UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-03907
The Empire Builder Tax Free Bond Fund
(Exact name of registrant as specified in charter)
3435 Stelzer Road, Columbus, OH 43219
(Address of principal executive offices) (Zip code)
Citi Fund Services, 3435 Stelzer Road, Columbus, OH 43219
(Name and address of agent for service)
Registrant’s telephone number, including area code: (800) 847-5886
Date of fiscal year end: February 28,2010
Date of reporting period: February 28, 2010
Item 1. Reports to Stockholders.
![](https://capedge.com/proxy/N-CSR/0001144204-10-020845/logo_empirebuilder.jpg)
Dear Shareholder,
We are pleased to present The Empire Builder Tax Free Bond Fund Annual Report for the year ended February 28, 2010.
For the past year, the Builder class was up 3.97% while the Premier Class was up 4.18%. The Federal Reserve Board has left the Federal Fund Rate, the key target rate on loans between member banks, at recent lows (between 0% and 0.25%) since its December 2008 meeting. This low rate has helped the economy improve. The stock market has had a good recovery, the housing market has stabilized, but unemployment remains a great concern and will be for years to come.
We expect taxes to increase at the federal and state levels based on the size of the Federal Stimulus Package and the Federal Deficit. If this happens, it will make your investment in the Fund more attractive on a taxable-equivalent basis. We also believe that inflation will increase, which will cause interest rates to rise. We expect this will allow us to pick up additional yield when we reinvest our securities with shorter-term maturities.
We will continue to focus on maintaining the high credit quality of the bonds in the Fund. When the right opportunities present themselves, we will extend the duration of the portfolio cautiously with the goal of enhancing returns while keeping principal in tact.
In our opinion, The Empire Builder Tax-Free Bond Fund is well-positioned for the next year. Its no-load structure continues to offer value to the shareholder because there is no charge to purchase units. Because of the current disparity between municipals and Treasuries, we believe it is an excellent time to purchase additional shares of The Empire Builder Tax-Free Bond Fund through our automatic investment program (also known as ‘‘dollar cost averaging’’*). It helps shareholders follow a disciplined investment plan. Please call the customer service desk at 1-800-847-5886 for information on how to participate. We look forward to helping you meet your investment needs.
![](https://capedge.com/proxy/N-CSR/0001144204-10-020845/sig_sglickenhaus.jpg)
Seth M. Glickenhaus
President
* | Dollar cost averaging does not insure a profit and does not protect against loss in declining markets. An investor should consider his or her financial ability to continue making additional investments through periods of low share price levels. |
This report must be preceded or accompanied by a prospectus. For more complete information including charges and expenses, please call 1-800-847-5886 to receive a prospectus. Read the prospectus carefully before investing or sending money.
The Fund’s income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax (AMT).
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains and do not reflect taxes that a shareholder would pay on Fund distributions (if any) or on the redemption of Fund shares. The investment return and net asset value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. To obtain performance information for the most recent month end, please call 1-800-847-5886.
For more complete information on The Empire Builder Tax Free Bond Fund, you may request additional prospectuses by calling 1-800-847-5886. You should consider the Fund’s investment objectives, risk, charges and expenses carefully before you invest. Information about these and other important information is in the Fund’s prospectus which you should read carefully before investing.
Not FDIC insured. May lose value. No bank guarantee.
![](https://capedge.com/proxy/N-CSR/0001144204-10-020845/logo_empirebuilder.jpg)
Market Conditions during the Fund’s most recent fiscal year
As we mentioned last year, the 10-year Treasury bond is the leading benchmark for long-term interest rates. Interest rates in the 10-year Government Bond Market for the fiscal year ended February 28, 2010 began at approximately 3.017% and ended at 3.606%. It was a volatile market this year; the 10-year traded in a range of approximately 2.597% to 3.92%. Throughout the year, we saw dramatic shifts in the interest rate on the 10-year bond.
We try to enhance the value of the Fund whenever possible. We continue to manage the Fund conservatively, while seeking to take advantage of opportunities that arise in the marketplace due to interest rate movements and quality enhancements.
The following graphs illustrate the total return based on a $10,000 investment in Builder Class shares of the Fund and a $20,000* investment in Premier Class shares of the Fund made March 1, 2000, held through February 28, 2010, as well as the performance of the Barclays Capital Municipal Bond Index, the Fund’s benchmark, over the same period.
The Barclays Capital Municipal Bond Index includes 25,000 long-term, investment grade, municipal bonds. In the opinion of Glickenhaus & Co., the Fund’s adviser, this index most accurately represents the performance of the broad municipal bond market. However, there are substantial differences between the index and the Fund that contributed to the Fund’s underperformance relative to the benchmark. First, the index covers municipal bonds nationwide, whereas the Fund invests only in New York tax exempt bonds. Second, the index does not reflect the fees and expenses of the Fund or the cost and expenses of actually obtaining the underlying bonds. Third, the index had a higher level of volatility, as measured by Beta, for the ten year period ended February 28, 2010, and higher average maturity and lower average credit quality than the Fund during the period ended February 28, 2010. Finally, the index represents an unmanaged portfolio whereas the Fund is professionally managed. Indexes are unmanaged and one cannot invest directly in an index.
The performance data on the following pages assumes that all dividends and distributions are reinvested at net asset value. Return calculations do not reflect taxes a shareholder would pay on Fund distributions (if any) or on the redemption of Fund shares. The performance data quoted represents past performance and future returns may be higher or lower. The investment return and net asset value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost.
* | The minimum initial investment into the Premier Class is $20,000 |
Past performance is not a guarantee of future results.
![](https://capedge.com/proxy/N-CSR/0001144204-10-020845/v178656_chrt-ebbuilder.jpg)
Average Annual Total Return (Unaudited)
Empire Builder-Builder Class
Expense | ||||||||||||||||
1 Year | 5 Years | 10 Years | Ratio * | |||||||||||||
Empire Builder Tax Free Bond Fund - Builder Class | 3.97 | % | 2.84 | % | 4.45 | % | 1.34 | % | ||||||||
Barclays Capital Municipal Bond Index | 9.98 | % | 4.50 | % | 5.83 | % | NA |
![](https://capedge.com/proxy/N-CSR/0001144204-10-020845/v178656_chrt-ebpremier.jpg)
Average Annual Total Return (Unaudited) |
Empire Builder-Premier Class |
Expense | ||||||||||||||||
1 Year | 5 Years | 10 Years | Ratio * | |||||||||||||
Empire Builder Tax Free Bond Fund - Premier Class | 4.18 | % | 3.04 | % | 4.68 | % | 1.18 | % | ||||||||
Barclays Capital Municipal Bond Index | 9.98 | % | 4.50 | % | 5.83 | % | NA |
* | The above expense ratios are from the Fund’s prospectus dated June 26, 2009. Additional information pertaining to the Fund’s expense ratios for the year ended February 28, 2010 can be found in the Financial Highlights. |
Past performance is not a guarantee of future results.
3
Expense Examples (Unaudited):
As a shareholder of The Empire Builder Tax Free Bond Fund, you incur two types of costs: (1) transaction costs, including exchange fees, and (2) ongoing costs, including management fees as well as other Fund expenses.
These examples are intended to help you understand your ongoing costs (in dollars) of investing in The Empire Builder Tax Free Bond Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period from September 1, 2009 through February 28, 2010.
Actual Example
The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled ‘‘Expenses Paid During Period’’ to estimate the expenses you paid on your account during this period.
The Empire Builder Tax Free Bond Fund | Beginning Account Value | Ending Account Value | Expenses Paid During Period* 9/1/09 - /28/10 | Expense Ratio During Period | ||||||||||||
Builder Class | $ | 1,000.00 | $ | 1,016.40 | $ | 7.40 | 1.48 | % | ||||||||
Premier Class | 1,000.00 | 1,017.40 | 6.30 | 1.26 | % |
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on The Empire Builder Tax Free Bond Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
The Empire Builder Tax Free Bond Fund | Beginning Account Value | Ending Account Value | Expenses Paid During Period* | Expense Ratio During Period 9/1/09 - 2/28/10 | ||||||||||||
Builder Class | $ | 1,000.00 | $ | 1,017.46 | $ | 7.40 | 1.48 | % | ||||||||
Premier Class | 1,000.00 | 1,018.55 | 6.31 | 1.26 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year (to reflect the one-half year period). |
Past performance is not a guarantee of future results.
4
THE EMPIRE BUILDER TAX FREE BOND FUND
Portfolio of Investments — February 28, 2010
Principal | Fair Value | ||||||
Credit Ratings* | Amount | (Note 2) | |||||
Municipal Securities (95.6%) | |||||||
New York City (7.9%) | |||||||
New York City, General Obligation | |||||||
Aa3/AA | Series F1 | ||||||
3.000%, 11/15/2010, Non-Callable | $ | 1,000,000 | $ | 1,018,370 | |||
Aa3/AA | Series E-1 | ||||||
6.250%, 10/15/2028, Continuously Callable 10/15/2018 @ | |||||||
100 | 2,000,000 | 2,328,320 | |||||
Aa3/AAA | New York City, Health & Hospitals Corp., | ||||||
Health System Revenue, Series A, 5.500%, 2/15/2018, | |||||||
Continuously Callable 2/15/2012 @ 100, (AGM) | 1,000,000 | 1,034,880 | |||||
New York City, Housing Development Corp., | |||||||
Multifamily Housing Revenue, Series M | |||||||
Aa2/AA | 4.400%, 5/1/2014, Non-Callable | 165,000 | 170,265 | ||||
Aa2/AA | 4.450%, 11/1/2014, Non-Callable | 330,000 | 341,636 | ||||
Aa2/AA | 4.600%, 5/1/2015, Non-Callable | 340,000 | 353,236 | ||||
Aa2/AA | 4.650%, 11/1/2015, Non-Callable | 350,000 | 364,739 | ||||
Aa2/AA | 6.750%, 11/1/2033, Continuously Callable 11/1/2018 @ 100 | 1,000,000 | 1,108,370 | ||||
Total New York City | 6,719,816 | ||||||
New York State Agencies (60.3%) | |||||||
New York State Dormitory Authority (54.5%) | |||||||
WR/AA- | Mental Health Services Facilities Improvement, | ||||||
Series A, 5.000%, 2/15/2019, | |||||||
Continuously Callable 2/15/2015 @ 100, (AMBAC) | 2,500,000 | 2,665,525 | |||||
A1/AA- | Municipal Health Facilities, 5.000%, 1/15/2018, Non-Callable | 2,000,000 | 2,213,360 | ||||
Baa1/A | New York Medical College, 5.250%, 7/1/2013, | ||||||
Continuously Callable 7/1/2010 @ 100, (NATL-RE) | 1,015,000 | 1,020,603 | |||||
Aa3/AA- | New York University, Series 2, 5.500%, 7/1/2018, | ||||||
Continuously Callable 7/1/2011 @ 100, (AMBAC) | 500,000 | 516,660 | |||||
Aa2/AAA | Non State Supported Debt, Hospital Special Surgery, | ||||||
6.000%, 8/15/2038, Callable 8/15/2019 @ 100, (FHA) | 500,000 | 540,015 | |||||
Non State Supported Debt, Ithaca College | |||||||
A2/NR | 3.000%, 7/1/2010, Non-Callable | 1,470,000 | 1,479,246 | ||||
A2/NR | 5.000%, 7/1/2011, Non-Callable | 250,000 | 261,625 | ||||
NR/A | Non State Supported Debt, NYSARC, Inc., | ||||||
Series A, 3.000%, 7/1/2010, Non-Callable | 1,000,000 | 1,004,370 |
The accompanying notes are an integral part of the financial statements.
5
THE EMPIRE BUILDER TAX FREE BOND FUND
Portfolio of Investments — February 28, 2010 - (continued)
Principal | Fair Value | ||||||
Credit Ratings* | Municipal Securities — continued | Amount | (Note 2) | ||||
New York State Agencies — continued | |||||||
Non State Supported Debt, United Health Services Hospitals, Inc. | |||||||
NR/AAA | 3.000%, 8/1/2010, Non-Callable, (FHA) | $ | 625,000 | $ | 630,756 | ||
NR/AAA | 3.000%, 8/1/2011, Non-Callable, (FHA) | 645,000 | 661,377 | ||||
NR/AAA | 3.000%, 2/1/2012, Non-Callable, (FHA) | 1,315,000 | 1,348,006 | ||||
NR/AAA | 3.000%, 8/1/2012, Non-Callable, (FHA) | 1,340,000 | 1,379,048 | ||||
Rochester Institute of Technology, Series A | |||||||
A1/NR | 5.250%, 7/1/2016, | ||||||
Continuously Callable 7/1/2012 @ 100, (AMBAC) | 2,045,000 | 2,162,281 | |||||
A1/NR | 5.250%, 7/1/2017, | ||||||
Continuously Callable 7/1/2012 @ 100, (AMBAC) | 2,155,000 | 2,268,612 | |||||
School Districts Financing Program | |||||||
Series B | |||||||
A2/A+ | 2.000%, 10/1/2010, Non-Callable, (State Aid Withholding) | 2,000,000 | 2,016,940 | ||||
Series D | |||||||
A2/A+ | 5.250%, 10/1/2023, Continuously Callable 10/1/2012 @ 100, | ||||||
(NATL-RE State Aid Withholding) | 5,295,000 | 5,589,614 | |||||
Baa1/A | Special Acts School Districts Program, 6.000%, 7/1/2019, | ||||||
Continuously Callable 7/1/2010 @ 100, (NATL-RE) | 3,540,000 | 3,540,743 | |||||
St. Lawrence - Lewis BOCES | |||||||
Aa3/AAA | 4.000%, 8/15/2018, | ||||||
Continuously Callable 8/15/2017 @ 100, (AGM) | 100,000 | 106,013 | |||||
Aa3/AAA | 4.125%, 8/15/2020, | ||||||
Continuously Callable 8/15/2017 @ 100, (AGM) | 110,000 | 115,430 | |||||
Aa3/AAA | 4.250%, 8/15/2021, | ||||||
Continuously Callable 8/15/2017 @ 100, (AGM) | 100,000 | 105,349 | |||||
Aa1/NR | State Mortgage Agency, Homeowner Mortgage Revenue, | ||||||
Series 158, 6.600%, 10/1/2038, | |||||||
Continuously Callable 10/1/2018 @ 100 | 500,000 | 546,835 | |||||
NR/AA- | State Supported Debt, City University Construction 5th Generation | ||||||
Resolution, Series E, 6.125%, 1/1/2031, | |||||||
Continuously Callable 1/1/2019 @ 100 | 1,500,000 | 1,701,585 | |||||
NR/AA- | State Supported Debt, Department of Education, | ||||||
Series A, 5.000%, 7/1/2018, | |||||||
Continuously Callable 7/1/2016 @ 100 | 1,000,000 | 1,073,280 |
The accompanying notes are an integral part of the financial statements.
6
THE EMPIRE BUILDER TAX FREE BOND FUND
Portfolio of Investments — February 28, 2010 - (continued)
Principal | Fair Value | ||||||
Credit Ratings* | Municipal Securities — continued | Amount | (Note 2) | ||||
New York State Agencies — continued | |||||||
NR/AA- | State Supported Debt, Mental Health Services Facilities | ||||||
Improvement, Series F, 6.250%, 2/15/2031, | |||||||
Continuously Callable 8/15/2018 @ 100 | $ | 1,500,000 | $ | 1,679,430 | |||
Aa3/AAA | The New York & Presbyterian Hospital, | ||||||
Series A, 5.250%, 8/15/2010, Non-Callable, (AGM FHA) | 4,000,000 | 4,078,480 | |||||
Aa3/A+ | University of Rochester, Series A1, 5.000%, 7/1/2019, | ||||||
Continuously Callable 1/1/2017 @ 100 | 2,305,000 | 2,487,118 | |||||
Upstate Community Colleges | |||||||
Series A | |||||||
Aa3/AAA | 6.000%, 7/1/2019, | ||||||
Continuously Callable 7/1/2012 @ 101, (AGM) | 1,000,000 | 1,029,050 | |||||
Aa3/AAA | 6.000%, 7/1/2020, | ||||||
Continuously Callable 7/1/2012 @ 101, (AGM) | 845,000 | 869,547 | |||||
Series B | |||||||
A1/AA- | 5.250%, 7/1/2015, | ||||||
Continuously Callable 7/1/2014 @ 100, | |||||||
(NATL-RE FGIC TCRS) | 3,140,000 | 3,548,451 | |||||
Total New York State Dormitory Authority | 46,639,349 | ||||||
Other New York State Agencies (5.8%) | |||||||
Aaa/AAA | New York State Environmental Facilities Corp., | ||||||
State Water Pollution Control Revenue, Revolving Fund, | |||||||
Pooled Loan, 5.900%, 1/15/2018, | |||||||
Continuously Callable 4/5/2010 @ 100, (POL CTL-SRF) | 725,000 | 726,443 | |||||
Aa2/NR | New York State Housing Finance Agency Revenue, | ||||||
Series A, 2.700%, 5/1/2012, Non-Callable | 1,500,000 | 1,502,850 | |||||
NR/AA- | New York State Thruway Authority Service Contract Revenue, | ||||||
Local Highway & Bridge Services, 4.500%, 4/1/2010, | |||||||
Non-Callable | 580,000 | 581,971 | |||||
NR/AA- | New York State Urban Development Corp., | ||||||
Empire State Development, University Facilities Grants, | |||||||
Series D, 5.000%, 1/1/2015, Non-Callable | 1,000,000 | 1,126,570 | |||||
A1/AA- | New York State Urban Development Corp., | ||||||
State Facilities Revenue, 5.700%, 4/1/2010, Non-Callable | 1,000,000 | 1,004,454 | |||||
Total Other New York State Agencies | 4,942,288 | ||||||
Total New York State Agencies | 51,581,637 |
The accompanying notes are an integral part of the financial statements.
7
THE EMPIRE BUILDER TAX FREE BOND FUND
Portfolio of Investments — February 28, 2010 - (continued)
Principal | Fair Value | ||||||
Credit Ratings* | Municipal Securities — continued | Amount | (Note 2) | ||||
Other New York State Bonds (27.4%) | |||||||
A1/NR | Albany Housing Authority, Limited Obligation, 6.250%, 10/1/2012, | ||||||
Continuously Callable 10/1/2010 @ 100 | $ | 635,000 | $ | 636,314 | |||
Corning, City School District, General Obligation | |||||||
Aa3/NR | 5.000%, 6/15/2012, Non-Callable, (AGM State Aid Withholding) . | 1,000,000 | 1,088,870 | ||||
Aa3/NR | 5.000%, 6/15/2013, Continuously Callable 6/15/2012 @ 100, | ||||||
(AGM State Aid Withholding) | 970,000 | 1,054,594 | |||||
Aa3/NR | 5.000%, 6/15/2014, Continuously Callable 6/15/2012 @ 100, | ||||||
(AGM State Aid Withholding) | 600,000 | 648,360 | |||||
Aa3/AAA | Erie County, IDA School Facility, | ||||||
City School District Buffalo Project, Series A, 5.750%, 5/1/2025, | |||||||
Continuously Callable 5/1/2017 @ 100, (AGM) | 2,000,000 | 2,214,640 | |||||
A2/NR | Fayetteville Manlius, Central School District, General Obligation, | ||||||
5.000%, 6/15/2016, Callable 6/15/2012 @ 101, | |||||||
(NATL-RE FGIC State Aid Withholding) | 375,000 | 397,744 | |||||
Aa1/AAA | Hempstead Town, General Obligation, | ||||||
Series A, 3.000%, 8/15/2010, Non-Callable | 2,500,000 | 2,529,200 | |||||
NR/A | Hempstead Town, Local Development Corp. Revenue, Adelphi | ||||||
University, Series A, 5.000%, 2/1/2011, Non-Callable | 500,000 | 515,725 | |||||
Ilion, Central School District, General Obligation, Series B | |||||||
A2/NR | 5.500%, 6/15/2015, Callable 6/15/2012 @ 101, | ||||||
(NATL-RE FGIC State Aid Withholding) | 550,000 | 589,028 | |||||
A2/NR | 5.500%, 6/15/2016, Callable 6/15/2012 @ 101, | ||||||
(NATL-RE FGIC State Aid Withholding) | 500,000 | 529,525 | |||||
A3/A- | Long Island Power Authority, Electric System Revenue, Series A, | ||||||
6.000%, 5/1/2033, Continuously Callable 5/1/2019 @ 100 | 500,000 | 559,750 | |||||
A3/A | Metropolitan Transportation Authority Revenue, Series 2008C, | ||||||
6.500%, 11/15/2028, Continuously Callable 11/15/2018 @ 100 | 1,500,000 | 1,716,210 | |||||
Aa3/AAA | Monroe County, General Obligation, Series A, 2.000%, 6/1/2010, | ||||||
Non-Callable, (Assured GTY) | 4,015,000 | 4,028,450 | |||||
A2/NR | Mount Sinai, Union Free School District, General Obligation, | ||||||
6.200%, 2/15/2012, Non-Callable, (AMBAC State Aid Withholding) | 1,065,000 | 1,167,975 | |||||
Aa2/A | North Hempstead, General Obligation, Series B, 6.400%, | ||||||
4/1/2010, | |||||||
Non-Callable, (NATL-RE FGIC) | 560,000 | 562,923 | |||||
Aa3/AAA | Oneida County, IDA Civic Facilities, Mohawk Valley Network, | ||||||
St. Luke’s Memorial Hospital, 5.000%, 1/1/2013, Continuously | |||||||
Callable 4/5/2010 @ 100, (AGM) | 1,260,000 | 1,273,873 |
The accompanying notes are an integral part of the financial statements.
8
THE EMPIRE BUILDER TAX FREE BOND FUND
Portfolio of Investments — February 28, 2010 - (continued)
Principal | |||||||
Amount/ | Fair Value | ||||||
Credit Ratings* | Shares | (Note 2) | |||||
Other New York State Bonds — continued | |||||||
Aa3/AAA | Oneida County, Public Improvement, General Obligation, | ||||||
Series A, 3.000%, 4/15/2010, Non-Callable, (Assured GTY) | $ | 1,345,000 | $ | 1,348,976 | |||
Aa3/NR | Oyster Bay, General Obligation, | ||||||
5.000%, 3/15/2011, Non-Callable, (AGM) | 430,000 | 450,971 | |||||
Aa3/AAA | Rockland County, General Obligation, | ||||||
3.000%, 5/1/2010, Non-Callable, (AGM) | 1,650,000 | 1,656,352 | |||||
Aa3/NR | Southern Cayuga, Central School District, | ||||||
General Obligation, 5.000%, 5/15/2014, Callable 5/15/2012 @ 100, (AGM State Aid Withholding) | 400,000 | 430,540 | |||||
Total Other New York State Bonds. | 23,400,020 | ||||||
Total Municipal Securities (Cost $78,841,492) | 81,701,473 | ||||||
Money Market Investment (3.6%) | |||||||
Dreyfus New York Municipal Cash Management Fund, 0.090%(a) . | 3,100,000 | 3,100,000 | |||||
Total Investments (Cost $81,941,493)(b) — 99.2% | 84,801,473 | ||||||
Net Other Assets (Liabilities) — 0.8% | 703,773 | ||||||
NET ASSETS — 100.0% | $ | 85,505,246 |
(a) | Rate disclosed is as of February 28, 2010. |
(b) | See Notes to Financial Statements for tax unrealized appreciation/depreciation of securities. |
* | Credit Ratings given by Moody’s Investor Service, Inc. and Standard & Poor’s Corp. (Unaudited) |
AGM | Insured as to principal and interest by Assured Guaranty Municipal Corporation. Formerly FSA. |
AMBAC | Insured as to principal and interest by the American Municipal Bond Insurance Corp. |
BOCES | Board of Cooperative Educational Services. |
FGIC | Insured as to principal and interest by the Financial Guaranty Insurance Co. |
FHA | Insured as to principal and interest by the Federal Housing Administration. |
GTY | Guaranty |
IDA | Industrial Development Agency |
NATL-RE | Reinsured as to principal and interest by the National Public Finance Guarantee Corporation. |
POL CTL-SRF | Insured as to principal and interest by the Pollution Control State Revenue Fund. |
TCRS | Transferable Custodial Receipts |
The accompanying notes are an integral part of the financial statements.
9
THE EMPIRE BUILDER TAX FREE BOND FUND
Portfolio of Investments — February 28, 2010 - (continued)
Moody’s | |
Aaa | Issuers or issues rated Aaa demonstrate the strongest creditworthiness relative to other U.S. municipal or tax-exempt issuers or issues. |
Aa | Issuers or issues rated Aa demonstrate very strong creditworthiness relative to other U.S. municipal or tax-exempt issuers or issues. |
A | Issuers or issues rated A demonstrate above-average creditworthiness relative to other U.S. municipal or tax-exempt issuers or issues. |
Baa | Issuers or issues rated Baa demonstrate moderate creditworthiness relative to other U.S. municipal or tax-exempt issuers or issues. |
NR | Not Rated. In the opinion of the Investment Advisor, instrument judged to be of comparable investment quality to rated securities which may be purchased by the fund. |
WR | Rating has been withdrawn. |
For items possessing the strongest investment attributes of their category, Moody’s gives that letter rating followed by a number.
Standard and Poor’s
AAA | An obligation rated ‘AAA’ has the highest rating assigned by Standard & Poor’s. The obligor’s capacity to meet its financial commitment on the obligation is extremely strong. |
AA | An obligation rated ‘AA’ differs from the highest-rated obligations only to a small degree. The obligor’s capacity to meet its financial commitment on the obligation is very strong. |
A | An obligation rated ‘A’ is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions that obligations in higher-rated categories. However, the obligor’s capacity to meet financial commitment on the obligation is still strong. |
NR | Not Rated. In the opinion of the Investment Advisor, instrument judged to be of comparable investment quality to rated securities which may be purchased by the fund. |
Standard & Poor’s ratings may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
Summary of Portfolio Holdings: | ||||
Percent of | ||||
The Empire Builder Tax Free Bond Fund | Net Assets | |||
New York State Agencies | 60.3 | % | ||
Other New York State Bonds | 27.4 | |||
New York City | 7.9 | |||
Short Term Investments | 3.6 | |||
99.2 | % |
The accompanying notes are an integral part of the financial statements.
10
THE EMPIRE BUILDER TAX FREE BOND FUND
Statement of Assets and Liabilities
For the Year Ended February 28, 2010
Assets: | ||||||||
Investments in securities, at fair value (cost $81,941,493) (Note 2) | $ | 84,801,473 | ||||||
Cash | 8,245 | |||||||
Interest and dividends receivable | 803,097 | |||||||
Receivable for capital shares issued | 56 | |||||||
Prepaid expenses and other assets | 20,041 | |||||||
Total Assets | 85,632,912 | |||||||
Liabilities: | ||||||||
Dividends payable | $ | 14,797 | ||||||
Payable for capital shares redeemed | 10,000 | |||||||
Advisory fees payable (Note 4) | 26,255 | |||||||
Administration fees payable (Note 4) | 2,662 | |||||||
Transfer agency fees payable (Note 4) | 25,922 | |||||||
Fund accounting fees payable (Note 4) | 116 | |||||||
Custodian fees payable | 2,559 | |||||||
Other accrued expenses | 45,355 | |||||||
Total Liabilities | 127,666 | |||||||
Net Assets | $ | 85,505,246 | ||||||
Net Assets: | ||||||||
Capital | $ | 82,600,650 | ||||||
Accumulated undistributed net investment income | 9,977 | |||||||
Accumulated undistributed net realized gains from investments. | 34,639 | |||||||
Net unrealized appreciation of investments. | 2,859,980 | |||||||
Net Assets | $ | 85,505,246 | ||||||
Builder Class: | ||||||||
Net Assets | $ | 39,992,572 | ||||||
Shares of Beneficial Interest Outstanding (unlimited shares | ||||||||
authorized) | 2,272,279 | |||||||
Net Asset Value, Offering and Redemption Price per share | $ | 17.60 | ||||||
Premier Class: | ||||||||
Net Assets | $ | 45,512,674 | ||||||
Shares of Beneficial Interest Outstanding (unlimited shares | ||||||||
authorized) | 2,585,669 | |||||||
Net Asset Value, Offering and Redemption Price per share | $ | 17.60 |
11
THE EMPIRE BUILDER TAX FREE BOND FUND
Statement of Operations
For the Year Ended February 28, 2010
Investment Income: | ||||||||
Interest | $ | 3,169,743 | ||||||
Dividend | 13,511 | |||||||
Total Investment Income | 3,183,254 | |||||||
Expenses: | ||||||||
Advisory fees (Note 4) | $ | 344,980 | ||||||
Administration fees (Note 4) | 201,666 | |||||||
Fund accounting fees (Note 4) | 58,733 | |||||||
Transfer agency fees — Builder Class (Note 4) | 116,685 | |||||||
Transfer agency fees — Premier Class (Note 4) | 39,714 | |||||||
Custody fees. | 29,076 | |||||||
Trustees’ fees (Note 4) | 54,037 | |||||||
Audit fees | 46,260 | |||||||
Compliance services fee (Note 4) | 65,409 | |||||||
Legal fees. | 93,648 | |||||||
Other fees. | 73,700 | |||||||
Total Expenses | 1,123,908 | |||||||
Less: Custody fee credit. | (1,009 | ) | ||||||
Total Net Expenses | 1,122,899 | |||||||
Net Investment Income | 2,060,355 | |||||||
Realized/Unrealized Gains on Investments (Notes 2 and 3) | ||||||||
Net realized gains from investment transactions | 195,676 | |||||||
Change in unrealized appreciation/depreciation from investment | ||||||||
transactions | 1,190,937 | |||||||
Net realized/unrealized gains from investments | 1,386,613 | |||||||
Change in net assets resulting from operations | $ | 3,446,968 |
12
THE EMPIRE BUILDER TAX FREE BOND FUND
Statement of Changes in Net Assets
Year Ended | Year Ended | |||||||
February 28, 2010 | February 28, 2009 | |||||||
From Investment Activities: | ||||||||
Operations: | ||||||||
Net investment income | $ | 2,060,355 | $ | 2,439,749 | ||||
Net realized gains (losses) from investment transactions | 195,676 | (36,367 | ) | |||||
Change in unrealized appreciation/depreciation from investment | ||||||||
transactions | 1,190,937 | 1,923,448 | ||||||
Change in net assets resulting from operations. | 3,446,968 | 4,326,830 | ||||||
Distributions to Shareholders from: | ||||||||
Net investment income: | ||||||||
Builder Class | (922,083 | ) | (1,112,554 | ) | ||||
Premier Class | (1,137,493 | ) | (1,329,543 | ) | ||||
Net realized gains from investment transactions: | ||||||||
Builder Class | (52,838 | ) | — | |||||
Premier Class | (59,437 | ) | — | |||||
Total distributions | (2,171,851 | ) | (2,442,097 | ) | ||||
Change in net assets from capital share transactions. | (2,051,469 | ) | (2,186,689 | ) | ||||
Change in net assets | (776,352 | ) | (301,956 | ) | ||||
Net Assets: | ||||||||
Beginning of period | 86,281,598 | 86,583,554 | ||||||
End of period | $ | 85,505,246 | $ | 86,281,598 | ||||
Accumulated undistributed net investment income | $ | 9,977 | $ | 10,568 | ||||
Capital Transactions: | ||||||||
Builder Class | ||||||||
Proceeds from shares issued | $ | 1,093,516 | $ | 1,091,886 | ||||
Dividends reinvested. | 902,948 | 1,025,405 | ||||||
Value of shares redeemed | (2,853,928 | ) | (4,101,366 | ) | ||||
Total Builder Class. | (857,464 | ) | (1,984,075 | ) | ||||
Premier Class | ||||||||
Proceeds from shares issued | 360,430 | 718,885 | ||||||
Dividends reinvested. | 1,008,699 | 1,118,450 | ||||||
Value of shares redeemed | (2,563,134 | ) | (2,039,949 | ) | ||||
Total Premier Class | (1,194,005 | ) | (202,614 | ) | ||||
Change in net assets from capital share transactions. | $ | (2,051,469 | ) | $ | (2,186,689 | ) | ||
Share Transactions: | ||||||||
Builder Class | ||||||||
Issued | 62,647 | 63,477 | ||||||
Reinvested | 51,648 | 59,769 | ||||||
Redeemed | (162,807 | ) | (238,963 | ) | ||||
Total Builder Class Shares | (48,512 | ) | (115,717 | ) | ||||
Premier Class | ||||||||
Issued | 20,560 | 41,835 | ||||||
Reinvested | 57,695 | 65,174 | ||||||
Redeemed | (146,520 | ) | (119,655 | ) | ||||
Total Premier Class Shares | (68,265 | ) | (12,646 | ) |
13
THE EMPIRE BUILDER TAX FREE BOND FUND
Financial Highlights
For a share of beneficial interest outstanding throughout each period
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||||||||||||||||||||||
February 28, 2010 | February 28, 2009 | February 29, 2008 | February 28, 2007 | February 28, 2006 | ||||||||||||||||||||||||||||||||||||
Builder | Premier | Builder | Premier | Builder | Premier | Builder | Premier | Builder | Premier | |||||||||||||||||||||||||||||||
Class | Class | Class | Class | Class | Class | Class | Class | Class | Class | |||||||||||||||||||||||||||||||
Net Asset Value, | ||||||||||||||||||||||||||||||||||||||||
Beginning of Period . | $ | 17.34 | $ | 17.34 | $ | 16.97 | $ | 16.97 | $ | 17.64 | $ | 17.65 | $ | 17.66 | $ | 17.66 | $ | 17.77 | $ | 17.77 | ||||||||||||||||||||
Investment Activities: | ||||||||||||||||||||||||||||||||||||||||
Net investment | ||||||||||||||||||||||||||||||||||||||||
income | 0.40 | 0.43 | 0.47 | 0.50 | 0.54 | 0.57 | 0.56 | 0.59 | 0.46 | 0.50 | ||||||||||||||||||||||||||||||
Net realized/ | ||||||||||||||||||||||||||||||||||||||||
unrealized gains | ||||||||||||||||||||||||||||||||||||||||
(losses) on | ||||||||||||||||||||||||||||||||||||||||
investments | 0.28 | 0.28 | 0.37 | 0.37 | (0.57 | ) | (0.58 | ) | 0.04 | 0.05 | (0.10 | ) | (0.10 | ) | ||||||||||||||||||||||||||
Total from Investment | ||||||||||||||||||||||||||||||||||||||||
Operations. | 0.68 | 0.71 | 0.84 | 0.87 | (0.03 | ) | (0.01 | ) | 0.60 | 0.64 | 0.36 | 0.40 | ||||||||||||||||||||||||||||
Distributions: | ||||||||||||||||||||||||||||||||||||||||
Net investment | ||||||||||||||||||||||||||||||||||||||||
income | (0.40 | ) | (0.43 | ) | (0.47 | ) | (0.50 | ) | (0.55 | ) | (0.58 | ) | (0.56 | ) | (0.59 | ) | (0.46 | ) | (0.50 | ) | ||||||||||||||||||||
Net realized capital | ||||||||||||||||||||||||||||||||||||||||
gains | (0.02 | ) | (0.02 | ) | — | — | (0.09 | ) | (0.09 | ) | (0.06 | ) | (0.06 | ) | (0.01 | ) | (0.01 | ) | ||||||||||||||||||||||
Total Distributions | (0.42 | ) | (0.45 | ) | (0.47 | ) | (0.50 | ) | (0.64 | ) | (0.67 | ) | (0.62 | ) | (0.65 | ) | (0.47 | ) | (0.51 | ) | ||||||||||||||||||||
Net Asset Value, End of | ||||||||||||||||||||||||||||||||||||||||
Period | $ | 17.60 | $ | 17.60 | $ | 17.34 | $ | 17.34 | $ | 16.97 | $ | 16.97 | $ | 17.64 | $ | 17.65 | $ | 17.66 | $ | 17.66 | ||||||||||||||||||||
Total Return. | 3.97 | % | 4.18 | % | 5.01 | % | 5.19 | % | (0.20 | )% | (0.08 | )% | 3.44 | % | 3.70 | % | 2.07 | % | 2.26 | % | ||||||||||||||||||||
Ratios/Supplementary | ||||||||||||||||||||||||||||||||||||||||
Data: | ||||||||||||||||||||||||||||||||||||||||
Net Assets at End of | ||||||||||||||||||||||||||||||||||||||||
Period | ||||||||||||||||||||||||||||||||||||||||
(in thousands) | $ | 39,993 | $ | 45,513 | $ | 40,250 | $ | 46,032 | $ | 41,336 | $ | 45,248 | $ | 45,010 | $ | 49,853 | $ | 48,323 | $ | 53,540 | ||||||||||||||||||||
Ratio of Net | ||||||||||||||||||||||||||||||||||||||||
Investment Income | ||||||||||||||||||||||||||||||||||||||||
to Average Net | ||||||||||||||||||||||||||||||||||||||||
Assets | 2.28 | % | 2.48 | % | 2.74 | % | 2.90 | % | 3.07 | % | 3.25 | % | 3.19 | % | 3.39 | % | 2.67 | % | 2.86 | % | ||||||||||||||||||||
Ratio of Expenses to | ||||||||||||||||||||||||||||||||||||||||
Average Net | ||||||||||||||||||||||||||||||||||||||||
Assets (a) | 1.41 | % | 1.21 | % | 1.31 | % | 1.15 | % | 1.30 | % | 1.12 | % | 1.28 | % | 1.08 | % | 1.20 | % | 1.01 | % | ||||||||||||||||||||
Ratio of Expenses to | ||||||||||||||||||||||||||||||||||||||||
Average Net | ||||||||||||||||||||||||||||||||||||||||
Assets* | 1.41 | % | 1.21 | % | 1.34 | % | 1.18 | % | 1.33 | % | 1.14 | % | 1.30 | % | 1.10 | % | 1.21 | % | 1.02 | % | ||||||||||||||||||||
Portfolio Turnover | ||||||||||||||||||||||||||||||||||||||||
Rate (b) | 18.24 | % | 18.24 | % | 74.67 | % | 74.67 | % | 69.87 | % | 69.87 | % | 134.56 | % | 134.56 | % | 52.14 | % | 52.14 | % |
* | The ratio does not include a reduction of expenses for custodian fee credits of cash balances maintained with the custodian or amounts reimbursed by the administrator. |
(a) | Ratio as disclosed reflects the impact of custody fee credits from the custodian. Had the custody credits not been included the impact would have been to increase the ratios by 0.00%, 0.03%, 0.03%, 0.02% and 0.01%, for the years 2010, 2009, 2008, 2007 and 2006, respectively. |
(b) | Portfolio turnover rate is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued. |
14
THE EMPIRE BUILDER TAX FREE BOND FUND
Notes to Financial Statements
February 28, 2010
1. Organization
The Empire Builder Tax Free Bond Fund (the ‘‘Fund’’) was established as a Massachusetts business trust by an Agreement and Declaration of Trust dated September 30, 1983. The Fund is registered under the Investment Company Act of 1940, as amended (the ‘‘1940 Act’’), as an open-end, non-diversified investment company. The Fund has an unlimited number of shares authorized with no par value.
The Fund offers two classes of shares: the Builder Class and the Premier Class. Both classes of shares outstanding bear the same dividend, liquidation and other rights and conditions, except that the Builder Class shares and the Premier Class shares bear different transfer agency expenses. Each class of shares have exclusive voting rights with respect to matters affecting only that class.
Under the Fund’s organizational documents, its Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts with its vendors and others that provide for general indemnification. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America (‘‘GAAP’’).
Use of Estimates
Estimates and assumptions are required to be made regarding amounts of income and expenses, assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the Fund’s financial statements. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ from these estimated amounts.
Security Valuation
Tax-exempt securities are valued using prices provided by an independent pricing service approved by the Fund’s Board of Trustees (the ‘‘Board’’). The independent pricing service uses information with respect to transactions in bonds, quotations from bond dealers, market transactions in comparable securities and various relationships between securities in determining these prices. The methods used by the independent pricing service and the quality of valuations so established are reviewed by Glickenhaus & Co. (the ‘‘Adviser’’), under the general supervision of the Board.
Securities for which quotations are not readily available are stated at fair value using procedures approved by the Board. Short-term debt securities having remaining maturities of sixty (60) days or less are stated at amortized cost, which approximates market value. Investments in investment companies are reported at their respective net asset values as reported by those companies.
15
THE EMPIRE BUILDER TAX FREE BOND FUND
Notes to Financial Statements
February 28, 2010
2. Significant Accounting Policies - (continued)
Various inputs are used to determine the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below:
Level 1 — quoted prices in active markets for identical securities.
Level 2 — other significant observable inputs other than level 1 quoted prices (including, but not limited to, quoted prices for similar securities, interest rates, prepayment speeds, credit risk).
Level 3 — significant unobservable inputs.
Observable inputs are those based on market data obtained from sources independent of the Fund, and unobservable inputs reflect the Fund’s own assumptions based on the best information available. The input levels or methodology are not necessarily an indication of the risk or liquidity associated with investments at that level.
The following is a summary of the inputs used as of February 28, 2010 in valuing the Fund’s investments:
Investments in Securities | ||||||||||||||||
LEVEL 1 — | LEVEL 2 — | LEVEL 3 — | ||||||||||||||
Quoted | Other Significant | Significant | ||||||||||||||
Investment Type | Prices | Observable Inputs | Unobservable Inputs | Total | ||||||||||||
Municipal Securities | $ | — | $ | 81,701,473 | $ | — | $ | 81,701,473 | ||||||||
Money Market Investments | 3,100,000 | — | — | 3,100,000 | ||||||||||||
Total. | $ | 3,100,000 | $ | 81,701,473 | $ | — | $ | 84,801,473 |
Security Transactions and Investment Income
Security transactions are accounted for no later than one business day after the trade date. However, for financial reporting purposes, security transactions are accounted for on the trade date. Interest income, which includes amortization of premium and accretion of discounts, is accrued as earned. Realized gains and losses from security transactions and unrealized appreciation and depreciation of investments are determined on the basis of identified cost.
Taxes
The Fund intends to qualify each year as a ‘‘regulated investment company’’ under Subchapter M of the Internal Revenue Code, and the Fund distributes and intends to continue to distribute all its tax-exempt and taxable income. By distributing during each calendar year its net investment income, capital gains and certain other amounts, if any, the Fund will not be subject to a federal income or excise tax. Therefore, no federal income tax provision is required.
For all open tax years and all major taxing jurisdictions, management of the Fund has concluded that there are no significant uncertain tax positions that would require recognition in the Fund’s financial statements. Open tax years are those that are open for examination by taxing authorities (i.e., generally, the last four tax year ends and the interim tax period since then). Further, management of the Fund is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
16
THE EMPIRE BUILDER TAX FREE BOND FUND
Notes to Financial Statements
February 28, 2010
2. Significant Accounting Policies - (continued)
Distributions and Dividends
Distributions to shareholders from net investment income are declared daily and paid monthly. The Fund also distributes at least annually substantially all net capital gains, if any, realized from portfolio transactions.
The amounts of distributions from net investment income and net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These ‘‘book/tax’’ differences are considered either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., reclass of market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment. Temporary differences do not require reclassification.
Determination of Net Asset Value and Allocation of Expenses
In calculating net asset value per share of each class, investment income and expenses, other than class-specific expenses, are allocated daily to each class of shares based on the number of shares outstanding. Realized and unrealized gains and losses are allocated based on relative net assets.
Other
The Fund maintains a cash balance with its custodian and receives a reduction of its custody fees and expenses for the amounts of interest earned on such uninvested cash balance. There was no effect on net investment income for the fiscal year ended February 28, 2010. The Fund could have invested such cash amounts in an income-producing asset if it had not agreed to a reduction of fees or expenses under the expense offset arrangement with the Fund’s custodian.
3. Purchases and Sales of Investment Securities
Purchases and sales of investment securities, excluding short-term investments, during the fiscal year ended February 28, 2010, amounted to $14,139,430 and $16,300,229, respectively. During the fiscal year, there were no purchases or sales of long-term U.S. government securities.
17
THE EMPIRE BUILDER TAX FREE BOND FUND
Notes to Financial Statements
February 28, 2010
4. Advisory Fees and Other Related Party Transactions
The Fund retains the Adviser to act as investment adviser pursuant to an investment advisory agreement. As compensation for its advisory services, the Adviser receives a fee accrued daily and paid monthly, at the annual rates of 0.40% of the first $100,000,000 of average daily net assets and 0.3333% of any excess in average daily net assets over $100,000,000.
The Adviser has agreed to a reduction of the advisory fees to the extent that the Fund’s expenses, including the advisory fees, exceed 1.50% of the Fund’s average annual net assets. For the fiscal year ended February 28, 2010, there was no reduction of advisory fees pursuant to this agreement.
Beginning April 16, 2010, Ultimus Fund Solutions, LLC (‘‘Ultimus’’) serves as the Administrator, Transfer Agent and Fund Accountant to the Fund. For these services, Ultimus receives fees computed at an annual rate of the daily net assets of the Fund, subject to a minimum annual fee.
Prior to April 16, 2010, Citi Fund Services Ohio, Inc. (‘‘Citi Ohio’’ or the ‘‘Prior Administrator’’) and Citi Fund Services, Inc. (‘‘Citi’’), subsidiaries of Citi Investor Services, Inc., served as the Fund’s Administrator, Transfer Agent and Fund Accountant, respectively. The Prior Administrator received compensation for administration and fund accounting services at a rate of 0.14% and 0.03%, respectively, of average daily net assets of the Fund (subject to certain minimum amounts), including reimbursement for certain expenses incurred.
Under a Compliance Consulting Agreement dated April 16, 2010 between the Fund and Ultimus (the ‘‘Compliance Agreement’’), Ultimus will make an employee available to serve as the Fund’s Chief Compliance Officer (‘‘CCO’’). Under the Compliance Agreement, Ultimus will also provide infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program, including supporting services to the CCO. Ultimus will pay the salary and other compensation earned by any such individuals of Ultimus.
Prior to April 16, 2010 and under a Compliance Services Agreement between the Fund and Citi Ohio (the ‘‘CCO Agreement’’), Citi Ohio made an employee available to serve as the Fund’s Chief Compliance Officer (the ‘‘CCO’’). Under the CCO Agreement, Citi Ohio also provided infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program, including support services to the CCO. Expenses incurred are reflected in the Statement of Operations as ‘‘Compliance services fee’’. Citi Ohio paid the salary and other compensation earned by any such individuals as employees of Citi Ohio.
Certain Officers and Trustees of the Fund are affiliated with the Adviser or the Administrator. Such Officers and Trustees receive no compensation from the Fund for serving in their respective roles. Each of the four non-interested Trustees who serve on both the Fund’s Board and the Audit Committee are compensated $2,100 in retainer per quarter and an additional $900 fee for each meeting attended plus reimbursement for certain expenses. The non-interested Trustees who serve on committees of the Board receive an additional attendance fee of $750 for each committee meeting attended held on a day other than a regular quarterly meeting. The Fund provides no pension or retirement benefits to its Trustees or former Trustees.
18
THE EMPIRE BUILDER TAX FREE BOND FUND
Notes to Financial Statements
February 28, 2010
5. Concentration of Credit Risk
The Fund invests primarily in debt instruments of municipal issuers in New York State. The issuers’ abilities to meet their obligations may be affected by economic developments in New York State or its region, as well as recent disruptions in the credit markets and the economy, generally. The issuers of municipal securities, including issuers of New York Tax Exempt Bonds, have been under stress relating to recent disruptions in the credit markets and the economy generally. These disruptions could have a significant negative effect on an issuer’s ability to make payments of principal and/or interest.
6. Federal Income Tax Information:
The tax character of dividends paid to shareholders during the fiscal year ended February 28, 2010 were as follows:
Distributions paid from | ||||||||||||||||||||
Net Long- | Total | Total | ||||||||||||||||||
Ordinary | Term | Taxable | Tax Exempt | Distributions | ||||||||||||||||
Income | Distributions | Distributions | Distributions | Paid* | ||||||||||||||||
The Empire Builder Tax Free Bond Fund | $ | 94,083 | $ | 18,192 | $ | 112,275 | $ | 2,056,324 | $ | 2,168,599 |
The tax character of dividends paid to shareholders during the fiscal year ended February 28, 2009 were as follows:
Distributions paid from | ||||||||||||||||||||
Net Long- | Total | |||||||||||||||||||
Ordinary | Term | Total Taxable | Tax Exempt | Distributions | ||||||||||||||||
Income | Distributions | Distributions | Distributions | Paid* | ||||||||||||||||
The Empire Builder Tax Free Bond Fund | $ | 708 | $ | — | $ | 708 | $ | 2,444,099 | $ | 2,444,807 |
* | Total distributions paid may differ from the amount reported in the Statement of Changes in Net Assets because for tax purposes distributions are recognized when actually paid. |
As of February 28, 2010 the components of accumulated earnings (deficit) on a tax basis were as follows:
Undistributed | Accumulated | Total | ||||||||||||||||||||||||||||||
Undistributed | Undistributed | Long-Term | Capital and | Unrealized | Accumulated | |||||||||||||||||||||||||||
Ordinary | Tax-Exempt | Capital | Accumulated | Distributions | Other | Appreciation/ | Earnings | |||||||||||||||||||||||||
Income | Income | Gains | Earnings | Payable | Losses | (Depreciation) ** | (Deficit) | |||||||||||||||||||||||||
The Empire Builder Tax Free Bond Fund. | $ | 18,305 | $ | 24,774 | $ | 1,365 | $ | 44,444 | $ | (14,797 | ) | $ | — | $ | 2,874,949 | $ | 2,904,596 |
As of February 28, 2010, the Fund had no capital loss carryforward and utilized $63,864 during the period.
19
THE EMPIRE BUILDER TAX FREE BOND FUND
Notes to Financial Statements
February 28, 2010
6. Federal Income Tax Information: - (continued)
As of February 28, 2010, the cost, gross unrealized appreciation and gross unrealized depreciation of securities for federal income tax purposes, were as follows:
Net Unrealized | ||||||||||||||||
Tax Unrealized | Tax Unrealized | Appreciation | ||||||||||||||
Tax Cost | Appreciation | Depreciation | (Depreciation) | |||||||||||||
The Empire Builder Tax Free Bond Fund | $ | 81,926,524 | $ | 2,875,136 | $ | (187 | ) | $ | 2,874,949 |
** | The difference between the book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the difference between book and tax amortization methods for market discount. |
7. New Pronouncements
In January 2010, the Financial Accounting Standards Board (‘‘FASB’’) issued Accounting Standards Update 2010-06 (‘‘ASU 2010-06’’) to ASC 820-10, ‘‘Fair Value Measurements and Disclosures – Overall.’’ New disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, while disclosures about purchases, sales, issuances and settlements in the Level 3 roll forward of activity in fair value measurements is effective for interim and fiscal periods beginning after December 15, 2010. Management is currently evaluating the impact the adoption of ASU 2010-06 will have, if any, on the Fund’s financial statements and related disclosures.
8. Subsequent Events
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued, and has determined that there were no subsequent events requiring adjustment or disclosure in the financial statements.
20
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of
The Empire Builder Tax Free Bond Fund:
In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of The Empire Builder Tax Free Bond Fund (the ‘‘Fund’’) at February 28, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as ‘‘financial statements’’) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at February 28, 2010 by correspondence with the custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Columbus, Ohio
April 15, 2010
21
THE MANAGEMENT (Unaudited)
Independent Trustees
Name, Address, | Positions Held With The | Term of Office/ Length of Time | Principal Occupation(s) | Number of Portfolios | Directorships Held Outside | |||||
and Birthdate | Fund | Served | During the Past 5 Years | Fund | the Fund Complex | |||||
EDWARD A. FALKENBERG | Trustee | Since | Principal, ACME Real Estate | 1 | None | |||||
c/o Glickenhaus & Co. | June 1989 | (1998 to present) | ||||||||
546 Fifth Avenue, 7th Floor | ||||||||||
New York, NY 10036-5000 | ||||||||||
09/40 | ||||||||||
EDWARD A. KUCZMARSKI | Trustee | Since | Certified Public Accountant, | 1 | Director of New York Daily | |||||
c/o Glickenhaus & Co. | April 1984 | Managing Partner, Crowe | Tax-Free Income Fund, Inc., | |||||||
546 Fifth Avenue, 7th Floor | Horwath LLP (formerly, Hays & | the ISI Fund Group, and 9 | ||||||||
New York, NY 10036-5000 | Company LLP) (1980 to present). | Funds within the Reich & | ||||||||
11/49 | Tang Complex | |||||||||
CAROLINE E. NEWELL | Trustee | Since | Head, Park Ave. Christian Church | 1 | Director of New York Daily | |||||
c/o Glickenhaus & Co. | April 1984 | Day School (2001 to present) | Tax-Free Income Fund, Inc. | |||||||
546 Fifth Avenue, 7th Floor | and Head, Le Chateau des | |||||||||
New York, NY 10036-5000 | Enfants (1991 to present) | |||||||||
07/40 | ||||||||||
JOHN P. STEINES, JR. | Trustee | Since | Professor of Law, New York | 1 | Director of New York Daily | |||||
c/o Glickenhaus & Co. | August 1984 | University School of Law (1978 to | Tax-Free Income Fund, Inc. | |||||||
546 Fifth Avenue, 7th Floor | present) and Counsel, Kronish, | |||||||||
New York, NY 10036-5000 | Lieb, Weiner & Hellman (law firm) | |||||||||
10/48 | (2004 to present) | |||||||||
Interested Persons | ||||||||||
SETH M. GLICKENHAUS* | Trustee | Since | General Partner of | 1 | None | |||||
Glickenhaus & Co. | Chairman of | April 1984 | Glickenhaus & Co. | |||||||
546 Fifth Avenue, 7th Floor | the Board and | (1961 to present) | ||||||||
New York, NY 10036-5000 | President | |||||||||
03/14 |
* | Mr. Glickenhaus is an ‘‘interested person’’ (as defined in Section 2(a)(19) of the 1940 Act) of the Fund because he is a General Partner of Glickenhaus & Co., the Adviser. |
Further information about certain of the Fund’s Trustees is available in the Fund’s Statement of Additional Information, dated June 26, 2009, which can be obtained upon request, without charge, by calling the Fund’s shareholder servicing agent at [(800) 847-5886].
Officers of the Fund
MICHAEL J. LYNCH | Senior Vice | Indefinite, | Director, Unit Trust Department Glickenhaus & Co. (1997 to present) |
Glickenhaus & Co. | President | Since | |
546 Fifth Avenue, 7th Floor | March 1997 | ||
New York, NY 10036-5000 | |||
07/62 | |||
DANIEL J. IGO ** | Secretary | Indefinite, | Project Manager and Vice President, Citi Fund Services (2007 to present); |
100 Summer Street | Since | Compliance Manager, Citi CCO Compliance Services (2006 to 2007); Legal | |
Ste. 1500 | December 2007 | Services Manager, Citi Fund Services (2004 to 2006); Manager, State Street | |
Boston, MA 02110 | Research and Management Company (2003 to 2004). | ||
09/70 | |||
JONATHAN ROSEN** | Treasurer | Indefinite, | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc. |
3435 Stelzer Road | Since | (2008 to present); Vice President, Financial Administration, Citi Fund Services | |
Columbus, OH 45219 | September 2008 | Ohio, Inc. (2003 to 2008). | |
02/71 | |||
MICHAEL J. NANOSKY** | Chief Compliance | Since | Vice President and Chief Compliance Officer of CCO Services of Citi Fund |
3435 Stelzer Road | and Anti-Money | March 2009 | Services, Inc. (2008 to present); Vice President and Managing Director of |
Columbus, OH 45219 | Laundering | Term of Office | Regulatory Compliance of National City Bank — Allegiant Asset Management |
06/66 | Officer | expires in 2010 | (2004 to 2008); Assistant Vice President and Director of Fund Administration |
and Compliance of National City Bank — Allegiant Asset Management (2002 | |||
to 2004). |
** | Effective April 16, 2010, and in conjunction with the change in service provider, Ultimus will provide individuals to serve in this capacity. |
22
THE EMPIRE BUILDER TAX FREE BOND FUND
Other Information (Unaudited)
The Fund intends to designate $18,192 as long-term capital gain distributions or the maximum amount allowable under IRC Section 852, including amounts paid or deemed paid.
Proxy Voting Information
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available (i) without charge, upon request, by calling 1-800-847-5886; and (ii) on the Securities and Exchange Commission’s (the ‘‘Commission’’) website at http://www.sec.gov.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 1-800-847-5886; and (ii) on the Commission’s website at http://www.sec.gov.
Availability of Quarterly Portfolio Schedules
The Fund files a complete Schedule of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available without charge on the Commission’s website at http://www.sec.gov, and may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
23
![]() 3435 Stelzer Road Columbus, Ohio 43219 1-800-847-5886 | ![]() TAX FREE BOND FUND Annual Report , Investment Adviser and Distributor Glickenhaus & Co. 546 Fifth Avenue 7th Floor New York, New York 10036 Fund Accountant Citi Fund Services, Inc. 3435 Stelzer Road Columbus, Ohio 43219 Transfer Agent and Administrator Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, Ohio 43219 Custodian State Street Bank & Trust Co. 800 Pennsylvania Avenue 5th Floor Kansas City, Missouri 64105-1307 Legal Counsel Ropes & Gray LLP One International Place Boston, Massachusetts 02110 Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP 41 S. High Street Columbus, Ohio 43215 Customer Service 3435 Stelzer Road Columbus, Ohio 43219 1-800-847-5886 This report is submitted for the information of the shareholders of The Empire Builder Tax Free Bond Fund. It is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, obtainable from an investment dealer, which includes information regarding the Fund’s objectives and policies, record, management, sales commission and other data. 00069120 |
Item 2. Code of Ethics.
(a) The registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. This code of ethics is included as an Exhibit.
(b) During the period covered by the report, with respect to the registrant's code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions; there have been no amendments to, nor any waivers granted from, a provision that relates to any element of the code of ethics definition enumerated in paragraph (b) of this Item 2.
Item 3. Audit Committee Financial Expert.
3(a)(1) The registrant's board of directors has determined that the registrant has at least one audit committee financial expert serving on its audit committee.
3(a)(2) The audit committee financial expert is Edward A. Kuczmarski, who is "independent" for purposes of this Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
a) Audit Fees – The aggregate fees billed for each of the last two fiscal years (the “Reporting Periods”) for professional services rendered by the Registrant’s principal accountant for the audit of the Registrant’s annual financial statements, or services that are normally provided by the principal accountant in connection with the statutory and regulatory filings or engagements for the Reporting Periods, were $36,000 in 2010 and $36,000 in 2009.
(b) Audit-Related Fees – The aggregate fees billed in the Reporting Periods for review of N-1A updates by the principal accountant that were reasonably related to the performance of the audit of the Registrant’s financial statements and are not reported under paragraph (a) of this Item 4 were $2,900 in 2010 and $2,900 in 2009.
(c) Tax Fees – The aggregate fees billed in the Reporting Periods for professional services rendered by the principal accountant to the Registrant for tax compliance, tax advice and tax planning were $9,500 in 2010 and $9,500 in 2009. These services consisted of review or preparation of U.S. federal, state, local and excise tax returns.
(d) All Other Fees – The aggregate fees billed in the Reporting Periods for products and services provided by the principal accountant to the Registrant, other than the services reported in paragraphs (a) through (c) of this Item, were $0 in 2010 and $0 in 2009.
(e) (1) The Registrant's Audit Committee meets with the principal accountants and management to review and pre-approve all audit services to be provided by the principal accountants. The Audit Committee shall pre-approve all auditing services and permissible non-audit services (e.g. tax services) to be provided to the Fund by the Auditor, including the fees, therefore the Fund has not adopted pre-approval policies and procedures as described in Rule 2-01(c)(7)(i)(B) of Regulation S-X.
(e) (2) 0% 2010
0% 2009
(f) Not applicable
(g) The aggregate non-audit fees billed by the principal accountant for services rendered to the Registrant for the Reporting Periods were $9,500 in 2010 and $9,500 in 2009. There were no fees billed in either of the Reporting Periods for non-audit services rendered by the principal accountant to the Registrant’s investment adviser or any Affiliate.
(h) Not Applicable
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Investments.
(a) Not applicable.
(b) Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11. Controls and Procedures.
(a) The registrant’s principal executive officer and principal financial officer have concluded, based on their evaluation of the registrant's disclosure controls and procedures as conducted within 90 days of the filing date of this report, that these disclosure controls and procedures are adequately designed and are operating effectively to ensure that information required to be disclosed by the registrant on Form N-CSR is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.
(b) There were no changes in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that have materially affected or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Exhibits.
(a)(1) The code of ethics that is the subject of the disclosure required by Item 2 is attached hereto.
(a)(2) Certifications pursuant to Rule 30a-2(a) are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) are furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) The Empire Builder Tax Free Bond Fund
By (Signature and Title) /s/ Jonathan Rosen
Jonathan Rosen, Treasurer
Date April 15, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title) /s/ Seth M. Glickenhaus
Seth M. Glickenhaus, President
Date April 15, 2010
By (Signature and Title) /s/ Jonathan Rosen
Jonathan Rosen, Treasurer
Date April 15, 2010