1997 ANNUAL REPORT
IDS
Tax-Free
Money Fund
(prospectus enclosed)
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The goal of IDS Tax-Free Money Fund, Inc. is to provide as high a level of
current income exempt from federal income tax as is consistent with liquidity
and stability of principal. The Fund invests primarily in short-term bonds and
notes issued by or on behalf of state or local governmental units.
(This annual report includes a prospectus that describes in detail the Fund's
objective, investment policies, risks, sales charges, fees and other matters of
interest. Please read the prospectus carefully before you invest or send money.)
AMERICAN EXPRESS Financial Advisors
Distributed by American Express Financial Advisors Inc.
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Stability
without taxes
Everyone needs to have a cash reserve to cover unexpected expenses. But where to
keep it? It's easy to find an investment that provides stability and ready
access to your money, but there's usually a drawback: You have to pay taxes on
the interest the money earns. But there is an alternative -- Tax-Free Money
Fund. The interest it pays is generally free from federal taxes. The result: a
cash reserve that can let you keep the tax-exempt income it earns.
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Contents
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The purpose of this annual report is to tell investors how the Fund performed.
The prospectus, which is bound into the middle of this annual report, describes
the Fund in detail.
1997 annual report
From the chairman 4
From the portfolio manager 4
Making the most of your Fund 6
Independent auditors' report 7
Financial statements 8
Notes to financial statements 11
Investments in securities 17
IDS mutual funds 25
Federal income tax information 29
1998 prospectus
The Fund in brief 3p
Goal 3p
Types of Fund investments and their risks 3p
Manager and distributor 3p
Portfolio manager 3p
Sales charge and Fund expenses 4p
Performance 5p
Financial highlights 5p
Yield 5p
Investment policies and risks 6p
Facts about investments and their risks 6p
Alternative investment option 8p
Valuing Fund shares 8p
How to purchase, exchange or redeem shares 9p
How to purchase shares 9p
How to exchange shares 12p
How to redeem shares 13p
Special shareholder services 18p
Services 18p
Quick telephone reference 18p
Distributions and taxes 19p
Dividend and capital gain distributions 19p
Reinvestments 19p
Taxes 20p
How to determine the correct TIN 22p
How the Fund is organized 23p
Shares 23p
Voting rights 23p
Shareholder meetings 24p
Board members and officers 24p
Investment manager and transfer agent 26p
Distributor 27p
About American Express Financial Corporation 28p
General information 28p
Appendix 29p
Tax-exempt vs. taxable income 29p
(This annual report is not part of the prospectus.)
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To our shareholders
From the chairman
If you're an experienced investor, you know that the past few years have
been unusually strong in many financial markets. Perhaps just as
important, history shows that bull markets don't last forever. Though
they're often unpredictable, declines -- whether they're brief or
long-lasting, moderate or substantial -- are always a possibility. We saw
evidence of that last October, when declines in Asian markets spawned a
sharp drop in several financial markets worldwide, including the U.S.
That fact reinforces the need for investors to review periodically their
long-term goals and examine whether their investment program remains on
track to achieving them. Your quarterly investment statements are one part
of that monitoring process. The other is a meeting with your American
Express financial advisor. That becomes even more important if there's a
major change in your financial situation or in the financial markets.
William R. Pearce
(picture of) William R. Pearce
Chairman of the board
(This annual report is not part of the prospectus.)
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From the portfolio manager
IDS Tax-Free Money Fund's yield rose slightly during the past fiscal year
(January through December 1997), reflecting a modest increase in
short-term interest rates. The Fund's $1 net asset value was unchanged
during the 12 months, providing shareholders with continued stability of
principal in addition to a tax-free return.
For the seven-day period ended Dec. 31, 1997, the Fund provided an
annualized simple yield of 3.56% and an annualized compound yield of 3.62%
These are equal to 4.94 simple and 5.03% compound yields for an investor
in the 28% federal income-tax bracket.
(Investors should keep in mind that an investment in the Fund is neither
insured nor guaranteed by the U.S. government. Although the Fund seeks to
maintain a stable $1 share price, there is no assurance that it will be
able to do so. Investors also should keep in mind that, under federal law,
some notes issued in the tax-free securities market are subject to the
alternative minimum tax, or AMT. To eliminate any federal income-tax
liabilities for investors who may be subject to the AMT requirement, the
Fund does not invest in such issues.)
Rates rise while inflation stays low
Although evidence of increasing inflation was nowhere to be found,
interest rates crept up during the first several months of the year. The
trend reflected the view of many investors, who concluded that
greater-than-expected economic growth would soon push consumer prices and,
thus, inflation higher. Evidently, the Federal Reserve Board (Fed) agreed
with that reasoning, because in March it raised short-term interest rates
for the first time since 1994.
As it turned out, inflation remained remarkably tame, allowing the Fed to
take a hands-off approach to interest rates through the rest of the year.
Short-term rates rose briefly on their own in mid-summer, but, other than
that, were generally stable.
Changes to the portfolio were largely confined to a shift in its average
maturity -- from about 45 days at outset of the year to 20 days in the
spring and back to 45 days in mid-year. This fluctuation in maturity is
largely a result of ongoing seasonal supply and demand factors in the
short-term, tax-free market. A surge in the supply of new issues occurs in
early July every year, as outstanding issues mature. This results in a
short average maturity in early summer, followed by a lengthening when new
issues come to market in July. Apart from that, in my view the yield
advantage provided by longer-term issues was too slight to warrant
extending the maturity.
Looking to the current fiscal year, I expect little, if any, change in
short-term interest rates for the first several months. Assuming the
economy continues to grow at a reasonably good pace, I think rates could
move somewhat higher later in the year, boosting the Fund's yield a bit.
Terry Fettig
(picture of) Terry Fettig
Portfolio Manager
(This annual report is not part of the prospectus.)
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12-month performance
(All figures per share)
Net asset value (NAV)
Dec. 31, 1997 $1.00
Dec. 31, 1996 $1.00
Increase $ --
Distributions
Jan. 1, 1997 - Dec. 31, 1997
From income $0.03
From capital gains $ --
Total distributions $0.03
Total return* +3.2%
* The total return is a hypothetical investment in the Fund with all
distributions reinvested.
(This annual report is not part of the prospectus.)
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Making the most of the Fund
Average annual total return
(as of Dec. 31, 1997)
1 year 5 years 10 years
+3.18% +2.61% +3.44%
Although there is no guarantee, the Fund will use its best efforts to
maintain a constant net asset value of $1 per share.
Your investment and return values may fluctuate so that your shares, when
redeemed, may be worth more or less than the original cost. This was a
period of widely fluctuating security prices. Past performance is no
guarantee of future results.
(This annual report is not part of the prospectus.)
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The financial statements contained in Post-Effective Amendment #31 to
Registration Statement No. 2-66868 filed on or about February 23, 1998 are
incorporated herein by reference.
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IDS mutual funds
Global/International funds
Funds in this group seek capital growth and/or income by investing primarily in
foreign securities. Foreign investments may be subject to currency fluctuations
and political and economic risks of the countries in which the investments are
made. They are high risk mutual funds with a potential for high reward.
IDS Emerging Markets Fund
Invests in a Portfolio comprised primarily of stocks of companies in developing
countries throughout the world that are believed to offer growth potential.
Seeks to provide long-term growth of capital.
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IDS Global Growth Fund
Invests in a Portfolio comprised primarily of stocks of companies throughout the
world that are positioned to meet market needs in a changing world economy.
These companies offer above-average potential for long-term growth.
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IDS International Fund
Invests primarily in common stocks of foreign companies that offer potential for
superior growth. The Fund may invest up to 20% of its assets in the U.S. market.
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IDS Global Balanced Fund
Invests in stocks and bonds in, for the most part, major markets throughout the
world, including the U.S. Seeks to provide a balance of growth of capital and
current income.
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IDS Global Bond Fund
Invests in a Portfolio comprised primarily of debt securities of U.S. and
foreign issuers to seek high total return through income and growth of capital.
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Growth funds
Funds in this group seek capital growth, primarily from common stocks. They are
high risk mutual funds with a potential for high reward.
IDS Precious Metals Fund
Invests primarily in the securities of foreign or domestic companies that
explore for, mine and process or distribute gold and other precious metals. A
highly aggressive and speculative fund that seeks long-term growth of capital.
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IDS Discovery Fund
Invests in small- and medium-size, growth-oriented companies emphasizing
technological innovation and productivity enhancement. Buys and holds larger
growth-oriented stocks.
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IDS Small Company Index Fund
Invests in all or a representative group of the equity securities comprising the
S&P SmallCap 600 Index, as it strives to provide long-term capital appreciation.
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IDS Strategy Aggressive Fund
Invests primarily in common stocks of companies that are selected for their
potential for above-average growth. Above-average means that their growth
potential is better, in the opinion of the portfolio's investment manager, than
the Standard & Poor's Corporation (S&P) 500 Stock Index.
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IDS Research Opportunities Fund
Invests in a Portfolio comprised primarily of equity securities of companies
included in the S&P 500 Index that are believed to have strong growth potential.
The Portfolio is managed using a research methodology by the Research Department
of AEFC. Goal is long-term appreciation.
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(This annual report is not part of the prospectus.)
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IDS Growth Fund
Invests in a Portfolio comprised primarily of companies that have above-average
potential for long-term growth as a result of new management, marketing
opportunities or technological superiority.
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IDS New Dimensions Fund
Invests in a Portfolio comprised primarily of companies with
significant growth potential due to superiority in
technology, marketing or management. The Fund frequently
changes its industry mix.
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IDS Progressive Fund
Invests primarily in undervalued common stocks. The Fund holds stocks for the
long term with the goal of capital growth.
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Growth & income funds
These funds focus on securities of medium to large, well-established companies
that offer long-term growth of capital and reasonable income from dividends and
interest. Foreign investments may be subject to currency fluctuations and
political and economic risks of the countries in which the investments are made.
IDS Equity Select Fund
Invests primarily in a combination of moderate growth stocks, higher-yielding
equities and bonds. Seeks growth of capital and income.
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IDS Blue Chip Advantage Fund
Invests in selected stocks from a major market index. Securities purchased are
those recommended by our research analysts as the best from each industry
represented on the index. Offers potential for long-term growth as well as
dividend income.
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IDS Managed Allocation Fund
Invests in a Portfolio comprised primarily of U.S. equity securities, U.S. and
foreign debt securities, foreign equity securities and money market instruments.
The Fund provides diversification among these major investment categories and
has a target mix that represents the way the Fund's investments will be
allocated over the long term. Seeks maximum total return.
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IDS Stock Fund
Invests in a Portfolio comprised primarily of common stock of companies
representing many sectors of the economy. Seeks current income and growth of
capital.
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IDS Equity Value Fund
Invests primarily in undervalued common stocks that offer potential for growth
of capital and income.
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IDS Utilities Income Fund
Invests primarily in the stocks of public utility companies to seek high current
income and growth of income and capital with reduced volatility.
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IDS Diversified Equity Income Fund
Invests in a Portfolio comprised primarily in high-yielding common stocks to
seek high current income and, secondarily, to benefit from the growth potential
offered by stock investments.
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IDS Mutual
Invests in a Portfolio which seeks to balance between common stocks and senior
securities (preferred stocks and bonds). Seeks a balance of growth of capital
and current income.
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(This annual report is not part of the prospectus.)
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Income funds
The funds in this group invest their assets primarily in corporate bonds or
government securities to seek interest income. Secondary objective is capital
growth. Risk varies by bond quality.
IDS Extra Income Fund
Invests in a Portfolio comprised mainly of long-term, high-yielding corporate
fixed-income securities in the lower rated, higher risk bond categories to seek
high current income. Secondary objective is capital growth.
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IDS Bond Fund
Invests mainly in corporate bonds, at least 50% in the higher rated, lower risk
bond categories, or the equivalent, and in government bonds.
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IDS Selective Fund
Invests in a Portfolio comprised primarily of high-quality corporate bonds and
other highly rated debt instruments including government securities and
short-term investments. Seeks current income and preservation of capital.
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IDS Federal Income Fund
Invests in a Portfolio comprised primarily of securities issued or guaranteed as
to the timely payment of principal and interest by the U.S. government, its
agencies and instrumentalities. Seeks a high level of current income and safety
of principal consistent with its type of investments.
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Tax-exempt income funds
These funds provide tax-free income by investing in municipal bonds. The income
is generally free from federal income tax, but a portion of the income may be
subject to state and local taxes. Risk varies by bond quality.
IDS Tax-Exempt Bond Fund
Invests mainly in bonds and notes of state or local government units, with at
least 75% in the four highest rated, lowest risk bond categories.
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IDS Insured Tax-Exempt Fund
Invests primarily in municipal securities that are insured as to the timely
payment of principal and interest. The insurance feature minimizes credit risk
of the Fund but does not guarantee the market value of the Fund's shares.
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IDS State Tax-Exempt Funds
(CA, MA, MI, MN, NY, OH)
Invests primarily in high- and medium-grade municipal securities to provide
income to residents of each respective state that is exempt from federal, state
and local income taxes. (New York is the only state that is exempt at the local
level.)
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IDS High Yield Tax-Exempt Fund
Invests in a Portfolio comprised primarily of medium- and lower-quality
municipal bonds and notes. Lower-quality securities generally involve greater
risk of principal and income.
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IDS Intermediate Tax-Exempt Fund
Invests in mainly investment-grade bonds and other debt securities with
intermediate-term maturities issued by state and local government units. Goal is
to seek a high level of current income exempt from federal taxes.
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(This annual report is not part of the prospectus.)
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Money market funds
These money market funds have three main goals: conservation of capital,
constant liquidity and the highest possible current income consistent with these
objectives. An investment in these funds is neither insured nor guaranteed by
the U.S. government, and there can be no assurance that these funds will be able
to maintain a stable net asset value of $1.00 per share. Very limited risk.
IDS Cash Management Fund
Invests in such money market securities as high quality commercial paper,
bankers' acceptances, certificates of deposit (CDs) and other bank securities.
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IDS Tax-Free Money Fund
Invests primarily in short-term bonds and notes issued by state and local
governments to seek high current income exempt from federal income taxes.
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For more complete information about any of these funds, including charges and
expenses, you can obtain a prospectus by contacting your financial advisor or
writing to American Express Shareholder Service, P.O. Box 534, Minneapolis, MN
55440-0534. Read it carefully before you invest or send money.
(This annual report is not part of the prospectus)
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Federal income tax information
IDS Tax-Free Money Fund, Inc.
The Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its
fiscal year. The dividends listed below were reported to you on a Form
1099-DIV, Dividends and Distributions.
IDS Tax-Free Money Fund, Inc.
Fiscal year ended Dec. 31, 1997
Exempt-interest dividends -- taxable status explained below.
Payable date Per share
Jan. 29, 1997 $0.00283
Feb. 26, 1997 0.00220
March 26, 1997 0.00198
April 28, 1997 0.00286
May 28, 1997 0.00272
June 26, 1997 0.00260
July 25, 1997 0.00251
Aug. 27, 1997 0.00280
Sept. 25, 1997 0.00260
Oct. 28, 1997 0.00292
Nov. 25, 1997 0.00260
Dec. 26, 1997 0.00277
Total distributions $0.03139
(This annual report is not part of the prospectus)
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Source of distributions
100% of tax-exempt interest dividends during the year ended Dec. 31, 1997,
were derived exclusively from interest on tax-exempt securities.
Federal taxation
Exempt-interest dividends are exempt from federal income taxes and should
not be included in shareholders' gross income.
Other taxation
Exempt-interest dividends may be subject to state and local taxes. Each
shareholder should consult a tax advisor about reporting this income for
state and local tax purposes.
(This annual report is not part of the prospectus.)
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Source of income by state
Percentages of income from municipal securities earned by the Fund from
various states during the year ended Dec. 31, 1997 are listed below.
Alabama 2.768%
Alaska 0.643
Arizona 10.317
California 2.353
Colorado 2.693
Florida 2.706
Georgia 6.167
Hawaii 0.618
Idaho 1.572
Illinois 1.393
Indiana 3.340
Iowa 1.694
Kentucky 1.892
Louisiana 0.427
Maine 0.702
Maryland 2.428
Michigan 5.499
Minnesota 6.318
Mississippi 1.445
Missouri 3.540
Montana 0.162
New Jersey 0.869
New Mexico 2.137
New York 3.602
North Carolina 2.552
Ohio 2.778
Pennsylvania 6.638
South Carolina 0.292
Texas 12.419
Utah 1.086
Vermont 0.290
Virginia 3.339
Washington 1.205
Wisconsin 2.012
Wyoming 2.104
(This annual report is not part of the prospectus)
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Quick telephone reference
American Express Redemptions and exchanges, National/Minnesota
Financial Advisors dividend payments or 800-437-3133
Telephone Transaction reinvestments and automatic
Service payment arrangements Mpls./St. Paul area:
671-3800
TTY Service For the hearing impaired 800-846-4852
American Express Automated account information 800-862-7919
Financial Advisors (TouchTone(R) phones only),
Easy Access Line including current fund prices
and performance, account values
and recent account transactions
AMERICAN EXPRESS Financial Advisors
IDS Tax-Free Money Fund
IDS Tower 10
Minneapolis, MN 55440-0010
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STATEMENT OF DIFFERENCES
Difference Description
1) The layout is different 1) Some of the layout in the annual
throughout the annual report. report to shareholders is in two
columns.
2) Headings. 2) The headings in the annual report
are placed in a blue strip at the
top of the page.
3) There are pictures, icons and 3) Each picture, icon and graph is
graphs throughout the annual described in parentheses.
report.
4) Footnotes for charts and graphs 4) The footnotes for each chart or
are described at the left margin. graph are typed below the
description of the chart or graph.
