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
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The Empire Builder Tax Free Bond Fund
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(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: 1-800-847-5886
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Date of fiscal year end: February 28
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Date of reporting period: February 28, 2006
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Item 1. Reports to Stockholders.
EMPIRE BUILDER [LOGO]
Dear Shareholder,
We are pleased to present The Empire Builder Tax Free Bond Fund Annual
Report for the year ended February 28, 2006.
For the past year, the Builder class was up 2.07%, and the Premier Class
was up 2.26%. In last year's letter, we forecasted the Federal Reserve Board
raising the Federal Fund Rate in the near future. Since our last report on
February 2005, the Federal Reserve Board raised the rate eight times; it now
stands at 4.75%.
Last year we were worried about the rising interest rate environment, and
our concerns proved correct. The Federal Reserve Board raised the Federal Fund
Rate by 200 basis points. Currently, we feel that the Federal Reserve Board is
coming close to an end in their interest rate tightening cycle. As the right
opportunities present themselves, we will continue to extend the duration of the
portfolio to enhance our returns while keeping our principal intact. We have
gotten through the tough period, and will now focus on increasing the yield of
the fund while maintaining the high credit quality of the bonds in 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 units. 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.
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 is no guarantee of 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 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.
EMPIRE BUILDER [LOGO]
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, 2006 began at approximately
4.37% and ended at 4.50%. 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 3.89% to 4.65%. 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 March 1, 1996, 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 28, 2006, as well as the
performance of the Lehman Municipal Bond Index over the same period.
The Lehman Municipal Bond Index includes 25,000 long-term, investment
grade, municipal bonds. In the opinion of the Fund's adviser, this index most
accurately represents the performance of the broad municipal bond market.
However, there are substantial differences between the index and the Fund.
First, the index covers municipal bonds nationwide, whereas the Fund invests
only in New York tax exempt bonds. Second, the index does not reflect the cost
and expenses of actually obtaining the underlying bonds. Third, the index had a
higher level of volatility than the Fund during the ten years ended December 31,
2005, 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. Return calculations assume the reinvestment distributions and do
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 maybe 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:
2.07% for the one-year period beginning March 1, 2005 and ended
February 28, 2006.
3.92% for the five-year period beginning March 1, 2001 and ended
February 28, 2006.
4.45% for the ten-year period beginning March 1, 1996 and ended
February 28, 2006.
*The minimum initial investment into the Premier Class is $20,000.
(The following table is represented by a line chart in the printed material.)
Empire Builder
Tax Free Lehman
Bond Fund Municipal
Year Builder Class Bond Index
---- ------------- ----------
2/29/1996 10000 10000
3/31/1996 9890 9872
4/30/1996 9865 9844
5/31/1996 9875 9840
6/30/1996 9973 9948
7/31/1996 10065 10038
8/31/1996 10042 10036
9/30/1996 10174 10177
10/31/1996 10254 10292
11/30/1996 10411 10480
12/31/1996 10361 10436
1/31/1997 10354 10456
2/28/1997 10430 10552
3/31/1997 10285 10412
4/30/1997 10375 10499
5/31/1997 10547 10657
6/30/1997 10628 10771
7/31/1997 10937 11069
8/31/1997 10781 10965
9/30/1997 10917 11095
10/31/1997 10976 11166
11/30/1997 11028 11232
12/31/1997 11182 11396
1/31/1998 11278 11514
2/28/1998 11242 11517
3/31/1998 11245 11528
4/30/1998 11143 11476
5/31/1998 11333 11657
6/30/1998 11363 11702
7/31/1998 11376 11732
8/31/1998 11579 11914
9/30/1998 11713 12062
10/31/1998 11691 12062
11/30/1998 11730 12105
12/31/1998 11732 12135
1/31/1999 11860 12279
2/28/1999 11787 12225
3/31/1999 11791 12242
4/30/1999 11806 12273
5/31/1999 11696 12202
6/30/1999 11517 12026
7/31/1999 11533 12069
8/31/1999 11387 11973
9/30/1999 11348 11978
10/31/1999 11131 11848
11/30/1999 11322 11974
12/31/1999 11168 11884
1/31/2000 11082 11833
2/29/2000 11269 11970
3/31/2000 11584 12232
4/30/2000 11460 12160
5/31/2000 11387 12097
6/30/2000 11737 12418
7/31/2000 11907 12590
8/31/2000 12105 12784
9/30/2000 12005 12718
10/31/2000 12162 12856
11/30/2000 12290 12954
12/31/2000 12692 13274
1/31/2001 12734 13405
2/28/2001 12752 13448
3/31/2001 12889 13569
4/30/2001 12723 13423
5/31/2001 12847 13568
6/30/2001 12928 13659
7/31/2001 13154 13861
8/31/2001 13344 14089
9/30/2001 13196 14042
10/31/2001 13374 14202
11/30/2001 13253 14082
12/31/2001 13074 13949
1/31/2002 13321 14190
2/28/2002 13483 14362
3/31/2002 13197 14080
4/30/2002 13447 14355
5/31/2002 13466 14442
6/30/2002 13596 14595
7/31/2002 13758 14784
8/31/2002 13959 14961
9/30/2002 14303 15289
10/31/2002 14046 15035
11/30/2002 13939 14972
12/31/2002 14248 15288
1/31/2003 14183 15249
2/28/2003 14376 15463
3/31/2003 14389 15472
4/30/2003 14529 15574
5/31/2003 14886 15939
6/30/2003 14777 15870
7/31/2003 14244 15315
8/31/2003 14346 15429
9/30/2003 14754 15883
10/31/2003 14603 15804
11/30/2003 14701 15968
12/31/2003 14801 16101
1/31/2004 14842 16192
2/29/2004 14974 16437
3/31/2004 14934 16379
4/30/2004 14687 15991
5/31/2004 14676 15934
6/30/2004 14708 15991
7/31/2004 14850 16200
8/31/2004 15050 16524
9/30/2004 15095 16612
10/31/2004 15147 16755
11/30/2004 15051 16617
12/31/2004 15120 16820
1/31/2005 15174 16978
2/28/2005 15140 16922
3/31/2005 15076 16816
4/30/2005 15191 17081
5/31/2005 15239 17203
6/30/2005 15294 17309
7/31/2005 15256 17231
8/31/2005 15339 17405
9/30/2005 15283 17289
10/31/2005 15223 17183
11/30/2005 15268 17266
12/31/2005 15353 17414
1/31/2006 15373 17461
2/28/2006 15453 17578
The Fund's Premier Class shares' average annual total return for the
periods indicated was as follows:
2.26% for the one-year period beginning March 1, 2005 and ended
February 28, 2006.
4.15% for the five-year period beginning March 1, 2001 and ended
February 28, 2006.
7.23% for the period beginning April 15, 1996 (commencement of
operations) and ended February 28, 2006.
(The following table is represented by a line chart in the printed material.)
Empire Builder
Tax Free Lehman
Bond Fund Municipal
Year Premier Class Bond Index
---- ------------- ----------
4/14/1996 20000 20000
4/30/1996 20098 19992
5/31/1996 20121 20210
6/30/1996 20324 20394
7/31/1996 20514 20390
8/31/1996 20471 20675
9/30/1996 20743 20909
10/31/1996 20909 21291
11/30/1996 21232 21202
12/31/1996 21134 21242
1/31/1997 21123 21438
2/28/1997 21280 21153
3/31/1997 20988 21330
4/30/1997 21174 21650
5/31/1997 21527 21882
6/30/1997 21698 22488
7/31/1997 22333 22277
8/31/1997 22017 22542
9/30/1997 22299 22686
10/31/1997 22409 22820
11/30/1997 22533 23153
12/31/1997 22855 23392
1/31/1998 23057 23399
2/28/1998 22992 23420
3/31/1998 23007 23314
4/30/1998 22804 23683
5/31/1998 23197 23775
6/30/1998 23265 23834
7/31/1998 23297 24204
8/31/1998 23720 24506
9/30/1998 23999 24506
10/31/1998 23960 24592
11/30/1998 24046 24654
12/31/1998 24055 24947
1/31/1999 24323 24837
2/28/1999 24178 24872
3/31/1999 24204 24934
4/30/1999 24227 24790
5/31/1999 24006 24433
6/30/1999 23645 24521
7/31/1999 23684 24324
8/31/1999 23392 24334
9/30/1999 23317 24071
10/31/1999 22878 24326
11/30/1999 23277 24144
12/31/1999 22966 24040
1/31/2000 22795 24319
2/29/2000 23182 24852
3/31/2000 23834 24705
4/30/2000 23586 24577
5/31/2000 23442 25228
6/30/2000 24169 25578
7/31/2000 24541 25972
8/31/2000 24942 25837
9/30/2000 24745 26119
10/31/2000 25077 26317
11/30/2000 25349 26968
12/31/2000 26183 27234
1/31/2001 26277 27322
2/28/2001 26319 27568
3/31/2001 26611 27270
4/30/2001 26274 27564
5/31/2001 26539 27749
6/30/2001 26711 28160
7/31/2001 27186 28624
8/31/2001 27585 28527
9/30/2001 27284 28852
10/31/2001 27657 28610
11/30/2001 27413 28338
12/31/2001 27045 28828
1/31/2002 27562 29177
2/28/2002 27902 28605
3/31/2002 27315 29163
4/30/2002 27837 29341
5/31/2002 27885 29652
6/30/2002 28162 30034
7/31/2002 28504 30395
8/31/2002 28927 31061
9/30/2002 29648 30545
10/31/2002 29120 30417
11/30/2002 28902 31058
12/31/2002 29549 30981
1/31/2003 29421 31415
2/28/2003 29827 31433
3/31/2003 29860 31641
4/30/2003 30155 32381
5/31/2003 30905 32242
6/30/2003 30687 31114
7/31/2003 29601 31347
8/31/2003 29817 32268
9/30/2003 30651 32107
10/31/2003 30341 32441
11/30/2003 30566 32710
12/31/2003 30758 32897
1/31/2004 30846 33393
2/29/2004 31140 33277
3/31/2004 31062 32488
4/30/2004 30553 32371
5/31/2004 30518 32488
6/30/2004 30610 32913
7/31/2004 30911 33571
8/31/2004 31333 33749
9/30/2004 31415 34040
10/31/2004 31531 33760
11/30/2004 31337 34172
12/31/2004 31506 34494
1/31/2005 31608 34380
2/28/2005 31541 34163
3/31/2005 31431 34703
4/30/2005 31657 34949
5/31/2005 31762 35166
6/30/2005 31883 35008
7/31/2005 31809 35361
8/31/2005 31987 35124
9/30/2005 31894 34910
10/31/2005 31756 35078
11/30/2005 31855 35379
12/31/2005 32036 35475
1/31/2006 32083 35713
2/28/2006 32254 35713
3
Expense Examples (Unaudited):
As a shareholder of The Empire Builder Tax Free Bond Fund, you incur two
types of costs: (1) transaction costs, exchange fees and (2) ongoing costs,
including management fees; and 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, 2005
through February 28, 2006.
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.
Beginning Ending Expenses Paid Expense Ratio
Account Value Account Value During Period* During Period
9/1/05 2/28/06 9/1/05 - 2/28/06 9/1/05 - 2/28/06
------------- ------------- ---------------- ----------------
Builder Class............ $1,000.00 $1,007.50 $5.92 1.19%
Premier Class............ 1,000.00 1,008.40 5.03 1.01%
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.
Beginning Ending Expenses Paid Expense Ratio
Account Value Account Value During Period* During Period
9/1/05 2/28/06 9/1/05 - 2/28/06 9/1/05 - 2/28/06
------------- ------------- ---------------- ----------------
Builder Class............ $1,000.00 $1,018.89 $5.96 1.19%
Premier Class............ 1,000.00 1,019.79 5.06 1.01%
- ----------
* 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 dividend by the number of days in the fiscal year.
4
THE EMPIRE BUILDER TAX FREE BOND FUND
Portfolio of Investments -- February 28, 2006
Principal Fair Value
Credit Ratings** Amount (Note 2)
- ---------------- --------- ----------
Municipal Securities (92.9%)
New York City (33.3%)
Aa2/AA+ New York City Municipal Water Finance Authority,
Water & Sewer Systems Revenue, Series C, 4.50%, 6/15/2033,
Callable 6/15/2016 @ 100 ........................................ $7,500,000 $ 7,505,700
Aaa/AAA New York City Municipal Water Finance Authority,
Water & Sewer System Revenue, Series B, 5.80%, 6/15/2029,
Callable 6/15/2007 @ 101, (MBIA) ................................ 5,000,000 5,193,800
Aaa/AAA New York City, General Obligation, Series B, 5.25%, 8/1/2017,
Callable 8/1/2007 @ 101, (AMBAC) ................................ 750,000 775,875
A1/AAA New York City, General Obligation, Series B, 5.125%, 8/1/2019,
Callable 8/1/2010 @ 101, (FGIC) ................................. 2,000,000 2,127,760
Aaa/AAA New York City, General Obligation, Series B, 5.375%, 8/1/2022,
Callable 8/1/2007 @ 101, (MBIA) ................................. 1,235,000 1,278,855
Aaa/AAA New York City, General Obligation, Series B, Subseries B5,
Variable Rate, 2.92%*, 8/15/2022, Non Callable .................. 1,250,000 1,250,000
Aaa/AAA New York City, General Obligation, Series B2, Subseries B5,
Variable Rate, 2.92%*, 8/15/2009, Non Callable, (MBIA) .......... 3,900,000 3,900,000
Aaa/AAA New York City, General Obligation, Series B2, Subseries B5,
Variable Rate, 2.92%*, 8/15/2011, Non Callable, (MBIA)
(SPA -- Bank of Nova Scotia) .................................... 4,915,000 4,915,000
Aaa/AAA New York City, General Obligation, Series H, Variable Rate,
2.92%*, 8/1/2013, Non Callable, (MBIA) .......................... 5,900,000 5,900,000
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 1,094,760
------------
Total New York City 33,941,750
------------
New York State Agencies (40.8%)
Long Island Power Authority (1.3%)
Aaa/AAA Long Island Power Authority, Electric System
General Revenue, Series A, 5.50%, 12/1/2012, Non Callable,
Escrowed to Maturity, (FSA) ..................................... 1,210,000 1,345,738
------------
New York State Dormitory Authority (29.1%)
A3/AA- Albany County, Airport Project, State Service Contract, 5.25%,
4/1/2013, Prerefunded 4/1/2008 @ 101 ............................ 1,200,000 1,256,064
NR/AAA Albany County, State Service Contract, 5.25%, 4/1/2017,
Prerefunded 4/1/2008 @ 101, (MBIA) .............................. 1,000,000 1,046,720
Aaa/AAA Augustana Lutheran Home for the Aged, Series A, 5.50%,
8/1/2020, Callable 8/1/2010 @ 101, (FHA) (MBIA) ................. 880,000 947,285
Aaa/AAA Augustana Lutheran Home for the Aged, Series A, 5.50%,
8/1/2030, Callable 8/1/2010 @ 101, (FHA) (MBIA) ................. 750,000 804,180
The accompanying notes are an integral part of the financial statements.
5
THE EMPIRE BUILDER TAX FREE BOND FUND
Portfolio of Investments -- February 28, 2006 -- continued
Principal Fair Value
Credit Ratings** Municipal Securities -- continued Amount (Note 2)
- ---------------- --------------------------------- --------- ----------
New York State Dormitory Authority -- continued
Aaa/AAA Columbia University, Series B, 5.375%, 7/1/2018,
Callable 7/1/2012 @ 100 ......................................... $ 500,000 $ 549,500
Aaa/AAA Columbia University, Series B, 5.375%, 7/1/2019,
Callable 7/1/2012 @ 100 ......................................... 1,000,000 1,099,000
Aaa/AAA Columbia University, Series B, 5.375%, 7/1/2020,
Callable 7/1/2012 @ 100 ......................................... 1,000,000 1,099,000
Aaa/AAA Hospital for Special Surgery, 5.00%, 8/15/2029,
Callable 2/15/2015 @ 100, (FHA) (MBIA) .......................... 1,000,000 1,058,380
Aaa/AAA Hospital for Special Surgery, 5.00%, 8/15/2033,
Callable 2/15/2015 @100, (FHA) (MBIA) ........................... 250,000 263,453
Aaa/AAA Montefiore Medical Center, 5.00%, 2/1/2028,
Callable 2/1/2015 @100, (FGIC) .................................. 1,275,000 1,343,340
Aaa/AAA New York Medical College, 5.25%, 7/1/2013,
Callable 7/1/2008 @ 101, (MBIA) ................................. 1,015,000 1,069,059
Aaa/AAA New York University, Series 2, 5.50%, 7/1/2018,
Callable 7/1/2011 @ 100, (AMBAC) ................................ 500,000 541,120
NR/AAA Park Ridge Housing, Inc., 6.375%, 8/1/2020,
Callable 8/1/2010 @ 101, (FNMA) (AMBAC) ......................... 1,000,000 1,107,370
NR/AAA Park Ridge Housing, Inc., 6.50%, 8/1/2025,
Callable 8/1/2010 @ 101, (FNMA) (AMBAC) ......................... 1,470,000 1,635,213
Aaa/NR Rochester Institute of Technology, Series A, 5.25%, 7/1/2016,
Callable 7/1/2012 @ 100, (AMBAC) ................................ 2,045,000 2,216,269
Aaa/NR Rochester Institute of Technology, Series A, 5.25%, 7/1/2017,
Callable 7/1/2012 @ 100, (AMBAC) ................................ 2,155,000 2,320,375
Aaa/AAA School Districts Financing, Series C, 5.25%, 4/1/2021,
Callable 10/1/2012 @ 100, (MBIA) ................................ 1,300,000 1,402,479
Aaa/AAA Special Acts School Districts Program, 6.00%, 7/1/2019,
Callable 7/1/2006 @ 101, (MBIA) ................................. 3,540,000 3,608,002
NR/AAA State University, 5.375%, 7/1/2021, Prerefunded
7/01/2008 @ 102, (MBIA) ......................................... 325,000 345,469
NR/AAA State University, 5.375%, 7/1/2021, Prerefunded
7/01/2008 @ 102, (MBIA) ......................................... 865,000 919,478
Aaa/AAA Upstate Community Colleges, Series A, 6.00%, 7/1/2019,
Prerefunded 7/1/2010 @ 101, (FSA) ............................... 1,000,000 1,109,420
Aaa/AAA Upstate Community Colleges, Series A, 6.00%, 7/1/2020,
Prerefunded 7/1/2010 @ 101, (FSA) ............................... 845,000 937,460
NR/AAA Westchester County, Court Facilities, 5.25%, 8/1/2018,
Callable 2/1/2009 @ 101, (MBIA) ................................. 2,800,000 2,943,023
------------
Total New York State Dormitory 29,621,659
------------
The accompanying notes are an integral part of the financial statements.
6
THE EMPIRE BUILDER TAX FREE BOND FUND
Portfolio of Investments -- February 28, 2006 -- continued
Principal Fair Value
Credit Ratings** Municipal Securities -- continued Amount (Note 2)
- ---------------- --------------------------------- --------- ----------
New York State Environmental Facilities Corp. (2.0%)
Aaa/AAA State Clean Water & Drinking Water, Revolving Funds,
4.50%, 6/15/2032, Callable 6/15/2015 @ 100 ...................... 1,285,000 $ 1,293,661
Aaa/AAA State Water Pollution Control Revenue,
Revolving Fund, Pooled Loan, 5.90%, 1/15/2018,
Callable 1/15/2007 @ 101, (POL CTL-SRF) ......................... 725,000 741,204
------------
Total New York State Environmental Facilities Corp. 2,034,865
------------
New York State Thruway Authority (7.4%)
Aaa/AAA Highway & Bridge Trust Fund Bonds, Series A, 5.50%, 4/1/2014,
Prerefunded 4/1/2011 @ 101, (FGIC) .............................. 1,500,000 1,651,725
Aaa/AAA Highway & Bridge Trust Fund Bonds, Series B, 5.25%, 4/1/2017,
Prerefunded 10/1/2011 @ 100, (MBIA) ............................. 2,500,000 2,715,925
Aaa/AAA General Revenue, Series G, 5.00%, 1/1/2030,
Callable 7/1/2015 @ 100, (FSA) .................................. 3,000,000 3,183,480
------------
Total New York State Thruway Authority 7,551,130
------------
New York State Urban Development Corp. (1.0%)
A1/AA- Empire State Development Corp., University Facilities Grants,
6.00%, 1/1/2009, Non Callable ................................... 905,000 963,354
------------
Total New York State Agencies 41,516,746
------------
Other New York State Bonds (18.8%)
Aaa/NR Adirondack, New York, Central School District, General Obligation,
Series A, 3.75%, 6/15/2006, Non Callable, (FGIC) ................ 330,000 330,419
A3/NR Albany Housing Authority, Limited Obligation, 6.25%, 10/1/2012,
Callable 10/1/2006 @ 101 ........................................ 1,000,000 1,022,330
Aaa/NR Corning, City School District, General Obligation, 5.00%,
6/15/2012, Non Callable, (FSA) .................................. 1,000,000 1,077,460
Aaa/NR Corning, City School District, General Obligation, 5.00%,
6/15/2013, Callable 6/15/2012 @ 100, (FSA) ...................... 970,000 1,041,751
Aaa/NR Corning, City School District, General Obligation, 5.00%,
6/15/2014, Callable 6/15/2012 @ 100, (FSA) ...................... 600,000 642,648
Aaa/AAA Evans, General Obligation, 6.80%, 4/15/2012,
Non Callable, (AMBAC) ........................................... 225,000 262,053
Aaa/AAA Evans, General Obligation, 6.80%, 4/15/2013,
Non Callable, (AMBAC) ........................................... 225,000 266,425
Aaa/NR Fayetteville Manlius, Central School District, General Obligation,
5.00%, 6/15/2016, Callable 6/15/2012 @ 101, (FGIC) .............. 375,000 403,538
Aaa/NR Ilion, Central School District, General Obligation, Series B, 5.50%
6/15/2015, Callable 6/15/2012 @ 101, (FGIC) ..................... 550,000 610,368
Aaa/NR Ilion, Central School District, General Obligation, Series B, 5.50%
6/15/2016, Callable 6/15/2012 @ 101, (FGIC) 500,000 554,880
The accompanying notes are an integral part of the financial statements.
7
THE EMPIRE BUILDER TAX FREE BOND FUND
Portfolio of Investments -- February 28, 2006 -- continued
Principal Fair Value
Credit Ratings** Municipal Securities -- continued Amount (Note 2)
- ---------------- --------------------------------- --------- ----------
Other New York State Bonds -- continued
Aaa/AAA Mount Sinai, Union Free School District, General Obligation,
General Obligation, 6.20%, 2/15/2012, Non Callable, (AMBAC) ..... 1,065,000 $ 1,202,364
Aaa/AAA New York Convention Center Development,
Hotel Unit Fee, Corp. Revenue, 5.00%, 11/15/2044,
Callable 11/15/2015 @ 100, (AMBAC) .............................. 2,000,000 2,100,239
Aaa/AAA Niagara Falls Public Water Authority, Water & Sewer
System Revenue, Series A, 5.50%, 7/15/2028,
Prerefunded 7/15/2006 @ 100, (MBIA) ............................ 1,000,000 1,008,250
Aaa/AAA North Hempstead, General Obligation, Series B, 6.375%,
4/1/2009, Non Callable, (FGIC) .................................. 570,000 617,578
Aaa/AAA North Hempstead, General Obligation, Series B, 6.40%,
4/1/2010, Non Callable, (FGIC) .................................. 560,000 620,749
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 2,068,819
Aaa/NR Oyster Bay, General Obligation, 5.00%, 3/15/2011,
Non Callable, (FSA) ............................................. 430,000 458,913
Aaa/NR Southern Cayuga, Central School District, General Obligation,
5.00%, 5/15/2014, Callable 5/15/2012 @ 100, (FSA) ............... 400,000 428,096
Aaa/AAA Suffolk County, General Obligation, Series C, 5.00%, 9/15/2015,
Econ Defeased 9/15/2008 @ 101, (FGIC) ........................... 965,000 1,011,745
Aaa/AAA Suffolk County, General Obligation, Series C, 5.00%,
9/15/2016, Econ Defeased 9/15/2008 @ 101, (FGIC) ................ 550,000 576,642
Aaa/AAA Suffolk County, General Obligation, Series C, 5.00%, 9/15/2017,
Econ Defeased 9/15/2008 @ 101, (FGIC) ........................... 480,000 503,251
Aaa/AAA Suffolk County, General Obligation, Series D, 5.00%, 11/1/2015,
Callable 11/1/2008 @ 101, (FGIC) ................................ 1,125,000 1,181,543
Aaa/AAA Suffolk County, General Obligation, Series D, 5.00%, 11/1/2016,
Callable 11/1/2008 @ 101, (FGIC) ................................ 1,110,000 1,165,789
------------
Total Other New York State Bonds .................................. 19,155,850
------------
Total Municipal Securities (Cost $91,298,661) ..................... 94,614,346
------------
Short Term Investments (4.9%)
Dreyfus New York Municipal Cash Management Fund ................... 5,010,000 5,010,000
------------
Total Short Term Investments (Cost $5,010,000) .................... 5,010,000
------------
Total Investments (Cost $96,308,661) -- 97.8% ..................... $ 99,624,346
Net Other Assets (Liabilities) -- 2.2% ............................ 2,238,691
------------
NET ASSETS -- 100.0% .............................................. $101,863,037
============
- ----------
* Variable rate instrument. The rate presented represents the rate in effect
at February 28, 2006. The maturity date reflected is the final maturity
date.
The accompanying notes are an integral part of the financial statements.
8
THE EMPIRE BUILDER TAX FREE BOND FUND
Portfolio of Investments -- February 28, 2006
**Credit Ratings given by Moody's Investors Service, Inc. and Standard & Poor's
Corp. (Unaudited)
Standard
Moody's & 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 of adequate quality by all
standards.
NR 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.
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 Corp.
FGIC Insured as to principal and interest by the Financial Guarantee
Insurance Corp.
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.
Summary of Portfolio Holdings, (Unaudited):
Percent of
The Empire Builder Tax Free Bond Fund Net Assets
- ------------------------------------- ----------
New York City................................................. 33.3%
New York State Agencies....................................... 40.8
Other New York State Bonds.................................... 18.8
Short Term Investments........................................ 4.9
----
97.8%
====
The accompanying notes are an integral part of the financial statements.
9
THE EMPIRE BUILDER TAX FREE BOND FUND
Statement of Assets and Liabilities
February 28, 2006
Assets:
Investments in securities, at fair value (cost $96,308,661) (Note 2) .................................. $ 99,624,346
Cash .................................................................................................. 1,491,408
Interest and dividends receivable ..................................................................... 844,125
Prepaid expenses and other assets ..................................................................... 63,486
------------
Total Assets ........................................................................................ 102,023,365
Liabilities:
Dividends payable......................................................... $ 42,990
Payable for capital shares redeemed....................................... 117
Advisory fees payable (Note 4)............................................ 31,190
Administration fees payable (Note 4)...................................... 2,157
Compliance services fees payable (Note 4)................................. 4,939
Transfer agency fees payable (Note 4)..................................... 47,959
Other accrued expenses.................................................... 30,976
-----------
Total Liabilities ................................................................................... 160,328
------------
Net Assets ............................................................................................... $101,863,037
============
Net Assets:
Capital ............................................................................................... $ 98,513,251
Undistributed net investment income ................................................................... 35,403
Net realized gains (losses) from investments .......................................................... (1,302)
Net unrealized appreciation/depreciation from investments ............................................. 3,315,685
------------
Net Assets ............................................................................................... $101,863,037
============
Builder Class:
Net Assets................................................................ $48,323,450
Shares of Beneficial Interest Outstanding................................. 2,737,035
-----------
Builder Class -- Net Asset Value (offering and redemption
price per share)........................................................ $ 17.66
-----------
Premier Class:
Net Assets................................................................ $53,539,587
Shares of Beneficial Interest Outstanding................................. 3,031,880
-----------
Premier Class -- Net Asset Value (offering and redemption
price per share) $ 17.66
===========
The accompanying notes are an integral part of the financial statements.
10
THE EMPIRE BUILDER TAX FREE BOND FUND
Statement of Operations
For the Year Ended February 28, 2006
Investment Income:
Interest .............................................................................................. $ 4,001,607
Dividend .............................................................................................. 63,830
------------
Total Investment Income ............................................................................... 4,065,437
Expenses:
Advisory fees (Note 4).................................................... $ 417,299
Administration fees (Note 4).............................................. 200,000
Transfer agency fees (Builder Class) (Note 4)............................. 135,772
Transfer agency fees (Premier Class) (Note 4)............................. 44,070
Compliance services fees (Note 4)......................................... 54,095
Custody fees.............................................................. 35,034
Fund accounting fees (Note 4)............................................. 63,708
Trustees' fees (Note 4)................................................... 43,000
Other fees................................................................ 177,504
-----------
Total Expenses.......................................................... 1,170,482
Less: Custody fee credit................................................ (16,166)
-----------
Total Net Expenses........................................................................ 1,154,316
------------
Net Investment Income........................................................................ 2,911,121
------------
Realized/Unrealized Gains (Losses) on Investments (Notes 2 and 3)
Net realized gains (losses) from investment transactions.................. (118,027)
Change in unrealized appreciation/depreciation from investment transactions (555,577)
-----------
Net realized/unrealized gains (losses) from investment transactions ................................. (673,604)
------------
Change in net assets resulting from operations ........................................................ $ 2,237,517
============
The accompanying notes are an integral part of the financial statements.
11
THE EMPIRE BUILDER TAX FREE BOND FUND
Statements of Changes in Net Assets
Year Ended Year Ended
February 28, 2006 February 28, 2005
----------------- -----------------
From Investment Activities:
Operations:
Net investment income ......................................................... $ 2,911,121 $ 2,709,269
Net realized gains (losses) from investment transactions ...................... (118,027) 501,510
Change in unrealized appreciation/depreciation from
investment transactions ..................................................... (555,577) (1,985,120)
------------- -------------
Change in net assets resulting from operations ................................ 2,237,517 1,225,659
------------- -------------
Distributions to Shareholders From:
Net investment income -- Builder Class ........................................ (1,312,241) (1,242,130)
Net investment income -- Premier Class ........................................ (1,540,648) (1,456,573)
Net realized gains from investment transactions -- Builder Class .............. (24,867) (398,748)
Net realized gains from investment transactions -- Premier Class .............. (27,553) (424,895)
------------- -------------
Total distributions ......................................................... (2,905,309) (3,522,346)
------------- -------------
Capital Transactions:
Proceeds from shares issued -- Builder Class .................................. 1,090,241 2,263,421
Proceeds from shares issued -- Premier Class .................................. 827,135 1,217,483
Dividends reinvested -- Builder Class ......................................... 1,193,736 1,479,069
Dividends reinvested -- Premier Class ......................................... 1,301,277 1,620,288
Value of shares redeemed -- Builder Class ..................................... (5,861,452) (5,932,632)
Value of shares redeemed -- Premier Class ..................................... (4,554,616) (6,368,780)
------------- -------------
Change in net assets from capital share transactions .......................... (6,003,679) (5,721,151)
------------- -------------
Change in net assets ........................................................ (6,671,471) (8,017,838)
Net Assets:
Beginning of period ........................................................... 108,534,508 116,552,346
------------- -------------
End of period ................................................................. $ 101,863,037 $ 108,534,508
============= =============
Share Transactions:
Issued -- Builder Class ....................................................... 61,598 126,398
Issued -- Premier Class ....................................................... 46,728 68,205
Reinvested -- Builder Class ................................................... 67,498 82,927
Reinvested -- Premier Class ................................................... 73,571 90,826
Redeemed -- Builder Class ..................................................... (331,422) (332,368)
Redeemed -- Premier Class ..................................................... (257,400) (357,565)
------------- -------------
Change in shares .............................................................. (339,427) (321,577)
============= =============
Undistributed net investment income ........................................... $ 35,403 $ 42,180
============= =============
The accompanying notes are an integral part of the financial statements.
12
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, 2006 February 28, 2005 February 29, 2004 February 28, 2003 February 28, 2002
----------------- ----------------- ----------------- ----------------- -----------------
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 ....... $ 17.77 $ 17.77 $ 18.12 $ 18.13 $ 18.08 $ 18.08 $ 17.80 $ 17.80 $ 17.69 $ 17.69
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Investment Activities:
Net investment income ..... 0.46 0.50 0.41 0.45 0.51 0.55 0.61 0.66 0.72 0.77
Net realized/ unrealized
gains/(losses) on
investments ............. (0.10) (0.10) (0.22) (0.23) 0.22 0.23 0.54 0.54 0.27 0.27
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from Investment
Operations ................ 0.36 0.40 0.19 0.22 0.73 0.78 1.15 1.20 0.99 1.04
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Distributions:
Net investment income ..... (0.46) (0.50) (0.41) (0.45) (0.51) (0.55) (0.61) (0.66) (0.71) (0.76)
Net realized capital gains. (0.01) (0.01) (0.13) (0.13) (0.18) (0.18) (0.26) (0.26) (0.17) (0.17)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions ....... (0.47) (0.51) (0.54) (0.58) (0.69) (0.73) (0.87) (0.92) (0.88) (0.93)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value,
End of Period ............. $ 17.66 $ 17.66 $ 17.77 $ 17.77 $ 18.12 $ 18.13 $ 18.08 $ 18.08 $ 17.80 $ 17.80
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total Return ................ 2.07% 2.26% 1.11% 1.29% 4.16% 4.40% 6.62% 6.90% 5.74% 6.01%
Ratios/Supplementary Data:
Net Assets, End of Period
(in thousands) .......... $48,323 $53,540 $52,222 $56,313 $55,504 $61,048 $56,677 $61,025 $54,253 $59,910
Ratios of Net Investment
Income to Average
Net Assets .............. 2.67% 2.86% 2.32% 2.55% 2.85% 3.03% 3.44% 3.71% 4.04% 4.30%
Ratios of Net Expenses
to Average Net Assets ... 1.20% 1.01% 1.18% 0.95% 1.04% 0.86% 1.16% 0.89% 1.14% 0.88%
Ratios of Expenses
to Average Net Assets* .. 1.21% 1.02% 1.22% 0.99% 1.05% 0.87% 1.16% 0.89% 1.14% 0.88%
Portfolio Turnover Rate(a). 52.14% 52.14% 100.38% 100.38% 202.77% 202.77% 213.97% 213.97% 98.29% 98.29%
- ----------
* 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) Portfolio turnover rate 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.
13
THE EMPIRE BUILDER TAX FREE BOND FUND
Notes to Financial Statements
February 28, 2006
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. 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 may
enter into contracts with its 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 adhered to
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 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 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
14
THE EMPIRE BUILDER TAX FREE BOND FUND
Notes to Financial Statements -- continued
February 28, 2006
(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.
Security Transactions and Investment Income
Security transactions are accounted for no later than one business 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.
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 either considered
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 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 year ended February 28, 2006. The Fund could have invested such
15
THE EMPIRE BUILDER TAX FREE BOND FUND
Notes to Financial Statements -- continued
February 28, 2006
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 28, 2006, amounted to $48,105,940
and $59,288,884, respectively. During the year, there were no purchases or sales
of long-term U.S. Government Securities.
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 over $100,000,000.
The Adviser has agreed to a reduction of advisory fees to the extent that
the Fund's expenses, including the advisory fees, exceed 1.50% of each share
class average annual net assets. For the year ended February 28, 2006, there was
no reduction of advisory fees pursuant to this agreement.
BISYS Fund Services Ohio, Inc. ("BISYS Ohio" or the "Administrator") and
BISYS Fund Services, Inc. ("BISYS"), subsidiaries of The BISYS Group, Inc.,
serves as the Fund's administrator, transfer agent and fund accountant. BISYS
Ohio and BISYS receive compensation for administration and fund accounting
services at a rate of 0.15% and 0.03%, respectively, of average daily net assets
of the Fund (subject to certain minimum amounts), including reimbursement for
certain expenses incurred. 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.
Under a Compliance Services Agreement between the Fund and BISYS Ohio (the
"CCO Agreement"), BISYS Ohio makes an employee available to serve as the Fund's
Chief Compliance Officer (the "CCO"). Under the CCO Agreement, BISYS Ohio also
provides infrastructure and support in implementing the written policies and
procedures comprising the Fund's compliance program, including support services
to the CCO. Expenses incurred by the Fund are reflected on the Statement of
Operations as "Compliance services fees". BISYS Ohio pays the salary and other
compensation earned by any such individuals as employees of BISYS 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 Board and the Audit Committee are compensated
$1,750 in retainer per quarter and a $750 fee for each regularly scheduled
meeting, plus reimbursement for certain expenses. During the year ended February
28, 2006, actual Trustee compensation was $43,000 in total from the Fund.
16
THE EMPIRE BUILDER TAX FREE BOND FUND
Notes to Financial Statements -- continued
February 28, 2006
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.
6. Federal Income Tax Information:
At February 28, 2006 the Fund had net capital loss carryforwards to offset
future net capital gains, if any, to the extent provided by the Treasury
regulations. To the extent that these carryfowards are used to offset future
capital gains, it is probable that the gains that are offset will not be
distributed to shareholders.
Amount Expires
------ -------
$99,283 2014
Under current tax law, capital losses realized after October 31 of a
Fund's fiscal year may be deferred and treated as occurring on the first
business day of the following fiscal year for tax purposes. The Fund had
deferred post October capital losses of $18,625, which will be treated as
arising on the first business day of the fiscal year ending February 28, 2007.
The tax character of dividends paid to shareholders during the fiscal year
ended February 28, 2006 were as follows:
Distributions paid from
------------------------- Total
Ordinary Net Long-Term Total Taxable Tax Exempt Distributions
Income Capital Gains Distributions Distributions Paid
-------- ------------- ------------- ------------- -------------
The Empire Builder Tax Free Bond Fund..... $10,637 $41,876 $52,513 $2,831,143 $2,883,656
The tax character of dividends paid to shareholders during the fiscal year
ended February 28, 2005 were as follows:
Distributions paid from
------------------------- Total
Ordinary Net Long-Term Total Taxable Tax Exempt Distributions
Income Capital Gains Distributions Distributions Paid
-------- ------------- ------------- ------------- -------------
The Empire Builder Tax Free Bond Fund..... $793,788 $30,020 $823,808 $2,700,927 $3,524,735
Total Distributions paid differ from amounts shown on the Statements of
Changes in Net Assets because dividends are recognized when paid for tax
purposes.
17
As of February 28, 2006 the components of accumulated earnings (deficit)
on a tax basis were 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)
------------- ------------- ------------- ----------- ------------- ------------ -------------- -----------
The Empire
Builder Tax
Free Bond
Fund ........ $ -- $ 78,393 $ -- $78,393 $(42,990) $ (117,908) $3,432,291 $3,349,786
- ----------
* 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 premium and market discount.
As of February 28, 2006, the cost, gross unrealized appreciation and gross
unrealized depreciation on securities for federal income tax purposes, were as
follows:
Tax Net Unrealized
Tax Unrealized Unrealized Appreciation
Tax Cost Appreciation Depreciation (Depreciation)
-------- -------------- ------------- ---------------
The Empire Builder Tax
Free Bond Fund .............. $96,192,055 $3,462,143 $(29,852) $3,432,291
18
Report of Independent Registered Public Accounting Firm
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 28, 2006, 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, 2006 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Columbus,Ohio
April 19, 2006
19
THE EMPIRE BUILDER TAX FREE BOND FUND
Other Information (Unaudited)
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.
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, or 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.
20
THE MANAGEMENT
(Unaudited)
Independent Trustees
Positions Number of
Held With Portfolios
The Empire Overseen for Directorships
Builder Term of The Empire Held Outside
Name, Address, and Tax Free Office/Length Principal Occupation(s) Builder Tax Free the Fund
Birthdate Bond Fund of time served During the Past 5 Years Bond Fund Complex
- ------------------ --------- -------------- ----------------------- ----------------- -------------
EDWARD A. FALKENBERG........ Trustee, Since Principal, ACME Real 1 None
23 Oak Lane June 1989 Estate (1976 to present)
Scarsdale, NY 10583
09/40
EDWARD A. KUCZMARSKI........ Trustee, Since Certified Public Accountant, 1 Director of
Hays & Company LLP April 1984 Partner, Hays & Company LLP New York
477 Madison Ave., 10th Flr (1980 to present) Daily Tax-Free
New York, NY 10022 Income Fund, Inc.
11/49 & 9 Funds within
the Reich & Tang
Complex
CAROLINE E. NEWELL.......... Trustee, Since Head, Park Ave. Christian Church 1 Director of
62 E. 83rd April 1984 Day School (2001 to present); Head, New York
New York, NY 10028 Le Chateau des Enfants Daily Tax-Free
07/40 (1990 to present) Income Fund, Inc.
JOHN P. STEINES, JR......... Trustee, Since Professor of Law, New York University 1 Director of
NYU School of Law, Rm 440 August 1984 School of Law (1978 to present) and New York
40 Washington Square. So. Counsel, Kronish, Lieb, Weiner & Hellman Daily Tax-Free
New York, NY 10012 (law firm) (2004 to present); Counsel, Income Fund, Inc.
10/48 Deloitte & Touche LLP (2001 to 2004);
formerly Counsel, Weil, Gotshal &
Manges (law firm) (1984 to 2001)
Interested Persons
SETH M. GLICKENHAUS *....... Trustee, Since General Partner of Glickenhaus & Co. 1 None
546 Fifth Avenue, 7th Floor Chairman of April 1984 (1997 to present)
New York, NY 10036-5000 the Board
03/14 and
President
- ----------
* Mr. Glickenhaus is an "interested person" (as defined in Section 2(a)(19)
of the Investment Company Act of 1940, as amended) of the Fund because he
is a General Partner of Glickenhaus & Co., the Adviser.
Officers of the Fund
MICHAEL J. LYNCH............ Senior Vice Indefinite, Director, Unit Trust Department
546 Fifth Avenue, 7th Floor President since Glickenhaus & Co. (1997 to Present);
New York, NY 10036 March 1997
07/62
KINGA KAPUSCINSKI........... Secretary Indefinite, Assistant Counsel, BISYS Fund Services
100 Summer Street since (2004 - present); Associate, Goodwin Procter
Ste. 1500 December 2004 LLP (2001 - 2004); Senior Federal Law Clerk
Boston, MA 02110 and Federal Law Clerk, U.S. District Court for
06/72 the District of Massachusetts (1999 - 2001)
AARON J. MASEK.............. Treasurer Indefinite, Director, Fund Administration & Oversight
3435 Stelzer Road since Services, BISYS Fund Services, Inc.,
Columbus, Ohio 43219 June 2005 1996 to present
01/74
Frederick J. Schmidt........ Chief Since June 2004 Senior Vice President and Chief Compliance
585 Stewart Avenue Compliance Term of Office Officer, CCO Services of BISYS Fund Services
Garden City, NY 11530 Officer expires 2006 since 2004; Chief Compliance Officer of four other
07/59 Investment companies or fund complexes that CCO
services of BISYS Fund Services provides
compliance services since 2004; President, FJS
Associates (regulatory consulting firm)from
2002 to 2004; Vice President, Credit Agricole
Asset Management, U.S. from 1987 to 2002.
EMPIRE BUILDER [LOGO]
3435 Stelzer Road
Columbus, Ohio 43219
1-800-847-5886
EMPIRE BUILDER [LOGO]
TAX FREE BOND FUND
Annual Report
February 28, 2006
Investment Adviser and Distributor
Glickenhaus & Co.
546 Fifth Avenue
7th Floor
New York, New York 10036
Fund Accountant
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
Transfer Agent and Administrator
BISYS 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
One International Place
Boston, Massachusetts 02110
Independent Registered
Public Accounting Firm
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.
536604
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, except for, effective June 7, 2005, Aaron J. Masek
replaced Troy A. Sheets as the Treasurer of the Registrant.
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
2005 $28,400
2006 $31,000
(b) Audit-Related Fees
2005 $2,500
2006 $2,500
Fees for both 2005 & 2006 relate to the review of the annual N1-A update.
(c) Tax Fees
2005 $37,634
2006 $4,000
Fees for both 2005 & 2006 relate to the preparation of the Fund federal income &
excise tax returns and review of the excise tax calculations, as well as
additional fees for tax advice and services related to dividend considerations.
(d) All Other Fees
2005 $0
2006 $0
(e) If any of the services were NOT pre-approved, but otherwise approved by the
audit committee, disclose the percentage of each category above.
(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.
(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.
(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.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
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 (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d)) 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/ Aaron J. Masek
-------------------------
Aaron J. Masek, Treasurer
Date April 28, 2006
----------------------------
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 28, 2006
----------------------------
By (Signature and Title)* /s/ Aaron J. Masek
-------------------------
Aaron J. Masek, Treasurer
Date April 28, 2006
----------------------------
* Print the name and title of each signing officer under his or her
signature.