for both the Premier Class and
the Builder Class of the Fund. The following pages provide more detail on
each of these features.
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FEATURE PREMIER CLASS BUILDER CLASS
Goal Higher Yield* Convenience
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Sales Charge None None
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Minimum Initial Investment $20,000 $1,000
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Additional Investments $100 minimum $100 minimum
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Checkwriting $5 initial/$1 per check No charge
$5,000 minimum check $500 minimum check
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Class Exchanges $5 to Builder** Free to Premier
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Auto Investing $100 minimum $100 minimum
(after initial investment)
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Auto Withdrawal Not available No charge
$5,000 minimum balance
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Direct Deposit Not available No charge
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Historical Account Information $5 per request Free
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Reinvestment from Free Free
Glickenhaus Sponsored
Unit Investment Trusts
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* Due to lower costs associated with Premier accounts (which are primarily
attributable to higher account size and therefore lower transfer agency
costs), the yield and total return are expected to be higher.
** Holders of Premier accounts which fall in value below $20,000 may be
requested to bring their balance up to $20,000. If they fail to do so
within two months, the account may be converted to Builder shares in which
case a $5 charge may be imposed.
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SHAREHOLDER INFORMATION
HOW NAV IS CALCULATED
The NAV is calculated by adding
the total value of the Fund's
investments and other assets,
subtracting its liabilities and
then dividing that figure by
the number of outstanding
shares of the Fund:
NAV =
TOTAL ASSETS - LIABILITIES
--------------------------
Number of Shares
Outstanding
You can find the Fund's NAV
daily in The Wall Street
Journal and other newspapers.
EMPPREM -- PREMIER CLASS
EMPBLD -- BUILDER CLASS
You may purchase Fund shares
through the Transfer Agent or
through a participating dealer
which may charge additional
fees and may require higher
minimum investments or impose
other limitations on buying and
selling shares.
If you purchase shares through
a participating dealer, the
dealer is responsible for
transmitting orders by close of
business and may have an
earlier cut-off time for
purchase and sale requests.
Consult your dealer or
institution for specific
information.
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PRICING OF FUND SHARES
Per share net asset value (NAV) for the Fund is determined
and its shares are priced at the close of regular trading on
the New York Stock Exchange, normally at 4:00 p.m. Eastern
time. Shares are not priced on days the Exchange is closed
for trading.
Your order for purchase, sale or exchange of shares is
priced at the next NAV calculated after it is received in
good order by the Fund. This is what is known as the
offering price.
Assets are valued daily at their current market value, in
the case of New York Tax Exempt Bonds as determined by an
independent pricing service approved by the Trustees. Assets
for which neither current pricing service quotations nor
market quotations are available are valued in good faith at
fair value under procedures approved by the Fund's Trustees.
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PURCHASING AND ADDING TO YOUR SHARES
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MINIMUM
MINIMUM SUBSEQUENT INVESTMENT*/
ACCOUNT TYPE INITIAL INVESTMENT* AUTOMATIC INVESTMENT PLAN**
Premier Class...... $20,000 $100
Builder Class...... $1,000 $100
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All purchases must be in U.S. dollars. A fee will be charged
for any checks that do not clear. Third-party or foreign
checks are not accepted.
The Fund may waive its minimum purchase requirement and the
Distributor may reject a purchase order if it considers such
action in the best interest of the Fund and its
shareholders.
* The minimum initial and subsequent amounts do not apply
to automatic investments into the Fund of distributions from
the Empire State Municipal Exempt Trust, Empire Guaranteed
Series and Empire Maximums AMT Series A -- the unit
investment trusts sponsored by the Adviser.
** You must send a check with your application for the
required minimum investment to open the account ($20,000 for
Premier and $1,000 for Builder). The minimum Automatic
Investment Plan amounts will apply to subsequent
investments.
</TABLE>
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SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT
BY MAIL
If purchasing through your dealer or broker, simply tell your dealer or
broker that you wish to purchase shares of the Fund and he or she will take
care of the necessary documentation. For all other purchases, follow the
instructions below.
Initial Investment:*
1. Carefully read and complete the application. Establishing your
account privileges now saves you the inconvenience of having to add
them later.
2. Make check, bank draft or money order payable to "The Empire Builder
Tax Free Bond Fund."
3. Mail to: The Empire Builder Tax Free Bond Fund, P.O. Box 182486,
Columbus, OH 43218-2486.
* Special procedures apply if you prefer to fax your application. Call
the Fund at 1-800-847-5886 for specific instructions.
Subsequent Investment:
1. Use the investment slip attached to your account statement, or, if
unavailable,
2. Include the following information:
- The Empire Builder Tax Free Bond Fund
- Share class
- Amount invested
- Account name
- Account number
Include your account number on your check.
3. Mail to: The Empire Builder Tax Free Bond Fund, P.O. Box 182486,
Columbus, OH 43218-2486.
BY OVERNIGHT SERVICE
See instructions 1-2 above for subsequent investments, and
send to: The Empire Builder Tax Free Bond Fund, c/o BISYS Fund Services,
Attn: T.A. Operations, 3435 Stelzer Road, Columbus, OH 43219.
ELECTRONIC PURCHASES
Your bank must participate in the Automated Clearing House (ACH) and must be
a United States Bank. Your bank or broker may charge for this service.
Establish electronic purchase option on your account application or call
1-800-847-5886. Your account can generally be set up for electronic purchases
within 10 business days.
Call 1-800-847-5886 to arrange a transfer from your bank account.
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SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
ELECTRONIC VS. WIRE TRANSFER
Wire transfers allow financial institutions to
send funds to each other almost instantaneously.
With an electronic purchase or sale, the
transaction is made through the Automated
Clearing House (ACH) and may take up to eight
business days to clear. There is generally no
fee for ACH transactions.
BY WIRE TRANSFER
Note: Your bank may charge a wire transfer fee.
For initial investment:
Call the Fund at 1-800-847-5886 for fax instructions and to request a
confirmation number. Follow the instructions below after receiving your
confirmation number.
For initial and subsequent investments:
Instruct your bank to wire transfer your investment to:
Huntington National Bank
Routing Number: ABA #044000024
A/C 01899607532
Include:
Your name
Your Fund account number
Your confirmation number
AFTER INSTRUCTING YOUR BANK TO WIRE THE FUNDS, CALL 1-800-847-5886 TO ADVISE
US OF THE AMOUNT BEING TRANSFERRED AND THE NAME OF YOUR BANK.
You can add to your account by using the convenient options described below.
The Fund reserves the right to change or eliminate these privileges at any
time upon 60 days' notice.
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<PAGE> 16
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SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
AUTOMATIC INVESTMENT PLAN
You can make automatic investments in
the Fund from your bank account,
through payroll deduction or from
your Social Security or other regular
government checks. Automatic
investments can be as little as $100
for the Builder Class and $100 for
the Premier Class, once you've
invested the minimum initial amount
required to open the account.
To invest regularly from your bank
account:
- Complete the Automatic Investment
Program portion on your Account
Application. Make sure you note:
- Your bank name, address and
account number
- The amount you wish to invest
automatically (minimum $100)
- How often you want to invest
(every month, 4 times a year,
twice a year or once a year)
- Attach a voided personal check.
DIRECT DEPOSIT OF FUND DIVIDENDS
By selecting the appropriate box in the
Account Application, you can elect to
receive your Builder Class distributions
in cash (check) or have distributions
(capital gains and dividends) from the
Fund automatically deposited into your
bank account. This feature is not
available for Premier Class accounts.
The Fund may modify or terminate this
option without notice. You can change or
terminate your participation in this
option at any time.
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<PAGE> 17
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SHAREHOLDER INFORMATION
SELLING YOUR SHARES
You may sell your shares at any time.
Your sales price will be the next NAV
after your sell order is received by
the Fund, its transfer agent, or your
investment representative. Normally
you will receive your proceeds within
a week after your request is
received.
WITHDRAWING MONEY FROM YOUR FUND INVESTMENT
As a mutual fund shareholder, you are
technically selling shares when you
request a withdrawal in cash. This is also
known as redeeming shares or a redemption
of shares.
INSTRUCTIONS FOR SELLING SHARES
If selling your shares through your dealer or broker, ask him or her for
redemption procedures. The request must be received by the Transfer Agent
before 4:00 p.m. Eastern time to receive that day's price. Your dealer or
broker may have transaction minimums and/or transaction times which will
affect your redemption.
For all other sales transactions, follow the instructions below.
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<PAGE> 18
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SHAREHOLDER INFORMATION
SELLING YOUR SHARES
<TABLE>
<S> <C>
By telephone Call 1-800-847-5886 with instructions on how you wish to
(unless you have declined receive your funds
telephone sales privileges) (mail, wire, electronic transfer). (See "General Policies on
Selling Shares -- Verifying Telephone Redemptions" below)
-----------------------------------------------------------------------------------------------
By mail 1. Call 1-800-847-5886 to request redemption forms or write
a letter of instruction indicating:
- Fund name, share class, account number, social security
number and account registration
- amount you wish to redeem
- address where your check should be sent
- account owner signature
2. Mail to:
The Empire Builder Tax Free Bond Fund
PO Box 182486
Columbus, OH 43218-2486
-----------------------------------------------------------------------------------------------
By overnight service See instruction 1 above, and
(See "General Policies on Send to:
Selling Shares -- Redemptions in The Empire Builder Tax Free Bond Fund
Writing Required" below) c/o BISYS Fund Services
Attn: T.A. Operations
3435 Stelzer Road
Columbus, OH 43219
-----------------------------------------------------------------------------------------------
Wire transfer Call 1-800-847-5886 to request a wire transfer. If you call
You must elect this option on by 4 p.m. Eastern time, your payment will normally be wired
your application. to your bank on the next business day.
The Fund may charge a wire
transfer fee.
Note: Your financial institution
may also charge a separate fee.
-----------------------------------------------------------------------------------------------
Electronic Redemptions Call 1-800-847-5886 to request an electronic redemption.
Your bank must participate in If you call by 4 p.m. Eastern time, the NAV of your shares
the Automated Clearing House will normally be determined on the same day and the proceeds
(ACH) and must be a U.S. bank. credited within 8 business days.
Your bank may charge for this
service.
</TABLE>
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<PAGE> 19
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SHAREHOLDER INFORMATION
SELLING YOUR SHARES
AUTOMATIC WITHDRAWAL PLAN -- BUILDER CLASS ONLY
You can receive automatic payments from your Builder Class account on a
monthly, quarterly, semi-annual or annual basis. The minimum withdrawal is
$25. Shareholders may not maintain an Automatic Withdrawal Plan and utilize
the check writing privilege (see below) at the same time. To activate this
feature:
- Make sure you've checked the appropriate box on the Account
Application, or call 1-800-847-5886.
- Your account must have a value of $5,000 or more to start withdrawals.
REDEMPTION BY 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.
To obtain checks, complete the signature card section of the Account
Application or contact the Fund to obtain a signature card. Dividends and
distributions will continue to be paid up to the day the check is presented
for payment. The check writing feature may be modified or terminated upon 30
days' written notice. You may not close your Fund account by writing a check.
GENERAL POLICIES ON SELLING SHARES
REDEMPTIONS IN WRITING REQUIRED
You must request redemption in writing if your request requires a signature
guarantee. Such requests would include each of the following:
- Redemptions over $25,000
- Your account registration or the name(s) on your account has changed
within the last 15 days
- The check is not being mailed to the address on your account
- The check is not being made payable to the owner of the account
- The redemption proceeds are being transferred to another Fund account
with a different registration
A signature guarantee can be obtained from a financial institution, such as a
bank, broker-dealer, or credit union, or from members of the STAMP
(Securities Transfer Agents Medallion Program), MSP (New York Stock Exchange
Signature Program) or SEMP (Stock Exchanges Medallion Program). Members are
subject to dollar limitations which must be considered when requesting their
guarantee. The Transfer Agent may reject any signature guarantee if it
believes the transaction would otherwise be improper.
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<PAGE> 20
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SHAREHOLDER INFORMATION
GENERAL POLICIES ON SELLING SHARES
VERIFYING TELEPHONE REDEMPTIONS
The Fund makes every effort to insure that telephone redemptions are only
made by authorized shareholders. All telephone calls are recorded for your
protection and you will be asked for information to verify your identity.
Unless you have specifically indicated on your application that you do not
want the telephone redemption feature, you may be responsible for any
fraudulent telephone orders which are not detected by the use of reasonable
precautions.
REDEMPTIONS WITHIN 10 BUSINESS DAYS OF INITIAL INVESTMENT
When you have made your initial investment by check, you cannot redeem any
portion of it until the check has cleared (which may require up to 10
business days). You can avoid this delay by purchasing shares with a
certified check or a federal funds wire.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the Securities and Exchange Commission ("SEC") in order to
protect remaining shareholders.
CLOSING OR EXCHANGE OF SMALL ACCOUNTS
If your Premier Class account falls below $20,000 as a result of redemptions,
the Fund may ask you to increase your balance. If it is still below $20,000
two months after the request, the Fund may convert your account from Premier
Class to Builder Class shares.
If your Builder Class account falls below 20 shares, the Fund may, after
giving you at least 60 days' written notice, close your account and send you
the proceeds.
UNDELIVERABLE REDEMPTION CHECKS
For any shareholder who chooses to receive distributions in cash: If
distribution checks (1) are returned and marked as "undeliverable" or (2)
remain uncashed for six months, your account will be changed automatically so
that all future distributions are reinvested in your account. Checks that
remain uncashed for six months will be canceled and the money reinvested in
the Fund.
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<PAGE> 21
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SHAREHOLDER INFORMATION
EXCHANGING YOUR SHARES
Builder Class shareholders who
meet the minimum account size
for the Premier Class can
exchange their Builder Class
shares for Premier Class
shares free of charge.
(see "Notes" below).
Exchanges from one Class to
another do not result in the
recognition of capital gains or
losses for federal income tax
purposes.
<TABLE>
<S> <C>
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges may be made by sending a written request to The
Empire Builder Tax Free Bond Fund, PO Box 182486, Columbus
OH 43218-2486, or by calling 1-800-847-5886. Please provide
the following information:
- Your name and telephone number
- The exact name on your account and account number
- Taxpayer identification number (usually your Social
Security number)
- Dollar value or number of shares to be exchanged
- The name of the Class from which the exchange is to be
made
- The name of the Class into which the exchange is being
made.
See "Selling your Shares" for important information about
telephone transactions.
NOTES ON EXCHANGES
- The registration and tax identification numbers of the two
accounts must be identical.
- The Exchange Privilege may be changed or eliminated at any
time upon 60 days' notice to shareholders.
- Premier Class shareholders who elect to exchange their
shares for Builder Class shares are charged a fee of $5 for
each exchange.
</TABLE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
Any income the Fund receives in the form of interest or dividends is paid
out, less expenses, to its shareholders as dividends. The Fund declares all
of its net investment income as a distribution on each business day. Net
investment income on the Fund is paid monthly. Any capital gains for the Fund
are distributed at least annually.
You can choose from three distribution options:
- Reinvest all distributions in additional Fund shares
- Receive net investment income in cash while reinvesting capital gains
distributions in Fund shares
- Receive all distributions in cash
All dividends and distributions will be automatically reinvested at net asset
value unless you request otherwise. There are no sales charges for reinvested
distributions. Dividends are higher for Premier Class shares than for Builder
Class, because Premier Class shares have lower expenses. Builder Class
shareholders may elect to have their dividends and distributions
automatically deposited directly in their bank accounts. Call 1-800-847-5886
for an authorization form.
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<PAGE> 22
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SHAREHOLDER INFORMATION
DISTRIBUTIONS ARE MADE ON A PER SHARE BASIS REGARDLESS
OF HOW LONG YOU'VE OWNED YOUR SHARES. THEREFORE, IF YOU INVEST SHORTLY
BEFORE THE DISTRIBUTION DATE, SOME OF YOUR INVESTMENT WILL BE
RETURNED TO YOU IN THE FORM OF A DISTRIBUTION.
An exchange of shares between the classes is not taxable.
The Fund intends to pay "exempt-interest dividends," which means you should
not have to pay federal and New York State or City income tax on this
investment income but it may be subject to the federal alternative minimum
tax. However, if you receive social security or other benefits, you should
consult your tax advisor to determine what effect your investment in the Fund
may have on the federal taxation of your benefits. If the Fund distributes
any interest earned on taxable obligations, as well as any net short-term
capital gains, these are taxable as ordinary income. Long-term capital gains
designated by the Fund as such will be taxable generally at a 20% rate for
noncorporate shareholders. Taxes on capital gains by the Fund will vary with
the length of time the Fund has held the security -- not how long you have
had your money invested in the Fund.
Dividends are taxable in the year in which they are paid, even if they appear
on your account statement the following year. Dividends and distributions are
treated in the same manner for federal income tax purposes whether you
receive them in cash or in additional shares.
You will be notified in January each year about the federal tax status of
distributions made by the Fund. Depending on your residence for tax purposes,
distributions also may be subject to state and local taxes, including
withholding taxes.
-----------------------------------------------------------------------------
AVOID 31% TAX WITHHOLDING
The Fund is required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Fund with their certified Taxpayer Identification Number in compliance with
IRS rules. To avoid this, make sure you provide your correct Tax
Identification Number (Social Security Number for most investors) on your
account application.
-----------------------------------------------------------------------------
Foreign shareholders may be subject to special withholding requirements.
Consult your tax adviser about the federal, state and local tax consequences
of an investment in the Fund in your particular circumstances.
22
<PAGE> 23
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OTHER INFORMATION ABOUT THE FUND
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that you would have earned on an investment in the Fund
(assuming reinvestment of all dividends and distributions). This information
has been audited by PricewaterhouseCoopers LLP, whose report, along with the
Fund's financial statements, are included in the annual report. The annual
report is available upon request.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED PERIOD ENDED** YEAR ENDED
----------------- ----------------- ----------------- -----------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1999 1998 1997 1996 1995
----------------- ----------------- ----------------- ------------ ------------
BUILDER PREMIER BUILDER PREMIER BUILDER PREMIER BUILDER BUILDER
CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $18.22 $18.22 $17.73 $17.73 $17.96 $17.57 $17.31 $18.24
--------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.75 0.80 0.79 0.84 0.84 0.75 0.87 0.87
Net realized and unrealized
gains (losses) on securities 0.11 0.12 0.56 0.56 (0.10) 0.29 0.65 (0.71)
--------------------------------------------------------------------------------------------------------------------------
Total from Investment
Operations 0.86 0.92 1.35 1.40 0.74 1.04 1.52 0.16
--------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment
income (0.75) (0.81) (0.79) (0.84) (0.84) (0.75) (0.87) (0.87)
Distributions from net
realized capital gains (0.45) (0.45) (0.07) (0.07) (0.13) (0.13)
Distributions in excess of net
realized capital gains -- -- -- -- -- -- -- (0.22)
--------------------------------------------------------------------------------------------------------------------------
Total Distributions (1.20) (1.26) (0.86) (0.91) (0.97) (0.88) (0.87) (1.09)
--------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $17.88 $17.88 $18.22 $18.22 $17.73 $17.73 $17.96 $17.31
--------------------------------------------------------------------------------------------------------------------------
Total Return (excludes sales
charge) 4.87% 5.17% 7.82% 8.08% 4.30% 6.03%(c) 8.95% 1.09%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (in
thousands) $57,610 $63,657 $59,091 $64,439 $59,133 $59,356 $117,860 $108,020
Ratio of Net Investment Income
to Average Net Assets 4.15% 4.44% 4.42% 4.66% 4.81% 4.88%(b) 4.91% 5.04%
Ratio of Expenses to Average
Net Assets 1.11% 0.82% 1.06% 0.81% 1.03% 0.93%(b) 0.96% 0.93%
Ratio of Expenses to Average
Net Assets* 1.15% 0.86% 1.16% 0.91% 1.07% 0.97%(b) 1.01%
Portfolio Turnover Rate 174.34% 174.34% 201.00% 201.00% 181.00% 181.00% 150.00% 143.00%
- -----------------------------------------------------------------------------------------------------------------------------
</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.
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<PAGE> 24
FOR MORE INFORMATION
For more information about the Fund, the following documents are available free
upon request:
ANNUAL AND SEMI-ANNUAL REPORTS:
The Fund's Annual and Semi-Annual reports to shareholders contain additional
information on the Fund's investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI):
The SAI provides more detailed information about the Fund, including its
operations and investment policies. It is incorporated by reference into and is
legally considered a part of this prospectus.
You can get free copies of the Annual and Semi-Annual Reports and the SAI, or
request other information and discuss your questions about The Empire Builder
Tax Free Bond Fund by contacting a participating dealer that sells the Fund, or
by contacting:
THE EMPIRE BUILDER TAX FREE BOND FUND
3435 STELZER ROAD
COLUMBUS, OHIO 43219
TELEPHONE: 1-800-847-5886 (8:00 A.M. -- 9:00 P.M.
EASTERN TIME)
You can review the Fund's Annual and Semi-Annual Reports and SAI at the Public
Reference Room of the Securities and Exchange Commission. You can get text-only
copies:
- - For a fee, by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-6009 or calling 1-800-SEC-0330.
- - Free from the Commission's Website at http://www.sec.gov.
Investment Company Act File No. 811-3907
<PAGE> 25
THE
EMPIRE
BUILDER
TAX
FREE
BOND
FUND
PREMIER CLASS
BUILDER CLASS
PROSPECTUS DATED JUNE 28, 1999
[EMPIRE BUILDER LOGO]
The Securities and Exchange Commission has not approved the shares described in
this prospectus or determined whether this prospectus is accurate or complete.
Any representations to the contrary is a criminal offense.
<PAGE> 26
THE EMPIRE BUILDER TAX FREE BOND FUND
Statement of Additional Information
June 28, 1999
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 June 28, 1999, as supplemented from time to time.
This Statement should be read in conjunction with the Prospectus. Certain
disclosure is incorporated into this Statement of Additional Information from
the Fund's Annual Report. Investors may obtain a free copy of the Prospectus
and/or Annual Report by writing to BISYS Fund Services, 3435 Stelzer Road,
Columbus, OH 43219 or by calling 1-800-847-5886.
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Definitions.............................................................................2
Fund History............................................................................2
Investment Goal and Policies of the Fund................................................2
Investment Restrictions of the Fund....................................................10
Management of the Fund.................................................................13
Determination of Net Asset Value.......................................................18
Fund Performance.......................................................................17
Purchase of Shares.....................................................................20
Investment Programs....................................................................21
Taxes..................................................................................24
Automatic Withdrawal Program...........................................................26
Shareholder Liability..................................................................26
Shareholder Voting.....................................................................26
Independent Accountants................................................................27
Financial Statements...................................................................27
Custodian..............................................................................27
Investment Ratings.............................................................Appendix A
</TABLE>
<PAGE> 27
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 Limited Partnership, or
BISYS Fund Services Ohio, Inc.,
as applicable, the Fund's Administrator
The "Transfer Agent" or "Fund BISYS Fund Services, Inc.
Accounting Agent"
The "SEC" The Securities and Exchange Commission
FUND HISTORY
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
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.
INVESTMENT GOAL AND POLICIES OF THE FUND
The Fund's investment goal and its investment policies are described in
the Prospectus. The investment goal 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 the Adviser believes 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 of Additional Information, 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
2
<PAGE> 28
finance privately operated housing facilities, sports facilities, convention or
trade show facilities, airport, mass transit, port or parking facilities, air or
water pollution control facilities and certain local facilities for water
supply, gas, electricity or sewage or solid waste disposal. Other types of
industrial development and private activity bonds are used to finance the
construction, equipment, repair or improvement of privately-operated industrial
or commercial facilities. Industrial development bonds and private activity
bonds are included within the term New York Tax Exempt Bonds if the interest
paid thereon is, in the opinion of bond counsel, exempt from federal income tax
and New York State and City personal income taxes (other than the possible
incidence of any alternative minimum tax). The Fund may invest more than 25% of
the value of its total assets in such bonds, but not more than 25% in bonds
backed by nongovernmental users in any one industry (see "Investment
Restrictions of the Fund"). However, as described in the Prospectus under
"Distributions and Taxes," the income from certain private activity bonds is an
item of tax preference for purposes of the federal alternative minimum tax, and
it is a fundamental policy of the Fund that distributions from interest income
on such private activity bonds, together with distributions of interest income
on investments other than New York Tax Exempt Bonds, will normally not exceed
10% of the total amount of the Fund's income distributions.
In addition, the term "New York Tax Exempt Bonds" includes debt
obligations issued by other governmental entities (for example, U.S.
possessions, such as Puerto Rico, Guam and the Virgin Islands) 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).
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 included in this 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
3
<PAGE> 29
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.
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 not from the unlimited
revenues of the issuer. Industrial development bonds and private activity bonds
are in most cases revenue bonds, and depend heavily on the creditworthiness of
the user of the facilities.
Special Considerations Concerning New York Tax Exempt Bonds. Since the
Fund invests primarily in New York Tax Exempt Bonds, the performance of the Fund
may be especially affected by factors pertaining to the New York economy and
other factors specifically affecting the ability of issuers of New York Tax
Exempt Bonds to meet their obligations. As a result, the value of the Fund's
shares may fluctuate more widely than the value of shares of a portfolio
investing in securities relating to a number of different states. The ability of
state or local governments and political subdivisions to meet their obligations
will depend primarily on the availability of tax and other revenues to them and
on their fiscal conditions generally. The amounts of tax and other revenues
available to issuers of New York Tax Exempt Bonds may be affected from time to
time by economic, political and demographic conditions. In addition,
constitutional or statutory restrictions may limit a government's power to raise
revenues or increase taxes. The availability of federal, state and local aid to
issuers of New York Tax Exempt Bonds may also affect their ability to meet their
obligations. Payments of principal and interest on revenue bonds will depend on
the economic condition of the facility or specific revenue source from whose
revenues the payments will be made, which in turn could be affected by economic,
political and demographic conditions in New York or a particular locality. Any
reduction in the actual or perceived ability of an issuer of New York Tax Exempt
Bonds to meet its obligations (including a reduction in the rating of its
outstanding securities) would likely affect adversely the market value and
marketability of its obligations and could affect adversely the values of other
New York Tax Exempt Bonds as well.
There are, of course, variations in the credit quality of New York Tax
Exempt Bonds, both within a particular classification and between
classifications, depending on numerous factors (see Appendix A).
Yields. The yields on New York Tax Exempt Bonds are dependent on a
variety of factors, including general money market conditions, the financial
condition of the issuer, general conditions of the New York Tax Exempt Bond
market, the size of a particular offering, the maturity of the obligation and
the rating of the issue. The ratings of Moody's and Standard & Poor's represent
their opinions as to the quality of the New York Tax Exempt Bonds which they
undertake to rate. It should be emphasized, however, that ratings are general
and are not absolute standards of quality. Consequently, New York Tax Exempt
Bonds with the same maturity, interest rate and rating may have different yields
while New York Tax Exempt Bonds of the same maturity and interest rates with
different ratings may have the same yield. Subsequent to its purchase by the
Fund, an issue of New York Tax Exempt Bonds or other investment may cease to be
rated or the rating may be reduced below the minimum rating required for
purchase by the Fund. Neither event will require the elimination of an
investment from the Fund's portfolio, but the Adviser will consider such an
event as part of its normal, ongoing review of all the Fund's portfolio
securities.
"Moral Obligation" Bonds. The Fund does not currently intend to invest
in so-called "moral obligation" bonds, where repayment is backed by a moral
commitment of an entity other than the issuer, unless the credit of the issuer
itself, without regard to the "moral obligation," meets the investment criteria
established for investments by the Fund.
Additional Risks. Securities in which the Fund may invest, including
New York Tax Exempt Bonds, are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors,
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<PAGE> 30
such as the federal Bankruptcy Code, and laws, if any, which may be enacted by
Congress or the New York legislature extending the time for payment of principal
or interest, or both, or imposing other constraints upon enforcement of such
obligations. There is also the possibility that as a result of litigation or
other conditions the power or ability of issuers to meet their obligations for
the payment of interest and principal on their New York Tax Exempt Bonds may be
materially affected or that their obligations may be found to be invalid and
unenforceable.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on debt obligations issued by states and their political subdivisions
and similar proposals may be introduced in the future. If such a proposal were
enacted, the availability of New York Tax Exempt Bonds for investment by the
Fund and the value of the Fund's portfolio could be materially affected, in
which event the Fund would reevaluate its investment objective and policies and
consider changes in the structure of the Fund or dissolution.
Hedging Activities
General Characteristics of Futures Contracts. The Fund may purchase and
sell financial futures contracts and related options in order to hedge against a
change in the values of securities that the Fund owns or expects to purchase.
A futures contract sale generally creates an obligation by the seller
to deliver the type of financial instrument called for in the contract in a
specified delivery month for a stated price. (As described below, however, index
futures contracts do not require actual delivery of the securities making up an
index.) A futures contract purchase creates an obligation by the purchaser to
take delivery of the underlying financial instrument in a specified delivery
month at a stated price. The specific instruments delivered or taken,
respectively, at settlement date are not determined until at or near that date.
The determination is made in accordance with the rules of the exchange on which
the futures contract sale or purchase was made. Futures contracts are traded
only on commodity exchanges or boards of trade -- known as "contract markets" --
approved for such trading by the Commodity Futures Trading Commission, and must
be executed through a futures commission merchant, or brokerage firm, which is a
member of the relevant contract market.
Although most futures contracts by their terms call for actual delivery
or acceptance of commodities or securities, in most cases the contracts are
closed out before the settlement date without the making or taking of delivery.
Closing out a futures contract sale is effected by purchasing a futures contract
for the same aggregate amount of the specific type of financial instrument or
commodity and with the same delivery date. If the price of the initial sale of
the futures contract exceeds the price of the offsetting purchase, the seller is
paid the difference and realizes a gain. Conversely, if the price of the
offsetting purchase exceeds the price of the initial sale, the seller realizes a
loss. Similarly, the closing out of a futures contract purchase is effected by
the purchaser entering into a futures contract sale. If the offsetting sale
price exceeds the purchase price, the purchaser realizes a gain, and if the
purchase price exceeds the offsetting sale price, the purchaser realizes a loss.
When the Fund purchases or sells a futures contract, it is required to deposit
with the Fund's custodian an amount of cash and/or securities. This amount is
known as "initial margin." Initial margin is similar to a performance bond or
good faith deposit that is returned to the Fund upon termination of the
contract, assuming the Fund satisfies its contractual obligations.
Subsequent payments to and from the broker involved in the transaction
occur on a daily basis in a process known as "marking to market." These payments
are called "variation margin" and are made as the value of the futures contract
fluctuates. For example, when the Fund has purchased a futures contract and the
price of the underlying index or security has risen, that position may have
increased in value, in which event the Fund would receive from the broker a
variation margin payment equal to that increase in value. Conversely, when the
Fund has purchased a futures contract and the price of the underlying index or
security has declined, the position may be less valuable, in which event the
Fund would be required to make a variation margin payment to the broker.
When the Fund terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to the
Fund, and the Fund realizes a loss or a gain. Such closing transactions involve
additional commission costs.
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<PAGE> 31
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.
The Fund may purchase and sell futures contracts on this Index (or any
other tax-exempt bond index approved for trading by the Commodity Futures
Trading Commission) to hedge against general changes in market values of New
York Tax Exempt Bonds which the Fund owns or expects to purchase. For example,
if the Adviser expected interest rates to increase, the Fund might sell futures
contracts on an index. If rates did increase, the value of New York Tax Exempt
Bonds held by the Fund would decline, but this decline would usually, but not
necessarily, be offset in whole or in part by an increase in the value of the
Fund's position in futures contracts. If, on the other hand, the Fund had cash
reserves and short-term investments pending anticipated investment in New York
Tax Exempt Bonds, and the Adviser expected interest rates to decline, the Fund
might purchase futures contracts on an index. The Fund could thus take advantage
of the anticipated rise in the values of New York Tax Exempt Bonds without
actually buying them until the market had stabilized.
The Fund may also purchase and sell, subject to the limitations set
forth in the Prospectus, futures and options on U.S. Treasury securities
("Treasury Futures") in order to hedge against interest rate changes or other
general changes in market values which would be expected to affect the value of
the New York Tax Exempt Bonds which the Fund owns or expects to purchase.
Changes in value in Treasury Futures resulting from interest rate changes or
other general market conditions may not be as closely correlated with the value
of New York Tax Exempt bonds as changes in value of the Index. However, Treasury
Futures generally offer greater liquidity than futures contracts on the Index,
which reduces the risk that the Fund will not be able to liquidate a position in
a futures contract, and may also make Treasury Futures a more effective hedging
tool than futures on the Index in some market conditions.
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 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.
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 and is intended to represent a numerical
measure of market performance for long-term 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
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<PAGE> 32
delivery of the actual bonds making up the index will take place under an index
futures contract. Instead, settlement in cash must occur upon the termination of
the contract, with the settlement being based on the difference between the
contract price and the actual level of the Index at the expiration of the
contract. For example, if the Fund enters into a futures contract to buy 50
units of the Index at a specified future date at a value of 90 and the value of
the Index is 95 on that future date, the Fund will gain $250,000 (50 units times
a gain of 5 times $1000). If the Fund enters into a futures contract to sell 50
units of the Index at a specified future date at a value of 90 and the value of
the Index is 95 on that future date, the Fund will lose $250,000 (50 units times
a loss of 5 times $1000).
Options on index futures contracts are similar to options on securities
except that options on index futures contracts give the purchaser the right in
return for the premium paid to assume a position in an index futures contract (a
long position if the option is a call and a short position if the option is a
put), rather than to purchase or sell the specific securities, at the specified
exercise price at any time during the period of the option. Upon exercise of the
option, the delivery of the index futures position by the writer of the option
to the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account maintained with respect to the
option, which represents the amount by which the market price of the index
futures contract, at exercise, exceeds (in the case of a call) or is less than
(in the case of a put) the exercise price of the option on the index futures
contract. If an option is exercised on the last trading day prior to the
expiration date of the option, the settlement will be made on the expiration
date entirely in cash based on the difference between the exercise price of the
option and the closing level of the index on which the futures contracts are
based. Purchasers of options who fail to exercise their options prior to
expiration suffer a loss of the premium paid.
As an alternative to purchasing call and put options on an index
futures contract, the Fund may purchase and sell call and put options on the
underlying indices themselves to the extent that such options are traded on
national securities exchanges. Such options would be used in a manner similar to
the use of options on index futures contracts.
Special Risks of Transactions in Futures Contracts and Related Options
- -- Hedging risks. There are several risks in connection with the use by the Fund
of futures contracts and related options as a hedging device. One risk arises in
connection with the use of index futures contracts and options because of the
imperfect correlation between movements in the prices of the index futures
contracts and movements in the prices of the securities that are the subject of
the hedge. The Adviser will, however, attempt to reduce this risk by purchasing
and selling, to the extent possible, futures contracts and related options on
indices the movements of which are, in its judgment, likely to correlate closely
with movements in the prices of the Fund's portfolio securities sought to be
hedged. In addition to the degree of correlation to the prices of the Fund's
portfolio securities, the Adviser will also consider the liquidity of the market
in which the applicable futures contract is traded.
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.
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<PAGE> 33
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on futures contracts involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances when the purchase
of a call or put option on a futures contract would result in a loss to the Fund
when the purchase or sale of a futures contract would not, such as when there is
no movement in the prices of the underlying securities or index. The writing of
an option on a futures contract involves risks similar to those risks relating
to the sale of futures contracts.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain market clearing
facilities inadequate, and thereby result in the institution by exchanges of
special procedures which may interfere with the timely execution of customer
orders.
Liquidity risks. To reduce or eliminate a hedge position held by the
Fund, the Fund may seek to close out a position. The ability to establish and
close out positions will be subject to the maintenance of a liquid secondary
market. There can be no assurance that this market will exist when the Fund
seeks to close a position. Reasons for the absence of a liquid secondary market
on an exchange include the following: (i) there may be insufficient trading
interest in certain contracts or options; (ii) restrictions may be imposed by an
exchange on opening transactions or closing transactions or both; (iii) trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of contracts or options, or underlying securities;
(iv) unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing corporation may not at
all times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of contracts or options (or a particular
class or series of contracts or options), in which event the secondary market on
that exchange (or in the class or series of contracts or options) would cease to
exist, although outstanding contracts or options on the exchange which had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
Miscellaneous Investment Practices
Forward Commitments. New issues of New York Tax Exempt Bonds and other
debt securities are often purchased on a "when issued" or delayed delivery
basis, with delivery and payment for the securities normally taking place 15 to
45 days after the date of the transaction. The payment obligation and the
interest rate that will be received on the securities are each fixed at the time
the buyer enters into the commitment. The Fund may enter into such "forward
commitments" if it holds, and maintains until the settlement date in a
segregated account with the Fund's custodian, certain liquid 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.
Taxable Investments. The Fund may invest in taxable obligations
temporarily, such as pending new investments, or when it needs to keep its
assets particularly liquid, such as to meet repurchase or redemption obligations
or to pay expenses. However, not more than 10% of the Fund's income
distributions may be subject to federal income tax and/or New York State and
City personal income taxes under normal market conditions.
Futures and Options and Treasury Futures. 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. 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
8
<PAGE> 34
market values which would be expected to affect the value of the New York Tax
Exempt Bonds which the Fund owns or expects to purchase. Changes in value in
Treasury Futures resulting from interest rate changes or other general market
conditions may not be as closely correlated with the value of New York Tax
Exempt Bonds as changes in value of The Bond Buyer Municipal Bond Index. 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.
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 Fund's portfolio
turnover in 1999 was 174% and in 1998 201%, due to changes in market conditions.
Securities may be sold in anticipation of a market decline (a rise in
interest rates) or purchased in anticipation of a market rise (a decline in
interest rates) and later sold. In addition, a security may be sold and another
purchased at approximately the same time to take advantage of what the Adviser
believes to be a temporary disparity in the normal yield relationship between
the two securities. The Adviser believes that, in general, the secondary market
for New York Tax Exempt Bonds is less liquid than that for taxable fixed-income
securities. Accordingly, the ability of the Fund to make purchases and sales of
securities in the foregoing manner may, at any particular time and with respect
to any particular securities, be limited. Yield disparities may occur for
reasons not directly related to the investment quality of particular issues or
the general movement of interest rates, due to such factors as changes in the
overall demand for or supply of various types of New York Tax Exempt Bonds or
changes in the investment objectives of investors.
Repurchase Agreements. The Fund may enter into repurchase agreements
with registered broker/dealers and with U.S. commercial banks with respect to
not more than 10% of the value of its total assets (taken at current value)
except when investing for temporary defensive purposes during times of adverse
market conditions. A repurchase agreement is a contract under which the Fund
would acquire a security for a relatively short period (usually not more than
one week) subject to the obligation of the seller to repurchase and the Fund to
resell such security at a fixed time and price (representing the Fund's cost
plus interest). The seller's obligations are secured by collateral (which is
marked to market on a daily basis) having a market value not less than the value
of the securities purchased by the Fund plus accrued interest. In the event of a
bankruptcy or other default of the seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying securities and losses
including (a) possible decline in the value of the collateral during the period
while the Fund seeks to enforce its rights thereto, (b) possible sub-normal
levels of income during this period and (c) expenses of enforcing its rights. If
a repurchase agreement is treated as a securities loan, the Fund will not have
title to the collateral. Although the Fund may enter into repurchase agreements
with respect to any securities which it may acquire consistent with its
investment policies and restrictions, it is the Fund's present intention to
enter into repurchase agreements only with respect to obligations of the U.S.
government or its agencies or instrumentalities.
----------
Except as described below under "Investment Restrictions of the Fund"
and except for (1) the policy that under normal market conditions at least 90%
of the Fund's income distributions will be exempt from federal income tax and
New York State and City personal income taxes and (2) the policy that Fund
distributions from interest income on "private activity bonds" the income from
which is an item of tax preference for purposes of the federal alternative
minimum tax for individuals, together with distributions of interest income on
investments other than New York Tax Exempt Bonds, will not normally exceed 10%
of the total amount of the Fund's income distributions, the investment policies
described in the Prospectus and in this Statement are not fundamental and the
Trustees may change such policies without an affirmative vote of a "majority of
the outstanding voting securities" of the Fund, as defined below. As a matter of
policy, the Trustees would not change the Fund's investment objective without
such a vote.
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<PAGE> 35
INVESTMENT RESTRICTIONS OF THE FUND
As fundamental investment restrictions, which may not be changed
without a vote of a majority of the outstanding voting securities of the Fund,
the Fund will not:
(1) Borrow money in excess of 10% of the value (taken at the
lower of cost or current value) of its total assets (not including the
amount borrowed) at the time the borrowing is made, and then only from
banks as a temporary measure to facilitate the meeting of redemption
requests (not for leverage) which might otherwise require the untimely
disposition of portfolio investments or for extraordinary or emergency
purposes. (Such borrowings will be repaid before any additional
investments are made.)
(2) Pledge, hypothecate, mortgage or otherwise encumber its
assets in excess of 10% of the value of its total assets (taken at the
lower of cost or current value) and then only to secure borrowings
permitted by restriction (1) above. For the purposes of this
restriction, collateral arrangements with respect to margin for
financial futures (including securities index futures) contracts,
options on such futures contracts and options on securities indexes are
not deemed to be pledges of assets.
(3) Purchase securities on margin, except such short-term
credits as may be necessary for the clearance of purchases and sales of
securities, but it may make margin payments in connection with
financial futures (including securities index futures) contracts,
options on such futures contracts or options on securities indexes.
(4) Make short sales of securities or maintain a short
position for the account of the Fund unless at all times when a short
position is open it owns an equal amount of such securities or owns
securities which, without payment of any further consideration, are
convertible into or exchangeable for securities of the same issue as,
and equal in amount to, the securities sold short.
(5) Underwrite securities issued by other persons except to
the extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under federal
securities laws.
(6) Purchase or sell real estate, although it may purchase
securities which are secured by or represent interests in real estate.
(7) Purchase or sell commodities or commodity contracts,
except financial futures (including securities index futures) contracts
and related options.
(8) Make loans, except by purchase of debt obligations in
which the Fund may invest consistent with its investment policies, and
through repurchase agreements.
(9) Invest in securities of any issuer if, to the knowledge of
the Fund, officers and Trustees of the Fund or officers and directors
of the Adviser who beneficially own more than 1/2 of 1% of the
securities of that issuer together own more than 5%.
(10) Invest in the securities of any issuer if, immediately
after such investment, more than 5% of the value of the total assets of
the Fund taken at current value would be invested in the securities of
such issuer; provided that this limitation does not apply either to
obligations issued or guaranteed as to interest and principal by the
U.S. government or its agencies or instrumentalities or to New York Tax
Exempt Bonds.
(11) Purchase securities restricted as to resale, if, as a
result, such investments would exceed 5% of the value of the Fund's net
assets.
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<PAGE> 36
(12) Purchase securities (other than securities of the U.S.
government, its agencies or instrumentalities or New York Tax Exempt
Bonds, except obligations backed only by the assets and revenues of
nongovernmental users) if as a result of such purchases more than 25%
of the value of the Fund's total assets would be invested in any one
industry.
(13) Acquire more than 10% of the voting securities of any
issuer.
(14) Issue any class of securities which is senior to the
Fund's shares of beneficial interest except to the extent that
borrowings permitted by investment restriction (1) are deemed to
involve the issuance of such securities.
(15) Invest in (a) securities which in the opinion of the
Fund's investment adviser at the time of such investment are not
readily marketable, (b) securities the disposition of which is
restricted under federal securities laws (as described in fundamental
restriction 11 above) and (c) repurchase agreements maturing in more
than seven days, if, as a result, more than 10% of the Fund's total
assets (taken at current value) would be invested in the aggregate in
securities described in (a), (b) and (c) above.
It is contrary to the Fund's present policy, which may be changed
without shareholder approval, to:
(1) Invest in the securities of other investment companies,
except shares of other open-end management investment companies
purchased on a no-load basis or by purchases in the open market
involving only customary brokers' commissions or in connection with a
merger, consolidation or similar transaction. (Under the Investment
Company Act of 1940, the Fund generally may not (a) invest more than
10% of its total assets (taken at current value) in such securities;
(b) own securities of any one investment company having a value in
excess of 5% of the Fund's total assets (taken at current value); or
(c) own more than 3% of the outstanding voting stock of any one
investment company.)
(2) Purchase options or puts, calls, straddles, spreads or
combinations thereof, except that the Fund may buy and sell call and
put options on financial futures (including securities index futures)
contracts and on securities indexes; in connection with the purchase of
fixed-income securities, however, the Fund may acquire attached
warrants or other rights to subscribe for securities of companies
issuing such fixed-income securities or securities of parents or
subsidiaries of such companies. (The Fund's investment policies do not
currently permit it to exercise warrants or rights with respect to
equity securities.)
(3) Invest in securities of any issuer if the party
responsible for payment, together with any predecessor, has been in
operation for less than three years, and, as a result of the
investment, the aggregate of such investments would exceed 5% of the
value of the Fund's total assets; provided, however, that this
restriction shall not apply to any obligation of the United States or
its agencies or for the payment of which is pledged the faith, credit
and taxing power of any person authorized to issue New York Tax Exempt
Bonds.
(4) Buy or sell oil, gas or other mineral leases, rights or
royalty contracts.
(5) 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.
----------
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.
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<PAGE> 37
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.
12
<PAGE> 38
MANAGEMENT OF THE FUND
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. The following table shows
information concerning the Trustees and principal officers of the Fund,
including their principal occupation for at least the past 5 years.
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME, ADDRESS, AGE WITH THE FUND DURING PAST 5 YEARS
<S> <C> <C>
Seth M. Glickenhaus* (85) Trustee, Chairman of Senior Partner of Glickenhaus & Co.
6 East 43rd Street the Board and President
New York, New York 10017 of the Fund
Edward A. Falkenberg (58) Trustee Principal, ACME Real Estate;
23 Oak Lane Trustee, Burke Rehabilitation
Scarsdale, New York 10583 Hospital and Milford School;
formerly, Vice President
and Controller, Joseph E.
Seagram & Sons, Inc.;
Controller Seagram Company Ltd
Edward A. Kuczmarski (49) Trustee Director of New York Daily
477 Madison Avenue, 10th Floor Tax-Free Income Fund, Inc.;
New York, New York 10022 Certified Public Accountant
and Partner, Hays & Company
Elizabeth B. Newell (58) Trustee Director of New York Daily
130 East End Avenue Tax-Free Income Fund, Inc.;
Apartment 1C Trustee, International Preschools
New York, New York 10028
John P. Steines (50) Trustee Director of New York Daily
40 Washington Square South Tax-Free Income Fund, Inc.;
New York, New York 10012 Professor of Law, New York
University School of Law
Michael J. Lynch (36) Senior Vice President Director, Unit Trust Department
6 East 43rd Street Glickenhaus & Co.; formerly
New York, New York 10017 Divisional Vice President/Desk
Supervisor, Unit Investment
Trust PaineWebber
Frank M. Deutchki (45) Vice President Vice President, Tax &
3435 Stelzer Road Financial Services,
Columbus, OH 43219 BISYS Fund Services;
formerly, Vice President and
Audit Director at Mutual
Funds Service Company
Georgette L. Horton (33) Vice President and Secretary Director, Client Services
90 Park Avenue BISYS Fund Services;
10th Floor formerly, Assistant Vice President
New York, New York 10016 Regional Sales for PaineWebber;
Portfolio Management Assistant
for Eaton Vance Management
</TABLE>
13
<PAGE> 39
<TABLE>
<S> <C> <C>
Gary Tenkman (29) Assistant Treasurer Director,
3435 Stelzer Road Tax & Financial Services,
Columbus, OH 43219 BISYS Fund Services; formerly
Audit Manager for Ernst & Young
LLP.
</TABLE>
- ----------
* Trustee who is an "interested person" of the Fund as that term is defined in
the Investment Company Act of 1940.
DIRECTOR COMPENSATION
The following table shows the compensation paid by the Fund to the
Trustees for fiscal year ended February 28, 1999.
AGGREGATE
COMPENSATION
NAME OF TRUSTEE FROM THE FUND
--------------- -------------
Seth M. Glickenhaus $0
Edward Falkenberg $5,500.00
Edward A. Kuczmarski $5,500.00
Elizabeth B. Newell $5,500.00
John P. Steines $5,500.00
Trustees of the Fund not affiliated with the Adviser or BISYS Fund
Services receive 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 provides no pension or retirement
benefits to its Trustees or former Trustees. As of May 31, 1999, to the
knowledge of the Administrator, the Officers and the Trustees of the Fund, as a
group, own less than 1% of the outstanding voting shares of the Fund and no one
shareholder owned 5% or more of the Fund.
Messrs. Glickenhaus, Deutchki, Tenkman, and Lynch, and Ms. Horton as
partners, officers, employees or shareholders of the Adviser or the
Administrator, will benefit indirectly from the fees paid by the Fund to the
Adviser or the Administrator.
Investment Adviser
Glickenhaus & Co. (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 $4.3
billion of equity and fixed-income securities as of December 31, 1998, 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 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
14
<PAGE> 40
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 compensation payable to the Adviser under the Investment Advisory
Agreement is a monthly fee based on the average net asset value of the Fund,
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 1.5% of the Fund's average annual net assets.
The Fund pays all expenses not assumed by the Adviser, including,
without limitation, auditing, legal, pricing of portfolio securities, custodial,
shareholder servicing, shareholder reporting, registration and blue sky
expenses.
As indicated under "Portfolio Transactions," the Adviser may place Fund
portfolio transactions with broker/dealers who furnish the Adviser, without cost
to the Adviser, certain research, statistical and quotation services of value to
the Adviser and its affiliates in advising the Fund and other clients. In so
doing, the Adviser may cause the Fund to pay greater brokerage commissions than
it might otherwise pay. See "Portfolio Transactions."
The Investment Advisory Agreement provides that the Adviser shall not
be subject to any liability to the Fund or to any shareholder of the Fund for
any act or omission in the course of or connected with rendering services
thereunder in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations and duties on the part of the Adviser.
The Investment Advisory 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, 1997, February 28, 1998 and
February 28, 1999 the Fund paid the Adviser $458,454, $464,929 and $473,511
respectively, in fees.
Voluntary Expense Limitation. The Adviser has voluntarily agreed, until
further notice to the Fund, to limit the total expenses of each class of the
Fund to the annual rate of 1.5% of the Fund's average net assets of such class.
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.
15
<PAGE> 41
There may be circumstances when purchases or sales of portfolio securities for
one or more clients will have an adverse effect on other clients.
Brokerage and Research Services. It is anticipated that most purchases
and sales of portfolio investments will be with underwriters of or dealers in
New York Tax Exempt Bonds and other tax-exempt securities, acting as principal.
Accordingly, it is not anticipated that the Fund will pay significant brokerage
commissions. There is generally no stated commission in the case of securities
traded in the over-the-counter markets, where most of the Fund's portfolio
transactions will be effected, but the price paid by the Fund usually includes
an undisclosed dealer commission or mark-up. In underwritten offerings, the
price paid by the Fund includes a disclosed, fixed commission or discount
retained by the underwriters or dealer.
The Adviser will place all orders for the purchase and sale of
portfolio securities for the Fund and will buy and sell securities for the Fund
through a substantial number of dealers. In so doing, the Adviser will use its
best efforts to obtain for the Fund the most favorable price and execution
available, except to the extent it may be permitted to pay higher brokerage
commissions as described below. In seeking the most favorable price and
execution, the Adviser, having in mind the Fund's best interests, considers all
factors it deems relevant, including, by way of illustration, price, the size of
the transaction, the nature of the market for the security, the amount of
commission, the timing of the transaction taking into account market prices and
trends, the reputation, experience and financial stability of the dealer
involved and the quality of service rendered by the dealer in other
transactions.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive research, statistical and quotation services from dealers that
execute portfolio transactions for the clients of such advisers. Consistent with
this practice, the Adviser will receive research, statistical and quotation
services from many dealers with which the Adviser places the Fund's portfolio
transactions. These services, which in some instances may also be purchased for
cash, include such matters as general economic and security market reviews,
industry and company reviews, evaluations of securities and recommendations as
to the purchase and sale of securities. Some of these services are of value to
the Adviser in advising various of its clients (including the Fund), although
not all of these services are necessarily useful and of value in managing the
Fund. The management fee paid by the Fund is not reduced because the Adviser
receives such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934
and by the Investment Advisory Agreement, the Adviser may cause the Fund to pay
a dealer which provides "brokerage and research services" (as defined in such
Act) to the Adviser an amount of disclosed commission for effecting a securities
transaction for the Fund in excess of the commission which another dealer would
have charged for effecting that transaction. The Adviser's authority to cause
the Fund to pay any such greater commissions is subject to such policies as the
Trustees may adopt from time to time.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and subject to seeking the most favorable price and
execution available and such other policies as the Trustees may determine, the
Adviser may consider sales of shares of the Fund as a factor in the selection of
dealers to execute portfolio transactions for the Fund.
Pursuant to conditions set forth in rules of the SEC, the Fund may
purchase securities from an underwriting syndicate of which the Adviser is a
member (but not from the Adviser itself). Such conditions relate to the price
and amount of the securities purchased, the commission or spread paid, and the
quality of the issuer. The rules further require that such purchases take place
in accordance with procedures adopted and reviewed periodically by the Trustees,
particularly those Trustees who are not "interested persons" of the Fund.
In addition, subject to the provisions of the Investment Company Act of
1940 and to policies of the Trustees adopted from time to time, the Adviser may
also act as agent in connection with the purchase and sale of portfolio
securities which are not effected on a stock exchange. Under such circumstances,
the Adviser would receive and retain a commission from the Fund for its
services.
16
<PAGE> 42
During the fiscal years ended February 28, 1997, February 28, 1998 and
February 28, 1999 the Fund paid no brokerage commissions.
Principal Underwriter
Glickenhaus & Co., 6 East 43rd Street, New York, NY 10017, is the
principal underwriter of shares of the Fund, which are continuously offered. 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. Since January 1995,
shares of the Fund have been offered on a no-load basis.
Administrator and Fund Accounting Agent
Pursuant to an Administration Agreement dated as of October 1, 1996,
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 0.14% of any excess of
Fund average net assets over $100,000,000. As of January 1, 2000, the
Administration Agreement will be amended to substitute BISYS Fund Services Ohio,
Inc., an affiliate of BISYS Fund Services Limited Partnership, the current
Administrator and to provide for a monthly fee, calculated as before, at the
following rate: 0.15% of the Fund's average daily net assets, subject to an
annual minimum fee of $200,000, plus reimbursement for certain out-of-pocket
expenses. For the fiscal years ended February 28, 1997, February 28, 1998 and
February 28, 1999 respectively, the Fund paid the Administrator and its
predecessor Furman Selz, LLC $228,434, $227,275 and $230,879 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 reimbursement for out
of pocket expenses. As of January 1, 2000, the Fund Accounting Agreement will be
amended to provide for a monthly fee at the rate of 0.03% of the Fund's average
daily net assets, subject to an annual minimum fee of $40,000, plus $10,000 for
each additional class of shares. For the fiscal years ended February 28, 1997,
February 28, 1998 and February 28, 1999 the Fund paid the Fund Accounting Agent
and its predecessor Furman Selz, LLC $42,592, $45,145 and $32,825 respectively,
in fees and expenses under the Fund Accounting Agreement (or a predecessor
agreement).
Transfer Agent
BISYS Fund Services, Inc., 3435 Stelzer Rd., Columbus, OH 43219,
serves as transfer agent of the Fund's assets. 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. As of January 1, 2000, the Transfer
Agency Agreement will be amended to provide for fees for each open and each
closed shareholder account, subject to a minimum fee for the Fund and an
additional minimum fee for each additional class after the first share 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.
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
17
<PAGE> 43
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 of Additional
Information, this service is furnished by one of the following independent
pricing agents: Muller Data Corporation, J.J. Kenny, Merrill Lynch Securities
Pricing Service, Reuters, Bloomberg. 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.
The Fund will not calculate net asset value on certain holidays
including New Year's Day, Martin Luther King Jr.'s Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
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 under
procedures approved 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. A Fund's average annual total return
is determined by finding the average annual compounded rates of return over 1, 5
and 10 year periods (or, if shorter, the period since inception of the Fund)
that would equate an initial hypothetical $1,000 investment to its ending
redeemable value. The calculation assumes that all dividends and distributions
are reinvested when paid. The quotation assumes a complete redemption at the end
of each 1, 5 and 10 year period (or, if shorter, the period since inception of
the Fund) and the deduction of all applicable Fund expenses on an annual basis.
Average annual total return is calculated according to the following formula:
P ( l + T )(n) = ERV
where: P = a hypothetical initial payment of $1,000.
T = the average annual total return.
n = the number of years.
ERV = the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the period.
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.
The following tables set forth the average annual total returns for
each class of shares of the Fund for certain time periods ended February 28,
1999.
18
<PAGE> 44
<TABLE>
<S> <C>
The Empire Builder Tax Free Bond Fund - Builder Class
-----------------------------------------------------
One Year...................................................... 4.87%
Five Years.................................................... 5.37%
Ten Years..................................................... 7.00%
The Empire Builder Tax Free Bond Fund - Premier Class
-----------------------------------------------------
One Year...................................................... 5.17%
Since Inception (April 15, 1996).............................. 6.71%
</TABLE>
Yield and Tax-Equivalent Yield. In addition to total return, Fund may
quote performance in terms of a 30-day yield for each class of shares. The yield
figures provided will be calculated according to a formula prescribed by the
Securities and Exchange Commission and can be expressed as follows:
YIELD = 2 [ (a - b + 1 )(6) - 1 ]
-------
cd
where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of any
reimbursements).
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = the maximum offering price per share on the last
day of the period.
For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations that were purchased by a Fund at a discount or
premium, the formula generally calls for amortization of the discount or
premium; the amortization schedule will be adjusted monthly to reflect changes
in the market value of the debt obligations.
Under this formula, interest earned on debt obligations for purposes of
"a" above, is calculated by (1) computing the yield to maturity of each
obligation held by a Fund based on the market value of the obligation (including
actual accrued interest) at the close of business on the last day of each month,
or, with respect to obligations purchased during the month, the purchase price
(plus actual accrued interest), (2) dividing that figure by 360 and multiplying
the quotient by the market value of the obligation (including actual accrued
interest as referred to above) to determine the interest income on the
obligation in the Fund's portfolio (assuming a month of 30 days) and (3)
computing the total of the interest earned on all debt obligations during the
30-day or one month period. Undeclared earned income, computed in accordance
with generally accepted accounting principles, may be subtracted from the
maximum offering price calculation required pursuant to "d" above.
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.
Based on the foregoing calculations, the 30-day yield and
tax-equivalent yield for the Builder Class of the Fund were 4.25% and 8.50%,
respectively, for the period ended February 28, 1999. The 30-day yield and
tax-
19
<PAGE> 45
equivalent yield for the Premier Class of the Fund were 4.50% and 9.00%,
respectively, for the period ended February 28, 1999. The tax-equivalent yield
is based upon the combined city, state and federal tax marginal rate assumption
of 50.00%. This rate takes into account the deductibility of state and local
income taxes for federal income tax purposes and the full limitation on that
deductibility.
Comparisons. From time to time, in advertising and marketing
literature, in connection with communicating its performance to current or
prospective shareholders, the Fund may compare its performance to the
performance of various indexes. The indexes used may include, but are not
limited to, Lehman Brothers Municipal Bond Index, Bloomberg, Bond Buyer 40 and
other bond or equity indexes. Since there are different methods of calculating
performance, investors should consider the effects of the methods used to
calculate performance when comparing performance of the Fund with performance
quoted with respect to other investment companies or types of investments.
The Fund's performance may also be compared to the performance of broad
groups of mutual funds with similar investment goals, as tracked by independent
organizations such as Investment Company Data, Inc., Lipper, 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, according to 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 of Additional Information contains additional
information which may be of interest to investors. The Fund may suspend the sale
of shares at any time and may refuse any order to purchase shares.
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
20
<PAGE> 46
trading is normally 4:00 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.
The two classes of shares offer different services and features.
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, or whether they desire
the benefits of the additional services and features associated with the Builder
Class.
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.
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.
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 $100, except that (1) the
$100 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 $100. 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
21
<PAGE> 47
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.
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 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 automatic investment program.
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.
You can redeem 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 through
your investment dealer. The Fund will redeem only shares for which it has
received payment.
The Fund generally sends you payment for your shares the next business
day. However, if shares are redeemed through an investment dealer, payment is
made to that dealer. When you redeem 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.
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.
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 at telephone number
1-800-847-5886 for details.
22
<PAGE> 48
Shareholders wishing to redeem 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. 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
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
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.
You may elect to redeem shares by telephoning a redemption request
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 Transfer Agent before 4:00 p.m. Eastern time to receive that day's
price. Your dealer will be responsible for furnishing all necessary
documentation to the Transfer Agent, 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. 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 Transfer Agent at 1-800-857-5886
for further details.
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.
23
<PAGE> 49
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.
If the Fund failed to qualify as a regulated investment company
accorded special tax treatment in any taxable year, the Fund would be subject to
tax on its taxable income at corporate rates, and all distributions from
earnings and profits, including any distributions of net tax-exempt income and
net long-term capital gains, would be taxable to shareholders as ordinary
income. In addition, the Fund could be required to recognize unrealized gains,
pay substantial taxes and interest and make substantial distributions before
requalifying as a regulated investment company that is accorded special tax
treatment.
An excise tax at the rate of 4% will be imposed on the excess, if any,
of the Fund's "required distribution" over its actual distributions in any
calendar year. Generally, the "required distribution" is 98% of the Fund's
ordinary income for the calendar year plus 98% of its capital gain net income
recognized during the one-year period ending on October 31 plus undistributed
amounts from the prior year. The Fund intends to make distributions sufficient
to avoid imposition of the excise tax. Distributions declared and payable to
shareholders of record on a date in October, November, or December and paid by
the Fund during the following January will be treated for federal tax purposes
as paid by the Fund and received by shareholders on December 31 of the year in
which declared.
The receipt of exempt-interest dividends may affect the portion, if
any, of an individual shareholder's Social Security and Railroad Retirement
benefits that will be includable in gross income subject to Federal income tax.
Up to 50% of Social Security and Railroad Retirement benefits may be included in
gross income in cases where the recipient's combined income, consisting of
adjusted gross income (with certain adjustments), tax exempt interest income and
one-half of any Social Security and Railroad Retirement benefits, exceeds a base
amount ($25,000 for a single individual and $32,000 for individuals filing a
joint return) and up to 85% of Social Security and Railroad Retirement benefits
may be included in gross income in cases where the recipient's combined income
(as described above) exceeds a higher base amount ($34,000 for a single
individual and $44,000 for individuals filing a joint return). Individual
shareholders receiving Social Security or Railroad Retirement benefits should
consult their tax advisers.
The Fund must also meet certain other requirements to qualify as a
regulated investment company under the Code. At the end of each fiscal quarter
and with respect to at least 50% of its total assets (1) the Fund may not invest
more than 5% of its total assets in the securities of any one issuer (except
U.S. government obligations) and (2) the Fund may not own more than 10% of the
outstanding voting securities of any one issuer. (By comparison, a "diversified"
investment company must at all times satisfy those two conditions with respect
to 75% of the value of its total assets.) Since New York Tax Exempt Bonds are
not voting securities, the only effective limitation with respect to 50% of the
Fund's assets is that the Fund not invest more than 5% of its total assets
included among such
24
<PAGE> 50
50% in the securities of a single issuer. Also, at the end of each fiscal tax
quarter not more than 25% of the Fund's total assets 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.
Distributions paid from the Fund's investment income, other than
exempt-interest dividends, 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 (i.e., gains on securities held for more than
one year) are taxable as long-term capital gains for federal income tax purposes
(generally at a 20% rate for noncorporate shareholders), 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.
Dividends and distributions on a Fund's shares are generally subject to
federal income tax as described herein to the extent they do not exceed the
Fund's realized income and gains, even though such dividends and distributions
may economically represent a return of a particular shareholder's investment.
Such distributions are likely to occur in respect of shares purchased at a time
when a Fund's net asset value reflects gains that are either unrealized, or
realized but not distributed. Such realized gains may be required to be
distributed even when a Fund's net asset value also reflects unrealized losses.
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 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.
25
<PAGE> 51
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 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.
SHAREHOLDER VOTING
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.
26
<PAGE> 52
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, located at 100 East Broad Street, Columbus,
Ohio 43215, 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 and the audited financial
statements appearing in the most current fiscal year Annual Report to
Shareholders (which are incorporated herein by reference to the extent set forth
in the following sentence), have been so included (or incorporated) in reliance
upon the report of PricewaterhouseCoopers LLP, given on the authority of said
firm as experts in auditing and accounting. Such Annual Report is incorporated
herein by reference. Copies of the Annual Report are available upon request and
without charge.
CUSTODIAN
Investors Fiduciary Trust Company (the "Custodian"), located at 127
West 10th Street, Kansas City, Missouri 64105, serves as custodian of the Fund's
assets. The Custodian's responsibilities include safeguarding and controlling
the Fund's cash and securities, handling the receipt and delivery of securities
and collecting interest and dividends on the Fund's investments. The Custodian
does not determine the investment policies of the Fund or decide which
securities the Fund will buy or sell.
27
<PAGE> 53
APPENDIX A
INVESTMENT RATINGS
Ratings of Tax Exempt Bonds.
The four highest ratings of Moody's for tax exempt securities are Aaa,
Aa, A and Baa. Tax exempt securities rated Aaa are judged to be of the "best
quality." The rating of Aa is assigned to tax exempt securities which are of
"high quality by all standards", but as to which margins of protection or other
elements make long-term risks appear somewhat larger than for Aaa rated tax
exempt securities. The Aaa and Aa rated tax exempt securities comprise what are
generally known as "high grade bonds." Tax exempt securities which are rated A
by Moody's possess many favorable investment attributes and are considered
"upper medium grade obligations." Factors giving security to principal and
interest of A rated tax exempt securities are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future. Tax exempt securities rated Baa are considered as "medium grade"
obligations. They are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable over
any great length of time. Such tax exempt securities lack outstanding investment
characteristics and in fact have speculative characteristics as well. Those
securities in the A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols A1 and Baa1. Other A and Baa
securities comprise the balance of their respective groups. These rankings (1)
designate the securities which offer the maximum in security within their
quality group, (2) designate securities which can be bought for possible
upgrading in quality and (3) additionally afford the investor an opportunity to
gauge more precisely the relative attractiveness of offerings in the market
place.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade (MIG). This distinction is in
recognition of the differences between short-term credit risk and long-term
risk. Factors affecting the liquidity of the borrower are uppermost in
importance in short-term borrowing, while various factors of the first
importance in bond risk are of lesser importance in the short run. Loans bearing
the MIG 1 designation are of the best quality, enjoying strong protection from
established cash flows of funds for their servicing or from established and
broad-based access to the market for refinancing, or both. Loans bearing the MIG
2 designation are of high quality, with margins of protection ample although not
so large as in the preceding group.
The four highest ratings of Standard & Poor's for tax exempt securities
are AAA, AA, A and BBB. Tax exempt securities rated AAA bear the highest rating
assigned by Standard & Poor's to a debt obligation and indicate an extremely
strong capacity to pay principal and interest. Tax exempt securities rated AA
also qualify as high-quality debt obligations. Capacity to pay principal and
interest is very strong, and in the majority of instances they differ from AAA
issues only in small degree. Securities rated A have a strong capacity to pay
principal and interest, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions. The BBB
rating, which is the lowest "investment grade" security rating by Standard &
Poor's, indicates an adequate capacity to pay principal and interest. Whereas
they normally exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay principal and interest for securities in this category than for
securities in the A category.
Ratings of Corporate Obligations.
The Moody's corporate obligations ratings of Aaa, Aa, A and Baa and the
Standard & Poor's corporate obligations ratings of AAA, AA, A and BBB do not
differ materially from those set forth above for tax exempt securities.
Ratings of Commercial Paper.
The commercial paper ratings of A-1 by Standard & Poor's and Prime-1 by
Moody's are the highest commercial paper ratings of the respective agencies. The
issuer's earnings, quality of long-term debt, management and industry position
are among the factors considered in assigning such ratings.
A-1
<PAGE> 54
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ ----------------------
<S> <C>
(a) Amended and Restated Agreement and Declaration of Trust dated March 5, 1996 *
(b) By-laws *
(c) Not Applicable
(d) Investment Advisory Agreement dated July 1, 1988 *
(e) Distributor's Contract dated September 19, 1990 *
(f) Not Applicable
(g)(1) Custody Agreement dated February 2, 1992 *
(g)(2) Custodian Procedural Agreement dated March 18, 1992 *
(h)(1)(a) Transfer Agency Agreement dated October 1, 1996
(h)(1)(b) Form of Amendment No. 1 to Transfer Agency Agreement to be dated as of January 1, 2000
(h)(2)(a) Administration Agreement dated October 1, 1996
(h)(2)(b) Form of Amendment No. 1 to Administration Agreement to be dated as of January 1, 2000
(h)(3)(a) Fund Accounting Agreement dated October 1, 1996
(h)(3)(b) Form of Amendment No. 1 to Fund Accounting Agreement to be dated as of January 1, 2000
(h)(4) Shareholder Services Agreement dated September 7, 1997 *
(i) Opinion and Consent of Counsel to the Registrant
(j) Consent of PricewaterhouseCoopers LLP (Independent Auditors)
(k) None
(l) Initial Capital Agreement *
(m) Not Applicable
(n) Not Applicable
(o) Plan Pursuant to Rule 18f-3 dated September 11, 1995 *
(p) Powers of Attorney
</TABLE>
* Incorporated herein by reference to Post Effective Amendment
No. 18 to the Registration Statement, filed April 20, 1999.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 25. INDEMNIFICATION
The Fund's Agreement and Declaration of Trust provides that the Fund
will indemnify its Trustees and officers against liabilities and expenses
incurred in connection with litigation in which they may be involved because of
their offices with the Fund, except if it is determined in the manner specified
in the Agreement and Declaration of Trust that they have not acted in good faith
in the reasonable belief that their actions were in the best interests of the
Fund or that such indemnification would relieve any officer or Trustee of any
liability to the Fund or its shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of his or her duties. The Fund, at
its expense, will provide liability insurance for the benefit of its Trustees
and officers.
ITEM 26. 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.
Page C-1
<PAGE> 55
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:
<TABLE>
<CAPTION>
NAME POSITION WITH ADVISER OTHER BUSINESS
<S> <C> <C>
Alfred Feinman General Partner None
Seth M. Glickenhaus General Partner President and Trustee of the Registrant
James Glickenhaus General Partner None
</TABLE>
The address for each of the individuals listed above is Glickenhaus &
Co., 6 East 43rd Street, New York, New York 10017.
ITEM 27. PRINCIPAL UNDERWRITER
(a), (b) Glickenhaus & Co., the Registrant's adviser, also acts as the
Registrant's principal underwriter and does not serve as the principal
underwriter for any other investment company. For information about Glickenhaus
& Co. and its general partners, see Item 26 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 28. 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 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)
Page C-2
<PAGE> 56
ITEM 29. MANAGEMENT SERVICES
None.
ITEM 30. UNDERTAKINGS
None.
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.
Page C-3
<PAGE> 57
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant certifies
that it meets all the requirements for effectiveness of this registration
statement under Rule 485(b) under the Securities Act and has duly caused this
Post-Effective Amendment No. 19 to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Columbus, in the State of Ohio on the 28 day of June, 1999.
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, as amended,
this Post-Effective Amendment No. 19 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
SETH M. GLICKENHAUS* Trustee, President, Principal June 28, 1999
- ----------------------------------------- Executive Officer
Seth M. Glickenhaus
/s/ GARY TENKMAN Assistant Treasurer, Principal Financial and June 28, 1999
- ----------------------------------------- Accounting Officer
Gary Tenkman
EDWARD FALKENBERG* Trustee June 28, 1999
- -----------------------------------------
Edward Falkenberg
EDWARD A. KUCZMARSKI* Trustee June 28, 1999
- -----------------------------------------
Edward A. Kuczmarski
ELIZABETH B. NEWELL* Trustee June 28, 1999
- -----------------------------------------
Elizabeth B. Newell
JOHN P. STEINES* Trustee June 28, 1999
- -----------------------------------------
John P. Steines
</TABLE>
*By: /s/ GEORGE STEVENS
-----------------------------------------
George Stevens, Esq.
Attorney-in-Fact
<PAGE> 58
THE EMPIRE BUILDER TAX FREE BOND FUND
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
DESCRIPTION OF EXHIBIT EXHIBIT REFERENCE
- ---------------------- -----------------
<S> <C>
Transfer Agency Agreement dated October 1, 1996......................................................(h)(1)(a)
Form of Amendment No. 1 to Transfer Agency Agreement to be dated as of January 1, 2000 ..............(h)(1)(b)
Administration Agreement dated October 1, 1996 as amended January 1, 2000 ...........................(h)(2)(a)
Form of Amendment No. 1 to Administration Agreement to be dated as of January 1, 2000 ...............(h)(2)(b)
Fund Accounting Agreement dated October 1, 1996 as amended January 1, 2000 ..........................(h)(3)(a)
Form of Amendment No. 1 to Fund Accounting Agreement to be dated as of January 1, 2000 ..............(h)(3)(b)
Opinion and Consent of Counsel to the Registrant ..........................................................(i)
Consent of PricewaterhouseCoopers LLP (Independent Auditors)...............................................(j)
Powers of Attorney.........................................................................................(p)
</TABLE>
<PAGE> 1
EXHIBIT (h)(1)(a)
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.
<PAGE> 2
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 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.
2
<PAGE> 3
4. Effective Date.
This Agreement shall become effective as of the date first
written above (the "Effective Date").
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 nonbreaching 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.
3
<PAGE> 4
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.
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
4
<PAGE> 5
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 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-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. 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.
5
<PAGE> 6
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 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.
6
<PAGE> 7
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 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
7
<PAGE> 8
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.
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.
8
<PAGE> 9
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.
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.
9
<PAGE> 10
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, 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/ Theresa Donavan______
BISYS FUND SERVICES, INC.
By:_/s/ J. David Huber, President
Attest:_/s/ Robert L. Tuch, Asst. Secretary
10
<PAGE> 11
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.
11
<PAGE> 12
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.
12
<PAGE> 13
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 Account Fee:
The per account fees are subject to two (2) minimums:
$25,000 per Fund
$20.000 per class beyond the first
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.
13
<PAGE> 14
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.
14
<PAGE> 1
EXHIBIT (h)(1)(b)
AMENDMENT TO
TRANSFER AGENCY AGREEMENT
This Amendment is made as of January 1, 2000, between THE EMPIRE
BUILDER TAX FREE BOND FUND (the "Trust"), a Massachusetts business trust, and
BISYS FUND SERVICES, INC., ("BISYS"). The parties hereby amend the Transfer
Agency Agreement (the "Agreement") between the Trust and BISYS, dated as of
October 1, 1996, as set forth below.
WHEREAS, the parties hereto wish to modify Section 5 of the Agreement,
entitled "Term"; and
WHEREAS, the parties hereto wish to modify Schedule B to the Agreement,
entitled "TRANSFER AGENT FEES", by amending the fee schedules contained therein.
NOW THEREFORE, in consideration of the foregoing and the mutual
premises and covenants herein set forth, the parties agree as follows:
1. Capitalized terms not otherwise defined herein shall have the
same meaning as in the Agreement.
2. Section 5 of the Agreement shall be amended by replacing the
first sentence of the first paragraph with the following:
The initial term of this Agreement shall be for a
period commencing on October 1, 1996 and ending on
December 31, 1997.
3. Section 5 of the Agreement shall be further amended by
replacing the last paragraph with the following:
If, for any reason other than non-renewal, mutual
agreement of the parties or a material breach that
has not been remedied in accordance with the terms of
this Agreement, BISYS is replaced as the service
provider under this Agreement 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 herein), then the Trust shall make a
one-time cash payment, in consideration of the fee
structure and services to be provided under this
Agreement and not as a penalty, to BISYS equal to the
balance due BISYS for the remainder of the
then-current term of this Agreement assuming for
purposes of calculation of the payment that such
balance shall be based upon the average number of
shareholder accounts in the Trust for the twelve
<PAGE> 2
months prior to the date BISYS is replaced or a third
party is added by the Trust.
In the event the Trust is merged into another legal
entity in part or in whole pursuant to any form of
business reorganization or is liquidated in part or
in whole prior to the expiration of the then-current
term of this Agreement, the parties acknowledge and
agree that the one-time cash payment set forth above
shall be applicable in those instances in which BISYS
is not retained to provide services consistent with
this Agreement, including the level of assets subject
to such services. The one-time cash payment
referenced above shall be due and payable within
thirty (30) days following the first day on which
BISYS is replaced or a third party is added by the
Trust.
The parties further acknowledge and agree that, in
the event BISYS is replaced, or a third party is
added, as set forth above, (i) a determination of
actual damages incurred by BISYS would be extremely
difficult, and (ii) the cash payment provision
contained herein is intended to adequately compensate
BISYS for damages incurred and is not intended to
constitute any form of penalty.
4. Schedule B to the Agreement, entitled "TRANSFER AGENT FEES",
shall be amended by replacing the sections entitled "Annual
Per Fund Fee", "Annual Per Account Fee" and "Multiple Classes
of Shares" with the following:
BISYS shall be entitled to receive the following per
account fees: $22.30 per open account and $7.00 per
closed account, each of which is subject to the
following annual minimum fees: (i) $25,000 per Fund
and (ii) $20,000 per separate share class, excluding
the first share class that has been created.
5. This Amendment may be executed in one or more counterparts,
each which will be deemed an original, but all of which
together shall constitute one and the same instrument.
6. Except as specifically set forth herein, all other provisions
of the Agreement shall remain in full force and effect.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
THE EMPIRE BUILDER TAX FREE
BOND FUND
By: ________________________________
Title: _______________________________
BISYS FUND SERVICES, INC.
By: ________________________________
Title: _______________________________
3
<PAGE> 1
EXHIBIT (h)(2)(a)
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.
<PAGE> 2
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 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;
2
<PAGE> 3
(e) administer contracts on behalf of the Trust with, among
others, the Trust's investment adviser, distributor,
custodian, transfer agent and fund accountant;
(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-1(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,
3
<PAGE> 4
distribution agreement, custodian agreement, transfer agent
agreement and fund accounting agreement;
(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
4
<PAGE> 5
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.
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.
5
<PAGE> 6
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
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.
6
<PAGE> 7
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.
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 31a-1 and
31a-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.
7
<PAGE> 8
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.
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/ Theresa Donovan
---------------------------------------
BISYS FUND SERVICES LIMITED
PARTNERSHIP
BY: BISYS FUND SERVICES,
GENERAL PARTNER
By: /s/ J. David Huber, President
-------------------------------------------
Attest: /s/ Robert L. Tuch, Assistant Secretary
---------------------------------------
8
<PAGE> 9
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-1
<PAGE> 10
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
sub-administrator 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.
A-2
<PAGE> 1
EXHIBIT (h)(2)(b)
AMENDMENT TO
ADMINISTRATION AGREEMENT
This Amendment is made as of January 1, 2000, between THE EMPIRE
BUILDER TAX FREE BOND FUND, a Massachusetts business trust (the "Trust"), BISYS
FUND SERVICES LIMITED PARTNERSHIP, d/b/a BISYS FUND SERVICES ("BFSLP"), and
BISYS FUND SERVICES OHIO, INC. (the "New Administrator"). The parties hereby
amend the Administration Agreement (the "Agreement") between the Trust and
BFSLP, dated as of October 1, 1996, as set forth below.
WHEREAS, the parties hereto wish to substitute the New Administrator
for BFSLP as the administrator under the Agreement;
WHEREAS, the parties hereto wish to modify Article 2 of the Agreement,
entitled "Administrative Services," for the purpose of more specifically
delineating the services to be provided under the Agreement but not for the
purpose of expanding or reducing the scope of such services;
WHEREAS, the parties hereto wish to modify Article 4 of the Agreement,
entitled "Compensation of the Administrator"; and
WHEREAS, the parties hereto wish to modify Schedule A to the Agreement,
by amending the sections entitled "Fees" and "Term".
NOW THEREFORE, in consideration of the foregoing and the mutual
premises and convenants herein set forth, the parties agree as follows:
1. Capitalized terms not otherwise defined herein shall have the same
meaning as in the Agreement.
2. The New Administrator shall replace BFSLP as the Administrator
under the Agreement.
3. Article 2 of the Agreement, entitled "Administrative Services",
shall be amended by replacing the items described in paragraphs
(a)-(r) on pages 2-4 with the following:
Without limiting the generality of the foregoing, the
Administrator shall perform the services described in Schedule
B attached hereto.
4. Article 4 of the Agreement, entitled "Compensation of the
Administrator", shall be amended by adding the following language
at the end of the first paragraph of subsection (A):
The Trust shall also reimburse the Administrator for its
reasonable out-of-pocket expenses, provided that such expenses
are approved in advance, in writing, by either (1) the Trust's
Board of Trustees or (2) the investment adviser to the Trust.
<PAGE> 2
5. Schedule B, which is appended hereto, shall be added to the
Agreement.
6. Schedule A to the Agreement shall be amended by replacing the fee
schedule contained in the section entitled "Fees" with the
following:
Fifteen one-hundredths of one percent (.15%) of the Trust's
average daily net assets, subject to an annual minimum fee of
$200,000.
7. Schedule A to the Agreement shall be further amended by replacing
the first and second sentences of the first paragraph in the
section entitled "Term" with the following:
The initial term of this Agreement shall be for a period
commencing on October 1, 1996 and ending on December 31, 1997.
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
sixty days prior to the end of the then-current term.
8. Schedule A to the Agreement, shall be further amended by replacing
the last paragraph of the section entitled "Term" with the
following:
If, for any reason other than non-renewal, mutual agreement of
the parties or a material breach that has not been remedied in
accordance with the terms of this Agreement, the Administrator
is replaced as the service provider under this Agreement 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 sub-contractor appointed by the Administrator
as provided in Article 8 herein), then the Trust shall make a
one-time cash payment, in consideration of the fee structure
and services to be provided under this Agreement and not as a
penalty, to the Administrator equal to the balance due the
Administrator for the remainder of the then-current term of
this Agreement assuming for purposes of calculation of the
payment that such balance shall be based upon the average
amount of Trust assets for the twelve months prior to the date
the Administrator is replaced or a third party is added by the
Trust.
In the event the Trust is merged into another legal entity in
part or in whole pursuant to any form of business
reorganization or is liquidated in part or in whole prior to
the expiration of the then-current term of this Agreement, the
parties acknowledge and agree that the one-time cash payment
set forth above shall be applicable in those instances in
which the Administrator is not retained to provide services
consistent with this Agreement, including the level of assets
subject to
2
<PAGE> 3
such services. The one-time cash payment referenced above
shall be due and payable within thirty (30) days following the
first day on which the Administrator is replaced or a third
party is added by the Trust.
The parties further acknowledge and agree that, in the event
the Administrator is replaced, or a third party is added, as
set forth above, (i) a determination of actual damages
incurred by the Administrator would be extremely difficult,
and (ii) the cash payment provision contained herein is
intended to adequately compensate the Administrator for
damages incurred and is not intended to constitute any form of
penalty.
9. This Amendment may be executed in one or more counterparts, each
of which will be deemed an original, but all of which together
shall constitute one and the same instrument.
10. Except as specifically set forth herein, all other provisions of
the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
THE EMPIRE BUILDER TAX FREE BOND FUND
By: _____________________________________
Title: ___________________________________
BISYS FUND SERVICES LIMITED PARTNERSHIP
BY: BISYS FUND SERVICES, INC., GENERAL PARTNER
By: _____________________________________
Title: ____________________________________
BISYS FUND SERVICES OHIO, INC.
By : ____________________________________
Title: ___________________________________
3
<PAGE> 4
SCHEDULE B
TO THE ADMINISTRATION AGREEMENT DATED AS OF
OCTOBER 1, 1996, AS AMENDED AS OF JANUARY 1, 2000, BETWEEN
THE EMPIRE BUILDER TAX FREE BOND FUND
AND
BISYS FUND SERVICES OHIO, INC.
SERVICES
ADMINISTRATION
a. Maintain and manage annual regulatory filing calendar.
b. Manage the process of printing and distributing prospectuses and prospectus
supplements. This includes, but is not limited to, decisions regarding
quantities and layout, price negotiation, invoice control and management of
the mailing process.
c. Manage the process of printing and distributing proxy materials. This
includes, but is not limited to, decisions regarding quantities,
compilation of shareholder data, price negotiation and management of the
mailing process.
d. Coordinate the layout and printing of all other communications to
shareholders and manage the process of mailing such communications.
e. Prepare for and conduct shareholder meetings. This includes, but is not
limited to, preparation of scripts and preparation of reports that reflect
voting results.
f. Supervise and facilitate the proxy solicitation process for all shareholder
meetings, including the tabulation of shareholder votes.
g. Prepare and file Form N24-F2.
h. Obtain tax identification numbers from the IRS for each Fund portfolio.
i. Assist Fund's Independent Accountants with 17f-2 audit process.
j. Assist Fund in obtaining Fund ratings from NRSROs.
k. Obtain Fund CUSIPs.
l. Assist in the completion of trustee/officer questionnaires.
m. Assist the Fund in the preparation of appropriate documentation and records
relating to the contribution of seed money capital.
n. Maintain books and records on behalf of the Fund, as agreed upon by the
parties.
o. Provide individuals reasonably acceptable to the Fund's Board of Trustees
to serve as officers of the Fund, who will be responsible for management of
certain of the Fund's affairs as determined by the Fund's Board of
Trustees.
p. Administer contracts on behalf of the Fund with, among others, the Fund's
investment adviser, distributor, custodian, transfer agent and fund
accountant.
q. Perform all administrative services and functions of the Fund to the extent
administrative services and functions are not provided to the Fund pursuant
to the Fund's investment advisory agreement, distribution agreement,
custodian agreement, transfer agent agreement and fund accounting
agreement. Such services shall include, but not be limited to, (i)
examining and reviewing the operations and performance of the various
organizations providing services to the Fund, including, without
limitation, the investment adviser, distributor, custodian, fund
accountant,
<PAGE> 5
transfer agent, outside legal counsel and independent public accountants,
and at the request of the Board of Trustees, reporting to the Board on the
performance of such organizations, (ii) advising the Fund and its Board of
Trustees on matters concerning the Fund and its affairs, (iii) assisting
with the design, development, and operation of the Fund's portfolios,
including new classes, investment objectives, policies and structure and
(iv) furnishing advice and recommendations with respect to other aspects of
the business and affairs of the Fund as the Fund and the Administrator
shall determine desirable.
COMPLIANCE
a. Review monthly compliance reports that are prepared by the investment
adviser(s).
b. Perform independent monthly portfolio compliance testing.
c. Prepare quarterly tax compliance checklist for use by investment
adviser(s).
d. Provide appropriate assistance with respect to SEC inspections including
(i) rendering advice regarding proposed responses (ii) compiling data and
other information in response to SEC requests for information and (iii)
communicating with SEC staff members, as necessary.
e. Provide appropriate assistance with respect to audits conducted by the
Fund's independent accountants including (i) compiling data and other
information and (ii) communicating with independent accountants, as
necessary.
f. Consult with and advise, on a proactive basis, Fund portfolio managers with
respect to compliance matters.
g. Prepare quarterly brokerage allocation compliance checklist and supporting
documentation for use by investment adviser(s).
h. Provide on-site compliance training for investment advisory personnel, as
requested.
i. Preparation of Fund-specific compliance manual.
TAX AND FINANCIAL SERVICES
a. Prepare semi-annual/annual financial statements.
b. Prepare and file Form N-SAR and all notices that are required pursuant to
Rule 24f-2.
c. Calculate/distribute all standard performance information including, but
not limited to, yields, tax-equivalent yields and total return, as
appropriate.
d. Prepare annual Fund expense budget and monthly accrual analyses.
e. Calculate/validate/approve Fund expenses to be paid and control all
disbursements for the Fund.
f. Register Fund portfolios with NASDAQ.
g. Prepare financial materials for Board books.
h. Calculate declaration of income/capital gain distributions in compliance
with income/excise tax distribution requirements and supervise the transfer
agent with respect to the payment of dividends and other distributions to
shareholders.
i. Review all dividend declarations to ensure that such distributions are not
"preferential" under the Internal Revenue Code.
j. Coordinate and supervise the preparation and filing of federal and state
income tax returns and federal excise tax returns within statutory
deadlines.
2
<PAGE> 6
k. Prepare/distribute year-end shareholder tax information letters and Forms
1099-MISC for trustee fees/vendor payments within 30 days of calendar
year-end.
l. Monitor and advise the Fund regarding its registered investment company
status under the Internal Revenue Code of 1986, as amended and provide
on-site compliance/consulting for portfolio managers focused on the impact
of changes in tax laws and managing a tax-efficient mutual fund.
m. Provide on-site consulting services for conversions.
n. Provide expense budgeting consulting to review expense ratios/fee waivers.
o. Leverage BISYS' relationships with all "Big 5" accounting firms for
clients' benefit.
p. Produce semi-annual/annual reports and other communications to
shareholders, with the assistance of the Fund's investment adviser.
q. As appropriate, compute expense ratios, portfolio turnover rate and
portfolio average dollar-weighted maturity.
LEGAL SERVICES
GENERAL
a. Maintain files of registration statements, Fund contracts, Fund proxies and
other Fund legal documents.
b. Provide legal consultation with respect to product development issues.
c. Provide assistance concerning matters pertaining to Federal securities
laws, bank regulatory issues, tax-related issues and ERISA issues.
d. Provide information concerning current legal and regulatory developments.
e. Provide comments, as appropriate, concerning regulatory agency proposals.
f. Maintain appropriate insurance coverage on behalf of the Fund in the form
of (i) a Directors & Officers/Errors & Omissions professional liability and
(ii) a Fidelity Bond in accordance with applicable laws and regulations.
g. Prepare memoranda and other correspondence that outlines the terms and
conditions of the insurance policies described in item (f) above.
BOARD MEETING MATTERS
a. Maintain calendar and files for all Board meetings, including the
maintenance of Fund minute books and corporate records (e.g., Articles of
Incorporation/Declaration of Trust, Bylaws).
b. Prepare quarterly Board meeting responsibility chart.
c. Provide appropriate personnel to attend Board meetings.
d. Prepare Board agendas and relevant sections of Board materials.
e. Produce and distribute Board books.
f. Record minutes of Board meetings.
REGISTRATION STATEMENTS
a. Manage the process of updating and filing the annual update post-effective
amendment to the Fund's registration statement by (i) reviewing or
recommending
3
<PAGE> 7
proposed disclosure changes, (ii) compiling data for purposes of updating
information, (iii) receiving disclosure comments and communicating them to
counsel to the Fund and the financial printer and (iv) overseeing and
approving revisions that are made by the financial printer.
b. Prepare periodic supplements to Fund prospectuses or, if the parties agree,
review such supplements that are prepared by counsel to the Fund.
PROXY MATERIALS
a. Assist counsel to the Fund in preparing proxy statements.
BLUE SKY
a. Qualify the Fund and its shares with appropriate state blue sky authorities
upon client authorization by preparing necessary reports, applications and
documents and making all necessary filing.
b. Amend and renew sales permits as required from time to time.
c. Monitor the sales of shares in individual states on a daily basis upon
receipt of sales information and, when required, report sales to
appropriate states.
d. Maintain Fund blue sky filing calendars.
e. Address all blue sky audit and examination issues.
f. Conduct blue sky fee analysis, upon request.
g. Produce checks required for state filing fees ($8.00 per check).
4
<PAGE> 1
EXHIBIT (h)(3)(a)
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 31a-1 under the Investment Company Act of
1940 (the "Rule"):
<PAGE> 2
(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)(1) of the Rule;
(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 1(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;
<PAGE> 3
(viii) Amortize premiums and accrete discounts on
securities purchased at a price other than
face value, if requested by the Trust;
(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:
3
<PAGE> 4
Statement of Assets and Liabilities,
Statement of Operations,
Statement of Changes in Net Assets, and
Condensed Financial Information;
(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
<PAGE> 5
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:
(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
5
<PAGE> 6
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.
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
6
<PAGE> 7
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 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.
7
<PAGE> 8
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 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
8
<PAGE> 9
(ii) Certified copies of resolutions of the Board
of Trustees covering the approval of this
Agreement, authorization of a specified
officer of the 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
9
<PAGE> 10
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 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 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.
10
<PAGE> 11
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/ Theresa Donovan
-----------------------------
BISYS FUND SERVICES, INC.
By: /s/ J. David Huber, President
---------------------------------
Attest: /s/ Robert L. Tuch, Assist Secretary
------------------------------------
11
<PAGE> 12
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: /s/ illegible By: /s/ J/ David Huber, President
-------------------------- ------------------------------
A-1
<PAGE> 1
EXHIBIT (h)(3)(b)
AMENDMENT TO
FUND ACCOUNTING AGREEMENT
This Amendment is made as of January 1, 2000, between THE EMPIRE
BUILDER TAX FREE FUND (the "Trust"), a Massachusetts business trust and BISYS
FUND SERVICES, INC. ("Fund Accountant"). The parties hereby amend the Fund
Accounting Agreement (the "Agreement") between the Trust and Fund Accountant,
dated as of October 1, 1996, as set forth below.
WHEREAS, the parties hereto wish to modify Section 6 of the Agreement,
entitled "Term"; and
WHEREAS, the parties hereto wish to modify Schedule A to the Agreement,
entitled "FEES", by amending the fee schedule contained therein.
NOW THEREFORE, in consideration of the foregoing and the mutual
premises and covenants herein set forth, the parties agree as follows:
1. Capitalized terms not otherwise defined herein shall have the
same meaning as in the Agreement.
2. Section 6 of the Agreement shall be amended by replacing the
first sentence of the first paragraph with the following:
The initial term of this Agreement shall be for a
period commencing on October 1, 1996 and ending on
December 31, 1997.
3. Section 6 of the Agreement shall be further amended by
replacing the last paragraph of the section with the
following:
If, for any reason other than non-renewal, mutual
agreement of the parties or a material breach that
has not been remedied in accordance with the terms of
this Agreement, Fund Accountant is replaced as the
service provider under this Agreement 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 herein),
then the Trust shall make a one-time cash payment, in
consideration of the fee structure and services to be
provided under this Agreement and not as a penalty,
to Fund Accountant equal to the balance due Fund
Accountant for the remainder of the then-current term
of this Agreement, assuming for purposes of
calculation of the payment that such balance shall be
based upon the average amount of Trust assets for the
twelve months prior to the date Fund Accountant is
<PAGE> 2
replaced or a third party is added by the Trust.
In the event the Trust is merged into another legal
entity in part or in whole pursuant to any form of
business reorganization, or is liquidated in part or
in whole prior to the expiration of the then-current
term of this Agreement, the parties acknowledge and
agree that the one-time cash payment set forth above
shall be applicable in those instances in which Fund
Accountant is not retained to provide services
consistent with this Agreement, including the level
of assets subject to such services. The one-time cash
payment referenced above shall be due and payable
within thirty (30) days following the first day on
which Fund Accountant is replaced or a third party is
added by the Trust.
The parties further acknowledge and agree that, in
the event Fund Accountant is replaced, or a third
party is added, as set forth above, (i) a
determination of actual damages incurred by Fund
Accountant would be extremely difficult, and (ii) the
cash payment provision contained herein is intended
to adequately compensate Fund Accountant for damages
incurred and is not intended to constitute any form
of penalty.
4. Schedule A to the Agreement, entitled "FEES", shall be amended
by replacing the fee schedule contained therein with the
following:
Fund Accountant shall be entitled to receive a fee
from each Fund in accordance with the following
schedule:
Three one-hundredths of one percent (.03%) of the
Trust's average daily net assets, subject to an
annual minimum fee of $40,000 per Fund
Schedule A shall be further amended by adding the following to
the section entitled "Multiple Class of Shares":
An additional fee of $10,000 per class shall be paid
for each additional share class that is added.
5. This Amendment may be executed in one or more counterparts,
each of which will be deemed an original, but all of which
together shall constitute one and the same instrument.
6. Except as specifically set forth herein, all other provisions
of the Agreement shall remain in full force and effect.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
THE EMPIRE BUILDER TAX FREE BOND FUND
By: _____________________________________
Title: ____________________________________
BISYS FUND SERVICES, INC.
By: ____________________________________
Title: ___________________________________
3
<PAGE> 1
Exhibit (i)
Ropes & Gray
One International Place
Boston, Massachusetts 02110-2624
(617) 951-7000
Telecopier (617) 951-7050
June 28, 1999
The Empire Builder Tax Free Bond Fund
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We are furnishing this opinion in connection with Registration
Statement No. 2-86931 on Form N-1A filed under the Securities Act of 1933, as
amended, by The Empire Builder Tax Free Bond Fund (the "Trust") for the
registration of an indefinite number of shares of beneficial interest of the
Trust (the "Shares"). The Shares are proposed to be sold pursuant to a
Distributor's Contract between the Trust and Glickenhaus & Co. in the form filed
as an exhibit to the Registration Statement (the "Distributor's Contract").
We have acted as counsel for the Trust since its organization. We are
familiar with the action taken by its Trustees to authorize the issuance of the
Shares. We have examined its records of trustee and shareholder action, its
Bylaws, and its Amended and Restated Agreement and Declaration of Trust on file
at the Office of the Secretary of State of The Commonwealth of Massachusetts. We
have examined copies of such Registration Statement, and amendments thereto, in
the form filed or to be filed with the Securities and Exchange Commission, and
such other documents as we deem necessary for the purposes of this opinion.
We assume that upon sale of the Shares the Trust will receive the net
asset value thereof.
Based upon the foregoing, we are of the opinion that the Trust is
authorized to issue an unlimited number of Shares, and that when the Shares are
issued and sold pursuant to the Distributor's Contract, they will be validly
issued, fully paid, and nonassessable by the Trust.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held liable for the
<PAGE> 2
The Empire Builder Tax Free Bond Fund
June 28, 1999
Page 2
obligations of the Trust. However, the Amended and Restated Agreement and
Declaration of Trust disclaims shareholder liability for acts or obligations of
the Trust and requires that notice of such disclaimer be given in each note,
bond, contract, instrument, certificate or undertaking entered into or executed
by the Trust or the Trustees. The Agreement and Declaration of Trust provides
for indemnification, out of the property of the Trust, of any shareholder held
personally liable solely by reason of his being or having been a shareholder.
Thus, the risk of a shareholder's incurring financial loss on account of
shareholder liability is limited to circumstances in which the Trust would be
unable to meet its obligations.
We consent to the filing of this opinion as an exhibit to such
Registration Statement.
Very truly yours,
/s/ Ropes & Gray
--------------------------------
Ropes & Gray
-2-
<PAGE> 1
EXHIBIT (j)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective Amendment
No. 19 to the Registration Statement of the Empire Builder Tax Free Bond Fund on
Form N-1A (file No. 2-86931) of our report dated April 5, 1999 on our audits of
the financial statements and financial highlights of the Empire Builder Tax Free
Bond Fund, which report is included in the Annual Report to Shareholders for the
year ended February 28, 1999, which is incorporated by reference in
Post-Effective Amendment No. 19 to the Registration Statement. We also consent
to the reference to our Firm under the captions "Financial Highlights" in the
Prospectus and "Independent Accountants" and "Financial Statements" in the
Statement of Additional Information in this Post-Effective Amendment No. 19 to
the Registration Statement of the Empire Builder Tax Free Bond Fund on Form N-1A
(File No. 2-86931).
PRICEWATERHOUSECOOPERS LLP
Columbus, Ohio
June 25, 1999
<PAGE> 1
EXHIBIT (p)
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 George Stevens, Esq., James Smith, Gary Tenkman,
Georgette L. Horton and John 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 the 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 1st day
of June, 1999.
/s/ Seth M. Glickenhaus /s/Edward Falkenberg
---------------------------------- ------------------------
Seth M. Glickenhaus Edward Falkenberg
Trustee, Chairman of the Board and Trustee
President of the Fund
/s/ Edward A. Kuczmarski /s/ Elizabeth A. Newell
---------------------------------- ------------------------
Edward A. Kuczmarski Elizabeth A. Newell
Trustee Trustee
/s/ John P. Steines /s/ Gary Tenkman
---------------------------------- ------------------------
John P. Steines Gary Tenkman
Trustee Assistant Treasurer
