<PAGE>
[LOGO]
FUND FOR TAX-FREE
INVESTORS
----------------------------------------------------
Annual Report
December 31, 1997
<PAGE>
ANNUAL REPORT, December 31, 1997
FUND FOR TAX-FREE INVESTORS, INC.
4922 FAIRMONT AVENUE, BETHESDA, MD 20814
(800) 622-1386 (301) 657-1510
- --------------------------------------------------------------------------------
[LOGO]
January 29, 1998
Dear Shareholders:
The general municipal market saw a big jump in bond issuance this year, although
for Virginia and Maryland, new bond issuance was down from its 1996 levels. This
past year also saw municipal yields fall to almost 5% for AAA 30-year
maturities, a drop of almost 35 basis points from the beginning of the year.
After raising the Federal Funds rate 25 basis points in March of this year, the
Federal Reserve did not intervene again as the rapid growth of the first quarter
slowed considerably for the remainder of the year. As inflation did not appear
to be a threat, interest rates moved downward, thus causing prices of bonds to
rise. The equity markets continued to grab much of the attention in 1997, but
economic troubles in Asia in the second half of the year created an opportunity
for bonds and bond funds to gain back some favor, as investors looked to the
credit safety that they offer.
TAX-FREE MONEY MARKET PORTFOLIO
The Tax-Free Money Market Portfolio invests in high quality, tax-exempt
municipal securities with maturities of less than one year. Fund For Tax-Free
Investors Money Market Portfolio had an annualized net investment income of
2.89% of net assets for the year ended December 31, 1997, compared to 2.67% for
1996. On December 31, 1997, the Portfolio's average maturity was 49 days.
VIRGINIA AND MARYLAND TAX-FREE PORTFOLIOS
Fund for Tax-Free Investors Virginia Portfolio ended 1997 with a 8.45% total
return. On an annualized basis, net income averaged 4.70% of net assets for the
year ended December 31, 1997. Net assets for the Virginia Portfolio stood at
$32.9 million at year end, and had an average maturity of 16.1 years. The
quality of securities in the Virginia Portfolio remain high with over 88% its
bonds rated AA or above.
Fund for Tax-Free Investors Maryland Portfolio had a total return of 7.85% for
the year ended December 31, 1997. On an annualized basis, net income averaged
4.73% of net assets for the year. Net assets for the Maryland Portfolio stood at
$45.3 million at year end, and had an average maturity of 16 years. The Maryland
Portfolio continues to maintain investment in high quality bonds with over 83%
of the Portfolio having a rating of AA or better.
4922 Fairmont Avenue Bethesda, Maryland 20814 800-621-7874 301-657-1517
<PAGE>
The states of Virginia and Maryland continue to maintain the highest credit
rating of AAA by all three rating agencies: Moody's, S&P, and Fitch.
OUTLOOK
In the year ahead, we expect growth to move ahead at a slower pace than that of
1997. Troubles in Asia should also have a dampening impact on our economy, due
in part to a decline in exports. With inflation under control for the time
being, some have started to look for a possible Fed easing. We would hold this
as unlikely in the near term, as the current tight labor market is an area that
the Federal Reserve still holds as a concern. Should the labor market weaken,
however, coupled with a slower economy, a Fed easing in the second half of the
year would be a possibility. A low inflation scenario would again be a positive
for the bond markets, and should global market uncertainty continue to affect
the stock markets, bonds could also see a renewed "flight to quality".
Management continues to adhere to its strategy of long-term, conservative
investing. Fund for Tax-Free Investors, Inc. invests in only high quality issues
we feel provide the best opportunity to meet these objectives. As always, we
thank you for your continued support and look forward to serving your investment
needs in 1998.
<TABLE>
<S> <C>
/s/ DANIEL L. O'CONNOR /s/ RICHARD J. GARVEY
Daniel L. O'Connor Richard J. Garvey
Chairman President
</TABLE>
- 2 -
<PAGE>
FUND FOR TAX-FREE INVESTORS, INC.
STATEMENT OF NET ASSETS
MONEY MARKET PORTFOLIO
December 31, 1997
<TABLE>
<CAPTION>
Face Value
Value (Note 1)
--------- -----------
<S> <C> <C>
CALIFORNIA 5.2%
California School Cash Reserve
Program Revenue
4.75%, 7/02/98 SPI+............ $ 800,000 $ 803,455
South Coast Education Tax
Anticipation Note
4.50%, 06/30/98 SP1+........... 200,000 200,656
-----------
State Total.................... 1,004,111
-----------
COLORADO 5.7%
Boulder Urban Renewal Authority
Revenue
5.30%, 3/01/98 AAA............. 300,000 300,732
Colorado Student Obligation Board
Authority Floating Rate Notes
4.15%, 8/01/00+ A-1+........... 800,000 800,000
-----------
State Total.................... 1,100,732
-----------
FLORIDA 1.0%
Florida State Turnpike Authority
Revenue
5.30%, 7/01/98 AAA............. 200,000 201,456
-----------
GEORGIA 2.7%
Georgia State General Obligation
7.00%, 6/01/98 AAA............. 500,000 516,181
-----------
INDIANA 3.1%
Allen County Economic Development
Floating Rate Notes
4.15%, 8/1/21+ A-1+............ 600,000 600,000
-----------
KANSAS 5.2%
Olathe Temporary Notes Series A
General Obligation
4.50%, 6/01/98 MIG1............ 500,000 501,395
Overland Park General Obligation
5.10%, 9/01/98 AAA............. 500,000 504,362
-----------
State Total.................... 1,005,757
-----------
LOUISIANA 4.7%
New Orleans Aviation Floating
Rate Notes
3.80%, 8/01/16+ A-1+........... 900,000 900,000
-----------
MARYLAND 12.0%
Baltimore County Revenue
Authority Floating Rate Notes
3.95%, 1/01/16+ A-1............ 200,000 200,000
<CAPTION>
Face Value
Value (Note 1)
--------- -----------
<S> <C> <C>
MARYLAND (continued)
Maryland Health and Higher
Education Loyola College Issue B
Floating Rate Notes
3.90%, 10/01/13+ AAA........... $ 700,000 $ 700,000
Maryland Health and Higher
Education North Arundel Hospital
Floating Rate Notes
3.95%, 7/1/32+ VMIG1........... 200,000 200,000
North East Maryland Waste
Disposal Authority Floating Rate
Notes
3.60%, 1/01/08+ A1+............ 400,000 400,000
Washington Suburban Sanitation
Floating Rate Notes
3.85%, 1/01/99+ A-1+........... 800,000 800,000
-----------
State Total.................... 2,300,000
-----------
MINNESOTA 20.4%
City of St. Louis Park Series
1987A Floating Rate Notes
4.10%, 3/01/02+ A-1............ 100,000 100,000
Minneapolis General Obligation
Floating Rate Notes
4.05%, 12/1/07+ A-1+........... 400,000 400,000
Minneapolis Tax Increment Revenue
7.00%, 3/1/98 AAA.............. 135,000 135,638
Minnesota State Higher Education
Floating Rate Notes
4.25%, 12/01/24+ VMIG1......... 500,000 500,000
Southern Minnesota Power
Authority Revenue
7.00%, 01/01/98 AAA............ 710,000 710,001
St. Paul Housing and
Redevelopment Authority Floating
Rate Notes
4.00%, 12/01/12+ A-1+.......... 800,000 800,000
St. Paul United Way Project
Floating Rate Notes
4.05%, 12/01/18+ A-1........... 500,000 500,000
Waconia Industrial Development
Revenue Floating Rate Notes
3.95%, 10/01/16+ A-1........... 775,000 775,000
-----------
State Total.................... 3,920,639
-----------
MONTANA 3.1%
Montana State Health Floating
Rate Notes
4.10%, 12/01/15+ A-1+.......... 600,000 600,000
-----------
</TABLE>
- 3 -
<PAGE>
STATEMENT OF NET ASSETS
MONEY MARKET PORTFOLIO (Continued)
December 31, 1997
<TABLE>
<CAPTION>
Face Value
Value (Note 1)
--------- -----------
<S> <C> <C>
NEW HAMPSHIRE 3.7%
New Hamphshire Health Floating
Rate Notes
3.95%, 11/01/21+ VMIG1......... $ 700,000 $ 700,000
-----------
NEVADA 2.6%
Clark County School District
Series A General Obligation
6.10%, 6/1/98 AAA.............. 500,000 504,522
-----------
NEW YORK 6.3%
New York, New York Series B
Subseries B2 Floating Rate Notes
5.10%, 8/15/03+ A-1+........... 600,000 600,000
New York, New York Subseries A8
Floating Rate Notes
5.10%, 8/1/17+ A-1+............ 500,000 500,000
New York City Municipal Water
Finance Authority Floating Rate
Notes
5.10%, 6/15/22+ AAA............ 100,000 100,000
-----------
State Total.................... 1,200,000
-----------
NORTH CAROLINA 3.7%
City of Winston-Salem Floating
Rate Notes
4.10%, 4/01/00+ A-1+........... 700,000 700,000
-----------
OHIO 2.5%
Ohio State Water Development
Revenue
7.50%, 6/01/98 AAA............. 465,000 481,105
-----------
PENNSYLVANIA 7.5%
Emmaus General Authority Floating
Rate Notes
4.00%, 12/1/28+ A-1+........... 800,000 800,000
Pennsylvania State General
Obligation
4.75%, 6/15/98 AAA............. 345,000 346,524
Pittsburgh Water and Sewer
Authority Revenue
3.90%, 9/01/98 AAA............. 300,000 300,187
-----------
State Total.................... 1,446,711
-----------
<CAPTION>
Face Value
Value (Note 1)
--------- -----------
<S> <C> <C>
SOUTH CAROLINA 2.1%
Piedmont Municipal Power Agency
Electrical Revenue
5.0%, 1/1/98 AAA............... $ 400,000 $ 400,000
-----------
TEXAS 3.7%
Port Arthur Floating Rate Notes
5.50%, 5/01/03+ P-1............ 700,000 700,000
-----------
VIRGINIA 4.8%
Fairfax County Industrial
Development Authority Floating
Rate Notes
3.95%, 10/01/16+ A-1+.......... 100,000 100,000
Fredericksburg General Obligation
3.90%, 6/15/98 AAA............. 225,000 224,914
Henrico Industrial Development
Authority Floating Rate Notes
5.35%, 5/01/24+ VMIG1.......... 500,000 500,000
Virginia State Housing
Development Floating Rate Notes
4.35%, 1/01/98+ AA+............ 100,000 100,000
-----------
State Total.................... 924,914
-----------
WISCONSIN 1.1%
Wisconsin State General
Obligation
6.60%, 5/01/98 AAA............. 200,000 206,093
-----------
TOTAL INVESTMENTS 101.2%
(Cost $19,412,221*)....................... 19,412,221
LIABILITIES LESS OTHER ASSETS (1.2)%........ (235,075)
-----------
NET ASSETS (NOTE 5) 100.0%.................. $19,177,146
-----------
-----------
NET ASSET VALUE PER SHARE
(Based on 19,177,146 Shares
Outstanding).............................. $1.00
-----------
-----------
</TABLE>
- ---------
+Daily or Weekly Tender Bond
*Same cost is used for Federal income tax purposes.
Security ratings are unaudited.
See Notes to Financial Statements.
- 4 -
<PAGE>
FUND FOR TAX-FREE INVESTORS, INC.
STATEMENT OF NET ASSETS
VIRGINIA PORTFOLIO
December 31, 1997
<TABLE>
<CAPTION>
Face Value
Value (Note 1)
---------- -----------
<S> <C> <C>
Alexandria Industrial
Development Authority Revenue
7.40%, 1/01/08 A+............ $ 175,000 $ 175,532
Arlington County General
Obligation
6.00%, 8/01/12 AAA........... 500,000 545,865
5.40%, 6/01/13 AAA........... 1,000,000 1,052,710
5.375%, 12/01/16 AAA......... 1,000,000 1,035,900
Brunswick County Virginia
Revenue
5.50%, 7/01/17 AAA........... 1,000,000 1,041,290
Chesapeake Bay Bridge & Tunnel
Revenue
5.25%, 7/01/19 AAA........... 1,000,000 1,005,950
Chesapeake Water & Sewer System
Revenue
6.50%, 7/01/05 A+............ 270,000 295,734
Danville General Obligation
6.50%, 5/01/11 A............. 250,000 271,423
Fairfax City EDA Lease Revenue
5.50%, 5/15/18 AA............ 2,000,000 2,060,700
Fairfax County Industrial
Development Authority Revenue
5.25%, 8/15/19 AA............ 500,000 513,700
Fairfax County Industrial
Development Authority Revenue
Floating Rate Notes
3.95%, 10/01/16+ A-1+........ 600,000 600,000
Fairfax County Resource
Recovery Revenue
7.75%, 2/01/11 A+............ 300,000 317,337
Fairfax County Water Authority
Revenue
5.80%, 1/01/16 AAA........... 500,000 546,485
6.00%, 4/01/07 AA-........... 370,000 418,600
6.00%, 4/01/22 AA-........... 630,000 681,395
Hampton General Obligation
6.00%, 1/15/14 AA-........... 350,000 378,312
Hanover City Water & Sewer
Revenue
5.25%, 2/01/16 AAA........... 500,000 508,595
Hanover County Virginia General
Obligation
5.4%, 7/15/16 AA............. 1,000,000 1,036,580
<CAPTION>
Face Value
Value (Note 1)
---------- -----------
<S> <C> <C>
Henrico County Industrial
Development Authority Revenue
7.125%, 8/01/21 AA........... $ 400,000 $ 461,752
Henrico County Water & Sewer
Revenue
6.45%, 5/01/02 AAA........... 300,000 326,715
6.25%, 5/01/13 AA-........... 500,000 523,245
Henry County General Obligation
8.825%, 11/01/05 AAA......... 200,000 259,098
Isle of Wight County General
Obligation
6.70%, 1/01/02 A............. 200,000 221,778
James City County General
Obligation
5.25%, 12/15/15 AAA.......... 1,000,000 1,024,910
Leesburg General Obligation
5.50%, 06/01/13 AAA.......... 500,000 523,545
Loudoun County Sanitation
Authority Revenue
6.25%, 1/01/10 AAA........... 550,000 594,011
6.25%, 1/01/16 AAA........... 500,000 541,870
Metropolitan Washington, D.C.
Airport Authority Revenue
6.50%, 10/01/06 AAA.......... 300,000 329,421
Newport News General Obligation
6.125%, 6/01/12 AA-.......... 270,000 288,176
Norfolk General Obligation
5.75%, 6/01/13 AAA........... 500,000 531,480
Norfolk Water Revenue
5.75%, 11/01/12 AAA.......... 500,000 531,610
5.875%, 11/01/15 AAA......... 500,000 533,830
Portsmouth General Obligation
6.375%, 8/01/11 AA-.......... 200,000 213,932
Portsmouth Redevelopment &
Housing Authority Revenue
6.05%, 12/01/08 AAA.......... 500,000 537,375
Potomac & Rappahannock
Transportation District
Commission Revenue
6.70%, 3/01/11 AAA........... 600,000 635,760
Prince William County General
Obligation
6.20%, 12/01/11 AA........... 300,000 318,540
</TABLE>
- 5 -
<PAGE>
STATEMENT OF NET ASSETS
VIRGINIA PORTFOLIO (Continued)
December 31, 1997
<TABLE>
<CAPTION>
Face Value
Value (Note 1)
---------- -----------
<S> <C> <C>
Prince William County
Industrial Development
Authority Revenue
7.25%, 3/01/00 NR............ $ 250,000 $ 271,383
Prince William County Park
Authority Revenue
6.875%, 10/15/16 A-.......... 500,000 550,325
Richmond Metro Authority
Revenue
6.10%, 7/15/06 AAA........... 300,000 326,472
6.375%, 7/15/16 AAA.......... 500,000 547,025
Upper Occoquan Sewer Authority
Revenue
5.15%, 7/01/20 AAA........... 500,000 506,005
Virginia Beach General
Obligation
6.50%, 8/01/07 AA............ 500,000 544,035
5.85%, 11/01/12 AA........... 500,000 535,910
Virginia College Building
Authority Revenue
6.625%, 5/01/13 A-........... 300,000 321,597
5.75%, 1/01/14 AA............ 500,000 527,175
Virginia Housing Development
Authority Revenue
6.625%, 7/01/13 A+........... 275,000 291,662
5.95%, 7/01/13 AA+........... 500,000 527,065
5.75%, 1/01/19 AAA........... 1,000,000 1,027,990
Virginia Port Authority Revenue
5.90%, 7/01/16 AA............ 500,000 529,150
Virginia Public Building
Authority Revenue
5.10%, 8/01/06 AA............ 550,000 576,851
5.00%, 8/01/15 AA............ 1,000,000 997,640
5.20%, 8/01/16 AA............ 1,000,000 1,010,480
<CAPTION>
Face Value
Value (Note 1)
---------- -----------
<S> <C> <C>
Virginia Public School
Authority Revenue
6.20%, 8/01/13 AA............ $ 320,000 $ 349,510
5.00%, 8/01/16 AA............ 500,000 498,180
Virginia Resource Authority
Revenue
6.75%, 10/01/04 NR........... 240,000 274,413
6.45%, 4/01/13 AA............ 300,000 322,383
Virginia Transportation Board
Revenue
6.00%, 4/01/10 AA............ 300,000 321,930
5.125%, 5/15/17 AA........... 500,000 500,370
-----------
TOTAL INVESTMENTS 98.0%
(Cost $30,050,671*)...................... 32,240,707
OTHER ASSETS LESS LIABILITIES 2.0%......... 666,611
-----------
NET ASSETS (NOTE 5) 100.0%................. $32,907,318
-----------
-----------
NET ASSET VALUE PER SHARE
(Based on 2,872,241 Shares
Outstanding)............................. $11.46
-----------
-----------
</TABLE>
- ---------
+Daily or Weekly Tender Bond
*Same cost is used for Federal income tax purposes.
NR Not Rated
Security ratings are unaudited.
See Notes to Financial Statements.
- 6 -
<PAGE>
FUND FOR TAX-FREE INVESTORS, INC.
STATEMENT OF NET ASSETS
MARYLAND PORTFOLIO
December 31, 1997
<TABLE>
<CAPTION>
Face Value
Value (Note 1)
---------- -----------
<S> <C> <C>
Anne Arundel County Water &
Sewer General Obligation
6.20%, 8/01/12 AA+........... $ 725,000 $ 796,333
6.00%, 7/15/13 AA+........... 500,000 533,955
6.30%, 8/01/16 AA+........... 500,000 556,060
6.30%, 8/01/19 AA+........... 725,000 806,780
Anne Arundel County Pollution
Control Revenue
6.00%, 4/01/24 A............. 1,230,000 1,298,597
Anne Arundel County Solid Waste
Project General Obligation
5.50%, 9/01/15 AA1........... 500,000 515,430
Baltimore City General
Obligation
6.40%, 10/15/02 AAA.......... 465,000 509,347
5.50%, 10/15/10 AAA.......... 1,000,000 1,066,150
Baltimore City Revenue
6.00%, 7/01/15 AAA........... 500,000 557,240
Baltimore County General
Obligation
6.125%, 7/01/08 AAA.......... 500,000 544,055
6.70%, 7/01/11 AAA........... 200,000 206,842
5.50%, 6/01/12 AAA........... 1,000,000 1,053,950
Baltimore Port Facility Revenue
6.50%, 12/01/10 AA-.......... 400,000 436,488
6.50%, 10/01/11 AA-.......... 250,000 271,765
Calvert County Pollution
Control Revenue
5.55%, 7/15/14 A............. 1,000,000 1,037,820
Carroll County General
Obligation
7.10%, 10/01/09 AA........... 235,000 258,117
7.25%, 10/01/15 AA........... 300,000 330,672
5.30%, 11/01/15 AA........... 1,000,000 1,026,130
6.50%, 10/01/24 AA........... 225,000 250,630
Frederick County General
Obligation
6.125%, 12/01/07 AAA......... 500,000 545,240
5.60%, 7/01/11 AA............ 500,000 530,070
City of Frederick General
Obligation
6.00%, 10/01/11 AAA.......... 300,000 326,877
Harford County General
Obligation
5.00%, 3/01/14 AA-........... 500,000 504,730
Howard County Metropolitan
District General Obligation
6.00%, 8/15/19 AA+........... 500,000 528,890
<CAPTION>
Face Value
Value (Note 1)
---------- -----------
<S> <C> <C>
Howard County Public
Improvement General Obligation
6.00%, 5/15/14 AA+........... $ 500,000 $ 535,900
5.50%, 2/15/16 AA+........... 1,000,000 1,033,220
Howard County Special
Facilities Revenue
6.10%, 2/15/13 AA-........... 500,000 534,125
Laurel General Obligation
6.70%, 7/01/01 AAA........... 600,000 661,212
Maryland Community Development
Administration Revenue
6.60%, 4/01/06 AA............ 200,000 212,814
7.375%, 4/01/10 AA........... 495,000 522,284
7.25%, 4/01/11 AA............ 200,000 212,754
7.15%, 4/01/11 AA............ 405,000 429,640
7.70%, 5/15/20 AA............ 250,000 266,635
7.25%, 4/01/27 AA............ 385,000 404,974
Maryland General Obligation
5.00%, 10/15/11 AAA.......... 1,000,000 1,022,720
5.00%, 03/01/12 AAA.......... 1,500,000 1,525,995
Maryland Health & Higher
Education Facilities Authority
Revenue
5.70%, 7/01/09 A............. 500,000 538,500
5.25%, 7/01/13 AAA........... 500,000 517,750
6.125%, 7/01/14 AAA.......... 500,000 537,430
5.50%, 10/01/16 AAA.......... 1,000,000 1,047,040
6.125%, 7/01/19 AAA.......... 500,000 538,295
Maryland Health & Higher
Education Facilities Authority
Floating Rate Notes
4.20%, 7/01/32+ VMIG1........ 200,000 200,000
Maryland Industrial Development
Revenue
7.125%, 7/01/06 A-........... 300,000 308,625
Maryland Stadium Authority
Sports Revenue
7.375%, 12/15/04 AA-......... 425,000 458,201
7.50%, 12/15/10 AA-.......... 695,000 751,107
5.55%, 3/01/13 AAA........... 500,000 522,980
5.875%, 12/15/13 AAA......... 1,000,000 1,067,370
5.375%, 12/15/15 AA.......... 500,000 515,030
7.60%, 12/15/19 AA-.......... 500,000 537,855
Maryland Water Quality Finance
Administration Revenue
6.00%, 9/01/15 AA............ 1,000,000 1,064,180
</TABLE>
- 7 -
<PAGE>
STATEMENT OF NET ASSETS
MARYLAND PORTFOLIO (Continued)
December 31, 1997
<TABLE>
<CAPTION>
Face Value
Value (Note 1)
---------- -----------
<S> <C> <C>
Montgomery County Housing
Opportunity Commission Revenue
6.70%, 7/01/11 AA............ $ 355,000 $ 377,422
7.80%, 7/01/12 NR............ 200,000 210,762
7.375%, 7/01/17 AA........... 180,000 187,124
6.65%, 7/01/17 AA............ 175,000 188,235
7.00%, 7/01/23 A............. 250,000 264,683
Montgomery County Waste
Disposal Authority Revenue
5.875%, 6/01/13 AAA.......... 250,000 258,323
North East Maryland Waste
Disposal Authority Revenue
6.20%, 7/01/10 A............. 500,000 521,585
6.30%, 7/01/16 A............. 1,000,000 1,046,130
Prince Georges County General
Obligation
5.25%, 3/15/15 AAA........... 1,000,000 1,022,900
Prince Georges County Housing
Authority Revenue
6.35%, 7/20/20 AAA........... 700,000 738,969
Prince Georges County Pollution
Control Revenue
5.75%, 3/15/10 A............. 1,000,000 1,089,800
5.375%, 7/01/14 A............ 500,000 505,440
Prince Georges County Solid
Waste Management System Revenue
7.00%, 6/30/00 AAA........... 250,000 272,310
St. Mary's County General
Obligation
5.85%, 11/01/18 AAA.......... 500,000 529,220
<CAPTION>
Face Value
Value (Note 1)
---------- -----------
<S> <C> <C>
University of Maryland System
Auxiliary Revenue
6.375%, 4/01/09 AA+.......... $ 500,000 $ 551,030
5.60%, 4/01/12 AA+........... 1,000,000 1,055,750
5.125%, 4/01/15 AA+.......... 1,000,000 1,014,450
5.60%, 4/01/16 AA+........... 1,000,000 1,042,410
Washington County General
Obligation
5.125%, 1/01/12 AAA.......... 500,000 510,995
5.25%, 1/01/16 AAA........... 500,000 507,385
Washington, D.C. Metropolitan
Area Transportation Authority
Revenue
6.00%, 7/01/10 AAA........... 275,000 307,953
Washington Suburban Sanitary
District General Obligation
6.20%, 6/01/12 AA............ 900,000 974,655
5.125%, 6/01/20 AA........... 1,000,000 1,004,410
-----------
TOTAL INVESTMENTS 98.4%
(Cost $42,144,792*)...................... 44,640,745
OTHER ASSETS LESS LIABILITIES 1.6%......... 703,312
-----------
NET ASSETS (NOTE 5) 100.0%................. $45,344,057
-----------
-----------
NET ASSET VALUE PER SHARE
(Based on 4,085,544 Shares
Outstanding)............................. $11.10
-----------
-----------
</TABLE>
- ---------
+ Daily or Weekly Tender Bond
*Same cost is used for Federal income tax purposes.
NR Not Rated
Security ratings are unaudited.
See Notes to Financial Statements.
- 8 -
<PAGE>
FUND FOR TAX-FREE INVESTORS, INC.
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Money
Market Virginia Maryland
Portfolio Portfolio Portfolio
----------- ---------- ----------
<S> <C> <C> <C>
INVESTMENT INCOME (Note 1).............................................. $ 724,111 $1,817,068 $2,569,235
----------- ---------- ----------
EXPENSES
Investment Advisory Fee (Note 2)...................................... 99,510 202,010 283,756
Administrative Fee (Note 2)........................................... 49,755 96,964 136,203
Interest Expense...................................................... 177 -- --
----------- ---------- ----------
Total Expenses...................................................... 149,442 298,974 419,959
----------- ---------- ----------
NET INVESTMENT INCOME................................................... 574,669 1,518,094 2,149,276
----------- ---------- ----------
Net Realized Gain on Investment Transactions............................ -- 70,517 326,372
Net Change in Unrealized Appreciation of Investments.................... -- 1,026,639 986,054
----------- ---------- ----------
NET GAIN ON INVESTMENTS................................................. -- 1,097,156 1,312,426
----------- ---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................... $ 574,669 $2,615,250 $3,461,702
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
See Notes to Financial Statements.
- 9 -
<PAGE>
FUND FOR TAX-FREE INVESTORS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
<TABLE>
<CAPTION>
Money Market Virginia Maryland
Portfolio Portfolio Portfolio
-------------------------- -------------------------- -------------------------
1997 1996 1997 1996 1997 1996
------------ ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES
Net Investment Income......................... $ 574,669 $ 524,507 $ 1,518,094 $ 1,576,325 $ 2,149,276 $ 2,343,288
Net Realized Gain on Investment
Transactions................................ -- -- 70,517 262,689 326,372 484,951
Net Change in Unrealized Appreciation/
Depreciation of Investments................. -- -- 1,026,639 (932,337) 986,054 (1,400,547)
------------ ------------ ------------ ------------ ----------- ------------
Net Increase in Net Assets Resulting from
Operations.................................. 574,669 524,507 2,615,250 906,677 3,461,702 1,427,692
------------ ------------ ------------ ------------ ----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income (Note 1)........... (574,669) (524,507) (1,519,055) (1,575,364) (2,151,344) (2,341,219)
From Net Realized Gain........................ -- -- (48,336) -- -- --
------------ ------------ ------------ ------------ ----------- ------------
Total Distributions to Shareholders........... (574,669) (524,507) (1,567,391) (1,575,364) (2,151,344) (2,341,219)
------------ ------------ ------------ ------------ ----------- ------------
FROM SHARE TRANSACTIONS
Net Proceeds from Sales of Shares............. 31,756,045 33,109,020 12,324,705 9,574,030 6,860,756 6,196,673
Reinvestment of Distributions................. 547,728 501,351 1,308,417 1,309,667 1,803,253 1,976,301
Cost of Shares Redeemed....................... (32,016,149) (35,493,325) (14,128,407) (11,328,124) (9,040,667) (12,573,794)
------------ ------------ ------------ ------------ ----------- ------------
Net Increase (Decrease) in Net Assets
Resulting from Share Transactions........... 287,624 (1,882,954) (495,285) (444,427) (376,658) (4,400,820)
------------ ------------ ------------ ------------ ----------- ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS....... 287,624 (1,882,954) 552,574 (1,113,114) 933,700 (5,314,347)
NET ASSETS - Beginning of Year.................. 18,889,522 20,772,476 32,354,744 33,467,858 44,410,357 49,724,704
------------ ------------ ------------ ------------ ----------- ------------
NET ASSETS - End of Year........................ $ 19,177,146 $ 18,889,522 $ 32,907,318 $ 32,354,744 $45,344,057 $ 44,410,357
------------ ------------ ------------ ------------ ----------- ------------
------------ ------------ ------------ ------------ ----------- ------------
SHARES
Sold.......................................... 31,756,045 33,089,461 1,104,589 871,229 633,250 576,046
Issued in Reinvestment of Distributions....... 547,728 501,351 116,812 118,996 165,933 184,046
Redeemed...................................... (32,016,149) (35,493,325) (1,266,554) (1,030,689) (830,133) (1,170,922)
------------ ------------ ------------ ------------ ----------- ------------
Net Increase (Decrease) in Shares............. 287,624 (1,902,513) (45,153) (40,464) (30,950) (410,830)
------------ ------------ ------------ ------------ ----------- ------------
------------ ------------ ------------ ------------ ----------- ------------
</TABLE>
See Notes to Financial Statements.
- 10 -
<PAGE>
FUND FOR TAX-FREE INVESTORS, INC.
FINANCIAL HIGHLIGHTS
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value - Beginning of Year................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- ---------
Income from Investment Operations:
Net Investment Income............................ 0.029 0.027 0.030 0.020 0.016
--------- --------- --------- --------- ---------
Total from Investment Operations............... 0.029 0.027 0.030 0.020 0.016
--------- --------- --------- --------- ---------
Distributions to Shareholders:
From Net Investment Income....................... (0.029) (0.027) (0.030) (0.020) (0.016)
--------- --------- --------- --------- ---------
Total Distributions to Shareholders............ (0.029) (0.027) (0.030) (0.020) (0.016)
--------- --------- --------- --------- ---------
Net Increase in Net Asset Value.................... -- -- -- -- --
--------- --------- --------- --------- ---------
Net Asset Value - End of Year...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN.............................. 2.93% 2.69% 3.09% 2.02% 1.66%
RATIOS TO AVERAGE NET ASSETS:
Expenses........................................... 0.75% 0.75% 0.75% 0.75% 0.78%
Net Investment Income.............................. 2.89% 2.67% 3.04% 1.99% 1.65%
SUPPLEMENTARY DATA:
Net Assets at End of Year (000's omitted).......... $ 19,177 $ 18,890 $ 20,772 $ 25,586 $ 23,283
Number of Shares Outstanding at End of Year (000's
omitted)......................................... 19,177 18,890 20,792 25,604 23,312
</TABLE>
See Notes to Financial Statements.
- 11 -
<PAGE>
FUND FOR TAX-FREE INVESTORS, INC.
FINANCIAL HIGHLIGHTS
VIRGINIA PORTFOLIO
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value - Beginning of Year.................. $ 11.09 $ 11.31 $ 10.36 $ 11.51 $ 10.84
--------- --------- --------- --------- ---------
Income from Investment Operations:
Net Investment Income.............................. 0.525 0.534 0.564 0.578 0.582
Net Realized and Unrealized Gain (Loss) on
Securities....................................... 0.387 (0.221) 0.950 (1.150) 0.670
--------- --------- --------- --------- ---------
Total from Investment Operations................. 0.912 0.313 1.514 (0.572) 1.252
--------- --------- --------- --------- ---------
Distributions to Shareholders:
From Net Investment Income......................... (0.525) (0.533) (0.564) (0.578) (0.582)
From Net Realized Gain............................. (0.017) -- -- -- --
--------- --------- --------- --------- ---------
Total Distributions to Shareholders.............. (0.542) (0.533) (0.564) (0.578) (0.582)
--------- --------- --------- --------- ---------
Net Increase (Decrease) in Net Asset Value........... 0.37 (0.22) 0.95 (1.15) 0.67
--------- --------- --------- --------- ---------
Net Asset Value - End of Year........................ $ 11.46 $ 11.09 $ 11.31 $ 10.36 $ 11.51
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN................................ 8.45% 2.91% 14.92% (5.02)% 11.80%
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................. 0.93% 0.93% 0.77% 0.55% 0.50%
Expenses Before Reimbursement from Adviser........... 0.93% 0.93% 0.93% 0.93% 0.93%
Net Investment Income................................ 4.70% 4.84% 5.17% 5.35% 5.15%
SUPPLEMENTARY DATA:
Portfolio Turnover Rate.............................. 27% 46% 55% 33% 43%
Net Assets at End of Year (000's omitted)............ $ 32,907 $ 32,355 $ 33,468 $ 27,929 $ 34,371
Number of Shares Outstanding at End of Year (000's
omitted)........................................... 2,872 2,917 2,958 2,697 2,985
</TABLE>
See Notes to Financial Statements.
- 12 -
<PAGE>
FUND FOR TAX-FREE INVESTORS, INC.
FINANCIAL HIGHLIGHTS
MARYLAND PORTFOLIO
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value - Beginning of Year.................. $ 10.79 $ 10.98 $ 10.11 $ 11.27 $ 10.60
--------- --------- --------- --------- ---------
Income from Investment Operations:
Net Investment Income.............................. 0.514 0.528 0.550 0.565 0.568
Net Realized and Unrealized Gain (Loss) on
Securities....................................... 0.311 (0.190) 0.871 (1.157) 0.670
--------- --------- --------- --------- ---------
Total from Investment Operations................. 0.825 0.338 1.421 (0.592) 1.238
--------- --------- --------- --------- ---------
Distributions to Shareholders:
From Net Investment Income......................... (0.515) (0.528) (0.551) (0.565) (0.568)
From Net Realized Gain............................. -- -- -- (0.003) --
--------- --------- --------- --------- ---------
Total Distributions to Shareholders.............. (0.515) (0.528) (0.551) (0.568) (0.568)
--------- --------- --------- --------- ---------
Net Increase (Decrease) in Net Asset Value........... 0.31 (0.19) 0.87 (1.16) 0.67
--------- --------- --------- --------- ---------
Net Asset Value - End of Year........................ $ 11.10 $ 10.79 $ 10.98 $ 10.11 $ 11.27
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN................................ 7.85% 3.21% 14.35% (5.24)% 11.91%
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................. 0.93% 0.93% 0.77% 0.55% 0.50%
Expenses Before Reimbursement from Adviser........... 0.93% 0.93% 0.93% 0.93% 0.93%
Net Investment Income................................ 4.73% 4.92% 5.16% 5.36% 5.13%
SUPPLEMENTARY DATA:
Portfolio Turnover Rate.............................. 22% 31% 37% 38% 30%
Net Assets at End of Year (000's omitted)............ $ 45,344 $ 44,410 $ 49,725 $ 44,385 $ 58,094
Number of Shares Outstanding at End of Year (000's
omitted)........................................... 4,086 4,116 4,527 4,391 5,157
</TABLE>
See Notes to Financial Statements.
- 13 -
<PAGE>
FUND FOR TAX-FREE INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
Fund for Tax-Free Investors, Inc. (the "Fund") is registered with the Securities
and Exchange Commission under the Investment Company Act of 1940 as a no-load,
open-end, investment company. The Fund consists of three separate portfolios
which invest primarily in securities exempt from Federal income taxes. On
December 31, 1997, there were 200,000,000 shares of $0.001 par value capital
stock authorized. The financial statements have been prepared in conformity with
generally accepted accounting principles which permit management to make certain
estimates and assumptions at the date of the financial statements. The following
is a summary of significant accounting policies which the Fund consistently
follows:
(a) Securities of the Money Market Portfolio are valued at amortized cost,
which approximates market value. Securities of the Virginia and Maryland
Portfolios are valued by a pricing service. Securities for which market
quotations are not readily available are valued at their fair value as
determined in good faith by the Board of Directors.
(b) Investment income is recorded as earned.
(c) Net investment income is computed, and dividends are declared daily.
Dividends are paid monthly and reinvested in additional shares unless
shareholders request payment. Net capital gains, if any, will be
distributed to shareholders annually.
(d) The Fund complies with the provisions of the Internal Revenue Code
applicable to regulated investment companies and distributes all net
investment income to its shareholders. Therefore, no Federal income tax
provision is required. The Fund also meets the requirements that allow
it to designate distributions from interest income on obligations which
are exempt from Federal income tax as exempt-interest dividends.
2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Investment advisory and management services are provided by Money Management
Associates (the "Adviser") under an agreement whereby the Fund pays a fee at an
annual rate of 0.50% of the average daily net assets of the Money Market
Portfolio and 0.625% of the average daily net assets of the Virginia Portfolio
and of the Maryland Portfolio. The Adviser has agreed to reimburse the Fund for
expenses, (including investment advisory fee), excluding interest and
extraordinary legal expenses, which exceed one percent of the average daily net
assets per annum. No reimbursement was required for the period ended December
31, 1997. Certain Officers and Directors of the Fund are also affiliated with
the Adviser.
Rushmore Trust and Savings, FSB ("Rushmore Trust"), a majority-owned subsidiary
of the Adviser, provides transfer agency, dividend disbursing and other
shareholder services to the Fund. In addition, Rushmore Trust serves as
custodian of the Fund's assets and pays the operating expenses of the Fund. For
these services, Rushmore Trust receives an annual fee of 0.25% of the average
daily net assets of
- 14 -
<PAGE>
the Money Market Portfolio, and 0.30% of the average daily net assets of the
Virginia and Maryland Portfolios.
3. SECURITIES TRANSACTIONS
Security transactions are recorded on the trade date. For the year ended
December 31, 1997, purchases and sales (including maturities), of securities,
excluding short-term securities, were as follows:
<TABLE>
<CAPTION>
Virginia Maryland
Portfolio Portfolio
------------ -------------
<S> <C> <C>
Purchases.................................................. $ 8,598,583 $ 9,708,732
------------ -------------
Sales...................................................... $ 8,907,976 $ 10,209,365
------------ -------------
</TABLE>
4. NET UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENTS
As of December 31, 1997, net unrealized appreciation of investments in the
Virginia Portfolio for Federal income tax purposes aggregated $2,190,036 of
which $2,192,327 related to appreciated investments and $2,291 related to
depreciated investments. In the Maryland Portfolio, net unrealized appreciation
of investments for Federal income tax purposes totaled $2,495,953 of which
$2,504,013 related to appreciated investments and $8,060 related to depreciated
investments.
5. NET ASSETS
At December 31, 1997, net assets consisted of the following:
<TABLE>
<CAPTION>
Money Market Virginia Maryland
Portfolio Portfolio Portfolio
------------- ------------- -------------
<S> <C> <C> <C>
Paid-in-Capital........................... $19,177,146 $ 30,717,282 $ 42,978,522
Accumulated Net Realized Loss on
Investments.............................. -- -- (130,418)
Net Unrealized Appreciation of
Investments.............................. -- 2,190,036 2,495,953
------------- ------------- -------------
NET ASSETS................................ $19,177,146 $ 32,907,318 $ 45,344,057
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
6. CAPITAL LOSS CARRYOVERS
At December 31, 1997, for Federal income tax purposes, the following Portfolio
had capital loss carryforwards which may be applied against future net taxable
realized gain of each succeeding year until the earlier of its utilization or
its expiration:
<TABLE>
<CAPTION>
Maryland
Portfolio
-------------
<S> <C>
Expires December 31, 2002................................................ $ 130,418
</TABLE>
- 15 -
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
of Fund for Tax-Free Investors, Inc.:
We have audited the statements of net assets of the Money Market, Virginia and
Maryland Portfolios of Fund for Tax-Free Investors, Inc. (the Fund) as of
December 31, 1997, the related statements of operations for the year then ended
and of changes in net assets for the years ended December 31, 1997 and 1996, and
the financial highlights for each of the five years in the period ended December
31, 1997. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at December
31, 1997, by correspondence with the custodian and broker. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the net assets of the Money Market, Virginia
and Maryland Portfolios of Fund for Tax-Free Investors, Inc. at December 31,
1997, the results of their operations, the changes in their net assets, and the
financial highlights for the respective stated periods in conformity with
generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Princeton, New Jersey
January 23, 1998
- 16 -
<PAGE>
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