PROSPECTUS
May 1, 1995
Lexington Tax Free Money Fund, Inc.
P.O. Box 1515 / Park 80 West Plaza Two, Saddle Brook, New Jersey 07663
Toll Free: Service-1-800-526-0056
24 Hour Account Information-1-800-526-0052
A NO-LOAD MONEY MARKET MUTUAL FUND WITH THE PRINCIPAL INVESTMENT
OBJECTIVE OF CURRENT INCOME EXEMPT FROM FEDERAL INCOME TAXES.
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Lexington Tax Free Money Fund, Inc. (the "Fund") is a diversified
open-end management investment company, known as a money market mutual
fund.
Shareholders may invest, reinvest or redeem shares at any time
without charge or penalty.
The Fund's investment objective is to seek current income exempt
from Federal income taxes while also maintaining stability of
principal, liquidity and preservation of capital. The Fund invests in
short-term municipal securities which are described more fully on page
3.
Shares of the Fund are not insured or guaranteed by the U.S.
Government and there can be no assurance that the Fund will be able to
maintain a stable net asset value of $1.00 per share.
Shareholders may use free redemption checks provided by the Fund
for amounts of $100.00 or more.
Lexington Management Corporation ("LMC") is the Investment
Adviser of the Fund. Lexington Funds Distributor, Inc. ("LFD") is the
Distributor of Shares of the Fund.
This Prospectus concisely sets forth information about the Fund
that you should know before investing. It should be read and retained
for future reference.
A Statement of Additional Information dated May 1, 1995, which
provides a further discussion of certain areas in this Prospectus and
other matters that may be of interest to some investors, has been
filed with the Securities and Exchange Commission and is incorporated
herein by reference. For a free copy, call the appropriate telephone
number above or write to the address listed above.
Mutual fund shares are not deposits or obligations of (or
endorsed or guaranteed by) any bank, nor are they federally insured or
otherwise protected by the Federal Deposit Insurance Corporation
("FDIC"), the Federal Reserve Board or any other agency. Investing in
mutual funds involves investment risks, including the possible loss of
principal, and their value and return will fluctuate.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Investors Should Read and Retain this Prospectus for Future Reference
<PAGE>
FEE TABLE
Annual Fund Operating Expenses:
(as a percentage of average net assets) (net of reimbursement):
Management fees ..................................................... 0.50%
----
Other fees .......................................................... 0.50%
----
Total Fund Operating Expenses ....................................... 1.00%
====
<TABLE>
<CAPTION>
Example: 1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each period ..... $10.20 $31.84 $55.25 $122.46
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear
indirectly. (For more complete descriptions of the various costs and expenses,
see "How to Purchase Shares" and "Investment Adviser and Distributor" below.)
The Expenses and Example appearing in the table above are based on the Fund's
expenses for the period from January 1, 1994 to December 31, 1994. Absent
expense reimbursements, total fund operating expenses would have been 1.09% of
the Fund's average net assets. The Example shown in the table above should not
be considered a representation of past or future expenses and actual expenses
may be greater or less than those shown.
FINANCIAL HIGHLIGHTS
The following Financial Highlights information for each of the years in the
five year period ended December 31, 1994 has been audited by KPMG Peat Marwick
LLP, Independent Auditors, whose report thereon appears in the Statement of
Additional Information. This information should be read in conjunction with the
financial statements and related notes thereto included in the Statement of
Additional Information. The Fund's annual report, which contains additional
performance information, is available upon request and without charge.
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<TABLE>
<CAPTION>
Selected Per Share Data for a share outstanding throughout the period
Year Ended December 31,
----------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .. $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment operations:
Net investment income ............... 0.020 0.018 0.024 0.041 0.053 0.056 0.047 0.041 0.044 0.050
Less distributions:
Dividends from
net investment income .............(0.020) (0.018) (0.024) (0.041) (0.053) (0.056) (0.047) (0.041) (0.044) (0.050)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period ........$1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
====== ====== ====== ====== ====== ====== ====== ====== ====== =====
Total return .......................... 2.00% 1.78% 2.47% 4.22% 5.39% 5.73% 4.79% 4.21% 4.50% 5.13%
Ratio to average net assets:
Expenses, before reimbursement ...... 1.09% 0.92% 0.99% 0.96% 0.93% 0.88% 0.91% 0.74% 0.69% 0.73%
Expenses, net of reimbursement ...... 1.00% 0.92% 0.99% 0.96% 0.93% 0.88% 0.91% 0.74% 0.69% 0.73%
Net investment income,
before reimbursement .............. 1.88% 1.77% 2.46% 4.06% 5.26% 5.57% 4.67% 4.09% 4.32% 4.97%
Net investment income ............... 1.97% 1.77% 2.46% 4.06% 5.26% 5.57% 4.67% 4.09% 4.32% 4.97%
Net assets, end of period
(000's omitted) .....................$37,654 $41,096 $45,844 $53,722 $57,881 $61,385 $82,755 $84,954 $117,922 $79,629
</TABLE>
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2
<PAGE>
YIELD INFORMATION
For the seven-day period ended December 31, 1994, the Fund's annualized
current yield was 3.70% and the compounded effective yield was 3.77%. This yield
is subject to market conditions and will fluctuate daily as income earned
fluctuates. The above yield quotations are not an indication or representation
by the Fund of future yields or rates of return. This Prospectus may be in use
for a full year and it can be expected that these yields will fluctuate
substantially over that time. To obtain a current yield quotation for the Fund,
call the appropriate toll free telephone number listed on the cover of this
Prospectus.
The weighted average portfolio maturity on December 31, 1994 was 34 days.
COMPARATIVE PERFORMANCE INFORMATION
Advertisements and communications may compare the Fund's performance with
that of other mutual funds, as reported by Lipper Analytical Services, Inc. or
similar independent services or financial publications. Such performance may be
categorized according to the Fund's asset size as determined by the independent
service. From time to time, the performance of the Fund may be compared to
various investment indicies, including the Dow Jones Industrial Average and
Standard & Poor's 500 Composite Stock Index. Quotations of historical yields are
not indicative of future dividend income, but are an indication of the return to
shareholders only for the limited historical period used. The Fund's yield will
depend on the particular investments in its portfolio, its total operating
expenses and other conditions. For further information, including an example of
the yield calculation, see the Statement of Additional Information.
DESCRIPTION OF THE FUND
The Fund is a diversified open-end management investment company known as a
money market mutual fund. It is called a no-load fund because its shares are
sold without a sales charge.
INVESTMENT OBJECTIVE
The Fund's investment objective is to seek current income exempt from
federal income taxes while also maintaining stability of principal, liquidity
and preservation of capital.
INVESTMENT POLICIES
The Fund will seek to achieve its goal through investment in high grade
short term municipal obligations issued by states, territories, and possessions
of the United States and by the District of Columbia, and their political
subdivisions, and duly constituted authorities and corporations. It will limit
its portfolio purchases, as well as the underlying securities of repurchase
agreements entered into by it, to those United States dollar denominated
instruments which its Board of Directors determines present minimal credit risks
and which are of "high quality" as determined by any major rating service (such
as Standard & Poor's Corporation or Moody's Investors Service, Inc.) or, in the
case of any instruments that are not rated, are of a quality comparable to such
rated instruments as determined by its Board of Directors. The Fund will enter
into repurchase agreements only with commercial banks and primary dealers in
U.S. government securities. Repurchase agreements when entered into with primary
dealers, will be fully collateralized including the interest earned thereon
during the entire term of the agreement. If the institution defaults on the
repurchase agreement, the Fund will retain possession of the underlying
securities. In addition, if bankruptcy proceedings are commenced with respect to
the seller, realization on the collateral may be delayed or limited and the Fund
may incur additional costs. In such case the Fund will be subject to risks
associated with changes in the market value of the collateral securities. The
Fund intends to limit repurchase agreements to institutions believed by its
adviser to present minimal credit risk. The Fund will maintain a dollar weighted
average portfolio maturity of not more than 90 days and will not acquire any
portfolio security with a remaining maturity of more than thirteen months (397
days).
The Fund may also hold cash and invest in obligations, the interest from
which may be subject to federal income tax, so long as at least 80% of the
Fund's net income is derived from securities, the income from which, in the
opinion of Counsel for the issuers thereof, is exempt from federal income tax;
provided, however, the Fund may invest in instruments yielding taxable income
such as short term money market instruments equal to or exceeding 20% of the
Fund's net income in extraordinary circumstances when adverse market conditions
dictate a defensive position. Any net income earned from taxable instruments
will be taxable to shareholders of the Fund as ordinary income. The investment
policies set forth in the preceding paragraph are fundamental policies and may
not be changed without approval of the shareholders.
3
<PAGE>
The Fund restricts its purchases of municipal securities to those rated not
lower than AA or Aa or MIG-2 (see "Appendix" in the Statement of Additional
Information), or municipal securities which have been issued by an issuer having
outstanding debt securities rated not lower than AA or Aa or MIG-2 or are
specifically determined by the Fund's Board of Directors to be of high quality
and represent minimal credit risks. Any municipal security which depends on the
credit of the Federal government will be regarded as having a rating of AAA or
Aaa. Purchases of tax exempt instruments such as municipal commercial paper
(which are also known as short term discount notes) will be limited to those
obligations rated A-1 or Prime-1 (see "Appendix" in the Statement of Additional
Information) or unrated obligations of equivalent quality, as determined by the
Board of Directors. Municipal commercial paper or short term discount notes are
short term obligations of municipalities which are likely to be used to meet
seasonal working capital needs of municipalities or interim construction
financing and to be paid from general revenues of the municipalities or
refinanced with long term debt. In most cases, such obligations are backed by
letters of credit, not repurchase agreements or other credit facility agreements
offered by banks or other institutions.
MANAGEMENT OF THE FUND
The business affairs of the Fund are managed under the direction of its
Board of Directors. There are currently ten directors (of whom seven are
non-affiliated persons) who meet four times each year. The Statement of
Additional Information contains additional information regarding the directors
and officers of the Fund.
PORTFOLIO MANAGER
Denis P. Jamison, C.F.A. Senior Vice President, Director of Fixed Income
Strategy is responsible for fixed-income portfolio management at LMC. He is a
member of the New York Society of Security Analysts. Mr. Jamison has 23 years
investment experience.
Prior to joining LMC in 1981, Mr. Jamison had spent nine years at Arnold
Bernhard & Company, an investment counseling and financial services
organization. At Bernhard, he was a Vice President supervising the security
analyst staff and managing investment portfolios. He is a specialist in
government, corporate and municipal bonds. Mr. Jamison is a graduate of the City
College of New York with a B.A. in Economics. Mr. Jamison has been the portfolio
manager of the Fund since July of 1981.
INVESTMENT ADVISER, DISTRIBUTOR AND ADMINISTRATOR
Lexington Management Corporation, ("LMC") P.O. Box 1515/Park 80 West Plaza
Two, Saddle Brook, New Jersey 07663, is the investment adviser of the Fund.
Lexington Funds Distributor Inc. ("LFD") is the distributor of shares of the
Fund. LMC, established in 1938, currently manages over $3.8 billion in assets.
LMC serves as investment adviser to other investment companies and private
and institutional investment accounts. Included among these clients are persons
and organizations which own significant amounts of capital stock of LMC's
parent. The clients pay fees which LMC considers comparible to the fees paid by
similarly served clients.
LMC also acts as administrator to the Fund and performs certain
administrative and internal accounting services, including but not limited to,
maintaining general ledger accounts, regulatory compliance, preparation of
financial information for semiannual and annual reports, preparing registration
statements, calculating net asset values, shareholder communications and
supervision of the custodian, transfer agent and provides facilities for such
services. The Fund shall reimburse LMC for its actual cost in providing such
services, facilities and expenses.
LMC and LFD are wholly-owned subsidiaries of Piedmont Management Company
Inc., a Delaware corporation with offices at 80 Maiden Lane, New York, New York
10038. Descendants of Lunsford Richardson, Sr., their spouses, trusts and other
related entities have a majority voting control of outstanding shares of
Piedmont Management Company Inc.
For the fiscal year ended December 31, 1994, the Fund paid LMC a monthly
management fee at the annual rate of 1/2 of 1% of the average daily net assets.
For the year ending December 31, 1994, LMC earned $199,643 in net management
fees from the Fund. See "Investment Adviser and Distributor" in the Statement of
Additional Information.
HOW TO PURCHASE SHARES
Initial Investments: Minimum $1,000. By Wire: (1) Telephone the Fund toll
free at 1-800-526-0056 and provide the account registration, address, and social
security or tax identification number, the amount being wired, the name of the
wiring bank, and the
4
<PAGE>
name and telephone number of the person to be contacted in connection with the
order. You will then be provided with an account number. (2) Instruct your bank
to wire the specified amount, along with the account number and registration to:
State Street Bank and Trust Company, Attn: Mutual Funds Dept., re: Lexington Tax
Free Money Fund, Account No. 99043713. (3) A completed New Account Application
must then be forwarded to the Fund at the address on the Application.
By Mail: Send a check payable to Lexington Tax Free Money Fund, along with a
completed New Account Application, to State Street Bank & Trust Company (the
"Agent") at the address on the Application.
Subsequent Investments-By Wire: Instruct your bank to wire the specified
amount and appropriate information to the Agent (see "Initial Investments-By
Wire"-(2), above).
By Mail-Minimum $50: Send a check payable to Lexington Tax Free Money Fund
to the Agent, (see back cover of this prospectus for address) accompanied by
either the detachable form which accompanies the Agent's confirmation of a prior
transaction, or a letter indicating the dollar value of the shares to be
purchased and identifying the Fund, the account number, and registration.
Broker-Dealers: You may invest in shares of the Fund through broker-dealers
who are members of the National Association of Securities Dealers, Inc., and
other financial institutions and who have selling agreements with LFD. Banks and
other financial institutions may be required to register as dealers pursuant to
state law. Broker-dealers and financial institutions who process such purchase
and sale transactions for their customers may charge a transaction fee for these
services. The fee may be avoided by purchasing shares directly from the Fund.
Purchase Price and Effective Date: Shares of the Fund are offered
continuously at net asset value which will normally be constant at $1.00 per
share. Net asset value is determined as of the close of the New York Stock
Exchange (currently 4:00 p.m. New York time) and on such other times or days as
there is a sufficient degree of trading in the portfolio securities of the Fund
to materially affect its net asset value. The price at which a purchase is
effected is based on the next calculation of net asset value per share after the
order is placed. Investments for which market quotations are not readily
available are valued at fair market value, as determined by management and
approved in good faith by the Board of Directors. Fund assets are valued based
upon the amortized cost method. No sales charge is imposed on purchases of
shares. There is no assurance that the Fund will maintain a net asset value per
share of $1.00. Orders will become effective when an investor's wire order or
check is converted into federal funds (monies credited to a bank's account with
its registered Federal Reserve Bank). If payment is transmitted by federal funds
wire, the order will become effective upon receipt. Payments transmitted by bank
wire may take longer to be converted into federal funds. Money transmitted by
check will normally be considered to have been converted into federal funds on
the first business day following receipt by the Agent.
An Open Account: By investing in the Fund, a shareholder appoints the Agent,
as his agent, to establish an Open Account to which all shares purchased will be
credited, together with any dividends and capital gain distributions which are
paid in additional shares. (See "Dividend, Distribution and Reinvestment
Policy"). Share certificates will be issued, for full shares only when requested
in writing. Unless payment for shares is made by certified or cashier's check or
federal funds wire, certificates will not be issued for 30 days. In order to
facilitate redemptions, and transfers, most shareholders elect not to receive
certificates.
After an Open Account is established, payments can be provided for by
"Lex-O-Matic" or other authorized automatic bank check program accounts (checks
drawn on the investor's bank periodically for investment in the Fund).
Automatic Investing Plan with "Lex-O-Matic". A shareholder may arrange to
make additional purchases of shares automatically on a monthly or quarterly
basis. The investments of $50 or more are automatically deducted from a checking
account on or about the 15th day of each month. The institution must be an
Automated Clearing House (ACH) member. Should an order to purchase shares of a
fund be cancelled because your automated transfer does not clear, you will be
responsible for any resulting loss incurred by that fund. The shareholder
reserves the right to discontinue the Lex-O-Matic program provided written
notice is given ten days prior to the scheduled investment date. Further
information regarding this service can be obtained from Lexington by calling
1-800-526-0056.
On payroll deduction accounts administered by an employer and on payments
into qualified pension or profit sharing plans and other continuing purchases
programs, there are no minimum purchase requirements.
Terms of Offering: If an order to purchase shares is cancelled because the
investor's check does not clear, the purchaser will be responsible for any loss
incurred by the Fund. To recover any such loss, the Fund reserves the right to
redeem shares owned by the
5
<PAGE>
purchaser, seek reimbursement directly from the purchaser and may prohibit or
restrict the purchaser in placing future orders in any of the Lexington Funds.
The Fund reserves the right to reject any order, and to waive or lower the
investment minimums with respect to any person or class of persons, including
shareholders of the Fund's special investment programs. An order to purchase
shares is not binding on the Fund until it has been confirmed by the Agent.
Account Statements: The Agent will send shareholders a confirmation of each
transaction indicating the date of the transaction, the number of shares
purchased or redeemed, the price per share and the total amount of the purchase
or redemption proceeds. A statement is also sent to shareholders quarterly or
when a change in the registration, address, or dividend option occurs.
Shareholders are urged to retain their account statements for tax purposes.
HOW TO REDEEM SHARES
By Telephone or Telegram: Shares may be redeemed by telephone. Call the Fund
toll free 1-800-526-0056. A redemption authorization which is contained in the
New Account Application, or a separate authorization form must be on file with
LFD before a shareholder may redeem in this manner. Shareholders may elect on
the redemption authorization form to have checks for redemption proceeds in any
amount of $200 or more mailed either to the registered address, to the
shareholder's bank account, or to any other designated person, and a new form
must be completed whenever these instructions are revised.
Shareholders may request that redemption proceeds of $1,000 or more be wired
directly to a commercial bank account. The signatures on such a request must be
guaranteed, unless an authorization for redemption by telephone form has been
previously filed with LFD. The Agent presently imposes a $5.00 wire charge.
By Check: Shareholders may effect redemptions by writing checks drawn on the
Fund, payable to the order of any person in any amount of $100 or more up to
$500,000 at no charge. Checks in amounts over $500,000 will not be honored. The
special forms and instructions may be obtained from the Fund or the agent.
Redemption checks should not be used to close your account. Redemption checks
are free, but the Agent will impose a fee (currently $15.00) for stopping
payment of a redemption check upon your request or if the Agent cannot honor the
redemption check due to insufficient funds, uncollected funds or other valid
reason.
Procedures for redemptions by telephone, telegram or check may only be used
for shares for which share certificates have not been issued, and may not be
used to redeem shares purchased by check which have been on the books of the
Fund for less than 15 days.
By Mail: Send to the Agent (see back cover of this prospectus for address):
(1) a written request for redemption, signed by each registered owner exactly as
the shares are registered including the name of the Fund, account number and
exact registration; (2) share certificates for any shares to be redeemed which
are held by the shareholder; (3) signature guarantees, when required; and (4)
the additional documents required for redemptions by corporations, executors,
administrators, trustees and guardians. Redemptions by mail will not become
effective until all documents in proper form have been received by the Agent. If
a shareholder has any questions regarding the requirements for redeeming shares,
he should call the Fund at the toll free number on the back cover prior to
submitting a redemption request.
Checks for redemption proceeds will be mailed within seven days, but will
not be mailed until all checks in payment for the shares to be redeemed have
been cleared. Shares redeemed will earn dividends through the date of
redemption. Shareholders who redeem all of their shares will receive a check
representing the value of the shares redeemed plus the accrued dividends through
the date of redemption. Where shareholders redeem only a portion of their
shares, all dividends declared but unpaid will be distributed on the next
dividend payment date.
Signature Guarantee: Signature guarantees are required in connection with
(a) redemptions by mail involving $10,000 or more; (b) all redemptions by mail,
regardless of the amount involved, when the proceeds are to be paid to someone
other than the registered owners; (c) authorizations to effect redemptions by
telephone, telegram, or check; (d) changes in instructions as to where the
proceeds of redemptions are to be sent; and (e) share transfer requests.
The Agent requires that the guarantor be either a commercial bank which is a
member of the Federal Deposit Insurance Corporation, a trust company, a savings
and loan association, a savings bank, a credit union, a member firm of a
domestic stock exchange, or a foreign branch of any of the foregoing. A notary
public is not an acceptable guarantor.
6
<PAGE>
With respect to redemption requests submitted by mail, the signature
guarantees must appear either: (a) on the written request for redemption, (b) on
a separate instrument of assignment ("stock power") which should specify the
total number of shares to be redeemed or (c) on all share certificates tendered
for redemption and, if shares held by the Agent are also being redeemed, on the
letter or stock power. Signature guarantees in connection with redemptions by
telephone, telegram, or check must appear on the appropriate authorization form.
Redemption Price: The redemption price will be the net asset value per share
of the Fund next determined after receipt by the Agent of a redemption request
in proper form (see "Determination of Net Asset Value" in the Statement of
Additional Information). The right of redemption may be suspended (a) for any
period during which the New York Stock Exchange is closed or the Securities and
Exchange Commission ("SEC") determines that trading on the Exchange is
restricted, (b) when there is an emergency as determined by the SEC as a result
of which it is not reasonably practicable for the Fund to dispose of securities
owned by it or to determine fairly the value of its net assets, or (c) for such
other periods as the SEC may by order permit for the protection of shareholders
of the Fund. Due to the proportionately high cost of maintaining smaller
accounts, the Fund reserves the right to redeem all shares in an account with a
value of less than $500 (except retirement plan accounts) and mail the proceeds
to the shareholder. Shareholders will be notified before these redemptions are
to be made and will have 30 days to make an additional investment to bring their
accounts up to the required minimum.
SHAREHOLDER SERVICES
Transfer: Shares of the Fund may be transferred to another owner. A
signature guarantee of the registered owner is required on the letter of
instruction or accompanying stock power.
Systematic Withdrawal Plan: Shareholders may elect to withdraw cash in fixed
amounts from their accounts at regular intervals. The minimum investment to
establish a Systematic Withdrawal Plan is $10,000. If the proceeds are to be
mailed to someone other than the registered owner, a signature guarantee is
required.
Group Sub-Accounting: To minimize recordkeeping by fiduciaries,
corporations, and certain other investors, the minimum initial investment may be
waived.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of the following Lexington
Funds on the basis of relative net asset value per share, next determined at the
time of the exchange. In the event shares of one or more of these Funds being
exchanged by a single investor have a value in excess of $500,000, the shares of
the Fund will not be purchased until the fifth business day following the
redemption of the shares being exchanged in order to enable the redeeming fund
to utilize normal securities settlement procedures in transferring the proceeds
of the redemption to the Fund. Exchanges may not be made until all checks in
payment for the shares to be exchanged have been cleared.
Lexington Funds currently available for exchange are:
LEXINGTON GLOBAL FUND, INC. (NASDAQ Symbol: LXGLX)/Seeks long-term growth of
capital primarily through investment in common stocks of companies
domiciled in foreign countries and the United States.
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC. (NASDAQ Symbol: LEXGX)/Seeks
long-term growth of capital primarily through investment in equity
securities of companies domiciled in, or doing business in, emerging
countries.
LEXINGTON INTERNATIONAL FUND, INC. (NASDAQ Symbol: LEXIX)/Seeks long term growth
of capital through investment in common stocks of companies domiciled
in foreign countries. Shares of the Fund are not presently available
for sale in Vermont.
LEXINGTON CORPORATE LEADERS TRUST FUND (NASDAQ Symbol: LEXCX)/Seeks long-term
capital growth and income through investment in an equal number of
shares of the common stocks of a fixed list of American blue chip
corporations.
LEXINGTON GROWTH AND INCOME FUND, INC. (NASDAQ Symbol: LEXRX)/Seeks long-term
capital appreciation through investments in stocks of large, ably
managed and well financed companies. Income is a secondary objective.
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<PAGE>
LEXINGTON GOLDFUND, INC. (NASDAQ Symbol: LEXMX)/Seeks capital appreciation and
such hedge against loss of buying power as may be obtained through
investment in gold bullion and equity securities of companies engaged
in mining or processing gold throughout the world. Shares are not
presently available for sale in Wisconsin.
LEXINGTON CONVERTIBLE SECURITIES FUND (NASDAQ Symbol: CNCVX)/Seeks total return
by providing capital appreciation, current income and conservation of
capital through investments in a diversified portfolio of securities
convertible into shares of common stock. Shares of the Fund are not
presently available for sale in Vermont.
LEXINGTON GNMA INCOME FUND, INC. (NASDAQ Symbol: LEXNX)/Seeks a high level of
current income, consistent with liquidity and safety of principal,
through investment primarily in mortgage-backed GNMA Certificates.
LEXINGTON RAMIREZ GLOBAL INCOME FUND (NASDAQ Symbol: LEBDX)/Seeks high current
income by investing in a combination of foreign and domestic
high-yield, lower rated debt securities. Capital appreciation is a
secondary objective.
LEXINGTON MONEY MARKET TRUST (NASDAQ Symbol: LMMXX)/Seeks a high level of
current income consistent with preservation of capital and liquidity
through investments in interest bearing short term money market
instruments.
LEXINGTON TAX FREE MONEY FUND, INC. (NASDAQ Symbol: LTFXX)/Seeks current income
exempt from Federal income taxes while maintaining liquidity and
stability of principal through investment in short term municipal
securities.
LEXINGTON SHORT-INTERMEDIATE GOVERNMENT SECURITIES FUND, INC. (NASDAQ Symbol:
LSGXX)/Seeks current income as is consistent with preservation of
capital by investing in a portfolio of U.S. Government securities.
Shareholders in any of these funds may exchange all or part of their shares
for shares of one or more of the other funds, subject to the conditions
described herein. The Exchange Privilege enables a shareholder in any of these
funds to acquire shares in a fund with a different investment objective when the
shareholder believes that a shift between funds is an appropriate investment
decision. Shareholders contemplating an exchange should obtain and review the
prospectus of the fund to be acquired.
If an exchange involves investing in a Lexington Fund not already owned and
a new account has to be established, the dollar amount exchanged must meet the
initial investment of the Fund being purchased. If, however, an account already
exists in the Fund being bought, there is a $500 minimum exchange required.
Shareholders must provide the account number of the existing account.
Any exchange between mutual funds is, in effect, a redemption of shares in
one Fund and a purchase in the other Fund. Shareholders should consider the
possible tax effects of an exchange.
Telephone Exchange Provisions-Exchange instructions may be given in writing
or by telephone. Telephone exchanges may only be made if a Telephone
Authorization form has been previously executed and filed with LFD. Telephone
exchanges are permitted only after a minimum of 7 days have elapsed from the
date of a previous exchange. Exchanges may not be made until all checks in
payment for the shares to be exchanged have been cleared. Telephonic exchanges
can only involve shares held on deposit at the Agent; shares held in certificate
form by the shareholder cannot be included. However, outstanding certificates
can be returned to the Agent and qualify for these services. Any new account
established with the same registration will also have the privilege of exchange
by telephone in the Lexington Funds. All accounts involved in a telephonic
exchange must have the same registration and dividend option as the account from
which the shares were transferred and will also have the privilege of exchange
by telephone in the Lexington Funds in which these services are available.
By checking the box on the New Account Application authorizing telephone
exchange services, a shareholder constitutes and appoints LFD distributor of the
Lexington Group of Mutual Funds as the true and lawful attorney to surrender for
redemption or exchange any and all non-certificated shares held by the Agent in
account(s) designated, or in any other account with the Lexington Funds, present
or future, which has the identical registration with full power or substitution
in the premises, authorizes and directs LFD to act upon any instruction from any
person by telephone for exchange of shares held in any of these accounts, to
purchase shares of any other Lexington Fund that is available, provided the
registration and mailing address of the shares to be purchased are identical to
the registration of the shares being redeemed, and agrees that neither LFD, the
Agent, nor the Fund(s) will be liable for any loss, expense or cost arising out
of any requests effected in accordance with this authorization which would
include requests effected by imposters or persons otherwise unauthorized to act
on behalf of the account. LFD, the Agent and the Fund, will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine
and if they do not employ reasonable procedures
8
<PAGE>
they may be liable for any losses due to unauthorized or fraudulent
instructions. The following identification procedures may include, but are not
limited to, the following: account number, registration and address, taxpayer
identification number and other information particular to the account. In
addition, all exchange transactions will take place on recorded telephone lines
and each transaction will be confirmed in writing by the Fund. LFD reserves the
right to cease to act as agent subject to the above appointment upon thirty (30)
days' written notice to the address of record. If other than an individual, it
is certified that certain persons have been duly elected and are now legally
holding the titles given and that the said corporation, trust, unincorporated
association, etc. is duly organized and existing and has power to take action
called for by this continuing Authorization.
Exchange authorization forms, Telephone authorization forms and
prospectuses of the other funds may be obtained from LFD.
LFD has made arrangements with certain dealers to accept instructions by
telephone to exchange shares of the Fund for shares of one of the other
Lexington investment companies at net asset value as described above. Under this
procedure, the dealer must agree to indemnify the Distributor and the funds from
any loss or liability that any of them might incur as a result of the acceptance
of such telephone exchange orders. A properly signed exchange application must
be received by the Distributor within five days of the exchange request. In each
such exchange, the registration of the shares of the fund being acquired must be
identical to the registration of the shares of the fund exchanged. Shares in
certificate form are not eligible for this type of exchange. LFD reserves the
right to reject any telephone exchange request. Any telephone exchange orders so
rejected may be processed by mail.
A capital gain or loss for federal tax purposes may be realized upon the
exchange, depending upon the cost or other basis of the shares redeemed. This
exchange offer is available only in states where shares of the fund being
acquired may legally be sold and may be modified or terminated at any time by
the Fund. Broker-dealers who process exchange orders on behalf of their
customers may charge a fee for their services. Such fee may be avoided by making
requests for exchange directly to the Fund or Agent.
DIVIDEND, DISTRIBUTION AND REINVESTMENT POLICY
The Fund declares and reinvests daily, dividends from its net investment
income and distributes such dividends on the last day of each month. Dividends
or distribution payments will be reinvested at net asset value in additional
full and fractional shares of the Fund unless and until the shareholder notifies
the Agent in writing that he wants to receive his payments in cash. This request
must be received by the Agent at least seven days before the payment date. Upon
receipt by the Agent of such written notice, all further payments will be made
in cash until written notice to the contrary is received. An account of such
shares owned by each shareholder will be maintained by the Agent. Shareholders
whose accounts are maintained by the Agent will have the same rights as other
shareholders with respect to shares so registered (see "How to Purchase
Shares-An Open Account").
Since substantially all of the net income will be declared as a dividend
each time the net asset value of the Fund is determined, the net asset value per
share will normally remain at one dollar per share immediately after such
dividend declaration and determination.
TAX MATTERS
The Fund intends to qualify as a regulated investment company by satisfying
the requirements under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), including requirements with respect to diversification of
assets, distribution of income and sources of income. It is the Fund's policy to
distribute to shareholders all of its investment income (net of expenses) and
any capital gains (net of capital losses) so that, in addition to satisfying the
distribution requirement of Subchapter M, the Fund will not be subject to
federal income tax or the 4% excise tax.
The Fund intends to invest principally in tax-exempt municipal obligations
so that distributions by the Fund of its net tax-exempt interest income can be
designated as exempt-interest dividends, which are excludable from gross income
for federal income tax purposes. However, shareholders are required to report
the receipt of exempt-interest dividends, together with other tax-exempt
interest, on their federal income tax returns. In addition, these
exempt-interest dividends may be subject to the federal alternative minimum tax
and to state and local income tax, and will be taken into account in determining
the portion, if any, of Social Security benefits received which must be included
in gross income for federal income tax purposes. Finally, interest or
indebtedness incurred or continued to purchase or carry shares of the Fund
(which indebtedness likely need not be directly traceable to the purchase or
carrying of such shares) will not be deductible for federal income tax purposes.
Distributions by the Fund of any taxable net investment income and any net
short-term capital gain are taxable to shareholders as ordinary income. These
distributions are treated as dividends for federal income tax purposes but do
not qualify for the 70%
9
<PAGE>
dividends-received deduction for corporate shareholders. The Fund is managed so
that it will not have any long-term capital gains or losses. The percentage of
the Fund's net investment income (taxable and tax-exempt) which constitutes
tax-exempt interest will be detemined annually and will be applied uniformly to
all distributions of such income made during the year for purposes of
designating a portion of such distributions as exempt-interest dividends. This
percentage may differ from the actual tax-exempt percentage for any particular
day or period during the year.
Distributions to shareholders will be treated in the same manner for
federal income tax purposes whether received in cash or reinvested in additional
shares of the Fund. In general, distributions by the Fund are taken into account
by the shareholders in the year in which they are made. However, certain
distributions made during January will be treated as having been paid by the
Fund and received by the shareholders on December 31 of the preceding year. A
statement setting forth the federal income tax status of all distributions made
or deemed made during the year will be sent to shareholders promptly after the
end of each year. Shareholders purchasing shares of the Fund just prior to the
ex-dividend date will be taxed on the entire amount of the dividend received,
even though the net asset value per share on the date of such purchase reflected
the amount of such dividend.
All or a portion of any loss realized upon a taxable disposition of shares
of the Fund may be disallowed if other shares of the Fund are purchased within
30 days before or after such disposition.
Under the back-up withholding rules of the Code, certain shareholders may
be subject to 31% withholding of federal income tax on ordinary income dividends
paid by the Fund. In order to avoid this back-up withholding, a shareholder must
provide the Fund with a correct taxpayer identification number (which for most
individuals is their Social Security number) or certify that it is a corporation
or otherwise exempt from or not subject to back-up withholding. The new account
application included with this Prospectus provides for shareholder compliance
with these certification requirements.
The foregoing discussion of federal income tax consequences is based on tax
laws and regulations in effect on the date of this Prospectus, and is subject to
change by legislative or administrative action. As the foregoing discussion is
for general information only, a prospective shareholder should also review the
more detailed discussion of federal income tax considerations relevant to the
Fund that is contained in the Statement of Additional Information. In addition,
each prospective shareholder should consult with his own tax adviser as to the
tax consequences of investments in the Fund, including the application of state
and local taxes which may differ from the federal income tax consequences
described above.
CUSTODIAN, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT
Chase Manhattan Bank, N.A. 1211 Avenue of the Americas New York, New York
10022, has been retained to act as the Custodian for the Fund's investments and
assets. State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110 is the transfer agent and dividend disbursing agent for the
Fund. Neither Chase Manhattan Bank, N.A. nor State Street Bank and Trust Company
have any part in determining the investment policies of the Fund or in
determining which portfolio securities are to be purchased or sold by the Fund
or in the declaration of dividends and distributions.
COUNSEL AND INDEPENDENT AUDITORS
Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, 919 Third Avenue, New
York, New York 10022 will pass upon legal matters for the Fund in connection
with the shares offered by this Prospectus.
KPMG Peat Marwick LLP, 345 Park Avenue New York, New York 10154, has been
selected as independent auditors for the Fund for the fiscal year ending
December 31, 1995.
OTHER INFORMATION
The Fund was organized as a Maryland corporation on November 18, 1976.
Prior to April 29, 1980, its corporate name was "Lexington Tax Free Daily Income
Fund, Inc." On April 26, 1983, the name of the Fund was changed from "Lexington
Tax Free Daily Income Fund, Inc." to Lexington Tax Free Money Fund, Inc. The
Fund has authorized 1,000,000,000 shares of capital stock, $0.01 par value. All
shares are of the same class, with like rights and privileges. Each share is
entitled to one vote and to participate equally in distributions declared by the
Fund and in its net assets on liquidation. The shares have non-cumulative voting
rights, which means that the holders of more than 50% of the shares voting for
the election of directors can elect 100% of the Directors if they choose to do
10
<PAGE>
so, and, in such event, the holders of the remaining less than 50% of the shares
voting for the election of directors will not be able to elect any person or
persons to the Board of Directors. The shares are fully paid and non-assessable
when issued and have no preference, preemptive, or conversion rights. There are
no options or other special rights outstanding relating to any Fund shares.
The Fund will not normally hold annual shareholder meetings except as
required by Maryland General Corporation Law or the Investment Company Act of
1940. However, meetings of shareholders may be called at any time by the
Secretary upon the written request of shareholders holding in the aggregate not
less than 25% of the outstanding shares, such request specifying the purposes
for which such meeting is to be called. In addition, the Directors will promptly
call a meeting of shareholders for the purpose of voting upon the question of
removal of any Director when requested to do so in writing by the recordholders
of not less than 10% of the Fund's outstanding shares. The Fund will assist
shareholders in any such communication between shareholders and Directors.
A Registration Statement (herein called the "Registration Statement"), of
which this Prospectus is a part, has been filed with the SEC, Washington, D.C.
under the Securities Act of 1933, as amended.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and in the Fund's
official sales literature in connection with the offer of the Fund's shares,
and, if given or made, such other information or representations must not be
relied upon as having been authorized by the Fund. This Prospectus does not
constitute an offer in any State in which, or to any person to whom, such
offering may not lawfully be made. A "Statement of Additional Information", to
which reference is made in this Prospectus, provides a further discussion of
certain areas in the Prospectus and other matters which may be of interest to
some investors and is available by request without cost as indicated herein. The
Prospectus and the Statement of Additional Information omit certain information
contained in the Registration Statement, to which reference is made, filed with
the Commission. Items which are thus omitted, including contracts and other
documents referred to or summarized herein and therein, may be obtained from the
Commission upon payment of the prescribed fees.
11
<PAGE>
L E X I N G T O N
LEXINGTON
TAX
FREE
MONEY
FUND, INC.
No sales charge
No redemption fee
Free check writing service
Free telephone exchange
privilege
The Lexington Group
of
No-Load
Investment Companies
P R O S P E C T U S
MAY 1, 1995
Investment Adviser
- -----------------------------------------------------
LEXINGTON MANAGEMENT CORPORATION
P.O. Box 1515/Park 80 West Plaza Two
Saddle Brook, N.J. 07663
Distributor
- -----------------------------------------------------
LEXINGTON FUNDS DISTRIBUTOR, INC.
P.O. Box 1515/Park 80 West Plaza Two
Saddle Brook, N.J. 07663
All shareholder requests for services of any kind
should be sent to:
Transfer Agent
- -----------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
c/o National Financial Data Services
1004 Baltimore
Kansas City, Missouri 64105
or call Toll Free:
Service: 1-800-526-0056
24 Hour Account Information: 1-800-526-0052
Table of Contents Page
- -----------------------------------------------------
Fee Table......................................... 2
Financial Highlights.............................. 2
Yield Information................................. 3
Comparative Performance Information............... 3
Description of the Fund........................... 3
Investment Objective.............................. 3
Investment Policies............................... 3
Management of the Fund............................ 4
Portfolio Manager................................. 4
Investment Adviser, Distributor and Administrator. 4
How to Purchase Shares............................ 4
How to Redeem Shares.............................. 6
Shareholder Services.............................. 7
Exchange Privilege................................ 7
Dividend, Distribution and Reinvestment Policy.... 9
Tax Matters....................................... 9
Custodian, Transfer Agent and
Dividend Disbursing Agent....................... 10
Counsel and Independent Auditors.................. 10
Other Information................................. 10
<PAGE>
LEXINGTON TAX FREE MONEY FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1995
This statement of additional information which is not a prospectus,
should be read in conjunction with the current prospectus of Lexington Tax
Free Money Fund, Inc. (the "Fund"), dated May 1, 1995, as it may be revised
from time to time. To obtain a copy of the Fund's prospectus at no charge,
please write to the Fund at P.O. Box 1515/Park 80 West - Plaza Two, Saddle
Brook, New Jersey 07663 or call the following toll-free numbers:
Shareholder Services: 1-800-526-0056
24 Hour Account Information: 1-800-526-0052
Lexington Management Corporation ("LMC") serves as the Fund's
investment adviser. Lexington Funds Distributor, Inc. ("LFD") is the Fund's
distributor.
TABLE OF CONTENTS
PAGE
Investment Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Yield Calculation. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . . 3
Investment Adviser, Distributor and Administrator. . . . . . . . . . . 5
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . 6
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . 7
Dividend, Distribution and Reinvestment Policy . . . . . . . . . . . . 8
Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Custodian, Transfer Agent and Dividend Disbursing Agent. . . . . . . .13
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . .13
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . .18
<PAGE>
INVESTMENT POLICY
The fundamental investment objective of the Fund is to seek current
income exempt from Federal income taxes while also maintaining stability of
principal, liquidity and preservation of capital.
The Fund will seek to achieve its goal through investment in short
term municipal securities issued by states, territories, and possessions of
the United States and by The District of Columbia, and their political
subdivisions, and duly constituted authorities and corporations. It will
limit its portfolio purchases, as well as the underlying securities of
repurchase agreements entered into by it, to those United States dollar
denominated instruments which its Board of Directors determines present
minimal credit risks and which are of "high quality" as determined by any
major rating service (such as Standard & Poor's Corporation or Moody's
Investors Service, Inc.) or, in the case of any instruments that are not
rated, are of a quality comparable to such rated instruments as determined
by its Board of Directors. The Fund will enter into repurchase agreements
only with commercial banks and dealers in U.S. Government securities.
Repurchase agreements when entered into with dealers, will be fully
collateralized including the interest earned thereon during the entire term
of the agreement. If the institution defaults on the repurchase agreement,
the Fund will retain possession of the underlying securities. In addition,
if bankruptcy proceedings are commenced with respect to the seller,
realization on the collateral may be delayed or limited and the Fund may
incur additional costs. In such case the Fund will be subject to risks
associated with changes in the market value of the collateral securities.
The Fund intends to limit repurchase agreements to institutions believed by
LMC to present minimal credit risks. The Fund will maintain a dollar
weighted average portfolio maturity of not more than 90 days and will not
acquire any portfolio security with a remaining maturity of more than
thirteen months (397 days).
The Fund may also hold cash and invest in obligations, the interest
from which may be subject to Federal income tax, so long as at least 80% of
the Fund's net income is derived from securities, the income from which, in
the opinion of Counsel for the issuers thereof, is exempt from Federal
income tax; provided, however, the Fund may invest in instruments yielding
taxable income equal to or exceeding 20% of the Fund's net income in
extraordinary circumstances when adverse market conditions dictate a
defensive position. Any net income earned from taxable instruments will be
taxable to shareholders of the Fund as ordinary income, except to the extent
that individual taxpayers may exclude such income pursuant to the combined
dividend and interest received exclusion (see "Federal Income Taxation").
The investment policies set forth in the three preceding paragraphs are
fundamental policies and may not be changed without approval of the
shareholders.
The Fund restricts its purchases of municipal securities to those
rated not lower than AA or Aa or MIG-2 (see "Appendix"), or municipal
securities which either have been issued by an issuer having outstanding
debt securities rated not lower than AA or Aa or MIG-2 or are specifically
determined by the Fund's Board of Directors to be of high quality and
represent minimal credit risks. Any municipal security which depends on the
credit of the Federal government will be regarded as having a rating of AAA
or Aaa. Purchases of tax exempt instruments such as municipal commercial
paper (which are also known as short term discount notes) will be limited
to those obligations rated A-l or Prime-l (see "Appendix") or unrated
obligations of equivalent quality, as determined by the Board of Directors.
Municipal commercial paper or short term discount notes are short term
obligations of municipalities which are likely to be used to meet seasonal
working capital needs of municipalities or interim construction financing
and to be paid from general revenues of the municipalities or refinanced
with long term debt. In most cases, such obligations are backed by letters
of credit, not repurchase agreements or other credit facility agreements
offered by banks or other institutions.
1
<PAGE>
YIELD CALCULATION
The Fund provides current yield and effective yield quotations, which
are calculated in accordance with the regulations of the Securities and
Exchange Commission, based upon changes in account value during a recent
seven-day base period.
Current yield quotations are computed by annualizing (on a 365-day
basis) the "base period return". The "base period return" is computed by
determining the net change exclusive of capital changes in the value of the
account, divided by the value of the account at the beginning of the base
period. Effective yield is computed by compounding the "base period return".
Based upon dividends actually credited to the shareholders' accounts (i.e.:
based upon net investment income), the current yield to an investor in the
Fund during the last seven calendar days of its fiscal year ended December
31, 1994 was at an annual rate of 3.70% and the effective yield was at an
annual rate of 3.77%. The average weighted maturity of investments was 34
days. The current and effective yield are affected by market conditions,
portfolio quality, portfolio maturity, type of instruments held and
operating expenses. The Fund attempts to keep its net asset value per share
at $1.00, but attainment of this objective is not guaranteed. This Statement
of Additional Information may be in use for a full year and it can be
expected that these yields will fluctuate substantially from the example
shown above.
The current and effective yield figures are not a representation of
future yield as the Fund's net income and expenses will vary based on many
factors, including changes in short term money market yields generally and
the types of instruments in the Fund's portfolio. The stated yield of the
Fund may be useful in reviewing the Fund's performance and in providing a
basis for comparison with other investment alternatives. However, unlike
bank deposits and other investments which pay fixed yields for stated
periods of time, the yield of the Fund fluctuates. In addition, other
investment companies may calculate yield on a different basis and may
purchase securities for their portfolios which have different qualities and
maturities than those of the Fund's portfolio securities.
EQUIVALENT YIELDS: TAX EXEMPT VERSUS TAXABLE SECURITIES
The following table shows the effect of the tax status of municipal
bonds, notes and commercial paper on the effective yield received by their
holders under the Federal income tax laws. It gives the approximate yield
a taxable security must earn at various income brackets to produce after tax
yields equivalent to those of tax exempt municipal bonds, notes and
commercial paper.
The table, which is based on tax rates in effect on the date of this
Prospectus, provides separate computations for taxpayers who file joint or
individual returns. Of course, no assurance can be given that the Fund will
achieve any specific tax exempt yield. While it is expected that the Fund
will invest principally in obligations the interest from which is exempt
from Federal income tax, other income received by the Fund may be taxable.
The table does not take into account state or local taxes, if any, payable
on Fund distributions.
2
<PAGE>
COMPARISON OF TAXABLE AND TAX-FREE YIELDS
<TABLE>
<CAPTION>
MARGINAL
TAXABLE INCOME FEDERAL TAX-EXEMPT YIELD
JOINT RETURNS SINGLE RETURNS TAX RATE 1.5% 2% 3% 4% 5%
6% 7%
- ------------------------------------------------------------------------------
- ------------
<S> <C> <C> <C> <C> <C> <C>
<C> <C>
1995
$0 - $38,999 $0 - $23,349 15% 1.8 2.4 3.5 4.7 5.9
7.1 8.2
$39,000-$94,249 $23,350-$56,549 28% 2.1 2.8 4.2 5.6 6.9
8.3 9.7
$94,250-$143,599 $56,550-$117,949 31% 2.2 2.9 4.3 5.8 7.2
8.7 10.1
$143,600-$256,499 $117,950-$256,499 36% 2.3 3.1 4.7 6.3 7.8
9.4 10.9
$256,500+ $256,500+ 39.6% 2.5 3.3 5.0 6.6 8.3
9.9 11.6
</TABLE>
INVESTMENT RESTRICTIONS
The Fund's investment program is subject to a number of investment
restrictions which reflect self-imposed standards as well as Federal and
state regulatory limitations. The investment restrictions are matters of
fundamental policy and may not be changed without the affirmative vote of
the lesser of (a) 50% of the outstanding shares of the Fund or (b) 67% or
more of the shares present at a meeting if more than 50% of the outstanding
shares of the Fund are represented at the meeting in person or by proxy.
The Fund shall not: (l) issue senior securities; (2) borrow money,
except from banks as a temporary measure for extraordinary or emergency
purposes and not for investment purposes or through "reverse repurchase
agreements"; no borrowing shall be made if such borrowing, combined with any
then outstanding borrowings, shall exceed 5% of the Fund's total assets; (3)
underwrite securities of other issuers; (4) concentrate its investments to
an extent greater than 25% of the value of its total assets in either (a)
securities of issuers located in a single state or (b) revenue bonds which
derive revenue from projects of a similar type or class of facilities; these
limitations not being applicable to securities issued or guaranteed by the
U.S. Government or any of its agencies or instrumentalities, or to
certificates of deposit or banker's acceptances; (5) purchase or sell real
estate, commodity contracts or commodities or invest in interests in oil,
gas or other mineral exploration or development programs (however, the Fund
may purchase municipal bonds secured by real estate or interests herein);
(6) make loans to other persons except (a) through the purchase of a portion
or portions of an issue or issues of municipal bonds or notes or other
publicly distributed bonds, notes, debentures and evidences of indebtedness
authorized by its investment policy, or (b) through investments in
"repurchase agreements" (which are arrangements under which the Fund
acquires a debt security subject to an obligation of the seller to
repurchase it at a fixed price within a short fixed period), provided that
no more than 10% of the Fund's assets may be invested in repurchase
agreements which mature in more than seven days; or (c) through loans of
securities held in the Fund's portfolio to responsible borrowers and subject
to 100% collateral requirements in accordance with guidelines established
by the Fund's directors and applicable federal regulations; (7) purchase the
securities of another investment company or investment trust, except in the
open market and then only if no profit, other than the customary broker's
commission, results to a sponsor or dealer, or by merger or other
reorganization; (8) purchase any security on margin or effect a short sale
of a security; (9) buy securities from or sell securities (other than
securities issued by the Fund) to any of its officers, directors or its
investment adviser, as principal; (10) contract to sell any security or
3
<PAGE>
evidence of interest therein, except to the extent that the same shall be
owned by the Fund; (11) purchase or retain securities of an issuer when one or
more of the officers and directors of the Fund or of the investment adviser,
or a person owning more than 10% of the stock of either, own beneficially more
than 1/2 of 1% of the securities of such issuer and such persons owning more
than 1/2 of 1% of such securities together own beneficially more than 5% of
the securities of such issuer; (12) invest more than 5% of its total assets in
the securities of any one issuer (except securities issued or guaranteed by
the United States Government or any of its agencies or instrumentalities),
except that such restriction shall not apply to 25% of the Fund's portfolio;
(13) purchase an industrial revenue bond if as a result of such purchase more
than 5% of total Fund assets would be invested in industrial revenue bonds
where the payment of principal and interest are the responsibility of a
company with less than three years' operating history; (14) purchase any
security restricted as to disposition under Federal securities laws; or (15)
buy or sell puts, calls or other options.
For the purposes of these limitations, each government subdivision,
(county, city) and any subdivision, agency or instrumentality thereof
(school district, authority) shall be considered as a separate issuer. If
a security is guaranteed as to principal and interest the guarantor may be
considered as the issuer. If the security is backed only by the assets or
revenues of a specific entity, that entity shall be deemed the issuer.
With regard to restriction (6) (b) above, the Fund will enter into
repurchase agreements only with commercial banks and primary dealers in U.S.
government securities.
The Fund's investment portfolio may include repurchase agreements
("repos") with banks and dealers in U.S Government securities. A repurchase
agreement involves the purchase by the Fund of an investment contract from
a bank or a dealer in U.S. Government securities which contract is secured
by debt securities whose value is equal to or greater than the value of the
repurchase agreement including the agreed upon interest. The agreement
provides that the institution will repurchase the underlying securities at
an agreed upon time and price. The total amount received on repurchase would
exceed the price paid by the Fund, reflecting an agreed upon rate of
interest for the period from the date of the repurchase agreement to the
settlement date, and would not be related to the interest rate on the
underlying securities. The difference between the total amount to be
received upon the repurchase of the securities and the price paid by the
Fund upon their acquisition is accrued daily as interest. If the institution
defaults on the repurchase agreement, the Fund will retain possession of the
underlying securities. In addition, if bankruptcy proceedings are commenced
with respect to the seller, realization on the collateral by the Fund may
be delayed or limited and the Fund may incur additional costs. In such case
the Fund will be subject to risks associated with changes in the market
value of the collateral securities. The Fund intends to limit repurchase
agreements to transactions with institutions believed by LMC to present
minimal credit risk.
Payment of interest expense by the Fund in connection with borrowing
permitted under its investment restrictions would have the effect of
reducing the Fund's yield to its shareholders. Although the Fund has the
right to pledge, mortgage or hypothecate its assets, in order to comply with
a state statute the Fund will not, as a matter of operating policy while
offering shares in such state, pledge, mortgage or hypothecate its portfolio
securities to the extent that at any time the percentage of pledged
securities will exceed 10% of the total net assets of the Fund.
Lending of portfolio securities: As stated in number (6) above,
subject to guidelines established by the directors and by the Securities and
Exchange Commission, the Fund from time-to-time, may lend portfolio
securities to brokers, dealers, corporations or financial institutions and
receive collateral which will be maintained at all times in an amount equal
to at least 100% of the current market value of the loaned securities. Such
collateral will be either cash or fully negotiable U.S. Treasury or agency
issues. If cash, such collateral will be invested in short term securities,
the income from which will increase the return to the Fund. However, a
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<PAGE>
portion of such incremental return may be shared with the borrower. If
securities, the usual procedure will be for the borrower to pay a fixed fee
to the Fund for such time as the loan is outstanding. The Fund will retain
substantially all rights of beneficial ownership as to the loaned portfolio
securities including rights to interest or other distributions and will have
the right to regain record ownership of loaned securities in order to
exercise such beneficial rights. Such loans will be terminable at any time.
The Fund may pay reasonable fees to persons unaffiliated with it in
connection with the arranging of such loans. Also, the Fund has undertaken
not to invest in real estate limited partnership interests, oil, gas or
mineral leases, as well as exploration or development programs. The Fund
will not purchase warrants except in units with other securities in original
issuance thereof or attached to other securities, if at the time of
purchase, the Fund's investment in warrants, valued at the lower of cost or
market, would exceed 5% of the Fund's total assets. Warrants which are not
listed on the New York or American Stock Exchanges shall not exceed 2% of
the Fund's net assets. Shares of the Fund will not be issued for
consideration other than cash.
INVESTMENT ADVISER, DISTRIBUTOR AND ADMINISTRATOR
LMC, P.O. Box 1515/Park 80 West Plaza Two, Saddle Brook, New Jersey
07663, is the investment adviser to the Fund and, as such, advises and makes
recommendations to the Fund with respect to its investments and investment
policies.
Pursuant to an investment advisory agreement the Fund will pay LMC an
annual investment advisory fee equal to 0.5% of its average daily net assets
up to $150 million, 0.4% of such value in excess of $150 million up to $400
million; 0.35% of such value in excess of $400 million up to $800 million;
and 0.3% of such value in excess of $800 million, after deduction of Fund
expenses, if any, in excess of the expense limitations set forth below. The
fee is computed on the basis of current net assets at the end of each
business day and is payable at the end of each month. The investment
advisory agreement provides that LMC must also pay the Fund monthly the
amount by which all of the Fund's other expenses (including the investment
advisory fee) exclusive of interest and taxes exceed 1% of the Fund's net
assets during any fiscal year, calculated by averaging such net assets
daily.
Under the terms of the advisory agreement LMC also pays the Fund's
expenses for office rent, utilities, telephone, furniture and supplies
utilized for the Fund's principal office and the salaries and payroll
expense of officers and directors of the Fund who are also employees of LMC
or its affiliates in carrying out its duties under the investment advisory
agreement. The Fund pays all its other expenses, including custodian and
transfer fees, legal and registration fees, audit fees, printing of
prospectuses, shareholder reports and communications required for regulatory
purposes or for distribution to existing shareholders, computation of net
asset value, mailing of shareholder reports and communications, portfolio
brokerage, taxes and independent directors' fees, and furnishes the
Distributor, at printer's overrun cost paid by the Distributor, such copies
of its prospectus, annual, semiannual and other reports and shareholder
communications as may reasonably be required for sales purposes. In
addition, the Fund will bear any costs associated with the securities loan
program (any such loans will increase the return to shareholders).
LMC's services are provided and its investment advisory fee is paid
pursuant to an agreement which will automatically terminate if assigned and
which may be terminated by either party upon 60 days' notice. The terms of
the agreement and any renewal thereof must be approved at least annually by
a majority of the Fund's Board of Directors, including a majority of
directors who are not parties to the agreement or "interested persons" of
such parties, as such term is defined under the Investment Company Act of
1940, as amended.
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LMC serves as investment adviser to other investment companies and to
private and institutional investment accounts. Included among these clients
are persons and organizations which own significant amounts of capital stock
of LMC's parent (see below). These clients pay fees which LMC considers
comparable to the fee levels for similarly served clients.
LMC's accounts are managed independently with reference to the
applicable investment objectives and current security holdings, but on
occasion more than one investment company or counsel account may seek to
engage in transactions in the same security at the same time. To the extent
practicable, such transactions will be made on a pro rata basis in
proportion to the respective amounts of securities to be bought and sold for
each portfolio, and the allocated transactions will be averaged as to price.
While this procedure may adversely affect the price or volume of a given
Fund transaction, LMC believes that the ability of the Fund to participate
in combined transactions may generally produce better executions overall.
LMC received from the Fund under the advisory agreement the following net
fees as of the fiscal year ended December 31, 1992, $250,651; December 31,
1993, $215,895 and December 31, 1994, $199,643.
LMC also acts as administrator to the Fund and performs certain
administrative and internal accounting services, including but not limited
to, maintaining general ledger accounts, regulatory compliance, preparation
of financial information for semiannual and annual reports, preparing
registration statements, calculating net asset values, shareholder
communications and supervision of the custodian of, transfer agent and
provides facilities for such services. The Fund pays LMC a fee, payable
monthly, equal to the pro-rata portion of LMC s actual cost in providing
such services and facilities.
LFD also serves as Distributor for Fund shares under a Distribution
Agreement which is subject to annual approval by a majority of the Fund's
Board of Directors, including a majority who are not "interested persons".
Of the Directors, executive officers, and employees ("affiliated
persons") of the Fund, Messrs. Corniotes, DeMichele, Faust, Hisey, Jamison,
Kantor, Lavery, Luehs, Petruski and Mmes. Carnicelli, Carr, Curcio,
Gilfillan and Mosca (see "Management of the Fund") may also be deemed
affiliates of LMC by virtue of being officers, directors or employees
thereof. As of April 3, 1995, all officers and Directors of the Fund as a
group owned less than 1% of record capital shares of the Fund.
LMC and LFD are wholly-owned subsidiaries of Piedmont Management
Company Inc., a Delaware corporation with offices at 80 Maiden Lane, New
York, New York 10038. Descendants of Lunsford Richardson, Sr., their
spouses, trusts and other related entities have a majority voting control
of outstanding shares of Piedmont Management Company Inc.
PORTFOLIO TRANSACTIONS
Portfolio securities are normally purchased directly from an
underwriter or dealer in municipal securities. Therefore, usually no
brokerage commissions are paid by the Fund. Transactions are allocated to
various dealers by the Fund and LMC in their best judgment. Dealers are
selected primarily on the basis of prompt execution of orders at the most
favorable prices. The Fund has no obligation to deal with any dealer or
group of dealers. Particular dealers may be selected for research or
statistical and other services to enable LMC to supplement its own research
and analysis with that of such firms. Information so received will be in
addition to an not in lieu of the services required to be performed by LMC
under the investment advisory agreement and the expenses of LMC will not
necessarily be reduced as a result of the receipt of such supplemental
information. For the fiscal years ended December 31, 1992, 1993 and 1994 all
portfolio transactions were effected on a net basis through dealers acting
as principal and, accordingly, no brokerage commissions were payable.
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<PAGE>
DETERMINATION OF NET ASSET VALUE
The net asset value of the Fund is determined as of the close of
trading on the New York Stock Exchange each day the Exchange is open for
business and at such other times and/or such other days as there is
sufficient trading in short term municipal securities to affect materially
the Fund's net asset value per share. Substantially all of the Fund's net
income calculated from the immediately preceding determination of net
income, is declared daily as dividends (see "Dividend, Distribution and
Reinvestment Policy").
For the purpose of determining the price at which shares are issued
and redeemed, the net asset value per share is calculated immediately after
the daily dividend declaration by: (a) valuing all securities and
instruments as set forth below; (b) deducting the Fund's liabilities; and
(c) dividing the resulting amount by the number of shares outstanding. As
discussed below, it is the intention of the Fund to maintain a net asset
value per share of $1.00. The Fund's portfolio instruments are valued on the
basis of amortized cost. This involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the
market value of the security. While this method provides certainty in
valuation, it may result in periods during which the value, as determined
by amortized cost, is higher or lower than the price the Fund would receive
if it sold its portfolio. During periods of declining interest rates, the
daily yield on shares of the Fund computed as described above may be higher
than a like computation made by a fund with identical investments utilizing
a method of valuation based upon market prices and estimates of market
prices for all of its portfolio instruments. Thus, if the use of amortized
cost by the Fund results in a lower aggregate portfolio value on a
particular day, a prospective investor in the Fund would be able to obtain
a somewhat higher yield than would result from an investment in a fund
utilizing solely market values, and existing investors in the Fund would
receive less investment income. The converse would apply in a period of
rising interest rates.
The Fund's use of amortized cost and the maintenance of the Fund's per
share net value at $1.00 is based on its election to operate under the
provisions of Rule 2a-7 under the Investment Company Act of 1940. As a
condition of operating under that rule, the Fund must maintain a dollar-
weighted average portfolio maturity of 90 days or less, purchase only
instruments having remaining maturities of 13 months (397 days) or less, and
invest only in securities which are determined by the Board of Directors to
present minimal credit risks and which are of high quality as determined by
any major rating service, or in the case of any instrument not so rated,
considered by the Board of Directors to be of comparable quality.
The Board of Directors has also agreed, as a particular responsibility
within the overall duty of care owed to its shareholders, to establish
procedures reasonably designed, taking into account current market
conditions and the Fund's investment objective, to stabilize the net asset
value per share as computed for the purposes of sales and redemptions at
$1.00. These procedures include periodic review, as the Board deems
appropriate and at such intervals as are reasonable in light of current
market conditions, of the relationship between the amortized cost value per
share and a net asset value per share based upon available indications of
market value. In such review, investments for which market quotations are
readily available are valued at the most recent bid price or quoted yield
equivalent for such securities or for securities of comparable maturity,
quality and type as obtained from one or more of the major market makers for
the securities to be valued. Other investments and assets are valued at fair
value, as determined in good faith by the Board of Directors.
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<PAGE>
DIVIDEND, DISTRIBUTION AND REINVESTMENT POLICY
The Fund declares and reinvests daily, dividends from its net
investment income and distributes such dividends on the last day of each
month. Dividends or distribution payments will be reinvested at net asset
value in additional full and fractional shares of the Fund unless and until
the shareholder notifies State Street Bank and Trust Company, N.A., (the
"Agent") in writing that he wants to receive his payments in cash. This
request must be received by the Agent at least seven days before the payment
date. Upon receipt by the Agent of such written notice, all further payments
will be made in cash until written notice to the contrary is received. An
account of such shares owned by each shareholder will be maintained by the
Agent. Shareholders whose accounts are maintained by the Agent will have the
same rights as other shareholders with respect to shares so registered (see
"How to Purchase Shares - An Open Account" in the Prospectus).
Since substantially all of the net income will be declared as
dividends each time the net asset value of the Fund is determined, the net
asset value per share will normally remain at one dollar per share
immediately after such dividend declaration and determination (see
"Investment Policy").
TAX MATTERS
The following is only a summary of certain additional tax
considerations generally affecting the Fund and its shareholders that are
not described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussions here and in the Prospectus are not intended as substitutes for
careful tax planning.
Qualification as a Regulated Investment Company
The Fund has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, the Fund is not subject to
federal income tax on the portion of its net investment income (i.e.,
taxable interest, dividends and other taxable ordinary income, net of
expenses) and capital gain net income (i.e., the excess of capital gains
over capital losses) that it distributes to shareholders, provided that it
distributes at least 90% of its investment company taxable income (i.e., net
investment income and the excess of net short-term capital gain over net
long-term capital loss) and at least 90% of its tax-exempt income (net of
expenses allocable thereto) for the taxable year (the "Distribution
Requirement"), and satisfies certain other requirements of the Code that are
described below. Distributions by the Fund made during the taxable year or,
under specified circumstances, within twelve months after the close of the
taxable year, will be considered distributions of income and gains of the
taxable year and can therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must: (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans,
gains from the sale or other disposition of stock or securities or foreign
currencies (to the extent such currency gains are directly related to the
regulated investment company's principal business of investing in stock or
securities) and other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business
of investing in such stock, securities or currencies (the "Income
Requirement"); and (2) derive less than 30% of its gross income (exclusive
of certain gains on designated hedging transactions that are offset by
realized or unrealized losses on offsetting positions) from the sale or
other disposition of stock, securities or foreign currencies (or options,
futures or forward contracts thereon) held for less than three months (the
"Short-Short Gain Test"). For purposes of these calculations, gross income
8
<PAGE>
includes tax-exempt income. However, foreign currency gains, including
those derived from options, futures and forwards, will not in any event be
characterized as Short-Short Gain if they are directly related to the
regulated investment company's investments in stock or securities (or
options or futures thereon). Because of the Short-Short Gain Test, the Fund
may have to limit the sale of appreciated securities that it has held for
less than three months. However, the Short-Short Gain Test will not prevent
the Fund from disposing of investments at a loss, since the recognition of
a loss before the expiration of the three-month holding period is
disregarded for this purpose. Interest (including original issue discount)
received by the Fund at maturity or upon the disposition of a security held
for less than three months will not be treated as gross income derived from
the sale or other disposition of such security within the meaning of the
Short-Short Gain Test. However, income that is attributable to realized
market appreciation will be treated as gross income from the sale or other
disposition of securities for this purpose.
In general, gain or loss recognized by the Fund on the disposition of
an asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation (including municipal obligations) purchased
by the Fund at a market discount (generally, at a price less than its
principal amount) will be treated as ordinary income to the extent of the
portion of the market discount which accrued during the period of time the
Fund held the debt obligation.
Treasury Regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain
(i.e., the excess of net long-term capital gain over net short-term capital
loss) for any taxable year, to elect (unless it has made a taxable year
election for excise tax purposes as discussed below) to treat all or any
part of any net capital loss, any net long-term capital loss or any net
foreign currency loss incurred after October 31 as if it had been incurred
in the succeeding year.
In addition to satisfying the requirements described above, the Fund
must satisfy an asset diversification test in order to qualify as a
regulated investment company. Under this test, at the close of each quarter
of the Fund's taxable year, at least 50% of the value of the Fund's assets
must consist of cash and cash items, U.S. Government securities, securities
of other regulated investment companies, and securities of other issuers (as
to which the Fund has not invested more than 5% of the value of the Fund's
total assets in securities of such issuer and as to which the Fund does not
hold more than 10% of the outstanding voting securities of such issuer), and
no more than 25% of the value of its total assets may be invested in the
securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two or more
issuers which the Fund controls and which are engaged in the same or similar
trades or businesses.
If for any taxable year the Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital
gain) will be subject to tax at regular corporate rates without any
deduction for distributions to shareholders, and such distributions will be
taxable to the shareholders as ordinary dividends to the extent of the
Fund's current and accumulated earnings and profits. Such distributions
generally will be eligible for the dividends-received deduction in the case
of corporate shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to
98% of ordinary taxable income for the calendar year and 98% of capital gain
net income for the one-year period ended on October 31 of such calendar year
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<PAGE>
(or, at the election of a regulated investment company having a taxable year
ending November 30 or December 31, for its taxable year (a "taxable year
election")). (Tax-exempt interest on municipal obligations is not subject to
the excise tax.) The balance of such income must be distributed during the
next calendar year. For the foregoing purposes, a regulated investment
company is treated as having distributed any amount on which it is subject to
income tax for any taxable year ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall:
(1) reduce its capital gain net income (but not below its net capital gain)
by the amount of any net ordinary loss for the calendar year; and (2)
exclude foreign currency gains and losses incurred after October 31 of any
year (or after the end of its taxable year if it has made a taxable year
election) in determining the amount of ordinary taxable income for the
current calendar year (and, instead, include such gains and losses in
determining ordinary taxable income for the succeeding calendar year).
The Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income
prior to the end of each calendar year to avoid liability for the excise
tax. However, investors should note that the Fund may in certain
circumstances be required to liquidate portfolio investments to make
sufficient distributions to avoid excise tax liability.
Fund Distributions
The Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be
taxable to shareholders as ordinary income and treated as dividends for
federal income tax purposes, but they will not qualify for the 70%
dividends-received deduction for corporate shareholders.
The Fund does not expect to realize any long-term capital gains or
losses.
The Fund intends to qualify to pay exempt-interest dividends by
satisfying the requirement that at the close of each quarter of the Fund's
taxable year at least 50% of the Fund's total assets consists of tax-exempt
municipal obligations. Distributions from the Fund will constitute exempt-
interest dividends to the extent of the Fund's tax-exempt interest income
(net of expenses and amortized bond premium). Exempt-interest dividends
distributed to shareholders of the Fund are excluded from gross income for
federal income tax purposes. However, shareholders required to file a
federal income tax return will be required to report the receipt of exempt-
interest dividends on their returns. Moreover, while exempt-interest
dividends are excluded from gross income for federal income tax purposes,
they may be subject to alternative minimum tax ("AMT") in certain
circumstances and may have other collateral tax consequences as discussed
below. Distributions by the Fund of any investment company taxable income
will be taxable to shareholders as discussed above.
AMT is imposed in addition to, but only to the extent it exceeds, the
regular tax and is computed at a maximum marginal rate of 28% for
noncorporate taxpayers and 20% for corporate taxpayers on the excess of the
taxpayer's alternative minimum taxable income ("AMTI") over an exemption
amount. In addition, under the Superfund Amendments and Reauthorization Act
of 1986, a tax is imposed for taxable years beginning after 1986 and before
1996 at the rate of 0.12% on the excess of a corporate taxpayer's AMTI
(determined without regard to the deduction for this tax and the AMT net
operating loss deduction) over $2 million. Exempt-interest dividends
derived from certain "private activity" municipal obligations issued after
August 7, 1986 will generally constitute an item of tax preference
includable in AMTI for both corporate and noncorporate taxpayers. In
addition, exempt-interest dividends derived from all municipal obligations,
regardless of the date of issue, must be included in adjusted current
earnings, which are used in computing an additional corporate preference
item (i.e., 75% of the excess of a corporate taxpayer's adjusted current
earnings over its AMTI (determined without regard to this item and the AMT
net operating loss deduction)) includable in AMTI.
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<PAGE>
Exempt-interest dividends must be taken into account in computing the
portion, if any, of social security or railroad retirement benefits that
must be included in an individual shareholder's gross income and subject to
federal income tax. Further, a shareholder of the Fund is denied a
deduction for interest on indebtedness incurred or continued to purchase or
carry shares of the Fund. Moreover, a shareholder who is (or is related to)
a "substantial user" of a facility financed by industrial development bonds
held by the Fund will likely be subject to tax on dividends paid by the Fund
which are derived from interest on such bonds. Receipt of exempt-interest
dividends may result in other collateral federal income tax consequences to
certain taxpayers, including financial institutions, property and casualty
insurance companies and foreign corporations engaged in a trade or business
in the United States. Prospective investors should consult their own tax
advisers as to such consequences.
Distributions by the Fund that do not constitute ordinary income
dividends, exempt-interest dividends or capital gain dividends will be
treated as a return of capital to the extent of (and in reduction of) the
shareholder's tax basis in his shares; any excess will be treated as gain
from the sale of his shares, as discussed below.
Distributions by the Fund will be treated in the manner described
above regardless of whether such distributions are paid in cash or
reinvested in additional shares of the Fund (or of another fund).
Shareholders receiving a distribution in the form of additional shares will
be treated as receiving a distribution in an amount equal to the fair market
value of the shares received, determined as of the reinvestment date. In
addition, if the net asset value at the time a shareholder purchases shares
of the Fund reflects undistributed net investment income or recognized
capital gain net income, or unrealized appreciation in the value of the
assets of the Fund, distributions of such amounts will be taxable to the
shareholder in the manner described above, although such distributions
economically constitute a return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by the
Fund into account in the year in which the distributions are made. However,
dividends declared in October, November or December of any year and payable
to shareholders of record on a specified date in such a month will be deemed
to have been received by the shareholders (and made by the Fund) on December
31 of such calendar year if such dividends are actually paid in January of
the following year. Shareholders will be advised annually as to the U.S.
federal income tax consequences of distributions made (or deemed made)
during the year.
The Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of ordinary income dividends and capital gain
dividends, and the proceeds of redemption of shares, paid to any shareholder
(1) who has provided either an incorrect tax identification number or no
number at all, (2) who is subject to backup withholding by the IRS for
failure to report the receipt of interest or dividend income properly, or
(3) who has failed to certify to the Fund that it is not subject to backup
withholding or that it is a corporation or other "exempt recipient."
Sale or Redemption of Shares
The Fund seeks to maintain a stable net asset value of $1.00 per
share; however, there can be no assurance that the Fund will do this. In
such a case, a shareholder will recognize gain or loss on the sale or
redemption of shares of the Fund in an amount equal to the difference
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<PAGE>
between the proceeds of the sale or redemption and the shareholder's adjusted
tax basis in the shares. All or a portion of any loss so recognized may be
disallowed if the shareholder purchases other shares of the Fund within 30
days before or after the sale or redemption. In general, any gain or loss
arising from (or treated as arising from) the sale or redemption of shares of
the Fund will be considered capital gain or loss and will be long-term capital
gain or loss if the shares were held for longer than one year. However, any
capital loss arising from the sale or redemption of shares held for six months
or less will be disallowed to the extent of the amount of exempt-interest
dividends received on such shares.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign corporation,
or foreign partnership ("foreign shareholder"), depends on whether the
income from the Fund is "effectively connected" with a U.S. trade or
business carried on by such shareholder.
If the income from the Fund is not effectively connected with a U.S.
trade or business carried on by a foreign shareholder, ordinary income
dividends paid to a foreign shareholder will be subject to U.S. withholding
tax at the rate of 30% (or lower treaty rate) upon the gross amount of the
dividend. Such a foreign shareholder would generally be exempt from U.S.
federal income tax on gains realized on the sale of shares of the Fund and
exempt-interest dividends.
If the income from the Fund is effectively connected with a U.S. trade
or business carried on by a foreign shareholder, then ordinary income
dividends and any gains realized upon the sale of shares of the Fund will
be subject to U.S. federal income tax at the rates applicable to U.S.
citizens or domestic corporations.
In the case of foreign noncorporate shareholders, the Fund may be
required to withhold U.S. federal income tax at a rate of 31% on
distributions that are otherwise exempt from withholding tax (or taxable at
a reduced treaty rate) unless such shareholders furnish the Fund with proper
notification of its foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers
with respect to the particular tax consequences to them of an investment in
the Fund, including the applicability of foreign taxes.
Effect of Future Legislation; Local Tax Considerations
The foregoing general discussion of U.S. federal income tax
consequences is based on the Code and the Treasury Regulations issued
thereunder as in effect on the date of this Statement of Additional
Information. Future legislative or administrative changes or court
decisions may significantly change the conclusions expressed herein, and any
such changes or decisions may have a retroactive effect with respect to the
transactions contemplated herein.
Rules of state and local taxation of ordinary income and exempt-
interest dividends from regulated investment companies often differ from the
rules for U.S. federal income taxation described above. Shareholders are
urged to consult their tax advisers as to the consequences of these and
other state and local tax rules affecting investment in the Fund.
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<PAGE>
CUSTODIAN, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT
Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New York, New
York 10036 has been retained to act as the custodian for the Fund's
investments and assets. State Street Bank and Trust company, 225 Franklin
Street, Boston, Massachusetts 02110 is the transfer agent and dividend
disbursing agent for the Fund. Neither Chase Manhattan Bank, N.A. nor State
Street Bank and Trust Company have any part in determining the investment
policies of the Fund or in determining which portfolio securities are to be
purchased or sold by the Fund or in the declaration of dividends and
distributions.
MANAGEMENT OF THE FUND
The Directors and executive officers of the Fund and their principal
occupations are set forth below:
*+ROBERT M. DeMICHELE, President and Chairman. P.O. Box 1515, Saddle Brook,
N.J. 07663. Chairman and Chief Executive Officer, Lexington Management
Corporation; Chairman and Chief Executive Officer, Lexington Funds
Distributor, Inc.; President and Director, Piedmont Management Company
Inc. Director, Reinsurance Corporation of New York; Director, Unione
Italiana Reinsurance; Vice Chairman of Board of Trustees, Union
College; Director, Continental National Corporation; Director, The
Navigator's Group, Inc.; Chairman, Lexington Capital Management, Inc.;
Chairman, LCM Financial Services, Inc.; Director, Vanguard Cellular
Systems, Inc.; Chairman of the Board, Market Systems Research, Inc.
and Market Systems Research Advisors, Inc. (registered investment
advisors). Trustee, Smith Richardson Foundation.
+BEVERLEY C. DUER, Director. 340 East 72nd Street, New York, N.Y. 10021.
Private Investor; formerly Manager of Operations Research Department,
CPC International, Inc.
*+BARBARA R. EVANS, Director. 5 Fernwood Road, Summit, N.J. 07901. Private
Investor. Prior to May 1989, Assistant Vice President and Securities
Analyst, Lexington Management Corporation. Prior to March 1987, V.P.
Institutional Equity Sales - L.F. Rothschild, Unterberg, Towbin.
*+LAWRENCE KANTOR, Vice President and Director. P.O. Box 1515, Saddle Brook,
N.J. 07663. Executive Vice President, Managing Director and Director,
Lexington Management Corporation; Executive Vice President and
Director, Lexington Funds Distributor, Inc.
+DONALD B. MILLER, Director. 10725 Quail Covey Road, Boynton Beach, Florida
33436. Chairman, Horizon Media, Inc.; Trustee, Galaxy Funds; Director,
Maguire Group of Connecticut; prior to January 1989, President, C.E.O.
and Director, Media General Broadcast Services (advertising firm).
+FRANCIS OLMSTED, Director. 50 Van Hooten Court, San Anselmo, CA 94960.
Private Investor, formerly Manager-Commercial Development (West
Coast) Essex Chemical Corporation, Clifton, N.J. (chemical
manufacturers).
+JOHN G. PRESTON, Director. 3 Woodfield Road, Wellesley, Massachusetts
02181. Associate Professor of Finance, Boston College, Boston,
Massachusetts.
+MARGARET W. RUSSELL, Director. 55 North Mountain Avenue, Montclair, N.J.
07042. Private Investor, formerly Community Affairs Director, Union
Camp Corporation.
13
<PAGE>
+PHILIP C. SMITH, Director. 87 Lord's Highway, Weston, Connecticut 06883.
Private Investor; Director, Southwest Investors Income Fund, Inc.,
Government Income Fund, Inc., U.S. Trend Fund, Inc., Investors Cash
Reserve and Plimony Fund, Inc. (registered investment companies).
+FRANCIS A. SUNDERLAND, Director. 309 Quito Place, Castle Pines, Castle
Rock, Colorado 80104. Private Investor.
*+DENIS P. JAMISON, Vice President and Portfolio Manager. P.O. Box 1515,
Saddle Brook, N.J. 07663. Senior Vice President, Director of Fixed
Income Investment Strategy, Lexington Management Corporation. Mr.
Jamison is a Chartered Financial Analyst and a member of the New
York Society of Security Analysts.
*+LISA A. CURCIO, Vice President and Secretary. P.O. Box 1515, Saddle Brook,
N.J. 07663. Senior Vice President and Secretary, Lexington Management
Corporation; Vice President and Secretary, Lexington Funds
Distributor, Inc.
*+RICHARD M. HISEY, Vice President and Treasurer. P.O. Box 1515, Saddle
Brook, N.J. 07663. Chief Financial Officer, Managing Director and
Director, Lexington Management Corporation; Chief Financial Officer,
Vice President and Director, Lexington Funds Distributor, Inc; Chief
Financial Officer, Market Systems Research Advisors, Inc..
*+RICHARD J. LAVERY, CLU ChFC, Vice President. P.O. Box 1515, Saddle Brook,
N.J. 07663. Senior Vice President, Lexington Management Corporation;
Vice President, Lexington Funds Distributor, Inc.
*+JANICE A. CARNICELLI, Vice President. P.O. Box 1515, Saddle Brook, N.J.
07663.
*+CHRISTIE CARR, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to October 1992, Senior Accountant, KPMG Peat Marwick.
*+SIOBHAN GILFILLAN, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663.
*+THOMAS LUEHS, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to November, 1993, Supervisor Investment Accounting,
Alliance Capital Management, Inc.
*+SHERI MOSCA, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J. 07663.
Prior to September 1990, Fund Accounting Manager, Lexington Group of
Investment Companies.
*+ANDREW PETRUSKI, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to May 1994, Supervising Senior Accountant, NY Life
Securities. Prior to December 1990, Senior Accountant, Dreyfus
Corporation.
*+PETER CORNIOTES, Assistant Secretary. P.O. Box 1515, Saddle Brook, N.J.
07663. Assistant Secretary, Lexington Management Corporation.
Assistant Secretary, Lexington Funds Distributor, Inc.
*+ENRIQUE J. FAUST, Assistant Secretary. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to March 1994, Blue Sky Compliance Coordinator,
Lexington Group of Investment Companies.
14
<PAGE>
*"Interested person" and/or "affiliated person" of LMC as defined in
the Investment Company Act of 1940, as amended.
+Messrs. Corniotes, DeMichele, Duer, Faust, Hisey, Jamison, Kantor,
Lavery, Luehs, Miller, Olmsted, Petruski, Preston, Smith and Sunderland and
Mmes. Carnicelli, Carr, Curcio, Evans, Gilfillan, Mosca and Russell hold
similar offices with some or all of the other registered investment
companies advised and/or distributed by Lexington Management Corporation and
Lexington Funds Distributor, Inc.
Directors not employed by the Fund or its affiliates receive an annual
fee of $600 and a fee of $150 for each meeting attended plus reimbursement
of expenses for attendance at regular meetings. During the fiscal year ended
December 31, 1994, an aggregate of $13,560 fees and expenses was paid to
eight Directors not employed by the Fund's affiliates. The Board of
Directors held four meetings in the past fiscal year. The Board does not
have any audit, nominating or compensation committees.
Aggregate Total Compensation Number of
Compensation From Fund and Directorships in
Name of Director From Fund Fund Complex Fund Complex
- ---------------- ------------ ------------------ ----------------
Robert M. DeMichele 0 0 15
Beverley C. Duer $1350 $20,250 15
Barbara R. Evans 0 0 14
Lawrence Kantor 0 0 15
Donald B. Miller $1350 $20,250 14
Francis Olmsted $1350 $18,900 13
John G. Preston $1350 $20,250 14
Margaret Russell $1350 $18,900 13
Philip C. Smith $1350 $20,250 14
Francis A. Sunderland $1200 $16,800 13
15
<PAGE>
APPENDIX
Municipal Securities and Other Investments: Municipal bonds include debt
obligations issued to obtain funds for various public purposes, including
the construction of a wide range of public facilities such as airports,
bridges, highways, housing, hospitals, mass transportation, schools,
streets, water and sewer works, and gas and electric utilities. Municipal
bonds may also be issued in connection with the refunding of outstanding
obligations, and obtaining funds to lend to other public institutions and
facilities or for general operating expenses. In addition, certain types of
industrial development bonds are issued by or on behalf of public
authorities to obtain funds to provide various privately operated facilities
for business and manufacturing, housing, sports, conventions or trade shows,
pollution control, and airport, mass transit, port and parking facilities.
Such obligations are included within the term municipal securities if the
interest paid thereon is exempt from federal income tax .
The two principal classifications of municipal bonds are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment
of principal and interest. In some instances, the taxes that can be levied
for the payment of debt service may be limited as to rate, amount or special
assessments. Revenue bonds are payable only from the revenue derived from
a particular facility or class of facilities, or, in some cases, from the
proceeds of a special excise tax or other specific revenue source. Although
industrial development bonds are issued by municipal authorities, they are
generally not secured by the taxing power of the municipality but are
secured by the revenues derived from payments from specific projects by the
industrial user.
There are, in addition to the two principal classifications described
above, a variety of hybrid and special types of municipal obligations as
well as numerous differences in the security of municipal bonds.
Municipal notes include tax, revenue and bond anticipation notes of
short maturity, generally less than three years, which are issued to obtain
funds for various public purposes.
Project notes are issued by local public agencies created under the
laws of a state, territory or U. S. possession and have maturities of up to
one year. They generally relate to financing of housing, redevelopment or
urban renewal programs and are backed by agreements between the issuing
agencies and the U. S. Department of Housing and Urban Development . Thus,
while the local agency issuing project notes is the primary obligor, such
notes are secured by the full faith and credit of the U. S. Government.
Ratings of Municipal Bonds: The four highest ratings of Moody's for
municipal bonds are Aaa, Aa, A and Baa. Municipal bonds rated Aaa are judged
to be of the "best quality". The rating of Aa is assigned to municipal bonds
which are of "high quality by all standards", together with the Aaa group
they comprise what are generally known as "high grade bonds". They are
rated lower than Aaa bonds because margins of protection may not be as large
or fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear somewhat
larger than Aaa securities. Municipal bonds rated A possess many favorable
investment attributes and are considered "upper medium grade obligations".
Factors giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment
sometime in the future. Municipal bonds rated Baa are considered "medium
grade" obligations. They are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time.
16
<PAGE>
The four highest ratings of Standard & Poor's for municipal bonds are
AAA (Prime), AA (High Grade), A (Good Grade) and BBB (Medium Grade).
Municipal bonds rated AAA are "obligations of the highest quality". The
rating of AA is accorded issues with investment characteristics "only
slightly less marked than those of the prime quality issues". The category
of A describes "the third strongest capacity for payment of debt service".
Principal and interest payments on bonds in this category are regarded as
safe. It differs from the two higher ratings because, with respect to
general obligation bonds, there is some weakness, either in the local
economic base, in debt burden, in the balance between revenues and
expenditures, or in quality of management. Under certain adverse
circumstances, any one such weakness might impair the ability of the issuer
to meet debt obligations at some future date. With respect to revenue bonds,
debt service coverage is good, but not exceptional. Stability of the pledged
revenues could show some variations because of increased competition or
economic influences on revenues. Basic security provisions, while
satisfactory, are less stringent. Management performance appears adequate.
The BBB rating is the lowest "investment grade" security rating. The
difference between A and BBB ratings is that the latter shows more than one
fundamental weakness, or one very substantial fundamental weakness, whereas
the former shows only one deficiency among the factors considered. With
respect to revenue bonds, debt coverage is only fair. Stability of the
pledged revenues could show substantial variations, with the revenue flow
possibly being subject to erosion over time. Basic security provisions are
no more than adequate and management performance could be stronger.
Moody's Rating of Municipal Notes:
MIG 1: the best quality, enjoying strong protection from established
cash flows of funds for their servicing or from established and broad-based
access to the market for refinancing, or both.
MIG 2: high quality, with margins of protection ample although not so
large as in the preceding group.
MIG 3: favorable quality, with all security elements accounted for but
lacking the undeniable strength of the preceding grades. Market access for
refinancing, in particular, is likely to be less well established.
Municipal Commercial Paper Ratings: Commercial paper rated A-l by Standard
& Poor's has the following characteristics: Liquidity ratios are adequate
to meet cash requirements. Long term senior debt is rated "A" or better,
although in some cases "BBB" credits may be allowed. The issuer has access
to at least two channels of borrowing. Basic earnings and cash flow have an
upward trend with an allowance made for unusual circumstances. Typically,
the issuer's industry is well established and the issuer has a strong
position within the industry. The reliability and quality of management are
questioned. Relative strength or weakness of the above factors determines
whether the issuer's commercial paper is rated A-l, A-2 or A-3.
The rating Prime-l is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are
the following: (l) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to the competition and
customer acceptance; (4) liquidity; (5) amount and quality of long term
debt; (6) trend of earnings over a period of ten years; (7) financial
strength of a parent company and the relationships which exist with the
issuer; and (8) recognition by the management of obligations which may be
present or which may arise as a result of public interest questions and
preparations to meet such obligations.
17
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Lexington Tax Free Money Fund, Inc.:
We have audited the accompanying statements of net assets (including the
portfolio of investments) and assets and liabilities of Lexington Tax Free Money
Fund, Inc. as of December 31, 1994, the related statement of operations for the
year then ended, the statements of changes in net assets for each of the years
in the two-year period then ended, and the financial highlights for each of the
years in the five-year period then ended. 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 of 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 as of
December 31, 1994 by correspondence with the custodian and brokers. 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, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Lexington Tax Free Money Fund, Inc. as of December 31, 1994, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years in the five-year period then ended, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
February 6, 1995
18
<PAGE>
Lexington Tax Free Money Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1994
<TABLE>
<CAPTION>
Principal Maturity Coupon Yield to Value
Amount Security Rating Date Rate Maturity (Note 1)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ALASKA:
$ 755,000 Alaska Industrial Development & Export
Authority (Lot 11)* .......................... A-1 07/01/07 5.80% 5.80% $ 755,000
-----------
CALIFORNIA: 16.5%
1,000,000 Alum Rock Union Elementary School District Tax
& Revenue Anticipation Note .................. SP-1+ 08/03/95 4.75 4.12 1,003,092
1,000,000 California Housing Finance Agency Series 1** ... VMig 1/SP1+ 05/01/95 4.15 4.15 1,000,000
1,200,000 California Pollution Control Finance Authority
(Southdown Project)* ......................... A-1+ 02/15/98 4.35 4.35 1,200,000
1,100,000 California Pollution Control Finance Authority
(Southern California Project)* ............... Mig 1/A-1+ 02/28/08 5.00 5.00 1,100,000
1,500,000 City of Livermore
Tax & Revenue Anticipation Notes ............. Mig 1 07/05/95 4.25 4.00 1,501,822
400,000 San Mateo County School District Tax & Revenue
Anticipation Notes ........................... SP-1+ 06/30/95 4.50 4.07 400,827
-----------
$ 6,205,741
-----------
FLORIDA: 8.8%
900,000 Hillsborough County I.D.A. (Tampa Electric)* ... AA/Aa 09/01/25 5.90 5.90 900,000
1,400,000 Indian River County Hospital District* ......... VMig 1/A-1 10/01/15 5.70 5.70 1,400,000
1,000,000 St. Johns County Housing Financial Authority
(Remington Project)* ......................... A-1+ 02/01/17 5.75 5.75 1,000,000
-----------
3,300,000
-----------
GEORGIA: 11.4%
1,000,000 Burke County Development Authority (Georgia
Power) Series 4* ............................. A-1/P-1 07/01/14 5.00 5.00 1,000,000
1,700,000 Fulton County I.D.A. (ADP Project)* ............ P-1/Aa2 09/01/12 4.25 4.25 1,700,000
1,100,000 Georgia Technical Foundation Facilities Inc.*... A-1+ 02/01/12 5.45 5.45 1,100,000
500,000 Monroe County Development Authority (Gulf
Power) Series 2* ............................. A-1 09/01/24 5.00 5.00 500,000
-----------
4,300,000
-----------
HAWAII: 4.0%
1,500,000 Hawaii State Department Budget & Finance
(G.N. Wilcox Memorial Hospital)* ............. VMig 1 07/01/18 6.15 6.15 1,500,000
-----------
ILLINOIS: 1.4%
100,000 Chicago Pre-Refunded Bonds ..................... AAA/Aaa 07/01/95 9.00 3.94 104,346
300,000 Chicago Metropolitan Sanitation District
Revenue Bonds ................................ AA/Aa 01/01/95 6.80 2.78 300,000
115,000 Northwest Suburban Municipal Joint Action Water
Agency Pre-Refunded Bonds .................... AAA/Aaa 05/01/95 9.88 3.75 118,369
-----------
522,715
-----------
INDIANA: 2.7%
1,000,000 Indiana Bond Bank............................... Mig 1/SP-1+ 01/18/95 3.03 2.74 1,000,119
-----------
KENTUCKY: 2.7%
1,000,000 Pendleton County Leasing Program***............. A-1+ 02/03/95 3.90 3.90 1,000,000
-----------
</TABLE>
19
<PAGE>
Lexington Tax Free Money Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1994 (continued)
<TABLE>
<CAPTION>
Principal Maturity Coupon Yield to Value
Amount Security Rating Date Rate Maturity (Note 1)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LOUISIANA: 3.4%
$ 700,000 Caddo Parish I.D.B. (Pennzoil Project)*......... A-1 12/01/12 5.60% 5.60% $ 700,000
600,000 East Baton Rouge I.D.B. (Series 1982)*.......... Aa1 12/01/12 3.85 3.85 600,000
-----------
1,300,000
-----------
MARYLAND: 0.5%
200,000 Washington Suburban Sanitation District
Revenue Bonds................................. Aa/AA 01/01/95 6.60 2.78 200,000
-----------
MISSISSIPPI: 2.1%
800,000 Clairborne County
(South Mississippi Project)***................ P-1 01/04/95 3.45 3.45 800,000
-----------
NEW JERSEY: 0.3%
100,000 New Jersey State Housing Finance Agency
Revenue Bonds................................. Aaa/AAA 04/01/95 7.00 5.00 100,476
-----------
NEVADA: 0.3%
125,000 Henderson County G.O. Bonds..................... AAA/Aaa 05/01/95 4.75 4.06 125,258
-----------
NEW YORK: 3.4%
600,000 City of New York*............................... VMig 1/SP-1+ 08/15/18 4.80 4.80 600,000
700,000 City of New York Series B*...................... VMig 1/A-1+ 10/01/22 4.80 4.80 700,000
-----------
1,300,000
-----------
NORTH CAROLINA: 4.0%
1,500,000 Person County Industrial Facility Authority
(Carolina Power) Series 1992A*................ P-1/A-1 11/01/09 5.55 5.55 1,500,000
-----------
OHIO: 4.0%
1,500,000 Ohio State Air Quality Authority***............. A-1+/VMig 1 01/06/95 4.50 4.50 1,500,000
-----------
PENNSYLVANIA: 2.0%
60,000 Delaware River Port Authority
Pre-Refunded Bonds............................ AAA/Aaa 01/01/95 9.38 3.73 61,808
200,000 University of Pittsburgh Series A Revenue Bonds. AAA 06/01/95 7.00 3.95 202,405
500,000 Venango I.D.A. (Pennzoil Project)
Series 1982A*................................. A-1 12/01/12 5.60 5.60 500,000
-----------
764,213
-----------
TEXAS: 9.0%
530,000 Coppell I.D.C. Series 1984
(Minyard Properties)*......................... A-1 12/01/01 3.90 3.90 530,000
800,000 Garland I.D.A.*................................. A-1 12/01/05 5.80 5.80 800,000
1,000,000 Greater East Texas Higher Education Authority
Series 1992A*................................. VMig 1/A-1+ 09/01/02 5.45 5.45 1,000,000
1,060,000 Texas Higher Education Authority Inc.
Series B*..................................... VMig 1 12/01/25 5.50 5.50 1,060,000
-----------
3,390,000
-----------
UTAH: 2.8%
1,000,000 Intermountain Power Agency Pre-Refunded Bonds... AAA/Aaa 07/01/95 10.25 3.71 1,049,337
-----------
VIRGINIA: 4.8%
1,810,000 Town of Louisa (Virginia Electric Power
Company) Series 1984***....................... A-1/F-1 02/06/95 4.25 4.25 1,810,000
-----------
</TABLE>
20
<PAGE>
Lexington Tax Free Money Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1994 (continued)
<TABLE>
<CAPTION>
Principal Maturity Coupon Yield to Value
Amount Security Rating Date Rate Maturity (Note 1)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
WEST VIRGINIA: 4.8%
$1,800,000 West Virginia Public Energy Commission
(Morgantown Association)***................... P-1/A-1+ 01/03/95 4.65% 4.65% $ 1,800,000
-----------
WYOMING: 6.6%
1,500,000 Gillette County (Pacificorp)***................. A-1+/P-1 01/05/95 4.50 4.50 1,500,000
1,000,000 Uinta County (Champlin Petroleum)
Series 1983*.................................. A-1 11/01/12 3.75 3.75 1,000,000
-----------
2,500,000
-----------
TOTAL INVESTMENTS: 97.5%
(cost $36,722,859****) (Note 1)............... 36,722,859
Other assets in excess of liabilities: 2.5%..... 930,983
-----------
TOTAL NET ASSETS: 100.0%
(equivalent to $1.00 per share on
37,653,842 shares outstanding.)............... $37,653,842
===========
<FN>
*Seven day Floating Rate Note backed by Letter of Credit. I.D.A.- Industrial Development Authority
**Optional or Mandatory Tender Bonds. I.D.B.- Industrial Development Bonds
***Municipal Commercial Paper. I.D.C.- Industrial Development Corporation
****Aggregate cost for Federal income tax purposes is identical. G.O.- General Obligation
</FN>
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
21
<PAGE>
Lexington Tax Free Money Fund, Inc.
Statement of Assets and Liabilities
December 31, 1994
Assets
<TABLE>
<S> <C>
Investments in securities, at value (cost $36,722,859) (Note 1)....................... $36,722,859
Cash (Note 4)......................................................................... 103,533
Receivable for investment securities sold............................................. 501,118
Receivable for shares sold............................................................ 402,774
Interest receivable................................................................... 278,627
-----------
Total Assets.................................................................... 38,008,911
-----------
Liabilities
Due to Lexington Management Corporation (Note 2)...................................... 24,851
Payable for shares redeemed........................................................... 288,446
Accrued expenses...................................................................... 41,772
-----------
Total Liabilities............................................................... 355,069
-----------
Net Assets (equivalent to $1.00 per share on 37,653,842 shares outstanding) (Note 3).. $37,653,842
===========
Net Assets consist of:
Capital stock-authorized 1,000,000,000 shares, $.01 par value per share............... $ 376,538
Additional paid-in capital............................................................ 37,277,304
-----------
$37,653,842
===========
</TABLE>
Lexington Tax Free Money Fund, Inc.
Statement of Operations
Year ended December 31, 1994
<TABLE>
Investment Income
<S> <C> <C>
Interest income.......................................... $1,185,193
Expenses
Investment advisory fee (Note 2)...................... $199,643
Accounting and shareholder services expense (Note 2).. 61,427
Custodian and transfer agent expenses................. 50,788
Printing and mailing ................................. 33,397
Directors' fees and expenses.......................... 13,560
Audit and legal....................................... 28,070
Registration fees..................................... 17,128
Computer processing fees.............................. 11,985
Other expenses........................................ 20,020
--------
Total expenses..................................... 436,018
Less: expenses recovered under contract with the
investment adviser (Note 2)...................... 36,275 399,743
-------- ----------
Net investment income.............................. 785,450
----------
Increase in Net Assets Resulting from Operations......... $ 785,450
==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
22
<PAGE>
Lexington Tax Free Money Fund, Inc.
Statements of Changes in Net Assets
Years Ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Net investment income...................................... $ 785,450 $ 764,887
Distributions to shareholders from net investment income... (785,450) (764,887)
Decrease in net assets from capital share transactions
(Note 3)................................................. (3,441,989) (4,748,279)
----------- -----------
Net decrease in net assets................................. (3,441,989) (4,748,279)
Net Assets
Beginning of period........................................ 41,095,831 45,844,110
----------- -----------
End of period.............................................. $37,653,842 $41,095,831
=========== ===========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
23
<PAGE>
Lexington Tax Free Money Fund, Inc.
Notes to Financial Statements
December 31, 1994 and 1993
1. Significant Accounting Policies
Lexington Tax Free Money Fund, Inc. (the "Fund") is an open end diversified
management investment company registered under the Investment Company Act of
1940, as amended. The following is a summary of significant accounting policies
followed by the Fund in the preparation of its financial statements:
Securities Security transactions are accounted for on a trade date basis.
Investments are carried at amortized cost, which approximates market value.
Under this valuation method, a portfolio instrument is carried at cost and any
discount or premium is amortized on a constant basis to the maturity of the
instrument. Interest income is accrued as earned.
Federal Income Taxes It is the Fund's intention to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable and tax exempt income to its
shareholders. Therefore, no provision for Federal income taxes has been made.
Dividends Dividends are declared daily from the total of net investment
income and net realized gain (loss) on investments.
2. Investment Advisory Fee and Other Transactions with Affiliate
The Fund pays an investment advisory fee to Lexington Management Corporation
("LMC") at an annual rate of 0.5% of the Fund's average daily net assets up to
$150 million and in decreasing stages to 0.3% of average daily net assets in
excess of $800 million. LMC is required to reimburse the Fund for any expenses,
including the investment adviser's fee but excluding interest and taxes, in
excess of 1% of the Fund's average daily net assets. Reimbursement for the year
ended December 31, 1994 amounted to $36,275 and is set forth in the statement of
operations.
The Fund also reimburses LMC for certain expenses, including accounting and
shareholder servicing costs, which are incurred by the Fund but paid by LMC.
3. Capital Stock
Transactions (at $1.00 per share) in capital stock were as follows:
Year ended Year ended
December 31, December 31,
1994 1993
----------- -----------
Shares sold...................................... 25,605,181 27,039,155
Shares issued on reinvestment of dividends....... 692,214 648,709
---------- ----------
26,297,395 27,687,864
Shares redeemed.................................. (29,739,384) (32,436,143)
---------- ----------
Net decrease in outstanding shares............... (3,441,989) (4,748,279)
========== ==========
4. Cash
In order to facilitate the clearing process for redemptions by check, the Fund
maintains a compensating balance with its transfer agent. At December 31, 1994,
this compensating balance amounted to $46,200 and is included in cash in the
statement of assets and liabilities.
24
<PAGE>
Lexington Tax Free Money Fund, Inc.
Financial Highlights
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........ $1.00 $1.00 $1.00 $1.00 $1.00
Income from investment operations:
Net investment income..................... .020 .018 .024 .041 .053
Less distributions:
Dividends from net investment income...... (.020) (.018) (.024) (.041) (.053)
------ ------ ------ ------ ------
Net asset value, end of period.............. $1.00 $1.00 $1.00 $1.00 $1.00
====== ====== ====== ====== ======
Total Return................................ 2.00% 1.78% 2.47% 4.22% 5.39%
Ratio to average net assets:
Expenses, before reimbursement............ 1.09% 0.92% 0.99% 0.96% 0.93%
Expenses, net of reimbursement............ 1.00% 0.92% 0.99% 0.96% 0.93%
Net investment income, before
reimbursement........................... 1.88% 1.77% 2.46% 4.06% 5.26%
Net investment income..................... 1.97% 1.77% 2.46% 4.06% 5.26%
Net assets, end of period (000's omitted)... $37,654 $41,096 $45,844 $53,722 $57,881
</TABLE>
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