<PAGE>
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3435 Stelzer Road
Columbus, Ohio 43219
1-800-847-5886
April 6, 1999
Dear Shareholder,
We are pleased to present the Empire Builder Tax Free Bond Fund Annual
Report for the year ended February 28, 1999.
While our economy's strength has grown, rates in the U.S. government bond
market have declined 1% in short maturities and .8% in the 30-year bond. Last
year's tax-exempt rates have declined approximately .25% from their peak because
they are relatively much cheaper than treasuries.
With the federal government surplus, we anticipate a net reduction of $100
billion of government bonds coming to market. This and the absence of inflation
and foreign economic problems should create a stable (or even improving)
government bond market. The same holds true for tax-exempts, which are still
relatively attractive, vis-a-vis taxables. Furthermore, foreign problems will
continue to add to the stature of our credits.
We anticipate that the Federal Reserve Bank will not change the Federal
Funds Rate for many months because the very strong economy, which they may want
to dampen, is being offset by the very low inflation rate.
In our opinion, the no-load structure of the Empire Builder Tax Free Bond
Fund continues to offer value to you, the Shareholders. Our automatic investment
program (also known as dollar cost averaging*) makes good sense if you want to
follow a disciplined regular investment plan. We look forward to helping you
meet your investment needs.
Sincerely,
/s/ Seth M. Glickenhaus
Seth M. Glickenhaus
President
*Dollar cost averaging does not insure a profit and does not protect against
loss in declining markets. An investor should consider his or her financial
ability to continue making additional investments through periods of low share
price levels.
This report must be preceded or accompanied by a prospectus. For more complete
information including charges and expenses, please call 1-800-847-5886 to
receive a prospectus. Read the prospectus carefully before investing or sending
money.
The fund's income may be subject to certain state and local taxes and, depending
on your tax status, the federal alternative minimum tax.
Past performance does not guarantee future results.
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
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TAX FREE BOND FUND
MARKET CONDITIONS DURING THE FUND'S MOST RECENT FISCAL YEAR.
The Fiscal Year ended February 28th 1999 saw interest rates in the
long-term government bond market rise above 6% and dip below 5%. The fiscal year
ended with the rate at 5.57%, 35 basis points below the 2/28/98 level of 5.92%.
This can be characterized as a volatile market and consequentially we saw up and
down movement in the value of investment grade New York tax exempt bonds. With
all of the movement in the market, the rates ended lower with an increase in the
value of our holdings. During the fiscal year, the Federal Reserve Board made
several cuts to its "Federal Funds" rate. As a result interest rates trended
lower.
We try to enhance the value of the fund whenever possible. We continue to
manage the fund conservatively taking advantage of opportunities that arise in
the marketplace due to interest rate movements and quality enhancements.
The following graphs illustrate the total return based on a $10,000
investment in Builder Class shares of the Fund made February 28, 1989 and a
$10,000 investment in Premier Class shares of the Fund made at the commencement
date of April 15, 1996, held in each through February 28, 1999, as well as the
performance of the Lehman Municipal Bond Index over the same period.
The Lehman Municipal Bond Index includes 25,000 long-term, investment
grade, municipal bonds. In the opinion of the Fund's adviser, this index most
accurately represents the performance of the broad municipal bond market.
However, there are substantial differences between the index and the Fund.
First, the index covers municipal bonds nationwide, whereas the Fund invests
only in New York tax exempt bonds. Second, the index does not reflect the cost
and expenses of actually obtaining the underlying bonds. Third, the index had a
higher level of volatility than the Fund during the ten years ended
December 31, 1998, as measured by Beta. Finally, the index represents an
unmanaged portfolio whereas the Fund is professionally managed.
The graphs assume all dividends and distributions are reinvested at net
asset value. Past performance is not predictive of future performance.
The Fund's Builder Class shares' average annual total return for the
periods indicated was as follows:
+4.87% for the one-year period beginning March 1, 1998 and ended
February 28, 1999;
+5.37% for the five-year period beginning March 1, 1994 and ended
February 28, 1999;
+7.00% for the ten-year period beginning March 1, 1989 and ended
February 28, 1999;
2
<PAGE>
[Line Chart Appears Here]
Empire Builder Tax
Lehman Municipal Bond Index Free Bond Fund Class
February 28, 1990 $ 11,025.50 $ 10,698.59
February 28, 1991 $ 12,042.01 $ 11,575.69
February 28, 1992 $ 13,244.73 $ 12,503.44
February 28, 1993 $ 15,067.69 $ 14,358.25
February 28, 1994 $ 15,902.04 $ 15,140.08
February 28, 1995 $ 16,201.59 $ 15,305.39
February 28, 1996 $ 17,991.28 $ 16,674.56
February 28, 1997 $ 18,982.14 $ 17,391.56
February 28, 1998 $ 20,717.40 $ 18,750.77
February 28, 1999 $ 21,991.18 $ 19,644.19
*An unmanaged portfolio
The Fund's Premier class shares' average annual total return for the
periods indicated was as follows:
+5.17% for the one-year period beginning March 1, 1998 and ended
February 28, 1999;
+6.71% for the period beginning April 15, 1996 (commencement of
operations) and ended February 28, 1999;
[Line Chart Appears Here]
Empire Builder Tax Free
Bond Fund Premier Class Lehman Municipal Bond Index*
15-Apr-96 $ 10,000.00 $ 10,000.00
28-Feb-97 $ 10,603.00 $ 10,689.00
28-Feb-98 $ 11,459.00 $ 11,664.00
28-Feb-99 $ 12,052.00 $ 12,381.00
*An unmanaged portfolio
3
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 28, 1999
<TABLE>
<CAPTION>
Credit Principal Value
Ratings** Municipal Securities -- 96.7% Amount (Note 2)
- ---------- ---------------------------------------- ------------- -------------
<S> <C> <C> <C>
NEW YORK CITY--4.7%
Aa3/AA New York City Transitional Finance
Authority, Series A, 5.00%, 8/15/2016,
Callable 8/15/2007 @ 101.............. $ 1,000,000 $ 1,003,750
Aa3/AA New York City Transitional Finance
Authority, Series A, 5.00%, 8/15/2027,
Callable 8/15/2007 @ 101.............. 1,975,000 1,942,906
A3/A- New York City, General Obligation,
Series F, 5.00%, 8/1/2023, Callable
2/1/2008 @ 101........................ 2,800,000 2,737,000
-------------
TOTAL NEW YORK CITY (Cost $5,714,590)... 5,683,656
-------------
NEW YORK STATE--3.3%
A2/A New York State General Obligation,
5.125%, 1/15/2016, Callable 1/15/2006
@ 101................................. 3,000,000 3,037,500
A2/A New York State General Obligation,
Series F, 5.00%, 9/15/2018, Callable
9/15/2008 @ 101....................... 500,000 500,625
A2/A New York State General Obligation,
Series F, 5.00%, 9/15/2021, Callable
9/15/2008 @ 101....................... 500,000 498,750
-------------
TOTAL NEW YORK (Cost $4,041,056)........ 4,036,875
-------------
NEW YORK STATE AGENCIES--62.1%
New York State Dormitory Authority
Baa1/BBB+ Albany County Airport, 5.25%,
4/1/2013, Callable 4/1/2008 @ 101... 1,200,000 1,239,000
NR/AAA City University, 5.00%, 7/1/2028,
Callable 7/1/2008 @ 101, (MBIA)..... 4,550,000 4,481,750
Aa2/AA Cornell University, Series A, 7.375%,
7/1/2020, Callable 7/1/2000 @ 102... 750,000 799,688
NR/AAA Heritage House Nursing Center, (FHA),
7.00%, 8/1/2031, Callable 8/1/2001 @
102................................. 475,000 509,437
Aaa/AAA Memorial Sloan Kettering, (MBIA),
5.75%, 7/1/2019..................... 1,000,000 1,107,500
Aaa/AAA Menorah Home, 5.00%, 8/1/2018,
Callable 8/1/2009 @ 101, (AMBAC).... 2,500,000 2,481,250
Aaa/AAA Menorah Home, 5.10%, 8/1/2028,
Callable 8/1/2009 @ 101, (AMBAC).... 1,500,000 1,488,750
Aaa/AAA Mental Health Services Facilities,
5.25%, 2/15/2013, Callable 8/15/2008
@ 101, (AMBAC)...................... 1,085,000 1,136,538
Aaa/AAA Mental Health Services Facilities,
5.25%, 8/15/2013, Callable 8/15/2008
@ 101, (AMBAC)...................... 1,315,000 1,377,463
A3/A- Mental Health Services Facilities,
Series B, 5.50%, 8/15/2017, Callable
2/15/2007 @ 102..................... 3,400,000 3,574,250
Aaa/AAA Millard Fillmore Hospital, (AMBAC)
(FHA), 5.00%, 2/1/2006, Callable
8/1/2004 @ 105...................... 910,000 962,325
Aaa/AAA Millard Fillmore Hospital, (AMBAC)
(FHA), 5.00%, 8/1/2006, Callable
8/1/2004 @ 105...................... 1,735,000 1,841,269
Aaa/AAA Mt. Sinai School of Medicine, (MBIA),
6.75%, 7/1/2015, Callable 7/1/2001 @
102 (a)............................. 2,250,000 2,427,187
Aaa/AAA New York Medical College, (MBIA),
5.25%, 7/1/2013, Callable 7/1/2008 @
101................................. 1,015,000 1,063,213
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 28, 1999 -- CONTINUED
<TABLE>
<CAPTION>
Credit Principal Value
Ratings** Municipal Securities -- continued Amount (Note 2)
- ---------- ---------------------------------------- ------------- -------------
<S> <C> <C> <C>
NEW YORK STATE AGENCIES -- CONTINUED
Aaa/AAA New York University, Series A, (MBIA),
6.00%, 7/1/2017..................... $ 1,000,000 $ 1,143,750
Aaa/AAA North Shore Health System, Forest
Hills Hospital, (MBIA), 5.00%,
11/1/2017, Callable 11/1/2008 @
101................................. 2,000,000 1,992,500
Aaa/AAA North Shore Health System, North Shore
University Hospital, (MBIA), 5.50%,
11/1/2014........................... 1,000,000 1,090,000
Aaa/AAA North Shore Health System, Plainview
Hospital, (MBIA), 5.00%, 11/1/2017,
Callable 11/1/2008 @ 101............ 2,000,000 1,992,500
Aaa/AAA Secured Hospital, Southside Hospital,
(MBIA), 5.00%, 2/15/2018, Callable
2/15/2008 @ 101.5................... 1,250,000 1,240,625
Aaa/AAA Special Acts School Districts Program,
(MBIA), 6.00%, 7/1/2019, Callable
7/1/2005 @ 102...................... 3,540,000 3,876,300
NR/AAA St. John Fisher College, (Connie Lee),
6.75%, 7/1/2011, Callable 7/1/2001 @
102................................. 2,670,000 2,880,262
Aaa/AAA State University Athletic Facilities,
5.25%, 7/1/2018, Callable 7/1/2008 @
101, (MBIA)......................... 1,000,000 1,022,500
New York State Environmental Facilities
Corp.
Aaa/AAA Water Pollution Control Revenue,
Revolving Fund, Water Pooled Loan,
5.90%, 1/15/2018, Callable 1/15/2006
@ 102............................... 1,510,000 1,649,675
New York State Housing Finance Agency
Aa1/NR Multi-Family Housing, Secured Mortgage
Program, (SONYMA Insured), 6.45%,
8/15/2014, Callable 2/15/2004 @
102................................. 2,245,000 2,427,406
A1/NR Village of St. John Project,
Section 8 Assisted, 8.25%, 5/1/2009,
Callable 5/1/1999 @ 101............. 1,505,000 1,529,456
New York State Medical Care Facilities
Finance Agency
Aaa/AAA Hospital and Nursing Home, St.
Vincent's Hospital Project, (AMBAC)
(FHA), 6.20%, 2/15/2021, Prerefunded
2/15/2004 @ 102..................... 1,440,000 1,618,200
Aaa/AAA Hospital and Nursing Home, St.
Vincent's Hospital Project, (AMBAC)
(FHA), 6.20%, 2/15/2021, Callable
2/15/2004 @ 102..................... 1,060,000 1,160,700
Aaa/AAA Long Term Health Care, (FSA) (SONYMA
Insured), 6.50%, 11/1/2015, Callable
11/1/2002 @ 102..................... 2,245,000 2,472,306
Aaa/AAA Mental Health Services Facilities,
(FSA), 6.25%, 2/15/2009, Callable
8/15/2004 @ 102..................... 1,420,000 1,581,525
A3/A- Mental Health Services Facilities,
7.625%, 2/15/2008, Callable
2/15/2000 @ 100..................... 330,000 338,930
A3/A- Mental Health Services Facilities,
7.875%, 8/15/2020, Callable
8/15/2000 @ 102..................... 385,000 411,950
Aaa/AAA New York Hospital, Series A, (AMBAC)
(FHA), 6.50%, 8/15/2029, Prerefunded
2/15/2005 @ 102..................... 1,500,000 1,725,000
Aaa/AAA New York Hospital, Series A, (AMBAC)
(FHA), 6.90%, 8/15/2034, Prerefunded
2/15/2005 @ 102 (a)................. 3,350,000 3,923,688
Aaa/AAA St. Mary's Hospital Project, Series A,
(AMBAC), 6.20%, 11/1/2014, Callable
11/1/2003 @ 102..................... 2,100,000 2,331,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 28, 1999 -- CONTINUED
<TABLE>
<CAPTION>
Credit Principal Value
Ratings** Municipal Securities -- continued Amount (Note 2)
- ---------- ---------------------------------------- ------------- -------------
<S> <C> <C> <C>
NEW YORK STATE AGENCIES -- CONTINUED
New York State Thruway Authority
Aa3/AA- New York State Thruway Authority
Revenue, Series E, 5.00%, 1/1/2025,
Callable 1/1/2008 @ 101............. $ 3,265,000 $ 3,228,269
New York State Urban Development
Corporation
Baa1/BBB+ Correctional Facilities, 5.25%,
1/1/2021, Callable 1/1/2004 @ 102... 3,055,000 3,058,819
Baa1/BBB+ Empire State Development Corporation,
University Facilities Grants, 6.00%,
1/1/2008............................ 850,000 947,750
Baa1/BBB+ Empire State Development Corporation,
University Facilities Grants, 6.00%,
1/1/2009............................ 905,000 1,011,337
Baa1/BBB+ Empire State Development Corporation,
University Facilities Grants, 6.00%,
1/1/2010 955,000 1,067,213
Baa1/BBB+ Youth Facilities, 5.75%, 4/1/2008,
Callable 4/1/2005 @ 102............. 1,000,000 1,088,750
A1/A- Triborough Bridge & Tunnel Authority,
Special Obligation, Series B, 7.10%,
1/1/2010, Callable 1/1/2001 @ 102
(a)................................... 3,725,000 3,981,094
-------------
TOTAL NEW YORK STATE AGENCIES (Cost
$71,222,852).......................... 75,281,125
-------------
OTHER NEW YORK STATE BONDS--25.7%
Baa1/NR Albany Housing Authority, Ltd.
Obligation, 6.25%, 10/1/2012, Callable
10/1/2005 @ 102....................... 1,000,000 1,116,250
Aaa/AAA Buffalo Municipal Water Finance
Authority, Water System Revenue,
(FGIC), 5.75%, 7/1/2019, Callable
7/1/2005 @ 102........................ 500,000 537,500
Aaa/AAA Dutchess County, Resource Recovery
Agency, Solid Waste Management, Series
A, (FGIC), 7.50%, 1/1/2009,
Prerefunded 1/1/2000 @ 102............ 1,500,000 1,582,680
NR/AAA East Rochester Housing Authority, St.
John's Meadow Project, 5.125%,
8/1/2018, Callable 8/1/2008 @ 101,
(FHA)................................. 600,000 600,000
Aaa/AAA Evans, General Obligation, (AMBAC),
6.80%, 4/15/2012...................... 225,000 276,187
Aaa/AAA Evans, General Obligation, (AMBAC),
6.80%, 4/15/2013...................... 225,000 276,187
NR/AAA Lillian Cooper Housing Development Corp.
Mortgage Revenue, Series A, (FNMA)
(FHA), 7.00%, 1/1/2022, Callable
7/1/2001 @ 100........................ 1,100,000 1,157,750
Aaa/AAA Metropolitan Transportation Authority of
New York, Series A, 5.00%, 4/1/2023,
Callable 4/1/2008 @ 101, (FGIC)....... 5,500,000 5,438,125
NR/AAA Monroe County Industrial Development
Agency Civic Facility, Nazareth
College, (MBIA), 5.25%, 4/1/2023,
Callable 4/1/2008 @ 101............... 500,000 509,375
Aaa/AAA Mount Sinai Union Free School District,
General Obligation, (AMBAC), 6.20%,
2/15/2012............................. 1,065,000 1,242,056
Aaa/AAA Nassau County Industrial Development
Agency Civic Facility, Hofstra
University, (MBIA), 5.00%, 7/1/2023,
Callable 7/1/2008 @ 102............... 5,690,000 5,625,988
Aaa/AAA North Hempstead, General Obligation,
Series B, (FGIC), 6.375%, 4/1/2009.... 570,000 666,900
Aaa/AAA North Hempstead, General Obligation,
Series B, (FGIC), 6.40%, 4/1/2010..... 560,000 660,800
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 28, 1999 -- CONTINUED
<TABLE>
<CAPTION>
Credit Principal Value
Ratings** Municipal Securities -- continued Amount (Note 2)
- ---------- ---------------------------------------- ------------- -------------
<S> <C> <C> <C>
OTHER NEW YORK STATE BONDS -- CONTINUED
NR/AAA Oneida County, Industrial Development
Agency, Mohawk Valley Network, Faxton
Hospital, (FSA), 5.00%, 1/1/2013,
Callable 1/1/2008 @ 101............... $ 1,250,000 $ 1,281,250
NR/AAA Oneida County, Industrial Development
Agency, Mohawk Valley Network, St
Luke's Memorial Hospital, (FSA),
5.00%, 1/1/2013, Callable 1/1/2008 @
101................................... 2,000,000 2,050,000
Suffolk County Public Improvement,
General Obligation
Aaa/AAA Series C, (FGIC), 5.00%, 9/15/2015,
Callable 9/15/2008 @ 101............ 965,000 973,444
Aaa/AAA Series D, (FGIC), 5.00%, 11/1/2015,
Callable 11/1/2008 @ 101............ 1,125,000 1,134,844
Aaa/AAA Series C, (FGIC), 5.00%, 9/15/2016,
Callable 9/15/2008 @ 101............ 550,000 553,438
Aaa/AAA Series D, (FGIC), 5.00%, 11/1/2016,
Callable 11/1/2008 @ 101............ 1,110,000 1,116,937
Aaa/AAA Series C, (FGIC), 5.00%, 9/15/2017,
Callable 9/15/2008 @ 101............ 480,000 480,600
NR/A- Westchester County, Industrial
Development Agency Civic Facility,
Lawrence Hospital, Series A, 5.125%,
1/1/2018, Callable 1/1/2008 @ 102..... 1,800,000 1,777,500
NR/A- Westchester County, Industrial
Development Agency Civic Facility,
Lawrence Hospital, 5.00%, 1/1/2028,
Callable 1/1/2009 @ 102............... 2,250,000 2,140,312
-------------
TOTAL OTHER NEW YORK STATE BONDS (Cost
$30,165,241).......................... 31,198,123
-------------
OTHER MUNICIPAL BONDS--0.9%
Aaa/AAA Guam Government Limited Obligation
Highway Revenue, Series A, (FSA),
6.25%, 5/1/2007, Callable 5/1/2002 @
102................................... 1,000,000 1,086,250
-------------
TOTAL OTHER MUNICIPAL BONDS (Cost
$993,521)............................. 1,086,250
-------------
SHORT TERM INVESTMENTS--VARIABLE
RATE--0.9%
Dreyfus New York Municipal Cash
Management Fund (Cost $1,100,000)..... 1,100,000 1,100,000
-------------
TOTAL INVESTMENTS--97.6% (Cost
$113,237,260)*........................ 118,386,029
OTHER ASSETS IN EXCESS OF
LIABILITIES--2.4%..................... 2,881,046
-------------
NET ASSETS--100.00%..................... $ 121,267,075
-------------
-------------
</TABLE>
- ------------------
Percentages indicated are based on net assets of $121,267,075.
(a) Securities pledged as collateral for futures transactions or when issued
securities.
* Represents cost for federal income tax purposes and differs from value by net
unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation............................................ $ 5,379,906
Unrealized depreciation............................................ (231,137)
-------------
Net unrealized appreciation........................................ $ 5,148,769
-------------
-------------
</TABLE>
At February 28, 1999 the fund's open future contracts were as follows:
<TABLE>
<CAPTION>
# of
Contracts Opening Current Market Expiration
Sold Contract Type Position Value Date
--------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Short....................... 20 CBT Muni Index $2,480,312 $2,473,750 June 99
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
PORTFOLIO OF INVESTMENTS -- FEBRUARY 28, 1999 -- CONTINUED
**Credit Ratings given by Moody's Investors Service Inc. and Standard & Poor's
Corporation (unaudited).
<TABLE>
<CAPTION>
MOODY'S STANDARD & POOR'S
<S> <C> <C>
Aaa AAA Instrument judged to be of the highest quality and carrying the smallest
amount of investment risk.
Aa AA Instrument judged to be of high quality by all standards.
A A Instrument judged to be adequate quality by all standards.
Baa BBB Instrument judged to be moderate quality by all standards.
NR NR Not Rated. In the opinion of the Investment Adviser, instrument judged to
be of comparable investment quality to rated securities which may be
purchased by the Fund.
</TABLE>
For items possessing the strongest investment attributes of their category,
Moody's gives that letter rating followed by a number. The Standard & Poor's
ratings may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
ABBREVIATIONS USED IN THIS STATEMENT:
<TABLE>
<S> <C>
AMBAC Insured as to principal and interest by the American Municipal Bond Assurance Corporation.
Connie Lee Insured as to principal and interest by Connie Lee Insurance Company.
FGIC Insured as to principal and interest by the Financial Guarantee Insurance Corporation.
FHA Insured by the Federal Housing Administration.
FNMA Insured by the Federal National Mortgage Association.
FSA Insured as to principal and interest by Financial Security Assurance.
MBIA Insured as to principal and interest by the Municipal Bond Insurance Association.
SONYMA Insured as to principal and interest by the State of New York Mortgage Association.
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1999
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $113,237,260) (Note 2)............................... $ 118,386,029
Interest receivable............................................................................ 1,185,571
Receivable from investment securities sold..................................................... 2,358,785
Prepaid insurance and other assets............................................................. 27,214
--------------
Total Assets................................................................................. 121,957,599
LIABILITIES:
Income distribution payable.................................................... $ 44,762
Cash overdraft................................................................. 490,640
Advisory fee payable (Note 4).................................................. 36,300
Administrative services fee payable (Note 4)................................... 3,147
Variation margin payable on futures contracts.................................. 5,313
Other payables and accrued expenses............................................ 110,362
--------------
Total Liabilities............................................................................ 690,524
--------------
NET ASSETS....................................................................................... $ 121,267,075
--------------
--------------
NET ASSETS:
Net assets consist of:
Paid-in capital................................................................................ $ 115,919,476
Accumulated net investment income.............................................................. 26,226
Accumulated net realized gain/(loss) on investments including futures contracts................ 166,042
Net unrealized appreciation/(depreciation) on investments including futures contracts.......... 5,155,331
--------------
NET ASSETS....................................................................................... $ 121,267,075
--------------
--------------
SHARES OF BENEFICIAL INTEREST:
Builder Class:
Shares of beneficial interest outstanding...................................... 3,222,839
--------------
--------------
Net asset value, offering and redemption price per share
($57,610,472 divided by 3,222,839 shares).................................... $ 17.88
--------------
--------------
Premier Class:
Shares of beneficial interest outstanding...................................... 3,560,955
--------------
--------------
Net asset value, offering and redemption price per share
($63,656,603 divided by 3,560,955 shares).................................... $ 17.88
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1999
<TABLE>
<S> <C>
INCOME:
Interest......................................................... $6,320,565
Dividend......................................................... 100,851
----------
6,421,416
EXPENSES:
Advisory fees (Note 4).............................. $ 473,511
Administrative services fees (Note 4)............... 230,879
Transfer agency and dividend disbursing fees
(Builder Class) (Note 4).......................... 210,546
Transfer agency and dividend disbursing fees
(Premier Class) (Note 4).......................... 42,156
Custody............................................. 57,642
Fund accounting fees and expenses (Note 4).......... 32,825
Trustees' fees and expenses......................... 25,276
Other............................................... 143,383
-----------
Total expenses.................................... 1,216,218
Less: Custody fee credit.......................... (47,578)
-----------
Total net expenses............................................... 1,168,640
----------
INVESTMENT INCOME--NET........................................... 5,252,776
----------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
(NOTES 2 AND 3)
Net realized gain/(loss) on investments including
futures contracts................................. 635,538
Net increase/(decrease) in unrealized
appreciation/(depreciation)
on investments including futures contracts........ 63,642
-----------
Net gain/(loss) on investments................................. 699,180
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............... $5,951,956
----------
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Year
Ended Ended
02/28/99 02/28/98
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income........................... $ 5,252,776 $ 5,433,274
Net realized gain/(loss) on investments
including futures contracts................... 635,538 3,075,195
Net increase/(decrease) in unrealized
appreciation/(depreciation) on investments
including futures contracts................... 63,642 631,363
------------ ------------
Net increase in net assets resulting from
operations.................................... 5,951,956 9,139,832
------------ ------------
Distributions to shareholders from:
Net investment income--Builder Class............ (2,403,280) (2,554,368)
Net investment income--Premier Class............ (2,849,513) (2,878,905)
Net realized gains on investments--Builder
Class......................................... (1,441,318) (223,745)
Net realized gains on investments--Premier
Class......................................... (1,596,797) (244,521)
------------ ------------
Total distributions............................. (8,290,908) (5,901,539)
------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from sale of shares--Builder Class..... 6,124,440 6,733,305
Proceeds from sale of shares--Premier Class..... 4,544,716 6,426,129
Proceeds from reinvestment of income and capital
gains distributions--Builder Class............ 3,506,757 2,510,068
Proceeds from reinvestment of income and capital
gains distributions--Premier Class............ 3,997,271 2,816,592
Cost of shares redeemed--Builder Class.......... (9,989,948) (10,822,859)
Cost of shares redeemed--Premier Class.......... (8,107,383) (5,860,550)
------------ ------------
Net increase/(decrease) in net assets from
capital share transactions.................... 75,853 1,802,685
------------ ------------
Net increase/(decrease) in net assets........... (2,263,099) 5,040,978
NET ASSETS:
Beginning of period............................. 123,530,174 118,489,196
------------ ------------
End of period................................... $121,267,075 $123,530,174
------------ ------------
------------ ------------
Undistributed net investment income included in
net assets at end of period....................... $ 26,226 $ 26,243
------------ ------------
------------ ------------
SHARE TRANSACTIONS:
Issued--Builder Class........................... 336,821 373,722
Issued--Premier Class........................... 250,625 358,743
Reinvested--Builder Class....................... 193,953 139,720
Reinvested--Premier Class....................... 221,064 156,849
Redeemed--Builder Class......................... (551,232) (604,911)
Redeemed--Premier Class......................... (447,532) (327,014)
------------ ------------
Change in shares.................................. 3,699 97,109
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION AND SHARES OF THE FUND:
The Empire Builder Tax Free Bond Fund (the "Fund") was established as a
Massachusetts business trust by an Agreement and Declaration of Trust dated
September 30, 1983. The Fund is registered under the Investment Company Act of
1940, as amended, as an open-end, non-diversified investment company. The Fund
has an unlimited number of shares authorized with no par value.
The Fund seeks as high a level of current income exempt from Federal income
tax and New York State and City personal income taxes as the Fund's investment
adviser believes is consistent with the preservation of capital. The Fund
invests primarily in a portfolio of New York tax-exempt bonds.
The Fund offers two classes of shares; the Builder Class and the Premier
Class. Builder Class shares offer a higher level of shareholder services and
features. Premier Class shares offer fewer services and features, and require a
higher minimum investment, but benefit from a lower level of expenses.
Each class of shares outstanding bears the same dividend, liquidation and
other rights and conditions, except that the Builder Class shares and the
Premier Class shares bear separate transfer agency expenses. Each class of
shares has exclusive voting rights with respect to matters affecting only that
class.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles.
USE OF ESTIMATES
Estimates and assumptions are required to be made regarding assets,
liabilities and changes in net assets resulting from operations when financial
statements are prepared. Changes in the economic environment, financial markets
and any other parameters used in determining these estimates could cause actual
results to differ from these amounts.
SECURITY VALUATION
Tax-exempt securities for which transaction prices are not readily
available are valued at their fair value as determined by an independent pricing
service approved by the Fund's Board of Trustees. The pricing service uses
information with respect to transactions in bonds, quotations from bond dealers,
market transactions in comparable securities and various relationships between
securities in determining value. The methods used by the pricing service and the
quality of valuations so established are reviewed by officers of the Fund and
the Fund's Investment Adviser, under the general supervision of the Trustees of
the Fund.
Securities for which quotations are readily available are stated at market
value. Short-term debt securities having remaining maturities of sixty
(60) days or less are stated at amortized cost, which approximates market value.
12
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are accounted for on the trade date. Interest income,
which includes amortization of premium and accretion of discounts, is accrued as
earned. Realized gains and losses from security transactions and unrealized
appreciation and depreciation of investments are determined on the basis of
identified cost.
TAXES
The Fund qualifies and intends to continue to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code, and to
distribute substantially all of its tax-exempt and taxable income. Therefore, no
federal income tax provision is required.
In addition, by distributing during each calendar year substantially all of
its net investment income, capital gains and certain other amounts, if any, the
Fund will not be subject to a federal excise tax.
FUTURES CONTRACTS
The Fund may purchase and sell financial futures contracts, options on such
futures contracts and options on securities indices to hedge against changes in
the value of New York tax exempt bonds the Fund owns or expects to purchase. The
Fund may also purchase and sell futures and options on U.S. Treasury securities
in order to hedge against interest rate changes or other general changes in
market values.
Upon entering into a futures contract, the Fund is required to deposit cash
or pledge securities in an amount equal to a certain percentage of the purchase
price indicated in the futures contract (initial margin). Subsequent payments,
which are dependent on the daily fluctuations in the value of the underlying
security, are made or received by the Fund each day (daily variation margin) and
are recorded as unrealized gains or losses until the contracts are closed.
DISTRIBUTIONS AND DIVIDENDS
Distributions to shareholders from net investment income are declared daily
and paid monthly. The Fund also distributes at least annually substantially all
net capital gains, if any, realized from portfolio transactions.
The amounts of dividends from net investment income and of distributions
from net realized gains are determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the composition of net assets based on their federal
tax-basis treatment; temporary differences do not require reclassification.
Dividends and distributions to shareholders which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized gains. To the extent they exceed net
investment income and net realized gains for tax purposes, they are reported as
distributions of capital.
13
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DETERMINATION OF NET ASSET VALUE AND ALLOCATION OF EXPENSES
In calculating net asset value per share of each class, investment income
and expenses, other than class-specific expenses, are allocated daily to each
class of shares based on the value of outstanding settled shares.
OTHER
The Fund maintains a cash balance with its custodian and receives a
reduction of their custody fees and expenses for the amounts of interest earned
on such uninvested cash balance. There was no effect on net investment income.
The fund could have invested such cash amounts in an income-producing asset if
they had not agreed to a reduction of fees or expenses under the expense offset
arrangement with their custodian.
3. PURCHASES AND SALES OF INVESTMENT SECURITIES:
Purchases and sales of investment securities, excluding short-term
investments, during the year ended February 28, 1999, amounted to $204,247,186
and $206,969,625, respectively.
4. ADVISORY FEES AND OTHER RELATED PARTY TRANSACTIONS:
The Fund retains Glickenhaus & Co. (the "Adviser") to act as investment
adviser pursuant to an Investment Advisory Agreement. As compensation for its
advisory services, the Adviser receives a fee computed daily and paid monthly,
at the annual rates of 0.40% of the first $100,000,000 of average daily net
assets and 0.3333% of any excess over $100,000,000. For the year ended
February 28, 1999, the advisory fee earned by the Adviser was $473,511.
Glickenhaus has agreed to a reduction of advisory fees to the extent that
the Fund's expenses, including the advisory fees, exceed 1.50% of the Fund's
average annual net assets. For the year ended February 28, 1999, there was no
reduction of advisory fees pursuant to this agreement.
BISYS Fund Services provides the Fund with administrative services pursuant
to an Administrative Services Agreement (the "Administration Agreement"). BISYS
receives a fee from the Fund, computed daily and paid monthly at the annual
rates of 0.20% of the first $100,000,000 of average daily net assets and 0.14%
of any excess over $100,000,000. For the year ended February 28, 1999, BISYS
earned $230,879 under its Administration Agreement with the Fund.
BISYS also provided the Fund with certain accounting and related services
pursuant to a Fund Accounting Agreement. For its services under the Fund
Accounting Agreement, BISYS receives from the Fund a monthly fee of $2,500 plus
reimbursement for out of pocket expenses. For the year ended February 28, 1999,
BISYS received fees and expense reimbursement of $32,825 under its Fund
Accounting Agreement with the Fund.
Transfer agency services and dividend and capital gain disbursing agent
services are provided to the Fund pursuant to a Transfer Agency Agreement
between the Fund and BISYS ("Transfer Agency Agreement"). For its services under
the Transfer Agency Agreement, BISYS is entitled to receive a fee of $8 per
account per year plus out-of-pocket expenses. During the year ended,
February 28, 1999, BISYS received fees and expense reimbursements of $210,546
for the Builder Class and $42,156 for the Premier Class under the Transfer
Agency Agreement.
14
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
5. OFF-BALANCE-SHEET RISK AND DERIVATIVES:
The Fund's use of futures contracts involves, to varying degrees, elements
of market risk in excess of the amount recognized in the statement of assets and
liabilities. Futures contracts are one type of derivative financial instrument
and are used by the Fund to hedge against changes in the values of New York tax
exempt bonds that the Fund owns or expects to purchase. Although futures
contracts are not used by the Fund for the purpose of leveraging or speculating,
they can result in additional risks if used improperly. The objective in buying
or selling a derivative instrument is to increase or decrease a Fund's exposure
to changing security prices and interest rates. If the Adviser misjudges market
conditions or employs a strategy that does not correlate well with the Fund's
other investments; use of these derivatives could result in a loss, regardless
of the Adviser's original intent to reduce risk.
6. FEDERAL INCOME TAX INFORMATION (UNAUDITED):
The Fund designated $5,250,490 as exempt-interest dividends for the year
ended February 28, 1999. Ordinary income dividends paid to you in cash or
reinvested in your account during the fiscal year ended February 28, 1999 were
100% derived from New York State and Federal exempt obligations. During the year
ended February 28, 1999, The Empire Builder Tax Free Bond Fund paid a long term
capital gain distribution of $1,188,297.
15
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OF BENEFICIAL INTEREST OUSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Year Ended Year Ended Period Ended** Year Ended
------------------- ------------------ -------------------------- ------------
February 28, February 28, February 28,
February 28, 1999 February 28, 1998 1997 1997 1996
------------------- ------------------ ------------ ------------ ------------
Builder Premier Builder Premier Builder Premier Builder
Class Class Class Class Class Class Class
------- -------- ------- -------- ------------ ------------ ------------
<S> <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
------- -------- ------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income............... 0.75 0.80 0.79 0.84 0.84 0.75 0.87
Net realized and unrealized gains
(losses) on securities............ 0.11 0.12 0.56 0.56 (0.10) 0.29 0.65
------- -------- ------- -------- -------- -------- --------
Total from Investment Operations.... 0.86 0.92 1.35 1.40 0.74 1.04 1.52
------- -------- ------- -------- -------- -------- --------
Less Distributions:
Dividends from net investment
income............................ (0.75) (0.81) (0.79) (0.84) (0.84) (0.75) (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............ -- -- -- -- -- -- --
------- -------- ------- -------- -------- -------- --------
Total distributions................. (1.20) (1.26) (0.86) (0.91) (0.97) (0.88) (0.87)
------- -------- ------- -------- -------- -------- --------
Net Asset Value, End of Period.......... $ 17.88 $ 17.88 $ 18.22 $ 18.22 $ 17.73 $ 17.73 $ 17.96
------- -------- ------- -------- -------- -------- --------
------- -------- ------- -------- -------- -------- --------
Total Return (excludes sales charge).... 4.87% 5.17% 7.82% 8.08% 4.30% 6.03%(c) 8.95%
Ratios/Supplementary Data:
Net Assets, End of Period (in
thousands)........................ $57,610 $ 63,657 $59,091 $ 64,439 $ 59,133 $ 59,356 $117,860
Ratios of Net Investment Income to
Average Net Assets................ 4.15% 4.44% 4.42% 4.66% 4.81% 4.88%(b) 4.91%
Ratios of Expenses to Average Net
Assets............................ 1.11% 0.82% 1.06% 0.81% 1.03% 0.93%(b) 0.96%
Ratios 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%
<CAPTION>
February 28,
1995
------------
Builder
Class
------------
<S> <C>
Net Asset Value, Beginning of Period.... $ 18.24
--------
Income from Investment Operations:
Net investment income............... 0.87
Net realized and unrealized gains
(losses) on securities............ (0.71)
--------
Total from Investment Operations.... 0.16
--------
Less Distributions:
Dividends from net investment
income............................ (0.87)
Distributions from net realized
capital gains.....................
Distributions in excess of net
realized capital gains............ (0.22)
--------
Total distributions................. (1.09)
--------
Net Asset Value, End of Period.......... $ 17.31
--------
--------
Total Return (excludes sales charge).... 1.09%
Ratios/Supplementary Data:
Net Assets, End of Period (in
thousands)........................ $108,020
Ratios of Net Investment Income to
Average Net Assets................ 5.04%
Ratios of Expenses to Average Net
Assets............................ 0.93%
Ratios of Expenses to Average Net
Assets*...........................
Portfolio Turnover Rate............. 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.
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees
The Empire Builder Tax Free Bond Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Empire Builder Tax Free Bond
Fund (hereafter referred to as the "Fund") at February 28, 1999, the results of
operations for the year then ended, the changes in net assets for the two years
then ended, and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is the express an opinion on these financial statements based on our audit. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which include correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Columbus, Ohio
April 5, 1999
<PAGE>
THE MANAGEMENT
TRUSTEES AND OFFICERS
TRUSTEES
SETH M. GLICKENHAUS,* CHAIRMAN OF THE BOARD
OF TRUSTEES
Senior Partner of Glickenhaus & Co.
EDWARD A. FALKENBERG, Trustee
Vice President and Controller,
Joseph E. Seagram & Sons, Inc. and
Controller, Seagram Company Ltd.
EDWARD A. KUCZMARSKI, Trustee
Certified Public Accountant and Partner,
Hays & Company
ELIZABETH B. NEWELL, Trustee
Trustee, International Preschools
JOHN P. STEINES, Trustee
Professor of Law, New York University
School of Law
OFFICERS
SETH M. GLICKENHAUS
President of the Fund; Senior Partner of
Glickenhaus & Co.
MICHAEL J. LYNCH
Senior Vice President of the Fund; Director,
Unit Trust Department, Glickenhaus & Co.
FRANK M. DEUTCHKI
Vice President of the Fund; Vice President, Tax
and Financial Services, BISYS Fund Services
GEORGETTE L. HORTON
Vice President of the Fund; Vice President,
BISYS Fund Services
GARY TENKMAN
Assistant Treasurer of the Fund; Director and
Treasurer, BISYS Fund Services
ELLEN STOUTAMIRE
Secretary of the Fund; Vice President, Client
Legal Services, BISYS Fund Services
ALAINA V. METZ
Assistant Secretary of the Fund; Chief
Administrative Officer, Administration
and Regulatory Services, BISYS Fund Services
* Trustee who is an "interested person" of the Fund as that term is defined in
the Investment Company Act of 1940.
<PAGE>
[LOGO]
TAX FREE BOND FUND
ANNUAL REPORT
FEBRUARY 28, 1999
Investment Adviser and Distributor
GLICKENHAUS & CO.
6 East 43rd Street
New York, New York 10017
Administrator
BISYS FUND SERVICES LIMITED PARTNERSHIP
D/B/A BISYS FUND SERVICES
3435 Stelzer Road
Columbus, Ohio 43219
Transfer and Shareholder Servicing Agent
BISYS FUND SERVICES, INC.
3435 Stelzer Road
Columbus, Ohio 43219
Custodian
INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, Missouri 64105
Legal Counsel
ROPES & GRAY
One International Place
Boston, Massachusetts 02110
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
100 E. Broad Street
Columbus, Ohio 43215
[LOGO] Customer Service
3435 Stelzer Road
3435 Stelzer Road Columbus, Ohio 43219
Columbus, Ohio 43219 1-800-847-5886
1-800-847-5886
This report is submitted for the information of the shareholders of the Empire
Builder Tax Free Bond Fund. It is not authorized for distribution to prospective
investors in the Fund unless preceded or accompanied by an effective prospectus,
obtainable from an investment dealer, which includes information regarding the
Fund's objectives and policies, record, management, sales commission and other
data.
101267-4
