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
- --------------------------------------------------------------------------------
(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
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Date of fiscal year end: February 28,2010
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Date of reporting period: August 31, 2009
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Item 1. Reports to Stockholders.
[LOGO] EMPIRE BUILDER
---------------------
3435 Stelzer Road
Columbus, Ohio 43219
1-800-847-5886
Dear Shareholder,
We are pleased to present The Empire Builder Tax Free Bond Fund's (the
"Fund") Semi-Annual Report for the six-month period ended August 31, 2009 (the
"Period").
From January 1 through August 31, 2009, the Builder class was up 4.73%,
and the Premier class was up 4.88%. For the six-month period ended August 31,
2009, the Builder class was up 2.30% and the Premier class was up 2.40%. The
Federal Reserve Board has left the federal fund rate, the key target rate on
loans between member banks, at recent lows (between 0% and 0.25%) since their
December 2008 meeting. This low rate has helped the economy improve. The stock
market has also started to recover, but unemployment remains a great concern and
will be for years to come.
We expect taxes to increase on federal and state levels, based on the size
of the federal stimulus package and the federal deficit. If this happens, it
should make your investment in the Fund more attractive on a taxable-equivalent
basis. We also believe that inflation will increase, which will cause interest
rates to rise. We expect this will allow us to pick up additional yield when we
reinvest our bonds with shorter-term maturities.
We will continue to focus on maintaining the high credit quality of the
bonds in the Fund. When the right opportunities present themselves, we will
continue to extend the duration of the portfolio cautiously to enhance returns
while seeking to keep principal intact.
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
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* Dollar cost averaging does not insure a profit and does not protect
against loss in declining markets. An investor should consider his or her
financial ability to continue making additional investments through
periods of low share price levels.
This report must be preceded or accompanied by a prospectus. For more
complete information including charges and expenses, please call
1-800-847-5886 to receive a prospectus. Read the prospectus carefully
before investing or sending money.
The Fund's income may be subject to certain state and local taxes and,
depending on your tax status, the federal alternative minimum tax (AMT).
Past performance is no guarantee of future results. The performance data
quoted in this report represents past performance and current returns may
be lower or higher. Total return figures include changes in share price,
reinvestment of dividends and capital gains and do not reflect taxes that
a shareholder would pay on Fund distributions (if any) or on the
redemption of Fund shares. The investment return and net asset value will
fluctuate so that an investor's shares, when redeemed, may be worth more
or less than the original cost. To obtain performance information for the
most recent month end, please call 1-800-847-5886.
For more complete information on The Empire Builder Tax Free Bond Fund,
you may request additional prospectuses by calling 1-800-847-5886. You
should consider the Fund's investment objectives, risk, charges and
expenses carefully before you invest. Information about these and other
important information is in the Fund's prospectus which you should read
carefully before investing.
Not FDIC insured. May lose value. No bank guarantee.
Expense Examples (Unaudited):
As a shareholder of The Empire Builder Tax Free Bond Fund, you incur two types
of costs: (1) transaction costs, including exchange fees, and (2) ongoing costs,
including management fees as well as other Fund expenses.
These examples are intended to help you understand your ongoing costs (in
dollars) of investing in The Empire Builder Tax Free Bond Fund and to compare
these costs with the ongoing costs of investing in other mutual funds.
These examples are based on an investment of $1,000 invested at the beginning of
the period and held for the entire period from March 1, 2009 through August 31,
2009.
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
3/1/09 8/31/09 3/1/09 - 8/31/09 3/1/09 - 8/31/09
------------- ------------- ---------------- ----------------
The Empire Builder Tax Free Bond Fund Builder Class $1,000.00 $1,023.00 $6.83 1.34%
Premier Class 1,000.00 1,024.00 5.87 1.15
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
3/1/09 8/31/09 3/1/09 - 8/31/09 3/1/09 - 8/31/09
------------- ------------- ---------------- ----------------
The Empire Builder Tax Free Bond Fund Builder Class $1,000.00 $1,018.45 $6.82 1.34%
Premier Class 1,000.00 1,019.41 5.85 1.15
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* Expenses are equal to the average account value times the Fund's
annualized expense ratio multiplied by the number of days in the most
recent fiscal half-year divided by the number of days in the fiscal year
(to reflect the one-half year period).
2
THE EMPIRE BUILDER TAX FREE BOND FUND
Portfolio of Investments -- August 31, 2009
(Unaudited)
Principal Fair Value
Credit Ratings* Amount (Note 2)
- ---------------- ---------- -----------
Municipal Securities (92.2%)
New York City (13.4%)
New York City, General Obligation
Series F1
Aa3/AA 3.000%, 11/15/2010, Non-Callable............................................ $1,000,000 $ 1,026,210
Series E-1
Aa3/AA 6.250%, 10/15/2028, Continuously Callable 10/15/2018 @ 100.................. 2,000,000 2,267,260
Aa3/AAA New York City, Health & Hospitals Corp.,
Health System Revenue, Series A,
5.500%, 2/15/2018, Continuously Callable 2/15/2012 @ 100,
(FSA) ...................................................................... 1,000,000 1,041,530
New York City, Housing Development Corp.,
Multifamily Housing Revenue,
Series M
Aa2/AA 4.400%, 5/1/2014, Non-Callable.............................................. 165,000 169,846
Aa2/AA 4.450%, 11/1/2014, Non-Callable............................................. 330,000 340,577
Aa2/AA 4.600%, 5/1/2015, Non-Callable.............................................. 340,000 352,634
Aa2/AA 4.650%, 11/1/2015, Non-Callable............................................. 350,000 363,944
Aa2/AA 6.750%, 11/1/2033, Continuously Callable 11/1/2018 @ 100.................... 1,000,000 1,091,170
Aa1/AAA New York City, Transitional Finance Authority, Series B,
4.750%, 11/15/2015, Callable 9/28/2009 @ 100.5.............................. 5,000,000 5,040,600
-----------
Total New York City............................................................ 11,693,771
-----------
New York State Agencies (51.8%)
New York State Dormitory Authority (46.1%)
WR/AA- Mental Health Services Facilities Improvement, Series A,
5.000%, 2/15/2019, Continuously Callable 2/15/2015 @ 100,
(AMBAC) 2,500,000 2,602,650 A1/AA- Municipal Health Facilities,
5.000%, 1/15/2018, Non-Callable............................................. 2,000,000 2,181,020
Baa1/A New York Medical College,
5.250%, 7/1/2013, Continuously Callable 7/1/2010 @ 100,
(NATL-RE) .................................................................. 1,015,000 1,020,451
Aa3/AA- New York University, Series 2,
5.500%, 7/1/2018, Continuously Callable 7/1/2011 @ 100,
(AMBAC) .................................................................... 500,000 521,140
NR/Ae Non State Supported Debt, NYSARC, Inc., Series A,
3.000%, 7/1/2010, Non-Callable.............................................. 1,000,000 1,009,310
Rochester Institute of Technology, Series A
A1/NR 5.250%, 7/1/2016, Continuously Callable 7/1/2012 @ 100,
(AMBAC) .................................................................... 2,045,000 2,173,344
A1/NR 5.250%, 7/1/2017, Continuously Callable 7/1/2012 @ 100,
(AMBAC) .................................................................... 2,155,000 2,279,430
School Districts Financing Program
Series B
A2/A+ 2.000%, 10/1/2010, Non-Callable, (GO OF DIST)............................... 2,000,000 2,021,380
The accompanying notes are an integral part of the financial statements.
3
THE EMPIRE BUILDER TAX FREE BOND FUND
Portfolio of Investments -- August 31, 2009 -- continued
(Unaudited)
Principal Fair Value
Credit Ratings* Municipal Securities--continued Amount (Note 2)
- ---------------- ------------------------------- ---------- -----------
New York State Agencies -- continued
Series D
A2/A+ 5.250%, 10/1/2023, Continuously Callable 10/1/2012 @ 100,
(NATL-RE State Aid Withholding)............................................. $5,295,000 $ 5,511,195
Baa1/A Special Acts School Districts Program,
6.000%, 7/1/2019, Continuously Callable 7/1/2010 @ 100,
(NATL-RE) .................................................................. 3,540,000 3,540,566
St. Lawrence - Lewis BOCES
Aa3/AAA 4.000%, 8/15/2018, Continuously Callable 8/15/2017 @ 100,
(FSA) ...................................................................... 100,000 105,791
Aa3/AAA 4.125%, 8/15/2020, Continuously Callable 8/15/2017 @ 100,
(FSA) ...................................................................... 110,000 114,423
Aa3/AAA 4.250%, 8/15/2021, Continuously Callable 8/15/2017 @ 100,
(FSA) ...................................................................... 100,000 104,036
Aa1/NR State Mortgage Agency, Homeowner Mortgage Revenue,
Series 158, 6.600%, 10/1/2038, Continuously Callable
10/1/2018 @ 100 ............................................................ 500,000 540,345
NR/AA- State Supported Debt, City University Construction
5th Generation Resolution, Series E, 6.125%, 1/1/2031,
Continuously Callable 1/1/2019 @ 100........................................ 1,500,000 1,646,730
NR/AA- State Supported Debt, Department of Education, Series A,
5.000%, 7/1/2018, Continuously Callable 7/1/2016 @ 100...................... 1,000,000 1,070,900
NR/AA- State Supported Debt, Mental Health Services
Facilities Improvement, Series F, 6.250%, 2/15/2031,
Continuously Callable 8/15/2018 @ 100....................................... 1,500,000 1,655,550
Aa3/AAA The New York & Presbyterian Hospital, Series A,
5.250%, 8/15/2010, Non-Callable, (FSA FHA INS).............................. 4,000,000 4,153,720
Aa3/A+ University of Rochester, Series A1,
5.000%, 7/1/2019, Continuously Callable 1/1/2017 @ 100...................... 2,305,000 2,484,928
Upstate Community Colleges
Series B
A1/AA- 5.250%, 7/1/2015, Continuously Callable 7/1/2014 @ 100,
(NATL-RE FGIC TCRS) ........................................................ 3,140,000 3,447,783
Series A
Aa3/AAA 6.000%, 7/1/2019, Continuously Callable 7/1/2012 @ 101,
(FSA) ...................................................................... 1,000,000 1,056,630
Aa3/AAA 6.000%, 7/1/2020, Continuously Callable 7/1/2012 @ 101,
(FSA) ...................................................................... 845,000 892,852
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Total New York State Dormitory Authority....................................... 40,134,174
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Other New York State Agencies (5.7%)
Aaa/AAA New York State Environmental Facilities Corp., State Water
Pollution Control Revenue, Revolving Fund, Pooled Loan,
5.900%, 1/15/2018, Continuously Callable 1/15/2010 @ 100,
(POL CTL-SRF) ................................................................. 725,000 727,538
Aa2/NR New York State Housing Finance Agency Revenue, Series A,
2.700%, 5/1/2012, Non-Callable.............................................. 1,500,000 1,502,700
The accompanying notes are an integral part of the financial statements.
4
THE EMPIRE BUILDER TAX FREE BOND FUND
Portfolio of Investments -- August 31, 2009 -- continued
(Unaudited)
Principal Fair Value
Credit Ratings* Municipal Securities--continued Amount (Note 2)
- ---------------- ------------------------------- ---------- -----------
Other New York State Agencies -- continued
NR/AA- New York State Thruway Authority Service Contract Revenue,
Local Highway & Bridge Services,
4.500%, 4/1/2010, Non-Callable.............................................. $ 580,000 $ 591,455
NR/AA- New York State Urban Development Corp., Empire State
Development, University Facilities Grants, Series D,
5.000%, 1/1/2015, Non-Callable.............................................. 1,000,000 1,097,760
A1/AA- New York State Urban Development Corp., State Facilities Revenue,
5.700%, 4/1/2010, Non-Callable.............................................. 1,000,000 1,028,710
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Total Other New York State Agencies............................................ 4,948,163
-----------
Total New York State Agencies.................................................. 45,082,337
-----------
Other New York State Bonds (27.0%)
A1/NR Albany Housing Authority, Limited Obligation,
6.250%, 10/1/2012, Continuously Callable 10/1/2009 @ 100.................... 825,000 827,920
Corning, City School District, General Obligation
Aa3/NR 5.000%, 6/15/2012, Non-Callable, (FSA State Aid Withholding)................ 1,000,000 1,093,320
Aa3/NR 5.000%, 6/15/2013, Continuously Callable 6/15/2012 @ 100,
(FSA State Aid Withholding)................................................. 970,000 1,055,525
Aa3/NR 5.000%, 6/15/2014, Continuously Callable 6/15/2012 @ 100,
(FSA State Aid Withholding)................................................. 600,000 647,292
Aa3/AAA Erie County, IDA School Facility, City School District Buffalo Project,
Series A, 5.750%, 5/1/2025, Continuously Callable
5/1/2017 @ 100, (FSA) ...................................................... 2,000,000 2,163,040
A2/NR Fayetteville Manlius, Central School District, General Obligation,
5.000%, 6/15/2016, Callable 6/15/2012 @ 101,
(NATL-RE FGIC State Aid Withholding)........................................ 375,000 399,878
Aa1/AAA Hempstead Town, General Obligation, Series A,
3.000%, 8/15/2010, Non-Callable............................................. 2,500,000 2,556,750
Ilion, Central School District, General Obligation, Series B
A2/NR 5.500%, 6/15/2015, Callable 6/15/2012 @ 101,
(NATL-RE FGIC State Aid Withholding)........................................ 550,000 587,829
A2/NR 5.500%, 6/15/2016, Callable 6/15/2012 @ 101,
(NATL-RE FGIC State Aid Withholding)........................................ 500,000 532,185
A3/A- Long Island Power Authority, Electric System Revenue, Series A,
6.000%, 5/1/2033, Continuously Callable 5/1/2019 @ 100...................... 500,000 546,315
A2/A Metropolitan Transportation Authority Revenue, Series 2008C,
6.500%, 11/15/2028, Continuously Callable 11/15/2018 @ 100.................. 1,500,000 1,686,540
Aa2/AAA Monroe County, General Obligation, Series A,
2.000%, 6/1/2010, Non-Callable, (Assured GTY)............................... 4,015,000 4,032,465
A2/NR Mount Sinai, Union Free School District, General Obligation,
6.200%, 2/15/2012, Non-Callable,
(AMBAC State Aid Withholding)............................................... 1,065,000 1,178,976
Aa2/A North Hempstead, General Obligation, Series B,
6.400%, 4/1/2010, Non-Callable, (NATL-RE FGIC).............................. 560,000 579,169
The accompanying notes are an integral part of the financial statements.
5
THE EMPIRE BUILDER TAX FREE BOND FUND
Portfolio of Investments -- August 31, 2009 -- continued
(Unaudited)
Principal Fair Value
Credit Ratings* Municipal Securities--continued Amount (Note 2)
- ---------------- ------------------------------- ---------- -----------
Other New York State Bonds -- continued
Aa3/AAA Oneida County, IDA Civic Facilities, Mohawk Valley Network,
St. Luke's Memorial Hospital,
5.000%, 1/1/2013, Continuously Callable 1/1/2010 @ 100,
(FSA) $1,640,000 $ 1,654,514
Aa2/AAA Oneida County, Public Improvement, General Obligation, Series A,
3.000%, 4/15/2010, Non-Callable, (Assured GTY).............................. 1,345,000 1,363,494
Aa3/NR Oyster Bay, General Obligation,
5.000%, 3/15/2011, Non-Callable, (FSA)...................................... 430,000 457,808
Aa3/AAA Rockland County, General Obligation,
3.000%, 5/1/2010, Non-Callable, (FSA)....................................... 1,650,000 1,674,535
Aa3/NR Southern Cayuga, Central School District, General Obligation,
5.000%, 5/15/2014, Callable 5/15/2012 @ 100,
(FSA State Aid Withholding)................................................. 400,000 429,736
-----------
Total Other New York State Bonds............................................... 23,467,291
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Total Municipal Securities (Cost $77,921,322).................................. 80,243,399
Short Term Investment (4.6%)(a)
Dreyfus New York Municipal Cash Management Fund, 0.320%........................ 4,000,000 4,000,000
-----------
Total Investments (Cost $81,921,322)(b) -- 96.8%............................... 84,243,399
Net Other Assets (Liabilities) -- 3.2%......................................... 2,763,469
-----------
NET ASSETS -- 100.0%........................................................... $87,006,868
===========
- ----------
(a) Variable or Floating Rate Security. Rate disclosed is as of August 31,
2009.
(b) See notes to financial statements for tax unrealized
appreciation/depreciation of securities.
* Credit Ratings given by Moody's Investor Service, Inc. and Standard &
Poor's Corp. (Unaudited)
AMBAC Insured as to principal and interest by the American
Municipal Bond Insurance Corp.
BOCES Board of Cooperative Educational Services.
FGIC Insured as to principal and interest by the Financial
Guaranty Insurance Co.
FHA Insured as to principal and interest by the Federal
Housing Administration.
FSA Insured as to principal and interest by Federal Security
Assurance.
GO OF DIST Payments are guaranteed by the Full Faith and Credit of
the District.
GTY Guaranty
IDA Industrial Development Agency
INS Insured
NATL-RE Reinsured as to principal and interest by the National
Public Finance Guarantee Corporation.
POL CTL-SRF Insured as to principal and interest by the Pollution
Control State Revenue Fund.
TCRS Transferable Custodial Receipts
The accompanying notes are an integral part of the financial statements.
6
THE EMPIRE BUILDER TAX FREE BOND FUND
Portfolio of Investments -- August 31, 2008 -- continued
(Unaudited)
Descriptions of Credit Ratings given by Moody's Investor Service Inc.
("Moody's") and Standard and Poor's Corp. ("Standard and Poor's"):
Moody's
- -------
Aaa Issuers or issues rated Aaa demonstrate the strongest
creditworthiness relative to other U.S. municipal or tax-exempt
issuers or issues.
Aa Issuers or issues rated Aa demonstrate very strong creditworthiness
relative to other U.S. municipal or tax-exempt issuers or issues.
A Issuers or Issues rated A represent above-average creditworthiness
relative to other U.S. municipal or tax-exempt issuers or issues.
NR Not Rated. In the opinion of the Investment Advisor, instrument
judged to be of comparable investment quality to rated securities
which may be purchased by the fund.
WR Rating has been withdrawn.
For items possessing the strongest investment attributes of their category,
Moody's gives that letter rating followed by a number.
Standard and Poor's
- -------------------
AAA An obligation rated `AAA' has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
AA An obligation rated `AA' differs from the highest-rated obligations
only to a small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
A An obligation rated `A' is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions that
obligations in higher-rated categories. However, the obligor's
capacity to meet financial commitment on the obligation is still
strong.
NR Not Rated. In the opinion of the Investment Advisor, instrument
judged to be of comparable investment quality to rated securities
which may be purchased by the fund.
Standard & Poor's ratings may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.
Summary of Portfolio Holdings (Unaudited)
Percent of
The Empire Builder Tax Free Bond Fund Net Assets
- ------------------------------------- ----------
New York State Agencies........................................ 51.8%
Other New York State Bonds..................................... 27.0
New York City.................................................. 13.4
Short Term Investments......................................... 4.6
Net Other Assets (Liabilities)................................. 3.2
-----
100.0%
=====
The accompanying notes are an integral part of the financial statements.
7
THE EMPIRE BUILDER TAX FREE BOND FUND
Statement of Assets and Liabilities
August 31, 2009
(Unaudited)
Assets:
Investments in securities, at fair value (cost $81,921,322) (Note 2)..................................... $84,243,399
Cash..................................................................................................... 1,986,429
Interest and dividends receivable........................................................................ 854,962
Receivable for capital shares issued..................................................................... 319
Prepaid expenses and other assets........................................................................ 19,294
-----------
Total Assets........................................................................................... 87,104,403
Liabilities:
Dividends payable...................................................................... $ 21,340
Payable for capital shares redeemed.................................................... 6,662
Advisory fees payable (Note 4)......................................................... 29,437
Administration fees payable (Note 4)................................................... 3,483
Transfer agency fees payable (Note 4).................................................. 12,415
Fund accounting fees payable (Note 4).................................................. 3,691
Custodian fees payable................................................................. 2,038
Compliance services fees payable (Note 4).............................................. 4,200
Trustees' fees payable (Note 4)........................................................ 2,656
Other accrued expenses................................................................. 11,613
-----------
Total Liabilities...................................................................... 97,535
-----------
Net Assets................................................................................ $87,006,868
===========
Net Assets:
Capital.................................................................................................. $84,573,341
Accumulated undistributed net investment income.......................................................... 10,565
Accumulated undistributed net realized gains from investments............................................ 100,885
Net unrealized appreciation of investments............................................................... 2,322,077
-----------
Net Assets.................................................................................................. $87,006,868
===========
Builder Class:
Net Assets............................................................................. $40,931,891
Shares of Beneficial Interest Outstanding
(unlimited shares authorized)....................................................... 2,338,260
-----------
Net Asset Value, Offering and Redemption Price per share............................... $ 17.51
===========
Premier Class:
Net Assets............................................................................. $46,074,977
Shares of Beneficial Interest Outstanding
(unlimited shares authorized)....................................................... 2,631,811
-----------
Net Asset Value, Offering and Redemption Price per share............................... $ 17.51
===========
The accompanying notes are an integral part of the financial statements.
8
THE EMPIRE BUILDER TAX FREE BOND FUND
Statement of Operations
For the Six Months Ended August 31, 2009
(Unaudited)
Investment Income:
Interest................................................................................................. $1,690,947
Dividend................................................................................................. 11,334
----------
Total Investment Income................................................................................ 1,702,281
Expenses:
Advisory fees (Note 4)................................................................. $173,745
Administration fees (Note 4)........................................................... 102,487
Fund accounting fees (Note 4).......................................................... 27,070
Transfer agency fees - Builder Class (Note 4).......................................... 54,201
Transfer agency fees - Premier Class (Note 4).......................................... 18,247
Custody fees........................................................................... 13,708
Trustees' fees (Note 4)................................................................ 23,796
Audit fees............................................................................. 21,408
Compliance services fee (Note 4)....................................................... 30,597
Legal fees............................................................................. 41,991
Other fees............................................................................. 31,892
--------
Total Expenses ...................................................................... 539,142
Less: Custody Credits ............................................................... (742)
--------
Total Net Expenses....................................................................................... 538,400
----------
Net Investment Income....................................................................................... 1,163,881
----------
Realized/Unrealized Gains on Investments (Notes 2 and 3)
Net realized gains from investment transactions........................................ 151,017
Change in unrealized appreciation/depreciation from
investment transactions.............................................................. 653,034
--------
Net realized/unrealized gains from investments......................................................... 804,051
----------
Change in net assets resulting from operations.............................................................. $1,967,932
==========
The accompanying notes are an integral part of the financial statements.
9
THE EMPIRE BUILDER TAX FREE BOND FUND
Statements of Changes in Net Assets
Six Months Ended Year Ended
August 31, 2009 February 28, 2009
---------------- -----------------
(Unaudited)
From Investment Activities:
Operations:
Net investment income ........................................................... $ 1,163,881 $ 2,439,749
Net realized gains (losses) from investment transactions ........................ 151,017 (36,367)
Change in unrealized appreciation/depreciation from
investment transactions ...................................................... 653,034 1,923,448
------------ ------------
Change in net assets resulting from operations .................................. 1,967,932 4,326,830
------------ ------------
Distributions to Shareholders from:
Net investment income:
Builder Class ................................................................... (525,004) (1,112,554)
Premier Class ................................................................... (638,880) (1,329,543)
------------ ------------
Total distributions .......................................................... (1,163,884) (2,442,097)
------------ ------------
Change in net assets from capital share transactions ............................... (78,778) (2,186,689)
------------ ------------
Change in net assets ............................................................ 725,270 (301,956)
Net Assets:
Beginning of period ............................................................. 86,281,598 86,583,554
------------ ------------
End of period ................................................................... $ 87,006,868 $ 86,281,598
============ ============
Accumulated undistributed net investment income ................................. $ 10,565 $ 10,568
============ ============
Capital Transactions:
Builder Class
Proceeds from shares issued ..................................................... $ 683,327 $ 1,091,886
Dividends reinvested ............................................................ 482,088 1,025,405
Value of shares redeemed ........................................................ (861,932) (4,101,366)
------------ ------------
Total Builder Class .......................................................... 303,483 (1,984,075)
------------ ------------
Premier Class
Proceeds from shares issued ..................................................... 129,615 718,885
Dividends reinvested ............................................................ 531,422 1,118,450
Value of shares redeemed ........................................................ (1,043,298) (2,039,949)
------------ ------------
Total Premier Class .......................................................... (382,261) (202,614)
------------ ------------
Change in net assets from capital share transactions ............................ $ (78,778) $ (2,186,689)
============ ============
Share Transactions:
Builder Class
Issued .......................................................................... 39,328 63,477
Reinvested ...................................................................... 27,710 59,769
Redeemed ........................................................................ (49,569) (238,963)
------------ ------------
Total Builder Class Shares ................................................... 17,469 (115,717)
------------ ------------
Premier Class
Issued .......................................................................... 7,456 41,835
Reinvested ...................................................................... 30,549 65,174
Redeemed ........................................................................ (60,128) (119,655)
------------ ------------
Total Premier Class Shares ...................................................... (22,123) (12,646)
------------ ------------
The accompanying notes are an integral part of the financial statements.
10
THE EMPIRE BUILDER TAX FREE BOND FUND
Financial Highlights
For a share of beneficial interest outstanding throughout each period
Six Months Ended
August 31, 2009 Year Ended Year Ended
(Unaudited) February 28, 2009 February 29, 2008
---------------------- ---------------------- ----------------------
Builder Premier Builder Premier Builder Premier
Class Class Class Class Class Class
------- ------- ------- ------- ------- -------
Net Asset Value,
Beginning of Period ........... $ 17.34 $ 17.34 $ 16.97 $ 16.97 $ 17.64 $ 17.65
------- ------- ------- ------- ------- -------
Investment Activities:
Net investment income ......... 0.23 0.24 0.47 0.50 0.54 0.57
Net realized/unrealized
gains/(losses) on
investments ................ 0.17 0.17 0.37 0.37 (0.57) (0.58)
------- ------- ------- ------- ------- -------
Total from Investment
Operations .................. 0.40 0.41 0.84 0.87 (0.03) (0.01)
------- ------- ------- ------- ------- -------
Distributions:
Net investment income ......... (0.23) (0.24) (0.47) (0.50) (0.55) (0.58)
Net realized capital
gains ...................... -- -- -- -- (0.09) (0.09)
------- ------- ------- ------- ------- -------
Total distributions ........... (0.23) (0.24) (0.47) (0.50) (0.64) (0.67)
------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period ........................ $ 17.51 $ 17.51 $ 17.34 $ 17.34 $ 16.97 $ 16.97
======= ======= ======= ======= ======= =======
Total Return (a) ................. 2.30% 2.40% 5.01% 5.19% (0.20)% (0.08)%
Ratios/Supplementary Data:
Net Assets, End of Period
(in thousands) ............. $40,932 $46,075 $40,250 $46,032 $41,336 $45,248
Ratios of Net Investment
Income to Average Net
Assets (b) ................. 2.58% 2.77% 2.74% 2.90% 3.07% 3.25%
Ratios of Net Expenses
to Average Net
Assets (b)(c) .............. 1.34% 1.15% 1.31% 1.15% 1.30% 1.12%
Ratios of Gross Expenses
to Average Net
Assets* (b) ................ 1.34% 1.15% 1.34% 1.18% 1.33% 1.14%
Portfolio Turnover
Rate (a) (d) ............... 10.58% 10.58% 74.67% 74.67% 69.87% 69.87%
Year Ended Year Ended Year Ended
February 28, 2007 February 28, 2006 February 29, 2005
---------------------- ---------------------- ----------------------
Builder Premier Builder Premier Builder Premier
Class Class Class Class Class Class
------- ------- ------- ------- ------- -------
Net Asset Value,
Beginning of Period ........... $ 17.66 $ 17.66 $ 17.77 $ 17.77 $ 18.12 $ 18.13
------- ------- ------- ------- ------- -------
Investment Activities:
Net investment income ......... 0.56 0.59 0.46 0.50 0.41 0.45
Net realized/unrealized
gains/(losses) on
investments ................ 0.04 0.05 (0.10) (0.10) (0.22) (0.23)
------- ------- ------- ------- ------- -------
Total from Investment
Operations .................. 0.60 0.64 0.36 0.40 0.19 0.22
------- ------- ------- ------- ------- -------
Distributions:
Net investment income ......... (0.56) (0.59) (0.46) (0.50) (0.41) (0.45)
Net realized capital
gains ...................... (0.06) (0.06) (0.01) (0.01) (0.13) (0.13)
------- ------- ------- ------- ------- -------
Total distributions ........... (0.62) (0.65) (0.47) (0.51) (0.54) (0.58)
------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period ........................ $ 17.64 $ 17.65 $ 17.66 $ 17.66 $ 17.77 $ 17.77
======= ======= ======= ======= ======= =======
Total Return (a) ................. 3.44% 3.70% 2.07% 2.26% 1.11% 1.29%
Ratios/Supplementary Data:
Net Assets, End of Period
(in thousands) ............. $45,010 $49,853 $48,323 $53,540 $52,222 $56,313
Ratios of Net Investment
Income to Average Net
Assets (b) ................. 3.19% 3.39% 2.67% 2.86% 2.32% 2.55%
Ratios of Net Expenses
to Average Net
Assets (b)(c) .............. 1.28% 1.08% 1.20% 1.01% 1.18% 0.95%
Ratios of Gross Expenses
to Average Net
Assets* (b) ................ 1.30% 1.10% 1.21% 1.02% 1.22% 0.99%
Portfolio Turnover
Rate (a) (d) ............... 134.56% 134.56% 52.14% 52.14% 100.38% 100.38%
- ----------
* 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) Not annualized for periods less than one year.
(b) Annualized for periods less than one year.
(c) 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 0.01%, 0.03%, 0.03%, 0.02%, 0.01%, and
0.01%, for the six months ended August 31, 2009 and the years 2009, 2008,
2007, 2006 and 2005, respectively.
(d) 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.
11
THE EMPIRE BUILDER TAX FREE BOND FUND
Notes to Financial Statements
August 31, 2009
(Unaudited)
1. Organization:
The Empire Builder Tax Free Bond Fund (the "Fund") was established as a
Massachusetts business trust by an Agreement and Declaration of Trust dated
September 30, 1983. The Fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end, non-diversified investment
company. The Fund has an unlimited number of shares authorized with no par
value.
The Fund offers two classes of shares: the Builder Class and the Premier
Class. Both classes of shares outstanding bear the same dividend, liquidation
and other rights and conditions, except that the Builder Class shares and the
Premier Class shares bear different transfer agency expenses. Each class of
shares 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 followed by
the Fund in the preparation of its financial statements. The policies are in
conformity with accounting principles generally accepted in the United States of
America ("GAAP").
Use of Estimates
Estimates and assumptions are required to be made regarding amounts of
income and expenses, assets and liabilities and disclosure of contingent assets
and liabilities as of the dates of the financial statements. Changes in the
economic environment, financial markets and any other parameters used in
determining these estimates could cause actual results to differ from these
estimated amounts.
Security Valuation
Tax-exempt securities are valued using prices provided by an independent
pricing service approved by the Fund's Board of Trustees. The independent
pricing service uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities and
various relationships between securities in determining these prices. The
methods used by the independent pricing service and the quality of valuations so
established are reviewed by Glickenhaus & Co. (the "Adviser"), under the general
supervision of the Trustees of the Fund.
Securities for which quotations are not readily available are stated at
fair value using procedures approved by the Trustees of the Fund. Short-term
debt securities having remaining maturities of sixty (60) days or less are
stated at amortized cost, which approximates market value. Investments in
investment companies are reported at their respective net asset values as
reported by those companies.
12
THE EMPIRE BUILDER TAX FREE BOND FUND
Notes to Financial Statements -- continued
August 31, 2009
(Unaudited)
Various inputs are used to determine the value of the Fund's investments.
These inputs are summarized in the three broad levels listed below:
o Level 1 -- quoted prices in active markets for identical securities.
o Level 2 -- other significant observable inputs other than level 1
quoted prices (including, but not limited to, quoted prices for
similar securities, interest rates, prepayment speeds, credit risk).
o Level 3 -- significant unobservable inputs.
Observable inputs are those based on market data obtained from sources
independent of the Fund, and unobservable inputs reflect the Fund's own
assumptions based on the best information available. The input levels are not
necessarily an indication of the risk or liquidity associated with investments
at that level.
Effective June 15, 2009, the Fund adopted Financial Accounting Standards
Board Staff Position No. 157-4, "Determining Fair Value When the Volume and
Level of Activity For the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly" ("FSP 157-4"). FSP 157-4 provides
additional guidance for estimating fair value in accordance with Statement of
Financial Accounting Standards No. 157 "Fair Value Measurements" when the volume
and level of activity for the asset or liability has significantly decreased.
FSP 157-4 is applied prospectively to all fair value measurements where
appropriate and is effective for interim and annual periods ending June 15,
2009. The adoption of FSP 157-4 did not have a material impact on the Fund's
financial statements.
The following is a summary of the inputs used as of August 31, 2009 in
valuing the Fund's investments:
Investments in Securities
------------------------------------------------------------------------------
LEVEL 2 - LEVEL 3 -
LEVEL 1 - Other Significant Significant
Investment Type Quoted Prices Observable Inputs Unobservable Inputs Total
- --------------- ------------- ----------------- ------------------- -----------
Municipal Securities $ -- $80,243,399 $ -- $80,243,399
Short-Term Investments 4,000,000 -- -- 4,000,000
---------- ----------- --------- -----------
Total $4,000,000 $80,243,399 $ -- $84,243,399
========== =========== ========= ===========
New Accounting Pronouncements
In March 2008, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 161, "Disclosures about
Derivative Instruments and Hedging Activities" ("SFAS 161"). SFAS 161 is
effective for fiscal years and interim periods beginning after November 15,
2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and
hedging activities, including how such activities are accounted for and their
effect on the Fund's financial position, performance and cash flows. The Fund
adopted SFAS 161 in the current reporting period. There was no impact to the
Fund's financial statements upon adoption of SFAS 161.
13
THE EMPIRE BUILDER TAX FREE BOND FUND
Notes to Financial Statements -- continued
August 31, 2009
(Unaudited)
In June 2009, the FASB issued Statement of Financial Accounting Standards
No. 168, "The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles - a replacement of FASB Statement No.
162" ("SFAS 168"). SFAS 168 replaces SFAS No. 162, "The Hierarchy of Generally
Accepted Accounting Principles" and establishes the "FASB Accounting Standards
Codification" (the "Codification") as the source of authoritative accounting
principles recognized by the FASB to be applied by nongovernmental entities in
the preparation of financial statements in conformity with U.S. GAAP. All
guidance contained in the Codification carries an equal level of authority. On
the effective date of SFAS 168, the Codification will supersede all
then-existing non-SEC accounting and reporting standards. All other
non-grandfathered, non-SEC accounting literature not included in the
Codification will become non-authoritative. SFAS 168 is effective for financial
statements issued for interim and annual periods ending after September 15,
2009. The Fund's management has evaluated SFAS 168 and has determined that it
will not have a significant impact on the determination or reporting of the
Fund's financial statements.
Security Transactions and Investment Income
Security transactions are accounted for no later than one business day
after the trade date. However, for financial reporting purposes, security
transactions are accounted for on the trade date. Interest income, which
includes amortization of premium and accretion of discounts, is accrued as
earned. Realized gains and losses from security transactions and unrealized
appreciation and depreciation of investments are determined on the basis of
identified cost.
When-Issued and Delayed-Delivery Securities
The Fund may purchase securities on a when-issued or delayed-delivery
basis. These securities are subject to market fluctuations and no interest
accrues to the purchaser until settlement. At the time the Fund makes the
commitment to purchase securities on a when-issued or delayed-delivery basis,
the Fund will record the transaction and thereafter reflect the value of the
securities, each day, in determining the Fund's net asset value. At the time of
delivery of the securities, the value of the securities may be more or less than
the purchase price. Until payment for the securities is made, the Fund will
segregate cash or liquid instruments, in an amount at least equal to the
purchase price, with the custodian or designate collateral having a value at
least equal to such purchase price for such when-issued securities on the Fund's
records.
Taxes
The Fund intends to qualify each year as a "regulated investment company"
under Subchapter M of the Internal Revenue Code, and the Fund distributes and
intends to continue to distribute all its tax-exempt and taxable income. By
distributing during each calendar year its net investment income, capital gains
and certain other amounts, if any, the Fund will not be subject to a federal
income or excise tax. Therefore, no federal income tax provision is required.
The Fund complies with FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes" ("FIN 48"). FIN 48 provides guidance for how
uncertain tax positions should be recognized, measured,
14
THE EMPIRE BUILDER TAX FREE BOND FUND
Notes to Financial Statements -- continued
August 31, 2009
(Unaudited)
presented and disclosed in the financial statements. FIN 48 requires the
affirmative evaluation of tax positions taken or expected to be taken in the
course of preparing the Fund's tax return to determine whether it is
more-likely-than-not (i.e., greater than 50-percent) that each tax position will
be sustained upon examination by a taxing authority based on the technical
merits of the position. A tax position that meets the more-likely-than-not
recognition threshold is measured to determine the amount of benefit to
recognize in the Fund's financial statements. Differences between tax positions
taken in a tax return and amounts recognized in the financial statements will
generally result in an increase in a liability for taxes payable, including the
recognition of any related interest and penalties as an operating expense.
For all open tax years and all major taxing jurisdictions, management of
the Fund has concluded that there are no significant uncertain tax positions
that would require recognition in the Fund's financial statements. Open tax
years are those that are open for examination by taxing authorities (i.e.,
generally, the last four tax year ends and the interim tax period since then).
Further, management of the Fund is also not aware of any tax positions for which
it is reasonably possible that the total amounts of unrecognized tax benefits
will significantly change in the next twelve months.
Distributions and Dividends
Distributions to shareholders from net investment income are declared
daily and paid monthly. The Fund also distributes at least annually
substantially all net capital gains, if any, realized from portfolio
transactions.
The amounts of distributions from net investment income and net realized
gains are determined in accordance with federal income tax regulations, which
may differ from GAAP. These "book/tax" differences are considered either
temporary or permanent in nature. To the extent these differences are permanent
in nature (e.g., reclassicfication of market discounts, gain/loss, paydowns, and
distributions), such amounts are reclassified within the composition of net
assets based on their federal tax-basis treatment. Temporary differences do not
require reclassification.
Determination of Net Asset Value and Allocation of Expenses
In calculating net asset value per share of each class, investment income
and expenses, other than class-specific expenses, are allocated daily to each
class of shares based on the number of shares outstanding. Realized and
unrealized gains and losses are allocated based on relative net assets.
Other
The Fund maintains a cash balance with its custodian and receives a
reduction of its custody fees and expenses for the amounts of interest earned on
such uninvested cash balance. There was no effect on net investment income for
the six-month period ended August 31, 2009 (the "Period"). 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.
15
THE EMPIRE BUILDER TAX FREE BOND FUND
Notes to Financial Statements -- continued
August 31, 2009
(Unaudited)
3. Purchases and Sales of Investment Securities:
Purchases and sales of investment securities, excluding short-term
investments, during the six-month period ended August 31, 2009, amounted to
$8,406,357 and $9,672,729, 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 in average daily net assets over $100,000,000.
The Adviser has agreed to a reduction of the advisory fees to the extent
that the Fund's expenses, including the advisory fees, exceed 1.50% of the
Fund's average annual net assets. For the six-month period ended August 31,
2009, 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"), both subsidiaries of Citi Investor Services,
Inc., serve as the Fund's administrator and transfer agent and fund accountant,
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 (subject to certain minimum amounts), including
reimbursement for certain expenses incurred. Fees received by Citi Ohio 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 in the Fund's 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 Fund's Board and Audit Committee are compensated
$2,100 in retainer per quarter and an additional $900 for each meeting attended.
The non-interested Trustees who serve on committees of the Board of Trustees
receive an additional attendance fee of $750 for each committee meeting attended
held on a day other than a regular quarterly meeting. The Fund provides no
pension or retirement benefits to its Trustees or former Trustees.
5. Concentration of Credit Risk:
The Fund invests primarily in debt instruments of municipal issuers in the
New York State. The issuers' abilities to meet their obligations may be affected
by economic developments in New York State or its region, as well as recent
disruptions in the credit markets and the economy, generally.
16
THE EMPIRE BUILDER TAX FREE BOND FUND
Notes to Financial Statements -- continued
August 31, 2009
(Unaudited)
6. Federal Income Tax Information:
The tax character of current year distributions paid and the tax basis of
the current components of the accumulated earnings (deficit) will be determined
at the end of the current tax year, February 28, 2010.
As of February 28, 2009, the components of accumulated earnings (deficit)
on a tax basis were as follows:
Undistributed Accumulated Total
Undistributed Undistributed Long-Term Capital Unrealized Accumulated
Ordinary Tax-Exempt Capital Accumulated Distributions and Appreciation/ Earnings/
Income Income Gains/Losses Earnings Payable Other Losses (Depreciation)** (Deficit)
------------- ------------- ------------- ----------- ------------- ------------ ---------------- -----------
The Empire Builder
Tax Free
Bond Fund...... $ -- $22,113 $ -- $22,113 $(11,545) $(63,864) $1,682,775 $1,629,479
- ----------
** The difference between the book-basis and tax-basis unrealized
appreciation (depreciation) is attributable primarily to the difference
between book and tax ammortization methods for premium and market
discount.
As of February 28, 2009, the Fund had net capital loss carryforwards of
$63,864, which expire in 2017, and which may be available to offset future
realized capital gains.
At August 31, 2009, the cost, gross unrealized appreciation and gross
unrealized depreciation on securities for federal income tax purposes, were as
follows:
Net Unrealized
Tax Unrealized Tax Unrealized Appreciation
Tax Cost Appreciation (Depreciation) (Depreciation)
---------- -------------- -------------- --------------
Empire Builder Tax-Free Bond Fund...................... 81,922,864 2,715,205 (394,670) 2,320,535
7. Subsequent Events
In May 2009, The FASB issued SFAS No. 165, "Subsequent Events" ("SFAS
165"). The Fund has adopted SFAS 165 with these financial statements. SFAS 165
requires the Fund to recognize in the financial statements the effects of all
subsequent events that provide additional evidence about conditions that existed
at the date of the Fund's Statement of Assets and Liabilities. For nonrecognized
subsequent events that must be disclosed to keep the financial statements from
being misleading, the Fund is required to disclose the nature of the event as
well as an estimate of its financial effect, or a statement that such an
estimate cannot be made. In addition, SFAS 165 requires the Fund to disclose the
date through which subsequent events have been evaluated.
Management has evaluated subsequent events following the six-month period
ending August 31, 2009 through the issuance of the Fund's Financial Statements
on October 14, 2009 and has noted no such events.
17
THE EMPIRE BUILDER TAX FREE BOND FUND
Other Information
Matters Relating to the Trustees' Consideration of the Investment Advisory
Contract Approval
The Fund's Investment Advisory Agreement (the "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 Investment Company Act of 1940,
as amended (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, by
the Fund, or by 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 receive detailed information regarding
the investment program and performance of the Fund. The Trustees met in person
in June 2009 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 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. Matters considered by the Board included, but were not limited
to, the factors described below. In their evaluation of these factors, the
Independent Trustees were advised by counsel independent of 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 equal to the average and slightly above the
median 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 earlier
discussions among themselves and with the Adviser regarding the size of the Fund
and the impact of size on the Fund's expense ratio. 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. They further considered the effect of the
economic environment and macro-economic trends on sales of Fund shares, and
noted differences between the Fund and other no load New York municipal bond
funds, including that (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
charge a sales load or pay distribution or service fees. 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 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
18
THE EMPIRE BUILDER TAX FREE BOND FUND
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 a comparison of the fund's performance to the
performance of a group of other no load New York municipal bond funds selected
by a third party. The Board noted that although the performance of the Fund over
a recent period was lower than the median and average performance of the funds
in the comparative group, over longer periods the Fund's performance exceeded
the median and average performance of the funds in the comparative group. The
Trustees also noted the Adviser's view that its conservative investment approach
had been responsible, at least in part, for the Fund's outperformance during
recent periods of market turmoil. 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 they devote 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.
Proxy Voting Information
A description of the policies and procedures that the Fund uses to
determine how to vote proxies relating to portfolio securities is available (i)
without charge, upon request, by calling 1-800-847-5886; and (ii) on the
Securities and Exchange Commission's (the "Commission") website at
http://www.sec.gov.
Information regarding how the Fund voted proxies relating to portfolio
securities during the most recent 12-month period ended June 30th is available
(i) without charge, upon request, by calling 1-800-847-5886; and (ii) on the
Commission's website at http://www.sec.gov.
Availability of Quarterly Portfolio Schedules
The Fund files a complete Schedule of Portfolio Holdings with the
Commission for the first and third quarters of each fiscal year on Form N-Q. The
Fund's Forms N-Q are available without charge on the Commission's website at
http://www.sec.gov, and may be reviewed and copied at the Commission's Public
Reference Room in Washington, D.C. Information on the operation of the Public
Reference Room may be obtained by calling 1-800-SEC-0330.
19
[LOGO] EMPIRE BUILDER
TAX FREE BOND FUND
Semi-Annual Report
August 31, 2009
(Unaudited)
Investment Adviser and Distributor
Glickenhaus & Co.
546 Fifth Avenue
7th Floor
New York, New York 10036
Fund Accountant
Citi Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
Transfer Agent and Administrator
Citi Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
Custodian
State Street Bank & Trust Co.
800 Pennsylvania Avenue
5th Floor
Kansas City, Missouri 64105-1307
Legal Counsel
Ropes & Gray LLP
One International Place
Boston, Massachusetts 02110
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
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.
00069120
[LOGO] EMPIRE BUILDER
3435 Stelzer Road
Columbus, Ohio 43219
1-800-847-5886
Item 2. Code of Ethics.
(a) Not applicable - only for annual reports.
(b) Not applicable - only for annual reports.
Item 3. Audit Committee Financial Expert.
Not applicable - only for annual reports.
Item 4. Principal Accountant Fees and Services.
Not applicable - only for annual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Investments.
(a) Not applicable.
(b) Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11. Controls and Procedures.
(a) The registrant's principal executive officer and principal financial officer
have concluded, based on their evaluation of the registrant's disclosure
controls and procedures as conducted within 90 days of the filing date of this
report, that these disclosure controls and procedures are adequately designed
and are operating effectively to ensure that information required to be
disclosed by the registrant on Form N-CSR is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the second fiscal quarter of the period covered
by this report that have materially affected or are reasonably likely to
materially affect, the registrant's internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Not applicable
(a)(2) Certifications pursuant to Rule 30a-2(a) are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) are furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) The Empire Builder Tax Free Bond Fund
By (Signature and Title) /s/ Jonathan Rosen
-------------------------
Jonathan Rosen, Treasurer
Date October 14, 2009
----------------
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 October 14, 2009
----------------
By (Signature and Title) /s/ Jonathan Rosen
-------------------------
Jonathan Rosen, Treasurer
Date October 14, 2009
----------------