<PAGE>
As Filed with the Securities and Exchange Commission on June 15, 2000
Registration Nos. 2-86931
811-3907
================================================================================
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. 20 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 21 |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
Robert L. Tuch, 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:
______ immediately upon filing pursuant to paragraph (b)
__X___ on June 28, 2000 pursuant to paragraph (b)
______ 60 days after filing pursuant to paragraph (a)(1)
______ on (date) pursuant to paragraph (a)(1)
______ 75 days after filing pursuant to paragraph (a)(2)
______ on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
_____ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
<PAGE>
THE
EMPIRE
BUILDER
TAX
FREE
BOND
FUND
PREMIER CLASS
BUILDER CLASS
PROSPECTUS DATED JUNE 28, 2000
[LOGO]
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This page intentionally left blank
<PAGE>
Empire Builder Tax Free Bond Fund Contents
================================================================================
Risk/Return Summary and Fund Expenses
-------------------------------------------------------------------------------
Carefully review this 3 Overview
important section, which 5 Performance Bar Chart and Performance
summarizes the Fund's Table
investment strategies, risks, 6 Fees and Expenses
past performance, and fees.
Investment Goal, Strategies and Risks
-------------------------------------------------------------------------------
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
-------------------------------------------------------------------------------
Review this section for 10 The Investment Adviser
details on the people and 10 Portfolio Manager
organizations who oversee
the Fund.
Shareholder Information
-------------------------------------------------------------------------------
Review this section for 11 Summary of Features
details on how shares are 12 Pricing of Fund Shares
valued, how to purchase, 12 Purchasing and Adding to Your Shares
sell and exchange shares, 16 Selling Your Shares
related charges and 18 General Policies on Selling Shares
payments of dividends and 20 Exchanging Your Shares
distributions 20 Dividends, Distributions and Taxes
Other Information About the Fund
-------------------------------------------------------------------------------
Review this section for details 22 Financial Highlights
on selected financial highlights
of the Fund.
2
<PAGE>
Risk/Return Summary and Fund Expenses
================================================================================
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 Strategy The Fund is a New York municipal bond
fund which invests mainly in New York Tax
Exempt Bonds. New York Tax Exempt Bonds
are
o 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
o 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.
3
<PAGE>
Risk/Return Summary and Fund Expenses
================================================================================
Risk/Return Summary - continued
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 or Market Risk. The Fund
invests in debt securities, which are
subject to interest rate or market risk.
Interest rate risk is the risk that your
shares will go down in value in response
to changes 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.
4
<PAGE>
Risk/Return Summary and Fund Expenses
================================================================================
The 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
[Bar Chart Appears Here]
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
5.56% 10.98% 8.74% 12.22% -4.49% 14.59% 3.23% 7.92% 4.92% -4.81%
The bar chart above does not reflect the impact of any
applicable account fees which would reduce returns. 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, 1999*)
Fund or Class Past Past Past Since
Inception Year 5 Years 10 Years Inception
Premier Class 04/15/96 -4.53% N/A N/A 3.80%
-------------------------------------------------------------------------------
Builder Class 06/01/84 -4.81% 4.98% 5.70% 7.78%
-------------------------------------------------------------------------------
Lehman Municipal -2.06% 6.91% 6.89% 5.27% (4/15/96)
Bond Index 9.21% (6/1/84)
-------------------------------------------------------------------------------
* For current performance information, including the Fund's SEC yield, call
1-800-847-5886 and speak to a shareholder services representative.
------------
(1) Both the chart and the table assume reinvestment of dividends and
distribution.
5
<PAGE>
Risk/Return Summary and Fund Expenses - continued
================================================================================
Fees and Expenses
As an investor in the Fund, Shareholder Transaction Expenses Premier Builder
you will pay the following (fees paid by you directly) Class Class
fees and expenses.
Shareholder transaction Maximum sales charge (load)
fees are paid from your on purchases None None
account. Annual Fund --------------------------------------------------
operating expenses are Exchange Fee $5.00* None
paid out of Fund assets,
and are reflected in the Annual Fund Operating
share price. Expenses (fees paid
from Fund assets)
Advisory Fee 0.39% 0.39%
-------------------------------------------------
Other Expenses
(including Administration Fee) 0.44% 0.73%
-------------------------------------------------
Total Annual Fund
Operating Expenses 0.83% 1.12%
-------------------------------------------------
* 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:
o $10,000 investment
o 5% annual return
o redemption at the end Example
of each period 1 3 5 10
Year Years Years Years
o no changes in the Fund's
operating expenses Premier Class $85 $265 $460 $1,025
Because this example is Builder Class $114 $356 $617 $1,363
hypothetical and for ---------------------------------------------
comparison only, your actual
costs will be different.
6
<PAGE>
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
o interest income on AMT Bonds, which are New York Tax Exempt Bonds whose
income is subject to the alternative minimum tax, and
o 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 29, 2000, 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.
7
<PAGE>
Investment Goal, Strategies and Risks
================================================================================
Main Investments of the Fund
New York Tax Exempt Bonds
o 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,
o generate interest that is exempt from both federal income tax and New York
State and City personal income taxes, and
o include certain bonds that are known as AMT Bonds, the interest from which is
subject to the alternative minimum tax.
New York Tax Exempt Bonds are issued to obtain funds for various public
purposes, such as
o the construction of public facilities,
o the payment of general operating expenses,
o the refunding of outstanding debts or
o 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 or Market 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.
8
<PAGE>
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.
9
<PAGE>
Fund Management
================================================================================
Investment Adviser
Glickenhaus & Co., (Glickenhaus or the "Adviser"), 6 East 43rd Street, New York,
NY 10017 is the adviser for the Fund. Glickenhaus & Co., which was founded in
1961, has approximately $1.7 billion under investment management as of December
31, 1999 including approximately $280 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 29, 2000, 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.
10
<PAGE>
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.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
Feature Premier Class Builder Class
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Goal Higher Yield* Convenience
-------------------------------------------------------------------------------------------------------
Sales Charge None None
-------------------------------------------------------------------------------------------------------
Minimum Initial Investment $20,000 $1,000
-------------------------------------------------------------------------------------------------------
Additional Investments $100 minimum $100 minimum
-------------------------------------------------------------------------------------------------------
Checkwriting $5 initial/$1 per check No charge
$5,000 minimum check $500 minimum check
-------------------------------------------------------------------------------------------------------
Class Exchanges $5 to Builder** Free to Premier
-------------------------------------------------------------------------------------------------------
Auto Investing $100 minimum $100 minimum
(after initial investment)
-------------------------------------------------------------------------------------------------------
Auto Withdrawal Not available No charge
$5,000 minimum balance
-------------------------------------------------------------------------------------------------------
Direct Deposit Not available No charge
-------------------------------------------------------------------------------------------------------
Historical Account Information $5 per request Free
-------------------------------------------------------------------------------------------------------
Reinvestment from Free Free
Glickenhaus Sponsored
Unit Investment Trusts
-------------------------------------------------------------------------------------------------------
</TABLE>
* 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.
** However, 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
2 months, the account may be converted to Builder shares in which case a $5
charge may be imposed.
11
<PAGE>
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 shares of the Fund 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.
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.
Purchasing and Adding to Your Shares
Minimum
Minimum Subsequent Investment*/
Account Type Initial Investment* Automatic Investment Plan**
Premier Class............ $ 20,000 $100
Builder Class............ $ 1,000 $100
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 it 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
investments to initially open the account ($20,000 for Premier and $1,000 for
Builder). The minimum Automatic Investment Plan amounts will apply to
subsequent investments
12
<PAGE>
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:
o The Empire Builder Tax Free Bond Fund
o Share class
o Amount invested
o Account name
o 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.
13
<PAGE>
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 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 with
60 days' notice.
--------------------------------------------------------------------------------
14
<PAGE>
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:
o Complete the Automatic Investment Program portion
on your Account Application. Make sure you note:
o Your bank name, address and account number
o The amount you wish to invest automatically (minimum $100)
o How often you want to invest (every month, 4 times a year, twice
a year or once a year)
o 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.
15
<PAGE>
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.
16
<PAGE>
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 receive your funds (mail, wire, electronic transfer).
declined telephone (See "General Policies on Selling Shares - Verifying
sales privileges) Telephone Redemptions" below)
------------------------------------------------------------------------------------------------
By mail 1. Call 1-800-847-5886 to request redemption forms or
write a letter of instruction indicating:
o Fund name, share class, account number, social
security number and account registration
o amount you wish to redeem
o address where your check should be sent
o account owner signature
2. Mail to:
The Empire Builder Tax Free Bond Fund
P.O. Box 182486
Columbus, OH 43218-2486
------------------------------------------------------------------------------------------------
By overnight service See instruction 1 above, and
(See "General Policies Send to:
on Selling Shares -
Redemptions in Writing The Empire Builder Tax Free Bond Fund
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
You must elect this call by 4 p.m. Eastern time, your payment will normally
option on your be wired to your bank on the next business day.
Account Application.
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 If you call by 4 p.m. Eastern time, the NAV of your
in the Automated Clearing shares will normally be determined on the same day and
House (ACH) and must be a the proceeds credited within 8 business days.
U.S. bank.
Your bank may charge for
this service.
</TABLE>
17
<PAGE>
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:
o Make sure you've checked the appropriate box on the Account
Application, or call 1-800-847-5886.
o 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:
o Redemptions over $25,000
o Your account registration or the name(s) on your account has changed
within the last 15 days
o The check is not being mailed to the address on your account
o The check is not being made payable to the owner of the account
o 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.
18
<PAGE>
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 Account 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.
Delay 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.
19
<PAGE>
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 on Exchanges" below).
Exchanges from one Class to another do not result in the
recognition of capital gains or losses for federal
income tax purposes.
Instructions for Exchanging Shares
Exchanges may be made by sending a written request to The Empire Builder Tax
Free Bond Fund, P.O. Box 182486, Columbus OH 43218-2486, or by calling
1-800-847-5886. Please provide the following information:
o Your name and telephone number
o The exact name on your account and account number
o Taxpayer identification number (usually your Social Security number)
o Dollar value or number of shares to be exchanged
o The name of the Class from which the exchange is to be made
o 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
o The registration and tax identification numbers of the two accounts must
be identical.
o The Exchange Privilege may be changed or eliminated at any time upon 60
days' notice to shareholders.
o Premier Class shareholders who elect to exchange their shares for Builder
Class shares are charged a fee of $5 for each exchange.
o Builder Class shareholders who elect to exchange their shares for Premier
Class shares may do so free of charge as long as they meet the required
minimums.
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 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:
o Reinvest all distributions in additional Fund shares
o Receive net investment income in cash while reinvesting capital gains
distributions in Fund shares
o 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.
20
<PAGE>
Shareholder Information
================================================================================
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; however, an investment in the Fund may result in liability for federal
alternative minimum tax both for individual and corporate shareholders. In
addition, 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 realized and distributed 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. Any gain resulting from the sale or
exchange of your shares will generally also be subject to tax. However, an
exchange of shares between the Premier and Builder Classes is not taxable.
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. 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.
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.
21
<PAGE>
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
represents the rate that you would have earned or lost on an investment in the
Fund (assuming reinvestment of all divedends 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>
THE EMPIRE BUILDER TAX FREE BOND FUND
Financial Highlights
For Share of beneficial interest outstanding throughout each period
Year Ended Year Ended Year Ended
------------ ------------ ------------
February 29, February 28, February 28,
2000 1999 1998
------------ ------------ ------------
Builder Premier Builder Premier Builder Premier
Class Class Class Class Class Class
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>>
Net Asset Value,
Beginning of Period
------------------------------------------------------------------------------------------------------------------------------------
Income from Investment
Operations: $17.88 $17.88 $18.22 $18.22 $17.73 $17.73
Net investment income 0.78 0.84 0.75 0.80 0.79 0.84
Net realized and unrealized
gains (losses) on securities (1.55) (1.56) 0.11 0.12 0.56 0.56
------------------------------------------------------------------------------------------------------------------------------------
Total from Investment
Operations (0.77) (0.72) 0.86 0.92 1.35 1.40
------------------------------------------------------------------------------------------------------------------------------------
Less Distributions
Dividends from net investment
income (0.76) (0.81) (0.75) (0.81) (0.79) (0.84)
Distributions from net realized
capital gains (0.03) (0.03) (0.45) (0.45) (0.07) (0.07)
------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.79) (0.84) (1.20) (1.26) (0.86) (0.91)
------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $16.32 $16.32 $17.88 $17.88 $18.22 $18.22
------------------------------------------------------------------------------------------------------------------------------------
Total Return
(excludes sales charge) (4.39)% (4.12)% 4.87% 5.17% 7.82% 8.08%
------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplementary Data:
Net Assets, End of Period
(in thousands) $50,374 $55,636 $57,610 $63,657 $59,091 $64,439
Ratios of Net Investment
Income to Average Net Assets 4.47% 4.75% 4.15% 4.44% 4.42% 4.66%
Ratios of Expenses to Average
Net Assets 1.08% 0.79% 1.11% 0.82% 1.06% 0.81%
Ratios of Expenses to Average
Net Assets* 1.12% 0.83% 1.15% 0.86% 1.16% 0.91%
Portfolio Turnover Rate (a) 90.84% 90.84% 174.34% 174.34% 201.00% 201.00%
<CAPTION>
Period Ended** Year Ended
-------------- ------------
February 28, February 28,
1997 1996
-------------- ------------
Builder Premier Builder
Class Class Class
------- ------- -------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period
----------------------------------------------------------------------------------------------
Income from Investment
Operations: $17.96 $17.57 $17.31
Net investment income 0.84 0.75 0.87
Net realized and unrealized
gains (losses) on securities (0.10) 0.29 0.65
----------------------------------------------------------------------------------------------
Total from Investment
Operations 0.74 1.04 1.52
----------------------------------------------------------------------------------------------
Less Distributions
Dividends from net investment
income (0.84) (0.75) (0.87)
Distributions from net realized
capital gains (0.13) (0.13)
----------------------------------------------------------------------------------------------
Total Distributions (0.97) (0.88) (0.87)
----------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $17.73 $17.73 $17.96
----------------------------------------------------------------------------------------------
Total Return
(excludes sales charge) 4.30% 6.03%(c) 8.95%
----------------------------------------------------------------------------------------------
Ratios/Supplementary Data:
Net Assets, End of Period
(in thousands) $59,133 $59,356 $117,860
Ratios of Net Investment
Income to Average Net Assets 4.81% 4.88%(b) 4.91%
Ratios of Expenses to Average
Net Assets 1.03% 0.93%(b) 0.96%
Ratios of Expenses to Average
Net Assets* 1.07% 0.97%(b) 1.01%
Portfolio Turnover Rate (a) 181.00% 181.00% 150.00%
</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
22
<PAGE>
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 and copy the Fund's Annual and Semi-Annual Reports and SAI at the
Public Reference Room of the Securities and Exchange Commission. For the hours
of operation for the Public Reference Room call 1-202-942-8090. You can get
text-only copies:
o For a fee by:
o electronic mail request at [email protected]
o writing the Public Reference Section of the Commission, Washington,
D.C. 20549-6009
o Free from the Edgar database on the Commission's Website at
http://www.sec.gov.
Investment Company Act File No. 811-3907
<PAGE>
[LOGO]
Investment Adviser and Distributor
Glickenhaus & Co.
6 East 43rd Street
New York, New York 10017
Administrator and Shareholder Servicing Agent
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
Custodian
Investor Fiduciary Trust Company
127 West 10th Street
Kansas City, Missouri 64105
Legal Counsel
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Independent Accountants
PricewaterhouseCoopers LLP
100 E. Broad Street
Columbus, Ohio 43215
Customer Service
3435 Stelzer Road
Columbus, Ohio 43219
1-800-847-5886
Questions?
Call 1-800-847-5886
or your investment representative.
The Securities and Exchange Commission has not approved the shares described in
this prospectus or determined whether this prospectus is accurate or complete.
Any representation to the contrary is a criminal offense.
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
Statement of Additional Information
June 28, 2000
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, 2000, 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
Page
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....................................................18
Purchase of Shares..................................................20
Investment Programs.................................................20
Taxes...............................................................24
Automatic Withdrawal Program........................................26
Shareholder Liability...............................................26
Shareholder Voting..................................................26
Independent Accountants.............................................27
Financial Statements................................................27
Custodian...........................................................27
Investment Ratings..........................................Appendix A
<PAGE>
DEFINITIONS
The "Fund" The Empire Builder Tax Free Bond Fund
The "Adviser" or the "Distributor" Glickenhaus & Co., the Fund's Adviser
and Principal Underwriter
The "Administrator" BISYS Fund Services Ohio, Inc., or
BISYS Fund Services Limited Partnership,
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>
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 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
3
<PAGE>
$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, 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
4
<PAGE>
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.
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.
5
<PAGE>
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
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
6
<PAGE>
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.
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.
7
<PAGE>
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 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
8
<PAGE>
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 2000 was 91% and in 1999 174%, 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.
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:
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<PAGE>
(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.
(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.
10
<PAGE>
(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.
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.
11
<PAGE>
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* (86) 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 (59) 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 (50) 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 (59) 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 (51) 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 (37) 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 (46) Vice President Vice President,
3435 Stelzer Road Administration Services,
Columbus, OH 43219 BISYS Fund Services;
formerly, Vice President and
Audit Director at Mutual
Funds Service Company
Georgette Horton Prigal (34) Vice President and Secretary Director, Client Services
90 Park Avenue BISYS Fund Services;
10th Floor formerly, Assistant Vice President
12
<PAGE>
<CAPTION>
New York, New York 10016 Regional Sales for PaineWebber; Portfolio
Management Assistant for Eaton Vance
Management.
Gary Tenkman (30) Assistant Treasurer Vice President ,
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 29, 2000.
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, 2000, 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 Mrs. Prigal 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.
Code of Ethics
The Fund and the Adviser (which is also the Distributor) have each adopted a
Code of Ethics pursuant to Rule 17j-1 under the Investment Company Act. Each
Code permits investment personnel to invest in securities for their personal
accounts, including securities that may be purchased by the Fund, subject to
certain procedures intended to prevent abuses.
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 $1.7
billion of equity and fixed-income securities as of December 31, 1999, and acts
as a securities broker-dealer and as
13
<PAGE>
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 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, 1998, February 28, 1999 and
February 29, 2000 the Fund paid the Adviser $464,929, $473,511 and $446,484
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
14
<PAGE>
the security. In some instances, one client may sell a particular security to
another client. It also happens that two or more clients simultaneously buy or
sell the same security, in which event each day's transactions in such security
are, insofar as possible, averaged as to price and allocated between such
clients in a manner which in the opinion of the Adviser is equitable to each and
in accordance with the amount being purchased or sold by them. There may be
circumstances when purchases or sales of portfolio securities for one or more
clients will have an adverse effect on other clients.
Brokerage and Research Services. It is anticipated that most purchases
and sales of portfolio investments will be with underwriters of or dealers in
New York Tax Exempt Bonds and other tax-exempt securities, acting as principal.
Accordingly, it is not anticipated that the Fund will pay significant brokerage
commissions. There is generally no stated commission in the case of securities
traded in the over-the-counter markets, where most of the Fund's portfolio
transactions will be effected, but the price paid by the Fund usually includes
an undisclosed dealer commission or mark-up. In underwritten offerings, the
price paid by the Fund includes a disclosed, fixed commission or discount
retained by the underwriters or dealer.
The Adviser will place all orders for the purchase and sale of
portfolio securities for the Fund and will buy and sell securities for the Fund
through a substantial number of dealers. In so doing, the Adviser will use its
best efforts to obtain for the Fund the most favorable price and execution
available, except to the extent it may be permitted to pay higher brokerage
commissions as described below. In seeking the most favorable price and
execution, the Adviser, having in mind the Fund's best interests, considers all
factors it deems relevant, including, by way of illustration, price, the size of
the transaction, the nature of the market for the security, the amount of
commission, the timing of the transaction taking into account market prices and
trends, the reputation, experience and financial stability of the dealer
involved and the quality of service rendered by the dealer in other
transactions.
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
15
<PAGE>
securities which are not effected on a stock exchange. Under such circumstances,
the Adviser would receive and retain a commission from the Fund for its
services.
During the fiscal years ended February 28, 1998, February 28, 1999, and
February 29, 2000 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 was 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, 1998, February 28, 1999 and
February 29, 2000 respectively, the Fund paid the Administrator $227,275,
$230,879, and $215,978 in fees under the Administration 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 was
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, 1998,
February 28, 1999, and February 29, 2000 the Fund paid the Fund Accounting Agent
$45,145, $32,825, and $46,863 respectively, in fees and expenses under the Fund
Accounting Agreement.
Transfer Agent
BISYS Fund Services, Inc., 3435 Stelzer Road, 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 was 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.
16
<PAGE>
DETERMINATION OF NET ASSET VALUE
Net asset value per share of the Fund will be determined once on each
day on which the New York Stock Exchange is open, as of the close of regular
trading on the Exchange (normally 4:00 p.m. Eastern time), and on any other day
on which there is sufficient trading in the Fund's portfolio securities to
affect the net asset value of shares of the Fund, if shares of the Fund are
either sold or repurchased or redeemed on such day, in the following manner: Tax
exempt securities (including New York Tax Exempt Bonds) will be stated on the
basis of valuations provided by an independent pricing service, approved by the
Trustees, which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities and
various relationships between securities in determining value. At the date of
this Statement 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.
17
<PAGE>
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 29,
2000.
<TABLE>
<CAPTION>
The Empire Builder Tax Free Bond Fund - Builder Class
-----------------------------------------------------
<S> <C>
One Year...................................................... -4.39%
Five Years.................................................... 4.19%
Ten Years..................................................... 5.79%
<CAPTION>
The Empire Builder Tax Free Bond Fund - Premier Class
-----------------------------------------------------
One Year...................................................... -4.12%
Since Inception (April 15, 1996).............................. 3.89%
</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.
18
<PAGE>
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 4.80% and 9.60%,
respectively, for the period ended February 29, 2000. The 30-day yield and
tax-equivalent yield for the Premier Class of the Fund were 4.92% and 9.84%,
respectively, for the period ended February 29, 2000. 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.
19
<PAGE>
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 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 other expenses of the Fund 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.
20
<PAGE>
All purchases by mail will be made at the relevant net asset value
determined as of the close of regular trading on the New York Stock Exchange on
the day of receipt by the Transfer Agent (if such day is a trading day, or, if
not, on the first trading day thereafter). The shares are sold to the
shareholder by the dealer, for whom the Transfer Agent acts as agent. Purchases
other than by mail will be made at the relevant net asset value next determined
after receipt of the order, as described under "Purchase of Shares."
By opening an Investment Account, the shareholder authorizes the Fund
to hold his shares on "deposit" with the Transfer Agent. Shares held in an
Investment Account may be redeemed as described under "Repurchase and Redemption
of Shares." Each time shares are credited to or withdrawn from an Investment
Account (except pursuant to an investment plan, or in connection with certain
automatic investments or reinvestments in the Fund, as described below), the
shareholder receives a statement showing the current transaction, prior
transactions in the account during the calendar year to date and the current
number of shares held therein. When shares are invested pursuant to an
investment plan, the shareholder receives a statement within five business days
following such transaction. Shareholders who have elected to have their
distributions of net interest income from the Fund automatically reinvested in
shares of the Fund, and shareholders of certain unit investment trusts who have
elected to have distributions from such trusts automatically invested in shares
of the Fund (see "Unit Investment Trusts" below), will receive a single
quarterly statement confirming the amount of these automatic investments and
reinvestments in the Fund during the quarter. At the end of each year a complete
annual statement of share transactions is mailed to each shareholder.
Unless otherwise indicated in writing by the shareholder, all income
dividends on the dividend payment date and any distributions of capital gains on
the record date are credited to the Investment Account in additional shares of
the same class on the basis of the closing net asset value for that class on
such respective dates. However, the shareholder may instead elect to receive
distributions of income dividends in cash and capital gain distributions in
additional shares of the same class, reinvested at the relevant net asset value
on the record date, or to receive both dividends and capital gain distributions
in cash. A shareholder may change this distribution option at any time by
written notification to the Transfer Agent. The change will be effective for the
next distribution provided it is received prior to the record date for that
distribution.
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.
21
<PAGE>
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.
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.
22
<PAGE>
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 but may
be taxable for federal alternative minimum tax purposes. The Fund's present
policy is to designate exempt-interest dividends annually. Under the Code,
interest on indebtedness incurred or continued to purchase or carry shares of an
investment company paying exempt-interest dividends, such as the Fund, will not
be deductible by the investor for federal income tax purposes in proportion to
the percentage that the Fund's distributions exempt from federal income tax
bears to all distributions excluding distributions from long-term capital gains.
Persons who may be "substantial users" (or "related persons" of substantial
users) of facilities financed by industrial development bonds or private
activity bonds should consult their tax advisers before purchasing Fund shares.
The 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 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.
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
23
<PAGE>
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.
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.
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.
24
<PAGE>
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.
25
<PAGE>
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.
26
<PAGE>
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>
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) Amendment No. 1 to Transfer Agency Agreement dated January 1, 2000***
(h)(2)(a) Administration Agreement dated October 1, 1996 **
(h)(2)(b) Amendment No. 1 to Administration Agreement dated January 1, 2000 ***
(h)(3)(a) Fund Accounting Agreement dated October 1, 1996 **
(h)(3)(b) Amendment No. 1 to Fund Accounting Agreement dated 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)(1) Code of Ethics (Fund) ***
(p)(2) Code of Ethics (Adviser/Distributor) ***
(q) Powers of Attorney**
* Incorporated herein by reference to Post Effective Amendment No. 18 to the Registration Statement,
filed April 20, 1999.
** Incorporated herein by reference to Post Effective Amendment No. 19 to the Registration Statement,
filed June 28, 1999.
*** Filed herewith June 15, 2000.
</TABLE>
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.
Page C-1
<PAGE>
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.
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 M. 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
Page C-2
<PAGE>
31a-1(c)
31a-1(e)
31a-2(b)
31a-2(d)
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>
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. 20 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 15th day of June, 2000.
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. 20 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 15, 2000
----------------------------------------- Executive Officer
Seth M. Glickenhaus
/s/ GARY TENKMAN Assistant Treasurer, Principal Financial and June 15, 2000
----------------------------------------- Accounting Officer
Gary Tenkman
EDWARD FALKENBERG* Trustee June 15, 2000
-----------------------------------------
Edward Falkenberg
EDWARD A. KUCZMARSKI* Trustee June 15, 2000
-----------------------------------------
Edward A. Kuczmarski
ELIZABETH B. NEWELL* Trustee June 15, 2000
-----------------------------------------
Elizabeth B. Newell
JOHN P. STEINES* Trustee June 15, 2000
-----------------------------------------
John P. Steines
*By: /s/ GEORGE STEVENS
--------------------------------
George Stevens, Esq.
Attorney-in-Fact
</TABLE>
<PAGE>
THE EMPIRE BUILDER TAX FREE BOND FUND
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Description of Exhibit Exhibit Reference
---------------------- -----------------
<S> <C>
Executed Amendment No. 1 to Transfer Agency Agreement dated January 1, 2000 .........................(h)(1)(b)
Executed Amendment No. 1 to Administration Agreement dated January 1, 2000 ..........................(h)(2)(b)
Executed Amendment No. 1 to Fund Accounting Agreement dated January 1, 2000 .........................(h)(3)(b)
Consent of PricewaterhouseCoopers LLP (Independent Auditors)...............................................(j)
Code of Ethics (Fund)...................................................................................(p)(1)
Code of Ethics (Adviser/Distributor)....................................................................(p)(2)
</TABLE>
