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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
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)
BISYS Fund Services 3435 Stelzer Road, Columbus, OH 43219
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 614-470-8000
Date of fiscal year end: February 29, 2004
Date of reporting period: February 29, 2004
Form N-CSR is to be used by management investment companies to file
reports with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its regulatory,
disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form
N-CSR, and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
Item 1. Reports to Stockholders.
- -------------------------------- EMPIRE BUILDER --------------------------------
--------------
3435 Stelzer Road
Columbus, Ohio 43219
1-800-847-5886
Dear Shareholder,
We are pleased to present The Empire Builder Tax Free Bond Fund Annual
Report for the year ended February 29, 2004.
During the past year, the Federal Reserve Board has kept the Discount Rate
at an historical low of 1%. In this low interest rate environment, we are
pleased to report that the portfolio has had a good year. For the year ended
February 29, 2004 the Builder Class was up 4.16%, and the Premier Class was up
4.40%.
As we mentioned in the Semi-Annual Report, we have shortened the average
maturity of the Fund because of the low Discount Rate. By shortening the
maturity of the Fund, we reduce the maturity and interest rate risk for the
portfolio. We have continued with this idea and shortened the Fund further still
from 5.84 years on August 31, 2003 to 4.06 years as of February 29, 2004. We
believe that the Federal Reserve Board will have to raise the Discount Rate in
the near future. By having a lower average life on the Fund, we should be able
to protect the principal of the Fund.
In our opinion, The Empire Builder Tax Free Bond Fund is well positioned
for the next year. The no-load structure continues to offer value to the
shareholder because there is no charge to purchase shares. We also recommend our
automatic investment program (also known as dollar cost averaging*) that allows
you to 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.
Sincerely,
/s/ Seth M. Glickenhaus
- -----------------------
Seth M. Glickenhaus
President
*Dollar cost averaging does not insure a profit and does not protect against
loss in declining markets. An investor should consider his or her financial
ability to continue making additional investments through periods of low share
price levels.
This report must be preceded or accompanied by a prospectus. For more complete
information, including charges and expenses, please call 1-800-847-5886 to
receive a prospectus. Read the prospectus carefully before investing or sending
money.
The Fund's income may be subject to certain state and local taxes and, depending
on your tax status, the federal alternative minimum tax (AMT).
Past performance does not guarantee future results.
Not FDIC insured. May lose value. No bank guarantee.
- -------------------------------- EMPIRE BUILDER --------------------------------
--------------
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 29, 2004 began at approximately
3.70% and ended at 3.99%. These figures suggest a very stable year. This is not
the case, however, as we had yet another very volatile market this year. The
10-year traded in a range of approximately 3.17% to 4.46%. Throughout the year,
we saw dramatic shifts in the interest rate of the 10-year bond.
We try to enhance the value of the Fund whenever possible. We continue to
manage the Fund conservatively taking advantage of opportunities that arise in
the marketplace due to interest rate movements and quality enhancements.
The following graphs illustrate the total return based on a $10,000
investment in Builder Class shares of the Fund made February 28, 1994, and a
$20,000* investment in Premier Class shares of the Fund made at the commencement
date of April 15, 1996, held in each through February 29, 2004, as well as the
performance of the Lehman Municipal Bond Index over the same period.
The Lehman Municipal Bond Index includes 25,000 long-term, investment
grade, municipal bonds. In the opinion of the Fund's advisor, this index most
accurately represents the performance of the broad municipal bond market.
However, there are substantial differences between the index and the Fund.
First, the index covers municipal bonds nationwide, whereas the Fund invests
only in New York tax exempt bonds. Second, the index does not reflect the cost
and expenses of actually obtaining the underlying bonds. Third, the index had a
higher level of volatility than the Fund during the ten years ended December 31,
2003, as measured by Beta. Finally, the index represents an unmanaged portfolio
whereas the Fund is professionally managed.
The graphs assume all dividends and distributions are reinvested at net
asset value. Past performance does not guarantee future results. Return
calculations assume the reinvestment of distributions and do not reflect taxes a
shareholder would pay on fund distributions or on the redemption of fund shares.
The performance data quoted represents past performance and current 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 Fund's Builder Class shares' average annual total return for the
periods indicated was as follows:
4.16% for the one-year period beginning March 1, 2003 and ended
February 29, 2004.
4.90% for the five-year period beginning March 1, 1999 and ended
February 29, 2004.
5.13% for the ten-year period beginning March 1, 1994 and ended
February 29, 2004.
* The minimum initial investment into the Premier Class is $20,000.
[The following table represents a line graph in the printed material]
Lehman Municipal
Bond Index* Empire Builder
------------------ --------------
2/28/1994 $10,000 $10,000
2/28/1995 10,189 10,109
2/29/1996 11,315 11,014
2/28/1997 11,939 11,487
2/28/1998 13,031 12,382
2/28/1999 13,832 12,982
2/29/2000 13,544 12,411
2/28/2001 15,216 14,044
2/28/2002 16,249 14,850
2/28/2003 17,496 15,833
2/29/2004 $18,598 $16,491
* An unmanaged portfolio.
The Fund's Premier Class shares' average annual total return for the
periods indicated was as follows:
4.40% for the one-year period beginning March 1, 2003 and ended
February 29, 2004.
5.19% for the five-year period beginning March 1, 1999 and ended
February 29, 2004.
7.80% for the period beginning April 15, 1996 (commencement of
operations) and ended February 29, 2004.
[The following table represents a line graph in the printed material]
Lehman Municipal
Bond Index* Empire Builder Premier
------------------ ----------------------
4/15/1996 $20,000 $20,000
2/28/1997 21,438 21,280
2/28/1998 23,399 22,992
2/28/1999 24,837 24,178
2/29/2000 24,319 23,182
2/28/2001 27,322 26,319
2/28/2002 29,177 27,902
2/28/2003 31,415 29,827
2/29/2004 $33,393 $31,140
* An unmanaged portfolio.
3
THE EMPIRE BUILDER TAX FREE BOND FUND
Portfolio of Investments -- February 29, 2004
Principal Fair Value
Credit Ratings** Municipal Securities (98.1%) Amount (Note 2)
- --------------------------------------------- ------ --------
New York City (14.9%)
Aa1/AA+ Municipal Assistance Corporation for the City of New York,
Series N, 5.00% 7/1/2004, Non Callable, (General Obligation
of the Corporation)......................................... $ 200,000 $ 202,628
Aa1/AA+ Municipal Assistance Corporation for the City of New York,
Series H, 5.50%, 7/1/2004, Non Callable, (General Obligation
of the Corporation).......................................... 400,000 405,908
Aa1/AA+ Municipal Assistance Corporation for the City of New York,
Series J, 6.00%, 7/1/2004, Non Callable, (General Obligation
of the Corporation).......................................... 2,555,000 2,596,902
Aa1/AA+ Municipal Assistance Corporation for the City of New York,
Series E, 6.00%, 7/1/2005, Non Callable...................... 1,085,000 1,154,266
A2/A New York City, General Obligation, Series G, 5.00%,
8/1/2004, Non Callable....................................... 500,000 507,950
Aaa/AAA New York City, General Obligation, Series B, 5.25%, 8/1/2017,
Callable 8/1/2007 @ 101, (AMBAC)............................. 750,000 823,913
NR/AAA New York City, General Obligation, Series B, 5.125%, 8/1/2019,
Callable 8/1/2010 @ 101, (FGIC).............................. 2,000,000 2,169,920
Aaa/AAA New York City, General Obligation, Series B, 5.375%, 8/1/2022,
Callable 8/1/2007 @ 101, (MBIA).............................. 1,250,000 1,338,725
Aaa/AAA New York City, Health & Hospitals Corporation, Health System
Revenue, Series A, 5.50%, 2/15/2018, Callable 2/15/2012
@ 100, (FSA)................................................. 1,000,000 1,131,060
Aaa/AAA New York City Municipal Water Finance Authority, Water & Sewer
System Revenue, 5.125%, 6/15/2004, (MBIA).................... 480,000 485,650
Aa2/AA New York City Municipal Water Finance Authority, Water & Sewer
System Revenue, Series B, 5.00%, 6/15/2018, Callable
6/15/2014 @ 100.............................................. 2,500,000 2,746,550
Aaa/AAA New York City Municipal Water Finance Authority, Water & Sewer
System Revenue, Series A, 6.125%, 6/15/2020, Callable
6/15/2005 @ 101.............................................. 1,000,000 1,075,980
Aa2/AA+ New York City Transitional Finance Authority, Future Tax Revenue,
Series B, 2.50%, 8/1/2004, Non Callable....................... 2,415,000 2,429,611
Aa2/AA+ New York City Transitional Finance Authority, Future Tax Revenue,
Series B, 5.25%, 11/15/2004, Non Callable.................... 300,000 308,781
------------
Total New York City.............................................. 17,377,844
------------
The accompanying notes are an integral part of the financial statements.
4
THE EMPIRE BUILDER TAX FREE BOND FUND
Portfolio of Investments -- February 29, 2004 -- continued
Principal Fair Value
Credit Ratings** Municipal Securities -- continuted Amount (Note 2)
- --------------------------------------------------- ------ --------
New York State Agencies (55.3%)
Long Island Power Authority (2.2%)
Aaa/AAA Long Island Power Authority, New York Electric Systems,
Series A, 6.00%, 12/1/2007, Non Callable, (AMBAC)............ $1,000,000 $ 1,150,220
Aaa/AAA Long Island Power Authority, New York Electric Systems,
Series A, 5.50%, 12/1/2012, Non Callable, (FSA).............. 1,210,000 1,452,436
------------
Total Long Island Power Authority............................... 2,602,656
------------
New York State Dormitory Authority (34.2%)
A3/AA- Albany County Airport, 5.25%, 4/1/2013, Callable 4/1/2008 @ 101 1,200,000 1,312,536
Aaa/AAA Augustana Lutheran Home for the Aged, Series A, 5.50%, 8/1/2020,
Callable 8/1/2010 @ 101, (MBIA)(FHA)......................... 920,000 1,032,185
Aaa/AAA Augustana Lutheran Home for the Aged, Series A, 5.50%, 8/1/2030,
Callable 8/1/2010 @ 101, (MBIA)(FHA)......................... 750,000 827,355
A3/AA- City University, Series 3, 6.00%, 7/1/2004, Non Callable........ 1,000,000 1,016,640
A3/AA- City University, Series 3, 6.00%, 7/1/2004, Non Callable........ 380,000 386,145
Aaa/AAA Columbia University, Series B, 5.375%, 7/1/2018, Callable
7/1/2012 @ 100............................................... 500,000 564,880
Aaa/AAA Columbia University, Series B, 5.375%, 7/1/2019, Callable
7/1/2012 @ 100.............................................. 1,000,000 1,122,100
Aaa/AAA Columbia University, Series B, 5.375%, 7/1/2020, Callable
7/1/2012 @ 100............................................... 1,000,000 1,115,260
Aaa/NR Culinary Institute of America, 2.00%, 7/1/2004, Non Callable,
(XLCA)....................................................... 305,000 306,034
NR/AAA Heritage House Nursing Center, 7.00%, 8/1/2031, Callable
8/1/2004 @100, (FHA)......................................... 435,000 436,405
Aaa/AAA Lutheran Medical Center, 5.00%, 8/1/2016, Callable 2/1/2013
@ 100, (MBIA)(FHA)........................................... 985,000 1,088,504
NR/AA- Mental Health, Series F-1, 2.00%, 2/15/2005, Non Callable....... 2,520,000 2,541,370
Aaa/AAA New York Medical College, 5.25%, 7/1/2013, Callable 7/1/2008
@ 101, (MBIA)................................................ 1,015,000 1,137,013
NR/AA- New York State Department of Health, 5.25%, 7/1/2014,
Non Callable................................................. 1,000,000 1,122,860
Aaa/AAA New York State Rehabilitation Association, Series A, 3.00%,
7/1/2004, Non Callable, (CIFG)............................... 600,000 603,990
Aaa/AAA New York University, Series 2, 5.50%, 7/1/2018, Callable
7/1/2011 @ 100, (AMBAC)...................................... 500,000 568,615
NR/AAA Park Ridge Housing, Inc., 6.375%, 8/1/2020, Callable
8/1/2010 @ 101, (FNMA)..................................... 1,000,000 1,155,580
NR/AAA Park Ridge Housing, Inc., 6.50%, 8/1/2025, Callable
8/1/2010 @ 101, (FNMA)....................................... 1,470,000 1,699,996
The accompanying notes are an integral part of the financial statements.
5
THE EMPIRE BUILDER TAX FREE BOND FUND
Portfolio of Investments -- February 29, 2004 -- continued
Principal Fair Value
Credit Ratings** Municipal Securities -- continuted Amount (Note 2)
- --------------------------------------------------- ------ --------
New York State Agencies -- continued
New York State Dormitory Authority -- continued
Aaa/NR Rochester Institute of Technology, Series A, 5.25%, 7/1/2016,
Callable 7/1/2012 @ 100, (AMBAC)............................. $2,045,000 $ 2,292,077
Aaa/NR Rochester Institute of Technology, Series A, 5.25%, 7/1/2017,
Callable 7/1/2012 @ 100, (AMBAC)............................. 2,155,000 2,395,670
Aaa/AAA School Districts Financing, Series C, 5.25%, 4/1/2021, Callable
10/1/2012 @ 100, (MBIA)...................................... 1,300,000 1,427,855
Aaa/AAA Special Acts School Districts Program, 6.00%, 7/1/2019, Callable
7/1/2005 @ 102, (MBIA)....................................... 3,540,000 3,825,360
NR/AAA State Service Contract, 5.25%, 4/1/2017, Callable 4/1/2008
@ 101, (MBIA)................................................ 1,000,000 1,087,350
A3/AA- State University, Educational Facilities, 5.40%, 5/15/2005,
Non Callable................................................. 2,000,000 2,097,040
NR/NR State University, 5.375%, 7/1/2021, Callable 7/1/2008
@ 102, (MBIA)................................................ 865,000 932,118
NR/NR State University, 5.375%, 7/1/2021, Callable 7/1/2008
@ 102, (MBIA)................................................ 325,000 350,202
NR/AA- Upstate Community Colleges, 5.125%, 7/1/2018, Callable 7/1/2014
@ 100........................................................ 1,000,000 1,091,020
NR/AA- Upstate Community Colleges, 5.125%, 7/1/2019, Callable 7/1/2014
@ 100........................................................ 1,000,000 1,084,030
Aaa/AAA Upstate Community Colleges, Series A, 6.00%, 7/1/2019, Callable
7/1/2010 @ 101, (FSA)......................................... 1,000,000 1,188,240
Aaa/AAA Upstate Community Colleges, Series A, 6.00%, 7/1/2020, Callable
7/1/2010 @ 101, (FSA)........................................ 845,000 1,001,908
NR/AAA Westchester County, Court Facilities, 5.25%, 8/1/2018, Callable
2/1/2009 @ 101, (MBIA)....................................... 2,800,000 3,057,460
------------
Total New York State Dormitory Authority........................ 39,867,798
------------
New York State Energy, Research & Development Authority (0.9%)
Aaa/AAA Western New York Nuclear Service Center, Series PJ, 5.40%,
4/1/2005, (CAPMAC)........................................... 1,020,000 1,067,195
------------
New York State Environmental Facilities Corporation (2.8%)
Aaa/AAA State Water Pollution Control Revenue, Series C, Revolving Fund,
Pooled Loan, 4.50%, 6/15/2004, Non Callable.................. 170,000 171,702
Aaa/AAA State Water Pollution Control Revenue, Revolving Fund,
Pooled Loan, 6.60%, 6/15/2009, Callable 6/15/2004 @ 101.5
(POL CTL - SRF).............................................. 1,200,000 1,237,235
Aaa/AAA State Water Pollution Control Revenue, Series B, Revolving Fund,
Pooled Loan, 5.80%, 5/15/2011, Callable 5/15/2004 @ 102,
(POL CTL - SRF).............................................. 185,000 190,517
The accompanying notes are an integral part of the financial statements.
6
THE EMPIRE BUILDER TAX FREE BOND FUND
Portfolio of Investments -- February 29, 2004 -- continued
Principal Fair Value
Credit Ratings** Municipal Securities -- continuted Amount (Note 2)
- --------------------------------------------------- ------ --------
New York State Agencies -- continued
New York State Environmental Facilities Corporation -- continued
Aaa/AAA State Water Pollution Control Revenue, Revolving Fund, Pooled
Loan, 5.90%, 1/15/2018, Callable 1/15/2006 @ 102,
(POL CTL - SRF).............................................. $ 725,000 $ 797,022
Aaa/AAA State Water Pollution Control Revenue, Revolving Fund,
Pooled Loan, 5.90%, 1/15/2018, Callable 1/15/2006 @ 102,
(POL CTL - SRF).............................................. 785,000 868,555
------------
Total New York State Environmental Facilities Corporation....... 3,265,031
------------
New York State Housing Finance Agency (2.0%)
Aa1/NR Multi-Family Housing, Secured Mortgage Program, 6.45%, 8/15/2014,
Callable 2/15/2005 @ 101, (SONYMA)........................... 2,245,000 2,314,415
New York State Local Government Assistance Corporation (2.2%)
A1/AA New York State Local Government Assistance Corporation,
Series A-1, 2.00%, 4/1/2004, Non Callable, (General
Obligation of the Corporation)............................... 1,500,000 1,501,124
Aaa/AAA New York State Local Government Assistance Corporation,
Series A, 5.375%, 4/1/2014, Callable 4/1/2004 @ 101.50,
(MBIA) (General Obligation of the Corporation)............... 1,000,000 1,018,490
------------
Total New York State Local Government Assistance Corporation.... 2,519,614
------------
New York State Medical Care Facilities Finance Agency (0.9%)
Aaa/AAA Hospital & Nursing Home, St. Vincent's Hospital Project, 6.20%,
2/15/2021, Callable 2/15/2005 @ 101, (AMBAC)(FHA)............ 1,060,000 1,086,023
New York State Metropolitan Transportation Authority (0.7%)
A2/A Metropolitan Transportation Authority Revenue, Series A, 3.00%,
11/15/2004, Non Callable..................................... 250,000 253,248
Aa3/AA- Triborough Bridge & Tunnel Authority Revenue, Series B, 2.00%,
11/15/2004, Non Callable, (General Obligation of the
Corporation)................................................. 525,000 528,685
------------
Total New York State Metropolitan Transportation Authority...... 781,933
------------
New York State Thruway Authority (6.6%)
Aaa/AAA Highway & Bridge Trust Fund Bonds, Series B, 4.00%, 4/1/2004,
Non Callable, (FGIC)......................................... 250,000 250,630
Aaa/AAA Highway & Bridge Trust Fund Bonds, Series A, 6.25%, 4/1/2004,
Non Callable, (AMBAC)........................................ 1,390,000 1,396,089
Aaa/AAA Highway & Bridge Trust Fund Bonds, Series A, 5.50%, 4/1/2014
Callable 4/1/2011 @ 101, (FGIC).............................. 1,500,000 1,729,934
Aaa/AAA Highway & Bridge Trust Fund Bonds, Series B, 5.25%, 4/1/2017,
Callable 10/1/2011 @ 100, (MBIA)............................. 2,500,000 2,766,149
NR/NR Service Contract Revenue, 5.30%, 4/1/2004, Non Callable, (AMBAC) 35,000 35,129
NR/NR Service Contract Revenue, 5.30%, 4/1/2004, Non Callable, (AMBAC) 465,000 466,608
The accompanying notes are an integral part of the financial statements.
7
THE EMPIRE BUILDER TAX FREE BOND FUND
Portfolio of Investments -- February 29, 2004 -- continued
Principal Fair Value
Credit Ratings** Municipal Securities -- continuted Amount (Note 2)
- --------------------------------------------------- ------ --------
New York State Agencies -- continued
New York State Thruway Authority -- continued
A1/AA State Personal Income Tax Revenue, Series A, 4.00%,
3/15/2004, Non Callable...................................... $1,000,000 $ 1,001,177
------------
Total New York State Thruway Authority.......................... 7,645,716
------------
New York State Urban Development Corporation (2.8%)
A3/AA- Correctional & Youth Facilities Services, Series A, 5.00%,
1/1/2005, Non Callable....................................... 2,000,000 2,063,720
A3/AA- Empire State Development Corporation, University Facilities
Grants, 6.00%, 1/1/2009, Non Callable........................ 905,000 1,048,624
A1/AA Personal Income Tax, Series C-1, 3.00%,
3/15/2004, Non Callable...................................... 200,000 200,149
------------
Total New York State Urban Development Corporation.............. 3,312,493
------------
Total New York State Agencies................................... 64,462,874
------------
Other New York State Bonds (25.6%)
Aaa/NR Akron Central School District, General Obligation, 4.25%,
6/15/2004, Non Callable, (FSA)............................... 225,000 227,093
Aaa/AAA Albany County, Airport Authority, Series A, 4.00%, 12/15/2004,
Non Callable, (FSA).......................................... 460,000 470,810
A3/NR Albany Housing Authority, Limited Obligation, 6.25%, 10/1/2012,
Callable 10/1/2005 @ 102..................................... 1,000,000 1,075,080
NR/AAA Auburn City School District, General Obligation, Series B, 2.00%,
6/15/2004, Non Callable, (FGIC).............................. 200,000 200,592
Aaa/NR Averill Park Central School District, General Obligation, 5.25%,
5/1/2004, Non Callable, (FGIC)............................... 500,000 503,525
Aaa/AAA Buffalo Municipal Water Finance Authority, Water System Revenue,
5.75%, 7/1/2019, Callable 7/1/2005 @ 102, (FGIC)............. 500,000 538,665
Aaa/NR Corning, City School District, General Obligation, 5.00%,
6/15/2012, Non Callable, (FSA)............................... 1,000,000 1,142,530
Aaa/NR Corning, City School District, General Obligation, 5.00%,
6/15/2013, Callable 6/15/2012 @ 100, (FSA)................... 970,000 1,093,112
Aaa/NR Corning, City School District, General Obligation, 5.00%,
6/15/2014, Callable 6/15/2012 @ 100, (FSA)................... 600,000 673,374
Aaa/AAA Evans, General Obligation, 6.80%, 4/15/2012, Non Callable,
(AMBAC)...................................................... 225,000 284,510
Aaa/AAA Evans, General Obligation, 6.80%, 4/15/2013, Non Callable,
(AMBAC)...................................................... 225,000 285,741
Aaa/NR Fayetteville Manlius, Central School District, General
Obligation, 5.00%, 6/15/2016, Callable 6/15/2012 @ 101,
(FGIC)....................................................... 375,000 417,653
Aaa/NR Harborfields, Central School District, Greenlawn, General
Obligation, 4.00%, 6/1/2004, Non Callable, (FSA)............. 850,000 856,299
The accompanying notes are an integral part of the financial statements.
8
THE EMPIRE BUILDER TAX FREE BOND FUND
Portfolio of Investments -- February 29, 2004 -- continued
Principal Fair Value
Credit Ratings** Municipal Securities -- continuted Amount (Note 2)
- --------------------------------------------------- ------ --------
Other New York State Bonds -- continued
Aaa/NR Honeoye Falls Lima, Central School District, General Obligation,
Series B, 2.00%, 6/15/2004, Non Callable, (FSA).............. $ 250,000 $ 250,740
Aaa/NR Ilion, Central School District, General Obligation, Series B,
5.50%, 6/15/2015, Callable 6/15/2012 @ 101, (FGIC)........... 550,000 643,418
Aaa/NR Ilion, Central School District, General Obligation, Series B,
5.50%, 6/15/2016, Callable 6/15/2012 @ 101, (FGIC)........... 500,000 582,550
Aaa/NR Islip Union Free School District 002, General Obligation, 2.50%,
7/15/2004, Non Callable, (MBIA).............................. 460,000 462,585
NR/AAA Lansing, Central School District, 1.75%, 6/15/2004,
Non Callable, (FSA).......................................... 1,005,000 1,007,201
NR/AAA Lillian Cooper Housing Development Corporation Mortgage Revenue,
Series A, 7.00%, 1/1/2022, Callable 7/1/2004 @ 100,
(FNMA)(FHA).................................................. 1,085,000 1,088,960
Aaa/AAA Mount Sinai Union Free School District, General Obligation,
6.20%, 2/15/2012, Non Callable, (AMBAC)...................... 1,065,000 1,301,068
Aaa/NR Nassau County, General Obligation, Series D, 5.25%,
9/1/2004, Non Callable, (FSA)................................ 420,000 428,845
A2/AA New York State, General Obligation, Series D, 5.125%,
7/15/2004, Non Callable ..................................... 1,270,000 1,288,580
Aaa/AAA Niagara Falls Pubic Water Authority, Water & Sewer System
Revenue, Series A, 5.50%, 7/15/2028, Callable 7/15/2006 @ 100,
(MBIA)....................................................... 1,000,000 1,065,880
Aaa/NR North Hempstead, General Obligation, 3.00%,
7/15/2004, Non Callable, (MBIA).............................. 635,000 639,724
Aaa/AAA North Hempstead, General Obligation, Series B, 6.375%,
4/1/2009, Non Callable, (FGIC)............................... 570,000 679,497
Aaa/AAA North Hempstead, General Obligation, Series B, 6.40%,
4/1/2010, Non Callable, (FGIC)............................... 560,000 677,158
Aaa/AAA Olean, City School District, General Obligation, 2.20%,
6/15/2004, Non Callable, (FGIC).............................. 225,000 225,792
NR/AAA Oneida County Industrial Development Agency, Mohawk Valley
Network, St. Luke's Memorial Hospital, 5.00%, 1/1/2013,
Callable 1/1/2008 @ 101, (FSA)............................... 2,000,000 2,156,119
Aa1/NR Orange County, General Obligation, Series A, 2.50%, 11/1/2004,
Non Callable ................................................ 1,530,000 1,545,178
Aaa/NR Oyster Bay, General Obligation, 5.00%, 3/15/2011, Non Callable,
(FSA)........................................................ 430,000 491,778
Aaa/NR Red Hook, Central School District, General Obligation, 2.50%,
6/15/2004, Non Callable, (FSA)............................... 560,000 562,447
Aaa/NR Southern Cayuga, Central School District, General Obligation,
5.00%, 5/15/2014, Callable 5/15/2012 @ 100, (FSA)............ 400,000 448,484
The accompanying notes are an integral part of the financial statements.
9
THE EMPIRE BUILDER TAX FREE BOND FUND
Portfolio of Investments -- February 29, 2004 -- continued
Principal Fair Value
Credit Ratings** Municipal Securities -- continuted Amount (Note 2)
- --------------------------------------------------- ------ --------
Other New York State Bonds -- continued
Aaa/AAA Suffolk County, General Obligation, Series C, 5.00%, 9/15/2015,
Callable 9/15/2008 @ 101, (FGIC)............................. $ 965,000 $ 1,052,516
Aaa/AAA Suffolk County, General Obligation, Series C, 5.00%, 9/15/2016,
Callable 9/15/2008 @ 101, (FGIC)............................. 550,000 594,770
Aaa/AAA Suffolk County, General Obligation, Series C, 5.00%, 9/15/2017,
Callable 9/15/2008 @ 101, (FGIC)............................. 480,000 517,176
Aaa/AAA Suffolk County, General Obligation, Series D, 5.00%, 11/1/2015,
Callable 11/1/2008 @ 101, (FGIC)............................. 1,125,000 1,229,366
Aaa/AAA Suffolk County, General Obligation, Series D, 5.00%, 11/1/2016,
Callable 11/1/2008 @ 101, (FGIC)............................. 1,110,000 1,202,396
Aaa/AAA Warren & Washington Counties Industrial Development Agency,
Civic Facilities Revenue, Glens Falls Hospital Project,
Series B, 2.50%, 12/1/2004, Non Callable, (FSA).............. 1,845,000 1,865,738
------------
Total Other New York State Bonds................................ 29,776,950
------------
Other Municipal Bonds (2.3%)
Guam (0.2%)
Aaa/AAA Guam International Airport Authority Revenue, Series B, 5.25%,
10/1/2022, Callable 10/1/2013 @ 100, (MBIA).................. 250,000 273,405
Puerto Rico (2.1%)
Aaa/AAA Puerto Rico Commonwealth, General Obligation, 5.30%, 7/1/2004,
Non Callable, (MBIA)......................................... 400,000 405,716
Aaa/AAA Puerto Rico Electric Power Authority Revenue, Series W, 5.00%,
7/1/2004, Non Callable....................................... 2,015,000 2,041,820
------------
Total Puerto Rico............................................... 2,447,536
------------
Total Other Municipal Bonds..................................... 2,720,941
------------
Total Municipal Securities (Cost $108,482,227)-- 98.1%.......... 114,338,609
------------
Short Term Investments (0.0%)
Dreyfus New York Municipal Cash Management Fund................. 10,000 10,000
------------
Total Investments (Cost $108,492,227) (a) -- 98.1%............... $114,348,609
Other assets in excess of liabilities -- 1.9%.................... 2,203,737
------------
NET ASSETS-- 100.0%............................................. $116,552,346
============
- ----------
Percentages indicated are based on net assets of $116,552,346.
(a) Represents cost for financial reporting purposes and differs from cost
basis for federal income tax purposes by the amount of losses recognized
for financial reporting in excess of federal income tax reporting of
$40,660. Cost for federal income tax differs from fair value by net
unrealized apreciatioon/depreciation of securities as follows:
Unrealized appreciation $5,898,995
Unrealized depreciation (1,953)
----------
Net unrealized appreciation $5,897,042
==========
** Credit Ratings given by Moody's Investors Service Inc. and Standard &
Poor's Corporation (unaudited)
The accompanying notes are an integral part of the financial statements.
10
THE EMPIRE BUILDER TAX FREE BOND FUND
Portfolio of Investments -- February 29, 2004 -- continued
Credit Ratings given by Moody's Investors Service Inc. and Standard &
Poor's Corporation (unaudited).
Moody's Standard & Poor's
Aaa AAA Instrument judged to be of the highest quality and
carrying the smallest amount of investment risk.
Aa AA Instrument judged to be of high quality by all
standards.
A A Instrument judged to be adequate quality by all
standards.
Baa BBB Instrument judged to be moderate quality by all
standards.
NR NR Not Rated. In the opinion of the Investment
Adviser, instrument judged to be of comparable
investment quality to rated securities which may
be purchased by the Fund.
For items possessing the strongest investment attributes of their category,
Moody's gives that letter rating followed by a number. The Standard & Poor's
ratings may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
Abbreviations used in this statement:
AMBAC Insured as to principal and interest by the American Municipal
Bond Assurance Corporation.
CAPMAC Insured as to principal and interest by Capital Markets Assurance
Corp.
CIFG Insured as to principal and interest by CDC IXIS Financial
Guarantee.
FGIC Insured as to principal and interest by the Financial Guarantee
Insurance Corporation.
FHA Insured as to principal and interest by the Federal Housing
Administration.
FNMA Insured as to principal and interest by the Federal National
Mortgage Association.
FSA Insured as to principal and interest by Financial Security
Assurance.
MBIA Insured as to principal and interest by the Municipal Bond
Insurance Association.
POL CTL-SRF Insured as to principal and interest by the Pollution Control
State Revenue Fund.
SONYMA Insured as to principal and interest by the State of New York
Mortgage Association.
XLCA Insured as to principal and interest by XL Capital Assurance, Inc.
The accompanying notes are an integral part of the financial statements.
11
THE EMPIRE BUILDER TAX FREE BOND FUND
Statement of Assets and Liabilities
February 29, 2004
Assets:
Investments in securities, at fair value (cost $108,492,227) (Note 2)..................... $114,348,609
Interest and dividend receivable.......................................................... 1,077,234
Receivable for investments sold........................................................... 6,328,891
Prepaid expenses and other assets......................................................... 63,340
------------
Total Assets ........................................................................... 121,818,074
Liabilities:
Payable to custodian for cash overdraft................................... $ 198,602
Dividends payable......................................................... 23,727
Payable for investments purchased........................................ 4,911,900
Advisory fee payable (Note 4)............................................ 35,851
Administrative services fee payable (Note 4)............................. 1,588
Other accrued expenses................................................... 94,060
-----------
Total Liabilities ...................................................................... 5,265,728
------------
Net Assets................................................................................... $116,552,346
============
Net Assets:
Net assets consist of:
Capital................................................................................... $110,164,281
Undistributed net investment income....................................................... 42,925
Net realized gains from investments....................................................... 488,758
Net unrealized appreciation from investments.............................................. 5,856,382
------------
Net Assets................................................................................... $116,552,346
============
Builder Class:
Net Assets................................................................ $55,504,464
Shares of beneficial interest outstanding................................. 3,062,404
-----------
Builder Class - Net Asset Value (offering and redemption
price per share)........................................................ $ 18.12
===========
Premier Class:
Net Assets................................................................ $61,047,882
Shares of beneficial interest outstanding................................. 3,367,515
-----------
Premier Class - Net Asset Value (offering and redemption
price per share)........................................................ $ 18.13
===========
The accompanying notes are an integral part of the financial statements.
12
THE EMPIRE BUILDER TAX FREE BOND FUND
Statement of Operations
For the Year Ended February 29, 2004
Investment Income:
Interest.................................................................................. $4,542,071
Dividend.................................................................................. 16,263
----------
Total Investment Income................................................................... 4,558,334
Expenses:
Advisory fees (Note 4)................................................... $ 456,898
Administrative fees (Note 4).............................................. 200,000
Transfer agency fees (Builder Class) (Note 4)............................. 145,768
Transfer agency fees (Premier Class) (Note 4)............................. 49,005
Custody fees.............................................................. 36,332
Fund accounting fees (Note 4)............................................. 60,453
Trustees' fees ........................................................... 22,114
Other fees................................................................ 148,933
---------
Total Expenses.......................................................... 1,119,503
Less: Custody fee credit............................................... (9,432)
---------
Total Net Expenses........................................................................ 1,110,071
----------
Net Investment Income........................................................................ 3,448,263
----------
Realized/Unrealized Gains on Investments (Notes 2 and 3)
Net realized gains from investment transactions........................... 1,113,657
Change in unrealized appreciation/depreciation from
investment transactions................................................. 339,136
---------
Net realized/unrealized gains from investment transactions.............................. 1,452,793
----------
Change in net assets resulting from operations............................................... $4,901,056
==========
The accompanying notes are an integral part of the financial statements.
13
THE EMPIRE BUILDER TAX FREE BOND FUND
Statements of Changes in Net Assets
Year Ended Year Ended
February 29, 2004 February 28, 2003
----------------- -----------------
From Investment Activities:
Operations:
Net investment income ......................................... $ 3,448,263 $ 4,124,066
Net realized gains from investment transactions ............... 1,113,657 2,419,769
Change in unrealized appreciation/depreciation from
investment transactions .................................... 339,136 1,026,786
------------- -------------
Change in net assets resulting from operations ................ 4,901,056 7,570,621
------------- -------------
Distributions to shareholders from:
Net investment income -- Builder Class ........................ (1,593,260) (1,891,261)
Net investment income -- Premier Class ........................ (1,842,382) (2,218,177)
Net realized gains from investment transactions -- Builder Class (559,031) (797,828)
Net realized gains from investment transactions -- Premier Class (610,097) (851,523)
------------- -------------
Total distributions ........................................ (4,604,770) (5,758,789)
------------- -------------
Capital Transactions:
Proceeds from shares issued -- Builder Class .................. 2,865,115 3,393,769
Proceeds from shares issued -- Premier Class .................. 1,833,457 1,743,930
Dividends reinvested -- Builder Class ......................... 1,929,811 2,408,830
Dividends reinvested -- Premier Class ......................... 2,146,150 2,672,965
Cost of shares redeemed -- Builder Class ...................... (6,113,946) (4,230,739)
Cost of shares redeemed -- Premier Class ...................... (4,107,168) (4,260,674)
------------- -------------
Change in net assets from capital share transactions .......... (1,446,581) 1,728,081
------------- -------------
Change in net assets ....................................... (1,150,295) 3,539,913
Net Assets:
Beginning of period ........................................... 117,702,641 114,162,728
------------- -------------
End of period ................................................. $ 116,552,346 $ 117,702,641
============= =============
Share Transactions:
Issued -- Builder Class ....................................... 158,501 188,963
Issued -- Premier Class ....................................... 101,203 97,318
Reinvested -- Builder Class ................................... 107,001 135,373
Reinvested -- Premier Class ................................... 118,931 150,184
Redeemed -- Builder Class ..................................... (338,191) (237,051)
Redeemed -- Premier Class ..................................... (227,524) (237,735)
------------- -------------
Change in shares .............................................. (80,079) 97,052
------------- -------------
Undistributed net investment income ........................... $ 42,925 $ 42,050
============= =============
The accompanying notes are an integral part of the financial statements.
14
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 29, 2004 February 28, 2003 February 28, 2002 February 28, 2001 February 29, 2000
----------------- ----------------- ----------------- ----------------- -----------------
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................. $ 18.08 $ 18.08 $ 17.80 $ 17.80 $ 17.69 $ 17.69 $ 16.32 $ 16.32 $ 17.88 $ 17.88
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Investment Activities:
Net investment income...... 0.51 0.55 0.61 0.66 0.72 0.77 0.73 0.79 0.78 0.84
Net realized/ unrealized
gains/(losses) on
investments.............. 0.22 0.23 0.54 0.54 0.27 0.27 1.37 1.37 (1.55) (1.56)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from Investment
Operations............... 0.73 0.78 1.15 1.20 0.99 1.04 2.10 2.16 (0.77) (0.72)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Distributions:
Net investment income...... (0.51) (0.55) (0.61) (0.66) (0.71) (0.76) (0.73) (0.79) (0.76) (0.81)
Net realized capital gains. (0.18) (0.18) (0.26) (0.26) (0.17) (0.17) -- -- (0.03) (0.03)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions........ (0.69) (0.73) (0.87) (0.92) (0.88) (0.93) (0.73) (0.79) (0.79) (0.84)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period.................... $ 18.12 $ 18.13 $ 18.08 $ 18.08 $ 17.80 $ 17.80 $ 17.69 $ 17.69 $ 16.32 $ 16.32
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total Return.................. 4.16% 4.40% 6.62% 6.90% 5.74% 6.01% 13.15% 13.53% (4.39)% (4.12)%
Ratios/Supplementary Data:
Net Assets, End of Period
(in thousands).......... $55,504 $61,048 $56,677 $61,025 $54,253 $59,910 $53,937 $60,418 $50,347 $55,636
Ratios of Net Investment
Income to Average
Net Assets............... 2.85% 3.03% 3.44% 3.71% 4.04% 4.30% 4.31% 4.65% 4.47% 4.75%
Ratios of Expenses to
Average Net Assets....... 1.04% 0.86% 1.16% 0.89% 1.14% 0.88% 1.20% 0.86% 1.08% 0.79%
Ratios of Expenses to
Average Net Assets*...... 1.05% 0.87% 1.16% 0.89% 1.14% 0.88% 1.22% 0.88% 1.12% 0.83%
Portfolio Turnover Rate (a) 202.77% 202.77% 213.97% 213.97% 98.29% 98.29% 121.96% 121.96% 90.84% 90.84%
- ----------
* The ratio does not include a reduction of expenses for custodian fee
credits of cash balances maintained with the custodian.
(a) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
The accompanying notes are an integral part of the financial statements.
15
THE EMPIRE BUILDER TAX FREE BOND FUND
Notes to Financial Statements
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, 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. Each class of shares outstanding bears the same dividend, liquidation and
other rights and conditions, except that the Builder Class shares and the
Premier Class shares bear separate transfer agency expenses. Each class of
shares has exclusive voting rights with respect to matters affecting only that
class.
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
enters into contracts with their vendors and others that provide for general
indemnifications. 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.
Use of Estimates
Estimates and assumptions are required to be made regarding assets,
liabilities and changes in net assets resulting from operations when financial
statements are prepared. Changes in the economic environment, financial markets
and any other parameters used in determining these estimates could cause actual
results to differ from these amounts.
Security Valuation
Tax-exempt securities are valued at their fair value as determined by an
independent pricing service approved by the Fund's Board of Trustees. The
pricing service uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities and
various relationships between securities in determining fair value. The methods
used by the pricing service and the quality of valuations so established are
reviewed by Officers of the Fund and Glickenhaus & Co. (the "Adviser"), under
the general supervision of the Trustees of the Fund.
Securities for which quotations are not readily available are stated at
fair value using procedures approved by the Trustees of the Fund. Short-term
debt securities having remaining maturities of sixty (60) days or less are
stated at amortized cost, which approximates fair value. Investments in
investment companies are reported at their respective net asset values as
reported by those companies.
16
THE EMPIRE BUILDER TAX FREE BOND FUND
Notes to Financial Statements -- continued
Security Transactions and Investment Income
Security transactions are accounted for no later than one day after trade
date. However, for financial reporting purposes, security transactions are
accounted for on trade date. Interest income, which includes amortization of
premium and accretion of discounts, is accrued as earned. Realized gains and
losses from security transactions and unrealized appreciation and depreciation
of investments are determined on the basis of identified cost.
Taxes
The Fund qualifies and intends to continue to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code, and to
distribute substantially all of its tax-exempt and taxable income. Therefore, no
federal income tax provision is required.
In addition, by distributing during each calendar year substantially all
of its net investment income, capital gains and certain other amounts, if any,
the Fund will not be subject to a federal excise tax.
Futures Contracts
The Fund may purchase and sell financial futures contracts, options on
such futures contracts and options on securities indices to hedge against
changes in the fair value of New York tax-exempt bonds the Fund owns or expects
to purchase. The Fund may also purchase and sell futures and options on U.S.
Treasury securities in order to hedge against interest rate changes or other
general changes in market values.
Upon entering into a futures contract, the Fund is required to deposit
cash or pledge securities in an amount equal to a certain percentage of the
purchase price indicated in the futures contract (initial margin). Subsequent
payments, which are dependent on the daily fluctuations in the fair value of the
underlying security, are made or received by the Fund each day (daily variation
margin) and are recorded as unrealized gains or losses until the contracts are
closed. The use of futures transactions involves the risk of imperfect
correlation in movements in the price of futures contracts, interest rates and
the underlying hedge assets. No futures were held on February 29, 2004.
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 generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the composition of net assets based on their federal tax-basis treatment;
temporary differences do not require reclassification.
17
THE EMPIRE BUILDER TAX FREE BOND FUND
Notes to Financial Statements -- continued
Determination of Net Asset Value and Allocation of Expenses
In calculating net asset value per share of each class, investment income
and expenses, other than class-specific expenses, are allocated daily to each
class of shares based on the value of outstanding settled shares.
Other
The Fund maintains a cash balance with its custodian and receives a
reduction of its custody fees and expenses for the amounts of interest earned on
such uninvested cash balance. There was no effect on net investment income. The
Fund could have invested such cash amounts in an income-producing asset if 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 year ended February 29, 2004, amounted to $201,173,720
and $222,909,142, respectively.
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 computed daily and paid monthly, at the annual rates of
0.40% of the first $100,000,000 of average daily net assets and 0.3333% of any
excess over $100,000,000.
Glickenhaus has agreed to a reduction of advisory fees to the extent that
the Fund's expenses, including the advisory fees, exceed 1.50% of the Fund's
average annual net assets. For the year ended February 29, 2004, there was no
reduction of advisory fees pursuant to this agreement.
BISYS Fund Services Ohio, Inc. ("BISYS" or the "Administrator"), a
wholly-owned subsidiary of The BISYS Group, Inc., serves as the Fund's
Administrator, Transfer Agent, and Fund Accountant and assists the Fund in all
aspects of its administration and operation. BISYS is entitled to receive fees
as well as be reimbursed for certain expenses incurred for providing these
services. As compensation for administration and fund accounting services, BISYS
will receive .15% and .03%, respectively, of the average daily net assets of the
Fund (subject to certain minimum amounts). Fees received for transfer agency
services are class specific and are based on the number of accounts per class.
All fees are accrued daily and paid monthly.
Certain Officers and Trustees of the Trust 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 five Trustees who
served both on the Board and the Audit Committee were compensated $6,000
($30,000 in total) for meeting and retainer fees during the year ended February
29, 2004, and reimbursed for certain expenses.
18
THE EMPIRE BUILDER TAX FREE BOND FUND
Notes to Financial Statements -- continued
5. Federal Income Tax Information:
The tax characteristics of dividends paid to shareholders during the
fiscal year ended February 29, 2004, were as follows:
Distributions paid from
------------------------- Total
Ordinary Net Long-Term Total Taxable Tax Exempt Distributions
Income Capital Gains Distributions Distributions Paid
-------- ------------- ------------- ------------- -------------
Empire Builder Tax
Free Bond Fund........................... $450,149 $718,979 $1,169,128 $3,440,551 $4,609,679
The tax characteristics of dividends paid to shareholders during the
fiscal year ended February 28, 2003, were as follows:
Distributions paid from
------------------------ Total
Ordinary Net Long-Term Total Taxable Tax Exempt Tax Return Distributions
Income Capital Gains Distributions Distributions of Capital Paid
-------- ------------- ------------- ------------- ---------- -------------
Empire Builder Tax
Free Bond Fund.............. $808,613 $847,804 $1,656,417 $4,112,346 $ -- $5,768,763
Total Distributions paid differ from the Statements of Changes in Net
Assets because dividends are recognized when paid for tax purposes.
As of February 29, 2004 the components of accumulated earnings (deficit)
on a tax basis was as follows:
Undistributed Total
Undistributed Undistributed Long-Term Accumulated Unrealized Accumulated
Ordinary Tax-Exempt Capital Accumulated Distributions Capital and Appreciation/ Earnings/
Income Income Gains/Losses Earnings Payable Other Losses (Depreciation)* (Deficit)
------ ------ ------------ -------- ------- ------------ --------------- ---------
Empire Builder
Tax Free
Bond Fund...... $447,849 $66,652 $249 $514,750 $ (23,727) $ -- $5,897,042 $6,388,065
- ----------
* The difference between the book-basis unrealized appreciation
(depreciation) is attributable primarily to the difference between book
and tax amortization methods for premium and market discount.
19
Report of Independent Auditors
To the 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 29, 2004, 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 auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
February 29, 2004 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Columbus, Ohio
April 20, 2004
20
THE MANAGEMENT
Trustees and Officers (Unaudited)
Number of
Positions Portfolios
Held With Overseen for Directorships
Empire Builder Term of Empire Builder Held Outside
Name, Address, and Tax Free Office/Length Principal Occupation(s) Tax Free the Fund
Birthdate (month/year) Bond Fund of time served During the Past 5 Years Bond Fund Complex
- --------------------- ------------- ------------ ------------------------------- ------------ -----------
*SETH M. GLICKENHAUS....... Trustee, since 4/84 Senior Partner of Glickenhaus & Co. 1 None
Six East 43rd Street Chairman of
New York, NY 10017 the Board
03/14 and President
EDWARD A. FALKENBERG....... Trustee, since 6/89 Principal, ACME Real Estate (1998 to 1 None
23 Oak Lane present); retired, Vice President and
Scarsdale, NY 10583 Controller, Joseph E. Seagram & Sons,
09/40 Inc.; Controller Seagram Company Ltd.
EDWARD A. KUCZMARSKI....... Trustee, since 4/84 Certified Public Accountant, Partner, 1 NY Daily Tax
Hays & Company Hays & Company (1980 to present) Free Income Fund
477 Madison Ave., 10th Flr
New York, NY 10022
11/49
ELIZABETH B. NEWELL........ Trustee, since 4/84 Director, Park Ave. Christian Church 1 NY Daily Tax
130 East End Avenue Day School (2001 to present); Director, Free Income Fund
New York, NY 10028 The American School in Switzerland
07/40 (1991 to present)
JOHN P. STEINES............ Trustee, since 8/84 Professor of Law, New York University 1 NY Daily Tax
NYU School of Law, Rm 440 School of Law (1978 to present); Free Income Fund
40 Washington Square. So. Counsel, Deloitte & Touche LLP
New York, NY 10012 (2001 to present)
10/48
- ----------
* Mr. Glickenhaus is treated by the Fund as an "interested person" (as defined
in Section 2(a)(19) of the 1940 Act) of the Fund, Mr. Glickenhaus is an
"interested person" because he is a Senior Partner of Glickenhaus & Co., the
Adviser.
The Trustees receive fees and are reimbursed for expenses in connection with
each meeting of the Board of Trustees they attend. However, no officer or
employee of BISYS Fund Services Ohio, Inc. or Glickenhaus & Co. receives any
compensation from the Empire Builder Fund for acting as a Trustee.
MICHAEL J. LYNCH........... Senior Vice since 3/97 Director, Unit Trust Department
Six East 43rd Street President Glickenhaus & Co. (1997 to Present);
New York, NY 10017 formerly Divisional Vice President/Desk
07/62 Supervisor, Unit Investment Trust Paine
Webber
SCOTT M. ZOLTOWSKI......... Vice President since 6/02 Senior Counsel, BISYS Fund Services
100 Summer Street and Secretary since 6/03 (2001 to present ); Attorney Dechert LLP
Ste. 1500 (1999 to 2001); Counsel, ALPS, Inc.
Boston, MA 02110 (1998 to 1999)
01/69
TROY A. SHEETS............. Treasurer since 10/02 Vice President of Financial Services,
3435 Stelzer Road BISYS Fund Services (2002 to present);
Columbus, Ohio 43219 Senior Manager, KPMG LLP
05/71 (1993 to 2002)
MICK GRUNEWALD............. Vice President since 6/03 Director, Client Services, BISYS Fund
3435 Stelzer Road Services, Inc. (1993 to Present)
Columbus, Ohio 43219
04/70
21
EMPIRE BUILDER
3435 Stelzer Road
Columbus, Ohio 43219
1-800-847-5886
EMPIRE BUILDER
TAX FREE BOND FUND
Annual Report
February 29, 2004
Investment Adviser and Distributor
Glickenhaus & Co.
6 East 43rd Street
New York, New York 10017
Administrator
BISYS Fund Services Ohio, Inc.
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
Transfer and Shareholder Servicing Agent
BISYS Fund Services Inc.
3435 Stelzer Road
Columbus, Ohio 43219
Custodian
State Street Bank & Trust Co.
800 Pennsylvania Avenue
5th Floor
Kansas City, MO 64105-1307
Legal Counsel
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Independent Auditors
PricewaterhouseCoopers LLP
100 E. Broad Street
Columbus, Ohio 43215
Customer Service
3435 Stelzer Road
Columbus, Ohio 43219
1-800-847-5886
This report is submitted for the information of the shareholders of the Empire
Builder Tax Free Bond Fund. It is not authorized for distribution to prospective
investors in the Fund unless preceded or accompanied by an effective prospectus,
obtainable from an investment dealer, which includes information regarding the
Fund's objectives and policies, record, management, sales commission and other
data.
530358
Item 2. Code of Ethics.
Disclose whether, as of the end of the period covered by the report, 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,
regardless of whether these individuals are employed by the registrant or
a third party. If the registrant has not adopted such a code of ethics,
explain why it has not done so.
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 Exhibit 11 (a)(1).
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.
Item 3. Audit Committee Financial Expert.
(a) (1) Disclose that the registrant's board of directors has determined
that the registrant either:
(i) Has at least one audit committee financial expert serving on
its audit committee; or
(ii) Does not have an audit committee financial expert serving on
its audit committee.
(2) If the registrant provides the disclosure required by paragraph
(a)(1)(i) of this Item, it must disclose the name of the audit committee
financial expert and whether that person is "independent." In order to be
considered "independent" for purposes of this Item, a member of an audit
committee may not, other than in his or her capacity as a member of the
audit committee, the board of directors, or any other board committee:
(i) Accept directly or indirectly any consulting, advisory, or
other compensatory fee from the issuer; or
(ii) Be an "interested person" of the investment company as defined
in Section 2(a)(19) of the Act (15 U.S.C. 80a- 2(a)(19)).
(3) If the registrant provides the disclosure required by paragraph
(a)(1)(ii) of this Item, it must explain why it does not have an 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) Disclose, under the caption Audit Fees, the aggregate fees billed for
each of the last two fiscal years for professional services rendered by the
principal accountant for the audit of the registrant's annual financial
statements or services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for those fiscal
years.
2003 $26,500
2004 $26,500
(b) Disclose, under the caption Audit-Related Fees, the aggregate fees
billed in each of the last two fiscal years for assurance and related services
by the principal accountant that are reasonably related to the performance of
the audit of the registrant's financial statements and are not reported under
paragraph (a) of this Item. Registrants shall describe the nature of the
services comprising the fees disclosed under this category.
2003 $2,500
2004 $2,500
Fees for both 2003 & 2004 relate to the review of the annual N-1A update.
(c) Disclose, under the caption Tax Fees, the aggregate fees billed in
each of the last two fiscal years for professional services rendered by the
principal accountant for tax compliance, tax advice, and tax planning.
Registrants shall describe the nature of the services comprising the fees
disclosed under this category.
2003 $3,500
2004 $3,500
Fees for both 2003 & 2004 relate to the preparation of the Fund's tax
returns and review of its' excise tax calculations.
(d) Disclose, under the caption All Other Fees, the aggregate fees billed
in each of the last two fiscal years for products and services provided by the
principal accountant, other than the services reported in paragraphs (a) through
(c) of this Item. Registrants shall describe the nature of the services
comprising the fees disclosed under this category.
2003 $0
2004 $0
(e) (1) Disclose the audit committee's pre-approval policies and
procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
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 and has not adopted
pre-approval policies and procedures as described in Rule 2-01(c)(7)(i)(B) of
Reg. S-X.
(2) Disclose the percentage of services described in each of
paragraphs (b) through (d) of this Item that were approved by the audit
committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
2003 0%
2004 0%
(f) If greater than 50 percent, disclose the percentage of hours expended
on the principal accountant's engagement to audit the registrant's financial
statements for the most recent fiscal year that were attributed to work
performed by persons other than the principal accountant's full-time, permanent
employees.
Not applicable.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to the
registrant's investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under common
control with the adviser that provides ongoing services to the registrant for
each of the last two fiscal years of the registrant.
2003 $6,000
2004 $6,000
(h) Disclose whether the registrant's audit committee of the board of
directors has considered whether the provision of nonaudit services that were
rendered to the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted with or
overseen by another investment adviser), and any entity controlling, controlled
by, or under common control with the investment adviser that provides ongoing
services to the registrant that were not pre-approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the
principal accountant's independence.
Not applicable.
Item 5. Audit Committee of Listed Registrants.
(a) If the registrant is a listed issuer as defined in Rule 10A-3 under
the Exchange Act (17CFR 240.10A-3), state whether or not the
registrant has a separately-designated standing audit committee
established in accordance with Section 3(a)(58)(A) of the Exchange
Act (15 U.S.C. 78c(a)(58)(A)). If the registrant has such a
committee, however designated, identify each committee member. If
the entire board of directors is acting as the registrant's audit
committee as specified in Section 3(a)(58)(B) of the Exchange Act
(15 U.S.C. 78c(a)(58)(B)), so state.
(b) If applicable, provide the disclosure required by Rule 10A-3(d)
under the Exchange Act (17CFR 240.10A-3(d)) regarding an exemption
from the listing standards for all audit committees.
Not applicable.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
A closed-end management investment company that is filing an annual report
on this Form N-CSR must, unless it invests exclusively in non-voting securities,
describe the policies and procedures that it uses to determine how to vote
proxies relating to portfolio securities, including the procedures that the
company uses when a vote presents a conflict between the interests of its
shareholders, on the one hand, and those of the company's investment adviser;
principal underwriter; or any affiliated person (as defined in Section 2(a)(3)
of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(3)) and the rules
thereunder) of the company, its investment adviser, or its principal
underwriter, on the other. Include any policies and procedures of the company's
investment adviser, or any other third party, that the company uses, or that are
used on the company's behalf, to determine how to vote proxies relating to
portfolio securities.
Not applicable
Item 8. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
(a) If the registrant is a closed-end management investment company, provide the
information specified in paragraph (b) of this Item with respect to any purchase
made by or on behalf of the registrant or any "affiliated purchaser," as defined
in Rule 10b-18(a)(3) under
the Exchange Act (17 CFR 240.10b-18(a)(3)), of shares or other units of any
class of the registrant's equity securities that is registered by the registrant
pursuant to Section 12 of the Exchange Act (15 U.S.C. 781).
Not applicable.
Item 9. Submission of Matters to a Vote of Security Holders.
Describe any material changes to the procedures by which shareholders may
recommend nominees to the registrant's board of directors, where those changes
were implemented after the registrant last provided disclosure in response to
the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A (17 CFR 240.14a-101), or
this Item.
Not applicable.
Item 10. Controls and Procedures.
(a) Disclose the conclusions of the registrant's principal executive and
principal financial officers, or persons performing similar functions, regarding
the effectiveness of the registrant's disclosure controls and procedures (as
defined in Rule 30a-3(c) under the Act (17 CFR 270.30a-3(c))) as of a date
within 90 days of the filing date of the report that includes the disclosure
required by this paragraph, based on the evaluation of these controls and
procedures required by Rule 30a-3(b) under the Act (17 CFR 270.30a-3(b)) and
Rules 13a-15(b) or 15d-15(b) under the Exchange Act (17 CFR 240.13a-15(b) or
240.15d-15(b)).
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
(i) accumulated and communicated to the investment company's management,
including its certifying officers, to allow timely decisions regarding
required disclosure; and (ii) recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange
Commission's rules and forms.
(b) Disclose any change in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d)) that
occurred during the registrant's last fiscal half-year (the registrant's second
fiscal half-year in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant's internal control
over financial reporting.
There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal
half-year (the registrant's second fiscal half-year in the case of an
annual report) that have materially affected or are reasonably likely to
materially affect, the registrant's internal control over financial
reporting.
Item 11. Exhibits.
(a) File the exhibits listed below as part of this Form. Letter or number
the exhibits in the sequence indicated.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of
the disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit.
The code of ethics that is the subject of the disclosure required by Item
2 is attached hereto.
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2 under
the Act (17 CFR 270.30a-2).
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
are attached hereto.
(a)(3) Any written solicitation to purchase securities under Rule 23c-1
under the Act (17 CFR 270.23c-1) sent or given during the period covered by the
report by or on behalf of the registrant to 10 or more persons.
Not applicable.
(b) A separate or combined certification for each principal executive
officer and principal officer of the registrant as required by Rule
30a-2(b) under the Act.
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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) Empire Builder Tax Free Bond
Fund
By (Signature and Title)* /s/ Seth M. Glickenhaus
---------------------------------
Seth M. Glickenhaus, President
Date May 10, 2004
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 May 10, 2004
By (Signature and Title)* /s/ Troy A. Sheets
---------------------------------
Troy A. Sheets, Treasurer
Date May 10, 2004
* Print the name and title of each signing officer under his or her signature.