OFFICERS AND TRUSTEES
Certain officers and Trustees of the Fund are affiliated with the Adviser or Ultimus. Except as disclosed above in connection with the Compliance Agreement, 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 the Fund’s Board are paid a retainer of $2,600 per quarter and an additional $900 fee for each Board meeting attended, plus reimbursement for certain expenses. The non-interested Trustees who serve on committees of the Board receive an additional fee of $750 for attendance at each committee meeting held on a day other than a regular quarterly Board meeting. Prior to March 6, 2012, the quarterly retainer paid to each Trustee was $2,100. The Fund provides no pension or retirement benefits to its Trustees or former Trustees.
|
THE EMPIRE BUILDER TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS
(Continued)
|
5. Tax Matters
The tax character of dividends paid to shareholders during the periods ended August 31, 2012 and February 29, 2012 were as follows:
|
|
|
|
|
|
|
|
|
August 31, 2012
|
|
$
|
727,634
|
|
|
$
|
727,634
|
|
|
February 29, 2012
|
|
$
|
1,662,562
|
|
|
$
|
1,662,562
|
|
The following information is computed on a tax basis for each item as of August 31, 2012:
|
Cost of portfolio investments
|
|
$
|
74,801,787
|
|
|
Gross unrealized appreciation
|
|
$
|
3,897,450
|
|
|
Gross unrealized depreciation
|
|
|
(4,397
|
)
|
|
Net unrealized appreciation
|
|
|
3,893,053
|
|
|
Accumulated undistributed tax-exempt income
|
|
|
19,221
|
|
|
Short-term capital loss carryforwards
|
|
|
(31,711
|
)
|
|
Other gains
|
|
|
2,777
|
|
|
Dividends payable
|
|
|
(7,360
|
)
|
|
Total distributable earnings
|
|
$
|
3,875,980
|
|
The difference between the federal income tax cost of portfolio investments and the financial statement cost is primarily due to differing methods in the amortization of market discount on fixed income securities.
As of February 29, 2012, the Fund had short-term capital loss carryforwards for federal tax purposes of $31,711 which may be carried forward indefinitely. These capital loss carryforwards are available to offset realized capital gains in the current and future years, thereby reducing future taxable gains distributions.
The Fund recognizes the tax benefits or expenses of uncertain tax positions only when the positions are “more likely than not” to be sustained assuming examination by tax authorities. Management has reviewed the Fund’s tax positions taken on Federal income tax returns for all open tax years (February 28, 2009 through Febru
ary 29, 2012) and has concluded that no provision for unrecognized tax benefits or expenses is required in these financial statements.
|
THE EMPIRE BUILDER TAX FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS
(Continued)
|
6. 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, as well as recent disruptions in the credit markets and the economy, generally. The issuers of municipal securities, including issuers of New York Tax Exempt Bonds, have been under stress relating to recent disruptions in the credit markets and the economy generally. These disruptions could have a significant negative effect on an issuer’s ability to make payments of principal and/or interest.
7. Subsequent Events
The Fund is required to recognize in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed as of the date of the Statement of Assets and Liabilities. For non-recognized 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. Management has evaluated subsequent events through the issuance of these financial statements and has noted no such events.
|
THE EMPIRE BUILDER TAX FREE BOND FUND
ABOUT YOUR FUND’S EXPENSES
(Unaudited)
|
We believe it is important for you to understand the impact of costs on your investment. As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including exchange fees; and (2) ongoing costs, including management fees and other Fund expenses. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
A mutual fund’s ongoing costs are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The examples below are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period (March 1, 2012 – August 31, 2012).
The table below illustrates the Fund’s ongoing costs in two ways:
Actual Fund Return – This section helps you to estimate the actual expenses that you paid over the period. The “Ending Account Value” shown is derived from the Fund’s actual return, and the third column shows the dollar amount of operating expenses that would have been paid by an investor who started with $1,000 in the Fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.
To do so, 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 given for the Fund under the heading “Expenses Paid During Period.”
Hypothetical 5% Return – This section is intended to help you compare the Fund’s ongoing costs with those of other mutual funds. It assumes that the Fund had an annual return of 5% before expenses during the period shown, but that the expense ratio is unchanged. In this case, because the return used is not the Fund’s actual return, the results do not apply to your investment. The example is useful in making comparisons because the SEC requires all mutual funds to calculate expenses based on a 5% return. You can assess the Fund’s ongoing costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other mutual funds.
Note that expenses shown in the table are meant to highlight and help you compare ongoing costs only. The Fund does not charge a sales load or redemption fee.
The calculations assume no shares were bought, sold or exchanged during the period. Your actual costs may have been higher or lower, depending on the amount of your investment, any exchanges and the timing of any purchases or redemptions.
More information about the Fund’s expenses, including historical expense ratios, can be found in this report. For additional information on operating expenses and other shareholder costs, please refer to the Fund’s prospectus.
|
THE EMPIRE BUILDER TAX FREE BOND FUND
ABOUT YOUR FUND’S EXPENSES
(Unaudited) (Continued)
|
|
|
Beginning
Account Value
March 1, 2012
|
Ending
Account Value
August 31, 2012
|
Expenses Paid
During Period*
|
|
|
|
|
|
|
Based on Actual Fund Return
|
$1,000.00
|
$1,012.10
|
$5.36
|
|
Based on Hypothetical 5% Return (before expenses)
|
$1,000.00
|
$1,019.81
|
$5.38
|
|
|
|
Based on Actual Fund Return
|
$1,000.00
|
$1,012.50
|
$4.96
|
|
Based on Hypothetical 5% Return (before expenses)
|
$1,000.00
|
$1,020.21
|
$4.98
|
|
*
|
Expenses are equal to the Class’s annualized expense ratios for the period as stated below, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
|
|
Builder Class
|
1.06%
|
|
Premier Class
|
0.98%
|
|
THE EMPIRE BUILDER TAX FREE BOND FUND
OTHER INFORMATION
(Unaudited)
|
Portfolio Holdings
The Fund files its complete schedule of portfolio holdings with the SEC as of the end of the first and third quarters of each fiscal year on Form N-Q. The filings are available free of charge, upon request, by calling 1-800-847-5886. Furthermore, you may obtain a copy of these filings on the SEC’s website at http://www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Proxy Voting Policies
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge upon request by calling toll-free 1-800-847-5886, or on the SEC’s 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 30 is also available without charge upon request by calling toll-free 1-800-847-5886, or on the SEC’s website at http://www.sec.gov.
|
THE EMPIRE BUILDER TAX FREE BOND FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
(Unaudited)
|
The Board of Trustees of the Fund, with the Trustees who are not “interested persons,” as defined by the Investment Company Act of 1940, of the Fund (the “Independent Trustees”) voting separately, have reviewed and annually approved the continuance of the Fund’s Investment Advisory Agreement (the “Advisory Agreement”) with the Adviser. The most recent approval of the Advisory Agreement took place at a Board meeting held on May 31, 2012, at which all of the Trustees were present in person.
The Independent Trustees requested such information from the Adviser as they deemed reasonably necessary to evaluate the terms of the Advisory Agreement and whether the Agreement continues to be in the best interests of the Fund and its shareholders. The Trustees considered, among other things: (1) the nature, extent and quality of the services provided by the Adviser; (2) the investment performance of the Fund and the Adviser; (3) the costs of the services provided and profits realized by the Adviser and any affiliates from their relationship with the Fund; (4) the possible economies of scale that would be realized due to the Fund’s growth; (5) whether fee levels reflect these economies of scale for the benefit of investors; (6) comparisons of services rendered to and fees paid by the Fund with the services provided to and the fees paid by other clients of the Adviser; and (7) any other benefits derived by the Adviser from its relationship with the Fund. In addition, the Trustees meet over the course of the year with investment personnel from the Adviser and regularly receive detailed information regarding the investment program and performance of the Fund, and they consider such information during their review of the Advisory Agreement. The Independent Trustees were advised by independent counsel experienced in securities matters throughout the process, who advised them of their responsibilities in determining whether to approve the continuance of the Advisory Agreement. Prior to voting, the Independent Trustees reviewed the proposal for continuance of the Advisory Agreement with management and also met in a private session with counsel at which no representatives of the Adviser were present.
The Board considered the nature, extent and quality of services provided under the Advisory Agreement and the process used by the Adviser to select portfolio securities for the Fund. 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, including their knowledge of fiscal conditions and evaluation of credit risk among various sectors and municipalities within the state of New York. After considering these and other relevant factors, the Board concluded that these factors supported the renewal of the Advisory Agreement.
The Board reviewed peer group analyses of the performance, advisory fees and expense ratios of the Fund as compared to other New York municipal bond funds. The Board reviewed the Fund’s historical performance over various periods ended March 31, 2012 with the averages of comparably managed mutual funds. The Board noted that the Fund performed below its benchmark index and the average returns of other New York municipal bond funds for the one, three, five and ten-year periods. The Board was mindful
|
THE EMPIRE BUILDER TAX FREE BOND FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
(Unaudited) (Continued)
|
that because preservation of capital is a primary investment goal of the Fund, it is managed in a conservative investment style and is generally less volatile than similar funds. The Board also took into account the Adviser’s view that the Fund’s conservative approach had been responsible, at least in part, for the Fund’s outperformance during periods of market turmoil. The Board also noted that the Fund is not managed to correlate to any particular index, nor does it invest in bonds subject to the alternative minimum tax. The Board considered the factors that have influenced the municipal bond market during the past year and impacted the management of the Fund, including (i) the fiscal stress faced by many state and local governments has increased the risk of default; (ii) the shift by municipalities towards Build America Bonds has lowered the supply of tax-exempt issues and caused a reduction in their yields; and (iii) investors’ appetite for higher-yielding issues has increased the demand for longer-term, riskier issues, causing funds with a higher credit orientation to generally underperform relative to the general municipal market. After considering all of these and other relevant factors, the Independent Trustees concluded they supported the continuance of the Advisory Agreement.
The Board reviewed the advisory fee rate paid by the Fund under the Advisory Agreement and compared that rate to the advisory fee rates of comparably managed mutual funds. The Board noted that the Fund’s advisory fee rate is lower than the average and the median of the Fund’s peer group. The Board then compared the total operating expense ratio of the Fund with the expense ratios of other similarly managed funds and found that the Fund’s expense ratio is higher than the average for such other funds. The Board noted that the Fund’s expense ratio has been increasing in recent years due to declining assets. The Board recognized that the Fund is used primarily as a reinvestment vehicle for owners of Unit Investment Trusts (“UITs”) sponsored by the Adviser, and the Adviser represented that it is trying to reverse the trend of declining assets by actively soliciting its UIT shareholders and taking other steps to market the Fund. The Board reviewed the Adviser’s costs of providing services to the Fund and its profitability from the Advisory Agreement and was mindful that the Adviser did not realize any profits during the past year from its management of the Fund, although it had realized profits in the past and was reasonably likely to do so in the future. After considering these and other relevant factors, the Trustees concluded that the fees and expenses of the Fund were reasonable, and further that the profits realized by the Adviser from its relationship with the Fund were not excessive or unreasonable and supported the continuance of the Advisory Agreement.
The Board compared the fee charged by the Adviser for providing portfolio management services to individuals and institutions investing in municipal bonds with those charged to the Fund. The Trustees concluded that the fees paid by the Fund are not unreasonable when measured against the fees paid for accounts by individual and institutional clients of the Adviser.
|
THE EMPIRE BUILDER TAX FREE BOND FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
(Unaudited) (Continued)
|
The Board considered the extent to which 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. 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. The Board also considered the “fallout” benefits to the Adviser with respect to the Fund, such as the convenience to investors in the Adviser’s New York tax-exempt UITs and the availability of the Fund for automatic investment of amounts distributed from the UITs. After considering these and other relevant factors, the Board concluded that these factors supported the continuance of the Advisory Agreement.
No single factor was considered in isolation or to be determinative to the decision of the Independent Trustees to approve continuance of the Advisory Agreement. Rather, the Trustees concluded, in light of a weighing and balancing of all factors considered, that the advisory fees payable by the Fund under the Advisory Agreement are fair and reasonable, and determined that it would be in the best interests of the Fund and its shareholders to renew the Advisory Agreement for an additional annual period.
|
Rev. December 2011
Privacy Notice
|
|
FACTS
|
WHAT DOES THE EMPIRE BUILDER TAX FREE BOND FUND DO WITH YOUR PERSONAL INFORMATION?
|
|
|
|
|
Why?
|
Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do.
|
|
|
|
|
What?
|
The types of personal information we collect and share depend on the product or service you have with us. This information can include:
§
Social Security number
§
Assets
§
Retirement Assets
§
Transaction History
§
Checking Account Information
§
Purchase History
§
Account Balances
§
Account Transactions
§
Wire Transfer Instructions
When you are
no longer
our customer, we continue to share your information as described in this notice.
|
|
|
|
|
How?
|
All financial companies need to share your personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons the Empire Builder Tax Free Bond Fund chooses to share; and whether you can limit this sharing.
|
|
|
|
|
Reasons we can share your personal information
|
Does the
Empire Builder Tax Free Bond Fund share?
|
Can you limit this sharing?
|
|
For our everyday business purposes –
Such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus
|
Yes
|
No
|
|
For our marketing purposes –
to offer our products and services to you
|
No
|
We don’t share
|
|
For joint marketing with other financial companies
|
No
|
We don’t share
|
|
For our affiliates’ everyday business purposes –
information about your transactions and experiences
|
No
|
We don’t share
|
|
For our affiliates’ everyday business purposes –
information about your creditworthiness
|
No
|
We don’t share
|
|
For nonaffiliates to market to you
|
No
|
We don’t share
|
|
|
|
|
Questions?
|
Call 1-800-847-5886
|
|
Who we are
|
|
Who is providing this notice?
|
Empire Builder Tax Free Bond Fund
Glickenhaus & Co. (Distributor)
Ultimus Fund Solutions, LLC (Administrator)
|
|
What we do
|
|
How does the Empire Builder Tax Free Bond Fund protect my personal information?
|
To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings.
Our service providers are held accountable for adhering to strict policies and procedures to prevent any misuse of your nonpublic personal information.
|
|
How does the Empire Builder Tax Free Bond Fund collect my personal information?
|
We collect your personal information, for example, when you
§
Open an account
§
Provide account information
§
Give us your contact information
§
Make deposits or withdrawals from your account
§
Make a wire transfer
§
Tell us where to send the money
§
Tells us who receives the money
§
Show your government-issued ID
§
Show your driver’s license
We also collect your personal information from other companies.
|
|
Why can’t I limit all sharing?
|
Federal law gives you the right to limit only
§
Sharing for affiliates’ everyday business purposes – information about your creditworthiness
§
Affiliates from using your information to market to you
§
Sharing for nonaffiliates to market to you
State laws and individual companies may give you additional rights to limit sharing.
|
|
Definitions
|
|
Affiliates
|
Companies related by common ownership or control. They can be financial and nonfinancial companies.
§
Glickenhaus & Co., the investment adviser to the Empire Builder Tax Free Bond Fund, could be deemed to be an affiliate.
|
|
Nonaffiliates
|
Companies not related by common ownership or control. They can be financial and nonfinancial companies
§
The Empire Builder Tax Free Bond Fund does not share with nonaffiliates so they can market to you.
|
|
Joint marketing
|
A formal agreement between nonaffiliated financial companies that together market financial products or services to you.
§
The Empire Builder Tax Free Bond Fund does not jointly market.
|
Investment Adviser and Distributor
Glickenhaus & Co.
546 Fifth Avenue
7th Floor
New York, New York 10036
Administrator, Transfer Agent
and Fund Accountant
Ultimus Fund Solutions, LLC
P.O. Box 46707
Cincinnati, Ohio 45246
Custodian
U.S. Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45202
Legal Counsel
Ropes & Gray LLP
Prudential Tower
800 Boylston Street
Boston, Massachusetts 02199
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
41 S. High Street
Columbus, Ohio 43215
Customer Service
P.O. Box 46707
Cincinnati, Ohio 45246-0707
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 or on the Fund’s website www.empirebuilderfund.com, which includes information regarding the Fund’s objectives and policies, performance record, management, expenses and other data.