N-CSR 1 e31091_ncsr.txt FORM N-CSR UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-03907 The Empire Builder Tax Free Bond Fund -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 3435 Stelzer Road, Columbus, OH 43219 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Citi Fund Services, 3435 Stelzer Road, Columbus, OH 43219 -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code:(800) 847-5886 Date of fiscal year end:February 29, 2008 Date of reporting period:February 29, 2008 Item 1. Reports to Stockholders. ------------------------------ ------------------------------ [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. ------------------------------ ------------------------------ [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 -------------------------------------------------------------------------------------------- Empire Builder Tax Free Bond Fund -- Builder Class -0.20% 2.10% 3.56% 1.10% -------------------------------------------------------------------------------------------- Lehman Municipal Bond Index -1.17% 3.35% 4.71% NA --------------------------------------------------------------------------------------------
[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 -------------------------------------------------------------------------------------------- Empire Builder Tax Free Bond Fund -- Premier Class -0.08% 2.30% 3.81% 1.30% -------------------------------------------------------------------------------------------- Lehman Municipal Bond Index -1.17% 3.35% 4.71% NA --------------------------------------------------------------------------------------------
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% ==== ---------- * 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.