UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-03907
The Empire Builder Tax Free Bond Fund
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(Exact name of registrant as specified in charter)
3435 Stelzer Road, Columbus, OH 43219
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(Address of principal executive offices) (Zip code)
Citi Fund Services, 3435 Stelzer Road, Columbus, OH 43219
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(Name and address of agent for service)
Registrant's telephone number, including area code:(800) 847-5886
Date of fiscal year end:February 29, 2008
Date of reporting period:February 29, 2008
Item 1. Reports to Stockholders.
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[LOGO]
EMPIRE BUILDER
--------------------
Dear Shareholder,
We are pleased to present The Empire Builder Tax Free Bond Fund Annual
Report for the year ended February 29, 2008.
For the past year, the Builder class was down 0.20%, and the Premier Class
was down 0.08%. In last year's letter, we mentioned the troubles in the housing
market and subprime mortgage industry. In response to these markets, the Federal
Reserve Board cut the Federal Fund Rate six times; it now stands at 2.25%.
The weakening housing and subprime markets continue to negatively impact
the stock market, as well as other credit markets. In response to these
conditions, the Treasuries market has seen higher activity due to investors
seeking safety. This activity has left the municipal market looking extremely
attractive compared to Treasuries. For example, the 10-year Treasury is
yielding 3.404% while the 10-year municipal bond is yielding 3.750% (as of
March 31, 2008). It is an excellent time to purchase additional shares of the
Empire Builder Tax-Free Bond Fund, to take advantage of the disparity between
municipals and Treasuries. As the right opportunities present themselves, we
will extend the duration of the portfolio to enhance returns, while keeping
principal intact. We will focus on increasing the yield of the Fund while
maintaining the high credit quality of the bonds.
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.
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[LOGO]
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, 2008 began at
approximately 4.556% and ended at 3.528%. It was a very volatile market this
year, the 10-year traded in a range of approximately 3.45% to 5.248%.
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, 1998, and a
$20,000* investment in Premier Class shares of the Fund made March 1, 1998,
held in each through February 29, 2008, 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, 2007, 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 minimum initial investment into the Premier Class is $20,000
Past performance is not a guarantee of future results.
[The following information was depicted as a line chart in the printed material]
Empire
Builder
Tax Free
Bond Fund Lehman Municipal
Date Builder Class Bond Index
---------- ------------- ----------------
2/28/1998 10,000 10,000
3/31/1998 10,003 10,009
4/30/1998 9,912 9,964
5/31/1998 10,080 10,121
8/31/1998 10,300 10,344
7/31/1998 10,119 10,187
8/31/1998 10,300 10,344
9/30/1998 10,418 10,473
10/31/1998 10,399 10,473
11/30/1998 10,434 10,510
12/31/1998 10,436 10,536
1/31/1999 10,550 10,661
2/28/1999 10,485 10,615
3/31/1999 10,488 10,629
4/30/1999 10,501 10,656
5/31/1999 10,403 10,594
6/30/1999 10,244 10,442
7/31/1999 10,258 10,480
8/31/1999 10,129 10,396
9/30/1999 10,094 10,400
10/31/1999 9,901 10,287
11/30/1999 10,071 10,397
12/31/1999 9,934 10,319
1/31/2000 9,858 10,274
2/29/2000 10,024 10,394
3/31/2000 10,304 10,621
4/30/2000 10,194 10,558
5/31/2000 10,129 10,503
6/30/2000 10,440 10,781
7/31/2000 10,591 10,932
8/31/2000 10,767 11,100
9/30/2000 10,679 11,042
10/31/2000 10,818 11,163
11/30/2000 10,932 11,247
12/31/2000 11,289 11,525
1/31/2001 11,327 11,639
2/28/2001 11,343 11,676
3/31/2001 11,465 11,781
4/30/2001 11,317 11,653
5/31/2001 11,428 11,779
6/30/2001 11,499 11,857
7/31/2001 11,700 12,033
8/31/2001 11,869 12,231
9/30/2001 11,738 12,190
10/31/2001 11,896 12,336
11/30/2001 11,789 12,232
12/31/2001 11,629 12,116
1/31/2002 11,849 12,326
2/28/2002 11,993 12,475
3/31/2002 11,739 12,230
4/30/2002 11,961 12,469
5/31/2002 11,978 12,545
6/30/2002 12,093 12,678
7/31/2002 12,237 12,841
8/31/2002 12,416 12,995
9/30/2002 12,723 13,280
10/31/2002 12,494 13,059
11/30/2002 12,399 13,005
12/31/2002 12,673 13,279
1/31/2003 12,616 13,246
2/28/2003 12,788 13,431
3/31/2003 12,799 13,439
4/30/2003 12,923 13,528
5/31/2003 13,241 13,845
6/30/2003 13,144 13,786
7/31/2003 12,670 13,303
8/31/2003 12,761 13,403
9/30/2003 13,124 13,797
10/31/2003 12,990 13,727
11/30/2003 13,077 13,870
12/31/2003 13,165 13,985
1/31/2004 13,202 14,065
2/29/2004 13,319 14,277
3/31/2004 13,284 14,227
4/30/2004 13,064 13,890
5/31/2004 13,054 13,840
6/30/2004 13,083 13,890
7/31/2004 13,209 14,073
8/31/2004 13,387 14,355
9/30/2004 13,427 14,431
10/31/2004 13,473 14,555
11/30/2004 13,388 14,436
12/31/2004 13,450 14,612
1/31/2005 13,498 14,748
2/28/2005 13,467 14,699
3/31/2005 13,410 14,607
4/30/2005 13,512 14,837
5/31/2005 13,555 14,942
6/30/2005 13,604 15,035
7/31/2005 13,570 14,966
8/31/2005 13,644 15,118
9/30/2005 13,594 15,016
10/31/2005 13,541 14,925
11/30/2005 13,581 14,996
12/31/2005 13,656 15,125
1/31/2006 13,674 15,166
2/28/2006 13,746 15,268
3/31/2006 13,650 15,162
4/30/2006 13,647 15,157
5/31/2006 13,693 15,225
6/30/2006 13,620 15,167
7/31/2006 13,784 15,348
8/31/2006 13,947 15,576
9/30/2006 14,023 15,684
10/31/2006 14,100 15,782
11/30/2006 14,214 15,914
12/31/2006 14,131 15,858
1/31/2007 14,088 15,817
2/28/2007 14,219 16,026
3/31/2007 14,168 15,986
4/30/2007 14,179 16,033
5/31/2007 14,143 15,962
6/30/2007 14,097 15,880
7/31/2007 14,183 16,003
8/31/2007 14,154 15,934
9/30/2007 14,296 16,169
10/31/2007 14,324 16,241
11/30/2007 14,434 16,345
12/31/2007 14,459 16,390
1/31/2008 14,601 16,597
2/29/2008 14,190 15,837
Average Annual Total Return
Empire Builder Premier Class
Expense
1 Year 5 Years 10 Years Ratio
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Empire Builder Tax Free Bond Fund -- Builder Class -0.20% 2.10% 3.56% 1.10%
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Lehman Municipal Bond Index -1.17% 3.35% 4.71% NA
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[The following information was depicted as a line chart in the printed material]
Empire
Builder
Tax Free
Bond Fund Lehman Municipal
Date Premier Class Bond Index
---------- ------------- ----------------
2/28/1998 20,000 20,000
3/31/1998 20,012 20,018
4/30/1998 19,836 19,927
5/31/1998 20,178 20,243
6/30/1998 20,237 20,323
7/31/1998 20,265 20,373
8/31/1998 20,633 20,688
9/30/1998 20,875 20,946
10/31/1998 20,841 20,946
11/30/1998 20,916 21,019
12/31/1998 20,924 21,072
1/31/1999 21,157 21,323
2/28/1999 21,031 21,229
3/31/1999 21,054 21,259
4/30/1999 21,074 21,312
5/31/1999 20,882 21,188
6/30/1999 20,568 20,883
7/31/1999 20,602 20,959
8/31/1999 20,347 20,792
9/30/1999 20,282 20,800
10/31/1999 19,900 20,575
11/30/1999 20,248 20,794
12/31/1999 19,977 20,639
1/31/2000 19,828 20,549
2/29/2000 20,165 20,787
3/31/2000 20,732 21,242
4/30/2000 20,516 21,116
5/31/2000 20,391 21,007
6/30/2000 21,024 21,563
7/31/2000 21,347 21,863
8/31/2000 21,696 22,200
9/30/2000 21,525 22,085
10/31/2000 21,813 22,326
11/30/2000 22,050 22,494
12/31/2000 22,776 23,050
1/31/2001 22,857 23,279
2/28/2001 22,894 23,352
3/31/2001 23,148 23,562
4/30/2001 22,855 23,307
5/31/2001 23,085 23,557
6/30/2001 23,235 23,715
7/31/2001 23,648 24,067
8/31/2001 23,995 24,463
9/30/2001 23,733 24,381
10/31/2001 24,057 24,671
11/30/2001 23,845 24,463
12/31/2001 23,526 24,232
1/31/2002 23,975 24,652
2/28/2002 24,270 24,949
3/31/2002 23,760 24,460
4/30/2002 24,214 24,938
5/31/2002 24,256 25,090
6/30/2002 24,497 25,355
7/31/2002 24,795 25,681
8/31/2002 25,162 25,990
9/30/2002 25,789 26,559
10/31/2002 25,330 26,119
11/30/2002 25,140 26,010
12/31/2002 25,703 26,559
1/31/2003 25,592 26,492
2/28/2003 25,945 26,862
3/31/2003 25,974 26,878
4/30/2003 26,231 27,056
5/31/2003 26,883 27,690
6/30/2003 26,693 27,572
7/31/2003 25,749 26,607
8/31/2003 25,936 26,805
9/30/2003 26,662 27,593
10/31/2003 26,393 27,454
11/30/2003 26,588 27,741
12/31/2003 26,755 27,970
1/31/2004 26,831 28,131
2/29/2004 27,087 28,554
3/31/2004 27,019 28,454
4/30/2004 26,577 27,780
5/31/2004 26,547 27,680
6/30/2004 26,626 27,781
7/31/2004 26,888 28,146
8/31/2004 27,255 28,710
9/30/2004 27,327 28,863
10/31/2004 27,427 29,111
11/30/2004 27,258 28,871
12/31/2004 27,406 29,223
1/31/2005 27,494 29,497
2/28/2005 27,436 29,398
3/31/2005 27,341 29,213
4/30/2005 27,537 29,674
5/31/2005 27,629 29,883
6/30/2005 27,733 30,069
7/31/2005 27,669 29,933
8/31/2005 27,824 30,235
9/30/2005 27,743 30,031
10/31/2005 27,623 29,849
11/30/2005 27,709 29,992
12/31/2005 27,867 30,250
1/31/2006 27,908 30,332
2/28/2006 28,057 30,536
3/31/2006 27,866 30,325
4/30/2006 27,867 30,315
5/31/2006 27,965 30,450
6/30/2006 27,837 30,335
7/31/2006 28,177 30,696
8/31/2006 28,500 31,151
9/30/2006 28,675 31,368
10/31/2006 28,838 31,565
11/30/2006 29,060 31,828
12/31/2006 28,893 31,715
1/31/2007 28,827 31,634
2/28/2007 29,096 32,051
3/31/2007 28,977 31,972
4/30/2007 29,022 32,067
5/31/2007 28,936 31,925
6/30/2007 28,848 31,759
7/31/2007 29,030 32,006
8/31/2007 28,976 31,867
9/30/2007 29,270 32,339
10/31/2007 29,333 32,483
11/30/2007 29,580 32,690
12/31/2007 29,619 32,781
1/31/2008 29,930 33,194
2/29/2008 29,073 31,674
Expense
1 Year 5 Years 10 Years Ratio
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Empire Builder Tax Free Bond Fund -- Premier Class -0.08% 2.30% 3.81% 1.30%
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Lehman Municipal Bond Index -1.17% 3.35% 4.71% NA
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Past performance is not a guarantee of future results.
3
Expense Examples (Unaudited):
As a shareholder of The Empire Builder Tax Free Bond Fund, you incur two
types of costs: (1) transaction costs, 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, 2007
through February 29, 2008.
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
The Empire Builder Tax Free Bond Fund 9/1/07 2/29/08 9/1/07 -- 2/29/08 9/1/07 -- 2/29/08
- ------------------------------------- ------------- ------------- ----------------- -----------------
Builder Class ....................... $1,000.00 $1,002.40 $6.32 1.27%
Premier Class ....................... 1,000.00 1,003.20 5.48 1.10%
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
The Empire Builder Tax Free Bond Fund 9/1/07 2/29/08 9/1/07 -- 2/29/08 9/1/07 -- 2/29/08
- ------------------------------------- ------------- ------------- ----------------- -----------------
Builder Class ....................... $1,000.00 $1,018.55 $6.37 1.27%
Premier Class ....................... 1,000.00 1,019.39 5.52 1.10%
Summary of Portfolio Holdings (Unaudited):
Percent of
The Empire Builder Tax Free Bond Fund Net Assets
- ------------------------------------- ----------
New York State Agencies .......................................... 41.3%
New York City .................................................... 27.1
Other New York State Bonds ....................................... 15.4
Other New York State Agencies .................................... 4.5
----
88.3%
====
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* Expenses are equal to the average value times the Fund's annualized
expense ratio multiplied by the number of days in the most recent
half-year divided by the number of days in the fiscal year.
4
THE EMPIRE BUILDER TAX FREE BOND FUND
Portfolio of Investments -- February 29, 2008
Principal Fair Value
Credit Ratings** Amount (Note 2)
- ---------------- --------- ----------
Municipal Securities (88.3%)
New York City (27.1%)
AA2/AA+ New York City Municipal Water Finance Authority,
Water & Sewer System Revenue, Series A,
5.125%, 6/15/2034, Callable 6/15/2012 @ 100 ....................... $4,000,000 $ 3,917,680
New York City, General Obligation
Series A
AAA/AAA 5.250%, 11/1/2015, (MBIA) ......................................... 5,000,000 5,279,800
Series B
AAA/AAA 5.250%, 8/1/2017, Callable 12/19/2007 @ 101, (AMBAC) .............. 130,000 131,565
A3/AA 5.125%, 8/1/2019, Callable 8/1/2010 @ 101, (FGIC) ................. 2,000,000 2,034,560
Series D1
AA3/AA 5.125%, 12/1/2023, Callable 12/1/2017 @ 100 ....................... 3,000,000 2,975,760
AAA/AAA New York City, Health & Hospitals Corporation,
Health System Revenue, Series A,
5.500%, 2/15/2018, Callable 2/15/2012 @ 100, (FSA) ................... 1,000,000 1,053,460
New York City, Transitional Finance Authority, Series B
AA1/AAA 4.750%, 11/15/2015, Callable 5/15/2008 @ 101 ......................... 5,000,000 5,058,250
AA2/AAA 5.000%, 11/1/2016, Non Callable ...................................... 1,500,000 1,612,170
AA2/AAA 5.000%, 11/1/2017, Callable 5/1/2017 @ 100 ........................... 1,305,000 1,390,752
----------
Total New York City 23,453,997
----------
New York State Agencies (41.3%)
New York State Dormitory Authority (41.3%)
Augustana Lutheran Home for the Aged, Series A
AAA/AAA 5.500%, 8/1/2020, Callable 8/1/2010 @ 101, (FHA/MBIA) ................ 845,000 866,007
AAA/AAA 5.500%, 8/1/2030, Callable 8/1/2010 @ 101, (FHA/MBIA) ................ 750,000 742,335
NR/AAA Concord Nursing Home, Inc.,
5.500%, 2/15/2030, Callable 2/15/2018 @ 103, (GNMA) .................. 1,000,000 976,320
AAA/AAA Good Samaritan Medical Center, Series A,
5.625%, 7/1/2012, Callable 7/1/2009 @ 101, (MBIA) .................... 1,365,000 1,420,719
AA2/AA Memorial Sloan-Kettering Cancer Center, Series 1,
5.000%, 7/1/2034, Callable 7/1/2013 @ 100 ............................ 2,875,000 2,695,054
AAA/AAA Mental Health Services Facilities Improvement, Series A,
5.000%, 2/15/2019, Callable 2/15/2015 @ 100, (AMBAC) ................. 2,500,000 2,560,300
AA2/AAA Montefiore Medical Center
5.000%, 8/1/2022, Callable 2/1/2018 @ 100, (FHA) ..................... 1,000,000 996,900
AA2/AAA 5.000%, 8/1/2024, Callable 2/1/2018 @ 100, (FHA) ..................... 1,000,000 985,650
AAA/AAA New York Medical College, 5.250%, 7/1/2013,
Callable 7/1/2008 @ 101, (MBIA) ...................................... 1,015,000 1,030,662
AAA/AAA New York University, Series 2, 5.500%, 7/1/2018,
Callable 7/1/2011 @ 100, (AMBAC) ..................................... 500,000 528,505
The accompanying notes are an integral part of the financial statements.
5
THE EMPIRE BUILDER TAX FREE BOND FUND
Portfolio of Investments -- February 29, 2008 -- continued
Principal Fair Value
Credit Ratings** Municipal Securities -- continued Amount (Note 2)
- ---------------- --------------------------------- --------- ----------
New York State Dormitory Authority -- continued
Park Ridge Housing, Inc.
AAA/AAA 6.375%, 8/1/2020, Callable 8/1/2010 @ 101, (AMBAC/FNMA) .............. $1,000,000 $1,073,010
AAA/AAA 6.500%, 8/1/2025, Callable 8/1/2010 @ 101, (AMBAC/FNMA) .............. 1,470,000 1,564,697
Rochester Institute of Technology, Series A
AAA/NR 5.250%, 7/1/2016, Callable 7/1/2012 @ 100, (AMBAC) ................... 2,045,000 2,144,592
AAA/NR 5.250%, 7/1/2017, Callable 7/1/2012 @ 100, (AMBAC) ................... 2,155,000 2,250,380
AAA/AAA School Districts Financing, Series C, 5.250%, 4/1/2021,
Callable 10/1/2012 @ 100, (MBIA) ..................................... 1,300,000 1,338,220
AAA/AAA Special Acts School Districts Program, 6.000%, 7/1/2019,
Callable 4/21/2008 @ 100, (MBIA) ..................................... 3,540,000 3,549,416
St. Lawrence -- Lewis BOCES
AAA/AAA 4.000%, 8/15/2018, Callable 8/15/2017 @ 100,
(FSA State Aid Withholding) ....................................... 100,000 98,155
AAA/AAA 4.125%, 8/15/2020, Callable 8/15/2017 @ 100,
(FSA State Aid Withholding) ....................................... 110,000 104,258
AAA/AAA 4.250%, 8/15/2021, Callable 8/15/2017 @ 100, (FSA) ................... 100,000 94,316
AAA State Personal Income Tax, Series C,
5.000%, 12/15/2031, Callable 12/15/2016 @ 100 ........................ 2,000,000 1,948,280
NR/AA- State Supported Debt, Department of Education,
Series A, 5.000%, 7/1/2018, Callable 7/1/2016 @ 100 .................. 1,000,000 1,037,140
A1/A+ University of Rochester, Series A1, 5.000%, 7/1/2019,
Callable 1/1/2017 @ 100 .............................................. 2,305,000 2,366,036
Upstate Community Colleges
Series B
A3/AA 5.250%, 7/1/2015, Callable 7/1/2014 @ 100, (FGIC) ................. 3,140,000 3,369,848
Series A
AAA/AAA 6.000%, 7/1/2019, Prerefunded 7/1/2010 @ 101, (FSA) ............... 1,000,000 1,081,260
AAA/AAA 6.000%, 7/1/2020, Prerefunded 7/1/2010 @ 101, (FSA) ............... 845,000 913,665
----------
Total New York State Agencies 35,735,725
----------
Other New York State Agencies (4.5%)
AAA/AAA Metropolitan Transportation Authority, Service Contracts, Series A,
5.000%, 7/1/2030, Callable 7/1/2012 @ 100, (AMBAC) 2,350,000 2,288,171
AAA/AAA New York State Environmental Facilities Corp., State Water
Pollution Control Revenue, Revolving Fund, Pooled Loan,
5.900%, 1/15/2018, Callable 4/21/2008 @ 101,
(POL CTL-SRF) 725,000 726,871
A1/AA- New York State Urban Development Corp., Empire State
Development, University Facilities Grants,
6.000%, 1/1/2009, Non Callable 905,000 930,204
----------
Total Other New York State Agencies 3,945,246
----------
The accompanying notes are an integral part of the financial statements.
6
THE EMPIRE BUILDER TAX FREE BOND FUND
Portfolio of Investments -- February 29, 2008 -- continued
Principal Fair Value
Credit Ratings** Municipal Securities -- continued Amount (Note 2)
- ---------------- --------------------------------- --------- ----------
Other New York State Bonds (15.4%)
A3/NR Albany Housing Authority, Limited Obligation,
6.250%, 10/1/2012, Callable 4/21/2008 @ 100 $1,000,000 $1,002,460
Corning, City School District, General Obligation
AAA/NR 5.000%, 6/15/2012, Non Callable, (FSA) 1,000,000 1,070,140
AAA/NR 5.000%, 6/15/2013, Callable 6/15/2012 @ 100, (FSA) 970,000 1,033,642
AAA/NR 5.000%, 6/15/2014, Callable 6/15/2012 @ 100, (FSA) 600,000 632,994
Evans, General Obligation
AAA/AAA 6.800%, 4/15/2012, Non Callable, (AMBAC) 225,000 254,941
AAA/AAA 6.800%, 4/15/2013, Non Callable, (AMBAC) 225,000 259,009
A3/NR Fayetteville Manlius, Central School District, General Obligation,
5.000%, 6/15/2016, Callable 6/15/2012 @ 101, (FGIC) 375,000 390,949
Ilion, Central School District, General Obligation, Series B
A3/NR 5.500%, 6/15/2015, Callable 6/15/2012 @ 101, (FGIC) 550,000 589,891
A3/NR 5.500%, 6/15/2016, Callable 6/15/2012 @ 101, (FGIC) 500,000 533,000
AAA/AAA Mount Sinai, Union Free School District, General Obligation,
6.200%, 2/15/2012, Non Callable, (AMBAC) 1,065,000 1,174,599
North Hempstead, General Obligation, Series B
A3/AA 6.375%, 4/1/2009, Non Callable, (FGIC) 570,000 592,902
A3/AA 6.400%, 4/1/2010, Non Callable, (FGIC) 560,000 599,127
AAA/AAA Oneida County, IDA Civic Facilities, Mohawk Valley Network,
St. Luke's Memorial Hospital, 5.000%, 1/1/2013,
Callable 1/1/2010 @ 101, (FSA) 2,000,000 2,030,240
AAA/NR Oyster Bay, General Obligation,
5.000%, 3/15/2011, Non Callable, (FSA) 430,000 455,224
AAA/NR Southern Cayuga, Central School District, General Obligation,
5.000%, 5/15/2014, Callable 5/15/2012 @ 100, (FSA) 400,000 422,400
Suffolk County, General Obligation, Series D
A3/AA 5.000%, 11/1/2015, Callable 11/1/2008 @ 101, (FGIC) 1,125,000 1,143,990
A3/AA 5.000%, 11/1/2016, Callable 11/1/2008 @ 101, (FGIC) 1,110,000 1,126,839
-----------
Total Other New York State Bonds 13,312,347
-----------
Total Municipal Securities (Cost $76,701,720) 76,447,315
-----------
Short Term Investment (0.0%)(a)
Dreyfus New York Municipal Cash Management Fund 10,000 10,000
-----------
Total Investments (Cost $76,711,720)(b) -- 88.3% $76,457,315
Net Other Assets (Liabilities) -- 11.7% 10,126,239
-----------
NET ASSETS -- 100.0% $86,583,554
===========
- ----------
(a) Variable or Floating Rate Security.
(b) See notes to financial statements for tax unrealized
appreciation/depreciation of securities.
The accompanying notes are an integral part of the financial statements.
7
THE EMPIRE BUILDER TAX FREE BOND FUND
Portfolio of Investments -- February 29, 2008-- continued
AMBAC Insured as to principal and interest by the American Municipal Bond Insurance Corp.
FGIC Insured as to principal and interest by the Financial Guaranty Insurance Co.
FHA Insured as to principal and interest by the Federal Housing Administration.
FNMA Insured as to principal and interest by the Federal National Mortgage Association.
FSA Insured as to principal and interest by Federal Security Assurance.
GNMA Insured as to principal and interest by Government National Mortgage Association
MBIA Insured as to principal and interest by the Municipal Bond Insurance Association.
POL CTL-SRF Insured as to principal and interest by Pollution Control State Revenue Fund.
**Credit Ratings given by Moody's Investor Service, Inc. and Standard & Poor's
Corp. (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 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.
The accompanying notes are an integral part of the financial statements.
8
THE EMPIRE BUILDER TAX FREE BOND FUND
Statement of Assets and Liabilities
February 29, 2008
Assets:
Investments in securities, at fair value (cost $76,711,720) (Note 2) ................... $76,457,315
Cash ................................................................................... 6,361,483
Interest and dividends receivable ...................................................... 913,290
Receivable for capital shares issued ................................................... 20
Receivable for investments sold ........................................................ 4,905,750
Prepaid expenses and other assets ...................................................... 59,388
-----------
Total Assets ......................................................................... 88,697,246
Liabilities:
Dividends payable ...................................................... $ 14,255
Payable for investments purchased ...................................... 1,969,000
Payable for capital shares redeemed .................................... 200
Advisory fees payable (Note 4) ......................................... 28,272
Administration fees payable (Note 4) ................................... 2,205
Transfer agency fees payable (Note 4) .................................. 26,771
Fund accounting fees payable ........................................... 169
Custodian fees payable ................................................. 1,852
Compliance services fees payable (Note 4) .............................. 524
Trustees' fees payable ................................................. 3,285
Other accrued expenses ................................................. 67,159
-----------
Total Liabilities .................................................................... 2,113,692
-----------
Net assets ................................................................................ $86,583,554
===========
Net Assets:
Capital ................................................................................ $86,838,808
Accumulated undistributed net investment income ........................................ 13,697
Accumulated undistributed net realized losses from investments ......................... (14,546)
Net unrealized depreciation of investments ............................................. (254,405)
-----------
Net Assets ................................................................................ $86,583,554
===========
Builder Class:
Net Assets ............................................................. $41,335,605
Shares of Beneficial Interest Outstanding .............................. 2,436,508
-----------
Net Asset Value, Offering and Redemption Price per share ............... $ 16.97
===========
Premier Class:
Net Assets ............................................................. $45,247,949
Shares of Beneficial Interest Outstanding .............................. 2,666,580
-----------
Net Asset Value, Offering and Redemption Price per share ............... $ 16.97
===========
The accompanying notes are an integral part of the financial statements.
9
THE EMPIRE BUILDER TAX FREE BOND FUND
Statement of Operations
For the Year Ended February 29, 2008
Investment Income:
Interest ............................................................... $ 3,917,087
Dividend ............................................................... 64,180
-----------
Total Investment Income ................................................ 3,981,267
Expenses:
Advisory fees (Note 4) ................................. $ 365,684
Administration fees (Note 4) ........................... 206,000
Fund accounting fees (Note 4) .......................... 63,629
Transfer agency fees -- Builder Class (Note 4) ......... 112,529
Transfer agency fees -- Premier Class (Note 4) ......... 37,673
Custody fees ........................................... 30,315
Trustees' fees (Note 4) ................................ 55,293
Audit fees ............................................. 57,191
Compliance services fee (Note 4) ....................... 68,504
Other fees ............................................. 125,825
-----------
Total Expenses ....................................... 1,122,643
Less: Custody fee credit ............................. (25,769)
-----------
Total Net Expenses ..................................................... 1,096,874
-----------
Net Investment Income ..................................................... 2,884,393
-----------
Realized/Unrealized Losses on Investments (Notes 2 and 3)
Net realized losses from investment transactions ....... (43,534)
Change in unrealized appreciation/depreciation from
investment transactions .............................. (2,926,610)
-----------
Net realized/unrealized losses from investments ...................... (2,970,144)
-----------
Change in net assets resulting from operations ............................ $ (85,751)
===========
The accompanying notes are an integral part of the financial statements.
10
THE EMPIRE BUILDER TAX FREE BOND FUND
Statements of Changes in Net Assets
Year Ended Year Ended
February 29, 2008 February 28, 2007
----------------- -----------------
From Investment Activities:
Operations:
Net investment income ......................................................... $ 2,884,393 $ 3,201,587
Net realized gains (losses) from investment transactions ...................... (43,534) 851,324
Change in unrealized appreciation/depreciation from investment transactions ... (2,926,610) (643,480)
----------- ------------
Change in net assets resulting from operations ................................ (85,751) 3,409,431
----------- ------------
Distributions to Shareholders from:
Net investment income:
Builder Class ................................................................. (1,359,940) (1,465,943)
Premier Class ................................................................. (1,597,660) (1,721,433)
Net realized gains from investment transactions:
Builder Class ................................................................. (222,248) (150,345)
Premier Class ................................................................. (245,249) (165,902)
----------- ------------
Total distributions ........................................................ (3,425,097) (3,503,623)
----------- ------------
Change in net assets from capital share transactions ............................ (4,768,154) (6,906,289)
----------- ------------
Change in net assets .......................................................... (8,279,002) (7,000,481)
Net Assets:
Beginning of period ........................................................... 94,862,556 101,863,037
----------- ------------
End of period ................................................................. $86,583,554 $ 94,862,556
=========== ============
Accumulated net investment income ............................................. $ 13,697 $ 108,267
=========== ============
Capital Transactions:
Builder Class
Proceeds from shares issued ................................................... $ 826,510 $ 731,923
Dividends reinvested .......................................................... 1,446,247 1,509,355
Value of shares redeemed ...................................................... (4,269,790) (5,504,685)
----------- ------------
Total Builder Class ........................................................ (1,997,033) (3,263,407)
----------- ------------
Premier Class
Proceeds from shares issued ................................................... 735,984 469,568
Dividends reinvested .......................................................... 1,531,526 1,623,363
Value of shares redeemed ...................................................... (5,038,631) (5,735,813)
----------- ------------
Total Premier Class ........................................................ (2,771,121) (3,642,882)
----------- ------------
Change in net assets from capital share transactions .......................... $(4,768,154) $ (6,906,289)
=========== ============
Share Transactions:
Builder Class
Issued ........................................................................ 47,542 41,662
Reinvested .................................................................... 83,198 85,919
Redeemed ...................................................................... (245,071) (313,777)
----------- ------------
Total Builder Class Shares ................................................. (114,331) (186,196)
----------- ------------
Premier Class
Issued ........................................................................ 42,377 26,740
Reinvested .................................................................... 88,105 92,388
Redeemed ...................................................................... (288,649) (326,261)
----------- ------------
Total Premier Class Shares ................................................. (158,167) (207,133)
----------- ------------
11
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, 2008 February 28, 2007 February 28, 2006 February 28, 2005 February 29, 2004
----------------- ----------------- ----------------- ----------------- -----------------
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 ....... $ 17.64 $ 17.65 $ 17.66 $ 17.66 $ 17.77 $ 17.77 $ 18.12 $ 18.13 $ 18.08 $ 18.08
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Investment Activities:
Net investment income ..... 0.54 0.57 0.56 0.59 0.46 0.50 0.41 0.45 0.51 0.55
Net realized/unrealized
gains/(losses) on
investments ............. (0.57) (0.58) 0.04 0.05 (0.10) (0.10) (0.22) (0.23) 0.22 0.23
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from Investment
Operations .............. (0.03) (0.01) 0.60 0.64 0.36 0.40 0.19 0.22 0.73 0.78
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Distributions:
Net investment income ..... (0.55) (0.58) (0.56) (0.59) (0.46) (0.50) (0.41) (0.45) (0.51) (0.55)
Net realized capital gains. (0.09) (0.09) (0.06) (0.06) (0.01) (0.01) (0.13) (0.13) (0.18) (0.18)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions ....... (0.64) (0.67) (0.62) (0.65) (0.47) (0.51) (0.54) (0.58) (0.69) (0.73)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value,
End of Period ............. $ 16.97 $ 16.97 $ 17.64 $ 17.65 $ 17.66 $ 17.66 $ 17.77 $ 17.77 $ 18.12 $ 18.13
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total Return ................. (0.20)% (0.08)% 3.44% 3.70% 2.07% 2.26% 1.11% 1.29% 4.16% 4.40%
Ratios/Supplementary Data:
Net Assets, End of Period
(in thousands) .......... $41,336 $45,248 $45,010 $49,853 $48,323 $53,540 $52,222 $56,313 $55,504 $61,048
Ratios of Net Investment
Income to Average
Net Assets .............. 3.07% 3.25% 3.19% 3.39% 2.67% 2.86% 2.32% 2.55% 2.85% 3.03%
Ratios of Net Expenses
to Average Net Assets (b) 1.30% 1.12% 1.28% 1.08% 1.20% 1.01% 1.18% 0.95% 1.04% 0.86%
Ratios of Expenses
to Average Net Assets* .. 1.33% 1.14% 1.30% 1.10% 1.21% 1.02% 1.22% 0.99% 1.05% 0.87%
Portfolio Turnover Rate (a) 69.87% 69.87% 134.56% 134.56% 52.14% 52.14% 100.38% 100.38% 202.77% 202.77%
- ----------
* 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.
(b) Ratio as disclosed reflects the impact of custody fee credits from the
custodian. Had the custody credits not been included the impact would have
been to increase the ratios by 0.03%, 0.02%, 0.01%, 0.01%, and 0.01%, for
the years 2008, 2007, 2006, 2005 and 2004, respectively.
The accompanying notes are an integral part of the financial statements.
12
THE EMPIRE BUILDER TAX FREE BOND FUND
Notes to Financial Statements
February 29, 2008
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 amounts of
income and expenses, assets and liabilities and disclosure of contingent assets
and liabilities at the dates of the financial statements. Changes in the
economic environment, financial markets and any other parameters used in
determining these estimates could cause actual results to differ from these
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").
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 market value. Investments in
investment companies are reported at their respective net asset values as
reported by those companies.
13
THE EMPIRE BUILDER TAX FREE BOND FUND
Notes to Financial Statements -- continued
February 29, 2008
New Accounting Pronouncements
As required, effective August 30, 2007, the Fund adopted Financial
Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in
Income Taxes ("FIN 48"). FIN 48 provides guidance for how uncertain tax
positions should be recognized, measured, presented and disclosed in the
financial statements. The adoption of FIN 48 did not impact the Fund's net
assets or results of operations.
In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157 ("SFAS 157"), "Fair Value Measurements." This standard
establishes a single authoritative definition of fair value, sets out a
framework for measuring fair value and requires additional disclosures about
fair value measurements. SFAS 157 applies to fair value measurements already
required or permitted by existing standards. SFAS 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007
and interim periods within those fiscal years. The changes to current
accounting principles generally accepted in the United States of America from
the application of this Statement relate to the definition of fair value, the
methods used to measure fair value and the expanded disclosures about fair
value measurements. At this time, the Fund does not believe the adoption of
SFAS 157 will significantly impact the financial statement amounts; however,
additional disclosures may be required about the inputs used to develop the
measurements and the effect of certain of the measurements on changes in net
assets for the period.
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. 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 income or excise tax. Therefore, no federal income tax
provision is required.
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.
14
THE EMPIRE BUILDER TAX FREE BOND FUND
Notes to Financial Statements -- continued
February 29, 2008
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 29, 2008. 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, 2008, amounted to $58,942,739
and $72,063,573, respectively. During the period, 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 the Fund's
average annual net assets. For the year ended February 29, 2008, there was no
reduction of advisory fees pursuant to this agreement.
Citi Fund Services Ohio, Inc. ("Citi Ohio" or the "Administrator") and
Citi Fund Services, Inc. ("Citi"), subsidiaries of Citi Investor Services,
Inc., serves as the Fund's administrator, transfer agent and fund accountant.
Prior to August 1, 2007, Citi Ohio and Citi were known as Bisys Fund Services
Ohio, Inc. and Bisys Fund Services, Inc., respectively, Citi Ohio and Citi
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
15
THE EMPIRE BUILDER TAX FREE BOND FUND
Notes to Financial Statements -- continued
February 29, 2008
(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 Citi Ohio (the
"CCO Agreement"), Citi Ohio makes an employee available to serve as the Fund's
Chief Compliance Officer (the "CCO"). Under the CCO Agreement, Citi 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 are reflected on the Statement of Operations as
"Compliance services fee". Citi Ohio pays the salary and other compensation
earned by any such individuals as employees of Citi Ohio.
Certain Officers and Trustees of the Fund are affiliated with the Adviser
or the Administrator. Such Officers and Trustees receive no compensation from
the Fund for serving in their respective roles. Each of the four non-interested
Trustees who serve on both the Board and the Audit Committee are compensated
$2,100 in retainer per quarter and a $900 fee for each regularly scheduled
meeting, plus reimbursement for certain expenses. During the year ended
February 29, 2008, actual Trustee compensation was $55,200 in total from the
Fund.
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:
The tax character of dividends paid to shareholders during the fiscal year
ended February 29, 2008 were as follows:
Distributions paid from
------------------------
Total
Ordinary Net Long-Term Total Taxable Tax Exempt Distributions
Income Distributions Distributions Distributions Paid*
-------- ------------- ------------- ------------- -------------
The Empire Builder Tax
Free Bond Fund $424,427 $44,538 $468,965 $2,950,370 $3,419,335
The tax character of dividends paid to shareholders during the fiscal year
ended February 28, 2007 were as follows:
Distributions paid from
------------------------
Total
Ordinary Net Long-Term Total Taxable Tax Exempt Distributions
Income Distributions Distributions Distributions Paid*
-------- ------------- ------------- ------------- -------------
The Empire Builder Tax
Free Bond Fund $55,404 $316,247 $371,651 $3,166,469 $3,538,120
- ----------
* Total distributions paid may differ from the amount reported in the
Statement of Changes in Net Assets because for tax purposes distributions
are recognized when actually paid.
16
THE EMPIRE BUILDER TAX FREE BOND FUND
Notes to Financial Statements -- continued
February 29, 2008
As of February 29, 2008 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 $ -- $27,952 $ -- $27,952 $(14,255) $(27,653) $(241,298) $(255,254)
During the year February 29, 2008, the Empire Builder Tax Free Bond Fund
will elect to defer post October losses of $27,653.
As of February 29, 2008, 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 $76,698,613 $1,064,165 $(1,305,463) $(241,298)
- ----------
** 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.
17
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of
The Empire Builder Tax Free Bond Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Empire Builder Tax Free Bond
Fund (the "Fund") at February 29, 2008, 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 29, 2008 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Columbus, Ohio
April 11, 2008
18
THE EMPIRE BUILDER TAX FREE BOND FUND
February 29, 2008
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.
19
THE EMPIRE BUILDER TAX FREE BOND FUND
Investment Advisory Contract Approval (Unaudited)
February 29, 2008
The Fund's Advisory Agreement is subject to annual approval by (i) the
vote of the Board or of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund, and (ii) the vote of a majority of the
Trustees who are not interested persons of the Fund ("Independent Trustees").
The Advisory Agreement is terminable with respect to the Fund by the Adviser,
the Fund, or a vote of a majority of the outstanding voting securities of the
Fund, without penalty, on 60 days' prior written notice and will terminate
automatically in the event of its assignment (as defined for purposes of the
1940 Act).
The Trustees meet over the course of the year with investment advisory
personnel from the Adviser and regularly review detailed information regarding
the investment program and performance of the Fund. The Trustees met in June
2007 to consider the continuation of the Fund's Advisory Agreement. In
connection with this meeting, the Trustees received materials to assist them
with their review. These materials included, among other things, (i)
information on the Fund's investment performance and the performance of a group
of similar mutual funds (some of which was prepared by a third party); (ii)
information on the Fund's advisory fees and other expenses, including
information comparing the Fund's expenses to a group of similar funds (which
was prepared by a third party) and information about any applicable fee waiver
and expense reimbursement and fee "breakpoints"; and (iii) information about
the profitability of the Advisory Agreement to the Adviser. In considering
whether to approve the continuation of the Advisory Agreement, the Board did
not identify any single factor as determinative. Rather, the board weighed and
balanced all of the factors considered. Matters considered by the Board
included the factors described below. In their evaluation of these factors, the
Independent Trustees were advised by counsel independent of the Fund and the
Adviser and had the opportunity to ask questions of or request information from
the Adviser.
The Board considered the fees charged by the Adviser to the Fund under the
Advisory Agreement. The Adviser furnished information to the Board compiled by
a third party showing a comparison of the Adviser's fee rate for the Fund
compared to a group of similar mutual funds selected by the third party. The
data showed that the Fund's advisory fee rate is below the median and the
average of the comparative fund group. The data also indicated that the Fund's
total expense ratio was higher than the median and average of the comparative
fund group. The Board considered that the Fund, because it was smaller than
most of the funds to which it was being compared, could not take advantage of
economies of scale (which can reduce fund expenses) to the same extent as those
larger funds. The Board took note of their earlier discussions regarding the
size of the Fund, the impact of size on expense ratios and the additional
information they had requested from the Adviser. The Board also discussed the
Fund's decline in net assets over the preceding several years and the resulting
increase in the Fund's expense ratio and steps the Adviser might take to
stabilize the Fund's net assets. They further considered the affect of the
interest rate environment and macro-economic trends on Fund sales, and noted
differences between the Fund and other intermediate New York municipal bond
funds including (i) the Fund is generally managed conservatively and is
generally less volatile than other, similar funds, (ii) the Fund does not
invest in bonds subject to the alternative minimum tax, and (iii) the Fund does
not pay a sales load or distribution or service fee. The Adviser also provided
information about the costs to it of providing services to the Fund and
information about its profitability with respect to its management of the Fund.
In reviewing the fees payable
20
THE EMPIRE BUILDER TAX FREE BOND FUND
Investment Advisory Contract Approval (Unaudited) -- continued
February 29, 2008
under the Advisory Agreement, the Board also took into account so-called
"fallout benefits" to the Adviser, such as the convenience to investors in the
Adviser's New York tax exempt unit investment trusts of the availability of the
Fund for automatic investment of amounts distributed from the unit investment
trusts. The Board also considered the demands and complexity of the investment
management of the Fund, and the fact that profitability could be affected by
the salaries paid to persons with an ownership interest in the Adviser. After
considering these and other relevant factors, the Trustees concluded that the
fees and expenses of the Fund, the costs of the services to be provided and the
profits to be realized by the Adviser and its affiliates from their
relationship with the Fund were not excessive or unreasonable and supported the
renewal of the Advisory Agreement.
The Board considered to what extent economies of scale would likely be
realized as the Fund grows. The Board noted that the advisory fee is currently
subject to a breakpoint, and that the advisory fee is subject to further
reduction if the Fund's total expenses exceed an expense cap. As noted above,
the Board also considered that the Fund's small size did not permit it to take
advantage of economies of scale to the same extent as larger funds. After
considering these and other relevant factors, the Board concluded that these
factors supported the renewal of the Advisory Agreement.
The Board reviewed performance information for the Fund for various
periods. That review included an examination of a comparison of the fund's
performance to the performance of a group of other New York municipal debt
mutual funds selected by a third party. The Board noted that the performance of
the Fund was below the median and average performance of the funds in the
comparative group. They further noted that the Adviser had provided reasons for
the performance disparity, including the Adviser's belief that it had been
prudent to reduce the risk of the Fund by causing the Fund to take a relatively
defensive investment approach, which reduced Fund returns. Further, the Board
noted that at least part of the underperformance could be attributed to the
Fund's higher expenses, which stem from the Fund's small size. After
considering these and other relevant factors, the Board concluded that these
factors supported the renewal of the Advisory Agreement.
The Board considered the nature, extent and quality of the services
provided by the Adviser. In this regard, the Board took into account the
experience of the Fund's portfolio management team and of the Adviser's senior
management, and the time and attention devoted to the Fund. After considering
these and other relevant factors, the Board concluded that these factors
supported the renewal of the Advisory Agreement.
After considering all of the information described above, the Board at the
meeting unanimously voted to approve the continuation of the Advisory
Agreement, including the advisory fees proposed in connection with that
continuation.
21
THE MANAGEMENT (Unaudited)
Independent Trustees
Number of
Portfolios
Positions Overseen for
Held With The Empire Directorships
The Empire Term of Builder Held Outside
Name, Address, and Builder Tax Free Office/Length Principal Occupation(s) 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 Estate 1 None
23 Oak Lane June 1989 (1998 to present)
Scarsdale, NY 10583
09/40
EDWARD A. KUCZMARSKI Trustee Since Certified Public Accountant, 1 Director of
Hays & Company April 1984 Managing Partner, Hays & Company New York
477 Madison Ave., 10th Flr LLP (1980 to present) Daily Tax-Free
New York, NY 10022 Income Fund, Inc.,
11/49 the ISI Fund Group,
and 9 Funds within
the Reich & Tang
Complex
CAROLINE E. NEWELL Trustee Since Head, Park Ave. Christian Church 1 Director of
PACCDS April 1984 Day School (2001 to present); Head, New York
1010 Park Ave. Le Chateau des Enfants Daily Tax-Free
New York, NY 10028 (1991 to present) Income Fund, Inc.
07/40
JOHN P. STEINES, JR. Trustee Since Professor of Law, New York University 1 Director of
NYU School of Law, Rm 430 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)
Interested Persons
SETH M. GLICKENHAUS* Trustee Since General Partner of Glickenhaus & Co. 1 None
546 Fifth Avenue, 7th Floor Chairman of April 1984 (1961 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
DANIEL J. IGO Secretary Indefinite, Project Manager and Assistant Vice President, Citi Fund Services
100 Summer Street since (4/2007 - present); Compliance Manager, Citi CCO Compliance
Ste. 1500 December 2007 Services (7/2006 - 3/2007); Legal Services Manager, Citi Fund
Boston, MA 02110 services (2004 - 2006); Manager, State Street Research and
09/70 Management Company (2003 - 2004); and Senior Manager,
Columbia Management Group, Inc. (2002 - 2003)
AARON J. MASEK Treasurer Indefinite, Mr. Masek is a Senior Vice President of Citi Fund Services, Inc.
3435 Stelzer Road since (formerly called BISYS Fund Services, Inc.) since 2005 and
Columbus, Ohio 43219 June 2005 has been employed by Citi in various other roles since 1997.
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 and Anti- expires 2009 since 2004; Chief Compliance Officer of four other
07/59 Money investment companies or fund complexes for which CCO
Laundering Services of BISYS Fund Services provides compliance
Officer 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
[LOGO]
EMPIRE BUILDER
3435 Stelzer Road
Columbus, Ohio 43219
1-800-847-5886
[LOGO]
EMPIRE BUILDER
TAX FREE BOND FUND
Annual Report
February 29, 2008
Investment Adviser and Distributor
Glickenhaus & Co.
546 Fifth Avenue
7th Floor
New York, New York 10036
Fund Accountant
Citi Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
Transfer Agent and Administrator
Citi Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
Custodian
State Street Bank & Trust Co.
800 Pennsylvania Avenue
5th Floor
Kansas City, Missouri 64105-1307
Legal Counsel
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Independent Registered
Public Accounting Firm
PricewaterhouseCoopers LLP
41 S. High Street
Columbus, Ohio 43215
Customer Service
3435 Stelzer Road
Columbus, Ohio 43219
1-800-847-5886
This report is submitted for the information of the shareholders of The Empire
Builder Tax Free Bond Fund. It is not authorized for distribution to
prospective investors in the Fund unless preceded or accompanied by an
effective prospectus, obtainable from an investment dealer, which includes
information regarding the Fund's objectives and policies, record, management,
sales commission and other data.
541763
Item 2. Code of Ethics.
(a) The registrant has adopted a code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions. This code of ethics is included as an Exhibit.
(b) During the period covered by the report, with respect to the
registrant's code of ethics that applies to its principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions; there have been no
amendments to, nor any waivers granted from, a provision that relates to
any element of the code of ethics definition enumerated in paragraph (b)
of this Item 2.
Item 3. Audit Committee Financial Expert.
3(a)(1) The registrant's board of directors has determined that the registrant
has at least one audit committee financial expert serving on its audit
committee.
3(a)(2) The audit committee financial expert is Edward A. Kuczmarski, who is
"independent" for purposes of this Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
Current Year Previous Year
------------ -------------
Audit Fees $ 35,000 $ 33,000
Audit-Related Fees $ 2,750 $ 2,750
Tax Fees $ 9,000 $ 4,250
All Other Fees $ 0 $ 0
[Disclose the audit committee's pre-approval policies and procedures described
in paragraph (c)(7) of Rule 2-01 of Regulation S-X.]
[(e) If any of the services were NOT pre-approved, but otherwise approved by the
audit committee, disclose the percentage of each catgegory 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 Masek
------------------------------
Aaron Masek, Treasurer
Date May 9, 2008
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 9, 2008
By (Signature and Title)* /s/ Aaron Masek
------------------------------
Aaron Masek, Treasurer
Date May 9, 2008
* Print the name and title of each signing officer under his or her signature.