Dear Shareholders:
- --------------------------------------------------------------------------------
During the past quarter the Lexington Tax Free Money Fund returned
approximately 2.6%*. For all money market funds, tax-free returns are only about
65% of the average taxable income yield. This disparity has slowed the growth of
tax-free money funds to a 10% annual rate compared with 20% plus for taxable
funds. Nonetheless, demand for short-term tax-exempt securities continues to
outweigh the supply.
The weakness in the municipal bond market has brought more investors into
the short-end of the curve. While the 3.0% plus returns offered by short-term
municipal notes may seem feeble, they look attractive to bond investors who have
been posting negative returns so far this year.
Higher taxable short-term interest rates are likely. The economy probably
expanded 4% or more in the June quarter; this is well above the Fed's long-term,
non-inflationary expansion target of 2.0% to 2.5%. Accordingly, we expect the
Federal Reserve to lift the Federal Funds rate by 50 basis points (to 5.75%) by
year-end. At the end of the June quarter, one-year top quality municipal notes
returned about 3.75% and the returns on variable rate demand notes were about a
half a percentage point lower. At this juncture, we do not expect the higher
taxable rates to be fully reflected in the municipal note market. Tighter
Federal Reserve policy will not alter the basic demand/supply imbalance in this
sector. Accordingly, we anticipate only a modest rise in the yield of the
Lexington Tax Free Money Fund in the months ahead.
The Fund closed the June quarter with an average maturity shorter than that
of the typical municipal money fund (39 days versus 46 days). We will close that
gap during the summer through the purchase of prerefunded bonds and municipal
notes with nine-month to one year maturities. This should enhance our relative
yield. The bulk of the portfolio will continue to consist of variable rate
demand notes. These securities, which can be redeemed at face value upon seven
days notice to the issuer, accounted for over 50% of the Fund's portfolio on
June 30th. They provide liquidity and act as balance against the longer dated
securities in the portfolio. The yield of these securities is sensitive to daily
market liquidity and their yield can fluctuate widely.
We appreciate your continued support and welcome the opportunity to answer
any questions you may have about your investment.
Sincerely,
Denis P. Jamison Robert M. DeMichele
Portfolio Manager President
July, 1996 July, 1996
*The average annual yield for the seven day period ended June 30, 1996 was
2.56%. 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. Some income is subject to state and local
taxes and the federal alternative minimum tax.
1
<PAGE>
Lexington Tax Free Money Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal Maturity Coupon Yield to Value
Amount Security Rating Date Rate Maturity (Note 1)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alabama: 9.2%
$ 700,000 Alaska Industrial Development & Export
Authority (Lot 11)* ........................ A-1 07/01/07 3.20% 3.20% $ 700,000
1,000,000 Chatom Alabama Industrial Development
Board Pollution Control** .................. A-1+ 07/19/96 3.75 3.75 1,000,000
250,000 Jefferson County Sewer Authority
Revenue Bonds .............................. AAA/Aaa 09/01/96 3.90 3.65 250,080
700,000 Colombia Industrial Development Bonds
(Alabama Power) ............................ A1-/VMig-1 10/01/22 3.75 3.75 700,000
----------
2,650,080
----------
Arizona: 3.1%
350,000 Maricopa County School District #4
G.O. Bonds ................................. AAA/Aaa 07/01/96 6.60 3.85 350,000
550,000 Pima County Unified School District #10
G.O. Bonds ................................. AAA/Aaa 07/01/96 7.00 3.82 550,000
----------
900,000
----------
California: 12.5%
1,200,000 California Pollution Control Finance Authority
(Southdown Project)* ....................... A-1+ 02/15/98 3.40 3.40 1,200,000
900,000 California Pollution Control Finance Authority
(Southern California Project)* ............. Mig 1/A-1+ 02/28/08 3.45 3.45 900,000
1,000,000 San Francisco Unified School District
Tax Revenue Anticipation Notes ............. Mig 1/SP-1+ 07/25/96 4.50 3.89 1,000,378
500,000 South Coast Local Education Agencies
Series 1996 A .............................. SP-1+ 06/30/97 4.75 4.07 503,245
----------
3,603,623
----------
Florida: 6.6%
1,400,000 Indian River County Hospital District* ....... VMig 1/A-1 10/01/15 3.15 3.15 1,400,000
500,000 Jacksonville Electric Authority
Series D-1** ............................... A-1+/P-1 09/09/96 3.65 3.65 500,000
----------
1,900,000
----------
Georgia: 10.8%
1,000,000 Fulton County I.D.A. (ADP Project)* .......... P-1/Aa2 09/01/12 3.70 3.70 1,000,000
800,000 Georgia Technical Foundation Facilities Inc.* A-1+ 02/01/12 3.30 3.30 800,000
1,300,000 Monroe County Development Authority
(Gulf Power) 2nd Series* ................... A-1 09/01/24 3.75 3.75 1,300,000
----------
3,100,000
----------
Hawaii: 3.5%
1,000,000 Hawaii State Department Budget & Finance
(Kuakini Medical Center)* .................. VMig 1 07/01/05 3.10 3.10 1,000,000
----------
Illinois: 0.4%
100,000 City of Chicago Pre-Refunded G.O. Bonds ...... AAA/Aaa 01/01/11 8.00 3.83 103,911
----------
Indiana: 1.4%
400,000 Gary Industrial Environmental Improvement
Authority (U.S. Steel)* .................... P-1/A-1+ 07/15/02 3.70 3.70 400,000
----------
Kansas: 2.8%
800,000 Burlington Pollution Control (Kansas City
Power & Light) Series B Revenue Bonds** .... P-1 07/12/96 3.55 3.55 800,000
----------
Kentucky: 3.5%
1,000,000 Pendleton County Leasing Program** ........... A-1+ 07/01/96 3.35 3.35 1,000,000
----------
Louisiana: 2.4%
700,000 Caddo Parish I.D.B. (Pennzoil Project)* ...... A-1 12/01/12 3.75 3.75 700,000
----------
</TABLE>
2
<PAGE>
Lexington Tax Free Money Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
June 30, 1996 (unaudited) (continued)
<TABLE>
<CAPTION>
Principal Maturity Coupon Yield to Value
Amount Security Rating Date Rate Maturity (Note 1)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Missouri: 2.5%
$ 690,000 Kansas City Water Authority Revenue Bonds .... AA/Aa 12/01/96 9.25% 3.69% $ 705,421
----------
New Jersey: 2.8%
300,000 Fort Lee G.O. Bonds .......................... Aa 02/01/97 4.85 3.63 302,055
500,000 State Of New Jersey G.O. Bonds ............... AA/Aa 09/15/96 6.25 3.90 502,314
----------
804,369
----------
New York: 8.7%
555,000 Cattaraugus County G.O. Bonds ................ AAA 06/01/97 5.20 3.99 560,877
600,000 City Of New York Series B* ................... VMig 1/A-1+ 08/15/18 3.80 3.80 600,000
800,000 City Of New York Subseries B-2* .............. VMig 1/A-1+ 08/15/19 3.80 3.80 800,000
200,000 City Of New York Subseries B-4* .............. VMig 1/A-1+ 08/15/22 3.75 3.75 200,000
200,000 New York City H.D.C. Revenue Bonds ........... AAA/Aaa 11/01/96 5.50 3.60 201,173
125,000 Triborough Bridge & Tunnel Authority
Series A Revenue Bonds ..................... AAA/Aaa 01/01/97 5.80 3.96 126,096
----------
2,488,146
----------
Oklahoma: 0.9%
150,000 Grand River Dam Authority
Pre-Refunded Revenue Bonds ................. AAA/Aaa 06/01/98 6.45 4.06 156,007
105,000 Grand River Dam Authority
Pre-Refunded Revenue Bonds ................. AAA/Aaa 06/01/06 7.00 4.06 109,700
----------
265,707
----------
Ohio: 3.5%
1,000,000 Ohio State Air Quality Development
Authority** ................................VMig1/A-1+ 07/12/96 3.70 3.70 1,000,000
----------
Pennsylvania: 2.1%
500,000 Venango I.D.A. (Pennzoil Project)
Series 1982A* .............................. A-1 12/01/12 3.75 3.75 500,000
100,000 Bethel Park School District
Pre-Refunded Revenue Bonds ................. AAA/Aaa 02/01/01 6.85 3.99 101,555
----------
601,555
----------
South Carolina: 2.4%
400,000 York County Pollution Control Authority
(Project NRU 84 N-1)* ......................Mig 1/A-1+ 09/15/14 3.15 3.15 400,000
300,000 York County Pollution Control Authority
(Project NRU 84 N-2)* ......................Mig 1/A-1+ 09/15/14 3.15 3.15 300,000
----------
700,000
----------
Texas: 12.1%
100,000 City Of Garland G.O. Bonds ................... AA/Aa 08/15/96 5.00 3.99 100,119
150,000 City Of Irving G.O. Bonds .................... Aaa/AA+ 09/15/96 6.50 3.90 150,786
430,000 Coppell I.D.C. Series 1984
(Minyard Properties)* ...................... A-1 12/01/01 3.85 3.85 430,000
800,000 Garland I.D.A.* .............................. A-1 12/01/05 3.40 3.40 800,000
535,000 San Jacinto Junior College
District G.O. Bonds ........................ Aa 08/01/96 5.00 3.69 535,577
975,000 Texas Higher Education Authority Inc.
Series B* .................................. VMig 1 12/01/25 3.10 3.10 975,000
300,000 Texas Water Development Board
(Senior Lien) Revenue Bonds ................ AAA/Aa 07/15/96 4.60 3.98 300,067
200,000 University Of Texas Revenue Bonds ............ Aa1/AA+ 08/15/96 6.00 3.62 200,551
----------
3,492,100
----------
Utah: 1.8%
500,000 Intermountain Power Agency Revenue Bonds ..... Aa/AA- 07/01/96 3.90 3.90 500,000
----------
</TABLE>
3
<PAGE>
Lexington Tax Free Money Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
June 30, 1996 (unaudited) (continued)
<TABLE>
<CAPTION>
Principal Maturity Coupon Yield to Value
Amount Security Rating Date Rate Maturity (Note 1)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Vermont: 1.4%
$ 400,000 Vermont Student Assistance Corporation ....... VMig 1 01/01/04 3.40% 3.40% $ 400,000
----------
Washington: 3.6%
935,000 City Of Kent Revenue Bonds ................... AAA/Aaa 12/01/96 4.00 3.68 936,136
100,000 Seattle Water System Revenue Bonds ........... AA/Aa 12/01/96 3.90 3.75 100,080
----------
1,036,216
----------
Wyoming: 4.5%
1,000,000 Gillette County (Pacificorp)** ............... A-1+/P-1 07/01/96 3.30 3.30 1,000,000
300,000 Sweetwater County PCR
(Pacificorp) Series B ...................... P-1 01/01/14 3.75 3.75 300,000
----------
1,300,000
----------
TOTAL INVESTMENTS: 102.5%
(cost $29,451,128+) (Note 1) 29,451,128
Liabilities in excess of other assets: (2.5%) ..... (705,276)
----------
TOTAL NET ASSETS: 100.0%
(equivalent to $1.00 per share on
28,745,852 shares outstanding) .................. $28,745,852
===========
<FN>
*Seven-day Floating Rate Note backed by Letter of Credit.
**Municipal Commercial Paper.
+Aggregate cost for Federal income tax purposes is identical.
H.D.C.- Housing Development Corporation
I.D.A.- Industrial Development Authority
I.D.B.- Industrial Development Bonds
I.D.C.- Industrial Development Corporation
G.O.- General Obligation
</FN>
</TABLE>
-------------------
Lexington Tax Free Money Fund, Inc.
Statement of Assets and Liabilities
June 30, 1996 (unaudited)
Assets
Investments in securities, at value (cost $29,451,128) (Note 1) .... $29,451,128
Cash (Note 4) ...................................................... 143,454
Receivable for shares sold ......................................... 131,707
Interest receivable ................................................ 212,135
-----------
Total Assets ......................................... 29,938,424
-----------
Liabilities
Due to Lexington Management Corporation (Note 2) ................... 10,618
Payable for investment securities purchased ........................ 1,064,283
Payable for shares redeemed ........................................ 62,703
Accrued expenses ................................................... 54,968
-----------
Total Liabilities .................................... 1,192,572
-----------
Net Assets (equivalent to $1.00 per share on 28,745,852 shares
outstanding) (Note 3) ............................................ $28,745,852
===========
Net Assets consist of:
Capital stock-authorized 1,000,000,000 shares, $.01 par value
per share ........................................................ $ 287,459
Additional paid-in capital ......................................... 28,458,393
-----------
$28,745,852
===========
The Notes to Financial Statements are an integral part of these statements.
4
<PAGE>
Lexington Tax Free Money Fund, Inc.
Statement of Operations
Six months ended June 30, 1996 (unaudited)
Investment Income
Interest income ............................................ $ 501,036
Expenses
Investment advisory fee (Note 2) ......................... $ 70,039
Transfer agent and shareholder servicing expense (Note 2). 20,463
Printing and mailing expenses ............................ 12,970
Professional fees ........................................ 11,698
Accounting expenses (Note 2) ............................. 10,492
Registration fees ........................................ 8,822
Directors' fees .......................................... 6,105
Custodian fees ........................................... 4,367
Computer processing fees ................................. 3,540
Other expenses ........................................... 11,060
--------
Total expenses ..................................... 159,556
Less: expenses recovered under contract with the
investment advisor (Note 2) ...................... 19,113 140,443
-------- ----------
Net investment income .............................. 360,593
----------
Increase in Net Assets Resulting from Operations ........... $ 360,593
==========
-------------------
Lexington Tax Free Money Fund, Inc.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six months
ended Year ended
June 30, 1996 December 31,
(unaudited) 1995
----------- -----------
<S> <C> <C>
Net investment income ...................................................... $ 360,593 $ 970,838
Distributions to shareholders from net investment income ................... (360,593) (970,838)
Increase (decrease) in net assets from capital share transactions (Note 3) . 514,588 (9,422,578)
----------- -----------
Net increase (decrease) in net assets ...................................... 514,588 (9,422,578)
Net Assets
Beginning of period ...................................................... 28,231,264 37,653,842
----------- -----------
End of period ............................................................ $28,745,852 $28,231,264
=========== ===========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
5
<PAGE>
Lexington Tax Free Money Fund, Inc.
Notes to Financial Statements
June 30, 1996 (unaudited) and December 31, 1995
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 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 following is a summary of significant
accounting policies followed by the Fund in the preparation of its financial
statements:
Investments Security transactions are accounted for on a trade date basis.
Investments are carried at amortized cost, which approximates market value.
Under this 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 policy to comply with the requirements
of the Internal Revenue Code applicable to "regulated investment companies" and
to distribute all of its taxable income to its shareholders. Therefore, no
provision for Federal income taxes is required.
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 1.0% of the Fund's average daily net assets. Reimbursement for the six
months ended June 30, 1996 amounted to $19,113 and is set forth in the statement
of operations.
The Fund also reimbursed LMC for certain expenses, including accounting and
shareholder servicing costs of $21,310 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:
Six months
ended Year ended
June 30, 1996 December 31,
(unaudited) 1995
----------- -----------
Shares sold ..................................... 10,659,037 17,149,761
Shares issued to shareholders on reinvestment
of dividends .................................. 324,912 850,185
----------- -----------
10,983,949 17,999,946
Shares redeemed (10,469,361) (27,422,524)
----------- -----------
Net increase (decrease) ..................... 514,588 (9,422,578)
=========== ===========
4. Cash
In order to facilitate the clearing process for redemptions by check, the Fund
maintains a compensating balance with its transfer agent. At June 30, 1996, this
compensating balance amounted to $66,100 and is included in cash in the
statement of assets and liabilities.
6
<PAGE>
Lexington Tax Free Money Fund, Inc.
Financial Highlights
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Six months
ended
June 30, Year ended December 31,
1996 ---------------------------------
(unaudited) 1995 1994 1993 1992
----------- ------ ----- ----- -----
<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 .................. .013 .029 .020 .018 .024
Less distributions:
Dividends from net investment income ... (.013) (.029) (.020) (.018) (.024)
----- ----- ----- ----- -----
Net asset value, end of period ............. $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====
Total Return ............................... 2.59%* 2.92% 2.00% 1.78% 2.47%
Ratio to average net assets:
Expenses, before reimbursement ......... 1.14%* 1.12% 1.09% 0.92% 0.99%
Expenses, net of reimbursement ......... 1.00%* 1.00% 1.00% 0.92% 0.99%
Net investment income, before
reimbursement ........................ 2.44%* 2.76% 1.88% 1.77% 2.46%
Net investment income .................. 2.58%* 2.88% 1.97% 1.77% 2.46%
Net assets, end of period (000's omitted) .. $28,746 $28,231 $37,654 $41,096 $45,844
<FN>
*Annualized.
</FN>
</TABLE>
7
<PAGE>
(LEFT COLUMN)
Investment Adviser
- --------------------------------------------------------
LEXINGTON MANAGEMENT CORPORATION
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Distributor
- --------------------------------------------------------
LEXINGTON FUNDS DISTRIBUTOR, INC.
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 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 Balitmore
Kansas City, Missouri 64105
Or call toll free:
Service and Sales: 1-800-526-0056
24 Hour Account Information:
1-800-526-0052
------------------------------------------
- --------------------------------------------------------
(800) 526-0052
"LEXLINE"
24 hour toll-free telephone access to your
Lexington Fund account
Price/Yield * Account Balances * Exchanges *
Last Transactions * Total Return * Duplicate Statements
- --------------------------------------------------------
This report has been prepared for the information of the
shareholders of Lexington Tax Free Money Fund, Inc. and
is authorized for distribution to the public only if it
is accompanied or preceded by a currently effective
prospectus which sets forth expenses and other material
information.
(RIGHT COLUMN)
-----------------------------------
L E X I N G T O N
-----------------------------------
-----------------------------------
LEXINGTON
TAX
FREE
MONEY
FUND, INC.
(filled box)
Seeks to achieve current income
exempt from Federal income
taxes while maintaining stability
of principal, liquidity and
preservation of capital.
(filled box)
SEMI-ANNUAL REPORT
JUNE 30, 1996
The Lexington Group
of No Load
Investment Companies
-----------------------------------
