<PAGE>
[LOGO]
ANNUAL REPORT, December 31, 1998
FUND FOR TAX-FREE INVESTORS, INC.
4922 FAIRMONT AVENUE, BETHESDA, MD 20814
(800) 622-1386 (301) 657-1510
- --------------------------------------------------------------------------------
January 22, 1999
Dear Shareholders:
Interest rates continued to fall during 1998 as inflation remained relatively
nonexistent throughout the year. The yield on the benchmark 30-year Treasury was
lower by over 80 basis points ending the year yielding 5.08%, and 30-year AAA
municipal yields declined by approximately ten basis points and closed the year
at 4.94%. The Federal Reserve lowered the overnight Federal Funds rate a total
of 75 basis points to 4.75%.
Although employment levels remained high and domestic consumer demand remained
strong, inflation was held in check primarily due to persistent global financial
crises, low import prices, and continued gains in productivity by U.S. firms.
The growing financial problems, such as those in Asia, Brazil, and Russia,
caused the financial markets to begin to deteriorate and credit spreads to widen
as investors turned their backs on risky investments. The Federal Reserve cut
the Fed Funds rate 25 basis points three different times during late 1998, in an
attempt to calm fears that this foreign financial turmoil could lead to a
recession in the U.S. economy. The easing of monetary policy succeeded in
putting investors at ease and the financial markets were able to stabilize.
Municipal bonds had another positive year, with the greatest increases occurring
in securities with ten years or less to maturity. Municipals, however, were
unable to keep up with the stunning performance of Treasuries. Yields on
Treasury securities dropped significantly due to several factors, the most
notable being: low inflation, flight-to-safety caused by instability in the
financial markets, and an increased budget surplus resulting in less need for
the Treasury to borrow (i.e., less supply). The under-performance by municipals
has resulted in them remaining "cheap" relative to their Treasury counterparts,
in relation to their historical percentages. Even though municipals offer an
attractive investment on a relative basis, demand has remained weak. For many
investors the focus has returned back to equities, their confidence having been
restored after performance in the stock markets picked up following the Fed
intervention on short-term rates.
TAX-FREE MONEY MARKET
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
<PAGE>
an annualized net investment income of 2.70% of net assets for the year ended
December 31, 1998, compared to 2.89% for 1997. On December 31, 1998, the
Portfolio's average maturity was 50 days.
MARYLAND AND VIRGINIA TAX-FREE PORTFOLIOS
Fund for Tax-Free Investors Maryland Portfolio had a total return of 5.90% for
the year ended December 31, 1998. On an annualized basis, net investment income
averaged 4.58% of net assets for the year. Net assets for the Maryland Portfolio
stood at $45.8 million at 1998 year-end, and the average maturity was 14.5
years. More than 85% of the Portfolio had a rating of AA or higher.
The total return for the Fund for Tax-Free Investors Virginia Portfolio was
5.64% for 1998 and net investment income averaged 4.48% of net assets for the
year. Net assets for the Virginia Portfolio were $34.5 million at year-end, and
it had an average maturity of 15.3 years. The percentage of securities with a
rating of AA or better was over 87% of the Portfolio.
The general obligation debt for both Maryland and Virginia have retained the
highest credit rating of AAA by all three rating agencies: Moody's, S&P and
Fitch.
OUTLOOK
What happens in the year ahead will be dictated primarily by how the current
financial situation in the various troubled foreign economies plays out. If the
international financial woes persist we could see deflationary pressures remain
in the picture leading to possible further rate cuts by the Federal Reserve.
Further rate cuts should lead to lower yield and higher prices for bonds. On the
other hand, should these economies rebound we would probably see the ugly head
of inflation creep back onto the radar screen of the financial markets.
Inflationary fears would at best put a halt to further advances in the bond
markets, but at worst lead to a tightening in monetary policy, higher interest
rates and lower bond prices.
We believe a scenario closer to the former to be the case in the coming year.
Our economy should slow down from the pace it has exhibited over the last
several years, as the affect of troubled foreign economies continues to put the
brakes on the economy here in the United States. This moderation of the economy
will keep inflation in check and low interest rates will remain the trend in
1999. We think the Fed is finished for the time being, however, lowering
short-term interest rates so as not to unnecessarily jump-start inflationary
pressures.
Municipals are poised technically to perform well due to their high ratios
relative to Treasuries, as well as the forecast for lower issuance of new
securities in the year ahead. The relative value of municipals leaves room for
strong performance should investors begin to divest from equities and into debt
securities. If the low interest rate environment holds for 1999 as we think it
should, municipals will have another positive year as they come back in line
with historical spreads to Treasuries.
- 2 -
<PAGE>
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 believe provide the best opportunity to meet the Funds' investment
objectives. As always, we thank you for your continued support and look forward
to serving your investment needs in 1999.
Sincerely,
[SIGNATURE] [SIGNATURE]
Daniel L. O'Connor Richard J. Garvey
Chairman President
- 3 -
<PAGE>
FUND FOR TAX-FREE INVESTORS, INC.
STATEMENT OF NET ASSETS
MONEY MARKET PORTFOLIO
December 31, 1998
<TABLE>
<CAPTION>
Face Value
Value (Note 1)
--------- -----------
<S> <C> <C>
CALIFORNIA 4.1%
California School Cash Reserve
Program Revenue
4.5%, 7/2/99 SPI+.............. $ 800,000 $ 802,920
-----------
COLORADO 8.5%
Colorado State Revenue
Anticipation Notes
4.25%, 6/25/99 SP1+............ 375,000 376,940
Colorado Student Obligation Board
Authority Floating Rate Notes
3.85%, 8/1/00+ A-1+............ 800,000 800,000
Pitkin County Multifamily Housing
Floating Rate Notes
4%, 12/1/24+ A-1+.............. 500,000 500,000
-----------
State Total.................... 1,676,940
-----------
ILLINOIS 3.7%
Illinois State Sales Tax Revenue
6.8%, 6/15/99^ AAA............. 700,000 723,209
-----------
LOUISIANA 1.5%
Jefferson Special Sales Tax
Revenue Series A
8.0%, 7/1/99^ AAA.............. 295,000 302,139
-----------
MARYLAND 15.3%
Baltimore County Revenue Floating
Rate Notes
4.05%, 1/1/16+ A-1............. 200,000 200,000
Maryland Department of
Transportation Revenue
3.8%, 6/15/99 AA............... 500,000 501,557
Maryland State General Obligation
9%, 9/1/99 AAA................. 600,000 623,049
Maryland Health and Higher
Education Loyola College Issue B
Floating Rate Notes
4.15%, 10/1/13+ AAA............ 800,000 800,000
Maryland Health and Higher
Education North Arundel Hospital
Floating Rate Notes
4.2%, 7/1/32+ VMIGI............ 500,000 500,000
North East Maryland Waste
Disposal Authority Floating Rate
Notes
3.75%, 1/1/08+ A-1+............ 400,000 400,000
-----------
State Total.................... 3,024,606
-----------
<CAPTION>
Face Value
Value (Note 1)
--------- -----------
<S> <C> <C>
MINNESOTA 22.2%
Minneapolis General Obligation
Floating Rate Notes
3.85%, 12/1/07+ A-1+........... $ 700,000 $ 700,000
Minneapolis Housing Authority
Revenue Floating Rate Notes
4%, 9/1/08+ VMIG1.............. 390,000 390,000
Minnesota State Higher Education
Floating Rate Notes
4.2%, 12/1/24+ VMIG1........... 500,000 500,000
Northern Municipal Power Revenue
7.2%, 1/1/99 AAA............... 550,000 551,116
St. Louis Park Tax Increment
General Obligation Floating Rate
Notes
4.4%, 2/1/06+ VMIG1............ 305,000 305,000
St. Paul Housing and
Redevelopment Authority Floating
Rate Notes
3.95%, 12/1/12+ A-1+........... 700,000 700,000
St. Paul Housing and
Redevelopment Authority United
Way Project Floating Rate Notes
3.95%, 12/1/18+ A-1............ 500,000 500,000
Waconia Industrial Development
Revenue Floating Rate Notes
4%, 10/1/16+ A-1............... 745,000 745,000
-----------
State Total.................... 4,391,116
-----------
MISSOURI 6.8%
Jackson County School District
4.75%, 3/1/99 AA............... 640,000 640,901
Missouri State Health and
Education Drury College Floating
Rate Notes
5.15%, 8/15/21+ VMIG1.......... 700,000 700,000
-----------
State Total.................... 1,340,901
-----------
MONTANA 3.1%
Montana State Health Floating
Rate Notes
4%, 12/1/15+ A-1+.............. 600,000 600,000
-----------
NEW HAMPSHIRE 4.0%
New Hamphshire Health and Higher
Education Floating Rate Notes
4.05%, 11/1/21+ VMIG1.......... 500,000 500,000
</TABLE>
- 4 -
<PAGE>
STATEMENT OF NET ASSETS
MONEY MARKET PORTFOLIO (continued)
December 31, 1998
<TABLE>
<CAPTION>
Face Value
Value (Note 1)
--------- -----------
<S> <C> <C>
NEW HAMPSHIRE (continued)
New Hampshire State Business
Finance Authority Foundation for
Seacoast Health Series A Floating
Rate Notes
4.15%, 6/1/28+ A-1............. $ 300,000 $ 300,000
-----------
State Total.................... 800,000
-----------
NEW YORK 9.9%
New York City General Obligation
Floating Rate Notes
5.1%, 8/15/18+ A-1+............ 400,000 400,000
New York City General Obligation
Floating Rate Notes
5.1%, 8/15/23+ A-1+............ 400,000 400,000
Nassau County Revenue
Anticipation Notes
4%, 3/10/99 SP1................ 700,000 700,375
Suffolk County Water Authority
Revenue
3.6%, 6/1/99 AAA............... 460,000 460,000
-----------
State Total.................... 1,960,375
-----------
NORTH CAROLINA 3.5%
City of Winston-Salem Floating
Rate Notes
4.1%, 4/1/00+ A-1+............. 700,000 700,000
-----------
PENNSYLVANIA 4.0%
Emmaus General Authority Floating
Rate Notes
4.1%, 12/1/28+ A-1+............ 800,000 800,000
-----------
SOUTH CAROLINA 3.5%
Piedmont Municipal Power Agency
Electric Revenue
5%, 1/1/99 AAA................. 700,000 700,000
-----------
<CAPTION>
Face Value
Value (Note 1)
--------- -----------
<S> <C> <C>
TEXAS 1.5%
Port Arthur Revenue Floating Rate
Notes
5.15%, 5/1/03+ P1.............. $ 300,000 $ 300,000
-----------
VIRGINIA 2.6%
Richmond General Obligation
6.5%, 1/15/99^ AAA............. 500,000 505,621
-----------
WISCONSIN 2.6%
Wisconsin State Transportation
Revenue
6.2%, 7/1/99^ AA............... 500,000 517,422
-----------
TOTAL INVESTMENTS 96.8%
(Cost $19,145,249*)....................... 19,145,249
OTHER ASSETS LESS LIABILITIES 3.2%.......... 637,642
-----------
NET ASSETS (NOTE 5) 100.0%.................. $19,782,891
-----------
-----------
NET ASSET VALUE PER SHARE
(Based on 19,782,891 Shares
Outstanding).............................. $1.00
-----------
-----------
</TABLE>
- ---------
+ Daily or Weekly Tender Bond
^ Date represents pre-refunded date.
* Same cost is used for Federal income tax purposes.
Security Ratings are unaudited.
See Notes to Financial Statements.
- 5 -
<PAGE>
FUND FOR TAX-FREE INVESTORS, INC.
STATEMENT OF NET ASSETS
VIRGINIA PORTFOLIO
December 31, 1998
<TABLE>
<CAPTION>
Face Value
Value (Note 1)
---------- -----------
<S> <C> <C>
Arlington County General
Obligation
6%, 8/1/04 AAA............... $ 500,000 $ 560,265
5.4%, 6/1/13 AAA............. 1,000,000 1,063,790
5.375%, 12/1/16 AAA.......... 1,000,000 1,049,340
Brunswick County Virginia
Revenue
5.5%, 7/1/17 AAA............. 1,000,000 1,052,900
Chesapeake Water and Sewer
System Revenue
6.5%, 7/1/05 A+.............. 270,000 295,707
Fairfax City EDA Lease Revenue
5.5%, 5/15/18 AA............. 2,000,000 2,068,380
Fairfax County Industrial
Development Authority Revenue
5.2%, 8/15/05 AA............. 300,000 317,349
5.25%, 8/15/19 AA............ 650,000 681,012
Fairfax County Resource
Recovery Revenue
7.75%, 2/1/11 A+............. 300,000 310,137
Fairfax County Water Authority
Revenue
5.8%, 1/1/16 AAA............. 500,000 550,900
6%, 4/1/07^ AA-.............. 605,000 693,384
6%, 4/1/22 AA-............... 630,000 700,434
Hampton General Obligation
6%, 1/15/14 AA-.............. 350,000 392,728
Hanover County Water and Sewer
Revenue
5.25%, 2/1/16 AAA............ 500,000 514,530
Hanover County Virginia General
Obligation
5.4%, 7/15/16 AA............. 1,000,000 1,042,360
Henrico County Industrial
Development Authority Revenue
7.125%, 8/1/21 AA............ 400,000 465,340
6.25%, 5/1/13 AA-............ 500,000 529,625
Henry County General Obligation
8.825%, 11/1/05^ AAA......... 200,000 257,122
Isle of Wight County General
Obligation
6.7%, 1/1/02^ A.............. 200,000 220,472
James City County General
Obligation
5.25%, 12/15/15 AAA.......... 1,000,000 1,035,370
Leesburg General Obligation
5.5%, 6/1/13 AAA............. 500,000 532,165
<CAPTION>
Face Value
Value (Note 1)
---------- -----------
<S> <C> <C>
Loudoun County General
Obligation
5%, 12/1/18 AA............... $1,000,000 $ 1,011,610
Loudoun County Sanitation
Authority Revenue
6.25%, 1/1/16 AAA............ 500,000 544,110
Lynchburg General Obligation
5%, 5/1/18 AA................ 1,000,000 1,006,820
Lynchburg Industrial
Development Authority Revenue
5.2%, 1/1/18 A+.............. 500,000 503,330
Manassas General Obligation
5%, 1/1/14 AAA............... 1,000,000 1,021,230
Metropolitan Washington D.C.
Airport Authority Revenue
6.5%, 10/1/06 AAA............ 300,000 329,811
Newport News General Obligation
5%, 3/1/18 AA................ 795,000 799,683
Norfolk General Obligation
5.75%, 6/1/13 AAA............ 500,000 540,265
Norfolk Water Revenue
5.75%, 11/1/12 AAA........... 500,000 544,380
5.875%, 11/1/15 AAA.......... 500,000 545,400
Portsmouth Redevelopment and
Housing Authority Revenue
6.05%, 12/1/08 AAA........... 500,000 537,780
Potomac and Rappahannock
Transportation District
Commission Revenue
6.7%, 3/1/00^ AAA............ 600,000 634,320
Prince William County
Industrial Development
Authority Revenue
7.25%, 3/1/00^ NR............ 250,000 265,858
Prince William County Park
Authority Revenue
6.875%, 10/15/16 A-.......... 500,000 567,485
Rappanhannock Jail Facilities
Revenue
5%, 12/1/20 AAA.............. 1,000,000 1,000,000
Richmond Metro Authority
Revenue
6.375%, 7/15/02^ AAA......... 500,000 552,675
Richmond Public Utilities
Revenue
5.25%, 1/15/18 A+............ 1,000,000 1,024,400
Upper Occoquan Sewer Authority
Revenue
5.15%, 7/1/20 AAA............ 500,000 515,155
</TABLE>
- 6 -
<PAGE>
STATEMENT OF NET ASSETS
VIRGINIA PORTFOLIO (continued)
December 31, 1998
<TABLE>
<CAPTION>
Face Value
Value (Note 1)
---------- -----------
<S> <C> <C>
Virginia Beach General
Obligation
6.5%, 8/1/01^ AA............. $ 500,000 $ 544,565
5%, 8/1/17 AA................ 1,075,000 1,082,482
Virginia College Building
Authority Revenue
6.625%, 5/1/13 A-............ 300,000 332,526
Virginia Housing Development
Authority Revenue
6.625%, 7/1/13 A+............ 275,000 286,533
5.95%, 7/1/13 AA+............ 500,000 521,665
5.75%, 1/1/19 AAA............ 1,000,000 1,032,550
Virginia Port Authority Revenue
5.9%, 7/1/16 AA.............. 500,000 531,310
Virginia Public Building
Authority Revenue
5.2%, 8/1/16 AA.............. 1,000,000 1,024,290
Virginia Public School
Authority Revenue
6.2%, 8/1/13 AA.............. 320,000 356,112
5%, 8/1/18 AA+............... 1,000,000 1,011,360
Virginia Resource Authority
Revenue
6.75%, 10/1/04^ AA........... 240,000 274,910
<CAPTION>
Face Value
Value (Note 1)
---------- -----------
<S> <C> <C>
Virginia Transportation Board
Revenue
5.125%, 5/15/17 AA........... $ 500,000 $ 508,160
-----------
TOTAL INVESTMENTS 97.8% OF NET
ASSETS
(Cost $31,749,298*)...................... 33,784,085
OTHER ASSETS LESS LIABILITIES 2.2%......... 758,901
-----------
NET ASSETS (NOTE 5) 100.0%................. $34,542,986
-----------
-----------
NET ASSET VALUE PER SHARE
(Based on 3,024,087 Shares
Outstanding)............................. $11.42
-----------
-----------
</TABLE>
- ---------
^ Date represents pre-refunded date.
* Same cost is used for Federal income tax purposes.
NR Not Rated
Security ratings are unaudited.
See Notes to Financial Statements.
- 7 -
<PAGE>
FUND FOR TAX-FREE INVESTORS, INC.
STATEMENT OF NET ASSETS
MARYLAND PORTFOLIO
December 31, 1998
<TABLE>
<CAPTION>
Face Value
Value (Note 1)
---------- -----------
<S> <C> <C>
Anne Arundel County Water and
Sewer General Obligation
6.2%, 8/1/12 AA+............. $ 725,000 $ 805,178
6%, 7/15/13 AA+.............. 500,000 536,735
6.3%, 8/1/16 AA+............. 500,000 554,495
6.3%, 8/1/19 AA+............. 725,000 808,846
Anne Arundel County Pollution
Control Revenue
6.%, 4/1/24 A................ 1,230,000 1,316,260
Anne Arundel County Solid Waste
Project General Obligation
5.5%, 9/1/15 AA1............. 500,000 520,110
Baltimore City General
Obligation
6.4%, 10/15/02^ AAA.......... 465,000 508,975
5.5%, 10/15/10 AAA........... 1,000,000 1,085,360
Baltimore Wastewater Project
Revenue
6%, 7/1/15 AAA............... 500,000 577,170
Baltimore County General
Obligation
6.125%, 7/1/02^ AAA.......... 500,000 548,180
5.5%, 6/1/12 AAA............. 1,000,000 1,072,230
Baltimore Port Facility Revenue
6.5%, 12/1/10 AA-............ 400,000 435,228
Carroll County General
Obligation
7.1%, 10/1/00^ AA............ 235,000 254,275
7.25%, 10/1/00^ AA........... 300,000 325,365
5.3%, 11/1/15 AA............. 1,000,000 1,036,310
6.5%, 10/1/24 AA............. 225,000 258,460
Frederick County General
Obligation
6.125%, 12/1/07 AAA.......... 500,000 546,620
5.6%, 7/1/11 AA.............. 500,000 549,260
City of Frederick General
Obligation
6%, 10/1/11 AAA.............. 300,000 332,196
Harford County General
Obligation
5%, 3/1/14 AA-............... 500,000 508,425
Howard County Metropolitan
District General Obligation
6%, 8/15/19 AAA.............. 810,000 847,438
Howard County Public
Improvement General Obligation
6%, 5/15/03^ AA+............. 500,000 543,900
5.5%, 2/15/04^ AA+........... 1,000,000 1,081,800
<CAPTION>
Face Value
Value (Note 1)
---------- -----------
<S> <C> <C>
Howard County Special
Facilities Revenue
6.1%, 2/15/13 AA-............ $ 500,000 $ 545,155
Laurel General Obligation
6.7%, 7/1/01^ AAA............ 600,000 655,068
Maryland Community Development
Administration Revenue
6.6%, 4/1/06 AA.............. 200,000 210,728
7.375%, 4/1/10 AA............ 495,000 515,409
7.25%, 4/1/11 AA............. 200,000 210,654
7.15%, 4/1/11 AA............. 405,000 425,732
7.7%, 5/15/20 AA............. 250,000 263,985
7.25%, 4/1/27 AA............. 385,000 402,756
Maryland General Obligation
5%, 10/15/11 AAA............. 1,000,000 1,054,750
5%, 3/1/12 AAA............... 1,500,000 1,572,450
Maryland Health and Higher
Education Facilities Authority
Revenue
5.7%, 7/1/09 A............... 500,000 557,755
5.25%, 7/1/13 AAA............ 500,000 530,845
6.125%, 7/1/14 AAA........... 500,000 552,065
5.5%, 10/1/16 AAA............ 1,000,000 1,070,810
6.125%, 7/1/19 AAA........... 500,000 545,115
5%, 7/1/19 A2................ 500,000 498,730
5%, 7/1/27 AAA............... 1,500,000 1,497,735
Maryland Health and Higher
Education Facilities Authority
4.2%, 7/1/32+ VMIG1.......... 400,000 400,000
Maryland Industrial Development
Revenue
7.125%, 7/1/06 A-............ 300,000 306,000
Maryland Stadium Authority
Sports Revenue
7.5%, 12/15/10 AA-........... 695,000 732,773
5.55%, 3/1/13 AAA............ 500,000 536,410
5.875%, 12/15/13 AAA......... 1,000,000 1,101,670
5.375%, 12/15/15 AA.......... 500,000 518,985
7.6%, 12/15/19 AA-........... 500,000 526,375
Maryland Water Quality Finance
Administration Revenue
6%, 9/1/15 AA................ 1,000,000 1,074,740
Montgomery County Housing
Opportunity Commission Revenue
6.7%, 7/1/11 AA.............. 345,000 363,637
7.8%, 7/1/12 NR.............. 200,000 214,926
7.375%, 7/1/17 AA............ 175,000 179,762
6.65%, 7/1/17 AA............. 170,000 182,617
7%, 7/1/23 A................. 250,000 263,555
</TABLE>
- 8 -
<PAGE>
STATEMENT OF NET ASSETS
MARYLAND PORTFOLIO (continued)
December 31, 1998
<TABLE>
<CAPTION>
Face Value
Value (Note 1)
---------- -----------
<S> <C> <C>
Montgomery County Waste
Disposal Authority Revenue
5.875%, 6/1/13 AAA........... $ 250,000 $ 267,782
North East Maryland Waste
Disposal Authority Revenue
6.2%, 7/1/10 A............... 500,000 540,975
6.3%, 7/1/16 A............... 1,000,000 1,073,270
Prince Georges County
Dimensions Health Care Revenue
5.375%, 7/1/14 A............. 500,000 507,395
Prince Georges County General
Obligation
5.25%, 3/15/15 AAA........... 1,000,000 1,042,460
Prince Georges County Housing
Authority Revenue
6.35%, 7/20/20 AAA........... 700,000 739,102
Prince Georges County Pollution
Control Revenue
5.75%, 3/15/10 A............. 1,000,000 1,125,890
Prince Georges County Solid
Waste Management System Revenue
7%, 6/30/00^ AAA............. 250,000 267,975
St. Mary's County General
Obligation
5.85%, 11/1/18 AAA........... 500,000 538,870
University of Maryland System
Auxiliary Revenue
6.375%, 4/1/09 AA+........... 500,000 555,025
5.6%, 4/1/12 AA+............. 1,000,000 1,070,730
5.125%, 4/1/15 AA+........... 1,000,000 1,032,140
5.6%, 4/1/16 AA+............. 1,000,000 1,059,480
<CAPTION>
Face Value
Value (Note 1)
---------- -----------
<S> <C> <C>
Washington County General
Obligation
5.125%, 1/1/12 AAA........... $ 500,000 $ 522,100
5.25%, 1/1/16 AAA............ 500,000 513,710
Washington, D.C. Metropolitan
Area Transportation Authority
Revenue
6%, 7/1/10 AAA............... 275,000 317,067
Washington Suburban Sanitary
District General Obligation
6.2%, 6/1/12 AA.............. 900,000 971,712
-----------
TOTAL INVESTMENTS 97.6% OF NET
ASSETS
(Cost $41,759,630*)...................... 44,709,691
OTHER ASSETS LESS LIABILITIES 2.4%......... 1,117,348
-----------
NET ASSETS (NOTE 5) 100.0%................. $45,827,039
-----------
-----------
NET ASSET VALUE PER SHARE
(Based on 4,079,234 Shares
Outstanding)............................. $11.23
-----------
-----------
</TABLE>
- ---------
^ Date represents
pre-refunded date.
+ Daily or Weekly Tender
Bond
NR Not Rated
* Same cost is used for
Federal income tax
purposes.
Security ratings are
unaudited.
See Notes to Financial Statements.
- 9 -
<PAGE>
FUND FOR TAX-FREE INVESTORS, INC.
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Money
Market Virginia Maryland
Portfolio Portfolio Portfolio
----------- ---------- ----------
<S> <C> <C> <C>
INVESTMENT INCOME (Note 1).............................................. $ 635,148 $1,767,035 $2,542,993
----------- ---------- ----------
EXPENSES
Investment Advisory Fee (Note 2)...................................... 92,105 204,458 288,928
Administrative Fee (Note 2)........................................... 46,053 98,140 138,690
Other Fees............................................................ 232 -- --
----------- ---------- ----------
Total Expenses...................................................... 138,390 302,598 427,618
----------- ---------- ----------
NET INVESTMENT INCOME................................................... 496,758 1,464,437 2,115,375
----------- ---------- ----------
Net Realized Gain on Investment Transactions............................ -- 515,403 98,804
Change in Net Unrealized Appreciation of Investments.................... -- (155,249) 454,108
----------- ---------- ----------
NET GAIN ON INVESTMENTS................................................. -- 360,154 552,912
----------- ---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................... $ 496,758 $1,824,591 $2,668,287
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
See Notes to Financial Statements.
- 10 -
<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
----------------------------- ----------------------------- ------------
1998 1997 1998 1997 1998
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES
Net Investment Income................. $ 496,758 $ 574,669 $ 1,464,437 $ 1,518,094 $ 2,115,375
Net Realized Gain on Investment
Transactions........................ -- -- 515,403 70,517 98,804
Change in Net Unrealized Appreciation
of Investments...................... -- -- (155,249) 1,026,639 454,108
------------- ------------- ------------- ------------- ------------
Net Increase in Net Assets Resulting
from Operations..................... 496,758 574,669 1,824,591 2,615,250 2,668,287
------------- ------------- ------------- ------------- ------------
DISTRIBUTIONS TO
SHAREHOLDERS
From Net Investment Income
(Note 1)............................ (496,758) (574,669) (1,464,437) (1,519,055) (2,115,375)
From Net Realized Gain................ -- -- (466,429) (48,336) --
------------- ------------- ------------- ------------- ------------
Total Distributions to Shareholders... (496,758) (574,669) (1,930,866) (1,567,391) (2,115,375)
------------- ------------- ------------- ------------- ------------
FROM SHARE
TRANSACTIONS
Net Proceeds from Sales of Shares..... 35,657,860 31,756,045 11,697,514 12,324,705 8,091,036
Reinvestment of Distributions......... 473,977 547,728 1,651,857 1,308,417 1,783,553
Cost of Shares Redeemed............... (35,526,092) (32,016,149) (11,607,428) (14,128,407) (9,944,519)
------------- ------------- ------------- ------------- ------------
Net Increase (Decrease) in Net Assets
Resulting from Share Transactions... 605,745 287,624 1,741,943 (495,285) (69,930)
------------- ------------- ------------- ------------- ------------
TOTAL INCREASE IN NET ASSETS.......... 605,745 287,624 1,635,668 552,574 482,982
NET ASSETS - Beginning of Year.......... 19,177,146 18,889,522 32,907,318 32,354,744 45,344,057
------------- ------------- ------------- ------------- ------------
NET ASSETS - End of Year................ $ 19,782,891 $ 19,177,146 $ 34,542,986 $ 32,907,318 $ 45,827,039
------------- ------------- ------------- ------------- ------------
------------- ------------- ------------- ------------- ------------
SHARES
Sold.................................. 35,657,860 31,756,045 1,018,080 1,104,589 724,881
Issued in Reinvestment of
Distributions....................... 473,977 547,728 143,753 116,812 159,779
Redeemed.............................. (35,526,092) (32,016,149) (1,009,987) (1,266,554) (890,970)
------------- ------------- ------------- ------------- ------------
Net Increase (Decrease) in Shares..... 605,745 287,624 151,846 (45,153) (6,310)
------------- ------------- ------------- ------------- ------------
------------- ------------- ------------- ------------- ------------
<CAPTION>
1997
------------
<S> <C>
FROM INVESTMENT
ACTIVITIES
Net Investment Income................. $ 2,149,276
Net Realized Gain on Investment
Transactions........................ 326,372
Change in Net Unrealized Appreciation
of Investments...................... 986,054
------------
Net Increase in Net Assets Resulting
from Operations..................... 3,461,702
------------
DISTRIBUTIONS TO
SHAREHOLDERS
From Net Investment Income
(Note 1)............................ (2,151,344)
From Net Realized Gain................ --
------------
Total Distributions to Shareholders... (2,151,344)
------------
FROM SHARE
TRANSACTIONS
Net Proceeds from Sales of Shares..... 6,860,756
Reinvestment of Distributions......... 1,803,253
Cost of Shares Redeemed............... (9,040,667)
------------
Net Increase (Decrease) in Net Assets
Resulting from Share Transactions... (376,658)
------------
TOTAL INCREASE IN NET ASSETS.......... 933,700
NET ASSETS - Beginning of Year.......... 44,410,357
------------
NET ASSETS - End of Year................ $ 45,344,057
------------
------------
SHARES
Sold.................................. 633,250
Issued in Reinvestment of
Distributions....................... 165,933
Redeemed.............................. (830,133)
------------
Net Increase (Decrease) in Shares..... (30,950)
------------
------------
</TABLE>
See Notes to Financial Statements.
- 11 -
<PAGE>
FUND FOR TAX-FREE INVESTORS, INC.
FINANCIAL HIGHLIGHTS
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<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................... 0.03 0.03 0.03 0.03 0.02
--------- --------- --------- --------- ---------
Total from Investment Operations...... 0.03 0.03 0.03 0.03 0.02
--------- --------- --------- --------- ---------
Distributions to Shareholders:
From Net Investment Income.............. (0.03) (0.03) (0.03) (0.03) (0.02)
--------- --------- --------- --------- ---------
Total Distributions to Shareholders... (0.03) (0.03) (0.03) (0.03) (0.02)
--------- --------- --------- --------- ---------
Net Increase in Net Asset Value........... 0.00 0.00 0.00 0.00 0.00
--------- --------- --------- --------- ---------
Net Asset Value - End of Year............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN..................... 2.73% 2.93% 2.69% 3.09% 2.02%
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................. 0.75% 0.75% 0.75% 0.75% 0.75%
Net Investment Income..................... 2.70% 2.89% 2.67% 3.04% 1.99%
SUPPLEMENTARY DATA:
Net Assets at End of Year (in
thousands).............................. $ 19,783 $ 19,177 $ 18,890 $ 20,772 $ 25,586
Number of Shares Outstanding at End of
Year
(in thousands).......................... 19,783 19,177 18,890 20,792 25,604
</TABLE>
See Notes to Financial Statements.
- 12 -
<PAGE>
FUND FOR TAX-FREE INVESTORS, INC.
FINANCIAL HIGHLIGHTS
VIRGINIA PORTFOLIO
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value - Beginning of Year............ $ 11.46 $ 11.09 $ 11.31 $ 10.36 $ 11.51
--------- --------- --------- --------- ---------
Income from Investment Operations:
Net Investment Income........................ 0.52 0.52 0.53 0.56 0.58
Net Realized and Unrealized Gain (Loss) on
Investments................................ 0.12 0.39 (0.22) 0.95 (1.15)
--------- --------- --------- --------- ---------
Total from Investment Operations........... 0.64 0.91 0.31 1.51 (0.57)
--------- --------- --------- --------- ---------
Distributions to Shareholders:
From Net Investment Income................... (0.52) (0.52) (0.53) (0.56) (0.58)
From Net Realized Gain....................... (0.16) (0.02) -- -- --
--------- --------- --------- --------- ---------
Total Distributions to Shareholders........ (0.68) (0.54) (0.53) (0.56) (0.58)
--------- --------- --------- --------- ---------
Net Increase (Decrease) in Net Asset Value..... (0.04) 0.37 (0.22) 0.95 (1.15)
--------- --------- --------- --------- ---------
Net Asset Value - End of Year.................. $ 11.42 $ 11.46 $ 11.09 $ 11.31 $ 10.36
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN.......................... 5.64% 8.45% 2.91% 14.92% (5.02)%
RATIOS TO AVERAGE NET ASSETS:
Expenses....................................... 0.93% 0.93% 0.93% 0.77% 0.55%
Expenses Before Reimbursement from Adviser..... 0.93% 0.93% 0.93% 0.93% 0.93%
Net Investment Income.......................... 4.48% 4.70% 4.84% 5.17% 5.35%
SUPPLEMENTARY DATA:
Portfolio Turnover Rate........................ 25% 27% 46% 55% 33%
Net Assets at End of Year (in thousands)....... $ 34,543 $ 32,907 $ 32,355 $ 33,468 $ 27,929
Number of Shares Outstanding at End of Year (in
thousands)................................... 3,024 2,872 2,917 2,958 2,697
</TABLE>
See Notes to Financial Statements.
- 13 -
<PAGE>
FUND FOR TAX-FREE INVESTORS, INC.
FINANCIAL HIGHLIGHTS
MARYLAND PORTFOLIO
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value - Beginning of Year............ $ 11.10 $ 10.79 $ 10.98 $ 10.11 $ 11.27
--------- --------- --------- --------- ---------
Income from Investment Operations:
Net Investment Income........................ 0.51 0.51 0.53 0.55 0.57
Net Realized and Unrealized Gain (Loss) on
Investments................................ 0.13 0.31 (0.19) 0.87 (1.16)
--------- --------- --------- --------- ---------
Total from Investment Operations........... 0.64 0.82 0.34 1.42 (0.59)
--------- --------- --------- --------- ---------
Distributions to Shareholders:
From Net Investment Income................... (0.51) (0.51) (0.53) (0.55) (0.57)
--------- --------- --------- --------- ---------
Total Distributions to Shareholders........ (0.51) (0.51) (0.53) (0.55) (0.57)
--------- --------- --------- --------- ---------
Net Increase (Decrease) in Net Asset Value..... 0.13 0.31 (0.19) 0.87 (1.16)
--------- --------- --------- --------- ---------
Net Asset Value - End of Year.................. $ 11.23 $ 11.10 $ 10.79 $ 10.98 $ 10.11
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN.......................... 5.90% 7.85% 3.21% 14.35% (5.24)%
RATIOS TO AVERAGE NET ASSETS:
Expenses....................................... 0.93% 0.93% 0.93% 0.77% 0.55%
Expenses Before Reimbursement from Adviser..... 0.93% 0.93% 0.93% 0.93% 0.93%
Net Investment Income.......................... 4.58% 4.73% 4.92% 5.16% 5.36%
SUPPLEMENTARY DATA:
Portfolio Turnover Rate........................ 5% 22% 31% 37% 38%
Net Assets at End of Year (in thousands)....... $ 45,827 $ 45,344 $ 44,410 $ 49,725 $ 44,385
Number of Shares Outstanding at End of Year (in
thousands)................................... 4,079 4,086 4,116 4,527 4,391
</TABLE>
See Notes to Financial Statements.
- 14 -
<PAGE>
FUND FOR TAX-FREE INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
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, 1998, 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 year ended December 31,
1998. 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 the Money Market Portfolio, and 0.30% of the average daily
net assets of the Virginia and Maryland Portfolios. The Fund has an agreement
with Rushmore Trust to receive short-term borrowings to cover share redemptions.
No borrowings were outstanding at December 31, 1998.
- 15 -
<PAGE>
3. SECURITIES TRANSACTIONS
Security transactions are recorded on the trade date. For the year ended
December 31, 1998, purchases and sales (including maturities), of securities,
excluding short-term securities, were as follows:
<TABLE>
<CAPTION>
Virginia Maryland
Portfolio Portfolio
------------ ------------
<S> <C> <C>
Purchases................................................... $ 9,621,041 $ 2,289,225
------------ ------------
------------ ------------
Sales....................................................... $ 7,867,684 $ 2,985,792
------------ ------------
------------ ------------
</TABLE>
4. NET UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENTS
As of December 31, 1998, net unrealized appreciation of investments in the
Virginia Portfolio for Federal income tax purposes aggregated $2,034,787 of
which $2,051,025 related to appreciated investments and $16,238 related to
depreciated investments. In the Maryland Portfolio, net unrealized appreciation
of investments for Federal income tax purposes totaled $2,950,061 of which
$2,965,590 related to appreciated investments and $15,529 related to depreciated
investments.
5. NET ASSETS
At December 31, 1998, net assets consisted of the following:
<TABLE>
<CAPTION>
Money Market Virginia Maryland
Portfolio Portfolio Portfolio
------------- ------------- -------------
<S> <C> <C> <C>
Paid-in-Capital............................................... $19,782,891 $ 32,459,225 $ 42,908,592
Accumulated Net Realized Gain (Loss) on Investments........... -- 48,974 (31,614)
Net Unrealized Appreciation of Investments.................... -- 2,034,787 2,950,061
------------- ------------- -------------
NET ASSETS.................................................... $19,782,891 $ 34,542,986 $ 45,827,039
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
6. CAPITAL LOSS CARRYOVERS
At December 31, 1998, for Federal income tax purposes, the Maryland Portfolio
had capital loss carryforwards which may be applied against future net taxable
realized gains of each succeeding year until the earlier of its utilization or
its expiration:
<TABLE>
<CAPTION>
Maryland
Portfolio
-----------
<S> <C>
Expires December 31, 2002.................................................... $ 31,614
</TABLE>
- 16 -
<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, 1998, the related statements of operations for the year then ended
and of changes in net assets for the years ended December 31, 1998 and 1997, and
the financial highlights for each of the five years in the period ended December
31, 1998. 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, 1998, 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,
1998, 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.
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Princeton, New Jersey
January 27, 1999
- 17 -
