Dear Fellow Shareholders:
- --------------------------------------------------------------------------------
The Lexington Tax Free Money Fund returned 2.9%* in 1995 compared with a 2%
yield in the prior year. Despite cuts in the Federal Funds rate in both July and
December, short-term interest rates were higher last year than in 1994.
Moreover, credit concerns caused by the Orange County, California bankruptcy
helped lift tax-exempt note yields as a percentage of U.S. Treasury bill yields.
This occurred despite a significant decline in short-term municipal borrowings.
The Fund's current yield remains close to its 1995 average despite the
recent drop in taxable and tax-exempt money market yields. Prior to the 25 basis
point cut in the Federal Funds rate in December (to 5.50%), we greatly extended
the average maturity of the Fund-to 72 days versus 40 days at the end of the
third quarter. This was acheived through the purchase of small blocks of insured
or prerefunded bonds with maturities ranging from nine months to one year. This
maturity extension will tend to cushion the Fund from the decline in money
market rates which we expect in the months ahead.
We look for the Federal Reserve to continue to push money market yields
lower. Through its open market purchases and sales of government securities, the
Fed can add or subtract liquidity from the banking system and thereby influence
the overnight cost of money-the Federal Funds rate. This acts as a cornerstone
for all other money market interest rates, including those for municipal
obligations. In its recent policy actions, the Federal Reserve has stated that
both the current inflation rate and expectations of future inflation are low
enough to justify lower interest rates.
Since the end of the Korean War, Federal Funds have averaged 1.75% more than
the inflation level, as measured by the Consumer Price Index. The current
spread, using the 2.6% increase in the annual CPI through November, is 2.9%.
Even if the level of inflation were to rise in the months ahead, there is ample
room to cut the Federal Funds rate to 5% or less by mid-year. Therefore,
Lexington shareholders, as well as those of most tax-free money market funds,
should expect a decline in their returns over the next few quarters.
Liquidity and price stability are the key investment features of the
Lexington Tax Free Money Fund just as they were in 1981 when management adopted
the investment policies required of a money fund. During the subsequent fifteen
years, the Fund has experienced no credit or market price fluctuations which
could have impaired its $1 a share net asset value. We achieved this record by
limiting our holdings to high grade securities with simple investment features.
Approximately half of the portfolio consists of variable rate notes, all of
which can be redeemed at par upon seven days notice to the issuer. We do not own
any securities with long optional put features or complicated yield calculation
formulas.
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
January, 1996 January, 1996
*The average annual yield for the seven day period ended December 31, 1995 was
3.35%. 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)
December 31, 1995
<TABLE>
<CAPTION>
Principal Maturity Coupon Yield to Value
Amount Security Rating Date Rate Maturity (Note 1)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alabama: 6.9%
$ 700,000 Alaska Industrial Development & Export
Authority (Lot 11)* ......................... A-1 07/01/07 5.45% 5.45% $ 700,000
1,000,000 Chatom Alabama Industrial Development
Board Pollution Control** ................... A-1+ 02/16/96 3.45 3.45 1,000,000
----------
Revenue Bonds ............................... AAA/Aaa 09/01/96 3.90 3.70 250,313
----------
Arizona: 3.8%
350,000 Maricopa County School District #4
G.O. Bonds ................................. AAA/Aaa 07/01/96 6.60 3.90 354,577
550,000 Pima County Unified School District #10
G.O. Bonds ................................. AAA/Aaa 07/01/96 7.00 4.00 557,986
140,000 University Of Arizona Pre-Refunded Bonds AA 06/01/05 7.25 3.70 144,736
----------
144,736
----------
1,057,299
California: 10.6%
1,200,000 California Pollution Control Finance Authority
(Southdown Project)* ........................ A-1+ 02/15/98 4.20 4.20 1,200,000
800,000 California Pollution Control Finance Authority
(Southern California Project)* .............. Mig 1/A-1+ 02/28/08 5.40 5.40 800,000
1,000,000 San Francisco Unified School District
Tax Revenue Anticipation Notes .............. Mig 1/SP-1+ 07/25/96 4.50 3.90 1,003,245
----------
3,003,245
----------
Florida: 5.3%
1,400,000 Indian River County Hospital District* ........ VMig 1/A-1 10/01/15 5.25 5.25 1,400,000
100,000 North Broward Hospital District
Pre-Refunded Bonds .......................... AAA 01/01/14 8.00 4.50 103,009
----------
1,503,009
----------
Georgia: 7.3%
1,000,000 Fulton County I.D.A. (ADP Project)* ........... P-1/Aa2 09/01/12 4.25 4.25 1,000,000
900,000 Georgia Technical Foundation Facilities Inc.* . A-1+ 02/01/12 5.10 5.10 900,000
155,000 Walker County Water & Sewer
Authority Revenue Bonds ..................... AAA/Aaa 04/01/96 4.30 4.00 155,110
----------
2,055,110
----------
Hawaii: 5.3%
1,500,000 Hawaii State Department Budget & Finance
(Kuakini Medical Center)* ................... VMig 1 07/01/05 5.15 5.15 1,500,000
----------
400,000 Gary Industrial Environmental Improvement
Authority (U.S. Steel)* ..................... P-1/A-1+ 07/15/02 4.25 4.25 400,000
----------
Kansas: 2.8%
800,000 Burlington Pollution Control (Kansas City
Power & Light) Series B Revenue Bonds** ..... P-1 02/13/96 3.65 3.65 800,000
----------
Kentucky: 3.5%
1,000,000 Pendleton County Leasing Program** ............ A-1+ 01/11/96 3.65 3.65 1,000,000
----------
Louisiana: 2.5%
700,000 Caddo Parish I.D.B. (Pennzoil Project)* ....... A-1 12/01/12 4.55 4.55 700,000
----------
Massachusetts: 5.3%
1,500,000 Massachusetts State G.O. Notes ................ Mig 1/SP-1 06/12/96 4.25 3.63 1,503,684
----------
</TABLE>
2
<PAGE>
Lexington Tax Free Money Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1995 (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: 2.6%
$ 690,000 Kansas City Water Authority .................... Aa/AA 12/01/96 9.25% 3.75% $ 723,765
----------
New Jersey: 1.8%
500,000 State Of New Jersey G.O. Bonds ................. AA/Aa 09/15/96 6.25 3.95 507,855
----------
New York: 3.2%
600,000 City Of New York* .............................. VMig 1/A-1+ 08/15/18 5.05 5.05 600,000
300,000 City Of New York Series B ...................... VMig 1/A-1+ 10/01/22 5.00 5.00 300,000
----------
900,000
----------
North Carolina: 5.3%
1,500,000 Person County Industrial Facility Authority
(Carolina Power) Series 1992A* ................ P-1/A-1 11/01/09 5.20 5.20 1,500,000
----------
Ohio: 4.6%
1,300,000 Ohio State Air Quality Authority** ............. VMig1/A-1+ 01/10/96 3.90 3.90 1,300,000
----------
Pennsylvania: 2.1%
100,000 Lakawanna County New Public Housing
Authority Revenue Bonds ...................... AAA/Aaa 05/01/96 5.50 4.00 100,485
500,000 Venango I.D.A. (Pennzoil Project)
Series 1982A* ................................ A-1 12/01/12 4.55 4.55 500,000
----------
600,485
----------
South Carolina: 2.5%
400,000 York County Pollution Control Authority
(Project NRU 84 N-1)* ........................ Mig 1/A-1+ 09/15/14 4.65 4.65 400,000
300,000 York County Pollution Control Authority
(Project NRU 84 N-2)* ........................ Mig 1/A-1+ 09/15/14 4.65 4.65 300,000
----------
700,000
----------
Tennessee: 0.7%
200,000 Shelby County G.O. Bonds ....................... Aa/AA+ 03/01/96 4.50 4.00 200,146
----------
Texas: 12.7%
100,000 City Of Garland G.O. Bonds ..................... AA/Aa 08/15/96 5.00 4.00 100,602
150,000 City Of Irving G.O. Bonds ...................... Aaa/AA+ 09/15/96 6.50 3.90 152,669
430,000 Coppell I.D.C. Series 1984
(Minyard Properties)* ........................ A-1 12/01/01 4.00 4.00 430,000
800,000 Garland I.D.A.* ................................ A-1 12/01/05 5.45 5.45 800,000
535,000 San Jacinto Junior College District G.O. Bonds.. Aa 08/01/96 5.00 3.90 538,777
1,060,000 Texas Higher Education Authority Inc.
Series B* .................................... VMig 1 12/01/25 5.15 5.15 1,060,000
300,000 Texas Water Development Board
(Senior Lien) Revenue Bonds .................. AAA/Aa 07/15/96 4.60 4.00 300,935
200,000 University Of Texas Revenue Bonds .............. Aa1/AA+ 08/15/96 6.00 3.70 202,781
----------
3,585,764
----------
Utah: 1.8%
500,000 Intermountain Power Agency Revenue Bonds ....... Aa/AA- 07/01/96 3.90 3.75 500,354
----------
Vermont: 1.4%
400,000 Vermont Student Assistance Corporation ......... VMig 1 01/01/04 3.75 3.75 400,000
----------
Washington: 3.7%
935,000 City Of Kent Revenue Bonds ..................... AAA/Aaa 12/01/96 4.00 3.70 937,488
100,000 Seattle Water System Revenue Bonds ............. AA/Aa 12/01/96 3.90 3.70 100,176
----------
1,037,664
----------
</TABLE>
3
<PAGE>
Lexington Tax Free Money Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1995 (continued)
<TABLE>
<CAPTION>
Principal Maturity Coupon Yield to Value
Amount Security Rating Date Rate Maturity (Note 1)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Wyoming: 3.9%
$1,000,000 Gillette County (Pacificorp)** ................. A-1+/P-1 01/11/96 3.55% 3.55% $ 1,000,000
100,000 Wyoming Community Development Authority
Series A Revenue Bonds ....................... AA/Aa 06/01/96 7.30 4.00 101,327
-----------
1,101,327
-----------
TOTAL INVESTMENTS: 101.0%
(cost $28,530,020+) (Note 1) 28,530,020
Liabilities in excess of other assets: (1.0%) .. (298,756)
-----------
TOTAL NET ASSETS: 100.0%
(equivalent to $1.00 per share on
28,231,264 shares outstanding) ............... $28,231,264
===========
</TABLE>
*Seven-day Floating Rate Note backed by Letter of Credit.
***Municipal Commercial Paper.
+Aggregate cost for Federal income tax purposes is identical.
I.D.A.- Industrial Development Authority
I.D.B.- Industrial Development Bonds
I.D.C.- Industrial Development Corporation
G.O.- General Obligation
------------------------
Lexington Tax Free Money Fund, Inc.
Statement of Assets and Liabilities
December 31, 1995
Assets
Investments in securities, at value (cost $28,530,020) (Note 1) . $28,530,020
Cash (Note 4) ................................................... 61,909
Receivable for shares sold ...................................... 47,664
Interest receivable ............................................. 221,526
-----------
Total Assets ............................................ 28,861,119
-----------
Liabilities
Due to Lexington Management Corporation (Note 2) ................ 4,688
Payable for shares redeemed ..................................... 27,569
Payable for investment securities purchased ..................... 539,520
Accrued expenses ................................................ 58,078
-----------
Total Liabilities ....................................... 629,855
-----------
Net Assets (equivalent to $1.00 per share on
28,231,264 shares outstanding) (Note 3) ....................... $28,231,264
===========
Net Assets consist of:
Capital stock-authorized 1,000,000,000 shares,
$.01 par value per share ...................................... $ 282,313
Additional paid-in capital ...................................... 27,948,951
-----------
$28,231,264
===========
These Notes to Financial Statements are an integral part of these statements.
4
<PAGE>
Lexington Tax Free Money Fund, Inc.
Statement of Operations
Year ended December 31, 1995
Investment Income
Interest income ........................................ $ 1,308,998
Expenses
Investment advisory fee (Note 2) .................... $168,718
Accounting and shareholder services expense (Note 2). 62,671
Custodian and transfer agent expenses ............... 29,693
Printing and mailing ................................ 29,854
Directors' fees and expenses ........................ 13,404
Audit and legal ..................................... 24,372
Registration fees ................................... 17,941
Computer processing fees ............................ 11,666
Other expenses ...................................... 21,125
--------
Total expenses ............................... 379,444
Less: expenses recovered under contract
with the investment adviser (Note 2) ....... 41,284 338,160
-------- -----------
Net investment income ........................ 970,838
-----------
Increase in Net Assets Resulting from Operations ....... $ 970,838
===========
-------------------------
Lexington Tax Free Money Fund, Inc.
Statements of Changes in Net Assets
Years Ended December 31, 1995 and 1994
1995 1994
----------- -----------
Net investment income ............................ $ 970,838 $ 785,450
Distributions to shareholders from net
investment income ............................. (970,838) (785,450)
Decrease in net assets from capital share
transactions (Note 3) ......................... (9,422,578) (3,441,989)
----------- -----------
Net decrease in net assets ....................... (9,422,578) (3,441,989)
Net Assets
Beginning of period ......................... 37,653,842 41,095,831
----------- -----------
End of period ............................... $28,231,264 $37,653,842
=========== ===========
The Notes to Financial Statements are an integral part of these statements.
5
<PAGE>
Lexington Tax Free Money Fund, Inc.
Notes to Financial Statements
December 31, 1995 and 1994
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:
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, 1995 amounted to $41,284 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,
1995 1994
----------- -----------
Shares sold .................................. 17,149,761 25,605,181
Shares issued on reinvestment of dividends ... 850,185 692,214
----------- -----------
17,999,946 26,297,395
Shares redeemed ..............................(27,422,524) (29,739,384)
----------- -----------
Net decrease in outstanding shares ..... (9,422,578) (3,441,989)
=========== ===========
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, 1995,
this compensating balance amounted to $44,900 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:
Year Ended December 31,
-----------------------------------------
1995 1994 1993 1992 1991
----- ----- ----- ----- -----
Net asset value, beginning
of period ...................... $1.00 $1.00 $1.00 $1.00 $1.00
Income from investment operations:
Net investment income ....... .029 .020 .018 .024 .041
Less distributions:
Dividends from net
investment income ........ (.029) (.020) (.018) (.024) (.041)
----- ----- ----- ----- -----
Net asset value, end of period .... $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====
Total Return ...................... 2.92% 2.00% 1.78% 2.47% 4.22%
Ratio to average net assets:
Expenses, before reimbursement .. 1.12% 1.09% 0.92% 0.99% 0.96%
Expenses, net of reimbursement .. 1.00% 1.00% 0.92% 0.99% 0.96%
Net investment income, before
reimbursement ................ 2.76% 1.88% 1.77% 2.46% 4.06%
Net investment income 2.88% 1.97% 1.77% 2.46% 4.06%
Net assets, end of period
(000's omitted) ...............$28,231 $37,654 $41,096 $45,844 $53,722
-----------------------------
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, 1995, 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, 1995 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, 1995, 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 5, 1996
7
<PAGE>
Left Col.
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 Col
L E X I N G T O N
----------------------------------
LEXINGTON
TAX
FREE
MONEY
FUND, INC.
----------------------
Seeks to achieve current income
exempt from Federal income
taxes while maintaining stability
of principal, liquidity
and preservation of capital.
----------------------
ANNUAL REPORT
DECEMBER 31, 1995
The Lexington Group
of No Load
Investment Companies
----------------------------------
